LAHORE: The businessmen from the service sector have termed the eight percent un-adjustable withholding tax on “revenues” from July 1, 2015, a draconian tax law which is aimed at destroying the service sector that contributes over 53 percent of the GDP.
TUV Austria Bureau of Inspection and Certification’s Chief Executive Rashid Mehr, in a statement, said that the controversial law of 8 percent tax on “revenues” has put the sustainability of the “service sector” at stake in this country where cost of doing business is already very high. Contrary to this, all industries have been facilitated by reducing the corporate tax to 32 percent.
He said the government has totally ignored the fact that with the implementation of this law, it has actually discouraged new startups and future investments in the service sector. It is a principle that new businesses are not taxed when they are in their infancy allover world.
All service sectors including information technology, certifications and inspections, public relations, advertising, marketing, event management, telecom and freight forwarding & clearing, facilitate economy at large will be collapsed in 6 to 8 months that would jack-up both the inflation and unemployment rate. It is noteworthy that banks, insurance and private transport companies have been exempted from this tax, he added.
Rashid Mehr said the taxation rule of thumb is that tax deductions are made on profits only. As per the previous practice, all payments received by any service provider were subject to deduction of five percent Withholding Tax (WHT) which was later increased to six percent and subsequently to minimum eight percent WHT on receipts of payment, he added. However, all service providers could adjust the withheld tax against their actual tax liability. It is shocking that the new amendment to the law requires all service providers to pay minimum eight percent WHT on “revenue”, he maintained.
Rashid Mehr said the service sector is already paying 32 percent corporate tax and were recently slapped 16 percent and 14 percent GST in Punjab and Sindh respectively thus making the service sector more uncompetitive. From July 1st 2015, a corporate tax of 32 percent is applicable to all sectors/ industries except for the “service sector.
Whereas the service sector is 53 percent of the Pakistan’s GDP and has created numerous employment opportunities while making a significant contribution to the national tax kitty. Why has the government discriminated towards the service sector whereas all other sectors have been facilitated by reduction of the corporate tax from 35 percent to 32 percent over the past few years? he questioned.
He said the Withholding Tax is not considered as full and final settlement anywhere in the entire world and is always adjustable against tax liability. To the best of our knowledge the maximum rate of WHT around the world is not more than five percent as well and is adjustable. Under the new tax law, a minimum of 8 percent tax on “revenue” will be withheld regardless of the whether the service company is profitable or loss-making.
