Income Tax
1. Reduction in tax rates
The Federal Government while announcing 'Economic Reforms Package', has provided substantial relief to salaried and non-salaried individuals, whereby tax rates for individuals have been reduced with maximum applicable tax rate of 15% on income in excess of Rs 4.8 million.
As per the Income Tax Amendment Ordinance, 2018, no tax was required to be paid by individuals deriving annual income upto Rs.1,200,000. The Bill has however proposed that individuals deriving income from Rs.400,000 to Rs.1,200,000 would be subject to tax of Rs.1000, and Rs.2,000 for income slabs ranging from Rs.400,000 to Rs.800,000 and from Rs.800,000 to Rs.1,200,000 respectively
Similarly, the Bill also seeks to provide relief in tax rates for AOPs, which have also been reduced from the maximum rate of 35% to 30%.
For companies, the tax rateshave also been proposed to be reduced by 1% on yearly basis from present rate of 30% in the tax year 2018 to the tax year 2023 in which the tax rate is proposed to be reduced to 25%.
2. Bonus shares
Section 2 Clause (29), Section 39, Section 236M, Section 236N
Under the scheme of taxation that has prevailed in Pakistan historically, the face value of bonus shares or the amount of any bonus declared, issued or paid by a company to its shareholders (bonus shares) was excluded from the definition of "income". Non-taxability of bonus shares at the time of their issuance was based on the simple principle that the shareholder does not derive any real income from the receipt of bonus shares and consequently income, if any, was taxed as capital gain at the time when the bonus shares were actually disposed-off by the shareholders.
However, through Finance Act, 2014, bonus shares were declared as income of the recipient and corresponding amendments were made in the Ordinance to tax receipt of bonus shares in the hands of the recipients. These tax amendments were widely disliked. In reality, this measure did not generate tax as per the original estimates of the Board, and at the same time the practice of issuance of bonus shares also declined substantially, hampering capital accumulation, which is essential for expansion in the corporate sector.
After considerable persuasion by the capital market, business and professional forums, the Board has acceded to the demands and it is now proposed that the taxation of bonus shares may be abolished. Consequently, several amendments are proposed to withdraw the withholding of tax on issuance of bonus shares, treating the income from bonus shares as other income, etc.
This is a much needed corrective measure, which will considerably promote capital formation and consolidation in the corporate sector, simultaneously providing an impetus to the capital market.
3. Super tax for rehabilitation of temporarily displaced persons
Section 4B
The Finance Act, 2015, introduced a one-time super tax on all persons on all types of income, whether taxable under the normal law or under the Final Tax Regime, in the tax year 2015. It was levied at 4% on banking companies and at 3% on all other persons having taxable income of Rs.500 million or more. This levy was extended to the tax year 2017 by the Finance Act, 2017. The Bill proposed to extend the application of Section 4B up to the tax year 2020. The Bill further seeks to reduce the rate of super tax by one percent for each subsequent tax year, until tax year 2020.
The extension of super tax is not a surprise as the business quarters were anticipating it. However, most of the trade and professional bodies had proposed to the government not to extend this levy any further. It seems that the constant increase in the tax collection targets by the Federal Government, coupled with the failure of the BOARD in broadening the tax base, has left the Federal Government with little choice but to continue taking ad hoc measures like super tax, to boost tax collection.
4. Tax on undistributed profits
Section 5A
The Finance Act, 2015, introduced taxation of undistributed reserves at the rate of 10%. Under this section tax was imposed on a public company that derived profit for a tax year but did not distribute cash dividend equal to 40% of its after tax profit or 50% of its paid-up capital, whichever is less, within six months of the end of the tax year, or which has distributed a dividend to such an extent that its reserves remained in excess of 100% of its paid-up capital.
The Finance Act, 2017, revamped the taxation under the above section by changing undistributed reserves to undistributed profits, and tax at 7.5% was imposed in case of non-distribution of 40% of after tax profits in the form of cash dividend or bonus shares.
The Bill now seeks to reduce the tax rate from 7.5% to 5% in case the criterion as specified above is not met. Furthermore, it is proposed that the condition of distribution of 40% of after tax profits may be reduced to 20%. The distribution in this respect is to be made in cash as the option of bonus shares has been omitted, apparently due to the withdrawal of taxation on bonus shares.
The Bill also seeks to omit the reference of this section from the provisions of section 8 of the Ordinance, which contains general provisions regarding income falling under the final tax regime.
5. Setoff of depreciation losses
Sections 57 and 59A
The concept of adjustment of unabsorbed depreciation brought forward from previous years against income of the current year, is an age-old concept. It was initially adopted in the Income Tax Act, 1922. It was then carried further when the Income Tax Ordinance, 1979, was promulgated, repealing the Income Tax Act, 1922. When the Ordinance was promulgated in the year 2003, this concept was pocketed by virtue of the provisions of sections 57 and 59A of the Ordinance with minor amendments including taking the effect of amortization of intangibles and pre-commencement expenditure. The concept dictates that in computing income from business, deduction on account of depreciation of assets used in business (and amortization as above), if not completely absorbed by the profits and gains of business, the unabsorbed depreciation and amortization is clubbed with the expense for the next year and so on until it is completely utilized. In subsequent years, it becomes part of the depreciation and amortization deduction and after its adjustment, if there is a loss computed, the same can be set off against income from any other head excluding gains from speculation business. We have seen in a number of cases where unabsorbed depreciation and amortization are set off against income from property (when Section 15 allowed such set off) and income falling under Section 39 of the Ordinance, i.e. income from other sources.
The concept has also been tested in appeals a number of times and there is a plethora of case laws explaining the application of the relevant provisions. Some of the cases that dealt with this issue are (i) Hon'ble High Court of Sindh judgement in the case of Commissioner of Income Tax Vs. Karachi Electric Supply Corporation Ltd. (1985) 52 Tax 98, (ii) judgment of the Supreme Court of India in the case of United Commercial Bank Ltd. Vs. CIT (1957) 32 ITR 688 and (iii) judgment of full Bench of Bombay High Court in the case of B.M. Kamdar (1946) 14 ITR 10.
The Bill now intends to disturb this age-old concept by proposing amendments aiming to dislodge the allowability of such adjustment. It is proposed that the adjustment of unabsorbed depreciation and amortization would be available against income from business only and that too, to the extent of fifty percent of taxable income (after offsetting business losses, if any) in a tax year. Where, however, the income from business in a tax year is less then Rs.10 million, the unabsorbed depreciation and amortization would be set off without any limit i.e. to the extent of such income.
The aim of the amendment per se seems nothing but to generate more tax collection by deferring the offset of losses, which otherwise are available infinitely. However, the bigger loss is the inability to offset income from sources other than business, against depreciation. As a result, despite losses the taxpayer will be forced to pay tax on such other sources of income.
6. Tax credit for not for profit organizations
Section 100C
This section allows a tax credit equal to one hundred percent of the tax payable, including minimum tax and final taxes to non-profit organizations, trusts and welfare institutions.
Currently tax credit is available on profit on debt derived from scheduled banks only. The Bill now proposes that the same credit shall be extended to profit on debt derived from microfinance banks.
7. Unexplained foreign income or assets
Section 111
The Prime Minister announced an Economic Reforms package on 05 April 2018, which provided wide ranging measures to solicit declaration of undeclared foreign as well as local assets and income. To compel persons to avail the tax amnesty scheme, certain amendments were felt necessary in the Ordinance with respect to certain loop holes, which were facilitating persons to remain out of the tax net without declaring their income and assets. For this purpose an Ordinance, namely the Income Tax (Amendment) Ordinance, 2018, was promulgated, which inter-alia, introduced amendments in section 111 of the Ordinance. These have now been made part of the Bill and are discussed in the ensuing paragraphs.
8. Exemptions and tax concessions
Section 53
Before the Finance Act, 2017, the Federal Government was empowered to amend the Second Schedule in order to provide or withdraw exemptions and tax concessions, or to provide conditions in respect thereof. Subsequently, through the Finance Act, 2017, the Minister In-charge, pursuant to the approval of the Economic Coordination Committee of the Cabinet, was empowered to make such amendments. However, the powers of the Minister on their own have been challenged and there are decisions of the superior courts, which require the Federal Government to make such changes in the law. The Bill now seeks to revert to the position prior to Finance Act, 2017 and surrender the powers back to the Federal Government for making all such amendments in the Second Schedule.
9. Fee for Offshore Digital Services
Sections 2, 6, 101, 152 and First Schedule
With the advent of digitalization of businesses and e-commerce, taxpayers may derive income even from jurisdictions where they are not physically present. This has led the tax authorities to question the right of a State to tax the revenues derived by such taxpayers and the manner in which such tax may be collected. The existing provisions of the Ordinance are also not equipped to deal with the rigors of e-commerce.
To address the above, the Bill proposes to introduce a concept of tax on fee for offshore digital services paid by a resident person, or borne by a permanent establishment of a non-resident person. The term fee for offshore digital services has been defined to mean any consideration for providing or rendering services by a non-resident person for online advertising space, designing, creating, hosting or maintenance of websites, digital or cyber space for websites, advertising, e-mails, online computing, blogs, online content and online data, providing any facility or service for uploading, storing or distribution of digital content including digital text, digital audio or digital video, online collection or processing of data related to users in Pakistan, any facility for online sale of goods or services or any other online facility. The tax rate on fee for off shore digital services is proposed to be 5% of the gross amount of such services.
The definition is quite extensive in nature and attempts to capture all e-commerce transactions that were previously not covered by the Ordinance.
10. Advance tax paid by the taxpayer
Section 147, sub-section (4), sub-section (4A) and sub-section (6)
Section 147 deals with payment of advance tax by taxpayers on a quarterly basis. The Bill seeks to insert a proviso to sub-section (4) in terms of which, while working out the advance tax liability for the quarter, in the case of a company or AOP, if the tax payer fails to provide the turnover value for the said quarter, or the quantum of turnover is not known, the advance tax liability in such case for the quarter is to be worked out by taking the value of turnover for the quarter as being 1/4th of 110% of the turnover of the latest tax year, for which a return has been filed.
Presently, under sub-section (4A) of section 147 of the Ordinance, the taxpayer is entitled to estimate the tax liability for the relevant tax year at any time before the second instalment is due i.e. even before completion of the half year after such estimation. This effectively requires payment of 50% of the estimated advance tax by the due date of the second quarter of the relevant tax year. The remaining 50% is required to be paid in the third and fourth quarterly instalments. Under the aforesaid sub-section, a taxpayer is not permitted to make a lower estimate of its income. The Bill seeks to amend the aforesaid sub-section, whereby banking companies are proposed to be included within the ambit of a taxpayer, with the result that the banking companies will be required to absolve their advance tax liability in accordance with the provisions of sub-section (4A). However, banking companies under Rule 5(1) of the Seventh Schedule and sub-section (4A) of section 147 have been specifically excluded. Since the Bill has not proposed any amendment with regard to the provision of Rule 5 of the Seventh Schedule, therefore, in our opinion, the legal position relating to the advance tax obligation of the banking company remains intact, as contained in Rule 5 of the Seventh Schedule.
Moreover, the Bill seeks to amend the provision of sub-section (6), in terms of which a banking company is excluded for the purpose of making its estimate under the aforesaid sub-section. However, under Rule 5(1) of the Seventh Schedule, sub-section (6) of section 147 has been specifically excluded. The Bill also requires the taxpayer to provide the following details to the Commissioner while working out the estimate of the amount of tax payable:
-- Turnover for the completed quarters of the relevant tax year;
-- Estimated turnover of the remaining quarters along with any valid reason for any decline in estimated turnover, if any;
-- Documentary evidence of the estimated expenses or deductions which may result in lower payment of advance tax; and
-- The computation of the estimated taxable income of the relevant tax year.
The Bill further seeks to empower the Commissioner to consider the rejection of the estimate, if the above information is not made available by the taxpayer. In such a case, the advance tax liability is to be worked out on the basis of the provisions of Sub-section (4).
11. Return not filed within due date
Section 182A & 214D
It would be recalled that Section 214D automatically selects a case for tax audit in case the return of income has not been filed by the tax payer by the due date, or the extended due date, or the tax payable along with the return of income has not been paid.
Further, penalizing provisions were embedded under Section 182 whereby the non / late filing of the return of income was subject to a penalty, at the prescribed rates.
Although the penal provisions have been retained, the bill proposes to omit Section 214D thereby relieving the tax payer from selection of tax audit in case of non/ late filing of the return of income. However, in order to check on non / late filing of tax return, the bill proposes to insert a new Section 182A, whereby it is proposed that if a taxpayer fails to file the return of income within the due date or the extended due date, its name will not be included in the Active Taxpayers List, and it will not be entitled to carry forward any loss for the year.
12. Advance tax on persons remitting amounts abroad through credit or debit or prepaid cards
Section 236Y and First Schedule
The Bill proposes to insert a new section wherein every banking company will now be required to collect adjustable advance tax at the rate of 1% of the gross amount remitted abroad for filers and 3% in case of non-filers from every credit card, debit card and prepaid card transaction with a person outside Pakistan.
Given the increasing trend of online transactions, the proposed advance tax is likely to have a positive impact on the revenue collection. However, this increase in collection would come at the expense of an already administratively over- burdened banking sector.
13. Tax paid at import stage deemed "minimum tax" for commercial importers
Section 148, Sub-section (8)
Presently tax required to be collected under this section on import of plastic raw material imported by an industrial undertaking, falling under PCT headings 39.01 to 39.12, edible oils and packing material is treated as minimum tax. The Bill proposes to amend the above sub-section whereby, in addition to the above mentioned goods, the tax required to be collected on import of goods that are sold in the same condition as they were when imported is to be treated as minimum tax. This is a substantive conceptual shift with respect to taxation of commercial importers being proposed to be made in sub-section (8) of this section. Presently, commercial importers paying tax at the import stage are deemed to have paid the same as "final tax". The amendment now seeks to change the character of such tax payments from "final tax" to "minimum tax". Such commercial importers, pursuant to the proposed amendments will be required to file a return of income instead of filing of statement in terms of section 115 of the Ordinance, and may be subject to amendment of assessment/tax audit under section 177.
14. Services rendered by a non-resident through its permanent establishment
Section 152
Subject to certain exceptions, taxes withheld from resident service providers constituted a minimum tax pursuant to section 153. Conversely, taxes withheld from a non-resident rendering services through its permanent establishment was considered as an advance tax under section 152.
In order to provide a level playing field, the Bill proposes to amend section 152 with the effect that the taxes withheld from payments to the permanent establishment of the non-resident service provider, would also now be regarded as a minimum tax. However, the exception to such minimum taxation, as available to resident service providers under section 153, would also mutatis mutandis apply to non-resident service providers.
The proposed amendment may be in conflict, in specific situations, with the taxation of non-resident service providers who are from countries with whom Pakistan has signed Agreements for Avoidance of Double Taxation and Fiscal Evasion, which overrides the domestic law .
15. Restriction of transfer of assets through gift
Sections 37 & 79
Section 37 deals with taxation of capital gains on sale of assets. For the purpose of valuation of a capital asset, it is inter-alia provided that where an asset becomes the property of a person under a gift, the fair market value of asset on the date of its transfer shall be treated to be the cost of the asset.
Similarly, section 79 provides non-recognition rules which inter-alia provide that no gain or loss shall be taken to arise on the disposal of an asset by reason of a gift.
The bill now seeks to restrict the gift to those which have been received from a relative. The term relative has been defined in Section 85 of the Ordinance which deals with Associate. The definition of a relative in relation to an individual is provided as under:
a) Ancestor, a descendant of any of the grand parent or an adopted child of the individual or of a spouse of the individual;
or
b) A spouse of the individual or of any person specified in Clause (a).
It is understood that the aforesaid amendments are one of several anti-avoidance measures that are being introduced in the law to check misuse of a legal provision to evade tax.
16. Alternative Dispute Resolution
Section 134A
The concept of Alternative Dispute Resolution (ADR) was introduced via the Finance Act, 2004 whereby a taxpayer may bring any disputed matter, which is pending before an appellate authority before the Board by making an application. For this purpose, the Board is required to constitute a Committee (ADRC) comprising an Officer of Inland Revenue (not below the rank of a Commissioner) and two persons from a panel of Cost or Chartered Accountants, or Advocates or Income Tax Practitioners being reputable taxpayers, before which the matter is to be placed for examination and recommendations to the Board.
The ADRC shall undertake an examination of the issue and may make enquiry, obtain expert opinion and cause an audit by any officer of Inland Revenue or any other person. Based on the findings, the ADRC shall make recommendations as may be appropriate in the facts and circumstances of the case. The ADRC is required to be formed within the period of sixty days of the making of an application by the taxpayer. The ADRC is then required to make its recommendations within ninety days of its constitution. If the ADRC fails to make the recommendation within the above period of ninety days, the Boardis empowered to dissolve the ADRC and constitute a new ADRC, which is required to dispose of the matter within a further period of ninety days. However, if the new ADRC fails to the resolve the dispute in the above period, the matter shall be taken up by the appellate forum, where it is pending.
In case, the ADRC makes recommendation within the statutory period of ninety days, the Board is then required to pass an order on the recommendations of the ADRC, as may be appropriate within ninety days of the receipt of ADRC's recommendations and if such an order is not passed, the recommendations would be treated to be an order passed by the Board.
The most controversial provision was the powers of the Board either to reject the ADRC's recommendations or to accede to such recommendations, in the manner the Board deems appropriate. It was objected to on the basis that the ADRC, which comprises of a senior officer of the Board and professionals/ reputable taxpayers, and which works on a pro-bono basis, does not have any say in the conclusion of the dispute. As a result, the process of ADR has not yielded the desired results of reducing the pending litigation before the appellate authorities.
The Bill now proposes substantial changes in the entire process of constitution and working of ADRC. These are discussed as under:
-- The ADRC members would be selected from a panel of retired Chartered Accountants or retired Advocates (the term retired seems to be a mistake as no such condition is provided in ADRC mechanism prescribed for sales Tax Act 1990 through this bill), and retired Judges of High Court besides an officer of Inland Revenue not below the rank of a Commissioner.
-- The taxpayer invoking the powers of ADRC and the Board shall withdraw the appeals pending before the Appellate Authority.
-- The ADRC shall not commence the proceedings unless the order of withdrawal by the Appellate Authority is communicated to the Board. In the event the order of withdrawal is not communicated within seventy five days of the appointment of the ADRC, the ADRC so appointed shall be dissolved.
-- The ADRC shall decide the dispute within one hundred and twenty days of its appointment excluding the period of communicating the order of withdrawal.
-- The ADRC is now empowered to decide the matter, and such decision shall be binding on the aggrieved person as well as on the Board.
-- If the ADRC fails to decide the matter within the period of one hundred and twenty days, the Board shall dissolve the ADRC, inform the Appellate Authority (which passed the order of withdrawal of matter) and the matter would be deemed to be pending before the Appellate Authority, which shall decide the matter as if the appeal was never withdrawn. The Appellate Authority is required to decide the appeal within six months of the communication of the order of dissolution of the ADRC.
The proposed amendments however, do not appear to achieve the objects with which the concept of ADR was introduced. This is for the reason that the very concept of "Alternate" would fade away with the requirement to give up the appellate process. Presently, the order passed by the Board on the recommendations of the ADRC is not binding on the aggrieved person but on the Board officials. Such an order is to be presented before the Appellate Authority, which is required to take into consideration while deciding the matter pending before it. This gives the aggrieved person an option to evaluate the outcome of the ADR proceedings and decide whether to pursue the appeal or not. However, since the appeal is now proposed to be withdrawn before the ADRC takes up the matter for decision, the aggrieved person would not have this option. The law makers are therefore urged to make the order of the ADRC binding on the Board and not on the aggrieved person.
