Tax Credits Chapter- 15
- The amount of credit admissible shall be deducted from the tax payable, including minimum tax
and final taxes payable, by the taxpayer in respect of the tax year in which the plant or
machinery is installed and for the subsequent 5 years.
3A. The amount of a person‘s tax credit allowed under sub-section (1) for a tax year shall be
computed according to the following formula, namely: —
A x (B/C)
where—
A is the amount of tax assessed to the person for the tax year before allowance of any
tax credit for the tax year;
B is the equity raised through issuance of new shares for cash consideration; and
C is the total amount invested in the purchase and installation of plant and machinery
for the industrial undertaking. - Where any credit is allowed and subsequently it is discovered, on the basis of documents or
otherwise, by the Commissioner Inland Revenue (CIR) the business has been discontinued in
the subsequent five years after the credit has been allowed or that any of the above condition
specified was not fulfilled, the credit originally allowed shall be deemed to have been wrongly
allowed and the CIR may re-compute tax payable for the relevant year. and - In this section, new equity means equity raised through fresh issue of shares against cash by
the company and shall not include loans obtained from shareholders or directors:
Provided that short term loans and finances obtained from banking companies or non-banking
financial institutions for the purposes of meeting working capital requirements shall not disqualify the
taxpayer from claiming tax credit.
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: On July 01, 20 22 , AQ Limited made an investment of Rs. 500,000 in an industrial
undertaking in Pakistan for expansion of the plant and machinery already installed in the undertaking.
Taxable income of the company during tax year 202 3 was Rs. 4,000,000. Compute tax liability of the
company if total investment (equity and bank loan) in industrial undertaking is Rs. 2,000,000.Solution:
AQ Limited
Computation of taxable income and tax liability
Rs.
Income from business
Taxable business income 4,000,000
Taxable income 4,000,000
Computation of tax liability:
Tax on Rs. 4,000,000 @ 29 % 1, 160 ,000
Less: Tax credit for investment in industrial undertaking
Tax credit (1, 160 ,000 x 500,000 / 2,000,000) ( 29 0,000)
Tax liability 870 ,00016. TAX CREDIT FOR CERTAIN PERSONS [SECTION 65F]
(1) Following persons or incomes shall be allowed a tax credit equal to one hundred per cent of the
tax payable under any provisions of this Ordinance including minimum, alternate corporate tax
and final taxes for the period, to the extent, upon fulfillment of conditions and subject to limitations
detailed as under:-