Definition of IT and IT-Enabled Services Changed in Amended Finance Bill

The Federal Board of Revenue (FBR) has expanded the scope of the definition of IT and IT-enabled services.

The board has also reduced the turnover tax for Oil Marketing Companies (OMCs) from 0.75 percent to 0.5 percent through an amendment in the Finance Bill 2022.

According to the explanation of the amended Finance Bill 2022 by a tax expert, the IT Services and IT-enabled Services Clauses (30AD) and (30AE) define IT services to include software development, software maintenance, system integration, web design, web development, web hosting, and network design.

The IT-enabled services are defined to include inbound or outbound call centers, medical transcription, remote monitoring, graphics design, accounting services, human resource (HR) services, telemedicine centers, data entry operations, cloud computing services, data storage services, locally produced television programs, and insurance claims processing.

The amended bill has now provided that the definition of IT and IT-enabled services shall not be limited to the above-mentioned services only. This means any other like service shall also be deemed to be covered under the definition of IT and IT-enabled Services.

Section 148 provides for the deduction of taxes at different rates on different specified products. Moreover, Section 148 also provides that taxes that are required to be deducted by industrial undertakings at the rates of 1 percent and 2 percent shall be adjustable.

The bill proposed that the tax required to be collected by an industrial undertaking under section 148 will be adjustable irrespective of the rate at which such collection is required.

The bill also proposed that the tax required to be collected on the import of the following items will be treated as minimum tax including edible oil, packaging material, paper and paper board, or plastics.

The bill also proposed to increase the advance tax rate from 2 percent to 4 percent for commercial importers. The bill also proposed that tax deducted at import stages in case of importers other than Industrial Undertaking shall be final tax instead of minimum tax. The amended bill has withdrawn the proposed amendment concerning final tax and has again made it a minimum tax.

Section 21(l) of ITO provides that a business expense of any person shall not be allowed if paid through any means other than through crossed banking instruments from the business bank account of the taxpayer. The bill proposed to amend the above clause and has also introduced another clause (la), whereby, payments of business expenses by companies through digital means from the business bank account of the taxpayer notified to the Commissioner have been made compulsory for the claim of such expenses.

All other exceptions to the above restrictions are still proposed to be applicable. The exceptions are for expenses under a single account head not exceeding Rs. 1,000,000 aggregate in a year, expenditures on account of utility bills, freight charges, travel fare, postage, and payment of taxes, duties, fees, fines, or any other statutory obligation.

The amended bill has reduced the threshold of an aggregate expense under one single account head from Rs. 1 million to Rs. 250,000. The amended bill has also excluded expenditures not exceeding Rs. 25,000 from these provisions.

Clause (9A) provides that the amount of tax payable on income chargeable under the head, “Capital Gains” on disposal of immovable property shall be reduced by 50 percent on the first sale of immovable property (75 percent in case of after 3 years) acquired or allotted to ex-servicemen and serving personnel of Armed Forces or ex-employees or serving personnel of federal and provincial governments, being original allottees of the immovable property, duly certified by the allotment authority. The bill proposed to withdraw the above exemption. However, the amended bill has restored the exemption.

Section 177 provides that after completion of the audit of a taxpayer, the commissioner shall issue an audit report after obtaining the taxpayer’s explanation of all the issues raised in the audit. Section 177 also provides that after issuing the audit report, the commissioner will provide an opportunity of being heard to the taxpayer before amending the assessment order. The bill proposed to withdraw the requirement of issuing the audit report. The amended bill has now withdrawn the above proposal, commentary added.

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