The Federal Board of Revenue (FBR) has issued a clarification for computation of export profits in cases of exporters engaged in the local sales as well. In this connection, the FBR has issued instructions to the Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) on Thursday to remove ambiguities raised by the exporters.
The directive specifically talks about the 'Difficulties being faced by the taxpayers due to omission of Rule 231 of the Income Tax Ordinance 2001'. Sources told Business Recorder that where the exporters have income from exports as well as local sales, it is necessary to determine the quantum of the income to be taxed under the normal regime as well as export regime. The procedure for the computation of export profits would identify the income attributable to exports on average basis.
The computation of export profits is done under the Income Tax Ordinance to determine the quantum of income against the tax liability of the exporters. If the exporter has made export worth Rs 10 million in a Tax Year, the computation of export profits would help in determining the tax to be applicable under the Income Tax Ordinance 2001.
Sources said that the need for explanation arose as Rule 231 of the Income Tax Rules 2002 was omitted in May 2009. However, the said rule was reinstated on February 2, 2010. During the period when Rule 231 was omitted, the field officers tried to prorate the expense of the exporters in light of section 67 of the Income Tax Ordinance 2001 read with rule 13 of the Income Tax rules 2002. This meant that the expenses were to be prorated on the basis of revenue, which has created hardship for the exporters. The FBR has now clarified that for the Tax Year 2009 for which the Rule 231 was not available, action under section 231A shall not apply and the computations shall be made by averaging of expenses for the period in which Rule 231 stood omitted.
According to the FBR instructions issued to the field formations, "the representations have been received in the Board that for the period pertaining to Tax Year 2009 for which Rule 231 remained omitted from the statue book (May 20, 2009 to June 30, 2009), tax officers are restoring to action under section 122(5A) of the Income Tax Ordinance 2001 holding that since Rule 231 had been suspended on May 19, 2009, therefore, proration under section 67 of the Income Tax Ordinance 2001 has to be made in the Tax Year 2009 on gross amount of sales without deduction of expenses".
"The matter has been examined in the board and it is clarified that since Rule 231 has been reinstated with effect from February 2010, the treatment under section 122(5A) in this context being adverse and harsh is not justified. It is, therefore, directed that averaging of expenses for the period May 20, 2009 to June 30, 2009 may be allowed/adopted in such cases. These instructions may be brought to the knowledge of all concerned for compliance," FBR instructions added.