Eight percent minimum tax under section 153 (1) (b) of the Income Tax Ordinance, 2001 would be applicable to companies providing services such as telecom companies (cellular and landline service providers), courier companies, logistic companies, security companies, internet service providers, labour hiring companies and other service provider companies.
Sources told Business Recorder here on Wednesday that under the amended Finance Bill 2015, companies providing services are liable to pay minimum tax under section 153 (1) (b) irrespective of their profit or loss. For filers, the rate is 8 percent and non-filer companies providing services would be subjected to12 percent. The amendment would be effective from July 1, 2015.
Earlier, these service provider companies were seeking exemption certificates which they cannot obtain after new amendment. When asked about the revenue impact of the proposed measure, sources said that keeping in view gross receipts of the major services providers like cellular companies, the revenue impact would be substantial and within the range of billions. Giving rationale behind such huge impact, these are merely rough estimates. Let the service provider companies start paying their due amount of minimum tax from July 1, 2015, the official added.
When contacted, a tax expert said that according to the revised Finance Bill 2015 passed by National Assembly, the government has withdrawn an amendment to Section 153 of the Income Tax Ordinance of 2001, which had been proposed on June 5. The amendment allowed services provider companies to claim income tax refunds from Tax Years 2009 to 2015, however, the proposal has not been accepted by legislators. Resultantly service provider companies shall also pay minimum tax at the rate of 6 percent for the preceding tax years, which was applicable in the past.
In budget (2015-16), the FBR had proposed that service provider companies should be allowed to claim adjustments of 6 percent income tax deducted under Section 153(1) (b) as refundable on the basis of net income/loss declared in the income tax returns for the Tax Years 2009 to 2015 but this proposal has been made by the members of the both houses NA as well as Senate.
Tax expert told this correspondent that proposal to charge 8 percent tax as minimum liability for service provider was not part of the Finance Bill 2015 issued on June 5. After amendment through amended finance bill has denied service providing companies the right of getting 6 percent & 8 percent (as applicable in the respective tax years) tax refundable when there is loss declared by a company in the annual income tax return. At present, the FBR is treating 10 percent advance income tax paid by the non-corporate service providers like IND & AoPs as minimum tax.
Giving background of the issue, the expert added that the issue of treating income tax deducted under section 153(1)(b) as minimum, final or adjustable tax for the service providers dates back to 2006. Three years later, the government declared that the advance income tax will be the minimum tax for the service providing companies. Again, in 2011, the FBR through a SRO allowed the companies to claim adjustments/refunds against the advance income tax. Through S.R.O 1003(I)/2011, the Government inserted Section 79 in the Second Schedule. It allowed the companies to claim adjustments as well as refunds. Later, Federal Tax Ombudsman has passed an order, asking the FBR to withdraw Section 79 from the Second Schedule or get it approved retrospectively from the Parliament. In Finance Bill 2015 issued on June 5, the FBR had proposed that the withholding tax on services not to be minimum tax in case of companies since 2009.
Senate had also recommended NA to withdraw the proposed amendment in the Income Tax Ordinance, 2001 to give benefit to companies retrospectively through Finance Bill (2015). Senate had recommended changes in the Finance Bill (2015) for withdrawal of the proposed amendment in Section 153 which was amended in 2009 to levy a 6% minimum tax on service providing companies without adjustable proviso. Now to give benefit to these companies, they have been exempted and that too from 2009. Annual Loss will be plus Rs 30 Billion, accumulated loss from 2009 will be about 125 billion. Therefore, the Senate recommends to the NA that the said provision may be revoked.
Sources further said that the matter of minimum tax has also attained finality as decided by the FTO in (2012 PTD 554) while Review filed by FBR in (2013 PTD 2159) was also rejected. Tax expert added under the Finance Act, 2009, an amendment was made in section 153 rendering all service sector taxpayers subject to minimum withholding tax @ 6 percent of gross receipts.
It meant that a refund could not be allowed against income tax deduction if assessed income tax was less than the amount withheld @ 6 percent of gross receipts. The FBR letter C.No 1(6)WHT/2009, Circular No 3 of 2009 dated 17.07.2009 and a clarification was issued dated 26-04-2011 were issued on the matter of minimum tax on service providers. Thereafter, SRO.1158(I)/2010 dated 30.12.2010 and SRO.850(I)/2011 dated 17.09.2011 were issued to notify electronic Returns of Income for corporate sector taxpayers for Tax Years 2010 and 2011 in which the calculation of Minimum Tax u/s 153(1)(b) of the Ordinance @ 6 percent of services sector receipts was provided as per enactment of section 153(1)(b) through Finance Act 2009. On the other hand, Circular No 6 of 2009 had placed corporate service providers outside the purview of Minimum Taxation under section 153(1)(b). Now, the issue has been resolved in Finance Act, 2015. Resultantly, service provider companies shall also pay Minimum Tax at the rate of 6 percent for the preceding tax years, the tax expert added.