Finance Act 2014: FBR explains alternative corporate tax

KARACHI: The Federal Board of Revenue (FBR) on Thursday issued explanation to Finance Act 2014 regarding amendments to newly introduced alternative corporate tax under Section 113C to Income Tax Ordinance.
The FBR said that through Finance Act, 2014, a new concept of Alternative Corporate Tax (ACT) has been introduced. As the name suggests, it shall only be applicable to companies. A company shall be required to pay the higher of the ACT or the Corporate Tax. Corporate Tax has been defined in the section to mean total tax payable by the company, including on account of minimum tax and final taxes payable, under any of the provisions of this Ordinance but not including those mentioned in section 8, under section 161, 162 and any amount charged or paid on account of default surcharge or penalty and the tax payable under this section.
ACT has been defined to mean the tax at a rate of seventeen per cent of a sum equal to accounting income less the amounts, as specified in sub-section (8), which include exempt income, income chargeable under section 650, 65E, 100C, income subject to tax under section 37A, income subject to final tax chargeable under sub-section (7) of section 148, section 150, sub-section (3) of section 153, sub-section (4) of section 154, section 156 and sub-section (3) of section 233 and income subject to clause (18A), Part II of the Second Schedule to the Ordinance.
Similarly, ACT shall not apply to taxpayers chargeable to tax in accordance with the provisions contained in the Fourth, Fifth and Seventh Schedules to this Ordinance.
Accounting income has also been defined to mean the accounting profit before tax for the tax year, as disclosed in the financial statements, or as adjusted under sub-section (7) or (II) excluding share from the associate recognized under equity method of accounting.
If ACT is greater than the Corporate Tax, the excess shall be carried forward to the following tax year and shall be adjusted against taxable income (not including accounting income) for that year. However, the excess cannot be carried forward beyond 10 tax years. An explanation has also been added in this new section, whereby the right to carry forward minimum tax under section 113 has been allowed.
Example I
If Corporate Tax excluding minimum tax under section 113 = Rs 100
Minimum tax under section 113 = Rs 140
Alternative Corporate Tax = Rs 200
then
Corporate Tax under section 113C = Rs 140
Excess amount of ACT over Corporate Tax is Rs60 which can be carried forward for ten tax years and Rs40 can be carried forward under section 113(2)(c) for five succeeding tax years.
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