National Assembly approves amended Finance Bill 2007-08: Rs 1.874 trillion budget passed

The National Assembly has approved amended Finance Bill (2007-2008) for conversion of Central Board of Revenue (CBR) into Federal Board of Revenue (FBR), levy of one percent special excise duty on import and local manufacturing, tax relief to retailers, further incentives under group relief and extended powers to the CBR to change withholding tax rates without consulting parliament or federal government.
Minister of State for Finance and Revenue Omar Ayub Khan on Friday approved the amendments in the Finance Bill submitted by the Central Board of Revenue (CBR). One of the major powers obtained by the CBR through amended Finance Bill is the rationalisation of withholding tax rates on its own. There is no need to obtain prior approval of the federal government or parliament for this purpose.
The CBR has also amended the Seventh Schedule (banking schedule) for the computation of profits and gains of a banking company. The government has also announced another big relief to the traders operating under section 113-B of the Income Tax Ordinance 2001. Under section 113-B (taxation of income of certain retailers), traders have been allowed to pay reduced rates of turnover tax retrospectively ie from ''''tax year 2007'''' instead of tax year 2008. Thus, 50 percent reduction in combined sales tax/income tax would be available to traders, whose turnover exceeds Rs five million.
The government has also empowered the commissioner of income tax (CIT) to call income tax statements from the taxpayers for the last five years in cases of ''''final discharge of tax liability''''. Previously, commissioners could only call income tax returns for the last five years.
Through another amendment cleared by National Assembly, the importer-cum-manufacturers, declaring losses, have to pay 0.5 percent income tax at the import stage. Earlier, the importers-cum-manufactures were given 100 percent exemption certificates.
In cases of losses, exemption certificates would be given at the reduced tax rates and they have to pay 0.5 percent tax at the import stage for obtaining these certificates. The importer-cum-manufacturers are bound to submit the minimum tax at the rate of 0.5 percent of the turnover, which would now be collected at the import stage.
According to another amendment, the option of group taxation shall be available to those group companies which comply with such corporate governance requirements as may be specified by the Securities and Exchange Commission of Pakistan (SECP) form time to time and are designated as companies entitled to avail group taxation.
As per revised section 59B the government has offered more incentives under the concept of group relief. The National Assembly has approved that any company, being a subsidiary or a holding company, may surrender its assessed loss (excluding capital loss) for the tax year (other than brought forward losses and capital losses), in favour of its holding company or its subsidiary or between another subsidiary of the holding company.
Provided that where one of the company in the group is a public company listed on a registered stock exchange in Pakistan, the holding company shall directly hold 55 percent or more of the share capital of the subsidiary company. Where none of the companies in the group is a listed company, the holding company shall hold directly 75 percent or more of the share capital of the subsidiary company.
A company within the group engaged in the business of trading shall not be entitled to avail group relief. All the companies in the group shall comply with such corporate governance requirements as may be specified by the Securities and Exchange Commission of Pakistan from time to time, and are designated as companies entitled to avail group relief, the amended Finance Bill said.
The commissioner may, by notice in writing, require any person who, in his opinion, is required to file a prescribed statement for a tax year but who has failed to do so, to furnish a prescribed statement for that year within 30 days from the date of serving of such notice or such longer period as may be specified in such notice or as he may allow.
Through another amendment, a person may be appointed as an accountant member of the appellate tribunal if the person is an officer of the income tax group equivalent in rank to that of a regional commissioner and the commissioner of income tax or commissioner of income tax (Appeals) having at least five years experience as commissioner shall also be eligible for appointment.
The amended Finance Bill has further specified that the income tax exemption (section 49) would not be available in the case of a corporation, company, a regulatory authority, a development authority or other body or institution established by or under a federal law or a provincial law or an existing law or a corporation, company or other body or institution set up, owned and controlled, either directly or indirectly, by the federal government or a provincial government, regardless of the ultimate destination of such income, as laid down in Article 165A of the Constitution of the Islamic Republic of Pakistan.
In the case of a person whose income is not subject to final taxation, the commissioner is satisfied that such person is not likely to pay any tax (other than tax under section 113), the commissioner shall, upon application in writing made by such person, issue certificate allowing payment of tax collectable under this section at a reduced rate of 0.5 percent.
Through another amendment in the Seventh Schedule (banking schedule) of the Income Tax Ordinance 2001, loss on sale of shares of listed companies, disposed of within one year of the date of acquisition, shall be adjustable against business income of the tax year. Where such loss is not fully set off against business income during the tax year, it shall be carried forward to the following tax year and set off against capital gain only. No loss shall be carried forward for more than six years immediately succeeding the tax year for which the loss was first computed.
On the sales tax side, the National Assembly has approved various amendments in the Sales Tax Act, 1990. The federal government may specify any person or class of persons as withholding agents for deduction and deposit of tax at the specified rate.
Where there is reason to believe that a person has claimed input tax credit or refund, which was not admissible to him, the proceedings against him shall be completed within 60 days. For inquiry or audit or investigation regarding admissibility of the refund claim, the period of 60 days may be extended up to 120 days by an officer not below the rank of an additional collector of sales tax and the board may, for reasons to be recorded in written, extend the period which shall in no case exceed nine months.
BUDGET PASSED: The National Assembly also passed Rs 1.874 trillion budget for next fiscal year, turning down opposition''''s request to raise salaries of government employees by 20 percent. The government made nearly eight amendments in the Finance Bill 2007 whereas at least 20 amendments moved by the opposition were turned down.
The government also incorporated 51 out of 90 recommendations in the money bill forwarded by the Upper House of parliament. Opposition members of NA body on finance strongly protested on the passage of the Finance Bill, and, as usual, walked out of the house against what they said was an unconstitutional piece of legislation.
Prime Minister Shaukat Aziz attended most of the daylong proceedings and remained busy in ''''brief'''' meetings with treasury members. Earlier, taking part in the debate, opposition benches said the bill was drafted merely to appease two classes-bankers and stockbrokers.
The government was accused of bypassing both National Assembly and Senate in the entire budget-making process. Opposition members said money laundering bill had been made part of the Finance Bill unconstitutionally knowing the fact that it was still under consideration by the NA body on finance and revenue.
They termed government''''s decision to establish Federal Board of Revenue, changing in the preambles of Securities Exchange Commission of Pakistan (SECP) Act, Customs Act and Banking Companies Ordinance "sheer violation" of the constitution.
They opposition members of NA standing committee on finance and revenue said some controversial changes were made in the money bill through backdoor channels.
They strongly opposed the ''''unlimited'''' discretionary powers being delegated to Board members of the Federal Board of Revenue. Strong protest was also lodged against the ''''unlimited'''' extensions in the tenure of National Bank of Pakistan and Khushhali Bank of Pakistan presidents.
PPP-P''''s Naveed Qamar and Naheed Khan pointed out that Advisor to Prime Minister on Finance Salman Shah was being made Chairman of Securities and Exchange Commission of Pakistan.
The opposition pressed the government through its amendments that salaries of government employees should be raised by up to 20 percent besides increase in the minimum wage to Rs 6,000. However, the government voted out the opposition''''s proposed amendment. The house will now meet on Saturday at 1000 hours to take up supplementary grants for different ministries and departments during the year 2006-07.