Distributors propose reduction in income tax to 0.1 percent

The distributors belonging to different sectors have proposed comprehensive amendments in the Income Tax Ordinance 2001 for imposition of reduced rate of 0.1 percent minimum tax on distributors' community. It is learnt that the Federal Board of Revenue (FBR) is seriously reviewing proposed amendments in Income Tax Ordinance to impose reduced rate on minimum tax on different categories of distributors, as 'distribution' is a specialised kind of business operation.
According to the proposed amendment in the Income Tax Ordinance 2001, in Part 3 of the Second Schedule to the Income Tax Ordinance, 2001 a new provision should be introduced: "In the case of a person being a distributor the rate tax under Section 113 of the Ordinance shall be 0.1 percent of the amount of turnover. "For the purposes of this clause distributor shall mean a person engaged in the distribution of goods for a principal under an agreement and where the sale prices of goods acquired are determined or prescribed by the principal with a fixed margin."
Documents obtained from FBR show that the representatives of All Pakistan Consumer Products Distributors' Association met with FBR Chairman Sohail Ahmed and the representation was made before the National Assembly's Standing Committee on Finance. During these deliberations and discussions it was, in principle, agreed that on account of specific nature of business operation of 'distributors' the rate of minimum tax on distributors as introduced by the Finance Act, 2010 needs to be appropriately reduced from 1 percent of the turnover to 0.1 percent of the turnover.
During the course of discussion it was agreed, by all stakeholders, that 'distribution' is a specialised kind of operation where the entities operate within a specified framework as laid down in the agreement with the principal and sale prices of the products are determined and monitored by the principal with a fixed margin.
In order to assist the FBR in incorporating the aforesaid mechanism, in the following paragraph, distributors have suggested the amendments to be introduced in the law for the implementation of the aforesaid proposal, sources added.
When contacted, Ali Rahim, President of Karachi Tax Bar Association, said that the distributors, like pharmaceutical companies, oil marketing companies, and particularly distributors dealing in general commodities including cotton, wheat, rice and trading houses, have very less profit margins. The one percent turnover tax is more than the profit made by those companies. These distributors have big volumes, but their ratio of profit is very low. Therefore, it is necessary to reduce the rate of the turnover tax to ensure continuation of their business without bearing extra burden, Ali Rahim said.