Recovery Of Income Tax Under Section 235 Income Tax Ordinance 2001

LETTER FROM LETTER FROM MUHAMMAD AYUB & CO., ADVOCATES AND LEGAL ADVISORS, KARACHI TO MEMBER (DIRECT TAX), FEDERAL BOARD OF REVENUE (Re: Recovery of income tax under section 235, Income Tax Ordinance, 2001) The Member (Direct Tax), Federal Board of Revenue, Government of Pakistan Constitution Avenue, Islamabad SUBJECT: RECOVERY OF INCOME TAX UNDER SECTION 235, INCOME TAX ORDINANCE, 2001 Dear Sir, Our one client is an old taxpayer who is, by status an individual, exclusively a supplier and exporter of plastic goods after manufacturing thereof. The ratio of supply and export is about 80 and 20 per cent of the total sales; both the transactions are subject to 100% WHT which was in terms of final discharge of tax liability till tax year 2009. For and from tax year 2010 the legal position has been changed. 2. The taxpayer is also paying income tax on telephone bills, cell-phone cards, cash withdrawal (bank), and commercial/industrial electricity bills. It is pertinent to mention here that the taxpayer is paying monthly electricity (single meter) bill exceeding Rs.80,000 - this amount sometime goes upward exceeding one lac resulting in levy of income tax to a great extent. In case, any taxpayer/manufacturer got two or more electricity meters installed, the volume of income tax payment will be about one million or more in a year. 3. In short, the taxpayer discharges tax liability forthwith on import of raw materials (for self-manufacturing), supplies, and exports being the minimum tax liability, and again he suffers from levy of income tax on telephone/cell-phone cards, electricity bills, cash withdrawal (from bank) etc. In fact the taxpayer has been facing a blockade of handsome amount of working capital. 4. The Board through a Circular No.3/2009 (IT) dated 17-7-2009 in paragraph 52 clarified: (a) in the case of a taxpayer, other than a company, tax collected up to bill amount of Rs.30,000 per month shall be treated as minimum tax on the income of such persons and no refund shall be allowed; (b) in the case of a taxpayer other than a comp; (c) in the case of a company, tax collected shall be adjustable against tax liability. 5. In view of clause (a), there is an additional burden upon a taxpayer (other than a company) beside the fact that he paid the entire WHT (on import of raw material for self-factory use, supply, and export) being the minimum tax liability under section 115(4) read with S.235 (on electricity Bills). Under clause (b), the levy of income tax is adjustable with the tax (if payable) on other income (i.e. which was not subject to WHT)---this clause is silent as to whether or not the whole amount or any part thereof remains unadjusted is refundable. This circular is also silent as to whether or not the levy of income tax at import stage (on raw material for self-factory use) is refundable since (a) the finished goods are subject to WHT (being the minimum tax), and (b) tantamount to doubt taxation which is not permissible under the law. 6. We would invite your attention to clause (66) of Pt.IV of the Second Schedule to the Ordinance, 2001 which made it clear that no tax on electricity bills would be collected from the following five sectors falling under zero rated regime of sales tax of exporters-cum manufacturers: (i) carpets, (ii) leather and articles thereof including artificial leather footwear, (iii) surgical goods, (iv) sports goods, and (v) textile and articles thereof. The business community expects exemption from levy of income tax on electricity Bills, import of raw materials (for own factory use), or similar other relief (as for example, clause (66) of Pt.IV of Second Schedule, supra). It will be beneficial for business community if the Board, in view of above hard fact, very sympathetically initiates insertion of/amendment in certain clause in the said part of the Second Schedule through finance bill to be presented in the budget session. The addition of new clause or amendments in this behalf will remove the blockade to monetary circulation since the specific class of taxpayer already paying major portion of income tax at once by way of WHT, payment in advance or otherwise.