ISLAMABAD: The federal government has exempted profit on debt and capital gains from debt and debt instruments from tax chargeable derived by any non-resident banking company, well informed sources told Business Recorder.

Sharing the details, sources said, Ministry of Finance (Revenue Division) in its summary tabled before the federal cabinet on February 22, 2023 apprised that the Seventh Schedule to the Income Tax Ordinance, 2001 (‘the Ordinance’) was a self-contained code which provided for computation and chargeability of income, profits and gains of a banking company, whether resident or Permanent Establishment (PE) of a non-resident.

Presently, Seventh Schedule does not contain any provision for grant of exemption on any income, profits and gains to a banking company and its rule 8 further places a bar on a banking company from availing exemptions under the 2nd Schedule to the Ordinance.

The Cabinet was informed that in order to cater for any future eventuality whereby federal government could seek foreign commercial loan from non-resident banking company having its branch (PE) in Pakistan on terms and conditions that may include grant of exemption on income, profits and gains to the extent of such commercial loan, rule 8 of Seventh Schedule to the Ordinance was required to be amended by insertion of sub rule.

The sources further stated that the federal government was empowered under rule 10 of the Seventh Schedule to the Ordinance to add, modify or omit any entry in the said Schedule through notification in the Official Gazette.

The following entry may be inserted under rule 8 to the Seventh Schedule: “profit on debt and capital gains from debt and debt instruments approved by the federal government shall be exempt from tax chargeable under this Ordinance, derived by any non-resident banking company approved by the federal government for the purpose of this sub-rule.”

Ministry of Finance had accorded its concurrence vide communication No. F 3(1) EF (FCM)/ 202L of February 22, 2023 to FBR for the insertion of above sub-rule (4) in rule 8 of Seventh Schedule to the Ordinance. Relevant draft SRO for inserting the sub-rule in rule 8 of Seventh Schedule to the Ordinance was also shared with the Cabinet.

The Cabinet considered the summary titled ‘insertion of new sub-rule (4) in rule 8 of Seventh Schedule to the Income Tax Ordinance, 2001’ of February 22, 2023, submitted by the Revenue Division and approved the proposal.

The Cabinet authorized the Special Secretary, Cabinet Division to issue the decision in the instant case without waiting for the formal approval of the minutes.

Copyright Business Recorder, 2023