FBR Sets New Conditions for 10% Electronic Systems Tax Credit

The Federal Board of Revenue (FBR) has introduced additional requirements for taxpayers seeking a 10% tax credit on investments in electronic systems designed for real-time production monitoring and sales reporting.

Under a notification issued on Wednesday, the credit available under Section 64D of the Income Tax Ordinance, 2001, will equal 10% of the amount actually invested in eligible electronic resources during the tax year in which those resources are successfully installed, integrated and configured with the FBR’s computerised system.

The new conditions cover taxpayers required to integrate their business operations with FBR systems under the Income Tax Ordinance, 2001, the Sales Tax Act or the Federal Excise Act, 2005.

For an investment to qualify, the electronic equipment, hardware, software or related components must be used directly and exclusively for the prescribed integration.

The FBR has made successful activation and documentary verification compulsory before the tax credit can be claimed. Integration must be supported by an activation, commissioning, configuration or integration record generated or verified through the FBR’s computerised system.

Such records must contain the taxpayer’s identification, details of the electronic resource and the date on which the integrated system became operational.

Taxpayers must also submit invoices, bills, agreements, licences or other acquisition documents, together with proof of payment or outstanding liability, to substantiate the amount invested.

Eligible investment expenditure will include the purchase or acquisition cost of electronic resources and one-time costs directly related to their installation and implementation.

Expenses for configuration, interface development, integration and testing may also qualify where they are necessary to make the electronic resource operational for the required integration.

However, the FBR has excluded several types of expenditure from the tax credit calculation. Routine operating costs, maintenance and repair expenses, annual maintenance contracts, post-commissioning support and recurring service charges will not be eligible.

Internet, telecommunications and utility expenses are also excluded, along with employee salaries, training costs, consumables and financing expenses.

The credit cannot be claimed for general-purpose systems or equipment that are not directly and exclusively dedicated to the required integration. However, a separately identifiable component of such a system may qualify if it is exclusively used for the prescribed integration.

Any discount, rebate, refund, grant or subsidy received or receivable against the electronic resource must also be deducted from the investment amount eligible for the credit.

Similarly, refundable, adjustable or otherwise recoverable taxes and duties will not be included in the qualifying investment.

The FBR has further directed that the credit be claimed through the income tax return for the tax year in which the electronic resource is successfully installed, integrated and configured.

The same expenditure cannot be claimed more than once under Section 64D.

Taxpayers will have to disclose investment details in their income tax returns or through the relevant schedule available on the FBR’s IRIS portal.

The required information will include the electronic resource description, vendor or supplier details, invoice or agreement references, acquisition or implementation dates and the amount actually invested.

Taxpayers must also provide the relevant integration or resource identification number, along with the activation or commissioning date.

The new requirements establish specific documentation and verification standards for accessing the tax credit, making eligibility dependent on successful system integration and investment costs directly attributable to that process.