The Finance Bill 2023 has introduced a proposal to reduce tax rates on additional advances for Information Technology (IT) services and IT-enabled services in Pakistan. The aim is to promote and support the growth of the IT sector. The key provisions related to this proposal are as follows:
1. Tax Rate Reduction: The taxable income arising from additional advances for IT and IT-enabled services in Pakistan for the tax years 2024 to 2025 will be taxed at a reduced rate of 20%. This reduced rate applies instead of the rates provided in Division II of Part 1 of the First Schedule.
2. Certification Requirement: Banking companies that provide these additional advances are required to furnish a certificate from an external auditor along with their accounts while e-filing their return of income. This certificate should certify the amount of additional advances made in the preceding tax year, the additional advance made for the tax year, and the net mark-up earned from such additional advances for the tax year.
READ MORE: Government Introduces 1% Minimum Tax Rate for PSX Listed Companies
3. Reporting Details: The Commissioner may request banking companies to provide details of the advances made for IT and IT-enabled services to determine the applicability of the reduced rate of tax.
4. Definition: For the purpose of this rule, “IT and IT-enabled services” have the same meaning as provided in Section 2 of the Income Tax Ordinance.
5. Additional Advances: “Additional advances” refer to average advances disbursed in addition to the average amount of advances made in the IT sector by the bank in the immediately preceding tax year starting from 2023.
READ MORE: Finance Bill 2023 Introduces New Tax Slabs for Super Tax
6. Taxable Income Calculation: The taxable income subject to the reduced rate of tax will be determined using the following formula: Taxable income subject to reduced rate of tax = A x B / C Where: A: Taxable income of the banking company B: Net mark-up income earned from the additional advances for the tax year as declared in the annual accounts C: Total net mark-up and non-mark-up income of the banking company as per accounts.
These proposed amendments aim to provide incentives and support to the IT sector by reducing the tax burden on additional advances made by banking companies. This initiative aims to foster the growth of the IT industry in Pakistan.
READ MORE: Pakistan Imposes 10% Income Tax on Bonus Shares Issued by Companies
