Tax credits’ withdrawal expected to avert Rs5bln of revenue losses: LTU

KARACHI: The government is expected to stave off an estimated five billion rupees in annual tax losses if it pulls out credits awarded under the final tax regime, an FBR’s key revenue department said on Tuesday.

“Allowing tax credits to minimum tax and final taxes payable under the ordinance is against the principle of fairness and final tax regime,” the Large Taxpayers Unit (LTU) Karachi, the biggest revenue collecting arm of the Federal Board of Revenue (FBR), said in its budget proposals.

LTU advised the FBR to withdraw tax credits to taxpayers falling under the final and minimum tax regimes.

The tax department said taxpayers falling under final and minimum tax regimes are enjoying benefits of tax credits under section 65B, 65D and 65E of the Income Tax Ordinance 2001.

The LTU Karachi estimated Rs5 billion in saving upon withdrawal of such benefits. The unit also proposed restriction on claim of tax credits against plants, machinery and equipment.

If a company has been allowed first year tax allowance or depreciation then such a company should not be allowed to claim tax credit on procurement of plant, machinery or equipment, it said.

The unit also proposed changes in super tax related to brought-forward business losses. LTU Karachi advised amendment into section 4B of Income Tax Ordinance 2001. Income computed under fourth, fifth, seventh and eight schedules for the calculation of super tax should be other than brought-forward depreciation and business losses.

The unit said the proposed amendment would bring uniform chargeability of super tax to all taxpayers, including taxpayers in insurance companies, exploration and production companies, banking companies and capital gain and the National Clearing Company Pakistan Limited.

The estimated additional revenue generation with the proposed amendment is around Rs2 billion.

The tax unit also advised the FBR to improve rules related to issuance of refunds on fake or false claims. A commissioner should be allowed to recover amount along with default surcharge against refunds on false of fake claims. The FBR has also been suggested to withdraw the time limitation on recovery of amount against refunds on fake claims.

Sources said the tax department has discovered several cases where refunds were issued against fake documents, but the tax authorities could not be able to initiate proceedings against such taxpayers due to time limitation.