17. Service of notice and other documents
Section 218
This section provides the manner in which a notice, or any other documents, are to be served on a taxpayer by the tax authorities. It presently provides the following to be the acceptable manner in which a notice or other documents shall be treated as properly served:
a) Personally served on the individual;
b) Sent by registered post or courier service to the registered office or address of the taxpayer; or
c) Served on the person in the manner prescribed for service of Summons under the Code of Criminal Procedure, 1908.
The bill now seeks to amend this section to legitimize the procedure for service of notice, or any other documents, which are sent electronically in the prescribed manner.
It may be noted that rules were formulated for service of notices through electronic medium, and practically the Board was delivering notices and orders through its e-portal. Owing to the fact, however, that the main statute did not permit service of notices electronically, notices and orders that were served through the e-portal of the Board were often challenged in appeals.
Recently, the Board also acknowledged this shortcoming and directed its officers to ensure that along with electronic service, the taxpayers were also sent hard copies of notices and orders through courier or post, in order to ensure proper legal service. With this proposed amendment, however, the bill now seeks to rectify the shortcoming and enable electronic servicing with full legal support.
18. Business income of a non-resident person
Sections101 and 152
As in international tax, the Ordinance while defining the geographical source of income under section 101, recognizes the force of attribution principle, whereby non-residents, in respect of their business income, are considered to derive Pakistan source income if their income is attributable to the permanent establishment in Pakistan. The legislation also recognized the limited force of attraction principle, whereby if the non-resident enters into same or similar activities or sale of same or similar goods as that of the permanent establishment, such income is also regarded as Pakistan source. Therefore, ordinarily, sales of goods made by non-residents outside Pakistan, fall outside the purview of Pakistan tax even if the non-resident has a permanent establishment in Pakistan, which is engaged in the installation, erection and commissioning into service of such goods. This principle was endorsed by the Honorable Appellate Tribunal Inland Revenue in its judgment cited as (1999) 80 Tax 17(Trib.).
The Bill now proposes to undo the effect of this principle by inserting a new clause in Sub-section (3) of section 101, under which Pakistan sourced income from business derived by a non-resident person, would include income on account of import of goods, whether or not the title to the goods passes outside Pakistan, if the import is part of an overall Engineering, Procurement, Construction and Commissioning (EPCC) arrangement, irrespective of the fact that the importer is the person, associate of the person or any other person.
Keeping in view the proposed amendment in section 101(3), corresponding amendments have also been proposed in Sub-section (7) of section 152, whereby a taxpayer would invariably now be required to obtain a tax exemption certificate from the Commissioner, in case the taxpayer intends to make payments on account of such transactions without deduction of tax.
Given that the government is focusing on expanding its economic horizon, including via C-PEC, in our view, such amendments may have an adverse impact on the foreign investors. Additionally, it is practically witnessed that most of the foreign contractors pass their tax burden on resident persons through tax gross-up clauses. Hence, the cost of doing business for such resident persons would increase significantly due to the proposed amendments. Further, it remains unclear what costs may be admissible to such a non-resident against such income.
Without prejudice to the above, it needs to be highlighted that the BEPS Action Plan 7 also recommends that Treaty provisions are amended to ensure that PE formation is not avoided through artificial splitting of contracts to bypass any timeframe requirements. While we may assume that the BEPS Action Plan 7 was a consideration in drafting the suggested amendments, in our view however, the core essence of the Action Plan has not been correctly reflected.
19. Gain on disposal of assets outside Pakistan
Section 101A
Section 101 of the Ordinance identifies the different circumstances under which a taxpayer is considered to derive Pakistan source income. Under the said section, the indirect disposal of an asset in Pakistan generally does not constitute Pakistan source income. The only exception to this rule is in relation to the gain arising from the disposal of immovable property or shares in a company, the assets of which consist wholly or principally of immovable property, including rights to explore for and exploit natural resources in Pakistan.
Historically, the Indian legislation also did not tax indirect disposals. However, after the Vodafone controversy, the Indian Income Tax Act was amended to levy tax on the disposal of shares of foreign companies in circumstances where such companies derived significant value from assets located in India.
The Bill seeks to introduce a similar concept of taxing indirect disposal of assets located in Pakistan by non-residents through insertion of a new section 101A. The salient features of the proposed section are:
-- Gain from disposal of an asset located in Pakistan by a non-resident shall be Pakistan sourced income;
-- Where the asset is any share or interest in a non-resident company, it shall be treated to be located in Pakistan if it derives its value, directly or indirectly, wholly or principally, from assets located in Pakistan and it represents 10 percent or more of the disposed share capital of the non-resident company;
-- The share or interest shall be treated to derive its value principally from the assets located in Pakistan, if the value of such assets exceed one hundred million Rupees and represents at least fiftyper cent of the value of all the assets owned by the non-resident company;
-- Where the assets of the non-resident company are not wholly located in Pakistan, only income to the extent that is reasonably attributable to such assets as are located in Pakistan, and is determined as may be prescribed, would be taxable;
-- Where the assets in Pakistan are held through a resident company, such company shall be required to provide the prescribed information to the Commissioner within 60 days of the transaction;
-- The buyer would be required to withhold tax at the rate of 15 percent of the gross amount of the consideration paid to the non-resident;
-- Where the buyer has not withheld tax, the resident company is required to collect the requisite tax from the non-resident seller;
-- The rate of tax to be withheld by the buyer or collected by the resident company shall be the higher of :
-- 20% of the gain (i.e. fair market value less cost of acquisition of the asset); or
-- 10% of the fair market value of the asset; and
-- Where the tax has been withheld by the buyer or collected by the resident company, no tax shall be payable by the non-resident company in respect of the gain under the head "Income from Business" or "Capital Gains".
Whilst the proposed insertion of the new section attempts to ensure that the revenue authorities receive a fair share of tax on gains arising from the alienation of assets, whose underlying value is located in Pakistan, the proposed section has not been drafted in a coherent manner. Issues like possible differences in interpretation, potential multiple taxation, onerous compliance requirements and practical limitations on availability of information have not been considered, which shall result in unnecessary litigation. Furthermore, there are ambiguities arising from the manner in which the proposed section has been drafted.
An example of the said anomalies is evident from the conflict in the rate at which the buyer is required to withhold tax from the non-resident seller. As per one of the provisions, the buyer is required to withhold tax at 15% of the gross consideration, whereas another provision requires the buyer to withhold the tax at the higher of 20% of the gain and 10% of the fair market value of the asset.
Overall, in our view, while the idea behind the proposed new section may be appreciated, it needs to be revisited and redrafted rationally in order to address the key issues, which have not been duly considered.
20. Re-characterization of income and deductions
Sections107 and 109
In light of the recommendations of the OECD Action Plans 5 and 6, relating to transparency and substance, and treaty abuse, respectively, the Bill has proposed to amend the provisions of section 109 of the Ordinance by introducing the concept of beneficial ownership and empowering the tax authorities to disregard an entity or a corporate structure, that does not have an economic or commercial substance, or was created as part of a tax avoidance scheme.
Furthermore, while the Ordinance states that a tax avoidance scheme would include any transaction where the main purpose is to reduce any person's tax liability, the Bill now seeks to define the term reduction in tax liability. The proposed definition states that such a term means the reduction, avoidance or deferral of tax, or the increase in a refund of tax and includes a reduction, avoidance or deferral of tax that would have been payable under this Ordinance, but are not payable due to a tax treaty for the avoidance of double taxation as referred to in section 107.
Moreover, an amendment in section 107 has also been proposed, whereby the benefits available under a double tax treaty would be subject to section 109.
21. Definition of Permanent Establishment
Section 2
Currently, the definition of a permanent establishment, inter-alia, covers a dependent agent acting in Pakistan on behalf of a non-resident person, if he has and habitually exercises an authority to conclude contracts on behalf of the non-resident. The current definition in the Ordinance is narrower than the internationally accepted concept of a dependent agent , which also encompasses persons who act exclusively on behalf of another person.
The Bill now seeks to align the local concept of a dependent agent with international practice, including BEPS Action Plan 7, by expanding the definition. It is proposed that a dependent agent would include any person, who has and habitually exercises an authority to conclude contracts on behalf of a non-resident person, or has and habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification, and these contracts are:
(a) in the name of the non-resident person; or
(b) for the transfer of the ownership of, or for the granting of the right to use property owned by that non-resident or that the non-resident has the right to use; or
(c) for the provision of services by that person.
It may be appreciated that under the current definition, the concept of a dependent agent was confined only to dealing in goods, and therefore, agents appointed in Pakistan vis-à-vis rendering of services and use of property were interpreted to fall outside the purview of a dependent agency. However, it seems that the anomaly has now been addressed by bringing such agents specifically within the scope of permanent establishment.
The Bill also proposes to insert an explanation, whereby it is clarified that a dependent agent would include a person acting exclusively, or almost exclusively, on behalf of the person of which it is an associate.
A new term of "cohesive business operation" has been inserted as part of the explanation, whereby an arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory activities, undertaken or performed either by the person or the associates of the person, and a supply of goods including goods imported in the name of the associate or any other person, whether or not the title to the goods passes outside Pakistan, has been included.
22. Controlled Foreign Company
Section 109A
In line with BEPS Action Plan 3, the Bill seeks to introduce taxability of income derived by a Controlled Foreign Company (CFC) by inserting a new section 109A of the Ordinance. The salient features of which are as follows:
-- A CFC is a corporate entity that is registered and conducts business in a different jurisdiction other than a jurisdiction of a residency of the controlled owners.
-- The concept of CFC has been introduced in order to tax the income of a resident person by attributing its income in CFC. It has been designed to limit artificial deferral of tax by using off-shore low taxed or exempt entities.
-- The definition of CFC proposed in the Bill is as follows:
(a) more than fifty percent of the capital or voting rights of the non-resident company are held, directly or indirectly, by one or more persons resident in Pakistan or more than forty percent of the capital or voting rights of the non-resident company are held, directly or indirectly, by a single resident person in Pakistan;
(b) tax paid, after taking into account any foreign tax credits available to the non-resident company, on the income derived or accrued, during a foreign tax year, by the non-resident company to any tax authority outside Pakistan is less than sixty percent of the tax payable on the said income under this Ordinance;
(c) the non-resident company does not derive active business income as defined under sub-section (3); and
(d) the shares of the company are not traded on any stock exchange recognized by law of the country or jurisdiction of which the non-resident company is resident for tax purposes.
-- •The income to be offered for tax under CFC represents active income which accrues if:
(a) more than eighty percent of income of the company does not include income from dividend, interest, property, capital gains, royalty, annuity payment, supply of goods or services to an associate, sale or licensing of intangibles and management, holding or investment in securities and financial assets; and
(b) principally derives income under the head "Income from Business" in the country or jurisdiction, of which it is a resident.
-- -Taxable income of CFC is worked out by taking into account the provisions of the Ordinance on the assumption that it is a resident tax payer.
-- -The income of CFC attributable to a Resident tax payer is computed as under:
A x (B/100)
Where -
A is the amount of income of a CFC under sub-section (2); and
B is the percentage of capital or voting rights, whichever is higher, held by the person, directly or indirectly, in the CFC
-- -No income of the CFC will be attributable to a resident taxpayer if :
-- -capital or voting rights of the resident in such CFC are less than 10%; or
-- -the amount of income is less than Rs.10 million.
-- -In relation to working out the income of CFC, a concept of Foreign Tax Year has been introduced, which in relation to a non-resident company, means any year or period of reporting for income tax purposes by such non-resident company in its country or jurisdiction of residence, or if such company is not subject to income tax, any annual period of financial reporting by such company.
-- -Income of a CFC in respect of the Foreign Tax Year shall be determined in the currency of that CFC. However, for the purposes of determining the amount to be included in the income of any resident person during any tax year, the same shall be converted into Pak Rupees at the applicable foreign exchange conversion rates, as notified by the State Bank of Pakistan.
-- -Income attributable to CFC once taxed in Pakistan shall not be offered to tax upon its subsequent receipt in Pakistan by a resident tax payer.
23. Furnishing of information by banks
Section 165A
The Finance Act, 2013, introduced a separate section requiring banking companies to furnish information about the banking transactions of their customers, to the tax authorities. The law provides an overriding effect to the Protection of Economic Reforms Act, 1992, the Banking Companies Ordinance, 1962, the Foreign Exchange Regulation Act, 1947, and the regulations made under the State Bank of Pakistan Act, 1956. Apart from seeking particulars of deposits and card transactions, the law requires details of loans written-off and certain other transactions. However, the most contentious requirement was the provision of online access of the banks' central database containing details of its account holders and all transactions made in their accounts to the Board. This requirement in particular led to a lot of controversy and the banks, due to their compulsion of maintaining secrecy of client data, were forced to approach the courts for seeking a resolution of the matter. However, since 2013 to-date, the banking sector has neither provided the requisite information nor access to the Board.
The Bill now seeks to omit the requirement of online access to the Board and instead required banks to provide information about cash withdrawals by filers and non-filers in excess of Rs.1 million per month. It is further proposed that the minimum threshold for providing details of deposits be enhanced from Rs.1 million to Rs.10 million per month. Similarly, the limit of card transactions is also proposed to be enhanced to Rs.200,000 from the present prescribed limit of Rs.100,000 per month.
24. Restriction on purchase of certain assets
Section 227C
The bill seeks to introduce a new section, which provides that any person who is a non-filer will not be allowed to book, register, purchase or transfer:
a) A new locally manufactured motor vehicle or an imported vehicle - applications for registration or purchase of such motor vehicles will not be accepted by any vehicle registering authorities of the Excise and Taxation Department, or a manufacturer of the motor vehicle unless the applicant, being a person, is a filer;
b) Immovable property - applications or requests for registering, recording or attesting the transfer of such immovable properties shall not be accepted unless the applicant, being a person, is a filer.
This is a welcome step and will assist the Government in broadening the tax base.
25. Best judgment assessment
Section 121
The provisions of section 114 empower the Commissioner to issue a notice to any person who has not filed the return of income in respect of one or more of the last five completed tax years. However, in cases where a person has not filed any tax returns for the last five completed tax years, the Commissioner is empowered to issue a notice to such a person for up to the last ten completed tax years.
Section 121 deals with powers of the Commissioner to pass a best judgment assessment in case where a person fails to file a return in response to a notice issued by the tax authorities. The statute of limitation presently provided for any action under this section, is that an assessment order can be passed within five years after the end of the tax year to which it relates.
It is now proposed that in cases where the Commissioner uses his powers under section 114(5) and requires any person to file tax returns upto ten years, then in such a case it is proposed that the time limit for passing an assessment order would be within two years from the end of the tax year in which such notice was issued.
26. Tax credit for investment
Section 65B
Currently, corporate taxpayers investing any amount for purchase of plant and machinery for the purpose of extension, expansion, balancing, modernization and replacement of plant and machinery already installed in the industrial undertaking are entitled to a credit equal to 10% of the amount so invested, against the tax payable, subject to the condition that the plant and machinery is purchased and installed at any time between 01 July 2010 to 30 June 2019.
The Bill now proposes to extend the date of installation to 30 June 2021.
27. Tax credit for newly established industrial undertakings
Section 65D
The Finance Act, 2011, introduced section 65D, which allows a tax credit equal to 100% of the amount of tax payable, to a company set up after 01 July 2011 through a 100% equity investment. This is subject to the condition that the company is incorporated and the industrial undertaking is set up between 01 July 2011 to 30 June 2016.
The Finance Act, 2016, extended the period to 30 Jun, 2019 and the above condition of equity financing of 100% was relaxed to 70%, thereby allowing investment from debt financing upto 30%.
The Bill now seeks to extend the availability of tax credit to companies set up until 30 June 2021.
28. Tax credit for industrial undertakings established before the first day of July 2011
Section 65E
In line with allowing a tax credit to a newly established industrial undertaking, Section 65E allows a similar tax credit to industrial undertakings established prior to 01 July 2011, which invest through equity in new projects or balancing, modernization, replacement, expansion or extension (BMREE) of the existing plant and machinery, subject to the condition that plant and machinery is installed between 01 July 2011 to 30 June 2016.
The Finance Act, 2016, extended the period to 30 June 2019 and the above condition of equity financing of 100% was relaxed to 70% thereby allowing investment from debt financing upto 30%.
The Bill now seeks to further extend the availability of tax credit to companies that install a new projector invest in BMREE by 30 June 2021.
29. Foreign income and asset statements
Section 116A
In terms of Section 116 of the Ordinance, a resident individual is mandatorily required to file a Wealth Statement along with the Return of Income for a tax year, declaring therein his total assets and liabilities (including assets held in others' names) as on the 30th day of June preceding the due date for filing of the Return of Income. Although the Wealth Statement was meant to declare all assets and liabilities including those held outside Pakistan, the declaration of foreign assets had been debated in the past.
The new section 116A now requires resident persons, who have foreign income or foreign assets, to furnish a separate statement namely "Foreign Income and Assets Statement" in addition to filing a Wealth Statement under section 116, as discussed above. The minimum threshold of foreign assets and foreign income for filing of the 'Foreign Income and Assets Statement' is as follows:
(a) Foreign income equal to or in excess of USD 10,000; and
(b) Foreign assets with a value of USD 100,000 or more.
The following particulars are to be incorporated in the 'Foreign Income and Assets Statement' to be filed by the person:
(a) Total foreign assets and liabilities as on the last day of the tax year;
(b) Any foreign assets transferred by the person to any other person during the tax year and the consideration for the said transfer; and
(c) Complete particulars of foreign income, the expenditure incurred during the tax year and the expenditure wholly and necessarily for the purposes of deriving the said income.
Like section 116 of the I.T. Ordinance,2001, section 116A also empowers the Commissioner to issue a notice to a person (being an individual) who was required to furnish the 'Foreign Income and Assets Statement' and has failed to do so, to furnish such a statement on the date specified in the notice. However, the Commissioner is required to give reasons in writing on the basis of which he has issued such a notice.
It is pertinent to highlight that unlike section 116, which authorizes the revision of a Wealth Statement (in case where any omission or wrong statement is made therein), section 116A does not provide for the revision of the 'Foreign Income and Assets Statement'.
30. Return of income
Sections 114 and 118
Consequent to the insertion of section 116A, an amendment is also proposed in section 114, whereby resident individuals filing a Statement of Foreign Income and Assets under Section 116A, are required to furnish a return of income under section 114. A consequent amendment is also proposed in section 118 of the Ordinance, which deals with the method of furnishing returns and other documents.
31. Recovery of tax
Section 140
Currently, on payment of 25% of the tax due against an order issued under sections 121, 122, 143.144, 162, 170, 182 or 205, a taxpayer is entitled to an automatic stay against the recovery of the remaining amount, till the matter is decided by the Commissioner (Appeals).
The Bill now proposes to reduce the threshold of payment of 25% to 10% of the tax demand.
32. Penalties
Section 182
It has time and again been held by the Courts that the main purpose of levying penalties is to educate the taxpayers and instill a sense of compliance, rather than to create tax demands to achieve revenue targets. Not only has it been highlighted that some of the penalties for non-compliance, like those for late filing of tax returns and statements, are excessive and exorbitant, but it has also been pointed out that in some cases, the law stands as a naked sword for unmindful taxpayers as there is no statute of limitation provided in the law with regard to imposition of penalties, resulting in severe hardship to taxpayers.
It seems, however, that the government has yielded a deaf ear to all such proposals, which in our view would also help in broadening the tax base, as the severity of penalties has also played a big role in keeping away persons from the tax net.
The amendments made so far in section 182 of the Ordinance are in fact inclined towards increasing the number of penalties, with reference to non-compliance with some of the later introduced provisions containing compliance requirements. In line with the introduction of filing of the Foreign Income and Assets Statement under section 116 of the Ordinance, a new entry is proposed in section 182 for a penalty in case such a statement is not filed by the due date. This penalty is proposed to be 2% of the foreign income or value of the foreign assets, for each year of default.
