FBR declares AOPs, individuals as 'withholding agents'

The Federal Board of Revenue (FBR) has declared Association of Persons (AOPs) and individuals as "withholding agents", which would burden them with extra cost and create serious problems in documentation vis-à-vis filing of statements by these new agents.
Sources told Business Recorder on Monday that the board has declared AOPs and individuals as "withholding agents" for deduction of tax at the time of making payments on sales, services rendered and execution of contracts. The AOPs and individuals having turnover exceeding Rs 50 million and Rs 25 million respectively have been included in the definition of "prescribed persons", required to deduct tax at the time of making payments.
Through this amendment in the Income Tax Ordinance vide Finance Act, the tax burden on the undocumented persons has been increased. Being withholding agents, they would be bound file necessary monthly statement etc and follow other relevant provisions of the law. There would also be extra burden on the individuals/AOPs, where it is yet not clear that how many of them would practically comply with the directive.
The cost of goods on purchase and sale would be increased by 3.5 percent, as the individuals and AOPs would be liable to deduct this amount of tax on purchases. It would be almost impossible for the individuals and AOPs to deduct the tax, deposit amount and regularity file return/statement, sources added.
On the other hand, FBR has said that presently, only AOPs constituted by or under the law are required to deduct tax at source under section 153 of the Income Tax Ordinance 2001 relating to payments in respect of supplies, services rendered and execution of contracts. The number of such AOPs is very limited, and other AOPs including those formed as a result of de-corporatisation of the existing companies which are handling huge businesses and engaged in different commercial activities like running industries, private hospitals, educational institutions and doing business on whole sale basis are not required to act as withholding agent. This anomaly is causing huge revenue loss besides discouraging corporatisation and documentation of economy, the FBR added.Experts said that the AOP having Rs 50 million turnover and individual having Rs 25 million turnover has now declared as withholding agent and for this purpose amendment has been proposed in sub-section (9) of section 153 of the Ordinance. This proposed amendment will provide level playing field to corporate and non corporate taxpayer.
Incentives to small companies such as exemptions from the operation of section 153 as a payer and recipient and reduced rate of 20 percent of tax has been withdrawn. For this purpose amendment has been proposed to be made in section 153 and a rate card with a tax rate ranging from 20 to 35 percent has also been proposed in the first schedule. On the consistent demand of business community for the removal of lacuna, ambiguity and contradiction between sub-sections (6A) and (6B) of section 153, sub-section (6A) has been reworded and sub-section (6B) has been omitted. Due to this proposed change supplies made by individual and AOP manufacturers is subject to final taxation, they added.