Income Tax
1. Persons not appearing in the Active Taxpayers'' List (ATL)
Section 100BA
The concept of filers and non-filers was introduced in the Ordinance through the Finance Act, 2014. Through this concept a distinction was created between person who duly filed their tax returns and the remaining persons who were considered non-filers. The basic intention of the legislature was to obtain documentation and compel the non-filers to become registered tax filers.
Over the years, major distinction was introduced in the rates of tax withholding under various sections of the Ordinance to make the non-filers suffer heavy withholding of tax so that they may be compelled to ultimately come within the tax net and file proper declaration of their tax returns with FBR.
However, over the last five years, it has been observed that the percentage of increase in tax filers has not been significant and the numbers of tax filers is still quite low as compared to other comparable economies. The present government has been talking about broadening of the tax base more strongly and the Prime Minister himself has on many occasions indicated his strong desire to significantly broaden the tax base.
It is now proposed to enact a separate schedule in the Ordinance to deal with persons who are not on the ATL i.e. who are not in the tax net and are not filing their declaration so far. In this connection, Section 100BA has been proposed which governs the collection or deduction of advance income tax, computation of income and tax payable by such persons.
The Tenth Schedule generally provides that where ever tax is required to be deducted or collected under any provisions of the Ordinance from a person whose name is not appearing in the ATL, the rate of withholding will be doubled in case of deduction or collection from such persons. However, the schedule provides exception in case of the following payments -
(1) Salary;
(2) Payment to non-residents other than on account of royalty, fees for technical service, insurance premium
(3) Payment to a Permanent Establishment in Pakistan of a non-resident person other than on account of providing services or contract or any general payment to a nonresident.
(4) Payment on account of exports
(5) Tax deductions from payment of rent
(6) Tax deductions from withdrawal of balance from pension funds
(7) Tax collection from cash withdrawal from a bank
(8) Tax collection on banking transactions
(9) Collection of tax by NCCPL
(10) Collection of tax on domestic or commercial electricity consumption (11) Tax collection from steel melters
(12) Purchase of air tickets
(13) Functions and gatherings
(14) Cable operators
(15) Educational institutions
(16) Dealers and commission agents
(17) Purchase of international air tickets
(18) Non-cash banking transactions
(19) Payment for use of machinery and equipment
(20) Remittance of education related expenses
(21) Extractions of minerals
(22) Tobacco
The Schedule seeks to provide a mechanism where a withholding agent is satisfied that the person not appearing in the ATL is not required to be a tax filer and hence the deduction of tax should not be attracted from payments to such persons. In such a situation, the payer would be required to furnish an application to the Commissioner in writing electronically providing the details of the person from whom he intends not to collect tax, giving details about the payee and the nature of payment and the basis on which he is not liable to be a tax filer. The Commissioner on such application would decide the matter within 30 days and direct the payer accordingly.
Assessment of such person
-- The Schedule requires the Commissioner to undertake a provisional assessment of the person from whom tax has been withheld under the Schedule but he has failed to file the return of income within the prescribed time or extended time.
-- The provisional assessment is proposed to be carried out within 60 days of the due date of filing of return. The income of such person in such a case shall be imputed on the basis of tax that has been withheld at source and shall be treated as un-explained income.
-- Once the provisional assessment has been finalized and served on such person, he can file a return of income within 45 days of the service of the provisional order. In which case the provisional assessment shall stands abated.
-- If a return of income is not filed within 45 days of service of order of provisional assessment, then such assessment is to be treated as final assessment order. In such a case the Commissioner is also proposed to be empowered to pass an order within 30 days of finalization of assessment for imposition of penalty on account of non-furnishing of return and concealment of income.
-- The Schedule also seeks to empower the Commissioner to amend an assessment on the basis of definite information from an audit or otherwise.
Consequent to the proposed enactment of the Schedule, to withdraw concept of filers and non-filers from various provisions of the Ordinance, several amendments have been proposed in various withholding provisions to remove reference to Filer and non-Filer. Similarly the restrictions introduced on purchase of immovable property and moveable property on Non-filers in Section 227C are also proposed to be abolished.
2. Capital gains
Section 37; Division VIII, Part I of the First Schedule; Clause (9A), Part III of the Second Schedule
The taxation of capital gains arising from disposal of capital assets is governed by Section 37 of the Ordinance. After the introduction of Eighteenth Amendment in the Constitution of Pakistan, 1973, the Finance Act, 2012 introduced a significant amendment inserting Sub-section (1A) in Section 37 of the Ordinance providing for taxation of capital gains arising from disposal of immovable properties. The rates of tax on such capital gains were applicable depending on the holding period of immovable properties ranging from 5% to 10%. However, if the immovable property was disposed of after holding period of three years, the rate of tax is prescribed at zero percent.
The Bill proposes to revamp the taxation of capital gains from disposal of immovable properties. Accordingly, it is proposed to omit Sub-section (1A) from Section 37 alongwith Division VIII of Part I of the First Schedule which contains rates of tax on such capital gains. In its place, a new Sub-section (3A) is proposed to be inserted which contains separate mechanisms for computation of capital gain on disposal of (i) open plot, and (ii) constructed property.
The effect of the proposed amendment is that such capital gain (worked out by subtracting cost of the asset from the consideration received) will not be considered as a separate block of income liable to tax at reduced rates of 5%, 7.5% or 10%. It will instead forms part of total income of the person and therefore, be taxed at the normal rates of tax applicable as per the First Schedule.
The capital gain will, however, be reduced by 25% depending on the holding period of the immovable property disposed of. The reduction of 25% will apply if the holding period of open plot exceeds one year but does not exceed ten years and for constructed property from one year to five years. Where the immovable property is disposed of after holding period of ten years and five years respectively, the capital gain will be taken to be zero.
An interesting outcome of this mode of taxation is that where the capital gain becomes zero depending upon the holding period as discussed above, super tax under Section 4B of the Ordinance will not apply for, there would not be any income recognizable for the purpose of computation of super tax.
The reduction of 50% of tax payable in respect of capital gains on disposal of immovable property on the first sale of immovable property acquired or allotted to ex-servicemen and serving personnel of Armed Forces or ex-employees or serving personnel of Federal and Provincial Governments, being original allottees of the immovable property, duly certified by the allotment authority remains intact as for this purpose Clause (9A) is also proposed to be inserted in Part III of the Second Schedule to the Ordinance.
3. Purchase of assets through banking channel
Section 75A
The Bill proposes to insert a new section in the Ordinance which provides that purchase of assets set as out below shall now only be made through a crossed cheque drawn on a bank or through a crossed demand draft or crossed pay order or any other crossed banking instrument -
(a) Immovable property having fair market value greater than PKR 05 million;
(b) Any other asset having fair market value of more than PKR 01 million
For the purpose of this section, the fair market value means the value notified by FBR under Section 68(4) of the Ordinance or the value fixed by the provincial authority for the purposes of stamp duty, whichever is higher.
In the event, the transaction of purchase of the asset is not carried out in the manner prescribed above, such asset shall not be entitled for allowance of depreciation or amortization, as specified under the Ordinance. It is further proposed that the amount paid other than in the specified manner shall not be regarded as cost under Section 76 of the Ordinance for the purpose of computing gain on disposal of such asset. In addition a penalty of five percent of the fair market value of the asset so purchased shall also be levied.
4. Tax credit for investment
Section 65B
The tax credit currently available under Section 65B in respect of investment in the purchase of plant and machinery for the purposes of extension, expansion, balancing, modernization and replacement thereof, already installed in an industrial undertaking is proposed to be restricted in the following manner -
-- the period of investment for availing tax credit is proposed to be reduced from 30 June 2021 to 30 June 2019
-- the existing rate of tax credit would be reduced from 10% to 5% for the tax year 2019
-- unadjusted tax credit if any, for the tax year 2019 can be carried forward and set off against the tax liability for the tax years 2020 and 2021
5. Payment of refund through income tax refund bonds
Section 171A
Sections 170 and 171 lays down the procedure for payment of refund due to a taxpayer along with additional payment for delayed refunds. However, due to liquidity crunch faced by the Government, taxpayer are unable to obtain the refunds which creates accumulation of refund in billions of rupees. This causes severe cash flow issues to the taxpayers.
In order to provide relief to taxpayers, the Bill seeks to introduce a new Section 171A whereby income tax refunds may be paid through income tax refund bonds to be issued by FBR Refund Settlement Company Limited (the Company) instead of paying through cheques or bank debit advice, in case the claimant opts for such payment.
The salient features of the above scheme may be summarized as under -
-- Refund bonds to be issued by the Company, in book-entry form through an establishment licensed by the Securities and Exchange Commission of Pakistan as a central depository under the Securities Act, 2015 (III of 2015), in lieu of payment to be made through issuance of cheques of bank
-- FBR shall issue a promissory note to the Company, incorporating the details of refund claimants and the amount of refund determined as payable to each for issuance of income tax refund bonds of the same amount.
-- The bonds shall be issued in values in multiples of one hundred thousand rupees.
-- The bonds so issued shall have a maturity period of three years and shall bear annual simple profit at ten percent.
-- The bonds shall be traded freely in the country''s secondary markets.
-- The bonds shall be approved security for calculating the statutory liquidity reserve.
-- The bonds shall be accepted by the banks as collateral.
-- There shall be no compulsory deduction of Zakat against the bonds and Sahib-e-Nisab may pay Zakat voluntarily according to Shariah.
-- After period of maturity, the Company shall return the promissory note to FBR and FBR shall make the payment of amount due under the bonds, along with profit due, to the bond holders.
-- The bonds shall be redeemable in the manner as in Sub-section (9) before maturity only at the option of FBR along with simple profit payable at the time of redemption in the light of general or specific policy to be formulated by FBR.
-- The refund under Sub-section (1) shall be paid in the aforesaid manner to the claimants who opt for payment in such manner.
-- The Federal Government may notify procedure to regulate the issuance, redemption and other matters relating to the bonds, as may be required.
6. Audit
Section 177 Sub-section (6) and (6A)
In order to conclude the tax audit in the most efficient and logical manner, the Bill seeks to replace Sub-section (6) and introduce Sub-section (6A), whereby, on completion of tax audit, the Commissioner will now be required to issue an audit report containing audit observations and findings. The audit report should contain all the issues that were raised during the course of audit proceedings and the findings of the Commissioner in respect of each of such issues. The Bill further requires the Commissioner to pass an amendment assessment if considered necessary by taking recourse to the provision of Section 122(4) and 122(9) of the Ordinance. The amendment order under Section 122 will be issued after the issuance of audit report.
7. Prosecution for Non-submission of Foreign Income and Asset Statement
Section 195A
It would be recalled that Finance Act, 2018 introduced Section 116A which requires every resident taxpayer being an individual having foreign income of not less than US $10,000 or having foreign assets with a value of not less than US $100,000 to duly furnish foreign income and assets statement in the prescribed manner. Further, the Commissioner is empowered to issue a notice to a person (being an individual) who was required to furnish the Foreign Income and Assets Statement but failed to do so, to furnish such a statement on the date specified in the notice.
The Bill now proposes to insert a new Section 195A in terms of which any person who fails to comply with the requirements of notice issued under Section 116A shall be punishable on conviction with imprisonment up to 2 years or with a fine up to a penalty of 2% of the offshore assets not declared or both.
8. Offshore Tax Evasion
Sections 2(38AB), 2(38AC), 2(38AD), 145(5), 182, 192B, 195B, 216
The country in the recent past has witnessed a lot of hue and cry in respect of undeclared assets / wealth accumulated and held abroad by resident of Pakistan. Such non-declaration was exposed to severe criticism both on print and electronic media, ultimately resulting in media trial of persons involved. While the existing penalty and prosecution provision may generally cater such tax evasions, the Bill now proposes to severely punish taxpayers involved in offshore tax evasions.
