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[Federal Tax Ombudsman]
Before Dr. Muhammad Shoaib Suddle, Federal Tax Ombudsman
WAHEED SHAHZAD BUTT
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.286/LHR/IT/(240)/577 of 2011, decided on 16th December, 2011.
(a) Income Tax Ordinance (XLIX of 2001)—
—-S.153(1)(b)—F.B.R. letter C.No.1(6)WHT/2009 dated 4-7-2009—F.B.R. Circular
No.3 of 2009 dated 17-7-2009—F.B.R. Circular No.6 of 2009 dated 18-8-2009–F.B.R.
Letter C.No.1(10)WHT/2006-Part-III dated 1-11-2010—F.B.R. letter
No.1(25)WHT/2009 dated 26-4-2011—Payments for goods, services and contracts–Services—Despite
imposition
of
minimum
withholding
tax
@
6%,
the
Commissioner
issued
exemption
certificate
to
taxpayer
providing
services
and
falling
under
the
ambit
of
S.153(1)(b) of the Income Tax Ordinance, 2001 being corporate taxpayer–Validity—Clarifications
circulated
by
the
Federal
Board
of
Revenue
to
its
field
formations
were
sufficient
proof
that
the
amendment
made
in
S.153
of
the
Income
Tax
Ordinance,
2001
through
Finance
Act,
2009
had
ousted
all
the
National
Tax
Number
holders
whether
individuals,
Association
of
Persons
or
Companies
providing
services
from
Normal
Tax
Regime/Final
Tax
Regime
and
brought
them
under
the
Minimum
Tax
Regime—Exemption
certificate
issued
by
the
Commissioner
on
the
request
of
some
corporate
taxpayer
prior
to
issuance
of
Circular
No.6
of
2009
dated
18-8-2009
were
withdrawn
when
the
legal
position
was
explained
to
the
Commissioner—Prima
facie,
it
seemed
that
the
corporate
sector
providing
services
thereafter
approached
the
Federal
Board of Revenue and Circular No.6 of 2009 dated 18-8-2009 was issued,
ousting the corporate sector from Minimum Tax Regime of S.153 of the Income Tax
Ordinance, 2001 (as amended) without withdrawing the Federal Board of Revenue’s
earlier clarifications issued through its letter dated 4-7-2009 and Circular No.3 of
2009 dated 17-7-2009—Exemption Certificate was wrongly issued in the month of
July 2009, when changed position of applicability of S.153(1)(b) of the Income Tax
Ordinance, 2001 was clear—Clarification
issued vide F.B.R. letter
C.No.1(6)WHT/2009 dated 4-7-2009 and F.B.R. Circular No.3 of 2009 dated 17-7-
2009 were not followed while issuing exemption certificate—Ambiguous
clarification was issued through Circular No.6 of 2009 dated 18-8-2009
which was withdrawn on 26-4-2011—Revenue admitted that public
exchequer suffered losses because of issuance of Circular No.6 of 2009
dated 18-8-2009 and the exemption certificate issued by the Commissioner all over
Pakistan—No measures were taken by Federal Board of Revenue to recoup the losses
because corporate taxpayers were still issuing bills to their customers with a printed
note that they were exempt from deduction of withholding tax and the same was not
being deducted by many service recipients—Circular No.6 of 2009 dated 18-9-2009
was wrongly issued and the Commissioner issued exemption certificate contrary to
law and in departure from Federal Board of Revenue’s earlier clarifications, which
was tantamount to maladministration—Federal Tax Ombudsman recommended that
Federal Board of Revenue to initiate appropriate action against officials who
approved/issued Circular No.6 of 2009 dated 18-9-2009; initiate appropriate action
against officials who issued exemption certificate to unduly benefit the corporate
entities; ascertain the particulars and the amount of tax not withheld @ 6% from each
service provider; take immediate measures to recover the loss of revenue, as per law
and direct the concerned officials to take suitable action to ensure that the
taxpayers, including the cellular companies, issue bills/invoices without
reference to exemption from withholding tax.
(b) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV
of 2000)—
—-S.9—Jurisdiction, functions and powers of the Federal Tax Ombudsman–Complaint
in public interest—Investigation by Ombudsman on its own motion–Jurisdiction—Scope—Objection
raised by the Revenue regarding matter being subjudice
in High Court or regarding jurisdiction of Federal Tax Ombudsman to
investigate the complaint in public interest were not legally tenable—No evidence had
been submitted to prove that the issue was sub judice before the High Court prior to
filing of application—Section 9(1) of the Establishment of the Office of Federal Tax
Ombudsman Ordinance, 2000, empowers the Federal Tax Ombudsman to investigate,
on his own motion, any allegation of maladministration on the part of Revenue
Division or any tax employee.
Muhammad Munir Qureshi, Advisor Dealing Officer.
Ramzan Bhatti Adviser
Waheed Shahzad Butt for Applicant.
Dr. Muhammad Iqbal, Chief, F.B.R., AsifRasool, Secretary, F.B.R. and Ashfaq
Ahmad, DCIR Departmental Representatives.
FINDINGS/RECOMMENDATIONS
DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).–The
issue involved in this complaint taken up under “own motion” jurisdiction
conferred under section 9(1) of the FTO Ordinance, 2000, is illegal issuance of
exemption certificates, particularly by RTO, Karachi and LTU Islamabad.
