Income tax law ambiguity for shipping sector removed

ISLAMABAD (March 09 2003) : To remove an ambiguity pertaining to shipping industry in the Income Tax Ordinance 2001, the Central Board of Revenue (CBR) has clarified that ships operating under 'presumptive tax regime' under which tax is collected/paid on tonnage basis as final discharge of tax liability would not be liable to minimum tax.

The CBR has made an amendment in the Second Schedule of the Income Tax Ordinance, 2001 through an SRO 248 (I)/2003 here on Saturday.

Official sources told Business Recorder that as per Pakistan Marine Policy 2002, the withholding tax collectable on tonnage basis of the ships was final discharge of tax liability.

The return of income was to be filed by taxpayers in shipping business computing their income.

Since the final tax liability is based on tax collected/paid on tonnage basis, the confusion arises as to whether in addition to withholding tax, minimum tax at the rate of 0.5 percent on turnover of the business was also liable under section 113 of the Income Tax Ordinance 2001.

To remove this particular ambiguity, CBR has issued a clarification through an SRO that ships covered by the 'presumptive tax regime' under which tax is collected/paid on tonnage base as final discharge of their tax liability, would not be subjected to minimum tax under section 113 of the Income Tax Ordinance 2001.

According to the notification, the CBR has included a new clause (after clause 22) in the Part IV of the Second Schedule of the Ordinance, 2001, which says, “the provision of section 113 would not apply to a resident person engaged in the business of shipping who qualifies for application of reduced rate of tax on tonnage basis as final tax under clause 21 of Part II of the said schedule.”

Section 113 (minimum tax on the income of certain persons), pointed out this section shall apply to a resident company where, for any reason whatsoever, including the sustaining of a loss, the setting off of a loss of an earlier year, exemption from tax, the application of credits or rebates, or the claiming of allowances or deductions (including depreciation and amortisation deductions) allowed under this Ordinance or any other law for the time being in force, no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than one-half percent of the amount representing the person's turnover from all sources for that year.

(2) Where this section applies –

(a) the aggregate of the person's turnover for the tax year shall be treated as the income of the person for the year chargeable to tax; and

(b) the person shall pay as income tax for the tax year (instead of the actual tax payable under this Ordinance), an amount equal to one-half percent of the person's turnover for the year.

(3) In this section, “turnover” means –

(a) the gross receipts, exclusive of [sales tax and central excise duty or] any trade discounts shown on invoices or bills, derived from the sale of goods;

(b) the gross fees for the rendering of services [or giving benefits], including commissions;

(c) the gross receipts from the execution of contracts; and

(d) the company's share of the amounts stated above of any association of persons of which the company is a member.

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