The Board of Investment (BoI) has decided to move a summary to the Economic Co-ordination Committee (ECC) of the Cabinet to clarify that tax holiday covers exemption from minimum tax under Income Tax Ordinance 2001 to all enterprises related to oil and gas sector, without discriminatory treatment to a particular company.
Sources told Business Recorder on Wednesday that the BoI pointed out that tax concession (tax holiday covers exemption from minimum tax) approved by the ECC has not been completely incorporated in the Income Tax Ordinance, 2001. As almost all the enterprises related to oil and gas sector have been provided exemption, there is no economic and technical basis for discrimination for a specific entity in the same sector. At the same time, BoI has yet not received any response of the Federal Board of Revenue (FBR) for extending exemption of minimum tax to a company of oil and gas sector. Details revealed that on the summary moved by Ministry of Petroleum & Natural Resources, the ECC granted tax exemption for seven and a half year to Byco Oil Pakistan Limited, for the refinery project located at Gaddani vide its decision dated March 19, 2009. This was based on the incentives approved by ECC vide their decision ECC-136/112007 dated October 10, 2007 for Coastal Refinery Khalifa Point which was never set up.
In the pursuance thereof, Federal Board of Revenue (FBR) introduced exemption for the corporate tax by way of Clause (132A) of Part I of the Second Schedule to the Income Tax Ordinance, 2001. At the time when this Clause was being introduced and negotiations/discussions with FBR were underway, there were no provisions for the charge of Minimum Tax on turnover. Section 113 of the Ordinance was deleted in 2008 and was reinserted by the Finance Act, 2009]. As a result, FBR notified tax holiday for only corporate tax on profits, without mentioning exemption from Minimum tax @ 0.5 percent on turnover, despite the fact that the ECC had granted tax holiday to Byco Oil Pakistan Limited. Tax levied under the Income Tax Ordinance represents taxes based on income and a minimum tax liability based on turnover. In almost all the cases, especially in capital intensive high turnover project, exemption is provided for taxes encompassing both the forms of direct tax levy under the Ordinance.
The BoI said that it will be appropriate to point out that under Clause (11A) of Part IV of the Second Schedule to the Income Tax Ordinance, majority of entities exempt from income tax under Part I of the Second Schedule (normal income) have also been provided exemption from minimum tax. Almost all the enterprises related to oil and gas energy sector have been provided exemption in the manner referred to above. There is no economic and technical basis for discrimination for entity exempt in same sector, particularly in view of ECC decision for granting tax holiday.
M/s Byco approached FBR in this regard through its letter dated July 10, 2013.In response to aforementioned letter the FBR regretted the approval vide letter dated 30.07.2013. Moreover BoI vide letter dated January 23, 2015 requested the FBR for consideration on the exemption from minimum tax. A reply is awaited.
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