Thursday, December 22, 2011

Incomes Exempt from Tax


Income Tax Ordinance, 2001, provide a list of the incomes which either has been exempted fully from tax or some concession in the tax has been provided on such income. Section 53 of the Ordinance, authorizes the Federal Government to specify the incomes or classes of incomes, persons or classes of persons which shall either be exempt from tax or whose tax liability shall be reduced.
The incomes or classes of incomes, the persons or classes of persons specified in the Second Schedule all under any of the following categories:
1)         Fully exempt from tax (subject to certain conditions and to the extent specified)
2)         Reduction of tax rates (rates specified in the First Schedule)
3)         Reduction in tax liability
4)         Exempt from the operation of any specified provision of the Income Tax Ordinance, 2001.
The Federal Government may, from time to time, by notification in the Official Gazette, make such amendments in the Second Schedule by:
a)         Adding any clause or condition
b)         Omitting any clause or condition
c)         Making any change in any clause or condition as the Government may think fit.
Note:    The Federal Government shall place before the National Assembly all amendments made by it to the Second Schedule in a financial year.
Agricultural Income:
Agricultural income means an income:
a)         Derived from land (it may in the form of rent or revenue)
b)         Land is situated in Pakistan
c)         Land is used for agricultural purposes.
In other words, any rent or revenue derived from agricultural land situated in Pakistan represents agricultural income.
Note:    Agricultural income is fully exempt from the tax irrespective of the quantum of the income.
Types/Sources of Agricultural Income:
1)         Rent or revenue derived from the land situated in Pakistan and is used for agricultural purposes.
2)         Any income derived by a person from land situated in Pakistan from agriculture.
3)         Income of cultivator or receiver of rent-in-kind, from the performance of any process which is ordinarily performed by such person (cultivator or receiver of rent-in-kind) to render the produce fit to be taken to market.
Income of cultivator or receiver of rent-in-kind from the sale of agricultural produce without performing any further process.
Income from a building shall also be treated as agricultural income if
a)         The building is owned and occupied by the cultivator or receiver of rent-in-kind.
b)         It is situated in Pakistan in the immediate vicinity of the land used for agricultural purpose.
c)         It is required by the cultivator or receiver of rent-in-kind, by reason of the person’s (cultivator etc.) connection with the agricultural land and it is required as:
i) A dwelling house
ii) A store house
iii) Other out-building
Examples of Agricultural Income:
Some examples of agricultural income are as follows:
1)         Income from growing flowers and creepers.
2)         Income from growing forest for example: Changa Manga forest
3)         Amount received from cattle owners for allowing the cattle to graze in growing forest.
4)         Income from cultivation of growing rice, tobacco, wheat, tea, coffee, sugarcane, rubber etc.
5)         Profit on sale of standing crops;
6)         Compensation received from an insurance company for danger caused by natural calamities to crops or agricultural produce.
7)         Rent received by lessor of agricultural land.
8)         Income received by lessee of agricultural land by cultivation.
9)         Profit on sale of the produce raised after harvesting by the cultivator or the owner of an agricultural land.
10)       Fee paid by tenant for renewal of lease.
Examples of Non-agricultural Income:
1)         Income from sale of spontaneous fruits, flowers and creepers.
2)         Income from spontaneous forest.
3)         Amount received from cattle owners for allowing the cattle to graze in spontaneous forest.
4)         Income from sale of wild grass and weeds of spontaneous growth.
5)         Interest received by a money-lender in the form of agricultural produce.
6)         Income from sale of irrigation water.
7)         Commission earned by the landlord for selling agricultural produce of his tenant.
8)         Income from fisheries & ferries.
9)         Royalty income of mines.
10)       Income received from land let out for storing crops or timbers.
11)       Income from butter and cheese making.
12)       Income from poultry farm.
13)       Maintenance allowance charged on agricultural land.
14)       Income from sale of earth for brick making.
15)       Income from stone quarries.
Examples of Partly Agricultural & Partly Non-agricultural Income:
1)         Income of a Sugar Mill owner who grows sugarcane on his own agriculture farm and uses it as raw material in manufacturing sugar.
