This Memorandum has been prepared as a general guide for the benefit of our clients and is available to other interested persons upon request. This should not be published in any manner without the Firm's consent. This is not an exhaustive treatise as it sets out interpretation of only the significant amendments proposed by the Finance Bill 2005 (the Bill) in the Income Tax Ordinance, 2001, the Sales Tax Act, 1990, the Customs Act, 1969 and the insertion of the Federal Excise Act, 2005 in a concise form sufficient enough to amplify the important aspects of the changes proposed to be made.
Changes of consequential, administrative, procedural or editorial in nature have either been excluded from these comments or otherwise dealt with briefly.
The amendments proposed by the Bill after having been enacted as the Finance Act, 2005, shall, with or without modification, become effective from the tax year 2006, unless otherwise indicated.
The Ordinance means the Income Tax Ordinance, 2001 unless otherwise stated. The Repealed Ordinance means the Income Tax Ordinance, 1979 since repealed. The Board means the Central Board of Revenue, Government of Pakistan.
It is suggested that the text of the Bill and the relevant notifications, where applicable, be referred to in considering the interpretation of any provision. Since these are only general comments, no final decision on any issue be taken without further consideration and specific professional advice should be sought before any action is taken.
1. Scope of definition of "amalgamation" enlarged to include Industrial Undertakings
SECTION 57A & SECTION 2, SUB-SECTION (1A) Section 57A was introduced by the Finance Ordinance, 2002 permitting for the first time setting off and carrying forward of accumulated loss of an amalgamating company or companies against the business profits and gains of the amalgamated company provided such companies were a banking company or a non-banking financial institution. Subsequently, the scope of this provision was expanded to include insurance companies vide the Finance Act, 2004.
There has been a persistent demand to further extend the benefit of this provision to the corporate sector in general. It is, therefore, encouraging to note that taking cognizance of this valid business need, the Bill seeks to amend the definition of "amalgamation" to include a company owning and managing an industrial undertaking.
The existing condition that atleast one of the companies should be a public company or a company incorporated under any law, other than the Companies Ordinance, 1984, for the time being in force, to be able to avail the tax benefit of amalgamation has been clarified by an appropriate clarificatory amendment in Sub-section (1A) of Section 2.
Another important aspect of the proposed amendment is the removal of the time barrier i.e. June 30, 2006 by which amalgamation of companies in the financial services sector was required to be approved by the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan, as the case may be. With the proposed deletion of Clause (c) of Sub-section (1A) Section 2 of the Ordinance, there is no time limit for any class of companies to be entitled to avail tax benefit of amalgamation as contemplated by Section 57A.
The Bill proposes to insert a proviso in Sub-section (2) of Section 57A whereby it would be mandatory for the amalgamated company to continue the business of amalgamating company or companies for atleast five years from the date of amalgamation so as to be able to continue to reap the benefit of accumulated loss and unabsorbed depreciation for the purposes of adjustment.
The accepted legal consequence of an amalgamation is either all the companies amalgamating are extinct and a new company comes into existence or an amalgamated company survives in which the other company or companies amalgamating get absorbed. If this is the logical consequences of an amalgamation, then, the carry forward of loss of all companies amalgamating can either be through the new company or the surviving company i.e. amalgamated company and it is in this context that the use of the words "vice versa" seem to have been used. This would permit setting off of profits of an amalgamating company against losses of the amalgamated company in the year of amalgamation.
2. Group relief extended to service sector companies
SECTION 59B: The concept of group relief for the adjustment of the subsidiary company's losses against the profits of its holding company was enacted by the Finance Act, 2004. This relief was however, restricted in respect of such subsidiary companies which own and manage an industrial undertaking.
The Bill now proposes to extend the group relief as envisaged by this Section to such subsidiary companies as well which own and manage an undertaking engaged in providing services.
3. Manufacturers excluded from the ambit of Final Tax Regime (FTR)
SECTION 153, SUB-SECTION (6A) The provisions of the Ordinance as presently applicable to a manufacturer of goods bring such tax payer within the ambit of the FTR pursuant to Sub-section (6) of Section 153 of the Ordinance. However, by virtue of Clause (40) of Part IV of the Second Schedule to the Ordinance, while the construction of the said provision appears to be defective, the purport thereof was to make available to such tax payer an option to get out of the FTR subject to a declaration being made in the prescribed manner.
Over the years, the subject of FTR, specially in the context of a manufacturer of goods, has remained controversial in its conceptual context. The Bill therefore, seeks to remedy the situation by proposing to insert a new Sub-section (6A) in Section 153 whereby tax deductible from payment on account of supply of goods under Sub-section (1) thereof shall not be treated to be a final tax on the income of a resident person being a manufacturer of goods.
As a consequence of the aforesaid, Clause (40) of Part IV of the Second Schedule to the Ordinance is proposed to be deleted and it shall always be deemed to have been deleted notwithstanding any judgment, order or decision of any Court, tribunal or authority including Income tax authority.
4. Recategorization of contracts executed by a non resident for withholding tax purposes
SECTION 153, SUB-SECTION (3) Under the existing provisions of Sub-section (3) of Section 153, for the purposes of withholding tax from payments to a non resident, various classes of contracts are enumerated which inter alia include the following subject to withholding tax at the prescribed rates:
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Class of Contract Withholding Tax Rate
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Turn Key Contract 8 pc
Hydel Power Project 5 pc
Transmission Line Project 5 pc
Other Power Projects 4 pc
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The aforesaid withholding tax is also treated as the discharge of final tax payable by the non resident, provided he opts to be taxed under the FTR.
The Bill now proposes to delete the aforesaid classes of contracts. Consequently payments to a non resident is proposed to be classified in respect of execution of: a 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; or any other contract for construction or services rendered, other than a contract for royalty and technical services; a contract for advertisement services rendered by T.V Satellite Channels,
Currently, payments for the aforesaid contracts are subject to various rates of withholding tax. The Bill now proposes to impose a uniform rate of 6 percent, which shall be treated as an advance tax unless the non resident opts to be taxed under the FTR pursuant to Clause (41) of Part IV of the Second Schedule to the Ordinance.
5. Cash withdrawal from banks subject to withholding tax
SECTION 231A: It is generally believed that there is a preponderance of cash transactions in our society. Although various measures were taken in the past for documentation of the economy and expanding the tax base, it appears that such measures have not yielded the desired results. In yet another attempt to address this issue, the Bill proposes to introduce this new Section whereby every banking company is obliged to deduct tax at the rate of 0.1 percent at the time of making a payment for cash withdrawal exceeding Rs.25,000/-, which shall be treated as advance tax.
The aforesaid provision shall not apply on cash withdrawal made by the Federal Government, a provincial Government, a foreign diplomat or a diplomatic mission in Pakistan or a person who produces a certificate from the Commissioner that his income during the tax year is exempt.
6. Cost of passenger transport vehicle no longer subject to ceiling for purposes of depreciation
SECTION 22, SUB-SECTION (10) & (13) For the purposes of depreciation, the Finance Ordinance, 2002 raised the ceiling of Rupees one million in respect of cost of a passenger transport vehicle not plying for hire. The Bill proposes to remove the said ceiling by omitting Clause (a) of Sub-section (13) of Section 22. As a consequential amendment, Sub-section (10) of this Section is also proposed to be deleted whereby, on disposal of the passenger transport vehicle, the consideration received was adjusted commensurate with the ceiling applied on the cost as aforesaid.
It would be seen that deletion of Sub-section(10) of this Section will create hardship in cases of passenger transport vehicles acquired prior to the tax year 2005 the cost whereof was restricted in accordance with Sub-clause (13) of this Section which may be sold after July 01, 2005.
7. Advance tax payable on purchase of new motor cars
SECTION 233B: In an attempt to bring within the tax-net purchasers of new motor cars, in particular, a sprawling network of car dealers, a new Section is proposed to be introduced. Under this Section, a local automobile manufacturing company is obliged to collect advance tax at the rate of 6 percent at the time of delivery of a new motor car.
These provisions shall not apply on the purchase of car by the Federal Government, a Provincial Government, a foreign diplomat or a diplomatic mission in Pakistan or a person producing a certificate from the Commissioner claiming that his income during the tax year is exempt from tax.
8. Concept of small company introduced
SECTION 2, SUB-SECTION (59A) Consistent with the increasing emphasis being given to the policy of promoting Small and Medium Enterprises (SMEs), it was desirable that appropriate fiscal measures be taken to encourage corporatization of business and commerce. Accordingly, the Bill seeks to introduce the concept of a small company which has been defined in Sub-section (59A) of Section 2 to mean a company registered under the Companies Ordinance, 1984, on or after July 01, 2005 which satisfies the following conditions:
a) the equity of such company comprising its paid-up capital and undistributed reserves should not exceed Rupees twenty five million;
b) the annual turnover of such company should not exceed Rupees two hundred million; and
c) it must be all together a new company and business which should not have been formed as a result of any restructuring caused by splitting up or reconstitution of an already existing business.
A consequential amendment is sought to be made in Section 80 whereby small company is sought to be included in the definition of a "person".
To encourage business enterprises to adopt corporate vehicle of a small company, the Bill seeks to confer preferential tax treatment through various measures which are summarized below:
a) the rate of tax on the income of a small company shall be twenty percent;
b) a small company shall not be obliged to withhold tax while making payments on account of purchase of goods and services or on execution of a contract which are otherwise subject to withholding tax pursuant to Sub-section (1) of Section 153 of the Ordinance; and
c) a small company is also sought to be exempted, from mandatory obligation of minimum tax as envisaged under Section 113 of the Ordinance.
9. Retailers engaged in certain businesses liable to final tax on turnover
SECTION 113B: The Finance Act, 2004 enacted Section 113A whereby an individual or an association of persons engaged in the business of retailing goods with a turnover not exceeding Rupees Five Million in a tax year may exercise an option to pay tax at the rate of 0.75 percent of their turnover as the final discharge of their tax liability.
The Bill seeks to introduce a new Section for retailers which is business specific. Accordingly, a retailer, being an individual or an association of persons, engaged in the retailing of textile fabrics and articles of apparel including readymade garments or fashion wear, articles of leather including footwear, carpets, surgical goods and sport goods, having turnover exceeding Rupees Five Million for any tax year is obliged to pay final tax at the rate of 1 percent of his turnover. This tax will be levied in the form of the single stage sales tax at the rate of 3 percent of the declared turnover.
10. Commissioner's power to select the case for tax audit reinforced
SECTION 120, SUB-SECTION (1A) One of the important tax reform measures taken in recent years is the acceptance of return of income as filed which is taken for all purposes of the Ordinance to be an assessment order issued to the tax payer by the Commissioner on the day the return was furnished unless the same is incomplete or deficient. Under Section 177, the Board is empowered to lay down criteria for selection of any person for an audit by the Commissioner. Additionally, Sub-section (4) of Section 177 also empowers the Commissioner to select a person for an audit of his income tax affairs based on the prescribed criteria. While the said provision appears to confer necessary empowerment to the Commissioner for the purposes of audit of a person selected by him based on the prescribed criteria, Section 120 seems to have suffered from a legal lacuna impeding the Commissioner to exercise his powers.
In order to overcome the apparent inadequacy of powers under Section 120 on the part of the Commissioner, the Bill proposes to insert a new Sub-section (1A) in Section 120 which, read with Section 177, would appear to fully empower the Commissioner to exercise his discretion judiciously to select a person for audit having regard to the criteria laid down in the said Section.
11. Power of Commissioner (Appeals) to set aside assessment order withdrawn
SECTION 129, SUB-SECTION (1) While the Commissioner (Appeals) enjoys necessary legal powers to dispose of appeals in a definitive manner by making an order to confirm, modify or annul the assessment order or make such order as he deems fit, in practice, however, numerous cases are cited where the Commissioner (Appeals) instead of disposing of the case in the manner aforesaid merely sets aside the assessment order with a direction to make a new assessment order. Consequently, either the interest of the tax payer is prejudiced by a delay in the dispensation of justice or a lack of definitive action on his part tends to be detrimental to the interest of the Revenue.
In order to curb the above tendency, the Bill proposes to substitute Clause (a) of Sub-section (1) of Section 29 whereby the Commissioner (Appeals) would no longer be legally empowered to set aside an assessment order. The new provisions would require him to make a definitive order to confirm, modify or annul the assessment order after carrying out necessary examination or causing further enquiries to be made as he may deem fit. Hopefully, this provision would help reform the system further.
12. Limitation not to apply against order setting aside the assessment
SECTION 124, SUB-SECTION (2)
Under Sub-section (2) of this Section, a new assessment order is required to be made by the Commissioner within one year of the end of the financial year in which an assessment order is set aside wholly or partly in consequence of an order passed by the Commissioner of Income tax (Appeals), Appellate Tribunal, High Court or Supreme Court, as the case may be.
The Bill seeks to introduce a proviso in the aforesaid Sub-section whereby the bar of limitation of one year shall not apply if an appeal or reference has been preferred against the order setting aside the assessment.
13. Direct reference to the High Court
SECTION 133
Prior to the Finance Act, 1997, an aggrieved party, whether a tax payer or the Commissioner, was required to first apply to the Appellate Tribunal for reference to the High Court any question of law arising from its order. Upon the Appellate Tribunal concurring that the question of law does arise in a particular case, the Tribunal was required to draw a statement of the case for reference to the High Court. In the event of the Appellate Tribunal holding that no question of law arises, the aggrieved party was entitled to apply to the High Court for adjudication.
This position was drastically changed by the Finance Act, 1997 whereby an aggrieved party was entitled to appeal to the High Court without reference to the Appellate Tribunal. This provision prevailed until the Finance Ordinance, 2000 which reverted back to the pre 1997 provisions whereby reference to the High Court could be made through the Tribunal on any question of law arising from its order. These provisions continue to be applicable under the Ordinance.
The Bill now proposes to substitute Section 133 in its entirety as a consequence of which a more direct process of adjudication is proposed to be introduced. Accordingly, an aggrieved party may make a reference to the High Court within 90 days of the communication of the order of the Appellate Tribunal without its intervention in respect of any question of law arising out of its order.
14. Provision for Alternate Dispute Resolution (ADR) rationalized
SECTION 134A
The principal change sought to be made by the Bill is to propose deletion of Sub-section (6) of this Section which was a cause of confusion with regard to appeal or reference in the event a person feels aggrieved by the order of the Board arising from the exercise of its jurisdiction under the ADR. The Bill proposes to insert a proviso in Sub-section (5) of this Section to the effect that a tax payer not being satisfied with the order of the Board, is entitled to pursue his remedy before the relevant authority, Tribunal or Court as if the Board had not made any order. As a consequence of this proviso, Sub-section (6) is, therefore, proposed to be deleted.
