Finance Bill proposes to abolish final tax regime, introduce minimum tax regime  

KARACHI: The Finance Bill 2019 has proposed to abolish final tax regime (FTR) and replace the same with minimum tax regime in all cases other than exports, prizes and winnings and sellers of petroleum products. [the_ad id=”31605″]The minimum tax regime is proposed (i) for the sale of goods , except where payment is less than Rs 75,000 in aggregate, during a financial year; (ii) on the execution of a contract including contract signed by a sportsperson but not including a contract for the sale of goods or the rendering of or providing services; and (iii) payment to electronic and print media for advertising services.

It has been clarified that tax deducted on a payment on account of sale or supply of goods, by: (i) a company being a manufacturer of such goods; or (ii) a public company listed on a registered stock exchange in Pakistan; would not be treated as minimum tax.

Presumptive/final tax regime was introduced in the year 1992 whereby the concept of income based taxation was shifted to transaction based taxation. Since then, the scope of final tax regime was extended to a number of transactions.

There has been a realisation that this regime was effectively contributing in a negative manner resulting in non-documentation of economy and resulting in indirect taxation, which was regressive in nature.

In the last Finance Act, 2018, an attempt was made to exclude commercial importers from the purview of final tax, however, the same were again brought back to the final tax regime through Finance Supplementary (Second Amendment) Act, 2019.

As a result of this amendment, it is expected that there will be an improvement in documentation of economy as the taxpayers will be required to declare their income under Net Income Basis based on their books of account.

The Finance Bill also proposes to abolish Clause (94) of Part IV of the Second Schedule, which provided relief from minimum tax to certain entities of service sectors, subject to fulfillment of certain conditions. Due to omission of said Clause, the sectors covered under Clause (94) will now also be subject to minimum tax at 4.0%.

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