Page 24 - The Pakistan Accountant

O THER AR TICLES  Income of the company eligible to reduction of corporate tax rate at 20% under clause 18A of Part-II of Second Schedule introduced in Finance Act, 2014. The said reduction of normal tax rate is subject to conditions specified in the said clause. The new concept further dictates that expenses should be apportioned between Normal Tax Structure and Final Tax Regime income in order to calculate accurate accounting income. After having determined accounting income under ACT concept and CT, the higher shall be payable by the company for the respective tax year. Where ACT is higher than CT, the excess shall be carried forward for 10 immediately succeeding tax years. This new concept also elucidate the method as to how carry forward of excess ACT over normal CT be evaluated in addition to clarify that corporate taxpayer shall not be prejudiced or deprived from the entitlement of carry forward of minimum tax as already on statute book through provision to section 113(2)(c). Therefore, this exercise would be burdensome as both sections 113(2)(c) [Minimum Tax] and 113C [Alternative Corporate Tax] shall implicate parallel which will compel a corporate taxpayer to maintain vigilant record of two different of adjustments, one u/s 113(2)(c) and another u/s 113C. Since excess would be deferred tax assets, therefore, this portion appears to have been omitted to incorporate u/s 147 of the Ordinance to recoup deferred tax liability of the corporate taxpayer which is mandatory in four quarters under a tax year. Keeping in view of elaboration of law and interpretational assessment on all technical vacuums at grass root level, following 3 examples are produced here in below to comprehend the complexity /methodology of carried forward of excess ACT or CT: Alternate Corporate tax Excess to be c/f Corporate Normal 5 Years Tax @ Tax @ Minimum u/s 10 Years SCENARIO NO: 1 Tax @ 1% u/s 113C 17% 34% 113(2)(c) A B C D Turnover 120,000 1,200 1,200 1,200 Accounting Income 7,500 1,275 1,275 Taxable profit for the tax year 2014 800 272 272 1,275 272 1,200 928 75 As apparent from the above, the ACT here exceeds the CT (Normal and Minimum Tax) and hence shall be payable by law in this case on one hand and on the other hand, significantly Minimum Tax also exceeds Normal Tax and hence the difference shall also be carried forward under proviso to section 113(2)(c). In addition, the difference between the ACT and Minimum Tax shall further be required to be carried forward u/s 113C. The above scenario results into carry forward of excess of ACT over CT amounting to Rs. 75/- over a period of 10 years and excess of Minimum Tax over Normal tax amounting to Rs.928/- for a period of 5 years. Alternate Corporate tax Excess to be c/f Corporate Normal Minimum 5 Years 10 Years Tax @ Tax @ u/s SCENARIO NO: 2 Tax @ 1% u/s 113C 17% 34% 113(2)(c) A B C D A-B Turnover 120,000 1,200 Accounting Income 10,000 1,700 1,700 Taxable profit for the tax year 2014 4,700 1,598 1,598 1,700 1,598 1,200 102 In this example ACT here exceeds both Minimum and Normal Tax and therefore residual excess will be traveling to carry forward u/s 113C. However, since Normal Tax is higher than Minimum Tax, therefore, no excess amount arises under proviso to section 113(2)(c). The outcome of this scenario results in amount of Rs.102/- available for carry forward being excess of ACT and CT for a period of 10 years. 22 The Pakistan Accountant | Apr-Jun 2014