Instead of Acts of the Parliament: three new ordinances Issued
The President of Pakistan in a bid to generate additional revenue of Rs 53 billion for the national exchequer has promulgated three ordinances on 15th of March, 2011. These ordinances were neither publicised nor uploaded on FBR's portal to seek public comments prior to their enforcement.
Under conditionalities agreed with the IMF for the release of second tranche of the loan under Stand-By Arrangement, the government had to introduce Value Added Tax (VAT) Act, 2009 in the last budget but it had to defer it till October 01, 2009 and later to introduce it under the label of Reformed General Sales Tax (RGST), 2010 in the second half of the current fiscal.
However finding it difficult to get it endorsed by the elected representatives sitting in the parliament, the president sought to use his powers granted under constitution of Pakistan to enforce tax measures through ordinances instead of acts of the parliament. The parliament was ignored on such vital issue. This was an undemocratic move by the president who represents the democratically elected PPP government in the country.
THREE ORDINANCES Following presidential ordinances have been issued:
(i) The Income Tax (amendment) Ordinance, 2011
(ii) The Sales Tax (amendment) Ordinance, 2011
(iii) The Federal Excise (amendment) Ordinance, 2011 All the ordinances shall come into force at once ie 15-03-2011
INCOME TAX (AMENDMENT) ORDINANCE, 2011 The ordinance inserted new section 4A after section 4 of the Income Tax Ordinance, 2001. Section 4A is reproduced as under.
"4A. Surcharge: (1) Subject to this Ordinance, a surcharge shall be payable by every taxpayer at the rate of fifteen percent of the income tax payable under this Ordinance including the tax payable under Part V of Chapter X or Chapter XII, as the case may be, for the period commencing from the promulgation of this ordinance, till the 30th June, 2011.
Surcharge shall be paid, collected, deducted and deposited at the same time and in the same manner as the tax is paid, collected, deducted and deposited under this ordinance including Chapter X or XII as the case may be. Provided that this surcharge shall not be payable for the tax year 2010 and prior tax years and shall be applicable, subject to the provisions of sub-section (1), for the tax year 2011 only".
AFTER INSERTION OF SECTION 4A:
--- every taxpayer is liable to pay surcharge @ 15% of the income tax payable under this ordinance for the period March 15, 2011 to June 30, 2011.
--- every withholding agent will collect or deduct 15% of the withholding amount from the taxpayer including imports; salary; dividends; profit on debt; payments to non-residents; payments for supply of goods, contracts and services; non-resident media; exports; property income; prizes and lottery; petroleum products; on pension funds; cash withdrawals; cash transactions in banks; on private vehicles; brokerage and commission; transactions on stock exchange; CNG stations; electricity consumption; telephone users; auction and purchase of domestic air tickets.
--- Every taxpayer will pay additional 15% at the time of payment of advance tax u/s 147 of the Income Tax Ordinance, 2001.
Surcharge will be payable for the period commencing from the promulgation (ie March 15, 2011) of this ordinance, till the 30th June, 2011. It is also provided that this surcharge shall not be payable for the Tax Year 2010 and prior tax years.
The levy is applicable, subject to the provisions of sub-section (1) to tax year 2011 only. Apparently it seems that the government wants to collect tax during this period on account of advance tax u/s 147 and along with withholding transactions.
SALES TAX (AMENDMENT) ORDINANCE, 2011 In the Sales Tax Act, 1990, in the Sixth Schedule in column 1, against Serial No 69, in column (2), for the words and comma "Tractors, bulldozers" the word "Bulldozers" shall be substituted. Tractor became taxable by omission from sixth schedule of the Sales Tax Act, 1990, means the prices of tractor will be increased by 17%.
FEDERAL EXCISE (AMENDMENT) ORDINANCE, 2011 The subject ordinance amended sub-section (1) of section 3A of the Federal Excise Act, 2005 wherein the word "one", the words "two and a half" shall be substituted. After this substitution, the rate of "Special Excise Duty" (SED) has been increased from 1% to 2.5%. SROs Issued on March 15, 2011 to make certain changes in the Federal Taxation System of Pakistan in concurrence with Tax Amendment Ordinances, 2011
Sales Tax
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1. SRO 232(l)/2011 Sales tax would be assessed on the
dt. March 15, 2011. actual market price of sugar 8 percent
ad valoram.
