ISLAMABAD: A think tank Islamabad Policy Institute has asked the government to review the turnover tax on the oil marketing companies which is against the spirit of tax laws.

It has been said that the high rate of turnover tax has been putting an unjust financial burden on the OMCs that were already operating in a very challenging fiscal environment.

Turnover tax is being currently levied on the OMCs at the rate of 0.75 percent as the 'minimum tax under Section 113 of the Income Tax Ordinance 2001'.

The rate of 0.75 percent of turnover is excessive as the OMCs are bound to sell the goods on fixed margin which constitutes less than 3 percent of the turnover; and where margin is less than 3 percent of the turnover (meaning gross profit lesser than 3 percent of turnover) imposition of minimum tax at the rate of 0.75 percent of the turnover is very high.

The objective of minimum tax was to require the companies which suffered loss or made low profit during a tax year to contribute reasonable amount in relation to their respective turnover towards the government exchequer during that year - something they would be entitled to adjust against normal tax liability of subsequent years.

The think tank pointed out that the OMCs, however, end up paying minimum tax instead of normal computed tax rate, which is 29 percent levied on the taxable income.

OMCs are already suffering from an effective tax rate on earnings that is significantly higher than the 29 percent stated Corporate Tax Rate in the country.

The turnover tax is effectively negating the provisions of Section 57 of the Income Tax Ordinance, 2001 and is putting a significant additional financial burden on the long term viability of the regulated petroleum sector, the think tank argued.

The profit margin of petroleum dealers, petroleum agents and distributors is higher than that of OMCs, the petroleum dealers operating petrol pumps are exempt from this tax and petroleum agents were enjoying low rate of 0.25 percent.

Copyright Business Recorder, 2021