15. Appeal before the Supreme Court of Pakistan
SECTION 134
The existing provisions of Section 134 of the Ordinance entitles an aggrieved party to file an appeal before the Supreme Court of Pakistan against the judgment of the High Court, in a case, which the High Court certifies to be fit for appeal before the Supreme Court of Pakistan.
Article 185 of the Constitution of Islamic Republic of Pakistan defines appellate jurisdiction of Supreme Court whereby an appeal shall lie before the Supreme Court of Pakistan from any judgment, order or sentence of a High Court with or without leave to grant an appeal from the Supreme Court of Pakistan.
It appears that the proposed omission of Section 134 does not deprive the aggrieved party from filing an appeal before the Supreme Court of Pakistan since the right of appeal against the High Court vests under Article 185 of the Constitution of the Islamic Republic of Pakistan.
16. APPROVED PENSION FUND:
In order to encourage the introduction of pension and retirement benefit schemes, the Federal Government promulgated the Voluntary Pension System Rules 2005 (the VPS Rules) vide SRO.88(I)/2005 dated January 27, 2005.
Under the aforesaid VPS Rules, the pension schemes are envisaged to be managed by pension fund managers being Life Insurance Companies or Assets Management Companies. All Pakistani nationals having a valid National Tax Number who are not employed in any position entitling them to benefits under any other approved employment pension and annuity scheme are eligible to contribute to the pension fund. The contribution can be made by eligible employees themselves as well as alongwith their employers to one or more pension funds. However, the tax credit on contributions made to the pension funds are subject to restriction under the Ordinance.
In order to implement the above scheme from a tax perspective, it is proposed to incorporate the following provisions in the Ordinance.
APPROVED ANNUITY PLAN (AAP)
SECTION 2, SUB-SECTION (3A)
The Bill defines AAP to mean an annuity plan approved by the Securities and Exchange Commission of Pakistan (SECP) under the VPS Rules and offered by a life insurance company registered with the SECP under the Insurance Ordinance, 2000.
APPROVED INCOME PAYMENT PLAN (AIPP)
SECTION 2, SUB-SECTION(3B)
AIPP is sought to be defined to mean income payment plan approved by the SECP under the VPS Rules and offered by a pension fund manager registered with the SECP under the VPS Rules.
APPROVED PENSION FUND
SECTION 2, SUB-SECTION (3C)
This is proposed by the Bill to be defined to mean a pension fund approved by the SECP under the VPS Rules and managed by a pension fund manager registered with the SECP under the VPS Rules.
CONTRIBUTION TO AN APPROVED PENSION FUND
SECTION 2, SUB-SECTION (13B)
The Bill proposes a limit of contribution upto a maximum of Rs.500,000/- in a tax year by an eligible person to an approved pension fund(s).
ELIGIBLE PERSON
SECTION 2, SUB-SECTION (19A)
For the purpose of VPS Rules, an eligible person has been defined to mean, an individual Pakistani having a valid National Tax Number who is otherwise not entitled to benefit under any other approved employment pension and annuity scheme. This definition corresponds to the eligibility criteria laid down in the VPS Rules.
ALLOWABLE DEDUCTION
SECTION 21(E)
The Bill seeks to provide a deduction in computing income from business in respect of any contribution made by an employer to an approved pension fund.
CONTRIBUTION TO AN APPROVED PENSION FUND
SECTION 63
The existing Section 63 provides a tax credit in respect of any contribution or premium paid under a retirement annuity scheme of an insurance company providing an annuity to the person in old age. The Bill now seeks to replace the existing provisions and it now provides a tax credit to an eligible person deriving income under the head salary or income from business on contribution or premium paid to an approved pension fund under the VPS Rules. Under the proposed amendment, the person shall be allowed a tax credit at the average rate of tax on the lesser of:
i) total contribution or premium paid during the year;
ii) Rs.500,000/-;
iii) 20% of the person's taxable income of the relevant tax year. However, this limit shall be relaxed in the case of a person joining the pension fund at the age of 41 year or above. Such person would be allowed an additional contribution of 2% per annum for each year of age exceeding 40 years for the first ten years from the date of notification of the VPS Rules, subject to a maximum of 50% of total taxable income of the preceding year.
DEDUCTION OF TAX AT SOURCE ON CERTAIN WITHDRAWAL OF BALANCES FROM PENSION FUND
SECTION 156B
Under the proposed section, the pension fund manager is required to deduct tax at the average rate of tax of the individual with reference to the last three preceding years in case the individual makes withdrawals from the pension fund in the following manner:
a) any withdrawal before the age of retirement;
b) any withdrawal at or after the age of retirement in excess of 25% of his accumulated balance. However, the aforesaid deduction of tax is not required if the withdrawn amount is invested in an approved income payment plan or purchase of an annuity plan offered by a pension fund manager. Deduction of tax will also not be required if the withdrawal is made to transfer the balance to another pension account maintained by another pension fund manager under the option provided in the VPS Rules for transfer of balance from one pension fund manager to another.
EXEMPTION FROM TAX AND WITHHOLDING TAX AT SOURCE
CLAUSE 57 OF PART I, CLAUSE 47(B) OF PART IV OF THE SECOND SCHEDULE
The Bill seeks to provide exemption from tax to income derived by a pension fund established under the VPS Rules and approved by the Securities and Exchange Commission of Pakistan. However, no provision exists or is proposed to provide similar exemption to Approved Annuity Plan and Approved Income Payment Plan.
Exemption from tax is also proposed for any profit, gain or benefit derived by a pension fund manager from a pension fund on redemption of the seed capital invested in pension fund as specified in the VPS Rules 2005.
The Bill also proposes exemption from deduction of tax on receipt of dividend, profit on debt and commission by an Approved Pension Fund and by an Approved Income Payment Plan.
It should be noted that Clauses (8) to (25) of Part I of the Second Schedule to the Ordinance provide exemption from tax in respect of payment received by persons under various pension, gratuity and other retirement benefit schemes. However, no provision exists or amendment has been proposed to exempt payments received by eligible persons from the approved pension funds established under the VPS Rules. Therefore, it seems that until such amendments are made, the payment received by any person from the pension funds established under the VPS Rules would be liable to tax.
17. DEFINITION OF INDUSTRIAL UNDERTAKING
SECTION 2, SUB-SECTION (29C) AND SECTION 148, SUB-SECTION (9)
The Finance Act, 2004 introduced the definition of an "industrial undertaking" in Section 148 as the tax collected on imports is treated as the discharge of final tax on the income of importer arising from such import, except in the case of an industrial undertaking.
It is now proposed to omit this definition from Section 148 and reintroduce it in Section 2 which provides definitions of various terms for the purposes of the Ordinance. This, therefore, means that the definition of industrial undertaking which was earlier restricted for the purposes of Section 148 would now apply in the context of the whole Ordinance. The proposed definition is the same as contained in Sub-section (9) of Section 148 with only one major change. Presently, companies engaged in oil and gas exploration and extraction of mineral deposits, which are liable to tax under the Fifth Schedule to the Ordinance are excluded from the definition of industrial undertaking. The proposed definition contains no such exclusion and, therefore, such undertakings would also be regarded as industrial undertakings for the purposes of the Ordinance.
18. Filing of Return of income
SECTION 114
The provisions of Section 114 require every person having income chargeable to tax, to file a Return of income. Apart from this condition, certain other persons, although not having taxable income are, still required to file the Return of income. It is now proposed to amend this provision in the following manner:
i) Previously any person who was charged to tax in respect of any preceding four tax years was required to file a Return of income; however, this requirement is now proposed to be restricted to such persons who have been charged to tax in respect of any two preceding tax years.
ii) owners of motor vehicles, subscribers of telephone and mobile phones and certain persons who had undertaken foreign travel in a tax year were required to compulsorily file the Return of income. It is now proposed to omit the aforesaid requirement of filing the Return of income by such persons.
In order to facilitate electronic filing of Return of income, a new Sub-section (2A) is proposed to be inserted whereby a Return of income filed electronically on the web and by way of magnetic media or any computer readable media will be acceptable as a means of filing the Return of income. The Board has been empowered to make rules prescribing the process of such electronic filing.
19. Filing of employer's certificate in lieu of Return by salaried individuals no longer required
SECTION 115:
Presently, a taxpayer whose entire income consists of income under the head salary, furnishes an employer's certificate in lieu of the Return of income. It is now proposed that such taxpayers shall not be required to furnish the employer's certificate, if the employer furnishes an annual statement of deduction of tax from salary as prescribed under the Income Tax Rules, 2002 for that tax year.
However, it should be noted that a salaried taxpayer would still be required to furnish a Return of income if he has certain other income like dividend, profit on debt etc.
20. Brokerage and Commission
SECTION 233:
Presently, while making any payment on account of brokerage and commission to any person, tax is required to be deducted at source, irrespective of the residential status of the recipient. It is now proposed to restrict the applicability of this section to payments to resident persons only. The rate of deduction of tax under this section remains the same and shall continue to be treated as the full and final discharge of the tax liability of the person from whom the tax is deducted.
21. Obtaining information and evidence
SECTION 176
Under this Section, the Commissioner is empowered to obtain information relevant to any tax leviable under the Ordinance and to require any person to attend his office for examination on oath and to require such person to provide information, document or computer stored information. It is now proposed that the information required by the Commissioner may be submitted by the person, if he so desires, electronically or through any computer readable media.
22. Re-organization of the Directorate General of inspection and internal audit
SECTION 228
Under the existing provisions, the Federal Government is empowered to appoint the Directorate General of Inspection. It is now proposed that these powers be vested with the Board which should be empowered to appoint the Directorate General and to specify its functions, jurisdiction and powers. The existing Sections 229, 230, 231 specifying the inspection authorities, their jurisdiction, functions and powers are accordingly proposed to be deleted.
23. Definition of a public company
SECTION 2, SUB-SECTION (47)
The Finance Act, 2003 inserted Clause (ab) in Sub-section (47) of Section 2 whereby a company in which shares are held by a foreign Government, or a foreign company owned by a foreign Government is treated as a public company for the purposes of income tax. Presently no threshold of holding of shares has been envisaged and it could, therefore, be inferred that any number of shares held by a foreign Government or a foreign company owned by a foreign Government in a company would qualify the company to be treated as a public company under the Ordinance.
The Bill now seeks to amend Clause (ab) whereby a company in which not less than 50% of the shares are held by a foreign Government or a foreign company owned by a foreign Government shall be treated as a public company under the Ordinance.
THE FIRST SCHEDULE:
24. Rates of tax for individuals and association of persons
The rates of tax chargeable for the tax year 2006 (corresponding to the income year ending at any time between July 01, 2005 to June 30, 2006) have remain unchanged other than for SALARIED TAX PAYERS and are as under:
NON SALARIED TAXPAYERS:
a) For those assesses who have either no agricultural income or agricultural income below Rs.80,000/- which is liable to tax under the laws of any Province of Pakistan.
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Taxable Income Rate of Tax
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Upto Rs.100,000 Nil
Rs.100,001 - 150,000 7.5% of the amount exceeding Rs.100,000
Rs.150,001 - 300,000 Rs.3,750 + 12.5% of amount exceeding Rs.150,000
Rs.300,001 - 400,000 Rs.22,500 + 20% of amount exceeding Rs.300,000
Rs.400,001 - 700,000 Rs.42,500 + 25% of amount exceeding Rs.400,000
Over Rs.700,000 Rs.117,500 + 35% of amount exceeding Rs.700,000
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b) For assessees whose total income includes income from agriculture, which is liable to tax under the laws of any Province of Pakistan and such income from agriculture exceeds Rs.80,000/-.
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Taxable Income Rate of Tax
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Upto Rs.150,000 7.5% of such income
Rs.150,001 - 300,000 Rs.11,250 + 12.5% of amount exceeding Rs.150,000
Rs.300,001 - 400,000 Rs.30,000 + 20% of amount exceeding Rs.300,000
Rs.400,001 - 700,000 Rs.50,000 + 25% of amount exceeding Rs.400,000
Over Rs.700,000 Rs.125,000 + 35% of amount exceeding Rs.700,000
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Salaried Taxpayers
c) In the case of a salaried taxpayer, being one having salary income in excess of 50% of his taxable income, the rates of tax chargeable for the tax year 2006 (corresponding to the income year ending at any time between July 01, 2005 to June 30, 2006) has been proposed by the Bill in the following manner:
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Taxable Income Rate of Tax
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Upto Rs.100,000 Nil
Rs. 100,001 - 200,000 3.5% of the amount exceeding Rs.100,000
Rs. 200,001 - 400,000 Rs.3,500 + 12% of amount exceeding Rs.200,000
Rs. 400,001 - 700,000 Rs.27,500 + 25% of amount exceeding Rs.400,000
Over Rs.700,000 Rs.102,500 + 30% of amount exceeding Rs.700,000
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25. REDUCTION IN TAX LIABILITY:
The Bill seeks to withdraw the reduction in tax liability as available to salaried tax payers in pursuance of Clause (1) of Part-III of the Second Schedule to the Ordinance.
The provision to reduce the income tax liability of a full time teacher or a researcher employed in a non-profit educational or research institution duly recognized by a Board of Education or a University or the Higher Education Commission and to a teacher and researcher of Government training and research institution also continues to be available. The tax liability in such cases shall be reduced by an amount equal to 75% of the tax payable as against the existing reduction by 50%.
"Tax Year" means a period of twelve months ending on 30 June and corresponds to the period to which the income of tax payer relates.
26. Impact of change in rates of tax as applicable to salaried individual for tax year 2006
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Taxable Income Tax Incidence Decrease In
Per Before After Tax Incidence
Month Annum Amendment Amendment Rupees % Age
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8,500 102,000 75 70 5 6.67
9,000 108,000 300 280 20 6.67
10,000 120,000 750 700 50 6.67
12,500 150,000 1,875 1,750 125 6.67
15,000 180,000 4,500 2,800 1,700 37.78
20,000 240,000 10,500 8,300 2,200 20.95
25,000 300,000 15,750 15,500 250 1.59
30,000 360,000 27,600 22,700 4,900 17.75
40,000 480,000 50,000 47,500 2,500 5.00
50,000 600,000 83,250 77,500 5,750 6.91
60,000 720,000 112,050 108,500 3,550 3.17
70,000 840,000 149,850 144,500 5,350 3.57
80,000 960,000 187,650 180,500 7,150 3.81
100,000 1,200,000 277,875 252,500 25,375 9.13
125,000 1,500,000 377,625 342,500 35,125 9.30
150,000 1,800,000 477,375 432,500 44,875 9.40
200,000 2,400,000 676,875 612,500 64,375 9.51
400,000 4,800,000 1,474,875 1,332,500 142,375 9.65
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27. RATES OF TAX ON RETAILERS:
The rate of tax applicable on a retailer continues to be at 0.75% of the turnover in case his declared turnover is less than Rs.5 million.
