Levy of 17 percent: ACT to discourage companies declaring losses: FBR The Federal Board of Revenue (FBR) has estimated major reduction in the number of companies persistently declaring losses to evade income tax after the introduction of 17 percent Alternative Corporate Tax (ACT) under Finance Act, 2014. Sources told Business Recorder here on Tuesday that hundreds of companies are declaring losses to evade income tax. In certain cases, such companies are showing losses in their income tax returns for the last many years. The imposition of the ACT on accounting income of companies would force these particular companies to pay ACT or corporate tax whichever is higher. It is estimated that the companies declaring losses would be discouraged to avoid such practices for tax evasion. To discourage perpetual declaration of losses or very low income using tax avoidance means by companies, an alternate corporate tax at the rate of 17 percent is proposed to be imposed on accounting income excluding the exempt income, wef, Tax Year 2014. The companies shall have to pay ACT or corporate tax whichever is higher. In order to facilitate companies that have genuinely low income for some period of time, the ACT paid is proposed to be carried forward up to 10 years. According to the Finance Act 2014, (113C). Alternative Corporate Tax.- (1) Notwithstanding anything contained in this Ordinance, for tax year 2014 and onwards, tax payable by a company shall be higher of the Corporate Tax or Alternative Corporate Tax. (2) For the purposes of this section.- (a) Accounting Income means the accounting profit before tax for the tax year, as disclosed in the financial statements or as adjusted under sub-section (7) or sub-section (11) excluding share from the associate recognised under equity method of accounting; (b) Alternative Corporate Tax means the tax at a rate of seventeen per cent of a sum equal to accounting income less the amounts, as specified in sub-section (8), and determined in accordance with provisions of sub-section (7) hereinafter; (c) Corporate Tax means total tax payable by the company, including tax payable on account of minimum tax and final taxes payable, under any of the provisions of this Ordinance but not including those mentioned in sections 8, 161 and 162 and any amount charged or paid on account of default surcharge or penalty and the tax payable under this section. (3) The sum equal to accounting income, less any amount to be excluded there from under sub-section (8), shall be treated as taxable income for the purpose of this section. The excess of Alternative Corporate Tax paid over the Corporate Tax payable for the tax year shall be carried forward and adjusted against the tax payable under Division II of Part I of the First Schedule, for following year. (5) If the excess tax, as mentioned in sub-section (4), is not wholly adjusted, the amount not adjusted shall be carried forward to the following tax year and adjusted as specified in sub-section (4) in that year, and so on, but the said excess cannot be carried forward to more than ten tax years immediately succeeding the tax year for which the excess was first computed. Explanation.- For the purpose of this sub-section the mechanism for adjustment of excess of Alternative Minimum Tax over Corporate Tax, specified in this section, shall not prejudice or affect the entitlement of the taxpayer regarding carrying forward and adjustment of minimum tax referred to in section 113 of this Ordinance. (6) If Corporate Tax or Alternative Corporate Tax is enhanced or reduced as a result of any amendment, or as a result of any order under the Ordinance, the excess amount to be carried forward shall be reduced or enhanced accordingly. (7) For the purposes of determining the Accounting Income, expenses shall be apportioned between the amount to be excluded from accounting income under sub-section (8) and the amount to be treated as taxable income under sub-section (3). (8) The following amounts shall be excluded from accounting income for the purposes of computing Alternative Corporate Tax:- (i) exempt income; (ii) income subject to tax under section 37A and final tax chargeable under sub-section (7) of section 148, section 150, sub-section (3) of section 153, sub-section (4) of sections 154, 156 and sub-section (3) of section 233; (iii) income subject to tax credit under section 65D and 65E. (iv) income subject to tax credit under section 100C: and (v) income of the company subject to clause (18A) of part-II of the Second Schedule. (9) The provisions of this section shall not apply to taxpayers chargeable to tax in accordance with the provisions contained in the Fourth, Fifth and Seventh Schedules. (10) Tax credit under section 65B shall be allowed against Alternative Corporate Tax. (11) The Commissioner may make adjustments and proceed to compute accounting income as per historical accounting pattern after providing an opportunity of being heard., Finance Act added.
Posted on: Wed, 09 Jul 2014 04:59:51 +0000
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