The Central Board of Revenue (CBR) has been suggested to abolish presumptive tax regime (PTR) as it impairs the competitiveness of the resident companies.
A senior CBR official told Business Recorder on Saturday that the tax department had been studying the proposals from engineering sector and shipping industry, which had proposed to remove PTR to create a congenial environment for resident companies.
The official said: "The PTR is beneficial to large profit-gainers but disincentive for small profit-gainers and board is studying to provide level playing field to both the resident and the non-resident companies." He said the business community demanded change in tax laws and provide the net basis taxation rather than on the basis of presumption. Sources in the engineering sector said the CBR should abolish the presumptive tax regime because the resident companies were facing challenges under severe competition with the non-resident companies.
Due to this drawback President Musharraf's engineering vision being the future of Pakistan would not be accomplished and the country would not be able to woo the foreign direct investment (FDI).
The six percent tax under the presumptive tax regime on gross receipt from contract execution as the local sector is paying from their own pocket to carry on businesses. The presumptive tax regime in Pakistan is in distorted form as:
(i) The PTR is a remedial approach to tax and not a desirable solution;
(ii) The PTR is used to encounter tax-evasion and underground economy;
(iii) The PTR is meant for hard-to-tax sector (small enterprises), and
(iv) Not to tax the well-documented corporate sector on the basis presumption.
The six percent tax means one has to earn 17 percent net profit, which is impossible in the presence of cut-throat competition by non-resident units. It is clear discrimination for the local sector against non-residents as they have option for the presumptive tax regime or net income tax.
They said neighbouring and Asean countries, including India, have net income basis taxation. This results major investment for similar type of business going to other countries instead of Pakistan due to cost effectiveness, they added.
Engineering companies are playing a unique role in providing services ie power generation, transmission, distribution and infrastructure, and have invested large amounts to cater country's demands. At present, the engineering sector is paying six percent flat tax on gross receipts or the PTR from the engineering construction contracts.
The tax rate of six percent assumes the deemed profit of 17.14 percent, which is far stretched, sources said, adding the ground reality is different as in order to remain competitive resident companies has to work on a very low margin. While world over the profit margins on such contract is generally not more than 7 to 10 percent, they maintained.
Sources in the shipping industry recommended that the PTR should be removed and tax should only be charged on income. If collection of tax through withholding mechanism is necessary then it should only be collected as "advance tax" at reduced rates, which is adjustable against final assessment.
They said that Section 143 of Income Tax Ordinance-2001 lays down the criteria for filing the return and payment of tax for non-residents having income from shipping business in Pakistan. The filing of return is required on vessel to vessel basis.
Filing of return on vessel to vessel basis is more appropriate in case of non-scheduled vessels such as tankers and trampers. In case of scheduled vessels ie vessels calling under Liner Agency Agreement return filing on vessel to vessel basis is not suitable.
Sources in real estate said that taxation of income from house and property has been brought under presumptive tax regime in the last budget. This resulted in that no deduction has been allowed against the property income.
In the Finance Bill income from house and property was proposed to tax under final tax regime and the threshold for the deduction of Rs 300,000 has been removed.
This scheme only benefit the higher income class as the rate for rental income is frozen at five percent and on the other hand, the lower income class was the sufferer as otherwise they might not have been required to pay tax on this income.
Comments
Comments are closed.