FBR mulls withdrawing advantages under minimum tax

KARACHI: The Federal Board of Revenue (FBR) is considering withdrawing exemptions and concessions granted in case of loss report by individual or corporate taxpayers in the upcoming budget, sources said on Monday.

The FBR sources rationalisation of concessions and exemptions granted under the minimum tax regime is under discussion to make it part of the final recommendation for the budget 2021/22.

The minimum tax is a tool to collect tax through an alternate way. The minimum tax has been levied under section 113 and section 113C of the Income Tax Ordinance, 2001. Section 113 of the Ordinance is applicable to a resident company, permanent establishment of a non-resident company, an individual having turnover of ten million rupees or above and an association of persons having turnover of Rs10 million or above.

The minimum tax on such persons having specific turnover is applicable in case of loss report for a year or the loss set off for an earlier year.

Similarly, under section 113C alternative corporate tax rate is applicable on companies having annual profit less then specified rate of tax under the statute.

The sources said the total tax collection in both the sections is Rs90 billion. However, an amount of Rs25 billion has been granted annually as exemption and concessions.

They said the concessions have been given under Clauses 24C and 24D Part II of Second Schedule of Income Tax Ordinance, 2001.

The minimum tax rate is applicable to many sectors of the economy where profit margin is very low. But many corporate entities are taking advantage by declaring lower profit or losses to avail the reduced rate of tax.

According to tax experts the FBR should review all the sectors of the economy and withdraw the exemption and concessions on case to case basis.

They said there are sectors where profit margin was only 0.5 percent but they were forced to pay tax more than the profit margin.

Overseas Investors Chamber of Commerce and Industry (OICCI) said general rate of minimum tax under Section 113 of Income Tax Ordinance, 2001 should be 0.5 percent only.

“The general rate should be further reduced to 0.2 percent for businesses dealing in sectors with high turnover and low margins,” OICCI said in budget proposals.

The OICCI said alternate corporate tax under section 113C of Income Tax Ordinance, 2001 should be abolished. “To promote investment in the special economic zone, minimum tax regime should not be applicable on companies operating in these zones.”