Taxation

Minimum tax on corporate service providers: deletion of

clause 79 as per statutory provisions: FTO
SOHAIL SARFRAZ

ISLAMABAD (December 10, 2015) :The Federal Tax Ombudsman (FTO) has
observed that deletion of clause 79 of the Second Schedule to the Income Tax Ordinance, 2001
through Finance Act, 2015 is in accordance with the statutory provisions to charge minimum tax
under section 153(1)(b) of the Ordinance in case of corporate service providers, except that the
tax deduction rate now stands at 8 percent, as against 6 percent earlier. Sources told
Business Recorder
that in a recent order FTO holds that Finance Act 2015 has deleted clause 79, inserted by the
FBR in the Second Schedule through SRO.1003 of 2011 taking corporate service providers out
of the purview of Minimum Taxation regime. The deletion is in accordance with statutory
provisions to charge Minimum tax u/s 153(1)(b) of the Ordinance in the case of corporate
service providers, except that the tax deduction rate now stands at 8 percent of the gross
receipt, as against 6 percent earlier. The FTO further observed that following amendment made
to Section-153 of the Ordinance through Finance Act 2009, tax deducted at source u/s
153(1)(b) of the Ordinance constitutes Minimum Tax and was, therefore, not adjustable. FBR's
attempt to take corporate service provider's out of the Minimum Tax regime by issuing Circular
No 6 of 2009 was held by the FTO to be illegal as legislation placed on the statute by
Parliament could not be amended by FBR through a Circular. This view was eventually
accepted by FBR and Circular No 6 was withdrawn. Finance Act 2011 rationalised the statutory
arrangement so as to make it more user friendly, but made no change in the taxation regime.
The FTO order states, "This is a complaint against non-issuance of income tax refund. Refunds
statedly arise due to excess deduction of income tax at source u/s 153(1)(b) of the Income Tax
Ordinance, 2001 (the Ordinance). When confronted in terms of the provisions of section 10(4) of
the FTO Ordinance, the Deptt filed a reply to intimate that tax deducted u/s 153(1)(b) of the
Ordinance in the tax years 2009 to 2012 was Minimum Tax and was not adjustable. Hence no
refund was due for these years. The Complainant contends that being a corporate entity, as per
applicable law, the tax deductions were adjustable against demand and excess amount, if any,
was refundable to the taxpayer. The Complainant has filed a rejoinder on the reply filed by
Deptt. He has reviewed the statutory position pertaining to deductions u/s 153(1)(b) of the
Ordinance and reiterates his contention that in the case of a corporate service provider the tax
deduction u/s 153(1)(b) of the Ordinance did not constitute Minimum Tax and that the
deductions were adjustable. A number of Complaints/Review Petitions pertaining to resident,
corporate service providers claiming refund in the Tax Years 2009 to 2012 due to excess
deduction of income tax u/s 153(1)(b) of the Ordinance have been disposed of by the Federal
Tax Ombudsman holding that following amendment made in Section-153 of the Ordinance
through Finance Act 2009, tax deducted at source u/s 153(1)(b) of the Ordinance constitutes
Minimum Tax and was, therefore, not adjustable. FBR's attempt to take corporate service
provider's out of the Minimum Tax regime by issuing Circular No 6 of 2009 was held by the FTO
to be illegal as legislation placed on the statute by Parliament could not be amended by FBR
through a Circular. This view was eventually accepted by FBR and Circular No 6 was
withdrawn. Finance Act 2011 rationalised the statutory arrangement so as to make it more user

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Taxation

friendly, but made no change in the taxation regime. Finance Act 2015 has deleted clause 79,
arbitrarily inserted by FBR in the Second Schedule to the Ordinance through SRO. 1003 of
2011 taking corporate service providers out of the purview of Minimum Taxation regime. The
deletion is in accordance with statutory provisions to charge Minimum tax u/s 153(1)(b) of the
Ordinance in the case of corporate service providers, except that the tax deduction rate now
stands at 8 percent of the gross receipt, as against 6 percent earlier. In view of what is stated
supra the Deptt's contention that no refund arises for the relevant period after amendment to
Section 153(1)(b) of the Ordinance through Finance Act 2009 found to be correct, the FTO
order stated.
Copyright Business Recorder, 2015

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