Section 2 of Income Tax Ordinance, 2001 amended through Finance Act, 2021

Section 2 of Income Tax Ordinance, 2001 amended through Finance Act, 2021

The Federal Board of Revenue (FBR) notified updated Section 2 of Income Tax Ordinance, 2001 amended through Finance Act, 2021.

The FBR has announced the issuance of an updated version of the Income Tax Ordinance, 2001, incorporating changes introduced through the Finance Act, 2021. The amendments aim to streamline and enhance the taxation framework, ensuring its alignment with contemporary economic requirements.

One of the notable revisions is in Section 2 of the Income Tax Ordinance, 2001, which pertains to definitions. The modified Section 2 now includes various updates, and here are some key excerpts:

Definition of “Accumulated Profits” (Section 2(1)): The term “accumulated profits” concerning the distribution or payment of dividends has been expanded. It now encompasses reserves formed partly or wholly from any allowance, deduction, or exemption allowed under the ordinance. This change aims to provide clarity and a comprehensive scope for the term “accumulated profits.”

Introduction of “Active Taxpayer List” (Section 2(1A)): A new addition to the ordinance is the definition of an “active taxpayer list.” This list, established by the Board under Section 181A, includes lists issued by the Azad Jammu and Kashmir Central Board of Revenue or Gilgit-Baltistan Council Board of Revenue. This inclusion underscores the importance of maintaining an updated record of active taxpayers for effective tax administration.

Definition of “Amalgamation” (Section 2(1B)): The term “amalgamation” now has a refined definition, particularly concerning the merger of banking companies, non-banking financial institutions, insurance companies, and industrial or service-providing companies. The amendment outlines the manner in which assets and liabilities are transferred during an amalgamation, emphasizing the conditions for the process to be considered as such.

Inclusion of Financial Terminology (Sections 3A, 3B, 3C, 3D): New definitions have been added for terms such as “Approved Annuity Plan,” “Approved Income Payment Plan,” “Approved Pension Fund,” and “Approved Employment Pension or Annuity Scheme.” These additions provide clarity on financial instruments and retirement schemes falling under the purview of the ordinance.

The updates to the Income Tax Ordinance, 2001, reflect the FBR’s commitment to adapt to evolving economic landscapes and ensure a robust and transparent taxation system. These changes are anticipated to have a substantial impact on the financial sector, offering greater precision and coherence in tax-related matters.

The FBR encourages stakeholders, taxpayers, and financial experts to familiarize themselves with the updated ordinance, emphasizing its role in fostering a conducive environment for economic growth while ensuring equitable taxation practices. As Pakistan navigates its economic challenges, these amendments are seen as a crucial step towards modernizing the tax framework and promoting fiscal responsibility.