- Under the Finance Act, 2009, an amendment was made in section 153 of the
Income Tax Ordinance, 2001 (the Ordinance) rendering all service sector taxpayers
subject to minimum withholding tax @ 6% of gross receipts. It meant that neither a
refund could be allowed nor an exemption certificate issued to such taxpayers if their
assessed income tax was less than the amount withheld @ 6% of gross receipts. After
the amendment, the F.B.R. issued letter C.No.1 (6) WHT/2009 dated 4-7-2009
advising the Directors General, LTUs/RTOs, that the tax deducted under section
153(1)(b) of the Ordinance would be the “minimum tax”. The F.B.R. also issued a
Circular No.3 of 2009 dated 17th July, 2009, advising the field formations that tax
deducted under section 153(1)(b) would be considered “minimum tax” and all
taxpayers falling in the ambit of this provision of law shall file returns under the
normal tax regime instead of statement under final tax regime. - However, despite the imposition of minimum withholding tax @ 6%, the
Commissioners, Inland Revenue issued exemption certificates to taxpayers providing
services and falling under the ambit of section 153(1)(b) of the Ordinance. In
particular, the Commissioner, RTO, Karachi and Commissioner, LTU, Islamabad
issued, exemption certificates to Messrs LEOPARDS Courier and MessrsMobilink
respectively on 9-6-2009 and 8-8-2009. When the Commissioners, Inland Revenue,
RTO, Karachi, and LTU, Islamabad, were informed of the illegality in issuance of
exemption certificates, they withdrew the certificates on 5-8-2009 and 12-8-2009
respectively. - The ubiquitous maladministration of the Department further came to light
when F.B.R. issued Circular No.6 of 2009 (on 18-8-2009), stating that the status of
corporate sector companies rendering services remained unchanged even after the
amendment in section 153 of the Ordinance, and so the corporate sector companies
would remain subject to minimum tax @ 0.5% as provided under section 113 of the
Ordinance. Thereafter, the LTUs and RTOs again started issuing the exemption
certificates, including to Messrs Pakistan Mobile Communication Ltd., Islamabad,
reiterating that no tax would be deducted/withheld on payments made on account of
providing/rendering services. - The F.B.R. through e-mail dated 20-10-2010 was again informed of the
inaccurate computation of tax on service sector leviable under section 153(1)(b) of the
Ordinance, using the software available on F.B.R. website for filing of income tax
return for tax year 2010. Secretary (Withholding Tax), F.B.R., through letter
C.No.1(10)WHT/
2006-Part-
III dated 1st November, 2010 clarified that the law did not allow to club income
on account of services rendered by professionals — on which minimum tax @ 6%
had already been deducted — with other sources of income for further taxation under
the normal tax regime. - Thereafter, the applicant filed Complaint No.719/LHR/IT(594)/ 1258/2010
alleging that the return form for tax year 2010 placed on F.B.R’s. web portal was
faulty and erroneous. The Hon’ble FTO decided the complaint on 25-4-2011, directing
the F.B.R. for removal of defects in the return form placed on web portal, besides
retrieval of loss of revenue in service sector through appropriate measures. - As the applicant in the meanwhile continued to send repeated representations
through e-mails to the F.B.R., the Chief (ITP), F.B.R., through Letter
No.1(25)WHT/2009 dated 26th April, 2011, clarified that “the matter has been
examined again and it is ruled in supersession of earlier instructions issued through
Circular No.6 of 2009 that the tax deducted on payments made for rendering or
providing of services is to be treated as minimum tax and the taxpayers falling in the
ambit of section 153(1)(b) of the Ordinance shall file return of income instead of a
statement under Final Tax Regime.” Additional Secretary, Revenue Division, also
clarified through statement published in daily Business Recorder dated 28-4-2011 that
“every person whether a company, Association of Persons (AOP) or individual
providing or rendering services will pay minimum tax @ 6% under section 153(1)(b)
of the Ordinance.” - Commenting on the prevalent confusion on the issue, the applicant felt that
F.B.R. functionaries were either not fully aware of the changes made in section 153 of
the Ordinance, 2001, through the Finance Act, 2009, or were wrongly interpreting the
law with ulterior motives. He further alleged that the functionaries of F.B.R. by not
taking the applicability and enforcement of law seriously were quality of negligence,
inattention and arbitrariness in the discharge of their duties and responsibilities. - The complaint was sent on 8-6-2011 to the Secretary, Revenue Division, for
comments. In response, Mr. Muhammad Imtiaz, Secretary (Withholding Tax), F.B.R.,
filed comments through F.B.R’s. Letter C.No.4(577)/TO-I/2011 dated 18th June,
2011, which were
sent
to
the applicant for rejoinder,
if
any. The applicant filed a rejoinder on 4-7-2011, stating that the F.B.R. had
accepted that Circular No.6 of 2009 dated 18th August, 2009 was issued solely to
benefit some blue-eyed taxpayers who obtained exemption certificates and avoided
the deduction of 6% minimum withholding tax on their gross receipts. The applicant
also claimed that F.B.R. had deliberately avoided to comment on the issues raised and
had wrongly construed that the applicant wanted to claim any refund. - During the hearing, the applicant contended that the functionaries of the
F.B.R. had deliberately mis-interpretered the provisions of section 153 of the
Ordinance as emended by the Finance Act, 2009. They had issued Circular No.6 of
2009 and the exemption certificates in order to benefit certain taxpayers. In support of
this allegation, he contended that a report was published on 28-4-2011 in the widely
circulated Business Recorder that the concerned F.B.R. functionaries had made a
commitment with mobile phone companies to change the withholding tax regime of
minimum tax @ 6% into an adjustable tax regime. He maintained that all the telecom
operators/ cellular companies were doing businesses of several hundred billion rupees
but were continuously showing operational losses. The applicant apprehended that by
making the minimum withholding tax @ 6% of gross receipts as an adjustable tax, the
public exchequer would be bearing a colossal loss of revenue as all the mobile
telephone companies would claim refund of the withheld amount of tax. - The applicant requested that F.B.R. be directed to initiate disciplinary
proceedings against its functionaries who had issued exemption certificates and
Circular No.6 of 2009. He also requested that loss of revenue had to be recouped
either by amending the tax return form for Tax Year 2010 or by asking the taxpayers
providing services to file revised returns on the new return form prescribed for Tax
Year 2011. The applicant also contended that many taxpayers particularly cellular
companies were still sending bills/invoices with a note that they were exempt from
withholding tax deductible @ 6% on gross receipts. Resultantly, no tax was being
withheld by many recipients of services causing a huge loss of revenue. - The DR, Mr. Asif Rasool, Secretary, F.B.R., raised legal objections by stating
that the Hon’ble FTO was not competent to decide the cases on the basis of
applications for suomoto investigations in the public interest. He, however, admitted
that the applicant had raised valid objections and stated that the mistakes made by
F.B.R. were later rectified through clarificatory letters. He stated that the income tax
return form for the year 2010 could not be legally amended/re-issued as the benefit
once given could not be withdrawn with retrospective effect. The DR also claimed
that the F.B.R. was considering other alternatives to recoup the loss of revenue caused
due to wrongly issued exemption certificates, Circular 6 of 2009 and faulty income
tax return form for the year 2010. - Dr. Muhammad Iqbal, Chief (ITP), F.B.R., who also
appeared as DR, admitted the maladministration by functionaries
of F.B.R. in issuing self-contradictory instructions and Circulars.
The DR stated that many taxpayers had challenged the withdrawal of Circular No.6 of
2009 dated 18-8-2009 in the Lahore High Court, Lahore, and the matter being subjudice
was
out
of
the
jurisdiction
of
Hon’ble
FTO
in
terms
of
section
9(2)
of
the
FTO
Ordinance,
2000.
14.
The
averments
made
and
record
produced
has
been
examined.
It is
an
admitted
fact
that
the
F.B.R.
through
its
letter
C.No.1(6)WHT/2009
dated
4th
July,
2009,
had
issued
guidelines to all the Director Generals of LTUs/RTOs in the country. The
F.B.R. also placed income tax return form (IT-2) with built in tax computation facility
for the year 2010 on its web portal which calculated the tax on service sector as
“minimum tax”. The income tax form prescribed by the F.B.R. for tax year 2011 and
placed currently on its web portal also calculates the withholding tax deducted from
the service providers as a minimum tax.
- The above clarifications circulated by the F.B.R. to its field formations are
sufficient proof that the amendment made in section 153 of the Ordinance through the
Finance Act, 2009 ousted all the NTN holders whether individuals, AOPs or
Companies providing services from Normal Tax Regime (NTR)/Final Tax Regime
(FTR) and brought them under the Minimum Tax Regime (MTR). The exemption
certificates issued by the Commissioners on the request of some corporate taxpayers
prior to issuance of Circular No.06 of 2009 dated 18-8-2009 were withdrawn when
the legal position was explained to the concerned Commissioners by the applicant.
Prima facie, it seems that the corporate sector providing services thereafter
approached the F.B.R. and Circular No.6 of 2009 dated 18-8-2009 was then issued,
ousting the corporate sector from Minimum Tax Regime of amended section 153 of
the Ordinance without withdrawing the Board’s earlier clarifications issued through it
letter dated 4th July 2009 and Circular No.3 of 2009 dated 17th July, 2009. - The Exemption Certificates clearly were wrongly issued in the month of
July, 2009, when changed position of applicability of section 153(i)(b) was clear.
