No step to recover trillions of rupees from tax-evading firms
05 February, 2013
LAHORE: After a long period, the Federal Board of Revenue (FBR) has at last withdrawn exemption on taxability of joint ventures in which one partner is non-resident company, saving national exchequer from loss of around Rs300 billion annually, as over 1,200 AOPs were evading tax, which has now been stopped.
LAHORE: After a long period, the Federal Board of Revenue (FBR) has at last withdrawn exemption on taxability of joint ventures in which one partner is non-resident company, saving national exchequer from loss of around Rs300 billion annually, as over 1,200 AOPs were evading tax, which has now been stopped. However, the tax department has not announced to recover longstanding dues of billions of rupees from these companies, registering criminal cases against them by invoking section 122 of the Income Tax Ordinance, 2001 since 2003.
It is to be noted that around 1,200 so-called foreign companies, which entered into joint ventures with Pakistani firms and became ‘resident persons', were found to be evading tax, rather claiming refunds as their proprietors are portraying themselves as ‘non-resident persons', inflicting about Rs300 billion annual loss to national exchequer due to some confusion in international tax law .
The Federal Board of Revenue has now removed this confusion in the Circular 1 of 2013 (international taxes) wherein the scope of taxation under section 153 of the Income Tax Ordinance, 2001 has been elaborated for non-resident Association of Persons (AOPs) and Joint Ventures (JVs). The FBR has issued incme tax circular 2 of 2013.
According to Circular 2 of 2013, the Circular No 1 of 2013, was issued to regulate and standardise tax treatment of joint ventures in which one of the partners is a non-resident person. The Board has been notified of an important omission in the text of the aforementioned circular. Accordingly, the words “clauses (a) and (b) of Section 153 of the Income Tax Ordinance, 2001” inadvertently appearing in line No 4 of para 2 of Circular No 01 of 2013, dated January 18, 2013, are replaced with words “under Sub-section (1) of Section 153 of the Income Tax Ordinance, 2001”. Rest of Circular No 01 of 2013 holds good in entirety, FBR added. Meanwhile, FBR Union central president Mian Abdul Qayyum while addressing a press conference, here at RTO on Monday appreciated the FBR Chairman for withdrawing tax exemption for AOPs, however, he demanded the authorities to also recover the dues from these companies which turn into billions of rupees.
He said that when Non-Resident Persons enter into JV with locals, as per Income Tax Ordinance (ITO) section 84, their status changes to Resident Persons and they are bound to pay tax under section 153 (I) (c) of the ITO 2001. He said such foreigners or their companies, then, can neither claim any kind of refund nor can avail any exemptions and they are bound to pay full taxes on all kinds of contractual transactions.
He said that the FBR Union tried to unveil the scandal of Rs300 billion per annum loss to national kitty which some FBR high-ups were trying to cover up.
He said the union had unearthed over 1,200 such resident companies which were not paying taxes despite some of them have lost cases in the court of Federal Tax Ombudsman (FTO). Following the FTO decisions in favour of the department, the FBR, instead of issuing a circular to collect taxes, was favouring them by keeping silent.
He also proposed that the said cases may be re-opened under section 122 for the last five years and also retrieve the loss of revenue in trillions of rupees.
He, while quoting the experts, said that keeping in view the provisions of section 84, 92, 153 and 169 of the ITO, 2001 read with Pakistan Engineering Council bye-Laws, 1987, all non-residents have constituted AOPs for all projects in Pakistan which can be verified by obtaining copies of contracts from Pakistan Engineering Council, Islamabad, therefore, tax deducted from Joint Ventures or Association of Persons is a final tax. Hence, neither exemption certificate nor refund in these cases may be issued.
He said it is expected that FBR can retrieve the loss of revenue approximately in 1200 cases of alike nature of non-residents. Mian Abdul Qayyum, observed that FRAEU would keep on its strenuous efforts in the best interest of revenue accountable to govt exchequer along with having observance of common interests of the FBR.