Social, economic activities: IDB given tax relief on Pakistan operations

The Finance Bill proposes to grant exemption from tax to any income derived by the Islamic Development Bank from its operations in Pakistan in connection with its social and economic development activities. According to budget briefing 2011-12 compiled by Ernst & Young Ford Rhodes Sidat Hyder, the life insurance premium eligible for claiming tax credit by a salaried person or a person engaged in business.
The Bill seeks to substitute the section 62 of the Income Tax Ordinance, 2001, which was introduced in the Ordinance since its promulgation. While the scheme of tax credit substantially remains the same as before Monitory threshold of tax credit for investment in shares and life insurance enhanced to 15 per cent of the person's taxable income for the year or Rs 500, 000 whichever is the less. Retention period of investment in shares for claiming tax credit enhanced from 12 months to 36 months.
Monitory threshold of tax credit for contribution to an approved pension fund removed. However, income related threshold of 20 per cent remains unchanged. 100 per cent tax credit against tax payable introduced for establishing a new industrial undertaking for manufacturing in Pakistan or equity investment for BMR purposes through equity investment.
The Bill now seeks to insert a new clause (d) in sub-section (1) of section 111 as a consequence of which a person having concealed income or furnished inaccurate particulars of income shall include suppression of production, sales or any amount chargeable to tax or any item of receipt liable to tax, in whole or in part.
The effect of insertion of this new clause in sub-section (1) of this section brings within its ambit concealed income or the effect of furnishing of inaccurate particulars of income which in conjunction with section 182 of the Ordinance, may lead to imposition of penalties. Every resident company, (regardless of the amount of turnover) an individual and an association of persons (having turnover of Rs 50 million or more) is obliged to pay a minimum tax of 1 per cent of its turnover, regardless of whether any tax is otherwise payable or not.
The substantive provisions of section 113 remain unchanged with one proposed amendment sought to be introduced by the Bill. The existing provisions of this section permit the effect of minimum tax to be equalised by allowing it to be carried over for a period of 3 years immediately succeeding the tax year for which such amount of minimum tax is paid. This period of 3 years has been proposed by the Bill to be raised to 5 years. Tax deducted from payment for services rendered treated as minimum tax for all taxpayers (including corporate sector).
Penalty for late filing of return made oppressive. The Bills seeks to insert a clarification in serial no.1 of the Table contained in the section 182 whereby against the said entry, an explanation has been proposed to be added in column 3 of the said Table. The explanation provides that the expression "tax payable" shall mean tax chargeable on the taxable income on the basis of assessment made or treated to have been made pursuant to section 120, 121, 122 or 122C.
After persistent demand from various quarters, the section 206A for advance ruling was introduced by the Finance Act, 2003. The section has a limited application whereby the board is empowered to entertain an application from a non-resident taxpayer seeking an advance ruling from the Board. Since then, professional and other bodies have been urging to expand the scope of this section so as to enable resident taxpayers as well to enable them to seek facilitation through advance ruling from the board.
Instead of responding to the demand of resident taxpayers to be treated at par with non-resident taxpayer, in the matter of advance ruling, the Bill has sought to further restrict the facilitation of advance ruling and it is now proposed that even non-resident taxpayers who have a permanent establishment in Pakistan shall be excluded from the purview of this section and like resident taxpayers, the board shall not entertain any application for advance ruling from such non-residents.
Provisional assessment can be carried out in case of all taxpayers including companies. Benefit of a waiver of profit on debt or debt itself to be taxable as business income. The tax credit is proposed to allow to a company which enlist itself on a stock exchange in Pakistan enhanced from 5 per cent to 15 per cent.
Holder of a commercial or an industrial electricity connection generating electricity bill exceeding Rs 1 million per annum required to file return of income. Persons having income below minimum threshold but in excess of Rs 300, 000 required to file a return. Minimum threshold for filing of wealth statement is proposed to rise from income of Rs 500,000 to Rs 1,000,000. Powers of Appellate Tribunal to dismiss appeal in default of non-appearance is recommended to be withdrawn.
The Bill seeks to extend the due date for payment of advance tax on capital gains taxable under section 37A from 7 days to 21 days after end of each quarter.
It is further proposed to treat tax deducted on profit on debt earned from government securities as full and final tax for non corporate taxpayers besides, tax withheld from profit on debt earned by non-resident persons not having a PE in Pakistan at 10 per cent shall also be regarded as full and final tax. Statement of taxes deducted at source to be filed on a monthly basis. Annual statement only required in respect of tax deducted from salaries. Disclosure of CNIC/National Tax Number to be mandatory in all statements of withholding.
Through Finance Act, 2010 a new provision was introduced whereby advance tax at 5 per cent is required to be collected on gross amount of domestic air ticket charges. The Bill seeks to clarify that the tax so collected is an advance tax adjustable against the tax liability of the person from whom it is collected.
It is further proposed to grant exemption from collection of this tax to the federal government or a provincial government and any person who produces a certificate from the commissioner Inland Revenue that his income during the tax year is exempt from tax.
Carryover of provision in excess of 5 per cent of total advances of consumer and SMEs portfolio allowed to be carried over to subsequent years by bank. The dividend received by bank from its assets management company to attract tax at 20 per cent. Auction by tender to also attract collection of tax under Section 236A. The Bill proposes to enhance minimum threshold of taxable income to Rs 350,000.