Investment in shares and insurance: FBR unveils method of tax credit calculation

The Federal Board of Revenue has announced that the tax credit for investment in shares and insurance would be calculated on the basis of lesser of-total cost of acquisition of the shares or total contribution or premium paid and 15 percent of the persons taxable income for the year or Rs 500,000.
In this regard, the FBR has issued an income tax circular 7 of 2011 here on Tuesday to explain the salient features of the amendments made to the Income Tax Ordinance, 2001 through Finance Act 2011. Under the existing provisions of Section 62 of the Ordinance 2001, a tax credit is allowed for investment by a person other than a company in new shares of a listed company in Pakistan to the original allottee of such shares or the shares acquired from Privatisation Commission of Pakistan through substitution of the existing section 62 new section has been inserted which provides for tax credit on shares or tax credit for investment in life insurance premium paid on a policy to a life insurance company registered with the Security and Exchange Commission of Pakistan under the Insurance Companies Ordinance, 2000 (XXXIX of 2000), This tax credit shall be allowed for the year of investment if the resident person (other than a company) is deriving income chargeable to tax under the head "salary" or 'income from business. Tax credit under this section shall be calculated on the basis of lesser of total cost of acquisition of the shares or total contribution or premium paid; fifteen per cent of the persons taxable income for the year; or five hundred thousand rupees.
The circular said that that the credit for Equity Investment in newly established industrial Undertaking. [Section 65D]. A new section 65D has been introduced in order to provide incentive for investment in new industrial undertaking in Pakistan Tax rebate equal to 100% of the tax payable by a newly established company is admissible where all of the following conditions are fulfilled:
The company is incorporated/registered under the Companies and formed for establishing and operating a new industrial undertaking for manufacturing in Pakistan. The industrial undertaking managed by such company is set up/established in Pakistan between the 1st day of July, 2011 and 30th day of June 2016. The said industrial undertaking is established with 100% equity owned by the said company.
The company or the industrial undertaking is not established by the splitting up or reconstruction or reconstitution of an industrial undertaking already in existence: and the company or the industrial undertaking is not established by transfer of machinery or plant from an existing industrial undertaking.
Tax credit under this section shall be available for a period of live years and this period will begin from the later of the date of setting up of such industrial undertaking or from the date of commencement of commercial production. Tax credit for Equity investment for BMR/Expansion in Industrial Undertaking Established before the first day of July, 2011. [Section 65E]: Newly introduced section 65E is meant to provide tax credit on investment by a company with 100% equity investment in balancing, modernisation, replacement, or for expansion of the plant and machinery already installed, in an industrial undertaking set up in Pakistan before the 15th day of July 2011 subject to the fulfilment of all of the following conditions:
The credit shall be allowed on the basis of proportion which such equity investment bears to the total investment in the company; tax credit shall be allowed it the plant and machinery is purchased and installed at any time between the 1st day of July, 2011 and the 30th day of June, 2016; and amount of tax credit shall be allowed against the tax payable by the taxpayer in respect of the tax year in which the plant or machinery is purchased and installed and for the subsequent four years.
In cases where no tax is payable by the taxpayer in the year of installation of plant and machinery or where the tax payable is less than the amount of tax credit, the amount of such credit or the amount of unadjusted tax credit, as the case may be, shall be carried forward and deducted from the tax payable by the taxpayer in respect of the following tax year, and so on, but no such amount shall be carried forward for more than four tax years and shall not exceed in aggregate the limit of the tax credit, the circular added.