KARACHI (July 13 2009): Federal Board of Revenue (FBR) is planning to deduct income tax on the facility of Research and Development (R&D) for the textile sector. Sources told Business Recorder on Saturday that the board was considering deduction of income tax on Rs4 billion allocated for the development of the sector in 2008-09.
"Despite spending the amount in the last fiscal year, it had not been utilised for the purpose, which raised several questions," they said. They said the board was of the view that the R&D facility should be considered as taxable income and had directed all Regional Tax Officers (RTOs) to send proposal in this regard.
They said the federal government had been allocating sufficient amount annually under the head of R&D support since 2005 to textile units.
They added the State Bank of Pakistan (SBP) had also withheld release of R&D support for the period of June 25 - 30, 2008 on account of fraud on the part of some exporters. "In spite of receiving around Rs50 billion from the government in past four years, the textile sector did not provide fruitful results," they said.
To a question, they said the issue was in limelight, when Mirza Ikhtiyar Baig, Adviser to Prime Minister for Textile sent a letter to the chairman, dispelling that the R&D fund could not be considered as income of the textile units.
"According to the letter, the SRO-437 (1)/2005 and SRO-803(1)/2006 have allowed R&D support to garments and home textile exporting units from the federal government for activities like product development, skill and training development, up-gradation of information technology and professional consultancy and it had been mandatory for these exporting units to show said R&D as expenditure in their annual account. Therefore the question of income does not arise."
Consequently, the board had decided to clarify the matter, hence all RTOs had been directed to send proposals in that regard, they said. Furthermore, they said FBR had almost finalised the illumination, which would soon be dispatched to the ministry for textile. According to the statement, the board would ask the ministry to provide complete details regarding the utilisation of the funds and added that the decision to deduct income tax from R&D fund would finally be decided in the light of the ministry's answer.