In addition, the Bill also seeks to rationalize the penalty for failure to file statements, under sections 115, 165, 165A or 165B of the Ordinance, from the existing penalty of Rs.2,500 for each day of default subject to a minimum penalty of Rs.10,000. It is now proposed to impose a fixed penalty of Rs.5,000, where the person has already paid tax within the due date, and has duly filed the statements within ninety days of the due date. The suggested amendment also includes an amount of Rs.10,000, which in our view is ambiguous and contradictory and should be appropriately amended, before the Bill is approved.
33. Disclosure of information by public servant
Section 216
The section was initially introduced for the purpose of preventing disclosure of information by public servants and to maintain the confidentiality of statements, returns, documents and evidences submitted by taxpayers. It also includes certain exceptions provided in order to allow disclosure in certain circumstances. The Bill proposes to extend such exceptions to the National Database and Registration Authority for the purpose of broadening of the tax base, by adding clause (kb) to sub-section 3 of section 216.
34. Appeal to the Appellate Tribunal - stay of tax demand
Section 131(5)
The Appellate Tribunal Inland Revenue is empowered to grant a stay of tax demand to a taxpayer who is in appeal before the Appellate Tribunal, upon filing an application seeking such stay. In terms of sub-section (5), an aggregate period of one hundred and eighty days has been provided, for which the Appellate Tribunal is empowered to stay the tax demand. It is seen that in some cases, while the appeal remained pending, the stay granted by the Appellate Tribunal expired after the aforesaid period lapsed and the taxpayers were left with no option but invoke the extra ordinary jurisdiction of the High Court by way of filing Constitution Petitions. In the case of Dowell Schlumberger Vs. Federation of Pakistan (2016 PTD 1702), the Hon'ble Islamabad High Court has held that the time period specified in section 131(5) of the Ordinance is directory, and where the appeal is not decided within the said period, the stay granted by the Appellate Tribunal would continue till the decision of the appeal. Following this judgement, the Appellate Tribunal, in many cases, has ordered that the stay granted by it will continue till the decision of the appeal, notwithstanding that the period of one hundred and eighty days has expired.
The Bill intends to undo the effect of the aforesaid judgement of the Hon'ble Islamabad High Court. It has been proposed that the stay order issued by the Appellate Tribunal, shall cease to have effect on the expiration of the period of one hundred and eighty days, after which the Commissioner will be empowered to recover the disputed tax demand.
35. Bar of suits in Civil Courts
Section 227
The provisions of section 227 of the Ordinance contains a bar as to the filing of a Suit or other legal proceedings in a Civil Court, against any order or rules made or intended to be made, during the proceedings undertaken by FBR officials under the Ordinance. However, it is seen that in a number of cases, show cause notices issued as well as orders passed by the FBR officials under the Ordinance are challenged in High Courts through Suits filed by the taxpayers, which resulted in ad-interim orders in favour of the taxpayers, and in some cases even the quashment of such proceedings. In a recent judgement given by the Hon'ble Sindh High Court in the case of Naveena Industries in HCA 263 of 2016, the assessment of customs duty was challenged (in a suit filed) and the Hon'ble High Court has held that the normal procedure (of appeal) available in the Customs Act, 1969 was to be followed, thus the suit filed was held not maintainable. Following this judgement, the Hon'ble Sindh High Court dismissed certain suits filed in other tax matters. This judgement in the Naveena Industries case was challenged in the Hon'ble Supreme Court, which has suspended the operation thereof and the matter is pending a decision.
The Bill intends to expand the scope of the bar contained in section 216 of the Ordinance to the effect that in addition to the bar on filing a Suit against an order passed by the Board officials, the specific mention of notices issued is proposed to be inserted. In addition, it is also proposed to insert an explanation to provide that the term 'Civil Court' used in section 216, includes any court exercising the power of the Civil Court. This appears to negate the powers of the High Courts, which act as Civil Courts in suits filed before them in tax matters.
36. Transactions between associates
Section 108
Section 108 of the Ordinance empowers the tax authorities to examine the transactions between associates on the arm's length principle. However, these requirements, as originally framed, did not require the tax payer to maintain any documents or files in relation to such transactions. The Finance Act, 2016 introduced the requirement to maintain specified documents, including a Country-by-Country (CBC) report, in line with the Organization for Economic Co-Operation and Development's (OECD) Action Plan on Base Erosion and Profit Shifting (BEPS). Subsequently, detailed Rules on the mode and manner of preparing and submitting the CBC report and other documents, under certain circumstances, were issued. However, since the Rules are subordinate to the Ordinance, there were arguments that the CBC Report may not legally be required to be furnished to the tax authorities.
In order to harmonize the requirement of submission of the CBC report and other documents as prescribed under the Rules, the Bill now seeks to insert a requirement in section 108 to maintain and furnish the CBC Report as prescribed, and to provide other documents when requested by the tax authorities.
37. Claim of credit by a company being a member of an Association of Person
Section 168, Sub-section (2)
The bill seeks to amend Sub-section (2) of section 168 of the Ordinance by giving reference to the newly inserted sub-sections (2A) and (2B). Through the above insertion of sub-section (2A), the claim of credit of taxes deducted and collected at source is proposed to be rationalized for a company, being a member of an Association of Persons (AOP) and is being taxed in accordance with section 92 of the Ordinance. In terms of section 92, shares of a company being a member of an AOP, are to be excluded for the purposes of computing its total income, or the company shall be taxed separately according to their respective share in the AOP. The bill seeks to provide for an explicit mechanism in the Ordinance, for the purpose of claiming credit of tax deducted or collected from its income earned from the AOP. The tax credit in respect of tax collected or deducted from the AOP is to be worked out as under:
(A/B) x C
where -
A. is the amount of share of profits before tax received by the company as a member from the association of persons;
B. is the taxable income of the association of persons; and
C. is the amount of tax withheld in the name of the association of persons.
The Bill further seeks to insert a new sub-section (2B) for clarity purposes. The said sub-section provides that no tax credit shall be allowed to the AOP for which credit has been allowed under sub-section (2A) to such company being a member of an AOP.
38. Appointment in special audit panel
Section 177, Sub-section (11), Clause (d)
Under the existing provisions of section 177, the Board is empowered to appoint special audit panels for the purpose of conducting tax audit, including forensic audit of a person or classes of persons, within the parameters as determined by the Board.
In relation to appointment of special audit panels by the Board, the Bill proposes to include the following:
-- A foreign expert or specialist; and/or
-- A Tax audit expert deployed under an audit assistance programme of an international tax organization or a tax authority outside Pakistan.
Provided that in case the member is not an Officer of Inland Revenue, the person shall only be included as a member in the special audit panel, if an agreement of confidentiality has been entered into between the Board and the person, an international tax organization or a tax authority.
39. Selection of cases for audit
Clause 105 Part IV of Second Schedule
Sections 177 and 214C respectively empowers the Commissioner and the Board to select the case of a tax payer for conducting tax audit. Further, the fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years, where there are reasonable grounds for such audits.
The bill proposes to insert Clause 105 in Part IV of the Second Schedule, whereby provisions of sections 177 and 214C have been made inapplicable, in cases where the income tax affairs of the tax payer have been audited in any of the preceding 3 tax years. However, as an exception to these newly proposed restrictions on the selection of cases for audit, a proviso is also proposed to be inserted whereby the Commissioner Inland Revenue is empowered to select a person's case for an audit with the approval of the Board.
40. Threshold limits for non-deduction of tax from payments of goods and services
Section 153
Currently, the threshold limits prescribed for non-deduction of tax from payments made on account of sale of goods or rendering of services, is governed through SRO 586(I)/91 dated 30 June, 1991. These limits are to be considered on a financial year basis for each vendor/ service provider. The prescribed threshold payments are listed as under:
===================================================
Nature of payment Threshold Limit
===================================================
Sales of goods Rs.25,000 in a financial year
Services rendered Rs.10,000 in a financial year
===================================================
The Bill now seeks to enhance the above limits by proposing amendments directly in section 153 of the Ordinance, through which the existing limits are enhanced to Rs.75,000 and Rs.30,000, respectively.
Further, the Bills seeks to expand the scope of the meaning of a prescribed person, as provided under sub-section (7) of section 153 of the Ordinance, to include the following:
-- A person deriving income from the business of construction and sale of residential, commercial, or other buildings (builders); or
-- A person deriving income from the business of development and sale of residential, commercial or other plots (developers).
Further, certain other editorial amendments have been proposed in the definition of a prescribed person, in order to synchronize it with the existing law.
41. Tax on sale of certain petroleum products
Section 236HA and Division XVA of Part IV of the First Schedule
The Bill seeks to insert a new section requiring collection of tax by every person selling petroleum products to a petrol pump operator or distributor, where such operator or distributor is not allowed a commission or discount. The collection of tax is to be made on ex-depot sales price of such products at the following rates:
-- For filers 0.5%
-- For non-filers 1%
The tax deductible is proposed to be a final tax on the income arising from the sale of the aforesaid petroleum products.
42. Validation
Section 241, Sub-section (2)
It would be recalled that the Hon'ble Supreme Court of Pakistan issued a judgement in relation to Article 90 of the Constitution of Islamic Republic of Pakistan, subsequent to the 18th Constitutional amendment in April 2010, with regards to the regulation of the authority of the Federal Government. In order to address the implications of the said judgement, the Finance Act, 2017 had introduced a new section 241 whereby all notifications and orders issued and notified, in exercise of the powers conferred upon the Federal Government, before the first day of July, 2017 were deemed to have been validly issued.
The Bill now proposes to insert a new sub-section, through which it validates all the orders passed, notices issued and actions taken in exercise or purported exercise of the powers and functions of the Commissioner Inland Revenue under the Ordinance, by the Directorate-General (Intelligence and Investigation), Inland Revenue or the authorities specified in section 230 of the Ordinance.
43. Advance tax on purchase or transfer of immovable property
Section 236K, sub-section (3) and Division XVIII of Part IV of the First Schedule
Section 236K of the Ordinance deals with the collection of advance tax on purchase or transfer of immovable property. The Bill seeks to insert a new sub-section, which requires that the tax shall also be collected on installment payments for purchase of allotment of any immovable property, where transfer of such property is made subsequently after payment of all the installments. The advance tax is to be collected at the following rates:
========================================================================================
Period Rate of tax
========================================================================================
Where value of immovable property is up to 4 million 0%
Where value of immobile property is more than 4 million Filer 2% Non-filer 4%
========================================================================================
Provided that the rate of tax for non-filers shall be 1%, from the date appointed by the Board through notification in the Official Gazette.
44. Directorate General of Immovable Property
Section 230F
It is evident that the background to the insertion of this section is the announcement of an Economic Reforms Package on 8th April, 2018 by the Prime Minister of Pakistan, which included four Ordinances providing, inter-alia, schemes for the declaration of foreign and local assets, certain amendments in the Income Tax Law and Foreign Exchange Laws. The measures in the package included steps to curb avenues of parking black money and enable the tax authorities to acquire immovable properties declared as having been acquired / transferred at less than fair market values. Through the proposed section 230F, the tax authorities appear to have been handed a powerful tool to control the purchases and transfers of immovable properties, that has raised speculation on its misuse through the unwarranted harassment of taxpayers.
The proposed new section 230F creates two new authorities: a Directorate-General of Immovable Property; and an Appellate Tribunal of Immovable Property. It empowers the Directorate-General of Immovable Property to initiate proceedings for the acquisition of property based on an independent valuation which confirms that:
a) Immovable property has been transferred by one person to another for a consideration less than fair market value;
b) Such consideration has been understated in the instrument of transfer;
c) The fair market value of property exceeds the consideration by more than 50% of the consideration
The intention for such understatement is:
-- Avoidance or reduction of withholding tax on transfer;
-- Concealment of unexplained amount invested in immovable property u/s 111(1); or
-- Avoidance or reduction of capital gain tax under section 37
The Directorate-General of Immovable Property may not initiate proceedings after the lapse of six months from the end of the month in which the subject transfer was registered, recorded or attested. The provisions of the proposed section will also only apply to transfers of property by sale, exchange or lease of terms of at least ten years. In any such case, prior to initiation of the proceedings, the transferee will be provided an opportunity of being heard.
The transferee has right of appeal to the Appellate Tribunal of Immovable Property against an order of the Directorate-General of Immovable Property, and thereafter to the High Court.
For any immovable property acquired through proceedings under this section, the Board will pay the consideration for such acquisition to the entitled person(s) at a sum equal to the consideration for transfer of the immovable property, plus 100% of such consideration.
It is interesting to note that proposed section places the burden of establishing justification for the declared consideration, for purchase or transfer of immovable property, squarely on the shoulders of the transferee while apparently absolving the transferor of any accountability, which may raise further objections to its implementation.
All transfer taxes applicable under the Federal Law will stand replaced by a 1% Federal Tax which will become applicable on such date to be notified by the Federal Government.
It is expected that proper rules of business of the Directorate General of Immovable Property and Appellate Tribunal of Immovable Property will be prescribed in due course of time.
45. Tax credit for investment in shares and life insurance premium paid
Section 62
This section provides for tax credit to encourage investment in shares, sukuks and life insurance by a resident person other than a company. A tax credit in the ratio of a person's assessed tax to the person's taxable income in a tax year is presently allowed up to the lesser of the cost of acquiring the shares/ premium paid, or 20% of the person's taxable income for the year, or Rs.1.5 million. The Bill now seeks to enhance the limit of Rs.1.5 million to Rs.2 million.
a) Removal of statute of limitation for taxing undeclared foreign assets and income
Under the provisions of section 111, all undeclared, concealed or unexplained assets were chargeable to tax in the tax year to which such amount was related, i.e. such discovered income or asset was to be added to the income of the tax year to which it related. This has been fundamentally changed with regard to concealed foreign assets and concealed foreign source income.
In respect of foreign assets and foreign income, the concept of taxability in the year of acquisition has been replaced with the 'year of discovery', while for income or assets that are not foreign sourced, the concept of 'year of acquisition' remains intact.
This would mean that if the tax authorities have found a person holding foreign income or assets, which have not been declared, they are now empowered to require such person to file a return in respect of such foreign assets and foreign income for any prior tax year without any time limitation. For this purpose, section 114 of the Ordinance has suitably been amended authorizing the Commissioner to issue such a notice while recording the reasons of issuing the notice in writing.
Moreover, the Bill proposed to insert an explanation to clarify that if the source of foreign asset, income or expenditure which is discovered by the tax authorities is provided by the person, the tax authorities should not disregard it for the reason that the source does pertain to the year of discovery of foreign assets, income or expenditure or its immediate preceding tax year.
b) Limiting the immunity to foreign currency repatriation
In terms of Sub-section (4) of section 111, any amount of foreign exchange remitted to Pakistan through normal banking channels and encashed in Pak rupees enjoy immunity for income tax purposes as regards the source. This has now been restricted to Rs.10 million in a tax year.
It is to be noted that since the Income Tax (Amendment) Ordinance, 2018, was effective from the date of its promulgation, the above amendments came into force forthwith. This has apparently resulted in the lifting of the immunity from probe of remittances of foreign exchange to Pakistan, exceeding the threshold of Rs.10 million for the tax year 2018 as well, for which earlier an immunity under section 111(4) of the Ordinance was in place without any limitation. However, now the Bill also seeks to introduce the above provisions in section 111 of the Ordinance, which would be applicable for the periods starting from 01 July 2018. This has created an anomaly as regards the effective date of the above provisions.
46. Collection of tax by a Stock Exchange registered in Pakistan
Section 233A
Since 2004, Stock Exchanges in Pakistan are required to collect tax on purchase and sale value of shares traded by their members. Till the tax year 2008 the tax so collected was a final tax, which was subsequently made a minimum tax up till the tax year 2010. In tax year 2010, the tax so collected was made adjustable against the final tax liability of the members of the Stock Exchange or their customer as the case may be. However, the Finance Act, 2017 again made the tax collected by the Stock Exchange a full and final tax liability of the person from whom the tax has been collected.
The Bill now seeks to restore the position prior to the tax year 2017 by making the tax collected by the Stock Exchange adjustable against the final tax liability of the members of the Stock Exchange, or their customers as the case may be.
THE FIRST SCHEDULE
PART I
47. Rates of tax for Individuals and Association of Persons
Through Finance Bill 2018, the rates of tax applicable on every individual and AOPs have been reduced significantly to provide relief.
The income tax rates for individuals (salaried and non-salaried) were substantially reduced and harmonized by the Income Tax (Amendment) Ordinance, 2018 for the tax year 2019. As per the amended Ordinance, no tax was required to be paid by individuals deriving annual income upto Rs.1,200,000. The Finance Bill 2018 proposed that individuals deriving income from Rs.400,000 to Rs.1,200,000 instead of enjoying zero tax, should paynominal tax of Rs.1000, for individuals in income brackets ranging from Rs.400,001 to Rs.800,000, and Rs.2,000 for individuals in income brackets ranging from Rs.800,001 to Rs.1,200,000.
