As a result of Presidential Ordinance dated 31.10.2015 new
clause (94) is inserted in Part-IV of Second Schedule to the Income Tax Ordinance.
Salient features of this Ordinance are as under:
1.
As per clause (94),
provisions of section 153(3)(b) will not applicable for tax year 2016 in
respect of companies which are engaged in the following service:
I.
Freight
forwarding services.
II.
Air
cargo services.
III.
Courier
services.
IV.
Manpower
out sourcing services.
V.
Hotel
services.
VI.
Security
guard services.
VII.
Software
development services.
VIII.
Tracking
services.
IX.
Advertising
services (other than print or electronic media).
X.
Share
registrar services.
XI.
Engineering
services.
XII.
Car
rental services.
In the proviso it is narrated that such companies should be
filer and has to furnish an undertaking to the concerned Commissioner to effect
that it will produce audited accounts within 30 days from the date of filing of
income tax return for tax year 2016. This undertaking is required to be filed
by 15th November 2015.
Provisions of section 153(3)(b) provides that tax deducted
on services shall be minimum tax. As per provisions of section 153(1)(b) read
with Division III of Part III of the First Schedule to the Income Tax Ordinance
2001 the rate of tax deduction in respect of services are prescribed as under:
(i) in the case of transport services, two per
cent of the gross amount payable;
or
(ii)
in the case of rendering of or
providing of services, —
“(a) in case of a
company, 8% of the gross amount payable,if the company is a filer and 12% if
the company is anon-filer; and
(b) in any other
case, 10% of the gross amount payable, If the person is a filer and 15% if the
person is a non-filer;
(a)
in respect of persons making
payments to electronic and print media for advertising services,—
(i) in case of a filer, 1% of the gross amountpayable; and
(ii) in case of a non-filer, 12% of the gross
amount payable, if the non-filer is a company and 15% ifthe non-filer is other
than a company;”;
Combined reading of above provision of law indicates that tax deduction
rates should be the same in respect of companies engaged in the services
mentioned above unless and until they obtain an exemption certificate from the
Commissioner concerned.
For availing the benefit that their minimum tax rate for tax year 2016
should not increase from 2% of the gross turnover, the companies engaged in the
above services have to be filer and should submit an undertaking by 15th
day of November 2015 that they are ready to submit their audited accounts to
the concerned Commissioner within 30 days of filing of return.
By promulgation of above Ordinance though no change is made in tax
deduction rates, the companies liability is restricted to 2% subject to the
conditions mentioned above. This means that in case such a company does not
apply for exemption in terms of proviso [sub-section (4A)] the tax deduction
shall be 8% as against their actual liability of 2%. In such a case newly
sub-clauses of clause (b) of sub-section 3 of section 153 would be applicable,
which provide that excess amount of tax deducted/paid shall be adjustable
against next five years’ tax liability.
In case a company engaged in the
above services intends that tax deduction rates @ 8% shall not apply in its
case, the company has to file application for exemption conditions of which
are:
1.
The company falls within the
categories mentioned in clause (94).
2.
The minimum period of
certificate should be three months
3.
The company has to pay 2%
advance tax of the total turnover of the corresponding period of preceding tax
year.
Example 1
A company filed its income tax return for 2016 declaring
turnover of Rs.1000. It had filed undertaking for availing benefit of reduced minimum
tax @ 2% and hence its minimum liability comes to Rs. 20 whereas rate of tax deduction
at source was 8% as it had not applied for exemption certificate. It tax was
deducted at Rs.80 resulting into excess payment/refund which could be adjusted
against tax liability of the next five years.
Example 2
B company intends to get exemption certificate for the first
quarter. In the first quarter of preceding year the turnover was Rs.2,000,000.
In such a case, the company has to pay advance tax of Rs.40,000[2,000,000
x 2%]. Suppose, a company intends to get exemption certificate for the whole
year and turnover for the preceding tax year i.e. tax year 2015 was Rs.50,000,000
in such a case the company has to pay advance tax of Rs.1,000,000.
Example 3
C company did not file undertaking regarding presentation of
audited accounts before the Commissioner concerned, in such a case the company
shall not be eligible for benefits of minimum tax rate of 2%. Its tax deducted
@ 8% shall be minimum tax.
Note
1.
Time allowed for filing of
undertaking i.e. 15th day of November 2015 is very short.
2.
It will open another
gateway of corruption in FBR
