Income Tax Rules 2002: Industry in uproar over new rules issued by FBR

LAHORE: The business community is incredulous how a draconian and bureaucratic draft of proposed amendments in the Income Tax Rules 2002 could be a product of a 2020 tax machinery proposal.

They said a situation where most economies have been automating and moving forward, Pakistan is going back to the 70s and 80s. It seems next will be a return to an era of price controls and quotas, all monitored by the FBR.

It may be noted that the Federal Board of Revenue (FBR) has issued an Income Tax Notification S.R.O. 615 (I)/2020 on 9th of July. It is a draft of proposed amendments in the Income Tax Rules 2002. The amendments in rules are being made to put in effect a mechanism for implementation of the withholding tax on imports amidst mass confusion as to the definition of raw materials and intermediaries.

The necessity for SRO 615 arose as a result of the hue and cry of the business community immediately after the measures introduced in the section 148 of the Finance Bill.

A long list of raw materials genuinely used for in-house consumption were abruptly reclassified as end products and subjected to minimum tax of 5.5 percent withholding as opposed to the 2 percent threshold. As a result, the business community estimates its final tax burden will rise to over 65 percent and liquidity will be further hampered in an already difficult business environment.

To add insult to injury, the SRO envisages a bureaucratic mechanism not seen since the 1980s. Under the SRO 615, all applications for redressal of raw material classification will entail each company individually applying and submitting its HS Codes, item by item for a firm specific approval. The reclassification will be first screened by the Chairman (member IR) of the just announced Committee.

Subsequently it will be taken to a committee comprising five members - three of whom will be members of FBR itself and one each from EDB and NTC. Only those applications that meet the approval of majority of the committee will then be put up to the chairman of FBR for the final approval.

The process will be anything but seamless, adding to the cost, time and woes of the business community.

"Imagine each and every company specific HS code being vetted and approved by the Member Inland Revenue -- Policy, a Committee and then finally Chairman FBR. It will take years and you'll have to form a second FBR just to take care of SRO 615," said a businessman, requesting anonymity.

Another is of the view that this SRO reflects the narrow vision and attitude of the FBR. The tax machinery never had any inclination to provide relief to the already overtaxed formal industrial sector. The concept of "ease of doing business" is as alien to its budget making as is the mantra of broadening the tax net.

Copyright Business Recorder, 2020