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Note on the Finance (Supplementary) Act, 2022

The National Assembly has passed the Finance (Supplementary) Bill on...
Published January 17, 2022
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The National Assembly has passed the Finance (Supplementary) Bill on January 13, 2022 after taking into account the amendments made by the Government. The Bill was earlier tabled before the Assembly on December 30, 2021.

The amended Finance Bill will take the form of an Act (and will thus, become effective) after the same is assented to by the President of Pakistan and is published in the Official Gazette.

This note summarizes the key changes made in the Finance (Supplementary) Bill.


Payments by companies through ‘digital means’

Through the Bill, the implementation date of section 21(la) as earlier inserted by the Tax Laws (Third Amendment) Ordinance, 2021 was proposed to be deferred until notified by the Federal Board of Revenue (FBR).

Under the said provision, in order to claim an admissible business deduction, all companies were required to make payments under a single account head exceeding Rs 250,000 through ‘digital means’ from their notified business bank account, subject to certain exclusions. The provision was, however, kept in abeyance through administrative instructions of the Federal Board of Revenue (FBR), issued from time to time.

The Act now passed has accepted the above proposal for deferment of section 21(la).

Further, the Bill proposed a new definition for the term ‘digital means’ as ‘all electronic or digital payments as defined by the State Bank of Pakistan’. The SBP through a Circular Letter No. PSP/OD/5 of 2021 dated October 15, 2021 listed down certain modes of digital payments. The Act has now substituted the definition of ‘digital means’ to incorporate the above-referred list issued by SBP as under:

“Digital means’ means digital payments and financial services including but not limited to-

(a) Online portals or platforms for digital payments or receipts;

(b) Online interbank fund transfer services;

(c) Online bill or invoice presentment and payment services;

(d) Over-the-counter digital payment services or facilities;

(e) card payments using Point of Sale terminals, QR codes, mobile devices, ATMs, kiosk or any other digital payments enabled devices; or (f) any other digital or online payment modes.

Income tax holiday of Power projects

Profits and gains derived by a taxpayer from an electric power generation project set up in Pakistan, are exempt from tax subject to certain conditions. Through the Tax Laws (Second Amendment) Ordinance, 2021 dated March 22, 2021(as well as through the Finance Act, 2021), the said exemption was restricted to persons who either entered into an agreement with the Federal or Provincial Government or to whom ‘letter of intent’ was issued by the Federal or Provincial Government for setting electric power generation project in Pakistan upto June 30, 2021.

The Bill proposed to further restrict the exemption by replacing ‘letter of intent’ with ‘letter of support’ on retrospective basis.

The amendment to the Bill now provides that the exemption shall be available to those persons who enter into agreement or to whom letter of intent is issued by the Federal or Provincial Government for setting up an electric power generation project in Pakistan on or before June 30, 2021 and who obtain the letter of support on or before June 30, 2023.


Zero rating - Fifth Schedule

Through the Bill, infant preparations (including infant milk) which were zero rated were proposed to be taxed at 17%.

Through the Act, the zero rating has been retained for such infant preparations (including infant milk) where the retail price does not exceed Rs 500 per 200 grams.

Proposal for zero rating of pharmaceutical goods, whilst taxing its raw material/purchases has been accepted in the Act.

Exemptions - Sixth Schedule

Through the Bill, various sales tax exemptions were proposed to be withdrawn.

The Act has approved the proposed withdrawal of exemptions except for the below mentioned exemptions; as a result, these shall continue to remain exempt from sales tax:


S.No. Description


Table I – Import and supply

16 Red chillies excluding those sold

in retail packing bearing brand 
names and trademarks 

107 Import and supply of iodized

salt bearing brand names and 
trademarks whether or not sold 
in retail packing. 


Prior to the Bill, Breads prepared in tandoors and bakeries, vermicellies, rusk were exempt from sales tax.

The Bill retained exemption for Bread, Nan, Chapatti, Sheermal prepared in tandoors excluding those prepared in bakeries, restaurants, food chains and sweet shops.

The Act now provides exemption for Breads, vermicellies, nans, chapattis, sheermal, bun and rusk excluding those sold in bakeries, restaurants, food chains and sweet shops falling in the category of Tier-1 retailers.

Reduced rate of tax - Eighth Schedule

The reduced Sales tax rate of 5% applicable on import of electric vehicle in CBU condition was proposed (through the Finance Bill) to be withdrawn and consequently, such imports were to be subjected to standard sales tax rate of 17%.

Through the Act, the rate of Sales Tax on import of electric vehicle in CBU condition has been set at 12.5% which represents increase from the 5% rate applicable prior to the Bill and decrease from the 17% rate proposed in the Bill.

The Bill also proposed to increase the rate of sales tax on import and local supply of Hybrid Electric Vehicles upto 1,800cc to 12.5% (from 8.5%) whereas standard rate of 17% was proposed to apply for vehicles exceeding 1,800cc (previously 12.75% for cars with capacity ranging from 1,801cc-2,500cc and17% for cars over 2,500cc).

Through the Act, the rates of sales tax on locally manufactured Hybrid Electric cars have been kept intact (i.e., 8.5 %, 12.75%, and 17%, as were applicable prior to the Bill) whereas imported Hybrid Electric cars, irrespective of cylinder capacity, have been subjected to sales tax at the standard rate of 17%.


The rates of FED applicable on locally manufactured or assembled motor cars, SUVs and other motor vehicles, excluding auto rickshaws principally designed for the transport of persons (other than those of headings 87.02) and till June 30, 2026 electric vehicles (4 wheelers), including station wagons and racing cars have been revised as under:

   Cylinder               Existing      rate proposed      Cylinder            Rate
    Capacity             Rate of FED       in Bil          Capacity          of FED 
- up to l.OOOCC               o%              o%      - up to i,300cc           2.5%
- i.ooicc to 2.000CC        2.5%              5%      - 1.301CC tO 2.000CC        5%
- 2,ooicc and above           5%             1o%      - 2,ooicc and above        10%

Copyright Business Recorder, 2022


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