2)         Income of a person who grows tea leaves on his own farm and uses leaves as raw material in manufacturing of tea.
3)         Income of a person who grows tobacco on his own farm and uses it as material in manufacturing of cigarettes.
Where a person uses his own farm agriculture produce in the manufacturing that article whose income is treated as business income. The market value of such produce used as raw material is allowed as deduction against income from business is calculated as follows:
            Total income from business                                                                                                       XXX
Less:    Market value of the agricultural produce
            Utilized in the business as raw material                                                                           XXX
            Taxable income from business                                                                                       XXX
Note:    Only the market value of the agricultural produce is deducted. No full deduction shall be made in respect of any expenditure incurred by the taxpayer as cultivator or as a receiver of rent-in-kind.
Diplomatic and United Nations Exemptions:
The income of an individual entitled to privileges under:
i)          The Diplomatic and Consular Privileges Act, 1972; or
ii)         The United Nations (Privileges and Immunities) Act, 1948 shall be exempt from tax.
Pension of United Nation Employees:
Pension income of a Pakistani shall be exempt from tax provided that:
i)          Pension has been received being an employee of United Nations or its specialized agencies (including the international court of justice).
ii)         His salary income from such employment was exempt from tax.
Foreign Government Officials [43]
Any salary received by an employee of a foreign government shall be exempt from tax provided that:
1)         Foreign nationality:
The employee is not a citizen of Pakistan.
2)         Similar services:
This employee is performing such services as are being performed by the employees of the Federal Government (Govt. of Pakistan) in foreign country.
3)         Similar exemption:
The foreign government grants a similar exemption to the employees of the Government of Pakistan performing similar services in such foreign country.
Explanation:
Salary income of Indian High Commissioner appointed in Pakistan shall be exempt from tax, if salary income of Pakistan High Commissioner appointed in India is exempt from tax by the Government of India.
Exemptions under International Agreements:
Exemption as a result of tax treaty:
Any Pakistan-source income for which Pakistan is not permitted to tax under a tax treaty shall be exempt from tax under the Income Tax Ordinance, 2001.
Salary Income of an Individual Performing Services under an Aid Agreement:
The salary income of an individual shall be exempt from tax, if the following conditions are satisfied:
1)         Foreign nationality:
The person is not a citizen of Pakistan.
2)         Performance of services under Aid Agreement:
The person is performing services under an Aid Agreement between the Federal Government and a foreign government or public international organization.
3)         Non-resident or resident only due to service:
The person is either not a resident or is resident only due to his service under the Aid agreement.
4)         Nationality of aiding country:
The person is a citizen of that foreign country with which the Aid Agreement has been entered into.
5)         Payment of salary from aided funds:
The salary is being paid to the person out of the funds or grants released as aid to Pakistan.
Income of Contractor, Consultant or Expert:
Income from business of a contractor, consultant or expert shall be exempt from tax if the following conditions are fulfilled:
1)         Foreign nationality:
The person is not a citizen of Pakistan.
2)         Performance of services under Technical Assistant Agreement:
The person is engaged on a project in Pakistan being undertaken under a bilateral or multilateral technical assistance agreement between the Government of Pakistan and foreign government or Public International Organization.
3)         Non-resident or resident only due to service:
The person is either a non-resident or a resident only due to the performance of services under the agreement.
4)         Financing of project from aided funds:
The project is being financed out of the funds available in accordance with the aid agreement.
5)         Receipt of income from aided funds:
The person received income out of the funds of the grant available according to the agreement.
Allowances Attached to President’s Honours, Awards etc. [45]
i)          Any allowance attached to any honour, award or medal; or
ii)         Any monetary award granted to a person by the president of Pakistan shall be fully exempt from tax.
Explanation:
The President of Pakistan awarded to player of Pakistan Cricket Team Rs. 100,000 each as a result of winning of test series in India. Such monetary award granted by President of Pakistan is fully exempt from tax.
