The government has decided to impose a 17 percent sales tax on Liquified Petroleum Gas (LPG) imports and its local supplies LPG from July 1, 2021. A leading tax expert Ashfaq Tola of Tola Associates has issued detailed comments on the proposed Finance Bill 2021 submitted to the National Assembly on Friday.
According to the amendment proposed in the Sales Tax Act, Finance Bill proposes to omit LPG (Tariff Heading 2711.1910) imports thereof and local supplies of such imported LPG chargeable @10% from serial 58 of Eight Schedule whereby it will be chargeable @17%. Ashfaq Tola explained that the government is likely to introduce Finance Bill in the next Session of the National Assembly to be called Tax Laws (First Amendment) Act, 2021, whereby it will be proposing to withdraw/streamlining the majority of exemptions in the Income Tax Ordinance, 2001.
The withdrawal of exemptions is made in line with ongoing negotiations with IMF to withdraw income tax exemptions worth Rs 140 billion. Some amendments have also been proposed in the Sales tax Act, 1990[STA] and Federal Excise Act, 2005[FED]. The taxation of surplus funds of a non-profit organization and the definition of surplus funds previously provided under sub-section 1A and 1B has been omitted and added back vide sub-section 5 and 6 to the same section, with no changes in the taxation of surplus funds of a non-profit organization and the definition
of surplus funds.
Previously the persons and income-eligible for tax credit were provided under sub-section 2 of Section 100C. Now the bill proposes to bifurcate the persons eligible for tax credit and income-eligible for a tax credit under Section 100C vide insertion of sub-section 2 and sub-section 3.
Ashfaq Tola further explained that where a taxpayer being a company opts for enlistment in any registered stock exchange in Pakistan on or before the 30th day of June 2022, a tax credit equal to twenty percent of the tax payable shall be allowed for the tax year in which the said company is enlisted and for the following three tax years, However, the tax credit for the last two years shall be 10% of the tax payable. Now through the Bill, this tax credit is proposed to be withdrawn.
Where a taxpayer being a company formed for establishing and operating a new industrial undertaking including corporate dairy farming sets up a new industrial undertaking including a corporate dairy farm, it shall be given a tax credit including on account of minimum tax and final taxes payable on the taxable income arising from such industrial undertaking for a period of five years beginning from the date of setting up or commencement of commercial production, whichever is later.
Now through the Bill, this tax credit is proposed to be withdrawn. The Bill proposes to omit the following clauses pertaining to the oil and gas sector. Presently, any income of persons whose profits or gains from business are computed under the Fifth Schedule to Income Tax Ordinance as is derived from letting out to other similar persons any pipeline for the purpose of carriage of petroleum shall be charged to tax at the same rate as is applicable to such persons in accordance with the provisions of the said Schedule.
Now, profits from such shall be chargeable to tax at normal rates provided in First Schedule. The tax in respect of income from services rendered outside Pakistan and construction contracts executed outside Pakistan are charged at the rates as specified in sub-clause (b), provided that receipts from services and income from contracts are brought into Pakistan in foreign exchange through the normal banking channels.
The rates in respect of income from services rendered outside Pakistan shall be 50% of the rates as specified in clause (2) of Division III of Part III of the First Schedule and the rates in respect of contracts executed outside Pakistan shall be 50% of the rates as specified in clause (3) of Division III of Part III of the First Schedule. Now, the tax will be charged at normal rates as provided in First Schedule, Ashfaq Tola added. As per the 3rd Schedule, the depreciation rates in case of mineral oil concerns the income of which is liable to be computed in accordance with the rules in Part-I of the Fifth Schedule for below-ground installations was 100% is now proposed to be omitted. Now the rates for below-ground installations will be the same as for Offshore platform and production installations i.e. 20%.
The Bill proposes to withdraw the following concessions provided to the oil and gas sector under the fifth Schedule: Rule 2(7) Part I: Sub-rule (6) provides that excess deductions allowable from profits are only allowed to be carried forward for six years. Subrule (7) provides concessions of such limitation of 6 years in case of any machinery, plant, or other equipment used in exploration or production. However, such concession is not allowed in case of other deductions. The bill proposes to withdraw such a concession. Rule 3 Part I: Rule 3 provides for depletion allowance equal to fifteen percent of the gross receipts representing the well-head value of the production. The bill proposes to withdraw such depletion allowance.
Rule 4 provides for exemption of profits and gains up to 10% of capital employed in case of an undertaking involved in exploration and extraction of mineral deposits and is also engaged in the business of refining or concentrating in Pakistan. The bill proposes to withdraw the exemption, Ashfaq Tola added.