The rate of tax applicable on a retailer, being on individual or an AOP having turnover exceeding 5 million rupees for any tax year, on its retail sales of textile fabric and articles of apparel, including readymade garments or fashion wear, articles of leather including footwear, carpets, surgical goods and sports goods has been proposed at 1% of turnover to be levied as part of a 3% sales tax.
28. RATES OF TAX FOR COMPANIES:
The rate of tax for companies falling under the various categories (other than the category of "small company") was enacted prospectively by the Finance Ordinance, 2002 and are as under:
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Type of Payment Rate %
Existing Proposed
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Profit on debt
a) Yield on a National Savings Deposit 10 No change
Certificate including a Defence Savings
Certificate under the National Savings Scheme;
b) Profit on a debt, being an account or 10 No change
deposit maintained with a banking company
or a financial institution;
c) Profit on any bond, certificate, debenture, 10 No change
security or instrument of any kind (excluding
loan agreement between a borrower and
a banking company or a development
finance institution) issued by a banking
company, a financial institution, company
as defined in the Companies Ordinance,
1984 and a body corporate formed
by or under any law for the time being in
force, to any person other than a
financial institution.
d) Profit on any security issued by 20 No change
the Federal Government, a Provincial
government or a local authority to any
person other than a financial institution
Goods and services
a) Sale of rice, cotton, cotton seed or edible oils 1.5 No change except
"cotton omitted
b) Sale of any other goods 3.5 No change
c) For transport services 2 No change
d) For other services 5 No change
e) Execution of a contract
- value less than Rs. Thirty million 5 Omitted
- value exceeding Rs. Thirty million 6 Omitted
- irrespective of value - Omitted
Income from property
If the annual rent of immovable property
including rent of furniture and fixtures and
amounts for services relating to such property
exceeds Rs.300,000 (previously Rs.200,000) 5 No change
Prizes and winnings
a) Amount of prize bond winning 10 No change
b) Amount of raffle/lottery winning, 20 No change
cross-word puzzle or prize on winning
a quiz offered by companies for promotion of sales
Mobile telephone and prepaid telephone card
Amount of bill or sale price of prepaid
telephone card 10 No change
Commission or discount allowed on sale
of petroleum products by a petrol pump operator 10 No change
Amount of commission or discount
Commission income of indenting commission
agents, advertising agents and yarn agents
Amount of payment 5 No change
Commission income of others
Amount of payment 5 No change
Commission income of insurance agents and travel agents
Amount of payment 10 No change
=================================================================================
30. Payment of tax on imports
The rate of collection of tax at import stage by the Collector of Customs continues to be 6% of the value of goods inclusive of customs duty and sales tax.
31. Collection of tax from proceeds of goods exported
The rates of collection of tax from the proceeds of export have been rationalized for certain items to range between 0.75% to 1.50%.
32. Collection of tax from remittance of indenting commission on exports
The rate of collection of tax from indenting commission on exports continues to be 5%.
33. Rates of Collection of Tax From Telephone Users
The Bill proposes the following tax collection rates for telephone users
In the case of prepaid telephone cards 10% of the amount of sale price
of prepaid telephone cards
In the case of post paid telephone bill -
Where the monthly bill exceeds Rs.1,000/- 10% of the amount of bill
34. Rates of Tax on Cash Withdrawal
THE rate of withholding tax on cash amount exceeding Rs.25,000/- withdrawn from bank is proposed at 0.1% of the amount withdrawn.
35. Rate Of Tax On Purchase Of Motor Cars
The rate of collection of advance tax on the purchase of new motor car has been proposed at 6% of the amount paid as price of the motor car.
36. Rates of tax on non-residents
Advertisement services rendered by T.V. Satellite Channels
The Bill proposes a withholding tax rate of 6% of the gross amount payable in respect of advertisement services rendered by non-residents as against the existing 5%. The tax so withheld shall be a final tax.
The rates of withholding tax for the "Tax Year" ending on 30 June 2006 for certain payments to non-residents other than the one proposed above have remained unchanged, except where indicated and are as under:
============================================================
Type of payment Rate %
============================================================
Dividends from:
- a company who is purchaser of a power
project privatized by WAPDA 7.5
- a company engaged exclusively in
mining operations, other than petroleum 7.5
- a company engaged in power generation project 7.5
- others 10
Technical services fee 15
Royalty 15
Shipping income 8
Air transport income 3
Profit on debt 30
Others (excluding those specifically mentioned herein) 30
Execution of a contract
- Turnkey contract 8
- Contract or sub-contract for the design,
construction or supply of plant and
equipment:
- under a hydel power project or a
transmission line project 5
Proposed to be omitted by the Bill
- under any other power project 4
Any other contract
- where the value exceeds Rupees thirty million 6
- where the value does not exceed Rupees thirty million 5
Irrespective of value and nature of contract 6
Proposed by the Bill
============================================================
The taxes withheld in all the above cases except for taxes withheld under the head "profit on debt", "Others" and "execution of a contract" constitute full and final settlement of Pakistan taxes in respect of such income.
A non-resident contractor earning income from "execution of contract" can opt for the final tax regime, which means that the taxes withheld would culminate into final tax liability. The option must be exercised within three months of the commencement of the tax year and shall remain irrevocable for three years. In case the option has not been exercised by the non-resident person, his total income will be assessed on the basis of his net business profits and the taxes withheld would be treated as advance tax against his eventual tax liability.
THE SECOND SCHEDULE
PART - I
37. PERQUISITES TO EMPLOYEES:
CLAUSE (53A) A new clause has been proposed to be inserted which seeks to exempt value of the following perquisites received by an employee by virtue of his employment:
(i) Free or concessional passage provided by transporters including airlines to its employees including the members of their household and dependents;
(ii) Free or subsidized food provided by hotels and restaurants to its employees during duty hours;
(iii) Free or subsidized education provided by an educational institution to the children of its employees;
(iv) Free or subsidized medical treatment provided by a hospital or a clinic to its employees;
(v) Any other perquisites or benefit for which the employer does not have to bear any marginal cost as notified by the Board.
38. Income of funds and institutions
CLAUSE (57), SUB-CLAUSE (3) The above clause contains names of funds and institutions the income of which is exempt from tax. The Bill seeks to extend the benefit of exemption to the following:
(i) a Pension fund approved by the Securities and Exchange Commission of Pakistan under the Voluntary Pension System Rules, 2005;
(ii) any profit and gain derived by a pension fund manager on redemption of the seed capital as specified in the Voluntary Pension System Rules, 2005.
39. Exemption to donations paid to approved institutions, foundations, societies, boards, trusts and funds
CLAUSE 61, PROVISO:
The above clause contains specific names of approved donees, to whom donation made is exempt from tax. The Bill seeks to omit certain names on account of they having become redundant due to efflux of time.
President's fund for Afghan refugees;
Bangladesh Flood relief fund, 1988;
President's fund for assistance of Palestine;
President's Famine Relief Fund for Africa;
Bangladesh Cyclone Relief Fund, 1985;
Prime Minister's Fund for the Welfare of Widows and Orphans;
Prime Minister's Disaster Relief Fund, 1987;
Chief Minister Punjab's flood relief fund, 1988;
Prime Minister's fund for Welfare and Relief for Kashmiris;
Prime Minister's Bangladesh Cyclone Relief fund, 1991;
The Bill also seeks to introduce a proviso which has the effect of allowing straight deduction from income of the donor in respect of donations to donees as specified, subject to the following limits:
Category of tax payers Limits
a) Individual or association of persons 30 percent of
the taxable income
of the person for the year
b) Company 15 percent of the
taxable income of
the person for the year
40. Income of mutual fund or an investment company
CLAUSE (99)
The Bill seeks to substitute the nomenclature of Rules mentioned in the body of the clause without altering its substance.
41. Income received by a taxpayer from the National Investment (Unit) Trust or a mutual fund established by Investment Corporation of Pakistan
CLAUSE (103)
The Bill seeks to substitute the nomenclature of Rules mentioned in the body of the clause without altering its substance.
42. Profit on debt derived by Hub Power Company Limited
CLAUSE (74)
Profit on debt derived by Hub Power Company Limited on its bank deposits or accounts with "financial institutions" enjoyed exemption from tax. By amendments introduced by the Finance Act, 2003. this exemption was restricted to income derived from deposits maintained with a "scheduled bank".
The Bill proposes to substitute the words "financial institutions" for the words "scheduled banks' thereby restoring the original position.
43. Income of corporatized entities of Pakistan Water and Power Development Authority
CLAUSE (106A)
A new clause has been proposed to be inserted which seeks to provide exemption to income of corporatized entities of WAPDA from the date of creation to the date of completion of the process of corporatization.
44. Income derived from transfer of membership rights or shares of a stock exchange in Pakistan
CLAUSE (133A)
The Bill proposes to provide exemption to the income of a member of a stock exchange in Pakistan arising from transfer of members rights or shares of a stock exchange in Pakistan on corporatization, made at any time between July 01, 2005 to June 30, 2006.45. Income of Fugro Geodetic Limited
CLAUSE (137)
A new clause is being proposed which seeks to exempt the income derived by Fugro Geodetic Limited from execution of a contract with the Government of Pakistan for survey for the establishment of the continental shelf of Pakistan.
PART - II
046. INCOME FROM SERVICES RENDERED OUTSIDE PAKISTAN
CLAUSE (3)
Presently, income from engineering contracting services rendered and construction contracts executed outside Pakistan are charged to tax at a reduced rate of 1% of the gross receipts provided such receipts are brought into Pakistan through normal banking channel. The Bill proposes to omit the words "engineering contracting" from the clause as a consequence of which receipts from all services rendered outside Pakistan shall be subject to tax at the rate of 1% of the gross receipts provided the money is brought into Pakistan through normal banking channel.
47. Reduced rate of collection of tax at import stage
CLAUSE (9), CLAUSE (13)
The Bill proposes the following rate of tax collectable at import stage under Section 148 of the Ordinance.
Items Rate of tax
%
Import of all fibre, yarns and fabrics
excluding pure cotton
or its yarn or its fabrics 1
Import of edible oil 3
Import of condemned ship for breaking 1
48. Reduction in corporate tax rate of listed companies
Clause (22)
A new clause is proposed to be inserted which seeks to provide a reduction in the rate of tax by 1 percent in respect of companies listed on any stock exchange in Pakistan during the period July 01, 2005 to June 30, 2006.
PART - III
49. REDUCTION OF TAX LIABILITY OF SENIOR CITIZENS
CLAUSE (1A)
A senior citizen of Pakistan, being a taxpayer aged 65 years or more on the first day of the relevant tax year, is allowed a rebate of 50% of the tax payable should his taxable income in that tax year is less than Rs.300,000. This threshold of Rs.300,000 is proposed to be increased to Rs.400,000.
PART-IV
50. EXEMPTION FROM MINIMUM TAX
CLAUSE (11)
The Bill proposes that the provision regarding charge of minimum tax under Section 113 of the Ordinance shall not apply to a "Small Company" as defined in Sub-section (59A) of Section 2 of the Ordinance.
51. Final tax regime for manufacturers
CLAUSE (40)
Presently, manufacturers, other than those to whom special rate of tax deductions have been specified, have the choice to opt for final tax regime in respect of payment on account of supply of goods. The option to be enforceable must be made within three months of the commencement of an income year and shall be irrevocable for a period of three years. The above provision has been on the statute book, with various modifications since 1991, when it was inserted for the first time through a notification No.SRO.829(I)/91 dated August 24, 1991.
The Bill proposes to omit Clause 40 by stating:
"Clause (40) shall be omitted and, notwithstanding any judgment, order or decision of any Court, Tribunal or Authority including Income Tax Authority, shall be deemed always to have been so omitted and shall have effect accordingly."
The manner in which the proposal for omission as aforesaid has been coined leaves much to be desired and it seems questionable whether the amended provision could be given the retrospective application and if so, from when. The question whether the amendment will have a bearing on the closed assessments both under the repealed Ordinance and the Ordinance is left open because of the construction given to the proposed amendment. We are, however, of the opinion that the deeming provision cannot in any case be extended to assessments closed under the repealed Ordinance.
52. Withholding provisions under Sections 150, 151 and 233 not to apply
Clause (47B)
The benefit of exemption from the withholding tax provisions envisaged under Sections 150, 151 and 233 is proposed to be extended to an approved pension fund or an approved income payment plan.
53. Collection of tax at import stage (Section 148) and withholding tax on payments for goods and services (Section 153) not applicable
Clause (56), Sub-clause (xii)(j)
The Bill proposes that the provisions relating to collection of tax under Section 148 and withholding tax under Section 153 shall not apply to companies operating trading houses which:
(i) have a paid up capital exceeding Rs.250 million;
(ii) own fixed assets exceeding Rs.300 million at the close of the tax year;
(iii) maintain computerized records of imports and sales of goods;
(iv) maintain a system for issuance of 100% cash receipts on sales;
(v) present accounts for tax audit every year; and
(vi) is registered with the sales tax department.
It is also being proposed that if any of the aforementioned conditions are not fulfilled in respect of a tax year, the exemption shall not be available.
54. Immunity from default under Section 205
CLAUSE (56), SUB-CLAUSE (K)
Section 236(i)(b) of the Ordinance requires collection of tax by telecom companies from sale of prepaid cards for telephones. The Bill proposes that additional tax under Section 205 of the Ordinance shall not be imposed on the defaulting telecom companies should they deposit the amount not collected within 3 months reckoned from July 01, 2005. However, this facility is not proposed to be extended to amounts which although collected has not been deposited in the Treasury.
55. Withholding tax provisions under Section 151 not to apply
CLAUSE (56) (I)(IV)
Presently, taxes are not withheld under Section 151 of the Ordinance from profits paid on defence saving certificates, special saving certificates, saving accounts or post office saving accounts where deposits in respect of which profit is being paid does not exceed Rs.150,000/-. The exemption from deduction is being proposed to be extended to profits paid on term finance certificates where such deposit does not exceed Rs.150,000/-.
THE THIRD SCHEDULE
56. CHANGE IN DEPRECIATION RATES:
The Bill proposes to revise the depreciation rates in respect of certain categories of depreciable assets. A comparative table of the existing and proposed depreciation rates for different classes of depreciable assets is as follows:
===============================================================================================
Description Rate percent of the written down value
Existing Proposed
===============================================================================================
Building - General rate 5 The Bill proposes a harmonized
rate
- Factory, workshop, cinema, 10 of 10% for all types of building
hotel, hospital
- Residential quarters for labour 5
Furniture (including fittings) 10 15
Machinery and plant (not
otherwise specified) 10 15
Computer hardware, including printer,
monitor and allied items 30 30
Technical or professional books 20 15
Ships
i) New 5 The Bill proposes a harmonized
ii) Second hand rate of 15% for all types of ships
Age at time of purchase:
(a) Not more than ten years
(b) Ten or more years.