The rates of tax chargeable for individuals and AOPs for the tax year 2019 (corresponding to the income year ending at any time between 01 July 2018 to 30 June 2019) is proposed to be substituted as under:
Individuals
================================================================================
Taxable income Rate of tax
Up to Rs.400,000 0%
Rs.400,001 - 800,000 Rs.1000
Rs.800,001 - 1,200,000 Rs.2,000
Rs.12,00,001 - 2,400,000 5% of amount exceeding Rs.1,200,000
Rs.2,400,001 - 4,800,000 Rs.60,000 + 10% of amount exceeding 2,400,000
Amount exceeding Rs.4,800,000 Rs.300,000 + 15% of amount exceeding 4,800,000
================================================================================
Impact of change in rates of tax for tax year 2019 applicable to individuals who are currently regarded as salaried individuals
=============================================================================================
Taxable income per Tax incidence Decrease in taxincidence
=============================================================================================
Month Annum Before After Rupees % age
amendment amendment
=============================================================================================
35,000 420,000 400 1,000 (600) (150.00)
50,000 600,000 7,000 1,000 6,000 85.71
66,666 799,992 19,499 1,000 18,499 94.87
66,667 800,004 19,500 2,000 17,500 89.74
75,000 900,000 29,500 2,000 27,500 93.22
100,000 1,200,000 59,500 2,000 57,500 96.64
100,001 1,200,012 59,501 1 59,500 100.00
125,000 1,500,000 92,000 15,000 77,000 83.70
150,000 1,800,000 137,000 30,000 107,000 78.10
200,000 2,400,000 242,000 60,000 182,000 75.21
250,000 3,000,000 359,500 120,000 239,500 66.62
300,000 3,600,000 497,000 180,000 317,000 63.78
350,000 4,200,000 652,000 240,000 412,000 63.19
400,000 4,800,000 817,000 300,000 517,000 63.28
450,000 5,400,000 982,000 390,000 592,000 60.29
500,000 6,000,000 1,147,000 480,000 667,000 58.15
550,000 6,600,000 1,312,000 570,000 742,000 56.55
600,000 7,200,000 1,482,000 660,000 822,000 55.47
650,000 7,800,000 1,662,000 750,000 912,000 54.87
700,000 8,400,000 1,842,000 840,000 1,002,000 54.40
1,000,000 12,000,000 2,922,000 1,380,000 1,542,000 52.77
1,200,000 14,400,000 3,642,000 1,740,000 1,902,000 52.22
1,500,000 18,000,000 4,722,000 2,280,000 2,442,000 51.72
2,000,000 24,000,000 6,522,000 3,180,000 3,342,000 51.24
2,500,000 30,000,000 8,322,000 4,080,000 4,242,000 50.97
3,000,000 36,000,000 10,122,000 4,980,000 5,142,000 50.80
3,500,000 42,000,000 11,922,000 5,880,000 6,042,000 50.68
4,000,000 48,000,000 13,722,000 6,780,000 6,942,000 50.59
4,500,000 54,000,000 15,522,000 7,680,000 7,842,000 50.52
5,000,000 60,000,000 17,322,000 8,580,000 8,742,000 50.47
5,500,000 66,000,000 19,122,000 9,480,000 9,642,000 50.42
6,000,000 72,000,000 20,922,000 10,380,000 10,542,000 50.39
6,500,000 78,000,000 22,722,000 11,280,000 11,442,000 50.36
7,000,000 84,000,000 24,522,000 12,180,000 12,342,000 50.33
7,500,000 90,000,000 26,322,000 13,080,000 13,242,000 50.31
8,000,000 96,000,000 28,122,000 13,980,000 14,142,000 50.29
=============================================================================================
Impact of change in rates of tax for tax year 2019 in case of individuals who are currently regarded as non-salaried individuals
=============================================================================================
Taxable income per Tax incidence Decrease in taxincidence
=============================================================================================
Month Annum Before After Rupees % age
amendment amendment
=============================================================================================
35,000 420,000 1,400 1,000 400 28.57
50,000 600,000 17,000 1,000 16,000 94.12
66,666 799,992 39,499 1,000 38,499 97.47
66,667 800,004 39,501 2,000 37,501 94.94
75,000 900,000 54,500 2,000 52,500 96.33
100,000 1,200,000 99,500 2,000 97,500 97.99
100,001 1,200,012 99,502 1 99,501 100.00
125,000 1,500,000 144,500 15,000 129,500 89.62
150,000 1,800,000 204,500 30,000 174,500 85.33
200,000 2,400,000 324,500 60,000 264,500 81.51
250,000 3,000,000 469,500 120,000 349,500 74.44
300,000 3,600,000 619,500 180,000 439,500 70.94
350,000 4,200,000 779,500 240,000 539,500 69.21
400,000 4,800,000 959,500 300,000 659,500 68.73
450,000 5,400,000 1,139,500 390,000 749,500 65.77
500,000 6,000,000 1,319,500 480,000 839,500 63.62
550,000 6,600,000 1,529,500 570,000 959,500 62.73
600,000 7,200,000 1,739,500 660,000 1,079,500 62.06
650,000 7,800,000 1,949,500 750,000 1,199,500 61.53
700,000 8,400,000 2,159,500 840,000 1,319,500 61.10
1,000,000 12,000,000 3,419,500 1,380,000 2,039,500 59.64
1,200,000 14,400,000 4,259,500 1,740,000 2,519,500 59.15
1,500,000 18,000,000 5,519,500 2,280,000 3,239,500 58.69
2,000,000 24,000,000 7,619,500 3,180,000 4,439,500 58.26
2,500,000 30,000,000 9,719,500 4,080,000 5,639,500 58.02
3,000,000 36,000,000 11,819,500 4,980,000 6,839,500 57.87
3,500,000 42,000,000 13,919,500 5,880,000 8,039,500 57.76
4,000,000 48,000,000 16,019,500 6,780,000 9,239,500 57.68
4,500,000 54,000,000 18,119,500 7,680,000 10,439,500 57.61
5,000,000 60,000,000 20,219,500 8,580,000 11,639,500 57.57
5,500,000 66,000,000 22,319,500 9,480,000 12,839,500 57.53
6,000,000 72,000,000 24,419,500 10,380,000 14,039,500 57.49
6,500,000 78,000,000 26,519,500 11,280,000 15,239,500 57.47
7,000,000 84,000,000 28,619,500 12,180,000 16,439,500 57.44
7,500,000 90,000,000 30,719,500 13,080,000 17,639,500 57.42
8,000,000 96,000,000 32,819,500 13,980,000 18,839,500 57.40
=============================================================================================
Based on the above calculations, a maximum relief in tax incidence of around 97% may be witnessed in view of the amended tax rates for individuals.
Association of Persons (AOPs)
=====================================================================================
Taxable Income Rate of tax
=====================================================================================
Up to Rs.400,000 0%
Rs.400,001 - 1,200,000 5% of amount exceeding Rs.400,000
Rs.1,200,001 - 2,400,000 Rs.40,000 + 10% of amount exceeding Rs.1,200,000
Rs.2,400,001 - 3,600,000 Rs.160,000 + 15% of amount exceeding Rs.2,400,000
Rs.3,600,001 - 4,800,000 Rs.340,000 + 20% of amount exceeding Rs.3,600,000
Rs.4,800,001 - 6,000,000 Rs.580,000 + 25% of amount exceeding Rs.4,800,000
Amount exceeding Rs.6,000,000 Rs.880,000 + 30% of amount exceeding Rs.6,000,000
=====================================================================================
48. Rates of tax for companies
Rates of tax for companies, for the tax years 2019 through 2023 are proposed to be revised. However, the rates for the Banking Companies and Small Companies have remained unchanged. The proposed revised rates are as under:
==============================================================================================================
Companies Rate
==============================================================================================================
Existing
(Tax year Tax year Tax year Tax year Tax year Tax year
2018) 2019 2020 2021 2022 2023 and
onwards
==============================================================================================================
Public and Private 30% 29% 28% 27% 26% 25%
Cooperative and Finance Society 30% 29% 28% 27% 26% 25%
Banking 35% 35% 35% 35% 35% 35%
Small 25% 25% 25% 25% 25% 25%
==============================================================================================================
49. Rates of Super tax for rehabilitation of temporarily displaced persons
The levy of super tax for rehabilitation of temporarily displaced persons under Section 4B, is proposed to be retained up to tax year 2021 for banking companies and persons other than banking companies having income of Rs.500 million and above.
However, the rate is proposed to be reduced by 1% for each successive year starting from the tax year 2019 as under:
==============================================================================================
Person Rate of Super Tax
Existing Tax year Tax year Tax year
(Tax year 2018) 2019 2020 2021
==============================================================================================
Banking company 4% 3% 2% 0%
Persons other than a banking company,
having income equal to or exc 3% 2% 1% 0%
==============================================================================================
50. Rates of withholding and charge of tax on dividend income
Rate of withholding and charge of tax on dividends received by all taxpayers for the tax year 2019, remains unchanged, except for a new proviso inserted in Division I, Part III of the First Schedule to the Ordinance, whereby the tax on dividends received by an individual from a Rental REIT Scheme, has been proposed to be reduced from 12.5% to 7.5%.
The rate of tax on dividend for tax year 2019 would be as under:
==============================================================================================
Rate
==============================================================================================
Dividend from Filer Non-Filer
==============================================================================================
Companies owning power projects privatized by WAPDA, companies set- 7.5% 7.5%
Others 15% 20%
Mutual Fund (Stock Fund) 12.5% 12.5%
Stock fund, if dividend receipts are less than capital gains 12.5% 12.5%
Money Market Fund, Income Fund or REIT scheme or any other fund*
Company 25% 25%
Other than company 12.5% 15%
==============================================================================================
-- Provided that the rate of tax on dividend received by an individual from a Rental REIT Scheme shall be 7.5%.
51. Rates of tax on profit on debt
The rates of tax on profit on debt for the tax year 2019 have remained unchanged and are as under:
======================================================================================
Profit on debt Rate
======================================================================================
Where profit on debt does not exceed Rs.5,000,000 10%
Where profit on debt exceeds Rs.5,000,000 but does not exceed Rs.25,000,000 12.5%
Where profit on debt exceeds Rs.25.000,000 15%
======================================================================================
52. Rates of Tax on Return on investments in Sukuks received from a special purpose vehicle.
Rates of tax on return on investments in Sukuks received from a special purpose vehicle have remained unchanged and are as under:
=================================================================
Sukuks Holder Amount of return on investment Rate
=================================================================
Company Any amount 25%
Individual or AOP Exceeding one million 12.5%
Individual or AOP Not exceeding one million 10%
=================================================================
53. Rates of tax for non-resident taxpayers for certain transactions
The Bill proposes to introduce a new category of tax on payments to non-residents on account of fee for offshore digital services at 5%.
The applicable rates of tax for tax year 2019 on certain income ofnon-residents are as under:
==================================================================
Type of payment Rate
Existing Proposed
==================================================================
Fee for offshore digital services Not applicable 5%
Technical services fee 15% No change
Royalty 15% No change
Shipping income 8% No change
Air transport income 3% No change
==================================================================
54. Income from property
The rates of tax on income from property in the case of individuals and AOPs have remained unchanged as under:
=======================================================================================
Gross amount of rent Rate
=======================================================================================
Up to Rs.200,000 Nil
Rs.200,001 to 600,000 5% of the amount exceeding Rs.200,000
Rs.600,001- 1,000,000 Rs.20,000 plus 10% of the amount exceeding Rs.600,000
Rs. 1,000,001- 2,000,000 Rs.60,000 plus 15% of the amount exceeding Rs.1,000,000
Over Rs.2,000,000 Rs.210,000 + 20% of the amount exceeding Rs.2,000,000
=======================================================================================
The above rates also apply for the purpose of withholding of tax from rent of immovable property.
The withholding tax rates in the case of a company for filers and non-filers remain unchanged at 15% and 17.5%.
55. Rates of tax on capital gains on securities
The rate card for levying tax on capital gains arising on sale of securities, as referred to in Section 37A, have remained unchanged as under:
=================================================================================================================================================================
Holding period Tax Year
=================================================================================================================================================================
2017 2018 and 2019
Security acquired Security acquired
before 01 July 2016 on or after
01 July 2016
=================================================================================================================================================================
Filer Non-filer Filer Non-filer Filer Non-Filer
=================================================================================================================================================================
Less than 12 months 15% 18% 15% 18% 15% 20%
More than 12 months but less than 24 months 12.5% 16% 12.5% 16%
More than 24 months but then security was acquired on or after 01 July 2013 7.5% 11% 7.5% 11%
Where the security was acquired before 01 July 2013 0% 0% 0% 0% 0% 0%
Future commodity contracts entered into by the members of Pakistan Mercantile Exchange. 5% 5% 5% 5% 5% 5%
=================================================================================================================================================================
56. Rate of tax on capital gain on immovable property
The Bill seeks to replace sub-section (4) of section 236C by inserting a proviso to sub-section (1) of section 236C of the Ordinance whereby the capital gain in respect of sale of immovable properties is to be taxed at 0% irrespective of where the seller falls in Serial No. 1 in the below table. Rates of tax on capital gain on immovable property are unchanged, as under:
====================================================================================
Holding period of immovable property Period Rate
====================================================================================
Immovable property allotted to persons mentioned Any holding period 0%
in proviso to Sub-section (1) of section 236C.
This applies to the seller being the:
dependent of a Shaheed belonging to
Pakistan Armed Forces; or
a person who dies while in the service
of the Pakistan Armed Forces or the
Federal/ Provincial Government,
in respect of the first sale of immovable
property acquired from or allotted by
the Federal Government or Provincial
Government or any authority duly
certified by the official allotment authority,
and the property acquired or
allotted is in recognition of or
for services rendered by the
Shaheed or the person
who dies in service.
Immovable property acquired Up to 1 year 10%
on or after 01 July 2016 Equal to or more than 7.5%
1 year but less than 2 years
Equal to or more than 5%
2 years but less than
3 years
More than 3 years 0%
Immovable property acquired Up to 3 years 5%
before 01 July 2016 More than 3 years 0%
====================================================================================
57. Advance tax on builders
The tax on builders remains unchanged as under:
==================================================================
Karachi, Lahore Hyderabad, Sukkur, Multan Urban Areas
& Islamabad Faisalabad, Rawalpindi, not specified
Gujranwala, Sahiwal,
Peshawar, Mardan,
Abbottabad, Quetta
==================================================================
For commercial buildings
==================================================================
Rs.210/Sq.Yd Rs.210/Sq.Yd Rs.210/Sq.Yd
===============================================================================================================
For residential building
===============================================================================================================
Area in Sq. Yd Rate/Sq.Yd Area in Sq. Yd Rate/Sq.Yd Area in Sq. Yd Rate/Sq.Yd
Rs. Rs. Rs.
===============================================================================================================
Up to 750 20 Up to 750 15 Up to 750 10
751 to 1500 40 751 to 1500 35 751 to 1500 25
1501 & more 70 1501 & more 55 1501 & more 35
===============================================================================================================
58. Advance tax on developers
The tax on developers remains unchanged as under:
===============================================================
Karachi, Lahore Hyderabad, Sukkur, Multan Urban Areas
& Islamabad Faisalabad, Rawalpindi, not specified
Gujranwala, Sahiwal,
Peshawar, Mardan,
Abbottabad, Quetta
===============================================================
For commercial buildings
===============================================================
Rs.210/Sq.Yd Rs.210/Sq.Yd Rs.210/Sq.Yd
===============================================================================================================
For residential building
===============================================================================================================
Area in Sq. Yd Rate/Sq.Yd Area in Sq. Yd Rate/Sq.Yd Area in Sq. Yd Rate/Sq.Yd
Rs. Rs. Rs.
===============================================================================================================
Up to 120 20 Up to 120 15 Up to 120 10
121 to 200 40 121 to 200 35 121 to 200 25
201 & more 70 201 & more 55 201 & more 35
===============================================================================================================
59. Minimum Tax
The rates of minimum tax as a percentage of the taxpayers' turnover have remained unchanged as under:
===================================================================================
Taxpayer Rate
===================================================================================
Existing Proposed
===================================================================================
a) Oil marketing companies, oil refineries, Sui Southern
Gas Company Limited and Sui Northern Gas Pipelines
Limited (where annual turnover exceeds Rs.1 billion)
b) Pakistan International Airlines Corporation
c) Poultry industry including breeding, broiler
production, egg production, feed production
d) Dealers or distributors of fertilizers 0.5% No change
a) Distributors of pharmaceutical products,
fast moving consumer goods and cigarettes
b) Petroleum agents and distributors
registered under the Sales Tax Act, 1990
c) Rice mills and dealers
d) Flour mills 0.2% No change
Motorcycle dealers registered 0.25% No change
under the Sales Tax Act 1990
In all other cases 1% 1.25%
===================================================================================
PART II
60. Advance tax on imports
The Bill seeks to include coal importers in the list of persons from whom advance tax is required to be collected at the time of import under section 148 of the Ordinance. The updated table specifying the rates of tax at import stage are as under:
==================================================================================================
Taxpayer Rate
==================================================================================================
(% of import value as increased
by customs duty, sales tax
and federal excise duty)
==================================================================================================
Filer Non-Filer
==================================================================================================
Industrial undertaking importing remeltable steel
(PCT Heading 72.04) and directly reduced iron for its own use 1% 1.5%
Persons importing plastic fertilizers in pursuance
of Economic Coordination Committee of the
cabinet's decision No. ECC-155/12/2004 dated 9 December 2004
Persons importing urea
Manufacturers covered under Notification No. S.R.O.
1125 (I)/2011 dated 31 December 2011
Persons importing Gold; and
Persons importing Cotton
Persons importing pulses 2% 3%
Commercial importers covered under Notification
No. S.R.O. 1125 (I)/2011 dated 31 December 2011 3% 4.5%
Persons importing coal 4% 6%
Ship breakers on import of ships 4.5% 6.5%
Industrial undertakings not covered above 5.5% 8%
Companies not covered above 5.5% 8%
Persons not covered above 6% 9%
==================================================================================================
PART III
61. Advance tax on profit on debt
The advance tax rate remains unchanged at 10% for filers and 17.5% for non-filers (10% if the yield or profit paid is below Rs. 500,000.)
62. Advance tax on return on investments in Sukuks received from a special purpose vehicle.
Rate of withholding tax to be applied on payments made to investors in relation to return on Sukuks have remained unchanged as under:
=====================================================
Sukuks Holder Rate
=====================================================
Company 15%
Individual or AOP (More than one million) 12.5%
Individual or AOP (Less than one million) 10%
Non-filers 17.5%
=====================================================
63. Payments to non-residents
The withholding tax rates on payments to non-residents remains unchanged except for withholding tax rates in case of non-filers on certain payments are as under:
=======================================================================================================
Taxpayer Rate
=======================================================================================================
Existing Proposed
=======================================================================================================
Technical services fee 15% No change
Royalty 15% No change
Fee for offshore digital services Not applicable 5%
Shipping income 8% No change
Air transport income 3% No change
Execution of a contract
-contract or sub-contract under a construction, assembly
or installation project in Pakistan, including a contract for
the supply of supervisory activities in relation to such project.
Filer 7% No change
Non-Filer 13% No change
Insurance premium/re-insurance premium 5% No change
Others (excluding those specifically mentioned herein) 20% No change
Advertisement services to a media person relaying from outside Pakistan 10% No change
Receipt on account of sale of goods by a PE of a non-resident in Pakistan
Company
Filer 4% No change
Non-filer 7% No change
Other Taxpayers
Filer 4.5% No change
Non-filer 7.75% No change
Receipt on account of rendering of services through a PE
Transport services 2% No change
Other than transport (if company)
Filer 8% No change
Non-filer 14% No change
Others (excluding those mentioned herein)
Filer 10% No change
Non-filer 17.5% No change
Receipt on account of execution of contract through
a PE other than a contract for sale of goods or
rendering of services
Sports person 10% No change
Other person
Filer 17% No change
Non-filer 13% No change
=======================================================================================================
64. Advance income tax on payment to resident on payments for goods, services and execution of contract
The rates of withholding tax on account of sale of rice, cotton seed or edible oils and supplies made by the distributor of fast moving consumer goods remains unchanged as under:
==================================================================
Types of Payment Rate
==================================================================
Sale of rice, cotton seed or edible oils 1.5%
Supplies made by distributers of fast moving consumer goods
Company 2%
Other than company 2.5%
==================================================================
The Bill seeks to enhance the rate of withholding tax for non-filer when making payments on account of goods, services and contracts are proposed to be as under:
==================================================================================
Types of Payment Rate
==================================================================================
Existing Proposed
Filer Non-Filer Non-Filer
==================================================================================
For supply of goods
Company 4% 7% 8%
Other than company 4.5% 7.75% 9%
Transport services 2% No change
Rendering of or providing of services
Company 8% 14.5% No change
Other than company 10% 17.5% No change
Electronic and print media advertising services
Company 1.5% 12% No change
Other than company 1.5% 15% No change
On the execution of contract
Company 7% 12% 14%
Other than company 7.5% 12.5% 15%
==================================================================================
65. Exports
Rate of collection of advance tax for exports, indenting commission and services to export house remains unchanged as under:
==========================================================================
Types of Payment Rate
==========================================================================
Export proceeds
Proceeds from sale of goods to an exporter under 1% of export proceeds
an inland back-to-back letter of
credit or any other arrangement
Export of goods by an industrial undertaking
located in an Export Processing Zone 1%
Collection by collector of customs
at the time of clearing of goods exported 1%
Indenting commission 5%
==========================================================================
66. Income from property
The rates of tax on income from property have remained unchanged as under:
For Individuals and Association of Persons
====================================================================================
Gross amount of rent Rate
====================================================================================
Up to Rs.200,000 Nil
Rs.200,001 to 600,000 5% of the amount exceeding Rs.200,000
Rs.600,001- 1,000,000 Rs.20,000 plus 10% of the amount exceeding Rs.600,000
Rs. 1,000,001- 2,000,000 Rs.60,000 plus 15% of the amount exceeding Rs.1,000,000
====================================================================================
For Companies
The rate of tax to be deducted on payment for rent in the case of company shall be 15% of the gross amount of rent for filers and 17.5% of the gross amount of rent for non-filers.
67. Tax on prize and winnings
The rate of withholding tax on prize bonds, cross-word puzzles and prize on winnings remains unchanged as under:
===================================================================================
Description Rate
===================================================================================
Filer Non-Filer
===================================================================================
Prize on prize bond and cross-word puzzle 15% 25%
Winnings from a raffle, lottery, prize on winning
a quiz, prize offered by a company for promotion of sale 20% 20%
===================================================================================
68. Tax on Petroleum Products
The rates of withholding tax on Petroleum Products remain unchanged as under:
====================================================
Description Rate
====================================================
Filer Non-Filer
====================================================
Petroleum products 12% 17.5%
====================================================
69. Tax on CNG Station
The withholding tax rate in the case of a Compressed Natural Gas station remain unchanged at 4% for filers and 6% for non-filers.
