The Securities and Exchange Commission of Pakistan (SECP) has proposed amendments in Income Tax Ordinance 2001 to facilitate Modaraba companies in budget, 2009-10. According to the SECP budget proposal, the relevant proviso only refers to provisions of the Modaraba Ordinance and the Rules pertaining to mandatory reserves.
However, the requirement of mandatory reserves is prescribed under the Prudential Regulations for Modarabas. The proposed amendment would enable the Commission to prescribe the method of computation of the mandatory reserve from time to time according to the regulatory needs. The amendment in Second Schedule of the Income Tax Ordinance 2001 is related to the "Modaraba Tax exemption" on 90 percent profit distribution.
According to the proposed amendment, any income, not being income from trading activity of a modaraba registered under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), for any assessment year commencing on or after the first day of July, 1999: Provided that not less than ninety percent of its total profits in the year as reduced by the amount transferred to a mandatory reserve, as required under the provisions of the said Ordinance or the rules or the regulations made thereunder, as are distributed amongst the shareholders.