Circular No. 03 of 2009, Islamabad the July 17th July, 2009

FINANCE ACT, 2009 EXPLANATION REGARDING IMPORTANT AMENDMENTS MADE IN THE INCOME TAX ORDINANCE, 2001 Government of Pakistan Federal Board of Revenue, (Revenue Division) ***** Circular No. 03 of 2009 INCOME TAX C.No.ITP/B-2009-10-170/EC Islamabad the July 17th July, 2009 Subject: FINANCE ACT, 2009 EXPLANATION REGARDING IMPORTANT AMENDMENTS MADE IN THE INCOME TAX ORDINANCE, 2001. Circular No. 03 of 2009, Islamabad the July 17th July, 2009:- Several amendments have been made in the Income Tax Ordinance, 2001 through Finance Act, 2009. The important amendments are explained as under. 1. TAXATION OF BRANCH PROFIT AS DIVIDEND. [Section 2(19)(F)] Through Finance Act, 2008 remittances of after tax profit by a branch of foreign company operating in Pakistan were taxed as dividend income @ 10%. However, due to absence of word remittance in the newly inserted sub-section 2(19)(f), a mistaken view could have been taken to the effect that merely showing of accumulated profits of a branch are taxable as dividend income, whereas the intention of the legislature was to deem the remittance of after tax profit, by a branch to its head office, outside Pakistan, as dividend income. In order to remove this ambiguity amendment has been made in the said clause by virtue of which the remittance of after tax profit would be treated as dividend income. 1.1 Apart from above, petroleum exploration and production (E P) companies operating in Pakistan also became liable to pay tax on such remittances treated as dividend whereas their rate of tax was frozen by Petroleum Concession Agreements signed between the Government of Pakistan and E P Companies. In view of this international commitment, such companies have been excluded from the purview of aforesaid clause.a new sub-clause (iv) in Clause (f) of sub-section (19) of section 2 of the Ordinance has been inserted by virtue of which the remittances of after tax profit by a branch of non-resident Petroleum Exploration and Production Company operating in Pakistan has been excluded from the ambit of the dividend. 1.2 Consequential amendment has also been made in subsection (1) of section 5, which imposes a tax on dividend income. 2. DEFINITION…