Wide range of income tax exemptions withdrawn

ISLAMABAD: The government has withdrawn a wide range of income tax exemptions to the emerging sectors and industries including IT sector; exemption on profit and gains derived by LNG terminal operators and terminal owners and exemption available to the Pakistan Mortgage Refinance Company under the Tax Laws (Second Amendment) Ordinance, 2021.

According to the comments of renowned tax expert, Ashfaq Tola, on the Tax Laws (Second Amendment) Ordinance, 2021, the government was likely to introduce Finance Bill after the Cabinet approval in session of the National Assembly to be called Tax Laws (First Amendment) Act, 2021, whereby, it would be proposing to withdraw/streamlining majority of exemptions in Income Tax Ordinance, 2001 w.e.f. from 1st July 2021.

The withdrawal of exemptions was made in line with on-going negotiations with the IMF to withdraw income tax exemptions worth Rs140 billion.

Tax expert stated that the government has withdrawn a number of clauses of Part-I of the Second Schedule (Exemption Schedule) of the Income Tax Ordinance.

The government has withdrawn exemption on any gain on transfer of a capital asset, being a membership right held by a member of an existing stock exchange, for acquisition of shares and trading or clearing rights acquired by such member in new corporatized stock exchange in the course of corporatization of an existing stock exchange.

The government has also withdrawn exemption on any income chargeable under the head “capital gains” derived by a person from an industrial undertaking set up in an area declared by the Federal Government to be a “Zone” within the meaning of the Export Processing Zones Authority Ordinance, 1980.

The exemption of income from voluntary contributions, house property and investments in securities of the federal government derived by Sheikh Sultan Trust, Karachi, has been withdrawn.

The exemption of profit on debt payable to a non-resident person has also been withdrawn.

The Ordinance has withdrawn exemption of income derived by Sukuk Holder in relation to Sukuk issued by “The Second Pakistan International Sukuk Company Limited” and “The Third Pakistan International Sukuk Company Limited”, including any gain on disposal of such Sukuk. The Ordinance has withdrawn exemption on profit on debt derived by Hub Power Company Limited on its bank deposits or accounts with financial institutions directly connected with financial transactions directly related to the project operations.

The Ordinance has withdrawn exemption on profit on debt payable by an industrial undertaking in Pakistan on moneys borrowed under a loan agreement entered into with an approved financial institution in a foreign country and on moneys borrowed or debts incurred by it in a foreign country in respect of the purchase outside Pakistan of capital plant and machinery in any case where the loan or debt is approved by the Federal Government, having regard to its terms generally and in particular to the terms of its payment, from so much of the tax payable in respect thereof as exceeds the tax or taxes on income paid on such interest in the foreign country.

The Ordinance has withdrawn exemption on any profit on debt derived by any person on bonds issued by Pakistan Mortgage Refinance Company to refinance the residential housing mortgage market, for a period of five years with effect from the 1st day of July, 2018.

The Ordinance has withdrawn exemption on any income of a textbook board of a province established under any law for the time being in force and exemption on any income derived by any Board or other organisation established by Government in Pakistan for the purposes of controlling, regulating, or encouraging major games and sports recognised by government.

The Ordinance has withdrawn exemption on any income, not being income from manufacturing or trading activity, of a Modaraba registered under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980, and exemption on profits and gains derived between the 1st July, 2000 and the 30th June, 2024, by a venture capital company and venture capital fund registered under Venture Capital Companies and Funds Management Rules, 2000 and a Private Equity and Venture Capital Fund.

The Ordinance has withdrawn exemption on any distribution received by a taxpayer from a collective investment scheme registered by the Securities and Exchange Commission of Pakistan under the Non-Banking Finance Companies and Notified Entities Regulations, 2007, including National Investment (Unit) Trust or REIT Scheme or a Private Equity and Venture Capital Fund out of the capital gains of the said Schemes or Trust or Fund.

The Ordinance has withdrawn exemption on dividend income derived by a company, if the recipient of the dividend, for the tax year is eligible for group relief under Section 59B; exemption on any income derived by the Libyan Arab Foreign Investment Company being dividend of the Pak-Libya Holding Company and exemption on any income derived by the Government of Kingdom of Saudi Arabia being dividend of the Saudi-Pak Industrial and Agricultural Investment Company Limited.—SOHAIL SARFRAZ