Clarification issued vide F.B.R.’s Circular/ Letter C.No.1(6)WHT/2009 dated 4-72009
and Circular No.03 of 2009 dated 17-7-2009 were not followed while issuing
these Exemption Certificates. Moreover, an ambiguous clarification was issued
through Circular No. 6 of 2009 dated 18-8-2009 which was withdrawn on 26-42011.
17.
The
objections
raised
by
the
DR
regarding
the
matter
being
sub-judice
in
the
Lahore
High Court, Lahore, or regarding the jurisdiction of Hon’ble FTO to
investigate the complaint in public interest are not legally tenable. No evidence has
been submitted to prove that the issue was sub judice before the Hon’ble Lahore High
Court, Lahore, prior to the filing of application by the applicant. Section 9(1) of the
FTO Ordinance, 2000, empowers the Hon’ble FTO to investigate, on his own motion,
any allegation of maladministration on the part of the Revenue Division or any tax
employee.
- The DRs have admitted that the public exchequer suffered
losses because of issuance of Circular No.6 of 2009 dated 18-8-2009 and
the Exemption Certificates issued by the Commissioners of Inland Revenue all over
Pakistan. No measures were taken by F.B.R. to recoup the losses which according to
the applicant were several billion rupees because the corporate taxpayers were still
issuing bills to their customers with a printed note that they were exempt from the
deduction of withholding tax and the same was not being deducted by many service
recipients.
Findings:
- In view of above, it is clear that the F.B.R.’s Circular No. 6 of 2009 dated
18-8-2009 was wrongly issued and the Commissioners Inland Revenues Issued
Exemption Certificates contrary to law and in departure from F.B.R.’s earlier
clarifications, which is tantamount to mal-administration as defined under section 2(3)
of the FTO, Ordinance, 2000.
Recommendations:
- F.B.R. to–
(i) initiate appropriate action against officials who
approved/issued Circular No.6 of 2009 dated 18-8-2009;
(ii) initiate appropriate action against officials who issued
Exemption Certificates to unduly benefit the corporate entities;
(iii) ascertain the particulars and the amount of tax not withheld @ 6% from each
service provider;
(iv) take immediate measures to recover the loss of revenue, as per law;
(v) direct the concerned officials to take suitable action to ensure that the
taxpayer, including the cellular companies, issue bills/invoices without reference to
exemption from withholding tax; and
(vi) report compliance within 60 days.
C.M.A./284/FTO Order accordingly.
2013 PTD 2159 =2013 (108) TAX 164
[Federal Tax Ombudsman]
Before Dr. Muhammad Shoaib Suddle, Federal Tax Ombudsman
SECRETARY REVENUE DIVISION, ISLAMABAD
Versus
WAHEED SHAHZAD BUTT, ADVOCATE HIGH COURT
Complaint No.286/LH R/IT (240)/577 of 2011, decided on 10th July, 2013.
(a) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)—
—-S. 9(1)—Jurisdiction, functions and powers of the Federal Tax Ombudsman—Scope—“Public interest”—Suo
motu notice in public interest by ombudsman—Necessity of complaint—Objection of the Department that “Federal
Tax Ombudsman could only assume jurisdiction if there was an aggrieved party”, was misconceived—Allegations
of systemic maladministration were levelled against the functionaries of Federal Board of Revenue and the Federal
Tax Ombudsman took suo motu notice in public interest, under S.9(1) of the Establishment of the Office of Federal
Tax Ombudsman Ordinance, 2000—Investigation of the nature did not necessitate a complainant.
(b) Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)—
—-S. 2(3)—Maladministration—Department contended that in the absence of mens rea in the
conduct of functionaries of Federal Board of Revenue, no disciplinary action was warranted against
them—Validity—Mens rea in proceedings before the Federal Tax Ombudsman was determined by
the attendant circumstances on the basis of balance of probability and not on the basis of
requirement of criminal law beyond reasonable doubt—Chain of transactions which could result in
loss of billions of rupees to the exchequer and a corresponding gain to the service provider
corporations could not be brushed aside as a bona fide error of judgment.
(c) Income Tax Ordinance (XLIX of 2001)—
—-Ss.153 (1)(b), 153(6)(iii), 113 & 206—FBR Circular No.6 of 2009 dated 18-8-2009—FBR Circular C.No.196
WHT/2009 dated 4-7-2009—FBR Circular No.3 of 2009 dated 17-7-2009—S.R.O. 1003(I)/2001 dated 31-10-2011–Payments
for
goods,
services
and
contracts—Tax
on
services—Minimum
tax
for
service
sector,
corporate
as
well
as
non-corporate—Minimum
tax
under
Ss.153(1)(b)/153(6)
of
the
Income
Tax
Ordinance,
2001,
and
after
Finance
Act,
2001,
Ss.153(1)(b)/153(3)(b)
of
the
Income
Tax
Ordinance,
2001,
was
applicable
in
cases
of
all
service
sector
taxpayers,
corporate
as
well as non corporate—FBR Circular No.6 of 2009 dated 18-8-2009 was based on wrong
and possibly motivated view of the law pertaining to minimum taxation under S.153 of the Income Tax Ordinance,
2001—FBR Circular No.3 dated 17-7-2009 was issued soon after the changes in S.153 of the Income Tax
Ordinance, 2001 were brought after enactment of Finance Act, 2009 under which 6% minimum tax was made
applicable to all taxpayers rendering services—Three illustrations provided in Circular No.3 covered corporate as
well as non-corporate taxpayers, wherein 6% tax deducted under S.153(1)(b) of the Income Tax Ordinance, 2001
was specifically categorized as minimum tax—Nothing was mentioned in Circular No.3 which had hinted, however
obliquely, at exclusion of the corporate sector from the purview of minimum taxation—Minimum taxation of all
service sector taxpayers was again re-affirmed in FBR Circular No.7 of 2001 when S.153 of the Income Tax
Ordinance, 2001 was re-cast, re-aligned and re-drafted to make it more comprehensible and easy to understand–Earlier,
Federal Board of Revenue through C.No.1(25)WHT/2009 dated 26-4-2011 superseded Circular No.6 and
clarified that 6% minimum tax applied to all taxpayers falling within the purview of S.153(1)(b) of the Income Tax
Ordinance, 2001 and thereby admitted that the contrary view expressed in Circular No.6 of 2009 was wrong.
(d) Income Tax Ordinance (XLIX of 2001)—
—-Ss.153(1)(b) & 153(6)(iii)—FBR Circular No. 6 of 2009 dated 18-08-2009–Tax on services–Exemption
certificate issued by commission for minimum tax—Interpretation of statutes was the exclusive prerogative of the
courts—One may refer to the issuance of exemption certificates by the Commissioners of Income Tax to corporate
entities, especially Cellular Companies, deriving receipts from rendering services after the changes were introduced
in S.153 following enactment of Finance Act, 2009—Issue of such certificates was clearly illegal as after
introduction of minimum taxation of all service providers through Finance Act, 2009, 6% tax withheld became the
minimum tax below which there was no possible threshold—No possibility of refund of tax withheld at source
existed on payments made to service providers and a corporate entity was bound to pay such minimum amount of
tax—No justification existed for issuance of exemption certificates to corporate entities—When matter was brought
to their attention, the Commissioner immediately cancelled the exemption certificates which evidently triggered a
huge effort by the affected corporate entities who obviously wielded considerable clout in the Federal Board of
Revenue—Circular No.6 of 2009 was issued after few days which “clarification” was expressly designed to take
companies rendering services out of the purview of minimum taxation under Ss.153(1)(b)/153(6) of the Income Tax
Ordinance, 2001—No greater indictment of a government agency charged with the mobilization of revenue
desperately could be needed by the State than what it did by issuing Circular No.6 of 2009—After withdrawal of
said Circular further clarifications/Statements/S.R.Os. were issued by the Federal Board of Revenue on 26-42011,
28-4-2011,
17-6-2011
and
1-7-2011—Secretary
Inland
Revenue,
on
6-9-2011
confirmed
that
Circular
No.6 was wrongly issued—Chief Income Tax Policy, also stated (during the
hearing of the Review Application) that Circular No.6 of 2009 was unlawful and he had
signed that Circular under pressure—All these admissions and clarifications notwithstanding, S.R.O. No.