Motor vehicles (all types) 20 15
Aircraft, aero-engines 30 30
Below ground installations in 100 100
mineral oil concerns the
income of which is liable to
be computed in accordance
with the rules in Part
I of the Fifth Schedule.
Below ground installations, 100 100
including but not limited to
the cost of drilling, casing,
cementing, logging and testing
of wells, in offshore mineral
oil concerns the income of which
is liable to be computed in
accordance with the rules in Part I of the Fifth Schedule.
Offshore platforms and 20 20
production installation in mineral
oil concerns the income of which
is liable to be computed in accordance
with the rules in Part I of the Fifth Schedule.
===============================================================================================
THE FOURTH SCHEDULE
57. EXEMPTION OF CAPITAL GAINS
CLAUSE (6A)
Presently, the benefit of exemption to income chargeable under the head "capital gains" as envisaged under Clause (110) of the Second Schedule to the Ordinance does not extend to insurance companies since their income is computed and determined under the Fourth Schedule to the Ordinance. The Bill proposes to introduce Clause (6A) in the Fourth Schedule to the Ordinance which seeks to confer exemption to insurance companies in respect of capital gains derived upto the tax year ending on 30 June 2007.
FINANCE ACT, 2003
58. ALTERNATE DISPUTE RESOLUTION (ADR)
SECTION 3 OF FINANCE ACT, 2003
It may be recalled that the Finance Act of 2003 repealed the Wealth Tax Act, 1963 without affecting the liability of wealth tax assesses to pay wealth tax or any other amount under the said Act in respect of assessment years ending on or before 30 June, 2001. The Bill, in line with the concept of alternate dispute resolution as prevalent under the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001 is now sought to be introduced in the context of Wealth Tax. For this purpose, a new Clause (c) is now sought to be inserted in Section 3 of the Finance Act, 2003 to provide for a statutory forum for settlement and resolution of grievances of any aggrieved person. Such matters may pertain to an aggrieved person's liability of wealth tax, admissibility of refund, determination or waiver of penalty or fine, redressal of any procedural and technical condition or relaxation of any time limitation. The salient features governing dispute resolution are summarized below:
a) Composition of the forum
The Board may upon examination of an application of an aggrieved person constitute a Committee on a case to case basis for resolution of any hardship or dispute enumerated in an application. The Committee shall comprise an officer of Income tax and two persons out of a panel of Chartered Accountants or Cost Accountants, Advocates, Income Tax Practitioners or reputable tax payers;
b) Mode of proceedings and disposal
The Committee shall undertake an examination of the issue and may make pertinent enquiry, obtain expert opinion and cause an audit by any officer of Income tax or any other person. Based on the findings, the Committee shall make recommendations as may be appropriate in the facts and circumstances of the case. The Board shall pass an Order on the recommendations of the Committee, as may be appropriate.
c) Effect of the order of the Board
The Order of the Board shall have the effect of modifying all decisions, orders and judgment. Based on the Order of the Board, the aggrieved person may make the payment of wealth tax and other taxes.
In the event of a case being sub-judice before any forum, tribunal or the court, an agreement in the light of recommendations of the Committee shall be submitted before the relevant forum and orders as deemed appropriate may be passed by such forum.
The aggrieved person has a right of appeal or reference to the appropriate forum, tribunal or court under the relevant provisions of the Act within sixty days of the Order of the Board communicated to such person. Consequential amendment seems to have been inadvertently omitted from the relevant provisions dealing with the forum at which such appeal is to be filed.
The Board is expected to frame relevant rules for implementing ADR for this purpose.
1. Default surcharge
SECTION
2, Sub-section 6B & Section 34
The term "Additional Tax" is proposed to be replaced by the term "Default Surcharge". Default surcharge means the surcharge payable by a defaulter at the rates specified in Section 34 of the Act. Section 34 which deals with additional tax is proposed to encompass default surcharge for non payment or delayed payment of sales tax or claim of a tax credit, refund or an adjustment which is inadmissible or incorrectly applying the rate of 0%.
The proposed rate of default surcharge is as follows:
i. 1% per month of the amount of default for the first six months
ii. 1.5% per month of the amount of default from the seventh month onwards.
iii. 2% per month of the amount of default in case of tax fraud
The above rates of default surcharge would replace the additional tax which was chargeable at the rate of 1% under Section 34. Consequential changes have been made in various sections of the Act whereby the term Additional Tax has been replaced by the term Default Surcharge.
2. Tax fraud
Section 2, Sub-section 37
It is proposed to expand the meaning of tax fraud to include falsifying the sales tax invoices.
3. Retail tax Section 3AA
It is proposed to add a proviso in this Section to enable specification of the manner in which sales tax is to be levied and paid and at such higher and lower rates through a notification in the official gazette. This appears to be an enabling provision to facilitate charging of sales tax on the basis of value addition as already prescribed in the Special Procedures Rules. Further, the option of voluntary registration for a retailer not liable to pay tax has been withdrawn.
4. Goods declaration Various Sections
The term "bill of entry" is proposed to be replaced by the term "goods declaration" keeping in line with the terminology used in the Custom Act, 1969.
5. Input tax adjustment Section 7
Through the Finance Act, 2003 a taxpayer has been allowed to adjust input tax paid on purchases in the immediate three preceding tax period from the output tax. It is now proposed to allow such adjustment of input tax for twelve preceding periods. This is a beneficial amendment from the taxpayer's point of view.
6. Carry forward of excess amount Section 10
Under this Section, excess amount of input tax could be either carried forward or refunded. It is proposed to do away with the provision to carry forward the excess input tax to the next tax period. Effectively, any excess input tax in a tax period can now only be claimed as a refund and would not be available for adjustment in the subsequent tax period. Historically the refund procedure has been cumbersome resulting in delays in obtaining an actual refund; if this continues, then the withdrawal of carrying forward the excess input tax is likely to adversely affect the taxpayers cash flow position.
It is also proposed to remove all conditions relating to claim of input tax on taxable plant and machinery, its components and spare parts. This appears to be a favorable concession to the taxpayers, however, its benefit may be restricted in view of zero rating of plant and machinery.
7. Issuance of invoices electronically Section 23
Section 23 deals with issuance of tax invoices. It is proposed to allow raising of such tax invoices electronically and in this regard a "Special Procedure for Issuance of Electronically Sales Tax Invoices Between Buyers and Sellers" has been prescribed vide Chapter XVI of the "Sales Tax Special Procedures Rules, 2005".
8. Retention of record and documents Section 24
Retention period of five years is prescribed under this Section. This period is proposed to be reduced to three years.
9. Directorate General
New sections have been proposed specifying the following offices -
Section 30A Directorate General (Intelligence and Investigation Customs and Excise)
Section 30B Directorate General of Inspection and Internal Audit
Section 30C Directorate General of Training and Research
Section 30D Directorate General of Valuation and Post Clearance Audit
Section 30E stipulates to specify functions, jurisdiction and powers of the Directorates General through a notification in the official gazette.
10. Offences and penalties Section 33
This Section dealing with penalties has been substituted and the revised penalties for offences are as follows -
========================================================================================
Offences Penalties Referred
Sections
========================================================================================
(1) (2) (3)
1. Where any person fails to furnish such person shall pay 26
a return within the due date. a penaltyof five thousand rupees:
Provided that in case
a person files a return within
fifteen days of the due
date, he shall pay a
penalty of one hundred
rupees for each day of default.
2. Any person who fails to issue an Such person shall pay a penalty 23
invoice when required under this Act. of five thousand rupees or
three per cent of the amount
of the tax involved, whichever is higher.
3. Any person who un-authorizedly Such person shall pay a penalty 3, 7, 23
issues an invoice in which an of ten thousand rupees or five
amount of tax is specified. per cent of the amount
of the tax involved, whichever is higher.
4. Any person who fails to notify such person shall pay a 14
the changes of material nature penalty of five thousand rupees.
in the particulars of registration
of taxable activity.
5. Any person who fails to such person shall pay a 3, 6, 7 & 48
deposit the amount of tax due penalty of ten thousand rupees
or any part thereof in the time or five per cent of the amount
or manner laid down under this of the tax involved, whichever is higher:
Act or rules or orders made
thereunder.
Provided that, if the amount
of tax or any part thereof
is paid within fifteen days
from the due date, the
defaulter shall pay a
penalty of five hundred
rupees for each day of default:
Provided further that no
penalty shall be imposed
when any miscalculation is
made for the first time during a year:
Provided further that if the
amount of tax due is not
paid even after the expiry
of a period of sixty
days of issuance of the
notice for such payments
by an officer of Sales Tax,
not below the rank of
Assistant Collector of
Sales Tax, the defaulter
shall, further be liable,
upon conviction by
a Special Judge, to
imprisonment for a
term which may extend
to three years, or with
fine which may extend to
amount equal to the amount
of tax involved, or with both.
6. Any person who repeats such person shall pay a 7 & 26
erroneous calculation in the penalty of five thousand rupees
return during a year whereby or three per cent of the amount
amount of tax less than of the tax involved, whichever is higher.
the actual tax due is paid.
7. Any person who is required such person shall pay a 14
to apply for registration penalty of ten thousand rupees
under this Act fails to make or five per cent of the amount
an application for registration of tax involved, whichever is higher:
before making taxable supplies.
Provided that such
person who is required to get
himself registered under this
Act, fails to get registered
within sixty days of the
commencement of taxable
activity, he shall, further be
liable, upon conviction
by a Special Judge, to imprisonment
for a term which may extend
to three years, or with fine
which may extend to an
amount equal to the amount
of tax involved, or with both.
8. Any person who fails to such person shall pay a 22 and 24
maintain records required under penalty of ten thousand
this Act or the rules made thereunder rupees or five per cent
of the amount of tax
involved, whichever is higher.
9. Where a registered person 25
who, without any reasonable
cause, in non compliance
with the provisions of Section 25,-
(a) fails to produce the record such person shall pay a penalty
on receipt of first notice; of five thousand rupees;
(b) fails to produce the record such person shall pay a penalty
on receipt of second notice; and of fifty thousand rupees.
(c) fails to produce the record such person shall pay a penalty
on receipt of third notice. of ten thousand rupees; and
10. Any person who fails such person shall pay a 26
to furnish the information penalty of ten thousand rupees.
required by the Board
through a notification
issued under Sub-section
(5) of Section 26.
11. Any person who,- such person shall pay a penalty 2(37) and
(a) submits a false or forged of twenty five thousand general
document to any officer of rupees or one hundred
sales tax; or per cent of the amount of
(b) destroys, alters, mutilates tax involved, whichever is
or falsifies the records higher. He shall, further be
including a sales tax invoice; or liable, upon conviction by a
(c) knowingly or fraudulently Special Judge, to imprisonment for
makes false statement, a term which may extend to
false declaration, false five years, or with fine which
representation, false may extend to an amount
personification, gives any false equal to the loss of tax
information or issues or involved, or with both.
uses a document which
is forged or false.
12. Any person who denies such person shall pay a 25, 38 &
or obstructs the access of penalty of twenty five 38A
an authorized officer to thousand rupees or one hundred
the business premises, per cent of the amount
registered office or to of tax involved, whichever
any other place where records is higher. He shall, further
are kept, or otherwise refuses be liable, upon conviction
access to the stocks, by a Special Judge, to
accounts or records or fails imprisonment for a term
to present the same when which may extend to three
required under Section years, or with fine which
25, 38 or 38A. may extend to an amount equal
to the amount of tax involved,
or with both.
13. Any person who such person shall pay a penalty 2(37)
commits, causes to commit of twenty five thousand rupees
or attempts to commit the or one hundred per cent of the
tax fraud, or abets or amount of tax involved,
connives in commissioning whichever is higher. He shall,
of tax fraud. further be liable, upon conviction
by a Special Judge, to imprisonment
for a term which may extend to
five years, or with fine which
may extend to an amount equal
to the loss of tax involved, or with both.
14. Where any person violates such person shall pay 48
any embargo placed on a penalty of twenty five
removal of goods in thousand rupees or ten per cent
connection with recovery of tax. of the amount of the tax
involved, whichever is higher. He
shall, further be liable, upon conviction
by a Special Judge, to imprisonment for a
term which may extend to one year, or
with fine which may extend to amount
equal to the amount of tax involved,
or with both.
15. Any person who obstructs such person shall pay a 31 and
the authorized officer in the penalty of twenty five general
performance of his official duties. thousand rupees or one
hundred per cent of the
amount of tax involved,
whichever is higher.
16. Any person who fails such person shall pay a 73
to make payment in the penalty of five thousand
manner prescribed under rupees or three per cent
Section 73 of this Act. of the amount of tax
involved, whichever is higher.
17. Any person who fails such person shall pay 71 and
to fulfill any of the a penalty of five thousand general
conditions, limitations or rupees or three per cent
restrictions prescribed in of the amount of tax
a Notification issued under involved, whichever is higher.
any of the provisions of this Act.
18. Where any officer of such officer of Sales Tax General
Sales Tax authorized to shall be liable, upon
act under this Act, acts conviction by a Special Judge,
or omits or attempts to to imprisonment for a term
act or omit in a manner which may extend to three
causing loss to the sales years, or with fine which
tax revenue or otherwise may extend to amount
abets or connives in any such act. equal to the amount of
tax involved, or with both.
19. Any person who such person shall General
contravenes any of the pay a penalty of five
provisions of this Act thousand rupees or three
for which no penalty has, percent of the amount
specifically, been provided of tax involved, whichever
in this Section. is higher.
========================================================================================
Penalties or prosecution mentioned above which are also covered under Sections 37A(3) and 37C are proposed to be deleted.
11. Recovery of tax not levied or short levied or erroneously refunded
SECTION 36: The second proviso to Section 36(3) effectively extended the period for issuance of show cause notice beyond the prescribed period of three and five years. It is now proposed to remove this anomaly and restrict the period to five years under Section 36(1) and 3 years under Section 36(2).
It is proposed that the record retention period be reduced to three years under Section 24, however, the period of issuance of show cause notice under Section 36(1) continues to remain 5 years.
12. Search without warrant Section 40A
Under this Section, any officer not below the rank of Assistant Collector of Sales Tax may conduct a search without warrant. It is proposed that such a search can only be made in his presence.
13. Power of adjudication Section 45
Under this Section, the power to adjudicate was available to the Collector, Assistant Collector and Deputy Collector depending on the amount of tax involved. It is proposed to take the power of adjudication away from the Collector on the one hand and extend it to the Assistant Collector and Superintendent on the other. The revised jurisdiction (based on principal amount of tax) would be as follows -
=======================================================================
Sales Tax Officer Present jurisdiction Proposed jurisdiction
Collector Any amount Withdrawn
Additional Collector Not exceeding Rs.25 million Any amount
Deputy Collector Not exceeding Rs.5 million Not exceeding
Rs.2.5 million
Assistant Collector Nil Not exceeding Rs.1 million
Superintendent Nil Not exceeding Rs.10,000
Any authorised officer As notified by the Board As notified by
the Board
=======================================================================
14. Powers to call for record Section 45A
It is proposed to remove the post of Collector Adjudication and such powers are now confined to the Board and the Collector.
