Alternative Corporate Tax

Features of Alternative Corporate Tax

The following features highlight the Alternative Corporate Tax:

• According to the ACT, the tax is charged at a 17% rate of the sum which is equivalent to the accounting income by deducting amounts as mentioned in sub-section (8) including exempt income; income subject to section 37A; income subject to tax under Section 650, 65E, 100C; income subject to chargeable tax under sub-section (4) of section 154, 156, sub-section (3) of Section 233, sub-section (7) of Section 148, 150, sub-section (3) of Section 153 and income subject to clause (18A), which is Part II of the Ordinance's Second Schedule.
• Taxpayers who are charged tax under the provisions of Fourth, Fifth and Seventh Schedule, are not liable to pay ACT. The accounting profit as mentioned in the financial statements for the year before deducting tax, is considered to be the accounting income.
• In cases where ACT is higher than the Corporate Tax, the excess amount is carried to the next fiscal year and adjusted against taxable income, which does not include accounting income. The excess, however cannot be moved forward to more than 10 tax years. According to FBR, there is an explanation in the new section which allows the carry forward of minimum tax under section 113.
• Income Tax experts claim that imposing ACT on companies' accounting income will ensure that these companies pay either corporate tax or ACT, whichever is higher. This move is expected to discourage companies who declare their losses in order to evade tax.
• According to the Income Tax experts, ACT is another type of Minimum Tax which depends on the accounting income on top of minimum tax based on the company's turnover or sales for a financial year. In cases the corporate tax is lower than ACT, the difference can be paid as ACT. The taxpayer also gets a benefit where the ACT for a single tax year can be carried forward with the minimum tax, adjusting it against the tax for the next 10 years.