Unveiling tax concession for Shariah-compliant companies, the Federal Board of Revenue (FBR) has announced to charge reduced rate of income tax on such companies once they fulfil the criteria laid down by the Board. The FBR has notified the reduced rate of tax for Shariah-compliant companies through SRO 12(1)/2016 issued here on Tuesday.
Sources said that at present corporate tax rate was 32 percent. "The tax rate for Shariah-compliant companies has been reduced by 2 percent when compared with tax rate of companies. Thus, the reduced tax rate of 30 percent would be applicable on the Shariah-compliant companies. This is subject to the condition that Shariah-compliant criteria must be fulfilled by such companies," official added.
According to the notification, the FBR has notified Shariah-compliant criteria for a company whose shares are traded on a stock exchange. Firstly, the business of the company should be Halal ie it shall not include processing or manufacturing of pork, liquor, non-Halal products, pornographic material or any other activity not permitted by Shariah.
Secondly, there should be Riba-free (interest-free) financing on the balance sheet of the company; however, the company may be leveraged through Islamic modes of financing obtained from licensed Islamic financial institutions. Thirdly, all the investments made by the company should be one hundred percent Shariah compliant; therefore, it would not be permissible for the company to acquire non-Shariah compliant instruments/securities which yield interest or income that is not Halal. Fourthly, the company would be obliged to maintain free float of the company at 30 percent of the outstanding shares.