FBR opposes extending tax credit for new industrial units

KARACHI: The Federal Board of Revenue (FBR) has opposed extending tax concessions for setting up new industrial units beyond June 30 after identifying gross misuse of the facility, sources said on Thursday.

The sources said under section 65D of the Income Tax Ordinance, 2001 a tax credit is available to corporate industrial units, including corporate dairy farming.

The sources said an amount of Rs5.57 billion was granted as tax concession during the tax year 2020 for newly established industrial undertakings.

They said several misuses of exemption/concession claims under section 65D of the Income Tax Ordinance, 2001 by industrial undertakings had been detected in recent years. In one case, an existing industrial undertaking took the guise of a new industrial undertaking to claim the tax credit. The FBR on the directives of the federal government started withdrawing tax exemptions and concessions granted under Income Tax Ordinance, 2001 to make the taxation system equitable.

In a recent meeting chaired by the Prime Minister Imran Khan, the FBR proposed withdrawal of many provisions of the ordinance related to exemption and concession. The FBR proposed to omit the tax credit provision available to newly established industrial undertakings that is expiring on June 30 this year.

The tax credit available under the provision is for five years from the date of setting up the new industrial unit. The sources said those who claim the tax credit or set up a new unit by June 30 would be able to avail the concessions for next five years.

The provision for the grant of tax credit was introduced through the Finance Act, 2011 for next five years. However, it was extended to June 30, 2019 and then further extended up to the current deadline.

This tax credit is available to an industrial undertaking that is managed by a company formed for operating the industrial undertaking and registered under the Companies Ordinance, 1984 and having its registered office in Pakistan.

Further, the industrial undertaking is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an industrial undertaking established in Pakistan.

The sources said the concession may be withdrawn through legislation expected by the end of this week.

The FBR granted an amount of Rs378 billion as income tax exemption and concession during tax year 2020. Out of the total income tax exemption and concession the component of tax credits through various provisions of the ordinance was Rs104.5 billion during the year.