Tax exemption sought for plant, machinery import

Tax exemption sought for plant, machinery import

KARACHI: The business community has sought exemption from withholding tax on import of plant and machinery in order to reduce the cost of doing business.

Pakistan Business Council (PBC) in its proposals for budget 2022/2023 submitted to Federal Board of Revenue (FBR), said that Section 148 (1) of Income Tax Ordinance, 2001 covers advance tax on Imports and Section 153 covers advance tax on sale of goods and services.

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Companies are required to pay advance quarterly income tax based on their projected incomes under Section 147 of the Ordinance.

In addition, companies are also required to pay advance tax on imports at 1 per cent/ 2 per cent/ 5.5 per cent and on sale of their goods at 4 per cent and services at 8 per cent. This leads to the creation of refunds as companies are paying advance income tax based on projected income, advance income tax on imports and advance income tax on sales.

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There is a cumbersome procedure for seeking exemptions under Section 148 (advance tax on imports) which also does not take into account capacity expansions.

“Import of plant and machinery by companies should be exempted from withholding at import stage,” the PBC suggested. Moreover, for raw materials, preferably corporate manufacturers should be excluded from the ambit of income tax withholding at import stage. In case, FBR wants to keep track of GD wise import of raw materials and complete exemption from tax collection is not feasible, then at least the rate of income tax collection should be reduced down to 0.5 per cent across the board for all raw materials from the existing 1 per cent / 2 per cent and 5.5 per cent for different items.

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In addition to above, local supply by corporate manufacturers should be excluded from the ambit of income tax withholding under section 153 in line with the general exemption given to commercial importers despite the fact that income tax collection from commercial importers at import stage is minimum.

The PBC highlighted the withholding tax under section 148 of Income Tax Ordinance, 2001 (Imports), Section 161 Subsection 3:

Withholding tax u/s 148 (Imports) -Income Tax Ordinance 2001: Certain raw material covered under category III of Twelfth Schedule are subject to WHT tax and fall under minimum tax regime.

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In order to claim the advance tax, the tax payers are required to file an application to Commissioner/ Board for claiming adjustment of withholding tax deducted as advance tax, which leads to administrative and operational inefficiencies, and puts the company at the risk of exposure till such application is entertained.

Tax deduction on import of raw material for own use u/s 148 (Imports) should be explicitly expressed as withholding advance tax across the board in the Income Tax Ordinance, which will save the companies from exposure resulting from possible delays in acceptance of application by the Commissioner/ Board or non-acceptance at all. It will remove operational and administrative hassle also.

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