The Trading Corporation of Pakistan (TCP) has asked the Federal Board of Revenue (FBR) to clarify the rate of withholding tax on purchase of lint cotton under the prevailing laws, as the rate would have future implications for TCP if government intervenes in the market during current season. It is learnt on Monday that the TCP has written a letter to the FBR seeking clarification of withholding tax rate on purchase of ginned/lint cotton.
According to the TCP, as per government's directive TCP has purchased lint cotton from cotton factories located in different parts of the country and deducted Income Tax, on the advice of their tax consultant/chartered accountant as well as clarification received from Large Taxpayers Unit Karachi on the following rates, ie, 4.5 percent of the gross amount in case of non-corporate seller and 4 percent of the gross amount in case of corporate seller.
TCP's tax consultant has stated in his advice that withholding tax will be applicable on purchase of ginned cotton under section 153(1)(b) of the Income Tax Ordinance, 2001 and not under the Clause 1(a) of Division III of part III of the First Schedule of the income Tax Ordinance, 2001. However Pakistan Cotton Ginners Association (PCGA) does not agree with the above rate. In its letter, the Association has contested that ginned/lint cotton is covered under the lower rate and according to the Income Tax Ordinance, 2001 withholding rate on ginned/lint cotton is 1 percent. The Chairman PCGA in his meeting with TCP management requested to refer the case to Chairman FBR for guidance being a policy matter.
In view of the above, it is therefore, requested that the TCP may kindly be guided on withholding rate applicable on the purchase of lint cotton under prevailing laws as this aspect has future implications for the TCP, if government desired to intervene in the market during the current season, the TCP added.
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