BUDGET BRIEFING: Comments on Finance Bill 2012
INCOME TAX: 1. Tax on capital gains on disposal of immovable property
Section 37, Sub-section 1A
The FBR is facing a tough challenge in expanding the tax base and has not been able to gain much ground in the past few years which has resulted in a low tax to GDP ratio. This dilemma of low tax base and low tax to GDP ratio has been under constant criticism and therefore the FBR is seized with searching for new avenues to expand the tax base and resultantly collect more taxes.
With this in mind, the Bills seeks to introduce a new sub-section (1A) in Section 37 which seeks to levy tax on the disposal of such immovable property that has been held for a period upto 2 years. Accordingly, the gain arising on disposal of such immovable property shall be taxed in the following manner:
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Table 01
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Tax year
S. ending 30 Original Revised
No Holding period June Rates Rates
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1 Where holding period 2011 10% 10%
of the security is less 2012 10% 10%
than six months 2013 12.5% 10%
2014 15% 10%
2015 17.5% 17.5%
2 Where holding period 2011 7.5% 7.5%
of the security is more 2012 8% 8%
than six months but 2013 8.5% 8%
less than twelve 2014 9% 8%
months 2015 9.5% 9.5%
2016 10% 10%
3 Where the holding - 0% 0%
period of the security
is twelve months or more
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i) Immovable property held for a period upto 1 year 10%
ii) Immovable property held for a period of more than 1 year but upto 2 years 5% Consequential amendments have been introduced in sub-section 5 which provides a list of assets that constitute "Capital Assets" for the purpose of Section 37.
We would like to point out that there are conflicting views whether the Federal Government has the power to tax the gain on immovable property in the provinces other than Islamabad Capital Territory in view of the amendment made in Entry 50 of the Federal Legislature List available in the Fourth Schedule to the Constitution through the Constitution (Eighteenth Amendment) Act, 2010.
2. The Eighth Schedule Section 37A, 100B and 233AA
In May 2012, the President promulgated the Finance (Amendment) Ordinance, 2012 whereby a number of amendments were introduced in the Ordinance, and in the Finance Act, 1989 that deals with Capital Value Tax (CVT). All the amendments introduced via the Finance (Amendment) Ordinance, 2012 come into effect from 24 April 2012 and relate to taxability of capital gains on listed securities and CVT. The Bill now proposes to re-introduce these amendments since an Ordinance issued by the President is valid only for ninety days.
A new section 100B and a separate Schedule that contains special provisions relating to capital gain tax are being inserted in the Ordinance which state that capital gains on disposal of listed securities and tax thereon, shall be computed, determined, collected and deposited in accordance with the rules laid down in the Eighth Schedule.
The proposed Eighth Schedule assigns the responsibility of computation of capital gains, including the collection and payment of tax on capital gains to the National Clearing Company of Pakistan Limited (NCCPL) which has been defined to mean a company incorporated under the Companies Ordinance, 1984 and licensed as a Clearing House by the Securities and Exchange Commission of Pakistan.
However, the provisions of section 100B and the Eighth Schedule are not applicable to the following persons or class of persons:
-- A mutual fund;
-- A banking company, a non-banking finance company, and an insurance company subject to tax under the Fourth Schedule;
-- A modaraba;
-- A "foreign institutional investor" being a person registered with NCCPL as a foreign institutional investor; and
-- Any other person or class of persons notified by the Board.
Salient features of the proposed Eighth Schedule are summarised as under:
-- To enable NCCPL to perform its functions as per the Eighth Schedule, Central Depository Company of Pakistan Limited (CDC) would furnish information as required by NCCPL;
-- NCCPL will issue a certificate (on prescribed format) of the gains taxable under the Eighth Schedule and such certificate shall be filed by the taxpayer along with the return of income for the relevant tax year;
-- Investments made prior to introduction of the Eighth Schedule in listed securities will not be that put to question as to their nature and source provided the person making the investment in listed securities files a statement of such investments along with his return of income and wealth statement for tax year 2012 by the due date and the amounts remain invested for a period of forty five days upto 30 June 2012;
-- Investments made after the introduction of the Eighth Schedule uptil 30 June 2012 in shares of a public company registered at a stock exchange will also not be put to question as to their nature and source provided the amounts remain invested for a period of one hundred and twenty days tax on capital gains is duly paid in terms of the Eighth Schedule and the person making the investment files a statement of such investments along with his return of income and wealth statement for the relevant tax year by the due date;
-- The provisions contained in the Ordinance that deal with collection and recovery of tax, advance tax and deduction of tax at source shall not apply on the income from capital gains that are taxable under the Eighth Schedule except as provided for therein;
-- The provisions of the Eighth Schedule, however, are not applicable to a person who files an irrevocable option to NCCPL after obtaining approval of the Commissioner to the effect that he does not wish to be taxed under the Eighth Schedule.
The above insertions in law are apparently designed for investors in the informal sector and incentives by way of no questions asked on the source of investment, no interaction with the tax authorities, etc. are provided in order to bring this sector in the tax net.
Reduction in tax rates
The rate of tax on capital gains was to progressively increase each tax year. The Eighth Schedule and the related amendments now freeze the tax rate for succeeding two tax years at the rates prescribed for the tax year 2012. A comparative table highlighting the change is as follows:
Serial number 3 above and the rate of 0% make it clear that where securities are held for more than twelve months, the capital gains are not taxable.
Tax at the rate of 0.01% on the traded value of securities was required to be collected by a stock exchange through its members. This was an advance tax that was adjustable against the final tax liability on capital gains and in case of no tax liability, it was refundable. This requirement to collect such advance tax by a stock exchange has been dispensed with.
Corresponding provisions are also being introduced in Section 233A of the Ordinance where the obligation of a stock exchange to collect tax from its members in respect of trading of shares has been done away with since under the new provisions NCCPL is now obliged to collect tax relating to trading of shares. Moreover, tax collection on account of margin financing (financing of carry over trade) is also being transferred to NCCPL.
Section 37A of the Ordinance is also being amended whereby exempt capital gains under the Ordinance have been excluded from the purview of this Section.
3. Tax credit for investment in shares and life insurance premium Section 62
This Section provides tax credit to resident persons (other than companies) on investment in shares and life insurance to encourage investment. Presently, the limit of eligible investment for tax credit is the cost of acquiring the shares or the premium paid or total contribution during the year compared with 15% of the person's taxable income for the year or Rs 500,000/- whichever is less.
The Bill seeks to enhance the incentive provided in the Section and has therefore proposed to raise the limit of eligible investment for tax credit to the lessor of:
a) cost of acquiring the shares or premium paid or total contribution
b) 20% of taxable income of the persons for the tax year; or
c) Rs 1,000,000.
The mandatory period for retaining investments in respect of which the tax credit is allowed is presently 36 months from the date of acquisition. The Bill now proposes to reduce this mandatory retention period to 24 months.
4. Interest on loan given by employer to employee
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Salaried taxpayers
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Salaried taxpayers Rate
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Upto Rs 400,000 Nil
Rs 400,001 - 750,000 5% of excess over Rs.400,000
Rs 750,001 - 1,500,000 Rs.17,500 + 10% of excess over
Rs.750,000
Rs 1,500,001 - Rs.92,500 + 15% of excess over
2,500,000 Rs.1,500,000
Over Rs.2,500,000 Rs.242,500 + 20% of excess over
Rs.2,500,000
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Non salaried taxpayers
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Non Salaried taxpayers Rate
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Upto Rs 400,000 Nil
Rs 400,001 - 750,000 10% of excess over Rs.400,000
Rs 750,001- 1,500,000 Rs 35,000 + 15% of excess over
Rs.750,000
Rs 1,500,001 - Rs 147,500 + 20% of excess over
2,500,000 Rs 1,500,000
Over Rs.2,500,000 Rs 347,500 + 25% of excess over
Rs 2,500,000
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Section 13, sub-section 7
The benefit arising to an employee on account of an interest-free or concessional loan provided by the employer is treated as salary. Where no mark-up is charged the benchmark rate prescribed under the Ordinance for each tax year is treated as the benefit received by the employee. Similarly where the employer provides the loan at a mark-up which is less than the prescribed bench mark rate, the difference between the bench mark rate and the rate at which the employer has provided the loan, is treated as a benefit and taxed notionally in the hands of the employee.
The Bill now seeks to provide that notional taxation of mark-up under the aforesaid provision would not apply in cases where the loan does not exceed Rs 500,000/-.
It should be noted that through an earlier amendment introduced in this sub-section through Finance Act, 2010 it was provided that if the employee waves his rights to receive interest from any account maintained with the employer then the aforesaid notional taxation of mark-up would not apply.
As applicable to salaried individual
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Tax incidence Increase / (decrease)
in tax incidence
Salary Salary Before After
per month per annum/ amendment amendment Rupees %age
taxable
income
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30,000 360,000 2,000 - (2,000) (100.00)
40,000 480,000 16,800 4,000 (12,800) (76.19)
50,000 600,000 27,000 10,000 (17,000) (62.96)
60,000 720,000 43,200 16,000 (27,200) (62.96)
70,000 840,000 63,000 26,500 (36,500) (57.94)
80,000 960,000 85,500 38,500 (47,000) (54.97)
90,000 1,080,000 106,500 50,500 (56,000) (52.58)
100,000 1,200,000 120,000 62,500 (57,500) (47.92)
125,000 1,500,000 179,500 92,500 (87,000) (48.47)
150,000 1,800,000 252,000 137,500 (114,500) (45.44)
175,000 2,100,000 315,000 182,500 (132,500) (42.06)
200,000 2,400,000 384,000 227,500 (156,500) (40.76)
225,000 2,700,000 432,000 282,500 (149,500) (34.61)
250,000 3,000,000 525,000 342,500 (182,500) (34.76)
275,000 3,300,000 577,500 402,500 (175,000) (30.30)
300,000 3,600,000 646,250 462,500 (183,750) (28.43)
400,000 4,800,000 960,000 702,500 (257,500) (26.82)
500,000 6,000,000 1,200,000 942,500 (257,500) (21.46)
750,000 9,000,000 1,800,000 1,542,500 (257,500) (14.31)
1,000,000 12,000,000 2,400,000 2,142,500 (257,500) (10.73)
1,200,000 14,400,000 2,880,000 2,622,500 (257,500) (8.94)
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5. Fixation of bench-mark rate
Section 13, sub-section 14
For the purpose of determining the benefit arising out of free or concessional loan provided by the employer, a bench-mark rate was provided at 5% in tax year 2003 at the time when the concept of notional taxation of benefit on free or concessional loan was introduced. It was further provided that for subsequent years the bench-mark rate would be increased by 1% or will be such rate as prescribed by the Federal Government by notification. In subsequent years, the rate kept on increasing by 1% every year which until the tax year 2012 became as high as 14%. The present rate is even higher than the prevailing SBP discount rate.
In order to redress this issue the Bill seeks to provide a maximum rate of 10% .
As applicable to assesses other than a salaried individual
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income Tax incidence increase/(decrease) in tax
Taxable Before After incidence
per annum amendment amendment Rupees % age
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400,000 30,000 - (30,000) (100.00)
450,000 33,750 5,000 (28,750) (85.19)
500,000 37,500 10,000 (27,500) (73.33)
600,000 60,000 20,000 (40,000) (66.67)
700,000 70,000 30,000 (40,000) (57.14)
800,000 120,000 42,500 (77,500) (64.58)
1,000,000 150,000 72,500 (77,500) (51.67)
1,250,000 250,000 110,000 (140,000) (56.00)
1,500,000 300,000 147,500 (152,500) (50.83)
2,000,000 500,000 247,500 (252,500) (50.50)
2,500,000 625,000 347,500 (277,500) (44.40)
3,000,000 750,000 472,500 (277,500) (37.00)
3,500,000 875,000 597,500 (277,500) (31.71)
5,000,000 1,250,000 972,500 (277,500) (22.20)
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6. Tax credit for investment in plant and machinery
Section 65B
We continue to witness a constant decline in investment and retardation of economic activities therefore, to further incentives investment by companies owning industrial undertakings to make investments in plant and machinery for the purpose of balancing modernisation and replacement (BMR), certain amendments have been proposed in this Section.
