The Federal Board of Revenue (FBR) has conveyed to the IT services or IT-enabled services that no tax has been imposed on the IT sector under the Income Tax Second Amendment Bill 2021.
FBR Response to IT Sector Tax Issues
Under the Income Tax second revision bill of 2021, the Federal Board of Revenue (FBR) has highlighted to the IT-enabled services or IT services that no tax has been charged on the IT sector.
Senior FBR officials were reacting to the concerns and queries of the IT sector concerning the substitute of the income tax exemption with the tax credit scheme under the proposed draft act 2021.
They said that the IT industry should not be jumpy about the new tax credit rule due to the following grounds. Senior FBR officials told that the IT sector would not be a demand to pay any kind of twenty-nine percent income tax. The IT sector also has been set free from payments of 1.5 % turnover tax or least tax applies to the exempt entities. This would empower many sectors to benefit from tax credits in their income tax returns. The IT sector would not need to pay any such type of tax at the export stage.
They stated that the main concern of the IT sector is interaction and documentation with the FBR’s field officials for calling a hundred percent tax credit. In response to this, the senior FBR officials told that the IT sector must have to follow only two to three document requirements. They would file their wealth statement income tax returns, and monthly sale tax return completion required or filed to get a hundred percent tax credit. They also declared that no hard documents are needed for the IT sector.
They also dismiss the notion that every commissioner inland revenue would emit notices to the IT enable service provider or IT services for no reason.
While according to the comments of leading tax expert Ahfaq Tola on the proposed income tax send amendation bill 2021, the hundred percent tax credit would be allowed to the IT industry after completion of certain conditions including the filing of withholding and returns tax statements as per the proposed bill.
A new section 65F is projected to be included in the Income Tax Ordinance 2001, through which the income of the following taxpayers shall be permitted a tax credit equal to a hundred percent of the tax payable including final and minimum taxes as follows:
- The person involves in coal mining projects in Sindh providing coal exclusively to power generation projects.
- A startup as set out in points (62A) of section two for the tax year in which the startup is certified by the Pakitan software export board and the following two years.
- The person acquiring income from the transport of IT services or computer software IT-enabled services up to the period ending closing on June 20, 2025. Offering that eighty percent of exports proceeds export proceeds are introduced into Pakistan in foreign exchange transfer from outside Pakistan through normal banking channel.
According to the proposed legislation, clarification has been added in the new section of Income Tax Ordinance 2001.
Explanation
Pakistan’s tech industry is taking up progress. The country offers a domestic market of two hundred million and produces more than two thousand IT graduates every year and has churned over seven hundred technology startups since 2010 of which close to seventy percent are functional even today. The industry can provide a basic boost to the country’s economy, especially in this time of budget cuts. In the latest static released by the state bank of Pakistan, Pakistan exported information, telecommunication, and computer services with more than flour hundred forty-four million in the first quarter of the financial year 2021. Pakistan has been making constant efforts to utilize its ICT and IT exports, shifting towards a digital economy by encouraging the software industry through incubators and software parks. The exports statistics look to reflect the efforts being put in but they are decreasing again as the second wave of covid is hitting the country.
For this clause “IT services” include software maintenance, software development, web design, system integration, web development, network design, and web hosting, and ii.
IT enables services to include outbound or inbound call centers, remote monitoring, telemedicine centers, locally produced television programs, data entry operations, and insurance claim processing.
Ashfaq tola also cleared that the said taxes will be available subject to completion of the conditions :
- The return has been listed.
- The tax needed to be collected or deducted has been collected or deducted and paid.
- Restraining tax statements for the immediately prior tax year have been filed.
- Sales tax returns for the accounting period based on the relevant tax year have been filed.
The above credit will not inhibit the provision of audit under section 177 and 214C, the tax expert added.