Corporate Tax

The federal government can abolish Mehtab Haider’s corporate tax exemptions

ISLAMABAD: In order to revive the stalled IMF program, the government is considering adding another condition of the fund to abolish corporate tax exemptions with an estimated cost of around 150 to 200 billion rupees through a presidential ordinance.

“To give confidence to the IMF Executive Board that the government is considering abolishing corporate income tax exemption through a presidential ordinance,” to revive the IMF program ahead of the upcoming 2021-22 budget, a senior government official confirmed on the news here on Saturday evening. This ordinance will be part of the next Finance Act 2021-22 on the eve of the upcoming budget.

Now the revival of the IMF program is just around the corner, as the government had already raised the electricity tariff and the POL prices in recent weeks. The IWF and FBR teams conducted key online consultations during which the FBR found a corporate sector tax exemption valued at 150 rupees.

Rs 200 billion that could be withdrawn by regulation. However, a senior FBR official said that if the exemptions were withdrawn this fiscal year, they would take effect from the next fiscal year, but IMF staff believe they are essential to keeping their board happy.

The FBR’s work shows that the corporate sector enjoys income tax exemptions of up to Rs 200 billion, and it remains to be seen how many exemptions would be removed. The IMF team also inquired about income tax exemptions given to Chinese companies under the CPEC agreement. These are planned for 25 to 30 years and can therefore not be withdrawn, the Pakistani authorities informed the IMF team. In addition, the IPP exemptions would end after 30 years and both sides agreed that no further exemptions would be foreseen. “Now the ball is in the government court as to when Islamabad meets the IMF conditions for the second review. Following this, it is likely that the IMF board will approve the release of a third tranche, expected to be worth $ 450 million in March 2021, ”according to key official sources.

Important corporate sector exemptions that can be abolished were a tax credit for investments in offsetting, upgrading and replacing machinery and equipment (manufacturing sector) of Rs 65.168 billion, and a tax credit for listing on the stock market of Rs 357 million and a Rs 5.573 billion new industrial establishment tax credit (including dairy farming). Industrial enterprise tax credits established before July 1, 2011 are valued at Rs 6.486 billion. It also includes the exemption from income tax for ECO Trade and Development Bank of Rs 495 million and income tax exemption for Pakistan Mortgage Refinance Company Limited of Rs 0.9 million.

In addition, the income tax exemptions on any income the Sukuk holder earns in relation to the income paid by The Second Pakistan International Sukuk Company Limited and Third Pakistan International Sukuk Company Limited, including any gains on their sale. The move will have an impact of Rs 2.771 billion on the Sukuk owners. Exemption effect of Rs 1.66 million on the income of an agency of a company, a firm or an association of persons of a foreign government or any other non-resident approved by the federal government for the purposes of this clause from the profit from funds under a loan agreement or in relation to federal government-approved foreign currency instruments. Agencies of foreign governments, foreign nationals or other non-resident persons who have been approved by the federal government for an impact of Rs 6.557 billion, the exemption from income tax on the collective investment schemes or a collective REIT scheme that distributes over 90% of their income to certificate holders or shareholders who wish to prove an impact of Rs 5.228 billion receive a tax exemption for the Modarbas of Rs 425 million.

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