ISLAMABAD: The government has reportedly decided to exempt National Telecommuni-cation Corporation (NTC) from 8 percent minimum tax, through amendment to Income Tax Ordinance 2001. National Telecommunication Corporation was established under section 41 of the Telecommunication (Re-organization) Act, 1996, in order to provide services only to the Armed Forces, Defence subjects, Federal Government, provincial governments, or any such other governmental agencies or government institution(s) as the Federal Government may determine.
Initially, in accordance with section 41(18) of the 1996 Act, NTC was granted exemption for a period of three years. Thereafter, being a company in terms of section 80(2)(b)(ii) of the Income Tax Ordinance 2001 it has been paying Income Tax applicable as per Rules at the following rates;(i) taxable profit, for which normal tax rate is defined in division II, part-1 of the First Schedule of Income Tax Ordinance 2001 (currently @29%) and ;(i) Minimum Tax 9@ 1.25 percent of turnover (revenue) as per section 113 of the income Tax Ordinance 2001.
The sources said, that in Finance Act, 2015, Clause 79 of (Part iv exemption from Specific Provisions) of the 2001 Ordinance was omitted " the provision of clause (b) of proviso to sub-section (3) of section 153 shall not be applicable to the tax withheld on payments received by a company for providing or rendering of service."
The omission of Clause 79 rendered the provisions of Section 153 (b) of the Income Tax Ordinance, 2001 applicable to NTC & consequently, the Tax Liability of NTC increased drastically from 1.25% to 8% of its turnover. In the light of this development, the NTC Management Board in its 93rd meeting, held on July 19, 2018, resolved "NTC to forward the case for grant of exemption from 8% as minimum tax rate as a final tax and request for applicability of tax as before the above amendments i.e. 1.25% of turnover as minimum adjustable tax to Finance Division through MoI&T."
The IT and Telecom Division was forwarded the request of NTC to Finance Division which stated that it not a general commercial telecom licencee, and not a competitor of any other telecom service provided but an essential entity of the state machinery. Finance Division was requested to take necessary action as per Rules. Finance Division forwarded the case to the Revenue Division.
The Revenue Division, in its response, stated that NTC is a taxable entity and falls within the ambit of a 'company' in terms of section 80(2)(b)(ii) of the ITO 2001. Thus, the tax withheld @ 8 per cent under section 153(1)(b) of the ITO 2001. Section 153(1)(b) of the ITO 2001 constitutes the minimum tax in terms of section 153()(b) of the ITO 2001. Thus Revenue Division contended that the proposal cannot be acceded to.
The NTC again contended that it cannot be treated at par with the telecom companies as their mandate is restricted to government organizations only with a view to provide safe, secure and independent telecom service, free from private control. They also contended that their clients are government departments which put them at a disadvantage as compared to private telecom companies whose sales are a mix of private and corporate sales, with different taxation for both sets of clients.
The sources said that the IT&T Division requested the Finance Division to take up the matter with Revenue Division for exemption of income tax @ 8 percent in favour of NTC.
According to sources, Revenue Division stated that exemption can only be granted through amendment in the statute which is the prerogative of the legislature and a summary may be moved to the Federal Government to request for grant of subject exemption.
The draft bill to further amend the Second Schedule to the Income Finance 2001, was sent to Law Division for vetting in terms of Rule 14(1) of the Rules of the Business 1973. Law and Justice Division has vetted the draft bill.
The matter was discussed in ECC meeting held on November 7, 2019 which constituted a committee under the chairmanship the then Minister for Economic Affairs Division, Hammad Azhar with members including (i) Minister for IT& Telecom; (ii) Minister for Power; (iii) Minister for National Food Security and Research; (iv) Chairman BoI; and (v) representative of the FBR.
The committee in its meeting held on December 13, 2019 recommended that the FBR review cases of such companies providing services, whose cost of sales was greater than their sales, resulting in gross loss in their books of accounts. The committee further recommended that FBR may consider that such companies take out this regime (minimum tax of 8 percent) by putting forth a budgetary proposal for the financial year 2020-21.
The IT & Telecom Division proposed that the bill to further amend the Income Tax Ordinance 2001 may be approved in terms of Rules 16(1)(a) and Rule(1)(d) of the Rules of Business 1973.
Copyright Business Recorder, 2020
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