LHC moved against 25 percent tax on AOPs

[Lahore_Real_Estate]

ISLAMABAD (September 24 2010): A petition has been filed in Lahore High Court (LHC) against the imposition of 25 percent income tax on the association of persons (AOPs) with retrospective effect. It is learnt here on Thursday that the LHC has issued notices to the Federal Board of Revenue (FBR) and the tax department to file comments on the legality of application of tax with retrospective effect on the AOPs and as to why the same may not be held as discriminatory.

It has been contested that how the FBR can impose higher rate of 25 percent tax on AOPs which were previously taxed on the lower rate as applicable to individuals. It has also been contested that that how the levy could be applicable retrospectively, sources added. The tax at the rate of 25 percent has been made chargeable on income of AOPs with effect from Year 2010 in order to safeguard the government revenue.

According to the rationale of imposition of 25 percent tax on the AOPs in budget 2010-11, prior to budget (2010-11) listed companies, banking companies and private limited companies were taxed at a uniform rate of 35 percent, whereas income of small companies were taxed at the rate of 20 percent and income of AOP was taxed under the progressive slab rates ranging from 0.5 percent to 25 percent.

This rate structure was an incentive for movement of business entities towards non-corporate AOP entities. This trend was against the documentation requirements. Also availability of progressive' slab rates for AOPs induces lower income declaration to attract lower rates of tax. To check such shift from corporate entities, tax rate for small companies was enhanced to 25 percent and for the AOPs single tax rate of 25 percent was imposed in last budget, sources added.