CUSTOMS ACT 1969
(a) Remove anomalies in cascading structure of tariff
(b) Promote and protect domestic industry by introducing targeted interventions
(c) Enhance import-substitution by rationalizing tariffs on industrial raw materials / intermediate goods
(d) Facilitate export-oriented manufacturing by reviewing the existing exemption regimes & export schemes
INDUSTRIAL RELIEF MEASURES
Reduction / exemption of CD, ACD & RD on import of goods falling under 589 PCT codes to incentivize the textile industry.
Reduction / exemption of CD, ACD & RD on import of flat rolled products of HRC and stainless steel.
Reduction / exemption of CD and ACD on raw materials and intermediary goods and point of sale machines falling under 328 tariff lines as a consequent of tariff rationalization.
To incentivize the pharmaceutical sector and to keep the prices stable in the market, -
• Exemption of CD & ACD on more than 350 APIs
• Plant, machinery and equipment subject to concessionary rate of 5%
• Exemption of CD & ACD on raw material of auto-disable syringes and Reduction in tariff on finished auto-disable syringes
Reduction / exemption on inputs / raw materials of food processing industry.
Reduction of CD & ACD on uncoated paper and paperboard for printing and graphic arts industry.
Reduction / exemption of CD & ACD on Vaccines for veterinary medicines and feed additives to incentivize the dairy sector.
Reduction / exemption of CD & ACD on goods falling under more than 100 PCT codes relating to Tourism industry.
Reduction of duties on raw material/inputs of footwear industry.
Reduction / exemption of CD & ACD on inputs for poultry industry.
Reduction / exemption of CD & ACD on raw material for manufacturer of aseptic plastic packaging.
Exemption of ACD on import of raw materials for cables / optical fiber manufacturers.
Reduction / Exemption of CD & ACD on raw materials for Paint Industry.
Reduction / Exemption of CD & ACD on raw materials for Chemical and Artificial Leather Industry.
Reduction / Exemption of CD & ACD on inputs for Electronics Manufacturing Industry.
Reduction / exemption of CD & ACD on raw materials / inputs of furniture, coating, boiler manufacturing industry, bobbins and cops manufacturing industry etc.
RELIEF TO COMMON MAN
Reduction of ACD on goods falling under 2436 tariff lines pertaining to 20% customs duty slab from 7% to 6%.
Extension in exemption from customs duties on import of COVID-19 related items for further six month.
Exemption of CD &ACD on Inputs of Ready-To-Use Supplementary Foods (RUSF) and Ready-To-Use Therapeutic Food (RUTF).
Exemption of CD & ACD on 06 life-saving drugs.
Enhance the value of unsolicited gifts through post or courier from Rs.20,000 to 30,000.
Exemption of CD & ACD on import of grain storage hermetic bags and cocoons.
Rationalization of tariff structure on auto sector.
REVIEW OF REGULATORY DUTY
(RD) REGIME:
Rationalization of RD on import of Mobile Phones to encourage import substitution
Increase in rates of RD on import of non-essential / luxury items to support local industry.
Reduction of RD on import of cocoa paste, butter and powder being industrial input goods.
EXPORT FACILITATION MEASURES:
To ease of doing business, a new Uniform Export Facilitation Scheme is being proposed. The existing schemes shall be phased out in next two years.
Bond to Bond Transfer of goods through WeBOC without prior approval of the Collector is being proposed to be allowed.
Reduction of RD on export of molasses, skin and hides to boost positive image of the country with our important trading partners across the world.
MISCELLANEOUS
- Establishment of Border Sustenance Markets to mitigate the problems faced by the people residing in border areas due to fencing and counter-smuggling measures.
LEGISLATIVE CHANGES:
1) Introduction of a concept of Common bonded warehousing to encourage Small and Medium Enterprises.
2) Empowering Collector of customs to determine customs value there by facilitating trade.
3) Enabling the Director General Valuation to take appropriate decision on appeal and capping the time limit for such proceedings. Facilitation of trade by avoiding time consumed in unnecessary litigations.
4) Allowing the importers to amend manifest till berthing event without seeking approval from custom authorities and hence ease of doing business.
5) Enable customs authorities to allow bonafide amendment in into-bonds goods declaration and thus facilitate trade.
6) Allowing the Collector to extend warehousing period for six months. Reducing the processing time of the requests and promoting ease of doing business.
7) Reducing the time limit allowed for decision of the cases wherein the impugned goods are lying at sea ports, airports or dry-ports and thus decreasing the cost of doing business.