PART IV
70. Collection of advance income tax on Brokerage and Commission
The rates for collection of advance tax remains unchanged as under:
=======================================================================
Description Rate
=======================================================================
Filer Non-Filer
=======================================================================
For advertising agents 10% 15%
Life insurance agent where commission received
is less than Rs.500,000 per annum 8% 16%
Persons not covered above 12% 15%
=======================================================================
71. Rates for collection of tax by a Stock Exchange registered in Pakistan
The rates for collection of advance tax remains unchanged as under:
====================================================================
Description Rate
====================================================================
Purchase of shares as per Clause (a)
of Sub-section (1) of Section 233A 0.02% of purchase value
Sale of shares as per Clause (b)
of Sub-section (1) of section 233A 0.02% of sale value
====================================================================
72. Collection of tax by NCCPL
The rate of collection by NCCPL on profit or markup or interest earned by the member, margin financier or securities lender remains unchanged at 10%.
73. Collection of tax on motor vehicles
The rate of collection of tax remains unchanged as under:
==============================================================================================
Vehicle type Per seat per annum
==============================================================================================
Filer Non-Filer
==============================================================================================
Passenger Transport Vehicle having Capacity
Four or more persons but less than ten persons. Rs.50 Rs.100
Ten or more persons but less than twenty persons Rs.100 Rs.200
Twenty persons or more Rs.300 Rs.500
Private Motor Vehicle Engine Capacity
Upto 1000cc Rs.800 Rs.1,200
1001cc to 1199cc Rs.1,500 Rs.4,000
1200cc to 1299cc Rs.1,750 Rs.5,000
1300cc to 1499cc Rs.2,500 Rs.7,500
1500cc to 1599cc Rs.3,750 Rs.12,000
1600cc to 1999cc Rs.4,500 Rs,15,000
2000cc to & above Rs.10,000 Rs.30,000
Motor vehicle having Engine Capacity (collected in lump sum)
Upto 1000cc Rs.10,000 Rs.10,000
1001cc to 1199cc Rs.18,000 Rs.36,000
1200cc to 1299cc Rs.20,000 Rs.40,000
1300cc to 1499cc Rs.30,000 Rs.60,000
1500cc to 1599cc Rs.45,000 Rs.90,000
1600cc to 1999cc Rs.60,000 Rs,120,000
2000cc to & above Rs.120,000 Rs.240,000
==============================================================================================
74. Collection of tax on electricity consumption
The rates for tax on the gross amount of electricity bill has remained unchanged as under:
==================================================================================================
Description Tax Amount
==================================================================================================
does not exceed Rs.400 Rs.0
exceeds Rs.400 but does not exceed Rs. 600 Rs.80
exceeds Rs.600 but does not exceed Rs. 800 Rs.100
exceeds Rs. 800 but does not exceed Rs.1,000 Rs.160
exceeds Rs.1,000 but does not exceed Rs.1,500 Rs.300
exceeds Rs.1,500 but does not exceed Rs.3,000 Rs.350
exceeds Rs.3,000 but does not exceed Rs.4,500 Rs.450
exceeds Rs.4,500 but does not exceed Rs.6,000 Rs.500
exceeds Rs.6,000 but does not exceed Rs. 10,000 Rs.650
exceeds Rs.10,000 but does not exceed Rs.15,000 Rs.1,000
exceeds Rs.15,000 but does not exceed Rs.20,000 Rs.1,500
exceeds Rs.20,000 i. At the rate of 12% for commercial consumers
ii. At the rate of 5% for industrial consumers
==================================================================================================
75. Collection of Advance Taxon Telephone Users
The rate of withholding tax on subscribers of internet, mobile telephone and pre-paid internet or telephone cards have remained unchanged as under:
=============================================================================================================
Description Rate
=============================================================================================================
Telephone subscriber where the amount
of monthly bill exceeds Rs.1,000 10% of exceeding amount
Subscriber of internet, mobile telephone and pre-paid internet
or telephone card. 12.5% of the amount of bill or sales price
=============================================================================================================
76. Collection of tax on cash withdrawal from bank
The rate of collection of tax on cash withdrawal from bank remains unchanged for filer at 0.3% and 0.6% for non-filers.
77. Collection of advance tax on transactionsthrough banking channels
The rates of collection of tax on transactionsthrough banking channelsremains unchanged at 0.3% for filers and 0.6% for non-filers.
78. Advance tax on purchase, registration and transfer of Motor Vehicles
The advance tax on purchase and registration of Motor Vehicles remains unchanged as per the following rates:
================================================
Engine capacity Tax Amount
Filer Non-Filer
================================================
Up to 850cc Rs.7,500 Rs.10,000
851cc - 1000cc Rs.15,000 Rs.25,000
1001cc - 1300cc Rs.25,000 Rs.40,000
1301cc - 1600cc Rs.50,000 Rs.100,000
1601cc - 1800cc Rs.75,000 Rs.150,000
1801cc - 2000cc Rs.100,000 Rs.200,000
2001cc-2500cc Rs.150,000 Rs.300,000
2501 cc-3000cc Rs.200,000 Rs.400,000
Above 3000cc Rs.250,000 Rs.450,000
================================================
Further, the rates of collection of taxes on transfer of motor vehicles have also remained unchanged as follows.
===============================================
Engine capacity Tax Amount
Filer Non-Filer
===============================================
Up to 850 cc - Rs.5,000
851 cc - 1000 cc Rs.5,000 Rs.15,000
1001 cc - 1300 cc Rs.7,500 Rs.25,000
1301 cc - 1600 cc Rs.12,500 Rs.65,000
1601 cc - 1800 cc Rs.18,750 Rs.100,000
1801 cc - 2000 cc Rs.25,000 Rs.135,000
2001 cc & 2500cc Rs.37,500 Rs.200,000
2501 cc & 3000cc Rs.50,000 Rs.270,000
Above 3000cc Rs.62,500 Rs.300,000
===============================================
79. Advance tax at the time of sale by auction
The rate of collection of tax remains unchanged at the rate of 10% for filers and 15% for non-filers.
80. Advance tax on purchase of air tickets
The rate of collection of tax remains unchanged at 5% of the gross amount of air ticket.
81. Advance tax on sale/transfer of immovable property
The rates of advance tax to be collected on sale/ transfer of immovable property has remained unchanged as under:
=====================
Description Rate
=====================
Filer 1%
Non-Filer 2%
=====================
82. Collection of advance tax on functions and gatherings
Currently the rate of collection of tax on functions and gatherings is 5% of the total amount of bill. However, the Bill seeks to provide that the rate for the function of marriages in a marriage hall, marquee, hotel, restaurant, commercial lawn, club, a community place or any other place used for such purpose shall be as under:
==============================================================================================================
Description Rate
==============================================================================================================
For Islamabad, Lahore, Multan, Faisalabad, Rawalpindi, Gujranwala,
Bahawalpur, Sargodha, Sahiwal, Sheikhupura, Dera Ghazi Khan, Karachi, 5% of the bill ad valorem or
Hyderabad, Sukkur, Thatta, Larkana, Mirpur Khas, Nawabshah, Peshawar, Rs.20,000 per function, whichever is
Mardan, Abbottabad, Kohat, Dera Ismail Khan, Quetta, Sibi, Loralai, higher
Khuzdar, Dera Murad Jamali and Turbat.
5% of the bill ad valorem or
For cities other than those mentioned above; Rs.10,000 per function, whichever is
higher
==============================================================================================================
83. Advance tax on cable operator and other electronic media
The rate of collection of advance tax remains unchanged as under:
========================================================
License Category as Tax on Tax on
provided in PEMRA Rules License Fee Renewal
========================================================
H Rs.7,500 Rs.10,000
H-1 Rs.10,000 Rs.15,000
H-II Rs.25,000 Rs.30,000
R Rs.5,000 Rs12,000
B Rs.5,000 Rs.40,000
B-1 Rs.30,000 Rs.35,000
B-2 Rs,40,000 Rs.45,000
B-3 Rs.50,000 Rs.75,000
B-4 Rs.75,000 Rs.100,000
B-5 Rs.87,500 Rs.150,000
B-6 Rs.170,000 Rs.200,000
B-7 Rs.262,500 Rs,300,000
B-8 Rs.437,500 Rs.500,000
B-9 Rs.700,000 Rs.800,000
B-10 Rs.875,500 Rs,900,000
========================================================
84. Advance tax on sales to distributors, dealers or wholesalers
Advance tax on sales to distributors, dealers or wholesalers remains unchanged as under:
==============================================
Rate
==============================================
Category of sale Filer Non-Filer
==============================================
Fertilizers 0.7% 1.4%
Other than fertilizers 0.1% 0.2%
==============================================
85. Advance tax on sale of retailers
The rate of tax on sale of retailers remains unchanged as under:
=========================================
Category of sale Rate
=========================================
Filer Non-Filer
=========================================
Electronics 1%
1%
Others 0.5%
=========================================
86. Advance tax on sale of certain petroleum products
The Bill seeks to introduce deduction of tax fromperson selling petroleum products to a petrol pump operator or distributor, where such operator or distributor is not allowed a commission or discount at the rate of 0.5% of ex-depot sale price for filers and 1% for non-filers.
87. Collection of advance tax by educational institutions
The rate of collection of tax remains unchanged at 5%.
88. Advance tax on dealers, commission agents and arhatis, etc.
The collection of advance tax on dealers, commission agents and arhatis remains unchanged as under:
==================================================
Group Tax Amount (per annum)
==================================================
Group or Class A Rs.10,000
Group or Class B Rs.7,500
Group or Class C Rs.5,000
Any other category Rs.5,000
==================================================
89. Advance tax on purchase of immovable property
The rates of advance tax to be collected purchase of immovable property have remained unchanged as under:
===============================================================================
Period Rate
===============================================================================
Filer Non-Filer
===============================================================================
Where value of immoveable property is up to 4 million 0%
Where value of immoveable property is more than 4 million 2% 4%
===============================================================================
90. Advance tax on domestic electricity consumption
The rate of advance tax collection remains unchanged at 7.5% if the monthly bill is Rs.75,000 or more.
91. Advance tax on international air ticket
The rate of collection of advance tax remains unchanged as under
===================================================
Type of Ticket Rate
===================================================
First/Executive class Rs. 16,000 per person
Others excluding economy Rs. 12,000 per person
Economy Class Rs. 0
===================================================
92. Advance tax on bank transactions
The Bill seeks to reduce the advance tax to be collected on banking transactions otherwise than through cash of non-filers from 0.6% to 0.4%.
93. Payment to a resident person for right to use machinery and equipment
The rate of tax remains unchanged at 10%
94. Collection of advance tax on education related expenses remitted abroad
The rate of tax remains unchanged at 5%
95. Advance tax on insurance premium
The rate of advance tax to be collected on insurance premium have remained unchanged as under:
==================================================
Type of premium Rate
==================================================
General insurance premium 4%
Life insurance premium if exceeding Rs. 0.3
million in aggregate per annum 1%
Others 0%
==================================================
96. Advance tax on extraction of minerals
The rates of tax remains unchanged for non-filers at 5% and 0% for filers.
97. Advance tax on amount remitted abroad through credit, debit or prepaid cards
The Bill seeks to introduce a withholding obligation on every banking company to collect advance tax, at the time of transfer of any sum remitted outside Pakistan, on behalf of any person who has completed a credit card transaction, a debit card transaction, or a prepaid card transaction with a person outside Pakistan at the rate of 1% of the gross amount remitted abroad for filers and 3% for non-filers.
THE SECOND SCHEDULE
PART -I
98. Exemption to armed forces personnel
Clause (39A)
A new clause is proposed to be inserted to exempt certain allowances, which include kit allowance, ration allowance, special messing allowance, SSG allowance, northern areas compensatory allowance, special pay northern areas and height allowance in the hands of armed forces personnel.
99. Exemption to income of certain funds/institutions
Clause (57)
Sub-clause (3) of Clause (57) of Part I of the Second Schedule to the Ordinance provides exemption on income of certain funds/institutions as specified therein. The bill proposed to add the following to the list of exempt funds/intuitions:
-- Khyber Pakhtunkhwa Retirement Benefits and Death Compensation Fund.
-- Khyber Pakhtunkhwa General Provident Investment Fund
-- Khyber Pakhtunkhwa Pension Fund
100. Exemption on donations
Clause (61)
The bill proposed to insert the following in Clause (61) which provide exemption on any amount paid as donation to the charitable institutions specified therein:
-- Pakistan Sweet Home, Angels and Fairies Place
-- Al-Shifa Trust Eye Hospital
-- Aziz Tabba Foundation
-- Sindh Institute of Urology and Transplantation, SIUT Trust and Society for the Welfare of SIUT
-- Sharif Trust
-- The Kidney Centre Post Graduate Institute
-- Pakistan Disabled Foundation
101. Exemption to income of certain charitable and other institutions
Clause (66)
The bill proposed to insert the following in Clause (66), which provides exemption from tax to any income of the institutions:
-- SAARC Energy Centre
-- Pakistan Bar Council
-- Pakistan Centre for Philanthropy
-- Pakistan Mortgage Refinance Company Limited
-- Aziz Tabba Foundation
-- Al-Shiffa Trust Eye Hospital
-- Saylani Welfare International Trust
-- Shaukat Khanum Memorial Trust
-- Layton Rahmatullah Benevolent Trust (LRBT)
-- The Kidney Centre Post Graduate Training Institute
-- Pakistan Disabled Foundation
-- Forman Christian College
102. Exemption on profit on debt and gain on transfer of capital asset
Clauses (90A & 110C)
The bill proposed to insert new clauses to exempt any profit on debt on bonds issued by the Pakistan Mortgaged Refinance Company (PMGC) and/or capital gain on transfer of capital assets derived by any person on bonds issued by PMGC to refinance the residential housing mortgage market. The exemption on profit on debt is available for a period of five years effective from 01 July 2018 while the exemption on capital gain is applicable from 1 July, 2018 to 30 June, 2023.
103. Income of Modaraba
(Clause 100)
Currently, any income, not being income from trading activity, of a Modaraba registered under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), is exempt from tax, provided that not less than ninety per cent of its total profits in the year as reduced by the amount transferred to a mandatory reserve, as required under the provisions of the Modaraba Ordinance or the Rules, has been distributed among the certificate holders.
The bill proposed to exclude manufacturing activity income from the ambit of exempt income of the Modaraba.
104. Profit and gains derived from refinery operations
Clause (126BA)
The bill proposed to insert a new Clause to provide an exemption from tax to profit and gains derived by a refinery setup between 1st July 2018 to 30th June 2023 with a minimum production capacity of 100,000 barrels per day for a period of 20 years, beginning in the month in which the refinery is set up or commercial production is commenced, whichever is later. Exemption under this clause shall also be available to existing refineries, if:-
a) existing production capacity is enhanced by at least 100,000 barrels per day;
b) the refinery maintains separate accounts for income arising from aforesaid additional production capacity; and
c) the refinery is a deep conversion refinery. The exemption period starts from the month in which the refinery is setup or commercial production is commenced, whichever is later.
Part II
105. Reduce rate of tax on commercial contract
Clause (24AA)
The bill proposed to insert a new clause to provide a reduced rate of tax of 6% of the gross amount of payments under section 152 of the Ordinance, in the case of CR-NORINCO JV (Chinese Contractor) as a recipient, on payment arising out of a commercial contract agreement signed with the Government of Punjab, for installation of electrical and mechanical (E&M equipment for construction of the Lahore Orange Line Metro Train Project.
Part III
106. Incentive for film makers
Clauses (7 & 8)
The bill proposed to insert new clauses to provide reduction in the amount of tax payable by 50%, on income derivedby:
-- foreign film makers for making films in Pakistan; and
-- resident companiesfrom filmmaking.
Part IV
107. Exemption from provisions of Section 153
Clause (11E)
The bill proposed to insert a new clause to provide exemption from the provisions of Section 153 of the Ordinance, on payments received by Sui Southern Gas Company Limited and Pakistan LNG Terminal Limited, from Sui Northern Gas pipelines Limited on account of re-gasification charges.
108. Exemption from provisions of Section 150
Clause (12A)
The bill proposed to insert a new clause to provide exemption from withholding provisions of section 150 of the Ordinance, on dividends paid to transmission line projects under Transmission Line Policy 2015.
109. Exemption from provisions of Section 148 regarding withholding tax on imports
Clause (56)
The bill proposes to replace "Bakri Trading Company Pakistan (Pvt.) Ltd., Overseas Oil Trading Company (Pvt.) Ltd. as provided in sub-clause (ia) to Bakri Energy Pakistan (Private) Limited.
110. Option to commercial importer
Clause (56B)
Clause (56B) of Part-IV of the Second Schedule to the Ordinance provides an option to a commercial importer to opt out of the Final Tax Regime (FTR), subject to fulfillment of certain conditions specified therein. Now, the bill proposes to delete the said clause. Consequently, the option will no longer be available to commercial importers.
111. Trading Houses
Clause (57)
Currently clause (57) of Part IV of the Second Schedule to the Ordinance is providing the levy of minimum tax under Section 113 of the Ordinance at a reduced rate of 0.5% upto the tax year 2019 and 1% thereafter. The bill proposed to extend the reduce levy of minimum tax upto the tax year 2021.
112. Exemption from collection of advance tax at import stage
Clauses (60A), (60AA), (60B) & (60C)
The bill proposed to insert new clauses to provide exemption from the provisions of Section 148 of the Ordinance on import of:
-- Plant, machinery and equipment including dumpers and special motor vehicles imported by the following for construction of Sukkur - Multan section of Karachi - Peshawar Motorway project and Karakorum Highway (KKH) Phase-II (Thakot to Havellian section) of the following CPEC project:
(a) China State Construction Engineering Corporation Ltd.
(b) China Communication Construction Company
-- Construction materials or goods up to a maximum of 10,898.000 million rupees imported by China State Construction Engineering Corporation Ltd. for construction of Sukkur - Multan section of Karachi - Peshawar Motorway project of National Highway Authority under CPEC.
-- Thirty five armored and security vehicles imported by or for Ministry of Foreign Affairs, Government of Pakistan meant for security of vising foreign dignitaries, subject to fulfillment of the following conditions:
(a) the vehicles imported shall not be used for the security of foreign dignitaries and will be parked Central Pool of Cars in the Cabinet Division for further use as and when needed; and
(b) the importing Ministry shall furnished and undertaking at the time of import to the concerned Collector of Customs, to the extent of customs dues exempted under this clause on a consignment to consignment basis, binding themselves that the vehicles imported under this clause shall not be re-exported, sold or otherwise disposed of without prior approval of the Board and in the manner prescribed therefor.
-- Equipment to be furnished or installed for Rail Based Mass Transit Projects in Lahore, Karachi, Peshawar and Quetta under CPEC.
113. Institution deemed to be approved as NPO
Clauses (63)
Under the provision of Clause (63) of Part IV of the Second Schedule to the Ordinance Dawat-e-Hadiya, Karachi is deemed to be approved as a non-profit organization by the Commissioner under Section 2(36) of the Ordinance. The bill proposed to add the name of Lahore University of Management Sciences (LUMS), Lahore as well to the above Clause. Consequently, LUMS would also be deemed to be a non-profit organization approved by the Commissioner under Section 2(36) of the Ordinance.
114. Minimum tax on services sector companies
Clause (94)
A new category of services namely, inspection, certification, testing and training is proposed to be inserted in the list of services specified in the aforesaid Clause, for which tax deductible from payments against service rendered under section 153(1)(b) of the Ordinance would no longer be treated as minimum tax and would be adjustable against the eventual tax liability of the taxpayer. The period for application of Clause (94) is proposed to be extended upto 30 June 2019. Moreover, the last date for furnishing an irrevocable undertaking for the tax year 2019 is proposed to be November 2018.
