Tax Exemption "Software Export"

[Aikkhilari]

AoA
I work as a Contractor to provide Software services to a UK company under a business name which appears on my NTN certificate.

The amount is paid to my business account.

My question is, how to I fill out the IT form to claim the tax exemption under clause 133 Part I 2nd schedule "Export of Computer Software", which provides 0% tax on IT Services export.

On "INDIVIDUAL-AOP (1 of 2)" tab, I have put all my income on Row#8 (ie "Other Revenues ...")

I have put the same Amount on Row#29 (ie Business Income Exemption)

But this does not offset the Row#33 (Taxable Income) to ZERO.

Please provide some guidence.

The ohter question I have is

I receive the income in my GBP account which is in my business name. At what FX rate should I report that income in Rupees on the IT form. Should it be todays rate or the for the date on which remittance was received

Thanks a lot

[student_of_law]

Regarding first query, I think you should enter your income only in column 29 (i.e. exempt business income) Leave the above columns 1 to 21 blank.

Regarding, time of conversion of value of currency, section 71 is relevant. It says, ".... the amounts shall be converted to the rupee at the SBP rate..... on the date amount is taken into account for the purpose of this Ordinance.

The question is when the amount is said to be taken into account. In my opinion, for the purpose of calculation of income when it is received [as explained in s.69] would be the relevant time. Similarly for the purpose of acquisition of property the time of acquisition would be relevant, for determining conversion rate. However, for conversion of foreign exchange in bank account for the purpose of wealth statement, rate on the date for which wealth statement is made would be relevant.

[Aikkhilari]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by student_of_law</i>
<br />
Regarding, time of conversion of value of currency, section 71 is relevant. It says, ".... the amounts shall be converted to the rupee at the SBP rate..... on the date amount is taken into account for the purpose of this Ordinance.
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Thanks a lot for your reply, it is very helpful

On conversion part, I still have some doubts. The amount which I have received in my GBP account have not been actually converted into Rupees, I am just reporting the Rupee Equivalent of the amount (with deposit date Open Market FX Rate).

I believe to avail the "Software Export" exemption you don’t have to actually convert the proceeds into Rupees. The maintenance of the funds can still be in GBP. Is this assumption correct?

Coming back to claiming the "Income Expemtion", if I do not enter anything on Row#16 to 21 and put the whole income on Row#29, assuming there is no other income, does it mean that I dont have to file Wealth Statement as my income will not touch the threshold.


Thanks again

[student_of_law]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by Aikkhilari</i>
<br />[quote]<i>Originally posted by student_of_law</i>
<br />

On conversion part, I still have some doubts. The amount which I have received in my GBP account have not been actually converted into Rupees, I am just reporting the Rupee Equivalent of the amount (with deposit date Open Market FX Rate).

I believe to avail the "Software Export" exemption you don’t have to actually convert the proceeds into Rupees. The maintenance of the funds can still be in GBP. Is this assumption correct?

<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Here Conversion does not mean actual conversion. Rather it is conversion of value of foreign currency into Pak Rupees. By "time of conversion" I mean the point of time conversion rate prevalent at which would be applicable.

At least for the purpose of income tax laws, you are not required to actually convert the currency.

If your declared income is below 1 million, you don't need to file wealth statement u/s 116.

[Aikkhilari]

Much much appreciated. This may have been trivial questions to some, but, it has cleared so much doubt from my mind.

Thanks again

[rehanjaved00]

Ali,
thanks for asking this question. i have been having same problem. but i want add something to this question. My company also sell products locally(which is taxable).
While preparing tax return in Profit and loss section, shall i enter total income(Export+Local) or shall i enter local sales and shall i enter total costs and expenses of company or only which is related to the local sales department.
An early response is much appreciated!
thanks
Rehan Javed

[student_of_law]

Regarding costs and expenses, in calcuating your taxable income under normal regime, i.e. income from local sales, you will only deduct the expenses relating to income generated through local sales. How to apportion these expenses is discussed in detail FBR circular No.12 of 1991, link to that is pasted below

http//www.fbr.gov.pk/Docs/20101249124912621991cir12.pdf

Regarding how to mention sales, in a recent post at accountancy.com.pk one of the valued members has explained this. Link is pasted below;

http//www.accountancy.com.pk/forum/topic.asp?topic_id=26797

According to this post total sales, including FTR, is to be mentioned in Net Sales, while later FTR sales would be deducted by adding it to the columns of admissible deductions.

I don't know whether this method is backed by any SRO or practice etc. However, I would personally prefer, if it is not barred by law, that only sales relating to normal tax regime should be mentioned at page 1 as well as expenses relating to the same. While exports/ supplies falling under FTR should only be mentioned at page 2, of the return. (Provided such export is not exempt as in the case of export of software)

[rehanjaved00]

Thanks for the help..Please correct me if i am wrong , as per my understanding after reading that post is

Net sales = Receipts from export+ Local sales
Cost of sale = Total cost
Gross revenue= Net sales-cost of sale
P&L expenses = Total expenses
Net income=
ADD Non admissible deductions
Expenses/costs required for Export of software
Partners salaries
Partner Allowances
Accounting depreciation
LessAdmissible deductions
Receipts from exports of software
Tax Depreciation
Total taxable income


Thanks!


o

[student_of_law]

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by rehanjaved00</i>
<br />Thanks for the help..Please correct me if i am wrong , as per my understanding after reading that post is

Net sales = Receipts from export+ Local sales
Cost of sale = Total cost
Gross revenue= Net sales-cost of sale
P&L expenses = Total expenses
Net income=
ADD Non admissible deductions
Expenses/costs required for Export of software
Partners salaries
Partner Allowances
Accounting depreciation
LessAdmissible deductions
Receipts from exports of software
Tax Depreciation
Total taxable income


Thanks!


o
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

You have deviated a little from the post that I referred to, however, it does not affect the result. You have added back cost/expenses relating to export in inadmissible deductions columns after deduting total expenses/ cost from Trading &P & Lexpenses. While the author of the referred to post took into account only expenses relating to income falling under normal tax regime.

Alternatively, you may write only income and expense relating to normal tax regime on page 1 of the return while, exports (income relating to FTR) on page 2 of the return