1003 dated 31-10-2011 was issued to grant exemption to the corporate sector from minimum tax by inserting
Cl.79 to Second Schedule of the Income Tax Ordinance, 2001—Federal Board of Revenue issued
Circular No.6 of 2009 without mandate.
2010 PTR 1 and 1993 SCMR 1232 rel.(e) Income Tax Ordinance (XLIX of 2001)—
—-Second Sched., Part-II, Cl.79 & S.153—FBR Circular No. 7 of 2011 dated 1-7-2011—S.R.O. 1003 dated 31-102011—S.R.O.
1003
dated
31-10-2011
was
issued
inserting
Cl.
79
in
the
Second
Schedule
of
Income
tax
Ordinance,
2001
without
getting
retrospective
approval
of
the
amendment
in
S.153
of
the
Income
Tax
Ordinance,
2001
by
the
Parliament
through Finance Act, 2011—Only subsections of S.153 of the Income Tax Ordinance, 2001 were
‘realigned to provide clarity without changing the taxation regime through Finance Act, 2011 as explained by
Federal Board of Revenue itself in Para 19 of Circular No.7 of 2011 dated 1-7-2011—No approval of the
Parliament had been sought through Finance Act, 2012 or Finance Act, 2013 for the purpose.
(f) Income Tax Ordinance (XLIX of 2001)—
—-Ss.153(1)(b), 153(6)(iii) & Second Sched., Part-II, Cl.79—FBR Circular No.6 of 2009 dated 18-8-2009–Payments
for goods, services and contracts—Tax on services—Exemption to corporate sector service providers
from minimum tax—Validity—Federal Board of Revenue acted beyond its jurisdiction exempting corporate sector
service providers from minimum tax—Federal Board of Revenue’s act of issuing Circular No.6 of 2009, and then
inserting Cl. 79 in the Second Schedule to the Income Tax Ordinance, 2001 effectively amending the provisions of
S.153 of the Income Tax Ordinance, 2001 without approval of the Parliament smacked of improper motive, as also
inefficiency, incompetence and ineptitude—Federal Board of Revenue had no authority to issue S.R.Os./Circulars
which contradict the statutory provisions of laws—As no amendment in S.153 of the Income Tax Ordinance, 2001
was approved by the Parliament, insertion of Cl.79 in the Second Schedule to the Income Tax Ordinance, 2001,
changing the whole spirit of taxation regime, was clearly an act without jurisdiction—Bumpy and conflicting
sequence of Circulars and S.R.Os. leading to insertion of Cl. 79 in the Second Schedule of the
Income Tax Ordinance, 2001 through S.R.O. 1003 dated 31-10-2011 being wilful and mala fide
came under the definition of “maladministration”—Review application was rejected by the Tax
Ombudsman accordingly.
2010 PTR 1 and 1993 SCMR 1232 rel.
Muhammad Munir Qureshi, Advisor, for the Dealing Officer.
Waheed Shahzad Butt for the Authorized Representative.
Asrar Rauf, Senior Member, FBR, Dr. Muhammad Iqbal, Chief ITP, FBR, AftabAhmed, then Chief ITP, FBR, Taj Hamid, Secretary IR (Budget), FBR, Dr. Aftab Imam,
Secretary, FBR, Khalid Aziz Banth, then Member DT for the Departmental
Representatives.
Dr. Ikram ul Haq, Advocate Surpeme Court, Rana Munir Hussain, General SecretaryAPTBA,Habib Fakhruudin, Ex-Member FBR Syed Pervaiz Amjad, Ex-Member FBR, for the
Amici Curie
ORDER
DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---The applicant has filed apetition seeking review of the Findings/Recommendations of the Hon’ble Federal Tax Ombudsman’s in Complaint
No.286/LHR/IT(240)/577 of 2011 disposed of vide order dated 16-12-2011 as under:–
Findings:
In view of above, it is clear that the FBR Circular No.6 of 2009 dated 18-8-2009 was wrongly issued and theCommissioner Inland Revenue issued Exemption Certificates contrary to law and in departure from FBR’s earlier
clarifications, which is tantamount to mal-administration as defined under section 2(3) of the FTO Ordinance, 2000.
Recommendations: FBR to ---(i) initiate appropriate action against officials who approved/issued Circular No. 06 of 2009 dated 18-8-2009;
(ii) initiate
appropriate
action
against
officials
who
issued
Exemption Certificates to unduly benefit the corporate entities;
(iii) ascertain the particulars and the amount of tax not withheld @ 6% from each service provider;
(iv) take immediate measures to recover the loss of revenue, as per law;
(v) direct the concerned officials to take suitable action to ensure that the taxpayers, including the cellular
companies, issue bills/invoices without reference to exemption from withholding tax; and
(vi) report compliance within 60 days.”
- The Deptt. did not implement the Recommendations of the Hon’ble FTO within the given timeframe. Rather,
it filed a Review Application dated 7-2-2012 before the Hon’ble FTO, raising the following issues:–Preliminary Submissions.
(1) The Hon’ble Federal tax Ombudsman was not competent to hear and investigate public interest complaints
such as the one filed by the complainant.
(2) Only an aggrieved person could file a complaint before the Hon’ble FTO and the complainant did not fall in
this category.
On Facts.(1) No mens rea was evident in the conduct of FBR functionaries and therefore no disciplinary action was
warranted against them.
(2) The Hon’ble FTO had erred in the understanding of section 153(1)(b) along with its three provisions. The
third proviso related to Clause (iii) of subsection (6) only.
(3) The import of the word “further” in the second proviso and its absence in the third proviso was not fully
comprehended by the Hon’ble FTO.
(4) The Review was occasioned because of a complexity of construction, the true import of which escaped the
Hon’ble FTO.”
- The following officials of the Federal Board of Revenue were examined to ascertain the facts and also to
determine their role in the matter:–
(i) Mr. Taj Hamid, then Secretary IR Judicial, FBR, and presently Secretary IR (Revenue Budget)
(ii) Mr. Aftab Ahmad who issued FBR Circular No. 6 on 18-8-2009
(iii) Mr. Khalid Aziz Banth, then Member DT
(iv) Mr. Asrar Rauf, Additional Secretary Revenue
(v) Dr. Muhammad Iqbal Chief ITP
- As regards the preliminary objection that Mr. Waheed Shahzad Butt, the complainant, is not an aggrieved
person and the Hon’ble FTO can only assume jurisdiction if there is an aggrieved party, this objection is
misconceived. Mr. Waheed Shahzad Butt levelled allegations of systemic maladministration against the FBR
functionaries and the Hon’ble FTO took suo motu notice in public interest, under section 9(1) of the FTO Ordinance.