15. Appeals
SECTION 45B: It is proposed to revise the appellate structure whereby the first stage of appeal against orders passed by any Adjudication Officer would lie with the Collector (Appeals). Under the present law, in case of an adjudication order passed by Additional Collector, an appeal could be filed directly with the Appellate Tribunal.
It should be noted that in order to file an appeal with the Collector Sales Tax (Appeals), a mandatory payment of 15% of the principal amount of tax is required. Effectively, this would mean that all assessments conducted by various officers under Section 45 would require payment of such tax at the time of filing an appeal. An automatic stay is however available for the balance 85% of the tax demand for a period not exceeding six months following the date on which the 15% amount of principal tax has been deposited.
16. Appeal to high court
SECTION 47:
Under this Section an appeal can be filed in the High Court. It is now proposed that a reference may be filed with the High Court. The reference may be filed within 90 days of the communication of the order of the Appellate Tribunal and if the High Court is satisfied with the questions of law arising out of the order, it may proceed to hear the case.
17. Alternate dispute resolution
SECTION 47A: Under this Section, it is possible to file an appeal in the event a registered person is not satisfied with the orders of the Central Board of Revenue. It is proposed to remove this right of appeal against the orders of the Board.
18. Refund to be claimed within one year
SECTION 66: This Section requires that a refund may be claimed within one year of the date of payment. It is proposed to add a proviso that the application or claim filed under this Section shall be disposed off within a period not exceeding 90 days from the date of filing such application or claim.
19. Certain transactions not admissible
SECTION 73: This Section requires that payment of an amount for a transaction exceeding Rs.50,000 should be made by a crossed cheque or crossed bank draft or crossed pay order or any other banking instrument, showing transfer of the amount of sales tax in favour of the supplier from the business account of the buyer. It is proposed to expand the mode of payment by way of including online transfer of payment from the business account of the buyer to the business account of the supplier as well as payments through credit cards, provided such transactions are verifiable from the bank statements of the respective buyer or supplier.
20. THIRD SCHEDULE: The Third Schedule specifies goods on which sales tax is chargeable on the basis of retail price. The following goods are proposed to be included:
=========================================================================
S. No. Description PCT Heading
=========================================================================
6. "Toilet and laundry soap 3401.1100; 3401.1900; and 3401.2000."
7. Detergents 3402.2000
8. Shampoo 3305.1000
9. Toothpaste 3306.1010
10. Shaving cream 3307.1000
11. Perfumery and cosmetics Respective sub-headings
of 33.03 and 33.04.
12. Biscuits 1905.3100 and 1905.3200
13. Confectionary Respective sub-headings of 17.04
14. Tea Respective sub-headings of 09.02
15. Powder drinks 21.06
16. Milky drinks 2106.9090
17. Footwear Respective sub-headings
of 64.01, 64.02, 64.03, 64.04 and 64.05."
=========================================================================
It is also proposed to remove from the Third Schedule "substances registered as drugs under the Drugs Act, 1976 and Medicaments as are classifiable under any heading of Chapter 30 of the First Schedule to the Customs Act, 1969". This is a corrective amendment as such goods are in any case exempt from sales tax under SRO 555(I)/2002.
In addition to the above, it is proposed to amend the definition of "retail price" with reference to the Third Schedule as defined in Section 2(27) of the Act. It is proposed to exclude the price fixed by the importer. Effectively, this would mean that sales tax on the basis of retail price is not to be levied at import stage.
21. SIXTH SCHEDULE: The Sixth Schedule lists goods that are exempt from sales tax. It is proposed to substitute the Sixth Schedule whereby Table 1 lists goods which are exempt at import and supply stages and Table 2 lists goods which are exempt on local supplies only. The proposed Sixth Schedule is reproduced hereunder -
TABLE-1 (IMPORTS OR SUPPLIES)
====================================================================================
S. No. Description Heading Nos. of the First Reference
Schedule to the Customs of present S. No.
Act, 1969 (IV of 1969)
====================================================================================
(1) (2) (3) (4)
====================================================================================
1. Live Animals. 0101.1000, 0101.9000, 1
0102.1010, 0102.1020,
0102.1030, 0102.1040,
0102.1090, 0102.9010,
0102.9020, 0102.9030,
0102.9040, 0102.9090,
0104.1000, 0104.2000,
0105.1100, 0105.1200,
0105.1900, 0105.9200,
0105.9300, 0105.9900,
0106.1100, 0106.1200,
0106.1900, 0106.2000,
0106.3110, 0106.3190,
0106.3200, 0106.3900
and 0106.9000
2. Meat of bovine 0201.1000, 0201.2000, 3(xii)
animals, sheep, goat 0201.3000, 0202.1000,
and poultry, excluding 0202.2000, 0202.3000,
offal, whether or 0204.1000, 0204.2100,
not fresh, frozen 0204.2200, 0204.2300,
or otherwise, 0204.3000, 0204.4100,
preserved. 0204.4200, 0204.4300,
0204.5000, 0207.1100,
0207.1200, 0207.1300,
0207.1400, 0207.2400,
0207.2500, 0207.2600,
0207.2700, 2007.3200,
0207.3300, 0207.3500
and 0207.3600
3. Fish and 0302.1100, 0302.1200, 3(xii)
crustaceans, whether 0302.1900, 0302.2100,
or not fresh, 0302.2200, 0302.2300,
frozen or 0302.2900, 0302.3100,
otherwise 0302.3200, 0302.3300,
preserved. 0302.3400, 0302.3500,
0302.3600, 0302.3900,
0302.4000, 0302.5000,
0302.6100, 0302.6200,
0302.6300, 0302.6400,
0302.6500, 0302.6600,
0302.6900, 0303.1100,
0303.1900, 0303.2100,
0303.2200, 0303.2900,
0303.3100, 0303.3200,
0303.3300, 0303.3900,
0303.4100, 0303.4200,
0303.4300, 0303.4400,
0303.4500, 0303.4600,
0303.4900, 0303.5000,
0303.6000, 0303.7100,
0303.7200, 0303.7300,
0303.7400, 0303.7500,
0303.7600, 0303.7700,
0303.7800, 0303.7900,
0304.1000, 0304.2000,
0304.9000, 0305.3000,
0305.4100, 0305.4200,
0305.4900, 0305.5100,
0305.5900, 0305.6100,
0305.6200, 0305.6300,
0305.6900, 0306.1100,
0306.1200, 0306.1300,
0306.1400, 0306.1900,
0306.2100, 0306.2200,
0306.2300,
0306.2400 and 0306.2900
4. Fresh, liquid and 0401.1000, 0401.2000, 3(iv)
dried milk without 0401.3000, 0402.1000,
addition of sugar 0402.2100 and 0402.9100.
or any other
sweetening matter
whether packed or not.
5. Cream excluding 0401.1000, 0401.2000, 3(v)
those packaged 0401.3000, 0402.1000,
and sold under 0402.2100, 0402.2900,
brand name or 0402.9100 and 0402.9900
trademark.
6. Plain yogurt 0403.1000 3(iv)
excluding packaged
or sold under
trademark or brand name.
7. Whey excluding 0404.1010 and 0404.1090 3(v)
packaged or sold
under brand names
or trademarks.
8. Butter not sold 0405.1000 3(v)
under brand names or trademarks.
9. Desi ghee derived 0405.9000 6
from milk.
10. Cheese excluding 0406.1010, 0406.2000, 3(v)
packaged or sold 0406.3000, 0406.4000
under brand names and 0406.9000
or trademarks.
11. Eggs including 0407.0010 and 0407.0090 3(ii), 3A
eggs for hatching.
12. Live plants 0601.1010, 0601.1090, 4
including bulbs 0601.2000, 0602.1000,
and tubers, etc. 0602.2000, 0602.3000,
0602.4000, 0602.9010
and 0602.9090
13. Edible vegetables 0701.1000, 0701.9000, 3(ii), 4
including roots 0702.0000, 0703.1000,
and tubers, 0703.2000, 0703.9000,
whether fresh, 0704.1000, 0704.2000,
frozen or otherwise 0704.9000, '0705.1100,
preserved (e.g. 0705.1900, 0705.2100,
in cold storage) 0705.2900, 0706.1000,
but excluding those 0706.9000, 0707.0000,
bottled, canned or 0708.1000, 0708.2000,
packaged. 0708.9000, 0709.1000,
0709.2000, 0709.3000,
0709.4000, 0709.5100,
0709.5200, 0709.5900,
0709.6000, 0709.7000,
0709.9000, 0710.1000,
0710.2100, 0710.2200,
0710.2900, 0710.3000,
0710.4000, 0710.8000,
0710.9000, 0712.2000,
0712.3100, 0712.3200,
0712.3300, 0712.3900
and 0712.9000.
14. Pulses. 0713.1000, 0713.2000, 4
0713.3100, 0713.3200,
0713.3300, 0713.3910,
0713.3920, 0713.3990,
0713.4010, 0713.4020,
0713.5000, 0713.9010,
0713.9020 and 0713.9090.
15. Edible fruits 0803.0000, 0804.1010, 3(ii)
excluding imported 0804.1020, 0804.2000,
fruits (except 0804.3000, 0804.4000,
fruits imported 0804.5010, 0804.5020,
from Afghanistan) 0804.5030, 0805.1000,
whether fresh, 0805.2010, 0805.2090,
frozen or otherwise 0805.4000, 0805.5000,
preserved but 0805.9000, 0806.1000,
excluding those 0806.2000, 0807.1100,
bottled, canned 0807.1900, 0807.2000,
or packaged. 0808.1000, 0808.2000,
0809.1000, 0809.2000,
0809.3000, 0809.4000,
0810.1000, 0810.2000,
0810.3000, 0810.4000,
0810.5000, 0810.6000,
0810.9010, 0810.9090,
0811.1000, 0811.2000,
0811.9000, 0813.1000,
0813.2000, 0813.3000,
0813.4010, 0813.4020
and 0813.4090.
16. Red chillies 0904.2010 and 0904.2020 3(x)
excluding those
sold in retail
packing bearing
brand names
and trademarks.
17. Ginger excluding 0910.1000 3(x)
those sold in
retail packing
bearing brand
names and
trademarks.
18. Turmeric 0910.3000 3(x)
excluding those
sold in retail
packing bearing
brand names
and trademarks.
19. Cereals whether 1001.1000, 1001.9000, 3(i)
or not milled, 1002.0000, 1003.0000,
hulled, polished, 1004.0000, 1005.1000,
packed for retail sale. 1005.9000, 1006.1000,
1006.2000, 1006.3010,
1006.3090, 1006.4000,
1007.0000, 1008.1000,
1008.2000, 1008.3000,
1008.9000, 1101.0010,
1101.0020, 1102.1000,
1102.2000, 1102.3000,
1102.9000, 1103.1100,
1103.1300, 1103.1900
and respective headings of 11.04
20. Seeds, fruit 1209.1000, 1209.2100, 4
and spores 1209.2200, 1209.2300,
of a kind used 1209.2400, 1209.2500,
for sowing. 1209.2600, 1209.2900,
1209.3000, 1209.9110,
1209.9120, 1209. 9130,
1209.9190 and 1209.9900
21.Cinchona bark. 1211.9000 4
22. Sugar beet. 1212.9100 4
23. Sugar cane. 1212.9900 4
24. Edible oils 1507.9000, 1508.9000, 6A
and vegetable 1509.1000, 1509.9000,
ghee, including 1510.0000, 1511.9010,
cooking oil, on 1511.9020, 1511.9030,
which Federal 1512.1900, 1513.1900,
Excise Duty is 1513.2900, 1514.1900,
charged, levied 1514.9900, 1515.2900,
and collected 1515.5000, 1516.2010,
as if it were 1516.2020, 1517.1000,
a tax payable 1517.9000 and 1518.0000
under Section
3 of the Act.
25. Milk preparations 19.01 3(iv)
obtained by replacing
one or more of the
constituents of milk
by another substance,
whether or not
packed for retail sale.
26. Fruit juices, 2009.1100, 2009.1200, 3(ii)
whether fresh, frozen 2009.1900, 2009.2100,
or otherwise 2009.2900, 2009.3100,
preserved but 2009.3900, 2009.4100,
excluding those 2009.4900, 2009.5000,
bottled, canned 2009.6100, 2009.6900,
or packaged. 2009.7100, 2009.7900,
2009.8000 and 2009.9000
27. Ice and waters 2201.1010 3(viii)
excluding those for
sale under brand
names or trademarks.
28 Poultry feed and 2301.2090, 2306.4100, 23
its ingredients excluding 2309.9000 and respective
soyabean meal. headings of 29.36
29. Table salt 2501.0010 3(ix)
sincluding iodized
salt excluding salt
sold in retail packing
bearing brand names
and trademarks.
30. Adult diapers 4818.9000 New
used for incontinence.
31 Holy Quran,
complete or in
parts, with or
without translation;
Quranic Verses recorded on any analogue4901.9910 and respective 20
or digital media; other Holy books. headings of 85.24
32. Newspapers, 4901.9100, 4901.9990, 21
journals, periodicals, 4902.1010, 4902.1090,
books, etc. 4902.9010, 4902.9090
but excluding directories. and 4903.0000
33. Currency notes, 4907.0000 22
bank notes, shares,
stocks and bonds.
34. Bricks. 6901.0000 56
35. Cement Blocks. 6810.1100 56
36. Silver, in 7106.1000 and 7106.9100 24
unworked condition.
37. Gold, in 7108.1100 and 7108.1200 24
unworked condition.
38 Monetary gold. 7108.2000 24
39. Incinerators 8417.8000, 8430.2000 New
of disposal and 8479.8990
of waste
management,
motorized sweepers
and snow ploughs.
40. Computer 8471.1000, 8471.3010, 45
hardware including 8471.3020, 8471.3090,
laptops, notebooks, 8471.4110, 8471.4190,
PCs mainframe 8471.4910, 8471.4990,
and other peripheral 8471.5000, 8471.6010,
units and 8471.6020, 8471.6030,
parts thereof. 8471.6040, 8471.6050,
8471.6061, 8471.6069,
8471.6071, 8471.6079,
8471.6080, 8471.6090,
8471.7010, 8471.7020,
8471.7030, 8471.7040,
8471.7050, 8471.7090,
8471.8010, 8471.8020,
8471.8030, 8471.8040,
8471.8050, 8471.8060,
8471.8090, 8471.9010,
8471.9020, 8471.9090,
8473.3010, 8473.3020,
8473.3030 and 8473.3090
41. Computer 8524.3100, 8524.3900, 48
software. 8524.4000, 8524.9100,
8524.9910 and 8524.9990
42. Ambulances, 87.02, 87.03, 8704.2200, New
firefighting vehicles, 8704.2300, 8705.3000
waste disposal and 8705.9000
trucks, brake
down lorries,
special purposes
vehicles for
the maintenance
of streetlights
and overhead cables.
