OMCs collect income tax from petrol pumps

OMCs collect income tax from petrol pumps

Section 156A of the Income Tax Ordinance, 2001 delineates the mechanism for the deduction of income tax from petrol pump operators by Oil Marketing Companies (OMCs).

The provision, incorporated through the Finance Act, 2021, and updated up to June 30, 2021, signifies the Federal Board of Revenue’s (FBR) commitment to modernizing tax administration in Pakistan.

Text of Section 156A – Petroleum Products:

Section 156A of the Income Tax Ordinance, 2001, outlines the specific procedures for the collection of income tax from petrol pump operators by persons selling petroleum products. The section reads as follows:

156A. Petroleum Products.

(1) Every person selling petroleum products to a petrol pump operator shall deduct tax from the amount of commission or discount allowed to the operator at the rate specified in Division VIA of Part III of the First schedule.

(2) The tax deductible under sub-section (1) shall be a final tax on the income arising from the sale of petroleum products to which sub-section (1) applies.

(1) Deduction of Tax from Commission or Discount: Section 156A(1) establishes a clear framework for the deduction of tax by every person selling petroleum products to a petrol pump operator. The deduction is made from the amount of commission or discount granted to the operator. The rate of deduction is specified in Division VIA of Part III of the First Schedule.

(2) Final Tax on Income from Sale of Petroleum Products: The tax deducted under Section 156A(1) is deemed as a final tax on the income arising from the sale of petroleum products covered by this provision. This finality simplifies the taxation process, providing clarity for both the taxpayer and the tax collector.

(3) Division VIA of Part III: The reference to Division VIA of Part III of the First Schedule indicates that the specific rates of tax deduction are detailed in that section. These rates are designed to ensure a fair and standardized approach to tax deductions, considering the particularities of the petroleum products sector.

(4) Enhanced Tax Transparency: By mandating the deduction of tax at source, Section 156A contributes to enhanced tax transparency. This mechanism ensures that tax liabilities are addressed at the point of sale, reducing the likelihood of tax evasion and improving overall compliance within the petroleum products supply chain.

(5) Streamlining Tax Collection Process: The inclusion of Section 156A aligns with broader efforts by the FBR to streamline tax collection processes. By directly involving persons selling petroleum products in the tax deduction process, the FBR aims to create a more efficient and accountable taxation system.

(6) Compliance and Accountability: Petrol pump operators and those selling petroleum products are urged to familiarize themselves with the provisions of Section 156A to ensure compliance with tax regulations. This proactive approach not only enhances their understanding of tax obligations but also contributes to the overall effectiveness of tax administration.

Section 156A of the Income Tax Ordinance, 2001 marks a significant step in modernizing tax collection practices within the petroleum products sector. The provision aims to facilitate a transparent and accountable system by ensuring the deduction of income tax at the source. As the FBR continues to introduce reforms, it is imperative for stakeholders in the petroleum industry to stay informed and align their practices with the evolving tax landscape.