Profit on Debt Received by a Non-resident Person [46]
Any profit on debt received by a non-resident person on a security issued by a resident person shall be exempt from tax, where:
1)         Payer & payee are not associates:
The persons are not associates (if such payment is made by the associate of the non resident person, exemption shall not be granted to non-resident person).
2)         Security was widely issued outside Pakistan for raising loan:
The security was widely issued by the resident person outside Pakistan for the purposes of raising a loan outside Pakistan for using such loan in a business carried on by the resident person in Pakistan.
3)         Payment of profit outside Pakistan:
The profit was paid outside Pakistan to non-resident person.
4)         Approval of security from the CBR for exemption:
The security is approved by the CBR for the purposes of this exemption.
Explanation:
ICI Pakistan Limited issued 6% debentures outside Pakistan to raising loan for its business in Pakistan. Mr. Lewis, a British Nationality Holder & non-resident in Pakistan during the tax year purchased debentures. ICI paid profit (interest) on such debentures to Mr. Lewis from its bank account in London.
It is fully exempt from tax.
Scholarship [47]
Any scholarship granted to a person to meet the cost of the person’s education shall be exempt from tax provided that such scholarship has not been paid by an associate of the payee.
Explanation:
Shezan International Limited decided to provide management course to its employees. They contracted with LUMS to provide such facility & incurred Rs. 500,000 in respect of each employee Mr. Muhammad Ali is one of the employees who enjoyed free management course facility provided by the employer.
Point to be noted:
This facility is fully exempt from tax for Mr. Muhammad Ali.
Support Payment under an Agreement to Live Apart [48]
Any income received by a spouse as support payment under an agreement to live apart shall be exempt from tax.
The Federal and Provincial Government & Local Authority:
Income of the following persons shall be exempt from tax:
i)          The Federal Government;
ii)         A Provincial Government; and
iii)         A local authority in Pakistan.
However, “Income from Business” derived by a Provincial Government or a local authority from a business carried on outside its jurisdictional area shall be taxable.
For example:
Government of Punjab invested in certain business carried on in the jurisdiction of Government of Sindh. So, any income derived by the Government of Punjab shall be taxable.
Foreign-Source Income of Short-Term Resident Individuals [50]
Foreign-source income of short-term resident individual shall be exempt from tax provided that:
1)         Resident only due to employment:
The person is resident only due to his employment in Pakistan.
2)         Resident period not exceeding three years:
The person is resident in Pakistan for a period which is not more than three years.
However, the income of short-term resident individual shall not be exempt from tax if such income is:
1)         Income derived from business:
Derived by the individual from the business established in Pakistan; or
2)         Foreign source income brought into Pakistan:
Any foreign source income has been brought into Pakistan or received in Pakistan by the person.
Foreign-Source Income of Returning Expatriates:
Foreign-source income of a Pakistani returning back in Pakistan is exempt for two years starting from the year in which he became resident if:
i)          The income accrues or arises outside Pakistan.
ii)         The person was not resident of Pakistan in any of the four years immediately preceding the year in which he became again resident.
For example:
Mr. Ali settled in England with his family in year 1999 as a result of immigration. He returned to Pakistan August 2006 to reside in Pakistan again as a resident. He earned Rs. 5000,000 as income from business in England and brought into Pakistan. His income from business shall be exempt from tax up to the tax year, 2008.
However, Salary income of a Pakistani shall be exempt from tax if the person:
a)         Left Pakistan during the tax year;
b)         Remained abroad during the tax year; and
c)         Earned “Salary” income from outside Pakistan during the tax year.
Exemptions under Part-1 of the Second Schedule
Part-1 of the Second Schedule provides certain incomes, or classes of income, or persons or classes of persons which shall be exempt from tax, subject to the conditions and to the extent specified under each case.
Salary Income of an Employee of a Shaukat Khanum Memorial Hospital:
The salary income of an employee of Shaukat Khanum Memorial Hospital & Research Centre, Lahore is exempt from tax, if it satisfies the following conditions:
1)         Foreign nationality holder:
Employee is a foreign nationality holder.
2)         Non-resident employee:
Employee is a non-resident during the tax year.
3)         Health Professional:
He is a health professional.
