Income Tax
1. Tax credit for investment in shares and life insurance
SECTION 62 This Section provides for tax credit to encourage investment in shares and life insurance by a resident person other than a company. The Bill seeks to substitute the existing Section which was introduced in the Ordinance since its promulgation. While the scheme of tax credit substantially remains the same as before, the following new features have been sought to be introduced:
(i) the maximum ceiling for determining tax credit has been proposed to be raised from 10% of the taxable income for the year or the monetary threshold of Rs 300,000/- to 15% of the person's taxable income for the year or Rs 500,000/-, whichever is less;
(ii) apart from investment in new shares of a quoted company in Pakistan, life insurance premium paid on a policy to a life insurance company duly approved by the Securities and Exchange Commission of Pakistan shall also qualify for tax credit provided the resident person is deriving income chargeable to tax under the head salary or "income from business"; and
(iii) the mandatory retention period of shares in respect of which tax credit may be availed is presently 12 months from the date of acquisition; this has now been sought to be raised to 36 months. In the event of disposal earlier than the mandatory period, the tax credit already availed shall be clawed back in the year of disposal.
2. CONTRIBUTION TO AN APPROVED PENSION FUND
SECTION 63 The Ordinance contains the provision enacted several years ago whereby an eligible person deriving income chargeable to tax as "salary" or "income from business" is entitled to a tax credit in respect of contribution to an approved pension fund. The Bill now seeks to amend this Section with an intent to remove the monetary threshold of Rs 500,000/- for determination of tax credit. It may be noted that the income related threshold of 20% remains unchanged.
3. TAX CREDIT FOR EQUITY INVESTMENT SECTION 65D With the avowed objective of promoting and encouraging industrial investment in the country by the corporate sector, the Bill seeks to introduce this new Section. It has been proposed that a company shall be entitled to a tax credit if it establishes a new industrial undertaking for manufacturing in Pakistan or if it makes an investment in purchase and installation of plant and machinery for the purposes of what historically has been referred to as "balancing, modernisation and replacement" (BMR) of the plant and machinery already installed in an industrial undertaking setup in Pakistan and owned by it.
The principal condition to qualify for the tax credit on account of investment in the industrial undertaking or BMR, as the case may be, has been proposed to be 100% equity funds. It seems that the intention is to not have any part of the investment in the industrial undertaking or BMR to be debt financed.
The legal construction of the new Section being proposed leaves a lot to be desired to remove various ambiguities. According to the proposed provision, the amount of tax credit to be allowed to a company shall be equal to 100% of the tax payable by such company. It also appears from the construction of new Section, that such tax credit shall be allowed on or after 01 July 2011 or commencement of commercial production, whichever is later, for a period of five years. What is conspicuously lacking in the provision is the linkage to the amount of investment which shall qualify for the tax credit against the tax payable by a qualifying company. While the proposed provision suggests that tax credit shall equal the entire amount of tax payable by a company for a tax year, what is however, not clear is what should be the amount of investment with reference to which the amount of tax credit should be determined.
The proposed introduction of this clause purportedly is an intent to grant tax holiday for new investment. However, since it also aims to apply to a company for BMR in an existing business, there needs to be, in our view, some threshold of minimum investment and related aspects to justify granting full credit for the tax payable on the existing profits.
As is usual with any scheme of tax credit, Sub-section (2) of the proposed Section provides safeguard against any abuse of tax credit concession. Accordingly, if subsequent to having claimed the tax credit, if the Commissioner Inland Revenue discovers, based on any document or otherwise, that any of the qualifying condition was not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and in consequence, the correct amount of tax shall be recomputed for the relevant year(s).
4. CONCEALED INCOME
SECTION 111 This Section has been in force for several years to curb unexplained income, assets or expenditures. In the event of any income, assets or expenditure remaining unexplained or unsubstantiated, the tax authorities invoke this provision to tax such amount as remains unexplained.
In the context of income from business, while it has not been uncommon for the tax authorities to reject the account or declared version of a taxpayer and in consequence determine its own estimate of sales, receipt or any amount chargeable to tax. Such addition to the returned version, although being subjected to tax, is nevertheless not usually treated or deemed to be a concealment of income. It may, however, be pertinent to add that under Section 182 of the Ordinance, a penalty may be imposed inter-alia for any act of omission or commission referred to in sub-section (1) of Section 111 to the Ordinance. The Bill now seeks to insert a new Clause (d) as a consequence of which a person having concealed income or furnished inaccurate particulars of income shall include suppression of production, sales or any amount chargeable to tax or any item of receipt liable to tax, in whole or in part.
The effect of insertion of this new Clause in sub-section (1) of this Section brings within its ambit concealed income or the effect of furnishing of inaccurate particulars of income which in conjunction with Section 182 of the Ordinance, may lead to imposition of penalties.
In our opinion, the proposed amendment, if allowed to go through enactment, would have a far reaching adverse effect of giving unfettered power to the tax authorities for alleging something as "concealment" which can be triggered by a mere rejection of trading results or disregard of the returned version. We strongly apprehend that the injudicious manner and unfettered exercise of powers by the tax authorities in the process of tax assessment which is invariably experienced would gravely aggravate the agonies and harassment of the taxpayer if the proposed amendment is aimed to provide further encouragement to the reckless exercise of powers by the tax authorities. This would neither augur well for the on-going process of tax reform nor do any justice to enhance the much needed and awfully lacking confidence in the tax system.
5. MINIMUM TAX
SECTION 113 Every resident company, (regardless of the amount of turnover) an individual and an association of persons (having turnover of Rs 50 million or more) is obliged to pay a minimum tax of 1% of its turnover, regardless of whether any tax is otherwise payable or not. The substantive provisions of this Section remain unchanged with one proposed amendment sought to be introduced by the Bill. The existing provisions of this Section permit the effect of minimum tax to be equalised by allowing it to be carried over for a period of 3 years immediately succeeding the tax year for which such amount of minimum tax is paid. This period of 3 years has been proposed by the Bill to be raised to 5 years.
By another amendment proposed in Clause (a) of sub-section (3), the definition of "turnover" has been sought to be amended to include the word "gross sales" which shall inter-alia constitute "turnover" for the purpose of determining minimum tax.
6. TAX DEDUCTED FROM PAYMENT FOR SERVICES RENDERED TO BE TREATED AS MINIMUM TAX
SECTION 153, SUB-SECTION (3)
SECTION 115, SUB-SECTION (4)This Section has undergone numerous amendments ever since it was introduced seeking to change the ultimate character of tax deducted from various types of payments stipulated in the said Section. While it is not intended here to trace back the history from year to year of the various amendments made, it needs to be noted that tax deducted for payment for rendering of services by non-corporate taxpayers is presently being treated as "minimum tax".
The Bill seeks to substitute this entire Section which essentially reformats the provision incorporating amendments made over the years. In essence, there are two changes as follows:
New sub-section (3) of this Section provides the nature of tax withheld on account of payment of goods, for the rendering of or providing of services or the execution of a contract, which is either final or minimum or advance tax as stipulated in this sub-section.
Clause (b) of this new sub-section seeks to treat tax withheld from payments on account of services as a "minimum tax" not only for non-corporate taxpayers, as at present, but henceforth, also for corporate taxpayers. In April 2011, the FBR had issued a clarification which suggested that even under the existing law, tax withheld on payment for services rendered by corporate taxpayers was minimum tax. This was in supersession of Circular No 6 of 2009 dated 18 August 2009 which clearly stated that the tax deducted from payments to corporate taxpayers for services rendered would be adjusted rather than considered to be minimum tax. The amendment now proposed has laid this controversy to rest.
This amendment will cause a huge obligation in terms of tax incidence on a number of corporate entities engaged in the business of rendering of services such as cellular and telecommunication companies, container terminals and the like. It seems to us that seeking to bring the corporate taxpayers engaged in the service industry into the "minimum tax" regime is primarily prompted by objectives of revenue generation rather than the dictates of rational taxation.
In the existing law, a permanent establishment of a non-resident person (not being a manufacturer) is not liable to be taxed under the final tax regime on supply of goods or contracts executed. Due to the proposed amendment, such PE's will now also be covered under the final tax regime in the same manner as is applicable on resident companies.
A consequential amendment is also sought to be made in sub-section (4) of Section 115 in respect of persons required to file Statement in lieu of Return of Income. Accordingly, cross references to the relevant sub-sections have been proposed to be inserted.
7. PENALTIES WITH REGARD TO CERTAIN OFFENCES MADE OPPRESSIVE SECTION 182 Presently serial 1 of section 182 deals with levy of penalty for not filing the Return of Income / statements within the prescribed due date. The penalty is levied at 0.1% of the tax payable for each day of default subject to a minimum of Rs 5,000 and a maximum of 25% of the tax payable.
The Bills seeks to insert a clarification in serial No 1 of the Table contained in this Section whereby against the said entry, an explanation has been proposed to be added in Column 3 of the said Table. The explanation provides that the expression "tax payable" shall mean tax chargeable on the taxable income on the basis of assessment made or treated to have been made pursuant to Section 120, 121, 122 or 122C.
