The Directorate General of Intelligence and Investigation Inland Revenue (IR) is seeking legal option that whether a leading petroleum company can be treated as designated buyer for import of LNG on behalf of the government of Pakistan on government to government basis only, or the income tax law also extends exemption to commercial imports of LNG made by the said company from other countries through bidding process.
Sources said that the agency is investigating a case against the alleged non-payment/short-payment of advance income tax on import of LNG by the company cleared through Port Qasim. The agency has sought a legal opinion from the Federal Board of Revenue (FBR) legal experts in this regard.
The issue is mainly related to the commercial imports of LNG through the bidding process which is covered under sub clause (vii) of S No I to the Table to Part-Il of Second Schedule to the Income Tax Ordinance, 2001 ?, sources said. According to the directorate, a petroleum company has been importing LNG since July 2015 from various countries and paying advance income tax at the reduced rate of 1% in terms of sub clause (vii) of S No 1 to the Table to Part-II of Second Schedule to the income Tax Ordinance. 2001.
Exemption under the said sub clause is admissible only to the "Designated buyer of LNG on behalf of Government of Pakistan, to import LNG. The Directorate General is of the view that while the company is authorised both to import LNG on behalf of the Government of Pakistan for end use by state owned companies, ie, SSGCL, SNGPL, from Qatar on government to government basis as well as commercial imports from other sources through the bidding process, etc, the exemption/reduced rate of 1% income tax is only admissible for their imports on behalf of the Government of Pakistan on government to government negotiation basis.
Commercial imports through the bidding process are therefore, not covered under sub clause (vii) of S No I to the Table to Part-Il of Second Schedule to the Income Tax Ordinance, 2001, since the exemption under the said sub clause is not a generalised exemption covering all LNG imports.
When confronted, the company is of the view that they had availed the reduced rate of 1% Advance Income Tax on import of LNG as designated buyer of LNG on behalf of Government of Pakistan. Regional Office Karachi then sought clarification from the Ministry of Petroleum and Natural Resources on the subject issue.
The Ministry vide its letter dated 29-03-2016 clarified that "the company was designated to import LNG either on G to G negotiation basis or through bidding process and has been practising the same." Keeping this in view, Board is requested to clarify as to whether company can be treated as designated buyer in terms of sub clause (vii) of S No 1 to the Table to Part II of Second Schedule to the Income Tax Ordinance, 2001 for import of LNG on behalf of the Government of Pakistan on government to government basis only, or whether the said sub clause also extends exemption to commercial imports of LNG made by the company from other countries through the bidding process.
Directorate added that it is evident that the company was designated to import LNG either on G to G negotiation basis through bidding process and has been practising the same. In view of said factual position it is established beyond any doubt that in respect of S. No (5) of Part-II to First Schedule to Income Tax Ordinance, 2001, the company is designated buyer on behalf of Government of Pakistan for import of LNG from Qatar only on government to government negotiation basis while import of the commodity from sources other than Qatar at their own through bidding process without involving any government to government negotiation are chargeable to standard rate of 5.5% advance income tax at import stage as commercial imports. Thus, the company has cleared seventeen (17) consignments of LNG on reduced rate of 1% advance income (advance income tax amounting to Rs 2, 035.900 million).