Tax credit on investment on Plant and Machinery (Section 65B);

This blog is in continuation to the series "Curtailing the Tax Liability (Part II) - Tax Credits".

Disclaimer: This blog will be updated over the period of time with practical examples, sample letters and relevant case laws and due to the volatility of tax statutes it is subject to unprecedented changes as and when required.

Tax credit on investment (Section 65B)

A Company is entitled to Tax Credit where it invests in purchase of Plant and Machinery between July 2010 – June 2021 for the purpose of:

- Extension;

- Expansion;

- Balancing;

- Modernizing; and

- Replacement 

Of Plant and Machinery already installed in an industrial undertaking in Pakistan.

Computation

1) The tax credit shall be equal to 10% of amount invested against following:

- Normal Tax Payable

- Minimum Tax

- Final Tax

and shall be deducted from the above tax payables in respect of Tax Year in which the said Plant and Machinery was purchased.

2) The tax credit shall be equal to 20% of amount invested against following:

- Normal Tax Payable

- Minimum Tax

- Final Tax

If investment is made through 100% ‘New Equity’ and shall be deducted from the above tax payables in respect of Tax Year in which the said Plant and Machinery was purchased.

New Equity

For the purposes of this section, ‘new equity’ means equity raised through fresh issue of shares against cash by the company and shall not include loans obtained from shareholders or directors:

Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section.

Note: The tax credit if unadjusted can be carried forward upto maximum of 2 years in normal case and 4 years if through ‘New Equity’.

NOTE: In addition to above please click here to read Miscellaneous Provision of Tax Credit (Section 65);

Index of Tax Credits