This seems to be yet another attempt to undo the judgements of various appellate forums including the High court where it has been time and again held that penalty for late filing of return has to be linked with the tax payable along with the return, which obviously would be the tax chargeable on taxable income less any taxes paid/ deducted at source during the tax year. It is the balance tax liability, if any, that is payable with the tax return which is normally paid at the time of submission of Return of Income.
Further, insertion of reference to section 122 in the proposed amendment in the series of assessments also seems to be very unjust as that would perhaps mean that the penalty will be reworked each time income is enhanced as a result of an amended assessment although the penalty is applicable for late filing of return.
This is therefore a very unjustified proposal and needs to be judiciously looked at and expunged from the proposed amendment. Penalties primarily are deterrent tools to enforce the law. However, the amendment unfortunately suggests that it is being viewed by tax authorities as a revenue generating measure.
8. ADVANCE RULING INAPPLICABLE TO NON-RESIDENT TAXPAYER HAVING PERMANENT ESTABLISHMENT IN PAKISTAN SECTION 206A After persistent demand from various quarters, this Section for advance ruling was introduced by the Finance Act, 2003. The Section has a limited application whereby the Board is empowered to entertain an application from a non-resident taxpayer seeking an advance ruling from the Board. Since then, professional and other bodies have been urging to expand the scope of this Section so as to enable resident taxpayers as well to enable them to seek facilitation through advance ruling from the Board.
Instead of responding to the demand of resident taxpayers to be treated at par with non-resident taxpayer, in the matter of advance ruling, the Bill has sought to further restrict the facilitation of advance ruling and it is now proposed that even non-resident taxpayers who have a permanent establishment in Pakistan shall be excluded from the purview of this Section and like resident taxpayers, the Board shall not entertain any application for advance ruling from such non-residents.
We are of the view that the facilitation of advance ruling should be made available to all classes of taxpayers and that the restrictions proposed to be provided seem to lack rational justification.
9. PROVISIONAL ASSESSMENT SECTIONS 122C AND 116 SUB-SECTION (2A) AND 2 SUB-SECTION (5)The Finance Act 2010 inserted Section 122C in the Ordinance. This Section authorises the Commissioner to frame a provisional assessment in case where the person fails to furnish the Return of Income in response to his notice calling for the Return of Income. The provisional assessment stands final after the expiry of 60 days of the receipt of the provisional assessment order if the person fails to file the Return alongwith wealth statement and wealth reconciliation statement. A new sub-section (2A)was also inserted in Section 116 according to which filing of wealth statement together with wealth reconciliation statement is mandatory where a provisional assessment has been made under Section 122C and the person after receipt of the provisional assessment order intends to file the Return of Income.
At the time of insertion of the section, it appeared that the provisions of Section 122C of the Ordinance only applied to individuals and AOPs due to mandatory requirement of filing of wealth statement and wealth reconciliation statement with Return of Income which is not meant for corporate taxpayers.
Sub-section (2A) of Section 116 is now proposed to be substituted in a manner that the mandatory requirement of filing of wealth statement and wealth reconciliation statement with Return of Income has been restricted to individuals and members of AOP only. Therefore, the ambiguity about applicability of provisional assessments to a company now stands resolved.
Corresponding amendments have been proposed to insert the term "provisional assessment" within the definition of assessment as stated in sub section (5) in Section 2. Amendment is also proposed in Section 127 which deals with appeal to the Commissioner (Appeals). It is proposed to disallow filing of an appeal against a provisional assessment order since the taxpayer has been provided a 60 days period for filing his Return of Income upon which the Commissioner then may examine the Return and either accept the Return or amend the assessment under Section 122 of the Ordinance. In the latter case, the taxpayer can duly file an appeal to the Commissioner (Appeals) against the amended assessment order.
It is also proposed that the tax payable as per the provisional assessment order shall be paid immediately after the expiry of 60 days from the date of service of order.
10. POWER TO TAX A BENEFIT OR PERQUISITE
SECTION 18(1)(D)Clause (d) empowers the Commissioner to treat the fair market value of any benefit or perquisite which is either convertible to money or not that is derived due to a past, present or prospective business relationship by a person to be taxed as "business income" taxable under Section 18.
It is now proposed to insert an explanation in the clause to treat a profit on debt or the debt itself that is waived under the State Bank of Pakistan Banking Policy Department Circular No 29 of 2002 or under any other scheme as a benefit taxable under the said clause.
Being an explanation now sought to be inserted, by implication, the provision shall have retrospective application.
11. TAX CREDIT FOR ENLISTMENT
SECTION 65C To encourage un-listed companies to get them selves listed on stock exchange(s) in Pakistan, the Finance Act, 2010 introduced a tax credit for enlistment equal to 5% of the tax payable for the tax year in which the company was enlisted. This incentive was however termed a feeble measure as only a tax credit of 5% was allowed for the tax year in which a company seeks enlistment on stock exchange in Pakistan.
It may be recalled that the corporate tax rate on listed companies and unlisted companies was brought at par since the tax year 2007 at the rate of 35%. It has since been a matter of debate in concerned quarters as to why listed companies should not be conferred the benefit of a lower tax rate compared to unlisted companies.
It is now proposed to enhance the tax credit to 15% from the existing 5% to provide enhanced incentive to companies to go public and broad base corporate ownership.
12. FILING OF RETURN SECTION 114 The present Section inter-alia requires mandatory filing of return from certain persons whose income exceeds a certain threshold or who are in possession of certain types of assets etc. The Bill now seeks to introduce another criteria for this purpose and proposes to require a person who is a holder of a commercial or industrial electricity connection where the annual electricity bill exceeds Rs 1 million to also file a Return of Income.The Bill also proposes that such individuals who although are not taxable since their income is below the proposed minimum threshold of Rs 350,000 in a tax year would also be required to file a return in case their income exceeds Rs 300,000 in a tax year.
It is further proposed that the Return of Income filed shall inter-alia be accompanied with a wealth statement as required under Section 116 of the Ordinance and with due payment of tax, if any, which is payable as per the return.
13. WEALTH STATEMENT SECTION 116 This Section presently requires every resident taxpayer to file a wealth statement along with the Return of Income if his declared or assessed income during that tax year or the last tax year is Rs 500,000 or more. The Bill seeks to increase the minimum threshold for filing of wealth statement to Rs 1,000,000.
A proviso is further proposed to be inserted that seeks to require every member of an AOP whose share of income from the AOP before tax for the year is Rs 1,000,000 or more to file wealth statement or wealth reconciliation along with the Return.
14. APPELLATE TRIBUNAL SECTION 132 The Appellate Tribunal is empowered to afford an opportunity of being heard to the parties in the appeal. The tribunal is also empowered, if it deems fit, to dismiss the appeal in default in case of non attendance of the party on the date of hearing. It has been time and again pointed out by the legal fraternity that cases should not be dismissed by the Tribunal merely due to default of the authorised representative for non appearance and instead, in such cases the Tribunal may decide the case on merit on the basis of information available on record.
The Bill now proposes to omit the powers of the Tribunal to dismiss the appeal in default and therefore, the Tribunal would now be left with the choice of either adjourning the case to a future date for fresh hearing or deciding the case on merit based on the available information on record.
15. ADVANCE TAX ON CAPITAL GAIN ON SALE OF SECURITIES
SECTION 147, SUB-SECTION (5B)Through the Finance Act, 2010, a new sub-section (5B) was inserted whereby a taxpayer is required to pay on a quarterly basis, advance tax on such capital gains as detailed below:
=============================================
Rate of
Advance
Tax
=============================================
(a) where security is sold after a 2%
holding period of six months
(b) where security is sold after a 1.5%
holding period of six months
but less than twelve months
=============================================
The advance tax is payable within seven days of the close of each quarter.
The Bill now seeks to extend the date of payment of advance tax to within 21 days of the close of each quarter. This was a genuine demand of the investors who found it difficult to calculate the capital gains earned during the quarter within a short span of three or four days of the end of each quarter so as to be able to pay the advance tax within 7 days of the end of each quarter.
16. PROFIT ON DEBT
SECTION 151, 115(4), 168, 169 AND CLAUSE (5A) OF PART II OF SECOND SCHEDULE This Section requires deduction of tax from payments of profit on debt in the following categories -
a) Yield on an account, deposit or a certificate under the National Saving Schemes or Post Office Saving Account;
b) On an account or deposit maintained with a banking company or a financial institution;
c) Securities issued by the Federal, Provincial Government or Local Government;
d) Bond, certificate, debenture, security or instrument of any kind issued by a banking company, financial institution, a company or finance society.
Tax is required to be withheld at the rate of 10% and is treated as full and final tax liability on the profit on debt received by a taxpayer other than a company for sources covered under (a), (b) and (d) above.
It is now proposed that the tax withheld from profit paid on security issued by the Federal, Provincial or Local Government received by any person other than a company may also be treated as full and final discharge of tax on the said income.
Corresponding changes are also proposed in Section 115 sub-section (4) that requires filing of statement showing particulars relating to the person's income and in Section 168 and 169 that deal with treatment of taxes withheld at source.