[The sugar price is likely to be fixed @
Rs 55 per k.g. For subsequent
developments in this regard, please
refer press clipping No 02 (BR dt. 27-03-
2011) attached in this update]
2. SRO 231(I)/2011 Now zero rating on all the goods as
dt. March 15, 2011. specified in the original SRO is
restricted to the items of export goods.
[For subsequent developments on this
issue, please refer press clipping No 01
(BR dt. 27-03-2011) attached in this
update]
3. SRO 230(I)/2011 The zero percent sales tax is omitted on
dt. March 15, 2011, all the goods. Now these shall be
chargeable to sales tax.
4. SRO 229(I)/20 11 Exemption withdrawn. This will now be
dt. March 15, 2011. chargeable to sales tax.
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Federal Excise
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1. SRO 261(I)/2011 Rate of FED increased from 1% to
dt. March 19, 2011. 2.5% of value of supply.
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Customs and Federal Excise
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1. SRO 165(I)/2011 The Federal Board of Revenue is
dt. March 03, 2011 pleased to direct that the officers of the
Directorate General of Post Clear
Audit established under section the Customs
Act, 1969, shall exethe powers of officers of Inland
Revenue in relation to any case of
import or class of cases of import, as
vested under the provisions of Federal
Excise Act, 2005.
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Income Tax
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1. SRO 174(I)/2011 The Federal government is pleased to
dt. March 05, 2011 direct that the following further
amendment shall be made by inserting
clause 10 in Part III of Second Schedule
of Income Tax Ordinance, 2001. The
clause (10) reads as under:
"For cases of flour mills the rate of
minimum tax on the amount
representing their annual turnover
under section 113 shall be reduced by
eighty percent."
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Three Ordinances
(i) The Federal Excise (amendment) Ordinance, 2011
(ii) The Sales Tax (amendment) Ordinance, 2011
(iii) The Income Tax (amendment) Ordinance, 2011
TEXT OF ORDINANCES
I) FEDERAL EXCISE (AMENDMENT) ORDINANCE, 2011 WHEREAS it is expedient further to amend the Federal Excise Tax Act, 2005, for the purpose hereinafter appearing; AND WHEREAS the Senate and the National Assembly are not in session and the President is satisfied that circumstances exist which render it necessary to take immediate action;
NOW, THEREFORE, in exercise of the powers conferred by the clause (1) of Article 89 of the Constitution of the Islamic Republic of Pakistan, the President is pleased to make and promulgate the following Ordinance: Short title and commencement:- This Ordinance may be called the Federal Excise (Amendment) Ordinance, 2011; It shall come into force at once.
Amendment of section 3A, the Federal Excise Act, 2005: In the Federal Excise Act, 2005, in section 3A, in sub-section (1), for the word "one", the words "two and a half' shall be substituted.
II) SALES TAX (AMENDMENT) ORDINANCE, 2011 WHEREAS it is expedient further to amend the Sales Tax Act, 1990, for the purposes hereinafter appearing; AND WHEREAS the Senate and the National Assembly are not in session and the President is satisfied the circumstances exist which render it necessary to take immediate action:
NOW, THEREFORE, in exercise of the powers conferred by clause (1) of Article 89 of the Constitution of the Islamic Republic of Pakistan, the President is pleased to make and promulgate the following ordinance:- Short title and commencement:- This Ordinance may be called the Sales Tax (Amendment) Ordinance, 2011;
It shall come into force at once. Amendment in the Sixth Schedule, the Sales Tax Act, 1990: In the Sales Tax Act, 1990, in the Sixth Schedule in column 1, against Serial No 69, in column (2), for the words and comma "Tractors, bulldozers" the word "Bulldozers" shall be substituted.
