In a significant move, a high powered tax commission has put forth a series of recommendations aimed at amending the taxation on prizes and winnings.
These proposals, which are part of the upcoming Finance Bill for 2023, were presented by the Reform and Revenue Mobilization Commission (RRMC) to the Finance Minister.
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One of the key concerns addressed by the RRMC relates to Section 156 of the Income Tax Ordinance, 2001. Currently, this section mandates companies to deduct tax at a rate of 20 percent on “prizes offered by companies for the promotion of sale.” However, the commission emphasizes that the original intent of this section was to levy taxes on recipients of prizes and winnings, rather than individuals within the company’s supply chain such as dealers and distributors.
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To clarify the scope and eliminate any confusion surrounding this provision, the RRMC recommends amending the section by including the phrase “to end consumers” after “prizes offered by the company for promotion of sale.” By doing so, individuals within the supply chain would be excluded from the purview of this section. This amendment aims to provide much-needed clarity and remove any ambiguity in the existing law.
The proposed amendment carries additional benefits for companies, as it offers incentives to their distributors and dealers, ultimately reducing their operational costs. This move is expected to foster a more favorable business environment and encourage economic growth.
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In another notable suggestion, the RRMC proposes a reduction in the withholding tax rate on prizes and winnings from 20 percent to 10 percent. This reduction seeks to enhance the attractiveness for companies to offer such rewards to their customers, thereby promoting healthy competition within the market.
If implemented, these recommendations could have far-reaching implications for the taxation landscape, promoting transparency, stimulating business growth, and bolstering the economy. As the Finance Bill for 2023 approaches, stakeholders eagerly await the government’s response to these progressive proposals.
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