It is also proposed that the tax deducted from profit on debt from debt instrument, government securities including treasury bills and Pakistan Investment Bonds at the reduced rate of 10% provided under clause 5A of Part II of the Second Schedule to the Ordinance shall also be treated as full and final tax liability in the hands of a non-resident person who does not have a permanent establishment in Pakistan. The investment in such securities would have to be through special convertible rupee account maintained with a bank in Pakistan.
17. FILING OF STATEMENTS SECTION 165 Presently, withholding agents deducting/collecting taxes are required to file statements on an annual and quarterly basis.
The Bill now seeks to require withholding agents to file statement on a monthly basis and omit filing of annual statements other than for taxes withheld on salaries under section 149 of the Ordinance.
The Bill further seeks to legislate the requirement of providing the information about the National Tax Number/ Computerised National Identify Card Numbers which is presently being required through Rules that are prescribed by the Federal Board of Revenue.
With respect to filing of annual statement by an employer in respect of tax withheld from salary under section 149, it is proposed that information about the income of such employee may also be provided whose income exceeds Rs 300,000 irrespective of the fact whether the income is below or above the minimum threshold of Rs 350,000 in a tax year.
18. CREDIT OF TAX COLLECTED/ DEDUCTED SECTION 168 Sub-section (3) provides that credit of taxes that have been deducted under various Sections of withholding under the Ordinance which are treated as full and final tax liability would not be available.
The Bill seeks to make certain editorial changes to correct cross referencing with the relevant provisions of various sections of withholding/ collection of tax at source.
19. JURISDICTION OF INCOME TAX AUTHORITIES SECTION 209 Through this Section, the legislature has delegated juridical authority to the Board, the Chief Commissioners, Commissioners and the Commissioner (Appeals) to perform certain functions and exercise certain powers.
The Bill further seeks to empower the Board or the Chief Commissioner to transfer jurisdiction in respect of any case or person from one Commissioner to another.
20. ADVANCE TAX ON SALE BY AUCTION SECTION 236A Through Finance Act, 2009 a person making sale by public auction of any property or goods belonging to certain prescribed person was required to collect tax @ 5% from the person to whom such property or goods were sold. It is now proposed to extend the requirement to auction by a tender as well.
21. ADVANCE TAX ON PURCHASE OF AIR TICKET SECTION 236B Through Finance Act, 2010 a new provision was introduced whereby advance tax @ 5% is required to be collected on gross amount of domestic air ticket charges. The Bill seeks to clarify that the tax so collected is an advance tax adjustable against the tax liability of the person from whom it is collected.
It is further proposed to grant exemption from collection of this tax to the Federal Government or a Provincial Government and any person who produces a certificate from the Commissioner Inland Revenue that his income during the tax year is exempt from tax.
THE FIRST SCHEDULE
22. Rates of tax for individuals The basic threshold for charge of income tax for salaried and non-salaried taxpayers is proposed to be raised from the existing Rs 300,000/- to Rs 350,000/- and accordingly, the rates of tax chargeable for the tax year 2012 (corresponding to the income year ending at any time between 01 July 2011 to 30 June 2012) have been rationalised as under.
=====================================================================
Salaried Taxpayers=====================================================================
Rate RateTaxable Income Taxable Income
(%) (%)
=====================================================================
Upto Rs 1,200,001 - 1,450,000 11.00
Rs 350,000 Nil
Rs 350,001 - 400,000 1.50 Rs 1,450,001 - 1,700,000 12.50
Rs 400,001 - 450,000 2.50 Rs 1,700,001 - 1,950,000 14.00
Rs 450,001 - 550,000 3.50 Rs 1,950,001 - 2,250,000 15.00
Rs 550,001 - 650,000 4.50 Rs 2,250,001 - 2,850,000 16.00
Rs 650,001 - 750,000 6.00 Rs 2,850,001 - 3,550,000 17.50
Rs 750,001 - 900,000 7.50 Rs 3,550,001 - 4,550,000 18.50
Rs 900,001 - 1,050,000 9.00 Over Rs 4,550,000 20.00
Rs 1,050,001 - 1,200,000 10.00
=====================================================================
Non Salaried Taxpayers
=====================================================================
Taxable Income Rate
(%)
=====================================================================
Upto Rs 350,000 Nil
Rs 350,001 - 500,000 7.50
Rs 500,001 - 7 50,000 10.00
Rs 750,001 - 1,000,000 15.00
Rs 1,000,001 - 1,500,000 20.00
Over Rs 1,500,000 25.00
=====================================================================
ASSOCIATION OF PERSONS For association of persons, the rate of tax remains unchanged at 25 percent for tax year 2012.
23. MARGINAL RELIEF For a salaried taxpayer, marginal tax relief continues to be available. The relief works in the following manner.
==============================================
Total Increase in tax not
income does to exceed tax payable
not exceed on the maximum of the
relevant slab Plus
==============================================
Rs 550,000 20%
Rs 1,050,000 30%
Rs 2,250,000 40%
Rs 4,550,000 50%
Over Rs 4,550,000 60%
==============================================
24. TAX YEAR "Tax Year" means a period of twelve months ending on 30 June and corresponds to the period to which the income of the taxpayer relates.
25. SALARIED TAXPAYER "Salaried taxpayer" is a person having salary income in excess of 50% of his/her taxable income.
26. REDUCTION IN TAX LIABILITY A senior citizen of Pakistan, being a taxpayer, aged sixty years or more on the first day of the relevant tax year, is allowed a rebate of 50% of the tax payable if his/her taxable income in that tax year is Rs 1,000,000/- or less. The said rebate continues and the rule that in determining the threshold as above, income under final tax regime shall be excluded also remains unchanged.
The provision to reduce the income tax liability of a full time teacher or a researcher employed in a non-profit educational or research institution duly recognised by a Board of Education or a University or the Higher Education Commission and to a teacher and researcher of Government training and research institution also continues to be available. The tax liability in such cases is reduced by an amount equal to 75% of the tax payable on his / her income from salary.
27. RATE OF TAX ON RETAILERS The rate of tax applicable for the tax year 2012 on a retailer continues to be 1.00% of the turnover in case his declared turnover is Rs 5 million or less.
28. RATES OF TAX FOR COMPANIES a) For public, private and banking companies, the rate of tax remains unchanged at 35% for tax year 2012.
b) A Co-operative and finance society is taxed at the income tax rate applicable to a company.
c) The rate of tax for a "small company" remains at 25% for the tax year 2012.
29. RATE OF TAX ON DIVIDEND INCOME The rate of tax on dividend received by all taxpayers continues at 10% except dividend received by a banking company from its asset management company, which has now been proposed to be taxed at the rate of 20%.
30. RATES OF TAX ON CAPITAL GAINS ON SECURITIES The rates of tax on capital gains arising on sale of securities as referred to in Section 37A of the Ordinance are as under:
==============================================
Holding period of a Security
Six months or
Tax Year Less than six more but less
months than 12 months
(%) (%)
==============================================
2011 10 7.5
2012 10 8
2013 12.5 8.5
2014 15 9
2015 17.5 9.5
2016 - 10
==============================================
If the holding period of a security is more than one year the rate applicable shall be 0%.
31. INCOME FROM PROPERTY The rates of tax to be paid in respect of income from property for the tax year 2012 (corresponding to the income year ending at any time between 01 July 2011 to 30 June 2012) have remained unchanged and are as under:
I) INDIVIDUALS AND ASSOCIATION OF PERSONS
=============================================================
Gross amount of rent Rate of Tax
=============================================================
Upto Rs 150,000 Nil
Rs 150,001 - Rs 400,000 5% of the amount
exceeding Rs 150,000
Rs 400,001 - Rs 1,000,000 Rs 12,500 + 7.5% of the
amount exceeding
Rs 400,000
Over Rs 1,000,000 Rs 57,500 + 10% of the
amount exceeding
Rs 1,000,000
=============================================================
ii) Company
=============================================================
Gross amount of rent Rate of Tax
=============================================================
Upto Rs 400,000 5%
Rs 400,001 - Rs 1,000,000 Rs 20,000 + 7.5% of the
amount exceeding
Rs 400,000
Over Rs 1,000,000 Rs 65,000 + 10% of the
amount exceeding
Rs 1,000,000
=============================================================
32. Advance income tax on private motor vehicles
Advance income tax payable at the time of paying annual motor vehicle tax, in the case of private motor vehicles continues as under:
==================================================
Engine capacity Amount of Tax
==================================================
Upto 1000 cc Rs 750
1001 cc - 1199 cc Rs 1,250
1200 cc - 1299 cc Rs 1,750
1300 cc - 1599 cc Rs 3,000
1600 cc - 1999 cc Rs 4,000
Over 1999 cc Rs 8,000
==================================================
33. Advance tax on registration of private motor vehicles
The collection of advance tax by manufacturers or authorised dealers of motor vehicles continues and the applicable rates are as follows:
==================================================
Engine capacity Amount of Tax (Rs )
==================================================
Upto 850 cc Rs 7,500
851 cc - 1000 cc Rs 10,500
1001 cc - 1300 cc Rs 16,875
1301 cc - 1600 cc Rs 16,875
1601 cc - 1800 cc Rs 22,500
1801 cc - 2000 cc Rs 16,875
Over 2000 cc Rs 50,000
==================================================
34. ADVANCE TAX ON GOODS TRANSPORT VEHICLE The slab rate card of collection of advance tax at one rupee per kilo gram of the laden weight continues unchanged for tax year 2012. For goods transport vehicle with laden weight of 8120 kilo gram or more, advance tax after a period of 10 years from the date of first registration in Pakistan would continue to be collected at Rs 1,200/- per annum.
