The Federal Board of Revenue (FBR) has conveyed to the IT services or IT-enabled services that no tax has been imposed on the IT sector under the Income Tax Second Amendment Bill 2021.
Senior FBR officials were responding to the queries and concerns of the IT sector regarding the replacement of the income tax exemption with the tax credit scheme under the proposed Bill 2021.
They said that the IT sector should not be worried about the new tax credit regime due to the following reasons:
FBR officials told ProPakistani that the IT sector would not be required to pay any kind of 29 percent income tax. The IT sector has also been exempted from payment of 1.5 percent turnover tax or minimum tax applicable to the exempt entities. This would enable many sectors to avail tax credits in their income tax returns.
The IT sector would not be required to pay any tax on exports like other sectors which are paying one percent tax on exports of goods. The IT sector would not be bound to pay any such kind of tax at the export stage.
They said that the biggest concern of the IT sector is documentation and interaction with the FBR’s field officials for claiming 100 percent tax credit.
Responding to this, senior FBR officials told Propakistani that the IT sector would be required to follow only 2-3 basic documentary requirements. To avail 100 percent tax credit, they would file their income tax return, wealth statement, and monthly sales tax returns already filed or required to be filed, if necessary.
FBR officials stated that no heavy documentation is required for the IT sector.
They dispelled the impression that every Commissioner Inland Revenue would issue notices to the IT services or IT-enabled services providers without any reason.
Meanwhile, according to the comments of leading tax expert Ashfaq Tola on the proposed Income Tax Second Amendment Bill 2021, the 100 percent tax credit would be allowed to the IT services or IT-enabled services after fulfillment of certain conditions including the filing of returns/withholding tax statements under the proposed bill.
A new section 65F is proposed to be inserted in the Income Tax Ordinance 2001, whereby income of following taxpayers shall be allowed a tax credit equal to 100 percent of the tax payable including minimum and final taxes as follows:-
- Persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects; [Previously in Clause 132A of Part 1 of Second Schedule. now proposed to be omitted under the new Bill].
- A startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the following two tax years; [Previously in Clause 143 of Part 1 of Second Schedule of the Income Tax Ordinance 2001].
- Persons deriving income from exports of computer software or IT services or IT enabled services up to the period ending on June 30, 2025. Provided that eighty percent of the export proceeds are brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.
According to the proposed law, an explanation has been added in the new section of the Income Tax Ordinance 2001.
For the purpose of this clause, i. “IT services” include software development, software maintenance, system integration, web design, web development, web hosting, and network design; and ii. “IT-enabled services” include inbound or outbound call centers, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally produced television programs, and insurance claims processing. [Previously in Clause 133 of Part 1 of Second Schedule.]
Ashfaq Tola explained that the said tax credit shall be available subject to fulfillment of the following conditions:
- The return has been filed;
- The tax required to be deducted or collected has been deducted or collected and paid;
- Withholding tax statements for the immediately preceding tax year have been filed
- Sales tax returns for the tax periods corresponding to the relevant tax year have been filed.
The above credits will not preclude the provision of audit under section 214C and section 177, the tax expert added.