Following are the highlights of income tax amendments proposed through Finance Bill, 2023. These highlights are prepared by experts of KPMG Taseer Hadi & Co. Chartered Accountants.
Following are the important amendments:
• The definition of permanent establishment proposed to be broadened by excluding the word ‘fixed’ from it.
• Scope of `Small and Medium Enterprises [SME]” enhanced to include persons providing or rendering IT services or IT enabled services. Further, the threshold of turnover to qualify as SME for concessionary tax regime has been increased to eight hundred million rupees from two hundred and fifty million rupees.
• Super tax on high earning persons proposed to be paid quarterly along with advance tax.
• Income arising to the shareholders of a company from issuance of bonus shares proposed to be treated as income from other sources.
• Proposal for imposition of 10% withholding tax as final tax on issuance of bonus shares by the company.
• Exemption proposed to be introduced in respect of Foreign Investment (Promotion and Protection) Act, 2022. The said Act was enacted on 13 December 2022 to provide for promotion and protection of certain qualified foreign investments.
• Introduction of tax credit proposed at 10% of tax assessed or one million rupees, whichever is lower, for construction of new house for individuals from tax year 2024 to 2026 subject to the condition mentioned therein.
• Proposal for broadening the definition of `Associates’.
• Progressive rate of taxation proposed to be introduced for Super tax from 0% to 10% for income exceeding Rs 150 million to Rs 500 million onwards respectively.
• Reintroduction of advance adjustable tax on cash withdrawal by person not appearing in the active taxpayers list proposed at the rate of 0.6% of the sum exceeding fifty thousand rupees in a day.
• The rate of withholding tax proposed to be enhanced by 1% on sale of goods other than sale of rice, cotton seed or edible oils; on rendering of services including services subject to reduced rate of 3% but excluding electronic and print media advertising services; and on execution of contracts excluding sportsperson.
• Enhancement proposed by 0.5% withholding tax rate for commercial importer in case of commercial imports falling in Part III of Twelfth Schedule to the Income Tax Ordinance, 2001.
• Increase of 1% withholding tax rate proposed on payment to permanent establishment in Pakistan of non-resident person for sale of goods, for rendering of services including services subject to reduced rate of 3%, and on execution of contracts.
• Increase in withholding tax rate proposed on payment to non-residents through debit / credit / prepaid cards from 1% to 5% for filers and from 2% to 10% for non-filers.
• Introduction of adjustable advance tax proposed on issuance of work permit / visa on employment of foreign domestic helper of Rs. 200,000.
• Introduction of additional tax on income, profits and gains of a person or class of persons on account of extraordinary gains due to exogenous factors proposed at the rate not exceeding 50% of such income, profits or gains.
• Relief proposed for non-application of section 111 provided on amount of five million rupees remitted from outside Pakistan through normal banking channel proposed to be enhanced to rupee equivalent to one hundred thousand United States Dollars.
• Enhancing the powers of the Commissioner proposed for recovery of the outstanding liability under any other statute or law.
• Introduction proposed for automated issuance of exemption certificate by IRIS under section 152(5) upon expiry of thirty days.
• The conditions to avail benefit of final tax regime on export of IT services and IT enabled services proposed to be relaxed by excluding the requirement of filing of sales tax returns.
• Benefit of reduced rate of 0.25% as final tax on export of IT services and IT enabled services proposed to be continued upto tax year 2026.
• Establishment of International Centre of Tax Excellence proposed to help contribute to tax administration and policy, local and international tax affairs, and related matters.
• Removal of advance tax proposed on purchase or transfer of immovable property in case of non-resident individual holding POC / NICOP / CNIC who has acquired the immovable property through FCVA / NRVA maintained with authorized banks in Pakistan under the foreign exchange regulations issued by the SBP.
• Introduction of reduced rate of minimum tax under section 113 proposed at 1% for companies listed on Pakistan Stock Exchange.
• Insertion of more institutions, foundations, societies, boards, trust and funds in clause (66) of Part I of Second Schedule proposed to provide for exemption of income derived by such institutions etc.
• Exemption from profits and gains accruing to a person on the sale of immovable property or shares or Special Purpose Vehicle to any type of REIT scheme proposed to be extended up to 30 June 2024.
• Income tax exemption for resident persons of FATA / PATA proposed to be extended up to 30 June 2024.
• Income derived by Alteraz Engineering Consultant from contract with Earthquake Reconstruction and Rehabilitation Authority finance by the Saudi Fund for development proposed to be exempt.
• Tax holidays proposed for agro based industries in a rural area being SMEs setup on or after 1st July 2023 for five years from tax years 2024 to 2028.
• Reduction in tax payable on profits and gains derived by a builder from construction of a new building up to 10% or five million rupees whichever is lower proposed to be introduced.
• 50% reduction in tax payable proposed from tax year 2024 and 2026 for youth enterprise up to two million rupees in case of an individual / AOP and up to five million rupees in case of a company.
• Proposal for giving effect to change of name from “Prime Minister’s Flood Relief Fund 2022” to “Prime Minister’s Relief Fund for Flood, Earthquake and other Calamities”. Non-applicability of provision of sections 113, 151 and 236 on such fund also proposed.
• Proposal to withdraw Clause (100) from Part IV of the Second Schedule to rectify the technical mistake arose after omission of section 236U of the Ordinance.
• Proposal or providing exemption from applicability of section 148 on goods imported for relief operation for flood affectees for a period of three months from 01 December 2022.
• Proposal for providing exemption from applicability of section 148 on import of tomato and onion till 31 December 2022.
• Proposal for removal of technical mistake in super tax regime for Banking sectors by substituting Tax year 2022 with Tax year 2023.
• Proposal for extension of reduced tax rate of 20% up to tax year 2025 for Banking companies on Income from additional advances for micro small and medium enterprises, additional advances for low-cost housing, additional advances as farm credit and additional advances for IT and ITeS.
• Proposal for insertion of enabling provision for computation, collection and payment of tax under section 4C of the Ordinance.
