WHT on service providers: FBR mulling over rate reduction to one percent

The Federal Board of Revenue (FBR) has decided to reduce 6 percent withholding tax on service providers to one percent minimum tax under section 153 (1) (b) of the Income Tax Ordinance 2001. Sources told Business Recorder here on Thursday that the FBR had sought opinion of the Law and Justice Division for making 6 percent minimum tax as adjustable. Law Division has informed the FBR that the Board should go to the Parliament for obtaining approval.
The FBR cannot itself change minimum tax into adjustable tax which was approved by the Parliament. According to sources, FBR is examining pros and cons of the proposal before notifying reduction from six to one percent on the minimum tax for service providers in the light of the viewpoint of the Law and Justice Division. The present status of the proposal is that the FBR has obtained the approval from the Ministry of Finance for issuance of notification. So far, the FBR has yet not issued the notification for reducing 6 percent withholding tax on all service providers to one percent minimum tax under section 153 (1) (b) of the Income Tax Ordinance 2001.
Sources said that the FBR is planning to reduce 6 percent withholding tax on all service providers covered under section 153 (1) (b) of the Income Tax Ordinance 2001 to one percent minimum tax, causing massive revenue loss of around Rs 21 billion to the national exchequer.
The FBR is seriously considering to reduce withholding tax on service providers from 6 percent to one percent minimum tax, which may cause huge revenue loss to the national exchequer. The FBR has worked out the revenue loss following a proposal of a private sector to make 6 percent withholding tax on service providers adjustable instead of minimum tax. The FBR is working on a proposal to change the withholding tax regime for service providers under section 153 of the Income Tax Ordinance 2001. In case of minimum one percent tax on certain categories of companies under section 153 of the Ordinance 2001, it would result into massive revenue loss to the tune of Rs 21 billion. Some of the service providers having status of corporate taxpayers are already subjected to one percent turnover tax under section 113 of the Income Tax Ordinance, 2001.
When one percent turnover tax is applicable on a sector, it is yet not clear that how the same sector would again be subjected to one percent minimum tax as compared to other sectors subjected to 6 percent withholding tax under section 153 of the Income Tax Ordinance 2001. The idea is not to make existing 6 percent tax as adjustable for these companies but to make it minimum tax causing loss to the national exchequer.