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FBR seeks to explain income tax amendments

July 18, 2010

ISLAMABAD, Jul 17 The Federal Board of Revenue (FBR) has explained the salient features of the important amendments made in the Income Tax Ordinance 2001 through Finance Act 2010.In a new circular issued on Friday the FBR stated that the Capital Value Tax (CVT) is no more chargeable under section 7 of the Finance Act, 1989 on immovable properties with effect from July 1.

Consequent upon amendment in the Federal Legislative List of the Constitution through the 18th Amendment, the federal government is no more empowered to levy or collect CVT on immovable properties located in provinces.

With regard to taxability of interest free or concessional loans a proviso has now been added under sub-section (7) of section 13 whereby such benefit will not be taxable in the hands of an employee in cases where such benefit is extended by the employer due to the waiver of interest by such employee on his account including provident fund, maintained with the employer.

In order to encourage companies for investment in balancing, modernisation and replacement (BMR) of the already installed plant and machinery in an industrial undertaking set up in Pakistan and owned by such company under the provisions of newly inserted section 65B, 10 per cent rebate in income tax payable for the tax year in which such plant and machinery is installed, will be admissible if such investment is made in the purchase and installation of plant and machinery at any time between July 1, 2010 and June 30, 2015.

In case where investment in purchase of machinery and completion thereof do not occur in the same tax year, such tax rebate will be admissible in the tax year of installation of such plant and machinery.

To encourage companies for enlistment in any registered stock exchange in Pakistan, a new section 65C has been introduced through Finance Act 2010, in the Income Tax Ordinance 2001, whereby companies opting for enlistment will be entitled to the benefit of 15 per cent credit on tax payable in the tax year of its enlistment.

Through Finance Act 2010, a new sub-section (2A0 in section 87 of the Income Tax Ordinance 2001, has been inserted whereby any liability under the Income Tax Ordinance 2001, outstanding against a deceased person will be the first charge on the estate of such deceased person, in preference to any other outstanding liability of the deceased.

Under the Income Tax Ordinance 2001, any unexplained amount or investment, on discovery, was required to be added to the income of the taxpayer in the financial year preceding immediately to the year of such discovery. An amendment has been made through the Finance Act 2010 to add such unexplained amount or investment be taxed in the year to which it pertained.

Changes have also been made in minimum tax regime, under which rate of minimum tax has been enhanced from 0.5 per cent to 1 per cent and minimum tax will be applicable where a loss is suffered under the conditions under sub-section (1) of section 113.

Also in the case of an association of persons having turnover of Rs50 million or above in the tax year 2007 or in any subsequent tax year will also be liable to pay minimum tax on turnover at 1 per cent of their turnover; and an individual having turnover of Rs50 million or above in the tax year 2009 or in any subsequent tax year will also be liable to 1 per cent tax on the turnover.

Amendments have also been made in the Income Tax Ordinance in relation to assessments aimed at streamlining the functions of assessment for safeguarding revenues.

In order to safeguard the interest of revenue in cases of bankruptcy, a new section in the Income Tax Ordinance 2001 has been introduced through which if a taxpayer is declared bankrupt, his income tax liability will be passed on to the taxpayer estate in bankruptcy.

Through a new amendment, an individual taxpayer with annual turnover of Rs50 million or above will also be required to act as withholding agents responsible to withhold advance tax under the various provisions of income tax law.

Through a new section, FBR has been empowered to select person or classes of persons for audit through random or parametric computer ballot. Clause (b) of section 226, has been substituted to provide for exclusion of the period from the period of limitation for assessment purposes, for which proceedings for a taxpayer remained stayed or pending before any court, appellate tribunal or any other authority.