IT ministry seeks exemption of 8% minimum income tax for National Telecommunication Corp.

ISLAMABAD: The Ministry of Information Technology and Telecommunication (MoIT&T) has proposed amendments in the Income Tax Ordinance, 2001 to secure exemption of eight per cent minimum income tax for the National Telecommunication Corporation (NTC), Profit has learned reliably.

According to reliable sources, the MoIT is all out to secure exemption of 8 per cent minimum income tax for NTC and the ministry has asked the Cabinet Committee for Disposal of Legislative Cases (CCLC) that the bill to further amend the Income Tax Ordinance, 2001 may be approved in terms of Rule16 (I) (a) and (d) of the Rules of Business 1973.

The upcoming meeting of CCLC is expected to take an important decision in this regard.

The NTC was established under Section 41 of the Pakistan Telecommunication (Re-organisation) Act, 1996 in order to provide telecommunication services only to the armed forces, defence projects, federal government, provincial governments or any such other government agencies or governmental institution as the federal government may determine.   

Earlier, NTC management board in its 93rd meeting held on July 19, 2018, had resolved that NTC should forward the case for grant of exemption from 8 per cent as minimum tax rate to the Ministry of Finance through MoIT&T. The ministry had forwarded the request of NTC to the Finance Division to take action as per rules.

The Finance Division forwarded the case to Revenue Division and the Revenue Division, in its response, contended that the proposal cannot be acceded to, saying NTC is a taxable entity and falls within the ambit of a ‘company ‘ in terms of Section 80 (2) (b) (ii) of the ITO 2001.

In response, NTC once again contended that they cannot be treated at par with other telecom companies as their mandate is restricted to government organisations only with a view to providing safe, secure and independent telecom service, free from private control. NTC also contended that their clients are government departments which put NTC at a disadvantage as compared to private telecom companies whose sales are a mix of private and corporate sales with different taxation for both sets of clients.

MoIT&T requested the Ministry of Finance (MoF) to take up the matter with the Revenue Division for exemption of income tax at 8 per cent in favour of NTC. In its response, the Revenue Division stated that exemption can only be granted through amendments in the status which is the prerogative of the legislature, and advised to move a summary to the federal government to request for exemption.

Accordingly, a draft bill to further amend the second schedule of the Income Finance Act 2001 was sent to Law Division for vetting in terms of Rule 14 (I) of the Rules of Business 1973 and the Law Division has vetted this bill.

Sources further said that federal cabinet’s economic coordination committee (ECC) in its meeting held on November 27, 2019, had discussed the matter and constituted a committee comprising Minister for Economic Affairs Division Hamad Azhar as chairman, whereas IT minister, minister for power, minister for National Food Security and Research, Board of Investment chairman and representatives from the Federal Board of Revenue (FBR) attended as members. 

The committee had recommended to the FBR to review cases of such companies providing services whose cost of sales was greater than their sales resulting in a gross loss in their books of accounts, and the FBR may consider that such companies are taken out of this regime (minimum tax of 8 per cent) by putting forth a budgetary proposal for the financial year 2020-21.

In view of the above, Ministry of IT & Telecom has proposed CCLC that the bill to further amend the Income Tax Ordinance 2001 may be approved in terms of Rules 16 (I) (a) and Rule 16 (I) (d) of the Rules of Business 1973.

It is pertinent to mention that initially, in accordance with Section 41 (8) of the Act, NTC was granted tax exemption for a period of three years. Thereafter, NTC being a company in terms of Section 80 (2) (b) (ii) of the Income Tax Ordinance 2001 has been paying Income Tax applicable as per rules at the following rates: (a) Taxable profit for which normal tax rate is defined in Division-II, part-I of the First Schedule of Income Tax Ordinance 2001 (currently@ 29 pc). (b) Minimum tax @1.25% of turnover (revenue) as per section 113 of the Income Tax Ordinance 2001.

 

Ahmad Ahmadani
Ahmad Ahmadani
The author is a an investigative journalist at Profit. He can be reached at [email protected].

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