ISLAMABAD (June 06 2010): The government has announced a number of tax incentives on foreign and domestic investment including that foreign lenders would enjoy tax-free repatriation of profits earned on foreign industrial loans through amendment to the Second Schedule of the Income Tax Ordinance 2001.

The rate of withholding tax on none specific payments to non-residents would be reduced from 30 to 20 percent, tax-free payments to non-residents on profit on debt will be allowed. Another major relief measure is the reduction in the withholding tax on electricity bill of commercial and industrial consumers exceeding Rs 20,000 per month from 10 to 5 percent. This measure will benefit over Rs 66,000 taxpayers with a cost of Rs 4.5 billion.

The Finance Bill (2010-2011) on Saturday announced relief measures for foreign and domestic investors. Under the proposed relief measures, for the wellbeing of listed company a tax credit for BMR costs incurred by such a company is proposed to be provided at the rate of 10 percent for the tax year of its incurrence. This concession has been proposed to be admissible for the tax years 2011 to 2015. With the purpose to encourage enlistment of corporate sector, a 5 percent tax credit is proposed to be allowed to a company in the tax year of its enlistment.

In order to align with rest of the scheme, 10 percent withholding tax deductible on government securities is proposed to be a final tax. Withholding tax deductible on debt instruments is proposed to be a Final tax, in order to relieve the non-resident taxpayers of statutory requirement for filing income tax return.

For providing incentive to foreign lenders for tax-free repatriation of profits earned on foreign industrial loans, Clause 72(iii) of Part-IV of Second Schedule of the Income Tax Ordinance 2001 is proposed to be re-instated. The maximum rate of withholding tax deductible on payments made to non-resident taxpayers who are not subject to Avoidance of Double Taxation Treaties (other than payments made on account of royalty and fee for technical services) is proposed to be at the rate of 20 percent instead of 30 percent.

Honouring wide demand, the rate of withholding tax deductible at the rate of 20 percent on crossword puzzles is proposed to be reduced to a rate of 10 percent. The government has also enhanced exemption limit from Rs 2,00,000 to Rs 3,00,000 for salaried taxpayers in the budget (2010-2011).

The government increased the exemption limit for salaried taxpayers from Rs 0.2 million to Rs 0.3 million which would benefit approximately4,30,000 taxpayers while exemption limit for non-salary income tax is also raised from Rs 1,00,000 to Rs 3,00,000 that would benefit about 3,50,000 taxpayers. Finance Bill (2010-2011) has announced a number of relief measures through amendments to the Income Tax Ordinance 2001.

In order to provide relief to large number of taxpayers deriving their incomes from salary and business, the limit of basic exemption is proposed to be enhanced from Rs 2,00,000 to Rs 300,000 pertaining to salaried taxpayers. In case of non-salaried taxpayers it has been proposed to enhance the exemption threshold from Rs 1,00,000 to Rs 3,00,000.

For welfare of industrial & commercial consumers of electricity, the maximum rate of advance tax deductible under section 235 on monthly electricity bills is proposed to be reduced from 10percent to 5 percent, on the amount of the bills payable by them.

Finance Bill further revealed that the senior citizens of the age of 60 years or above, are proposed to be eligible for relief of 50 percent of tax on their income, if their income does not exceed Rs 1,00,000- as compared to previous maximum limit of Rs 75,000. However, this relief shall not be available on income subject to Presumptive Tax Regime.

In pursuance of Prime Minister's Relief Package to rehabilitate the economy of Khyber Paktoonkhwa, FATA and PATA, some amendments are proposed to be introduced in the Income Tax Law. These measures provide following relief to industrial and commercial taxpayers hailing from most and moderately affected areas. It included waiver of entire amount of default surcharge & penalty till 30th June 2010; exemption from advance tax on electricity for tax years 2010 and 2011; exemption from withholding tax on exports; recovery of outstanding income tax arrears through easy instalments; enhancement of income tax exemption limit from Rs 0.1 million to Rs 0.3 million and annual audit with the approval of FBR and

the exemption from advance tax on import of plant and machinery upto 30th June 2011. However, these concessions shall not be available to manufacturers and suppliers of cement, sugar, beverages and cigarettes. For the wellbeing of disabled persons, 100 percent depreciation expense can be claimed on Ramp built to provide access to disabled persons, is proposed through a new provision to be inserted in the law.

In order to provide relief to employees, exemption from taxation of perquisites on waiver of employees obligation to pay or repay, and amount owed to employer, is proposed. In order to facilitate the withholding agents, instead of e-filing monthly, quarterly and annual withholding tax statements, the e-filing of only quarterly withholding tax statements is proposed.

Copyright Business Recorder, 2010