SRO 586(I)/91

The Federal Board of Revenue (FBR) is likely to abolish, in the budget for 2011-12, redundant income tax and withholding tax exemptions, granted to some sectors under SRO 586(I)/91, which are contradictory to the provisions of the Income Tax Ordinance 2001.
Sources told Business Recorder here on Saturday that the FBR is reviewing income tax and withholding tax exemptions available under SRO 586(I)/91 to abolish redundant exemptions in the upcoming budget for 2011-12. The SRO 586(I)/91 had given exemptions to different categories of taxpayers. Due to various amendments made in the Ordinance 2001 for the last many years, some of the exemptions in the said notification have become redundant. The FBR has reviewed SRO 586(I)/91 to withdraw unnecessary exemptions specified in the said notification which are either available in the Ordinance 2001 or contradictory to the provisions of the income tax law. Some of the exemptions given through the SRO 586(I)/91 are not supported by Income Tax Ordinance, 2001. At the same time, the exemptions of SRO 586(I)/91, which are also available under the Ordinance 2001, would also be abolished. The changes in the SRO 586(I)/91 are expected in the upcoming budget for 2011-12.
It is important to mention that the FBR in September 2010 had directed the Large Taxpayer Units and Regional Tax Offices to review the redundant exemptions of SRO 586(I)/91. At that time, the FBR had also sought comments of the field formations on the SRO 586(I)/91 for withdrawal of exemptions, which are contradictory to the provisions of the Income Tax Ordinance 2001.
Under SRO 586(I)/91, income tax and withholding tax exemptions are available to provincial governments, local authorities, contractors of tribal areas/Azad Kashmir, companies receiving payments for supply of electricity/gas, companies receiving payments for supply of crude oil and other exemptions specified in the SRO 586(I)/91.
According to legal experts, certain exemptions of the said notification are surplus and contradictory to the provisions of the Income Tax Ordinance 2001.
Other exemptions of SRO 586(I)/91 include exemptions available to the shipping companies and air carriers receiving payments for the supply of passenger tickets and for the cargo charges of goods transported, oil refineries receiving payments for the supply of their products, oil marketing companies receiving payments for supply of petroleum products, hotels and restaurants receiving payments in cash for providing accommodation or food or both, persons receiving payments for supply of cotton seed, persons receiving payments not exceeding rupees Rs 25,000 on account of supply of goods in a fiscal; and not exceeding Rs 10,000 on account of services rendered or execution of a contract in a fiscal and other exemptions.
Sources said that there is no legal provision to continue superfluous exemptions of the SRO 586(I)/91, if any. In other cases, certain exemptions are no more valid as the same were available in the Ordinance 2001. The duplication of exemptions to certain units or sector also created distortions in the income tax regime.
According to sources, an exercise was undertaken by the FBR to review the exemptions provided under various clauses of SRO 586(I)/91 in order to rectify the surplus and contradictions vis-a-vis existing provision of the Income Tax Ordinance, 2001.
Legal experts say that exemptions had been granted to the Provincial Government under the SRO 586(I)/91. The income of Provincial Government is exempt under section 49(1) of the Income Tax Ordinance, 2001. For example, the said notification grants exemption to persons who are residents of the Tribal Areas or Azad Kashmir and execute contracts in Tribal Areas or as the case may be Azad Kashmir only and produce a certificate to this effect from the Political Agent concerned or the district authority, as the case may be, or in the case of Azad Kashmir, from the Income Tax Officer concerned. It has been argued that no such exemption is supported by any of the provisions of the Income Tax Ordinance, 2001. Withholding taxes are deductible in situations where payments are being made in settled territories, or by persons whose permanent establishments are situated in settled territories.
Moreover, under SRO 586(I)/91, persons produce a certificate from the Commissioner of Income Tax to the effect that their income during the income year is exempt from tax. Experts pointed out that this exemption is available under section 153(4) of the Income Tax Ordinance, 2001. Therefore, no such exemption is required to be extended through this SRO.
Referring to another exemption, sources said that the exemption is available to hotels and restaurants receiving payments in cash for providing accommodation or food or both as the case may be under the said notification. It is objected that the withholding tax under section 153 is not exempt on payments received by hotels and restaurants, under any of the provisions of the Income Tax Ordinance, 2001; therefore, there is no justification to extend it through an SRO.
Another exemption is available to shipping companies and air carriers receiving payments for the supply of passenger tickets and for the cargo charges of goods transported. Experts objected that the presumptive income tax is chargeable on the income of a resident person engaged in shipping companies and air carriers under the provisions of Clause (21) of Part-II of Second Schedule to the Income Tax Ordinance, 2001. Therefore, there is no justification to extend this exemption through an SRO.
Experts further said that no exemption thresholds are provided in any provisions of the law. Moreover, accounting for determination of annual thresholds for each taxpayer is perhaps not very much possible due to lack of documentation. Thus, any exemption relating to threshold under the said notification needs to be abolished.
Legal experts were of the view that under clause (1) (a) of Division-III of Part-III of First Schedule to the Income Tax Ordinance, 2001, the rate of deduction of withholding tax under section 153(1) on sale/supply of cotton seed is 1.5 percent. Therefore, the exemption provided by SRO 586 is illegal, and needs immediate withdrawal.
Another exemption is available to persons being manufacturers of goods, who produce a certificate from the Commissioner of Income Tax concerned to the effect that their income during the income year is not likely to be chargeable to tax due to assessed losses carried forward. The experts argued that the exemption is not supported by any provision of the Income Tax Ordinance, 2001 and needs immediate withdrawal.
Legal experts pointed out that the exemption is available to persons being owner of one goods transport vehicle, receiving payment once in a financial year from a payer on account of carriage of goods on behalf of such payer on a single journey undertaken during the said financial year. The exemption is not supported by any provision of the Income Tax Ordinance, 2001 and needs immediate withdrawal.
As per SRO, persons other than those whose income is liable to tax under section 80C who produce a certificate from the Commissioner of Income Tax to the effect that their income during the income year is not likely to be chargeable to tax due to assessed losses carried forward. Experts claimed that since Clause (57A) of Part-IV of Second Schedule provides exemption to large import house only, this exemption being illegal needs to be withdrawn.
Another exemption of the SRO said that persons other than those whose income is liable to tax under section 80B or 80C from whom tax has been deducted under sub section (4) of section 50 and the aggregate of the tax deducted under the said sub-section is equal to or exceeds the tax payable under section 53 of the Ordinance in respect of that income year and a certificate to that effect from the Commissioner of Income Tax is produced by such persons. Legal experts added that presently no such exemption is available under any provisions of the Income Tax Ordinance, 2001 and needs immediate withdrawal.