8) Enable customs authorities to issue correction / corrigendum certificate in case of genuine / obvious error and facilitate trade.
9) Inclusion of other law enforcement agencies for the purpose of reward and increasing their motivation.
10) Affording opportunity of being heard to the registered users of WeBOC in accordance with the canons of natural justice.
11) Increasing the period of validity of advance ruling from the current one year to three years in accordance with international benchmarks and facilitating trade thereof.
12) Provision for the classification committee to avoid unnecessary litigation on account of classification disputes and consequently decreasing the cost of doing business.
13) Removal of fine in case of delay in filing of goods declaration and thereby providing ease of doing business.
ENFORCEMENT FEATURES:
1) Inclusion of master bill of lading and certificate of origin in the existing definition of document to discourage origin fraud.
2) Inclusion of the retailing in definition of smuggling to discourage retailers from selling smuggled goods.
3) Making shipping lines responsible for re-export of banned items imported in commercial quantities.
4) Increasing the pitch of fine in case of non-placement of invoice and packing list in container to inculcate compliance.
5) Discouraging smuggling by denying release of vehicles used repeatedly for smuggling against redemption fine.
SALES TAX ACT 1990
The proposed budgetary measures pertaining to Sales Tax for FY 2021 -22 are:
REVENUE MEASURES
The sale of goods through online market place is proposed to be brought into the sales tax net by deeming the online market place as supplier in respect of third party sales through their platform.
For specified goods, it is proposed that it may be made mandatory for manufacturers of such goods to obtain brand license for each separate brand or SKU.
Section 56C provides for prize scheme to promote tax culture. To ensure that the said incentive is not misused, a new sub-section is proposed to be inserted to provide for randomize "mystery shopping".
The rate of sales tax on potassium chlorate is proposed to be increased from Rs. 80 per kg to Rs. 90 per kg in addition to 17% standard rate.
Zero-rating is proposed to be withdrawn from Petroleum Crude Oil, parts/components of zero-rated plant and machinery, import of plant and machinery by petroleum and gas sector and supply, repair and maintenance of ships.
Sixth Schedule is proposed to be streamlined and exemptions other than relating to basic food items, health and education are proposed to be withdrawn.
Eighth Schedule is proposed to be streamlined and reduced rates other than relating to basic food items, health and education are proposed to be brought into standard regime.
Reclaimed lead and used lead batteries is an unorganized sector. Therefore, entire amount of sales tax in respect of sales of such goods is proposed to be withheld at source under Eleventh Schedule.
To ensure collection of due taxes, sales tax on sugar is proposed to be levied on retail price by including the said product in Third Schedule.
RELIEF MEASURES
The minimum annual threshold of turnover from all supplies for cottage industry is proposed to be increased from Rs. 3 million to Rs. 10 million.
The threshold of shop area in case of furniture outlet/showrooms is proposed to be increased from 1000 square feet to 2000 square feet for inclusion in tier- 1 retailer.
Public limited companies are proposed to be excluded from the purview of section 8B.
A separate section introduced for allowing extension of time for furnishing of return.
Exemption is proposed to be granted to art and printing paper for publication and printing of Holy Quran.
Exemption on import of CKD kits for electric vehicles by manufacturers granted by Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Sixth Schedule.
To facilitate international athletes, exemption to goods temporarily imported by athletes/sportsmen granted by Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Sixth Schedule.
Tax exemption to auto disable syringes granted vide Tax Laws (Second Amendment) Ordinance, 2021 is proposed to be incorporated in the Sixth Schedule.
To encourage IT industry in the country, import of plant, machinery and raw material by Special Technology Zone is proposed to be exempted from sales tax.
To facilitate farmers and encourage storage of grain, tax exemption on locally manufactured silos is proposed to be granted till 30.06.2026.
Reduced rate of sales tax @ 1% on locally supply of electric vehicles granted vide Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Sixth Schedule.
In order to address litigation issue, fixed tax on SIM cards is proposed to be deleted with effect from 1st July, 2020.
Exemption from value addition tax on import of electric vehicles, CKD kits for small car, 2-3 wheelers, HCVs and all these vehicles in CBU conditions was granted vide Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Twelfth Schedule.
For facilitation purpose, the concept of constructive payment is proposed to be introduced in section 73.
To provide relief to the registered persons, the benefit of compensation for delayed payment of refund is also proposed to be extended to those persons in whose case order under section 66 is passed.
For promoting ease of doing business, the concept of Common Identifier Number is proposed to be introduced.