The present scheme allows a taxpayer being a company which invests in the purchase of plant and machinery for the purpose of BMR credit equal to 10% of the amount so invested against the tax payable by the tax payer. It requires purchase and installation of the plant and machinery to be carried out between 01 July 2010 and 30 June 2015. The tax credit is allowed in the year in which the plant and machinery is installed. In case the tax credit cannot be availed in that year wholly or partially then the unutilised tax credit is allowed to be claimed in the subsequent two tax years.
The Bill seeks to extend the facility of tax credit to those tax payers who are liable to pay minimum tax and taxes under the Final Tax Regime (FTR) as well. However, both the provisions of minimum tax and FTR, in our view do not allow credit against the respective tax liabilities and expressly state that no credits or rebates would be available against the liability determined under the respective laws. This position has been challenged earlier as well under the repealed 1979 Ordinance and in one of the recent judgements the courts have held that tax credit under section 107AA of the repealed Ordinance (similar to present Section 65B) is not available against minimum tax. Although the objective of the proposal is to allow maximum tax benefits to industrial investors, the FBR may alternately make suitable amendments to the relevant sections dealing with minimum tax and FTR to make the credit eligible.
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Holding period of a security
More than six
Less than six months but less
months than 12 months
(%) (%)
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2011 10 7.5
2012 10 8
2013 10 8
2014 10 8
2015 17.5 9.5
2016 * 10
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It further seeks to provide that tax credit under this Section will also be available to companies that are set-up in Pakistan before 01 July 2011 and which make investment in plant and machinery between July 2011 and June 2016. Whilst the mode and manner of tax credit calculation and allowability remains the same, tax credit to such companies will be allowed at the rate of 20% and in case the tax credit is not absorbed in the tax year in which the plant and machinery is installed then the balance tax credit shall be allowed to be carried forward upto five tax years.
It follows therefore that the higher tax credit and the longer period for absorption of tax credit would be available to such companies that are already formed before 01 July 2011. For companies that are formed or would be formed after 01 July 1011, the tax credit presently available at 10% of the amount invested with a carry forward limit of two tax years shall continue to be available.
Assets acquired on lease would continue to be ineligible for the tax credit under this section since they do not qualify the condition of ownership of the plant and machinery.
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Holding period of
immoveable property Rate %
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Upto 1 year 10
More than one year but not 5
more than two years
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7. Tax credit for newly established industrial undertaking
Section 65D
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Gross amount of rent Rate of tax
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Over Rs 1,000,000 Rs 57,500 + 10% of the
amount exceeding
Rs 1,000,000
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Through the Finance Act, 2010 a tax credit for newly established industrial undertaking was introduced. This tax credit is available to a company that is formed for establishing and operating a new industrial undertaking for manufacturing in Pakistan. The tax credit is available upto 100% of the tax payable from such industrial undertaking for a period of five years beginning from the date of setting up or commencement of commercial production, whichever is later.
One of the conditions for admissibility of the tax credit under this Section is that the industrial undertaking is set up with 100% equity owned by the company. This condition raised certain questions whether the requirement of equity meant fresh injection of cash equity or also permitted conversion of accumulated profits into equity through issuance of bonus shares. There were also queries whether the requirement to have 100% equity means equity for setting up the industrial undertaking only or for operating it as well i.e. working capital requirements.
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Gross amount of rent Rate of tax
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Upto Rs 400,000 5%
Rs 400,001 - Rs 1,000,000 Rs 20,000 + 7.5% of the
amount exceeding
Rs 400,000
Over Rs 1,000,000 Rs 65,000 + 10% of the
amount exceeding
Rs 1,000,000
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The Bill now seeks to clarify the above issues and it is now proposed that only such equity would be considered to be eligible which is raised through issuance of new shares for cash consideration. Further a proviso is proposed to be inserted which clarifies that short term financing for the purpose of meeting working capital requirements shall not disqualify the tax payer from the tax credit under this section.
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Engine capacity Amount of tax
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Upto 1000 cc Rs 750
1001 cc - 1199 cc Rs 1,250
1200 cc - 1299 cc Rs 1,750
1300 cc - 1599 cc Rs 3,000
1600 cc - 1999 cc Rs 4,000
Over 1999 cc Rs 8,000
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The Bill also seeks to expand the scope of the eligible companies and seeks to allow the tax credit not only to those companies which are engaged in manufacturing but are also engaged in corporate dairy farming. It further seeks to clarify that the tax credit would be available against the tax payable including minimum tax and taxes paid under FTR by such tax payers. However, the difficulty relating to adjustment against minimum tax mentioned under Section 65B still remain.
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Gross amount of rent Rate of tax
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Upto Rs 150,000 Nil
Rs 150,001 - Rs.400,000 5% of the amount exceeding
Rs 150,000
Rs 400,001 - Rs.1,000,000 Rs 12,500 + 7.5% of the
amount exceeding
Rs.400,000
Over Rs 1,000,000 Rs 57,500 + 10% of the
amount exceeding
Rs 1,000,000
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A new sub-section (5) is also proposed to be inserted which states that for the purpose of this section as well as for claiming tax credit under Section 65B and 65E, the industrial undertaking would be treated to have been set up on the date on which the industrial undertaking is ready to go into production whether trial production or commercial production. This clarificatory amendment seems to be in conflict with the requirement stated in sub-section (1) which states that the tax credit would be available beginning from the date of setting up or commencement of commercial production, whichever is later.
As applicable to Association of Persons
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Taxable income increase / (decrease) in tax
per annum. tax incidence incidence
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Before After
amendment amendment Rupees % age
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400,000 100,000 - (100,000) (100.00)
450,000 112,500 5,000 (107,500) (95.56)
500,000 125,000 10,000 (115,000) (92.00)
600,000 150,000 20,000 (130,000) (86.67)
700,000 175,000 30,000 (145,000) (82.86)
800,000 200,000 42,500 (157,500) (78.75)
1,000,000 250,000 72,500 (177,500) (71.00)
1,250,000 312,500 110,000 (202,500) (64.80)
1,500,000 375,000 147,500 (227,500) (60.67)
2,000,000 500,000 247,500 (252,500) (50.50)
2,500,000 625,000 347,500 (277,500) (44.40)
3,000,000 750,000 472,500 (277,500) (37.00)
3,500,000 875,000 597,500 (277,500) (31.71)
5,000,000 1,250,000 972,500 (277,500) (22.20)
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8. Tax credit for existing industrial undertakings
Section 65E
Through the Finance Act, 2011 this section was introduced that also provided tax credit to such companies that were set up before 01 July 2011 which invested in purchase and installation of plant and machinery for the purpose of BMR or for expansion of the plant and machinery already installed. The tax credit was available in such cases in the ratio of the equity invested in the plant and machinery and the total investment made by the industrial undertaking.
The present section was creating a duplication of available tax credits on BMR as tax credit was also available under Section 65B although Section 65E is silent on the mode of investment whether through equity investment or borrowing.
The Bill now seeks to redraft almost the whole section to clarify the anomalies in the present Section and proposes as under:
Investment is made by a company set up in Pakistan before 01 July 2011 through 100% new equity raised through issuance of new shares in the purchase and installation of plant and machinery for an industrial undertaking including corporate dairy farming for the purpose of:
a) Expansion of the plant and machinery already installed; or
b) undertaking a new project.
The tax credit will be allowed against the tax payable including minimum tax and tax paid under FTR for a period of five years from the date of setting up or commencement of commercial production from the new plant or expansion project, whichever is later.
In the case of a new project, it is provided that where the tax payer maintains separate accounts he shall be allowed a tax credit equal to 100% of the tax payable including minimum tax and taxes payable under FTR attributed to such expansion project or new project. Where separate accounts are not maintained, the tax credit will be allowed in the ratio of the new equity and the total equity including the new one.
9. Set off and carry forward of losses by the members of an Association of Persons (AOP)
Section 59A
It would be recalled that until tax year 2007, a professional firm that was prohibited from incorporating by any law or the rules of the body regulating the profession was not required to be taxed separately as a person and accordingly the income derived by such a firm was taxed in the hands of its members. The Finance Act, 2007 however, discontinued such special treatment to professional firms by omitting sub-sections (2),(3) and (4) of Section 92 of the Ordinance which resulted in making the professional firms taxable in its own capacity as a person.
Although the Finance Act, 2007 withdrew the special treatment provided to the professional firms and their members, Section 59A of the Ordinance continued to contain the provisions allowing set off and carry forward of the losses by the members.
The Bill now proposes to withdraw sub-sections (1) and (2) of Section 59A of the Ordinance. Similarly, the Bill seeks to omit references of already deleted sub-section (3) of Section 92 of the Ordinance from sub-sections (3) and (4) of Section 59A of the Ordinance. These provisions deal-with set off and carry forward of losses by the members of the professional firm.
10. Pakistan source dividend
Section 101(6)
It would be recalled that the Finance Act, 2008 expanded the scope of the term "dividend" by introducing Clause (f) in sub-section (19) of Section 2 of the Ordinance whereby remittance of after tax profit of a branch of a foreign company operating in Pakistan has been included in its ambit. However, Section 101 of the Ordinance while determining the geographical source of different classes of income, has not specifically defined that remittance of after tax profit by the branch of a foreign company is Pakistan source income. Such a lacuna became a moot point of various legal proceedings on the ground that even though the definition of the term "dividend" has been expanded, the Pakistan source dividend only represents dividends paid by a resident company to its shareholders.
The Bill seeks to address this issue by proposing an amendment to sub-section (6) of Section 101 of the Ordinance whereby a reference to Clause (f) in sub-section (19) of Section 2 of the Ordinance is made which makes remittance of after tax profit by the branch of a foreign company as Pakistan source income.
11. Scope of total income harmonised
Section 9, 10 and 53
The expression total income represents the summation of five heads of income viz. Salary, Income from Property, Income from Business, Capital Gains and Income from Other Sources. However, each head of income excludes exempt income under the Ordinance from its ambit. Hence exempt income appears not to be a part of the total income whereas sub-section (1A) of Section 53 of the Ordinance provides that exempt income shall be included in the total income, though no tax is to be paid on such exempt income.
The Bill seeks to harmonise the scope of total income by introducing the following clauses in Section 10 of the Ordinance:
a) Person's income under all heads of income from the year; and
b) Person's income exempt from tax under any of the provisions of this Ordinance.
-- Simultaneously the Bill suggest to omit sub-section (1A) of Section 53 of the Ordinance.
-- The consequential amendment in Section 9 of the Ordinance which defines the taxable income is suggested by referring to clause (a) of Section 10 of the Ordinance.
12. Rules to be prescribed to determine the cost of an asset
Section 76
Section 76 of the Ordinance identifies various components that constitute parts of the cost of an asset. The Bill seeks to introduce a new sub-section whereby, notwithstanding the manner in which the cost of an asset is computed under this section, the Board may prescribe rules for determining the cost of any asset.
13. Rules to be prescribed for determining the consideration for an asset
Section 77
Section 77 of the Ordinance describes how the consideration of an asset is to be computed in the event of its disposal. The Bill proposes to introduce a new sub-section whereby, notwithstanding how the consideration is determined on disposal of an asset pursuant to Section 77 of the Ordinance, the Board may prescribe rules for determination of consideration received for any asset.
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Engine capacity Amount of tax
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Upto 850 cc Rs 7,500
851 cc - 1000 cc Rs 10,500
1001 cc - 1300 cc Rs 16,875
1301 cc - 1600 cc Rs 16,875
1601 cc - 1800 cc Rs 22,500
1801 cc - 2000 cc Rs 25,000
Over 2000 cc Rs 50,000
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14. Minimum tax
Section 113
Minimum tax was reintroduced by the Finance Act, 2009. The reintroduced provisions for minimum tax are substantially identical to the provisions which were applicable at the time of withdrawal in 2008. Under Section 113 of the Ordinance the minimum tax is payable at the prescribed rate if no tax is payable for a tax year or the "tax payable or paid" for a tax year is less than 1% of the turnover of the prescribed person.
