ISLAMABAD (June 21 2006): The Central Board of Revenue (CBR) has submitted to the government that the proposed withdrawal of exemption, currently available to Mutual Funds, on making investment in carryover trade (COT) (Badla) in stock exchanges should not be incorporated in the amended Finance Bill 2006.
Sources said on Tuesday that the tax managers have recommended amendment in the Finance Bill following a presentation by the Mutual Fund Association of Pakistan (MUFAP).
Presently, the Income Tax Ordinance 2001 exempts any income derived by a Mutual Fund, subject to the condition that not less than 90 percent of its accounting income of that year (as reduced by the capital gains whether realised or unrealised) is distributed among the unit holders. The above facts indicate that Mutual Fund sector is growing considerably due to income tax exemption. But, on the other hand, this exemption is putting the other investors at a disadvantageous position.
For providing level playing field to all investors on COT (Mark-up) made in the stock exchange, it was proposed in the 2006-07 budget that exemption provided to Mutual Funds on such transactions may be withdrawn.
Sources said that the withdrawal of this exemption would result in double taxation on these funds, which are making investments in shares as well as debt market. Keeping in view the suggestions made by MUSAP, it has been recommended to the government to take away this proposal introduced through the Finance Bill.
The CBR has also recommended exclusion of companies from the Final Tax Regime (FTR) through amendments proposed in the Finance Bill 2006.
In case the government accepts the CBR proposal, all companies including those notified under the Companies Ordinance would operate under the normal income tax law.
The CBR has also proposed changes in the procedure for collection of withholding tax on advertising companies' commission.
The Board has also proposed amendment in the Finance Bill to revise the definition of 'urban area' for levying CVT on immovable property. According to the new definition, the 'Urban area' means area falling within the limits of the Islamabad Capital Territory; a cantonment board; a municipal body; in case of Karachi up to 40 km from the outer limit of municipal or cantonment limit.
In case of Lahore and Faisalabad up to 30 km from the outer limits of municipal or cantonments; in other cases, up to 10 km from the outer limits of municipal bodies or cantonment boards and includes areas defined as such in the Urban Immovable Property Tax Act, 1958 (WP Act V of 1958) and such areas as the Central Board of Revenue may, for time to time, by notification in the official Gazette specify.
Through another amendment, 2 percent capital value tax (CVT) would be levied on the purchase of residential flats with covered areas of 1,500 square feet and above. And where the value of such property is determined by the government 2 percent CVT will be applicable and where the value is not determined the CVT will be imposed at the rate of Rs 50 per square yard of the landed area.
According to another amendment proposed in the Finance Bill, any amount received as flying allowance by pilots, flight engineers, and navigators of Pakistan Armed Forces, Pakistani Airlines or Civil Aviation Authority and Junior Commissioned Officers (JCOs) or other ranks of Pakistan Armed Forces would be taxed at the rate of 2.5 percent as separate block of income.
The Board has also proposed an amendment in the Finance Bill for collecting tax from the retailers whose turnover exceeds Rs 5 million and who are subject to special procedure for payment of sales tax (SRO.560(I)/2006). These retailers will pay final tax at the rate of 1 percent of the turnover for a tax period, which will form part of single-stage sales tax of 3 percent of the declared turnover.