Tax Credits Chapter- 15
replacement of plant and machinery already installed there in, in an industrial undertaking set
up in Pakistan and owned by it, credit equal to 10 % of the amount so invested shall be allowed
against the tax payable (including on account of minimum tax and final taxes payable) by it.
Plant and Machinery should be purchased between 01 - 07 - 2010 and 30- 06 - 2019 ,
Provided that for the tax year 2019 the rate of credit shall be equal to 5% of the amount so
invested:
In this case, tax credit in excess of tax liability shall be carried forward to adjust in following 2
tax years.
(b) A company setup in Pakistan before 01- 07 - 2011 , which makes investment through 100% new
equity during 01- 07 - 2011 and 30- 06 - 2019, for the purposes of Balancing, Modernization or
Replacement (BMR) of the plant and machinery already installed in an industrial undertaking
owned by the company. However, credit equal to 20% of the amount so invested shall be
allowed against the tax payable, including on account of minimum tax and final taxes payable.
The credit shall be allowed in the year in which the plant and machinery in the purchase of
which the investment as aforesaid is made, is installed therein.
In this case, tax credit in excess of tax liability shall be carried forward to adjust in following 5 tax
years, however the tax credit under this section shall not exceed from the aggregate limit defined ‘a’
and ‘b’.
In this section the term “new equity” shall have the same meaning as defined in section 65E(7).
If it is subsequently discovered by the Commissioner Inland Revenue that any condition was not
fulfilled, the credit originally allowed shall be reversed.
An industrial undertaking shall be treated to have been setup on the date on which the industrial
undertaking is ready to go into production, whether trial production or commercial production.Example: Following information is related to ABC (Pvt.) Ltd. for tax year 202 3 :
(a) Income from business Rs. 200,500
(b) Plant purchased for the purpose of balancing, modernisation and replacement Rs. 1,500,000
Required: Compute tax liability under section 65B(a) and 65B(b).
Solution under section 65B(a):
ABC (Pvt.) Ltd.
Computation of taxable income and tax liability: Rs.
Income from business 200,500
Computation of tax liability:
Tax on Rs. 200,500 @ 29% (Assume that the company is not a
small company) 58,145
Less: Tax credit for investment in fixed assets
(1,500,000 x 5%) 7 5,000
Tax liability Nil
As the amount of tax credit is in excess of tax liability the taxpayer is not liable to pay any tax and the
amount of unadjusted tax credit in this case (only in this case) shall be carried forward for 2
succeeding tax years.
Solution under section 65B(b):
The amount of tax credit (Rs. 1,500,000 x 20%) Rs. 300,000 shall be allowed and no tax liability is to
be paid by the taxpayer and the unadjusted tax credit Rs. 241,855 shall be carried forward for 5
succeeding tax years.