The manner in which sub-section (3) defines "turnover" excludes deemed income, gross fee for rendering of services, commission and gross receipts from execution of contacts, which are treated as deemed income liable to "final tax paid or payable" separately under the relevant provisions of the Ordinance.
The prescribed final tax "paid or payable" as applicable on receipts which are excluded for the purpose of minimum tax on the turnover should not be reckoned or included in the aggregate total tax "paid or payable" for the purposes of determination of minimum tax. However, it appears that for the purposes of clarifying any ambiguity, the Bill proposes to add explanation to sub-section (1) of Section 113 of the Ordinance whereby it is explained that the expression "tax payable or paid" does not include tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under Section 169 of the Ordinance or under any other provisions of the Ordinance.
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Seating capacity Amount of tax
(per seat per annum)
================================================
Four or more persons but
less than ten persons Rs 25
Ten or more persons but
less than twenty persons Rs 60
Twenty persons or more *Rs 100
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The Finance Minister in his budget speech and in the subsequent press conference has stated that the rate of minimum tax has been reduced from the existing 1% to 0.5%. The Bill, however, does not contain any such proposal to effectuate the amendment.
15. Treating additional payment on delayed refund as other income
Section 39
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Rate % Whether under final
Type of payment tax regime
Existing Proposed
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Collection of tax at imports
Value of goods inclusive of 5 No change Yes, subject to
customs duty and sales tax certain
exclusions
Profit on debt Other than a
company
a) Yield on a National Savings
10 No change Yes
Deposit Certificate including
a Defence Savings
Certificate under the
National Savings Scheme
b) Profit on a debt, being an 10 No change Yes
account or deposit
maintained with a banking
company or a financial
institution
c) Profit on any bond, 10 No change Yes
certificate, debenture,
security or instrument of
any kind (excluding loan
agreement between a
borrower and a banking
company or a development
finance institution) issued
by a banking company, a
financial institution,
company as defined in the
Companies Ordinance,
1984 and a body corporate
formed by or under any law
for the time being in force,
to any person other than a
financial institution
d) Profit on any security 10 No change Yes
issued by the Federal
Government, a Provincial
government or a local
authority to any person
other than a financial
institution
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Under Section 171 of the Ordinance, a tax payer is entitled to additional payment for delay in issue of refunds. Under the law, if a refund due to a tax payer is not settled within three months of its determination, the tax law presently provides for payment of compensation at the rate of KIBOR (now proposed to be replaced by fixed rate of 15%).
In the past taxation of the additional payment received by a tax payer has been the subject matter of debate as it was argued that such receipt is in the nature of damages for wrongful possession of assesses' property (i.e. refunds). It was therefore, argued that any such compensation for hold-up of refunds is a capital receipt not chargeable to tax, and several decisions of appellate forums are available in favour of this interpretation including cases of the Indian Supreme Court.
In order to bring this income clearly under the tax net, the Bill seeks to include additional payment for delayed refunds under any tax law as taxable income under the head income from other sources.
16. Revised return
Section 114
A taxpayer is entitled to revise his/her/its return of income provided the following two conditions are satisfied:
a) It is accompanied by revised accounts or revised audited accounts, as the case may be; and
b) The reasons for revision of return, in writing, duly signed, by the taxpayers are filed with the return.
The Bill proposes to introduce another condition for revising the return of income which is to the effect that, in respect of the revised return, the taxable income declared is not less than and loss declared is not more than income or loss, as the case may be, determined by an order issued under Sections 121(best judgement assessment), 122(amendment of assessments), 122A(revision by the Regional Commissioner), 122C(provisional assessment), 129(decision in appeal), 132(disposal of appeals by the Appellate Tribunal), 133(reference to High Court) or 221(rectification of mistakes).
The legislature has, however, allowed to revise the return if a taxpayer discovers any omission or wrong statement in the original return regardless of the fact that the revision entails any increase or decrease in the declared income or loss, as the case may be. The proposed amendment effectively restricts the revision since the correction of omission or wrong statement in the return may or may not result in a similar or higher amount of taxable income or loss as has been assessed under the aforementioned sections. Therefore, the proposed amendment seems to be harsh and unjustifiable as the tax payer is not allowed to revise his income downwards although he may have very justifiable reason for doing so.
=========================================================================================
Rate % Whether under final
Type of payment tax regime
Existing Proposed
=========================================================================================
Goods and services
a) Sale of rice, cotton seed or 1.5 No change Yes*
edible oils
b) Sale of cigarettes and 1 No change Yes*
pharmaceutical products by
distributors of such goods
c) Sale of any other goods 3.5 No change Yes*
d) For passenger transport 2 No change Mínimum
services
e) For other services 6 No change Mínimum
f) Execution of a contract 6 No Yes**
change
g) For news print media 0 No change No
services
CNG Station - Refer to 4 No change Yes
Section 234A
Exports
Export proceeds
Proceeds from sale of 1 of export No change Yes
goods to an exporter under proceeds
an inland back-to-back
letter of credit or any other
arrangement
Export of goods by an Yes
industrial undertaking locate
in an Export Processing Zon
Collection by collector of 1 No change Yes
customs at the time of
clearing of goods exported
Indenting commission 5 No change Yes
=========================================================================================
17. Extension of the period for issuance of notice
Section 120
In terms of sub-section(3) of Section 120 of the Ordinance, where a return of income furnished is not complete, the Commissioner is empowered to issue a notice to the taxpayer informing him of the deficiencies (other than incorrect amount of tax payable on taxable income, as specified in the return, or short payment of tax payable) and directing him to provide such information, particulars, statement or documents by such date specified in the notice.
Pursuant to sub-section(6) of Section 120 of the Ordinance such notice cannot be issued after the end of the financial year in which return was furnished. The Bill now seeks to extend the date for issuance of such notice by an additional period of 180 days.
18. Original or revised assessment has no legal consequence for best judgement assessment
Section 121
In terms of Section 121 of the Ordinance, the Commissioner may, based on any available information or material or to the best of his judgement, make an assessment of the taxable income of the person and the tax due thereon. Such best judgement assessment can be made under the specified conditions that the person has either failed to furnish a return or statement under the specified sections or fails to produce accounts, documents and records required to be maintained under Section 174 of the Ordinance.
For the purpose of best judgement assessment, the Bill proposes to provide that the assessment, if any, treated to have been made on the basis of original or revised return filed by the taxpayer shall be of no legal effect.
19. Rationalise the provisions of amendment of assessment
Section 122
Section 122 of the Ordinance empowers the Commissioner to amend the assessment order treated as issued or issued under Section 120 or Section 121. Now the Bill envisages to empower the Commissioner to amend the provisional assessment issued under Section 122(c) of the Ordinance.
The Bill also proposes to omit references to Sections 59, 59A, 62, 63 or 65 of the repealed Ordinance from sub-section (1) of Section 122 of the Ordinance due to efflux of time.
Sub-section (5A) of Section 122 of the Ordinance empowers the Commissioner to amend the assessment of a taxpayer, if he considers the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. The provisions of sub-section (5A)are to some extent analogous to Section 66A of the repealed Ordinance. In the repealed Section 66A, the Commissioner was empowered to make necessary enquiry as he deemed fit before issuing an order. However, such powers was not vested on the Commissioner under the existing sub-section (5A).
The Bill now proposes to empower the Commissioner to undertake such enquiries by amending the provisions of sub-section (5A) of Section 122 of the Ordinance.
20. Deducted versus deductible and collected versus collectible
Section 148(7) & (8), Section 151(3), 152(1B) & (1BB), Section 153(3), 154(4), 156(3), 156A(2), 169(1) and Section 233
The Bill seeks to substitute the word "deducted" with "deductible", the word "collected" with "collectible" and insert words "required to be" after the word "tax" in the above mentioned sections wherever the context so requires.
Under the above mentioned sections it is obligatory to deduct or collect tax while making payment and the tax so deducted generally constitutes the final tax of the recipients. The terms "deducted" or "collected" as used in the aforesaid sections mean actually deducted or collected which is legally not interchangeable with the terms "deductible" or "collectible".
In the situation when the tax was short deducted, it was legally arguable that the amount on which tax was not or short deducted would not be covered under the final tax regime. Accordingly, it appears that the legislature seems to have brought clarity in the concepts of collection or deduction of tax by replacing the words "deducted" and "collected" with the expressions "collectible" and "deductible".
This would therefore, mean that if an amount is liable to collection or deduction of tax, the same would still be subject to final tax, if any, even though the payer or the collector may have defaulted in deducting or collecting the tax.
21. Payments to non residents
Sections 152, 153 and 153A
The Bill seeks to introduce new sub-section (1AAA) in Section 152 of the Ordinance whereby payment to non-resident media person on account of relaying advertisement from outside Pakistan is subject to withholding tax. The tax so deducted is suggested to be a final discharge of tax liability. It would be recalled that the said provision is already available under Section 153A of the Ordinance which is now suggested to be substituted by the Bill so as to club it with withholding provisions relating to non residents covered under Section 152.
The prescribed person under Section 153 of the Ordinance while making payment to "a permanent establishment in Pakistan of a non-resident person" on account of :
a) sale of goods;
b) rendering of or providing of services;
c) execution of a contract, other than a contract of a sale of goods or the rendering of or providing of services.
is obliged to deduct tax in accordance with sub-section (1) of Section 153 of the Ordinance. The tax so deducted on payments to the permanent establishment except a manufacturer on account of sale of goods or on execution of a contract are treated as a final discharge of tax liability in terms of sub-section (3) of Section 153 of the Ordinance.
The Bill proposes to withdraw the expression "permanent establishment in Pakistan of a non-resident" from sub-section (1) and (3) of Section 153 of the Ordinance.
It appears that the Legislation intends to reintroduce the aforesaid provisions of Section 153 of the Ordinance in Section 152 of the Ordinance. However, the Bill does not propose any such amendment in Section 152 of the Ordinance. Whereas in Division II of Part III of the First Schedule to the Ordinance, which prescribes rates of tax deduction on payments to non-resident persons, the Bill suggests to insert Clauses (3), (4), (5) and (6). The suggested clauses refer to sub-section (1AAA) and sub-section (2A) of Section 152 of the Ordinance and prescribe the rates of deduction of tax at source which commensurate with the rates of tax deducted at source on payment to a permanent establishment of a non-resident on account of supply of goods, rendering of services and execution of a contract.
It is therefore, suggested that the proposed sub-section (2A) of Section 152 of the Ordinance should be appropriately drafted or the relevant provision be inserted so as to couch the aforesaid proposed amendments in Section 153, as well as in Section 152 of the Ordinance.
22. Commissioner's (Appeals) power to stay tax demand is curtailed
Section 128
Under the Ordinance there is no specific provision which empowers the Commissioner (Appeals) to grant stay with regard to recovery of tax demand. However, the Commissioner (Appeal) has inherent jurisdiction to allow stay of the impugned tax demand. The Honourable Courts in their various judgements have also confirmed that the Commissioner (Appeals)has inherent powers to grant interim relief in the form of stay depending upon the circumstances of each case. Accordingly, the Commissioners (Appeals)exercise these inherent powers and grant stay orders generally for the period till the matter is decided in the appeal.
Now the Bill seeks to introduce a new sub-section (1A) in Section 128 of the Ordinance whereby the Commissioner (Appeals) has been granted power to stay the recovery of impugned income tax demand for a period not exceeding 30 days in aggregate.
23. Decision of Commissioner (Appeals)
Section 129
In terms of sub-section (4) of Section 129 of the Ordinance, the limitation period for passing an appellate order by the Commissioner (Appeals) shall be no later than 4 months from the date of filing of appeal or within an extended period of 60 days for reasons to be recorded in writing by the Commissioner (Appeals). Under sub-section (5) of Section 129 of the Ordinance, in the event of failure on the part of the Commissioner (Appeals) to decide the appeal within the prescribed limit, the relief sought by the appellant in the appeal is treated as having been given and all the provisions of the Ordinance take effect accordingly.
