The Federal Board of Revenue has skipped some critical areas such as taxation of services liable to withholding tax while devising/finalising the income tax returns for Tax Year 2012. Tax experts told Business Recorder here on Saturday that the FBR has not taken up some important issues in the new return form.
For example, taxation of services liable to withholding tax u/s 153(1)(b) of the Income Tax Ordinance @ one percent read with SRO 333(I)/2011 dated May 2, 2011 has been not been taken into account in the fresh return. The FBR has not placed receipts of services sector under Minimum Tax Regime in light of Proviso (b) to sub-section 3 of section 153 of the Ordinance, 2001.
The law on the issue is very clear, as per proviso (b) to sub-section 3 of section 153 of the Income Tax Ordinance, 2001 income tax deducted on these transactions shall be treated as Minimum Tax Liability instead of final tax liability, the tax so deducted u/s 153(1)(b) of the Ordinance is neither adjustable against any other receipt/income nor refundable.
They said under clause 3 of Part II of Second Schedule to the Income Tax Ordinance, 2001 tax in respect of income from services rendered outside Pakistan shall be charged at the rate of one per cent of the gross receipts, provided that such receipts are brought into Pakistan in foreign exchange through normal banking channel.
At Serial No 88 of Return of Total Income/Statement of Final Taxation, Services rendered outside Pakistan have been taxed at the rate of 0.5%. They stated that under Part III of Second Schedule to the Income Tax Ordinance, 2001 tax payable by a full time teacher or a researcher, employed in a non profit education or research institution duly recognised by Higher Education Commission, a Board of Education or a University recognised by the Higher Education Commission, including government training and research institution, shall be reduced by an amount equal to 75% of tax payable on his income from salary.
The formula for computation of tax liability in the tax return devised by FBR is not correct. When a teacher or researcher having other professional income liable to minimum tax u/s 153(1)(b) of the Ordinance claims reduction in tax liability @ 75% on salary income, the faulty tax return did not compute the correct tax chargeable.
The law on the issue is very clear, tax shall be reduced by an amount equal to 75% of tax payable on his income from salary but while computing the difference of minimum Tax chargeable on transactions referred to in [40(e)(v) minus 40(e)(iii)] especially under Serial No 40(d) the formula is incorrect. The reduction in tax fully admissible against portion of income chargeable under the head Salary has been curtailed by adopting the proportionate income tax under Serial No 40(d) of the tax return, they added.