Services providing companies fall in ''minimum tax regime''

The Federal Board of Revenue (FBR) has ruled that companies providing services would now fall in the ''minimum tax regime'', says an income tax clarification issued by the FBR here on Tuesday. This means that the tax deducted on the services of these companies at the rate of 6 percent would now be under the ''minimum tax regime'', and no refund would be given to such companies.
They would also not be eligible to obtain exemption certificates under section 153 (1) (b) of the Income Tax ordinance 2001. In this regard, the FBR Income Tax Policy Wing has issued instructions to the Chief Commissioners of Inland Revenue of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) on Tuesday for implementation.
According to sources, the FBR has ruled that the tax deducted under section 153 (1) (b) of the Income Tax Ordinance 2001 at the rate of 6 percent shall be minimum tax to be paid by the limited companies providing services. As per FBR clarification, tax deducted on payments made for rendering or providing of services is to be treated "minimum tax" and henceforth taxpayer falling in the ambit of section 153(1)(b) of the Income Tax Ordinance 2001 shall file return of income instead of a statement under Final Tax Regime.
When contacted, a tax expert said that the clarification made by the FBR on Tuesday is totally against the provisions of law as the first proviso to sub-section 6 of section 153 of the Income Tax Ordinance 2001 clearly states that the companies providing services would not fall within the Presumptive Tax Regime. This interpretation is based on second proviso of sub-section 6 of section 153 which is not applicable on the companies providing services, tax expert added.
Following is the text of the FBR''s "Clarification of amendment made in sub-section (6) of section 153 of the Income Tax Ordinance 2001 issued here on Tuesday: The provisions of sub-section (6) of section 153 of the Income Tax Ordinance, 2001 had been amended through Finance Act 2009 had been amended through Finance Act 2009 by adding sub clause (iii) and provision thereto, which read as under:-
"(iii) the rendering of or providing of services referred to in sub clause (b) of sub-section (1): Provided the tax deducted under sub clause (b) of sub section (1) of section 153 shall be minimum tax". These amendments are aimed at excluding the tax chargeable on services from the ambit of "Final Tax Regime". However, it has been observed that various interpretations as to the treatment of tax on services, after its exclusion from "Final Tax Regime", are being adopted. The matter has been examined again and in order to ensure a correct and uniform treatment, in supersession of earlier instructions issued through Circular No 6 of 2009 dated August 18, 2009, it is clarified that in view of the amendments made through Finance Act, 2009 as referred above, tax deducted on payments made for rendering or providing of services is to be treated "minimum tax" and henceforth taxpayer falling in the ambit of section 153(1)(b) shall file return of income instead of a statement under Final Tax Regime. Necessary action may be ensured accordingly, FBR instructions added.