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INCOME TAX: INTRODUCTION OF ONE-TIME SUPER TAX: A one-time super tax for tax year 2015 has been proposed on (i) banking companies; and
(ii) all other taxpayers having income of Rs 500 million or above. The general rate of super tax is 3% of the income while the rate of tax for banking companies shall be 4% of the income.
As specifically stated in the relevant provision, this 'tax' is for the rehabilitation of temporary displaced persons.
The term 'income' for the purpose of this section shall be the taxable income under section 9 of the Income Tax Ordinance, 2001 (excluding exempt income) and also includes profit on debt, dividend, capital gains, brokerage and commission, taxable under special provisions of the Ordinance. Such income in the cases subject to final tax regime will also include 'imputable income' as newly defined under section 2(28A) of the Ordinance to mean the income which would have resulted in the same tax had the amount not subjected to final tax.
One time super tax shall also be applicable on companies engaged in the extraction and production of petroleum and mineral deposits if such companies are taxable at the rate prescribed under the Ordinance not being those subject to special rates of tax under the respective overriding Agreements with Government of Pakistan.
The 'income' from profit on debt, dividends and brokerage and commission are susceptible to be included separately as well as under the imputable income basis. This matter needs to be clarified.
Super tax is payable for tax year 2015 which includes cases having special tax years other than June 30, 2015 such as Banking companies, insurance companies, sugar companies, etc which follows special tax years which have
already ended. This effectively represents retrospective charge in the cases where financial statements have already been finalised.
Undistributed reserves of a public company (other than modaraba and a scheduled bank) have again been proposed to be taxed with effect from tax year 2015. This effectively represents re-introduction of similar levy imposed under section 12(9A) of repealed Income Tax Ordinance, 1979 vide Finance Act 1999.
Such tax is proposed to be payable at the rate of 10% on the whole amount of undistributed reserves as are in excess of 100% of paid up capital.
A special provision has been introduced that any cash distribution before the date of filing the return shall be considered as distribution for tax year 2015.
The term 'reserves' has been defined in a subsection to this provision, however, in case this provision is to be retained then the term 'reserves' shall be required to be defined as the amount reflected in the financial statements prepared under the accounting framework.
This provision in essence levies a tax on entire undistributed accumulated reserves. This tax is effectively chargeable on reserves that have arisen out of taxed income. When the identical levy was introduced under the repealed 1979 Ordinance, similar issues were raised and consequently this tax was effectively related to income for the year and was not applicable where distribution for the year was lower of 40% of the profit for the year or 50% of the paid up capital. This is either an omission or a serious defect as under the earlier law the minimum threshold of distribution was introduced after realising the practical problems. This means that the similar mistake has been repeated which requires immediate redressal.
The economic rationale of this tax regime is to be examined in the context that accumulated reserves will effectively be used in the payment of tax if there is no distribution of profits in cash which may arise for various reasons including non-availability of reserves in liquid form.
Further, this tax is also payable for tax year 2015 which includes cases having special tax year already ended. This effectively represents retrospective charge in the cases where financial statements have already been finalised.
The rate of tax on companies other than banking companies shall be 32% for tax year 2016. This reduction is in line with the announcement made by the Finance Minister in 2013 whereby the rate of tax for companies is to be brought to 30% in a phased manner over five years (from tax years 2014 to 2018).
The rate of tax on dividends (other than from stock funds) has been increased from 10% to 12.5% for filers and from 15% to 17.5% for non-filers. Dividend from stock funds shall be taxable at the rate of 15% instead of 12.5%.
The revised status of tax on Capital Gains on disposal of 'securities' under section 37A is proposed to be as under:

Tax Year
Holding period 2016 2015
Less than 12 months 15% 12.5%
12 months to less 12.5% 10%
than 24 months
24 months to less 7.5% 0%
More than 48 months 0% 0%

