The PM approved the withdrawal of 80 income tax exemptions | Instant News


ISLAMABAD:

Prime Minister Imran Khan on Friday approved the introduction of a Money Bill in the National Assembly next week to attract some 80 income tax exemptions and reform tax laws to meet earlier measures to revive the $ 6 billion International Monetary Fund (IMF) program.

The IMF has asked Pakistan to attract Rs140 billion worth of income tax exemptions through the new law but the exact amount can only be determined after the government officially issues the bill in the National Assembly.

The 2021 Income Tax Bill (Second Amendment) will seek to streamline the tax regime for non-profit organizations, list of companies on the stock market, exemptions for oil refineries, special economic zones (SEZs) being set up under the China-Pakistan Economic Corridor and Independent Power Producers (IPPs) ), a source in the Prime Minister’s Office told The Express Tribune.

A National Assembly session will be held next week to introduce the bill, the sources said. Prime Minister Imran Khan chaired a meeting to review this exemption, which was followed by another meeting at the Federal Revenue Council (FBR), sources added.

On input from Nadeem Baber, the prime minister’s special assistant in petroleum, it has been decided that several exceptions will continue, including depreciation allowances for oil exploration and mineral production and refining companies, sources close to SAPM said.

Pakistan and the IMF reached a staff-level agreement last month for approval of a second to fifth review and the release of a further $ 500 million tranche of the loan, subject to fulfillment of certain conditions.

To revive a stalled bailout program, the IMF has placed previous conditions for raising electricity rates, introducing new bills and lifting income tax exemptions.

The prime minister took the decision to introduce the bill a day before he placed a vote of confidence. However, he rejected a proposal to slap Rs4 per kg of federal excise duty (FED) on imported LPG, aiming to take this proposal into the main budget.

In the future, tax incentives will not be used as an instrument to attract investment, said a member of the federal cabinet.

The goal of tax reform is to create a simple tax code, close gaps in the system, reduce the authority of tax collectors and tax practitioners and introduce automation to ensure the transparency of the tax system, said Prime Minister Imran Khan.

The prime minister further stated that the tax regime should be reformed and structured in a way that facilitates business and helps economic growth.

FBR estimates total tax exemption costs of Rs1.15 trillion, including income tax exemptions of Rs378 billion. Exemption from total revenue was Rs212 billion and tax credit fees were Rs104.5 billion.

Big exception

In a major decision, the government has decided that the available income tax exemptions for IPP will be lifted in the future. The existing IPP will continue to take advantage of the exemption due to sovereignty guarantees that cost the national cat Rs27 billion last year.

Likewise, the tax credit for investment in rebalancing, modernization and replacement of factories and machinery by the manufacturing sector which caused a revenue loss of Rs65 billion last year will not be extended beyond June 30.

The tax exemptions available for the Real Estate Investment Fund will be withdrawn, the source said. Last year, the revenue loss was Rs 5.3 billion. In another important step, the source said, the tax credit for new company listing on the stock market was proposed to be withdrawn.

The concession income tax regime, which is available for the prime minister’s low-cost housing scheme will be available until June 2024 and any projects to be prepared after that will not be entitled to claim concession rates, the source said.

It was decided that the income tax exemption available for refining investment would continue at the end of this calendar year. The decision to continue this concession for another nine months was taken to get time to finalize an oil refinery deal with Saudi Arabia, the sources said.

Several major changes will also be proposed to streamline the SEZ tax regime, export of information technology services, the Sindh coal mining project and start-up projects, the sources said.

The NPO regime will be reformed to stop tax evasion by the NPO sector. Instead of claiming tax spending, these NPOs will be given a tax credit, said the source. It was also decided that the direct deductions paid to NPOs would be withdrawn. However, the same tax credit with exemption waived will be offered.

Likewise, tax expenditures claimed on donations paid to the Prime Minister’s Special Fund for Victims of Terrorism, the Flood Assistance Fund, to the Chief Minister’s Assistance Fund (Punjab) for Internally Displaced Persons (IDP), will be withdrawn. But donors can claim tax credits.

The source stated that it was decided that the income tax exemption on the income of Sukuk holders from the Sukuk issued by Pakistan International Sukuk Company Limited Second and Third would be withdrawn.

Income tax exemption available for sports boards and reduced rates for Pakistan Cricket Board can be withdrawn. Likewise, the exemption of income from modarba, other than manufacturing or trading mode, can be withdrawn. The film industry’s income tax regime may also undergo changes, the sources said.

Pakistan will take an additional revenue measure of 1.4% of its economic size or more than Rs700 billion to reach a tax collection target of around Rs6 trillion in the next fiscal year under the IMF deal.

FBR will need to raise an additional Rs 1.3 trillion in the next fiscal year, including more than Rs 700 billion through additional revenue measures. The remaining Rs600 billion is expected to be collected on the existing revenue base.

FBR’s authority to declare each sector or industry an industrial venture, and a first-year allowance of 90% of factory and machinery costs for mobile phone manufacturers could also be withdrawn, the sources said. The source said the government could withdraw the available income tax exemption for the Sheikh Sultan Trust, Karachi.



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