Although, the term offshore tax evasion has not been particularly defined either by the Bill or the Ordinance, internationally the concept refers to a situation where a taxpayer avoids paying taxes in the home jurisdiction in respect of foreign / offshore assets and income. Hence, if a Pakistan resident evades paying taxes on its foreign source assets and income, it may be regarded as indulging in offshore tax evasion.
In this back drop following definitions are proposed to be inserted in Section 2 of the Ordinance -
-- "Offshore asset" in relation to a person, incudes any movable or immovable asset held, any gain, profit, or income derived, or any expenditure incurred outside Pakistan;
-- "Offshore enabler" includes any person who, enables, assists, or advises any person to plan, design, arrange or manage a transaction or declaration relating to an offshore asset, which has resulted or may result in tax evasion;
-- "Offshore evader" means a person who owns, possesses, controls, or is the beneficial owner of an offshore asset and does not declare, or under declares or provides inaccurate particulars of such asset to the Commissioner;
-- "specified jurisdiction" means any jurisdiction which has committed to automatically exchange information under the Common Reporting Standard with Pakistan;
-- "unspecified jurisdiction" means a jurisdiction which is not a specified jurisdictions.
-- "asset move" means the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion;
Corresponding penalties, in respect of offshore tax evasion have also been proposed as under -
-- Where an offshore tax evader is involved in offshore tax evasion, a penalty of PKR 100,000 or an amount equal to 200% of the tax which the person sought to evade, whichever is higher, would be applicable.
-- Where, in the course of any transaction or declaration made by a person, an enabler has enabled, guided, advised or managed any person to design, arrange or manage that transaction or declaration in such a manner which has resulted or may result in offshore tax evasion, a penalty of PKR 300,000 or an amount equal to 200% of the tax which was sought to be evaded, whichever is higher, would be applicable.
-- Any person, who is involved in the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion, from one specified territory to an un-specified territory, shall pay a penalty of PKR 100,000 or an amount equal to 100% of the tax whichever is higher.
In addition to the above penal exposures, in order to deter the concealment of offshore assets and to maintain effective monitoring of offshore tax evasion, the Bill also proposes to prosecute the tax evader, as provided for under the newly proposed Sections 192B and 195B.
In terms of Section 192B, any person who fails to declare an offshore asset or furnishes inaccurate particulars of an offshore asset where the financial impact of such concealment or furnishing of inaccurate particulars is PKR 100,000 or more, the same shall be treated as an offence, punishable on conviction with imprisonment up to 7 years or a fine up to 200% of the amount of tax evaded, or both.
Similarly, through Section 195B, the Bill seeks to hold any enabler who enables, guides or advises any person to design, arrange or manage a transaction or declaration in such a manner which results in an offshore tax evasion, the same will be treated as an offence punishable on conviction with imprisonment for a term not exceeding 7 years or with a fine up to PKR 5 million or both.
The Bill further proposes to insert a new Sub-section in Section 145 of the Ordinance in terms of which the Commissioner is empowered to freeze any domestic asset of a person including any asset beneficially owned by him, where he has reason to believe that such person who is likely to leave Pakistan may be involved in offshore tax evasion or such person is about to dispose of any such asset.
The asset frozen can be held by the Commissioner for a period of one hundred and twenty days or till the finalization of proceedings including but not limited to recovery proceedings under the Ordinance whichever is earlier.
Finally, the Bill proposes to insert Sub-sections (6B) and (6C) in Section 216 of the Ordinance whereby FBR is empowered to publish the names of offshore evaders and offshore enablers in the electronic and print media.
9. Tax paid at import stage to be treated as "minimum tax"
Sections 148(7) and (8A)
Before the Finance Act, 2018, tax required to be collected under Section 148 on import of plastic raw material imported by an industrial undertaking, falling under PCT headings 39.01 to 39.12, edible oils and packing material is treated as minimum tax. Furthermore, tax required to be collected on import of goods that are sold in the same condition as they were when imported was treated as final tax. The Finance Act, 2018 brought a substantive conceptual shift with respect to taxation of commercial importers whereby such tax collection was deemed to be "minimum tax" in respect of such importers.
Due to the aforesaid change in taxability of commercial importers, there were grave concerns shown by the above sector, as this change would have required the commercial importers to declare the financial results for comparison of tax on profits to the minimum tax on imports. As a result of strong lobbying by commercial importers, amendments were made in Section 148 through the Finance Supplementary (Second Amendment) Act, 2019 whereby tax collected at import stage from commercial importers was again treated as final discharge of tax liability of such importers.
The Bill now proposes to restore the position as stood after the amendments made through the Finance Act, 2018 to change the character of such tax collection from "final tax" to "minimum tax". Such commercial importers, pursuant to the proposed amendments will now be required to file a return of income instead of filing a statement in terms of Section 115 of the Ordinance.
The Bill also proposes amendments in Sub-section (8A) of Section 148 whereby tax collected at the time of import of ships by ship-breakers is also to be treated as ''minimum tax''.
10. Profit on debt
Section 151
The Bill proposes to treat the tax deducted under Section 151 of the Ordinance on account of payment of profit on debt as minimum tax instead of final tax.
11. Income earned by non-resident persons
Section 152
In line with the amendments brought in Section 153 of the Ordinance making tax deducted from services rendered as minimum tax, the Bill has proposed amendments in Section 152 of the Ordinance whereby tax deducted from payments made to non-resident persons in respect of the following contracts and services is to be treated as ''minimum tax'' -
(i) Execution of contract or a sub-contract under a construction, assembly or installation project in Pakistan, including a contract for the supply of supervisory activities in relation to such project
(ii) Any other contract for construction or services rendered relating thereto
(iii) A contract for advertisement services rendered by T.V. Satellite Channels
(iv) Insurance premium or re-insurance premium to a non-resident person
The non-resident persons earning income from the aforementioned contracts or services, pursuant to the proposed amendments will be required to file a return of income. Consequently, proviso of Sub-section (1B) of Section 152 providing an option to nonresident person to opt out of final taxation in respect of income arising from execution of contracts has been proposed to be omitted.
12. Income from sale of goods or rendering of services
Section 153
Currently, tax deductible under clauses (a) and (c) of Sub-section (1) of Section 153 on account of supply of goods and execution of contracts is treated as final tax. Similarly, tax deducted by an exporter / export house on payment to a resident person or permanent establishment of a non-resident person for rendering of or providing services of stitching, dying, printing, embroidery, washing, sizing and weaving, is a final tax.
The Bill has proposed amendments in the above section which aims to bring a substantial shift with respect to taxation of following streams of income whereby tax deducted on such receipts is to be treated as minimum tax instead of final tax -
(i) Income arising from supply of goods except where the company is a manufacturer of such goods or is a public listed company
(ii) Income arising from rendering of services
(iii) Income from execution of contracts
Clause (94) and Sub-section (4A) of Section 153
Through the Finance Act, 2009, an amendment was made to make the tax withheld on payment against services rendered as a minimum tax. However, there an ambiguity on the interpretation of this provision whereby applicability of such minimum tax on the corporate sector was unclear. It was however clarified by the FBR that tax withheld from payments relating to services rendered would only be considered minimum tax in case of non-corporate taxpayers. Subsequently, Clause (79) was inserted in Part IV of the Second Schedule via SRO 1003 (I)/2011 dated 31 October 2010 for the purpose. The matter however, remained in dispute at various forums.
To remove the uncertainty created by conflicting rulings on the issue, in the Finance Bill 2015, the FBR proposed to amend Section 153 to provide that effective from the tax year 2009, the tax deductible under section 153(1) (b) shall not be treated as minimum tax in the case of companies. This amendment was in line with Clause (79) which had similar gist. Accordingly, it was also proposed to omit Clause (79) to align the related provisions.
However, certain quarters opposed the proposed amendment in Section 153 referred above. Resultantly, while Clause (79) was omitted through the Finance Act, 2015, the provisions of Section 153(3) (b) remained unchanged. Consequently, in all cases (i.e. companies, individuals or AOPs), the tax deductible from payments against services rendered under Section 153(1) (b) was treated as minimum tax in respect of such receipts.
The above position of law created anomaly and also caused confusion and panic amongst the concerned service sector companies. In this background, through the Income Tax (Second Amendment) Ordinance, 2015 ("Amendment Ordinance, 2015") Clause (94) in Part IV of the Second Schedule to the Ordinance was inserted [and subsequently substituted through the Income Tax (2nd Amendment) Act, 2016] whereby a reduced rate of 2% was prescribed in respect of following service providers in the corporate sector:
(i) Freight forwarding services
(ii) Air cargo services
(iii) Courier services
(iv) Manpower outsourcing services (v) Hotel services
(vi) Security guard services
(vii) Software development services
(viii) IT services and IT enabled services as defined in clause (133) of Part I of the Second Schedule
(ix) Tracking services
(x) Advertising services (other than by print or electronic media)
(xi) Share registrar services
(xii) Engineering services
(xiii)Car rental services
(xiv) Building maintenance services
(xv) Services rendered by Pakistan Stock Exchange Limited and Pakistan Mercantile Exchange Limited
(xvi) Inspection, certification, testing and training services
In line with the proposed amendments in Section 153 of the Ordinance, the Bill now proposes to omit Clause (94) ibid. The Bill also proposes to omit Sub-section (4A) of Section 153 relating to issuance of exemption certificate by the Commissioner to the abovementioned service providers.
It is also proposed to introduce rate of tax deduction of 4% for specified services as were mentioned in Clause (94). Further, rate of tax on transport services is proposed to be enhanced from 2% to 4%.
The above amendments have created an anomaly for non-resident persons having permanent establishment in Pakistan. The Finance Act, 2018 through an amendment in Section 152 of the Ordinance provided a similar option to such non-residents which have permanent establishment in Pakistan and were covered under Clause (94) referred above to file an option for offering their accounts for tax audit under Section 177 of the Ordinance. It was further provided that after paying tax @2% of their turnover they may obtain an exemption certificate in terms of Section 153(4A) of the Ordinance.
Now since Sub-section (4A) of Section 153 and Clause (94) are being proposed to be omitted, the above nonresident persons would not be in a position to obtain the above exemption certificate. However, a similar amendment has not been proposed for such non-resident persons to provide for reduced rate of tax withholding of 4% (as is proposed for resident service providers). As a result the tax withheld @ 8% remains a minimum tax for those non-resident service providers. In our view, suitable amendments would be required to resolve this issue.
13. Brokerage and commission income subject to minimum tax
Section 233
Under Section 233 of the Ordinance, any payment on account of brokerage or commission paid to an agent by the Federal Government, a Provincial Government, a Local Government, a company or an association of persons or any payment on account of commission to an advertising agent, directly or through electronic or print media is subject to deduction/collection of tax at the rates specified in Division II of Part IV of the First Schedule. Currently, the tax so deducted constitute a final discharge of tax liability by the recipient of the commission. The Bill proposes that the tax deducted on the above commission be treated as minimum tax instead of final tax.
14. Tax on CNG stations be treated as minimum tax
Section 234A
Currently, advance tax is collected from CNG stations on the amount of bill issued in respect of gas consumed by such CNG stations. The advance tax so collected is considered as a final discharge of tax liability on the income arising to such CNG stations. The Bill proposes that the tax so collected be treated as minimum tax. Pursuant to the proposed amendment, CNG stations will be required to file a return of income in place of a statement under Section 115(4) of the Ordinance.
15. Credit of tax collected or deducted
Section 168
Sub-section (3) provides that credit of taxes that have been deducted under various withholding sections of the Ordinance which are treated as full and final tax liability would not be available.
Since, taxes deducted / collected under various sections as mentioned in the aforesaid Sub-section are now proposed to be treated as minimum tax instead of final tax, the Bill consequently proposes to delete the above Sub-section. Accordingly, taxes deducted and collected under these sections will be available for adjustment against the ultimate tax liability of the taxpayer.
