Under amended finance bill: Scope of IT and IT-enabled services expanded

ISLAMABAD: The Federal Board of Revenue (FBR) has expanded the scope of the definition of IT and IT-enabled services through the amended Finance Bill, 2022, and removed the sector from the tax credit regime to simplify the tax filing system.

According to a clarification issued by the FBR on the IT sector issued on Saturday, the amended Finance Bill, 2022, will incorporate some tangible measures to facilitate the exporters of IT and IT-enabled services. Almost all the pressing demands of the IT sector have been accepted.

The same has been announced in the speech by the federal finance minister on 24th June 2022 on the floor of the National Assembly.

These include the following six key concessions: i) The sector has been provided a reduced tax rate of 0.25 per cent on their export proceeds which is a quarter of the one per cent export tax rate provided to all other exporters of goods.

ii) The sector has been removed from tax credit regime to simplify the tax filing system and to remove hassles of compliance that were earlier required to make them eligible for 100% tax credit to claim tax exemption.

iii) The requirements of filing of Withholding Tax Statements and Sales Tax return have been liberalized for the sector and only those who are required under the law will file WHT Statements or the Sales Tax Returns. For individuals having turnover up to Rs100 million per year there is no requirement to file WHT Statement or to deduct tax.

iv) The definition of IT and IT-enabled services as provided under the Income Tax Ordinance, 2001 has been liberalized by expanding its scope by making suitable amendments and all inclusive, and “not limited to” definition has been provided.

v) IT and IT-enabled services exporters have been provided the facility of obtaining Sales Tax refund in respect of any Sales Tax that has been paid as their input on computers, laptops, stationary and other items, etc. This facility is not available under the Provincial Sales Tax Law.

vi) The demand of the IT sector of reviving tax exemption for Venture Capital Fund has been accepted and a new provision has been created for providing Income Tax Exemption to the Venture Capital Fund for three years.

The above exemptions and tax facilitations to boost exports of IT and IT-enabled services were agreed and discussed in the meetings with the Federal Minister for IT, Syed Aminul Haque, and the representatives of the PSEB. It appears that the above statement given by P@SHA is on account of lack of information about the outcome of the decisions taken by the Honorable Finance Minister in that meeting and announced accordingly.

The FBR has taken an exception to a statement issued by Pakistan Software Houses Association (P@SHA) dated 25th June 2022. It has reported some facts regarding the exemptions/tax incentives/facilitation given to the IT and IT-enabled export services through the Federal Budget, 2022, tabled in the National Assembly on 10th June 2022.

Clarifying its position, the FBR has stated that in the wake of the budget, some important meetings were held with the representatives of the IT sector through the PSEB and also with Federal Minister for IT Syed Aminul Haque and his team.

During these meetings, almost all the key demands of the IT sector were thoroughly deliberated and largely agreed.

Copyright Business Recorder, 2022