The Economic Co-ordination Committee (ECC) of the Cabinet has approved the summary submitted by the CBR in this regard.
The CBR had informed the ECC that PTR was introduced through Finance Act 1991, making all manufacturers liable to pay presumptive tax on their receipts. The provision was primarily introduced as a measure to facilitate the taxpayer and ensure adequate revenues. It was found that even multinationals and public sector corporations were misusing the facility of PTR to reduce their tax burden causing tax loss.
The issue was discussed during the budget exercise and the option available in the income tax ordinance, 2001 to manufacturer-cum-suppliers, was withdrawn through Finance Act 2005, in consultation with the Attorney General and the Ministry of Law.
The manufacturers who had already opted for PTR protested against the retrospective taxation measures, especially those who had already closed their accounts.
The CBR pointed out that the stakeholders proposed retrospective withdrawal of clause 40 of Part IV of the Second Schedule of the Income Tax Ordinance 2001 and introduction of section 153(6)-(withdrawal of option for manufacturers).
PTR facility was withdrawn in budget 2005-2006, which was strongly criticised by the business community particularly foreign investors including pharmaceutical industry. The CBR will amend the Income Tax Ordinance 2001 following the directive of the ECC, sources added.
CBR itself is not empowered to unilaterally withdraw the PTR so the tax authorities had referred the matter to the ECC for further action.
Through the Finance Act, 2005 the right to be taxed under the presumptive tax regime has been withdrawn. 'PTR' withdrawal has been made with retrospective effect, which implies that manufacturers had no option for being assessed under the presumptive tax regime from the period the present Income Tax Ordinance, 2001 is in force ie period commencing form July 1, 2002. Accordingly all manufacturers who have opted for presumptive tax regime would be assessed on normal basis for tax years 2003 onwards.
The practical solution for the resolution of the matter should be arrived at, which could be that there should not be any legislation with retrospective effect. PTR should categorically remain applicable for all transactions undertaken up to July 1, 2005, investors added.