Income Tax Ordinance, 2001: SECP directs Shariah compliant companies to meet criteria

The Securities and Exchange Commission of Pakistan (SECP) has directed the Shariah compliant companies to meet the criteria as prescribed in the Income Tax Ordinance, 2001 for availing tax rebate facility. The SECP has issued draft amendments to the Shariah Governance Regulations, 2018 here on Thursday through an SRO 755(I)/2019.
The existing Shariah Governance Regulations, 2018 do not talk about the tax rebate to the Shariah compliant companies. The SECP has also totally revised procedure on the disposal of Shariah non-compliant securities. The SECP has specified that the prevailing Shariah screening criteria of the Exchange for all shares Islamic index may be used only for the companies on the all shares Islamic index, and shall be replaced with the above criteria by 30th June 2020.
The SECP said that for purpose of availing tax rebate, the Shariah compliant companies referred in the first proviso shall meet the criteria as prescribed in the Income Tax Ordinance, 2001. Provided that the companies on PSX All Shares Islamic Index shall be deemed to be Shariah compliant till December 31, 2019, the SECP said. The SECP has also issued procedure for the disposal of Shariah non-compliant investments.
Under the plan, the Shariah compliant companies shall divest the Shariah non-compliant investments above 30 percent threshold within a period of one year or when the market value of the investment equals the cost of investment, whichever is earlier: Provided that the Commission may, for reasons to be recorded in writing and subject to such conditions or restriction as it may deem fit to impose on recommendation of the Shariah Advisory Board, relax any of the requirements of this regulation in case of any difficulty arises in giving effect to any of the requirements of this regulation in a particular case, or class of cases, the SECP said.
The SECP has further said that the collective amount raised as loan on interest whether long-term or short-term debt does not exceed thirty percent of the market capitalisation or total assets of the company, knowingly that raising loans on interest is prohibited whatsoever the amount is. The total amount of interest-bearing deposits and Shariah non-compliant investments, whether short-, medium- or long-term, shall not exceed thirty percent of the market capitalisation of total equity or total assets of company knowingly that interest taking deposits and investments are prohibited whatsoever the collective amount is, added the SECP.