The Finance Bill 2023 has brought forth a new section, 44A, to the Income Tax Ordinance, 2001. This section provides exemptions for taxes on income, withholding taxes, minimum and final taxes, as well as certain provisions of the Ordinance, for qualified investments as specified in the Foreign Investment (Promotion and Protection) Act, 2022.
According to the new provision:
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Taxes on income, including capital gains, withholding taxes, minimum and final taxes under the Income Tax Ordinance, 2001, will be exempt to the extent provided in the Second and Third Schedule of the Foreign Investment (Promotion and Protection) Act, 2022 in relation to qualified investments mentioned in the First Schedule of the Act.
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The exemption also extends to all investors and shareholders of the qualified investment, their associates, and companies specified in the Second and Third Schedule of the Act. Additionally, third-party lenders who have provided loans in connection with the qualified investment will also be exempt from taxes and other provisions of the Ordinance as specified in the Second and Third Schedule of the Act.
Provisions of the Ordinance related to Anti-Avoidance, including sections 106, 106A, 108, 109, and 109A, will not apply to the individuals mentioned in subsections (1) and (2) of section 44A. This exemption aims to provide certain tax benefits and flexibility to investors and shareholders involved in qualified investments.
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Rates of depreciation, initial allowance, and pre-commencement expenditure under sections 22, 23, and 25 as of March 20th, 2022, will remain applicable for thirty years as provided in the Third Schedule of the Act for individuals mentioned in subsections (1) and (2) of section 44A.
The introduction of this new section seeks to incentivize foreign investment by providing tax exemptions and favorable depreciation rates for qualified investments. By offering these benefits, the government aims to promote economic growth, attract foreign capital, and foster a conducive business environment.
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It is essential for investors, shareholders, and relevant stakeholders to review the Foreign Investment (Promotion and Protection) Act, 2022, and its schedules to understand the specific provisions and conditions for tax exemptions. Consulting with tax professionals or legal experts is advisable to ensure compliance with the updated requirements and maximize the benefits provided by this tax exemption provision.