16. Tax collected / deducted or paid by a person not appearing on the ATL
Section 169
Consequent to the proposed amendments whereby the concept of ''filer'' and non-filer'' is proposed to be completely abolished and be replaced with ''person not appearing in the Active Taxpayers'' List'', relevant amendments have also been proposed under Sub-section (4) of Section 169 of the Ordinance dealing with adjustment of excess tax deducted / collected from such persons.
17. Disallowance of commission expense / addition of dealer''s margin in income of person making supplies to an unregistered person or a person not appearing in the active taxpayers list
Section 21(ca) and Section 108AB
The Bill proposes to insert a new Sub-section namely (ca) in Section 21 of the Ordinance which provides for deductions which would not allowed while computing business income of a person. The newly introduced Sub-section aims to restrict the claim of commission expense up to a maximum of 0.2% of gross amount of supplies made by a person of products listed in Third Schedule of the Sales Tax Act, 1990 to a person who is not registered under the Sales Tax Act, 1990 or is not appearing in the active taxpayers list.
In addition to the above, the Bill has also proposed to insert a new section namely 108AB which seeks to make an addition of 75% of dealer''s margin in income of a person supplying products listed in Third Schedule of the Sales Tax Act, 1990 and or any other products prescribed by FBR, to a person under dealership arrangement who is not registered under the Sales Tax Act, 1990 or is not appearing in the active taxpayers list. The amount of dealer''s margin in such case is prescribed at 10% of the sale price of the manufacturer.
The above change is being brought to compel the business to engage in transaction with registered persons and active taxpayers in order to promote a culture of tax compliance which would broaden the tax base in the country.
18. Gift
Section 39
The Bill proposes that any amount or fair market value of any property received without consideration or received as gift, other than gift received from grandparents, parents, spouse, real brother, real sister, son or a daughter, shall be taxable in the hands of the recipient under the head "Income from Other Sources".
19. Intangibles
Section 24
Currently, in terms of Sub-section (4) of Section 24, an intangible with a normal useful life of more than 10 years or an intangible that does not have an ascertainable useful life is treated as if it has a normal useful life of 10 years and amortized accordingly. The Bill now proposes that the limit of 10 years be removed with the result that an intangible with an ascertainable useful life would now be amortized over its actual useful life. However, if an intangible''s useful life is not ascertainable, it is proposed to be amortized over 25 years.
Furthermore, the definition of an intangible is proposed to be amended to specifically exclude self-generated goodwill or any adjustment arising from prescribed accounting treatments. The proposed amendment appears to be in line with the general principles of taxation, whereby a deduction may only be claimed on account of actual expenditure incurred, as opposed to notional amounts recognized as expenses based on prescribed accounting treatments.
20. Profit on Debt
Section 7B
It would be recalled that Section 7B was introduced by the Finance Act, 2015 whereby slab rates were introduced for taxing profit on debt, for taxpayers other than a company, as a final discharge of tax liability. The rate of tax ranges from 10% to 15%; the highest being applicable where profit on debt exceeds PKR 25 million.
The Bill now proposes to enhance such rates with the lowest slab being 15% and the highest slab being 20%, which would apply to profit on debt exceeding PKR 25 million but not exceeding PKR 36 million. Furthermore, the Bill also proposes that Section 7B would not apply to any profit on debt that exceeds PKR 36 million. In effect, this would mean that if a taxpayer earns profit on debt in excess to PKR 36 million, the entire profit on debt would be taxable as part of the taxable income of the taxpayer for the year.
21. Tax Credit for Persons Employing Fresh Graduates
Section 64C
The Bill proposes to introduce a new Section 64C, whereby a person shall be allowed a tax credit in respect of the amount of annual salary paid to freshly qualified graduates employed by the person, in the tax year in which they are employed. The tax credit is proposed to be allowed for salary paid to the number of such graduates not exceeding 15 percent of the total employees of the company in the tax year. Freshly qualified graduates have been defined as any person who have graduated after the first day of July, 2017 from any institution or university recognized by the Higher Education Commission.
The amount of tax credit allowed is computed at the effective tax rate of the person to the extent of the lessor of -
(a) the annual salary paid to the freshly qualified graduates; and
(b) five percent of the person''s taxable income for the year.
22. Resident Individuals
Section 82
Currently an individual is a resident individual for a tax year if he is present in Pakistan for a period of 183 days or more in the tax year or if he is an employee or official of the Federal or Provincial Government and posted abroad. The Bill now proposes to expand the definition to include an individual who is present in Pakistan for 90 days or more in the tax year, and who in the four preceding tax years was present in Pakistan for 365 days in aggregate. It may be noted that up until tax year 2003, the definition of a resident individual included the clause proposed by the Bill. The clause was omitted by Finance Act, 2003 and is now proposed to be reinstated.
23. Tax Credits for Non-Profit Organizations
Section 100C
Section 100C provides a 100% tax credit to certain non-profit organizations, trusts, and welfare institutions subject to fulfillment of certain conditions. The Bill now seeks to introduce two additional pre-conditions to obtaining the tax credit -
-- With effect from 1st day of July, 2020, each of such non-profit organizations, trusts, and welfare institutions must mandatorily obtain approval of the Commissioner with regards to its status as a non-profit organization.
-- None of the assets of the trust or welfare institutions may confer a private benefit to the relatives of the donors or authors.
Furthermore, since the requirement to seek approval from the Commissioner is now a precondition to obtain the tax credit, the powers of the Chief Commissioner to approved institutions for the purpose this credit have now been omitted.
24. Payment to Non-Resident
Section 152
The Finance Act, 2018 brought about amendments in Sections 2(41), 101(3) and 152(7) to tax supply of goods by a non-resident in case of overall arrangements for Engineering, Procurement, Construction and Commissioning (EPCC) even if the supply is made outside of Pakistan and the importer on record is the purchaser. This created significant hurdles for existing and potential projects, particularly with regards to remittance of payments due to non-residents on account of off-shore supplies.
In order to address the issue of making contractually obliged payments, the Bill proposes to empower the Commissioner to allow by order in writing, under a written application, the person to make payment after deduction of tax equal to 6% of the gross amount. The credit of the tax so deducted shall be available to the permanent establishment of the nonresident.
It must be appreciated that these amendments proposed by the Bill are merely a stop-gate solution to address the issue of remittances pertaining to offshore supplies, and the underlying grievances of project owners and their contractors, vis-à-vis increasing costs of doing business due to the taxation of such supplies in Pakistan, remains unresolved. Furthermore, since most of these supplies are made from Treaty countries and under the -
Treaty, they would be exempt, the proposed amendments only serve in creating a pile up of refunds without addressing the core issue.
25. Payment of Royalty to Resident Persons
Section 153B
At present there is no withholding tax on payment of royalty to resident persons, except on account of use or right to use industrial, commercial, or scientific equipment, for which a rate of 10% has been prescribed under Section 236Q. The Bill now proposes to insert a new Section 153B, whereby every person paying an amount of royalty to a resident person shall deduct tax at the rate of 15% from the gross amount payable (including federal excise duty and provincial sales tax, if any). The tax so deducted shall be adjustable.
In order to ensure a level playing field, it is recommended that a similar withholding tax is also introduced for a permanent establishment of a non-resident person.
26. Report from Independent Chartered Accountant or Cost and Management Accountant
Section 108A
The Bill proposes to introduce a new Section 108A, whereby if the Commissioner is of the opinion that a transaction has not been declared at arm''s length, the Commissioner may, after approval from FBR, obtain a report, in the prescribed manner, from an independent chartered accountant or cost and management accountant to determine the fair market value of an asset, product, expenditure or service at the time of transaction.
Where the Commissioner is satisfied with the report, the fair market value of the asset, product, expenditure or service determined in the report shall be treated as definite information for the purpose of Sub-section (8) of Section 122. Accordingly, the Commissioner may initiate proceedings for amendment of assessment of the taxpayer pursuant to Section 122 on the basis of such a report.
Where the Commissioner is not satisfied with the report, he may record reasons for not being satisfied with the report and seek another report from another independent chartered accountant or cost and management accountant.
27. Business License Scheme
Section 181D
As part of the taxpayer documentation drive of the Government, the Bill proposes to introduce a new Section 181D whereby every person engaged in any business, profession or vocation shall be required to obtain and display a business licence as prescribed by FBR.
28. Prosecution for Failure to Furnish Details in Withholding Statements
Section 191
In relation to certain statutory non compliances, without reasonable excuse, Section 191 prescribes a punishment of a fine for imprisonment for a term not exceeding one year, or both. The Bill now proposes to include the failure to furnish particulars or the furnishing of incomplete or inaccurate details in withholding tax statements, of persons from whom tax has been deducted, as part of the list provided in Section 191.
29. Proceedings Against Tax Officials
Section 216A
Section 227 provides immunity to tax officials from prosecution by any Governmental agency for anything done in his official capacity, without the prior approval of FBR. This immunity was, at times, exploited by the tax officials for their own personal benefits.
To address the above issue, the Bill proposes to introduce a new Section 216A, under which FBR shall prescribe rules for initiating proceedings, including criminal proceedings against any tax official who willfully and deliberately commits or omits an act which results in personal benefits and undue advantage to himself or a taxpayer or both. Furthermore, in addition to this FBR shall simultaneously intimate the relevant Governmental agency to initiate criminal proceedings against the taxpayer.
Through the above proposed amendments, whilst FBR''s powers for taking action against any mal-practices of the tax officials have been extended, the consequential punishment for such mal-practice on being proved guilty, has not been prescribed. Further, while the case may be referred to any agency vis-à-vis the taxpayer, it seems that FBR will self-investigate the case of its officers and will not pass it on for investigation by the independent Governmental agency.
30. Offences and Penalties
Section 182
The Bill proposes to revise the existing rates of penalties as provided for under Section 182 of the Ordinance in respect of offences discussed below -
====================================================================================================
S.No. Offences Existing Penalty Proposed Penalty
====================================================================================================
1. Failure to furnish a return 0.1% of the gross tax 0.1% of the gross tax
of income as required under payable for that tax payable for that tax year
Section 114 within the due year for each day of for each day of default
date default subject to a subject to a maximum
maximum penalty of 50% penalty of 50% of the tax
of the tax payable payable provided that if
provided that if the the penalty worked out is
penalty worked out is less than PKR 40,000 or
less than PKR 20,000 or no tax is payable for
no tax is payable for that tax year, a penalty
that tax year, a penalty of PKR 40,000 shall be
of PKR 20,000 shall be payable
payable
It is also proposed that
if 75% of the income is
from salary and such
salary is less than PKR
05 million, the minimum
amount of penalty shall
be PKR 5,000
1AA. Failure to furnish wealth 0.1% of the taxable 0.1% of the taxable
statement or wealth income per week or PKR income per week or PKR
reconciliation statement 20,000 whichever is 100,000 whichever is
under Section 116 higher higher
3. Failure to obtain tax PKR 5,000 PKR 10,000
registration under the
Ordinance
6. Erroneous calculation in PKR 5,000 or three per PKR 30,000 or three per
the return of income for cent of the amount of cent of the amount of the
more than one year whereby the tax involved, tax involved, whichever
amount of tax less than the whichever is higher is higher
actual tax payable under
the Ordinance is paid
11. Denial or obstruction of PKR 25,000 or one PKR 50,000 or one hundred
the Commissioner''s access hundred per cent of the per cent of the amount of
or any officer authorized amount of tax involved, tax involved, whichever
by him to the premises, whichever is higher is higher
place, accounts, documents,
computers or stocks
12. Concealment of income or PKR 25,000 or an amount PKR 100,000 or an amount
furnishing inaccurate equal to the tax sought equal to the tax sought
particulars of income, to be evaded, whichever to be evaded, whichever
including but not limited is higher is higher
to the suppression of any
income or amount chargeable
to tax; claiming of any
deduction for any
expenditure not actually
incurred or any act
referred to in Sub-section
(1) of Section 111, in the
course of any proceeding
under the Ordinance before
any Income Tax authority or
the Appellate Tribunal
15. Failure to collect or PKR 25,000 or 10% of the PKR 40,000 or 10% of the
deduct tax or failure to amount of tax involved, amount of tax involved,
pay the tax collected or whichever is higher whichever is higher
deducted as required under
the Ordinance
====================================================================================================
In addition to the various other penalties captured in the paragraphs of our commentary, the Bill proposes to introduce the following new penalties.
