Commentary on

Impact of Finance
Bill 2022 on IT
Sector

Usman Rasheed & Co

Chartered Accountants

www.urcapk.com
Commentary on Impact of Finance Bill 2022 on IT Sector

1. Export of software/ IT services/ IT enabled services is now subject to 0.25% of export proceeds subject to fulfilment of following
conditions:
a. Registration with PSEB
b. Annual tax return has been filed;
c. Withholding statements have been filed;
d. Sales tax returns for Federal & Provincial tax authorities (whichever is applicable) have been filed.

2. In case condition “a” i.e. PSEB registration is not fulfilled, tax deduction rate will be 1% but would still be Final Tax Regime (FTR).

3. If any of the conditions from “b” to “d” are not met than the person goes under Normal Tax Regime (NTR).

4. NTR means the following taxation become applicable:

a. Small Company: Tax liability is higher of following under NTR:

i. 20% of taxable income
ii. 17% of accounting income
iii. 1.25% of turnover

b. Other than Small Company: Tax liability is higher of following under NTR:
29% of taxable income
 i. 17% of accounting income
ii. 1.25% of turnover

c. Individual/ AOP with more than Rs.100 million gross sales/ revenue/ turnover in any year 2017 and onwards: Tax
liability is higher of following:
i. % of taxable income as per slab rates – highest slab is 35% - please check table at the end of this document for
complete slab rates.
ii. 1.25% of turnover

d. Individual/ AOP with less than Rs.100 million gross sales/ revenue/ turnover: Tax liability is % of taxable income as
per slab rates – highest slab is 35% - please check table at the end of this document for complete slab rates.

Comparison of previous and current proposed provisions

Current Taxation Proposed in Finance Bill Comments

Section 65F: Tax credit for certain Section 65F: Tax credit for certain • Finance bill proposes deletion of
persons.– persons.– clause “c” of sub-section 1 of
(1) Following persons or incomes shall be (1) Following persons or incomes shall be section 65F.
allowed a tax credit equal to one hundred allowed a tax credit equal to one hundred • The strike through text in red in
per cent of the tax payable under any per cent of the tax payable under any previous column represent the
provisions of this Ordinance including provisions of this Ordinance including deleted clause “c”.
minimum, alternate corporate tax and final minimum, alternate corporate tax and final • The impact of this deletion is that
taxes for the period, to the extent, upon taxes for the period, to the extent, upon 100% tax credit is no more available
fulfillment of conditions and subject to fulfillment of conditions and subject to to IT & IT services exporters.
limitations detailed as under:- limitations detailed as under:- • However, start ups are still eligible
for 100% tax credit.
(a) persons engaged in coal mining projects (a) persons engaged in coal mining projects
in Sindh supplying coal exclusively to power in Sindh supplying coal exclusively to power
generation projects; generation projects;

(b) a startup as defined in clause (62A) of (b) a startup as defined in clause (62A) of
section 2 for the tax year in which the section 2 for the tax year in which the
startup is certified by the Pakistan Software startup is certified by the Pakistan Software
Export Board and the next following two tax Export Board and the next following two tax
years; and years; and

(c) Income from exports of computer (c) Income from exports of computer
software or IT services or IT enabled software or IT services or IT enabled
services as defined in clause (30AD) and services as defined in clause (30AD) and
(30AE) of section 2 upto the period ending (30AE) of section 2 upto the period ending
on the 30th day of June, 2025: on the 30th day of June, 2025:

Provided that eighty percent of the export Provided that eighty percent of the export
proceeds is brought into Pakistan in foreign proceeds is brought into Pakistan in foreign
exchange remitted from outside Pakistan exchange remitted from outside Pakistan
through normal banking channels. through normal banking channels.