43. Aircraft of 8802.3000 and 8802.4000 35
unladen weight
exceeding 8000
kgs. excluding
those for
recreational or
pleasure purpose.
44. Ships, of Respective headings 34
gross tonnage
exceeding 15
LDTs, excluding
those for
recreational or
pleasure purpose.
45. Dextrose and 9018.3910, 9018.3920, New
saline infusion giving 9021.3100, 9201.3900
sets imported and 9027.8000
along with empty
non-toxic bags
for infusion solution,
Dextrose and saline
infusion giving
sets, Artificial parts
of the body,
Intra-Ocular lenses
and glucose
testing equipment.
46. Goods imported 99.01, 99.02, 99.03 and 99.0 40
by diplomats,
diplomatic missions,
privileged persons
and privileged
organizations which
are covered
under various
Acts and, orders,
rules, regulations
made thereunder
and agreements
by the Federal
Government provided
that such goods
are charged
to zero-rate of
customs duty under
the Customs Act,
1969 (IV of 1969),
and the conditions
laid down for
customs purposes are observed.
47. Import of 99.05 40A
articles of
household and
personal effects
including vehicles and
also the goods for
donation to projects
established in Pakistan
imported by any
of the rulers of
Gulf Shaikhdoms
who is in possession
of residential
accommodation in
Pakistan and goods
including vehicles
by the United
Arab Emirates
dignitaries as
are listed
in column (2) against
heading No. 99.05
in column (1) of
the First Schedule
to the Customs Act,
1969 (IV of 1969),
for their personal use
and for donation to
welfare projects
established in
Pakistan subject
to the similar
conditions as are
envisaged for the
purposes of applying
zero-rate of customs
duty on such goods under the said Act.
48. Goods imported 99.03 41
or supplied under
grants-in-aid for
which a specific
consent has been
obtained from the
Central Board of
Revenue; supplies and
imports under
agreements signed
by the Government
of Pakistan before
the 30th June, 1996,
provided the agreements
contained the provision
for exemption
of tax at the time
of signing of agreement.
49. Import of all 99.07, 99.08 and 99.11 47
goods received,
in the event of
a natural disaster
or other catastrophe,
as gifts and
relief consignments,
including goods
imported for
the President's
Fund for Afghan
Refugees, relief
goods donated for
Afghan Refugees,
gifts for President's
Fund for Assistance
of Palestine and
gifts received by
Pakistani organizations
from Church World
Services or the Catholic
Relief Services subject
to the similar conditions
as are envisaged for
the purposes of
applying zero-rate of
customs duty under the
Custom Act, 1969 (IV of 1969).
50. Articles imported 99.09 30
through post
as unsolicited gifts,
subject to the
same conditions as
are envisaged for
the purposes of
applying zero-rate of
customs duty under
the Customs Act,
1969 (IV of 1969).
51. Imported samples, 99.10 31
subject to the
same conditions
as are envisaged
for the purposes
of applying zero-rate
of customs duty
under the Customs
Act, 1969
(IV of 1969).
52. Goods imported 99.13, 99.14 and 99.15 46A
by or donated
to hospitals run
by the Federal
Government or a
Provincial Government;
and non-profit making
educational and research
institutions subject to
the similar restrictions,
limitations, conditions and
procedures as are
envisaged for the
purpose of applying
zero-rate of
customs duty on
such goods under
the Customs Act,
1969 (IV of 1969).
53. Import of all 99.12, 99.13 and 99.14 46
such gifts as
are received, and
such equipment for
fighting tuberculosis,
leprosy, AIDS and
cancer and such
equipment and apparatus
for the rehabilitation
of the deaf, the blind,
crippled or mentally
retarded as are
purchased or otherwise
secured by a
charitable non-profit making
institution solely for
the purpose of advancing
declared objectives of
such institution, subject
to the similar conditions
as are envisaged for the
purposes of applying
zero-rate of customs
duty under the
Customs Act, 1969 (IV of 1969).
54. Educational, 99.15 32
scientific and
cultural material
imported from
a country signatory
to UNESCO
Agreement or a
country signatory
to bilateral commodity
exchange agreement
with Pakistan, subject
to the same
conditions as are
envisaged for the
purposes of exemption
under the Customs Act, 1969 (IV of 1969).
55. Import of 99.16 55
replacement goods
supplied free
of cost in lieu of
defective goods imported,
subject to similar
conditions as are
envisaged for the
purposes of applying
zero-rate of customs
duty under the Customs Act, 1969 (IV of 1969).
56. Re-importation 99.18 27
of foreign
origin goods
which were
temporarily exported
out of Pakistan
subject to similar
conditions as are
envisaged for the
purposes of applying
zero-rate of customs
duty under the
Customs Act, 1969 (IV of 1969).
57. Goods (including 99.19, 99.20 and 99.21 26
dry fruits
imported from
Afghanistan)
temporarily imported
into Pakistan,
meant for
subsequent exportation
charged to
zero-rate of customs
duty subject to
the similar restrictions,
limitations, conditions and
procedures as are
envisaged for
the purpose of applying
zero-rate of customs
duty on such goods
under the Customs
Act, 1969 (IV of 1969).
58. Import of 99.22 36A
ship stores,
subject to
the procedures,
conditions and
restrictions as
may be specified
by the Collector
of Customs in
this behalf including
those consignments
of such stores
that have been
released without
charging sales
tax since the 1st
July, 1998, but
excluding such consignments
of ship stores as
have been cleared
on payment of sales tax.
59. Artificial kidneys, 99.24 and 99.25 59
eye cornea,
hemodialysis machines,
hemodialyzers,
A.V. fistula
needles, hemodialysis
fluids and powder,
blood tubing tines
for dialysis and
reverse osmosis
plants for dialysis,
double lumen catheter
for dialysis, catheter
for renal failure
patient and peritoneal
dialysis solution and
angioplasty equipment
(balloons, catheters,
wires and stents),
subject to the similar
conditions and
procedures as
are envisaged for
the purposes of
applying zero-rate
of customs duty on
these goods under
the Customs Act, 1969 (IV of 1969).
60. Contraceptives Respective headings. 11
and accessories thereof
61. Goods produced or Respective headings. 25
manufactured in
and exported from
Pakistan which are
subsequently imported
in Pakistan within
one year of
their exportation,
provided conditions
of Section 22 of
the Customs Act,
1969 (IV of
1969), are complied with.
62. Defence stores, Respective headings. 29
whether manufactured
locally or imported
by the Federal
Government against
foreign exchange
allocation for
defence, including
trucks, trailers
and vehicles
falling under
PCT heading 87.04
of the First Schedule
to the Customs Act,
1969 (IV of 1969),
specially modified for
mounting defence
equipments, their parts
and accessories for
supply to Armed Forces.
63. Personal wearing Respective headings. 33
apparel and
bonafide baggage
imported by
overseas Pakistanis
and tourists,
if imported under
various baggage
rules and
is exempt from
customs-duties.
64. Spare parts Respective headings. 36
and equipment
for aircraft and
ships covered by
serial number
43 and 44 above.
65. Equipment Respective headings. 37
and Machinery
for pilotage,
salvage or
towage for
use in ports or airports.
66. Equipment and Respective headings. 38
Machinery for
air navigation.
67. Equipment and Respective headings. 39
machinery used
for services
provided for
handling of ships
or aircrafts in
a customs-port
or customs-airport.
68. Such plant Respective headings. 44
and machinery
as is notified by
the Federal Government
in the official
Gazette but if imported,
these shall be entitled
to exemption from
sales tax on
importation if these
are not manufactured
in Pakistan.
69. Tractors, Respective headings. 49
bulldozers and
combined harvesters;
and CKD kits
thereof imported by
recognized local
manufacturers as
per their approved
deletion programme subject
to the same conditions as
are envisaged for
the purposes of
exemption under the
Customs Act, 1969 (IV of 1969).
70. Import and Respective headings. New
supply of CNG
Euro-2 buses,
whether in CBU
or CKD condition.
====================================================================================
TABLE 2 (LOCAL SUPPLIES ONLY)
========================================================================
S. No. Description Heading Nos. of the First Reference
Schedule to the Customs of present S. No.
Act, 1969 (IV of 1969)
========================================================================
(1) (2) (3) (4)
========================================================================
1. Supply of cottonseed 1207.2000. 5
exclusively meant for sowing purposes, subject
to such conditions as the Board may specify.
2. Supply of locally Respective headings. 6
produced crude vegetable oil obtained
from the locally produced seeds other
than cottonseed, except cooking oil, without
having undergone any process except the
process of washing.
3. Supplies made Respective headings. 42
by (a) manufacturers whose annual
turnover from taxable supplies
made in any tax period during
the last twelve months ending any
tax period does not exceed rupees five
million; and (b) retailers whose
annual turnover from supplies, whether
taxable or otherwise, made in any tax
period during the last twelve months ending
any tax period does not exceed rupees five million.
4. Raw material and Respective headings. 43
intermediary goods
manufactured or produced,
and services provided
or rendered, by a registered
person, consumed in-house
for the manufacture of
goods subject to sales tax.
5. Supply of other Respective headings. 50
such agricultural
implements as may be specified
in a notification to be issued by the
Federal Government in the official Gazette.
6. Supply of fixed Respective headings. 60
assets against which input tax
adjustment is not available under
a notification issued in
terms of clause (b) of Sub-section
(1) of Section 8 of the Sales Tax Act, 1990.
7. Breads prepared Respective headings. 3(vi)
in tandoors and bakeries,
vermicillies, nans, chapattis,
sheer mal, bun, rusk.
8. Foodstuff cooked Respective headings. 3(vii)
or prepared in-house
and served in messes run on
the basis of mutuality
and industrial
canteens for workers.
9. Foodstuff and Respective headings. New
other eatables prepared in
the flight kitchens and supplied for
consumption on-board in local flights.
10. Agricultural Respective headings". 2
produce of Pakistan, not subjected to
any further process of manufacture.
========================================================================
NOTES: 1: For the purposes of this Schedule, for entries against which classification of headings or sub-headings have been specified, exemption shall be admissible on the basis of description of goods as mentioned in column (2) of this Schedule. PCT classification of headings is provided for ease of reference and commodity classification purposes only.
2. For the purposes of determining classification of any goods, the general rules for interpretation of the First Schedule to the Customs Act, 1969 (IV of 1969), and Explanatory Notes to the Harmonized Commodity Description and Coding System (relevant version) as amended from time to time shall be considered authentic source of interpretation.
3. For the purposes of exemption of sales tax under serial numbers 46, 47, 49, 50, 51, 52, 53, 56, 57, 59, 60 and 62 of this Schedule, the definitions, restrictions, limitations, conditions and procedures and all the provisions of Chapter 99 of the First Schedule to the Customs Act, 1969 (IV of 1969), for the purposes of applying zero-rate of customs duty shall, mutatis mutandis, apply and shall be deemed and construed to be part of this Schedule.
22. AMNESTY SRO 520(I)/2005: An amnesty has been granted by way of an exemption from penalty and additional tax to a person against whom sales tax is outstanding on account of any audit observation, audit report, demand notice or any order, provided that the outstanding principal amount of sales tax is paid by the June 30, 2005. However, this does not entitle any person to claim or take refund of any amount of sales tax already paid by or recovered from him.
23. FURNISHING OF MONTHLY STATEMENTS SRO 525(I)/2005: This SRO requires furnishing of summary in a prescribed format of purchases and sales made during a tax period by the 15th of the month following. The notification is applicable to purchases and supplies made on or after July 1, 2005. This requirement however does not extend to the five export oriented industries listed in SRO 535(I)/2005.
24. SPECIAL CONCESSION TO CERTAIN SECTORS: SRO 535(I)/2005, SRO 536(I)/2005 and SRO 538(I)/2005
Special concession has been granted through SRO 535(I)/2005 to certain industries whereby the import and supply of their goods have been made zero rated. These are as follows -
======================================================
Description of goods PCT Heading
======================================================
1. Leather and articles thereof 41.01 to 41.15
2. Textile and textile articles 5001.0000 to 63.10
3. Carpets 57.01 to 5705.0000
4. Sports Goods 9504.2000, 95.06
5. Surgical goods Respective heading
======================================================
Moreover, the import and supply of raw materials used in the manufacturing of the above mentioned goods have also been made zero rated. These have been itemized for each industry vide Table I through Table V of SRO 536(I)/2005.
SRO 538(I)/2005 stipulates that no exporter of textile and textile articles, leather and articles thereof, carpets, surgical goods and sports goods shall be entitled to claim any adjustment or refund of sales tax paid on their stocks after the expiry of the tax period ended June 30, 2005.
The above measures have been taken to facilitate the export oriented industries on one hand and to mitigate the adverse effects of delayed refunds and questionable claims by these sectors on the other.
25. SALES TAX SPECIAL PROCEDURES RULES, 2005 SRO 522(1)/2005: These Rules replace the existing Sales Tax Special Procedures Rules, 2004 which were introduced through SRO 484(1)/2004. They are to be effective from July 1, 2005.
The procedures embodied in the rules are same as were provided in the Sales Tax Special Procedures Rules, 2004 except the following:
CHAPTER I - FILING OF NIL RETURN: Nil sales tax is required to be filed on the newly prescribed format of "Sales Tax Return Cum Payment Challan".
Chapter II - Payment of sales tax by commercial importers on value addition
The provisions of this Chapter shall apply to registered persons who import goods for subsequent supply to other persons in the same state and are registered whether exclusively or otherwise as commercial importers.
The new format for the sales tax return cum payment challan, challan for payment of sales tax on value addition, and annual statement of value addition for commercial importers have been prescribed in the new Rules.
Chapter IX - Persons providing or rendering taxable services
The special procedures given in the Sales Tax Special Procedures Rules, 2004 for the purposes of collection and payment of sales tax on the taxable services rendered by hotels, clubs, caterers, marriage halls and lawns are not given in the Sales Tax Special Procedures, Rules, 2005. Sales tax on such services are being levied through the Provincial Ordinances and it is quite possible that such services may no longer attract sales tax. However, this can only be confirmed at the time of the passing of the respective provincial budgets.
Chapter XV Issuance of tax invoices against advance payment receipt
The said newly inserted chapter shall apply to all registered persons receiving advances against their taxable supplies. The procedure prescribes that every registered person at the time of receipt of advances may issue serially numbered "Advance Payment Receipts" in the prescribed format. However, sales tax invoice is required to be issued at the time of actual delivery of goods. "Advance Payment Receipts" is valid for the purpose of claim of adjustment of input tax under Section 7 of the Act.
