Tag: Tax Laws (Second Amendment) Ordinance 2021

ISLAMABAD: A charitable organization is entitled for 100 percent tax credit only on filing annual return of income for the tax year, according to Tax Laws (Second Amendment) Ordinance, 2021.

Sources in Federal Board of Revenue (FBR) said that the exemption regime has been replaced with tax credit for charitable organizations.

Through Tax Laws (Second Amendment) Ordinance, 2021, the Section 100C of Income Tax Ordinance, 2001 has been replaced with the following:

“100C. Tax credit for charitable organizations.– (1) The persons mentioned in sub-section (2) shall be allowed a tax credit equal to one hundred percent of tax payable under any of the provisions of this Ordinance including minimum and final taxes in respect of incomes mentioned in sub-section (3) subject to the conditions and limitations laid down in sub-section (4). 

(2) The provisions of this section shall apply to the following persons, namely:–:

(a) persons specified in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance;

(b) a trust administered under a scheme approved by the Federal Government and established in Pakistan exclusively for the purposes of carrying out such activities as are for the welfare of ex-employees and serving personnel of the Federal Government or a Provincial Government or armed forces including civilian employees of armed forces and their dependents where the said trust is administered by a committee nominated by the Federal Government or a Provincial Government;

(c) a trust;

(d) a welfare institution registered with Provincial or Islamabad Capital Territory (ICT) social welfare department;

(e) a not for profit company registered with the Securities and Exchange Commission of Pakistan under section 42 of the Companies Act, 2017;

(f) a welfare society registered under the provincial or Islamabad Capital Territory (ICT) laws related to registration of co-operative societies;

(g) a waqf registered under Mussalman Waqf Validating Act, 1913 (VI of 1913) or any other law for the time being in force or in the instrument relating to the trust or the institution;

(h) a university or education institutions being run by non-profit organization existing solely for educational purposes and not for the purposes of profit;

(i) a religious or charitable institution for the benefit of public registered under any law for the time being in force; and

(j) international non-governmental organizations (INGOs) approved by the Federal Government.

 (3)  The following income is eligible for tax credit, namely:–

(a) income from donations, voluntary contributions and subscriptions;

(b) income from house property;

(c) income from investments in the securities of the Federal Government;

(d) profit on debt from scheduled banks and microfinance banks;

(e) grant received from Federal, Provincial, Local or foreign Government;

(f) so much of the income chargeable under the head “income from business” as is expended in Pakistan for the purposes of carrying out welfare activities:

 Provided that in the case of income under the head “income from business”, only so much of such income shall be eligible for tax credit under this section that bears the same proportion as the said amount of business income bears to the aggregate of income from all sources; and

(g) any income of the persons mentioned in clauses (a), (b) and (h) of sub-section (2) of this section.

(4)  Eligibility for tax credit shall be subject to the following conditions, namely:-

(a) return has been filed;

(b) tax required to be deducted or collected has been deducted or collected and paid;

(c) withholding tax statements for the relevant tax year have been filed;

(d) the administrative and management expenditure does not exceed 15% of the total receipts: 

Provided that clause (d) shall not apply to a non-profit organization, if-

(i) charitable and welfare activities of the non-profit organization have commenced for the first time within last three years; or

(ii) total receipts of the non-profit organization during the tax year are less than one hundred million Rupees;

(e) approval of Commissioner has been obtained as per requirement of clause (36) of section 2: 

Provided that the condition of approval in respect of persons mentioned in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance, shall take effect from the first day of July, 2022 and the requirements of clause (36) of section 2, shall not be applicable for earlier years;

(f) none of the assets of trusts or welfare institutions confers, or may confer, a private benefit to the donors or family, children or author of the trust or his descendants or the maker of the institution or to any other person:

Provided that where such private benefit is conferred, the amount of such benefit shall be added to the income of the donor; and

(g) a statement of voluntary contributions and donations received in the immediately preceding tax year has been filed in the prescribed form and manner.

(5)  Notwithstanding anything contained in sub-section (1), surplus funds of organizations to which this section applies shall be taxed at a rate of ten percent.

(6) For the purpose of sub-section (5), surplus funds mean funds or monies –

(a)  not spent on charitable and welfare activities during the tax year; 

(b) received during the tax year as donations, voluntary contributions, subscriptions and other incomes;

(c) which are more than twenty-five percent of the total receipts of the non-profit organization received during the tax year;  and 

(d) are not part of restricted funds.

Explanation.- For the purpose of this clause, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor or funds received in kind.”

ISLAMABAD: Tax credit of 25 percent on capital investment on an industrial undertaking has been allowed under Tax Laws (Second Amendment) Ordinance, 2021.

Sources in Federal Board of Revenue (FBR) said that a new Section 65G has been introduced to Income Tax Ordinance, 2001 through amended ordinance.

