Enquiry:
Before Finance Act, 2013, the Division II of the First Schedule to the Income Tax Ordinance, 2001 read as under:
“(i) The rate of tax imposed on taxable income of a company for the tax year 2007 and onwards shall be 35%]”.
Through Finance Act 2013 the following proviso has been add in the above clause (i): “Provided that the rate of tax imposed on taxable income of a company other than a banking company shall be 34% for the tax year 2014.”
The above proviso relate to the tax year 2014 only. Kindly advise at which tax rate the temporary differences as at June 30, 2013 will be converted into deferred tax. Your advice is particularly required regarding temporary differences outstanding as at June 30, 2013 that will be reversing in the:
- year ending on June 30, 2014; and
- years ending on June 30 , 2015 and onwards.
Opinion:
The Committee would like to draw your attention to the following para of lAS 12 ‘Income Taxes’:
47 Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
On the basis of above, the Committee is of the view that the tax rate of 34% shall be applied for temporary differences outstanding as at June 30, 2013 that will be reversing in the year 2014. The differences outstanding as at June 30, 2013, that will be reversing in the year 2015 and onwards, shall be accounted for at the rate of 35%.
(August 29, 2013)