This blog is written by Mr. Muhammad Waheed Iqbal, FCA, Partner Khilji and Co Chartered Accountants.
Alternate Corporate Tax (113C)
A new concept of Alternative Corporate Tax (ACT) was introduced through Finance Act, 2014. In this blog we will briefly discuss the important provisions relating to ACT.
1. ACT is applicable to the companies only.
2. A Company is required to pay higher of Corporate Tax or ACT.
3. Corporate tax has been defined as higher of;
a) tax rate as provided in Division II of Part 1 of the First Schedule of Income Tax Ordinance, 2001 (Ordinance). Current rate of taxation for companies is 29%; and
b) minimum tax payable under any provision of the Ordinance.
4. ACT means tax at 17% of Accounting income less:
a) exempt income;
b) income other than chargeable to tax under Division II of Part 1 of the First Schedule or minimum tax under any provision of ITO, 2001.
c) Income subject to tax credit under section 65D1 , 65E2 and 100C3.
5. For the determination of Accounting Income, expenses are required to be apportioned between the amount to be excluded as mentioned above and amount to be treated as taxable income. For the purpose of this section, accounting income less the amount excluded as per point 5 above shall be treated as taxable income.
6. Accounting Income means accounting profit before tax as disclosed in the financial statements or amount after making the above adjustments. The share of profit from associate recognized under equity accounting shall not be included in the accounting income.
7. Excess of ACT over Corporate Tax can be carried forward and adjusted against the tax payable under Division II of Part 1 of the First Schedule for 10 tax years immediately succeeding the tax years for which the excess was first computed. Further, carry forward and adjustment of minimum tax under section 113 would not be affected by the mechanism for adjustment of excess ACT.
8. ACT is not applicable to taxpayers chargeable to tax in accordance with the provisions contained in the Fourth Schedule (Insurance Business), Fifth Schedule (Exploration and Production of Petroleum Companies) and Seventh Schedule (Banking) of the ITO, 2001.
9. Tax credit under section 64B4 and 65B5 is allowed against ACT.
10. Tax liability under 113C is also required to be taken into account while working out payment of advance tax liability under section 147 of the Ordinance.
11. The provisions of section 113C shall not apply to LNG Terminal Operators and LNG Terminal Owners. (Clause 11D of part IV of 2nd Schedule).
Muhammad Waheed Iqbal, FCA
1. Tax credit for newly established industrial undertakings.
2. Tax credit for industrial undertakings established before the first day of July 2011.
3. Tax credit for certain person (Non-profit organization, trusts or welfare institutions.)
4. Tax credit for employment generation by manufacturers.
5. Tax credit for investment.