Karachi, May 24, 2024 – The Pakistan Business Council (PBC) has urged authorities to address and rectify tax anomalies in the services sector through amendments in the forthcoming budget for the fiscal year 2024-25.
The PBC emphasized that these changes are essential for fostering growth and ensuring equitable taxation.
In its budget proposals for 2024-25, the PBC highlighted that the current income tax laws impose a minimum tax of 9% on the services sector under section 153(1)(b) of the Income Tax Ordinance, 2001, with a reduced rate of 4% applicable to certain services. Additionally, advance tax is collected under section 235 on electricity consumption, further burdening the sector.
Moreover, the PBC said that the advance tax deduction on the import of capital items for business use in the services sector, under section 148 (Parts I and III of the Twelfth Schedule), becomes a minimum tax. This is because section 148(7) limits the adjustability of this tax deduction to “industrial undertakings” only, excluding services sector companies from benefiting.
To address these taxation challenges, the PBC proposed several key amendments:
1. Normal Tax Regime for Corporate Services Sector: The PBC suggests that the corporate services sector, particularly listed companies and their subsidiaries, should be taxed under the normal tax regime rather than the minimum tax regime. Additionally, the withholding tax (WHT) rate under section 153(1)(b) for these companies should be reduced to 4%.
2. Exemption Certificates for Services Sector: An enabling provision should be added to section 235 and section 159 to allow for the issuance of exemption certificates to the services sector under the minimum tax regime. This change would alleviate some of the financial strain caused by the advance tax collection on electricity consumption.
3. Adjustable Advance Tax on Imports: The PBC advocates for making the advance tax deduction under section 148(7) on the import of capital items for services sector use adjustable. The proposed amendment to section 148 would ensure that the tax collected on these imports is not treated as a minimum tax, thereby allowing for its adjustment against the company’s overall tax liability.
These changes, according to the PBC, would mitigate the issues of income tax refunds and liquidity problems currently faced by the services sector. The sector’s growth is being stifled by these tax anomalies, which create unnecessary financial burdens and hinder operational efficiency.
The PBC’s proposals underscore the need for a fair and transparent tax regime that supports the services sector, which is a vital component of Pakistan’s economy. By implementing these amendments, the government can facilitate a more conducive environment for business operations and promote sustainable economic growth.
