Karachi, August 30, 2024 – The Federal Board of Revenue (FBR) has released the updated guidelines for business income tax for the tax year 2024-25, offering detailed insights into tax obligations under the Income Tax Ordinance, 2001.
According to the FBR’s recent update, the tax on income from business is governed under Section 18 of the Ordinance. This section outlines various categories of business income that are subject to taxation, aiming to provide clarity and comprehensive coverage.
Key Provisions Under Section 18
1. General Income from Business:
o Profits and Gains: All profits and gains from any business activity conducted within the tax year are chargeable under the “Income from Business” head. This encompasses any form of business operation undertaken by an individual or entity during the year.
o Trade and Professional Associations: Income derived from the sale of goods or provision of services to members by trade, professional, or similar associations is taxable. The FBR clarifies that co-operative societies earning income from such activities are also subject to tax under this provision.
2. Income from Leasing and Rentals:
o Movable Property: Income generated from the hire or lease of tangible movable property falls under taxable business income. This includes revenue from leasing assets, whether owned by the lessor or not.
3. Benefits and Perquisites:
o Fair Market Value: The fair market value of any benefit or perquisite, convertible or non-convertible into money, derived from a business relationship is taxable. This also includes benefits like the waiver of profit on debt as outlined by the State Bank of Pakistan’s Circular No.29 of 2002.
4. Management Fees:
o Management Companies: Income earned by management companies, including modaraba management companies, from management fees is taxable under the “Income from Business” category. However, this does not include income already taxed under other specific sections such as 5A, 5AA, 6, 7, and 7A.
5. Profit on Debt:
o Tax Treatment: Profits derived from debt by individuals or entities whose primary business involves such income are taxed under the “Income from Business” head, rather than “Income from Other Sources”.
6. Leasing Income:
o Scheduled Banks and Investment Institutions: Any payments received by scheduled banks, investment banks, development finance institutions, modarabas, or leasing companies from leasing assets are considered business income. This includes amounts paid or payable by lessees.
7. Mutual Fund Distributions:
o Banking and Non-Banking Finance Companies: Amounts received by banking or non-banking finance companies from mutual funds or Private Equity and Venture Capital Funds, representing distributions from profit on debt, are taxable under the “Income from Business” head.
Implications and Compliance
The updated guidelines aim to streamline the taxation process for businesses and provide clearer definitions for various income streams. By delineating the scope of taxable income and clarifying ambiguities, the FBR seeks to enhance compliance and reduce disputes.
Businesses are advised to review the detailed provisions of Section 18 and ensure accurate reporting of their income according to the new regulations. The updated guidelines emphasize the importance of proper accounting and documentation to facilitate smooth tax reporting and compliance.
For further details and to address specific queries, businesses are encouraged to consult with tax professionals or directly engage with the FBR to ensure adherence to the new tax guidelines for the 2024-25 fiscal year.