===========================================================================================
Offences Penalties
===========================================================================================
Any person who purchases immovable property Such person shall pay a penalty of five
having fair market value greater than percent of the value of property
rupees five million through cash or bearer determined by FBR under Sub-section (4) of
cheque Section 68 or by the provincial authority
for the purposes of stamp duty, whichever
is higher
Where a Reporting Financial Institution Such Reporting Financial Institution shall
fails to comply with any provisions of pay a penalty of PKR 10, 000 for each
Section 165B of the Ordinance or Common default and an additional PKR 10,000 each
Reporting Standard Rules in Chapter XIIA of month until the default is redressed.
Income Tax Rules, 2002.
Where a Reporting Financial Institution Such Reporting Financial Institution shall
files an incomplete or inaccurate report pay a penalty of PKR 10,000 for each
under provisions of Section 165B of the default and an additional PKR 10,000 each
Ordinance and Common Reporting Standard month until the default is redressed.
Rules in Chapter XIIA of Income Tax Rules,
2002.
Where a Reporting Financial Institution Such Reporting Financial Institution shall
fails to obtain valid self-certification pay a penalty of PKR 10,000 for each
for new accounts or furnishes false self- default and an additional PKR 10,000 each
certification made by the Reportable month until the default is redressed.
Jurisdiction Person under Common Reporting
Standard Rules in Chapter XIIA of Income
Tax Rules, 2002.
Where a Reportable Jurisdiction Person Such Reportable Jurisdiction Person shall
fails to furnish valid self-certification pay a penalty of PKR 5,000 for each
or furnishes false self-certification under default and an additional PKR 5,000 each
Common Reporting Standard Rules in Chapter month until the default is redressed.
XIIA of Income Tax Rules,
===========================================================================================
31. Alternative Dispute Resolution
Section 134A
The provisions of this section were completely revamped through Finance Act, 2018 and basically the forum Alternative Dispute Resolution (ADR) was converted into an another appellate forum which would be final for both the taxpayers and the tax authorities rather than being an option for the taxpayers to seek alternate remedy with the ADR and continue contesting the matter at other legal forums.
These amendments were generally criticized by business as well as professional forums and it was emphasized that the alternate mechanism under ADR before the amendments introduced by Finance Act, 2018 may be restored. The matter was also brought to the attention to the policy makers at the time of discussion of budget proposal by various bodies, however, it seems that the government has not agreed to these suggestions and has not proposed any such significant amendments which was so desired.
The only amendment introduced through the Bill is the inclusion of a Cost and Management Accountant within the list of eligible person for appointment on the panel of FBR for formation of ADR committee.
32. Return of income
Section 114(1)(b)
Section 114(1) of the Ordinance enlists and specifies persons that are under obligation to furnish return of income for a tax year. The list includes a person being owner of immoveable property of two hundred and fifty square yards or more or any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory, to file a return of income. The Bill seeks to enhance the land area of the immovable property from two hundred and fifty to five hundred square yards.
33. Method of furnishing returns and other documents
Section 118(3)(a)
The due date of filing a statement under Section 115(4) for income falling under FTR and for returns of income by salaried individuals is prescribed to be 31 August next following the end of the relevant tax year. The Bill proposes to substitute the due date of filing of the above documents from 31 August to 30 September next following the end of the relevant tax year.
34. Return not filed within due date
Section 182A
As per the current provisions of Section 182A of the Ordinance, where a person fails to file a return of income by the due date or within the time extended by the Commissioner or by FBR, such person shall neither be included in the active taxpayers list nor allowed to carry forward any loss for that tax year. The Bill proposes that such a person shall be included in the active taxpayers'' list after he files the return of income subject to payment of surcharge as under -
-- PKR 20,000 in case of a company;
-- PKR 10,000 in case of an association of persons; and
-- PKR 1,000 in case of an individual.
The Bill also seeks to provide certain additional impediments for the above person which are as follows -
-- No refund would be issued during the period when the name of the person was not included in the active taxpayers'' list;
-- He will not be entitled to additional payment for delayed refund and the period during which he was not in the active taxpayers'' list will not be accounted for the purpose of computation of additional payment for delayed refund.
35. Super tax for rehabilitation of temporarily displaced
Section 4B
The Finance Act, 2015 introduced a onetime super tax on all persons on all types of income whether taxable under NTR or under FTR for the tax year 2015. This tax was later extended to the tax year 2021 by the Finance Act, 2018. The super is levied at 4% on banking companies and at 3% on all other persons having taxable income of PKR 500 million or more. The above rates of super tax are to be gradually reduced in each subsequent year till the tax year 2021, where for a banking company the rate of super tax is prescribed at 2% while for other companies it is prescribe at zero percent.
The Finance Act, 2016 brought about a significant amendment whereby for the purpose of computation of income in order to work out the levy of super tax, brought forward depreciation and brought forward business losses were not to be taken into account. However, in the case of companies for which separate schedules of taxation (i.e. Fourth, Fifth, Seventh and Eight Schedules) are available like banking companies, insurance companies and petroleum exploration and production companies, such amendment was not effective.
The Bill now proposes to amend Section 4B in a manner that such companies which are governed by the provisions of separate schedules referred above will also be liable to pay super tax without taking into account the effect of brought forward depreciation and brought forward business losses.
36. Restriction of proceedings
Section 120B
In line with the provisions of Sections 12 and 14 of the Amnesty Ordinance, the Bill proposes to insert Section 120B in the Ordinance in order to provide for protection to the declarations made by the persons from any proceedings under the Ordinance as well as confidentiality to the information disclosed in respect of undeclared assets, expenditures and sales, as the case may be.
37. Automated impersonal tax regime
Section 227D
In order to minimize personal interaction with taxpayers, the Bill proposes to introduce an alternate impersonal taxation regime. It is stated that this automated regime shall be applicable for low risk and compliant taxpayers. For this purpose, FBR will prescribe procedure in the official gazette. This appears to be a confidence building measure among the taxpayers who remain reluctant to interact with the tax authorities.
38. Exemptions and tax concessions in the Second Schedule
Section 53
The powers of the Federal Government of granting exemptions or concessions under the Second Schedule to the Ordinance have been restricted for specified purposes via an amendment made through the Finance Act, 2015. The Bill proposes to further restrict such powers in the circumstances currently dealing with removal of anomalies in taxes and development of backward areas. This would mean that for this purpose, an amendment in the Second Schedule can only be made through amendment in a Finance Bill and not through a notification issued in terms of Section 53 of the Ordinance.
39. Unexplained income or assets - remittance of foreign exchange from abroad
Section 111
Currently, foreign exchange remitted from outside Pakistan through normal banking channels to the extent of PKR 10 million in a tax year is not subject to probe by the tax authorities as regards the source. The Bill proposes to reduce the above limit to PKR 05 million in a tax year. Moreover, the exclusion from probe by the tax authorities as to the source in respect of amount invested in acquiring immovable property is proposed to be withdrawn.
40. Special Procedure for Certain Persons Section 99C
The Bill proposes to insert a new section whereby taxation of certain business are to be governed by way of a special procedure as may be notified in the official Gazette. The businesses that are to be covered under the aforesaid scheme would be in the specified cities or territories. This proposed scheme is a new concept aims to provide a simplified procedure for taxation of such small businesses, construction businesses, medical practitioners, hospitals, educational institutions and any other sector as specified by the Federal Government. Special procedure would cover scope and payment of tax, record keeping, filing of return and assessment in respect of the specified businesses.
41. Collection of Tax from a Member of an Associations of Persons Section 139 Sub-section (6)
Section 139 deals with the collection of tax in the case of private companies and associations of persons.
Under the existing provision, where any tax payable by a member of an association of persons in respect of the member''s share of income of the association for a tax year cannot be recovered from the member, the association shall be liable for the tax due by such member.
The Bill now proposes to extend the scope of aforesaid section, whereby where any tax payable by an association of persons in respect of any tax year cannot be recovered from the association of persons, the same can be recovered from every person who was, at any time in that tax year, a member of the association of persons.
Further, any member who pays tax, as above, shall be entitled to recover the tax paid from the association of persons or a share of the tax from any other member.
42. Failure to pay tax collected or deducted
Section 161 Sub-section (3)
In terms of Section 161, a person shall be personally liable to pay the amount of tax which was not collected or deducted from a payment or the amount of tax which was deducted or collected but not paid to the Commissioner. Based on the judgement of Lahore High Court, in the case of Asia Poultry Feeds (Pvt.) Limited vs. the Federal Board of Revenue (W.P. 8466 of 2015) dated 23 June 2015, the hon''ble judge held that if the proceedings for monitoring of withholding taxes have been conducted for a particular tax year, the same cannot be reinitiated.
In order to undo the judgement of the Lahore High Court, the bill now seeks to insert a new Sub-section in Section 161 whereby the Commissioner is empowered to amend or further amend an order of recovery already passed under Section 161, and recover the tax that escaped at the time of passing of the said earlier order, if he considers that the order passed earlier is erroneous in so far it is prejudicial to the interest of revenue.
The Bill further proposes that no such amended order could be passed unless an opportunity of being heard is provided to the taxpayer.
43. Power to Enter and Search Premises
Section 175 Sub-section 6A
Currently, in order to enforce the provisions of the Ordinance including for the purpose of making an audit of taxpayer or survey of persons liable to tax, the Commissioner or any other officer authorized on this behalf shall enter the premises of taxpayer and have full and free access to extract, copy, or impound any accounts, books, computer or any other relevant records/documents that are necessary for the purpose of audit or survey, as the case may be.
The Bill now seeks to enhance the power of Commissioner by inserting a new sub section 6A, whereby the Commissioner, subject to any prescribed conditions, would now also be empowered to raid any premises, and confiscate undeclared gold, bearer security or foreign currency on the basis of reliable information, in order to enforce the provisions of the Ordinance.
44. Directorate General of Immovable Property
Section 230F
Through Finance Act, 2018, FBR introduced Directorate General of Immovable Property to control the purchases and transfers of immovable properties. The Directorate-General is empowered to initiate proceedings for the acquisition of property based on an independent valuation which confirms that:
(a) Immovable property has been transferred by one person to another for a consideration less than fair market value;
(b) Such consideration has been understated in the instrument of transfer;
(c) The fair market value of property exceeds the consideration by more than 50% of the consideration
In line with the recent and proposed amendments in respect of collection and payment of tax on transfer of immovable property, the Bill proposes to omit Sub-section (23) of the said section.
45. Directorate General of Special Initiative
Section 230G
The Bill seeks to introduce a Directorate General of Special Initiative which shall consist of a Director General and as many directors, additional directors, deputy directors, assistant directors and such other officers as may be notified in the official gazzette. FBR shall notify the functions, jurisdictions and powers of such directorate.
46. Directorate General of Valuation
Section 230H
The Bill seeks to introduce a Directorate General of Valuation which shall consist of a Director General and as many directors, additional directors, deputy directors, assistant directors and such other officers as may be notified in the official gazzette. FBR shall notify the functions, jurisdictions and powers of such directorate.
47. Advance Tax on sale or transfer of immovable Property
Section 236C
Through the Finance Act, 2012 Section 236C was inserted whereby any person responsible for registering, recording or attesting transfer of any immovable property was required to collect advance tax at the specified rates. Under the existing provision of Section 236C, advance tax is not liable to collect where the immovable property is held for a period exceeding three years.
The Bill now seeks to extend the period of three years to five years.
48. Tax on purchase or transfer of immovable property.
Section 236W
Through the Income Tax (Fourth Amendment) Act, 2016 Section 236W was inserted whereby any person responsible for registering, recording or attesting transfer of any immovable property was required to collect advance tax at the rate of three percent of the differential of value determined under Section 68 of the Ordinance and the value recorded by the authority registering or attesting the transfer.
