KARACHI: The immediate withdrawal of tax exemptions to certain business into tax credit regime may create complications for taxpayers in the income year.
In a commentary on Tax Laws (Second Amendment) Ordinance, 2021, chartered accountants at PwC A. F. Ferguson & Co. said since the amendment ordinance has been enforced with immediate effect, businesses which have been transposed from exemption to tax credit regime would have to account for such change during the income year.
“This would create multiple complications. Such complication would also arise for the other exemptions withdrawn/ amended with immediate effect,” they said.
The Federal Board of Revenue (FBR) is expected to issue clarification on this matter. It is also expected that when Amendment Ordinance would be made part of forthcoming finance bill, all the amendments proposed through the Amendment Ordinance, with appropriate changes, would be suitably placed and accounted for to make these amendments effective from July 1, 2021.
The chartered accountants said that the concept of tax credit regime was introduced few years back whereby blanket tax exemptions are codified into a tax credit regime subject to fulfilment of certain conditions.
The change in regime in effect means that taxable income and tax liability (which is not computed under the exemption regime) is computed under the tax credit regime, against which full or partial credits are allowed.
The tax credit regime provides a more transparent mechanism for allowing tax break. However, certain enabling amendments are required to be made to make tax credit regime more effective (e.g., provisions which allow issuance of exemption certificate do not account for or treat tax credit regime equivalent to tax exemption regime as a result of which those who avail tax credit regimes suffer tax withholdings which is eventually refundable).