PBA complains to govt on Rs1 bn unfair tax relief to ARY

ISLAMABAD: The Pakistan Broadcasters Association (PBA) has written a letter to the government hinting at possible favoritism to the ARY in Rs1 billion fraud case that the government had caught in 2013.

The illegal exemption certificate on airtime/content claimed by the FBR worth multimillion rupees has opened up a new Pandora’s box prompting the PBA to write a letter to the government complaining that if such an incentive was provided to the channel then other media houses should also be given similar tax treatment and multi-billion rupees tax amountspaid since 2013 be adjusted against their future liabilities.

The letter has been written to Adviser to the PM on Finance and Revenue Dr Hafeez Shaikh and acting Chairman FBR Ms Nausheen. Earlier, the FBR had served a notice on the ARY Communications Limited (ARY) for raising tax demand of Rs992 million.

The FBR alleged that the ARY evaded tens of millions in taxes through misrepresentation, concealment and misuse of exemptions, causing a substantial loss to the national exchequer.

The FBR investigation found that an offshore related party (co-owned) entity ARY FZLLC undertook transactions with the other two companies, ARY COMM and ARY Films and TV Productions Pvt, which by, virtue of section 85 of the Income Tax Ordinance, 2001, were its associates.

As per investigation, the tripartite agreement was utilised to allow the three companies to settle their receivables and payables in Pakistan on behalf ARY FZLLC.

The investigation stated that the taxpayer company, in garb of exempted payments, also remitted payments against cost of production and services, which were added under a single cost of “transmission costs” without deduction of relevant tax as required under Pakistani law.

The FBR states that the media house claimed incorrect exemptions, and concludes that the amount is liable to be taxed in Pakistan.

ARY Communications in its defence stated that the FBR had not made correct cost comparisons and unfairly compared ARY with other media companies, stating that its costs are not inflated even if the costs are to a related party. It stated that it had a different business model compared to the other companies.

As the exchange between the media house and FBR continued, the FBR claims that ARY Communications, in an effort to justify the costs, it included in the tax exempted head, actually tampered with an agreement it had previously submitted to FBR.

The FBR, in its order, has compared the two documents and pointed out exactly where ARY Communications had changed the language and added words in an attempt to show that the media house had not breached any agreement.

The FBR in its findings noted that “the tampering of document was done to defeat issue in show cause notice on transfer pricing, whereby comparison will be made in the changed position of comparable by adding words ‘content’ and replacing ‘advertisement & promotional content’, that is by enlarging scope of content to include other cost. Therefore, the tampering has been done to mislead the department to take advantage to this effect that the taxpayer case was different from case of comparable companies confronted in the show cause.”

ARY FZLLC allegedly tampered with the documents as it obtained withholding tax exemptions 12 to 15 percent by submitting an agreement that indicated only airtimes charges but when FBR raised objection of highly unjustified value of airtime, the group allegedly submitted tampered agreement with addition of word “content” to “airtime”.

The cost of content was not part of airtime agreement and was not recorded in ARY Communications as it was shown as an export of ARY Films and TV Production. The Withholding Tax exemption is not available to associates as per law, but this fact was allegedly concealed from the FBR but later on indicated by auditor in the audited accounts.

The FBR, to state its case, also provided comparisons of airtime/ transmission costs of other companies in the industry, and concluded that ARY had overvalued its “airtime”. ARY COMM in initial years disclosed airtime charges in accounts, then changed its name into ‘transmission charges’. ARY Production produced and exported all content to ARY FZLLC, an offshore based in Dubai, at zero tax under the exemption as per second schedule of income tax ordinance under clause 114.

Now the PBA in its letter written to government stating that the PBA is closely watching how this case unfolds and how department handles this case after it has rightly taken cognizance of ARY’s illegal use of the subject exemption because if the authorities are facilitating ARY by delaying adjudication of the abovementioned proceedings, or if the department intends to allow ARY to continue to claim exemptions in the manner in which they are currently being claimed, then our members would also to be granted similar treatment so that they too are allowed to claim an exemption on all payments made to companies abroad in relation to the sale and purchase of airtime/content. Our members would like the same relief if its legal and they too should be allowed to avoid sales tax by declaring their Pakistan made dramas for Pakistan to be considered “exports” to their own Dubai affiliated companies and then have it sold back to Pakistan and avoid both sales tax and withholding tax.

Sources close to ARY denied these charges and said the case was pending with the court so they did not want to say anything on record other than a press release it had issued.

ARY claims it did not apply any pressure on PM office or Finance Ministry to help manage its tax liability. A meeting with ARY senior leadership and FBR coordinated by people in the PM house was about how to increase the tax base in the country, claims the source.

Source however say that after such a meeting, the Federal Board of Revenue (FBR)’s Commissioner Appeals has set aside order of the additional commissioner Inland Revenue in case of alleged tax evasion of Rs991 million against ARY Communication.

The Commissioner Appeals pointed out contradictions at different points and ordered starting investigation afresh. At the same time the investigation officer of the case was also changed and ARY case was transferred from a large tax payer unit to a corporate tax payer unit. Tax analysts point out such a move is mysterious.