The Bill now seeks to omit the above section.
49. Disclosure of information obtained under a tax treaty and other similar agreements
Section 107(1B)
The current provisions of Section 107 provides authority to the Federal Government to enter into bilateral and multilateral agreements with foreign governments for the avoidance of fiscal evasion and exchange of information including automatic exchange of information concerning taxes on income imposed under the Ordinance or under any other law for the time being in force.
Initially, this section provided that the information received or supplied or communication or correspondence made under a tax treaty and other parallel arrangement shall be kept confidential subject to disclosures as provided in Sub-section (3) of Section 216 which inter-alia included provision of information to any person acting in the execution of the Ordinance wherever necessary.
Subsequently, the Federal Government through Finance Act 2016, amended this section and withdrew the disclosure of above information.
The Bill now seeks to permit the disclosure of information only to person acting in the execution of the Ordinance, wherever necessary.
THE FIRST SCHEDULE
PART I
50. Rates of tax for Individuals and Association of Persons
Through Finance Bill 2019, the rates of tax applicable on every individual (both salaried and non-salaried individuals) and AOPs have been proposed to enhance to a great extent as compared to the immediately preceding tax year . However , the proposed tax incidence is lower than the tax incidence , if it is compared with the tax year 2018.The impact of increase in the amount of tax are tabulated in the below schedules.
The Bill also seeks to propose the increase in threshold for applicability of salary tax rates to total income comprising of at least 75% salary income instead of present threshold of 50% salary income.
The rates of tax chargeable for individuals and AOPs for the tax year 2020 (corresponding to the income year ending at any time between 01 July 2019 to 30 June 2020) is proposed to be substituted as under:
Individuals (except salaried) and Association of persons
===================================================================================
Taxable Income Rate of Tax
===================================================================================
Up to PKR 400,000 0%
PKR 400,001 - 600,000 5% of amount exceeding PKR 400,000
PKR 600,001 - 1,200,000 PKR 10,000 + 10% of amount exceeding 600,000
PKR 1,200,001 - 2,400,000 PKR 70,000 + 15% of amount exceeding 1,200,000
PKR 2,400,001 - 3,000,000 PKR 250,000 + 20% of amount exceeding 2,400,000
PKR 3,000,001 - 4,000,000 PKR 370,000 + 25% of amount exceeding 3,000,000
PKR 4,000,001 - 6,000,000 PKR 620,000 + 30% of amount exceeding 4,000,000
Amount exceeding PKR 6,000,001 PKR 1,220,000 + 35% of amount exceeding 6,000,000
===================================================================================
Individuals (salaried)
========================================================================================
Taxable Income Rate of Tax
========================================================================================
Up to PKR 600,000 0%
PKR 600,001 - 1,200,000 5% of amount exceeding 600,000
PKR 1,200,001 - 1,800,000 PKR 30,000 + 10% of amount exceeding 1,200,000
PKR 1,800,001 - 2,500,000 PKR 90,000 + 15% of amount exceeding 1,800,000
PKR 2,500,001 - 3,500,000 PKR 195,000 + 17.5% of amount exceeding 2,500,000
PKR 3,500,001 - 5,000,000 PKR 370,000 + 20% of amount exceeding 3,500,000
PKR 5,000,001 - 8,000,000 PKR 670,000 + 22.5% of amount exceeding 5,000,000
PKR 8,000,001 - 12,000,000 PKR 1,345,000 + 25% of amount exceeding 8,000,000
PKR 12,000,001 - 30,000,000 PKR 2,345,000 + 27.5% of amount exceeding 12,000,000
PKR 30,000,001 - 50,000,000 PKR 7,295,000 + 30% of amount exceeding 30,000,000
PKR 50,000,001 - 75,000,000 PKR 13,295,000 + 32.5% of amount exceeding 50,000,000
Amount exceeding PKR 75,000,000 PKR 21,420,000 + 35% of amount exceeding 75,000,000
========================================================================================
Non-Salaries Person/AOP
IMPACT OF CHANGE IN RATES OF TAX AS APPLICABLE TO SALARIED INDIVIDUAL FOR TAX YEAR 2020
==========================================================================================
TAXABLE INCOME TAX INCIDENCE COMPARISON - (Saving)/
PER Additional Impact for
Tax Year Tax Year Tax Year the tax year 2020 with
the tax year
==========================================================================================
MONTH ANNUM 2018 2019 2020 2019 2018
==========================================================================================
50,000 600,000 7,000 1,000 - (1,000) (7,000)
60,000 720,000 13,000 1,000 6,000 5,000 (7,000)
75,000 900,000 29,500 2,000 15,000 13,000 (14,500)
100,000 1,200,000 59,500 2,000 30,000 28,000 (29,500)
125,000 1,500,000 92,000 15,000 60,000 45,000 (32,000)
150,000 1,800,000 137,000 30,000 90,000 60,000 (47,000)
200,000 2,400,000 242,000 60,000 180,000 120,000 (62,000)
250,000 3,000,000 359,500 140,000 282,500 142,500 (77,000)
300,000 3,600,000 497,000 230,000 390,000 160,000 (107,000)
350,000 4,200,000 652,000 330,000 510,000 180,000 (142,000)
400,000 4,800,000 817,000 450,000 630,000 180,000 (187,000)
450,000 5,400,000 982,000 570,000 760,000 190,000 (222,000)
500,000 6,000,000 1,147,000 690,000 895,000 205,000 (252,000)
550,000 6,600,000 1,312,000 810,000 1,030,000 220,000 (282,000)
600,000 7,200,000 1,482,000 930,000 1,165,000 235,000 (317,000)
650,000 7,800,000 1,662,000 1,050,000 1,300,000 250,000 (362,000)
700,000 8,400,000 1,842,000 1,190,000 1,445,000 255,000 (397,000)
1,000,000 12,000,000 2,922,000 2,090,000 2,345,000 255,000 (577,000)
1,200,000 14,400,000 3,642,000 2,690,000 3,005,000 315,000 (637,000)
1,500,000 18,000,000 4,722,000 3,590,000 3,995,000 405,000 (727,000)
2,000,000 24,000,000 6,522,000 5,090,000 5,645,000 555,000 (877,000)
2,500,000 30,000,000 8,322,000 6,590,000 7,295,000 705,000 (1,027,000)
3,000,000 36,000,000 10,122,000 8,090,000 9,095,000 1,005,000 (1,027,000)
3,500,000 42,000,000 11,922,000 9,590,000 10,895,000 1,305,000 (1,027,000)
4,000,000 48,000,000 13,722,000 11,090,000 12,695,000 1,605,000 (1,027,000)
4,500,000 54,000,000 15,522,000 12,590,000 14,595,000 2,005,000 (927,000)
5,000,000 60,000,000 17,322,000 14,090,000 16,545,000 2,455,000 (777,000)
5,500,000 66,000,000 19,122,000 15,590,000 18,495,000 2,905,000 (627,000)
6,000,000 72,000,000 20,922,000 17,090,000 20,445,000 3,355,000 (477,000)
6,500,000 78,000,000 22,722,000 18,590,000 22,470,000 3,880,000 (252,000)
7,000,000 84,000,000 24,522,000 20,090,000 24,570,000 4,480,000 48,000
7,500,000 90,000,000 26,322,000 21,590,000 26,670,000 5,080,000 348,000
8,000,000 96,000,000 28,122,000 23,090,000 28,770,000 5,680,000 648,000
9,000,000 108,000,000 31,722,000 26,090,000 32,970,000 6,880,000 1,248,000
10,000,000 120,000,000 35,322,000 29,090,000 37,170,000 8,080,000 1,848,000
==========================================================================================
*If salary exceeds seventy five percent of the taxable income.
IMPACT OF CHANGE IN RATES OF TAX AS APPLICABLE TONON-SALARIED INDIVIDUAL FOR TAX YEAR 2020
==========================================================================================
TAXABLE INCOME TAX INCIDENCE COMPARISON - (Saving)/
PER Additional Impact for
Tax Year Tax Year Tax Year the tax year 2020 with
the tax year
==========================================================================================
MONTH ANNUM 2018 2019 2020 2019 2018
==========================================================================================
35,000 420,000 1,400 1,000 1,000 - (400)
50,000 600,000 17,000 1,000 10,000 9,000 (7,000)
60,000 720,000 29,000 1,000 22,000 21,000 (7,000)
65,000 780,000 36,500 1,000 28,000 27,000 (8,500)
75,000 900,000 54,500 2,000 40,000 38,000 (14,500)
100,000 1,200,000 99,500 2,000 70,000 68,000 (29,500)
125,000 1,500,000 144,500 15,000 115,000 100,000 (29,500)
150,000 1,800,000 204,500 30,000 160,000 130,000 (44,500)
200,000 2,400,000 324,500 60,000 250,000 190,000 (74,500)
250,000 3,000,000 469,500 150,000 370,000 220,000 (99,500)
300,000 3,600,000 619,500 270,000 520,000 250,000 (99,500)
350,000 4,200,000 779,500 400,000 680,000 280,000 (99,500)
400,000 4,800,000 959,500 550,000 860,000 310,000 (99,500)
450,000 5,400,000 1,139,500 716,000 1,040,000 324,000 (99,500)
500,000 6,000,000 1,319,500 890,000 1,220,000 330,000 (99,500)
550,000 6,600,000 1,529,500 1,064,000 1,430,000 366,000 (99,500)
600,000 7,200,000 1,739,500 1,238,000 1,640,000 402,000 (99,500)
650,000 7,800,000 1,949,500 1,412,000 1,850,000 438,000 (99,500)
700,000 8,400,000 2,159,500 1,586,000 2,060,000 474,000 (99,500)
1,000,000 12,000,000 3,419,500 2,630,000 3,320,000 690,000 (99,500)
1,200,000 14,400,000 4,259,500 3,326,000 4,160,000 834,000 (99,500)
1,500,000 18,000,000 5,519,500 4,370,000 5,420,000 1,050,000 (99,500)
2,000,000 24,000,000 7,619,500 6,110,000 7,520,000 1,410,000 (99,500)
2,500,000 30,000,000 9,719,500 7,850,000 9,620,000 1,770,000 (99,500)
3,000,000 36,000,000 11,819,500 9,590,000 11,720,000 2,130,000 (99,500)
3,500,000 42,000,000 13,919,500 11,330,000 13,820,000 2,490,000 (99,500)
4,000,000 48,000,000 16,019,500 13,070,000 15,920,000 2,850,000 (99,500)
4,500,000 54,000,000 18,119,500 14,810,000 18,020,000 3,210,000 (99,500)
5,000,000 60,000,000 20,219,500 16,550,000 20,120,000 3,570,000 (99,500)
5,500,000 66,000,000 22,319,500 18,290,000 22,220,000 3,930,000 (99,500)
6,000,000 72,000,000 24,419,500 20,030,000 24,320,000 4,290,000 (99,500)
6,500,000 78,000,000 26,519,500 21,770,000 26,420,000 4,650,000 (99,500)
7,000,000 84,000,000 28,619,500 23,510,000 28,520,000 5,010,000 (99,500)
7,500,000 90,000,000 30,719,500 25,250,000 30,620,000 5,370,000 (99,500)
8,000,000 96,000,000 32,819,500 26,990,000 32,720,000 5,730,000 (99,500)
==========================================================================================
51. Rates of tax for companies
Currently, the rate of tax for company is 29% for the tax year 2019 which was to be reduced by 1% per year up till tax year 2023. The Bill now seeks to keep the rates static at 29% from tax year 2019 and onwards.
However, the rates for Banking Companies and Small Companies have remained unchanged.
52. Rate of Super tax for rehabilitation of temporarily displaced persons
The levy of super tax for rehabilitation of temporarily displaced persons under Section 4B is retained up to tax year 2021 for banking companies and persons other than banking companies having income of PKR 500 Million and above.
