Income Tax (Amendment) Ordinance 2022

Income Tax (Amendment) Ordinance 2022

Pakistan's President has promulgated the Income Tax (Amendment) Ordinance, 2022, amending the Income Tax Ordinance, 2001.

In order to spur economic growth in Pakistan, this incentive package encourages capital investment in several industrial sectors.

As of March 1, 2022, the Federal Cabinet approved the Promoting Industrial Development Package (PPI). The PPI provides tax incentives for:

• Investment in new and existing industrial enterprises;
• Reviving sick units.
• Overseas Pakistanis and Pakistani residents investing in industries (who have already declared their foreign assets).

In this article we examine the new Amnesty Scheme or Income Tax Ordinance, 2022, which dives deep into what new opportunities it offers to existing and new investors in Pakistan.

1. Equity Investment Tax Immunity Scheme:

Corporate investments are eligible for tax immunity through a 5 percent tax rate on funds not reported in tax returns until the end of the tax year 2021 (to be filed by December 31st of that year).

New undertaking

• The equity of the newly formed company (at least Rs 50 million) should be deposited in Pakistani rupees in a bank account according to the Companies Act, 2017 (XIX of 2017).?
• Before the filing of the statement, the funds will only be used to purchase, import, or construct buildings or structures for the industrial undertaking.
• The establishment of a new industrial enterprise should not require the division, reconstruction of an existing enterprise, nor should machinery or plants be transferred from one already established in Pakistan.
• An Engineering Development Board certificate to that effect must be filed with the Commissioner along with the tax return for the tax year 2024 when investments in such industrial undertakings begin commercial production by June 30, 2024.

Existing undertaking

• In order to deposit funds declared for investment in an existing industrial undertaking, a company should open a bank account (not less than Rs 50 million).
• The expansion and modernization will be completed by June 30, 2024, and a certificate certifying this will be submitted to the Commissioner with the 2024 tax return.

2. Carrying forward of business losses from sick industrial units

A sick industrial unit is allowed to adjust/carry forward business losses under section 59C.

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• The acquiring company continues to own the property for five years starting June 30, 2023, and their share capital remains the same;
• Assets of the company may not be sold until June 30, 2026;

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

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An industrial unit acquired by a company must be revived by 2026. An acquired company that achieves its maximum production capacity before becoming ill shall be treated as revived provided that the acquired company submits a certificate verifying its revival, duly issued by Engineering Development Board, along with its return of income for 2026.

Download Income Tax (Amendment) Ordinance 2022 PDF

3. Tax credit for foreign investment by Pakistani citizens for industrial development

• A new one-time tax credit is being offered to promote foreign investment through industrial promotion:
• Citizens of Pakistan who have been non-resident for more than five years;
• All residents who have declared foreign assets in their wealth statements and foreign income and asset statements as of December 31, 2021.

These taxpayers are eligible for the tax credit if they:

• Create a company before or after? March 1, 2022;
• Establish an industrial undertaking in Pakistan by investing a minimum of Rs. 50 million in equity via foreign funds remitted into Pakistan through a proper banking channel as per State Bank of Pakistan regulations, no later than December 31, 2022.
• Before June 30, 2024, commercial production will begin.

Was this helpful? Get in touch with Taxocrate.

We explained the New Amnesty Scheme proposed by the Pakistani government. In the Income Tax (Amendment) Ordinance, 2022, new investors and entrepreneurs are granted amnesty. You can contact Taxocrate by calling 0302-6644789 or sending an email to [email protected]. We look forward to assisting you with all your corporate needs, including company registration, trademark registration, and NTN number registration and verification.?

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