35. ADVANCE TAX ON ELECTRICITY CONSUMPTION The rate of collection of advance tax on electricity consumption continues at 5% for industrial consumers and at 10% for commercial consumers on electricity bill exceeding Rs 20,000/-.
36. ADVANCE TAX ON PURCHASE OF AIR TICKET The rate of collection of tax at the rate of 5% of the gross amount of domestic air ticket continues to be leviable.
37. ADVANCE TAX AT THE TIME OF SALE BY AUCTION OR AUCTION BY A TENDER The rate of collection of tax by a person making sale by public auction of any property or goods to which Section 236A applies continues to be 5% of the gross sale price of such property or goods.
-- Except for a company engaged in manufacturing and a public company listed on a registered stock exchange(s) in Pakistan engaged in supply of such goods.
38. WITHHOLDING TAX RATES
==================================================================
Type of Payment Rate % Proposed Whether
Existing under final
tax regime
==================================================================
Collection of tax at
imports
Value of goods inclusive of 5 Yes,
customs duty and sales subject to
tax certain
exclusions
------------------------------------------------------------------
Profit on debt Other than a
company
------------------------------------------------------------------
a) Yield on a National 10 No Yes
Savings Deposit change
Certificate including a
Defence Savings
Certificate under the
National Savings
Scheme;
b) Profit on a debt, being 10 No Yes
an account or deposit change
maintained with a
banking company or a
financial institution;
c) Profit on any bond, 10 No Yes
certificate, debenture, change
security or instrument
of any kind (excluding
loan agreement
between a borrower
and a banking
company or a
development finance
institution) issued by a
banking company, a
financial institution,
company as defined in
the Companies
Ordinance, 1984 and
a body corporate
formed by or under
any law for the time
being in force, to any
person other than a
financial institution.
d) Profit on any security 10 No Yes*
issued by the Federal change
Government, a
Provincial government or a local authority to any person other than
A financial institution
==================================================================
-- Changed to final tax from July 01, 2011.
==================================================================
Type of Payment Rate % Proposed Whether
Existing under final
tax regime
==================================================================
Goods and services
a) Sale of rice, cotton 1.5 No Yes*
seed or edible oils change
b) Sale of cigarettes and 1 No Yes*
pharmaceutical change
products by
distributors of such
goods
c) Sale of any other 3.5 No Yes*
goods change
d) For passenger 2 No Minimum
transport services change
e) For other services 6 No Minimum
change
f) Execution of a 6 No Yes**
contract
change
g) For news print media 0 No No
services change
CNG Station - Refer to 4 No Yes
Section 234A change
Exports
Export proceeds
Proceeds from sale of 1 of No Yes
goods to an exporter export change
under an inland back- proceeds
to-back letter of credit
or any other
arrangement
Export of goods by an Yes
industrial undertaking
located in an Export
Processing Zone
Collection by collector 1 No Yes
of customs at the time change
of clearing of goods
exported
Indenting commission 5 No Yes
change
==================================================================
--- Except for a company engaged in manufacturing and a public company listed on a registered stock exchange(s) in Pakistan engaged in supply of such goods.
--- Except for a public company listed on a registered stock exchange(s) in Pakistan.
==================================================================
Rate % Whether
Type of Payment under final
Existing Proposed
tax regime
==================================================================
Income from property
Annual rent of At No No
immovable property varying change
slab rates
including rent of
of 5 to
furniture and fixtures 10 for
and amounts for individual
services relating to , AOPs
such property. and
company
Prizes and winnings
a) Amount of prize 10 No Yes
bond or cross- change
word puzzle.
b) Amount of raffle/ 20 No Yes
lottery winning or change
prize on winning a
Quiz, prize offered
By companies for
Promotion of sales
Telephone users 10 of
amount
Telephone subscriber exceeding No No
(other than mobile Rs 1,000 change
Phone)
Amount of bill of 10 No No
Mobile telephone, sale change
Price of prepaid
Telephone card or sale
Of units through any
Electric medium (for
CD) or whatever form
Banking Transactions
0.3 of 0.2 OF
the THE
Amount exceeding amount AMOUNT
Rs 25,000 with- WITH-
drawn DRAWN No
Commission or
Discount allowed on
Sale of petroleum
Products by a petrol
Pump operator
Amount of
Commission or 10 No Yes
Discount change
==================================================================
Rate % Whether
Type of Payment under final
Existing Proposed
tax regime
==================================================================
Commission income
of advertising agents
Amount of payment No
5 Yes
change
Commission income
of others
Amount of payment
10 No Yes
change
Collection of tax by
stock exchange
Purchase of shares 0.01 of No No
purchase change
value
Sale of shares 0.01 of No No
sale change
value
Trading of shares 0.01 of No No
traded change
value
Financing of COT 10 of No No
the change
carry
over
charge
==================================================================
39. RATES OF TAX FOR NON-RESIDENT TAXPAYERS The applicable withholding tax for Tax Year 2012 on certain payments to non-residents is as under:
===========================================================
Type of payment Rate (%) Proposed
Existing
===========================================================
Dividends from:
- a company engaged in 7.5 No change
power generation project
- others 10 No change
Branch profit remittance tax 10 No change
(other than branch offices of
E&P companies)
Technical services fee 15 No change
Insurance premium / re- 5 No change
insurance premium
Advertisement services to a 10 No change
media person relaying from
outside Pakistan
Royalty 15 No change
Shipping income 08 No change
Air transport income 03 No change
Profit on debt 20 No change
Profit on debt where non- 10 *
resident does not have a PE in
Pakistan
Others (excluding those 20 -
specifically mentioned herein)
Execution of a contract
- contract or sub-contract 6 No change
under a construction,
assembly or installation
project in Pakistan,
including a contract for the
supply of supervisory
activities in relation to such
project
- contract for construction or 6 No change
services rendered relating
thereto
- a contract for 6 No change
advertisement services
rendered by TV satellite
channels
===========================================================
The taxes withheld in all of the above cases except "Others" and profit on debt would generally constitute full and final settlement of the non-resident's tax liability in Pakistan in respect of such income.
-- Tax deducted at 10 percent from profit on debt from debt instruments, government securities including treasury bills and Pakistan Investment Bonds where the investments are exclusively made through a special Rupee Convertible Bank Account maintained with a bank in Pakistan by a non-resident having no PE in Pakistan shall be a final tax.
A non-resident contractor earning income from "execution of contract" can opt to be taxed under the final tax regime, which means that the taxes withheld would be construed as its full and final settlement of tax liability. The option must be exercised within three months of the commencement of the tax year and shall remain irrevocable for three years. In case the option has not been exercised by the non-resident person, the taxable income shall be assessed on the basis of his net business profits and the taxes withheld would be treated as advance tax adjustable against his eventual tax liability.
THE SECOND SCHEDULE
PART-I
40. Exemption to Islamic Development Bank
Clause 107A The Bill proposes to grant exemption from tax to any income derived by the Islamic Development Bank from its operations in Pakistan in connection with its social and economic development activities.
41. Clauses proposed to be deleted by the Bill The following clauses are proposed to be deleted:
======================================================
Clause No Description and reason for deletion
======================================================
61(xi) Amount paid as donation to Bank of
Commerce and Credit International
Foundation for Advancement of
Science and Technology deleted since
exemption withdrawn.
61(xxv) Amount paid as donation to BCCI
Foundation deleted since exemption
withdrawn.
74A Profit on debt payable to National
Bank of Pakistan on foreign currency
loan of US $100 million, given to
Pakistan State Oil Company Limited
under agreement executed at Bahrain
on the 29 May, 2001, approved by
the Federal Government deleted due
to efflux of period.
93 Profit and gains derived by a
taxpayer from the running of any
recognised computer training
institution or computer training
scheme, set up between the first day
of July, 1997 and the thirtieth day of
June, 2005, both days inclusive, for
a period of five years deleted due to
efflux of time.
114A Capital gains derived by a person
from sale of ships and all floating
crafts including tugs, dredgers,
survey vessels and other specialised
craft upto tax year ending on thirtieth
day of June, 2011 deleted due to
efflux of time.
======================================================
PART-II
42. Tax deducted from profit on debt paid to non-residents
Proviso to Clause (5A)Profit on debt paid to non-resident is generally subject to withholding tax at 20% of the gross amount of payment. However, Clause (5A) of Part II of the Second Schedule reduced the said rate to 10% if the payment was being made to a non-resident not having a permanent establishment in Pakistan. The tax withheld, either at 10% or 20% continued to remain an advance tax for the non-resident adjustable against its eventual tax liability for the year.
The Bill seeks to introduce a proviso to Clause (5A) whereby tax withheld at 10% on profit on debt paid on debt instruments, Government securities including treasury bills and Pakistan Investment Bonds is regarded as a final tax provided that the investment is exclusively made through a Special Rupee Convertible Account maintained with a Bank in Pakistan.