An investigation of this nature does not necessitate a complainant. - On facts, it has been contended by the department that in the absence of mens rea in the conduct of FBR
functionaries, no disciplinary action is warranted against them. Mens rea in proceedings before the Hon’ble FTO is
determined by the attendant circumstances on the basis of balance of probability, not on the basis of criminal law
requirement of beyond reasonable doubt. The chain of transactions which resulted in loss of possibly billions to the
exchequer and a corresponding gain to the service provider corporations cannot be brushed aside as a bona fide error
of judgment. - The Review Application is signed by Mr. Taj Hamid, Secretary IR (Budget). He stated that he simply signed
the Review Application in a mechanical way. The Application was prepared by other officials. When confronted
with the tenor of the Review Application, he tendered an unconditional apology and held out the assurance that he
would never use inappropriate language in future. - Mr. Aftab Ahmad, the Chief ITP, stated that he signed the FBR Circular No. 6 on 188-2009
under
pressure
from
Member
DT,
Mr.
Khalid
Aziz
Banth.
He
did
not
fully
grasp
the significance of the Circular but just signed it. He stated that Mr. Khalid Aziz Banth had
made up his mind that companies deriving income from services ought not be subjected to
minimum tax @ 6% under section 153(1)(b) of the Ordinance. He remained upset by the
act of signing the Circular and ultimately on 26-4-2011 withdrew the notification. Also, he
was told by Mr. Banth that his predecessor had already approved the issuance of the
Circular. This assertion however turned out to be false. - Mr. Asrar Rauf, Addl. Secretary Revenue, said that the 6% minimum tax was never applicable to companies
rendering services. He said that it would not be in the ultimate interest of revenue as taxing the mobile phone
companies would lead to flight of capital from Pakistan. In his opinion an adjustable tax over the year would serve
Pakistan better. - Mr. Khalid Aziz Banth, then Member DT, made a written deposition dated 24-92012.
He stated that 1st Proviso to section 153(6) had excluded companies rendering
services (other than listed companies) from FTR and had also placed them out of the
Minimum Tax Regime. The 2nd proviso related to media services which were similarly
excluded. The 3rd proviso related to part (iii) of section 153(6) and covered the resident,
non-corporate sector. The corporate sector was already subject to minimum tax @ 1% of
receipts through section 113 of the Ordinance when the third proviso was added through
Finance Act, 2009. Therefore a second minimum tax under section 153(6)(iii) could not
relate to the corporate sector.
- The Department explained that the minimum tax measure was revenue neutral and no significant tax yield
was projected through it. - The first point that needs to be resolved is the import of section 153(6)(iii). The 3rd Proviso clearly states
that sub-clause (b) of subsection (1) of section 153 shall be the minimum tax. Mr. Khalid Aziz Banth in his
statement maintained that this did not relate to the corporate sector. This contention is not based on any valid
argument except that section 113 makes the services performed by the corporate sector subject to a minimum tax @
1% of receipts. However section 113 applies only under certain conditions when no tax is payable by an individual,
an AOP or a company. If minimum tax above 1% is leviable, then section 113 is not applicable. Mr. Banth has also
sought the shelter of Circular No.3 of 2009 and the Finance Act of 2011. Both do not support the issuance of
Circular No. 6. This office is concerned with the motive of Mr. Banth in pressurising his
subordinates to issue Circular No. 6. The attendant circumstances tend to show that he was
doing this for improper motives. The service providers were first issued certificates of exemption by
Commissioners, which were withdrawn when the FBR realized that the law did not provide for such exemptions,
after Mr. Waheed Shahzad Butt lodged a complaint before the concerned Commissioners alleging huge loss of
revenue being allowed to certain corporate sector service providers. Mr. Butt also lodged a Complaint No. 1258 of
2010 in the FTO Office. - DRs Mr. Asif Rasool, Secretary FBR, and Dr. Muhammad Iqbal Chief FBR, accepted that mistakes had been
made while issuing Circular No. 6. - The Hon’ble FTO decided to obtain the assistance of the following amici curiae:–
(i) Dr. Ikram ul Haq Advocate Supreme Court, and International Tax Consultant.
(ii) Rana Munir Hussein, Advocate, General Secretary Pakistan Tax Bar Association.
(iii) Mr. Habib Fakhrudddin, FCA, Consultant (formerly Member Tax Policy, CBR).
(iv) Syed Pervaiz Amjad, Consultant (formerly Member Audit, CBR).
- Their input was sought to the following four questions:–
(i) Whether FBR Circular No. 6 of 2009, dated 18-8-2009 effectively negates minimum taxation of service
sector receipts @ 6% of gross receipts as envisaged in the amendment made to second proviso to subsection
(6) of section 153 of the Income Tax Ordinance, 2001 through Finance Act, 2009?
(ii) Whether legislative intent in the amendments made in section 153 through Finance Act, 2009 is to
charge minimum tax on income/loss declared by all service providers @ 6% of gross receipts?
(iii) Whether FBR had the authority to interpret statutory provisions through ‘Clarifications’, ‘Circulars’
and ‘S.R.Os.’?
(iv) Whether the series of Clarifications/Circulars/S.R.Os. issued by FBR between 1-7-2009 and 31-102011
establish
mens
rea
on
the
part
of
FBR
functionaries?
15.
Rana
Munir
Hussein,
Secretary
General,
All
Pakistan
Tax
Bar
Association
was
of
the
view
that
Circular
No.
6
was not for interpreting the law but clarifying it as it pertained to companies rendering services. He said that
section 206 of Income Tax Ordinance, 2001 expressly empowered the FBR to issue Circulars to provide guidance to
the taxpayers as well as the functionaries of FBR. He pointed out that there was no such provision in the repealed
Income Tax Ordinance, 1979. The purpose of the provision was to ensure consistency in the administration of the
statute. Being a special law it would prevail over the general law. He said that by issuing Circular No. 6, FBR had
actually clarified the position with regard to section 153(6) of the Ordinance after amendments were made through
Finance Act, 2009. Had the Circular not been issued taxpayers and FBR functionaries would have remained
confused. Some taxpayers would have seen the levy as a Final Tax, others as an Adjustable Tax, and still others as a
Minimum Tax. FBR had only clarified matters and had not interpreted any law.
