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March 6, 2021

PM nods abolition of corporate tax exemptions

ISLAMABAD: Prime Minister Imran Khan has granted a green signal for abolishing of corporate income tax (CIT) exemptions probably through a legal amendment within the next few days to satisfy the IMF’s executive board, sources said on Friday.

“The government will table CIT amendment bill before the parliament in order to fetch Rs150 to Rs200 billion with effect from July 1, 2021,” sources said. “In order to satisfy the IMF’s executive board, the government will table the bill before the parliament that will pave the way for reviving the stalled Fund program under extended fund facility.”

Earlier, the economic team held a meeting at PM secretariat along with the premier whereby he granted green signal to abolish incorporate income tax exemptions. Then high-level meeting was held at FBR’s headquarters in which PTI’s economic ministers participated.

“To give confidence to the IMF’s executive board that the government has decided to do away with corporate sector income tax exemptions through finance amendment bill for the revival of the IMF program ahead of the coming budget 2021-22,” a top official confirmed with The News.

However, one top FBR official said if the exemptions are withdrawn in the current fiscal they would become effective from next fiscal year. International Monetary Fund’s staff considers them imperative to satisfy its executive board.

The working by the FBR shows that the corporate sector enjoys income tax exemptions up to Rs200 billion and it remains to be seen what quantum of exemptions would be abolished. The IMF team also inquired about income tax exemptions granted to Chinese companies under CPEC arrangement. Those are meant for 25 to 30 years therefore they cannot be withdrawn, Pakistani authorities told the IMF team.

Besides, the exemptions for independent power producers would also end after 30 years and both sides agreed that no further exemptions will be provided.

“Now the ball is in the government's court as to when Islamabad moves to fulfill the IMF conditions for the second review. Following this it is likely that the IMF board will grant approval for the release of a third tranche worth $450 million probably in March 2021,” an official said.

Important exemptions of corporate sector that can be abolished include tax credit for investment in balancing, modernisation and replacement of plant and machinery (corporate manufacturing sector) worth Rs65.168 billion, tax credit for enlistment in stock exchange worth Rs357 million, tax credit for newly established corporate industrial units (including corporate dairy farming) worth Rs5.573 billion, and tax credits for industrial undertakings established before the first day of July, 2011 worth Rs6.486 billion. It also includes the income tax exemption to the ECO Trade and Development Bank worth Rs495 million) and income tax exemptions to Pakistan Mortgage Refinance Company Limited worth Rs0.9 million.

Besides, the income tax exemptions on any income derived by sukuk holder in relation to those issued by “The Second Pakistan International Sukuk Company Limited” and the Third Pakistan International Sukuk Company Limited, cover any gain on their disposal. The move will cause an impact Rs2.7 billion to the Sukuk holders. Exemption impact of Rs 1.6 million on any income of an agency of a foreign government company, firm or association of persons, or any other non-resident person approved by the federal government for the purposes of this clause, from profit on moneys borrowed under a loan agreement or in respect of foreign currency instrument approved by the federal government. Agencies of foreign governments, foreign nationals or any other non-resident person approved by the federal government to have an impact of Rs6.5 billion, the income tax exemption to the collective investment schemes or a REIT schemes collective distributing over 90 percent of their incomes to certificate holders or shareholders to show an impact of Rs5.2 billion, income tax exemption available to the modarbas worth Rs425 million.