115. Tax on profit on debt
Clause (103)
The bill proposed that the provisions of Section 7B of the Ordinance shall not apply in respect of profit on investment in Behbood Saving Certificates or Pensioner's Benefit Account, provided that the tax on the said profit is paid at the applicable rates provided under Part I of the First Schedule to the Ordinance. However, the tax payable in respect of this income shall not exceed 10% of such profit as provided under Clause (6) of Part III of the Second Schedule to the Ordinance.
116. Redundant Clauses of Second Schedule to the Ordinance
Certain Clauses are proposed to be inserted / substituted in the Second Schedule to the Ordinance; however, the said clauses are already provided in the relevant Schedules. Accordingly, it is expected that the same be removed from the amendments, which will be passed by the Assembly. These Clauses are:
-- Clause (72A) of Part I
-- Clause (6) Part III
-- Clause (1A) of Part IV
-- Clause (11A) of Part IV
-- Clause (36A) Part IV
-- Clauses(95 & 96) Part IV
-- Clause (99) Part IV
-- Clause (100) Part IV
SALES TAX
1. Further tax
Section 3(1A)
The Bill seeks to increase the rate of further tax from 2% to 3%. Conceptually, further tax has been introduced to penalize the persons who were required to be registered but have not obtained registration under the ST Act. Practically, it is not possible for suppliers to ascertain whether the recipient of goods is otherwise required to be registered or not, hence suppliers are generally charging further tax from all persons who are unregistered under the ST Act. This would further increase the cost of sales of persons who are otherwise not required to get registered, being not engaged in taxable activity.
However, SRO is intended to be issued to reduce the rate of further tax to 1% on local supply of finished fabrics by amending SRO 1125(I)/2011. It is further envisaged to absolve Pakistan Foam Manufacturers from further tax.
2. Audit of a registered person
Section 25
Under Section 25 of the ST Act the Officer of Inland Revenue authorized by the Commissioner may conduct audit of the records of a taxpayer obtained under sub-section (1) of Section 25, once in a year. The Bill seeks to insert a third proviso in sub-section (2) of Section 25 of the ST Act, whereby the audit of the records shall now be performed only once in every three years.
Presently, the Board may select the case of a registered person for audit. If the case of a registered person was not selected by the Board in a year, the Commissioner Inland Revenue may select its case for audit for that year. Effectively, a registered person has to get audited for every year, which is a time consuming exercise and is not the intention of the legislature. Under the proposed amendment, an audit shall only be conducted once in every three years, which shows better confidence level of the Government on the records maintained by the registered persons.
3. Recovery of arrears of tax
Section 48
The Finance Act, 2017 had inserted a proviso to Section 48 of the ST Act, whereby the notice of recovery of sales tax would not be issued, where the registered person had filed an appeal under Section 45B of the ST Act and paid an amount of 25% of the amount of tax due. An automatic stay under the said proviso remains valid till the decision of the appeal by the Commissioner Inland Revenue (Appeals). However, this proviso was hardly invoked by the registered persons as the prerequisite payment at the rate of 25% of the disputed demand proved to be substantial. Similarly, the life of the stay was also not commensurate with the cost of payment.
The Bill envisages to reduce the payment to 10% of the tax due for seeking the automatic stay of the tax due.
4. Posting of Inland Revenue Officer
Section 40B
Section 40B empowers the Board or Chief Commissioner Inland Revenue and Commissioner Inland Revenue to post Officers of Inland Revenue at the premises of a registered person, to monitor production, sale of taxable goods and stock positions.
The Bills seeks to restrict the authority for posting of an Officer of Inland Revenue at the premises of the registered person with the Board, and seeks to omit the reference of Chief Commissioner Inland Revenue and Commissioner Inland Revenue from the above Section. Resultantly, it is now proposed that the Chief Commissioner Inland Revenue and Commissioner Inland Revenue are no more authorized to post the Officers of Inland Revenue at the premises of a registered person.
5. Assessment giving effect to an Order
Section 11B
Similar to Section 124 of the IT Ordinance, the Bill seeks to introduce a new Section 11B in the ST Act whereby an officer or the Commissioner of Inland Revenue is empowered to give effect to the findings or the directions given in the order passed by the Commissioner Inland Revenue (Appeals), Appellate Tribunal Inland Revenue, High Court or Supreme Court of Pakistan. Under sub-section (1) of the proposed section, the appeal effects order shall be passed within one year from the end of the financial year in which the order of the Commissioner Inland Revenue (Appeals), Appellate Tribunal Inland Revenue, High Court or Supreme Court of Pakistan, as the case may be, was served on the Commissioner or on the Officer Inland Revenue.
Sub-section (2) of the proposed section provides that where the Appellate Tribunal Inland Revenue, High Court or Supreme Court of Pakistan has wholly or partially set-aside the order, the Commissioner (Appeals) or the Commissioner Inland Revenue or the Officer of Inland Revenue, as the case may be, shall pass a new order within one year of the financial year in which the order was served on the Commissioner (Appeals) or the Commissioner Inland Revenue or the Officer of Inland Revenue. The time limitation of one year shall not apply where the appeal or reference has been preferred against the order of the Appellate Tribunal or High Court.
6. Default surcharge
Section 34
The Bill proposes a fixed rate of default surcharge at 12% per annum, which is currently KIBOR plus 3%. Considering the prevailing rate of KIBOR, the proposed rate of default surcharge seems to be on the higher side, but the apparent objective of the amendment is to align the rate of default surcharge with the rate as provided under the IT Ordinance.
7. Tax credit not allowed
Section 8
Section 8 of ST Act envisages the scenarios or goods where adjustment of input tax is not allowed. The Bill seeks to insert clause (m) in sub-section (1) of Section 8 of ST Act, whereby the adjustment of input tax shall also not be admissible on account of sales tax paid on import of scrap compressors falling under PCT heading 7204.4940 of the First Schedule to the Customs Act, 1969.
8. Alternate Dispute Resolution
Section 47A
The concept of Alternative Dispute Resolution (ADR) was introduced by the Finance Act, 2004, whereby a taxpayer may bring any disputed matter, pending at any appellate forum, before the Board by making an application. For this purpose, the Board is required to constitute a Committee (ADRC)within the period of sixty days of the filing of an application by the taxpayer, comprising of an officer of Inland Revenue (not below the rank of a Commissioner) and two persons from the notified panel,comprising of a retired judge not below a District and Sessions Judge,Chartered or Cost Accountants, or Advocates or Income Tax Practitioners or reputable taxpayers, before which the matter is to be placed for examination and recommendations to the Board.
The ADRC is required to examine the issue and may make enquiry, obtain expert opinion and cause an audit to be conducted by any officer of Inland Revenue or any other person. Based on the findings, the ADRC shall make recommendations as may be appropriate in the facts and circumstances of the case. The ADRC is required to make its recommendations within ninety days of its constitution. If the ADRC fails to make the recommendation within the above period of ninety days, the Board is empowered to dissolve the ADRC and constitute a new ADRC which is required to dispose of the matter within a further period of ninety days. However, if the new ADRC fails to resolve the dispute in the above period, the matter shall be taken up by the appellate forum where it is pending.
In case, the ADRC makes its recommendations within the statutory period of ninety days, the Board is then required to pass an order on the recommendations of the ADRC, as may be appropriate, within ninety days of the receipt of ADRC's recommendations and if such an order is not passed, the recommendations would be treated to be an order passed by the Board.
The most controversial provision was the powers of the Board either to reject the ADRC's recommendations or to accede to such recommendations in the manner the Board deems appropriate. It was objected to on the basis that the ADRC, which comprises of a senior officer of the Board and professionals/reputable taxpayers, and which works on a pro-bono basis devoting its time, does not have any say in the conclusion of the dispute. As a result, the process of ADR has not yielded the desired results of reducing the pending litigation before the appellate authorities.
The intended substituted section now proposes substantial changes in the entire process of constitution and working of the ADRC. These are discussed as under:
-- The ADRC members would be selected from a panel of Chartered or Cost Accountants or Advocates and retired Judges of High Court, retired District and Session Judges, income tax practitioner or reputable taxpayer besides an officer of Inland Revenue not below the rank of a Commissioner
-- The taxpayer invoking the powers of ADRC and the Board shall withdraw the appeals pending before the Appellate Authority
-- The ADRC shall not commence the proceedings unless the order of withdrawal by the Appellate Authority is communicated to the Board . In the event the order of withdrawal is not communicated within seventy five days of the appointment of the ADRC, the ADRC so appointed shall be dissolved.
-- The ADRC shall decide the dispute within one hundred and twenty days of its appointment excluding the period of communicating the order of withdrawal
-- Instead of making the recommendations by the ADRC for consideration by the Board, the ADRC would be now empowered to decide the matter and such decision shall be binding on the aggrieved person as well as on the Board .
-- If the ADRC fails to decide the matter within the period of one hundred and twenty days, the Board shall dissolve the ADRC, inform the Appellate Authority (which passed the order of withdrawal of matter) and the matter would be deemed to be pending before the Appellate Authority which shall decide the matter as if the appeal was never withdrawn. The Appellate Authority is required to decide the appeal within six months of the communication of the order of dissolution of the ADRC.
The proposed provisions however, do not appear to achieve the objects with which the concept of ADR was introduced. This is for the reason that the very concept of "Alternate" would fade away with the requirement to give up the appellate process. Presently, the order passed by the Board on the recommendations of the ADRC is not binding on the aggrieved person but on the Board officials. Such an order is to be presented before the Appellate Authority which is required to take into consideration while deciding the matter pending before it. This gives the aggrieved person an option to evaluate the outcome of the ADR proceedings and decide whether to pursue the appeal or not. However, since the appeal is now proposed to be withdrawn before the ADRC takes up the matter for decision, the aggrieved person would have not this option. The law makers are therefore, urged to make the order of the ADRC binding on the Board and not on the aggrieved person.
9. Directorate General (Intelligence and Investigation) Inland Revenue
Section 30A
Under Section 30A of the ST Act, the Board has established the Directorate General (Intelligence and Investigation) Inland Revenue (DG I&I) and has appointed Officers of DGI&I . However, when functions and jurisdictions of the Officers of DG I&I were defined by the Board, the same were declared ultra-vires by the Higher Courts since such powers were not bestowed upon the Board under the above Section.
In order to remove this anomaly, the Bill seeks to insert sub-section (2) of Section 30 of the ST Act empowering the Board to specify the functions and jurisdictions of the DG I&I and its Officers and also confer the powers of authorities specified in Section 30 of the FE Act.
Further, the Bill seeks to insert a new sub-section (2) in section 74A, which provides that the powers of the DGI&I and all the orders passed, notices issued, actions taken and purported exercise of the powers and functions of the Officers of DGI&I or the authorities specified in sub-section (2) of Section 30A of the ST shall be treated to have been validly passed, issued and taken under the ST Act. The proposed amendment seems to protect the previous actions/orders/notifications issued in this regard.
10. Restoration of power of Federal Government to issue notifications
Sections 3, 4, 7, 7A, 8, 13, 60, 65 and 71
The Finance Act, 2017 has empowered the Board, subject to the approval of the Minister-in-Charge, under various Sections of the ST Act to issue notifications. The Bill seeks to restore the powers of the Federal Government to issue notifications under the following provisions of the ST Act:
Provisions of the ST Act
==========================================================================================================
Provisions of Description
the ST Act
==========================================================================================================
3(2)(b) Power of fixation of lower and higher sales tax rates and manner of charging, collection
and payment of sales tax on any taxable goods
3(3A) Power to specify the goods in respect of which the liability to pay tax shall be of the
recipient of supply
3(5) Power to levy and collect extra rate of sales tax not exceeding seventeen percent
4(c) Power to declare any goods as subject to sales tax at zero percent
7(3) Allowing to deduct input tax through special order
7(4) Allowing to deduct input tax through notification
7A(1)(2) Levy and collection of tax on specified goods on value addition
8(1)(b) Restriction on adjustment of input tax
13(2)(a) Allowing exemption on import and supply of goods
60 Authorization to import goods or class of goods without payment of the whole or any part
of tax
65 Exemption of tax not levied or short levied as a result of general practice
71 Prescribe special procedure for scope and payment of tax, registration and book keeping
and invoicing requirements and returns of supplies
==========================================================================================================
11. Amendment in the Fifth Schedule
Section 4
The Fifth Schedule to the ST Act deals with goods which are subject tosales tax at the rate of zero percent. The Bill seeks to provide Zero-rating on the import and local purchases of raw materials, sub-components and components, sub-assemblies and assemblies for manufacture of the following stationary items by inserting the following new entries under serial No.12 of the Fifth Schedule to the ST Act.
================================================================================
Clause No. Description PCT Heading
================================================================================
(xx) Colors in sets 3213.1000
3215.9010 and
(xxi) Writing, drawing and marking inks
3215.9090
4016.9210 and
(xxii) Erasers
4016.9290
(xxiii) Exercise books 4820.2000
(xxiv) Pencil sharpeners 8214.1000
(xxv) Geometry boxes 9017.2000
(xxvi) Pens, ball pens, markers and porous tipped pens 96.08
(xxvii) Pencils including color pencils 96.09
================================================================================
Raw materials, components and other items used for production and supply of the above items are now proposed to be zero rated, which may reduce cost of production to the extent of the amount of sales tax, otherwise payable currently.
12. Sixth Schedule
Section 13
The Sixth Schedule deals with exemption of goodsfrom levy of sales tax. The Bill proposes to insert the following entries in the Sixth Schedule to the ST Act:
Table 1 (on import and local supplies)
================================================================================================================
S. No. Description Tariff
Heading
================================================================================================================
137. Paper weighing 60 g/m2 for printing of Holy Quran imported by 4802.5510
Federal or Provincial Governments and Nashiran-e-Quran as per quota
determined by IOCO
138. Fish Feed Respective heading
139. Fans for dairy farms 8414.5990
140. Bovine semen 0511.1000
141. Preparations for making animal feed 2309.9000
142. Promotional and advertising material including technical literature,
pamphlets, brochures and other give-aways of no commercial value, 9920 (3)
distributed free of cost by the exhibitors
143. (i) Hearing aids (all types and kinds) (ii) Hearing assessment equipment;
(a) Audiometers
(b) Tympanometer 9937
(c) ABR
(d) Oto Acoustic Omission
144. Liquefied Natural Gas imported by fertilizer manufacturers for use as feed
2711.1100.;
stock
145. Plant, machinery, equipment including dumpers and special purpose motor Respective heading
vehicles, if not manufactured locally, imported by M/s China State
Construction Engineering Corporation Limited (M/s CSCECL) for the
construction of Karachi - Peshawar Motorway (Sukkur - Multan Section) and
M/s China Communication Construction Company (M/s CCCC) for the
construction of Karakorum Highway (KKH) Phase-II (Thakot-Havellian
Section) subject to the following conditions:
(i) that the exemption under this Notification shall only be available to
contractors named above;
(ii) that the equipment and construction machinery imported under this
Notification shall only be used for the construction of the respective
allocated projects;
(iii) that the importer shall furnish an indemnity bond, in the prescribed
manner and format as set out in Annex-A, at the time of import to the
extent of customs-duties exempted under this Notification on
consignment to consignment basis;
(iv) that the Ministry of Communications shall certify in the prescribed
manner and format as set out in Annex-B that the imported equipment
and construction machinery are bonafide requirement for construction of
Sukkur - Multan Section (392.0 km) of Karachi - Peshawar Motorway or
for the construction of Karakorum Highway (KKH) Phase-II - Thakot to
Havellian Section (118.057 km) as the case may be;
(v) for the clearance of imported goods through Pakistan Customs
Computerized System the authorized officer of the Ministry shall furnish
all relevant information, as set out in Annex-B, online against a specific
user ID and password obtained under section 155D of the Customs Act,
1969 (IV of 1969). In Collectorates or Customs stations where the
Pakistan Customs Computerized System is not operational, the Director
Reforms and Automation or any other person authorized by the Collector
in this behalf shall enter the requisite information in the Pakistan
Customs Computerized System on daily basis, whereas entry of the data
obtained from the customs stations which have not yet been
computerized shall be made on weekly basis;
(vi) that the equipment and construction machinery, imported under this
Notification, shall not be re-exported, sold or otherwise disposed of
without prior approval of the Board . In case goods are sold or otherwise
disposed of with prior approval of the Board the same shall be subject to
payment of duties as may be prescribed by the Board ;
(vii) in case the equipment and construction machinery, imported under this
Notification, is sold or otherwise disposed of without prior approval of
the Board in terms of para (vi) above, the same shall be subject to
payment of statutory rates of customs duties as were applicable at the
time of import;
(viii) notwithstanding the condition at para (vi) and (vii) above, equipment and
construction machinery, imported under this Notification, may be
surrendered at any time to the Collector of Customs having jurisdiction,
without payment of any customs-duties, for further disposal as may be
prescribed by the Board ;
(ix) the indemnity bond submitted in terms of para (iii) above by the importer
shall be discharged on the fulfillment of conditions stipulated at para (vi)
or (vii) or (viii) above, as the case may be; and
(x) that violation of any of the above mentioned conditions shall render the
goods liable to payable of statutory rate of customs duties leviable on the
date of clearance of goods in addition to any other penal action under
relevant provisions of the law.
146. Equipment, whether or not locally manufactured, imported by M/s China Respective heading
Railway Corporation to be furnished and installed in Lahore Orange Line Metro
Train Project subject to the following
conditions:
(a) that the equipment imported under this Notification shall only be used in
the aforesaid Project;
(b) that the importer shall furnish an indemnity bond, in the prescribed
manner and format as set out in Annex-C to this Notification, at the time
of import to the extent of sales tax exempted under this Notification on
consignment to consignment basis;
(c) that the Punjab Mass Transit Authority, established under the Punjab
Mass Transit Authority Act, 2015 (ACT XXXIII of 2015), hereinafter
referred as the Regulatory Authority, shall certify in the prescribed
manner and format as set out in Annex-D to this Notification that the
imported equipment is bona fide requirement of the Project under the
Contract No. PMA-CR-NORINCO-OL, dated 20.04.2015, hereafter
referred as the contract, signed between the Regulatory Authority and
CR-NORINCO;
(d) in the event a dispute arises whether any item is entitled to exemption
under this Notification, the item shall be immediately released by the
Customs Department against a corporate guarantee, valid for a period of
six months, submitted by the importer. A certificate from the Regulatory
Authority duly verified by the Transport and Communication Section of
the Ministry of Planning, Development and Reform, that the item is
covered under this Notification shall be given due consideration by the
Customs Department towards finally resolving the dispute. Disputes
regarding the local manufacturing only shall be resolved through the
Engineering Development Board of the Federal Government;
(e) for the clearance of imported equipment through Pakistan Customs
Computerized System the authorized officer of the Regulatory Authority
shall furnish all relevant information, as set out in Annex-D to this
Notification, online against a specific user ID and password obtained
under section 155D of the Customs Act, 1969 (IV of 1969). In
Collectorates or Customs stations where the Pakistan Customs
Computerized System is not operational, the Director Reforms and
Automation or any other person authorized by the Collector in this
behalf shall enter the requisite information in the Pakistan Customs
Computerized System on daily basis, whereas entry of the data
obtained from the customs stations which have not yet been
computerized shall be made on weekly basis;
(f) that the equipment, imported under this Notification, shall not be re-
exported, sold or otherwise disposed of without prior approval of the
Board. In case goods are sold or otherwise disposed of with prior
approval of the Board the same shall be subject to payment of sales tax
as may be prescribed by the Board ;
(g) in case the equipment, imported under this Notification, is sold or
otherwise disposed of without prior approval of the Board in terms of
condition (f), the same shall be subject to payment of statutory rates of
sales tax as were applicable at the time of import;
(h) notwithstanding the condition (f) and (g), equipment imported under this
Notification may be surrendered at any time to the Collector of Customs
having jurisdiction, without payment of any sales tax, for further disposal
as may be prescribed by the Board ;
(i) the indemnity bond submitted in terms of condition (b) above shall stand
discharged on submission of a certificate from the Regulatory Authority
to the effect that the equipment has been installed or consumed in the
said Project. In case the equipment is not consumed or installed in the
project the indemnity bond shall be discharged on fulfillment of
conditions stipulated at (f) or (g) or (h), as the case may be; and
(j) that violation of any of the above conditions shall render the goods liable
to payment of statutory rate of sales tax leviable on the date of
clearance of goods in addition to any other penal action under relevant
provisions of the law.