4)         Approval of service contract by the Federal Government:
Contract of the service of employee has been approved by the Federal Government for the purpose of such exemption.
Employee of Agha Khan Development Network Pakistan (AKDNP)
The salary income of a person working as expert, advisor, consultant or senior management staff in any institution run by AKDNP is exempt from tax if the employee is not citizen of Pakistan.
Salary Income of a Pakistani Seafarer Working on a Foreign Ship:
Income derived by a seafarer working on a foreign vessel or on Pakistan flag vessels for 183 days or more during a tax year, has been exempted from the tax. It is necessary, however, that such amount:
a) Shall be remitted to Pakistan within two months of the income year in which it is received.
b) Shall be remitted through normal banking channels.
Employee of British Council:
Salary income of an employee of British Council is exempt from tax if the person is not a citizen of Pakistan.
Allowance etc. to a Person Working Outside Pakistan
Any allowance and perquisites paid by the Government of Pakistan to a Pakistani appointed by the Government of Pakistan to a Pakistani appointed by the Government of Pakistan in any foreign country is exempt from tax.
Explanation:
Mr. Ansar is working as Pakistani High Commissioner in USA. The Government of Pakistan has incurred the following expenditures in respect:
Furnished accommodation        Rs. 300,000
Utilities                         Rs. 100,000
Conveyance                             Rs. 150,000
Medial allowance                      Rs. 70,000
Pointed to be noted:
Although accommodation, utilities & conveyance is taxable in Pakistan up to some extent but if is received by a Pakistani appointed by the Government of Pakistan in any foreign country is exempt from tax. So, all perquisites received by Mr. Ansar is fully exempt from tax.
Pension:
Pension received by the following persons is exempt from tax:
1)         Pension received by any citizen of Pakistan.
2)         Pension received by members of armed Forces of Pakistan or employees of the Federal Government or a Provincial Government.
3)         Commutation of pension received from Government or under any pension scheme approved by the CBR.
4)         Pension received by dependents of “Shaheeds”
Notes:
i)          Exemption in respect of pension shall be withdrawn if the retired person is reemployed by the same employer or an associate of the employer.
ii)         Where a person receives more than one pension, then only one pension having higher amount will be exempt and remaining others will be taxable.
Leave Encashment:
Any amount received by a Government employee on encashment of ‘leave preparatory to retirement’ (LPR) is exempt from tax.
Explanation:
Exemption on leave encashment is only available to government employees. It is fully taxable for private employees.
Annuity:
Any income received as annuity is exempt up to Rs. 10,000 per annum, if it is received from:
a)         Pakistan Postal Annuity Certificate Scheme; or
b)         State Life Insurance Corporation of Pakistan; or
c)         A life insurance company registered under the Issuance Companies Ordinance, 2000.
Funds:
Any amount received by any person on account of:
i)          Provident fund registered under the Provident Fund Act, 1925.
ii)         Accumulated balance of recognized provident fund.
iii)         Benevolent Fund.
iv)        Approved superannuation fund.
v)         Worker’s Profit Participation Fund (WPPF)
Mr. Sheraz appeared in Supreme Court in respect of company litigation matters, Company provided him Rs. 4,000 as travelling allowance (T/A) & Rs. 2,000 as daily allowance (D/A). Actual expenses incurred by Mr. Sheraz in such tour were Rs. 5,000.
Point to be noted:
Special allowance is fully exempt from tax irrespective of actual expenses against special allowance. So, all amount received by Mr. Sheraz is fully exempt from tax.
Perquisites without Marginal Cost Incurred by Employer:
The following perquisites received by an employee by virtue of his employment are fully exempt from tax.
1)         Free or concessional passage to own employees:
Free or concessional passage provided by transporters (including airlines) to their employees or family members or dependents of the employees.
2)         Free or subsidized food to own employees:
Free or subsidized food provided by hotels and restaurants to its employees during duty hours.
3)         Free or subsidized education to own employees:
Free or subsidized education provided by an educational institution to the children of its employees.