This amendment has effectively brought into tax net long term capital gains which arise on disposal of securities. This policy change represents departure of an understanding that only short term trading gains were intended to be taxed under the Income Tax provisions. A consistent policy regime is essential for bridging the trust gap between the taxpayers and policymakers.
Rate of tax on capital gains of insurance companies for tax year 2016 has been prescribed in line with similar income in the hands of other taxpayers as laid down for income covered under section 37A.
Adjustable withholding tax of 14% has also been introduced on internet services.
The tax slabs for salary income have been revised. The maximum rate of 30% has been retained, however, the slabs within that structure have been amended which has resulted in some relief for lower brackets. Similar amendments have been made for non-salaried income.
Minimum tax on income of distributors or dealers in fertilisers business is proposed to be increased from 0.2% to 0.5%.
Dividend income and capital gains for banking companies are subject to tax under Seventh Schedule at the rate of 10% and 12.5% respectively. All other income of banking companies are taxable at the rate of 35%.
It is important to note that special regime of rates of tax are applicable in such cases and banking companies, were not extended the reduction of tax rate from 35% to 30% over the period of 5 years (2014 to 2018) which is otherwise available to all other companies. It is now proposed that the tax regime for the banking companies will be revised and all incomes including dividend and capital gains shall also be taxable at the rate of 35%. In addition to this, the one-time super tax at the rate of 4% shall also be payable by banking companies for tax year 2015. As a matter of consequential amendment, the provisions relating to attribution of expenses have been omitted.
A unique regime for collection of tax on banking transactions has been introduced for persons who are non-filers for tax purposes. Under this regime almost all banking transactions inter alia including sale of instrument like demand draft, pay order, etc and transfer of any sum through cheque and other similar manners or clearing interbank transfer through cheques shall be subject to collection of tax at the rate of 0.6% of the transaction amount. This provision will only be applicable where total payments for all transactions exceed Rs 50,000 in a day.
The amounts so collected are adjustable against the tax liability if the person files the return of income. On a practical side, the position appears to be that almost all banking transactions undertaken by all persons will be subject to this regime of collection of tax except those cases where the person's name is on the list of active taxpayers. Validity of this provision will be questioned by persons who are otherwise not taxable or are exempt under the Federal tax regime.
The gain on disposal of immovable property to a REIT scheme is exempt from tax upto June 30, 2015. This period of exemption is proposed to be extended to June 30, 2020 for sale of immovable property to a Developmental REIT Scheme with the objective of development and construction of residential buildings.
Furthermore, dividend income from Developmental REIT Scheme set up by June 30, 2018 shall be allowed a rebate of 50% for three years from June 30, 2018. The aforesaid concession is also required to be extended to the dividend income on such REITs which are established or set up before the said date.
In line with mutual funds and Collective Investment Schemes, REIT Schemes have also been obliged to collect Capital Gains Tax on redemption of securities at the applicable rates.
Large trading houses as defined under clause 57 of part IV of the Second Schedule are exempt from payment of minimum tax for a period of ten years. Disputes emanated in certain cases when the field forces denied exemption of minimum tax on the alleged contention that the minimal activity of preparation and sale of bakery items alters the character of entity from trading house to a manufacturer. This action has now been undone by a clarificatory amendment. Now, the activity of preparation and sale of bakery items to the extent of 2% of total turnover shall not disqualify such companies from the aforesaid exemption subject to fulfilment of other conditions.
The tax credit on enlistment of companies is proposed to be enhanced from 15% to 20% of tax payable.
The tax regime for profit on debt derived by resident taxpayers has been revamped. Henceforth, all profits on debt received from persons who are withholding tax agent for section 151 shall be taxed at the slab rates ranging from 10% to 15%. This effectively means that except for banking companies which are taxed under special provisions of Seventh Schedule, the gross amount of profit on debt shall be taxed at the newly prescribed rates. The taxability of profit on debt in the case of companies (other than banking companies) needs to be examined.
Tax exemptions have been introduced for the following sectors and activities:
(a) Manufacture of plant and machinery for renewable energy resources;
(b) Operation of warehousing and cold chain facilities for agricultural produce;
(c) Operating Halal meat production;
(d) Any manufacturing unit set up in the Province of Khyber Pakhtunkhwa;
(e) Transmission line project; and
(f) LNG Terminal owner and operators;
The presumptive tax regime for resident shipping companies has been revamped. At present, in case of a loss, the presumptive regime of tax was effectively not applicable. Now, such cases will also be subject to presumptive tax regime applicable to shipping companies.
An important amendment has been proposed in respect of income from property. Expenses incurred to the extent of 6% of rent chargeable wholly and exclusively for the purpose of deriving rent are admissible against rental income. Previously, such expenses were limited to collection charges only. This amendment has principally brought the taxability of rental income in line with other heads of income.
A special provision has been introduced to allow deduction for profit on debt or share in appreciation of house by an individual on loan from a bank or other such institutions, obtained for the construction of a new house or acquisition of a house. At present, a tax credit is allowed on this account which is now proposed to be removed.
The maximum amount of deduction allowed under the section shall be equal to 50% of taxable income or Rs 1 million, whichever is lower.
A tax credit has been introduced for companies in relation to their employment generation. Under this provision, any company engaged in manufacturing formed between July 1, 2015 to June 30, 2018 shall be allowed a tax credit of 1% for every 50 employees registered with EOBI and social security schemes. The maximum tax credit shall, however, not exceed 10% of the tax payable.
This is a positive step in relation to economic need for employment generation therefore it is imperative that this regime should be applicable for all persons including non-corporate taxpayers and also to persons engaged in activities other than manufacturing.
Equity demands that this provision should also be applicable to existing taxpayers generating new employments.
The monetary threshold for claiming tax credit on investment in shares of public company and life insurance premium is enhanced from Rs 1 million to Rs 1.5 million.
Enabling provisions have been introduced to allow Government of Pakistan to enter into Agreements for Exchange of Information and such allied matters in addition to the existing provision relating to Agreements for Avoidance of Double Taxation and Prevention of Fiscal Evasion.
This amendment has been introduced to empower the government to obtain or render information in respect of transactions or activities undertaken in other countries or Pakistan respectively.
Furthermore, a new section 165B has been introduced to enable the banks and financial institutions to provide information in relation to non-resident persons to FBR that may be required to be furnished to any other country under the agreement referred above.
