The Federal Board of Revenue (FBR) is planning to withdraw income tax and withholding tax exemptions given to provincial governments, local authorities, contractors of tribal areas/Azad Kashmir, companies receiving payments for supply of electricity/gas, companies receiving payments for supply of crude oil and other exemptions specified in the SRO 586(I)/91 which are surplus and contradictory to the provisions of the Income Tax Ordinance 2001.
Other exemptions of SRO 586(I)/91 which are expected to be withdrawn include exemption available to the shipping companies and air carriers receiving payments for the supply of passenger tickets and for the cargo charges of goods transported, oil refineries receiving payments for the supply of their products, oil marketing companies receiving payments for supply of petroleum products, hotels and restaurants receiving payments in cash for providing accommodation or food or both, persons receiving payments for supply of cotton seed, persons receiving payments not exceeding rupees Rs 25,000 on account of supply of goods in a fiscal; and not exceeding rupees Rs 10,000 on account of services rendered or execution of a contract in a fiscal and other exemptions not supported by the Income Tax Ordnance 2001.
Sources told
Business Recorder here on Friday that the SRO 586(I)/91 has given exemptions to different categories of taxpayers. Due to various amendments made in the Ordinance 2001 for the last many years, some of the exemptions in the said notification have become redundant.
The FBR has started review of SRO 586(I)/91 to withdraw unnecessary exemptions specified in the said notification which are either available in the Ordinance 2001 or contradictory to the provisions of the income tax law. Most of the exemptions given through the SRO 586(I)/91 have not been supported by the Income Tax Ordinance 2001.
Some exemptions of the said notification have been declared as illegal by the FBR. The Board has found that there is no legal provision to continue these superfluous exemptions of the SRO 586(I)/91. In other cases, certain exemptions are no more valid as the same were available in the Ordinance 2001. The duplication of exemptions to certain units or sector also created distortions in the income tax regime.
According to the FBR, "an exercise has been undertaken by the Direct Tax Policy to review the exemptions provided under various clauses of SRO 586(I)/91 in order to rectify the surplus and contradictions vis-a-viz exiting provisions of the Income Tax Ordinance 2001. In consultation with the FBR Members Domestic Operations North/South and Member Legal, the FBR would complete the exercise", FBR added.
Sources said that the FBR may restrict income tax exemption only to manufacturers who purchase agricultural produce which further undergoes through the manufacturing process. Presently, exemption is available to persons receiving payments from a company or an Association of Persons (AOP) exclusively for the supply of agricultural produce by any person engaged in poultry farming and by an industrial undertaking engaged in poultry processing. Following are the exemptions available under the SRO 586(I)/91 and the FBR's comments (September 8 2010) on the said exemptions:
EXEMPTION: A PROVINCIAL GOVERNMENT FBR Comment: The income of Provincial Government is exempt under section 49(2), and there is no need to mention such exemption separately through an SRO. Besides, the Income of Federal Government is exempt under section 49(1) of the Income Tax Ordinance 2001.
Exemption: A Local Authority. FBR Comments: Exemption to a 'Local Authority' specified through this SRO has been restricted to a 'Local Government' as provided under section 49(2), and there is no need of this provision in the SRO.
Exemption: Persons who are residents of the Tribal Areas or Azad Kashmir and execute contracts in Tribal Areas or as the case may be, Azad Kashmir only and produce a certificate to this effect from the Political Agent concerned or the district authority, as the case may be, or in the case of Azad Kashmir, from the Income Tax Officer concerned.
FBR Comments: No such exemption is supported by any of the provisions of the Income Tax Ordinance 2001. Withholding taxes are deductible in situations where payments are being made in settled territories, or by persons whose permanent establishments are situated in settled territories.
Exemption: Persons who produce a certificate from the Commissioner of Income Tax to the effect that their income during the income year is exempt from tax.
FBR Comments: This exemption is available under section 153(4) of the Income Tax Ordinance 2001, therefore no such exemption is required to be extended through this SRO.
Exemption: Persons receiving payments from a company [or an Association of Persons (AOP) having turnover of fifty million rupees or above] exclusively for the supply of agricultural produce [including fresh milk,] [live chicken birds and eggs by any person engaged in poultry farming and by an industrial undertaking engaged in poultry processing) which has not been subjected to any process other than that which is ordinarily performed to render such produce fit to be taken to market.
FBR Comments: So far the paying companies and paying AOPs having annual turnover of Rs 50 million or above are exempt from the incidence of withholding tax under section 153(1). Now there is a demand of exemption for paying individual having annual turnover of Rs 50 millions or above. It would be appropriate to delete all the present exemptions in this behalf and exemption may be provided only to manufacturers who purchase agricultural produce and further subject it to any process of manufacturing.
