Minimum tax on services rendered by permanent establishments of non-resident persons
Minimum tax on services rendered by permanent establishments of non-resident persons: Prior to the Finance Act, 2018 the tax deducted under clause (b) of subsection (2A) of section 152 of the Ordinance from payments made to permanent establishments of non-resident persons for provision/rendering of services was adjustable against their tax liability whereas the tax deducted/deductible under clause (b) of sub-section (1) of section 153 of the Ordinance from payments made on account of provision or rendering of services to resident persons constituted minimum tax in terms of clause (b) of sub-section (3) of section 153 of the Income Tax Ordinance, 2001.
However, reduced rate of minimum tax @ 2% of the gross amount of turnover from all sources is available to various specified sectors rendering services as delineated in clause (94) of Part-IV of the Second Schedule to the Ordinance.
Therefore prior to the Finance Act, 2018 resident persons providing or rendering services were in a disadvantageous position viz-a-viz permanent establishments of non-resident persons involved in the rendering/ provision of services.
In order to create a level playing field for resident persons rendering services viz-a-viz non-resident persons rendering services a new sub-section (2B) has been inserted in section 152 of the Income Tax Ordinance, 2001 through the Finance Act, 2018 whereby the tax deducted under clause (b) of sub-section (2A) of section 152 of the Ordinance in respect of payments made to permanent establishments of non-residents for provision of services has been made minimum tax.
Moreover, as stipulated in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (3) of section 153 of the Ordinance, a company (being a permanent establishment of a non-resident person and a filer) rendering services in the sectors specified in clause (94) of Part-IV of the Second Schedule to the Ordinance shall be entitled to carry forward excess amount of minimum tax paid @ 2% of the gross amount of turnover from all sources viz-a-viz the normal tax liability of such company for a maximum of five tax years immediately succeeding the year in which the excess was first paid.
Additionally, in a manner akin to a resident company which is entitled to issuance of an exemption certificate by the Commissioner under sub-section (4A) of section 153 of the Ordinance upon fulfillment of certain conditions, a company being a permanent establishment of a non-resident person and falling within the ambit of clause (94) of Part-I of the Second Schedule to the Ordinance may also, pursuant to the Finance Act, 2018 be issued an exemption certificate by the concerned Commissioner for a period of at least three months subject to making advance payment of tax @ 2% of the total turnover of the corresponding period of the immediately preceding year.
