The Finance Bill, 2018 was passed by the government on 22 May 2018, with some amendments. The Bill provides for the implementation of the measures proposed as part of the 2018-2019 Budget. The main measures are summarized as follows:

Corporate income tax:

  • The definition of Permanent Establishment brought in line with OECD requirements and extended to include the concept of cohesive business operations.
  • Offshore Digital Services to be taxed at 5% under the Final Tax Regime.
  • Income from offshore supplies in relation to construction, assembly or installation contracts proposed to be brought into tax net.
  • Super tax for TDPs extended upto tax year 2020 with reduction in tax rates.
  • Tax rate and limit on distribution of profit reduced.
  • The threshold for the purpose of tax credit on investment in shares and insurance premium to be enhanced from Rs. 1.5 million to Rs. 2 million.
  • Period of investments in plant and machinery, BMR and new industrial undertakings, under sections 65B, 65D and 65E extended to 2021.
  • Non-Profit Organization, trusts and welfare institutions may claim 100% tax credit against income from investment in micro finance banks.
  • In order to encourage and promote film-making in Pakistan, 50% tax rebate shall be allowed to foreign film makers making films in Pakistan and a 50% tax reduction in income tax liability shall be allowed to companies deriving income from film making for a period of five years.
  • Gain arising to a non-resident company from disposal or alienation outside Pakistan of an asset located in Pakistan will be treated as Pakistan source income and chargeable to tax at 15%.
  • Tax authorities’ powers to re-characterize income and deductions further enhanced to disregard corporate structures created as part of tax avoidance scheme.
  • Transfer pricing regulations and provision relating to geographical source of income made applicable to banking companies.
  • Income attributable to a controlled foreign company is to be included in the taxable income of a resident person for a tax year in case where capital or voting rights of the resident person is 10% or more and income of the controlled foreign company exceeds Rs. 10 million.

The provisions of the Finance Bill 2018 are generally applicable from 01 July 2018, unless otherwise specified.