Exemption: Companies receiving payments for the supply of electricity and gas.
FBR Comments: Under the provisions of Clause (66) of Part-I of Second Schedule of the Income Tax Ordinance 2001, the income of the corporatized entities of Pakistan Water and Power Development Authority from the date of their creation upto the date of completion of the process of corporatization ie till the tariff is notified.
FBR Comments: Withholding tax under section 153 is NOT exempt on sale/supply of gas, under any provision of the law.
Exemption: Companies receiving payments for the supply of crude oil.
FBR Comments: 'Crude Oil' is defined as Petroleum under clause (6)(4) of the Fifth Schedule, and is NOT exempt from tax under section 153(l) under any existing provisions of the law, hence no such exemption can be extended through this SRO.
Exemption: Attock Refinery Limited, National Refinery Limited and Pakistan Refinery Limited receiving payments for the supply of their products.
FBR Comments: Since this exemption is available under Clause (46) of Part-lV of Second Schedule to the Ordinance 2001, hence no need to extend the same through an SRO, FBR added.
Exemption: Pakistan State Oil Company Limited, Shell Pakistan Limited and Caltex Oil (Pakistan) Limited, receiving payments for the supply of petroleum products.
FBR Comments: Since this exemption from deduction of withholding tax under section 153(1) is available under Clauses (43A) and (46) of Part-lV of Second Schedule to the Ordinance on account of distribution of petroleum products, therefore there is no justification to extend it through this SRO, FBR added.
Exemption: Hotels and restaurants receiving payments in cash for providing accommodation or food or both as the case may be.
FBR Comments: Withholding tax under section 153 is NOT exempt on payments received by hotels and restaurants, under any of the provisions of the Income Tax Ordinance, 2001, therefore there is no justification to extend it through an SRO.
Exemption: Shipping companies and air carriers receiving payments for the supply of passenger tickets and for the cargo charges of goods transported.
FBR Comments: Presumptive income tax is chargeable on the income of a resident person engaged in shipping companies and air carriers under the provisions of Clause (21) of Part-II of Second Schedule to the Income Tax Ordinance 2001, therefore there is no justification to extend this exemption through an SRO.
Exemption: Persons receiving payments not exceeding rupees twenty-five thousand on account of supply of goods, in a financial year; and not exceeding rupees ten thousand on account of services rendered or execution of a contract, in a financial year. Provided that where the total payments in a financial year, exceed rupees twenty-five thousand on account of supply of goods, or rupees ten thousand on account of services rendered or execution of a contract, the payer shall deduct tax from the payments including the tax on payments made earlier without deduction of tax during the same financial year.
FBR Comments: No exemption thresholds are provided in any provisions of the law. Moreover, accounting for determination of annual thresholds for each taxpayer is perhaps not very much possible due to lack of documentation.
Exemption; Persons receiving payments for supply of cotton eed.
FBR Comments: Under clause (1)(a) of Division-III of Part-III of First Schedule to the Income Tax Ordinance 2001, the rate of deduction of withholding tax under section 153(1) on sale/supply of cotton seed is 1.5 ercent. Therefore the exemption provided by SRO 586 is illegal, and needs immediate withdrawal.
Exemption: Persons, being manufacturers of goods, who produce a certificate from the Commissioner of Income Tax concerned to the effect that their income during the income year is not likely to be chargeable to tax due to assessed losses carried forward.
FBR Comments: The exemption is NOT supported by any provision of the Income Tax Ordinance, 2001 and needs immediate withdrawal.
Exemption: Persons being owner of one goods transport vehicle, receiving payment once in a financial year from a payer on account of carriage of goods on behalf of such payer on a single journey undertaken during the said financial year.
FBR Comments: The exemption is NOT supported by any provision of the Income Tax Ordinance, 2001 and needs immediate withdrawal.
Exemption: Persons, other than those whose income is liable to tax under section 80C, who produce a certificate from the Commissioner of Income Tax to the effect that their income during the income year is not likely to be chargeable to tax due to assessed losses carried forward.
FBR Comments: Since Clause (57A) of Part-IV of Second Schedule provides exemption to Large Import House only, therefore this exemption being illegal needs to be withdrawn.
Exemption: Persons, other than those whose income is liable to tax under section 80B or 80C, from whom tax has been deducted under sub-section (4) of section 50 and the aggregate of the tax deducted under the said sub-section is equal to or exceeds the tax payable under section 53 of the Ordinance in respect of that income year and a certificate to that effect from the Commissioner of Income Tax is produced by such persons.