According to the new section:

“65G Tax credit for specified industrial undertakings.- (1) When making certain eligible capital investments as specified in sub- section (2), the eligible taxpayers defined in sub-section (3) shall be allowed to take an investment tax credit of twenty-five percent of the eligible investment amount, against tax payable under the provisions of this Ordinance including minimum and final taxes. The tax credit not fully adjusted during the year of investment shall be carried forward to the subsequent tax year subject to the condition that it may be carried forward for a period not exceeding two years.

(2) For the purposes of this section, the eligible investment means investment made in purchase and installation of new machinery, buildings, equipment, hardware and software, except self-created software and used capital goods.

(3) For the purpose of this section, eligible person means –

(a) green field industrial undertaking as defined in clause (27A) of section 2 engaged in –

(i) the manufacture of goods or materials or the subjection of goods or materials to any process which substantially changes their original condition; or

(ii) ship building:

Provided that the person incorporated between the 30th day of June, 2019 and the 30th day of June, 2024 and the person is not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project; and

(b) industrial undertaking set up by the 30th day of June 2023 and engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of renewable energy from sources like solar and wind, for a period of five years beginning from the date such industrial undertaking is set up.”

ISLAMABAD: The filing of income tax return is mandatory for persons engaged in exporting computer software to avail 100 percent tax credit.

Sources in Federal Board of Revenue (FBR) on Saturday said that the exemptions for IT and IT enabled services had been withdrawn through Tax Laws (Second Amendment) Ordinance, 2021. However, a tax credit equal to 100 percent has been granted through the ordinance to facilitate the software exports.

The sources said that certain conditions have been introduced including making return filing mandatory and provision of income tax audit has been added through the latest amended ordinance.

Following new section has been added to Income Tax Ordinance, 2001 through Tax Laws (Second Amendment) Ordinance, 2021:

“65F Tax credit for certain persons.- (1) Income of following taxpayers shall be allowed a tax credit equal to one hundred per cent of the tax payable under any provisions of this Ordinance including minimum and final taxes for the period, to the extent, upon fulfillment of conditions and subject to limitations detailed as under: –

(a) persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects;

(b) a startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the next following two tax years;

(c) persons deriving income from exports of computer software or IT services or IT enabled services upto the period ending on the 30th day of June, 2025:

Provided that eighty per cent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

 Explanation.- For the purpose of this clause, –

(i) “IT services” include software development, software maintenance, system integration, web design, web development, web hosting and network design; and

(ii) “IT enabled services” include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally produced television programs and insurance claims processing.

(2) The tax credit under sub-section (1) shall be available subject to fulfillment of the following conditions, namely:-

(a) return has been filed;

(b) tax required to be deducted or collected has been deducted or collected and paid;

(c) withholding tax statements for the immediately preceding tax year have been filed; and

(d) sales tax returns for the tax periods corresponding to relevant tax year have been filed:

Provided that nothing contained in this section shall preclude the applicability of section 214C or section 177.

ISLAMABAD: Tax credit available for establishing new industrial unit has been withdrawn through Tax Laws (Second Amendment) Ordinance, 2021. However, those units already availed the concession would remain eligible till the cutoff time.

The Federal Board of Revenue (FBR) on Friday posted Tax Laws (Second Amendment) Ordinance, 2021 on its website.

According to tax analysts as per Section 65D, where a taxpayer being a company formed for establishing and operating a new industrial undertaking including corporate dairy farming sets up a new industrial undertaking including a corporate dairy farm, it shall be given a tax credit, on basis of ratio of equity investment in industrial undertaking to total investment, of the tax payable, including on account of minimum tax and final taxes payable for a period of five years beginning from the date of setting up or commencement of commercial production, whichever is later.

This tax credit was available to the company that is incorporated and industrial undertaking is setup between the first day of July, 2011 and 30th day of June, 2021.

Now through Ordinance this is omitted with condition that existing beneficiaries shall continue to avail benefits of repealed provisions for the periods and subject to conditions and limitations specified in this Section.

ISLAMABAD: The tax authorities have reduced penalty amount to half on making false or misleading statement under various sections of Income Tax Ordinance, 2001.

Through Tax Laws (Second Amendment) Ordinance, 2021 promulgated a day earlier, the penal amount under Section 182 for misleading or false statement has been reduced to 50 percent from 100 percent of the amount of tax shortfall.

Under Serial No. 10 of Section 182: any person who makes a false or misleading statement to an Inland Revenue Authority either in writing or orally or electronically including a statement in an application, certificate, declaration, notification, return, objection or other document including books of accounts made, prepared, given, filed or furnished under this Ordinance, then such person shall pay a penalty of twenty five thousand rupees or 50 percent of the amount of tax shortfall whichever is higher:

Provided that in case of an assessment order deemed under section 120, no penalty shall be imposed to the extent of the tax shortfall occurring as a result of the taxpayer taking a reasonably arguable position on the application of this Ordinance to the taxpayers’ position.

Through the latest ordinance, the penalty for misleading information under Section 114A has also been imposed. Section 114A is related to taxpayers’ profile.