III) INCOME TAX (AMENDMENT) ORDINANCE, 2011 WHEREAS it is expedient further to amend the Income Tax Act Ordinance, 2001, for the purposes hereinafter appearing;
AND WHEREAS the Senate and the National Assembly are not in session and the President is satisfied the circumstances exist which render it necessary to take immediate action;
NOW, THEREFORE, in exercise of the powers conferred by clause (1) of Article 89 of the Constitution of the Islamic Republic of Pakistan, the President is pleased to make and promulgate the following Ordinance:
Short title and commencement:- This Ordinance may be called the Income Tax (Amendment) Ordinance, 2011;
It shall come into force at once. Amendment of section 2, Ordinance XLIX of 2001:- In the Income Tax Ordinance, 2001, after section 4, the following new section shall be inserted, namely:"4A. Surcharge:- (1) Subject to this Ordinance, a surcharge shall be payable by every taxpayer at the rate of fifteen percent of the income tax payable under this Ordinance including the tax payable under Part V of Chapter X or Chapter XII, as the case may be, for the period commencing from the promulgation of this ordinance, till the 30th June, 2011.
Surcharge shall be paid, collected, deducted and deposited at the same time and in the same manner as the tax is paid, collected, deducted and deposited under this ordinance including Chapter X or XII as the case may be. Provided that this surcharge shall not be payable for the tax year 2010 and prior tax years and shall be applicable, subject to the provisions of sub-section (1), for the tax year 2011 only".
Significant Tax Measures taken through Three Ordinances and SROs effective from March 15, 2011
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Sr. No Name of Tax Measures
Ordinances
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(i) Federal Excise Amendment of section 3A by enhancing the rate
(amendment) of FED from 1% to 2.50%
Ordinance, 2011
(ii) Sales Tax Amendment in the sixth schedule in column 1
(amendment) against serial no. 69 in column to for the words
Ordinance, 2011 and comma "Tractors, bulldozers" the word
"Bulldozers" shall be substituted. By this
amendment, exemption on "tractor" has now
been omitted. The sale and supply of tractors
shall now be chargeable to sales tax.
(iii) Income Tax A new section "4A surcharge" has been inserted
(amendment) in the Income Tax Ordinance, 2001. By this
Ordinance, 2011 addition a surcharge shall be payable by every
taxpayer at the rate of 15% of the income tax
payable under Part V of Chapter X or Chapter
XII of Income Tax Ordinance, 2001.
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2. Tax measures through SROs
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Sales Tax
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Sr. No Old SRO New SRO
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(1) SRO 564(I)/2006
dt. June 5, 2006 SRO 232(I)/2011 dt. March 15, 2011
The value of sugar was Sales tax will be charged @ 8% on
fixed @ 29 per k.g. for actual sales price.
the purpose of [The sugar price is likely to be fixed @
chargeability of sales tax. Rs 55 per k.g. For subsequent
developments in this regard, please refer
press clipping No 02 (BR dt. 27-03-2011)
attached in this update]
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(ii) SRO 509(I)/2007 SRO 231(l)/201 I dt. March 15, 2011
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dt. June 9,2007 Now zero rating on all the goods as
Zero percent sales tax specified in the original SRO is
on the supply and import restricted to the items of export goods.
of goods. [For subsequent developments on this
a. leather issue, please refer press clipping No 01
b. textile (BR dt. 27-03-2011) attached in this
c. carpets update]
d. sports goods
e. surgical goods etc.
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(iii) SRO 549(I)/2008 SRO 230(I)/2011 dt. March 15, 2011
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dt. June 11,2008 Zero percent sales tax is omitted on all the
Zero percent sales tax goods as specified under the original SRO.
on supply of goods: These goods shall be chargeable to sales
a. cotton seeds tax at normal rates.
b. oil cake
c. plant machinery and equipment
d. food items
e. stationery
f. soyabean meal and
g. petroleum productions etc.
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(iv) SRO 535(I)/2008 SRO 229(I)/2011 dt. March 15. 2011
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dt. June 11,2008 Sales tax exemption withdrawn.
