KARACHI: The federal government recently introduced amendments to Income Tax Ordinance, 2001 through a presidential ordinance namely Tax Laws (Second Amendment) Ordinance, 2021.
According to a chartered accountant firms following are the key changes made through the Amendment Ordinance:
(1) Exemption for inter corporate dividend for those group structures which are eligible for group relief has been withdrawn. This amendment needs to be reconsidered in view of the overall framework and policy for promoting group / holding company structures.
(2) Donations eligible for direct deduction from income has been transposed into tax credit regime. As a result of that, overall upper limit for tax break for the donors, in respect of charitable donations, has been reduced.
(3) Tax credit regime for the NPOs has been further simplified and clarified. Certain religious and welfare organisations and international NGOs are allowed to avail tax credit regime subject to registration under the relevant laws and regulations.
(4) Tax exemptions of following businesses have been transposed into full / partial tax credit regime, resulting that these businesses can now avail tax breaks subject to certain compliances:
(i) coal mining projects of Sindh
(ii) startup businesses certified by Pakistan software board
(iii) export of software, IT and IT enabled services.
(iv) greenfield projects / ship building
(v) undertakings engaged in manufacturing of plant and machinery with dedicated use of generation of renewable energy.
Appropriate amendments are required to be made in the relevant provisions and SROs so that those eligible for tax credit regimes are issued exemption certificates and they do not suffer tax Withholdings which are eventually refundable.
(5) Tax credit for enlistment of a company on stock exchange has been withdrawn.
(6) Certain penalty provisions have been rationalised.
(7) Number of tax exemptions and concessions in the Second Schedule have been withdrawn, some of which were either person-specific or were timebound whereas some of the exemptions/ concessions have been transposed into tax credit regime. Major businesses affected by withdrawal of exemptions / concessions include Modarabas, LNG terminal owners & operators, services/contracts rendered/executed outside Pakistan and those IPPs who will enter into agreement or to whom letter of intent will be issued for setting up of power generation project on or after July 1, 2021.