The Federal Board of Revenue Chairman Mumtaz Haider Rizvi has agreed in principle to two major taxation proposals of the opposition to amend Income Tax Ordinance 2001 including introduction of tax difference of 5 percent between a private limited company and a public listed company to incentivise companies to opt for listing on stock exchanges from July 1, 2013.
On behalf of 17 Senators of the opposition parties, Senator Ishaq Dar presented budget proposals including amendments to the Income Tax Ordinance 2001 before the Senate Standing Committee on Finance here on Thursday, saying that he is not only representing PML (N), but other opposition parties for submitting budgetary proposals.
Ishaq Dar proposed that the listed companies with free reserves of more than 50 percent of its paid up capital must distribute at least 40 percent of taxed profit as cash dividend. The second proposal is that the tax difference of 5 percent between a private limited company and a public listed company should be introduced to incentivise companies to opt for listing on the stock exchanges.
Responding to the proposal of distribution of cash dividends, Mumtaz Haider Rizvi said that the FBR has examined the proposal during the budget preparation exercise for 202-13. It is a revenue generation measure which has been supported by the FBR. However, the Securities and Exchange Commission of Pakistan (SECP) and Tax Reform Co-ordination Group (TRCG) have opposed the proposal and the FBR has not made this proposal part of the Finance Bill (2012-13). The investors are facing liquidity crunch and there is a need to encourage investment. Keeping in view current economic situation, it would not be appropriate to implement the said budget proposal during 2012-13. The proposal may be dropped during the current budget (2012-13) and considered for the next financial year (2013-14).
Ishaq Dar asked the FBR Chairman that instead of dropping the proposal, this could be enforced prospectively from July 1, 2013. Similarly, from July 1, 2013 tax difference of 5 percent between a private limited company and a public listed company could be introduced to incentivise companies to opt for listing on stock exchanges.
FBR Chairman responded that the actual impact could be seen in case both the proposals have been simultaneously implemented from July 1, 2013. Both the proposals should be clubbed so that it would be for the benefit of the small investors. The advantages of both the proposals could be visible by implementing both the proposals at the same time. The revenue loss from one proposal would be compensated with the relief provided in the second proposal. These proposals should not be considered in isolation, but simultaneously be considered for the benefit of investors as well as shareholders.
The FBR Chairman said that it is a very good proposal that the tax difference of 5 percent between a private limited company and a public listed company could be introduced to incentivise companies to opt for listing on stock exchanges. Similarly, the FBR also favours the proposal that the listed companies with free reserves of more than 50 percent of its paid up capital must distribute at least 40 percent of taxed profit as cash dividend.
The FBR Chief Income Tax Policy Dr Iqbal proposed that objectives of both the proposals is to provide incentives on dividends in the from of reduction in taxes. Therefore, there should be only one proposal instead of two separate proposals. Responding to this, Ishaq Dar opined that both the proposals have different rationale and these cannot be considered as a single proposal.
Ishaq Dar also proposed amendment in the Income Tax Ordinance 2001 so that the assessment once amended should not be re-amended except under section 122 (5) of the Income Tax Ordinance 2001 and period for such re-amendment of assessment should be reduced to three years. The FBR Chairman requested the committee to defer the proposal as it is not feasible to reduce the time period from existing 5 years to 3 years during the ongoing exercise of broadening the tax-base. We are ready to reduce the time period of re-amendment of assessment from 5 to 4 years in 2013-14 but this year it is requested that the proposal should be dropped. Taking into account the request of FBR Chairman, committee dropped the proposal with the commitment that the same would be made part of the Finance Bill of 2013-14.