The Bill now proposes to remove the concept of automatic relief to the appellant in the case of expiry of the limitation of time for passing of the appellate order. Accordingly, it is envisaged to omit sub-sections (5), (6) and (7) of Section 129 of the Ordinance.
24. Appointment as an accountant member of ATIR
Section 130
=================================================================
Type of payment Rate (%)
Existing Proposed
=================================================================
Dividends from:
- a company engaged in power 7.5 No change
generation project
- others 10 No change
Branch profit remittance tax (other 10 No change
than branch offices of E&P
companies)
Technical services fee 15 No change
Insurance premium / re-insurance 5 No change
premium
Advertisement services to a media 10 No change
person relaying from outside Pakistan
Royalty 15 No change
Shipping income 8 No change
Air transport income 3 No change
Profit on debt 20 No change
Profit on debt where non-resident does 10 *
not have a PE in Pakistan
Others (excluding those specifically 20 No change
mentioned herein)
Execution of a contract
- contract or sub-contract under a 6 No change
construction, assembly or
installation project in Pakistan,
including a contract for the supply
of supervisory activities in relation
to such project
- contract for construction or 6 No change
services rendered relating thereto
- a contract for advertisement 6 No change
services rendered by TV satellite
channels
=================================================================
The Bill envisages to reduce the minimum experience of Commissioner or Commissioner (Appeals) to become an accountant member of the ATIR from five to three years.
Presently, the accountant member becomes the chairperson of ATIR only in special circumstances. However, now the Bill seeks to make an amendment whereby the accountant member can also be appointed ordinarily as the chairperson of the ATIR.
25. Stay of demand by the Appellate Tribunal
Section 131
The Appellate Tribunal is empowered to grant stay of tax demand for an initial period of one month. However it can extend the period of stay upto a period of six month in aggregate.
The Bill proposes to replace sub-section (5) of Section 131 of the Ordinance and empowers the Appellate Tribunal to grant stay against recovery of tax demand for a period not exceeding 180 days. However, such period of 180 days shall exclude the period for which stay was granted by the Honourable High Court.
It appears that such an amendment would align the period of stay order of the Appellate Tribunal with that of the Honourable High Court.
26. Due date for payment of tax under provisional assessment
Section 137
Pursuant to Section 122C of the Ordinance, a provisional assessment is treated as a final assessment order after the expiry of 60 days from its issue unless a return of income alongwith other relevant documents are duly filed by the taxpayer. Accordingly, in terms of Section 137 of the Ordinance, the due date for payment of tax under the provisional assessment is 60 days from the date of service of the notice of the provisional assessment to the taxpayer.
The Bill seeks to insert a new proviso in sub-section (2) of Section 137 of the Ordinance whereby a taxpayer may pay the tax payable prior to the expiry of 60 days.
27. Appointment of authority
Section 211
The Bill seeks to insert new sub-section (3)in Section 211 of the Ordinance whereby an authority appointed under the Ordinance, shall be competent to exercise all powers conferred upon any authority subordinate to it.
===================================================================================
Rate % Whether under final
Type of payment tax regime
Existing Proposed
===================================================================================
Income from property
Annual rent of immovable At varying No Yes
property including rent of slab rates of change
furniture and fixtures and 5 to 10 for
amounts for services individual,
relating to such property AOPs and
company
Prizes and winnings
a) Amount of prize bond or 10 No Yes
cross-word puzzle change
b) Amount of raffle/ lottery 20 No Yes
winning or prize on change
winning a quiz, prize
offered by companies
for promotion of sales
Telephone users 10 of
amount No No
Telephone subscriber exceeding change
(other than mobile phone) Rs 1,000
Amount of bill of mobile 10 No No
telephone, sale price of change
prepaid telephone card or
sale of units through any
electric medium (for CD) or
whatever form
Banking Transactions
A threshold of the amount 0.2 of the No change No
exceeding Rs 50,000 amount with-
proposed from the present drawn
Rs 25,000
Commission or discount
allowed on sale of
petroleum products by a
petrol pump operator
Amount of commission or
discount 10 No change Yes
Commission income of
advertising agents
Amount of payment 5 No Yes
change
Commission income of
others
Amount of payment 10 No Yes
change
Collection of tax by a
stock exchange
Purchase of shares No No
1 of purchas change
value
Sale of shares 0.01 of sale No No
value change
Trading of shares 0.01 of No No
traded value change
Financing of COT 10 of the No No
COT charge change
===================================================================================
28. Threshold limit of cash withdrawals enhanced
Section 231A
Withdrawal of cash from a bank in a day exceeding Rs 25,000/- is subject to collection of tax at the prescribed rate of 0.2%. The Bill seeks to enhance such threshold of cash withdrawal from Rs 25,000/- to Rs 50,000/-.
29. Payments to traders and distributors
Section 153A
The Bill proposes to substitute Section 153A of the Ordinance whereby every manufacturer, at the time of sale to distributors, dealers and wholesalers, shall collect tax at the prescribed rate, from the aforesaid persons, to whom such sales have been made.
The tax collected under sub-section (1) shall be an advance and adjustable while computing the tax due by the person on the taxable income for the tax year in which the tax was collected.
30. Additional payment for delayed refunds
Section 171
The Commissioner Inland Revenue is required to pay compensation at the rate of KIBOR where refund due to a taxpayer is not settled within 3 months. The term KIBOR has been defined in Section 2(30AA) as the Karachi Interbank Offered Rate prevalent on the first day of each quarter of the financial year.
The Bill now seeks to replace the KIBOR with a fixed rate of 15%.
31. Audit by Chartered Accountants
Section 210,sub-section 1B and Section 177, sub-section (1)(c)
The Commissioner Inland Revenue is empowered to delegate his powers to a firm of Chartered Accountants or Cost and Management Accountants appointed by the Board or the Commissioner to conduct an audit of a person selected for audit under Section 177.
The said accountants may also, with the prior approval of the Commissioner, visit the business premises of a tax payer to obtain any information or record and examine it within such premises of the tax payer who has been selected for audit.
The Bill seeks to omit the term "selected for audit" from both these sections perhaps to avoid any controversy over the dispute that has arisen as a result of amendments introduced in section 177 and 214C of the Ordinance. These amendments were introduced through the Finance Act, 2010 after which several cases selected for audit by the Commissioners Inland Revenue have been challenged on the premise that the amendment introduced in Section 177 and corresponding insertion of Section 214C leave no powers with the Commissioner to select any case for tax audit as the powers to select a tax payer for audit are now vested with the Board in accordance with Section 214C.
32. Tax payer card
Section 181B
It is proposed to enable the Board to make a scheme for introduction of a tax payer honour card for individual tax payers who fulfil a minimum criteria provided in the scheme. The benefits if any, of having such a taxpayer card would be announced by the FBR through a scheme.
33. Offenses and penalties
Section 182
This Section provides various penalties for offenses committed by a tax payer for violating certain provisions of the Ordinance. However, it is provided in the section that before levying such penalties on a tax payer, the authorities must give opportunity of being heard to the concerned person.
It is now proposed to allow a tax payer who admits his default voluntarily to pay the penalty without the Commissioner having passed an order. It therefore means that where the tax payer agrees that he has committed an offense and is liable to penalty under the law, he can voluntarily pay the penalty without waiting for the tax authorities to show cause for the same before the levy of penalty.
========================================================================
Payment of Sales Tax
========================================================================
Description Through Amendment Previously
Rs Rs.
========================================================================
Steel-melter, 8 / unit of electricity 6 / unit of
Steel re-rolller consumed for the electricity
and composite production of steel consumed for the
unit of steel billets, ingots and mild production of steel
melting and re- steel products billets, ingots and
rolling (having a mild steel products
single electricity
meter)
Ship-breakers 6,700 per metric ton of 4,848 per metric
re-rollable scrap ton of re-rolling
scrap
Pakistan Steel 16% of sales tax on 16% of sales tax
Mills, Heavy supplies on supplies
Mechanical
Complex,
People Steel
Mill
Steel-melters Sales tax payable = Sales tax payable
operating on HM3 (or hundred cubic = HM3 (or hundred
self-generation meter) x Rs 1,900 less cubic meter) x Rs.
basis sales tax paid on gas 1,392 less sales
bill tax paid on gas bill
Re-rollers Sales tax payable = Sales tax payable
operating on mill size (in inches) x = mill size (in
self-generation Rs. 51,822 inches) x Rs.
basis 38,964
========================================================================
34. Default surcharge
Section 205, sub-section 1, 1A, 1B & 3
The rate of additional tax, for failure to pay any tax or advance tax by the due date or payment of atleast 90% of the advance tax liability, is presently KIBOR + 3% per quarter.
The Bill now proposes to fix the rate of default surcharge at 18% per annum.
In case of non-payment of tax, if the tax demanded is not paid by the due date, it attracts default surcharge. It is now proposed that if a tax payer opts to pay the tax due in consequence of the order of the Commissioner (Appeals) and does not file an appeal before the Appellate Tribunal, he would not be required to pay default surcharge from the day the tax was due on the basis of the original order till the day the notice for recovery of tax, under Section 137(2) in consequence of the order of the Commissioner (Appeals), is passed.
A similar option of waiver of default surcharge is available where a person has defaulted in withholding tax. If the appeal is decided by the Commissioner (Appeals) in favour of the department, the tax payer can pay the tax and he can avail waiver of further default surcharge if he does not file an appeal before the Appellate Tribunal.
35. Income Tax Authorities
Sections 207 & 211
Certain amendments have been proposed in these sections to clearly lay down the sequential authority of superior and subordinate taxation authorities.
================================================================
Nature of change Procedure
================================================================
Transfer of individual Change to be made by Local
business from any Registration Office (LRO) on receipt
person to his spouses of verification of documents from the
or children Regional Tax Office (RTO).
From individual to AOP Change to be made by Local
Registration Office (LRO) on receipt
of verification of documents from the
Regional Tax Office (RTO).
From AOP to corporate Change to be made upon receipt of
entity verification from RTO or Large
Taxpayers Unit (LTU), however,
change shall only be allowed in cases
where the same persons who are
member of the AOP are nominated
as directors in the corporate entity.
Transfer of business or A new sales tax registration number
change in nature on (STRN) shall be issued to the entity.
any other account
================================================================
36. Powers of Board to grant condonation of time limit
Section 214A
Through the Finance Act, 2009, this section was introduced. However, it was not very clear whether the condonation of time limit for doing such act or thing to be done within such time or period was for both the tax payer as well as the subordinate authorities of the Board.
The Bill now seeks to insert an explanation whereby it would be clarified that "any act or thing is to be done" includes any such act or thing either to be done on the part of the tax payer or the tax authorities specified in Section 207.
37. Directorate General (Intelligence and Investigation) Inland Revenue
Section 230
A new authority viz. the Directorate General (Intelligence and Investigation) Inland Revenue is sought to be created under the Ordinance in line with similar authorities already created and functioning under the Sales tax, Federal Excise and Custom laws. The functions and jurisdiction of the Directorate and powers of the authorities shall be delegated by the Board through notification in the official Gazette.
THE FIRST SCHEDULE
38. Rates of tax for individuals and Association of Persons
The basic threshold for charge of income tax for salaried and non-salaried taxpayers is proposed to be raised from the existing Rs.350,000/- to Rs.400,000/-. Moreover, the number of slabs, in the case of salaried taxpayers, have been reduced from the existing 17 to 5 and accordingly, the rates of tax chargeable for the tax year 2013 (corresponding to the income year ending at any time between 01 July 2012 to 30 June 2013) have been proposed as under:
39. Association of Persons
Associations of persons for the tax year 2013 are proposed to be taxed as per the rate card of the non-salaried taxpayer. Their taxable income is presently taxed at a flat rate of 25%.
40. Marginal relief
Since the slab rates of tax are now progressive, the marginal relief provision has become redundant and needs to be deleted.
