The ghee and cooking oil industry is threatened by an investment scheme (Section 65 D) of Income Tax Ordinance, 2001 for setting up new industrial units and suggested Federal Board of Revenue (FBR) to exclude solvent extractions and refining and manufacturing units from scheme in budget (2013-14).
Sources told Business Recorder here on Sunday that Ansar Javed Chairman FBR has received a budget proposal of the ghee and cooking oil industry on negative impact of Section 65 D of Income Tax Ordinance, 2001 on revenue collection and competition regime under Competition Act. Due to seriousness of the issue, budget makers are analysing pros and cons of the issue.
An official said that the ghee and cooking oil industry was opposing an investment scheme specially designed to attract investment for setting up new industrial undertakings in the country.
According to the detail, through Finance Act 2011, Section 65 D has been inserted in the Income Tax Ordinance 2001, according to which a new industrial undertaking shall be given a tax credit equal to hundred percent of tax payable, including on account of minimum tax and final tax payable under any of the provisions of ordinance for the period of five years beginning from the date of setting up or commencement of commercial production whichever is later.
According to Sub-Section (2) of the Section 65 D, the tax credit shall be admissible to the company incorporated and industrial undertaking set up between the first day of July, 2011 and 30th day of June, 2016, and the industrial undertaking is managed by a company formed for operating the said industrial undertaking and registered under the Companies Ordinance, 1984 having its registered office in Pakistan. Moreover the industrial undertaking is not established by splitting up or reconstruction or reconstitution of an undertaking already in existence, experts said.
It is also mandatory for availing tax credit under Section 65 D that the industrial undertaking is set up with hundred percent equity, provided a relaxation that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the tax payer from claiming tax credit under this Section.
Although Section 65 D was inserted in the Ordinance through Finance Act, 2011, however few provisos were managed vide Finance Act, 2012 to make it more lucrative to attract investment in new undertakings. Federal Board of Revenue (FBR) through its circular no 7 of 2011, dated July 01, 2011 clarifies that a Section 65 D has been introduced in order to provide incentive for investment in new industrial under taking in Pakistan.
However edible oil importers and manufacturers of vegetable ghee/cooking oil disagree with the claim of FBR and rejected the Section 65 D in their communique to chairman FBR along with ministries of Finance, Industries, Commerce and Competition Commission of Pakistan.
Tax experts substantiate the findings of the industry and suggested that the said Section would have been available for those sectors only, which are not in manufacturing process in Pakistan. They also forecast huge reduction in collection of revenue and disturbance in competition regime. They added that with the provisions of Section 65 D, investment in industrial undertaking shall be materialised within first year of production, therefore, the tax credit should not be more than 10 percent in any case, they added.
As per letter of the industry to the Chairman FBR, vide Section 65 D of the Income Tax Ordinance, 2001, inserted by the Finance Act, 2011, the industrial undertakings set-up between July 2011 and June 2016 shall be given a tax credit equal to hundred percent of the tax payable in both modes - Minimum and Final.
It said that since the refiners of edible oil and manufacturers of vegetable ghee/cooking oil falls under sub-Section (8) of Section 148, therefore, are liable to pay tax in ''Minimum Mode'' @ 5 %. At the prevailing international market price of Palm Oil products the charge-able income tax (WHT at import stage) on landed cost per metric ton is around Rs 5,480/- or say Rs 5.50/kg approximately. The advantage granted to new set ups by virtue of said Section would push existing state of the art units out of competition hence closure or collapse and rise to bad debts.
It is pertinent to note that at present cumulative installed capacity of refining and manufacturing sector is over 5 Million tons against requirement of around 3 Million tons only per annum, consequently most of the units are struggling and surviving next to verge of closure. Under given circumstances there exist no room for installation of new units and shall be a mere wastage of national resources and hard earned foreign exchange being consumed for import of plant and machinery, it said.
Moreover it is easy to ascertain that national exchequer may lose to the tune of Rs 11 billion per annum and shall continue to lose the similar amount for next five years consecutively, since one such unit has already availed the facility of tax credit and more or less eight others shall apply in the last quarter of current year.
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