KARACHI: Tax authorities have agreed to consider reducing minimum tax rate for corporate sector and individuals in the upcoming budget, especially in the wake of financial losses due to coronavirus pandemic, a senior tax consultant said.
“In different meetings with Dr. Abdul Hafeez Shaikh, Finance Advisor to Prime Minister, Razak Dawood, Commerce Advisor to PM and senior officers of Federal Board of Revenue (FBR) have agreed to reduce minimum tax rate for providing relief to mitigate adverse impact of coronavirus,” Zeeshan Merchant, former vice president of Karachi Tax Bar Association (KTBA) said this while talking to PkRevenue.com.
Merchant, who is also honorary consultant to Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said that the actual proposal for the budget 2020/2021 is to reduce minimum tax rate for corporate sector to 0.5 percent and abolish this tax for two years in case of individuals and Association of Persons (AOPs).
He said that in meetings Dr. Abdul Hafeez Shaikh and Abdul Razak Dawood appreciated the proposals and promised to consider in the budget for providing maximum relief to businesses.
Merchant further said that the FBR chairperson also pledged to move this proposals after consideration for incorporation in the Finance Bill 2020.
He said that due to coronavirus and subsequent lockdown many corporate entities would not able to post significant profits or declare substantial losses for the year.
Merchant further said that the minimum tax applied on turnover when a taxpayer declare lower profit or declare gross losses to the year.
The FPCCI in its proposals for fiscal year 2020/2021 said that the existing rate of 1.5 percent minimum tax is very high and results in financial hardships to the taxpayers.
Due to the current economic conditions and its negative impact on productivity, the businesses are not operating at optimum level.
According to changes vide Finance Act, 2016 threshold of turnover for individual and AOP for turnover tax at the rate of 1.25 percent decreased from Rs50 million to Rs10 million. This had adversely affected the true declaration of turnover and has created hardship for the taxpayers.
After changes made in Section 113(1) of Income Tax Ordinance, 2001, now companies have to pay turnover tax even in case of gross loss before charging of depreciation. This has adversely affected the industry.
Under section 113(2) (C) where Minimum Tax paid under sub section (1) exceeds the actual tax payable under Part I, Clause (1) of Division I, or Division II of the first Schedule, the excess amount is carried forward for adjustment against tax liability of the subsequent tax year(s).
The FPCCI also proposed to reduce the minimum tax rate and enhance the limit of turnover to Rs50 million.