For establishment of Border Sustenance Markets, exemption from sales tax is proposed to be granted on food related and other consumable goods.
In order to introduce umbrella Export Facilitation Scheme by Customs Wing, exemption on import and zero-rating on local supplies in respect of raw materials, components, parts and plant and machinery to authorized exporters is proposed.
Rising prices of locally manufactured small cars is a major concern for low earning families. Accordingly it is proposed that small cars upto engine capacity of 850cc may be exempted from value added tax besides reducing sales tax rate from 17% to 12.5%.
STREAMLINING MEASURES
There are various provisions in the Sales Tax Act 1990 which require some corrections or streamlining, while some changes are being proposed for the purpose of Ease of Doing Business for registered persons. At places some drafting errors also need to be corrected. All such measure are listed below:
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S. No. Section Amendments proposed with Rationale
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1 2 (4AA) A new definition has been inserted to define
Commissioner (Appeals).
2 2 (37) (iii) The word "of" is inserted to correct
drafting error
3 2 (43A) (g) The definition of tier-1 retailer is
streamlined through
insertion of a new clause whereby a
retailer who has
acquired point of sale accepting
payment through
debit or credit cards from banking
companies or any
other digital payment service
provider authorized by
State Bank of Pakistan is also
included in the definition of tier-1 retailer
4 3 (1B) (a) The word "on" is substituted to correct
drafting error.
5 11 (5) Under section 11 (5), a show-cause notice
can be
issued for recovery of amounts not paid
or short-paid
within five years of relevant date. Since
sales tax is payable on monthly basis, the
time bar also applies on monthly basis.
However, audits are undertaken on
full-6.year basis. Furthermore, audits for
income tax and sales tax for the same
financial or tax year are undertaken
concurrently, the demand in case of
sales tax may get time-barred one
to two years earlier as compared to demand
for income tax. In
order to streamline the said provision,
the words relevant date, is proposed to be
changed with the words "end of the
financial year in which the relevant
date falls"
6 25AA (2) A new sub-section is added to provide
enabling provision in the Act for
prescribing rules for
determining transfer pricing of taxable
supplies between associates to reflect
fair market value in arm's length
transactions.
7 22 (1) Section 22 (1) has been amended
to strengthen and streamline the
requirement of record keeping.
8 47 (7) For the word "Collector", the word
Commissioner is substituted to correct
drafting error.
9 48 (2) Enabling provision has been inserted
in respect of
request from a foreign jurisdiction under
a tax treaty, a multilateral convention, and
inter-governmental agreement or similar
agreement or mechanism.
10 50 (2) Procedure for collection, arrangement and
publishing of the rules issued under Sales
Tax Act, 1990 has been streamlined.
11 56A Provisions regarding sharing of data with
foreign countries on reciprocal basis were
introduced through Tax Laws
(Amendment) Ordinance, 2021 which is
now being incorporated in Sales Tax Act,
1990. Moreover, mechanism for assistance
in recovery of taxes on request from foreign
countries on reciprocal basis is also
proposed by inserting sub-section (3).
12 76 (2) Enabling provision has been inserted for
authorizing and prescribing the manner for
utilizing the fees and
service charges collected under section 76
-1
13 S. No. 18 of S. No. 18 of Table-II of Sixth Schedule
to the Sales
Table-II of the Tax Act, 1990 which grant exemption
Sixth Schedule to marble and granite manufacturers having
annual turnover less than Rs. 5 million, is
proposed to be omitted. The said exemption
is already available under section
2 (5AB) of the Sales Tax Act, 1990.
14 S. No. 19 Exemption on bricks and crush stones
and 20 has already
of Table-II expired on 30th June, 2018.
of the Accordingly, these serial
Sixth numbers are proposed to be omitted
Schedule being redundant.
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FEDERAL EXCISE ACT 2005
The proposed budgetary measures pertaining to Federal Excise Duty (FED) for FY2021-22 are:
REVENUE MEASURES
In order to reap reasonable revenue from this sector, federal excise on mobile phone calls exceeding three minutes @ Re 1 per call, SMS message @ Re. 0.1 per SMS, and internet data usage @ Rs. 5 per GB is being proposed. This will result into mild taxation of a broad spectrum of population.
Electronically heated tobacco products are also proposed to be brought into the tax net by inserting new S. No. 8c of Table-1 of the First Schedule to the Federal Excise Act, 2005.
