Oil Companies Advisory Council (OCAC) has approached Federal Board of Revenue (FBR) seeking clarification on Finance Act 2018 whether advance tax imposed under section 236HA of the Income Tax Ordinance, 2001 is also required to be collected from distributors on sale of certain petroleum products.
Sources told Business Recorder that Oil Companies Advisory Council has sought a clarification from the FBR on the scope of the section 236HA of the Income Tax Ordinance, 2001. The purpose of section 236HA was to collect tax on high speed diesel (HSD) on ex-depot price of HSD (excluding dealers margin) as the prices of HSD were deregulated whereas on a plain reading of section 236HA, the same clarity has not been provided. Prior to introduction of the abovementioned section, only petrol pump operators were covered under section 156A hereunder oil marketing companies were required to collect advance tax at the rate of twelve percent (12%) of the margin of the petrol pump operators. Through the introduction of this section, the council understand that the Advance Tax is also required to be collected from distributors, which is not in line with the salient features of budget for financial year 2018-19, the council added.
According to a communication of Oil Companies Advisory Council to the FBR, the council has referred to the Section 236HA of the Income Tax Ordinance, 2001 introduced vide the Finance Act, 2018.
According to this section, every person selling petroleum products to a petrol pump operator or distributor, where such operator/ distributor is not allowed a commission or a discount, is required to collect advance tax on ex-depot sale price of such products at prescribed rates. Such tax would be final.
At the time of deregulation of margins on HSD back in December 2017, it was discussed with Federal Board of Revenue as to how advance tax on HSD would be collected as the end price of HSD would vary and therefore tax under section 156A cannot be collected. To fill this gap, appropriate amendments were to be made so that advance tax on HSD can be collected using any other mechanism.
In the context of the above discussion, the council requested for clarification as regards the following matters:
Products covered under section 236HA: The advance tax under section 236HA is required to be collected on sale of "certain" petroleum products. The term "certain petroleum products" as used in section 236HA has not been defined in the Finance Act, 2018. However, in the salient features of the Budget for the Financial Year 2018-19, it was clearly mentioned that the purpose of this section was to collect tax on HSD on ex-depot price of HSD (excluding dealers' margin) as the prices of HSD were deregulated whereas on a plain reading of section 236HA, the same clarity has not been provided. It is therefore, requested that the definition of the term "certain" to mean HSD fuel be provided so that the OMCs can apply the taxes accordingly.
Distribution covered under section 236HA: Prior to the introduction of the abovementioned section, only petrol pump operators were covered under section 156A hereunder oil marketing companies were required to collect advance tax at the rate of twelve percent (12%) of the margin of the petrol pump operators.
Through the introduction of this section, the council understands that the Advance Tax is also required to be collected from distributors, which is again not in line with the above referred discussion and salient features of budget for financial year 2018-19, the Oil Companies Advisory Council added.
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