- Rana Munir Hussein said that he was of the considered view that earlier Circulars (C.No.1(6)WHT/2009
dated 4-7-2009 and Circular No.3 of 2009 dated 17-7-2009) and S.R.Os. issued after Circular No.6 for corporate
taxpayers’ income tax returns (S.R.O. 1158(I)/2010 dated 30-12-2010 and S.R.O. 850(I)/2011 dated 17-9-2011 to
notify electronic returns for Tax Years 2010 and 2011) were illegal because they did not support the law pertaining
to levy of minimum tax as enacted by the Parliament. - Rana Munir Hussein’s answer to Question No. (iii) was that while FBR did not have the power to
interpret law, it had been empowered, through section 206 of the Income Tax Ordinance, 2001, to
issue Circulars to clarify the law for taxpayers and tax functionaries alike. - He said that there was an interesting feature to the charge of minimum tax in that a Proviso had been made
the charging section to levy minimum tax which was against the scheme of law incorporated in the Income Tax
Ordinance, 2001. He said that the correct way to levy tax was through an independent Section, not a Proviso. - Coming to Question No. (iv) as to whether the series of conflicting Clarifications issued by FBR showed
mens rea of the functionaries involved, Rana Munir Hussein said that in his view mens rea was not involved when
there was an honest difference of opinion or a change of opinion on a subject. Rather, mens rea was present only in
the case of intentional, wilful action to do something that was not the right thing to do. He said in the present case
this was not so and the FBR viewpoint with regard to minimum tax had simply undergone a change since minimum
tax was levied through Finance Act, 2009 and certain functionaries chose to differ from those who held the contrary
view. - Mr. Habib Fakhruddin, FCA, Consultant, formerly, Member Tax Policy, CBR, said that rather than going
into interpretation, which was an accepted prerogative of the Courts, what was relevant to this discussion was
whether the series of conflicting Clarifications/ Circulars issued by FBR amounted to maladministration by the
functionaries involved. He said that he wanted to draw attention to the concluding paragraph of the Deptt. Review
Application. In that paragraph, which was akin to a prayer, the Deptt. asserted that the issuance of Circular No. 6
was valid and FBR had done nothing wrong in the matter. However, it was interesting that FBR had considered it fit
to file a Review Application after it recognized that the issuance of Circular No.6 had been a mistake. He further
pointed out that as against the single Circular No. 6 that asserted that there was to be no 6% minimum tax on
companies rendering services, there were a host of other Circulars and Clarifications that affirmed quite the
opposite. He said that it was important to find out why this was so. He pointed out that initially, after changes were
made in section 153 through Finance Act, 2009, a Commissioner issued exemption certificates to some corporate
service providers. The certificates were withdrawn after the Commissioner was told that the law with regard to
taxation of services sector income having been changed through Finance Act, 2009, no exemption from tax was
available for such taxpayers. Within a few days, however, Circular No. 6 was issued by FBR. This again
made it possible for corporate taxpayers rendering services to obtain exemption certificates. It was
thus obvious that certain taxpayers with influence in the corridors of power were behind the move
to get Circular No. 6 issued. - Mr. Habib Fakhruddin said that while it was important to see whether companies rendering services attracted
levy of minimum tax or not, it was equally important to ascertain what would be the mode of levy of minimum tax
on non-corporate taxpayers rendering services. He said that the opinion held by some FBR functionaries that the
minimum tax was a final discharge of tax liability and could not be clubbed with other-source income was, in his
words, a criminal view of the levy because it should be obvious to all, and especially FBR functionaries, that after
the amendments made in section 153 of the Ordinance through Finance Act, 2009, the minimum tax levy could not
fairly be visualized as a final tax. Rather, after clubbing of income etc. the tax rate could go up to 25% (noncorporate
cases)
or
even
higher
(35%
in
corporate
cases)
and
the
6%
threshold
was
only
the
minimum
tax
liability
under
sections
153(1)(b)/153(6)
of
the
Ordinance.
22.
Mr.
Habib
Fakhruddin
pointed
out
that
it
was important to see what was the legislative intent behind such
taxation moves. In order to do so, the first post-budget Circular issued by FBR was very important. He said that the
first such Circular made it clear that minimum tax did apply to corporate entities rendering services and that the
legislature intended it to be so levied. He said that a detailed budget brief invariably accompanies a taxation measure
giving the pros and cons of the measures and forms the basis of any FBR Circulars. FBR Circular No. 3 relied
on such a budget brief and correctly explained the law after amendments made in section 153
through Finance Act, 2009. The subsequent Circular No. 6 was an odd, Circular, not based on a
budget brief. Furthermore, the notifications for corporate returns for Tax Year 2010 and Tax Year
2011 were in line with Circular No.3 that correctly explained the minimum tax levy and were
against Circular No. 6 and its distorted view of minimum tax. It was significant that the legislature
totally disregarded Circular No. 6 of 2009 while approving tax returns for Tax Years 2010 and 2011
for corporate taxpayers.
- According to Mr. Habib Fakhruddin, the changes introduced in a re-drafted section 153 through Finance Act,
2011 were significant in that there was no longer any doubt regarding minimum tax on companies. Circular No. 7
issued in the wake of Finance Act, 2011 made it clear that the purpose of re-designed section 153 was to provide
clarity and re-align existing provisions without changing the taxation regime. It is thus evident that the legislature
visualized the minimum tax levy to be fully applicable in the case of companies. - The issuance of S.R.O. 1003(I)/2011 dated 31-10-2011 to undo the minimum tax levy for companies was
very
revealing.
Whenever
an exemption from tax is intended, the start date for availability of exemption is specified. However, in S.
R.O. 1003(I)/2011 dated 31-10-2011 no start date was specified. That meant the exemption would be available
from the date that the S.R.O. was issued, i.e. 31-10-2011. - All this suggests that with regard to charge of minimum tax on corporate service providers, there was
something seriously amiss with FBR. It appeared to be adrift, without any clear long term policy or coherent plan for
effective resource mobilization. The net result of the repeated FBR somersaults and flip flops with regard to levy of
minimum tax on companies left taxpayers more confused than ever and the situation has not been properly resolved
to this day. - Syed Pervaiz Amjad, FCA, Consultant, formerly, Member Audit, CBR, was of the view that new taxation
measures were generally meant to seek increase in revenues. However, Circular No. 6 went against this
objective and was a strange ‘Clarification’ of the law after changes were made in section 153
through the Finance Act, 2009. In his view, Circular No.6 gave unwarranted relief from minimum
tax to certain blue-eyed taxpayers. The withdrawal of Circular No. 6 by Mr. Aftab Ahmed who also
issued the earlier Circular was, in his view, proof of intentional wrong done by FBR functionaries
that was directly linked to the resultant losses in revenue which ran into billions. In his view, mens
rea of FBR functionaries was clearly established by the sequence of events following amendments
made in section 153 of the Ordinance through Finance Act, 2009. He disagreed with the FBR view that the presence
of an aggrieved person was necessary before the Hon’ble FTO could start investigation in a matter. He said that
Hon’ble FTO could intervene whenever FBR’s policies adversely affected more than one taxpayer. Information
leading to an investigation could come to him from any source. - Dr. Ikram ul Haq, Advocate Supreme Court, said that the statute was required to be read as a whole and not
piecemeal. He said that the rationale for levy of alternate minimum tax was clear. So many inflated expenses are
booked by taxpayers when filing returns that the tax base is drastically eroded and tax yield plummets to an
intolerably low level. The only way out of this predicament is to resort to measures like enactment of alternate
minimum tax. He further said that instead of creating consistency by issuing Circulars, FBR was actually creating
inconsistency. He said that in the presence of back up material it was not possible to presume that FBR was unaware
that minimum taxation applied to the corporate sector. FBR made repeated mistakes in matters pertaining to levy of
minimum tax and it was just not plausible that only one Circular was correct (i.e. Circular No.6) and all other
Circulars/ Clarifications (about twelve in number) were wrong. - Summing up, three of the four amici curiae unequivocally held that minimum tax under sections
153(1)(b)/153(6), and, after Finance Act, 2011, sections 153(1)(b)/153(3)(b), was for all service sector
taxpayers, corporate as well as non corporate. All three affirmed that Circular No. 6 was based on a wrong
and possibly motivated view of the law pertaining to minimum taxation under section 153. They pointed out that
Circular No.3 dated 17-7-2009 was issued soon after the changes in section 153 were brought on the statute after
enactment of Finance Act, 2009 under which 6% minimum tax was made applicable to all taxpayers rendering
services. The three illustrations provided in Circular 3 covered corporate as well as non-corporate taxpayers,
wherein 6% tax deducted under section 153(1)(b) was specifically categorized as minimum tax. There was not a
word in Circular No. 3 that hinted, however obliquely, at exclusion of the corporate sector from the purview of
minimum taxation. Minimum taxation of all service sector taxpayers was again re-affirmed in Circular No.7 of 2011
when Section 153 was re-cast, re-aligned and re-drafted to make it more comprehensible and easy to understand.