PART-III
43. Tax at import stage on old and used automotive vehicles
Clause (4)Under the existing clause tax collected at import stage on old and used automotive vehicles specified in the Customs SRO No 932 dated 20 November 2004 were capped based on the engine capacity of the vehicles. The Customs SRO 932 was rescinded via SRO 577 dated 6 June 2005 while its reference in the clause remained unchanged. To rectify the anomalous situation, the Bill seeks to substitute Clause (4) whereby proper reference to SRO No 577 of 2005 has been made with the effect that cumulative duties and taxes collected at import stage are now to be capped at the amounts mentioned in the said SRO 577.
PART-IV
44. Exclusion from levy of minimum tax under
Section 113
Clause (11A)Clause (11A) identifies the persons or class of persons who are not subject to the levy of minimum tax under section 113 of the Ordinance. The Bill seeks to extend the applicability of the Clause to a pension fund registered under the Voluntary Pension System Rules, 2005.
45. Islamic Development Bank
Clause (38C) The Bill proposes to grant exemption from tax to the income derived by Islamic Development Bank by inserting a new Clause (107A) in Part-I of the Second Schedule. As an extension to the overall exemption being proposed, the Bill also seeks to grant exemption from the collection / deduction of withholding tax on the payment made to Islamic Development Bank under sections 151, 152, 153 and 233.
THE SEVENTH SCHEDULE
46. Carryover of provision in excess of 5% of total advances in respect of consumer and SMEs In our comments on the Finance Bill, 2010, while dilating on the issues pertaining to the Banking Industry, we were optimistic that due to the facilitating inclination of the Board toward resolution of significant tax issues faced by it, the issues which remained unresolved would also be settled in right earnestness with due appreciation of the ground realities and business imperatives of the banking companies.
The Finance Bill very rightly so has proposed in clear terms that the provision in excess of 5% of total advances in respect of consumer and Small and Medium Enterprises (SMEs) shall be allowed to be carried over to subsequent years for absorption in future years.
The Bill further clarifies that in case of the actual provision being less than the respective threshold of 1% and 5% for non consumer and consumer advances respectively, the same would be allowed at actual. It is further proposed that the provisioning Rules for consumer and SMEs would be allowable from July 01 2010 ie tax year 2011 (income year ended 31 December 2010).
As regards provisions of classified advances, there still remains two issues that need to be dealt with and addressed (i) the demand of the banking industry to enhance the cap of 1% provisioning to 2% of the total advances (other than consumer and SME) and (ii) certain clarifications on the interpretation of clause 8A introduced through Finance Act, 2010.
The progress although may be slow, yet we would like to be optimistic about the ultimate resolution of all issues in this regard by the Board. It is further proposed that dividend received by a bank from its asset management company would be subjected to tax at 20%
SALES TAX
1. Sales tax rates
Section 3 The standard rate of sales tax was enhanced to 17% through the Finance Act, 2010. It is now proposed that the standard rate of sales tax be reduced to 16%. The rate of 16% will be applicable with effect from 01 July 2011. This is a favourable proposal from a taxpayer's point of view.
2. Adjustable input tax
Section 8B Under this section a registered person is not allowed to adjust input tax in excess of 90% of the output tax for the tax period. There is also a proviso that the input tax claimed on acquisition of fixed assets shall be adjustable against the output tax in twelve equal monthly instalments.
The above proviso has been deleted and proposed to be replaced by a proviso whereby the restriction of adjustment of input tax in excess of 90% of the output tax would not be applicable in the case of input tax on fixed assets or capital goods.
The above amendment effectively allows the immediate claim of the entire input tax on fixed assets or capital goods without any limitation. In this regard it is relevant to point out that plant, machinery and equipment including parts thereof were zero rated and consequently there was no incidence of input tax which could be claimed against the output tax. The zero rating has recently been removed in March 2011 and consequently, sales tax is now payable on import and supply of the same. The proposed amendment is apparently to facilitate immediate claim of tax on plant machinery and equipment without any restrictions and thereby be eligible for refund of excess input tax.
3. Blacklisting and suspension of registration
Section 21 Under this section the Commissioner has a right to suspend and blacklist the registration of a registered person. It is now proposed to add sub-section 3 whereby the invoices issued during the period of suspension of registration shall not be entertained for the purposes of sales tax refund or input tax credit. It further stipulates that once a suspended person is blacklisted, the refund of input tax credit claimed against the invoices issued by him whether prior or after such blacklisting, shall be rejected through a self speaking appealable order and further affording an opportunity to the blacklisted person of being heard.
The above provision is already available in Sales Tax Rules 2006, however, it is now proposed to incorporate it into the text of the main law.
4. Sales tax return
Section 26 This section deals with filing of sales tax return and permits filing of a revised return within 120 days of the filing of the original return subject to the approval of the Commissioner Inland Revenue. It is now proposed that the facility of filing a revised return be extended to special returns that may be required to be filed under section 27 of the Act.
Additionally Rule 14A of the Sales Tax Rules, 2006 provided that a revised return could be filed without the need for prior approval of the Commissioner and without any time limit in the event the revision of the return resulted in payment of tax over and above the tax paid through the original return. Rule 14A has been deleted thereby implying that prior approval of the Commissioner and the time limit of 120 days will apply in all cases.
5. Appointment of authorities
Section 30 This section deals with appointment of various officers for sales tax purposes. It is proposed to introduce a new designation by way of Inspector Inland Revenue.
6. Obligation to produce documents and provide information
Section 38B The authority to seek information and conduct an audit under this section is confined to an officer not below the rank of Deputy Commissioner Inland Revenue. It is now proposed to delegate such authority to a lower ranking officer ie Assistant Commissioner Inland Revenue.
7. Sales tax refund
Section 66 This section deals with refund of tax which may be claimed within one year. It is proposed to add a proviso that no refund shall be admissible if the incidence of tax has been passed directly or indirectly to the consumer.
8. Condonation of time limit
Section 74 The Board is empowered to condone the time limit under any provisions of the Act or the Rules made thereunder. This facility was understood to be available to a registered person. It is proposed to insert an explanation under this section whereby apart from a registered person, the facility of condonation of time limit is also available to the tax authorities as well.
This would mean that the tax authorities can seek condonation of time limit prescribed under law for issuing show cause notices, conducting audits, filing appeals, etc.
9. Special procedure for payment of sales tax by importers
Rule 58B Under this Rule sales tax on account of minimum value addition is levied and collected at import stage of goods, other than those imported by a manufacturer for in-house consumption, at the rate of 2%. It is proposed to enhance this rate to 3%.
10. Appointment of Alternative Dispute Resolution Committee
Rule 65 This Rule deals with the functioning of the Alternative Dispute Resolution Committee and prescribes a time limit for submission of the Committee's report to be within 60 days of its appointment. The time limit for submission of such report has now been enhanced to 90 days.
11. Sugar
SRO480/ 481(I)/2011 and 1(3)/STM/2004 (PT-II)Sugar has been taxable at the reduced rate of 8% at local supply stage. This rate has been withdrawn vide SRO 480(I)/2011, however exemption has been granted to white crystalline sugar bearing PCT No 1701.9910 and 1701.9920 vide SRO 481(I)/2011 by way of inclusion in SRO 551(I)/2008. However, the same has now been subjected to Federal Excise Duty in sales tax mode at the rate of 8%. The impact of the above amendments is that white crystalline sugar will be taxable at the rate of 8% at import and manufacturing stage and all other types of sugar will be taxable at the rate of 16% at import and supply stage.
12. Exemption to reclaimed lead
13. Zero rating withdrawn Certain goods were subject to tax at zero rate through various notifications. Zero rating has now been withdrawn with effect from 4 June 2011 on the following goods:
===================================================================
New SRO of Rescinding/
2011 Amending SRO Effect
===================================================================
485(I)/2011 Rescinding Withdrawal of zero
dated 03 June SRO rating on import of
2011 1161(I)/2007 raw material for the
dated 30 manufacture of
November diapers falling under
2007 the PCT heading
5601.1040.
486(I)/2011 Amending SRO Withdrawal of zero
dated 03 549(I)/2008 rating on import and
June 2011 dated 11 June supply of goods falling
2008 under various PCT
headings of Chapter
87:
Dedicated CNG
buses including
buses for
transportation of
forty or more
passengers
whether in CBU or
CKD condition.
Trucks and
dumpers exceeding
5 tons.
Trailers and semi
trailers for the
transport of goods.
Road tractors for
semi-trailers,
prime movers and
road tractors for
trailers whether in
CBU condition or in
kit form.
Annexure to the
SRO listing tariff
headings of plants,
machinery and
equipment; being
redundant since
zero rating on
plant and
machinery had
already been
withdrawn through
earlier SRO.
230(I)/2011 dated
15 March 2011.
===================================================================
14. Exemptions withdrawn Certain sales tax exemptions available through the sixth schedule and various notifications have been withdrawn with effect from 4th June 2011. These are as follows:
Sixth Schedule - Table 1
===============================================================
Serial Description Heading Nos. of
No the First
Schedule to the
Customs Act,
1969
===============================================================
(1) (2) (3)
---------------------------------------------------------------
29A Surgical tapes 30.05
29B Ultrasound gel 3006.7000
30 Diapers for adults (patients) 4818.4010
34 Bricks. 6901.0000
35 Building blocks of cement 6810.1100
including ready mix concrete
blocks.
