The Reform Co-ordination Group (RCG) of the Federal Board of Revenue (FBR) has recommended that the income tax exemption under Section 111 of the Income Tax Ordinance must be limited to investment of remittances in industrial sector to ask source of unexplained and undeclared investment made in remaining sectors.
It has been learnt here on Monday that the RCG discussed proposals to improve the country''s investment climate and increased resource mobilisation in the country. The RCG recommended amendment to the Income Tax Ordinance 2001 for not asking source of unexplained and undeclared investment made in the existing assets and industrial undertakings under Section 111 of the Ordinance 2001.
The RCG principally agreed that income tax exemption on investment of remittances in dead assets be withdrawn and this exemption should be limited only to investment in industrial sector, services sector and other commercial activity.
Sources said that a sub-group on Income Tax has recommended the Ministry of Finance that black money is being transferred to Dubai and other countries and this black money is coming back into the country in the shape of foreign remittances. The investment of such remittances is exempt from income tax under Section 111 (4) of the Income Tax Ordinance 2001.
Similarly, tax department is not empowered to ask source of investment coming through remittances. It has been shared that black money coming in the shape of remittances is being invested in the non-productive sectors of the economy like purchase of real estate and other dead assets which is depriving the country due tax. The Sub-Group has suggested the government to limit the income tax exemption on remittances being invested to only industrial sector.
However, it was discussed that remittances investment in services sector and other commercial activity should also qualify for the income tax exemption. The meeting was also of the view that remittances amount invested in dead assets and real estate should be brought under tax with amendment in the Section 111 (4) of the Income Tax Ordinance 2001.
The meeting also discussed the ways and means for increasing the investment in industrial sector, in this regard, the meeting considered an option to exempt such investment in industrial sector from probe of source of income. The meeting also discussed a proposal to allow investment allowance for tax purpose to all industrial sectors so as ensure equal treatment with all industries.
Sources said that the FBR is empowered to invoke any penalty proceedings under section 111 in cases where there is no source of unexplained income and assets. According to the recommendations of the RGC, the provisions of section 111 of the Income Tax Ordinance may not be invoked in respect of existing assets and investment in industrial undertaking.
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