(2) The tax credit under sub-section (1) shall (2) The tax credit under sub-section (1) shall
be available subject to fulfillment of the be available subject to fulfillment of the
following conditions, where applicable, following conditions, where applicable,
namely:- namely:-

(a) return has been filed; (a) return has been filed;
(b) withholding tax statements for the (b) withholding tax statements for the
relevant tax year have been filed in respect relevant tax year have been filed in respect
of those provisions of the Ordinance, where of those provisions of the Ordinance, where
the person is a withholding agent; and the person is a withholding agent; and

(c) sales tax returns for the tax periods (c) sales tax returns for the tax periods
corresponding to relevant tax year have corresponding to relevant tax year have
been filed if the person is required to file been filed if the person is required to file
Sales Tax Return under any of the Federal Sales Tax Return under any of the Federal
or Provincial sales tax laws. or Provincial sales tax laws.
Section 154A Export of Services.– Section 154A Export of Services.– • The finance bill proposes to modify
(1) Every authorized dealer in foreign (1) Every authorized dealer in foreign clause “a” of sub-section 1 of
exchange shall, at the time of realization of exchange shall, at the time of realization of section 154A. The strike through
foreign exchange proceeds on account of foreign exchange proceeds on account of text in previous column represents
the following, deduct tax from the proceeds the following, deduct tax from the the text proposed to be removed.
at the rates specified in Division IVA of Part proceeds at the rates specified in Division • The impact of this removal is that
III of the First Schedule – IVA of PartIII of the First Schedule – now export of software/ IT services/
IT enabled services are now subject
(a) exports of computer software or IT (a) exports of computer software or IT to tax under section 154A.
services or IT enabled services in case tax services or IT enabled services in case tax • Under section 154A(1), banks etc.
credit under section 65F is not available; credit under section 65F is not available; are required to collect tax from
export proceeds. Please see text in
(b) services or technical services rendered (b) services or technical services rendered green in previous column.
outside Pakistan or exported from Pakistan; outside Pakistan or exported from Pakistan; • As per sub-section 2, the tax
deducted by bank is final tax regime
however three conditions are
(c) royalty, commission or fees derived by a (c) royalty, commission or fees derived by prescribed under sub-section 2 for
resident company from a foreign a resident company from a foreign final tax regime (FTR). Kindly see
enterprise in consideration for the use enterprise in consideration for the use blue text in previous column for
outside Pakistan of any patent, invention, outside Pakistan of any patent, invention, relevant text.
model, design, secret process or formula or model, design, secret process or formula • Sub-section 3 provides that a
similar property right, or information or similar property right, or information person can opt out of FTR or he will
concerning industrial, commercial or concerning industrial, commercial or be automatically out of FTR if the
scientific knowledge, experience or skill scientific knowledge, experience or skill conditions prescribed in sub-
made available or provided to such made available or provided to such section
enterprise; enterprise; 2 are not met. If FTR is not
applicable, it means that the
(d) construction contracts executed (d) construction contracts executed person has to pay tax at the profits
outside Pakistan; and outside Pakistan; and he earned on which following tax
rates apply:
(e) other services rendered outside (e) other services rendered outside • Small company 20% of taxable
Pakistan as notified by the Board from Pakistan as notified by the Board from income
time to time; time to time; • Other than small company 29% of
taxable income
(2) The tax deductible under this section (2) The tax deductible under this section
• Individual/ AOP – slab rates for
shall be a final tax on the income arising shall be a final tax on the income arising
business individuals where highest
from the transactions referred to in this from the transactions referred to in this
slab is 35% where taxable income is
section, upon fulfilment of the following section, upon fulfilment of the following
higher than Rs. six million.
conditions – conditions –
• Please note that in case of normal
tax regime following taxes also
(a) return has been filed; (a) return has been filed;
become applicable:
(b) withholding tax statements for the (b) withholding tax statements for the
relevant tax year have been filed; and relevant tax year have been filed; and
 • Minimum tax under section 113 i.e.
(c) sales tax returns under Federal or (c) sales tax returns under Federal or 1.25% of gross turnover -
Provincial laws have been filed, if required Provincial laws have been filed, if required applicable for all companies while
under the law; under the law; in case of individuals & AOPs it is
applicable only on such individuals
(d) no credit for foreign taxes paid shall be (d) no credit for foreign taxes paid shall be & AOPs which have turnover in
allowed. allowed. excess of Rs.100 million
• For company – alternative
(3) The provisions of sub-section (2) shall (3) The provisions of sub-section (2) shall
corporate tax which is 17% of
not apply to a person who does not fulfill not apply to a person who does not fulfill
accounting profits.
the specified conditions or who opts not to the specified conditions or who opts not to
• The higher of these taxes i.e. tax on
be subject to final taxation: be subject to final taxation:
taxable income, minimum tax and
alternate corporate tax is to be
Provided that the option shall be exercised Provided that the option shall be exercised
paid by company while in case of
every year at the time of filing of return every year at the time of filing of return
individual/ AOP, the higher of
under section 114. under section 114.
minimum tax and tax on taxable
(4) Where a taxpayer, while explaining the (4) Where a taxpayer, while explaining the income is to be paid.
nature and source of any amount, nature and source of any amount, • Please see definition of small
investment, money, valuable article, investment, money, valuable article, company at the end of this table.
expenditure, referred to in section 111, expenditure, referred to in section 111,
takes into account any source of income takes into account any source of income
which is subject to final tax in accordance which is subject to final tax in accordance
with the provisions of this section, he shall with the provisions of this section, he shall
not be entitled to take credit of a sum that not be entitled to take credit of a sum that
can be reasonably attributed to the can be reasonably attributed to the
business activity or activities mentioned in business activity or activities mentioned in
subsection (1). subsection (1).