41 Computer software. 8523.2990,
8523.4010,
8523.4090,
8523.5990
and
8523.8090
42 Ambulances, fire fighting 87.02, 87.03,
vehicles, waste disposal 8704.2200,
trucks, brake down lorries, 8704.2300,
special purposes vehicles for 8705.3000
the maintenance of and
streetlights and overhead 8705.9000
cables.
43 Aircrafts 8802.2000,
8802.3000
and
8802.4000
44 Ships, of gross tonnage 8901.2000,
exceeding 15 LDTs, 8901.3000
excluding those for and
recreational or pleasure 8901.9000
purpose.
62 Defence stores, whether Respective
manufactured locally or headings
imported by the Federal
Government against foreign
exchange allocation for
defence, including trucks,
trailers and vehicles falling
under PCT heading 87.04 of
the First Schedule to the
Customs Act, 1969 (IV of
1969), specially modified for
mounting defence
equipments, their parts and
accessories for supply to
Armed Forces.
64 Spare parts and equipment Respective
for aircraft and ships headings
covered by serial number 43
and 44 above.
65 Equipment and Machinery Respective
for pilotage, salvage or headings
towage for use in ports or
airports.
66 Equipment and Machinery Respective
for air navigation. headings
67 Equipment and machinery Respective
used for services provided headings
for handling of ships or
aircrafts in a customs port or
customs-airport.
68 Such plant and machinery as Respective
is notified by the Federal headings
Government in the official
Gazette but if imported,
these shall be entitled to
exemption from sales tax on
importation if these are not
manufactured in Pakistan.
69 Bulldozers and combined Respective
harvesters; and components headings
(which include sub-
components, components,
sub-assemblies an
assemblies but exclude
consumables) imported in
any kit form and direct
materials or assembly or
manufacture thereof, subject
to the same conditions as are
envisaged for the purposes
of exemption under the
Customs Act, 1969 (IV of
1969).
70 Import and supply of fully 8702.9010 and
dedicated CNG Euro-2 buses 8702.9090
whether in CBU or CKD
condition.
===============================================================
Sixth Schedule - Table 2
===================================================================
Serial Description Heading Nos.
No
===================================================================
(1) (2) (3)
-------------------------------------------------------------------
5 Supply of other such Respective headings
agricultural
implements as may be
specified in a
notification to be
issued by the Federal
Government in the
official Gazette.
===================================================================
SRO 480(I)/2011 dated 03 June 2011 rescinding various exemption notifications
=======================================================
As provided vide Description
=======================================================
SRO 1240(I)/2005 Exemption from whole of sales
dated 16 December tax leviable on Dump Trucks for
2005 off-highway use, on-highway
Dump Trucks of 320 HP and PCT
Heading 8704.2290 and
8704.2390 and transit concrete
mixer, subject to certain
conditions.
SRO 542(I)/2006 Exemption from sales tax on
dated 05 June 2006 certain locally manufactured /
imported agricultural machinery,
equipment and implements.
SRO 275(I)/2008 Exemption from sales tax on
dated 12 March import and supply of CKD kits of
2008 single cylinder agriculture diesel
engines of 3 to 36 HP
=======================================================
SRO 481(I)/2011
Reclaimed lead if supplied to a recognised manufacturer of lead batteries has now been granted exemption by way of inclusion in SRO 551(I)/2008.
===========================================================
Serial Description Conditions and
No of restrictions
SRO
551(I)/
2008
-----------------------------------------------------------
(1) (2) (3)
-----------------------------------------------------------
2 CNG kits, cylinders If supplied for
and valves for CNG automotive vehicles
kits.
12 Commercial Import and supplies
catalogues, falling thereof
under PCT Heading
4911.1000.
15 Rock Phosphate, Import and supplies
PCT Headings thereof
2510.1000 and
2510.2000.
17 Phosphoric Acid Imported by or
falling under PCT supplied to
Heading phosphatic fertiliser
2809.2010. industry for the
manufacture of
phosphatic fertiliser.
18 Mineral oil 97% (a) Subject to a
(W/V) 110% (W/V) certificate by Plant
falling under PCT Protection
Heading Department
2710.0000. specifying the
quantities to be
imported by the
person registered
with them as
importer, formulator
or manufacturers of
pesticides;
(b) Plant
Protection
Department shall
ensure that:--
(i) total quantity
does not
exceed 250
tons; and
(ii) goods are
imported on or
before 15th
October, 2008.
===========================================================
CUSTOMS
1. Prohibitions
Section 15 Section 15 specifies the goods which are prohibited to be imported into or exported from Pakistan. Further Section 32 deals with the offence of false statement or error by a person in any matter of custom and the procedure to recover duty or charge not levied, short levied or erroneously refunded in such case.
The Bill seeks to delete the words " or goods imported or exported in contravention of the provisions of section 32" from clause (c) of Section 15. The proposed amendment seeks to remove the goods imported or exported in contravention of Section 32 from the list of goods, which are prohibited to be imported into and exported from Pakistan. This amendment intends to eliminate the possibility of any undue advantage and / or misuse of powers vested under Section 15 with the Customs Authorities.
2. Power to deliver certain goods without payment of duty and to repay duty on certain goods
Section 21 Section 21(c) empowers the Board to prescribe Rules or issue special order authorising repayment of duties, wholly or partly, in case of import of goods used for production, manufacture, processing, repair of goods meant for exportation or for supply to industrial units, projects, institutions, agencies and organisations entitled to concessionary rates.
The Bill proposes to add the words "or for supplies against international tenders" in clause (c) of Section 21. This proposed amendment intends to make repayment of duties levied on import of goods used for supplies against international tenders.
3. False statement, error etc.
Section 32 Section 32(3) prescribes time limit of three years for issuance of notice in case of any duty or charge not levied or short levied or erroneously refunded due to inadvertence, error or misconstruction.
The Bill seeks to enhance the time limit from three years to five years. Section 32(2) provides time limit of five years for issuance of notice in case of any duty or charge not levied or short levied or erroneously refunded due to the purported wrongful submission of documents and false statements by way of collusion. The proposed amendment intends to harmonise the time limit prescribed in both situations of false statements distinguished in subsections (2) and (3).
4. Refund to be claimed within one year
Section 33 Section 33 provides a time limit of one year from the date of payment, to claim refund of any duty paid through inadvertence, error or misconstruction. The Bill seeks to add a new sub section (3) in Section 33, which prescribes that the time limit of one year for claim of refund in consequence of any decision or judgement shall be calculated from the date of issuance of such decision or judgement.
5. Deletion of superfluous word "Deputy Collector"
Section 22, 34 & 96 The Bill seeks to delete the superfluous word "Deputy Collector" appearing in Section 22, 34 and 96.
6. Levy of transit fee
Section 129A The Bill seeks to add a new Section 129A to empower the Board to levy a transit fee on goods or class of goods, in transit to other foreign countries across Pakistan.
The transit activity has increased the operations and related cost of customs department. The proposed levy is expected to provide revenue to mitigate costs related to services at custom stations and for maintenance of other infrastructure used for such activity.
7. First Schedule The Bill seeks to make certain changes in the First Schedule, aiming to rationalise the tariff on bars, rods, profiles of refined copper, copper alloy, betaine and others.
The Bill also seeks to add a new sub PCT heading in Chapter 87.10 to levy customs duty @ 20% on armoured cash carrying vehicles. The Bill also seeks to make correction in the description of PCT heading 9918, by replacing the word "goods" with "machinery" wherever appearing. The word "goods" was used interchangeably with the word "machinery" but the proposed amendment is aimed to clarify that the customs duty at the rate of 0% is applicable to machinery which has been re-imported by an industrial concern after having been exported without undergoing any process outside Pakistan since their exportation.
