Income Tax Ordinance, 2001 — Section 5AA: Tax on return on investments in sukuks

6[5AA. Tax on return on investments in sukuks.—(1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIB of Part I of the First 1 section 5A substituted by the Finance Act, 2017. The substituted section read as follows: “5A. Tax on undistributed reserves.—(1) Subject to this Ordinance, a tax shall be imposed at the rate of ten percent, on every public company other than a scheduled bank or a modaraba, that derives profits for a tax year but does not distribute cash dividends within six months of the end of the said tax year or distributes dividends to such an extent that its reserves, after such distribution, are in excess of hundred percent of its paid up capital, so much of its reserves as exceed hundred per cent of its paid up capital shall be treated as income of the said company: Provided that for tax year 2015, cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of return for tax year 2015.

(2)The provisions of sub-section (1) shall not apply to

(a)a public company which distributes profit equal to either forty per cent of its after tax profits or fifty per cent of its paid up capital, whichever is less, within six months of the end of the tax year;

(a)a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and

(b)a company in which not less than fifty percent shares are held by the Government.

(3)For the purpose of this section, ‘reserve‘ includes amounts setaside out of revenue or other surpluses excluding capital reserves, share premium reserves and reserves required to be created under any law, rules or regulations.”] 2 The “expression” “year 2017 and onwards” substituted by “years 2017 to 2019” through Finance Supplementary (Second Amendment) Act, 2019 5 The word “seven and half” substituted by the Finance Act, 2018 4 The word “forty” substituted by the Finance Act, 2018 5 The word “or bonus shares” omitted by the Finance Act, 2018 6 Inserted by the Presidential Order No. F.2(1)/2016-Pub dated 31.08.2016. 36 Chapter II – Charge of Tax Schedule, on every person who receives a return on investment in sukuks from a special purpose vehicle1[, or a company].

(2)The tax imposed under sub-section (1) on a person who receives a return on investment in sukuks shall be computed by applying the relevant rate of tax to the gross amount of the return on investment in sukuks.

(3)This section shall not apply to a return on investment in sukuks that is exempt from tax under this Ordinance.”]