FBR exempts profits earned on government debt instruments

The Revenue Division of the ministry of finance and revenue amended the Income Tax Ordinance 2001, by issuing Statutory Regulatory Order (SRO) 213 (I) on the 24th of February.

The SRO has amended the Seventh Schedule (rules for computation of the profits and gains of a banking company and tax payable thereon) of the aforementioned ordinance, by adding a sub rule in the exemptions clause. According to this new addition, income tax on profit on debt and capital gains from debt and debt instruments approved by the Federal government, derived by any approved non-resident banking company, shall be exempted.

The change was made under the rule 10 of the seventh schedule of the same ordinance that allows the government to implicate such changes. 

The government raises money through debt instruments, such as T-bills and Pakistan Investment Bonds etc. These instruments are backed by the federal government and often come with a fixed yield. What is likely a move to incentivize savings, in line with contractionary monetary and fiscal policy, the government has given a tax holiday on the yield earned through these instruments.