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ITCs to issue exemption certificates to listed Modarabas

KARACHI (September 12 2004): CBR Member, Direct Taxes, Salman Nabi, on Saturday said here that instructions are being given to Commissioners of Income Tax to issue separate tax exemption certificates under section 233-A of the Income Tax Ordinance 2001 to Modarbas which are members of the stock exchanges and are dealing for clients.

After giving a briefing on new income tax returns he was responding to question from the members at a seminar/open discussion on 'New Income Tax Returns and Income Tax Ordinance 2001' organised by the Income Tax Bar Association Karachi in the auditorium of Income Tax House.

He said that under section 233-A of ITO 2001, tax is applicable on members on commission earned on the sale and purchase of shares. Modarabas, under clause 100 of the Second Schedule of ITO 2001, are exempted. The same facility of exemption, which is not available to member Modarabas will now be made available to them as has earlier been done in the case of Mutual Funds.

On the pointation of the members of the bar, Salman said that Modarabas which are members of the stock exchanges are being exempted from tax under clause 100 of the second schedule. They shall be issued exemption certificate from income tax commissioners to the effect that they may not pay any income tax under section 233-A of the Ordinance.

Clause 100 of the Second Schedule reads as: “Any income not being income from trading activity of a Mudaraba registered under the Mudaraba Companies and Floating and Control Ordinance 1980 after the first day of July 1999 provided that not less than 90 percent of its total profit in the year and reduced by the amount offered to reserve as required under this ordinance for the purpose of determining the distribution of 90 percent profit distributed to bonus certificate are shares to the certificate holders shall not be taken into account (for income tax purposes).

Earlier, in his brief remark he said that the new income tax return forms are being introduced after holding consultations with all stakeholders. This is an exercise to facilitate the taxpayers and to make the system easy for the newly registered taxpayers.

He said that 2.2 million taxpayers are registered but returns come from less than half of the registered taxpayer. “There is a valid question about the difference in the number of registered tax payers and the number of returns we receive.”

He said that the Bar should help income tax department in this regard.

He said that there are people who are paying taxes but are not filing returns. These people should be encouraged to file returns as well.

The Member, Direct Taxes, said that the department has all information about importers, exporters and others and their turnover is also known to a certain extent. Many of them are paying taxes even, but do not file return.

“The usual fear that once a return has been filed the taxpayer falls into the income tax trap is a false notion, as Universal Self-Assessment Scheme is already there and on the basis of this facility returns can be filed with ease and without any fear.”

He said that the department does not want to serve any notices on them. Voluntary filing of return would be welcomed, he added.

Member Tax Payers Education and Facilitation Habib Fakharuddin explained the contents of the new return forms and tried to explain ambiguities which many columns have created.

Fakharuddin had to concede that the new return forms need explanations and to do so he would meet the members of the bar after the seminar.

He said that he had noted all questions and would be in contact with the bar soon and answer all questions.

A member suggested that it would be appropriate to collect all questions and a clarification is issued in the form of a circular.

Fakharuddin found the proposal slightly embarrassing and said he would look into the proposal.

IT Bar members were critical of the frequent changes in IT returns and demanded that “once this newly devised format is finalised, it should be allowed to remain in force for at least five years”.

General Secretary of the ITBA Ali A. Rahim, welcoming the guests, emphasised the need for simpler procedure of IT documentation.

He said that the new IT return would take some time before becoming easy for the IT payers.

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