ISLAMABAD: The Federal Board of Revenue (FBR) has allowed 100 per cent tax credit to persons engaged in coal mining projects in Sindh, and supplying coal exclusively to power generation projects in Sindh.
According to the income tax circular number 1 of 2024 issued on Monday, the FBR has explained important amendments of the Finance Act 2024.
An explanation has been added to Section 65F to clarify that 100 per cent tax credit is available exclusively to their income derived from coal mining operations in Sindh for supplying coal exclusively to power generation projects and thus, the provisions of Section 65F has not allowed the tax credit to any other income or incomes under any heads other than from supplying coal exclusively to power generation projects in Sindh, the FBR said.
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The FBR has also clarified that a statement of computation will be submitted by a builder or a developer on each due date for the quarters specifying computation of advance tax on the basis of taxable profit for each quarter, gross amount of receipts either in cash or deposited in bank and business bank accounts detail duly certified by a Chartered Accountant or a Cost and Management Accountant.
About the amendment in Taxation of Capital gains (Section 37), the FBR has clarified that prior to the Finance Act, 2024, a person acquiring shares of a company was required to deduct tax at the rate of 10 per cent of the fair market value of shares from the gross amount paid. Through the Finance Act, 2024, the person acquiring the shares is required to deduct tax from the gross amount paid or payable at the time of payment or at the time of registration of shares, whichever is earlier.
Hence, 10 per cent of the fair market value of shares will be deposited by the acquirer even if payment for shares has not been made, if the shares stand registered in the name of the acquirer of shares.
The FBR has also explained the principles of Taxation of Associations of Persons (Section 92).
Prior to the Finance Act, 2024, share of a member of an association of persons [AOP] was exempt from tax where the AOP has paid tax on its income.
Through the Finance Act, 2024, a second proviso has been added in sub-section (1) of Section 92, to provide that share of a member of an AOP shall not be exempt
Where the turnover of the AOP is three hundred million rupees or more and the AOP has not filed with the return, financial statements duly audited by a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 or audited by a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966.
About the special provisions relating to persons not appearing in active taxpayers’ list [Section 100BA], the FBR has also clarified the provision.
Prior to the Finance Act, 2024, Section 100BA provided for higher rates of withholding taxes as specified in the Tenth Schedule for persons not appearing in the active taxpayers’ list. Through the Finance Act, 2024, Section 100BA has been amended and scope of the Tenth Schedule has been broadened by including persons who although are appearing in the active taxpayers’ list but have filed return after the due date specified in section 118 or by the due date as extended under section 119 or 214A. After this amendment in Section 100BA and insertion of rule 1A in the Tenth Schedule, there are now two categories of higher rates: one for persons not appearing in the ATL at the time of transaction and the other for persons appearing in the ATL at the time of transaction but who have not filed return within the due date. Tax rates for persons appearing in ATL but have filed return after the due date has been explained in this Circular.
About the geographical source of income (Section 101), as per sub-section (6) of section 11, the income of a non-resident person under a head of income shall be computed by taking into account only amounts that are Pakistan-source income. Sub-section (3) of section 101 stipulates Pakistan-source business income of a non-resident person. As per clause (d) of Sub-section (3) of section 101, business income of a non-resident person shall be Pakistan-source income to the extent to which it is directly or indirectly attributable to any business connection in Pakistan. The expression “business connection in Pakistan” has now been defined.
The expression “business connection in Pakistan” shall include significant economic presence in Pakistan of a non-resident person. The term, “significant economic presence in Pakistan” means transaction in respect of goods, services, or property carried out by a non-resident with any person in Pakistan including provision of download of data or software in Pakistan, if the aggregate of payment arising from such transactions during the tax year exceeds such amount as may be prescribed, the FBR added.
The tax rate on dividend received from a mutual fund is 15 per cent. Through the Finance Act, 2024, in the First Schedule, a proviso has been added in clause
(b) of Division III of Part I and in clause (b) of Division I of Part I whereby the rate of tax on dividend received from a mutual fund and the rate of tax to be deducted on dividend received from a mutual fund which derives 50 per cent or more of its income from profit on debt has been enhanced to 25 per cent.
The FBR said that every prescribed person making a payment for the sale of goods including toll manufacturing was required to deduct tax at the rate of five per cent of the gross amount payable in the case of a company and at the rate of 5.5 per cent in other cases. The rate of toll manufacturing has now been enhanced to nine per cent of the gross amount payable in the case of a company and 11 per cent in other cases.
The Income of a Special Purpose Vehicle (SPV) from purchasing Diversified Payment Rights through Authorized Dealers in Pakistan has been exempted from tax under clause (99B) of Part I of the Second Schedule. This exemption applies under the definitions provided in the State Bank of Pakistan’s circular(s) or regulations in respect of Diversified Payment Rights.
The FBR has also explained extension of exemption available to the erstwhile Tribal Areas. The exemption, available under clause (145A) of Part I of the Second Schedule to the Ordinance to any income of any individual domiciled or company and association of persons resident in the erstwhile Tribal Areas forming part of the provinces of the Khyber Pakhtunkhwa and Balochistan under paragraph (d) of Article 246 of the Constitution, has been extended up to the 30th June 2025.
Copyright Business Recorder, 2024
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