Budget proposals 2014-2015: LTU suggests for bringing all liabilities under presumptive tax regime

KARACHI: The Large Taxpayers Unit (LTU) Karachi has proposed amendments to Income Tax Ordinance, 2001 to bring all types of liabilities under presumptive tax regime (PTR).
The unit in its budget proposals 2014-2015, suggested amendment to Section 2(29) of the Ordinance which will cover all the deductions and payments under the PTR in the definition of the word ‘income’.
It suggested the draft amendments as: “Income includes any amount chargeable to tax under this ordinance, any amount subject to collection or deduction of tax under Section 148, 150, 152(1), 153, 154, 156, 156A, 233, 233A and Sub-Section (5) of Section 234, or any other payment or receipt subject to tax deduction or collection under Division III of part V of chapter X or chapter XII, which is treated as income under any provision of this ordinance and any loss of income but does not include, in case of a shareholder of a company, the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by the company to t he shareholders with a view to increasing its paid up share capital.”
The LTU Karachi has proposed amendment to Section 9 of taxable income to bring in line with the concept of apportionment of expenses under provisions of Income Tax Ordinance, 2001.
It suggested the draft amendment as: “(1) the taxable income of a person for a tax year shall be the total income under clause (a) of Section 10 of the person for the year reduced (but nor below zero) by the total of any deductible allowance under part IX of this chapter of the person for the year. (2) Notwithstanding anything contained in Sub-Section (1), where a person derives an income under any of the heads enumerated under section 11 (hereinafter referred to as such income which is exempt from tax or constitute final tax liability under any provision of this ordinance, the total income under clause (a) of Section 10 shall be reduced by the deductible allowance under part IX of this chapter to the extent of the proportion such income bears to the total income of the person from all sources.”
LTU Karachi has suggested amendment to Section 18(1) of income from business to bring the gain from sales of a source of business and the non-competitive fee into the tax net.
The suggested amendment is: “ (1) the following incomes of a person for a tax year, other than income exempt from tax under this ordinance, shall be chargeable to tax under the head ‘income from business’__ (a) the profits and gains of any business carried on by a person at any time in the year; (b) any income derived by any trade, professional or similar association from the sale of goods or provision of services to its members; (c) any income from the hire or lease of tangible movable property; (d) the fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person in the course of, or by virtue of, a past, present, or prospective business relationship. Explanation__ for the purpose of this clause, it is declared that the word benefit includes any benefit derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan (SBP) banking policy department’s circular No. 29 of 2002 or in any other scheme issued by the SBP; (e) any management fee derived by a management company (including a modaraba management company). (f) any gain from the sale from of an income generating asset or a source of business income by a person; provided that for the purpose of this section the gain from the sale of a source of business income shall be the sale proceeds of the source of business income shall be the sale proceeds of the source (including the amount of goodwill or any other amount received or receivable on account of an intangible asset) less the value of net assets of the business (excluding any addition make on account of revaluation during the last five tax years) as shown in the balance sheet of the immediate preceding tax year; (g) any solatium or any other amount received or receivable under any covenant or agreement not to compete in business. Provided that the provisions of clause (f) and (g) of this sub-section shall be deemed to have always been there; (h) the amount of any loan written off during the year. Provided that any amount of oan that placed in the categories “sub-standard” and loss under regulation R-8 read with annexure IV of the SBP’s prudential regulations for corporate/commercial banking shall be deemed to be a loan written-off for the purpose of this clause.”
The LTU Karachi has proposed amendment in Section 23(1) of initial allowance in order to enforce tax deduction at source under provision of ITO, 2001.
It suggested the draft amendment as: “a person who places an eligible depreciable asset into service in Pakistan for the first time in a tax year shall be allowed a deduction (hereinafter referred to as an initial allowance) computed in accordance with sub-section (2), provided the asset is used by the person for the purpose of his business for the first time or the tax year in which commercial production is commenced, whichever is later. Provided that no deduction shall be allowed under this section unless the taxpayer has deducted under any provision of this ordinance out of the payment made an account of acquisition of the asset, and paid it to the credit of federal government.”
The LTU Karachi has given another amendment in Section 23A (1) of first year allowance to enforce tax deduction at source in order to remove discrepancy in the law that could result into double benefit.
It suggested the draft amendment as: “(1) the plant, machinery and equipment installed by any industrial undertaking set up in specified rural and under developed areas, and owned managed by a company shall be allowed first year allowance in lieu of initial allowance under Section 23 at the rate specified in part II of the third schedule against the cost of the ‘eligible depreciable assets’ put to use after July 1, 2008. Provided that no deduction shall be allowed under this section unless the taxpayer has deducted tax that was deductable under any provision of this ordinance out of the payment made on account of acquisition of the plant, machinery and equipment, and paid it to the credit of federal government. Explanation__ for the removable of doubt, it is declared that if first year allowance has been allowed under this section, or accelerated depreciation has been allowed under section 23B and respect of and asset, tax credit shall not be allowed under section 65B and respect of the investment made in purchase of the plant, machinery or equipment.”
The LTU has proposed amendment to Section 23B (1) of accelerated depreciation to alternate energy projects to enforce tax deduction at source.
The drafted amendment is: “(1) any plant, machinery and equipments installed for generation of alternate energy by an industrial undertaking set up anywhere in Pakistan and owned and managed by a company shall be allowed first year allowance in lieu of initial allowance under Section 23, at the rate specified in part II of the third schedule against the cost of the eligible depreciation assets put to use after first day of July, 2009. Provided that no deduction shall be allowed under this section unless the taxpayer has deducted tax that was deductable under any provision of this ordinance out of the payment made an account of acquisition of the plant, machinery and equipment, and paid it to the credit of federal government.”
The LTU has proposed amendment to Section 67 of apportionment of deduction just to prevent misuse of this sub-section and enable the board to frame specific rules for specialized sectors.
The drafted amendment is: “(1) subject to the ordinance, where an expenditure relates to__ (a) the derivation of more than one head of income; or (ab) derivation of income comprising of taxable income and any class of income to which sub-sections (4) and (5) Section 4 apply, or; (b) the derivation of income chargeable to tax under a head of income and to some other purpose, the expenditure shall be apportionment or any reasonable basis taking account of the related nature and size of the activities to which the amount relates. Provided that the burden of proof shall be upon the taxpayer to show that the expenses are apportioned in computation of income declared by him on a reasonable basis. (2) notwithstanding anything contained in sub-section (1), the board may take rules under Section 237 for the purposes of apportioning deductions, and such rules shall be applicable to a class of taxpayers or the taxpayers in general.”