41. Tax year
"Tax Year" means a period of twelve months ending on 30 June and corresponds to the period to which the income of the taxpayer relates.
42. Salaried taxpayer
"Salaried taxpayer" is a person having salary income in excess of 50% of his/her taxable income.
43. Reduction in tax liability
A senior citizen of Pakistan, being a taxpayer, aged sixty years or more on the first day of the relevant tax year, is allowed a rebate of 50% of the tax payable if his/her taxable income in that tax year is Rs.1,000,000/- or less. The said rebate continues and the rule, that in determining the threshold as above, income under final tax regime shall be excluded, also remains unchanged.
The provision to reduce the income tax liability of a full time teacher or a researcher employed in a non-profit educational or research institution duly recognised by a Board of Education or a University or the Higher Education Commission and to a teacher and researcher of Government training and research institution also continues to be available. The tax liability in such cases is reduced by an amount equal to 75% of the tax payable on his / her income from salary.
44. Impact of change in tax rate for tax year 2013
45. Rate of tax on retailers
The rate of tax applicable for the tax year 2013 on a retailer is proposed to be reduced from the present 1% to 0.50% of the turnover, in case his declared turnover is Rs.5 million or less.
46. Rates of tax for companies
a) For public, private and banking companies, the rate of tax remains unchanged at 35% for tax year 2013.
b) A co-operative and finance society is taxed at the income tax rate applicable to a company.
c) The rate of tax for a "small company" remains at 25% for the tax year 2013.
47. Rate of tax on dividend income
The rate of tax on dividend received by all taxpayers continues at 10% and the rate of tax on the dividend received by a banking company from its asset management company, continues at 20%.
48. Rates of tax on capital gains on securities
The rates of tax on capital gains arising on sale of securities as referred to in Section 37A of the Ordinance are as under:
If the holding period of a security is twelve months or more, the rate applicable shall be 0%.
-- Normal tax rate shall apply.
49. Rate of tax on capital gain on immoveable property
The rate of capital gain on immovable property shall be as under:
50. Collection of tax from distributors, dealers and wholesalers
The rate of tax to be collected from distributors, dealers and wholesalers are being proposed at 1% of the gross amount of sales for the tax year 2013.
51. Income from property
The rates of tax to be paid in respect of income from property for the tax year 2013 (corresponding to the income year ending at any time between 01 July 2012 to 30 June 2013) have remained unchanged and are as under:
i) Individuals and Association of Persons
52. Advance income tax on private motor vehicles
Advance income tax payable at the time of paying annual motor vehicle tax, in the case of private motor vehicles, continues as under:
=================================================
Tax year Holding period of security
=================================================
Less than six More than six month but
month less than 12 months
% %
=================================================
2011 10 8
2012 10 8
2013 12.5 8.5
2014 15.0 9.0
2015 17.5 9.0
=================================================
53. Advance tax on registration of private motor vehicles
The collection of advance tax by manufacturers or authorised dealers of motor vehicles continues and the applicable rates are as follows:
54. Advance tax on goods transport vehicles
The slab rate card of collection of advance tax at one rupee per kilo gram of the laden weight is being enhanced to five rupee for tax year 2013.
For goods transport vehicle with laden weight of 8,120 kilo gram or more, advance tax after a period of 10 years from the date of first registration in Pakistan would continue to be collected at Rs. 1,200/- per annum.
55. Advance tax on passenger transport vehicles
The collection of advance tax from passenger transport vehicles plying for hire is as under:
-- Proposed to be increased to Rs.500
56. Advance tax on electricity consumption
The rate of collection of advance tax on electricity consumption continues at 5% for industrial consumers and at 10% for commercial consumers on electricity bill exceeding Rs.20,000/-.
57. Advance tax on purchase of air tickets
The rate of collection of tax at the rate of 5% of the gross amount of domestic air ticket continues to be leviable.
58. Advance tax at the time of sale by auction or auction by a tender
The rate of collection of tax by a person making sale by public auction of any property or goods to which Section 236A applies continues to be 5% of the gross sale price of such property or goods.
59. Withholding tax rates
60. Rates of tax for non-resident taxpayers
The Bill proposes rate of tax to be deducted under (2A)(a), (2A)(b) and (2A)(c) of Section 152, however, amendment proposed in Section 152 (2A) seems to have left out (a), (b) and (c). It, however, seems that there is no change in the rate of tax and the proposed amendment is a consequence of consolidating provisions relating to the non-resident.
=================================================================
Rescinded SROs Description
=================================================================
555(I)/1996 Adjudication powers of Sales Tax Officers.
849(I)/1997 Exemption from sales tax to imported
industrial raw material and other goods, if
imported directly by the manufacturers
who are liable to pay turnover tax or are
engaged in manufacture of the goods
other than taxable goods.
103(I)/2005 Fixation of value of Potassic Fertilisers for
sales tax at Rs.4,610/- per metric ton.
15(I)/2006 Fixation of value of locally produced
nitrogenous fertiliser, Calcium Ammonium
Nitrate (CAN) for sales tax at Rs.3,765/-
per metric ton.
644(I)/2007 Levy of sales tax at higher rate 22% and
19.5% of value of goods on import and
supply of certain goods.
=================================================================
The applicable withholding tax for tax year 2013 on certain payments to non-residents is as under:
The taxes withheld in all of the above cases except "Others" and profit on debt would generally constitute full and final settlement of the non-resident's tax liability in Pakistan in respect of such income.
* Tax deducted at 10 percent from profit on debt from debt instruments, government securities including treasury bills and Pakistan Investment Bonds where the investments are exclusively made through a special Rupee Convertible Bank Account maintained with a bank in Pakistan by a non-resident having no PE in Pakistan shall be a final tax.
A non-resident contractor earning income from "execution of contract" can opt to be taxed under the final tax regime, which means that the taxes withheld would be construed as its full and final settlement of tax liability. The option must be exercised within three months of the commencement of the tax year and shall remain irrevocable for three years. In case the option has not been exercised by the non-resident person, the taxable income shall be assessed on the basis of his net business profits and the taxes withheld would be treated as advance tax adjustable against his eventual tax liability.
THE SECOND SCHEDULE
PART-I
61. Income payment plan out of accumulated balance of pension account
Clause (23B)
A new clause is proposed to be inserted which seeks to exempt the receipt of monthly instalments from an income payment plan invested for a period of ten years out of the accumulated balance of an individual pension account with a:
-- pension fund manager; or
-- an approved accounting plan; or
-- another pension account of eligible persons; or
-- the survivors pensions account maintained with any other pension fund manager;
as specified in the Voluntary Pension System Rules, 2005.
The exemption is conditioned upon fulfilment of all the conditions mentioned above and any contraventions coming to light subsequently would result in withdrawal of the exemptions already allowed. The Commissioner in such cases has been empowered to re-compute the tax payable of the relevant years, notwithstanding anything contained in the Ordinance, where the exemption was originally allowed.
62. Withdrawal of accumulated balance
from approved pension fund
Clause (23C)
By the insertion of a new clause the Bill proposes that any withdrawal of accumulated balance from approved pension fund that represents the transfer of balance of approved provident fund to the said approved pension fund under the Voluntary Pension System Rules, 2005 would be exempt from tax.
63. Exemption of donations paid to approved institutes, foundations, societies, boards trusts and funds
Clause (61)
The above clause contains specified names of approved donees, to whom donation made is exempt from tax. The name of "The Citizens Foundation" has been proposed for addition to the said list.
64. Exemptions to The Citizens Foundation
Clause (66)
The Bill proposes to grant exemption to the income of "The Citizens Foundation" by insertion of its name in the list of institutions and entities whose income is exempt from tax.
65. Venture Capital Company and
Venture Capital Fund
Clause (101)
Profits and gains derived by a venture capital company and venture capital fund presently enjoy exemption from tax upto 30 June 2014. The Bill proposes to extend the exemption to profits and gains derived by such company and fund upto 30 June 2024.
PART-II
66. Reduced rate of collection of tax on imports
Clause (9A)
Under the above clause imports made by an industrial undertaking is subject to tax at a reduced rate of 3 percent as opposed to the general rate of 5 percent. A proviso is proposed to be added which makes application of such reduced rate conditioned upon issuance of a certificate from the concerned Commissioner of the status of the tax payer as industrial undertaking.
PART-IV
67. Withholding of tax from inter-corporate dividend
Clause (11B)
It would be recalled that the exemption from tax to inter-corporate dividend paid within the group companies entitled to group taxation under Section 59AA and group relief under Section 59B is provided under Clause (103B) of Part I to the Second Schedule by virtue of Finance Act, 2010.
However, the corresponding exemption from withholding tax provisions was not available resulting in withholding of tax on inter-corporate dividend causing hardship to the taxpayers. In order to address the above, a new clause is proposed to be inserted which seeks to grant an exemption from deduction of tax from the payment of inter-corporate dividend within the group companies entitled to group taxation under Section 59AA or Section 59B of the Ordinance.
68. Withholding of tax from inter-corporate profit on debt
Clause (11C)
Through the insertion of a new clause, the Bill seeks to grant exemption from withholding of tax from payment of inter-corporate profit on debt within the group companies entitled to group taxation under Section 59AA or group relief under Section 59B of the Ordinance.
However, the exemption relating to inter-corporate profit on debt is not provided. This seems to be an omission as the intention of the legislature is to grant exemption from charge of tax to inter-corporate profit on debt on the same lines as available to inter-corporate dividend.
69. Option to opt out of final tax regime (FTR)
The concept of FTR which was introduced in 1990 as a stop-gap arrangement, continues unabated since its introduction despite being considered by all concerned quarters to be a major hurdle in increasing documentation of the economy and achieving sustainable tax to GDP ratio. It seems that an attempt, although half-hearted, is being made to gradually do away with FTR. Accordingly, the Bill proposes the following three clauses as a step towards taxation of income under normal tax regime.
Clause (41A)
Sub-section (7) of Section 148 read with clause (a) of sub-section (1) of Section 169 provides that the tax collected at import stage, in certain cases, shall be the final tax.
The new clause seeks to provide an option to a person to opt out of the FTR provided the minimum tax liability under normal tax regime is not less than 60% of tax already collected at import stage.
Clause (41AA)
Sub-section (4) of Section 154 read with clause (b) of sub-section (1) of Section 169 provides that tax collected at the time of realisation of foreign exchange proceeds on account of export of goods by an exporter shall be the final tax.
The new clause seeks to provide an option to a person to opt out of the FTR provided the minimum tax liability under normal tax regime is not less than 50% of the tax already deducted.
Clause (41AAA)
Clause (a) of sub-section (1) of Section 153 read with clause (b) of sub-section (1) of Section 169 provides that tax deducted from payments in respect of sale of goods, in certain cases, shall be the final tax.
The new clause seeks to provide an option to a person to opt out of the FTR provided the minimum tax liability under normal tax regime is not less than 70% of the tax already deducted.
The taxpayers may not opt for exercising the above options since they would be inclined not to follow the hassle of assessment under NTR which otherwise may also result in enhancing their ultimate tax liabilities.
70. Exemption from withholding of tax to certain institutions
Clause (47B)
The existing clause provides exemption from the application of Section 150, 151 and 233 of the Ordinance in respect of payments received by National Investment Unit Trust, collective investment scheme, modaraba, approved pension fund and other such like institutions and funds. The exemption is being extended to capital gain tax now leviable under the Ordinance.
=============================================================
Sections Directorates Role
General
=============================================================
3AA Transit Trade Exclusive clearances and
monitoring of the transit
cargo
3BB Reform and Automation and reforms of
Automation Pakistan Customs
3BBB Risk Management of the risks
Management appropriately
3CC Intellectual Enforcement of intellectual
Property Rights property rights at the borders
Enforcement and ports of the country
=============================================================
71. Tax at import stage on goods temporarily imported
Clause (56)(iii)
Under the existing clause no tax is to be collected at import stage on goods temporarily imported for subsequent re-exportation and which are exempt from customs duty and sales tax under Notification No.SRO 1065(I)/2005 dated 20 October 2005. The said Customs SRO was rescinded vide SRO No.492(I) /2009 dated 13 June 2009 while its reference in the clause remained unchanged. To rectify the anomalous situation, the Bill seeks to substitute the mention of SRO 1065(I)/2005 dated 20 October 2005 with SRO 492(I)/2009 of 13 June 2009.
