National Board of Revenue has issued a new statutory regulatory order barring factories relocated to economic zones from availing income tax exemption.
Income tax wing of NBR on March 19 issued the SRO saying that investors should also preserve details information on intra-unit transactions taken place between two industrial units located inside and outside of economic zones for getting tax benefits.
According to the SRO, investors in the country’s economic zones will get tax exemption on operation of industrial units set up through only on new investment.
Tax exemption for 10 years at gradually reduced rates will not be applicable on relocated factories or set up using old machinery, it said.
NBR also cancelled the previous SRO issued in 2015 on the issue which imposed only two as usual conditions— obtaining taxpayers’ identification number, and preserving record keepings and filing income tax returns within the timeframe — for getting the benefit.
NBR has now tagged four new conditions for availing the benefits.
According to the SRO, an investor will not be able to relocate a factory to an economic zone from outside to avail the benefit.
He or she will not use any old machinery and equipment, previously used in producing goods and services in the country, to set up factory at economic zones, the SRO said.
Investors should preserve detail information on intra-unit transactions and have to provide the information along with income tax returns to the deputy income tax commissioners.
Officials said that the condition of preserving and submitting information related to intra-unit transaction was one kind of domestic transfer pricing.
NBR included the condition to prevent tax evasion through misuse of intra-unit transaction facility between two units of a company, they said.
There are allegations many corporate taxpayers evade income tax through transferring their income of a unit having income tax at higher rate to another unit of the same company enjoying tax exemption or having lower rate of tax, they added.
The provision will facilitate NBR to introduce transfer pricing provision for domestic companies as it had already introduced the provision for multinational companies, they said.
An investor should also maintain separate commercial books of accounts and bank accounts for industrial units located inside and outside of economic zones.
An investor will not also get the tax benefit for new unit set up at economic zones if he or she shuts down the factory located outside of the economic zones.
Officials said that NBR tagged the conditions to encourage new investment at both public and private zones being developed under the guidance of BEZA instead of merely relocation of the existing industrial units into the zones for availing the benefits.
As per incentive scheme, investors will enjoy full income tax exemption for the first three years of operation, 80 per cent for fourth year, 70 per cent for fifth year, 60 per cent for sixth year, 50 per cent for seventh year, 40 per cent for eighth year, 30 per cent for ninth year and 20 per cent for 10th year.
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