Parco files appeal against Rs670mln income tax

LAHORE: Pak Arab Refinery Ltd (Parco), a joint venture between Pakistan and Abu Dhabi, has filed an appeal with the apex tax authority against the income tax of Rs670 million imposed on the company’s foreign currency term deposit receipts (TDRs).  Last week, the oil refinery has moved an appeal against the tax to the Commissioner Appeal-I, Federal Board of Revenue, Lahore. 

Tax Consultant Ayub Aftab of the Parco told The News that the Large Taxpayers Unit, Lahore was not justified, “in making addition on account of notional exchange gain on TDRs of Rs1,203.041 million.”

“The income tax on the foreign currency TDRs by the FBR is wrongly perceived as the Parco never en-cashed these TDRs,” Aftab said. “The foreign currency TDRs are accrual asset which could not be taxed until it was en-cashed into the local currency. The court of law has given a number of judgments on the issue.”

A senior official of the Large Taxpayers Unit (LTU), Lahore said the Parco holds the right of appeal. The company has availed this.   The official, however, clarified that if a company is using foreign currency TDRs as regular source of investment and also declaring them in the audited accounts then returns on such investment avenues are as liable to income tax as other instruments.  “The income tax was imposed as the Parco was not paying tax on their foreign currency TDRs,” said the official.   Of Rs670 million, Parco has already submitted Rs450 million, which was due since the tax year 2009, to national exchequer.

Sources said this huge payment set off a conflict in the government circle and pressure is being built on the officials to render efforts for its repayment. 

The tax consultant of the Parco said the company has merely translated TDRs in local currency for the purpose of the reporting figures in the audited accounts.

He said the Appellate Tribunal Inland Revenue has already decided the issue of notional exchange gain in favour of the Parco, while passing a combined order in November 2014 for the tax years 2006 and 2009.

“The Parco, being a good taxpaying company, has always complied (with) the rules and regulations of the land and paid the taxes to the national exchequer with a provision to go into appeal,” Aftab said. “The Parco also has legal right to go into appeal and even move to court of law to get relief if any unjustified tax was imposed on it.”