Circular No. 1 of 2007, Islamabad, July 2, 2007

FINANCE ACT, 2007 ? EXPLANATION OF IMPORTANT PROVISIONS RELATING TO INCOMETAX ORDINANCE, 2001 GOVERNMENT OF PAKISTAN REVENUE DIVISION CENTRAL BOARD OF REVENUE ****** No.F.4(1)ITP/2007-EC Islamabad, July 2, 2007 Circular No. 1 of 2007 (Income Tax) Subject: FINANCE ACT, 2007 EXPLANATION OF IMPORTANT PROVISIONS RELATING TO INCOME TAX ORDINANCE, 2001 Amendments have been made in the Income Tax Ordinance, 2001, through the Finance Act, 2007 which are explained as under:- 1. REDEFINING SMALL COMPANY. [Section 2(59A)] The concept of small company was introduced through Finance Act, 2005 with incentives of reduced corporate tax rate of 20% and absolving it to withhold tax under section 153 of the Income Tax Ordinance. This expression has been redefined with following parameters: (i) paid up capital upto Rs. 25 million; (ii) the threshold of maximum turnover has been raised to Rs.250(m); and (iii) employees limit not exceeding 250 persons at any time during the year 2. TAXATION OF REGULATORY DEVELOPMENT AUTHORITIES: [Section 49(3)] Regulatory authorities and development entities are liable to income tax. These authorities are covered by the definition of company given under Income Tax Ordinance but some of these entities have gone into litigation on the issue of taxability. In view of above a clarificatory amendment has been made in the law by adding a new sub-section to section 49, which specifically prescribes that income of a............... (i) corporation; (ii) company; (iii) regulatory authority; (iv) other body; or (v) institution; established by or under a Federal law or a Provincial law or an existing law and setup, owned and controlled; (a) either directly; or (b) indirectly; by the Federal Government or a Provincial Government, is chargeable to tax. Further the ultimate destination of such income is not a bar for the purpose of chargeability of tax as laid down in Article 165A of the on institution of Islamic Republic of Pakistan. 3. SET-OFF OF BUSINESS LOSSES ARISING TO COMPANIES OPERATING HOTELS IN PAKISTAN AND AJ K. [Section 56A] Previously companies registered in Pakistan or AJ K were not allowed to set off business loss against income arising in Pakistan…