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No retrospective recovery of presumptive tax under study: CBR

ISLAMABAD (August 05 2005): The Central Board of Revenue (CBR) is considering not to retrospectively recover amount from the manufacturers-cum-suppliers, who operated under Presumptive Tax Regime (PTR), as the tax authorities have withdrawn the facility in Budget 2005-06, which resulted in massive revenue leakage.

In this connection, amendments in the budgetary decision is likely to be announced on Friday after obtaining approval from Adviser to the Prime Minister on Finance and Revenue Dr Salman Shah.

A daylong meeting took place between the manufacturers and tax authorities on Thursday to discuss the impact of the decision in the light of viewpoint given by the private sector. The tax practitioners, manufactures-cum-suppliers, chartered accountants, representatives of corporate companies presented the private sector, whereas CBR Chairman M. Abdullah Yusuf, Member Income Tax Salman Nabi and Member Taxpayer Education and Facilitation Habib Fakhruddin presented the CBR.

After the meeting, the CBR team of tax managers went to the office of Salman Shah to brief him on the viewpoint of all the stakeholders.

The meeting discussed practical difficulties being faced by the private sector due to withdrawal of the facility.

Firstly, the private sector was not clear how the board has declared a concession illegal, which was notified and remained applicable for the last many years.

Secondly, the authorities should clarify its justification for declaring previous court orders ineffective on the PTR facility and thirdly, the retrospective recovery will create huge income tax liabilities of the people who opted for the scheme.

When contacted, a leading tax consultant Syed Muhammad Shabber Zaidi told Business Recorder that the CBR has started a consultative process with the stakeholders.

It has been proposed that the transactions made up to June 30 should be declared as valid and the facility of Presumptive Tax Regime (PTR) should be considered as applicable from July 1, 2005.

He said that it is not possible for the CBR to fully restore the PTR facility for the manufacturers-cum-suppliers. However, if the CBR considers this proposal of not initiating recovery drive against the people who availed of this facility in the past, the PTR facility may be considered withdrawn from fiscal 2005-06.

Shabber Zaidi said that the tax authorities have thoroughly examined the proposals floated by the private sector and ensured that viable suggestions would be incorporated. It is expected that a reasonable settlement would be reached between both the sides in the second round of talks on Friday.

He added that it is a policy issue, which requires approval of the competent authority for notifying any possible relief for the business community.

Earlier, the CBR observed that the manufacturers of goods were given option to opt for PTR pertaining to payments on account of supply of goods manufactured by them from which tax was deductible under Section 153 of the Income Tax Ordinance 2001.

These manufacturers were invariably opting for PTR only when the final tax liability under the PTR worked out to a lesser figure as compared to the tax liability which would be payable if they were taxed under the normal tax regime on their taxable profits. This misuse of concession was considered undesirable, especially in case of some fully documented large corporate companies, which were not paying taxes in accordance with their book profits.

Accordingly, Clause (40) has been omitted with retrospective effect. At the same time, a new Sub-Section (6A) has been inserted in Section 153, also with retrospective effect, so that the option available to manufacturers-cum-suppliers stands withdrawn retrospectively.

It has also been provided that any previous decisions/judgements of a court or a tribunal or an income tax authority shall not have any effect whatsoever.

The intent is to forestall any future leakage of revenues and also to recover the revenue already lost. The option already filed by the taxpayers shall stand automatically rescinded, the CBR added.

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