Earlier, FBR through C.No.1(25)WHT/2009 dated 26-4-2011 superseded Circular No 6 and clarified that 6%
minimum tax applied to all taxpayers falling within the purview of section 153(1)(b) of the Ordinance and thereby
admitted that the contrary view expressed in Circular No.6 of 2009 was wrong. - It is evident that FBR issued Circular No. 6 of 2009 for which it had no-mandate. The
interpretation of statutes is the exclusive prerogative of the courts as held by the Supreme Court of Pakistan in the
Central Insurance Company case 1993 SCMR 1232 = 1993 PTD 766. In order to better comprehend FBR’s actions,
one may refer to the issuance of exemption certificates by certain Commissioners of Income Tax to corporate
entities, especially Cellular Companies, deriving receipts from rendering services after the changes were introduced
in Section 153 following enactment of Finance Act, 2009. The issuance of such certificates was clearly illegal as
after introduction of minimum taxation of all service providers through Finance Act, 2009, the 6% tax withheld
became the minimum tax below which there was no possible threshold. There was no possibility of refund of tax
withheld at source on payments made to service providers and a corporate entity was bound to pay this
minimum
amount
of
tax. There
could
thus
be
no
justification
for
issuance of exemption certificates to corporate entities. When the matter was brought to their attention, the
Commissioners immediately cancelled the exemption certificates. This evidently triggered a huge effort by the
affected corporate entities who obviously wielded considerable clout in the FBR. Within a few days, Circular No. 6
was issued. This so called ‘Clarification’ was expressly designed to take companies rendering services out of the
purview of minimum taxation under sections 153(1)(b)/ 153(6). There could be no greater indictment of a
government agency charged with the mobilization of revenue revenues desperately needed by the
State than what it did by issuing Circular No.6. - The Findings/Recommendations given on 16-12-2011 were on the basis of maladministration discerned
through in-depth investigation. All the issues relevant to a just and fair decision of the Review Application have
again been thoroughly re-examined. The averments of the concerned officials of the FBR and the departmental
representatives have been taken. Inputs of four amici curiae have also been appraised and are grateful
acknowledged. - After withdrawal of Circular No. 6 of 2009, further Clarifications/Statements/S.R.Os. were issued by the
FBR on 26-4-2011, 28-4-2011, 17-6-2011, and 1-7-2011. On 6-9-2011, Secretary IR, confirmed in a hearing at the
FTO Secretariat that Circular No. 6 was wrongly issued. Mr. Aftab Ahmad, Chief Income Tax
Policy, also stated (during the hearing of the Review Application) that Circular No. 6 of
2009 was unlawful and he had signed that Circular under pressure. All these admissions and
clarifications notwithstanding, on 31-10-2011, S.R.O. No. 1003 was issued to grant exemption to the corporate
sector from minimum tax by inserting Clause 79 to the Second Schedule of the Income Tax Ordinance, 2001. - The superior judiciary has declared any S.R.Os./Circulars for inserting Clauses in the Second Schedule of
Income Tax Ordinance, 2001 against the express provisions of law as unlawful. The Hon’ble Supreme Court in a
case reported as 2010 PTR 1 (S.C.Pak) in Civil Appeals Nos.1525 to 1536 and C.P. No.143-L of 2008, endorsing
the decision of Lahore High Court dated 20-6-2008, had declared a similar S.R.O. as null and void. The FBR vide
S.R.O. No. 847(I)/2007 dated 22-8-2007 had inserted Clause 46-B in exercise of its delegated powers. The Supreme
Court, referring to its earlier judgment (1993 SCMR 1232), gave the following verdict:-"Having gone through the available record as well as judgment of the High Court whereinthe above aspect of the case has been attended to at length by examining the addition of items Nos.46-A and 46B,
in
the
Second
Schedule
vis-a-vis
the
provisions
of
section
153(6-B)
reproduced
hereinabove,
we
find
no
ground
to
differ
with
the
opinion
of
the
learned
High
Court,
since
perusal
of
Clause
item
46-B
clearly
indicates
that
it
has
travelled
beyond
the
scope
of
Section
153(6-B)
of
the
Ordinance.
Therefore,
we
are
of
the
considered
opinion
that
addition
of
Clause
46-B
by
amending
the
Second
Schedule
in
the
exercise
of
delegated
powers
was
not
permissible.
The
judgment
of
the
High
Court
is plainly
correct
to
which
no
exception
can
be
taken”.
In its judgment 1993 SCMR 1232, the Hon'ble Supreme Court had observed that interpretation made by FBRthrough the Circulars was not in conformity with the provisions of Income Tax Ordinance, 2001, and that FBR was
not a judicial or quasi judicial forum to interpret the law:
"Any interpretation
placed
by
the CBR
on
statutory
provisions
can not be treated as a pronouncement by a forum competent to adjudicate upon such a question judicially or
quasi-judicially.”
- It is quite intriguing that S.R.O. No. 1003 dated 31-10-2011 was issued inserting Clause 79 in the Second
Schedule without getting retrospective approval of the amendment in section 153 by the Parliament through Finance
Act, 2011. Only subsections of section 153 were ‘realigned to provide clarity without changing the taxation regime’
through Finance Act, 2011 as explained by FBR itself in para. 19 of Circular 7 of 2011, dated 1-7-2011. Nor has the
approval of the Parliament been sought through Finance Act, 2012 or Finance Act, 2013. - It is evident that FBR acted beyond its jurisdiction in exempting corporate sector service providers from
minimum tax. The FBR’s act of issuing Circular No. 6 of 2009, and then inserting Clause 79 in the Second Schedule
effectively amending the provisions of section 153 of the Ordinance without approval of the Parliament smacks of
improper motive, as also inefficiency, incompetence and ineptitude. The FBR has no authority to issue
S.R.Os./Circulars which contradict the statutory provisions of tax laws, as held by the Hon’ble Supreme Court. As
no amendment in section 153 was approved by the Parliament, the insertion of Clause 79 in the Second Schedule,
changing the whole spirit of taxation regime, was clearly an act without jurisdiction. - The bumpy and conflicting sequence of Circulars and S.R.Os.
leading
to
insertion of Clause 79 through S.R.O. 1003 dated 31-10-2011 being wilful and mala fide
comes under the definition of mal-administration in terms of section 2(3) of the
F.T.O. Ordinance, 2000. - The Review Application is accordingly rejected in above terms, except that as a related aspect of
Recommendation (iv) [para 1] is sub judice in the Hon’ble Lahore High Court, its implementation will be taken up in
due course, in the light of final determination of the matter by the superior judiciary.
CMA/142/FTO Application rejected.
