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FBR asked to withdraw 2% extra tax on purchases by registered manufacturers

FBR asked to withdraw 2% extra tax on purchases by registered manufacturers

KARACHI: Pakistan Business Council (PBC) has suggested that purchases made by registered manufacturers should not be subject to two percent extra tax or should be allowed set off.

In its proposals for budget 2018-19 submitted to Federal Board of Revenue (FBR), the PBC said that extra tax of two percent was levied and collected by manufacturers and importers on specified goods. On supply of these goods further tax of two percent is collection.

“Since extra tax already accounts for value addition, further tax is an irritant as this cannot be claimed as input,” the PBC said.

In order to redressing inequity in the tax regime, the PBC suggested that purchases made by registered manufacturers of the specified goods should not be subject to the extra tax or else set off should be allowed.

The PBC highlighted the issue that under Section 8(1)(ca) of Sales Tax Act, 1990, input sales tax is not allowed where tax is unpaid by supplier. Therefore, it suggested that this provision should be deleted as it has been declared unconstitutional by Lahore High Court. Also, with implementation of STRIVe this has become redundant.

Regarding redressing inequity in the tax regime, the PBC also proposed deletion of Section 5(A) of Income Tax Ordinance, 2001 under which 7.5 percent tax had been imposed on accounting profit of public companies that do not distribute 40 percent profits each year. It said that this section needs to be deleted or at least the applicability should be restricted to such companies that have not distributed dividend for immediate preceding two years.

It also highlighted that through the Finance Act, 2015, minimum turnover tax of 8 percent under Section 153 was levied on the corporate in the service sector. This is making the services sector as wel as the recipients of these services uncompetitive.