KARACHI: The chartered accountants (CAs) have recommended the reduction of minimum tax rate to 0.5 percent from existing 1.25 percent in budget 2018/2019.
In its proposals for budget 2018/2019, the Institute of Chartered Accountants of Pakistan (ICAP) recommended the reduction in minimum tax under Section 113 of Income Tax Ordinance, 2001 to 0.5 percent.
Further, companies having a gross loss position for the year should be excluded from the purview of the minimum tax, and restore the position of law prior to Finance Act 2016.
The institute said that the rate of minimum tax increased from 1 percent to 1.25 percent through the Finance Act, 2017. Companies are already burdened due to imposition of taxes such as super tax. Increase in rate of minimum tax is a further burden on the taxpayer.
Moreover, prior to the Finance Act, 2016, companies having a gross loss position before the adjustment of accounting depreciation and other inadmissible expenses were exempt from minimum tax under section 113.
The purpose of this provision was to provide relief to companies who are burdened with current losses at GP level. Under section 113, minimum tax can be carried forward to next five years if the minimum tax paid exceeds the tax payable at the corporate tax rate. There is a view that if a company sustains a loss in a year and no tax is payable at corporate rate, then minimum tax paid by such company (in that year) cannot be carried forward, which certainly was not the intention of Government’s policy of introducing carry forward regime in 2004.
The law should be clarified to allow carry forward of minimum tax paid in the year of loss.
The ICAP said that the minimum tax rate has intermittently changed over the years from 0.5 percent to 1 percent and vice-verse but it has never increased beyond 1%. It seems that the rate has been increased due to the constant pressure to achieve a higher tax collection target.
The FBR should focus on increasing the tax base instead of further burdening existing taxpayers.
Moreover, giving exemption to companies from minimum tax who are in gross loss situation will provide relief to such loss making companies. Likewise, carry forward of minimum tax in case of loss, is a legitimate right of a taxpayer and should therefore, be explicitly provided in the law.