Explanation. For the purpose of this provision, "equipment" shall mean
machinery, apparatus, materials and all things to be provided under the
contract for incorporation in the works relating to Lahore Orange Line Metro
Train Project.
147. Goods supplied to German Development Agency (Deutsche Gesellschaft für Respective heading
Internationale Zusammenarbeit) GIZ
148. Imported construction materials and goods imported by M/s China State Respective heading
Construction Engineering Corporation Limited (M/s CSCECL), whether or not
locally manufactured, for construction of Karachi-Peshawar Motorway
(Sukkur-Multan Section) subject to fulfilment of same conditions, limitations
and restrictions as are specified under S. No. 145 of this table, provided that
total incidence of exemptions of all duties and taxes in respect of construction
materials and goods imported for the project shall not exceed ten thousand
eight hundred ninety-eight million rupees.
================================================================================================================
The Bill also proposesa prescribed format for indemnity bond in Annex- A and a format of certificate to be issued by the Ministry of Communications in Annex- B in case of serial No. 145 to the Sixth Schedule of the ST Act. Similarly, for serial No. 146 Annex-C and D have been prescribed.
Table 3
The Bill proposes the following new entries to be inserted in Table 3 of the Sixth Schedule:
================================================================================================================
S. No. Description PCT Heading Conditions
================================================================================================================
Machinery, equipment, raw materials, components and
other capital goods for use in building, fittings, repairing
17 or refitting of ships, boats or floating structure Respective Nil
heading
imported by Karachi Shipyard and Engineering Works
Limited.
The following parts for assembling and manufacturing of
personal computers and laptops:
Bare PCBs 8534.0000
Power Amplifier 8542.3300
Microprocessor/Controllers 85.42
Equipment for SMT Manufacturing 8486.2000
Laptop batteries 8506.5000
Adopters 8504.4020
Cooling fans 8414.5190
Heat sink 7616.9920 If imported by
manufacturers and
Hard Disk SSD 8471.7020 assemblers of
8471.7060 and computers and laptops,
18 RAM/ROMS registered with and
8471.7090 certified by Engineering
System on Chip/FPGA-IC 85.42 Development Board in
LCD/LED Screen 8528.7211 accordance with quota
Motherboards 8534.0000 determined by IOCO
power supply 84.73
Optical Drives 8471.7040
External Ports 8536.209
Network cards 8517.6990
Graphic cards 8471.5000
wireless cards 8517.6970
micro phone 8518.3000
Trackpad 8471.6020
19 Plant and machinery, except the items listed under
Chapter 87 of the Pakistan Customs Tariff, imported for
setting up of a Special Economic Zone (SEZ) by zone
developers and for installation in that zone by zone
enterprises, on one time basis as prescribed in th 9917 (2) Nil"; and
Act 2012 and rules thereunder subject to such
condition, limitations and restriction as a Board may
impose from time to time.
================================================================================================================
13. Amendment in the Eight Schedule
Section 3(2)(aa)
Under Section 3(2)(aa), sales tax on the items listed in the Eight Schedule are subject to sales tax at the rates provided in the Schedule subject to certain conditions and limitations provided therein.
The Bill seeks to reduce the rate of sales tax in case of the following entries in Table-1 of the Eight Schedule to the ST Act:
============================================================================================================
S. No. Description PCT Heading Existing rate Proposed
rate
============================================================================================================
8432.8010, 8432.2910,
8432.3900, 8432.8090,
26 Tillage and seed bed preparation equipment 8432.1090, 8432.2990 7% 5%
(specified) 8432.2100, 8701.9020,
8432.8090
8432.3010, 8432.3090,
27 Seeding or planting equipment (specified) 8432.4100, 8432.3100, 7% 5%
8432.3900
28 Irrigation, drainage and agro-chemical 8421.2100, 8421.9990, 7% 5%
application equipment (specified) 8424.2010
8433.5200, 8433.5900,
29 Equipment relating to harvesting, threshing 8433.5300, 8716.8090, 7% 5%
and storage (specified) 8433.5900, 8433.5100
30 Post-harvest handling and processing & 8437.1000 & 8433.4000 7% 5%
miscellaneous machinery (specified)
43 Natural gas Respective heading 10% 5%
============================================================================================================
The Bill also seeks to omit the following entries from Table-1 of the Eight Schedule to the ST Act and simultaneously, new entries are proposed to be inserted in the said Table-1, which include all types of fertilizers and Liquefied Natural Gas. Hence, it would neutralize the effect except where the rate is adversely changed.
==============================================================================================================
S. No. Description Tariff Heading Rate Condition
==============================================================================================================
33 Urea, whether or not in 3102.1000 5%
aqueous solution
35 DAP Respective heading Rs.100 per 50 kg bag Nil
36 NP (22-20) Respective heading Rs.168 per 50 kg bag If manufactured from gas
other than imported LNG
37 NP (18-18) Respective heading Rs.165 per 50 kg bag If manufactured from gas
other than imported LNG
38 NPK-I Respective heading Rs.251 per 50 kg bag If manufactured from gas
other than imported LNG
39 NPK-II Respective heading Rs.222 per 50 kg bag If manufactured from gas
other than imported LNG
40 NPK-III Respective heading Rs.341 per 50 kg bag If manufactured from gas
other than imported LNG
41 SSP Respective heading Rs.31 per 50 kg bag If manufactured from gas
other than imported LNG
42 CAN Respective heading Rs.98 per 50 kg bag If manufactured from gas
other than imported LNG
48 Liquefied Natural Gas 2711.1100 5% Imported by fertilizer
manufacturers for use as
feed stock
49 Fish feed 2309.9090 10% Nil
==============================================================================================================
The Bill seeks to insert the following new Entries in Table-1 of the Eighth Schedule to the ST Act.
===============================================================================================================
S. No. Description Heading Nos. of the Rate Condition
First Schedule to the
Customs Act, 1969 (IV If imported by M/s
===============================================================================================================
50. LNG of 1969) 12% Pakistan State Oil
and M/s Pakistan
2711.1100 LNG Limited
If supplied by M/s
51. RLNG Pakistan State Oil
and M/s Pakistan
52. Fertilizers (all types) 2711.2100 12% LNG Limited to
The following cinematographic equipment M/s SNGPL
imported during the period commencing on Respective heading 3% Nil
the 1st day of July, 2018 and ending on the
30th day of June, 2023
(i) Projector
(ii) Parts and accessories for projector 9007.2000
(iii) Other instruments and apparatus for 9007.9200 Subject to same
cinema 9032.8990 limitations and
(iv) Screen 9010.6000 conditions as are
53. (v) Cinematographic parts and 9010.9000 specified in Part-1
accessories 9004.9000 5% of Fifth Schedule
(vi) 3D Glasses 8518.2200 to the Customs
(vii) Digital Loud Speakers 8519.8190 Act, 1969 for
(viii) Digital Processor 8518.2990 availing 3%
(ix) Sub-woofer and Surround Speakers 8518.5000 concessionary rate
(x) Amplifiers 7326.9090 of customs duty on
(xi) Audio rack and termination board 8537.1090 the import of
(xii) Music Distribution System 8519.8990 these equipment.
(xiii) Seats 9401.7100
(xiv) Recliners 9401.7900
(xv) Wall Panels and metal profiles 7308.9090
(xvi) Step Lights 9405.4090
(xvii) Illuminated Signs 9405.6000
(xviii) Dry Walls 6809.1100
(xix) Ready Gips 3214.9090
54. lithium iron phosphate battery (Li-Fe- PO4) 8506.5000 12% Nil
===============================================================================================================
The Bill seeks to insert the following new entry in Table-2 of the Eighth Schedule to the ST Act which shall be applicable on import of such item.
============================================================================================================
S. No. Description Tariff Heading Condition
============================================================================================================
The concession will be available in respect of
those Transmission Line Projects which are
being executed under Standard
Implementation Agreement under Policy
9 Capital goods otherwise n Respective Framework for Private Sector Transmission
exempted, for Transmissio heading Line Projects, 2015 and Projects Specific
Projects. Transmission Services Agreement. Provided
that sales tax charged under this provision
shall be non-adjustable and non-refundable.
============================================================================================================
14. Sales tax measures announced in the budget documents
In the salient features attached to the Bill, it is indicated that certain measures would be introduced in the ST Act and Islamabad Capital Territory (Tax on Services) Ordinance, 2001. However, they are not referred to in the Bill. It appears that as the SROs have not been issued with the Budget documents, the following measures in sales tax would be taken when the related SROs are issued:
-- VAT on Liquid Natural Gas
It appears that the value addition tax at the rate of three percent leviable under Rule 58B of the Sales Tax Special Procedure Rules, 2007 may be withdrawn on import of liquid natural gas.
-- Zero rating on Potato
It is intended to declare import of 200,000 MT potato during the period 05 May 2014 to 31 July 2014 as zero rated retrospectively.
-- Textile, Leather and other export-oriented Sectors
It is intended to-
-- reduce the rate of six percent on import of ready to use articles of artificial leather generally used by the public
-- introduce a reduced rate of further tax, at the rate of one percent, on local supply of finished fabrics
-- exclude the value addition tax on the import of second hand worn clothing and foot wear to grant relief to general masses
-- allow adjustment of input tax paid on packing material by the export oriented sector covered under SRO 1125(I)/2011
-- increase the rate of sales tax to 9% on import and supply of finished articles of leather and textile sector. However, all those branded outlets, which will be integrated through Electronic Fiscal Devices with the Board, shall be charged to sales tax at 6%.
-- Sales tax on steel sector
Rate of sales tax on steel sector is sought to beincreased from the current rate of Rs.10.5 per unit to Rs.13 per unit of electricity consumed. Moreover, the rate of sales tax for other allied steel industries i.e. ship breakers and re-rollers is also being rationalized.
-- Further tax and Extra tax on Foam manufacturers
The exemption of extra tax and further tax @ 2% is intended to be granted to Pakistani Foam manufacturers.
ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES) ORDINANCE, 2001
The scope of services taxable under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001 may be widened. It is stated that the services which are chargeable to sales tax in Provinces shall also be made subject to sales tax in the Islamabad Capital Territory.
In the salient features, it seems that such amendments would be implemented by amending or issuing notifications. However, the widening the scope of taxable services could not be achieved without making an amendment in the Schedule as provided under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001. It is also not clear as to how the legislature shall align the list of taxable services with taxable services in different Provinces. It may be clarified when the amending notifications or amendments through the Finance Act are available.
FEDERAL EXCISE DUTY
1. Audit
Section 46
Under Section 46 of the FE Act the Officer of Inland Revenue authorized by the Commissioner may conduct audit of the records of a taxpayer obtained under sub-section (2) of Section 46, once in a year. The Bill seeks to insert sub-section (10) of Section 46 of the FE Act, whereby the audit of the records shall now be performed only once in every three years.
Presently, the Board may select the case of a registered person for audit. If the case of a registered person was not selected by the Board in a year, the Commissioner Inland Revenue may select its case for audit for that year. Effectively, a registered person has to get audited for every year, which is a time consuming exercise and is not the intention of the legislature. Under the proposed amendment, an audit shall only be conducted once in every three years, which shows better confidence level of the Government on the records maintained by the registered persons.
2. Default surcharge
Section 8
The Bill proposes the fixed rate of default surcharge at twelve percent per annum which is currently KIBOR plus three percent. Considering the prevailing rate of KIBOR, the proposed rate of default surcharge seems to be on the higher side but, the apparent objective of the amendment is to align the rate of default surcharge with the rate as provided under the IT Ordinance.
3. Assessment giving effect to an Order
Section 14B
Similar to Section 124 of the IT Ordinance, the Bill seeks to introduce a new Section 14B in the FE Act, whereby an Officer or the Commissioner of Inland Revenue is empowered to give effect to the findings or the directions given in the order passed by the Commissioner Inland Revenue (Appeals), Appellate Tribunal Inland Revenue, High Court or Supreme Court of Pakistan. Under sub-section (1) of the proposed section, the appeal effect order shall be passed within one year from the end of the financial year, in which the order of the Commissioner (Appeals), Appellate Tribunal , High Court or Supreme Court as the case may be was served on the Commissioner or Officer.
Sub-section (2) of the proposed section provides that where the Appellate Tribunal, High Court or Supreme Court has wholly or partially set-aside the order, the Commissioner (Appeals) or the Commissioner or the Officer of Inland Revenue, as the case may be, shall pass a new order within one year of the financial year in which the order was served on the Commissioner (Appeals) or the Commissioner or the Officer of Inland Revenue. The time limitation of one year shall not be applicable where the appeal or reference has been preferred against the order of the Appellate Tribunal or the High Court.
4. Deposit, pending appeal, of duty demanded or penalty
Section37
The Finance Act, 2017 has inserted a second proviso to sub-section (3) of Section 37 of the FE Act, whereby the notice of recovery of duty would not be issued where the registered person has filed an appeal under Section 33 of the FE Act and paid an amount of twenty five percent of the amount of duty due. The automatic stay under the said proviso remains valid till the decision of the appeal by the Commissioner (Appeals). However, this proviso was hardly invoked by registered persons, as the prerequisite payment at the rate of twenty five percent of the disputed demand proved to be substantial. Similarly the life of the stay also did not commensurate with the cost of payment.
The Bill envisages to reduce the payment to 10% of the duty due for seeking the automatic stay of the duty due.
5. Directorate General (Intelligence and Investigation) Inland Revenue
Sections29 and 47C
Under Section 29(2) of the FE Act, the Board has established the Directorate General (Intelligence and Investigation) Inland Revenue (DG I&I) and has appointed Officers of DGI&I . However, when functions and jurisdictions of the Officers of DG I&I were defined by the Board, the same were declared ultra-vires by the Higher Courts since such powers were not bestowed upon the Board under the above Section.
In order to remove this anomaly, the Bill seeks to insert clause (aa) in sub-section (2) of Section 29 of the FE Act empowering the Board to specify the functions and jurisdictions of the Directorate General and its Officers and also confer the powers of authorities specified in Section 30 of the FE Act.
Further, the Bill seeks to insert a new sub-section (2) in section 47C, which provides that the powers of the DGI&I and all the orders passed, notices issued, actions taken and purported exercise of the powers and functions of the Officers of DGI&I or the authorities specified in sub-section (2)(a) of Section 29 of FE Act shall be treated to have been validly passed, issued and taken under FE Act. The proposed amendment seems to protect the previous actions/orders/notifications issued in this regard.
6. Alternate Dispute Resolution
Section 38
The concept of Alternative Dispute Resolution (ADR) was introduced by the Finance Act, 2004, whereby a taxpayer may bring any disputed matter, pending at any appellate forum, before the Board by making an application. For this purpose, the Board is required to constitute a Committee (ADRC)within the period of sixty days of the filing of an application by the taxpayer, comprising of an officer of Inland Revenue (not below the rank of a Commissioner) and two persons from the notified panel,comprising of a retired judge not below a District and Sessions Judge,Chartered or Cost Accountants, or Advocates or Income Tax Practitioners or reputable taxpayers, before which the matter is to be placed for examination and recommendations to the Board .
The ADRC is required to examine the issue and may make enquiry, obtain expert opinion and cause an audit to be conducted by any officer of Inland Revenue or any other person. Based on the findings, the ADRC shall make recommendations as may be appropriate in the facts and circumstances of the case. The ADRC is required to make its recommendations within ninety days of its constitution. If the ADRC fails to make the recommendation within the above period of ninety days, the Board is empowered to dissolve the ADRC and constitute a new ADRC which is required to dispose of the matter within a further period of ninety days. However, if the new ADRC fails to resolve the dispute in the above period, the matter shall be taken up by the appellate forum where it is pending.
In case, the ADRC makes its recommendations within the statutory period of ninety days, the Board is then required to pass an order on the recommendations of the ADRC, as may be appropriate, within ninety days of the receipt of ADRC's recommendations and if such an order is not passed, the recommendations would be treated to be an order passed by the Board .
The most controversial provision was the powers of the Board either to reject the ADRC's recommendations or to accede to such recommendations in the manner the Board deems appropriate. It was objected to on the basis that the ADRC, which comprises of a senior officer of the Board and professionals/reputable taxpayers, and which works on a pro-bono basis devoting its time, does not have any say in the conclusion of the dispute. As a result, the process of ADR has not yielded the desired results of reducing the pending litigation before the appellate authorities.
The intended substituted section now proposes substantial changes in the entire process of constitution and working of the ADRC. These are discussed as under:
-- The ADRC members would be selected from a panel of Chartered or Cost Accountants or Advocates and retired Judges of High Court, retired District and Session Judges, income tax practitioner or reputable taxpayer besides an officer of Inland Revenue not below the rank of a Commissioner
-- The taxpayer invoking the powers of ADRC and the Board shall withdraw the appeals pending before the Appellate Authority
-- The ADRC shall not commence the proceedings unless the order of withdrawal by the Appellate Authority is communicated to the Board . In the event the order of withdrawal is not communicated within seventy five days of the appointment of the ADRC, the ADRC so appointed shall be dissolved.
-- The ADRC shall decide the dispute within one hundred and twenty days of its appointment excluding the period of communicating the order of withdrawal
-- Instead of making the recommendations by the ADRC for consideration by the Board , the ADRC would be now empowered to decide the matter and such decision shall be binding on the aggrieved person as well as on the Board .
-- If the ADRC fails to decide the matter within the period of one hundred and twenty days, the Board shall dissolve the ADRC, inform the Appellate Authority (which passed the order of withdrawal of matter) and the matter would be deemed to be pending before the Appellate Authority which shall decide the matter as if the appeal was never withdrawn. The Appellate Authority is required to decide the appeal within six months of the communication of the order of dissolution of the ADRC.
The proposed provisions however, do not appear to achieve the objects with which the concept of ADR was introduced. This is for the reason that the very concept of "Alternate" would fade away with the requirement to give up the appellate process. Presently, the order passed by the Board on the recommendations of the ADRC is not binding on the aggrieved person but on the Board officials. Such an order is to be presented before the Appellate Authority which is required to take into consideration while deciding the matter pending before it. This gives the aggrieved person an option to evaluate the outcome of the ADR proceedings and decide whether to pursue the appeal or not. However, since the appeal is now proposed to be withdrawn before the ADRC takes up the matter for decision, the aggrieved person would have not this option. The law makers are therefore, urged to make the order of the ADRC binding on the Board and not on the aggrieved person.
7. Access to records and posting of excise staff
Section 45
Section 45 of the FE Act empowers the Board or Chief Commissioner Inland Revenue and Commissioner Inland Revenue to post Officers of Inland Revenue at the premises of a registered person, to monitor production, sale of taxable goods and stock positions.
The Bills seeks to restrict the authority for posting of an Officer of Inland Revenue at the premises of the registered person with the Board, and seeks to omit the reference of Chief Commissioner Inland Revenue and Commissioner Inland Revenue from the above Section. Resultantly, it is now proposed that the Chief Commissioner Inland Revenue and Commissioner Inland Revenue are no more authorized to post the Officers of Inland Revenue at the premises of a registered person.