The rates, as last amended vide Finance Supplementary (Second Amendment) Act, 2019, from the tax year 2018 till 2021 are as under:
==================================================================================
Person Rate of Super Tax
==================================================================================
Tax Year Tax Year Tax Year Tax Year
2018 2019 2020 2021
==================================================================================
Banking Company 4% 4% 4% 4%
Persons other than a banking company,
having income equal to or exceeding PKR 3% 2% 0% 0%
==================================================================================
53. Rate of withholding and charge of tax on dividend income
The Bill seeks to increase the rate of tax on dividend from power generation companies or companies supplying coal exclusively to power generation projects from 7.5% to 15%. Whereas the rate of withholding and charge of tax on dividend received by all taxpayers remains unchanged
The rate of withholding and charge of tax on dividend received from a Mutual Fund (Stock Fund), Money Market Fund, Income Fund and Rental REIT Scheme have been proposed to be omitted for all taxpayers (i.e. individual, company and AOP).
Furthermore, the Bill proposes to add a proviso in rate of tax whereby the rate shall be 25% in the case of a person receiving dividend from a company where no tax is payable by such company due to exemption of income or carry forward of business losses under Part VIII of Chapter III or claim of tax credits under Part X of Chapter III.
The rate of tax on dividend income for tax year 2020 proposed as under:
===================================================================================
Dividend from Rate
===================================================================================
Companies owning power project privatized by WAPDA, companies set-
up for power generation and companies supplying coal, exclusively 15%
to power generation projects
Others 15%
Company where no tax is payable by such company due to exemption
of income or carry forward of business losses under Part VIII of 25%
Chapter III or claim of tax credits under Part X of Chapter III
===================================================================================
54. Rate of tax on profit on debt
The rates of tax on profit on debt for the tax year 2020 are proposed to be revised as under:
===================================================================================
Profit on debt Rate
===================================================================================
Where profit on debt does not exceed PKR 5,000,000 15%
Where profit on debt exceeds PKR 5,000,001 but does not exceed PKR
25,000,000 17.5%
Where profit on debt exceeds PKR 25.000,000 but does not exceed PKR
36,000,000 20%
===================================================================================
55. Rate of Tax on Return on investments in Sukuks received from a special purpose vehicle.
Rate of tax on return on investments in Sukuks received from a special purpose vehicle have remained unchanged and are as under:
====================================================================
Sukuks Holder Amount of return on investment Rates
====================================================================
Company Any amount 25%
Individual or AOP More than one million 12.5%
Individual or AOP Less than one million 10%
====================================================================
56. Rates of tax for non-resident taxpayers for certain transactions
The applicable rates of tax on certain income ofnon-residents remains unchanged as under:
================================================
Type of Payment Rate (%)
================================================
Fee for offshore digital services 5%
Technical services fee 15%
Royalty 15%
Shipping income 8%
Air transport income 3%
================================================
57. Income from property
The rate of tax on income from property in the case of individual and AOPs are proposed to be revised as under:
===========================================================================================
Gross amount of rent Rate
===========================================================================================
Up to PKR 200,000 Nil
PKR 200,001 to 600,000 5% of the amount exceeding PKR 200,000
PKR 600,001 to 1,000,000 PKR 20,000 plus 10% of the amount exceeding PKR 600,000
PKR 1,000,001 to 2,000,000 PKR 60,000 plus 15% of the amount exceeding PKR 1,000,000
PKR 2,000,001 to 4,000,000 PKR 210,000 plus 20% of the amount exceeding PKR 2,000,000
PKR 4,000,001 to 6,000,000 PKR 610,000 plus 25% of the amount exceeding PKR 4,000,000
PKR 6,000,001 to 8,000,000 PKR 1,110,000 plus 30% of the amount exceeding PKR 6,000,000
Over PKR 8,000,000 PKR 1,710,000 plus 35% of the amount exceeding PKR 8,000,000
===========================================================================================
The above rates also apply for the purpose of withholding of tax from the payment for rent of immovable property paid to an individual or AOP.
The withholding tax rates in the case of a company remain unchanged at 15%..
58. Rates of tax on capital gains on securities
The rate card for levying tax on capital gains arising on sale of securities as referred to in Section 37A is proposed to be replaced, whereby the category for non-filers and the respective slab rates have been removed. The rates applicable for tax year 2019 are proposed to be further extended to tax year 2020 as under:
===================================================================================================
Tax Year
2018, 2019 and 2020
Holding period 2017 Security Security
acquired acquired on or
before 01 after
July 2016 01 July 2016
===================================================================================================
Less than 12 months 15% 15%
More than 12 months but less than 24 months 12.5% 12.5% 15%
More than 24 months but then security was 7.5% 7.5%
acquired on or after 01 July 2013
Where the security was acquired before 01 July 2013 0% 0% 0%
Future commodity contracts entered into
by the members of Pakistan Mercantile 5% 5% 5%
Exchange.
===================================================================================================
59. Rate of tax on capital gain on immovable property
The Bill seeks to omit the slab for capital gain tax rates on immovable property as prescribed under Division VIII of Part I of First Schedule.
60. Advance tax on builders
The tax on builders remains unchanged as under:
=============================================================================================
Karachi, Lahore & Hyderabad, Sukkur, Multan, Urban Areas not specified
Islamabad Faisalabad, Rawalpindi,
Gujranwala, Sahiwal,
Peshawar, Mardan, Abbotabad,
Quetta
=============================================================================================
For commercial buildings
=============================================================================================
PKR 210/Sq.Yd PKR 210/Sq.Yd PKR 210/Sq.Yd
=============================================================================================
For residential building
=============================================================================================
Area in Sq. Rate/ Area in Rate/Sq.Yd Area in Sq. Rate/Sq.Yd
Yd Sq.Yd Sq. Yd PKR Yd PKR
PKR
=============================================================================================
Up to 750 20 Up to 750 15 Up to 750 10
751 to 1500 40 751 to 1500 35 751 to 1500 25
1501 & more 70 1501 & more 55 1501 & more 35
=============================================================================================
61. Advance tax on developers
The tax on developers remains unchanged as under:
=============================================================================================
Hyderabad, Sukkur, Multan,
Faisalabad, Rawalpindi,
Gujranwala, Sahiwal,
Karachi, Lahore & Peshawar, Mardan, Abbotabad,
Islamabad Quetta Urban Areas not specified
=============================================================================================
For commercial buildings
=============================================================================================
PKR 210/Sq.Yd PKR 210/Sq.Yd PKR 210/Sq.Yd
=============================================================================================
For residential building
=============================================================================================
Area in Sq. Rate/ Area in Rate/Sq.Yd Area in Sq. Rate/Sq.Yd
Yd Sq.Yd Sq. Yd PKR Yd PKR
PKR
=============================================================================================
Up to 120 20 Up to 120 15 Up to 120 10
121 to 200 40 121 to 200 35 121 to 200 25
201 & more 70 201 & more 55 201 & more 35
=============================================================================================
62. Minimum Tax
The rates of minimum tax as a percentage of the taxpayers'' turnover are proposed to be revised as under:
============================================================================================
Taxpayer Rate (%)
============================================================================================
Existing Proposed
============================================================================================
a) Oil marketing companies, oil refineries, Sui Southern Gas
Company Limited and Sui Northern Gas Pipelines Limited (where
annual turnover exceeds PKR 1 billion)
0.5% 0.75%
b) Pakistan Airlines; and
c) Poultry industry including breeding, broiler production, egg
production, feed production
d) Dealers or distributors of fertilizers; and
e) person running an online marketplace as defined in clause
(38B) of Section 2
a) Distributors of pharmaceutical products, fast moving consumer
goods and cigarettes
b) Petroleum agents and distributors registered under the Sales
0.2% 0.25%
Tax Act, 1990
c) Rice mills and dealers
d) Flour mills
Motorcycle dealers registered under the Sales Tax Act 1990 0.25% 0.3%
In all other cases 1.25% 1.5%
============================================================================================
PART II
63. Advance tax on imports
The Bill proposes to replace the rate table whereby the category for non-filers and the respective rates have been removed.
The Bill also seeks to include importers of finished pharmaceutical products that are not manufactured otherwise in Pakistan in the list of persons from whom advance tax is required to be collected at the time of import under section 148 of the Ordinance.
The updated table specifying the rates of tax at import stage are as under:
===============================================================================
Taxpayer Rate % (of import
value as increased by
customs duty, sales
tax and federal excise
duty)
===============================================================================
Industrial undertaking importing remeltable steel (PCT Heading
72.04) and directly reduced iron for its own use
Persons importing potassic fertilizers in pursuance of Economic
Coordination Committee of the cabinet''s decision No. ECC-
155/12/2004 dated 9 December 2004
Persons importing urea
Manufacturers covered under Notification No. S.R.O. 1125 (I) 1%
dated 31 December 2011 and importing items covered under S.R.O
1125 (I)/2011 dated the 31 December 2011
Persons importing Gold
Persons importing Cotton; and
Persons Importing LNG
Persons importing pulses 2%
Commercial importers covered under Notification No. S.R.O. 3%
1125 (I)/2011 dated 31 December 2011 and importing items covered
under S.R.O 1125 (I)/2011 dated the 31 December 2011
Persons importing coal 4%
Persons importing finished pharmaceutical products that are 4%
manufactured otherwise in Pakistan, as certified by the Drug
Regulation Authority of Pakistan
Ship breakers on import of ships 4.5%
Industrial undertakings not covered above 5.5%
Companies not covered above 5.5%
Persons not covered above 6%
===============================================================================
PART III
64. Advance tax on profit on debt
The advance tax rate on profit on debt is proposed to be increased from 10% to 15% whereas the separate rate for non-filer has been omitted.
The Bill also seeks to add a proviso whereby rate of withholding shall be 10% in cases where the yield or profit paid is PKR 500,000 or less.
65. Advance tax on return on investments in Sukuks received from a special purpose vehicle.
Rate of withholding tax to be applied on payments made to investors in relation to return on Sukuks have remained unchanged whereas the rate for non-filers have been omitted as under:
=========================================================
Sukuks Holder Rates (%)
=========================================================
Company 15%
Individual or AOP (More than one million) 12.5%
Individual or AOP (Less than one million) 10%
=========================================================
The rate for non-filers has been proposed to be omitted.
66. Payments to non-residents
The withholding tax rates on payments to non-residents remains unchanged, whereas the category for non-filers and the respective rates have been omitted, as under
==================================================================================
Types of Payment Rate (%)
==================================================================================
Technical services fee 15%
Royalty 15%
Fee for offshore digital services 5%
Shipping income 8%
Air transport income 3%
Execution of a contract
-contract or sub-contract under a construction, assembly or
installation project in Pakistan, including a contract for the supply
of supervisory activities in relation to such project.
7%
-any other contract for constructions or services rendered relating
thereto or a contract for advertising services rendered by T.V settle
lite channels.
Insurance premium/re-insurance premium 5%
Others (excluding those specifically mentioned herein) 20%
Advertisement services to a media person relaying from outside Pakistan 10%
Receipt on account of sale of goods by a PE of a non-resident in
Pakistan
4%
-Company 4.5%
-Other Taxpayers
Receipt on account of rendering of services through a PE
-Transport services 2%
-Other than transport (if company) 8%
-Others (excluding those mentioned herein) 10%
Receipt on account of execution of contract through a PE other than a
contract for sale of goods or rendering of services
-Sports person 10%
-Other person 7%
==================================================================================
67. Advance income tax on payment to resident on payments for goods, services and execution of contract
The rate of withholding tax on account of sale of rice, cotton seed or edible oils and supplies made by the distributor of fast moving consumer goods remains unchanged as under:
============================================================================
Types of Payment Rates (%)
============================================================================
Sale of rice, cotton seed or edible oils 1.5%
Supplies made by distributers of fast moving consumer goods
-Company 2%
-Other than company 2.5%
============================================================================
The Bill seeks to enhance the rate of withholding tax on transport services from 2% to 4% wherein several other services are also to be included in the category. The category for non-filers and the respective rates are also proposed to be omitted.
