Income Tax Ordinance 2001 and Foreign Investment Act 2022 (XXXV of 2022) Combine to Provide Exciting Tax Benefits for Investors – Discover How This Impacts Your Investments and Taxes!
The Foreign Investment Act, 2022 (XXXV of 2022) has brought a paradigm shift in Pakistan’s investment landscape, offering robust tax exemptions and incentives to attract both local and foreign investors. This comprehensive guide dives deep into the intricacies of Section 44A of the Income Tax Ordinance 2001, shedding light on tax benefits under the Foreign Investment Act 2022.
1. Tax Exemptions for Qualified Investments: Under Section 44A of the Income Tax Ordinance, 2001, income taxes, including capital gains, advance tax, withholding taxes, minimum, and final taxes, are either entirely exempted or subjected to specific tax rates and methods as delineated in the Second and Third Schedules of the Foreign Investment Act 2022. These exemptions apply to investments specified in the First Schedule of the Act (The Foreign Investment Act, 2022 (XXXV of 2022).
2. Extensive Coverage: It’s not just investors who benefit. Shareholders of qualified investments, their associates, and companies listed in the Second and Third Schedules of the Foreign Investment Act 2022 also qualify for tax exemptions or specialized tax treatment during the stipulated period and as per the Foreign Investment Act, 2022 (XXXV of 2022) specifications.
3. Anti-Avoidance Measures Set Aside: Section 44A of the Income Tax Ordinance 2001 carves out exceptions to specific anti-avoidance provisions found in the Income Tax Ordinance 2001. Notably, sections 106, 106A, 108, 109, and 109A of the Income Tax Ordinance 2001 do not apply to individuals and amounts mentioned in subsections (1) and (2) during the defined period and to the extent prescribed in the Foreign Investment Act 2022.
4. Long-term Investment Benefits: For investors mentioned in subsections (1) and (2), the rates of depreciation, initial allowance, and pre-commencement expenditure under sections 22, 23, and 25 of the Income Tax Ordinance 2001, as of March 20, 2022, will remain in effect for a substantial thirty-year period. This provision, as outlined in the Third Schedule of the Foreign Investment Act 2022, enhances the attractiveness of long-term investments.
5. Terminology Alignment: To ensure clarity and consistency in tax regulations, the terminology defined in the Second and Third Schedules of the Foreign Investment Act 2022 applies mutatis mutandis to the Income Tax Ordinance 2001.
Conclusion: The Foreign Investment Act, 2022 (XXXV of 2022) has ushered in a new era of financial opportunities for investors in Pakistan. Section 44A of the Income Tax Ordinance 2001 harmonizes tax regulations with the Act’s overarching goal of fostering economic growth through investments.
Check the following Section 44A for more details of the Income Tax Ordinance 2001 for further details;
Download Income Tax Ordinance 2001 (AMENDED UPTO 30th JUNE, 2023)
5[44A. Exemption under Foreign Investment (Promotion and Protection) Act, 2022 (XXXV of 2022). – (1) Taxes on income (including capital gains), advance tax, withholding taxes, minimum and final taxes under this Ordinance shall, for the period and to the extent provided in the Second and Third Schedules to the Foreign Investment (Promotion and Protection) Act, 2022 (XXXV of 2022) in respect of qualified investment as specified at Sr. No.1 of the First Schedule to the said Act or investors, be exempt or subject to tax at the rate and in the manner specified
under the said Act.(2) All investors and shareholders of the qualified investment, their associates and companies specified in the Second and Third Schedules to the said Act including third party lenders on account of any loan shall also be exempt from taxes and other provisions of this Ordinance or subject to tax at the rate and in the manner specified under the said Act for the period and to the extent provided in the Second and Third Schedules to the said Act.
(3) Provisions of this Ordinance relating to Anti-Avoidance, for the period and to the extent specified in the said Act including sections 106, 106A, 108, 109 and 109A, shall not apply to the persons and amounts mentioned in sub-sections (1) and (2).
(4) Rates of depreciation, initial allowance and pre-commencement expenditure under sections 22, 23 and 25 as on the 20th day of March, 2022 shall continue to be applicable for thirty years as provided in the Third Schedule to the said Act in respect of persons mentioned in sub-sections (1) and (2).
(5) For the purpose of this section, the terms defined under the Second and Third Schedules to the said Act shall apply mutatis mutandis to this Ordinance.]
“The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.”
– Mark Twain
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