8. Restoration of power of Federal Government to issue notifications
Sections 3, 16
The Finance Act, 2017 has empowered the Board under various Sections of the FE Act to issue notifications subject to the approval of the Federal Minister-in-charge. The Bill seeks to restore the powers of the Federal Government to issue notifications under the following provisions of the FE Act:
=================================================================================================================
Provisions of the Description
FE Act
=================================================================================================================
3 (1) (c) Power to levy and collection of Federal Excise Duty (FED) on goods manufactured or produced
in non-tariff areas and brought to tariff areas for sale or consumption.
3 (4) Power of fixation of lower and higher FED rates and manner of charging, collection and
payment of FED on any excisable goods and services
16 (2) Granting exemption of FED on goods and services
=================================================================================================================
9. Rate of duty on locally produced cigarettes and cement
First Schedule, Table-I
The Bill seeks to enhance the rate of duty on locally produced cigarettes and cement as follows:
==============================================================================================================
Existing Entry Proposed Entry
S. No Description Rate of duty Description Rate of duty
==============================================================================================================
9 Locally produced cigarett Rupees 3,740 Locally produced Rupees 3,964 per
their on-pack printed ret per thousand cigarettes if their on-pa thousand
exceeds Four thousand fiv cigarettes printed retail price cigarettes
hundred rupees per thousand exceeds Four thousand
cigarettes. five hundred rupees per
thousand cigarettes.
10 Locally produced cigarett Rupees 1,670 Locally produced Rupees 1,770 per
their on-pack printed ret per thousand cigarettes if their on-pa thousand
exceeds two thousand nine cigarettes printed retail price cigarettes
hundred and twenty-five rupees exceeds two thousand
per thousand cigarettes but does nine hundred and twenty-
not exceed four thousand five five rupees per thousand
hundred rupees per thousand cigarettes but does not
cigarettes. exceed four thousand five
hundred rupees per
thousand cigarettes.
10 a Locally produced cigarett Rupees 800 Locally produced Rupees 848 per
their on-pack printed ret per thousand cigarettes if their on-pa thousand
exceeds two thousand nine cigarettes printed retail price cigarettes
hundred and twenty-five rupees exceeds two thousand
per thousand cigarettes but does nine hundred and twenty-
not exceed four thousand five five rupees per thousand
hundred rupees per thousand cigarettes but does not
cigarettes. exceed four thousand five
hundred rupees per
thousand cigarettes.
13 Portland cement, aluminou One rupee Portland cement, One rupee and
cement, slag cement, supe and twenty aluminous cement, slag fifty paisa per
sulphate cement and simil five paisa per cement, super sulphate kilogram
hydraulic cements, whethe kilogram cement and similar
not coloured or in the form of hydraulic cements,
clinkers whether or not coloured
or in the form of clinkers
==============================================================================================================
10. Amendments in the Third Schedule
Section 16
The Third Schedule to the FE Act lists down the goods and services that are exempt from excise duty whether conditionally or otherwise. The Bill proposes to insert new serial numbers to the Table-I (Goods) and Table-II (Services) so as to enlarge the scope of exemption.The proposed entries are as follows:
TABLE - I (GOODS)
==================================================================================================================
Entry Description
No.
==================================================================================================================
Equipment, whether or not locally manufactured, imported by China Railway Corporation to be furnished
and installed in Lahore Orange Line Metro Train Project subject to the following conditions:
(a) that the equipment imported under this proposed entry of Table-I shall only be used in the
aforesaid Project;
(b) that the importer shall furnish an indemnity bond, in the prescribed manner and format as set out
in Annex-A to the Table-I, at the time of import to the extent of FED exempted under this proposed
entry of Table-I on consignment to consignment basis;
(c) that the Punjab Mass Transit Authority, established under the Punjab Mass Transit Authority Act,
2015 (ACT XXXIII of 2015), hereinafter referred to as the Regulatory Authority, shall certify in the
prescribed manner and format as set out in Annex-B to the Table-I that the imported equipment is
bona fide requirement of the Project under the Contract No. PMA-CR-NORINCO-OL, dated 20 April
2015, hereafter referred to as the contract, signed between the Regulatory Authority and CR-
NORINCO;
(d) in the event a dispute arises whether any item is entitled to exemption under this proposed entry of
Table-I, the item shall be immediately released by the Customs Department against a corporate
guarantee, valid for a period of six months, submitted by the importer. A certificate from the
Regulatory Authority duly verified by the Transport and Communication section of the Ministry of
Planning, Development and Reform, certifying that the item is covered under this proposed entry
22 of Table-I, shall be given due consideration by the Customs Department towards finally resolving
the dispute. Disputes regarding the local manufacturing only shall be resolved through the
Engineering Development Board of the Federal Government;
(e) for the clearance of imported equipment through Pakistan Customs Computerized System the
authorized officer of the Regulatory Authority shall furnish all relevant information, as set out in
Annex-B to the Table-I, online against a specific user ID and password obtained under section 155D
of the Customs Act, 1969 (IV of 1969). In Collectorates or Customs stations where the Pakistan
Customs Computerized System is not operational, the Director Reforms and Automation or any
other person authorized by the Collector in this behalf shall enter the requisite information in the
Pakistan Customs Computerized System on daily basis, whereas entry of the data obtained from
the customs stations which have not yet been computerized shall be made on weekly basis;
(f) that the equipment, imported under this proposed entry of Table-I, shall not be re-exported, sold or
otherwise disposed of without prior approval of the Board . In case goods are sold or otherwise
disposed of with prior approval of the Board the same shall be subject to payment of FED as may be
prescribed by the Board ;
(g) in case the equipment, imported under this proposed entry of Table-I, is sold or otherwise disposed
of without prior approval of the Board in terms of condition (f), the same shall be subject to
payment of statutory rates of FED as were applicable at the time of import;
(h) notwithstanding the condition (f) and (g), equipment imported under this proposed entry of Table-I
may be surrendered at any time to the Collector of Customs having jurisdiction, without payment
of any FED, for further disposal as may be prescribed by the Board ;
(i) the indemnity bond submitted in terms of condition (b) above shall stand discharged on submission
of a certificate from the Regulatory Authority to the effect that the equipment has been installed or
consumed in the said Project. In case the equipment is not consumed or installed in the project the
indemnity bond shall be discharged on fulfillment of conditions stipulated at (f) or (g) or (h), as the
case may be; and
(j) that violation of any of the above conditions shall render the goods liable to payment of statutory
rate of FED leviable on the date of clearance of goods in addition to any other penal action under
relevant provisions of the law.
Explanation. For the purpose of this provisions, "equipment" shall mean machinery, apparatus, materials
and all things to be provided under the contract for incorporation in the works relating to Lahore Orange
Line Metro Train Project.
==================================================================================================================
The Bill has also proposeda prescribed format for indemnity bondsin Annex- A and for certificates to be issued by the Authorized Officer of Regulatory Authority,in Annex- B.
TABLE - II (SERVICES)
============================================================================================================
Entry Description Heading / Sub-
No. heading Number
============================================================================================================
14 Commission paid by State Bank of Pakistan and its subsidiaries to National Respective
Pakistan or any other banking company for handling banking services of Fede Headings
Provincial Governments as State Bank of Pakistan's agents.
============================================================================================================
11. Other new levies
-- Mobile handset levy.
The bill proposed a new Mobile handset levy on import of smart phones of different categories at the rates specified in the belowtable:
==========================================================================================================
Entry Category of smart phone Rate of levy per
No. Set
==========================================================================================================
1 Where Import value of handset (including duties and taxes) does not exceed Nil
Rs.10,000/-
2 Where Import value of handset (including duties and taxes) exceeds Rs.10,00 Rs.1,000
does not exceed Rs.40,000/-
3 Where Import value of handset (including duties and taxes) exceeds Rs.40,00 Rs.3,000
does not exceed Rs.80,000/-
4 Where Import value of handset (including duties and taxes) exceeds Rs.80,00 Rs.5,000
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-- Health levy on tobacco
The Bill has sought to introduce health levy on tobacco at the rate of ten rupee per kg. The Pakistan Tobacco Board or its contractors, at the time of collecting cess on tobacco, directly or indirectly, shall collect health levy from every person purchasing tobacco including manufacturers of cigarettes.
CUSTOMS
1. Definitions
-- Pakistan customs-waters
Section 2(p)
It means the waters extending into the sea to a distance of twelve nautical miles measured from the appropriate base line on the coast of Pakistan. The bill seeks to extend the distance to twenty-four nautical miles.
-- Person
Section 2(pa)
Currently, the expression "person" includes a company, an association, a body of individuals whether incorporated or not. The Bill seeks to add " a local manufacturer" in this list, which addition is by nature of activities instead of by legal status.
2. Goods dutiable
Section 18(3), (5)
The bill seeks to restore the power of the Federal Government to levy regulatory duty. Through Finance Act, 2017, the said power was shifted to the Boardwith the approval of the Federal Minister-in-charge. The proposed amendment is introduced to address the decisions of the courts disapproving the amendment made vide Finance Act, 2017.
It is also proposed to remove the reference of sub section 3, dealing with levy of regulatory duty, in sub section 5. As a result, the regulatory duty shall not be counted while computing the cumulative incidence of rate of customs duty agreed by the Government of Pakistan under the multilateral trade agreements.
3. General power to exempt from customs-duties
Section 19(1), (5)
The bill seeks to restore the power of the Federal Government to exempt duties in specific circumstances. Through Finance Act, 2017, the said power had been shifted to the Board with the approval of the Federal Minister-in-charge pursuant to the approval of the Economic Coordination Committee of the Cabinet. The proposed amendment is in line with the decisions of the courts disapproving the amendment made vide Finance Act, 2017.
The bill also seeks to extend the date of enforcement to 30 June 2019 to all notifications issued up to 1st July 2016or thereafter, which was previously available till 30 June 2018.
4. Power to use data exchange information for determination of customs value
Section 25AA
The bill seeks to introduce a new section authorizing the use of any information or data obtained in pursuance of any bilateral or multilateral agreement entered into by the Board with any international organization, foreign customs administration or any other foreign competent authority, for assessment of duty and valuation of goods.
5. Power to take over the imported goods
Section 25C(1)
In order to curb clearance of goods at under invoiced value, section 25C currently authorize the Collector to take over such goods with the approval of the Board. The bill seeks to devolve this power from the Board to the Chief Collector.
6. False statement, error, etc.
Section 32(3)
Any duty/ taxes or charge not levied, short-levied or erroneously refunded for any reason including by inadvertence, error or misconstruction, can be recovered from the person after serving a show cause notice. The bill seeks to insert a proviso, which provides that no show cause notice will be issued to any such person, who pays the amount of duties and voluntarily prior to initiation of audit inquiry or investigation.
7. Refund to be claimed within one year
Section 33(3A)
Currently, there is no time limit within which the refund of customs duty is to be paid. The bill seeks to introduce a time period of 180 days for deciding the refund claim from the date of filing of the claim, subject to extension of further 90 days.
8. Provisional release of imported goods
Section 83B
The bill seeks to introduce a new section to deal with release of imported goods where any offence was detected but not liable to confiscation or needed further evidence at later stage. Under this section the Collector of Customs may allow release of such goods only onwritten request of the owner of the goods, subject to payment of duties or taxes and furnishing of bank guarantee or pay orderagainst penalties or fine to be imposed.
9. Frustrated cargo how dealt with
Section 138(1)
This section deals with permission to re-export of goods without payment of duty subject to rules, where the good were brought into the customs station due to inadvertence, misdirection or untraceability of the consignee. The bill seeks to extend the scope to such consignees, who had dishonored their commitments.
10. Punishment for offences
Section 156
Section 156 deals with the penal provisions for offences defined under the Customs Act, 1969. Following new offences have been added to the scope of this section.
-- Reference of section 155M (requisition of documents) has been added to clause 12A. Consequently, the following penalties will attract in case of any violation of section 155M. However, it is to be noted that reference of section 155M has not been mentioned in the column "offences". Therefore, levy of penalty without considering it an offence seems to be an omission in the proposed amendment.
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Clause Offences Penalties Reference to the
Section
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12A If any person contravenes the such person shall be liable to a penalty 26A, 155M
provisions of section 26A and does not exceeding one million rupees and
not furnish any information as on conviction by a Special Judge shall
required by the rules, be liable to imprisonment for a term
not exceeding one year or with both.
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-- Clause 63 provides for penalties on contravention of rules relating to transshipment of goods. The bill seeks to elaborate the penalties in the following manner:
=====================================================================================================================
Clause Offences Penalties Reference to the
Section
=====================================================================================================================
63 (i) If any goods which are loaded for such goods and the conveyance 121
transshipment, are pilfered, replaced illegally carrying these goods shall be
en-route or failed to reach the port of liable to confiscation and any person
destination, or any person transships including the custodian and the bonded
goods not allowed to be transshipped carrier shall be liable to a penalty not
exceeding ten times the value of the
goods and he shall further be liable,
upon conviction by a Special Judge, to
imprisonment for term not exceeding
seven years;
63 (ii) If any person contravenes any rule such person including the custodian 121
relating to transshipment other than and the inland carrier shall be liable to
mentioned in clause (i), penalty not exceeding five hundred
thousand rupees or three times the
amount of duties and taxes involved.
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11. Vesting of confiscated property in the Federal Government
Section 182
This section provides that any goods confiscated under the Act shall forthwith vest in the Federal Government and the officer who orders confiscation shall take and hold possession of such goods. This bill seeks to extend the authority for taking and holding the possession of such goods to any officer or person authorized by the Collector or Director.
12. Procedure in appeal
Section 193A(2A)
The bill seeks to add a new sub section (2A) to empower the Collector (Appeals) to grant stay against recovery of duty/taxes for a maximum period of 30 days on filing of appeal and after affording an opportunity of hearing to the officer of the concerned Collectorate or Directorate.
13. Authorized economic operator programme
Section 212A, Third Schedule
An Authorized Economic Operator (AEO) is defined by the World Customs Organization Framework of Standards to Secure and Facilitate Global Trade (WCO SAFE) as a party involved in the international movement of goods, in whatever function, that has been approved by, or on behalf of, a national Customs administration as complying with WCO or equivalent supply chain security standards. In the framework, several standards are included that can assist Customs administrations in meeting these new challenges.
The bill seeks to insert a new section authorizing the Federal Government to device Authorized Economic Programme by notification in the Official Gazette. Further, the Board, with the approval of the Federal Government, may prescribe rules on matters pertaining to AEO, including criteria for granting status of AEO to an applicant, suspension and revocation of the AEO status and theextent of benefits under AEO programme.
14. Power to make rules
Section 219(3A)
It is proposed to insert a new sub section (3A) which requires the publication of draft rules before issuance of the final rules. This is intended to provide opportunity to the stakeholders for offering their comments.
15. Validation
Section 221A(2)
The bill seeks to insert a new sub-section (2) to validate the levy and collectionof regulatory duty between 01 July 2017 to 30 June 2018, notwithstanding any order or judgment of any court held such levy as ultra vires. The proposed amendment will give legal protection to the regulatory duty levied during the aforementioned period while nullifying the effects of the courts
16. First Schedule and Fifth Schedule
The bill seeks to substitute the First Schedule and the Fifth Schedule; the proposed substitutions have not been released yet.
The salient features available at the FBR's website reveals the following:
Revenue Measure
-- Increase of additional customs duty from 1% to 2%.
Relief Measures
-- Import of duty free paper for printing of Quran weighing 60 g/m2 is allowed besides extending this facility to Nashir-e-Quran registered with the government.
-- Customs duty (CD) on raw materials / inputs (104 PCTs) withdrawn and (28 PCTs) reduced for promotion of exports.
-- Concessionary import of vintage or classic cars and jeeps allowed at fix duty/taxes of US$ 5,000.
-- Import of solar panels were exempted from the condition of 'local manufacturing' till 30th June 2018 which is extended till 30th June, 2019.
Exemption, withdrawal and reduction of duty
-- Exemption of 5% CD on specified LED parts and components for manufacturers of LED lights and Levy of 2% Regulatory Duty (RD) on LED bulb & Tubes, Energy Saving Bulbs & Tube to protect local industry.
-- Exemption of 3% CD on tanned hides in wet state.
-- Exemption of 3% CD on Micro Feeder Equipment used for food fortification.
-- Exemption of 5% CD on Tasigna (an anti-cancer medicines).
-- Exemption of 16% CD on charging stations for electric vehicles.
-- Exemption of duty to bovine semen for dairy sector.
-- Withdrawal of 11% CD on acrylic tow.
-- Withdrawal of CD on two catalysts for use by PTA industry i.e. Hydrogen Bromide (11%) and Palladium-on-carbon (3%)
-- To encourage local manufacturing of Optical Fiber Cables, CD on input materials i.e., Optical fiber (20%), Cable filing compound (11%), Polybutylene (20%), Fiber reinforced plastic (20%) and Water blocking/ swellable tape (11%) reduced to 5% besides reduction of RD on Optical Fiber Cables from 20% to 10%.
-- Reduction of CD to 3% on specified equipment used in cinema industry.
-- Reduction of CD on preparations for making animal feed from 10% to 5%,. Further, import of fans for corporate dairy farmers allowed at concessionary rate of 3%, to support dairy sector
-- Reduction of CD on Acetic Acid from 20% to 16%.
-- Reduction of CD on growth promoters premix, vitamin premix, Vitamin B12 and Vitamin H2 for poultry sector from 10% to 5%.
-- Reduction of CD on Multi-ply and Aluminum foil from 20% to 18% for Liquid Food Packaging Industry.
-- Reduction of CD on finished rooms (Pre-fabricated structures) from 20% to 10% for setting up of new hotels/motels.
-- Reduction of CD on plasters from 16% to 11%.
-- Reduction of CD on film of ethylene from 20% to 16% for Liquid Food Packaging Industry.
-- Reduction of CD on Carbon Black (rubber grade) from 20% to 16%.
-- Reduction of concessionary rate of CD from 10% to 5% on silicon electrical steel sheets for manufacturing transformers.
-- Reduction of CD from 16% to 8% on Coils of aluminum alloys used in manufacturing of Aluminum beverage cans.
-- Reduction of CD on import of coal, across the Board, from 5% to 3%.
-- Reduction of CD on import of Fire fighting vehicles from 30% to 10%
-- Reduction of CD from 50% to 25% and Exemption of 15% RD on Electric Vehicles and CD on kits of electric vehicle reduced from 50% to 10%.
-- Reduction of CD from 16% to 11% and levy of 5% RD on Medium Density Fiber.
-- Reduction of CD on corrective glasses from 11% to 3%.
-- Reduction of CD on Lithium iron phosphate battery (LiFePO4) from 11% to 8%.
Tariff Rationalization
-- Increase of CD on double-sided tape from 3% to 11%.
-- Increase of CD on rickshaw tyres from 11% to 20%, to protect domestic manufacturers.
-- Increase of CD on Soya bean oil from Rs.9050/MT & Rs.10200/MT to Rs.12000/MT and Rs.13,200/MT respectively.
-- Increase of CD on aluminum auto parts scrap from 30% to 35%.
-- Increase of CD on Di-octyl Terephthalate (DOTP) from 3% to 20%.
-- New PCT codes created for Radial tyres, CKD/SKD kits for home appliances, CKD / SKD of Mobile Phone, Semi-automatic washing machines, Petrol Generating sets, Kerosene based mineral oils, Relays, Fuses, Gear pumps and Turbo chargers for vehicles, Electric conductors, Light fittings with fixed/fitted LED/SMD, Refrigerated out door cabinet designed for insertion of electric and electronic apparatus, Digital/Processed Printing Inks, DOTP (Di-Octyl Terephthalate) and Pigments and preparations based thereon.
Review of Regulatory Duty (RD)
-- Levy of 30% RD on export of waste & scrap of copper
-- Review of RD on non-essential and luxury items
-- 10% RD levied on CKD/SKD kits of specified Home Appliance
-- Levy of RD @ Rs.175/set on CKD/SKD kits of mobile phone
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