11/12/13
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WHT on service providers: FBR mulling over rate reduction to
one percent
August 27, 2011 RECORDER REPORT 0 Comments
The Federal Board of Revenue (FBR) has decided to reduce 6 percent
withholding tax on service providers to one percent minimum tax under
section 153 (1) (b) of the Income Tax Ordinance 2001. Sources told
Business Recorder here on Thursday that the FBR had sought opinion of
the Law and Justice Division for making 6 percent minimum tax as
adjustable. Law Division has informed the FBR that the Board should go to
the Parliament for obtaining approval.
The FBR cannot itself change minimum tax into adjustable tax which was approved by the Parliament. According
to sources, FBR is examining pros and cons of the proposal before notifying reduction from six to one percent on
the minimum tax for service providers in the light of the viewpoint of the Law and Justice Division. The present
status of the proposal is that the FBR has obtained the approval from the Ministry of Finance for issuance of
notification. So far, the FBR has yet not issued the notification for reducing 6 percent withholding tax on all service
providers to one percent minimum tax under section 153 (1) (b) of the Income Tax Ordinance 2001.
Sources said that the FBR is planning to reduce 6 percent withholding tax on all service providers covered under
section 153 (1) (b) of the Income Tax Ordinance 2001 to one percent minimum tax, causing massive revenue loss
of around Rs 21 billion to the national exchequer.
World Indices NY Closing
The Rupee
The FBR is seriously considering to reduce withholding tax on service providers from 6 percent to one percent
minimum tax, which may cause huge revenue loss to the national exchequer. The FBR has worked out the
revenue loss following a proposal of a private sector to make 6 percent withholding tax on service providers
adjustable instead of minimum tax. The FBR is working on a proposal to change the withholding tax regime for
service providers under section 153 of the Income Tax Ordinance 2001. In case of minimum one percent tax on
certain categories of companies under section 153 of the Ordinance 2001, it would result into massive revenue
loss to the tune of Rs 21 billion. Some of the service providers having status of corporate taxpayers are already
subjected to one percent turnover tax under section 113 of the Income Tax Ordinance, 2001.
Index
Closing
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0.33
CAC-40
4,290.14
0.70
Nikkei
14,269.84
1.30
H.Seng
23,069.85
1.43
When one percent turnover tax is applicable on a sector, it is yet not clear that how the same sector would again
be subjected to one percent minimum tax as compared to other sectors subjected to 6 percent withholding tax
under section 153 of the Income Tax Ordinance 2001. The idea is not to make existing 6 percent tax as adjustable
for these companies but to make it minimum tax causing loss to the national exchequer.
Sensex
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PPP AAA
Pakistan
Telecommunication
Authority
Telecom Revenues
Annual revenues from telecom sector reached to an estimated Rs. 465 billion during
FY2014, up from Rs. 440 billion last year, and registering an annual growth of 5.6%.
Annual revenue growth of 5.6% during FY2014 has been slower than the growth of
7.4% in FY2013. The cellular mobile segment has the largest share (69.7%) of total
telecom revenues, followed by Local Loop (18.9%) and LDI (8.7%). Over the years,
cellular mobile’s share in total revenues has increased from 63.6% in FY2009 to the
current level of 69.7%; comparatively, LDI segment’s share has declined to 8.7% from
14.4% in FY2009 due to low international trafc. Telecom operators are continuously
striving for new avenues of revenue growth by introducing innovative packages and
value added services according to consumer demands, market trends and
advancement in technology/solutions. Therefore, despite slow economic growth and
low purchasing power of vast majority of population, revenues of telecom sector are
registering positive growth, albeit high revenue growth has not been witnessed over
the last few years.
Annual Report 2013-2014
Telecom Sector Economy
Figure 2 : Telecom Revenues
Note: Revenues for PTCL, Telecard, Witribe, Worldcall, Wateen and CVAS licenses for
FY2014 are estimated.
Revenues of telecom operators can be divided into voice and data. During FY2014 data
revenues of telecom sector were Rs. 90 billion, registering a growth of 24.6%, which is
more than double the growth of 11.66% during FY2013. In particular, data revenues
of cellular mobile segment have shown a growth of 47.4%, reaching Rs. 47 billion
during FY2014. This is a healthy sign in the wake of 3G/4G services in the country
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PPP AAA
Pakistan
Telecommunication
Authority
and shows that the use of internet and data services on the cellular mobile has been
increasing. CMOs will also have more sustainable revenue streams in future. Overall,
the share of data revenues in total telecom revenues has increased to 19.3% during
FY2014 compared to 16.4% last year. Similarly, cellular data revenue share has also
increased to 10.1% from 7.3%. The data revenue trends are expected to take further
momentum in coming years with an increasing use of smart phones, iPads and
laptops in the society and an uptake of Over the Top (OTT) services, replacing
traditional voice communication.
Figure 3 : Data Revenues of Telecom Sector
Annual Report 2013-2014
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Telecom Sector Economy
Note: Estimated data Revenues of LL and LDI
Telecom Contribution to National Exchequer
Telecom sector is a signicant source of revenue generation for the national
exchequer. During the last three years, telecom sector was contributing an average of
Rs. 124.8 billion annually to the national exchequer in terms of taxes, regulatory fees,
initial and annual license fees, activation tax, and other charges. During FY2014,
telecom sector has contributed an all time high Rs. 243.8 billion, registering a growth
of 95.8% over the last year. This jump in contribution is due to auction of 3G and 4G
cellular mobile licenses in April 2014. PTA has deposited to the Government Rs. 96.5
billion out of the total value of US$ 1.11 billion of the NGMS spectrum auction and the
remaining amount of US$ 147.5 million along with markup @ LIBOR+3% per annum
will be paid by the operators in equal annual installments in the next ve years.
PPP AAA
Pakistan
Telecommunication
Authority
Effective from 1 July, 2014, Federal Government has reduced GST/FED on telecom
services from 19.5% to 18.5% and Withholding Tax (WHT) from 15% to 14%. This tax
reduction is applicable to Islamabad, Balochistan, FATA, AJK and Gilgit Baltistan
regions. The provincial tax departments of Punjab, Sindh and Khyber Pakhtunkhwa
did not reduce taxes. Telecom sector is subject to higher GST and WHT rates compared
st
to average GST of about 16% and 10% WHT in other sectors. Telecom sector of
Pakistan is considered amongst the highly taxed sectors in comparable countries.
Rationalization of taxes on telecom services can positively contribute to the telecom
sector growth and contribution in the economy.
Figure 4 : Telecom Sector Contribution to National Exchequer
Annual Report 2013-2014
Telecom Sector Economy
- GST and other taxes for 2013-14 are estimates.
Source: Federal Board of Revenue and Pakistan Telecommunication Authority.
Note: PTA’s contributions comprise of all its receipts including Initial and Annual License Fees, Annual
Radio Frequency Spectrum Fee, Annual Spectrum Administrative Fee, USF and R&D Fund
Contributions, APC for USF, Numbering Charges, License Application Fee, etc.
Others include custom duties, WHT and other taxes.
Telecom Investment
The Government liberalised investment policies allowing foreign investors in the
telecommunications sector to own all the shares in a company and repatriate all of the
prot. Such policies have attracted signicant FDI. During FY2014, cellular mobile
operators have invested US$ 1,789.7 million on account of acquiring 3G and 4G
spectrum and deployment of advanced telecommunication networks.
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