(5) The Board in consultation with State (5) The Board in consultation with State
Bank of Pakistan shall prescribe mode, Bank of Pakistan shall prescribe mode,
manner and procedure of payment of tax manner and procedure of payment of tax
under this section. under this section.

(6) The Board shall have power to include or (6) The Board shall have power to include or
exclude certain services for applicability of exclude certain services for applicability of
provisions of this section. provisions of this section.
Division IVA Division IVA • Division IVA is modified to provide
The rate of tax to be deducted under Export proceeds of 0.25% tax rate of 0.25% applicable on
section 154A shall be one percent of the Computer software export proceeds of software/ IT/ IT
proceeds of the export or IT services or IT enabled services.
Enabled services by • Condition of registration with PSEB
persons registered is also added here.
with Pakistan • If a person is not registered with
Software Export PSEB than the tax deducted will be
Board 1%.
Any other case 1% • In either case, the person would still
be required to meet conditions
under sub-section 2 of section 154A
to ensure that tax so deducted is
final tax.
Small Company
“Small Company” means a company registered on or after the first day of July, 2005, under the Companies Act, 2017 (XIX of 2017),
which,—
(i) has paid up capital plus undistributed reserves not exceeding fifty million rupees;
(ii) has employees not exceeding two hundred and fifty any time during the year;
(iii) has annual turnover not exceeding two hundred and fifty million rupees;
(iv) is not formed by the splitting up or the reconstitution of company already in existence; and
(v) is not a small and medium enterprise as defined in clause (59A)

Tax rates on business individuals/ AOPs

Income range Applicable tax rate

Up to 600,000 0%

600,001-800,000 5% of the amount above 600,000

800,001-1,200,000 10,000+12.5%of the amount above 800,000

1,200,001-2,400,000 60,000 + 17.5% of the amount above 1,200,000

2,400,001-3,000,000 270,000 + 22.5% of the amount above 2,400,000

3,000,001-4,000,000 405,000 + 27.5% of the amount above 3,000,000

4,000,001-6,000,000 687,000 +32.5% of the amount above 4,000,000

6,000,001+ 1,330,000+35% of the amount above 6,000,000

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