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ISLAMABAD: The Non-Profit Organizations (NPOs), trusts or welfare institutions would be eligible to avail 100 percent tax credit from the Federal Board of Revenue (FBR) after submission of statements of their voluntary contributions and donations.

The FBR has issued circular number 3 of 2020 here on Thursday to explain important provisions of the Finance Act 2020.

In terms of section 61 of the Ordinance, any person i.e. an individual, AOP or company is entitled to a tax credit for any amount paid or any property given during the tax year as a donation to approved institutions/organization. However, through the

Finance Act, 2020 the quantum of tax credit available to a donor has been curtailed in instances where donations are made to an associate. Amendment has been made by inserting a proviso in sub-section (2) of section 61 of the Ordinance. Resultantly, where donations are made by a donor to an associate, clause (b) component C of the formula in sub-section (2) of section 61 of the Ordinance shall now be the lesser of the following: 15% of the taxable income in the case of an individual or an AOP and 10% of the taxable income in the case of a company.

The FBR has explained that the clause (36) of section 2 defines a non-profit organization (NOP) and enlists various purposes that an NPO can pursue or undertake. The scope of such activities has been narrowed down by omitting the expression "development purposes" appearing in sub-clause (a) of clause (36) of section 2 of the Ordinance.

Moreover, a new clause (g) has been inserted in sub-section (1) of section 100C of the Ordinance 2001 whereby eligibility of a non-profit organization, trust or welfare institution for availing 100% tax credit has also been made contingent upon furnishing of a statement of voluntary contributions and donations received in the immediately preceding tax year in the prescribed form and manner.

Furthermore, an amendment has been made in sub-section (1A) of section 100C whereby, regime of taxation of surplus funds (excess of profits over expenditures) @10% has been extended to the trusts and welfare institutions, FBR added.

The Federal Board of Revenue (FBR) has enhanced the threshold of turnover for an individual or an association of person (AOP) for categorization as a "prescribed person" from "Rs.50 Million and above to Rs.100 million and above in the preceding tax year.

In order to promote ease of doing business, the Finance Act, 2020 has made certain amendments whereby, effective from 01-07-2020, threshold of turnover for an individual or an AOP for categorization as a "prescribed person" in terms of sub-section (7) of section 153 of the Ordinance has been enhanced from "Rs.50 Million and above" to "Rs.100 million and above" in the preceding tax year, FBR said.

Similarly, obligation to withhold tax under section 153 of the Ordinance as a "prescribed person" under sub-section (7) of section 153 of the Ordinance w.e.f. 01.7.2020 shall be limited to persons registered under the Sales Tax Act,1990 having turnover of Rs.100 Million or above in any of the preceding tax years. Prior to change, all sales tax registered persons irrespective of annual turnover, fell in the ambit of a prescribed person for the purpose of tax withholding u/s 153.

Through the Finance Act, 2020, amendment has been made in Division XXVI of Part-IV of the First Schedule whereby collection of advance tax on extraction of minerals provided in section 236V has been extended to persons whose names are appearing on the Active Taxpayers List (ATL) and the rate thereof has been specified at 5%. Previously, aforesaid provision was only applicable to persons who were not appearing on ATL, FBR stated.

Copyright Business Recorder, 2020