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Income Tax (Amendment) Ordinance 2022

Income Tax (Amendment) Ordinance 2022

Pakistan’s President has promulgated the Income Tax (Amendment) Ordinance, 2022, to amend the Income Tax Ordinance, 2001.

By incentivizing capital investment in a variety of industrial sectors, this incentive package is intended to boost job creation and economic activity in Pakistan.
A Promotion Package for Industry (PPI) was approved by the Federal Cabinet on March 1, 2022. It provides tax incentives for:

  • Investment in New & Existing Industrial Undertakings;
  • Revival of Sick Units.
  • Investment in Industries by overseas Pakistanis and resident Pakistanis (Who already have declared Foreign Assets).

This article explores the latest Amnesty Scheme or Income Tax Ordinance, 2022,  dives deep into what new opportunities it offers to new and existing investors in Pakistan.

1. Tax Immunity Scheme for Equity Investment:

Investments in corporate undertakings are entitled to tax immunity by paying 5 percent tax on funds not declared in tax returns until the end of tax year 2021 (filed by December 31st of that year).

New undertaking

  • As equity of the newly formed company, the funds approved in the statement (not less than Rs 50 million) should be deposited in Pakistani rupees in a dedicated bank account pursuant to the Companies Act, 2017 (XIX of 2017). 
  • The funds will only be used to purchase, import, or construct buildings or structures for the industrial undertaking, before the filing of the statement.
  • Establishing a new industrial undertaking should not involve dividing, reconstructing an existing undertaking, nor should machinery or plant be transferred from one already established in Pakistan.
  • Investments in such industrial undertakings must begin commercial production by June 30, 2024, and an Engineering Development Board certificate stating that fact must be filed with the Commissioner along with the tax return for the tax year 2024.

Existing undertaking

  • A company that invests in an existing industrial undertaking should open a bank account (not less than Rs 50 million) to deposit the funds declared.
  • By June 30, 2024, the expansion and modernization will be finished, and a certificate certifying this will be submitted to the Commissioner along with the tax return for the year 2024.

2. Carry Forward Of Business Losses Of Sick Industrial Units

Section 59C of the act provides provisions for adjusting/carrying forward business losses of a sick industrial unit.

 

  • The acquiring company continues to own the property for five years starting on June 30, 2023, and their share capital does not change;
  • The company’s assets may not be sold until June 30, 2026;

 

  • In the meantime, the acquired company will continue to do business as usual until June 30, 2026.

 

A company acquiring an industrial unit must revive it by 2026. If an acquired company achieves its maximum production capacity before the company became ill, it shall be deemed to have been revived provided that the acquired company submits a certificate to the effect that it has been revived, duly issued by Engineering Development Board, along with the return of income for the year 2026.

3. Tax Credit For Foreign Investment By Pakistani Citizens For Industrial Promotion

  • To promote foreign investment through industrial promotion, a new one-time tax credit is being introduced:
  • Citizens of Pakistan who are either non-residents for more than five years; or
  • As of December 31, 2021, all residents who have declared foreign assets in their respective wealth statements and foreign income and asset statements.

These taxpayers are eligible for the tax credit if they:

  • Form a company before or after  March 1, 2022;
  • In any case up to December 31, 2022, establish an industrial undertaking in Pakistan by investing not less than Rs. 50 million in equity from foreign funds remitted into Pakistan through a proper banking channel as per the procedure prescribed by the State Bank of Pakistan.
  • Commercial production will begin before June 30, 2024.

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We tried to explain the New Amnesty Scheme proposed by the Government of Pakistan. The Income Tax (Amendment) Ordinance, 2022 offers amnesty to new investors and entrepreneurs. If you still have any questions in mind, please contact us on 0302-6644789 or send us an email at [email protected]. We look forward to assisting you with all the corporate matters like Company Registration, Trademark Registration, NTN Number Registration and verification and much more. 

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