Service sector protests 8 percent WHT

LAHORE: The businessmen from the service sector have termed the imposition of eight percent non-adjustable withholding tax on their revenue from July 1, a draconian tax law, aimed at destroying the service sector that contributes over 53 percent to the GDP, a statement said on Monday.
The TUV AUSTRIA Bureau of Inspection and Certification’s Chief Executive Rashid Mehr said the controversial law of eight percent tax on revenue has put the sustainability of the service sector at stake in the country, where cost of doing business is already very high. Contrary to this, all industries have been facilitated by reducing the corporate tax to 32 percent.
“The government has totally ignored the fact that the implementation of this law has actually discouraged new startups and future investments in the service sector,” he said, “It is a principle that new businesses are not taxed when they are in their infancy all over the world.”
He said all service sectors including information technology, certifications and inspections, public relations, advertising, marketing, event management, telecom, freight forwarding & clearing, facilitating economy at large will collapse in six to eight months jacking-up both the inflation and unemployment rate. It is noteworthy that banks, insurance and private transport companies have been exempted from this tax, he added.
Mehr said, “The taxation rule of thumb is that tax deductions are made on profit only and as per the previous practice, all payments received by any service provider were subjected to deduction of five percent Withholding Tax (WHT), which was later increased to six percent and subsequently to minimum eight percent WHT on receipts of payments.”
However, all service providers were allowed to adjust the withheld tax against their actual tax liability.
It is shocking that the new amendment to the law requires all service providers to pay minimum eight percent WHT on revenue earned, he maintained.
Mehr said the service sector is already paying 32 percent corporate tax and was recently stabbed with 16 percent and 14 percent GST in Punjab and Sindh, thus making the sector more uncompetitive. From July 1st 2015, a corporate tax of 32 percent is applicable to all sectors and industries except for the service sector.
The service sector contributes around 53 percent to the GDP and has created numerous employment opportunities, while making a significant contribution to the national tax kitty. Why the government has discriminated the service sector, while all other sectors have been facilitated by the reduction of the corporate tax from 35 percent to 32 percent over the past few years, he said.
The WHT is not considered as full and final settlement anywhere in the entire world and is always adjustable against tax liability. “To the best of my knowledge the maximum rate of WHT around the world is not more than five percent as well and is adjustable,” he said.
Under the new tax law, a minimum of eight percent tax on revenue will be withheld regardless of whether the service company is profitable or in loss.
As the average net profitability is 6-8 percent after tax in most businesses, an increased rate of minimum eight percent WHT on revenue (even if it was adjustable against tax liability) had put companies into liquidity crises and consequently they were unable to pay their debts on time.
By imposing a minimum eight percent WHT the government has ignored the profitability of small to medium size companies, he added.
Mehr said the government has also ignored another very important aspect while levying this tax i.e. the difference between a company that has low profit margins with high revenue and a company with high profit margins with low revenue.
As such, this tax law has failed to bring equality for different types and scales of businesses.
The law would force people to rather put their money in banks and earn interest, this amalgamates hoarding with inflation and has an adverse effect on the economy as well as this tax regime will be producing property dealers & shopkeepers but not entrepreneurs.
The amendment of the new law would only give way to financial malpractice of undervaluing the revenue just to save something that belongs to the rightful hard working owners, he added. If this law is not undone immediately, hardly any company would survive, he maintained.