Corporate income tax exemptions: Withdrawal causes Rs10bn revenue impact

ISLAMABAD: The withdrawal of corporate income tax exemptions available to the industrial undertakings under section 65D of the Income Tax Ordinance 2001 has a revenue impact of Rs 10 billion.

Sources told Business Recorder here on Thursday that the exemption under section 65D of the Income Tax Ordinance 2001 would expire on June 30, 2021. This section is related to the tax credit for newly established industrial undertakings. Among other 77 exemptions, this exemption would also be withdrawn through the proposed Income Tax (Second Amendment) Bill, 2021.

The revenue impact of the withdrawal of the exemption is Rs 10 billion which is highest among the exemptions to be withdrawn through the proposed Income Tax (Second Amendment) Bill, 2021, officials added.

Under section 65D (tax credit for newly established industrial undertakings), where a taxpayer being a company formed for establishing and operating a new industrial undertaking including corporate dairy farming sets up a new industrial undertaking, it shall be given a tax credit equal to an amount as computed in sub-section (1A) of the tax payable including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance, on the taxable income arising from such industrial undertaking for a period of five years beginning from the date of setting up or commencement of commercial production, whichever is later.

Tax credit under this section shall be admissible where the company is incorporated and industrial undertaking is setup between July 1, 2011 and June 30, 2021; industrial undertaking is managed by a company formed for operating the said industrial undertaking and registered under the Companies Ordinance, 1984 and having its registered office in Pakistan.

The industrial undertaking is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an industrial undertaking established in Pakistan at any time before July 1, 2011 and the industrial undertaking is set up with at least seventy percent equity raised through issuance of new shares for cash consideration.

Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section. For the purposes of this section and sections 65B and 65E, an industrial undertaking shall be treated to have been setup on the date on which the industrial undertaking is ready to go into production, whether trial production or commercial production, it added.

Copyright Business Recorder, 2021