Abolishing tax credit for new industrial setup proposed

Abolishing tax credit for new industrial setup proposed

ISLAMABAD: Federal Board of Revenue (FBR) has proposed to withdraw tax credit available for establishment of new industrial establishment as the facility was misused by existing industrial units.

The investors have tax credit under Section 65D of Income Tax Ordinance, 2001 for five years.

However, many misuses of exemption/concession claims under section 65D of the Income Tax Ordinance, 2001 by industrial undertakings had been detected in recent years, where an existing industrial undertaking took the guise of a new industrial undertaking to claim tax credit.

The sources said that an amount of Rs5.57 billion was granted as tax concession during tax year 2020 for newly established industrial undertakings. However, the net impact of the tax credit is Rs15 billion every year.

They said that the FBR had discovered that some ghee manufacturers were availing this credit by splitting up their existing industrial units with a newer one.

Further, investigation revealed that the production of those ghee manufacturers were remained stagnant or growth with the pace of inflationary growth despite declaring to set up new units.

The FBR on the directives of the federal government had started cleaning up exemptions and concessions granted under Income Tax Ordinance, 2001 to make the taxation system equitable.

In a recent high level meeting chaired by the Prime Minister Imran Khan, the FBR proposed withdrawal of many provisions of the ordinance related to exemption and concession.

The FBR proposed to omit the tax credit provision available to newly established industrial undertakings that is already expiring on June 30, 2021.

The tax credit available under this provision is for five years from the date of setting up the new industrial unit. The sources said that those who claimed the tax credit or set up a new unit by June 30, 2021 would be able to avail the concessions for next five years.

The provision for the grant of tax credit was introduced through the Finance Act, 2011 for next five years. However, it was extended to June 30, 2019 and then further extended up to June 30, 2021.

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