Budget proposal 2014-2015: 0.2 percent minimum tax rate on turnover suggested till its complete elimination

KARACHI: The business industry has demanded the government to reduce minimum tax on turnover to 0.2 percent and exclusion of petroleum levy, till minimum tax not completely eliminated for companies those who are falling under jurisdiction of Large Taxpayers Units (LTU) and Sales Tax Act.
The business industry said that transition measures towards full exemption for above companies could be taken such as: minimum tax should be levied on gross profits instead of turnover, rate of minimum tax should be reduced to 0.2 percent some similar sectors with thin margins and petroleum levy should be excluded for working out minimum tax on turnover.
It is justifiable that corporate sectors driven on volume with nominal margins will be able to invest and grow and contribute to the economy.
It is noticed that genuine taxpayers are suffering from losses, as elimination in minimum tax will result in restructuring and increasing their business in form of higher earnings with real increase in revenue to government of Pakistan as well.
Similarly, a certain percentage as prescribed under the Income Tax Ordinance is charged as tax on the turnover of taxpayers, irrespective of level of profit earned or losses incurred during the year.
It said that for some specialized sectors with high turnover and low margins such as oil marketing and refineries, LNG terminal operators and large chemical companies, the general rate of 0.5 percent and one percent minimum tax on turnover is resulting in an effective tax rate of over 75 percent for such companies.
However, due to minimum tax regime the above companies have to pay even they make losses. It is mainly because of the reason that gross profit margins of refineries and oil marketing companies for sales of petroleum products are fixed in rupee terms through price determination mechanism approved by government and Oil and Gas Regulatory Authority (OGRA). The regulated margins are only two percent of the selling price.

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