RELIEF MEASURES
In order to facilitate the people of tribal area and encourage investment and economic growth in these areas, exemption is being given from levy of FED to the industrial units located in FATA and PATA.
The provision to revise return without prior approval of the Commissioner-IR which is available in Sales Tax Act, 1990 is now proposed to be made available in Federal Excise Act, 2005.
Exemption from federal excise duty to 4-wheelers granted vide granted vide Tax Laws (Amendment) Ordinance, 2021 is proposed to be incorporated in the Federal Excise Act.
The rate of federal excise duty on telecommunication is proposed to be reduced from 17% to 16%.
Payment on account of Merchant Discount Rate (MDR) is proposed to be excluded from the purview of FED.
For establishment of Border Sustenance Markets, exemption from federal excise duty is proposed to be granted on food related and other consumable goods.
Rising prices of locally manufactured small cars is a major concern for low earning families. Accordingly it is proposed that small cars upto engine capacity of 850cc may be exempted from federal excise duty.
In order to introduce new Export Facilitation Scheme, 2021, exemption on import and zero-rating on local supplies in respect of raw materials, components, parts and plant and machinery to registered persons is proposed.
Federal excise duty on fruit juices was imposed vide Finance Act, 2019 and resultantly, prices of juices were increased. Moreover due to pandemic, this sector is faced with adverse situation. In order to provide relief to this sector, it is proposed to withdraw federal excise duty on juices.
STREAMLINING MEASURES
There are various provisions in the Federal Excise Act, 2005 which require some corrections or streamlining, while some changes are being proposed for the purpose of Ease of Doing Business for registered persons. At places some drafting errors also need to be corrected. All such measure are listed below:
=====================================================================================
S. No. Section Amendments proposed with Rationale
=====================================================================================
1. 14 (4) Enabling provision has been inserted
in respect of request from a foreign
jurisdiction under a tax treaty, a
multilateral convention, and
inter-governmental agreement or similar
agreement or mechanism.
2. 47A Provisions regarding sharing of data
with foreign countries on reciprocal basis
were introduced through Tax Laws
(Amendment) Ordinance, 2021 which
is now being incorporated in Federal Excise
Act, 2005. Moreover, mechanism for
assistance in recovery of taxes on request
from foreign countries on reciprocal
basis is also proposed by inserting
sub-section (3).
3. 49 (2) Enabling provision has been inserted
for authorizing and prescribing the manner
for utilizing the fees and service charges
collected under section 49 (1)
4. S. No. 56 of To correct drafting error, PCT heading
Table-1 of the for filter rod has been substituted.
First Schedule
to the Federal
Excise Act,
2005
5. Heading of To correct drafting error, the word
column (2) Services has been substituted for the
of Table-2 word "Goods"
of the
First Schedule
to the Federal
Excise Act,
2005
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ISLAMABAD CAPITAL
TERRITORY (TAX ON SERVICES)
ORDINANCE, 2001
RELIEF MEASURES
In order to promote and encourage IT sector, it is proposed that export of services may be zero-rated.
INCOME TAX
REVENUE MEASURES
• Special regime for export of services at par with export of goods to be taxed @ 1% under final tax regime.
• Elimination of block taxation of property income and shift to normal tax regime.
• Reduction of block taxation on capital gain on disposal of immoveable properties if gain exceeds Rs. 20 million.
• Reduction in block taxation on interest income, if it exceeds Rs. 5 million.
• Tax on "on" money on vehicles, if vehicle is disposed without registration.
• Expansion of scope of withholding tax collection from supply chain below manufacturers and importers of specified sectors (sections 236G and 236H).
• Reduction in threshold of monthly electricity bill for withholding tax on electricity consumption from 75,000 to 25,000 from domestic users not appearing on Active Taxpayers' list.
• Removal of requirement of issuance of separate notice in concealment cases.
• Withholding of tax on rental income of sub-lessee.
• Broadening of scope of withholding agents for the purpose of collection of withholding tax on commission income (section 233).
• Streamlining withholding tax collection on sale and purchase of immoveable property (section 236C and 236K).
• Rationalization of withholding tax regime for exporters.
• Taxability of profit on debt component of GP fund and other such funds.
• Withdrawal of personal income tax exemptions.
• During the current financial year, Tax Laws (Second Amendment) Ordinance, 2021was promulgated to implement corporate income tax reforms to provide level playing field to all businesses. Certain tax credits, concessions and exemptions were withdrawn. The provisions of the Ordinance have been made part of the Finance Bill.
