PBC Proposes Elimination of Minimum Tax for Listed Companies

PBC Proposes Elimination of Minimum Tax for Listed Companies

The Pakistan Business Council (PBC) has put forward a significant proposal aimed at boosting economic activity among listed companies by recommending the abolition of the minimum tax.

This suggestion is part of a series of amendments proposed for the fiscal year 2024-25 budget.

Currently, listed companies are subjected to a minimum turnover tax of 1.25% as stipulated under section 113 of the Income Tax Ordinance, 2001. The PBC has criticized this rate as excessively high and disconnected from the practical realities of business operations.

In its detailed proposal, the PBC articulated that the rate of the minimum turnover tax should not only be abolished for all listed companies to promote industrialization but also suggested a gradual reduction of the tax rate by 0.25% annually. By Tax Year 2027, this would see the rate reduced to just 0.5%.

Furthermore, the PBC seeks to address the limitations related to the carry forward of the minimum tax. The Finance Act 2021 introduced a provision that allows the minimum tax to be carried forward and adjusted against future tax liabilities if no tax is payable for that year. However, the council pointed out that the current restriction, which limits the carry forward period from five years to three years, is particularly disadvantageous for startups and companies that are making substantial capital expenditures and likely to incur initial losses.

In response, the PBC has recommended that the time limitation for the carry forward of the minimum tax should be abolished, allowing it to be carried forward indefinitely, or alternatively, extended to a more reasonable period of ten years.

Addressing another significant concern, the PBC mentioned that companies often pay more in minimum turnover tax than their actual tax liability, especially during economic downturns or when facing operational challenges leading to losses. To alleviate the financial strain on these companies, the council proposed that the excess amount paid as minimum tax over the normal tax in the past two years should be reimbursable if the companies continue to report losses.

This recommendation comes at a time when many industries are struggling due to tough economic conditions. The PBC emphasized that listed companies, which are already subject to stringent regulatory and audit requirements, find the three-year time limit for adjusting brought forward balances of minimum tax particularly challenging. They argue that the government should support these entities by allowing them to adjust taxes paid in more prosperous years against losses incurred during economic downturns.

The PBC’s proposal, if adopted, could significantly ease the tax burden on Pakistan’s listed companies, potentially leading to enhanced profitability, re-investment in business operations, and overall economic growth. These changes would not only provide immediate relief but also encourage long-term planning and investment, critical for the sustained health of the Pakistani economy.