4)         Free or subsidized medical treatment to own employees:
Free or subsidized medical treatment provided by a hospital or a clinic to its employees.
5)         Any other perquisite or benefit to own employees:
Any other perquisite or benefit for which the employer does not have to bear any marginal cost, as notified by the CBR.
Explanation:
1)         Mr. Atta Ullah is working as flight engineer in Aero Asia Airlines. His son visited London & company provided him free return ticker in Aero Asia Airbus. It is fully exempt from tax although it is perquisite by the employer to Mr. Atta Ullah.
2)         Mr. Khalid is working as a manager in Marriot Hotel Islamabad. His family visited hotel during the duty hours of Mr. Khalid at Marriot Hotel. Free lunch was provided to his family. It is fully exempt from tax although it is perquisite by the employer.
3)         Mr. Mubashar Malik is working as a Registrar in Minhaj University Lahore. University has provided a free admission & education facility during current year to his daughter. This is fully exempt from tax.
4)         Mr. Ahsan is working as a Neuro Surgeon in Sheikh Zaid Hospital, Lahore. Unfortunately, he met with serous accident. He was provided a free medical treatment in Sheikh Zaid Hospital. It is fully exempt from tax. It has no concern with the amount of the medical expenses.
Flying Allowance:
Any amount received as flying allowance by pilots, flight engineers and navigators of the Pakistan Air Force, Pakistan Army and Pakistan Navy, Civil Aviation Authority or any Pakistani Airline is exempt from tax. Further any sum received as flying allowance by junior commissioned officers or other ranks or Pakistan Armed Forces is also exempt from tax.
Income of National Investment (Unit) Trust:
Any income derived by National Investment (Unit) Trust of Pakistan established by the National Investment Trust Limited from voluntary contributions, house property and investments in securities of the Federal Government shall be exempt from tax provided that.
a)         At least 90% of its units are held by the public at the end of the relevant year.
b)         At least 90% of its income of the (relevant) year is distributed among the units-holders.
Income of Mutual Funds:
Incomes of mutual funds, investment companies and collective investment schemes from any instrument of redeemable capital are exempt, if at least 90% of their incomes (whether realized or unrealized) are distributed among Unit or certificate holders.
Incomes of Trust, Welfare Institutions or Non-Profit Organizations:
Any income derived by a trust, welfare institutions or non-profit organizations from donations, voluntary contributions, subscriptions, house property, investment in securities of the Federal Government and so much of the income chargeable under the head “Income from Business” as is expected in Pakistan for the purposes of carrying out welfare activities. Provided that:
1)         Purpose of profit:
Trust is established for the benefit and welfare of the employees (whether past or current) of the Federal Government, Provincial Government or Armed Forces.
2)         Place of establishment:
Trust has been established in Pakistan and is being administered under a scheme approved by the Government.
3)         Approval by the CBR for exemption:
A trust, welfare institution or non-profit organization is approved by the CBR for this purpose.
Income of Modarba:
Income of a Modarba registered under the Modarba Companies and Modarba (Floatation and Control) Ordinance, 1980, is not taxable subject to the following conditions:
a)         Income other than trading activity:
Income should not be from trading activity.
b)         Distribution of profit:
At least 90% of the profits of the year (as reduced by the amount transferred to a mandatory reserve required under the law) should be distributed among the certificate holders.
Profit on Debt (Under the Second Schedule)
1)         Profit on debt against approve loan:
Profit on debt derived by a non-resident person against an approved loan.
2)         Profit on debt derived by Hub Power Company:
Profit on debt derived by Hub Power Company Limited on its bank deposits or accounts with financial institutions.
3)         Profit on debt derived by foreign government, foreign national person etc:
Profit on debt derived by an agency of foreign government, foreign national (company, firm or AOP), or any other non-resident person approved by the Federal Government on moneys borrowed under a loan agreement or in respect of foreign currency instrument approved by the Federal Government.
4)         Profit derived by non-resident person from the Islamic Mode of Financing:
Any profit derived by a non-resident person (whether a citizen of Pakistan or not) in respect of the Islamic mode of financing including Istisna, Morabha, Musharika.
