The Federal Board of Revenue (FBR) has announced that the investment opportunity offered to the foreign and local investors under the industrial package is not an amnesty scheme, but it is a conditional tax concession.
The FBR has issued circular number 13 of 2022 to explain the industrial package introduced through the Income Tax (Amendment) Ordinance, 2022, (the Amendment Ordinance) which has brought about certain amendments in the Income Tax Ordinance, 2001.
The FBR explained that in order to provide an incentive for industrial promotion, section 65H has been inserted in the Income Tax Ordinance whereby all non-resident Pakistani citizens having a non-resident status for more than five years and resident Pakistani citizens can avail the benefit of one hundred percent one-time tax credit equal to the amount invested as equity from foreign exchange remitted into Pakistan through normal banking channel in a dedicated rupee account opened by a company incorporated on or after March 1, 2022, to establish an industrial undertaking.
The said industrial undertaking is required to commence its commercial production by June 30, 2024, and tax credit shall be available for adjustment against tax payable for the year in which commercial production commences and can be carried forward, if unadjusted, upto a period of maximum five years. The resident person can remit foreign exchange into Pakistan out of declared assets in terms of section 116 or 116A of the Ordinance. The minimum equity investment to avail benefit under this section shall be Rs. 50 million and procedure for remittance of foreign exchange into Pakistan shall be laid down by State Bank of Pakistan, FBR said.
According to the FBR, the scheme offered under this section will not be applicable to a company or an industrial undertaking established by splitting up or reconstitution of a company or an industrial undertaking already in existence or by transfer of machinery or plant from an industrial undertaking established at any time before March 1, 2022
In order to promote industrialization in the country, immunity from probe under section 111 of the Ordinance has been granted on equity investment made by eligible persons in a new company formed for establishing an industrial undertaking or to an existing company being an industrial undertaking (for investment in expansion and modernization) after paying an amount of tax equal to five percent on such investment and upon fulfilling other conditions as mentioned in this section.
The amount of undeclared funds for investment has to be credited into a dedicated bank account of such company before the due date of filing of statement i.e. September 30, 2022, and can only be used either for purchase or import of plant and machinery including IT hardware through a letter of credit or software and IT services, or for construction of building and structure in case of the new industrial undertaking and construction of only manufacturing premises in case of an existing unit.
The term modernization has been defined in this section which includes the acquisition or up-gradation of IT hardware, software and IT services. The minimum qualifying equity investment to avail benefit under this section is Rs. 50 million. The tax paid under this section is not refundable or adjustable against any other tax liability of the company and the declarant will be entitled to incorporate the amount of declared funds in his wealth statement, financial statements, or books of accounts as the case may be.
The industrial undertaking established under the provision of this section, as the case may be, will have to commence its commercial production by the June 30, 2024, and a certificate issued by the Engineering Development Board to that effect is required to be furnished by the company with the income tax return for the tax year 2024.
In case of misrepresentation or suppression of facts, the statement filed under sub-section (1) will be treated as void ab-initio and all the provisions of Income Tax Ordinance, 2001 will apply accordingly. It is emphasized that the investment opportunity offered to investors under this section is not an amnesty scheme. Rather, it is a conditional tax concession. This is an explanatory Circular and in case of any conflict between the Circular and the letter of the law, the latter would prevail, FBR added.
Source: Pro Pakistan