THE THIRD SCHEDULE
72. The rate of initial allowance under Section 23 of the Ordinance is 50 percent.
The Bill proposes that such initial allowance shall continue to be 50 percent for plant and machinery only, while for buildings it is proposed to be reduced to 25%.
THE FOURTH SCHEDULE
Rule (6B)
73. The Bill proposes to substitute the rate card for taxing gain on disposal of shares of listed companies, vouchers of Pakistan Telecommunication Corporation, modaraba certificates or instruments of redeemable and derivative products, as under:
THE FIFTH SCHEDULE
74. Rate for payment to Government for E&P Companies
Sub-Rule (4A), Rule 4 of Part I
The petroleum exploration and production (E&P) companies carry on their business in Pakistan under the Petroleum Concession Agreements (PCAs) signed with the Federal Government. Due to change in interpretation by the FBR officials on the PCAs inter alia the rate at which the E&P companies are required to make payment to the Federal Government, tax disputes have arisen between E&P companies and the FBR.
================================================================
New
SRO of SRO Amended Impact
2012
================================================================
590 1020(I)/2006 Withdrawal of commercial
dated 02 October importers from the categories
2006 of persons on whom the
minimum value addition sales
tax on supply of computer
hardware and parts is
prescribed.
591 811(I)/2009 dated Withdrawal of zero-rating on
19 September import and supply of
2009 polyethylene and
polypropylene for
manufacturing of mono
filament yarn and net cloth
subject to certain conditions.
The same would now be
exempt from sales tax,
resulting in non-adjustment of
input tax.
593 1125(I)/2011 Scope of zero-rating is
dated 31 restricted on textiles and
December 2011 articles thereof excluding
monofilament of more than 67
decitex.
595 551(I)/2008 dated Withdrawal of sales tax
11 June 2008 exemption on raw materials,
granting sales tax sub-components and
exemptions components if imported for the
manufacturing of goods to be
supplied against international
tenders.
Sales tax exemption has been
granted to waste paper.
Moreover remeltable scrap,
sprinkler and drip equipment,
spray pumps and nozzles
have also been granted
exemption in lieu of withdrawal
of zero rating of the same.
This would mean that input tax
adjustment would no longer be
available against supply of
these goods.
596 308(I)/2008 dated Rates for repayment of sales
24 March 2008 tax on steel products exported
from Pakistan have been
increased.
597 345(I)/2010 dated Rates fixed for minimum value
24 May 2010 of locally produced billets and
ingots supplied by registered
persons opting to pay sales
tax on ad valorem basis have
been increased.
602 549(I)/2008 dated Withdrawal of zero-rating on
11 June 2008 remeltable scrap (PCT
granting sales tax heading 72.04), sprinkler and
zero rating drip equipment, spray pumps
and nozzles.
Zero-rating has been granted
on cotton seed oil if supplied
to registered manufacturers of
vegetable ghee and cooking
oil.
604 313(I)/2006 dated Rate of sales tax has been
31 March 2006 reduced from 7% to 6% on the
value of import of soyabean
seed by solvent extraction
industries.
605 69(I)/2006 dated Rate of sales tax has been
28 January 2006 reduced from 15% to 14% on
the value of import of
rapeseed, sunflower seed and
canola seed by solvent
extraction industries.
================================================================
The PCAs provide a minimum rate of payment to Federal government of 50% and a maximum rate of 521/2% to 55%. Royalty (calculated @12.5% of the well head value of production) is not allowed as an expense but is treated as part of payment to the Federal Government. The FBR officials however, applied the maximum rate of 521/2% and 55% depending on the respective PCA and created tax demands.
In order to amicably resolve the disputed issues, Pakistan Petroleum Production and Exploration Companies Association (PPEPCA) entered into a Memorandum of Understanding (MoU) with the FBR in March 2010. However, the MoU could not be implemented as the FBR through its letter dated 25 May 2010 rescinded the MoU. The E&P companies challenged the FBR's decision of not implementing the MoU in Writ Petitions before the Hon'ble Islamabad High Court which are pending todate.
In the mean time the Appellate Tribunal Inland Revenue which constituted a larger bench to decide the impugned issues including the rate issue, vide its order dated 13 June 2011 decided the impugned issues while agreeing with the interpretation placed by the FBR officials. The FBR recently initiated recovery proceedings and managed to recover a substantial amount of outstanding tax demands from the E&P companies.
The Bill now seeks to offer an option to the E&P companies to pay tax @40% of the profits and gains after taking into account Royalty as a deductible expense. However, this option is subject to the condition that the E&P companies will withdraw their pending appeals, pending references and pending petitions before the appellate fora, and payment of the entire outstanding tax demands created upto the tax year 2011 by 30 June 2012.
THE SEVENTH SCHEDULE
75. Amendments in taxation of banking companies
Rule 6
Through an amendment introduced in Rule 6 of the Seventh Schedule vide the Finance Act, 2011 dividends received by a bank from its asset management company are subjected to tax at 20% instead of the general rate of 10%.
The Bill now seeks to propose that dividends received by banks from money market funds and income funds shall be taxed at the rate of 25% for the tax year 2013 (income year ending 31 December 2012). For the tax year 2014 and onwards, the rate is proposed to be equated with the current tax rate applicable to general banking income which is 35%.
Sub-Rule (1A) of Rule 1
Banks are obliged to pay advance tax in terms of rule 5(1) of the Seventh Schedule in 12 equal monthly instalments from January to December of the relevant tax year and the payment is required to be made by 15th of each month. For the purpose of payment of advance tax, the provisions of section 147 of the Ordinance are applicable mutatis mutandis.
The Federal Board of Revenue (FBR) through SRO 561(1)/2012 dated 24 May 2012 has amended Rule 5 of the Seventh Schedule which after amendment now requires a banking company to make payment of advance tax on the basis of its estimate of the tax payable for the relevant tax year before the instalment payable on 15 June becomes due.
In case the tax payable is likely to be more than the amount the bank is required to pay under sub-rule (1), an estimate has to be submitted to the Commissioner Inland Revenue of the amount of tax payable and thereafter pay on 15 June the difference, if any, of fifty percent of such estimate and advance tax so far paid upto 15 June during the tax year. The remaining fifty percent of the estimate is then required to be paid in six equal instalments payable by 15th of each succeeding month of the relevant tax year.
==============================================================
No. Officer Existing powers Proposed powers
==============================================================
1 Collector - without limit
2 Additional without limit not exceeding three
Collector million rupees
3 Deputy not exceeding not exceeding one
Collector eight hundred million rupees.
thousand rupees
4 Assistant not exceeding not exceeding five
Collector three hundred hundred thousand
thousand rupees rupees.
5 Superintendent - not exceeding fifty
thousand rupees.
6 Principal - not exceeding fifty
Appraiser thousand rupees.
==============================================================
It follows that the banks are now required to furnish to the Commissioner their estimate of tax payable for the tax year 2013 by 15 June 2012 and make payment of 50% of the estimate amount (less the payments already made) by 15 June 2012. The balance 50% of the liability would be paid in the months of July to December 2012 on 15th of each month.
======================================================
Sr. Sub components/ Heading/sub-
No. components heading Nos
======================================================
29 Filter Drier 8421.3910
33 Motor 8501.1000
34 Resistor 8533.2100
35 Thermister 8533.3100
37 Relay 8536.4100
======================================================
SALES TAX
1. Assessment of tax and recovery of tax not levied or short-levied or erroneously refunded
Section 11
======================================================
Sr. Sub components/ Heading/sub-
No. components heading Nos
======================================================
3 Main mounted circuit board. 8516.9000
4 Cover top. 8516.9000
5 Door assembly. 8516.9000
6 Display with mounted circuit 8516.9000
board.
7 High voltage block assembly. 8516.9000
8 Accessories. 8516.9000
9 Main chassis and frame with 8516.9000
motor.
11 Magnetron. 8540.7100
12 Mechanical Timer 9106.9000
======================================================
Under the Sales Tax Act, 1990 (the Act) separate sections are provided for "Assessment of Tax" and "Recovery of tax not levied or short-levied or erroneously refunded" under sections 11 and 36 respectively. It is now proposed to consolidate the provisions of these sections under revised section 11 titled "Assessment of Tax and recovery of tax not levied or short-levied or erroneously refunded". Section 36 is proposed to be deleted.
======================================================
Sr. Sub components/ Heading/sub-
No. components heading Nos
======================================================
4 Remote control 8529.9010
======================================================
There are no major changes in the revised consolidated section 11 except for the following:
-- The time limit prescribed for recovery of tax on account of inadvertence, error or misconstruction was within 3 years of the relevant date, this will now be enhanced to five years.
-- An order is required to be passed within 120 days of the issuance of the show-cause notice which can be extended by the Commissioner for further 60 days. The Commissioner will now have powers to grant extension for passing an order for a period of upto 90 days.
In this connection SRO 555(I)/1996 dated 01 July 1996 specified various grades of Officers who could carry out assessment or effect recovery under sections 11 and 36. This SRO has now been rescinded and therefore it implies that any Officer of Inland Revenue can carry out an assessment and conduct recovery proceedings.
2.Supplies against International Tender
Fifth & Sixth Schedules
The Fifth Schedule lists goods that are zero rated and includes therein "Supplies against international tenders". It is proposed to delete this item from the Fifth Schedule and include the same in Table II of the Sixth Schedule. As a result supplies against international tender will now be an exempt supply instead of being zero rated. The impact of the above is that whilst sales tax will not be imposed on supplies against international tender as before, however, input tax on such supplies will no longer be available.
In addition to the above, SRO 551(I)/2008 dated 11 June 2008 provided for exemption from sales tax on raw materials, sub-components and components if imported for manufacturing of goods to be supplied against international tender. This exemption has now been withdrawn and such goods will now be taxable at the import stage effective 02 June 2012.
In this connection, Rules 50A, 50B and 50C of Chapter VIIA to Sales Tax Rules, 2006 laid down procedures and conditions for making zero rated supplies against international tenders. These Rules have been revised to take cognisance of the change from zero-rating to exempt status of supplies against international tender.
3.Higher sales tax rates abolished
SRO 644(I)/2007 dated 27 June 2007
Under the above SRO, higher sales tax rate were provided for in respect of goods listed therein. These were as follows:
-- 22% for certain types of chemicals, papers and paperboard, glass, plastics and polymers pig iron, ferro-alloys and refined lead, aluminium, asbestos, etc.
-- 19.5% for flat rolled products of iron or non-alloy steel, stainless steel and other alloy steel, etc.
This SRO has been rescinded and therefore standard rate of 16% would be applicable on the above mentioned goods which were previously subjected to the higher rate of sales tax. This change is effective from 02 June 2012.
In this connection, it is relevant to take into account the impact of section 8B of the Act which restricts the claim of input tax during a tax period to 90% of the output tax. However, certain persons are excluded from this restriction and included therein are manufacturers consuming raw materials chargeable to sales tax at the higher rates through SRO 647(I)/2007 dated 27 June 2007. Since the higher rates of sales tax are no longer applicable, it follows that the waiver of the restriction on claim of input tax is no longer available. Hence such manufacturers would now have to restrict the claim of input tax during a tax period to 90% of output tax.
4. Amendments in Sales Tax Rules, 2006
SRO 589(I)/2012
Amendments have been made in the Sales Tax Rules, 2006 with effect from 02 June 2012. Amendments in Rules not covered elsewhere are as follows:
Rule 5 - Application for registration
As per the proviso to clause (c) of Rule 5 of the Sales Tax Rules, 2006, corporate persons were granted the option to apply for transfer of registration to the Collectorate having jurisdiction where the place of business is located.
Through the amendment introduced, the Board is now empowered to also transfer the registration of any registered person or any business of a registered person to an area of jurisdiction where the place of business or registered office or manufacturing units are located. Effectively the Board now has the power to determine the jurisdiction of the registered person.
