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Reduced rate of income tax to be deducted

ISLAMABAD (November 16 2005): The Central Board of Revenue (CBR) has announced that exporters would deduct the reduced rate of income tax on stitching, dyeing, printing, embroidery and washing services they pay for in the manufacture of export goods. The CBR has clarified SRO 946(I)/2005 through Income Tax Circular 7 of 2005 issued on Tuesday.

Two months back, the CBR had reduced income tax for the companies providing services of stitching, dyeing, printing, embroidery and washing to five zero-rated export industries from 5 percent to 0.75-1.50 percent.

Queries were received from different quarters as to who would be the prescribed person for the purposes of withholding tax from the services falling under SRO 946(I)/2005. Services of stitching, dyeing, printing, embroidery and washing provided to the exporters have been specified in the notification.

The matter was examined in the Board and it has now been clarified that exporter to whom such services are rendered or provided would be responsible for the purposes of tax deduction.

Sources told Business Recorder that CBR had reduced income tax rate to boost exports of textile, leather, sports, garments and carpets by facilitating the companies engaged in providing services to export industries. The CBR has given relief to different companies providing services to these export-industries.

The department was charging 5 percent income tax from service providers of stitching, dyeing, printing, embroidery and washing to export-oriented industries. However, reduced rate of income tax would be applicable for the service providers of stitching, dyeing, printing, embroidery and washing depending on the above said categories of exportable items. These services, provided to the exporters, would be considered as export and subsequently chargeable to tax at the rate equal to the rate of tax applicable to these categories of exportable items.

Now, the CBR has clarified the issue to guide the taxpayers about the deduction of tax under SRO 946(I)/2005.

FOLLOWING IS THE TEXT OF INCOME TAX CIRCULAR NO 7 OF 2005 ISSUED ON TUESDAY:

A new clause (25) in Part II of Second Schedule to the Income Tax Ordinance, 2001, has been inserted through SRO 946(I)/2005 dated September 12, 2005 which provides that “Services of stitching, dyeing, printing, embroidery and washing rendered or provided to an exporter or an export house shall be treated as export and chargeable to tax at the rate equal to the rate of tax applicable to the exporter on export of goods to which such services relate as specified in Division IV of Part III of the First Schedule.”

2. Queries have been received from different quarters as to who would be the prescribed person for the purposes of withholding tax from the services falling in the ambit of the aforesaid SRO?

3. The matter has been considered in the Board and it is clarified that the exporter to whom such services are rendered or provided would be responsible for the purposes of deduction of tax.

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