RELIEF MEASURES
• Deletion of 12 withholding taxes
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Provision Description
=======================================================================
153B Collection of tax on payment of royalty to residents.
231A Collection of tax on cash withdrawal.
231AA Collection of tax on banking instruments.
236P Collection of tax on banking transactions other
than through cash.
236Y Collection of tax from persons remitting amounts abroad
through credit or debit or prepaid cards.
236B Collection of tax on domestic air travel.
236L Collection of tax on international air travel.
236V Collection of tax on extraction of minerals.
233A Collection of tax from members by a stock exchange
registered in Pakistan.
233AA Collection of tax on marginal financing by NCCPL.
234A Collection of tax from CNG stations.
236HA Collection of tax on certain petroleum products.
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• Merging of 3 withholding taxes with other existing provisions
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Provision Description Merged with
===============================================================================
150A Deduction of tax on return Proposed to be merged in
on investment in Sukuks. section 151 for residents and in
section 152 for non-residents
which deal with such payments.
152A Deduction of tax on To be merged with section 152
payments for foreign which deals with payments to
produced commercials. non-residents.
236S Collection of tax on dividend To be merged with section 150
in specie. which deals with dividend.
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• Reduction in generalized rate on Minimum Tax on Turnover basis and increase in threshold for individuals and AOPs for chargeability of minimum tax.
• Broadening of scope of IT services by inclusion of cloud computing and data storage services.
• Exemption to Special Economic Zone Enterprises from payment of minimum tax.
• Ten year tax exemption for Special Technology Zone Authority, Zone Developers and Zone Enterprises.
• Tax exemption on the import of capital goods and dividend income of private funds from investment in special technology zone enterprise.
• Introduction of special tax regime for manufacturing SMEs.
• Exemption from tax on income of deep conversion new refineries and BMR projects of existing refineries for 10 years.
• Reduced rate of withholding tax of 3% on oilfield services, warehousing services, logistic services, collateral management services and telecommunication services.
• Inclusion of telecommunication services in definition of industrial undertaking.
• Exemption to Electronic warehousing receipts traded on Pakistan Mercantile Exchange.
• Allowance of provincial WWF and WPPF as a deductible allowance while calculating income.
• Adjustment of business loss against property income.
• Unconditional grant of exemption from tax to certain organizations.
• Withdrawal of power of Commissioner to reject advance tax estimates presented by taxpayer.
• Non recognition of gain/loss on disposal of assets to non-residents under gift from relative, inheritance and agreement to live apart.
• Reduction in tax rate on capital gain tax on disposal of securities from 15% to 12.5%.
• Withdrawal of power of tax authorities to conduct inquiry under section 122(5A).
• Inclusion of live animals, raw hides and unpackaged meat in definition of agriculture produce.
• Reduction in tax liability by 25% for women entrepreneurs.
• Exemption from tax on import of books and agriculture equipment.
• Exemption from tax for bagasse fired power generating units and reduced rate of tax on dividend income from such projects.
• Extension in time limits for availing tax benefits under section 100D and Eleventh Schedule vide Income Tax (Amendment) Ordinance 2021 dated 21.02.2021 made part of the bill.
• Tax exemptions and concessions for Roshan digital accounts and implementation of electric vehicles and mobile phone policy implemented vide Tax Laws (Amendment) Ordinance, 2021 dated 11.02.2021 made part of bill.
STREAMLING MEASURES
• Strengthening mechanism of Alternate dispute resolution.
• Elimination of requirement of filing of application for automated issuance of refund.
• Introduction of time limitation for disposal of show cause notices.
• Recording of e-hearing to be admissible evidence.
• Automated issuance of exemption certificates if application is not disposed by Commissioner within 15 days.
• Removal of requirement of updating tax profile.
• Clarity regarding taxation of income of co-operative societies from sale and services to its own members.
• Delegation of power of Federal Government to Board with the approval of Federal Minister in-charge.
• Extension of time limitation for issuance of notice for filing of return in case of foreign income or foreign assets.
• Time limitation for completion of assessment in pursuance of orders of the Commissioner.
• Streamlining measure for monitoring of withholding taxes requiring taxpayers to file online statement along with reconciliation.
• Establishment of Directorate of compliance Risk Management in FBR.
DOCUMENTATION MEASURES
• Tax credit on installation of point of sale machines.
• Notification of business bank accounts made mandatory.
• Measures for the documentation of business of used cars.
• Harmonization of procedure for investigation and prosecution of offences under domestic tax laws.
Copyright Business Recorder, 2021
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