======================================================
Sr. No. Sub components/ Heading/sub-
components heading Nos
======================================================
4 Accessories. 8522.9000
5 Braket. 8522.9000
6 Rear cover assy. 8522.9000
7 Main frame or chassis with top 8522.9000
cover.
8 Nobs and buttons. 8522.9000
9 Front panel assy with mounted 8522.9000
circuit board.
10 Mechanism assy with motor 8522.9000
and head.
======================================================
Rule 7 - Change in the particulars of registration
Rule 7 of the Sales Tax Rules, 2006 outlined the specific procedures for change in the particulars of registration on the basis of name, address, business category (i.e. manufacturer, importer etc.) or other particulars.
Through the amendment, specific procedures have now also been outlined in case of change in nature of business (i.e. from individual to AOP or corporate person). This is summarised as follows:
=======================================================
HS Code Description Rate of
duty
=======================================================
3215.1190 Black Ink 10%
3215.1990 Colour Ink 10%
3701.3020 CTP Plates 5%
4802.5700 Fully sensitized cheque 10%
paper weighing 40
g/m2 or more but not
more than 150 g/ m2
9612.1010 Red bleed through 10%
ribbons for dot matrix
printers
3215.1990 Anti-forgery security 10%
printing ink
=======================================================
Rule 12 - Blacklisting and suspension of registration
Previously rule 12 of the Sales Tax Rules, 2006 highlighted the procedure of blacklisting and suspension of registration where the tax authority had reasons to believe that a registered person had committed tax fraud or evaded tax or had failed to deposit the tax due on its supplies despite having recovered it from the respective buyers / recipients of such supplies. Moreover, during such period suspension / blacklisting of registration, the invoices issued by such registered persons were not available for input tax credit or refund.
Through the amendment, the entire procedure as laid down in rule 12 has now been substituted. Resultantly, it is now stipulated that where the Commissioner or Board have reasons to believe that the registered person is to be suspended or blacklisted, the procedure as prescribed by the Board shall be followed. In this regard, no procedures have yet been prescribed by the Board, although it is quite likely that the same may be prescribed in the near future.
5.Amendments made in Sales Tax Special Procedures Rules, 2007 SRO 592(I)/2012
The following amendments have been made in the Sales Tax Special Procedures Rules, 2007 with effect from 02 June 2012.
Rule 58E - Special procedures for payment of sales tax by importers - Filing of return and audit
Previously, commercial importers who did not claim any refund of excess input tax were excluded from audit except with the permission of the Board.
======================================================
Sr. Sub components/ Heading/sub-
No. components heading Nos
======================================================
4 Accessories. 8522.9000
5 Braket. 8522.9000
6 Rear cover assy. 8522.9000
7 Remote control. 8522.9000
8 Main frame or chassis with top 8522.9000
cover.
9 Nobs and buttons. 8522.9000
10 Front panel assy with mounted 8522.9000
circuit board.
11 Mechanism assy with motor 8522.9000
and head.
======================================================
This exclusion has now been withdrawn, thereby commercial importers whether or not claiming any refund of excess input tax can now be subject to audit.
Rule 58F to Rule 58MB - Special procedure for payment of sales tax by steel melters, re-rollers and ship breakers
Chapter XI of the Sales Tax Special Procedure Rules, 2007 outlined specific procedures for payment of sales tax by steel melters, re-rollers and ship breakers. Such special procedures have been amended through various notifications from time to time. In order to streamline the special procedures, Rules 58F to 58MB of the Sales Tax Special Procedure Rules, 2007 have now been substituted. By and large there are no significant changes except for an upward revision of rates of sales tax along with certain conditions.
The following chart provides details for payment of sales tax:
The sales tax amount to be charged at the time of issuance of sales tax invoices by steel-melters, re-rollers, importers, etc. to various categories of customers has been prescribed through the new amendment.
A new rule 58MC is further added to Chapter XI of the Sales Tax Special Procedure Rules, 2007. Under this the composite units of steel melters and re-rollers who also supply stainless steel products or products other than billets, ingots and re-rolled mild steel products are required to follow standard sales tax procedure i.e. charge sales tax at the rate of 16% instead of fixed tax.
6.Sales tax on fertilisers
SRO 103(I)/2005 and 15(I)/2006
Under the above SROs, sales tax on Potassic fertilisers was fixed at Rs.4,610 per metric ton at import and local supply stages and supply of locally produce Nitrogenous fertiliser, Calcium Ammonium Nitro was fixed at Rs.3,765 per metric ton. Both the above SROs have now been rescinded which would imply that sales tax on the above mentioned fertilisers would be taxable at the standard rate of 16%.
7.Input tax claim of wholesalers restricted
SRO 564(I)/2012
Section 8B of the Act restricts the input tax claim during a tax period to 90% of the output tax. However, through SRO 647(I)/2007 certain persons are exempted from this requirement of restricting their input tax claim. Such persons included distributors and wholesalers, however, wholesalers have now been removed by SRO 564(I)/2012. This would mean that the input tax claim by wholesalers would be restricted to 90% of the output tax during the tax period. Distributors are however not affected by this change.
======================================================
Sr. No. Sub components/ Heading/sub-
components heading Nos
======================================================
3 MPEG card. 8522.9000
4 Metal case. 8522.9000
5 Loader. 8522.9000
6 Panel with PCB & Card. 8522.9000
7 Power board. 8522.9000
8 Remote control. 8522.9000
======================================================
8.Sales tax SROs amended - effective 02 June 2012
9.Rescinding Notifications
SRO 594(I)/2012
Following notifications have been rescinded effective from 02 June 2012:
CUSTOMS
1. Definition
Section 2, sub-section (5)
Section 2 of the Customs Act, 1969, provides definitions of various terms used in the law. Its sub-section (s) defines the term 'smuggle' as bringing into or taking out of Pakistan goods, in breach of any prohibition or restriction for the time being in force, or evading payment of customs-duties or taxes leviable thereon.
The bill seeks to widen the scope of the definition of 'smuggle' by including the phrase "en route Pilferage of transit goods" in it. The change has been proposed in order to restrict pilferage of transit goods.
2. Introduction of New Directorates General
Section 3AA, 3BB, 3BBB & 3CC
The bill seeks to add four new Sections 3AA, 3BB, 3BBB and 3CC, to establish the following Directorates General:
Establishment of above formations has been justified to achieve better enforcement of laws and regulations; though creation of Directorate General of Intellectual Property Rights Enforcement seems to be a step to appease the international community, especially the MNCs, which have been requiring Pakistan to put in place effective measures to restrain breach of intellectual property rights.
3. Pakistan Customs Tariff
Section 18E
The bill seeks to add a new Section, 18E, to empower the Board to make necessary changes in Pakistan Customs Tariff for statistical clarity. Previously, if the need arose, the Schedule was amended through the Finance Act. Henceforth, this power has been proposed to be delegated to the FBR to the extent of trivial statistical changes as per requirements.
4. Punishment for offences
Section 156
Section 156 narrates the punishment for various offences under the Act. Its table under sub-section (1) provides for the punishment of whipping, besides imprisonment and fine etc., in respect of the following offences:
-- Smuggling of any goods into or out of Pakistan.
-- Violations of Sections 128 & 129 in respect of transport of goods from one part of Pakistan to another through any foreign territory and goods entered for transit across Pakistan to a destination outside Pakistan
-- Carrying, removing, depositing, harbouring, keeping or concealing, or in any manner dealing with smuggled goods
-- Intimidation of a person on duty by a person through disguise or by being armed with a weapon
-- The bill seeks to remove the punishment of whipping for the above mentioned offences. It seems to have been proposed to avoid criticism of international community and human rights activists who often object to physical punishments.
===========================================================
Before amendment After amendment
===========================================================
Smoking tobacco, whether Water pipe tobacco
or not containing tobacco specified in Subheading
substitutes in any Note 1 of Chapter 24 of
proportion the First Schedule to the
Customs Act, 1990
===========================================================
The bill further seeks to amend the Section to enhance the scope of its provisions regarding punishments for computer related offences by adding the following offences or attempts to commit such offences:
-- unauthorised access to the Customs Computerised System
-- improper use of the Customs Computerised System
-- interference with the Customs Computerised System
-- unauthorised use of unique user identifier
-- The amendment has been proposed in view of the significance of the System containing valuable data.
5. Power of adjudication
Section 179
Section 179 provides for the power of adjudication entrusted upon various Customs officers under the Act.
The bill seeks to substitute its sub-section (1) by including in the existing matters to be adjudicated upon by the Customs officer, some additional matters such as "recovery of duty and other taxes not levied, short levied or erroneously refunded," and "any other contravention".
It further proposes to substitute the powers of various officers as detailed below:
Furthermore, on one hand, the proposed amendments seeks to require the Board to assign or transfer a case more specifically, for which the phrase 'by an order' has been added; while, on the other hand, it expands the scope of existing power to assign or transfer a case to any 'collector' by suggesting the change of word 'collector' to 'officer'.
According to the pervious history, the officers at serial No. (1), (5) & (6) of the above table were empowered and disempowered many times by Finance Acts of various years. Apparently, it was done in view of the quantity of cases under adjudication. The currently proposed rearrangement of jurisdiction and powers may enhance efficiency of disposal of cases thereby reducing the quantum of pending cases.
6. Appeals to Collector (Appeals)
Section 193
Section 193 deals with the appeals to the Collector (Appeals). The existing provision allows any aggrieved person to file an appeal before the Collector (Appeals) against an order passed by an officer not below the rank of Assistant Collector in respect of declaration and assessment for home consumption or warehousing, checking of goods declaration by the Customs, confiscation of goods or imposition of penalty; but debars an officer of Customs from filing of such appeal.
The proposed amendment through substitution of the sub-section (1) seeks to allow any person including the officers of Customs to file an appeal before the Collector (Appeals) against an order passed by an officer below the rank of Additional Collector in respect of declaration and assessment for home consumption or warehousing, checking of goods declaration by the Customs, confiscation of goods or imposition of penalty as well as regarding refund to be claimed within one year, recovery of duty and other taxes not levied, short levied or erroneously refunded or any other contravention.
The proposed amendment seeks to extend the scope of the applicability of this Section by including the cases of refund to be claimed within one year under Section 33. It also impliedly covers the cases proposed to be added in Section 179 regarding recovery of duty and other taxes not levied, short levied or erroneously refunded or any other contravention.
Further, an important feature of the proposed amendment is the intention to allow the Customs officer to file appeals before the Collector (Appeals). It is proposed to curtail loss of revenue likely to be caused by the apprehended erroneous decisions of the junior level officers. In our view, instead of giving the right of appeal to the Customs officers, grant of revisional powers to the senior Customs officers would have been a better solution to the apprehended problem, as the time limit of 30 days would practically be too short for a senior officer who would have to review all the cases decided by the junior officer to determine their contestability before the Collector (Appeals). On the other hand, direct appeal to Collector (Appeals), without passing through the revisional stage within the executive organ of the department, is bound to increase the workload of Collector (Appeals) unwarrantedly; and, since, such appeals would be regarding the matters involving very low amounts of revenue, the resultant work load on the Collector (Appeals) would adversely affect the quantity and quality of adjudication of cases of greater importance.
======================================================
Sr. No. Sub components/ Heading/sub-
components heading Nos
======================================================
5 Sealed lead acid batteries. 8507.2010
======================================================
7. Appeals to the Appellate Tribunal
Section 194-A
Section 194-A provides for appeals to the Appellate Tribunal against the orders passed under various Sections of the Act. Its sub-section (a) had been omitted in 2005, whereby an order passed by any officer of Customs as an adjudicating authority had been appealable before the Tribunal.
The bill seeks to insert this sub-section again with a slight change. It provides for appeal against the orders of adjudication passed under Section 179 by the officers not below the rank of Additional Collector before the Appellate Tribunal in cases concerning confiscation of goods, recovery of duty and other taxes not levied, short levied or erroneously refunded or imposition of penalty or any other contravention under the Act.
