Fourth Schedule: Fourth Schedule

THE FOURTH SCHEDULE (See Section 99) RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS OF INSURANCE BUSINESS Profits on Life Insurance to be Computed Separately 1. The profits and gains of a taxpayer carrying on life insurance business chargeable under the head “Income from Business” shall be computed separately from the taxpayer’s income from other business. 1[Income from other business shall be profit or loss before tax as per profit and loss account prepared under the Insurance Ordinance, 2000 (XXXIX of 2000), excluding any surplus appropriation made during the year.] Computation of Profits and Gains of Life Insurance Business 2[2. The profits and gains of a life insurance business shall be the current year’s surplus appropriated to profit and loss account prepared under the Insurance Ordinance, 2000 (XXXIX of 2000), as per advice of the Appointed Actuary, net of adjustments under sections 22(8), 23(8) and 23(11) of the Insurance Ordinance, 2000 (XXXIX of 2000) so as to exclude from it any expenditure other than expenditure which is, under the provisions of Part IV of Chapter III, allowed as a deduction in computing profits and gains of a business to the extent of the proportion of surplus not distributed to policy holders.] Computing the Surplus under Rule 2 3. (1) The following 3[provisions] shall apply in computing the surplus for the purposes of rule 2, namely:– (a) the amounts paid to, or reserved for, or expended on behalf of policy-holders shall be allowed as a deduction; (b) any amount either written off or reserved in the accounts, or through the actuarial valuation balance sheet to meet depreciation, or loss on the realization of investments shall be 1 Added by the Finance Act, 2004. 2 Rule (2) substituted by the Finance Act, 2004. The substituted rule (2) read as follows: “2. The profits and gains of a life insurance business shall be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by actuarial valuation made for the last inter- valuation period ending before the tax year for which the assessment is to be made so as to exclude from it any surplus or deficit included therein which was made in any earlier inter-valuation period and any expenditure other than expenditure which is, under the provisions of Part IV of Chapter III, allowed as a deduction in computing the profits and gains of a business.” 3 The word “rules” substituted by the Finance Act, 2003. 703 Fourth Schedule_____________ __________________________ allowed as a deduction, and any sums taken credit for in the accounts or actuarial valuation balance sheet on account of appreciation, or gains on the realisation of investments 1[shall be included in the surplus]; and (c) profit on debt 2[accrued] in the inter-valuation period in respect of any securities of the Federal Government which have been issued or declared to be income tax-free shall not be excluded, but shall be exempt from tax 3[ ]. (2) For the purposes of clause (a) of sub-rule (1) – (a) in the first computation of the surplus, no account shall be taken of amounts referred to in the 4[said clause] to the extent to which they are paid out, or in respect of any surplus brought forward from a previous inter-valuation period; and (b) if any amount reserved for policy-holders ceases to be so reserved, and is not paid to, or expended on behalf of policy- holders, the sums previously allowed as a deduction under this Ordinance 5[or the repealed Ordinance] shall be treated as part of the 6[respective statutory fund] for the tax year in which the amount ceased to be so reserved. (3) For the purposes of clause (b) of sub-rule (1), if it appears to the Commissioner, after consultation with the Securities and Exchange Commission of Pakistan, that the rate of profit on debt or other factors employed in determining the liability in respect of outstanding policies is inconsistent with the valuation of investments so as artificially to reduce the surplus, the Commissioner may make such adjustment to the allowance for depreciation, or in respect of appreciation, of such investment as the Commissioner thinks reasonable. 7[ ] 1 Inserted by the Finance Act, 2003. 2 The word “received” substituted by the Finance Act, 2004. 3 The words and figures “in accordance with Part VII of Chapter III” omitted by the Finance Act, 2003. 4 The word ”sub-clause” by the Finance Act, 2003. 5 Inserted by the Finance Act, 2003. 6 The word “surplus” by the Finance Act, 2004. 7 Rule (4) omitted by the Finance Act, 2004. The omitted rule (4) read as follows: “Adjustment of Tax Paid by Deduction at Source 4. Where, for any tax year, an assessment of the profits and gains of life insurance business is made in accordance with the annual average of a surplus disclosed by a valuation for an inter- valuation period exceeding twelve months, then, in computing the tax due for that year, no credit shall be allowed for the tax paid in the tax year, but credit shall be given for the annual average of the tax paid by deduction 7[or otherwise on profit on debt received on any security of the Federal Government, a Provincial Government, a local authority or a company] during the period.” 702 Fourth Schedule_____________ __________________________ General Insurance 5. The profits and gains of any business of insurance (other than life insurance) shall be taken to be the balance of the profits disclosed by the annual accounts required under the Insurance Ordinance, 2000 (XXXIX of 2000), to be furnished to the Securities and Exchange 1[Commission] of Pakistan subject to the following adjustments – (a) any expenditure or allowance, or any reserve or provision for any expenditure, or the amount of any tax deducted at source from dividends or profit on debt received which is not deductible in computing the income chargeable under the head “Income from Business” shall be excluded; 2[(b) subject to the provisions of rule 6A, any amount of investment written off shall be allowed as a deduction, but any amount taken to reserve to meet depreciation of investments shall not be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation of investment shall not be treated as part of the profits and gains, unless these have been crystallized as gains or losses on the realization of investments;] (c) no deduction shall be allowed for any expenditure, allowance, reserve, or provision in excess of the limits laid down in the Insurance Ordinance, 2000 (XXXIX of 2000), unless the excess is allowed by the 3[Securities] and Exchange Commission and is incurred in deriving income chargeable to tax 4[; and] 5[(d) no deduction shall be allowed for any expenditure incurred on account of insurance premium or re-insurance premium paid to an overseas insurance or re-insurance company or a local agent of an overseas insurance company until tax at the rate of 5% is withheld on the gross amount of insurance or re-insurance premium.] 