If you’re a corporate body in Pakistan, then understanding Alternative Corporate Tax (ATC) is crucial. This tax regime is applicable to all corporate bodies, except for some exclusions such as insurance companies, banking companies, and companies engaged in petroleum exploration and production. In this article, we’ll explain what ATC is and how to calculate it.
What is Alternative Corporate Tax (ATC)?
Alternative Corporate Tax (ATC) is a tax regime that is applicable to all corporate bodies in Pakistan. It is calculated as the higher of 17% of accounting income or the corporate tax liability determined under the Income Tax Ordinance 2001, including the minimum tax on turnover. Corporate Tax means higher of tax payable by the company under Normal Tax Regime and minimum tax payable under any of the provisions of the Income Tax Ordinance, 2001.
Calculation of Alternative Corporate Tax (ATC)
To calculate ATC, you can follow the formula below:
Accounting Income: The accounting profit or income before tax as declared by an entity through Financial Statements. But after settling business expenditures.
- Exempt income: Any income that is exempted from tax
- Income other than NTR or minimum tax: Any income that is not subject to normal tax regime or minimum tax
- Capital gain: Any income received from the disposal of specified listed securities
- Income subject to tax credit u/s 100C: Any income entitled to 100% tax credit on account of equity investment
Taxable Income for ATC:
Subtract the above amounts from accounting income to calculate the taxable income for ATC.
ATC vs Corporate Tax (CT)
If ATC is higher than Corporate Tax (CT), then the amount is carried forward to the next tax year and subsequently adjusted against the CT. The unadjusted tax amount can be carried forward up to ten years. If any modification occurs via amendment or Act in any later year, the ATC or CT shall be adjusted accordingly.
Exclusions to Alternative Corporate Tax (ATC)
The Income Tax Ordinance 2001 gives some exclusions to ATC, which are as follows:
- Insurance companies
- Companies engaged in exploration and production of petroleum
- Banking companies
- Companies which are allowed reduced rates under the ordinance
Income that is exempted from ATC
Certain types of income are exempt from ATC, which include:
- Exempt incomes
- Capital gain on disposal of specified listed securities
- Income entitled to 100% tax credit on account of equity investment
- Income of non-profit organizations, trusts, and welfare institutions
In summary, ATC is a tax regime that is applicable to all corporate bodies in Pakistan, except for some exclusions. To calculate ATC, you need to subtract exempt income, income other than NTR or minimum tax, capital gain, and income subject to tax credit u/s 100C from accounting income. If ATC is higher than CT, then the amount is carried forward to the next tax year and subsequently adjusted against the CT. Always ensure that you comply with the regulations and exclusions of ATC to avoid any legal issues.