The revised rates for making payments on account of goods, services and contracts are proposed to be as under:
=============================================================================================
Types of Payment Rate (%)
=============================================================================================
Existing Proposed
=============================================================================================
For supply of goods
-Company 4% No change
-Other than company 4.5% No change
Transport services, freight forwarding services, air cargo
services, courier services, manpower outsourcing services, hotel
services, security guard services, software development services,
IT services and IT enabled services as defined in clause (133) of
Part I of the Second Schedule, tracking services, advertising 2% 4%
services (other than by print or electronic media), share
registrar services, engineering services, car rental services,
building maintenance services, services rendered by Pakistan Stock
Exchange Limited and Pakistan Mercantile Exchange Limited
Rendering of or providing of services
-Company 8% No change
-Other than company 10% No change
Electronic and print media advertising services 1.5% No change
On the execution of contract
-Sportsperson 10% No change
-Company 7% No change
-Other than company 7.5% No change
=============================================================================================
68. Royalty paid to resident persons
The Bill seeks to introduce a tax at the rate of 15% of the gross amount payable to a resident person on account of Royalty pursuant to the proposed newly added Section 153B.
69. Exports
Rate of collection of advance tax for exports, indenting commission and services to export house remains unchanged as under:
===================================================================================================
Types of Payment Rate
===================================================================================================
Export proceeds
Proceeds from sale of goods to an exporter under an inland back-to- 1% of export proceeds
back letter of credit or any other arrangement
Export of goods by an industrial undertaking located in an Export 1%
Processing Zone
Collection by collector of customs at the time of clearing of goods exported 1%
Indenting commission 5%
===================================================================================================
70. Tax on prize and winnings
The rate of withholding tax on prize bond, cross-word puzzle and prize on winnings remains unchanged, however, the categorized rates of non-filer are proposed to be abolished.
============================================================================
Description Rate (%)
============================================================================
Prize on prize bond and cross-word puzzle 15%
Winnings from a raffle, lottery, prize on winning a quiz, prize
offered by a company for promotion of sale 20%
============================================================================
71. Tax on Petroleum Products
The rate of withholding tax on Petroleum Products remain unchanged, however, the categorized rate of non-filer is proposed to be abolished as under:
========================================
Description Rate (%)
========================================
Petroleum products 12%
========================================
72. Tax on CNG Station
The withholding tax rate in the case of a Compressed Natural Gas station remain unchanged at 4%, whereas, the categorized rate of non-filer is proposed to be abolished.
PART IV
73. Collection of advance income tax on Brokerage and Commission
The rate for collection of advance tax remains unchanged as under, however, the categorized rates of non-filer are proposed to be abolished
==========================================================
Description Rate (%)
==========================================================
For advertising agents 10%
Life insurance agent where commission received 8%
is less than PKR 500,000 per annum
Persons not covered above 12%
==========================================================
74. Collection of tax by NCCPL
The rate of collection by NCCPL on profit or markup or interest earned by the member, margin financier or securities lender remains unchanged at 10%.
75. Collection of tax on motor vehicles
The rate of collection of tax remains unchanged as under, however, the categorized rates of non-filer are proposed to be abolished.
===============================================================================
Passenger transport vehicle having Capacity PKR per seat per
annum
===============================================================================
Four or more persons but less than ten persons. 50
Ten or more persons but less than twenty persons 100
Twenty persons or more 300
Private motor vehicle Engine Capacity Rate
Upto 1000cc PKR 800
1001cc to 1199cc PKR 1,500
1200cc to 1299cc PKR 1,750
1300cc to 1499cc PKR 2,500
1500cc to 1599cc PKR 3,750
1600cc to 1999cc PKR 4,500
2000cc to & above PKR 10,000
Motor vehicle having Engine Capacity (collected in lump sum) Rate
Upto 1000cc PKR 10,000
1001cc to 1199cc PKR 18,000
1200cc to 1299cc PKR 20,000
1300cc to 1499cc PKR 30,000
1500cc to 1599cc PKR 45,000
1600cc to 1999cc PKR 60,000
2000cc to & above PKR 120,000
===============================================================================
76. Collection of tax on electricity consumption
The rate for tax on the gross amount of electricity bill has remained unchanged as under.
=========================================================================
Description Tax Amount
=========================================================================
does not exceed PKR 400 PKR 0
exceeds PKR 400 but does not exceed PKR 600 PKR 80
exceeds PKR 600 but does not exceed PKR 800 PKR 100
exceeds PKR 800 but does not exceed PKR 1,000 PKR 160
exceeds PKR 1,000 but does not exceed PKR 1,500 PKR 300
exceeds PKR 1,500 but does not exceed PKR 3,000 PKR 350
exceeds PKR 3,000 but does not exceed PKR 4,500 PKR 450
exceeds PKR 4,500 but does not exceed PKR 6,000 PKR 500
exceeds PKR 6,000 but does not exceed PKR 10,000 PKR 650
exceeds PKR 10,000 but does not exceed PKR 15,000 PKR 1,000
exceeds PKR 15,000 but does not exceed PKR 20,000 PKR 1,500
exceeds PKR 20,000 At the rate of 12%
for commercial
consumers
At the rate of 5%
for industrial
consumers
=========================================================================
77. Collection of Advance Tax on Telephone Users
The rate of withholding tax on subscriber of internet, mobile telephone and pre-paid internet or telephone card have remained unchanged as under.
========================================================================================
Description Rate (%)
========================================================================================
Telephone subscriber where the amount of monthly bill exceeds PKR 10% of exceeding
1,000 amount
Subscriber of internet, mobile telephone and pre-paid internet or 12.5% of the
telephone card. amount of bill or
sales price
========================================================================================
78. Collection of tax on cash withdrawal from bank
The rate of collection of tax on cash withdrawal from bank is 0.6% for persons whose name is not appearing in the active taxpayer list.
79. Collection of advance tax on transactions through banking channels
The rate of collection of tax on transaction in bank is 0.6% for persons whose name is not appearing in the active taxpayer list.
80. Advance tax on purchase, registration and transfer of Motor Vehicles
The advance tax on purchase and registration of Motor Vehicles remains unchanged as under, however, the categorized rates of non-filer are proposed to be abolished.
=====================================
Engine capacity Amount of Tax
=====================================
Up to 850cc PKR 7,500
851cc - 1000cc PKR 15,000
1001cc - 1300cc PKR 25,000
1301cc - 1600cc PKR 50,000
1601cc - 1800cc PKR 75,000
1801cc - 2000cc PKR 100,000
2001cc-2500cc PKR 150,000
2501 cc-3000cc PKR 200,000
Above 3000cc PKR 250,000
=====================================
Further, the rates of collection of taxes on transfer of motor vehicles have also remained unchanged as under, however, the categorized rates of non-filer are proposed to be abolished.
=====================================
Engine capacity Amount of Tax
=====================================
Up to 850cc -
851cc - 1000cc PKR 5,000
1001cc - 1300cc PKR 7,500
1301cc - 1600cc PKR 12,500
1601 cc - 1800 cc PKR 18,750
1801cc - 2000cc PKR 25,000
2001cc & 2500cc PKR 37,500
2501cc & 3000cc PKR 50,000
Above 3000cc PKR 62,500
=====================================
81. Advance tax at the time of sale by auction
The rate of collection of tax remains unchanged at the rate of 10% for filer, whereas the rate for non-filers is proposed to be abolished.
82. Advance tax on purchase of air tickets
The rate of collection of tax remains unchanged at 5% of the gross amount of air ticket.
83. Advance tax on sale/transfer of immovable property
The rate of advance tax to be collected on sale/ transfer of immovable property has remained unchanged whereas the rate for non-filers is proposed to be abolished.
============================
Description Rates (%)
============================
Filer 1%
============================
84. Collection of advance tax on functions and gatherings
The advance tax to be collected on functions and gatherings remains unchanged as under:
========================================================================================
S.No. Description Rate of tax
========================================================================================
For Islamabad, Lahore, Multan, Faisalabad, 5% of the bill ad valorem or PKR
Rawalpindi, Gujranwala, Bahawalpur, 20,000 per function, whichever
Sargodha, Sahiwal, Shekhurpura, Dera Ghazi is higher
1 Khan, Karachi, Hyderabad, Sukkur, Thatta,
Larkana, Mirpur Khas, Nawabshah, Peshawar,
Mardan, Abbottabad, Kohat, Dera Ismail Khan,
Quetta, Sibi, Loralai, Khuzdar, Dera Murad
Jamali and Turbat.
2 For cities other than those mentioned above; 5% of the bill ad valorem or PKR
10,000 per function, whichever
is higher
========================================================================================
85. Advance tax on cable operator and other electronic media
The rate of collection of advance tax remains unchanged.
============================================
License Category Tax on Tax on
License Fee Renewal
============================================
H PKR 7,500 PKR 10,000
H-1 PKR 10,000 PKR 15,000
H-II PKR 25,000 PKR 30,000
R PKR 5,000 PRR 12,000
B PKR 5,000 PKR 40,000
B-1 PKR 30,000 PKR 35,000
B-2 Rs,40,000 PKR 45,000
B-3 PKR 50,000 PKR 75,000
B-4 PKR 75,000 PKR 100,000
B-5 PKR 87,500 PKR 150,000
B-6 PKR 170,000 PKR 200,000
B-7 PKR 262,500 Rs,300,000
B-8 PKR 437,500 PKR 500,000
B-9 PKR 700,000 PKR 800,000
B-10 PKR 875,500 Rs,900,000
============================================
86. Advance tax on sale to distributors, dealers or wholesalers
Advance tax on sale to distributors, dealers or wholesalers remain unchanged as under, whereas the rates for non-filers are proposed to be abolished.
============================================
Category of sale Rate of tax (%)
============================================
Fertilizers 0.7%
Other than fertilizers 0.1%
============================================
87. Advance tax on sale of retailers
The rate of tax on sale of retailers remains unchanged as under, whereas, the rates for non-filers are proposed to be abolished.
============================================
Category of sale Rate of tax (%)
============================================
Electronics 1%
Others 0.5%
============================================
88. Advance tax on sale of certain petroleum products
The advance tax to be collected by person selling petroleum products to a petrol pump operator or distributer, where such operator or distributer is not allowed a commission or discount remains unchanged at the rate of 0.5%, however, the rate for non-filer is proposed to be abolished.
89. Collection of advance tax by educational institutions
The rate of collection of tax remains unchanged at 5%,
90. Advance tax on dealers, commission agents and arhatis, etc.
The collection of advance tax on dealers, commission agents and arhatis is proposed as under:
=================================================
Amount of tax (per annum)
=================================================
Group or Class Existing Proposed
=================================================
Group or Class A PKR 10,000 PKR 100,000
Group or Class B PKR 7,500 PKR 75,000
Group or Class C PKR 5,000 PKR 50,000
Any other category PKR 5,000 PKR 50,000
=================================================
91. Advance tax on purchase of immovable property
The rate of advance tax to be collected on purchase of immovable property under Section 236K is proposed to be 1% of the Fair Market Value, whereas, the existing slab rates have been abolished.
92. Advance tax on domestic electricity consumption
The rate of advance tax collection remains unchanged at 7.5% if the monthly bill is PKR 75,000 or more.
93. Advance tax on international air ticket
The rate of collection of advance tax remains unchanged as under
===========================================================
Type of Ticket Rate
===========================================================
First/Executive class PKR 16,000 per person
Others excluding economy PKR 12,000 per person
Economy Class PKR 0
===========================================================
94. Advance tax on bank transactions
The advance tax to be collected on banking transaction otherwise through cash shall be collected at 0.6% for persons who are not appearing in the Active Taxpayer List.
95. Payment to a resident person for right to use machinery and equipment
The rate of tax remains unchanged at 10%.
96. Collection of advance tax on education related expenses remitted abroad
The rate of tax remains unchanged at 5%.
