Major amendments made in Income Tax (Second Amendment) Act, 2021

The government has made a number of major amendments in the Income Tax Ordinance, 2001, which aims to increase the tax income by up to Rs 70 billion to Rs 140 billion.

As per details, the act shall be called the Income Tax (Second Amendment) Act, 2021, which shall come into force on the first day of July, 2021.

A number of amendments have been made into the act, Section 64C and 65C have been omitted, and after Section 65E, Section 65F and Section 65G have been inserted.

Under Section 65F Tax Credit For Certain Persons; the income of the following taxpayers shall be allowed a tax credit equal to 100% of the tax payable under any provisions of this Ordinance including minimum and final taxes for the period.

The persons include those engaged in coal mining projects in 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 driving income from exports of computer software or IT services or IT enabled services up to the period ending on the 30th day of June 2025: provided that 80% of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

Furthermore, Section 65G Tax Credit for Specified Industrial Undertakings has been added under which, when making certain eligible capital investments as specified in subsection (2), the eligible taxpayers defined in subsection (3) shall be allowed to take an investment tax credit of 25% of the eligible investment amount against tax payable under the provisions of this Ordinance including minimum and final taxes.

Under the Section 65G, the tax credit not fully adjusted during the year of investment shall be carried forward to the subsequent tax year subject to the condition that may be carried forward for a period not exceeding two years.

It is pertinent to mention that the eligible investment means investment made in purchase and installation of new machinery, buildings, equipment, hardware, and software accept self-created software and used capital goods.

Whereas, eligible persons means (a) Greenfield industrial undertaking as defined in Clause (27A) of section 2 engaged in in the manufacture of goods or materials to any process which substantially changes their original condition or shipbuilding: provided that the person incorporated between the 30th day of June, 2019 and the 30th day of June, 2024 and the person is not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project.

The eligible persons also means (b) industrial undertaking set up by the 30th day of June 2023 and engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of renewable energy from sources like solar and wind, for a period of 5 years beginning from the date such industrial undertaking is set up.

Meanwhile, for Section 100C following shall be substituted ‘100C, Tax credit for charitable organization, under which the persons mentioned in subsection (2) shall be allowed a tax credit equal to 100% of tax payable under any of the provisions of this Ordinance including minimum and final taxes in respect of income mentioned in subsection (30. The provision of this section shall apply to trusts, non-profit organizations, Waqf, welfare society, educational and religious institutions.

Furthermore, in Clause (126B), the following shall be substituted namely (126B) profits and gains derived by a refinery; (a) from a new deep conversion refinery of at least 100,000 barrel per day for which approval is given by the Federal government before the 31st day of December 2021 or (b) for the purpose of upgradation, modernization or expansion project of any refinery existing on the date of commencement of the Income Tax (Second Amendment) Act, 2021 for which purpose such refinery makers undertaking to the Federal government in writing before the 31st day of December 2021.