Pakistan State Oil Company Limited (PSO) has proposed to the Federal Board of Revenue (FBR) to specifically exempt withholding tax at import stage on the LNG products in budget (2016-17) by also including the same under clause (56) of Part IV of 2nd schedule of Income Tax Ordinance, 2001, or alternatively the tax rate be reduced to 0.5 percent.
According to the budget proposals of the PSO submitted to the FBR for consideration in 2016-17, various POL Products have been specifically exempted from withholding tax at Import stage applicable under section 148 read with clause 56 of Part IV of 2nd schedule of the Income Tax Ordinance, 2001. The LNG product is not covered under the aforementioned exemption; therefore, it is suggested to exempt withholding tax at import stage on the LNG product by also including the same under clause (56) of Part IV of 2nd schedule of Income Tax Ordinance, 2001, or alternatively the tax rate be reduced to 0.5 percent.
It proposed that the minimum Tax under section 113 requires a company to pay tax @ 0.5% on turnover. The definition of turnover does not include Sales Tax as it is merely a collection on behalf of government and not a revenue item. Similarly, Petroleum levy should also be excluded from the definition of Turnover. Further since OMCs operate with very thin regulated margins, the provision of section 113 shall not be applicable on OMCs or the rate be reduced to 0.2 percent.
Companies are required to deposit withholding income tax in government treasury on a weekly basis under rule 43, clause b. This was previously required on a fortnightly basis. This weekly requirement has really overburdened tax payers with weekly reconciliations etc in this respect. PSO recommends that law should be suitably amended to provide for payment of advance tax twice a month within one week of each fortnight since this amendment will not have any adverse effect on Government Revenue and will only facilitate clerical workings for Tax Payers, it proposed.
The Income Tax Ordinance previously allowed taxpayers to get stay of demand in an audit on payment of 15% of the principal amount of tax. This provision should be reinstated keeping in view the multiple audit culture currently prevailing at the FBR. All intercompany dividends should be exempted from tax as it virtually results in double taxation, it proposed.
Employers' contribution in the recognised provident fund in excess of Rs 100,000 per annum is considered taxable. Since salary is taxable on receipt basis this provision results in taxability of salary on accrual basis and accordingly such ceiling needs to be removed. In case there is any concrete reason to keep the limit then the amount of limit should be revised upwards to Rs 500,000 cater for the inflation effects. Exemption of Income of Workers Profit Participation Fund should be explicitly mentioned in Income Tax Ordinance, 2001.
SALES TAX ACT, 1990: Any input tax disallowed due to non payment of sales tax invoice within 180 days should be allowed when payment is actually made.
Section 8 debars a registered person - buyer from claiming input tax if the supplier has not deposited the relevant sales tax on the transaction. This bar should be eliminated as buyer cannot check from every supplier whether he has deposited sales tax on the relevant transaction to the FBR or not.
Section 7(1) of the Sales Tax Act, 1990 allows input tax adjustment up to six months (from the month in which the invoice was issued). This limit was previously up to twelve months. It is recommended that the limit of 6 months be extended to 12 months. A registered person will not be deprived of claiming his legitimate input tax without causing any loss of revenue to the government.
The Federal Government has been collecting sales tax on toll manufacturing charges as it has repeatedly defined/clarified that the toll manufacturing activity falls under the definition of manufacturing. The provincial governments have also brought the toll manufacturing activity under the ambit of services and have made it subject to sales tax under the respective Sales Tax Acts. This tantamount to duplication of sales tax as the taxpayer is now required to pay sales tax at the standard rate to both federal and provincial governments. It is proposed that Federal and Provincial Governments should reconcile their differences and decide among themselves about the correct authority to collect sales tax on toll manufacturing activity so that a registered person is not subject to duplication of sales tax, PSO proposed.
The revision of Sales Tax Return for any error or omission is subject to the prior approval of the Commissioner Inland Revenue within 120 days of filing of original return. It is proposed that provisions for auto revision may be restored and the time limit of 120 days for applying revision of return may be enhanced to 12 months as the existing provisions seems to be very harsh and against the principles of equity and nature justice. Sales Tax Special Procedures Rules, 2007 should be amended to allow PSO to issue sales tax invoice to its customers on the trading of lubricating oil, it proposed.