Alvi signs ordinance to withdraw corporate tax exemptions

Published March 25, 2021
President Dr Arif Alvi has signed an ordinance to implement the withdrawal of corporate tax exemptions and rationalise taxes to comply with the conditionality of the International Monetary Fund. — DawnNewsTV/File
President Dr Arif Alvi has signed an ordinance to implement the withdrawal of corporate tax exemptions and rationalise taxes to comply with the conditionality of the International Monetary Fund. — DawnNewsTV/File

ISLAMABAD: President Dr Arif Alvi has signed an ordinance to implement the withdrawal of corporate tax exemptions and rationalise taxes to comply with the conditionality of the International Monetary Fund.

A senior tax official in the FBR told Dawn on Wednesday that the president has signed the ordinance, which will be released shortly.

The promulgation of the ordinance is one of the prior actions for the approval of the $500 million IMF tranche.

Earlier, Islamabad held out an assurance to the IMF to put in place the legislation in parliament before March 20 with an agreement that it will come into effect from July 1, 2021.

It was a requirement ahead of the IMF executive board meeting, which was yet to be notified.

The board can only approve the tranche when Islamabad puts in place the legislation as per the agreed deadline, which was now only possible through an ordinance.

According to the official, the bill was submitted in the National Assembly with a delay of two days when the lower house had already been prorogued.

The fund, however, was not willing to accept this excuse and asked Islamabad to promulgate the proposed measures through a presidential ordinance.

With the introduction of the ordinance, the decisions will come into effect immediately, which were earlier agreed to be effective from July 1, 2021. The revenue implication as per ordinance will be for three months and eight days of the tax year 2021.

The corporate income tax reforms are in line with recommendations of the IMF, which estimates it will generate revenue of Rs140 billion annually.

Meanwhile, the FBR will introduce the ordinance, which will be called the Income Tax (Second Amendment) Bill 2021, in the next session of the lower house, whenever convened.

With the introduction of the bill, it is likely that the bill will be approved with implementation from July 1, 2021.

The official said the ordinance is only meant for compliance with the fund deadline as agreed with the IMF. However, the fund has linked the approval of the tranche with the piece of legislation as assurance that Islamabad will not backtrack from its commitment.

The implementation of the tax exemptions implication from July 1 might not be an issue with the fund.

Under the proposed ordinance, the government will withdraw around 36 tax exemptions and streamline other corporate tax exemptions. There will be no blanket exemption for the non-profit organisations (NPOs). The tax credit will be given to NPOs based on compliance level.

Tax exemptions are replaced with tax credit for coal mining projects and IT exports. There will be no turnover tax for the IT sector anymore. The availing of tax credit is linked with mandatory filing of income tax and sales tax returns as well as submission of withholding statements.

There will be a tax credit for greenfield industrial undertakings, exemption of turnover tax on supply chain of locally manufactured mobile phones. No exemption for IPP projects from July 1, 2021. There is also a change in penalties for non-compliant taxpayers.

Published in Dawn, March 25th, 2021

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