Rising sectors and industries: Big selection of tax exemptions withdrawn

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The general's

ISLAMABAD: The government has withdrawn a wide range of income tax exemptions for the emerging sectors and industries including the IT sector. Exemption from profits and gains made by LNG Terminal Operators and Terminal Owners and Exemption available to Pakistani Mortgage Refinancing Company under Tax Law Ordinance (Second Amendment) of 2021.

According to the comments of renowned tax expert Ashfaq Tola on the Tax Law Ordinance (second amendment) of 2021, once approved by the Cabinet at the session of the National Assembly, the government is likely to introduce a finance law called the Tax Laws (first amendment) Act of 2021 which proposes withdrawing / tightening most of the exemptions in the 2001 Income Tax Ordinance from July 1, 2021.

The withdrawal of exemptions came as part of the ongoing negotiations with the IMF to withdraw income tax exemptions worth Rs 140 billion.

The tax expert stated that the government had withdrawn a number of clauses from Part I of the second appendix (Exemption Plan) to the Income Tax Ordinance.

The government has withdrawn the exemption from any gain from the transfer of capital assets as a member’s membership right of an existing exchange for the acquisition of stocks and trading or clearing rights that member acquired on a new corporation during the course of the corporation existing exchange.

The government has also withdrawn the income exemption to be levied under the heading “Capital Gains” of an individual in an industrial company in an area designated by the federal government as a “zone” for the purposes of the Export Processing Zones Authority Ordinance, 1980.

The Sheikh Sultan Trust, Karachi, derived exemption from income from voluntary contributions, home ownership and investments in federal government securities has been withdrawn.

The profit exemption from debt payable to a non-resident has also been withdrawn.

The Ordinance has withdrawn the exemption from income received by the Sukuk holder in respect of Sukuk from The Second Pakistan International Sukuk Company Limited and The Third Pakistan International Sukuk Company Limited, including any gains on the sale of such Sukuk . The regulation has withdrawn the exemption from profit on debt held by Hub Power Company Limited on its bank deposits or accounts with financial institutions from financial institutions directly related to financial transactions directly related to the operation of the project.

The ordinance withdrew the exemption from profit on debt of an industrial company in Pakistan for funds loaned under a loan agreement entered into with a licensed financial institution overseas and funds loaned to it overseas in relation to the purchase of capital investments and machinery outside of Pakistan in any event where the loan or debt is approved by the federal government, taking into account its general and particularly its payment terms, out of a majority of the tax payable on it than exceeds the tax or tax on income on such interest be paid abroad.

The ordinance withdrew the exemption from debt gains made by a person on bonds issued by the Pakistan Mortgage Refinance Company to refinance the residential mortgage market for a period of five years with effect from July 1, 2018.

The ordinance has exemption from income from a provincial textbook committee established under a current law and exemption from income received from a board of directors or other organization established by the government of Pakistan for the purpose of control, regulation, or promotion major games and sports recognized by the government.

The ordinance has exemption from income other than income from manufacturing or trading activities from a Modaraba registered under the Modaraba Business and Modaraba Ordinance (Floatation and Control) 1980 and exemption from profits and gains obtained between July 1, 2000, withdrawn and registered on June 30, 2024 by a venture capital company and venture capital fund registered under the Rules for Venture Capital Companies and Fund Management, 2000, and a private equity and venture capital fund.

The ordinance has exemption from distributions made by a taxpayer from any collective investment scheme registered by the Pakistani Securities and Exchange Commission under the Regulations for Non-Bank Financial Entities and Notified Entities, 2007, including the National Investment (Unit) Trust or REIT Scheme has received, withdrawn or a private equity and venture capital fund from the capital gains of said schemes or trusts or funds.

The ordinance has withdrawn the exemption from dividend income generated by a company if the recipient of the dividend for the tax year is entitled to group relief in accordance with Section 59B. Exemption from income received by the Libyan Arab Foreign Investment Company as a dividend from the Pak Libya Holding Company and exemption from income received from the Government of the Kingdom of Saudi Arabia as a dividend from the Saudi Pak Industrial and Agricultural Investment Company Limited.

Copyright Business Recorder, 2021