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Proposed definitive tax regime for commercial importers rejected

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KARACHI: Pakistan’s National Assembly has rejected a proposal to grant a definitive tax regime to commercial importers.

The proposal was incorporated into the Finance Bill 2022 under which the government proposed to place commercial importers under the final tax regime.

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Previously, the PTI government, after consultation with manufacturers and other stakeholders, introduced importers to the minimum tax regime through the Finance Act 2019.

Importers were placed under the minimum tax regime after arguments that importers were misusing tax incentives because the final tax regime was not subject to audit and reporting. Importers are required to file a declaration only under the FTR.

The Finance Bill 2022 proposed to make amendments to subsection 7 of section 148 of the Income Tax Ordinance 2001 to replace the word ‘minimum’ with the word ‘final’ “.

However, the national assembly rejected the proposal for a definitive tax regime for commercial importers is withdrawn. Therefore, commercial importers will remain subject to the minimum tax regime.

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Tax experts from PwC AF Ferguson & Co. have stated that previously, in the case of goods imported by an industrial enterprise for its own use, the advance tax on imports did not constitute a minimum tax if these were subject to the advance collection of a tax of 1% or 2%.

There were various items which had the character of raw materials but were subject to the standard rate of 5.5 per cent.

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The tax authorities misinterpreted these provisions to deny the adjustment of the tax levied at 5.5 percent.

This regime has been modified and henceforth the withholding tax on raw materials imported by an industrial company for its own use will no longer be a minimum tax whatever the applicable rate.

However, the advance tax on the importation of the following items shall be treated as a minimum tax in respect of income derived from such imports: (a) Edible oil; b) Packaging material; (c) paper and cardboard; or d) Plastics.

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