Tax exemptions to be withdrawn through ordinance

KARACHI: The government has decided to withdraw various income tax exemptions through a presidential ordinance instead of presenting a bill in the national assembly, sources said on Tuesday.

The sources said the government strongly desires to bring out the law prior the upcoming International Monetary Fund’s board decision likely on March 24 for approving and releasing the third tranche of $500 million.

The approval of the third tranche related to $6 billion extended fund facility is subject to various conditions to be met by Pakistani authorities.

Previously, the government was to present the bill before the parliament for debate. However, the current government under pressure from opposition parties in the fragile economy cannot afford to delay implementation of its measures.

The sources said three major bills including reforms in corporate income tax, state-owned enterprises and autonomy of the State Bank of Pakistan were to be presented before the parliament.

They said as far as law related reform in corporate income tax is concerned it would be promulgated through the presidential ordinance. They further said the ordinance might be promulgated by end of this week, they added.

The withdrawal of tax exemptions is estimated to generate Rs140 billion during the next fiscal year.

The sources said about 77 proposals are under consideration for withdrawal of tax exemption available under the Income Tax Ordinance 2001. They said that most of the tax exemptions were already expired or exemptions available would be shifted to tax credit.

An estimated impact of all the proposed exemption withdrawal is around Rs140 billion. However, this amount may not yield as revenue generation for the Federal Board of Revenue (FBR).

The sources said exemption granted to non-profit organisations under the Income Tax Ordinance 2001 was around Rs65 billion. But the exemptions granted to this segment are scattered places in the Ordinance. It was proposed a new schedule might be introduced for bringing all the relevant exemptions to NPOs at one place. Further, the revenue impact may also be nominal because many exemptions would be converted to tax credit.

The sources said the proposed Income Tax (Second Amendment) Ordinance, 2001 may clean up the tax ordinance from redundant provisions, where tax exemptions had already been availed and expired.

They said the presidential ordinance that may be promulgated by the end of this week would be made part of the finance bill 2021.

The sources said the FBR is working on a comprehensive framework for elimination of tax exemptions in main statutes that are not equitable. Such proposals may be finalised for the upcoming budget 2021/22.