Withdrawal of tax credit on purchase of Plant and Machinery

Withdrawal of tax credit on purchase of plant & machinery: Tax credit for investment in purchase of plant and machinery for the purposes of extension, expansion, balancing, modernization and replacement of already installed machinery is provided in section 65B of the Income Tax Ordinance, 2001. The rate of tax credit was 10% of the amount so invested.

This section was introduced through the Finance Act, 2010 and had a sunset clause whereby this tax credit was to expire after 30.06.2015.

However, the sunset clause was extended to 30.06.2016 by the Finance Act, 2016 and thereafter extended to 30.06.2019 through the Finance Act, 2016.

This credit was subsequently, once again extended to 30.06.2021 through the Finance Act, 2018. Through the Finance Act, 2019, the date of expiry of this tax credit has been amended to 30.06.2019.

Hence, this tax credit will not be available on any investment made after 30.06.2019. Further, for the tax year 2019, the rate of tax credit has been reduced from 10% to 5% of the amount so invested.

However, the tax credits up to the tax year 2019 which have not been adjusted against the tax payable can still be carried forward beyond tax year 2019 as per provisions of sub-section (5) of section 65B.

These explanations have been issued by FBR after the Finance Act 2019 approved / passed from the parliament of Pakistan.