Chapter XVI Issuance of electronics sales tax invoice between buyer and seller
The said newly inserted chapter shall apply to electronic transmission of sales tax invoices by the registered person who opt to do so in the prescribed manner.
The sales tax special procedures for supply of Ginned Cotton and for the Spinning Industry which were given in the Special Procedures Rules, 2004 have not been incorporated in the said rules presumably due to the zero rating of textile sector.
26. SALES TAX RULES, 2005 SRO 533(I)/2005: These rules replace the existing Sales Tax Rules, 2004 which were introduced through SRO 485(I)/2004. However, there are no significant changes therein.
===================================================================================
New SRO Rescinded SRO Effect
of 2005
===================================================================================
511 510(1) /2004 Refund of excess amount of tax carried
forward by a registered person other than
an exporter is no more available.
513 500(I)/2004 This SRO rescinds items that were
zero rated. However these items are
now covered through separate SRO's .
514 480(I)/2004 Adjudication powers withdrawn.
517 508(I)/2004 and
509(I)/2004 Requirement for furnishing of summary of
purchases-by 15th of the month following
for textile sector withdrawn.
526 839(I)/98 Withdrawn exemption of input tax on
Agricultural Tractors Falling under Heading
8701.9019 of First Schedule to the Customs
Act, 1969. This is now covered by a separate
SRO.
512(I) 390(1)/2001,
Section 71 Sales tax on the import or, as the case may
be, on the supply of cellular telephone sets
(hand-held sets) reduced from Rs.1,000
to Rs.500
515 Section 4(c) Subject to the conditions specified, the
following have been declared as zero rated:
1. Supply of cottonseeds. 1207.2000
2. Supply of oil-cake and other solid residues,
whether or not ground or in the form of
pellets. 2306.1000
523 Supercession of Designates the branches of the National Bank
498(I)/2004 of Pakistan for payment of sales tax on
prescribed return-cum-challan.
524 Prescribes form of Reference Application to
the High Court u/s 47(1)
527 Section 4(c) Zero rating of raw materials, components,
sub-components and parts, imported or
purchased locally for use of manufacturing of
plant and machinery subject to specified
conditions.
528/529 Sections 30 & 31 Appointment of officers for LTU Lahore and
transfer of 144 registered persons to this jurisdiction.
530 Section 4(c) Zero rating of tax on the following-
1. Imported plant, machinery and equipment
(whether or not manufactured locally)
including parts thereof. If imported
(a) against statutory rate
of customs duty of 5% or
(b) against notification
under Section 19
of the Customs Act, 1969.
2. Supply of plant, machinery and equipment
whether locally manufactured or imported Nil
531 Section 4(c) Zero rating of raw materials, components,
sub-components and parts, as are purchased
locally from authorized vendors by a
recognized manufacturer of tractors subject
to specified conditions. Electricity and gas
consumed by tractor manufacturers also
zero rated.
537 Section 4(c) Zero rating with effect from 1st July, 2005 on
import and supply of soyabean meal falling
under PCT Heading 2304.0000.
===================================================================================
1. Detention, seizure and confiscation of goods imported in violation of Section 15 or Section 16
SECTION 17: The Bill proposes to amend Section 17. The existing Section provides that where goods are imported into or attempted to be exported out of Pakistan in violation of the provisions of the Customs Act, such goods shall be liable to seizure and confiscation. Moreover, the offender is also liable to other penalties as provided under this Act or other law prevailing in the country. The new section also speaks of the same detention, seizure and confiscation of goods but it is subject to approval of an official not below the rank of an Assistant Collector of Customs. In our opinion, this section is an example of curtailing the powers of the Custom Officials as no detention, seizure and confiscation of goods could be made without taking approval from an officer not below the rank of an Assistant Collector of Customs.
2. Goods dutiable Section 18: The Bill proposes to substitute a new section 18. Previously, old section 18 talks about imposition of duty at the import level as well as at the export level, however, the new section proposes to impose duty on the goods imported in Pakistan only and to exempt the levy of duty on the export of the goods from Pakistan. This, in our view, is a very significant proposal in the Bill as by virtue of this section all the goods exported from Pakistan will be duty free.
3. Rates of duty and taxes and determination of origin under trade agreements
SECTION 18C: The Bill proposes to add a new section by which if any item is imported under a trade agreement between Pakistan and the country from where the goods are imported, in such case, the rates as specified in First Schedule are not to be applied but the special rate as provided by notification in the special gazette shall be applied. However, it is for the owner to satisfy that the articles imported by him are liable for a preferential rate of duty. On the other hand, it is the prerogative of the Federal Government to define the preferential or free trade area or to withdraw the preferential rate at any time it deems necessary.
4. General power to exempt from customs duties Board's power to grant exemption from duty in exceptional circumstances
SECTIONS 19 AND 20: The Bills seeks to enhance the powers of the Federal Government to remit fine, penalty, charge or any other amount recoverable under this Act.
5. Power to deliver certain goods without payment of duty and to repay duty on certain goods
SECTION 21, SUB-SECTION (AB) The Bill seeks to grant an additional power to the Board to allow an importer or local buyer to import any item either at zero or any lower rate as deem fit and necessary.
6. Determination of Customs value of goods
SECTION 25, SUB-SECTION (14): The Bill seeks to omit this Sub-section by virtue of which the Board or any other official authorized in the official gazette was empowered to fix the minimum Customs value of the goods having regard to the trend of value of such or like goods as the Board or such official may deem fit. Omission of this Sub-section is again an example of curtailing the discretionary powers of the Board as well as the Customs officials.
7. Abatement allowed on damaged or deteriorated goods
SECTION 27, SUB-SECTION (2) Section 27 speaks of an abatement in the rate of the duty allowed by Customs officials in case goods are found damaged or deteriorated. The new Sub-section proposes to enlarge the scope of this section by which if goods are found to be short landed or short shipped, the appropriate officer may allow, after satisfaction, a reduction in duty proportionate to the value of the goods short landed or short shipped.
8. Allowing denaturing or mutilation of goods
SECTION 27A: The Bill seeks to introduce a new section by which if on the request of the owner the goods are found to be denatured or mutilated, the duty on such items shall be chargeable at the same rate applicable on the import of denatured, mutilated or scraped goods. It is however, feared that some unscrupulous persons may in connivance with Customs officials take undue advantage of declaring good items to be denatured, mutilated or scraped.
9. Compounding of offense
SECTION 32B: The Bill seeks to introduce a new section by which if the Collector finds any person committing a duty or tax fraud, he may, with the approval of the Board, compound the offense subject to the condition that the defaulting person pays the amount of duty or tax alongwith the penalty, as may be determined under the Act.
10. REFUND TO BE CLAIMED SECTION 33: The Bill seeks to enhance the period of claiming refund from six months to one year.
11. ARRIVAL OF CONVEYANCE SECTION 42: This section speaks of the responsibility of the person-in-charge of a conveyance entering Pakistan from any place outside Pakistan. The Bill proposes to add a new proviso in Sub-section (2) Clause (c) by which the person-in-charge of a conveyance, which is en-route to Pakistan, shall give the required information to the Collector in advance in an electronic form. In our view, this information will enable the Collector to determine the duty payable on the goods which are en-route to Pakistan prior to their arrival at the customs station. The Bill further proposes to add a new section after Sub-section (2) by which the owner or operator of the conveyance or an agent of the owner can provide certain information in respect of the conveyance entering Pakistan from any place outside Pakistan.
12. Responsibilities of person-in-charge or master of a conveyance, agent and owner of the conveyance Section 72A
This new section proposes to make the person-in-charge of the conveyance, master, agent for conveyance and owner of the conveyance jointly and individually responsible to furnish the required information to the Collector of Customs.
13. Declaration and assessment for home consumption or warehousing, checking of goods declaration by the Customs and provisional determination of liability
SECTIONS 79, 80 AND 81: Like Self Assessment Scheme in income tax, which was introduced way back in 1964, the Self Assessment has been proposed to be introduced in Customs Law to bridge the credibility gap between the taxpayer and tax collector. This scheme is the result of the long standing demand of the taxpayers. The purpose of the scheme is to design a system to eliminate direct contacts of the tax officials with the taxpayers, thereby, minimizing the possibility of usual harassment of the taxpayers. These contacts have been found to be the root cause of the corruption, and, generally, result in collusion between the Custom Officials and the taxpayers. The rationale behind the Scheme is to create confidence among the taxpayers who would be free to make their own assessment of duty and pay the same fearlessly, honestly and without encountering the harassment tactics of custom officials. The other aim would be to remove the pendency and speedily realize the duty that may fall due on such declaration. It is, indeed, an apparent move to appease the sentiments of duty payers. The Scheme is surely a bold step to infuse confidence among the existing and potential duty payers and to eradicate their fear of facing undue harassment or coercive tactics to extort illegal gratification. It is hoped that this scheme would provide a relaxed atmosphere to the duty payers who may assuage their fears about uncalled for imposition of duties faced by them. Keeping the above scenario in mind, the present government proposes to add a new section in the law by which the owner of the goods is required to declare the goods, containing correct and complete particulars of the goods and paying his liability of duty, taxes and other charges in such form as may be prescribed by the Board. These goods, in turn, will be assessed by the Custom officials who after satisfying themselves about the correctness of the particulars of import, their declaration, assessment and payment of duty release the goods. However, if on checking, the declaration or documents or the information submitted is found not to be correct, appropriate action will be taken as provided under the law. The Custom officials, however, will be at liberty to determine the value of the goods provisionally if, in their opinion, the declaration requires chemical or other test or needs further inquiry. However, in the case of provisional determination, the Customs Official have to complete final determination within one year of the date of provisional determination, which could be extended to a further period of 90 days in exceptional circumstances. In case provisional assessment is not made in the stipulated time, the provisional assessment shall be considered the final determination.
14. Period for which goods may remain warehoused
SECTION 98: This section prescribes the time period for which goods, either perishable or otherwise, are kept in the customs warehouse. As per the present section 98, the period of warehousing for nonperishable goods is one year whereas, for perishable goods is three months, which is extendable to three months in the case of perishable goods and six months in the case of nonperishable goods. The bill now seeks to curtail the period of warehousing of nonperishable items from one year to six months from the date of admission of goods in the warehouse.
The bill also proposes to curtail the extension in the warehousing period, which the Collector of Customs may grant as under:
=================================================
Type of Goods Extension period Proposed
=================================================
Perishable goods Three months One month
Non-perishable goods Six months Three months
=================================================
15. Clearance for Exportation
SECTION 131: The Bill seeks to substitute a new section by which no goods will be permitted to be exported until and unless declaration of such goods containing correct and complete particulars are filed with the custom officials on such form as may be prescribed by the Board.
16. Punishment for offences
SECTION 156: The Bill seeks to define the punishment in case of smuggled goods which contain narcotics or psychotropic substances. The Bill further seeks to enhance the amount of penalty from Rs.25,000 to Rs.100,000 and a term of imprisonment not exceeding two years, or with both in case where a person without any reasonable cause fails to comply with the requirements of Section 26 of the Act which deals with furnishing of information as required by the Custom officials.
17. POWERS OF ADJUDICATION SECTION 179: As per this section, the Additional Collector has the power to adjudicate the cases not exceeding Rs.1 million only. The Bill now seeks to enhance this power to adjudicate the cases without any monitory limit.
18. Reference to High Court
SECTION 196: The Bill proposes to amend Section 196 of the Custom Act, 1969. Under the existing Section, a person or the Collector of Customs aggrieved by an order of the Customs Appellate Tribunal, passed under section 194B of the Act, can file an appeal to the Hon'ble High Court in respect of questions of law, arising out of the order of the Appellate Tribunal. The bill now seeks to change the method of filing the appeal to the method of filing reference application to the Hon'ble High Court, like the one prescribed in the Income Tax law. As per the newly proposed section, a reference application is to be filed in the prescribed form to the Hon'ble High Court within a period of ninety days from the date of the communication of order of the Appellate Tribunal, stating the questions of law arising out of such order. The Section also states that the reference application made under the proposed section shall be heard by a bench comprising not less than two judges of the Hon'ble High Court and the fee for filing such application would be Rs.100. It is further provided in the newly proposed section that if the amount of the duty is reduced by the order of the Hon'ble High Court, on the application of the Collector that he wants to prefer petition for leave to appeal to the Hon'ble Supreme Court, the High Court may authorize the Collector to postpone the issuance of refund until the disposal of appeal by the Hon'ble Supreme Court.
19. Power to open packages and examine, weigh or measure goods
SECTION 198: The proposed amendment seeks to introduce a proviso by which the Collector may examine the goods or class of goods imported or to be exported at a designated place, where he considers fit.
20. Principals and agents to maintain record
SECTION 211: The Bill seeks to reduce the period of maintenance of record from five years to three years.
21. CUSTOMS NOTIFICATIONS: Certain amendments have been made in the existing customs tariffs. Notifications have already been issued in this regard. A summary of certain significant notifications is given hereunder:
SRO 563(1)/2005 Dated June 6, 2005
This SRO has substituted the existing Chapter II of the Customs Rules, 2001 which deals with the baggage.
SRO 564(1)/2005 DATED JUNE 6, 2005: This SRO has enhanced the period of exemption upto June 30, 2006 to the goods as are temporarily imported by a registered exporter with a view to subsequent exportation.
SRO 565(1)/2005 DATED JUNE 6, 2005: This SRO exempts the levy of custom duty on raw materials, sub-components, components, sub-assemblies and assemblies which are not manufactured locally and are imported for the manufacture of goods by a sale tax registered manufacturer-cum-importer having suitable in house facilities subject to the fulfillment of prescribed condition as mentioned in the said SRO.
SRO 566(1)/2005 DATED JUNE 6, 2005: This SRO has issued an amended list of items, which falls under the definition of smuggled goods whose bringing in and taking out of Pakistan is prohibited, if the value of these goods exceeds Rs.50,000.
SRO 567(1)/2005 DATED JUNE 6, 2005: This SRO has reduced/exempted Customs Duty on 117 items. Reference is this regard may be made to the said SRO.
SRO 568(1)/2005 Dated June 6, 2005
This SRO has provided the benefit to the taxpayers that if the importer pays the custom duty etc. within the period ended June 06, 2005, the Federal Government will waive the penal surcharge payable on such goods which, are removed from the warehouse during this period. The rationale behind the issuance of SRO appears to be speedy collection of the revenue.
SRO 570(1)/2005 DATED JUNE 6, 2005: This SRO has granted exemption on 211 items if imported under the Free Trade Agreement entered between Pakistan and Sri Lanka subject to certain conditions as specified in the said SRO. This SRO further grants concessional rates on import of certain items from Sri Lanka on fulfillment of certain conditions prescribed in the SRO. This SRO will be applicable from June 12, 2005.
