Income tax proposals for FY2016-17

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ISLAMABAD, Jun 3 (APP): Following are the taxation measures taken in the Federal Budget 2016-17 for Income Tax:
Reduction in Tax Rate for Companies: Continuing with the policy of reducing corporate tax rates, the rate has been reduced to 31% for Tax Year 2017.
Exemptions under Gwadar Port Concession Agreement: For operation and development of Gwadar Port and Gwadar Free Zone exemptions and concessions in accordance with the decisions of ECC and concession agreement are proposed to be granted to concession holder (China Overseas Ports Holding Company Limited) and its operating companies, businesses to be established in the Free Zone and contractors and sub-contractors of the concession holder in accordance with concession agreement.
Exemption on Investment in Greenfield Industrial Undertakings: Period of exemption to investment in Green Field Industrial undertakings is being extended from 2017 to 30th June, 2019.
Tax Credit for Employment Generation: At present, 1% tax credit for a period of ten years is available for every 50 employees employed by an industrial undertaking to be set up by June 2018. In order to reduce unemployment and encourage new industry, the credit is being enhanced to 2% and the date for setting up of industrial undertaking is being extended to June 2019.
Tax Credit for making sales to registered persons: At present 2.5% tax credit is available to a manufacturer registered under Sales Tax who is making over 90% sales to Registered Sales Tax Persons. To encourage documentation, the credit is being increased to 3%.Tax Credit for Balancing, Modernization and Replacement (BMR): At present, tax credit on BMR of the plant and machinery is allowable on plant and machinery purchased and installed up to June, 2016. Period for installation of plant and machinery is being extended to June, 2019.
Tax Credit for Enlistment: At present 20% tax credit on tax payable for enlistment in stock exchange is available for 1 year. In order to encourage enlistment of companies on stock exchange tax credit is being extended to 2 years instead of one year.
Tax Credit for Establishing new industry and expansion of existing plant: At present, 100% tax credit on tax payable is allowed if 100% fresh equity is raised through issuance of new shares. This tax credit is allowable for five years from commercial production. It is proposed to reduce the condition of 100% fresh equity to 70% equity and tax credit would be allowed proportionately on owned new equity and not on borrowed amount. Period of tax credit is also being extended to June, 2019.
Extending exemption to export of IT services: Exemption to export of IT Services is going to expire in June, 2016. IT sector is passing through infancy stage in the country and requires support. It is proposed that the exemption may be extended till June, 2019. The taxpayers shall be allowed to retain 20% of the proceeds outside the country for meeting expenses, and shall remit 80% to Pakistan through Banking Channel.
Enhancing limit of interest on House Building Loan: At present, an individual is allowed deductable allowance for profit on debt on the loan upto 1 Million for construction of a new house or acquisition of house. In order to provide relief to low income group, loan amount is being increased from 1 million to 2 million.
Employers’ Annual Contribution in Provident Funds: At Present, employer is allowed to contribute in Provident Fund upto 1/10th of salary of an employee or Rs. 100,000 whichever is lower. Any amount exceeding this limit is treated as income of the employee. On demand of taxpayers, the limit of Rs. 100,000 on employer’s contribution is proposed to be enhanced to Rs. 150,000.
Tax Credit on Health Insurance: At present, tax credit is available on the payment of life insurance premium up to 1.5 M. A new tax credit @ 5% of tax payable or Rs. 0.1 M whichever less is proposed to be allowed on payment of premium of health insurance.
Reduction in Tax Rate on Commission of Life Insurance Agents: At present, Commission paid to life insurance agents is taxed at the rate of 12% for filers. The rate of tax is being reduced to 8% for filer on commission received up to Rs.0.5 M.
Relief on Education Expenses: In order to provide relief for education expenses which are unbearable for low income groups, individual having taxable income less than Rs. 1 million is being given tax relief equal to 5% of school fee upto Rs. 60,000 per child per annum.