These amendments have apparently been made to cater for reporting and other requirements introduced in various countries such as US FATCA regulations.
Enabling provisions to collect minimum tax on land developers were introduced through Finance Act, 2013. Federal Government was supposed to prescribe the rates for such taxation. Since no rate has so far been prescribed therefore land developers were not subject to minimum tax. Now, a minimum tax is proposed at the rate of 2% of value of land notified by the authorities for stamp duty.
The condition of obtaining prior approval from the Commissioner for filing a revised return will now not be required if the revised return is filed within 60 days of filing of the original return.
A new concept of formation of panel for conducting special audit has been introduced. Under these provisions, a panel comprising of two or more persons will be empowered to conduct an audit including a forensic audit of income tax affairs of a taxpayer. The Panel shall consist of an Officer of Inland Revenue or a Firm of Chartered Accountant or Cost and Management Accountant or any other person as directed by the FBR.
The procedure prescribed for the conduct of special audit envisage that member of the Panel other than Officer of the Inland Revenue shall effectively provide the support function for that audit. The legal and procedural aspects for conducting such audit shall be undertaken by the member of the panel being the Officer of Inland Revenue.
Currently, the Commissioner (Appeals) is empowered to grant a stay of tax demand in an appeal before him for a period of 30 days only. Practical and legal difficulties are being faced under the present regime as in many cases, appeals are not decided within the said 30 days.
In order to address this difficulty, a positive action has been undertaken whereby Commissioner (Appeals) has been empowered to grant a stay for a further period of 30 days and is required to decide the appeal within such extended period. Based on interpretation of Article 199 of the Constitution of Islamic Republic of Pakistan, this implies that the stay shall continue to be operative until the appeal is disposed of.
This positive amendment should also be introduced in the parallel provisions laid down in Sales Tax and Federal Excise laws.
A positive amendment has been made by reinstating the time period of 30 days instead of 15 days for payment of tax demand pursuant to an order.
Presently taxpayers, other than banks are not mandatorily required to discharge advance tax liability to the extent of 90% of the tax payable based on an estimate before the last instalment is due. This envisage a possibility of not discharging the advance tax liability in line with the income earned during that period. It is now proposed that advance tax to the extent of 50% of the estimate higher than the latest assessed basis is paid by the due date of second instalment for that particular year. The regime now introduced is in line with that applicable for banking companies in Seventh Schedule.
Furthermore, the rate of default surcharge for any short payment of advance tax is proposed to be reduced from 18% to 12% per annum.
As a policy measure, it is proposed that the discretionary powers of the Federal Government and FBR for granting concessions and exemptions will be eliminated. Now, such actions, if required, can only be undertaken in special cases by way of a decision of the Economic Co-ordination Committee of the Federal Cabinet.
Under sections 148(2) and 159(3), (4) and (5) of the Income Tax Ordinance, 2001 various SROs have been issued which provide concessions or exemptions on collection of advance tax on imports and other withholding tax provisions.
The Finance Bill proposes to omit section 148(2) and 159(3), (4) and (5) of the Ordinance. The relevance of the SROs already in force prior to omission of this section will be ascertained on the basis of principle of prospective application of legal provision. It is considered that retrospective application is not envisaged, however, in order to avoid unnecessary litigation and disputes at field level, it is essential that the protection / savings for the substantive provision are introduced.
Upto June 30, 2012, the Commissioner Inland Revenue was allowed to issue exemption certificates in cases of residents and permanent establishments (PE) of non-resident companies. Through Finance Act, 2012, some withholding provisions applicable to PEs of non-residents were transposed in section 152 where the entire withholding tax provisions relating to non-residents were consolidated. In this process, the enabling provisions for the issue of exemption certificates were missed out. As a corrective measure, a new sub-section is proposed in section 152 to allow the Commissioner to issue exemption certificates in eligible cases of non-residents.
A provision has been introduced in respect of minimum tax on services rendered or provided by a company. Fundamentally, there is no change in law and the exemption from application of minimum tax on services of corporate taxpayers, which is currently provided in clause 79 of Part IV of the Second Schedule to the Ordinance is proposed to form part of the relevant section.
This alignment has been undertaken to address the matter raised by the Federal Tax Ombudsman. That authority had questioned the right of the Federal Government to allow concessions through a notification instead of an enactment by the Parliament. Accordingly, this provision has been proposed to take effect from tax year 2009 being the year in which the minimum tax provision was first introduced.
The exporters are subject to tax at the rate of 1% of export proceeds. This collection of tax is also the discharge of final tax liability in respect of income from such exports. Under clause 41AA (inserted by Finance Act, 2012 and omitted by Finance Act, 2014) the exporters were entitled to opt out on a year to year basis from the presumptive tax regime subject to minimum payment of tax.
By way of expressed provision, a right of irrevocable option to be taxed under normal regime has been re-introduced. The new provision prescribes that the amount deducted at source shall be the minimum tax liability on income from such exports.
Since the tax deducted is being treated as minimum tax under this provision which is otherwise equal to minimum tax under section 113, therefore, for practical purposes, benefit shall inter alia accrue only in relation to losses (if any) arising from export business, which could be set off and carried forward (including by way of group relief).
The rate of default surcharge in case of failure to pay tax deducted or collected has been reduced from 18% to 12%. Similarly, the rate of statutory compensation on delayed refund is proposed to be reduced from 15% to KIBOR plus 0.5%.
As a policy measure, the Federal Government had shown its intention to replace the National Tax Number (NTN) with CNIC number which is required to be obtained by every Pakistani citizen.
Through this amendment, it is proposed that in the case of an individual, CNIC number shall be taken to the NTN. The amendment appears to be in line with the aforesaid policy, however, it is important to note that CNIC is issued to all Pakistani Citizens irrespective of their tax status whereas all NTN holders are required to file a return of income. The policy measure appears to be in the right direction however substantive provisions need to be aligned in relation to the persons holding CNIC not required to comply with the tax filing and other requirements for NTN holders.
In practical sense, this amendment also implies that henceforth, there is no requirement for an individual to obtain an NTN for filing the return of income. Now, a return of income can be filed with reference to the CNIC of that person. If the objective is limited to this aspect then through this amendment the process of obtaining NTN for filing of return is removed.
A new regime for selection of audit for Retailers has been introduced. Retailers, who are registered under Sales Tax Special Procedure Rules, 2007 shall be subject to compulsory and automatic selection for audit of their income tax affairs under section 177 of the Ordinance unless:
(a) Name of the person appears in the sales tax active taxpayers list;