8. Customs Notifications Certain amendments have been made in the existing notifications issued in previous years and amended from time to time, the summary of which is as under:
SRO 475(I)/2011 This SRO has amended the existing SRO 565(I)/2006 dated 05 June 2006 (SRO 565)and is effective from 04 June 2011. SRO 565 provides exemption from customs duty, to the extent provided in the Table therein, on import of raw materials, sub-components, components, sub-assemblies and assemblies used for manufacture of specified survey based goods. In some cases exemption is available, subject to the conditions stated therein. By virtue of this notification, the following significant insertions / exclusions / amendments have been made in the Table:
NEW ENTRIES
a) The following goods have been added in the Table, to avail the exemption of customs duty in excess of 0%:
=============================================
CNG Compressors (Sr. 118)=============================================
Bearings 8482.2000
8482.4000
Geared pump 8413.8110
Valves 8481.3000
8481.4000
Forced feed lubricator pump 8413.8190
Pressure and temperature gauges 9026.2000
Water flow switch 9026.1000
Electric motor 8501.5290
Junction box, Glands 8536.3000
Oil filter assembly 8414.9090
Flexible pressure hoses 4009.2190
Flexible water hoses (SS braided) 4009.1190
SS Tubes/ Pipes 7304.4100
Aluminium bars 6082, 7075, T-6 7604.2910
Connecting rods forged 8.5 Kg 8414.9090
Pistons pins, Rods and Rings 8414.9090
=============================================
b) The following goods have been added in the Table, to avail the exemption of customs duty in excess of 5%:
--- Welded Steel Pipes (Sr. 88, Entry 2)-HRC (prime quality) of a thickness of:
i. 4.75 mm or more but not exceeding 10 mm. (7208.3790)
ii. 3 mm or more but less than 4.75 mm. (7208.3890)
iii. less than 3 mm. (7208.3990)
--- Welded Steel Pipes (Sr. 88, Entry 3)- CRC (prime quality) of a thickness:
i. exceeding 1mm but less than 3 mm. (7209.1690)
ii. of 0.5 mm or more but not exceeding 1 mm. (7209.1790)
--- Glass Manufacturing (Sr. 154, Entry 3)-Cullet and other waste / scrap of glass (7001.0000)
--- Glass Manufacturing (Sr. 157, Entry 1)-Butyl Sabutol Acetate(3814.0000)
c) The following goods have been added in the Table, to avail the exemption of customs duty in excess of 10%:
--- Car audio system (Sr. 83. (2)(h)(i))- CD/MP3/MP4 (8529.9090)
--- Glass Manufacturing (Sr. 154, Entry 2)-Mirror backing paint (3208.1010)
Exclusions The following goods have been omitted from the Table to exclude these items from the purview of SRO 565:
--- Washing machines Sr. 5 (Raw material)- Hot Rolled Steel Sheets
--- CNG Compressors (Sr. 118)
=============================================
CNG Compressors (Sr. 118)
=============================================
High Pressure Gas Pipes 4009.4200
Cylinder Block Assy. 8414.9090
Frame Assy. 8414.9090
Skid Assy. 8414.9090
Cooler Assy. 8419.8990
Separator Assy. 8421.3990
Switch Cabinet Assy. 8538.1000
Control Cabinet Assy. 8538.1000
=============================================
Amendments
a) In Sr. No 2, Column 6 of the Table for air conditioner manufacturers, the special conditions given under following serial numbers have been inserted / amended for in-house manufacturing facility:
(v) press machines
(vii) shearing machines
(viii) tapping machines
(ix) riveting machines
(x) spot welding machines
(xi) evaporator bending machine
b) The word "copper coated steel tube (bundy tube)in coils" is substituted by the word "copper coated steel tube in coils upto 8.5 mm dia" appearing in entry (3) in column 3 against serial No 9 of the Table. The change will provide benefit of exemption to all types of copper coated steel tubes upto 8.5 mm dia, which was previously restricted to bundy tube only.
c) The new PCT Heading 8523.2990 has been inserted in column (3) against entry no. (4)of Sr. No 15 of the Table in respect of magnetic tape in jumbo rolls used for the manufacturing of audio / video cassette.
SRO 476(I)/2011
This SRO is effective from 04 June 2011 and has amended the existing SRO 567(I)/2006 dated 05 June 2006 which provides exemption from customs duty, to the extent provided therein, on import of raw materials, sub-components, components, sub-assemblies and assemblies used for manufacture of specified non survey based goods. In some cases exemption is available, subject to the conditions stated therein. By virtue of this notification, following significant insertions have been made:
New entries in Table III - Active Pharmaceuticals Ingredients
=============================================
Fexofenadine 2933.3990
Ebastine 2933.3990
Isoniazid 2933.3990
Omeprazole Pellets 2933.3990
Sparfloxacin 2933.5990
Amiloride HCL 2933.9990
Candesartan Cilextle 2933.9990
Pheneramine Maleate 2933.9990
Pioglitazone HCL 2934.1090
Glibenclamide 2935.0090
Thiocolchicoside 2935.0090
Hydrochlorothiazide 2935.0090
Roxithromycin 2941.5000
Clarithromycine Granules 2941.5000
Ceftriaxone 2941.9090
Cefotaxime 2941.9090
D-Cycloserine 2941.9090
Acrinol Pad 3005.9010
Benzalkonium Chloride Pad (BKC) 3005.9090
Losartan Potassium 3824.9099
Chondrotin Sulphate 3913.9090
Polyethylene Film 3920.9900
=============================================
Drugs
=============================================
All vaccines and antisera 3002.2010
3002.2020
=============================================
SRO 477(I)/2011 This SRO is effective from 04 June 2011 and has amended the existing SRO 575(I)/2006 dated 05 June 2006, which provides exemption from customs duty, to the extent mentioned therein and from the whole of sales tax on import of specified plant, machinery, equipments and parts thereof. The significant amendments/ additions are as follows:
a) by virtue of this SRO, sales tax exemption has been withdrawn on import of the following:
i. agricultural machinery specified in Sr. No 1 of the Table.
ii. items imported by local assemblers of vehicles and companies having CNG licences, specified in Sr. No 5 of the Table.
iii. goods imported by municipal authorities/local bodies/cantonment boards, specified in Sr. No 28 of the Table.
iv. fire fighting vehicles and equipment imported by Town and Municipal Authorities, specified in Sr. No 28A of the Table.
b) The word "Ministry of Tourism" has been substituted with "Tourism Departments of Provincial Governments, Gilgit-Baltistan, FATA and Department of Tourist Services of the Capital Administration and Development Division" wherever appearing in Column 5 of Sr. No, No 8 of the Table. Sr. No 5 provides conditions for availing the exemption of sales tax and customs duty on import of machinery, equipment and other items required for setting up, upgradation and expansion of hotels (3 stars and above), tourism; sporting and other recreation services related projects in the aforesaid areas, as approved by the Ministry of Tourism.
The aforementioned substitution has been made in order to align with the 18th Amendment in the Constitution of Pakistan, 1973 whereby the Ministry of Tourism has been transferred to the Provinces under the devolution program. Therefore, the aforesaid substitution should have been made in column 2 of the Table as well, where the word "Ministry of Tourism" is also appearing.
SRO 478(I)/2011
This SRO amends existing SRO 678(I)/2004 dated 07 August 2004 (SRO 678) and is effective from 04 June 2011. Before the amendment, the import of goods as mentioned in clauses 1 and 2 of SRO 678 were exempted from customs duty in excess of 15% ad valorem on X-mas trees, well head and integral components and parts thereof. After the amendment the exemption from customs duty is available in excess of 10% ad valorem to the aforesaid goods.
SRO 479(I)/2011 This SRO amends existing SRO 482(I)/2009 dated 13 June 2009(SRO 482) and is effective from 04 June 2011. Under SRO 482 , the Government levied regulatory duty on 397 items, which has now been reduced to 60 items. The significant categories of these items subject to regulatory duty are related to the following industries:
a. Tobacco
b. Ceramics
c. Automobile
d. Arms & Ammunition
The regulatory duty has been withdrawn on the specified items of the following categories/ industries by way of amendment made in SRO 482:
a. Dairy
b. Food and beverages
c. Fruit, meat and vegetables
d. Cooked food
e. Cosmetics
f. Marble and granites
g. Consumer products
h. Electrical and home appliances
i. Furniture
FEDERAL EXCISE
1. Manufacture
Section 2, Clause (16)(b)
The Bill seeks to enhance the scope of the definition of "manufacture" by including in its ambit the snuffing or preparation of un-manufactured tobacco by drying, cutting and thrashing of raw tobacco.
2. Special excise duty
Section 3A Section 3A of the FE Act, deals with the levy of special excise duty (SED) which is being charged on specified goods produced or manufactured in Pakistan or goods imported into Pakistan. SED was introduced in the FE Act, through the Finance Act, 2007 as a means of interim mode of revenue collection. SED was charged at the rate of 1% of the value of goods, however, the rate was enhanced to 2.5% through the recently enacted Federal Excise (Amendment) Ordinance, 2011 dated 15 March 2011. The bill now proposes to abolish the SED which is a step in the right direction aiming to reduce the burden of taxes/ duties levied in the past.
Exemption of goods from the levy of the SED was provided by the Federal Government through SRO 655(I)/2007 dated 29 June 2007. Consequently with the proposal to abolish SED, the aforesaid SRO is rescinded through S.R.O. 489(I)/2011 dated 3 June 2011. This SRO takes effect from 1 July 2011.
3. Default surcharge
Section 8 Section 8 deals with the levy of default surcharge which is currently payable at the rate of KIBOR plus 3% of the amount of duty due but not paid or a refund of duty or draw back received or an adjustment made which is not admissible under the FE Act. This section did not specify the period for which the KIBOR rate was to be applied and a corrective amendment has been made by inserting the word per annum.
4. Recovery of unpaid duty, erroneously refunded duty or arrears of duty etc.
Section 14 sub-section (1) (2)
Section 14 provides the modus operandi in respect of recovery of unpaid duty or of erroneously refunded duty or arrears of duty, in terms of which the Officer of Inland Revenue is empowered to issue notice for recovery of duty within three years from the relevant date. The Bill seeks to enhance the period of issuance of notice from three years to five years.
The Bill seeks to introduce provisos to Sub-section (2) requiring the Officer of Inland Revenue to issue an order for recovery of duty in the event of aforementioned defaults. This order is to be passed within one hundred and twenty days of issuance of the show cause notice or within such extended period as the Commissioner may provide. However the extended period should not exceed sixty days.
