The Federal Board of Revenue (FBR) has clarified the investment tax credit available to companies under Section 65B of the Income Tax Ordinance, 2001 for Tax Year 2027. While the provision provides a 10% tax credit on certain qualifying investments, it does not create a new tax credit for investments made during 2026 or Tax Year 2027.
What Is the Investment Tax Credit?
Under Section 65B, a qualifying company may claim a tax credit equal to 10% of the amount invested in eligible plant and machinery used for the extension, expansion, balancing, modernisation, or replacement of existing plant and machinery in an industrial undertaking established in Pakistan.
For example, an eligible investment of Rs. 100 million could result in a tax credit of Rs. 10 million, subject to the applicable legal conditions.
Important: Historical Investment Period
The main 10% credit under Section 65B applies to qualifying investments where the plant and machinery was purchased and installed between July 1, 2010 and June 30, 2019.
Therefore, companies should not interpret Section 65B as providing a new 10% investment tax credit for plant and machinery purchased and installed during Tax Year 2027.
Special 20% Tax Credit
Section 65B also contains a separate provision for certain companies established in Pakistan before July 1, 2011.
Where qualifying companies invested through 100% new equity between July 1, 2011 and June 30, 2016 for balancing, modernisation, or replacement of existing plant and machinery, the applicable tax credit was 20% of the investment, subject to the statutory requirements.
Carry-Forward of Unused Credit
Where the available tax credit exceeded the tax payable in the relevant year, the unused amount could be carried forward, subject to the applicable limits.
For investments covered under Section 65B(1), the unused credit could generally be carried forward for up to two subsequent tax years, while certain investments under Section 65B(4) could qualify for a longer carry-forward period.
What Companies Should Check
Companies reviewing investment tax credits for Tax Year 2027 should verify:
- Date of investment
- Purchase and installation dates
- Nature and use of plant and machinery
- Applicable Section 65B provision
- Previous tax credits claimed
- Available carry-forward credit
- Compliance with all statutory conditions
FBR may recover a tax credit if it determines that the relevant conditions were not fulfilled.
Key Takeaway
Section 65B provides investment tax credit benefits for specified historical investments, but it does not introduce a fresh 10% credit for new plant and machinery investments made in Tax Year 2027.
Businesses should carefully review their investment history and supporting documentation before claiming any Section 65B benefit.
Need Assistance With Tax Compliance?
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Disclaimer: This article is for general informational purposes only and does not constitute legal, tax, or professional advice. Tax laws, rules, and FBR policies may change from time to time. Readers should consult a qualified tax or legal professional regarding their specific circumstances.