(b) Complete return of income has been filed within the due date;
(c) Tax payable as per return has been paid;
(d) 2% tax on turnover under section 113 (Minimum Tax) has been paid by a person registered as retailer who files a return
below taxable limit and who in the preceding tax year had either not filed the return or had declared income below taxable limit; and
(e) 25% higher than last year's tax liability has been paid.
This regime has been introduced apparently to cater for the cases where compliance to the sales tax laws were not made on account of the perceived actions for income tax purposes on the basis of returns filed under the sales tax law. Now an effective immunity from audit is available irrespective of the amounts declared for sales tax purposes if the income tax is paid in excess of 25% of last year's tax liability. This is the introduction of another form of presumptive income tax.
This regime shall be applicable from the date to be notified by the FBR.
A new presumptive tax at the rate of 10% has been introduced on payments to a resident person for the use or right to use any industrial, commercial or scientific equipment. Presently, such payments to non-residents are subject to final tax regime. Even in such cases of non-residents, presumptive tax is not applicable if the person has a Permanent Establishment in Pakistan.
This provision requires to be re-examined in relation to the activities undertaken by certain institutions who are earning income by way of consideration for the use of equipment, etc. Presumptive regime for such activities / transactions is not in line with the principle of taxation especially for companies where such activities are supposed to be taxed on net income basis instead of a final tax liability based on gross consideration received. The correct measure would have been the introduction of adjustable withholding regime if there is a perception of avoidance of tax on such considerations.
In line with the tax collection regime for payments of education fees to local institutions in certain cases, a parallel regime is proposed to be introduced for tax collection at 5% on adjustable basis on remittance of education expenses abroad.
Under this provision, the banks and other financial institutions shall collect tax on payment of educational expenses abroad. This regime has presumably been introduced to collect tax from persons outside the normal tax regime remitting education fees abroad through banking channels. This provision is effectively applicable only where payments are to be made under Foreign Exchange Act 1947.
Notwithstanding the conceptual validity of the provision introduced, for practical purposes, in the case of persons outside tax regime, payments are generally routed through private foreign currency accounts where in practice, there is no enquiry for income tax purposes in respect of the purpose of remittance made abroad.
Dividend in specie was not subject to withholding and the said matter has been decided by the higher courts in favour of taxpayers. It is now proposed that withholding tax provisions will be applicable on distribution by way of dividend in specie. Withholding under this provision will be on the amount representing the value of asset released from the reserves as per the financial statements.
A special regime of taxation has been introduced for transactions undertaken by Pakistan Mercantile Exchange Limited.
The concept of 'Active Taxpayers' is proposed to be introduced in line with that applicable under the Income Tax provisions. In the case of Income tax, a non-active taxpayer / non-filer is inter alia subject to higher rate of withholding tax. In the case of sales tax, FBR will make rules for restrictions and limitations which may inter alia include non-availability of input tax relating to transactions with such non-active taxpayers.
All registered persons are to be treated as active taxpayers except the following:
Black listed, blocked or suspended;
Fails to file return for 2 consecutive months;
Fails to file income tax return by due date;
Fails to file two consecutive monthly or annual statements under section 165 of the Income Tax Ordinance, 2001.
Any person having utility bills of Rs 800,000 or more during the last 12 months instead of previous limit of Rs 700,000 has been excluded from the definition of cottage industry.
Toll manufacturing represents supply of goods taxable under the Federal Sales tax laws. Provincial revenue authorities have incorrectly considered the same as being a service rendered subject to tax by Provincial governments under respective provincial sales tax laws. Toll manufacturing is effectively a part of the whole process of manufacturing of goods undertaken by two persons. An amendment is proposed in the definition of supply to consolidate the aforesaid status of toll manufacturers as being a supplier of goods for Federal sales tax purposes.
Supply of taxable goods to unregistered persons was subject to tax at the rate of 18%. Such rate of 18% represents 17% being the standard sales tax and 1% as the amount of further tax. Now, the rate of tax on such supplies is proposed to be increased to 19% on account of enhancement of further tax to 2%.
Input tax adjustment on imports based on provisional bill of entry or goods declaration under section 81 of the Customs Act, 1969 is now proposed to be allowed.
Following amendments have been made in respect of admissibility of input tax:
(a) Input tax paid in respect of prefabricated buildings are proposed to be allowed, previously this was not an allowable adjustment.
(b) Services for which input tax adjustment is barred under respective provincial sales tax laws will not be allowed as input tax for determining the Federal sales tax liability. There is no rationale of relating the admissibility of input tax on genuine services rendered in relation to supply of goods under the Federal Sales tax law. This is a departure from a normal VAT regime.
(c) Input tax on certain goods and services at the time of filing of return by buyer and have not been declared by the supplier in his return will not be allowed. This amendment effectively means that an eligible input tax shall become inadmissible only for the reason that the supplier of goods has not declared such supply in his return of sales tax. There is no rationale for relating these two different aspects with the admissibility of input tax. The items which will fall within this mischief will be notified by the FBR.
(d) Input tax on import or purchase of agricultural machinery or equipment which is subject to sales tax at 7% under Eighth Schedule shall not be admissible as input tax in respect of supply of goods.
The restrictions as imposed under (b) to (d) above may be challenged on Constitutional grounds.
In the context of joint and several liability related provision, onus to prove collusion for avoidance of payment of sales tax shall be on the revenue.
FBR is proposed to introduce prize schemes to encourage the general public to make purchases from registered persons issuing sales tax invoices. Such provisions exist in many other jurisdictions and the entitlement to prize is made on the basis of lottery where the receipt / invoice of sales tax is an eligible criteria for payment of prize.
Supply of locally manufactured plant and machinery earlier zero rated under SRO 397(I)/2001 are proposed to continue to be zero rated under Fifth Schedule.
Export of exempted goods by manufacturer shall be zero rated. Accordingly, respective input tax adjustment would be available to such manufacturer/exporter.
Items exempted under SRO 880(I)/2007, SRO 408(I)/2012 and SRO 760(I)/2012 are proposed to continue to be exempted under Sixth Schedule.
Supplies of marble and granite by manufacturers exempted under SRO 76(I)/2008 are proposed to continue to be exempted under Sixth Schedule subject to conditions of annual turnover of less than Rs 5 million and annual utility bills not more than Rs 800,000.
Items covered under Fifth Schedule to the Customs Act, 1969 now proposed to be exempted under Sixth Schedule.
Import and supply of equipment under PCT codes 3006.9100, 3926,9050 and 8539.3930 are proposed to be exempted under Sixth Schedule.
Import or supply of following are proposed to be exempted under Sixth Schedule:

Description PCT Heading
Aircraft, whether imported or 8802.2000,
acquired on wet or dry lease 8802.3000,
Maintenance kits for use in Respective
trainer aircrafts of PCT headings Headings
8802.2000 and 8802.3000
Spare parts for use in aircrafts, Respective
trainer aircrafts or simulators Headings
Machinery, equipment and tools Respective
for setting up maintenance, repair Headings
and overhaul (MRO)
workshop by MRO company
recognised by Aviation Division
Operational tools, machinery, Respective
equipment and furniture and Headings
fixtures on one-time basis for
setting up Greenfield airports by
a company authorised by
Aviation Division
Aviation simulators imported by Respective
airline company recognised by Headings
Aviation Division

Local supply of following are proposed to be exempted under Sixth Schedule

Description PCT Heading
Raw and pickled hides and skins, wet 41.01, 41.02,
blue hides and skins 41.03,
Bricks (upto June 30, 2018) 6901.1000
Crushed stone (upto June 30, 2018) 2517.1000

Exemption in respect of machinery, equipment, raw materials, components and other capital goods for use in buildings, fittings, repairing or refitting of ships, boats or floating structures imported by Karachi Shipyard and Engineering Works Limited is proposed to be omitted.
Import and supply of ingredients of poultry and cattle feed exempt under SRO 1007(^/2005 are proposed to be taxed at 5% under Eighth Schedule.
Reduced rate notified vide following notifications are proposed to be subject to same reduced rate and conditions under Eighth Schedule
-- SRO 69(I)/2006 @ 16%
-- SRO 313QV2006 @ 6%
-- SRO 657GV2013 @ 5%
-- SRO 572(I)/2014 @ 10%
Following items are proposed to be subject to reduced rate of 7% under Eighth Schedule:

Description PCT Heading
Tillage and seed bed preparation Certain PCT
equipment headings
Seeding orplanting equipment Certain PCT
Irrigation, drainage and agro-chemical Certain PCT
application equipment headings
Harvesting, threshing and storage Certain PCT
equipment headings
Post-harvest handling and processing 8437.1000 &
& miscellaneous machinery 8433.4000

Following items are proposed to be subject to reduced rate of 10% instead of 5% under Eighth Schedule:

Description PCT Heading
Machinery and equipment for Respective
development of grain handling heading
and storage facilities.
Complete plants for relocated Respective
industries. heading
Machinery, equipment and other Respective
capital goods meant for initial heading
installation, balancing,
modernization, replacement or
expansion of oil refining (mineral
oil, hydro- cracking and other
value added petroleum
products), petrochemical and
petrochemical downstream
products including fibers and
heavy chemical industry,
cryogenic facility for ethylene
storage and handling.

Following items subject to reduced rate of 5% under Eighth Schedule are proposed to be omitted:

Description PCT Heading
Following items imported by Call Various
Centers, Business Processing
Outsourcing facilities duly approved
by Pakistan Telecommunication
(1) Telephone sets/head sets.
(2) Cat 5/Cat6/Power cables
(3) PABX Switch
(4) Plasma TV
(5) Dedicated telephone exchange
system for call centres.
(6) Other digital cell recorders
Proprietary Formwork System for Various
building/structures of a height of 100
ftand above and its various items/
components consisting of the
following, namely:-
(1) Plastic tube.
(2) Plastic tie slot filters/plugs,
plastic cone.
(3) Standard steel ply panels, Special
sized steel ply panels, wedges, tube
clamps (B-Type & G Type), push/pull
props, brackets (structure), steel
soldiers (structure), drop head,
standard, prop tic, buard rail post
(structure), coupler brace, cantilever
frame, decking beam/Infill beam and
doorway angles.
(4) Lifting Unit (Structure)
(5) Bolts, tie bolts, anchor bolt
assembly (fastener), anchor screw
(6) Nuts
(7) Steel pins, tie wing nut (fastener).
(8) Steel washers, water plate
(9) Adjustable base jack (thread rod
with nut and steel plate), adjustable
fork head (threaded rod with nutand
steel channel).

Sales tax rates under Ninth Schedule on import and/or registration of IMEI by Cellular Mobile Operators have been doubled.
Sales tax regime for certain items identified in the Annexure A has been revamped. This revamping inter alia includes substitution of zero rating with the exemption regime and introduction of reduced rate of tax for certain items which were earlier exempt / zero rated. All these aspects have been identified in the Annexure referred above.

Description HS Code Current Law Proposed
5th 6th 8th 5th 6th 8th
Soya bean meal 2304.0000 Tax rate 5% Tax rate 10%
Poultry feed and Cattle feed 2301.2090, Exempt Proposed to Tax rate 5%
Including their all 2305.0000, be
Ingredients except soybean 2306.2000, omitted
meal of PCT heading 2306.3000,
2304.0000 and oil-cake of 2306.4100,
cottonseed falling under 2306.5000,
PCT heading 2306.1000. 2309.9010,
Whey 04.04 Zero rated Exempt
subject to if not Proposed Exempt Reduced rate
Flavored milk 0402.99 Certain covered to be if not of 10%if sold
conditions under omitted sold in in retail
Butter 0405.1 specified in Fifth retail packing under
Chapter Schedule packing a brand name
Desi ghee 0405.9 XIV of under
Sales Tax brand
Cheese 0406.101 Special name
Milk and cream, 0402.1000 Rules 2007
Concentrated or containing (STSPR)
Added sugar or other
sweetening matter
Yogurt 04.03.1000
Processed cheese not grated 0406.3 Exempt Exempt
Or powdered if not
sold in
Cream 04.01 and Zero rated Omitted Reduced rate
04.02 subject to of 10%if sold
certain in retail
conditions packing under
specified in a brand name
XIV of
Directly reduced iron 72.03 Tax rate 5% Proposed to be
Incinerators of disposal of 8417.8000, Exempt Proposed to Tax rate 5%
waste management, 8430.2000 be
motorised sweepers and and omitted
snow ploughs 8479.8990
Re-importation of foreign 99.18
origin goods which were
temporarily exported out of
Pakistan subject to similar
conditions as are envisaged
for the purposes of applying
zero-rate of customs duty
under the Customs Act,
Plant, machinery, Respective
equipment and specific Headings
items used in production of
Reclaimed lead, if supplied Respective
to recognised manufacturer headings
of lead batteries
Waste papers Respective
Oilseeds meant for sowing. Respective Tax rate 5% Tax rate 10%
Plant and machinery not Respective Tax rate 5% Tax rate 10%
manufactured locally and headings
having no compatible local

In 2001, certain services were subjected to Sales Tax in the four Provinces and Islamabad Capital Territory (ICT) through respective Ordinances. Since promulgation of ICTO, no addition / amendment to the list of services taxable in ICT was made although after the 18th amendment, the Provinces whilst reiterating their right to tax services, have expanded their list of taxable services. Furthermore, Sindh, Punjab and KPK have formed their own regulatory bodies to collect the taxes whereas FBR regulates the collection of sales tax on services rendered in Balochistan and ICT. In order to harmonise the list of services taxable in ICT with the services taxable in the Provinces, following new services rendered in ICT are proposed to be taxable:

S.No. of
Schedule Description
5 Construction services, excluding:
(i) construction projects (industrial
and commercial) of the value
(excluding actual and documented
cost of land) not exceeding Rs 50
million per annum.
(ii) the cases where sales tax is
otherwise paid as property
developers or promoters.
(iii) Government civil works including
Cantonment Boards.
(iv)construction of industrial zones,
consular buildings and other
organisations exempt from income
(v) construction work under
international tenders against
foreign grants-in-aid.
(vi)residential construction projects
where the covered area does not
exceed 10,000 square feet for
houses and 20,000 square feet for
6 Services provided by property developers
and promoters (including allied services)
excluding the actual purchase value or
documented cost of land.
7 Services provided for personal care by
beauty parlours, clinics and slimming
clinics, body massage centres, pedicure
centres; including cosmetic and plastic
surgery by such parlours/clinics, but
(i) annual turnover does not exceed
Rs 3.6 million; or
(ii) the facility of air-conditioning is not
installed or available in the
8 Services provided for personal care by
beauty parlours, clinics and slimming
clinics, body massage centres, pedicure
centres; including cosmetic and plastic
surgery by such parlours/clinics, but
(i) annual turnover does not exceed
Rs 3.6 million; or
(ii) thefacility of air-conditioning is not
installed or available in the
9 Management consultancy services.
10 Services provided by freight forwarding
agents, and packers and movers.
11 Services provided by software or IT-
based system development consultants.
12 Services provided by technical, scientific
and engineering consultants.
13 Services provided by other consultants
including but not limited to human
resource and personnel development
services; market research services and
credit ratingservices.
14 Services provided by tour operators and
travel agents including all their allied
services or facilities (other than Hajj and
15 Manpower recruitment agents including
labour and manpower supplies.
16 Services provided by security agencies.
17 Services provided by advertising agents.
18 Share transfer or depository agents
including services provided through
manual or electronic book-entry system
used to record and maintain securities
and to register the transfer of shares,
securitiesand derivatives.
19 Business support services.
20 Services provided by fashion designers,
whether relating to textile, leather,
jewellery or other product regimes,
including allied services, marketing,
packing, delivery and display, etc
21 Services provided by architects, town
planners and interior decorators.
22 Services provided in respect of rent-a-
23 Services provided by specialised
workshops or undertakings
(autoworkshops; workshops for
industrial machinery, construction and
earth-moving machinery or other special
purpose machinery etc; workshops for
electric or electronic equipments or
appliances etc including computer
hardware; car washing or similar service
stations and other workshops).
24 Services provided for specified purposes
including fumigation services,
maintenance and repair (including
building and equipment maintenance
and repair including after sale services)
or cleaning services, janitorial services,
dredging or desilting services and other
similar services etc.
25 Services provided by underwriters,
indenters, commission agents including
brokers ( other than stock)
26 Services provided by laboratories other
than services relating to pathological or
diagnostic tests for patients.
27 Services provided by health clubs, gyms,
physical fitness centres, indoor sports
and games centres and body or sauna
massage centres
28 Services provided by laundries and dry
29 Services provided bycable TV operators.
9819.9000 Sixteen per cent Technical
analysis and testing services
30 Services provided by TV or radio
program producers or production
31 Transportation through pipeline and
conduit services.
32 fund and asset (including investment)
management services.
33 Services provided by inland port
operators (including airports and dry
ports) and allied services provided at
ports and services provided by terminal
operators including services in respect of
public bonded warehouses, excluding the
amounts received by way of fee under
any law or bylaw.
34 Technical inspection and certification
services and quality control (standards'
certification) services
35 Erection, commissioning and installation
36 Event management services
37 Valuation services(
competency and eligibility testing
38 Exhibition or convention services
39 Services provided in respect of mining of
minerals, oil & gas including related
surveys and allied activities
40 Services provided by property dealers
and realtors
41 Call centres
42 Services provided by car/automobile

The existing services, with certain changes, taxable in ICT are as follows:

S.No. of
Schedule Description
1 Services provided or rendered by hotels,
motels, guest houses, marriage halls and
lawns (by whatever name
including "pandal" and "shamiana"
services, clubs including race clubs, and
2 Advertisement on television and radio,
excluding advertisements-
a) sponsored by an agency of the
Federal or Provincial Government
for health education;
b) sponsored by the Population
Welfare Division relating to
educational promotion
campaign;(c) financed out of funds
provided by a Government under
grant-in-aid agreement; And
c) conveying public service messages,
if telecast on television by the World
Wide Fund for Nature (WWF) or
United Nations Children's Fund
3 Services provided by persons authorised
to transact business on behalf of others-
(a) stevedore; (b) customs agents; and(c)
ship chandlers.
4 Courier services and cargo services
byroad provided by courier companies;

The rate of duty is proposed to be enhanced from 9% to 12% of retail price with effect from July 1, 2015.
Description of and duty on the locally produced cigarettes (PCT heading 24.02) is proposed to be enhanced as under, with effect from July 1, 2015:

S. Revised
No. Description of goods rate
9 Locally produced cigarettes if Rs 3,030
their on-pack printed retail per 1,000
price exceeds Rs 3,350 per cigarettes
1,000 cigarettes
10 Locally produced cigarettes if Rs 1,320 per
their on-pack printed retail 1,000
price does not exceed cigarettes
Rs 3,350 per 1,000 cigarettes

It appears that average tax incidence would increase from 58% to 63%
It is proposed to charge duty on filter rod for cigarettes (PCT heading 5502.0090), with effect from July 1, 2015:

S. Revised
No. Description of goods rate
56 Filter rod for cigarettes Rs 0.75 per
filter rod.

-- Travel by air on socio economic routes
It has been proposed to exempt excise duty on services provided or rendered in respect of travel by air of passengers on socio economic routes. Duty is currently payable at Rs 500 per passenger.
Socio economic routes are proposed to be redefined as the shortest part of journeys starting from or ending at an airport located in Makran coastal region, FATA, Azad Jammu and Kashmir, Gilgit-Baltistan or Chitral. The phrase "the shortest part of journeys" needs to be further clarified to avoid tax disputes.
Exemptions available tinder notification consolidated in 3rd Schedule
The exemptions earlier available in respect of following goods/ services under notification SRO 778(I)/2006, notification SRO 474(I)/2009, notification SRO 802(I)/2009 and 8I(I)/2010 are proposed to be incorporated in Third Schedule to FE Act:
Services of air travel for Hajj passengers, diplomats and Supernumerary crew;
White cement (PCT heading 25.23);
Motor cars and other motor vehicles principally designed for the transport of persons including station wagons and racing cars of cylinder capacity exceeding 85OCC; Services provided or rendered by banking companies and non-banking financial companies in respect of Hajj and Umrah, cheque book, insurance, Musharika and Modaraba financing and utility bill collection; and
Advertisement in newspapers and periodicals.

Under the Customs Act, 1969, transhipment of goods is allowed without payment of duty, if goods are transported to other station. It has now been clarified that assessment and payment of duties and other charges in case of transhipment of goods will be made at the port of destination. Some other procedural aspects have been clarified in this respect.
A new penalty of Rs 50,000 is being introduced for a person contravening the requirement of placement of invoice and packing list inside the import container or consignment. Furthermore, offence relating to untrue declaration and illegal removal or concealment of goods during transit has also been penalised.
Last year, the Government announced a policy to withdraw concessionary SROs in three phases (years). For that purpose, Fifth Schedule to the Customs Act, 1969 was introduced through Finance Act, 2014, and SROs 575(I)/2006 and 567(I)/2006 were consolidated therein with certain changes. The framework for review of SROs, as announced, is based on following:
(i) Minimally utilised concessions are being withdrawn;
(ii) Socially sensitive concessions are retained; and
(iii) Remaining concessions are either withdrawn or continued at enhanced rates.
Through this Budget, being the second phase of implementation of aforesaid policy, some more SROs are expected to be withdrawn, which have not been notified so far. The concession in respect of following sectors has been withdrawn by virtue of amendment in the Fifth Schedule, resulting that regular rate is applicable thereon:

Sector/Goods concessionary
rate (now
Business Processes 15%
Outsourcing/Call Center
Relocated Industries 10%
Proprietary Formwork system 10%
for building/structures of
100 ft and above
Petroleum oils and oils 0%
Obtained from bituminous
minerals, crude, motor sprit,
furnace oil
Soyabean meal 5%
Hi-speed diesel 7.5%
Concentrated Coccidiostats 5%
Certain Medecaments 5%
Certain poly items 4%/8.5%
Certain textile products (of/ 9%/7%
or relating to yarn

By virtue of amendment in First Schedule, reduction in customs duty has been provided for the following, in addition to reduction in maximum tariff rate from 25% to 20% across the board.

PCT Code Old New
4011.1000 25% 15%
8517.6100 20% 10%
3402.1300 20% 15%
4011.2010 20% 15%
7605.2900 20% 15%
7606.9290 20% 15%
8517.6290 20% 15%
8529.1090 20% 15%

Reduction in customs duty in respect of following sectors has been provided by placing the same under the Fifth Schedule:

Sector Concession
Agricultural Reduction in customs duty on
import of agricultural
machinery from 5 - 20% to
Construction Reduction in customs duty to
10%, on import of
construction machinery in
used condition, by the
construction companies
registered with Pakistan
Engineering Council and
Aviation Customs duty on various
items used in aviation sector
reduced to 0%, subject to
certain conditions.

As part of review / rationalisation of customs duty, following major changes have been made:
(ii) Goods subject to duty at the rate of 1% under the First Schedule, will now be subject to duty at the rate of 2%.
(iii) Duty on following goods has been increased by virtue of amendment in First Schedule:

PCT Code Old New
2701.1200 1% 5%
2701.1900 1% 5%
2710.1941 1% 5%
3206.4990 10% 15%
3903.1990 5% 10%
3903.9000 5% 10%
8482.1000 5% 10%
8517.6990 10% 15%

(iii) Following new entries have been introduced in the First Schedule, subject to duty at more than 20%:

PCT Code Rate
4016.9950 35%
7318.2220 35%
7320.1030 35%
8302.3020 35%
8483.1013 35%

(iv) Concessionary rate under the Fifth Schedule is increased for the following:

Sector Old New
Machinery Equipment 5% 10%
and Other Capital
goods for initial
installation , BMR or
expansion of Oil
Refining petro
chemical and petro
chemical downstream
products including
fiber and heavy
chemical industry
Machinery and 10% 15%
Equipment by an
industrial concern
Fresh and Dry Fruits 5% 10%
from Afghanistan
(Chapter 8)
Preparations of a kind 5% 10%
used in animal feeding
Nucleic acids and their 5% 10%
salts (Furazolidone)
Defence stores, 10% 15%
excluding those of the
National Logistic Cell

(i) Under the Fifth Schedule, import of plant, machinery and equipment for setting-up industries in FATA was subject to customs duty at 10%. The said concession is now restricted to imports made during July 1, 2014 till June 30, 2019.
(ii) Following general conditions prescribed in Part I of the Fifth Schedule are now not applicable:
(a) Valid contracts or letter of credit for import of machinery and equipment for setting up of a new industrial unit; and
(b) The total C&F value of such imports should have been US $50 million or above.
(iii) Following announcements have been made in the salient features:
(a) Exports of perishable goods namely fruits, vegetables, dairy products and meat shall be allowed against Pak currency instead of dollars w.e.f. 1-7-2015;
(b) Quota for ghee and vegetable oil under DTRE for export to Afghanistan and Central Asia is being enhanced from 1000 Metric Ton per 90 days to 1000 Metric Ton per month.

