KARACHI: The Federal Board of Revenue (FBR) has been proposed to restore first year allowance on installation of plant and machinery by an industrial undertaking in rural and under developed area.
Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023, recommended the FBR to reintroduce first year allowance under Section 23A of Income Tax Ordinance, 2001.
READ MORE: Abolishing minimum tax suggested for listed companies
The tax bar said first year allowance, in lieu of initial allowance, of up to 90 per cent was allowed on installation of plant and machinery by an industrial undertaking in rural and under developed area. However, this allowance was deleted by Finance Act, 2021.
It clearly implies that instead of encouraging the investment in plant and machinery for industrialization in the country, the annual revenue collection targets are more sacred and important to the government and that even the new genuine taxpayers who have made investment in this investment starved country are not spared to face the brunt of lower revenue collection.
READ MORE: KTBA suggests reduction in corporate tax rate to 25%
The tax bar said that the proposed amendment would provide relief especially to those taxpayers who have made their feasibility studies based on substantial unabsorbed depreciation due genuine to operating losses or heavy infrastructure investment. “Currently, taxpayers with unabsorbed depreciation are already subject to payment of minimum tax and after deletion of this section, they may now end up paying corporate tax liability higher than the minimum tax,” it added.
The KTBA further pointed out condition of half allowance in the year of acquisition of asset.
READ MORE: Tax incentives proposed for making new investments
It said amendment has been made in subsection (2) and (8) of the Income Tax Ordinance, 2001, whereby the depreciation shall be allowed by 50 per cent in year of acquisition, previously it was allowed fully, and remaining 50 per cent in the year of disposal.
“It creates undue burden to the taxpayer and e-filing issues as IRIS module was not properly attuned to this,” the KTBA said and proposed to delete these amendment to restore the law in its original form.
This amendment will provide ease of taxability for the taxpayers especially for the small taxpayers and save them from undue burden.