Sales tax was on import Now this will be chargeable to sales
and supply of fertilisers. tax at normal rates.
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(v) SRO 536(I)/2008 SRO 229(I)/2011 dt. March 15, 2011
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dt. June 11, 2008 Sales tax exemption withdrawn
Sales tax exemption was Now this will be chargeable to sales
on import and supply tax at normal rates.
of pesticides
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(vi) SRO 706(I)/2010 SRO 229(I)/2011 dt. March 15, 2011
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dt. August 2, 2010 Sales tax exemption withdrawn.
Sales tax exemption Now this will be chargeable to sales
on the input tax on
agricultural tractors
(For the purpose of this change,
tax at normal rates. SIXTH SCHEDULE
of Sales Tax Act, 1990 has been amended
through Sales Tax (Amendment) Ordinance, 2011).
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Federal Excise
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(i) SRO 655(I)/2007 SRO 261(I)/2011 dt. March 19, 2011
dt. June 29, 2007 Rate of FED substituted @ 2.5% of
Rate of FED @ 1% value of supply
of value of supply.
(For the purpose of this amendment,
section 3A of Federal Excise Act,
2005 has been amended through
Federal Excise (Amendment)
Ordinance, 2011).
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(SRO 165(I)/2011, dt. March 03, 2011) The Federal Board of Revenue is pleased to direct that the officers of the Directorate General of Post Clearance Audit established under section 3 DD of the Customs Act, 1969, shall exercise the powers of officers of Inland Revenue in relation to any case of import or class of cases of import, as vested under the provisions of Federal Excise Act, 2005.
4. INCOME TAX (SRO 174(I)/2011, dt. March 05, 2011)
The Federal government is pleased to direct that the following further amendment shall be made by inserting clause 10 in Fart Ill of Second Schedule of Income Tax Ordinance, 2001.
THE CLAUSE (10) READS AS UNDER: "For cases of flour mills the rate of minimum tax on the amount representing their annual turnover under section 113 shall be reduced by eighty percent."
--- Applicability of 15 percent surcharge under
--- Income Tax (amendment) Ordinance, 2011
The Income Tax (Amendment) Ordinance, 2011 stipulates surcharge @ 15% of the Income Tax Payable for the Tax Year 2011. The specifically identified taxes are those stated in Part V of Chapter X and Chapter XII of the Ordinance.
1. Income tax deducted at source specifically identified under Part V of Chapter X of Income Tax Ordinance, 2001 will carry 15% surcharge on each payment.
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Sr. No U/s of Income Tax Tax deducted at source
Ordinance, 2001
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1. 147. Advance tax paid by the taxpayer
2. 148. Imports
3. 149. Salary
4. 150. Dividends
5. 151. Profit on debt
6. 152. Payments to non-residents
7. 153. Payments for goods and services
8. 153A. Payment to non-resident media persons
9. 154. Exports
10. 155. Income from property
11. 156. Prizes and winnings
12. 156A. Petroleum products
13. 156B Withdrawal of balance under pension fund
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2. Advance taxes specifically identified under Chapter XII of Income Tax Ordinance, 2001 will carry 15% surcharge on each payment.
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Sr. No U/s of Income Advance Tax and Deduction
Tax Ordinance, of Tax at Source
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2001
1. 231A. Cash withdrawal from a bank
2. 231AA. Advance tax on transactions in bank
3. 231 B. Advance tax on private motor vehicles
4. 233. Brokerage and Commission
5. 233A. Collection of tax by a stock exchange registered in
6. 234. Pakistan
7. 234A. Transport Business
8. 235. CNG Stations
9. 236. Electricity Consumption
10. 236A. Telephone users
11. 236B. Advance tax at the time of sale by auction
Advance tax on purchase of air ticket
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REMARKS According to legal experts, the first lacuna will be that the Section 4A (1) clearly states the applicability of the surcharge from the date of promulgation (ie March 15, 2011) to June 30th 2011. The big question: how come it will be applicable on the period prior to promulgation?
