Tax Laws (2nd Amendment) Ordinance, 2021: 76 corporate IT exemptions withdrawn

ISLAMABAD: The government has promulgated the Tax Laws (Second Amendment) Ordinance, 2021, to withdraw 76 corporate income tax exemptions and allow tax credit facility to many sectors from March 24, 2021.

Officials told Business Recorder here on Thursday that the government has also given exemption of sales tax on disable syringes and raw materials used in the manufacturing of such syringes up to June 30, 2021.

The Tax Laws (Second Amendment) Ordinance, 2021, was approved by the Cabinet and signed by the president.

Following its signing by the president, the Ordinance has come into force at once.

The withdrawal of corporate income tax exemptions has become effective from March 24.

The Tax Laws (Second Amendment) Ordinance, 2021, has amended Sales Tax Act, 1990, and Income Tax Ordinance, 2001.

Once the Ordinance is being tabled before the National Assembly, an amendment would be introduced to change the date for withdrawal of income tax exemptions from July 1, 2021, they added.

Through the Tax Laws (Second Amendment) Ordinance, 2021, the corporate income tax exemptions have been withdrawn and replaced with the tax credit regime.

Tax credit facility has been extended to industrial undertakings; charitable organisations and IT export services under the Ordinance.

Under the Ordinance, 100 percent tax credit would be allowed to the IT services or IT-enabled services after fulfilment of certain conditions including filing of returns/withholding tax statements.

A new section, 65F, has been inserted in the Income Tax Ordinance 2001, whereby income of the following taxpayers shall be allowed a tax credit equal to 100 percent of the tax payable including minimum and final taxes as follows: Firstly, persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects; 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 following two tax years; persons deriving income from exports of computer software or IT services or IT-enabled services up to the period ending on June 30, 2025. Provided that 80 percent of the export proceeds are brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

According to the Tax Laws (Second Amendment) Ordinance, 2021, an explanation has been added to the new section of the Income Tax Ordinance 2001.

Under the Ordinance, the “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 centres, data entry operations, locally-produced television programmes, and insurance claims processing.

Under the promulgated Ordinance, the said tax credit shall be available subject to fulfilment of the following conditions: (I), return has been filed; (II) tax required to be deducted or collected has been deducted or collected and paid; (III) withholding tax statements for the immediately preceding tax year have been filed, and (IV) sales tax returns for the tax periods corresponding to relevant tax year have been filed.

Copyright Business Recorder, 2021