A leading public sector company engaged in the marketing and distribution of petroleum products has informed Federal Board of Revenue (FBR) that the company has paid Rs 9 billion to the national exchequer as advance tax under the heads of sales tax, income tax and customs duty and the tax authorities should resolve the taxation related issues of petroleum sector.
In a communication to the FBR, the company said it has paid Rs 9 billion as advance tax under the heads of Sales Tax, Income Tax and Customs Duty. It acknowledge and appreciate the issuance of sales tax related SRO by FBR restoring the value of supply basis of taxability of petroleum products, as requested by the company in this regard.
The company requested exemption of income tax withholding on LNG at import stage and taxation of LNG at corporate tax rate on the same basis as allowed for POL products; and exclusion of lubricating Oil from Chapter XIII of Sales Tax Special Procedures Rules-2007 for Oil Marketing Companies and making it taxable at its value of supply.
The company had submitted its budget proposals for 2016-17, but out of other matters two very important issues have not been given any consideration.
Exemption/reduction of Income Tax withholding on LNG at import stage:
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 was suggested to exemption withholding tax at import stage on the LNG product by also including the same under clause (56) of part IV of 2nd Schedule to the Income Tax Ordinance, 2001, for alternatively the tax rate be reduced to 0.5%.
It is pertinent to mention here that 1% tax at import stage on LNG constitutes effective tax rate on LNG income which is quite higher than the normal corporate tax of 31%. This high tax rate is making the LNG business non lucrative for company as the margins allowed by OGRA to the company in LNG business are very thin.
Exclusion of Lubricating Oil form Chapter XIII of Sales Tax Special Procedures Rules 2007: Lubricating Oil has been included in chapter 13 (Special procedure of Extra Sales Tax on specified goods) of Sales Tax Special procedures Rules, 2007. The goods falling under chapter 13 of Special Procedures attract extra amount of sales tax at the rate of 2% in addition to the normal sales tax rate of 17% and only the manufacturer and importers are required to charge the aforesaid normal sales tax and thereafter the whole supply chain has been exempted from charging of any sales tax.
The company does not only manufacture and sell lubricants but it also acts as a trader ie it markets lubricants that it purchases in the finished form and then sells it to registered customers who are Largely Industrial Units. Due to the inclusion of lubricating oil in chapter 13, in case of trading of lubricants, it has to make this 17% and 2% extra tax charged by manufacturers as part of its cost of subsequent sales and hence, the customers cannot claim the input tax due to non-issuance of Sales Tax Invoice.
Due to the aforesaid reason, product supplied by company is becoming costlier as compared to that supplied directly by manufacturers. Consequently, the company which is a state owned organisation is losing as customers of lubricating oil business as the customers are now shifting to other manufacturers of lubricating oil to take input claim thereon.
In addition to this, the company said through proposed budget 2016-17, the definition of input tax has been proposed to be amended to exclude the sales tax paid under respective provincial laws currently, company avails input sales tax adjustments on account of different provincial services in FBR vide its Federal Sales Tax Return. Such exclusion of provincial sales tax from the definition of Input tax will defeat the concept of VAT mode of taxation and will add to the cost of doing business of the company which is already struggling with thin margins allowed on POL business. Further, the proposed amendment is already receiving adverse responses from the provincial tax authorities as well as affectee industries. In view of the aforesaid, it is requested that the proposed amendment in the definition of Input tax shall be dropped.
Super tax @ 3% was imposed through Finance Act, 2015 for the tax year 2015 on One Time Basis. However, the said super tax has boon retained in the proposed budget for the tax year 2016 as well.
The continuance of super tax is defeating the original intention of this tax as being a onetime levy for temporary raise of funds to the national exchequer.
Further, it is also against the pursued intention of the Government to reduce tax incidence on corporate sector by reducing the corporate tax rate by one percent each year as its imposition is negating the financial benefit of such reduction in corporate rate. Additionally it is pertinent to mention here that margins of Oil Marketing Companies are very thin and this super tax adds to the financial woes of the already burdened sector of the Oil Marketing Companies (OMCs). In view of the aforesaid, it is requested to grant exemption from Super Tax charge to OMCs, company added.