KARACHI: Karachi Tax Bar Association (KTBA) has proposed to delete provisions that are penalizing compliant taxpayers for fault or non-compliance of dealers.
The KTBA in its proposals for budget 2022/2023 informed the Federal Board of Revenue (FBR) that Finance Act, 2019 introduced Section 108B to Income Tax Ordinance, 2001 penalizing the compliant taxpayers for the fault/non-compliance of dealers apparently jeopardizing the freedom of trade.
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Under this section, 75 per cent of dealer’s margin shall be added to the income of the supplier where the supplier makes supplies to a person who is not registered under the sales tax and is not on active taxpayers list. Moreover, the Margin of dealer is to be taken at 10 per cent for the purpose of making additions to the income of the supplier.
“It will increase the cost of doing business as dealer would demand compensation from manufacturer for complying with tax regulation,” the KTBA said.
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The tax bar proposed to delete section 108B of the Ordinance. “These are irrational provisions and amount to interference in the business affairs of the taxpayers,” it added.
Giving rationale to the proposal, the KTBA said when complete particulars of the transactions are reported by the suppliers, it is highly unreasonable on the part of FBR to shift the burden of making supplies only to the registered persons listed on the Active Taxpayers List and penalize them for making supplies to unregistered persons or those who are not on the ATL. FBR should perform its duties of bringing the defaulters/ non-compliant persons into tax net on the basis of information provided by compliant taxpayers in their sales tax and income tax returns and/or as and when demanded by the tax authorities.
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Similarly, Section 21(ca) of Income Tax Ordinance, 2001 puts a restriction on admissibility of commission exceeding 0.2 per cent of the gross amount of supplies of items listed in the Third Schedule of Sales Tax Act, 1990, as deductible expenditure, if the person receiving the Commission is not on the Active Taxpayers List.
It increases the cost of doing business as commission recipients would demand compensation from its supplier for complying with the tax regulations. Therefore, it is proposed to delete clause (ca) of section 21 of the Ordinance.
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The proposed amendment would provide a fair play to taxpayers and especially to those taxpayers who have substantial unabsorbed depreciation and amortization due genuine to operating losses or heavy infrastructure investment.
