Budget Proposals 2010-2011

BUDGET PROPOSALS 2010-2011

By Rawalpindi Islamabad Tax Bar Association

INCOME TAX ORDINANCE, 2001

Small Companies:

  1. Companies formed before 1^st^ July, 2005 cannot get the benefit of Small Company, in spite they fulfil all other conditions laid down for Small Companies. This is discrimination, therefore, to give equal treatment it is proposed that condition of registration on or after 1st July, 2005 may be omitted from clause 59A of section 2 of the Income Tax Ordinance, 2001.

  2. To work freely and without compulsion, the Small Companies were not required to deduct tax under section 153 on payments made for goods and services. This was an incentive to Small Companies which has been withdrawn through the Finance Act, 2008. Now they have been made liable for deduction of tax. It is proposed that Small Companies may again be omitted from the scope of section 153.

  3. It is proposed that for Small Companies two slabs of tax rates may be introduced.

i. For income up to Rs.500,000 Rate of 10%

ii. For income above Rs.500,000 Rate of 20%

These amendments shall be a step forward to promote corporate culture and shall encourage people to do business under corporate.

Income from Property (Section 15):

As per Division VI of Part 1 of First Schedule rate of tax income from property of an Individual and A.O.P. there is no tax up to rupees one hundred and fifty thousand. The provisions at clause (iii) of sub section (7) of section 15 is contradictory to the rates given in schedule, therefore this clause is recommended to be deleted. Moreover a new slab for tax rates is proposed for persons having rental income more than rupees five million. The property income exceeding. Rs.5.00 (M) is proposed to be taxed @ 15%.

Deductions not allowed (Section 21):

The aggregate limit under section 21(1) should be enhanced to rupees one hundred thousand (100,000) instead of rupees fifty thousand (50,000) and expenditure limit under section 21(1)(a) should be set to rupees fifty thousand (50,000) instead of rupees ten thousand (10,000).

Taxation of Income of certain Persons (Sections 113A and 113B):

Turnover threshold of retailers under section 113A is proposed to be increased from rupees 5 million to rupees 10 million and the minimum turnover limit under section 113B may be enhanced to Rs.10 million.

The retailers who fall under sections 113A and 113B are not entitled to claim any adjustment of withholding tax collected or deducted under any head against their liability of turnover tax. This is unjustified and harsh treatment in their case. It is proposed that they may be allowed to claim adjustment of tax withheld in their cases.

Wealth and Reconciliation Statement (Section 116):

In the case of individuals and members of A.O.P. the filing of Wealth Statement with Reconciliation, is proposed to be made obligatory and mandatory along with return.

Amendment of Assessment (Section 122):

It is proposed that time limit of five years under subsection (2) of

section 122 and clause (a) of subsection (4) of section 122, may be reduced to two years.

Decision in Appeal (Section 129) (Section 132):

A new subsection is recommended to be inserted in sections 129 and 132 to restrict the Commissioner Inland Revenue (Appeals) and Member Appellate Tribunal to follow the judgments of the Higher Forums and in case he deviates the decisions/rulings of the higher appellate forums, he must record reasons for such deviation in the order.

Due Date for Payment of Tax (Section 137):

A new subsection is proposed to be inserted for an automatic stay on

filing of appeal against the demand created as a result of an assessment order.

Payment of Advance Tax (Section 147):

Advance tax limit under section 147 is proposed to be increased from

rupees two hundred thousand (200,000) to rupees five hundred thousand (500,000).

Income Against Tax in FTR Cases:

The omission of subsection (4) of section 169 has deprived a person who

falls in FTR, to take benefit of income equal to an amount if chargeable

to tax would have resulted in tax liability equal to tax deducted as a final tax.

Now in most of the cases the income worked out as per Profit and Loss account does not commensurate with the tax deducted. For example a person whose supplies are worth Rs.150,000 pays tax @ 3.5% i.e.: Rs.5,250 as a final tax. If we take 50% profit in his case, his income comes to Rs.75,000. There is no tax for this income, whereas he paid tax of Rs.5,250 which is otherwise chargeable on income of Rs.175,000. He should get credit of Rs.150,000 in his books against the amount of tax paid. In some cases where G.P. rate is less than the tax deduction rate, the income as per profit & Loss account is not so much to absorb the tax deducted at source. They are looser of income.

Therefore, it is proposed that deleted subsection (4) of section 169 may again be inserted.

Rectification of Mistakes (Section 221):

That the time period under subsection (3) of section 221 may be reduced to 90 days instead of existing time period.

Section 234A CNG Stations:

That this sector is paying income tax @ 4% on Sui-Gas Bills after settlement between FBR & CNG Association which is full and final Tax. Whereas the provisions of subsection (4) of section 234A are contradictory and do not allow them to adjust the tax withhold under sections 231A, 235(4) and 236. This treatment is against the principle set out in subsection (2)(e) of section 169 of the Income Tax Ordinance, 2001. It is therefore, proposed that subsection (4) of section 234A may be deleted.

Electricity Consumption {Section 235(4)}:

That the limit of Electricity bill consumption amounting to Rs.30000 and collection of tax @ 10% on the bill exceeding Rs.30000 be deleted being harsh. The maximum deduction of tax from an electricity bill may again be restored at Rs.2000, the item (1) of slab of rates of collection of tax under section 235 may be amended accordingly.

Tax Rates -- 1st Schedule:

  1. Rates of Tax particularly of the companies should be reduced. The actual tax rate particularly for manufacturing sector is actually 42% i.e. (35% tax rate, 2% WWF and 5% WPPF). Therefore, keeping in view the present economic and energy crisis, where the cost of doing business is on the increase, it is proposed that rate of tax for companies may be reduced to 30%

  2. In the case of individuals and AOP(s), the present table of progressive tax rate may be replaced by table where increased rate is applied to increased income, similar to those which were substituted by Finance Act, 2006.

  3. The basic exemption of Rs.100,000 may be enhanced to Rs.250,000

Wealth Tax/Asset Value Tax:

To strengthen the national economy it is proposed that either the repealed Wealth Tax Act may be restored with certain amendments or a new tax like Asset Value Tax should be introduced.

VAT:

So far as VAT is concerned, the huge and cry is due to the reason that Government has not given a sufficient time to the public particular the stakeholders to study the law from all aspects. It is, therefore, proposed that it may be enforced with effect from 1st July, 2011 and between this one year period, the fears and doubts in the minds of the stakeholders, ~c~onsultants may be removed by educating through seminars and workshops. Like this VAT Act could replace the existing Sales Tax Act in a smooth and friendly manner, otherwise, it shall have the same fate as of the Sales Tax Act.

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