1 The word “Commissioner” substituted by the Finance Act, 2002. 2 Sub-rule (b) substituted by the Finance Act, 2008. The substituted sub-rule (b) read as follows: “(b) any amount either written off or taken to reserve to meet depreciation or loss on the realization of investments shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation, or gains on the realization of 2[investments] shall be treated as part of the profits and gains, provided the Commissioner considers the amount to be reasonable; and” 3 The word “Security” substituted by the Finance Act, 2003. 4 Full stop substituted by the Finance Act, 2008. 5 Added by the Finance Act, 2008. 703 Fourth Schedule_____________ __________________________ Mutual Insurance Association 6. These rules shall also apply to the assessment of the profits and gains of any business of insurance carried on by a mutual insurance association and such profits and gains shall be chargeable to tax under the head “Income from Business”. 1[ ] 2[3[6B.In computing income under this Schedule, there shall be included capital gains on disposal of shares and dividend of listed companies, vouchers of Pakistan Telecommunication corporation, modaraba certificate or instruments of redeemable capital and derivative products and shall be taxed at the rates specified in Division II of Part I of First Schedule.”] 4[ ] 5[(6C) Notwithstanding anything contained in this Ordinance, where loss on disposal of securities is sustained in a tax year, the loss shall be set off only against the gain from any other securities chargeable to tax under Rule 6B and no loss shall be carried forward to the subsequent tax year.] 1 Rule (6A) omitted by the Finance Act, 2015. The omitted rule (6) read as follows:- “(6A)Exemption of Capital Gains from the sale of shares.- In computing income under this Schedule, there shall not be included “capital gains”, being income from the sale of modaraba certificates or any instrument of redeemable capital as defined in the Companies Ordinance, 1984 (XLVII of 1984), listed on any stock exchange in Pakistan or shares of a public company (as defined in sub-section (47) of section 2) and the Pakistan Telecommunications Corporation vouchers issued by the Government of Pakistan, derived up to tax year ending on the thirtieth day of June, 2010.” 2 Added by the Finance Act, 2010. 3 Rule 6B substituted by the Finance Act, 2016. Substituted rule read as follows:- “(6B) Capital gains on disposal of shares of listed companies, vouchers of Pakistan Telecommunication corporation, modaraba certificate or instruments of redeemable capital and derivative products shall be taxed at the following rates: 3[“S.No. Period Tax Year 2015 Tax Year 2016 (1) (2) (3) (4) 1 Where holding period of a security 12.5% 15% is less than twelve months 2 Where holding period of a security 10% 12.5% is twelve months or more but less than twenty four months 3 Where holding period of a security 0% 7.5% is twenty four months or more but less than four years; and”] 4 Proviso omitted by the Finance Act, 2015. The omitted proviso read as follows:- “Provided thatthis rule shall not apply to the securities held for a period of more than twelve months.” 5 Added by the Finance Act, 2010. 704 Fourth Schedule_____________ __________________________ 1[6D. The provisions of section 4B shall apply to the taxpayers under this schedule and taxed at the rates specified in Division IIA of Part I of the First Schedule.”] 2[6DA. The provisions of section 4C shall apply to the taxpayers under this Schedule and shall be taxed at the rates specified in Division IIB of Part I of the First Schedule from tax year 2022 onwards.] 3[(6DB) The provisions of section 99D shall apply to the taxpayers under this Schedule.] 4[6E. Notwithstanding anything contained in this Schedule, the Commissioner shall be authorized to examine and amend the amount of income as disclosed in the financial statement presented to the Securities and Exchange Commission of Pakistan with respect to commission paid and claimed for losses.] Definitions 7. In this Schedule, – “investments” includes all forms of shares, debentures, bonds, deposits and other securities, derivative instruments, and includes immovable property whether or not occupied by the insurer; “life insurance business” means life insurance business as defined in section 4 of the Insurance Ordinance, 2000 (XXXIX of 2000);5[and] “Securities and Exchange Commission of Pakistan” means the Securities and Exchange Commission established under the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) 6[:] 7[“Securities” for the purposes of Rule 6B means shares of a public company, vouchers of Pakistan Telecommunication Corporation, Modaraba Certificates or instruments of redeemable capital and derivative products.”] 8 [ ] 1 2015. Inserted by the Finance Act, 2 2022. Rule 6DA inserted by the Finance Act, 3 2023. Rule (6DB) added by the Finance Act, 4 New clause (6E) inserted through Finance Act, 2019. 5 Inserted by the Finance Act, 2002 6 Full stop substituted by the Finance Act, 2010. 7 Added by the Finance Act, 2010. 8 Paragraph four omitted by the Finance Act, 2002. The omitted fourth paragraph of the Fourth Schedule read as under: “Securities and Exchange Commissioner of Pakistan” means the Securities and Exchange Commissioner of Pakistan established under the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997).” 705 Fifth Schedule – Part I________ __________________________

Effective date: 2001-09-13

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