15 percent surcharge applicable to Salaried Persons drawing salary exceeding Rs 25,000 per month and Computation of surcharge thereon 15 percent surcharge is also applicable on the tax payable by the salaried persons drawing salary exceeding Rs 25,000 per month. The presidential ordinance has imposed 15 percent surcharge from March 15 to June 30, 2011. Legal experts are however of the opinion that the income tax surcharge would be applicable on all salaried persons, whose annual income exceeds Rs 300,000.
The exact amount of tax shall however be calculated on the basis of the slab where the income of a person falls under the schedule given in the Income Tax Ordinance 2001. The income tax surcharge would not be charged on the income, but calculated on the payable tax.
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Computation of Tax Payable by Salaried Persons
along with 15 Percent Surcharge on their Tax Liability
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Monthly Income tax 15 percent Total income tax
Income Rs tax payabl Surcharge payable after
before 15% due on income 15% surcharge
surcharge by the salaried (2+3)
persons
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1 2 3 4
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30,000 450 68 518
35,000 875 131 1006
40,000 1,400 210 1,610
50,000 2,250 338 2,588
75,000 5,625 844 6,469
100,000 10,000 1,500 11,500
150,000 21,000 3,150 24,150
200,000 32,000 4,800 36,800
300,000 55,500 8,325 63,325
400,000 80,000 12,000 92,000
500,000 100,000 15,000 115,000
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FBR laid down procedure for payment of 15% Surcharge on payable Income Tax
a. Caption 15% Surcharge on payable income tax
b. Payment Section 4A
c. Pay Section Code 89 (for Departmental use only)
1. Self Payment
Where a taxpayer wants to pay his self payment such as advance tax payment u/s 147, he will prepare two separate payment slips, ie, one for Actual Tax Payment and second for the 15% Surcharge on Income Tax Paid. Hence two separate CFRs will be generated in such cases by the SBP and NBP.
2. Withholding Tax Payments
Where the tax is withheld by a withholding agent and the withholding is agent is depositing the tax, he will make two entries for each taxpayer in the same payment slip as follows:
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NTN / CNIC Status Name and Amount Tax Paid
address of against which
Taxpayer tax is withheld
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0016543-1 COY XYZ 10000 350.00
0016543-1 COY XYZ 350 52.50
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3. Application Of 15% Surcharge on payable income tax
a) Salaried Persons - Deduction u/s 149 The employers will deduct the 15% surcharge on the income tax payable on portion of the salary pertaining to the period starting from 15th March 2011 to 30th June 2011.
B) OTHER WITHHOLDING TAX All withholding agents will deduct 15% surcharge on the income tax payable on payments from 15th March 2011 to 30th June 2011.
C) ADVANCE TAX PAYMENT U/S 147 The tax u/s 147 due from 15th March 2011 to 30th June 2011.
4. Time of Payment of 15% Surcharge on payable income tax 15% surcharge on payable income tax must be deposited at the time of deposit of the tax.
CLARIFICATION ON 15 PERCENT SURCHARGE: FBR may propose amendment to it Ordinance 2011
Press reports suggest that the Federal Board of Revenue may propose an amendment to the Income Tax (Amendment) Ordinance, 2011 to clarify applicability of 15 percent income tax surcharge on those companies whose income year ended on December 31, 2010.
The FBR is likely to lose revenue on account of 15 percent surcharge on income tax payable by those companies whose income year ended on December 31, 2010. This is due to the reason that the tax year of such companies whose income year ended on December 31, 2010 was Tax Year 2011. Therefore, starting January 1, 2011 their Tax Year 2012 has begun. Hence, they are not obliged to pay 15 percent income tax surcharge because it is only applicable for Tax Year 2011. In order to collect 15 percent surcharge from the companies referred above, the FBR can either issue the clarification or request for a minor amendment to the Income Tax (Amendment) Ordinance, 2011.
NOW, THE GOVERNMENT HAS TWO OPTIONS:
(i) to collect the surcharge from persons, whose income year was closed on December 31, 2010 by amending the Income Tax (Amendment) Ordinance.