97. Advance tax on insurance premium
The rate of advance tax to be collected on insurance premium from persons who are not appearing in the Active Taxpayer List have remained unchanged as under:
=======================================================================================
Type of premium Rate (%)
=======================================================================================
General insurance premium 4%
Life insurance premium if exceeding PKR 0.3 million in aggregate per annum 1%
Others 0%
=======================================================================================
98. Advance tax on extraction of minerals
The rate of tax remains unchanged at 5% for persons not appearing in the Active Taxpayer List.
99. Advance tax on amount remitted abroad through credit, debit or prepaid cards
The tax to be collected on transfer of any sum remitted outside Pakistan, on behalf of any person who has completed a credit card transaction, a debit card transaction, or a prepaid card transaction with a person outside Pakistan at the rate of 1% of the gross amount remitted abroad, whereas, the rate for non-filers is proposed to be abolished
THE SECOND SCHEDULE
PART-I
100.Exemption to armed forces personnel
Clause (39A)
A new clause 39A was inserted by the Finance Act, 2018 to exempt certain allowances in the hands of armed forces personnel. The billproposed to include the following allowance in the exempt list:
-- Internal security allowance
-- Compensation in lieu of bearer allowance
101.Exemption on donations
Clause (61)
The Bill proposed to insert the following in Clause (61) which provide exemption on any amount paid as donation to the charitable institutions specified therein:
-- Layton Rahmatullah Benevolent Trust
-- Akhuwat
102.Exemption to income of certain charitable and other institutions
Clause (66)
The Bill proposed to insert the following in Clause (66), which provides exemption from tax to any income of the institutions:
-- Akhuwat
-- Audit Oversight Board
103.Profit and gains on sale of immoveable property to REIT Scheme
(Clause 100)
Currently, profit and gains on sale of immovable property to Developmental REIT Scheme with the object of the development and construction residential building shall be exempt up to 30 June 2020.
The Bill proposes to seek a new proviso in Clause (99A) whereby profit and gain on sale of immoveable property to a rental REIT Scheme shall also be exempt from tax upto 30 June 2021.
104.Reduction in tax liability on inter-corporate dividends
Clause (103C) of Part I of the Second Schedule
Pursuant to the provisions of Clause (103A) of Part I of the Second Schedule, any income derived from intercorporate dividends was exempt for group companies entitled to group taxation under Section 59AA or group relief under Section 59B. The Finance Act, 2015 then added a condition, that such exemption would only be available if the consolidated return of the group had been filed.
Subsequently, the Finance Act, 2016, excluded entities entitled to group relief under Section 59B from the exemption entirely.
The above amendments created significant difficulties for corporate and industrial groups by adding multiple layers of taxation on dividends issued by group entities. This resulted in corporate structures becoming inefficient due to multiple taxation of the same income, on mere distribution within the group, even though no value addition was taking place. This also led to substantial litigation from various groups.
The Supplementary Act, 2019 addressed this issue by inserting a new clause in Part I of the Second Schedule which with effect from 01 July 2019 exempts dividend income derived by a company, if the recipient has availed group relief under Section 59B, computed according to the formula prescribed therein
It is imperative to appreciate that while the original provision of Clause (103A) had provided an outright exemption from tax on inter-corporate dividends to entities entitled to group relief, the newly inserted Clause only provides a relief only in the circumstances where the recipient of the dividend has availed group relief, i.e. loss has actually been surrendered between the two entities and even then, only to the extent of the shareholding that the parent entity has in its subsidiary.
The Bill seeks to address the hardship of the corporate taxpayers and proposed to extend this facility to a Company who is eligible for Group Relief under Section 59B of the Ordinance instead of only those who actually availed the scheme of Group Relief.
105.Exemption to the income of persons resident of the Tribal areas of Khyber Pakhtunkhwa & Baluchistan
(Clause 146)
The Bill proposed to insert a new Clause to provide an exemption from tax to any income of any individual domiciled or Company and association of persons resident in the Tribal Areas forming part of the Provinces of Khyber Pakhtunkhwa and Baluchistan which was not chargeable to tax prior to the commencement of the Constitution (25 th Amendment) Act, 2018, (XXXVII of 2018 ) under paragraph (d) of Article 246 of the Constitution with effect from 01 June, 2018 to 30 June 2023.
Part III
106.Reduction in a tax liability of a full time teacher or a researcher
Clause (2)
Currently, the tax payable by a full time teacher or researcher employed in a nonprofit education or research institution duly recognized by higher Education Commission, a Board of Education or a University recognized by the Higher Education Commission including Government training and research institution shall be reduced by an amount equal to 40% of tax payable on his income from salary . The bill proposed to reduce the amount of tax reduction from 40% to 25% of tax payable.
Further, this benefit would only be available to Government research institution. Further , the Bill proposed to insert a new proviso which provides that the reduction in tax payable shall not available to teachers of medical profession who derive income from private medical practice or who receive share of consideration received from patients.
The proposed amendment is in line with the view adopted by the Appellate Tribunal Inland Revenue Karachi in a recent decision against the appellants in the case of certain medical practitioners who were availing such tax reductions against their tax payable which were denied by taxation authorities by amending their deemed assessments.
Part IV
107.Exemption from provisions of Section 153
Clause (43E)
Clause 43E provides exemption from provisions of Section 153 of the Ordinance to goods transport contractors, provided that such contractors shall pay tax at the rate of 2.5% on payments received on account of rendering of carriage services. The Bill proposes to increase the rate of tax from 2.5% to 3%.
108.Exemption from disclosure of certain information
Deletion of Clause (81) and (81A)
Clause (81) provides exemption to manufacturers, distributors, dealers and wholesalers of specified sectors from disclosure of certain details like name, Computerized National Identity Card Number, National Tax Number and address of the person from whom tax has been collected under Section 236H, in the statement of withholding tax. The Bill proposes to delete the said clause. Consequently, manufacturers, distributors, dealers and wholesalers will be required to disclose such information in the statement of withholding tax.
Likewise, banking companies are also exempt under Clause (81A) from furnishing the said information for tax deducted on cash withdrawals under Section 231A and on profit on debt under Section 151. The Bill proposes to delete the said clause as well. Consequently, banking companies will be required to disclose such information in the statement of withholding tax.
109.Exemption from the specific provisions of withholding of tax to the persons resident of the Tribal areas of Khyber Pakhtunkhwa & Baluchistan
(Clause 110)
The Bill proposed to insert a new Clause to provide an exemption for the deduction or collection of withholding tax to any individual domiciled or Company and association of persons resident in the Tribal Areas forming part of the Provinces of Khyber Pakhtunkhwa and Baluchistan which was not applicable to them prior to the commencement of the Constitution (25 th Amendment) Act, 2018, (XXXVII of 2018 ) under paragraph (d) of Article 246 of the Constitution with effect from 01 June, 2018 to 30 June 2023.
110.Exemption from selection of case for tax audit
Clause (105)
Currently, Clause 105 provides exemption from selection for audit under Section 177 and 214C to persons whose income tax affairs have been audited in any of the preceding three tax years. The Bill proposes to delete the said clause. Consequently, the above exemption from selection for audit will no more be available under the above scenario.
THE THIRD SCHEDULE
PART -II
111.Initial Allowance
Clause (1)
The Bill proposes to omit the initial allowance available in respect of Buildings.
THE FOURTH SCHEDULE
Rule 6E
Mutual Insurance Association
The Bill proposes to insert a new Rule 6E in the Schedule, whereby the Commissioner is empowered to examine and amend the amount of income as disclosed in the financial statements presented to the Securities and Exchange Commission of Pakistan with respect to commission paid and claim for losses.
THE SEVENTH SCHEDULE
112.Provision for bad debts of advances and off-balance sheet items
Rule 1(c) of the Seventh Schedule
An explanation has been added to Rule 1(c) to clarify that maximum claim of provisions for advance and off balance sheet items shall be computed on the basis of gross advances at the respective rates of 1% and 5%. However, no adjustment may be accounted for in the above claim for reversal of provision, if any.
Reversal of provisions which were previously classified as "doubtful" and "loss" were not offered as income in the return of income and were adjusted by the banks against their pool of unadjusted carry forward provisions. It is now proposed that reversals if any, of bad debts previously classified as "doubtful" and "loss" shall be offered for tax.
Rule 1(d) & (e) of the Seventh Schedule
Previously, bad debts classified as "sub-standard" under the Prudential Regulations issued by the State Bank of Pakistan were not considered for the purpose of computing allowable provision under Rule 1(c). The Bill has proposed to also exclude bad debts classified as "doubtful" for the purpose of computing allowable provision under Rule 1(c). Corresponding amendment has also been made in Rule 1(e) to give effect to the above changes.
113.Application of general provision of the Ordinance on a banking company
Explanation to Rule 1
The Bill proposes to insert an explanation after Clause (h) in Rule 1 which clarifies that powers of Commissioner to conduct audit of tax affairs of a banking company and to call for any information, documents or records is not effected by the any of the provisions of the Seventh Schedule to the Ordinance and all provisions of the Ordinance are also applicable on the banking companies. The above explanation is also in line with Rule 9 which substantiates the application to other provisions of the Ordinance on a banking company which are not specifically dealt in the Seventh Schedule to the Ordinance.
114.Enhanced rate of tax on taxable income from Federal Government Securities by a Banking Company
Rule 6C
Previously every income of a banking company was subject to tax at a flat rate of 35% in terms of the provisions of Section100A read with Seventh Schedule to the Ordinance.
However, keeping in view the Government''s goals to promote economic growth in the country by providing financial support to small businesses involving low and medium capital structure, measures are being taken to provide adequatefunding to such businesses. To inspire banking sector to contribute in accomplishment of the above objective, certain amendments were made via the Finance Supplementary (second Amendment) Act, 2019 providing reduced rate of tax for banking companies in respect of interest income earned from funding provided to certain persons.
To further encourage the Banks to engage in the activities of financing and lending to the customers and discourage investment in securities, the Bill now proposes to insert a new Rule namely 6C which provides that from the tax year 2020 and onwards the tax rate of 37.5% would be applicable on taxable additional income earned from additional investment in federal government securities.
The Bill has proposed following formula for calculation of taxable income from additional investment in government securities
Taxable income subject to enhanced rate of tax = A X B/C
Where -
A = taxable income of the banking company
B = net markup of income earned from additional income earned for the tax year as declared in the annual accounts
C = total of the net markup and non-markup income of the banking company as per accounts
For this purpose, at the time of filing of return of income, a Banking company is also obliged to obtain a certificate from their external auditor which would certify the following -
-- Investment made in government securities in preceding tax year,
-- Additional investment made for the tax year
-- Net-markup earned from such additional investment
The tax authorities are also empowered to ask for information in respect of investment in Federal Government Securities to ascertain applicability of the enhanced rate of tax.
The proposed amendments does not cater to scenarios where a banking company incurs a loss for the year however it has earned additional income for additional investment in federal government securities.
115.Computation of income for levy of super tax on a banking company
Rule 7C
In line with the changes brought forward by the Finance Act, 2016 in respect of computation of income for the levy of super tax , the Bill proposes to insert a new proviso in Rule 7C which restricts adjustment of brought forward depreciation and brought forward business losses in order to work out income for the purpose of levy of super tax under Section 4B in case of a banking company.
116.Reduced rate of tax on additional advances for micro, small and medium enterprises
Rule 7D
Finance Supplementary (second Amendment) Act, 2019 introduced certain incentives for banking sector to contribute in accomplishment of the Government''s goals to promote economic growth in the country by providing financial support to small businesses involving low and medium capital structure. Accordingly, a new Rule 7D was introduced which provided relief in tax rate in respect of interest income earned from providing additional advances to micro, small and medium enterprises. The Bill now proposes to remove the words interest income from the above Clause 1 of Rule 7D thereby providing the benefit of reduced rate of taxation on any type of taxable income earned from lending / financing to micro, small and medium enterprises.
(To be continued)
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