Certain conditions spelt out: IT services to be allowed 100pc tax credit: Tola

ISLAMABAD: The 100 percent tax credit would be allowed to the IT services or IT-enabled services after fulfillment of certain conditions including filing of returns/withholding tax statements under the proposed bill submitted to the National Assembly for withdrawal of corporate income tax exemptions.

According to the comments of leading tax expert Ashfaq Tola on the proposed Income Tax Second Amendment Bill 2021, a new section 65F is proposed to be inserted in the Income Tax Ordinance 2001, whereby income of following taxpayers shall be allowed a tax credit equal to 100 percent of the tax payable including minimum and final taxes as follows:- Firstly, persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects; [Previously in Clause 132A of Part 1 of Second Schedule. now proposed to be omitted under the new Bill].

Secondly, a startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the following two tax years; [Previously in Clause 143 of Part 1 of Second

Schedule of the Income Tax Ordinance 2001].

Thirdly, persons deriving income from exports of computer software or IT services or IT enabled services up to the period ending on June 30, 2025.

Provided that eighty per cent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

According to the proposed law, an explanation has been added in the new section of the Income Tax Ordinance 2001.

Explanation. - For the purpose of this clause, i. "IT services" include software development, software maintenance, system integration, web design, web development, web hosting and network design; and ii. "IT enabled services" include inbound or outbound call centers, medical transcription,

remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally produced television programs and insurance claims processing. [Previously in Clause 133 of Part 1 of Second Schedule.]

Ashfaq Tola explained that the said tax credit shall be available subject to fulfillment of the following conditions:

(I), return has been filed; (II) tax required to be deducted or collected has been deducted or collected and paid;

(III) withholding tax statements for the immediately preceding tax year have been filed and (IV) sales tax returns for the tax periods corresponding to relevant tax year have been filed.

The above credits will not preclude the provision of audit under section 214C and section 177, tax expert added.

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