OR
(ii) the second option is to continue with the existing provisions of the Income Tax (Amendment) Ordinance and not collect surcharge from those, which are not legally covered under the said Ordinance.
In case the existing arrangement continues, surcharge would be payable on the payment transactions made between March 15, 2011 and June 30, 2011. If the status quo has been maintained, the surcharge would be applicable on tax payable under the provisions of the Income Tax Ordinance 2001.
PRESS CLIPPING
NO 01 TEXTILE INDUSTRY: FBR AGREES TO AMEND (SRO 231(I)12011, dt. March 15, 2011)
Extract of Text of Press News Business Recorder dt. March 27, 2011 The Federal Board of Revenue (FBR) and All Pakistan Textile Mills Association (Aptma) on March 27, 2011 have mutually resolved all tax-related issues and the former has decided to amend the relevant Statutory Regulatory Order (SRO) along with withdrawal of 2.5 percent special excise duty (SED) on textile sector, continuation of zero-rating for exporters, reduced rate of 6 percent sales tax to be charged at yarn stage and 4 percent on dyed fabrics for unregistered persons.
As mutually decided:
i. The new sales tax regime for textile sector would now be applicable from April 1, 2011 instead of date of the promulgation of the Presidential Ordinance or issuance of relevant notification ie March 15, 2011.
ii. Enhancement in rate of the SED from 1% to 2.5% of the textile sector would be abolished.
iii. If the finished fabrics have been sold to the unregistered persons like wholesale market, 4 percent sales tax would be charged.
iv. Zero-rating facility would be available to the registered buyers at the local stage.
v. 6 percent sales tax would be applicable at yarn stage. The SED shall however be charged on notified goods for the textile sector. These notified goods would be either liable to sales tax zero-rating or reduced rate of sales tax.
The 4 percent sales tax will be charged at all stages subsequent to spinning stage if registered person sells goods to the unregistered buyers. The rate of withholding tax would be one percent on textile sector.
About the new arrangement, it is stated that the changes in the zero-rating regime of five export sectors through SRO. 231(I)/2011 has encouraged a number of persons to obtain sales tax registration for availing the benefits of zero-rating facility.
The FBR has restricted the sales tax zero-rating facility of five export sectors including: i) textile ii) leather iii) surgical goods iv) sports and v) carpets to only registered manufacturers-cum-exporters or exporters.
The registered manufacturers would enjoy zero rate status and sale of yarn to domestic market would attract 6 percent GST while sale of processed fabric to domestic market would attract 4 percent GST from unregistered buyers.
The new SRO for the proposed amendments is expected to be issued before March 31, 2011 which will be applicable from April 01, 2011.
No 02 GST ASSESSMENT: SUGAR PRICE TO BE FIXED AT RS 55 PER KG
Extract of Text of Press News
Business Recorder dt. March 27, 2011
The Federal Board of Revenue (FBR) has reportedly agreed to fix the price of sugar at Rs 55 per kg to assess General Sales Tax (GST). According to the FBR, with the withdrawal of concession on sales tax the impact on the retail price of sugar will be around Rs 2.09 per kg whereas the Ministry of Industries and Production (MoI&P) maintain that increase in prices will be not less than Rs 10 per kg.
PSMA delegation explained that the fixation of value, for purposes of assessment of sales tax was introduced in April 1998 to eliminate ambiguities in the system and bring transparency in collections in a uniform manner as price of sugar varies from region to region and fluctuates several times in a day. At the time of assessment of the tax payer invoices of every individual mill would be different raising questions and notices would be issued to pay differences of taxes while making comparison with similar capacity projects, PSMA further explained.
Another issue to exempt the sugar industry from the provision of section 21(1) was also discussed as PSMA had already submitted a detailed presentation to Chairman FBR on January 17, 2011. Necessary SROs shall be issued in due course of time to give effect to the above noted proposals.
B.COM, L.LB, FITM, FICS, FPA, FCMA
(Concluded)