FBR Comments: Presently no such exemption is available under any provisions of the Income Tax Ordinance, 2001 and needs immediate withdrawal, the FBR comments on the exemptions of SRO 586(I)/91 concluded.
Copyright Business Recorder, 2010
Other exemptions of SRO 586(I)/91 which are expected to be withdrawn include exemption available to the shipping companies and air carriers receiving payments for the supply of passenger tickets and for the cargo charges of goods transported, oil refineries receiving payments for the supply of their products, oil marketing companies receiving payments for supply of petroleum products, hotels and restaurants receiving payments in cash for providing accommodation or food or both, persons receiving payments for supply of cotton seed, persons receiving payments not exceeding rupees Rs 25,000 on account of supply of goods in a fiscal; and not exceeding rupees Rs 10,000 on account of services rendered or execution of a contract in a fiscal and other exemptions not supported by the Income Tax Ordnance 2001.
Sources told Business Recorder here on Friday that the SRO 586(I)/91 has given exemptions to different categories of taxpayers. Due to various amendments made in the Ordinance 2001 for the last many years, some of the exemptions in the said notification have become redundant.
The FBR has started review of SRO 586(I)/91 to withdraw unnecessary exemptions specified in the said notification which are either available in the Ordinance 2001 or contradictory to the provisions of the income tax law. Most of the exemptions given through the SRO 586(I)/91 have not been supported by the Income Tax Ordinance 2001.
Some exemptions of the said notification have been declared as illegal by the FBR. The Board has found that there is no legal provision to continue these superfluous exemptions of the SRO 586(I)/91. In other cases, certain exemptions are no more valid as the same were available in the Ordinance 2001. The duplication of exemptions to certain units or sector also created distortions in the income tax regime.
According to the FBR, "an exercise has been undertaken by the Direct Tax Policy to review the exemptions provided under various clauses of SRO 586(I)/91 in order to rectify the surplus and contradictions vis-a-viz exiting provisions of the Income Tax Ordinance 2001. In consultation with the FBR Members Domestic Operations North/South and Member Legal, the FBR would complete the exercise", FBR added.
Sources said that the FBR may restrict income tax exemption only to manufacturers who purchase agricultural produce which further undergoes through the manufacturing process. Presently, exemption is available to persons receiving payments from a company or an Association of Persons (AOP) exclusively for the supply of agricultural produce by any person engaged in poultry farming and by an industrial undertaking engaged in poultry processing. Following are the exemptions available under the SRO 586(I)/91 and the FBR's comments (September 8 2010) on the said exemptions:
EXEMPTION: A PROVINCIAL GOVERNMENT
FBR Comment: The income of Provincial Government is exempt under section 49(2), and there is no need to mention such exemption separately through an SRO. Besides, the Income of Federal Government is exempt under section 49(1) of the Income Tax Ordinance 2001.
Exemption: A Local Authority.
FBR Comments: Exemption to a 'Local Authority' specified through this SRO has been restricted to a 'Local Government' as provided under section 49(2), and there is no need of this provision in the SRO.
Exemption: Persons who are residents of the Tribal Areas or Azad Kashmir and execute contracts in Tribal Areas or as the case may be, Azad Kashmir only and produce a certificate to this effect from the Political Agent concerned or the district authority, as the case may be, or in the case of Azad Kashmir, from the Income Tax Officer concerned.
FBR Comments: No such exemption is supported by any of the provisions of the Income Tax Ordinance 2001. Withholding taxes are deductible in situations where payments are being made in settled territories, or by persons whose permanent establishments are situated in settled territories.
Exemption: Persons who produce a certificate from the Commissioner of Income Tax to the effect that their income during the income year is exempt from tax.
FBR Comments: This exemption is available under section 153(4) of the Income Tax Ordinance 2001, therefore no such exemption is required to be extended through this SRO.
Exemption: Persons receiving payments from a company [or an Association of Persons (AOP) having turnover of fifty million rupees or above] exclusively for the supply of agricultural produce [including fresh milk,] [live chicken birds and eggs by any person engaged in poultry farming and by an industrial undertaking engaged in poultry processing) which has not been subjected to any process other than that which is ordinarily performed to render such produce fit to be taken to market.
FBR Comments: So far the paying companies and paying AOPs having annual turnover of Rs 50 million or above are exempt from the incidence of withholding tax under section 153(1). Now there is a demand of exemption for paying individual having annual turnover of Rs 50 millions or above. It would be appropriate to delete all the present exemptions in this behalf and exemption may be provided only to manufacturers who purchase agricultural produce and further subject it to any process of manufacturing.
Exemption: Companies receiving payments for the supply of electricity and gas.
