According to an FBR official, an ordinance to implement the withdrawal of corporate tax exemptions and rationalize taxes to meet the conditionality of the International Monetary Fund has been signed by President Dr Arif Alvi and will be released shortly.
The promulgation of the ordinance was a necessary precondition that needed to be met for the approval of the $500 IMF tranche.
Earlier, Finance Minister Dr Abdul Hafeez Shaikh had presented the Income Tax (Amendment) Bill, 2021, in the Upper House of the Parliament after necessary approval from the federal cabinet. “We are going to withdraw some tax exemptions for the corporate sector” to generate more revenue’’, the minister had said.
However, the IMF loan tranche could only be approved if Islamabad put the legislation to withdraw the corporate tax exemptions in parliament before March 20 with an agreement that it will come into effect from July 1, 2021.
The bill was submitted in the National Assembly with a delay of two days when the lower house had already been suspended, according to the reports. But the funding body refused to accept this excused and asked for promulgation of the proposed measures through a presidential ordinance.
The decisions which were to be effective from July 1, 2021 will now come into effect immediately after the introduction of this ordinance. The revenue implication will be for three months and eight days of the tax year 2021 as per the ordinance.
The approval of the loan tranche has been linked with the piece of legislation by the fund to ensure that Islamabad does not backtrack from its commitment.
The government plans to withdraw around 36 tax exemptions and streamline other corporate tax exemptions under this ordinance. No blanket exemption will be given to the non-profit organizations (NPOs). The tax credit will be given to NPOs based on compliance level.
Coal mining projects and IT exports would receive tax credits instead of tax exemptions. There will be no turnover tax for the IT sector anymore. The availing of tax credit is connected with mandatory filing of income tax and sales tax returns as well as submission of withholding statements.
Greenfield industrial undertakings are also set to receive tax credit and turnover tax on supply chain of locally manufactured mobile phones would be absolved. No exemption for IPP projects from July 1, 2021. There is also a change in penalties for non-compliant taxpayers.