President Dr Arif Alvi promulgated “The Income Tax (Amendment) Ordinance, 2022” with a view to attracting foreign investment, promoting industries, and reviving sick industrial units in the country.

According to the Ordinance, the new sections 59C, 65H, and 100F were added to the Income Tax Ordinance 2001.

The Ordinance further stated that for the establishment of new industries, investors will have to pay a fixed tax of only five percent on the declared assets. The funds shown can only be used for purchase of plant and machinery, establishment of industry and profitable sick industrial units and those who are going in loss.

To encourage, the sick industry tax loss could be adjusted for the next three years.

Any eligible person under the new amnesty scheme would be required to file a statement by September 30, 2022, declaring the amount of funds for investment in a new company formed for establishing and operating an industrial undertaking.

According to the special provisions relating to investment for industrial promotion under the Income Tax (Amendment) Ordinance, 2022, the funds shall be deposited in rupees in a dedicated bank account in Pakistan as equity of the newly-formed company, incorporated under the Companies Act, 2017, before the filing of the statement and such funds shall only be used for purchase or import of plant and machinery through letter of credit or for construction of building and structure for the industrial undertaking.

The minimum amount, which would qualify for the purposes shall be Rs50 million.

The provisions of section 111 of the Income Tax Ordinance, 2001 shall not apply to the funds declared subject to fulfillment of conditions as laid down in this section and payment of an amount equal to five percent thereof, along with the statement filed.

The new industrial undertaking, in which, such investment is made shall commence commercial production by June 30, 2024 and a certificate to that effect, duly issued by the Engineering Development Board, is submitted to the commissioner along with the return filed for the tax year 2024.

Any amount of tax paid under this scheme shall not be refundable or adjustable against any other tax liability of the declarant. Where a declarant has paid tax in respect of funds declared, the declarant shall be entitled to incorporate the same in his wealth statement, financial statements or books of accounts, as the case may be.

The scheme shall apply, mutatis mutandis, to an existing company being an industrial undertaking, for investment in expansion and modernisation from amount of funds (which have not been declared in any of the returns of income up to tax year 2021 filed by December 31, 2021.

Provided that such company opens a dedicated bank account to deposit the said funds before the filing of the statement and such funds shall only be used for expansion and modernization by way of purchase or import of plant and machinery including IT hardware through letter of credit, or software and IT services or for construction of building and structure for the manufacturing premises of the existing industrial undertaking: The expansion and modernization shall be completed by the 30th June, 2024, and a certificate to that effect, duly issued by the Engineering Development Board, is submitted to the Commissioner along with the return filed for tax year 2024, Ordinance said.

The facility of tax credit would be available for foreign investment for industrial promotion. Where a taxpayer being a non-resident Pakistani citizen having continued non-residential status for more than five years; or a resident individual having foreign assets declared by December 31, 2021, invests in a company incorporated on or after March 1, 2022, to set up an industrial undertaking in Pakistan with equity, not less than Rs50 million, with funds remitted into Pakistan through proper banking channel as per the procedure to be prescribed by the State Bank of Pakistan, at any time up to December 31, 2022, that company shall be entitled to a one-time tax credit equal to 100 percent of the amount remitted and credited in rupees in the bank account of such company against tax liability for the tax year in which commercial production commences.

Where no tax is payable by the taxpayer in respect of the tax year in which the commercial production has commenced or where the tax payable is less than the amount of credit as aforesaid, the amount of the credit or so much of it as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the taxpayer in respect of the following tax year and so on, but no such amount shall be carried forward for more than five tax years in the case of investment; however, the deduction made under this section shall not exceed in aggregate the limit specified, draft Income Tax (Amendment) Ordinance, 2022 added.

This story was first published in Business Recorder on March 3, 2022.