SRO 571(1)/2005 DATED JUNE 6, 2005: This SRO has granted exemption on import of two vehicles by Exploration and Production Companies (E&P) and one vehicle by Service Company (SC). However, in case of import of third and fourth vehicle by the E&P, the SC shall be charged at the reduced rate.SRO 572(1)/2005 Dated June 6, 2005
This SRO has withdrawn the condition of submission of installation certificate or installation-cum-production for imported plant and machinery where clearance was allowed, after charging Custom Duty at the rate of 5% or more in cash or without charging Sales-tax. It has further explained that all the indemnity bonds submitted for the production of installation certificate or installation-cum-production certificate shall stand automatically released.
SRO 573(1)/2005 DATED JUNE 6, 2005: As per earlier SRO 554(1)/1998 dated June 12, 1998, the concession was given to the exporters to import machinery which is not manufactured locally for setting up a manufacturing unit or for the expansion, balancing, modernizing and replacement of existing unit subject to the condition that they have to achieve certain target of export as mentioned in the said SRO. This government has now issued the present SRO by which a concession has been granted to the importer of the machinery who has failed to achieve target of exports by paying custom duty at the rate of 1% per year of default with a maximum of 2.5% of the dutiable value ascertained at the time of import.
SRO 574(1)/2005 DATED JUNE 6, 2005: This SRO supersedes the previous SRO 374(1)/2002 dated June 15, 2002 and has, on the one hand, extended its applicability to certain items mentioned in this SRO, where no option is given to the person importing the said banned items to pay fine in case of confiscation of the goods and on other hand it has enhanced the additional levies over and above the prescribed rates.
SRO 576(1)/2005 DATED JUNE 6, 2005: This SRO further amends the previous SRO 453(1)/2004 dated June 12, 2004 by granting further concession on vehicles falling under PCT heading 87.02, fully CNG dedicated vehicles and bicycles falling PCT heading 87.12.
SRO 577(1)/2005 DATED JUNE 6, 2005: Through this SRO, Federal Government has granted exemption on the import of old and used automotive vehicles, meant for transport of persons from so much of the custom duty, sales-tax, withholding and capital value tax as are in excess of the cumulative amount specified in the said notification.
SRO 580(1)/2005 DATED JUNE 6, 2005: This SRO has granted exemption on 186 items if imported from China subject to certain conditions as specified in the said SRO. This SRO further grants concessional rates on import of certain items from China on the fulfillment of certain conditions prescribed in the SRO.
22. CUSTOM GENERAL ORDER 14/2005: By virtue of this order, the Board has prescribed a uniform policy for the assessment of the motor vehicles which is to be applied at all customs station through out the country. This order also prescribed the method of calculation of deprecation on used and second hand motor vehicles.
23. CHANGES IN THE FIRST SCHEDULE: A number of changes have been proposed in the First Schedule, effecting a large number of items for which reference may be made to the proposed schedule of customs tariff. The rates of duty for certain items have been reduced and it is expected that this will help in curbing the inflow of smuggled goods and will also promote the local industry.
Clause 2 of the Bill seeks to introduce the First Schedule embodying a new law called the Federal Excise Act, 2005 (the FE Act). The FE Act seeks to substitute the Central Excises Act, 1944 thereby bringing a new piece of legislation. The proposed enactment seems to keep alive the substance that was embodied in the repealed Central Excises Act, 1944, however, the language of the proposed enactment is of significant importance which makes the law more explicit and simple to understand.
The preamble to the FE Act provides that the new provisions shall come into force on such date as the Federal Government may, by notification in the official gazette, appoint.
The proposed FE Act has many similarities with the Sales Tax Act, 1990 and introduces the concept of zero rating, filing of revised return, departmental audit etc.. Further, the proposed FE Act seeks to register persons engaged in the production or manufacture of goods or providing services regardless of their annual turnover or volume of sales of such goods or services.
Certain provisions of the proposed FE Act are highlighted below.
2. SCOPE OF THE PROPOSED FE ACT SECTIONS 3 & 10: The scope of the FE Act is in line with the scope provided under the repealed Central Excises Act, 1944. The proposed FE Act inter alia seeks to provide that the Federal Excise Duty shall be levied and collected in such manner as may be prescribed in respect of goods produced, manufactured or imported into Pakistan, such goods as the Federal Government may specify as are produced or manufactured and services provided or rendered in Pakistan.
Similarly, under the proposed FE Act, the determination of tariff value and rate of duty applicable to excisable goods and services have been provided on the same basis as prescribed under the repealed Central Excises Act, 1944. i.e.
(a) in the case of goods, on the date on which the goods are cleared for export or for home consumption;
(b) in the case of services, on the date on which the services are provided or rendered; and
(c) in the case of goods produced or manufactured outside the areas to which the Act has been applied and brought to such areas for sale or consumption therein, the date on which the goods are brought to those areas.
3. ADJUSTMENT OF EXCISE DUTY SECTION 6: Under the proposed FE Act, in order to determine the net liability of duty in respect of any goods, the duty already paid on goods specified in the First Schedule and used directly as input goods for manufacturing or production of such goods is to be adjusted against the amount of duty calculated on such goods. However, this adjustment is only allowable to a registered person who holds a valid proof that the transactions are made through proper banking channels including online payment whether through credit card or otherwise.
4. Application of the provisions of the Sales Tax Act, 1990
SECTION 7: The proposed FE Act seeks to provide for the manner of adjustment of duty which is collectable under the sales tax mode in respect of goods specified under the Second Schedule and services as specified by the Board. Under this section the excise duty is adjustable against the amount of sales tax paid and vice versa. The manner of adjustments is explained below:
(a) a registered person manufacturing or producing such goods or providing or rendering such services shall be entitled to deduct input tax paid during the tax period from the amount of excise duty due from him on such goods or services in respect of that tax period;
(b) a registered person shall be entitled to deduct the amount of duty of excise paid or payable by him on such goods or services as are acquired by him during a tax period from the output tax due from him in respect of that tax period;
(c) a registered person supplying such goods or providing or rendering such services shall be entitled to deduct excise duty paid or payable on such goods or services as are acquired by him during the tax period from the amount of excise duty due from him on such goods manufactured or produced or services as are provided or rendered by him during that period; and
(d) A person shall be entitled to deduct excide duty paid or payable, on such goods or services as are acquired by him during a month, from the amount of excise duty due from him on such goods manufactured or produced or such services as are provided or rendered by him, during that month.
The term "input tax", "output tax" and "tax period" shall have the same meanings as are assigned to them in the Sales Tax Act, 1990.
5. Zero rated goods and drawback of duty
SECTION 5: Section 5 of the proposed FE Act seeks to create the concept of zero rating whereby goods as specified by the Federal Government including goods exported out of Pakistan are envisaged to carry a zero rate of tax. Moreover, the adjustment of excise duty as provided under section 6 of the proposed Act, is also available in respect of goods on which excise duty is chargeable at zero rate.
The proposed FE Act, also provides that the Board through notifications, in the official gazette, may grant drawback of duty paid on any goods used in the manufacturing of such goods as are exported out of Pakistan at such rate or rates and subject to such conditions and limitations as may be specified in the notification.
6. REGISTRATION SECTION 13: The proposed FE Act seeks to oblige all persons engaged in the production or manufacture of goods or providing or rendering services, which are liable to excise duty, to obtain registration in the prescribed manner regardless of his annual turnover or volume of sales of such goods or services. However, a person already registered under the Sales Tax Act, 1990 shall not require to obtain a separate registration and the sales tax registration shall be deemed to be a registration for the purposes of the proposed FE Act.
7. FILING OF RETURN AND PAYMENT OF DUTY SECTION 4: Under the proposed FE Act, a registered person is required to deposit the duty to the treasury by the seventh day of the succeeding month.
At the end of each month every registered person is required to prepare and file a return in the form as may be specified by the Board within three days from the day the due excise duty was paid.
Under the proposed FE Act, the person can file a revised return to correct any bonafide error or mistake in the entries of the original return.
8. Exemptions
SECTION 16: The proposed FE Act seeks to provide exemption in respect of the following:
a) All goods imported, produced or manufactured in Pakistan and services provided or rendered except for goods and services that are specified in the First Schedule to the proposed FE Act;
b) Any goods or class of goods or any services or class of services as may be specified by the Federal Government through a notification in the official gazette. The exemption may be allowed in full or a part thereof from the levy of proposed Federal Excise Duty;
c) Any goods or class of goods or any services or class of services as may be specified by the Board through a special order. The exemption may be allowed in full or a part thereof from the levy of proposed Federal Excise Duty.
Moreover, the Federal Government may by a notification in the official gazette exempt any person or class of person from payment of the whole or a part thereof of the Default Surcharge imposed under section 8 of the proposed FE Act, subject to such conditions or limitations as may be specified in this regard.
9. DEPARTMENTAL AUDIT SECTION 46: The proposed FE Act seeks to introduce the concept of departmental audit which did not exist under the repealed Central Excises Act, 1944. The proposed FE Act provides that the Federal Excise Officer, authorized by the Board may conduct an audit, once in a year, in respect of the records and documents of any person registered under the FE Act. It has further been proposed that in case of information or sufficient evidence regarding involvement in fraud or evasion of duty by any registered person, the Collector may authorize a Federal Excise Officer to conduct an audit of such person at any time in a year.
For the execution of the audit, it is proposed that the Board may appoint a Chartered Accountant or a Cost of Management Accountant or a firm of such accountants to conduct audit in such manner and subject to such conditions it may specify in respect of a person liable to pay excise duty under the proposed FE Act.
It has further been proposed that the audit of registered person shall generally be a composite audit covering all duties and taxes to which his business or activity is liable under the laws administrated by the Board.
10. Appeal to Collector (Appeals), Appellate Tribunal and Reference to High Court Section 33 & 34
Under the proposed FE Act, the procedure and manner for filing of appeals before the Collector (Appeals) and Appellate Tribunal are substantially the same as provided under the repealed Central Excises Act, 1944.
Under the repealed Central Excises Act, 1944, the appeal should be filed within the thirty days of the receipt of the order appealed against, however, the Collector (Appeals) could condone the delay in filing the appeal, provided it was explained to the satisfaction of the Collector that the appellant had sufficient cause for not preferring the appeal within the prescribed period. However, under the proposed FE Act, the power of the Collector to condone the delay in filing the appeal has not been provided.
Under the repealed Central Excises Act, 1944, an aggrieved person or the Collector may file an appeal in the High Court in respect of any question of law within sixty days of the date upon which an aggrieved person or Collector is served with a notice of an order passed by the Appellate Tribunal. Under the proposed FE Act, the procedure and manner for resolution of question of law arising out of the order of the Tribunal has been changed and now it has been proposed that the aggrieved person may prefer the Reference Application within ninety days from the date on which the order of the Appellate Tribunal is served.
11. ALTERNATE DISPUTE RESOLUTION SECTION 38: The concept of alternate dispute resolution which already existed under the repealed Central Excises Act, 1944 is also sought to be introduced in the proposed FE Act, with the same scope and procedures. Section 38 of the proposed FE Act provides for a statutory forum for settlement and resolution of grievances of any aggrieved person. Such matters may pertain to the person's liability of Federal Excise Duty, default surcharge, admissibility of refund or rebate, waiver or fixation of penalty or fine, confiscation of goods, relaxation of any time period or any procedural and technical condition.
12. RATES OF FEDERAL EXCISE DUTY The following goods and services have been proposed to brought under the purview of excisable goods and services by including the same in the First Schedule to the proposed FE Act.
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S. No.Nature Of Goods and Services Rate of Duty
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1. Carbon black oil (carbon black Seven rupees and fifteen
feedstock) including residue carbon paisa per litre
2. Telephone cards including payphone
cards and pre-paid calling
cards - refer Note below Fifteen percent of the charges
3. Wireless Local Loop (WLL)
services - refer Note below Fifteen percent of the charges
4. Services provided or rendered
in respect of leasing, namely:
(i) financial leasing
(ii) Commodity or equipment leasing
(iii) Hire purchase leasing Seven and half percent of the
charges (lease management fee,
processing fee and
documentation charges realized
at the time of entering into the
lease agreement)
5. Services provided or rendered
by banking companies in relation to:
(i) letters of credit
(ii) guarantees
(iii) brokerage
(iv) foreign exchange dealings Seven and half percent
of the charges
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NOTE: Persons or companies other than Pakistan Telecommunication Corporation Limited (PTCL) engaged in telecommunication services shall pay duty at the specified rates on charges excluding the charges billed by PTCL.
The rate of duty in respect of the following goods and services have been changed as compared to the rate specified in the repealed Central Excise Act, 1944.
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S. No.Nature of Goods and Services Rate of Duty
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1. Unmanufactured tobacco Five rupees per kilogram
2. Locally produced cigarettes if Sixty three percent of the
their retail price exceeds thirteen retail price
rupees per ten cigarettes
3. Locally produced cigarettes if Two rupees and forty-five paisa per
their retail price exceeds five ten cigarettes plus sixty nine
rupees and twenty-four paisa percent per incremental rupee
per ten cigarettes but does not exceed or part thereof
thirteen rupees per ten cigarettes
4. Locally produced cigarettes if
their retail price does not exceed
five rupees and twenty-four paisa
per ten cigarettes Two rupees and forty-five paisa per
ten cigarettes
5. Mineral greases Twenty five rupees per kilogram
6. Liquefied natural gas, Liquefied
propane, liquefied butanes,
liquefied ethylene, propylene, butylenes
and butadiene, other liquefied
petroleum gases and gaseous Seven rupees and eighteen paisa
per hundred cubic metres
7. Petroleum Bitumen (Bitumen
and Asphalt) including
bituminous mixtures:
(i) Blown grade Three thousand one hundred and
fifty rupees per metric tonne
(ii) Paving grade without further
process One thousand eight hundred
rupees per metric tonne
(iii) Other Three thousand one hundred and
fifty rupees per metric tonne
8. Inland carriage of goods by air Fifteen percent of the charges
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Goods and services specified in the Third Schedule of the proposed FE Act, shall be exempt from duty subject to certain conditions and restrictions. Such goods and services were previously included in the First Schedule to the repealed Central Excise Act, 1944 at "Nil" rates.
Certain categories of excisable goods (such as, perfumes, shaving cream, beauty and hair preparations, soaps and detergents, etc.) have now been brought under the purview of Sales Tax by virtue of the proposed amendment in the Sales Tax Act, 1990.
13. FEDERAL EXCISE RULES, 2005: The Federal Government through SRO No.534(1)/2005 dated June 6, 2005 has issued Federal Excise Rules, 2005 setting out the procedures relating to the matters of Federal Excise Duty chargeable under the Federal Excise Act, 2005. These Rules are effective from July 1, 2005.This Memorandum is correct to the best of our knowledge and belief at the time of going to press. It is intended as a general guide and therefore is not a substitute for specific professional advice which should be sought before any action is taken.
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