Karachi, July 30, 2024 – The Federal Board of Revenue (FBR) has introduced significant changes to the tax exemption policies for Associations of Persons (AOPs) through amendments in the Finance Act, 2024.
The new regulations, outlined in Circular No. 1 of 2024-25, amend the Income Tax Ordinance, 2001, marking a shift in the tax landscape for AOPs.
Previously, the FBR said AOPs enjoyed a tax exemption on the share of a member’s income provided that the AOP itself had paid tax on its total income. However, the Finance Act, 2024, has introduced a crucial amendment to this policy. Specifically, a new proviso has been added to sub-section (1) of Section 92 of the Income Tax Ordinance, 2001, which stipulates that the tax exemption on the share of an AOP member will no longer apply if certain conditions are not met, the FBR added.
According to the latest amendment, AOPs with a turnover of Rs 300 million or more will now be required to meet additional compliance requirements to qualify for tax exemption. The key condition is that such AOPs must submit their financial statements, which need to be audited by a firm of Chartered Accountants or Cost and Management Accountants. These firms must be recognized under the Chartered Accountants Ordinance, 1961, or the Cost and Management Accountants Act, 1966, respectively, according to the FBR.
The FBR’s move aims to enhance transparency and accountability within AOPs, particularly those with substantial turnovers. By mandating audits from reputable accounting firms, the FBR seeks to ensure that AOPs maintain accurate and reliable financial records, thereby reducing opportunities for tax evasion and enhancing the overall integrity of the tax system.
The introduction of this amendment is expected to impact a significant number of AOPs operating in various sectors. These organizations will need to reassess their financial reporting practices and engage with certified auditors to comply with the new regulations. This change aligns with the broader objectives of tax reform and enforcement under the current fiscal policies.
Tax experts and stakeholders are anticipated to scrutinize these amendments closely, as they represent a notable shift in tax exemption policies for AOPs. The FBR’s efforts to tighten regulatory requirements reflect its ongoing commitment to improving tax compliance and governance in the country.
For more detailed information and guidance on how these changes may affect specific AOPs, stakeholders are encouraged to consult the full text of Circular No. 1 of 2024-25 and engage with tax professionals.