TAX CREDIT

Tax credit is an amount of money that taxpayers can subtract directly from taxes owed to their
government. If an individual is charged more tax, then the excess tax is given as a tax credit which can be
adjusted against future tax liabilities.

A person is entitled to a tax credit in the following ways:

Charitable donations: Donations to any education’s board, hospital, relief fund or NPO shall be
entitled to a tax credit, limit being 30% of the taxable income for an individual or AOP and 20% for a
company.

For example, if taxable income of an individual is 1 million and donated 0.4 million to Shaukat Khanum,
then tax credit would be given at 0.3 million only (1 million * 30%=0.3 million).

Investment in shares and insurance: A person incurring the cost of acquiring new shares,
sukuks in Pakistan or exchange traded funds shall be entitled to a tax credit, up to a limit of either 20% of
the person’s taxable income, total cost incurred or two million rupees, whichever is lowest. Whereas the
limit for life insurance premium paid is either 5% of the person’s taxable income for the year, total cost of
premium or Rs. 150,000, whichever is lowest.

For example, if taxable income of an individual is 1 million and bought shares of worth 0.1 million then
tax credit would be given at 0.1 million (lowest of 0.1 million, 0.2 million or 2 millions).

Approved pension fund: if a person contributes or pays premium in approved pension fund, then
up to a limit of 20% of the person’s taxable income or total contribution, whichever is lower, is tax
credited.

For example, if taxable income of an individual is 1 million and paid 0.1 million in approved PF then tax
credit would be given at 0.1 million (lower of 0.1 million or 0.2 million).

Point of sale machine: A person who is required to integrate with Board’s computerized system
for real time reporting of sale or receipt, shall be entitled to tax credit in respect of the amount invested in
purchase of point of sale machine, up to a limit of amount either actually invested in purchase of point of
sale machine or Rs. 150,000 per machine, whichever Is lower.

For example: If a person buys a machine for the above said purpose for 200,000 PKR then tax credit
would be given at 150,000 PKR only.

Investments: Company investing any amount in the purchase of plant and machinery, for
extension or expansion, shall be allowed a tax credit equal to ten per cent of the amount so invested.

For example: If a person buys a machine for the above said purpose for 100,000 PKR then tax credit
would be 10,000 PKR only.

Industrial undertakings: Where a company in Pakistan invests any amount, before the first day
of July, 2011, with at least seventy per cent new equity raised through issuance of new shares, in the
purchase and installation of plant and machinery for an industrial undertaking a tax credit shall be allowed
against the tax payable.

Certain persons: 100% tax credit is given to:

Persons in coal mining projects in Sindh

Startup certified by the PSEB for initial 3 tax years in total

Exports of IT related services

Specified industrial undertakings: Where investment is made in purchase and installation of

new machinery, buildings, equipment, hardware and software, except self-created software and used
capital goods shall be allowed to take an investment tax credit of twenty five percent of the eligible
investment amount.