FBR Comments: Under the provisions of Clause (66) of Part-I of Second Schedule of the Income Tax Ordinance 2001, the income of the corporatized entities of Pakistan Water and Power Development Authority from the date of their creation upto the date of completion of the process of corporatization ie till the tariff is notified.
FBR Comments: Withholding tax under section 153 is NOT exempt on sale/supply of gas, under any provision of the law.
Exemption: Companies receiving payments for the supply of crude oil.
FBR Comments: 'Crude Oil' is defined as Petroleum under clause (6)(4) of the Fifth Schedule, and is NOT exempt from tax under section 153(l) under any existing provisions of the law, hence no such exemption can be extended through this SRO.
Exemption: Attock Refinery Limited, National Refinery Limited and Pakistan Refinery Limited receiving payments for the supply of their products.
FBR Comments: Since this exemption is available under Clause (46) of Part-lV of Second Schedule to the Ordinance 2001, hence no need to extend the same through an SRO, FBR added.
Exemption: Pakistan State Oil Company Limited, Shell Pakistan Limited and Caltex Oil (Pakistan) Limited, receiving payments for the supply of petroleum products.
FBR Comments: Since this exemption from deduction of withholding tax under section 153(1) is available under Clauses (43A) and (46) of Part-lV of Second Schedule to the Ordinance on account of distribution of petroleum products, therefore there is no justification to extend it through this SRO, FBR added.
Exemption: Hotels and restaurants receiving payments in cash for providing accommodation or food or both as the case may be.
FBR Comments: Withholding tax under section 153 is NOT exempt on payments received by hotels and restaurants, under any of the provisions of the Income Tax Ordinance, 2001, therefore there is no justification to extend it through an SRO.
Exemption: Shipping companies and air carriers receiving payments for the supply of passenger tickets and for the cargo charges of goods transported.
FBR Comments: Presumptive income tax is chargeable on the income of a resident person engaged in shipping companies and air carriers under the provisions of Clause (21) of Part-II of Second Schedule to the Income Tax Ordinance 2001, therefore there is no justification to extend this exemption through an SRO.
Exemption: Persons receiving payments not exceeding rupees twenty-five thousand on account of supply of goods, in a financial year; and not exceeding rupees ten thousand on account of services rendered or execution of a contract, in a financial year. Provided that where the total payments in a financial year, exceed rupees twenty-five thousand on account of supply of goods, or rupees ten thousand on account of services rendered or execution of a contract, the payer shall deduct tax from the payments including the tax on payments made earlier without deduction of tax during the same financial year.
FBR Comments: No exemption thresholds are provided in any provisions of the law. Moreover, accounting for determination of annual thresholds for each taxpayer is perhaps not very much possible due to lack of documentation.
Exemption; Persons receiving payments for supply of cotton eed.
FBR Comments: Under clause (1)(a) of Division-III of Part-III of First Schedule to the Income Tax Ordinance 2001, the rate of deduction of withholding tax under section 153(1) on sale/supply of cotton seed is 1.5 ercent. Therefore the exemption provided by SRO 586 is illegal, and needs immediate withdrawal.
Exemption: Persons, being manufacturers of goods, who produce a certificate from the Commissioner of Income Tax concerned to the effect that their income during the income year is not likely to be chargeable to tax due to assessed losses carried forward.
FBR Comments: The exemption is NOT supported by any provision of the Income Tax Ordinance, 2001 and needs immediate withdrawal.
Exemption: Persons being owner of one goods transport vehicle, receiving payment once in a financial year from a payer on account of carriage of goods on behalf of such payer on a single journey undertaken during the said financial year.
FBR Comments: The exemption is NOT supported by any provision of the Income Tax Ordinance, 2001 and needs immediate withdrawal.
Exemption: Persons, other than those whose income is liable to tax under section 80C, who produce a certificate from the Commissioner of Income Tax to the effect that their income during the income year is not likely to be chargeable to tax due to assessed losses carried forward.
FBR Comments: Since Clause (57A) of Part-IV of Second Schedule provides exemption to Large Import House only, therefore this exemption being illegal needs to be withdrawn.
Exemption: Persons, other than those whose income is liable to tax under section 80B or 80C, from whom tax has been deducted under sub-section (4) of section 50 and the aggregate of the tax deducted under the said sub-section is equal to or exceeds the tax payable under section 53 of the Ordinance in respect of that income year and a certificate to that effect from the Commissioner of Income Tax is produced by such persons.
FBR Comments: Presently no such exemption is available under any provisions of the Income Tax Ordinance, 2001 and needs immediate withdrawal, the FBR comments on the exemptions of SRO 586(I)/91 concluded.
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