Pakistan Petroleum Limited (PPL) has recommended that the regulation of Mines and Oilfields Development Act 1948 should be updated in line with the provisions of fifth schedule to the Income Tax Ordinance, 2001.
According to summary of pre-budget proposals, received by the Management Association of Pakistan (PMA) from members for 2006-07 Federal budget, the PPL pointed out that tax provisions as outlined in the regulation of Mines and Oilfields and Mineral Development Act 1948 (regulations) stipulated that the aggregate of taxes and payments to the government should not be less than 50 percent, nor more than 55 percent of the profits or against derived by the undertaking (joint operations) prior to deduction of payments to the government (wherein the definition of payment to government includes royalty).
This is contrary to the provisions contained in the fifth schedule of the Income Tax Ordinance 2001, which stipulates that the aggregate of taxes and payments to the government must not be less than 40 percent of the profits or gains derived by the undertaking prior to the deduction of payments to the government (here the definition of payments to government has been made to explicitly exclude royalty).
As regulation is considered to be the principle law, governing the operations of the concessions, this anomaly poses concerns for correct interpretation and computation of tax payment to the exchequer.
PPL further pointed out that currently the fifth schedule of the Income Tax Ordinance 2001 governed the taxability of all concessions entered into the government of Pakistan.
The treatment of tax on income earned by way of international exploration has, however, not been explicitly defined.
PPL recommended that special provision be enacted in the Income Tax Ordinance 2001 to cater to the peculiar nature of international exploration business.
ICI Pakistan Limited noted that corporate income tax rate for listed and unlisted companies would be 35 percent by the year 2007, and recommended that the listed companies income tax rate should be at least five percent lower than the unlisted companies and be reduced to 30 percent.
The ICI further suggested that the Commissioner (Appeals) and Collector (Appeals) should be made independent of administrative control of the Central Board of Revenue (CBR) as this forum was part and parcel of revenue collection machinery, which was evident from the increasing number of appeals at the tribunal and writs at the high courts stage.
The ICI further noted that the selection criteria for total audit was ambiguous and not clear as the commissioner of income tax enjoyed wide powers under Section 177 whereby he could select audits even for completed tax years.
To promote transparency, such criteria should be laid down and the law should be suitably amended whereby audit should be restricted to selected tax year.
The ICI noted that the State Bank of Pakistan (SBP) be allowed to deposit tax withheld from payments of different suppliers under single tax challan through enclosing a list of suppliers-wise tax deduction amount.
The original challan that did not relate to any one party was, therefore, not provided to the supplier, instead a certificate of tax deduction was issued by companies to the respective suppliers, it said.
However, income tax officials should not accept this certificate as conclusive evidence and insist on provision of copies of tax challans, said the ICI.
The ICI was of the opinion that this process would be very cumbersome exercise as with a photocopy of each challan, copy of the detailed list of supplier-wise amount also needed to be provided to cross-match with the challan amount.
The ICI recommended that certificate of tax deduction, provided by the companies to suppliers, should be accepted in lieu of photocopies of tax challans and verification from the CBR's database.
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