5)         Profit on debt derived from foreign currency account:
Any profit on debt derived from foreign currency account held with authorized bank Pakistan or certificates of investment issued by investment banks.
6)         Profit on debt from a rupee foreign currency account:
Any profit on debt derived from a rupee foreign currency account held with a scheduled bank in Pakistan by a Pakistani residing abroad, if the deposits are made from remittances from outside Pakistan.
7)         Profit on debt derived from private foreign currency account:
Any income derived from private foreign currency account held with an authorized ban in Pakistan or certificate of investment issued by investment banks only on such deposits as were on 16-12-1999.
8)         Profit on debt from foreign currency bearer certificates:
Profit on debt received by any person (other than bank and financial institution) on Foreign Currency Bearer Certificates on existing holdings till the certificates are encashed.
9)         Profit on Special US Dollar Bonds:
Profit on Special US Dollar Bonds, exemption shall be allowed only on such deposits as were on 16-12-1999.
10)       Profit on debt from Pak rupees account created by conversion:
Profit on debt from Pak rupee account or certificates created by conversion of foreign currency accounts held on 28-05-1998.
Income of Textbook Boards:
Any income derived by the textbook boards of all the provinces is fully exempt from tax.
Income of Educational Institutions:
Any income of any university or other educational institution established solely for educational purposes and not for purposes of profit is fully exempt from tax.
Income of Computer Training Institute or Scheme:
Any income derived by the taxpayer from the running of any computer training institute or computer training scheme is exempt for five years if the following conditions are satisfied:
1)         Recognized institute or scheme:
The institution or scheme is recognized by the Board of Education or a University or the University Grants Commission; and
2)         The Institution or scheme is set up between 01-07-1997 and 30-06-2006.
Income of Vocational or Technical or Poly-Technical Institute:
Profit and gains of a taxpayer from the running of any vocational, technical or poly-technical institutes shall be exempt from tax for a period of five years, if the following conditions are satisfied:
1)         The institute is recognized by:
i) A Board of Technical Education.
ii) A University; or
iii) Any other authority appointed in this behalf by the Federal Government or Provincial Government; and
2)         The institute is set up between 01-07-2004 and 30-06-2008.
Note:    The exemption period of five years shall begin from the tax year in which the institution is recognized.
Income of Sports Board:
Any income derived by any Board or other organization established in Pakistan for the purposes of controlling, regulating or encouraging major games and sports recognized by the Government is fully exempt from tax.
For example: Income of Pakistan Cricket Board is fully exempt from tax.
Subsidy by the Federal Government:
Subsidy received by a person from the Federal Government which is granted for the purpose of implementation of any order of the government is exempt from tax.
Explanation:
The Government of Pakistan has provided subsidy to the WAPDA to facilitate the general consumer in respect of lower rated electricity. Any income of the WAPDA in respect of subsidy from Government is fully exempt from tax.
Dividend Received by the Investment Corporation of Pakistan (ICP):
Any dividend received by the Investment Corporation of Pakistan (ICP) from any other company which has paid or will pay tax in respect of the profits out of which such dividends are paid is fully exempt from tax.
Capital Gains:
The Second Schedule of the Income Tax Ordinance, 2001 allows exemption to certain capital gains from tax. Following capital gains are exempt from tax.
According to clause 110 of the Second Schedule:
Capital gains from sale of:
1)         Modarba certificates
2)         Redeemable capital; like
i) Participation Term Certificates (PTCs)
ii) Term Finance Certificates (TFCs)
iii) Musharika Certificates
iv) Any other security not based on interest (excluding shares)
3)         Pakistan Telecommunication Vouchers issued by the Government of Pakistan.
4)         Shares of Public Company
Period of exemption:
Exempt up to June 30, 2007 (up to tax year 2007)
According to clause 111 of the Second Schedule:
Any capital gain arising from the sale of shares of a public company, if shares have been sold by a foreign institutional investor approved by the Federal Government.
Period of exemption:
Permanently exempt
According to clause 113 of the Second Schedule:
Company registered in Special Industrial Zone (SIZ):
Any capital gain arising from the sale of shares of public company set up in any Special Industrial Zone is exempt from tax.
