Govt Provides Rs20b Tax Support to The Richest Class

ISLAMABAD: The government of Pakistan Tehreek-e-Insafe has provided the richest class of Pakistan an allowance of almost Rs20 billion in revenue tax, representing 40 per cent of the total sum collected by raising the tax strain on incomes.

 

By amending section 103C of the Second Schedule of the Income Tax Regulation, which deals with group companies ' income tax relief, the government has reduced tax liabilities for intercorporate dividends through the 2019 Finance Bill.

 

The Government has not revealed losses of budget books in an effort to maintain the exemption from the International Monetary Fund (IMF), which it will suffer from the tax exemption on dividend revenues for group businesses, according to sources in the Federal Board of Revenue (FBR).

 


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In the budget, every revenue group was charged by the PTI govt, whether or not it is capable to bear the extra strain, but by offering tax breaks, it was favoured by the wealthiest class.

 

For the last three years, large companies have demanded favour, but former Minister of Finance Ishaq Dar has resisted these two years, the FBR has verified sources. The price of the dividend tax relief was projected by the FBR at Rs 14 billion in 2016.

 

The RS20-billion exemption is to be granted to Pakistan's main banking, cement, automotive manufacturing, textiles, fertilizer and food companies. Some of the holders are among the wealthiest individuals in Pakistan.

 

The govt suggested amendments to Article 103C of the 2001 Revenue Tax Ordinance by means of the Finance Bill 2019. The term' availed' has been substituted by' eligible.'

 

The original Section 103C states, “dividend income derived by a company, if the recipient of the dividend, for the tax year has availed group relief under Section 59B”.

 

The substitution of one word provided the large companies with almost Rs20 billion in tax relief, the sources in the FBR stated. The exemption is incompatible with the IMF's strategy of withdrawing tax exemptions.

 

Because of the hard-financial circumstances, the PTI govt has improved the salaried class tax rate to collect extra Rs50 billions of income from the salaried class. However, 40% of the extra income that the wages will toil will go into the pockets of a few large companies.

 

Because of the hard-financial circumstances, the PTI govt has improved the salaried class tax rate to collect extra Rs50 billions of income from the salaried class. However, 40% of the extra income that the wages will toil will go into the pockets of a few large companies.

 

Historical Background

 

In 2007, the idea of collective taxation was launched. The Revenue Tax Ordinance, section 59AA, permits a group of businesses to produce one return on revenue tax and use the advantage as one organization rather than various entities.

 

In the past, Section 59B was implemented to encourage businesses, by offsetting revenue with losses from purchased subsidiaries in order to purchase ill manufacturing units and assert tax exemptions.

 

In 2008, the exemption of intercompany dividend tax was also provided in section 59AA. Former Minister of Finance Ishaq Dar, however, remedied this in 2016 and removed Section 59B from the field of collective taxation.

 

However, with his second mini-budget, former Minister of Finance Asad Umar, subject to the requirement that the taxpayer "availed the collective benefit, permits a tax exemption on dividend revenue. The term "availed" means that, in fact, tax losses have been made between the two entities only to the extent of the shareholding in its subsidiaries by the parent company.

 

But by inserting the word “eligible”, irrespective of loss or profit, the group companies have been exempted from payment of dividend income tax to the extent of their shareholding. 

 

But the group of companies were exempted from payment of dividend revenue tax to the degree of their shareholding by inserting the term "qualified," regardless of loss or benefit.


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