A new concept of 'whistleblower' has been proposed to be introduced in income tax, sales tax and federal excise duty laws, whereby FBR is to be empowered to sanction reward to persons who provide information regarding concealment or evasion of tax/duty, tax fraud, corruption or misconduct.
FBR already has powers to sanction rewards to its officials. Through proposed amendments such powers are aimed to reward persons other than departmental officials who provide information about malpractices.
As a policy measure, the discretionary powers of the Federal Government or the FBR to grant 'exemptions' from taxes and duties under all the four fiscal legislations have been proposed to be abolished. However, in special circumstances identified below, such notifications can be issued by the Federal Government subject to approval of Economic Co-ordination Committee of Cabinet:
-- national security;
-- natural disaster;
-- national food security in emergency situations;
-- protection of national economic interests in situations arising out of abnormal fluctuation in international commodity prices;
-- removal of anomalies in taxes;
-- development of backward areas; and
-- implementation of bilateral and multilateral agreements.
This amendment was introduced recently through Presidential Ordinance. Through the Finance Bill, 2015 the contents of the Ordinance have been adopted in the respective taxing statutes.
Further, it has been proposed that exemptions to be granted by Federal Government under these provisions have to be placed before National Assembly (a requirement already there in the Income Tax Ordinance) and that exemptions would not extend beyond the end of financial year in which these are granted. It is, however, apt to highlight that powers available with Federal Government to subject specified goods to 'lower rate' of tax/ duty, available under section 3(2)(b) of ST Act and section 3(4) of FE Act, have not been proposed to be made subject to above conditions.
The relevance of the SROs already in force prior to omission of relevant provisions will be ascertained on the basis of principle of prospective application of legal provision. It is considered that retrospective application is not envisaged, however, in order to avoid unnecessary litigation and disputes at field level, it is essential that the protection / savings for the substantive provision are introduced.
New provisions are proposed to be introduced in the income tax, sales tax and federal excise duty laws whereby Federal Government has been empowered for entering into bilateral or multilateral agreements with the provincial governments as well as the governments of foreign countries with respect to exchange of information concerning all three levies.
Further, in line with the provisions already there in the Income Tax Ordinance, information obtained under such agreements or that in possession of public servants under ST Act and FE Act have been prescribed to be confidential notwithstanding other laws.
By virtue of certain amendments introduced through Finance Act, 2013, certain provisions were inserted in sales tax/excise duty law vesting FBR with the powers to require specific goods to be affixed with stamps, banderols, stickers, labels etc so as to these could be electronically monitored/ identified.
An amendment is proposed in these provisions whereby 'barcodes' could also be used as electronic identifiers and FBR to be empowered to prescribe vendors from which such identifiers could be procured at notified prices.
The provisions earlier there in the sales tax and excise duty law providing for audit of taxpayers by Chartered Accountant ('CA') and Cost & Management Accountant ('CMA') firms are proposed to be replaced with the concept of audit by 'special audit panels'. In the Income Tax Ordinance, however, provisions relating to audit by CA and CMA firms remain intact and concept of 'special audit panel' has been introduced in addition thereto.
FBR, under the proposed concept, is to be empowered to notify 'special audit panels', to be headed by an officer of Inland Revenue and comprising of two or more of following:
(a) officer of Inland Revenue;
Further, necessary amendments are also proposed in respective statutory provisions to regulate the conduct of audits by proposed 'special audit panels'.
Under the section 45A of ST Act and section 35 of FE Act, FBR and Commissioner Inland Revenue are empowered, on a suo moto basis, to examine/call for the record of any proceedings and review an order passed by any of subordinate authorities.
An amendment is proposed in these legal provisions which will effectively enable the FBR to undertake revisionary powers even on the basis of application by the taxpayer in addition to the right of 'suo moto' action.
Similar amendment is also required in provision relating to revisionary powers of the relevant Commissioner in both Statutes.
(b) CA Firm;
(c) CMA Firm; or
(d) Any other person.
Further, necessary amendments are also proposed in respective statutory provisions to regulate the conduct of audits by proposed 'special audit panels'.
Under the section 45A of ST Act and section 35 of FE Act, FBR and Commissioner Inland Revenue are empowered, on a suo moto basis, to examine/call for the record of any proceedings and review an order passed by any of subordinate authorities.
An amendment is proposed in these legal provisions which will effectively enable the FBR to undertake revisionary powers even on the basis of application by the taxpayer in addition to the right of 'suo moto' action.
Similar amendment is also required in provision relating to revisionary powers of the relevant Commissioner in both Statutes.
Budget Financials
-- The following table sets out the Key Budget Financials:

2015-2016 2014-2015
Rs in Rs in
Billion % Billion %
Tax revenue 3,418 2,910
Non-tax revenue 895 1,042
Gross revenue receipts 4,313 3,952
Public account receipt-net 254 288
4,567 100 4,240 100
Total receipts
Less: Provincial share in Federal tax (1,849) (40) (1,575) (37)
Net revenue receipts 2,718 60 2,665 63
Current expenditure 3,615 79 3,558 84
Development expenditure 969 21 754 18
4,584 100 4,312 102
Deficit (1,866) (40) (1,647) (39)
Domestic debts non-bank 485 393
Domestic debts banks 283 402
Foreign debt 751 692
Privatisation proceeds 50 18
Surplus from provinces 297 142
(1,866) (1,647)

There is no substantial change in the ratio of direct and indirect taxes.
A substantial and incremental shift is required to decrease disparity in income and reduce the burden of indirect taxes on common man.

FY 15 16 FY 14 15
Rs in Rs in
Billion Billion
There is no Direct Taxes:
substantial change
in the ratio of direct Income Tax 1,327 1,092
and indirect taxes. Workers' Welfare Fund 20 16
1,347 1,108
substantial and
incremental shift is Indirect Taxes:
requiredto decrease
disparity in income Customs Duty 299 255
and reduce the 1,250 1,082
Sales Tax
burden of indirect
Federal Excise Duty 206 159
taxes on common
Petroleum Levy 135 126
Gas Infrastructure Cess 145 145
Natural Gas Surcharge 30 30
Others 6 5
2,071 1,802
3,418 2,910

Copyright Business Recorder, 2015


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