The Federal Board of Revenue (FBR) has abolished withholding tax on aircraft, maintenance kits for trainer aircraft, spare parts, machinery and equipment and tools, operational tools, machinery, equipment and furniture and fixtures for Greenfield airports and aviation simulators in budget (2015-16).
On demand of the provincial governments, the federal government has reduced the rates of adjustable advance Income Tax collected with Token Tax by around 20-25 percent in the case of Income Tax Returns filers and correspondingly increased in the case of non-filers.
Through Finance Bill (2015-16), the rate of adjustable advance Income Tax collected on transfer of vehicles is proposed to be reduced by around 75 percent in the case of Income Tax returns filers and also reduced by one-third in the case of non-filers.
Under the Bill, Currently law allows exemption from tax on inter-corporate dividend to companies who are entitled to group taxation even if they do not file income tax return as a group. It is proposed that this exemption may be restricted only to companies that file return as a group.
The government has introduced a policy of reducing corporate income tax rate by 1% annually from 35% down to 30%. Accordingly the rate was reduced to 33% in the preceding year. It is proposed that continuing with the policy; the rate may further be reduced to 32% for Tax Year 2016.
In order to attract Private Sector Investment in Transmission Line Projects, it is proposed to exempt profits and gains derived from Electricity Transmission Line Projects for a period of 10 years, provided that the project is set up by June, 2018.
At present, an individual is entitled to tax credit equal to average rate of tax applied to an investment made in shares offered by public company listed on stock exchange and life insurance premium subject to a maximum of 1 million rupees. To encourage investment in new companies quoted on stock exchange, it is proposed that maximum limit of 1 million be enhanced to 1.5m.
At present, a 15% tax credit is available to a company, if it opts for enlistment in any registered stock exchange in Pakistan. To encourage enlisting of companies on stock exchange, it is proposed that the credit be enhanced to 20%
Under the new Finance Bill, Income Tax Ordinance provides a reduced rate of 25% for taxing the income of a small company as an incentive for corporatisation. To make the concession more meaningful the limit of capital at Rs 25 million is proposed to be enhanced to Rs 50 million for qualifying as a small company.
Salaried taxpayers earning taxable income from Rs 400,000 to Rs 500,000 are taxes at a rate of 5%. To provide relief to this class the rate of tax is proposed to reduce to 2%. Non-salaried individual taxpayers and Association of Persons earning taxable income from Rs 400,000 to Rs 500,000 are charged tax at the rate of 10%. To provide relief to this class the rate of tax is proposed to be reduced to 7%.
At present, the tax withheld on the export proceed realised by an exporter is the final tax on his income. The exporters are being allowed to opt for assessment under the normal tax regime and the withheld tax will be treated as minimum tax in such cases.
Mark-up on housing loans obtained by individuals from banks and other institutional lenders for construction or buying a house is proposed to be allowed as a deduction against income, subject to a ceiling which is proposed to be higher of 50% of taxable income or Rs 1 million.
Under section 11 3A, a minimum tax on builders is leviable for the business of construction and sale of residential and other buildings. It is proposed to suspend the operation of this section for a period of three years.
At present, exemption from tax on·gain on sale of properly is available to the seller of property to a REIT development scheme up to 2016. It is proposed that exemption be extended to 30.6.2018 for a person selling tile property to REIT development scheme formed for the development of housing sector. It is also proposed that tax rate of dividend be reduced by 50% for the first three years if development REIT Scheme for the development of housing sector is set up by 30-6-2018.
In order to encourage the companies to generate employment, it is proposed that if a company, being a manufacturer, is set up between 01-07-2015 to 30-06-2018 and employs more than 50 employees registered with Social Security and Employees Old Age Benefit Institution during a tax year, an employment tax credit equal to 1% of the tax payable for every 50 employees will be provided to the company, subject to a maximum of 10%.
Under Prime Minister's Package for new investment in Greenfield industrial undertakings, announced in November 2013, provisions relating to explaining source of investment were made inapplicable if the investment is made on or after the 1st day of January 2014, and commercial production commences on or before the 30th day of June, 2016. On demand of various investors and business community, it is proposed that the date of commencement of commercial production be extended to so" day of June, 2017.
At present, under Income Tax Ordinance, commercial imports in respect of items for dedicated use for renewable sources of energy such as solar and wind are exempt from withholding tax on import. However, no exemption is available for the domestic manufacturers of solar and wind energy plants and equipments. It is proposed to grant exemption, for 5 years, to industrial undertaking engaged in the manufacturing of equipment, plant and items required to produce solar and wind energy.
