ISLAMABAD: Federal Board of Revenue (FBR) has allowed exemption from tax on undistributed profits on those corporate entities, which are under agreement with the government.
The FBR issued SRO 234(I)/2018 to allow exemption by amending Second Schedule of Income Tax Ordinance, 2001.
According to the SRO, the provision of Section 5A of the Ordinance shall not apply to a company where a restriction has been imposed on distribution of dividend on account of an agreement with the government of Pakistan.
The Section 5A states:
(1) For tax year 2017 and onwards, a tax shall be imposed at the rate of seven and a half percent of its accounting profit before tax on every public company, other than a scheduled bank or a modaraba, that derives profit for a tax year but does not distribute at least forty percent of its after tax profits within six months of the end of the tax year through cash or bonus shares:
Provided that for tax year 2017, bonus shares or cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of a return.
(2) The provisions of sub-section (1) shall not apply to—
(a) a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and
(b) a company in which not less than fifty percent shares are held by the Government.