Income tax exemption on IT Exports replaced with tax credit

Income tax exemption on IT Exports replaced with tax credit

Income tax exemption on IT Exports replaced with tax credit: A new Section 65F is inserted through Ordinance, whereby income of following taxpayers shall be allowed a tax credit equal to 100 % of the tax payable including minimum and final taxes as follows:

(a) Persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects;

Previously in Clause 132A of Part 1 of Second Schedule now omitted.

(b) A startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the following two tax years; [Previously in Clause 143 of Part 1 of Second Schedule now omitted.

(c) Persons deriving income from exports of computer software or IT services or IT enabled services upto the period ending on the 30th day of June, 2025:

Provided that eighty per cent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

Explanation. – For the purpose of this clause,

1. “IT services” include software development, software maintenance, system integration, web design, web development, web hosting and network design; and
2. “IT enabled services” include inbound or outbound call centers, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally produced television programs and insurance claims processing. [Previously in Clause 133 of Part 1 of Second Schedule now omitted]

The above tax credit shall be available subject to fulfillment of the following conditions, namely:-

(a) return has been filed;

(b) tax required to be deducted or collected has been deducted or collected and paid;

(c) withholding tax statements for the immediately preceding tax year have been filed;

(d) sales tax returns for the tax periods corresponding to relevant tax year have been filed;

The above credits will not preclude the provision of audit under section 214C and section 177.

We understand that the changes made are in line with latest Supreme Court Order in Civil Appeal No.647 of 2018 dated 28.09.2020 in which scope of exemption vs tax credit was clarified by Apex Court. The reclassification will render the respective taxpayers ineligible for applying for exemption certificate under section 159 for exemption from withholding tax provisions.

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