KARACHI: Tax practitioners have recommended to abolish alternative corporate tax (ACT) in the budget 2021/2022 as the levy is increasing cost of doing business.
The tax bar in its proposals for the upcoming budget 2021/2022 recommended to abolish the ACT.
As per section 113C of the Income Tax Ordinance, 2001, tax payable by company subject to tax under Division-II Part-I of 1st Schedule or minimum tax shall be higher of corporate tax or ACT.
The tax bar said that it was increasing cost of doing business and regressive taxation.
Therefore, the KTBA proposed that ACT Should be abolished.
There is already a minimum tax regime which imposes tax on the gross turnover U/s. 113, alongside minimum tax regime for supplies, services, under various section of the Ordinance and hence ACT is only increasing the complexity of the computations.
Besides, the KTBA has also recommended to reduce the minimum tax rate.
Currently rate of minimum tax is 1.5% of the turnover. The threshold for turnover in case of individuals and AOPs was decrease from Rs50 million to Rs10 million by the Finance Act, 2016.
It resulted in increased cost of doing business and regressive taxation.
The KTBA proposed that minimum tax on listed companies should be abolished and in case of other cases the rate of minimum tax should be gradually reduced by 0.2 percent annually so that by tax year 2025 the rate shall be reduced up to 0.5 percent. The threshold of turnover should be increase to Rs50 million.
Moreover, minimum tax should also be allowed to be carried forward for adjustment in subsequent year even in case of losses.
The receipts now brought under Minimum Tax (from Final Tax Regime) should be exempted from this minimum tax.
Removal of minimum tax will promote industrialization. Decrease in turnover threshold will result the true declaration of turnover and created hardship for taxpayers, the tax bar added.