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ISLAMABAD: The government has granted income tax exemption to the Pakistan Mortgage Refinance Company Limited (PMRC).

According to the income tax circular 7 of 2021 issued by the Federal Board of Revenue (FBR), Pakistan Mortgage Refinance Company Limited has been recognised as a pass through organisation for improving the mortgage-refinancing situation in Pakistan and has been granted exemption from total income by including it in Table-I of clause (66) of Part-I of second schedule to the Ordinance.

The powers to grant exemptions and tax concessions shall also be available to the federal government in addition the existing powers of the Board.

According to the income tax circular 7, the section 53 provides for powers to grant exemptions and tax concessions.

These powers have been vested with the Board with the approval of federal minister in-charge, pursuant to the approval of the Economic Coordination Committee of the Cabinet (ECC).

The new Ordinance provides that such powers shall also be available to the federal government, in addition the existing powers of the board.

The FBR said that the section 111(4) provides exclusion from unexplained income or assets to any amount of foreign exchange remitted from outside Pakistan through normal banking channels not exceeding five million rupees en-cashed into rupees by a scheduled bank. The amendment through insertion of an explanation has now also treated remittances through Money Service Bureaus (MCBs), Exchange Companies (ECs), and Money Transfer Operators (MTOs) or other similar entities as foreign exchange remitted from outside Pakistan through normal banking channels. After a formal clarification from the SBP, Circular No 05 of 2021 was issued by the Board. Through this amendment, the board’s clarification has now been made part of legislation to facilitate foreign remittance and align the law with innovations that have taken place in the banking industry.

On reduced rate for steel sector, the circular number 07 states, the major concern of distributors, dealers, sub-dealers, wholesalers and retailers is the higher withholding tax rate on supply of goods that is 4.5 percent and minimum turnover tax rate that is 1.25 percent. Dealers, sub-dealers, wholesalers, and retailers of certain sectors have been incentivized by reduced rate of 0.25 percent under Section 153(1)(a). Through the New Ordinance, steel sector has also been included in the reduced rate sectors falling under clause (24C) of Part-II of the Second Schedule. Furthermore, steel sector has also been included in list of sectors in clause (24D) of Part-II of the Second Schedule for reduced rate of minimum tax on turnover. The reduced rate for steel sector shall be 0.25 percent under section 113 of the Ordinance.

On exemption from minimum tax, the circular states, in order to encourage and provide economic benefit to local manufacturing of mobile phones, manufacturers of locally produced mobile phone devices have been granted exemption from minimum tax on turnover by including the same in clause (11A), Part IV, Second Schedule to the Ordinance.

On substitution of word “assets” with Gross Advances, it states, in order to avoid any misinterpretation, the word “assets” has been replaced with “Gross Advances” in sub-rule (6A) of Rule 6C of Seventh Schedule.

The taxable income of a banking company attributable to investment in the federal government securities is taxable at the rates provided in sub-rule (6A) according to the gross advances to deposit ratio as on last day of the tax year.

On enhanced scope of donations for claiming tax credit, the circular states, all entities mentioned in Table I of clause (66) of Part I of Second Schedule are exempt from total income. These organisations have also been included in the Thirteenth Schedule to the Ordinance. Donations paid to these organizations shall now be eligible for claiming tax credit.

This is an explanatory circular and in case of any conflict between the circular and the letter of the law, the latter would prevail, it concluded.

Copyright Business Recorder, 2021

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