Period of exemption:
It is exempted up to five years from the date of commencement of commercial production.
According to clause 114 of the Second Schedule:
Industrial Undertaking Set Up in Export Processing Zone (EPZ):
Any capital gain arising from the sale of shares of an Industrial undertaking set up in Export Processing Zone.
Period of exemption:
Permanently exempt
Income from Transport Business:
Any income derived by a person from plying of any vehicle registered in the territories of Azad Jammu and Kashmir, excluding income arising from the operation of such vehicle in Pakistan, to a person who is president in Pakistan and non-resident in those territories.
Profits and Gains from Industrial Undertaking:
Profits and gains of a taxpayer from an industrial undertaking shall be exempt from tax for a period of ten years starting from the later of the month in which it is set up or has commenced the commercial production. This exemption shall be allowed if the following conditions are satisfied:
1)         Period of establishment of Industrial Undertaking:
The Industrial Undertaking is set up between 01-07-1995 and 31-12-2002.
2)         Situated in Special Industrial Zone:
It has been setup in such area as is notified by the Federal Government as a Special Industrial Zone.
3)         New establishment:
It is newly set up industrial taking.
4)         Managed by company engaged in industrial undertaking:
It is owned and managed by a company formed exclusively for operating such industrial undertaking and registered under the Companies Ordinance, 1984 having its registered office in Pakistan.
5)         Limitation on nature of business:
It is not engaged in any of the following businesses:
i) Manufacture of arms and ammunition;
ii) Security printing, currency & mint;
iii) High explosives, radioactive substances;
iv) Alcohol (except industrial alcohol);
v) Cotton ginning, spinning (except as part of integrated textile unit);
vi) Sugar manufacturing (white), flour milling;
vii) Steal re-rolling and furnace;
viii) Tobacco industry, ghee or vegetables oil industry;
ix) Plastic bags (including polypropylene & polyethylene);
x) Beverages (excluding fruit juices);
xi) Polyester industry, automobile assembly and cement industry.
Income Earned from Foreign Enterprise:
If a company registered under the Companies Ordinance, 1984, and having its registered office in Pakistan, derives any income by way of royalty, commission or fee for consideration of usage of any patent, invention or other intangible property rights, it shall be exempt from tax subject to the following conditions:
a)         Received as result of services rendered outside Pakistan:
The royalty, fee etc. should be received from a foreign enterprise for technical services rendered outside Pakistan.
b)         Amount received in Pakistan:
The amount is received in Pakistan.
Income from Electric Power Generation Project:
Any profits and gains derived from an electric power generation project set up in Pakistan shall be exempt from tax if:
1)         Period of establishment:
The project is set up on or after 01-07-1998.
2)         Managed by company engaged in Electric Power Generation Project:
The project is owned and managed by a company formed for operating such project and registered under the Companies Ordinance, 1984 and having its registered officer in Pakistan.
3)         New establishment:
The project has been newly started (it has not been formed by splitting up or reconstitution of a business already in existence).
Notes:
i) It is not necessary for Hub Power Company Limited to be managed by a company whose registered office is in Pakistan.
ii) Any project, which is oil-fired power plant, shall not be exempt from tax with effect from 22-10-2002. However, the Duel Fuel (Oil and Gas) power projects set up on or after September 1, 2001, 1005 shall be exempt from tax.
Income from Export of Computer Software:
Income from export of computer software or IT enabled services up to the period ending on 30th day of June, 2016.
a)         “It Services” include software development, software maintenance, system integration, web designing, web development, web hosting and net work design.
“IT enabled services” include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centres, data entry operators and insurance claims processing.
Income from Transfer of Membership Rights:
Any income derived by an individual from transfer of his membership rights or shares of a Stock Exchange in Pakistan to a company at any time between 01-07-2005 and 30-06-2006 is fully exempt from tax.
Income of Special US Dollar Bonds:
Any amount received on encashment of Special US Dollar Bonds issued under the Special US Dollar Bonds Rules, 1998.

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