WEDNESDAY DECEMBER 26: Income Tax Ordinance, 2001: Section 153A suspended till June 30, 2013

ISLAMABAD: Section 153A of the Income Tax Ordinance, 2001 whereby every manufacturer has to collect withholding tax at the time of sale to all distributors, dealers and wholesalers, has been suspended by the Federal Board of Revenue (FBR) till June 30, 2013. It is learnt here on Tuesday that the FBR has issued SRO1487 (I)/2012 to suspend the applicability of the major documentation measure till June 30, 2013.
Under the notification, in exercise of powers conferred under section 53(2) and a new clause 80 has been added to Part IV of the Second Schedule to the Income Tax Ordinance, 2001. "The provisions of Section 153A of the Income Tax Ordinance, 2001 shall not apply to any manufacturer till June 30, 2013," the notification added.
The Finance Act, 2012 had inserted a new Section 153A of the Income Tax Ordinance, 2001 (Ordinance) whereby every manufacturer has to collect withholding tax at the time of sale to all distributors, dealers and wholesalers. This adjustable withholding tax was leviable on the gross sales to all dealers, distributors and wholesalers whether they are registered or unregistered taxpayers with Income Tax or Sales Tax.
Tax experts have detected flaws in the existing collection procedure of 0.5 percent withholding tax under Section 153A. In this regard a representation was moved by a Lahore-based tax lawyer Waheed Shahzad Butt to Member Inland Revenue, however, on the basis of silence from the FBR, a request was forwarded to Federal Tax Ombudsman (FTO) Dr Muhammad Shoaib Suddle, for Own Motion Intervention under Section 9(1) of the FTO Ordinance, 2000.
The tax lawyer said certain categories of taxpayers such as motorcycle dealers, distributors of pharmaceutical, fertilisers and consumer goods having huge turnover and also liable to pay minimum tax under Section 113 of the Ordinance are facing serious liquidity problem because of the huge differential in tax deduction rate u/s 153A and ultimate liability u/s 113 of the Ordinance. They are unable to pay the 0.5 percent withholding tax under Section 153A because the government had already provided huge reduction in final tax rate u/s 113 to them and even in some cases 80 percent reduction was allowed through various SROs.
The FBR intention to collect 0.5 percent withholding tax under Section 153A from the said categories of taxpayers is causing problems for these sectors. The tax deduction u/s 153A at standard rate of 0.5 percent is causing trouble for the most documented sectors of the economy when the effective rate of minimum tax is much less than the rate of 0.5 percent under Section 153A, Waheed added.
Surprisingly, the FBR had earlier issued an income tax Circular 3 of 2012. Through this circular, the FBR has reduced withholding tax u/s 153A of the Ordinance in line with the minimum tax applicable on certain categories of taxpayers under Section 113 of the Ordinance. Tax deduction at 0.5 percent is causing undue trouble for the most documented sectors of the economy when the effective rate of minimum tax is much less than the rate of 0.5 percent.
The present move of the FBR is in line with the relief already provided to certain distributors, as they are obliged to pay minimum tax under Section 113 of the Ordinance on reduced rates instead of standard rate of 0.5 percent. At present the withholding tax under Section 153A @ 0.5 percent creates lot of trouble for these sectors due to the reason their minimum tax liability was different and lower than the quantum of tax withheld by manufacturers under Section 153A. Through a new notification ie SRO1487(I)/2012, the FBR practically facilitated the documented sectors of economy to retain their liquidity sources intact and avoid cumbersome process to seek refunds, Waheed added.