It is also proposed that any period during which the proceedings remain adjourned due to the reason of a stay order or Alternative Dispute Resolution proceedings or time allowed (maximum of thirty days) on the application of the petitioner shall be excluded in computing the period for passing of the order as proposed under the first proviso.
5. Power to seize
Section 26 Section 26 provides the seizure of counterfeited cigarettes, unlawfully manufactured cigarettes or cigarettes on which the duty as prescribed under the FE Act, has not been paid. The law also requires to seize the conveyance used for the movement, carriage or transportation of such cigarettes. The bill now proposes to extend the power of seizure to beverages as well.
6. Confiscation of cigarettes or beverages
Section 27, sub-section (1)(2)(3)Pursuant to the provisions of section 26 of the FE Act, dealing with seizure of cigarettes, the manner of confiscation of the same was provided under section 27 of the FE Act. Due to enhancement of the power of seizure in relation to beverages as proposed under the Bill, the consequential impact relating to its confiscation is also proposed to be included.
7. Editorial changes
Section 29 & 34 The reference of CBR is still being mentioned in sub-section (2) of Section 29 the same being superfluous with the advent of the concept of Inland Revenue. Accordingly the Bill seeks to rectify the above editorial mistake.
Section 34 deals with the procedures of appeals to be filed at the appellate forums which include the High Court. Through the Finance Act, 2010 a new Section 34A was introduced in the FE Act, providing separately the matters relating to filing of reference to the High Court. Accordingly the Bill proposes to delete reference of High Court in Section 34 being superfluous.
8. Alternative dispute resolution
Section 38, sub-section (4)Section 38 of the FE Act, deals with the modus operandi and other matters relating to Alternative Dispute Resolution. Sub-section (4) thereof empowers the Board to pass an order based on the recommendations of the committee constituted for dispute resolution. The Bill now proposes to provide a time line of forty-five days for passing such order by the Board.
9. Rates of federal excise duty The following is proposed to be brought under the purview of excisable goods by including the same in Table I of the First Schedule to the FE Act:
==============================================
S. Nature of Goods Rate of Duty
No
==============================================
1. White Crystalline Sugar Eight percent
(Entry No 53) ad val.
==============================================
The above is also proposed to be included in the Second Schedule of the FE Act by inserting entry No 3 in the said Schedule. The goods on which duty is collected under sales tax mode with entitlement for adjustment with sales tax and vice versa are included in the Second Schedule.
The rates of duty in respect of the following goods have been proposed to be changed along-with the description of goods
=======================================================================
Existing Provision Proposed Provision
Table Relevant Description Rate Description Rate
No entry in of duty of duty
Table
=======================================================================
I 9 Locally 65% of Locally 65% of
produced the produced the
cigarettes if retail cigarettes if retail
their retail price their retail price
price price exceeds
exceeds twenty one
nineteen rupees per
rupees and ten cigarettes
fifty paisa
per ten
cigarettes
I 10 Locally Five Locally Six
produced rupees produced rupees
cigarettes if and cigarettes if and
their retail twenty their retail four
price five price exceeds paisa
exceeds ten paisa eleven rupees per ten
rupees per per ten and fifty cigaret-
ten cigaret- paisa per ten tes plus
cigarettes tes plus cigarettes but 70%
but does not 70% does not per
exceed per exceed increm-
nineteen increm- twenty one ental
rupees and ental rupees per rupee
fifty paisa rupee ten cigarettes or part
per ten or part thereof
cigarettes thereof
I 11 Locally Five Locally Six
produced rupees produced rupees
cigarettes if and cigarettes if and
their retail twenty their retail four
price does five price does paisa
not exceed paisa not exceed per ten
ten rupees per ten eleven rupees cigaret-
per ten cigaret- and fifty tes
cigarettes tes paisa per ten
cigarettes
===================================================================================
The rates of duty in respect of the following goods are proposed to be changed:
=================================================================
S. Relevant Nature of Goods Existing Proposed
No entry in Rate of Rate of
Table 1
Duty Duty
===============================================================
1. 4 Aerated waters 12% of 6% of retail
retail price price
2. 5 Aerated waters, 12% of 6% of retail
containing added retail price price
sugar or other
sweetening matter
or flavoured.
3. 6 Aerated waters if 10% of 6% of retail
manufactured retail price price
wholly from juices
or pulp of
vegetables, food
grains or fruits.
4. 7. Unmanufactured Rupee five Rupee ten
tobacco per KG per KG
5. 13 Portland cement, Seven Five
aluminous cement, hundred hundred
slag cement, super rupees per rupees per
sulphate cement metric ton metric ton
and similar
hydraulic cements,
whether or not
coloured or in the
form of clinkers
6. 50 Filter rods for One rupee Twenty
cigarettes per filter percent ad
rod val.
===============================================================
The Finance Act, 2008 brought restriction in the interpretation clause as given in Table I of the First Schedule to the FE Act which provides that for the purpose of levy, collection and payment of duty at the prescribed rate in respect of locally produced cigarettes as mentioned in serial Nos.9, 10 and 11 of Table I of the First Schedule, no cigarette manufacturer shall reduce the price from the level adopted on the day of the announcement of the budget 2008-2009. The Finance Act, 2009 and 2010 substituted year 2008-2009 with 2009-2010 and year 2009-2010 with 2010-2011 respectively. The Bill now seeks to substitute year 2010-2011 with the year 2011-2012.
10. Withdrawal of federal excise duty
The Bill seeks to withdraw duty on a number of goods and services which is enumerated below:
===============================================================
Table Relevant Description Rate of duty as
No entry in
Table presently levied===============================================================
I 17 Solvent oil (non- Thirteen rupee per
composite) litre
I 18 Other Eighty eight paisa
per litre
I 21 Other fuel oils One hundred eighty
five rupees per
metric ton
I 26 Mineral greases Twenty five rupees
per KG
I 28 Transformer oil Ten percent of the
retail price or seven
rupees and fifteen
paisa whichever is
higher
I 29 Other mineral oils Fifteen percent ad
excluding sewing val.
machine oil
I 30 Waste oil Ten percent of the
retail price or seven
rupees and fifteen
paisa whichever is
higher
I 39 Carbon black oil Seven rupees and
(carbon black feed fifteen paisa
stock) including
residue carbon oil
I 40 Methyl tertiary butyle Eighty eight paisa
ether (MBTE) per litre
I 46 Greases Twenty five rupees
per KG
I 47 Organic composite
solvents and thinners,
not elsewhere
specified or included;
prepared paint or
varnish removers:
(i) Solvent oil Thirteen rupees per
(composite) litre.
(ii) Other (excluding Ten percent of retail
thinners) price.
I 48 Viscose staple fiber Ten percent ad val.
I 49 Motor cars and other Five percent ad val.
Motor vehicles
Principally designed for
The transport of
Persons (other than
Those of heading
87.02), including
Station wagons and
Racing cars of cylinder
Capacity exceeding
850cc.
I 51 Air Conditioners Ten percent ad val.
I 52 Deep Freezers Ten percent ad val.
II 12 Services provided by
Property developers or
Promoters for:
(a) development of Rs 100 per square
purchased or yard
leased land for
conversion into
residential or
commercial plots
(b) construction of Rs 50 per square
residential or foot of covered area
commercial units
===============================================================
In exercise of the power conferred by the FE Act, the Federal Government / the Board have issued certain notifications which are enumerated below:
======================================================================
SRO Section/
Reference Schedule/ Description
and date Rule
reference
-----------------------------------------------------------------------
SRO Section 3 This notification rescinds the
-----------------------------------------------------------------------
484(I)/2011 First notification No 364(I)/2007
03 June 2011 Schedule dated 03 May 2007. The said
notification was issued by the
Federal Government whereby
the rate of duty on the
services provided by Cable TV
operators was fixed at eight
rupees per subscriber per
month. The notification shall
take effect from 04 June
2011.
SRO Section 3 The Finance Act, 2006
488(I)/2011 First brought Franchise services in
03 June 2011 Schedule the ambit of excisable
Rule 43A services at the rate of five
percent. Simultaneously Rule
43A was inserted in the
Federal Excise Rules, 2005
whereby special procedures
for payment of duty on
Franchise fee was laid down.
The Finance Act, 2008
increased the rate of duty to
ten percent, however the
corresponding amendments
were not made in Rule 43A.
Now the Board has issued
SRO 488(I)/2011 dated 03
June 2011 which has
removed this anomaly by
substituting rate of duty of
five percent to ten percent.
======================================================================
Capital Value Tax The Finance Act, 1989 (the FA) introduced for the first time a tax on the capital value of assets referred to as the CVT. Presently, CVT is leviable on the following :
--- Purchase / import of motor vehicle not previously used in Pakistan; and
--- Purchase of modaraba certificates and instruments of redeemable capital by a resident person.
The Bill proposes to withdraw the levy of CVT on purchase of modaraba certificates and instruments of redeemable capital listed on any registered stock exchange(s) in Pakistan. Consequentially, the Bill also seeks to withdraw the powers granted to the registered stock exchange(s) for collecting CVT on such certificates and instruments.