Disposal of cars prior to registration: Concept of additional tax to curb 'on money' introduced

ISLAMABAD: The Finance Bill 2021-22 has introduced the concept of additional tax on disposal of vehicles prior to its registration with the Excise and Taxation Department to discourage 'on money'.

According to the Finance Bill 2021-22, every motor vehicle registration authority of the Excise and Taxation Department shall, at the time of registration, collect tax at the rates specified in Division VII of Part IV of the First Schedule, if the locally-manufactured motor vehicle has been sold prior to registration by the person who originally purchased it from the local manufacturer.

Explaining the salient features of the Finance Bill 2021, a tax expert, Amer Javed Ahmad, senior partner, Rafaqat Babar and Co Chartered Accountants explained that the bill proposes to tax the concept of "on" money of vehicles, which is the imposition of tax on disposal of vehicles provided that the vehicle is disposed of without getting it registered.

The bill has now expanded the scope of withholding on, taxpayers included in the supply chain (such as 236G and 236H), domestic consumers of electricity subject to minimum electricity consumption of 25,000, rental income from sub-lease, commission income, removal of separate notice requirement in the cases of concealment, profit on debt realised on GP and certain other funds.

The bill also proposes to increase the revenue by broadening the tax base for IT services, telecommunication industry and agriculture industry by introducing the novel concept of cloud computing and data storage services and altering the definition of industrial undertaking.

To regulate the blanket exemption given to export of IT or IT-enabled services, it is proposed to levy one percent tax on funds received through normal banking channel.

It will empower the government to monitor and regulate black money routed through this provision and to catch plunders. The bill also proposed to delete exemption on medical allowance to salaried class. This would be setback to salaried individuals.

The bill seeks to provide relief by withdrawing a minimum of 12 withholding taxes such as 153B,231A, 231AA, 236P, 236Y, 236B, 236L, 236V, 233A, 233AA, 234A,and236HA.

The bill further proposes to decrease or obliterate the rate of taxation on, turnover, export of services, capital gain on immovable property, profit on debt, oilfield services, warehousing services, logistic services, capital gain on securities, and tax on dividend from certain projects.

The main hurdle to masses who maintain bank accounts for any reason but are not subject taxable income earners. They were burdened with compulsory deduction of tax on withdrawal of money.

They have been now relaxed and mandatory tax deduction has been done away.

Moreover, the bill has proposed to tax property income under the NTR regime and adjustment of business losses against such property income.

The bill further proposes to exempt certain incomes/classes of incomes such as turnover tax exemption to special economic zone enterprises, 10-year exemption of tax for special technology zones authority, developers and enterprises of special technology zones, tax exemption on the import of capital goods, exemption to electronic warehousing receipts traded on PMX, import tax exemption on import of books and agriculture equipment, and tax exemption to baggasse fired power generating units.

The following further propositions have been proposed by the bill whereby, certain powers granted to commissioner have been relinquished such as power to reject advance tax estimates as well as conduct of inquiry under section 122(5A) of the Income Tax Ordinance, 2001.

This amendment is proposed on demands of taxpayers at large. The authorities were misusing to this section to harass the taxpayers. The bill has introduced a totally novel concept of tax credit of 25 percent from the tax liability to women entrepreneurs in order to promote and facilitate women entrepreneurship.

Bill proposes to rationalise the different provisions of the Ordinance by introduction/ alteration of different provisions.