To increase investments in the Voluntary Pension Scheme, the government is likely to extend time period for claiming tax credit for additional contribution in any registered Voluntary Pension Scheme (VPS) in the coming budget (2019-20). Sources told Business Recorder here on Friday that Federal Board of Revenue (FBR) is considering the budget proposals of the Securities and Exchange Commission of Pakistan (SECP) to facilitate investment in the VPS.
According to the SECP budget proposal, the extending the period of claiming tax credit on additional contribution in a registered Voluntary Pension Scheme for another ten years till 2019 will encourage persons exceeding age of forty-one years to save for retirement, help promote long-term saving culture and growth of institutional investors industry.
Under existing section (section 63 Contribution to an approved pension fund), an eligible person as defined in sub-section (19A) of section 2 deriving income chargeable to tax under the head "Salary" or the head "Income from Business" shall be entitled to a tax credit for a tax year in respect of any contribution or premium paid in the year by the person in approved pension fund under the Voluntary Pension System Rules, 2005. 2). The amount of a person's tax credit allowed under sub-section (1) for a tax year shall be computed according to the following formula, namely: - (A/B) x C where A is the amount of tax assessed to the person for the tax year, before allowance of any tax credit under this Part B is the person's taxable income for the tax year; and C is the lesser of - (i) the total contribution or premium referred to in sub-section (1) paid by the person in the year; or (ii) twenty per cent of the [eligible] person's taxable income for the relevant tax year; Provided that an eligible person joining the pension fund at the age of forty-one years or above, during the first ten years starting from July 1, 2006 shall be allowed additional contribution of 2% per annum for each year of age exceeding forty years. Provided further that the total contribution allowed to such person shall not exceed 50% of the total taxable income of the preceding year. "Provided also that the additional contribution of two percent per annum for each year of age exceeding forty years shall be allowed up to the 30th June, 2019 subject to the condition that the total contribution allowed to such person shall not exceed thirty percent of the total taxable income of the preceding year," added the section.
The proposed section by the SECP said: C is the lesser of - (i) the total contribution or premium referred to in sub-section (1) paid by the person in the year; or (ii) twenty per cent of the [eligible] person's taxable income for the relevant tax year; Provided that an eligible person joining the pension fund at the age of forty-one years or above, during the first ten years starting from July 1, 2006 shall be allowed additional contribution of 2% per annum for each year of age exceeding forty years. Provided further that the total contribution allowed to such person shall not exceed 50% of the total taxable income of the preceding year. "Provided also that the additional contribution of two percent per annum for each year of age exceeding forty years shall be allowed up to the 30th June 2019 subject to the condition that the total contribution allowed to such person shall not exceed thirty percent of the total taxable income of the preceding year."
(i) The total contribution or premium referred to in sub-section (1) paid by the person in the year; or (ii) twenty per cent of the eligible person's taxable income for the relevant tax year; Provided that an eligible person joining the pension fund at the age of forty-one years or above, during the first ten years starting from July 1, 2006 shall be allowed additional contribution of 2% per annum for each year of age exceeding forty years. Provided further that the total contribution allowed to such person shall not exceed 50% of the total taxable income of the preceding year. "Provided also that the additional contribution of two percent per annum for each year of age exceeding forty years may shall be allowed up to the 30th June, 2019 to 2029 subject to the condition that the total contribution allowed to such person shall not exceed thirty percent of the total taxable income of the preceding year, proposed budget proposal added.