Friday, 24 March 2023

Income Tax Credit Proposed for IT Sector

The Federal Board of Revenue (FBR) said on Wednesday that it was proposing to expand the scope of tax incentives for IT services and IT-enabled services by allowing 100 per cent income tax credit.

Budget proposal available to expand the scope of tax incentives available for income from the export of software, IT services and IT-enabled services, a statement said.

For this purpose, the ‘Tax Exemption’ transferred to the tax credit system of tax. It is suggested that such income be given 100% tax credit against tax liabilities, including minimum tax liabilities on their amount of sales (Which is Turnover).

Explaining the news, the FBR said that the proposal would increase the scope of concessions in the IT sector as opposed to the news circulating on social media. The Revenue Authority reprimanded that there is a proposal to exempt revenue from the export of computer software or IT services or IT-enabled services.

The FBR clarified that under the current legal transition, already exemption available from tax. On the export of computer software, IT services or IT-enabled services. Provided under clause (133) of Part I of the Second Schedule to the Income Tax Ordinance 2001.

Under the tax laws of Pakistan, FBR provides exemption on some conditions. That at least 80% of sales comes from export services, export earnings remits to Pakistan through ordinary banking channels and encashments certificates obtains from bank. However, those claiming a waiver are subject to a minimum tax on their amount of sales (Turnover).

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Conditions for exemption under Clause 133

Clause 133 is reproduced here:

Clause (133) Income from exports of computer software or IT services or IT enabled services upto the period ending on 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 –
(a) “IT Services” include software development, software maintenance, system integration, web design, web development, web hosting, and network design, and
(b) “IT enabled services” include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations [, locally produced television programs and insurance claims processing.

How much is Minimum Tax on IT Services & IT enabled services in Pakistan ?

Under Section 153(1)(b): Minimum Tax @3% of the gross amount on 1- Transport services. 2- freight forwarding services. 3- air cargo services. 4- courier services. 5- man power outsourcing services. 6- hotel services. 7- security guard services. 8- software development services. 9- IT Services and IT enabled services as defined in clause (133) of Part I of the Second Schedule. 10- tracking services. 11- advertising services (other than by print or electronic media). 12- share registrar services, 13- engineering services. 14- car rental services. 15- building maintenance services. 16- services rendered by Pakistan Stock Exchange Ltd. & Pakistan Mercantile Exchange Ltd. 17- inspection, certification, testing & training services.

IT Sector | IT Enabled Services | Exports | Exemption | Foreign Remittances | FBR | Federal Board of Revenue | Tax Credit | Information Technology |

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