It is proposed that a 3 years income tax exemption may be granted to industrial undertakings set up by 30th June 2016 and engaged in setting up and operating cold chain facilities and setting up and operating warehousing facilities for storage of agriculture produce.
To encourage new investments in the halal meat production for competing in a globally growing halal meat market and to increase the use of modern and state-of-the-art machinery and equipment, companies which set up 'halal' meat production plant as well as obtain 'halal' certification by 31st December 2016 are proposed to be allowed income tax exemption for four years from the date of set up.
Due to low demand in international market rice mills have suffered losses. In order to provide relief to them, it is proposed that Rice Mills may be exempted from minimum tax for the Tax Year 2015.
Under the Bill, supply of agriculture produce including fresh milk, live chicken birds and eggs is exempt from deduction of withholding tax subject to certain condition under SRO586(1)/91. It is proposed that same exemption from withholding tax on supply of goods be extended to supply of fish.
It is proposed to reduce withholding tax on import of specified agricultural machinery from 6% to 0%. Together with reduction in Customs Duty, Sales Tax this will bring down aggregate of Income Tax, Customs Duty, Sales Tax cumulatively down to 9% from 27%.
In order to open up remote areas through aviation links, it is proposed that air routes in Northern areas, Makran Coastal belt, Azad Jammu and Kashmir, Chitral and FATA shall be exempted-from payment of withholding tax on air tickets.
It is proposed to grant five years Income Tax holiday on all new manufacturing units set up in Khyber Pakhtunkhwa between 1-7-2015 and 30-6-2018.
The legacy issues regarding minimum tax payable on turnover under the previous KP package available for tax years 2010 to 2012 shall also be resolved. Minimum Income Tax is leviable under the existing law however; to address the hardship of KP businessmen suitable amendment is proposed to be made.
Imports under Chapter 27 of Pakistan Customs Tariff mostly deals with the items related to petroleum products and coal. The POL products are largely imported by major oil marketing companies that are licensees of OGRA and oil refineries. However, this exemption is misused by commercial importers. It is proposed exemption to all items other than import of crude petroleum oils, high speed diesel oil, motor spirit, J.P-1, Aviation spirit, Furnace oil, and Base oil for lubricating oils by major oil marketing companies and oil refineries may be withdrawn. Similarly, exemption on equipment and items re-imported after repair or any other processing is also proposed to be withdrawn to the extent of any value-addition abroad.
Through the Bill, payments to electronic and print media in respect of the advertising services are exempt from withholding tax on services. There is neither withholding tax obligations on payer nor recipient in respect of advertisement expenses. Because of this treatment there is distortion in the tax system. It is proposed exemption from withholding tax on payments to electronic and print media in respect of the advertising services may be withdrawn.
At present no tax is being deducted by banks on cash withdrawals by exchange companies. There is underreporting of transactions by exchange companies. Therefore, it is proposed that on cash withdrawals by exchange companies may be subject to tax at a reduced rate of 0.15%.
Under Income Ordinance commission agents are taxed under Final Tax regime at the rate of 12% on commission paid. However, for advertising agents, the rate of tax on commission is 7.5%, which too was increased last year from 5%. This concession is without any basis and therefore it was decided to withdraw it gradually. It is, therefore, proposed that the rate of tax on commission may be increased to 10% for advertising agencies.
The reduced rate of 2% for of withholding tax on supply of locally produced edible oil to manufacturers of cooking oil and vegetable ghee is currently prescribed in second schedule of the ordinance. This is under litigation on the grounds that rates cannot be prescribed in second schedule. Accordingly, it proposed to specify the same reduced rate of 2% under the section 153 of the income tax ordinance instead of second schedule.
Banking instruments and channels are used to acquire assets and incur major expenditures using untaxed money. Unreported business transactions are also conducted through these means. In order to bring non-compliant taxpayers into tax net and to document transactions of untaxed amounts through banking channels, it is proposed that adjustable advance income tax at the rate of 0.6% of the amount of transaction may be collected on all banking instruments and other modes of transfer of funds through banks in the case of persons who do not file Income Tax returns. Payments through Pakistan Real-time Interbank Settlement Mechanism (PRISM) and tax payments shall not be subject to this tax.
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