The proposed amendment seeks to extend the scope of the applicability of this Section by providing appeal against the orders under Section 179 passed by the Additional Collector or Collector.
======================================================
Sr. No. Sub components/ Heading/sub-
components heading Nos
======================================================
7 Wood pulp 4782.0000
======================================================
8. Procedure for sale of goods and application of sale proceeds
Section 201
Section 201 provides the procedure for sale of any goods, other than confiscated goods, which are to be sold under any provision of the Act; and application of sale proceeds thereof.
The bill seeks to insert a new sub-section,(1A), in section 201 to provide for sale of goods through electronic means (e-auction).
The proposal has been made to facilitate the auction procedure and economise the process of sale through e-auction.
======================================================
Sr. No. Sub components/ Heading/sub-
components heading Nos
======================================================
4 Non Grain Oriented Electrical 7225.1900
Steel Sheet
======================================================
9. Reward to customs officers and officials
Section 202B
The bill seeks to add this new Section 202B, to sanction rewards to Customs officers and officials for their meritorious conduct in cases of evasion of Customs duty and other taxes, and confiscation of goods, as prescribed by the rules, only after realisation of part or whole of the duty and taxes involved in such cases.
======================================================
Sr. No. Sub components/ Heading/sub-
components heading Nos
======================================================
2 Maleic Anhydride 2917.1400
======================================================
Such initiatives have been a part of various incentives to drive the officers to enforce law and perform duties with more dedication, commitment and integrity, but their exact impact has never been measured.
===========================================================
Potato starch 1108.1300
Acid dyes whether or not premetal lised, 3204.1200
and preparations based thereon; mordant
dyes and preparations based thereon
(acid dyes / dyestuff) ), non-textile grade
Pigments and preparations based 3204.1700
thereon (pigments) ), non-textile grade
Stamping foil 3212.1000
Inks for ball points pens, fine liners and 3215.9010
fibre tips
Edenol 3824.9099
Hardners 3824.9099
Acrylic polymer (fast drying) 3906.9090
Alkyd resins (fast drying) 3907.5000
Amino-resins (fast drying) 3909.3000
Cellulose nitrate 3912.2010
Carboxyl-methyl cellulose and its salts 3912.3100
(carboxy methyl cellulose)
Porous fibre rods for making marker nibs 3916.9000
Heat transfer film 4908.9000
Electro galvanized wire 7217.2000
Spring wire 7217.9000
Brass alloy wire 7408.2100
Wood sandwich blocks with lead 9609.9000
encased
===========================================================
10. Maintenance of records
Section 211
Section 211(1) pertains to the requirement of maintenance of records by various persons involved directly or indirectly in the business of international trade.
===========================================================
Carbon for lead 2803.0090
Steel balls not exceeding 1mm 7326.9020
diameter (steel balls)
Sharpener blades 8214.1000
Synthetic fiber reservoirs of the kind 9608.6000
used in writing instruments (ink
reservoirs)
Nibs made of special metal for use in 9608.9100
manufacture of writing instruments
(fountain pen nibs)
Nibs points( for fiber tip pens and 9608.9100
markers)
Tips for fineliners 9608.9100
Raw cores used for making black lead 9609.2010
Color lead 9609.9000
===========================================================
The proposed amendment, requiring substitution of the existing sub-section (1) of Section 211, seeks to include the transport operators and tracking companies among the persons involved directly or indirectly in the business of international trade for the purpose of requiring them to keep record of their transactions. Furthermore, it also seeks to require maintenance of record of transit trade transactions, in addition to the current requirement of keeping record of imports and exports.
The amendment seems to have been proposed to bring the transport operators and tracking companies in the Customs net to ensure more effective monitoring and enforcement. This purpose is also directly connected with being adequately vigilant over the transit trade transactions undertaken through Pakistani area. The proposed amendment also seeks to get such transactions suitably recorded.
11. Substitution of the First Schedule
The First Schedule to the Customs Act, 1969, has been proposed to be substituted, suggesting the following significant amendments:
-- The maximum general tariff slab to be reduced from 35% to 30%. This will reduce the number of duty slabs from 8 to 7
-- Pakistan Customs Tariff classification structure is being aligned with the World Customs Organisation nomenclature for commodity classification HS-2012 version
-- Introduction of 12 Digit Subheadings in Customs Tariff to fulfil the requirement of full automation of import processing through the Customs computerised system (Web-Based One Customs - WeBOC) and statistical purposes
-- New tariff headings for facilitation of the textile industry and to update national tariff in accordance with international best practices are to be created in the Tariff
-- The Bill proposes to remove deficiencies in the classification and description of certain tariff items in order to make it more comprehensible.
==================================================================
S.No Description Rate
of duty
==================================================================
9 Locally produced cigarettes if 65% of the retail
their retail price exceeds twenty price
two rupees and eighty six paisa
per ten cigarettes
10 Locally produced cigarettes if their Seven rupees and
retail price exceeds thirteen two paisa per ten
rupees and thirty six paisa per ten cigarettes plus 70%
cigarettes but does not exceed per incremental
twenty two rupees and eighty six rupee or part
paisa per ten cigarettes thereof
11 Locally produced cigarettes if their Seven rupees and
retail price does not exceed two paisa per ten
thirteen rupees and thirty six cigarettes
paisa per ten cigarettes
==================================================================
12. Customs Notifications
Certain amendments have been made in the existing notifications issued in previous years and amended from time to time, a summary of which is as under:
SRO 573(I)/2012
This SRO has amended the SRO 565(I)/2006 dated 05 June 2006 (SRO 565) and it is effective from 02 June 2012.
SRO 565 provides exemption from customs duty, to the extent provided therein, on import of raw materials, sub-components, components, sub-assemblies and assemblies, for manufacture of specified survey based goods. In some cases, exemption is available, subject to the conditions stated therein.
By virtue of this notification, following significant amendments/ insertions have been made:
Changes in conditions
The authority to process and approve concessional import duties has been passed to Collector (Customs) from Collector Sales Tax and Federal Excise. The amendment has been made because the Sales Tax and Federal Excise have become part of Inland Revenue, while Customs is working separately.
Further, the reference of PACCS has been changed with Customs Computerised System, as PACCS is no more used as a tool for customs clearance.
Substitutions of custom headings
==============================================================
Nature of goods / services Existing rate Proposed
of duty rate of duty
==============================================================
Portland cement, aluminous Five hundred Four hundred
cement, slag cement, super rupees per rupees per
sulphate cement and similar metric ton metric ton
hydraulic cements, whether
or not coloured or in the
form of clinkers
==============================================================
In Sr. No. 46, 53, 54, 60, 72, 113, 114, 118, 129 and 130, certain Custom Headings have been substituted to make certain corrections only.
Addition of new items in the Table
In Sr. No. 88- Welded steel pipes (Raw material, components and sub components), the description "HRC (Prime Quality) of thickness exceeding 10 mm" having HS Code 7208.3690 is added to avail the benefits of SRO 565.
Deletions in the Table
The components and sub components of the following items have been omitted from the purview of SRO 565, thereby withdrawing the benefit of reduced customs duty provided therein.
-- Sr. No. 6 -Car Air Conditioners
Further, in entry No. (1) for Insulation Varnish the Customs Heading appearing as 3208.1020 is substituted with 3208.1010 and Customs Heading 3208.9010 is deleted.
-- Sr. No. 133- Fortified Rosin (Raw material)
Increase in Concession
a. The following raw materials of articles of stationery at Sr. No. 13 will now avail complete exemption from customs duty as compared to the previous concessional rate of 5%:
SRO 574(I)/2012
This SRO is effective from 02 June 2012 and has amended the SRO 567(I)/2006 dated 05 June 2006 which provides exemption from customs duty, to the extent provided therein, on import of raw materials, sub-components, components, sub-assemblies and assemblies, for manufacture of specified non survey based goods. In some cases exemption is available subject to the conditions stated therein. By virtue of this notification, the following significant amendments/ insertions have been made:
==============================================================
Services Proposed rate of duty
==============================================================
Services provided or rendered in
respect of travel by air of the
passengers embarking on
international journey from
Pakistan.
(i) Economy and economy Three thousand eight
Plus hundred and forty rupees
(ii) Club, business and first Six thousand eight hundred
class and forty rupees
==============================================================
Changes in conditions
The Authority in respect of this SRO has been changed from Ministry of Health to Drug Regulatory Agency of Pakistan.
The earlier data management system, PACCS, is now replaced with the Customs Computerised System.
Substitutions of custom headings
In Sr. No. 2A, 4A and 39of Table I, certain Custom Headings have been substituted to make necessary corrections.
New entries in Table I
a. By inserting new Sr. No. 23A, import of shredded tyre scrap by the cement manufacturers is now subject to concessionary rate of 10% customs duty.
b. The following items introduced through insertion of new Sr. No. 44A, if imported by printing industry, are subject to 5% and 10% of customs duty.
Substitutions of items or conditions in Table I
a. In Sr. No. 34 the words "registered in Pakistan" have been inserted after the words "If imported by commercial airlines", which connotes that the zero rating of customs duty on import of aircraft engines, aeroplanes and other aircrafts is now restricted to commercial airlines registered in Pakistan only.
b. Concessionary rate of customs duty @ 30% was available on import of ambulance. Now, this concession will be available to those ambulances only which will have the prescribed features and specifications.
New entries in Table III - Active Pharmaceutical Ingredients
Concessionary rate of customs duty of 5% is extended to certain other pharmaceutical ingredients under new Sr. No. 48.
SRO 576(I)/2012
This SRO is effective from 02 June 2012 and has made amendments in SRO 693(I)/2006 dated 01 July 2006 which levied additional customs duty on the import of certain goods.
It has made the following changes:
a. Additional 15% customs duty has been levied on Capacitor for ignition discharge, for vehicles of heading 87.11, falling under HS Code 8511.8040
b. Casted Road Wheels have been excluded from the purview of the SRO 693(I)/2006
c. Certain PCT Headings have been corrected.
SRO 577(I)/2012
This SRO is effective from 02 June 2012 and has made amendments in SRO 482(I)/2009 dated 13 June 2009 which levies regulatory duty on import of certain items. The following amendments have been made in the aforesaid notification:
a. The description of Betel nuts provide in Sr. No. 1 has been substituted with "Areca nuts (Betel nuts)".
b. In Sr. No. 6 the PCT Code 2403.1000 has been substituted with 2403.1100 due to change of description of goods as under:
c. A new Sr. No. 6A is inserted to levy regulatory duty on "other" types of tobacco falling under PCT Code 2403.1900.
========================================================
Services Entry No.
========================================================
Live stock insurance (entry 7 of Table II of the
Third Schedule)
Services provided by (entry 8 of Table II of the
Asset Management Third Schedule)
Companies w.e.f. 01 July
2007.
========================================================
SRO 578(I)/2012
This SRO is effective from 01 June 2012 and has made amendments in SRO 594(I)/2009 dated 25 June 2009 which levies regulatory duty on export of certain goods specified therein at the rate of 25% ad valorem. However, through proviso in the preamble of the aforesaid notification, protection was provided to export of goods made from the material imported under the facility of DTRE as provided under sub-chapter 7 of Chapter XII of the Customs Rules, 2001 or the scheme of manufacturing bonds as licensed under Chapter XV of the said Rules.
=========================================================================
Relevant Description Rate of
entry duty as
in Table presently levied
=========================================================================
22 Lubricating oil in packs not Ten percent of the
exceeding 10 litres retail price
23 Lubricating oil in packs Ten percent of the
exceeding 10 litres retail price
24 Lubricating oil in bulk Seven rupees and
(vessels, boozers, lorries etc.) fifteen paisa per litre
25 Lubricating oil manufactured Two rupees per litre
from reclaimed oils or sludge
or sediment, subject to the
condition if sold in retail
packing or under brand
names the words
manufactured from reclaimed
oil or sludge or sediment
should be clearly printed on
the pack
27 Base lube oil Seven rupees and
fifteen paisa per litre
42 Perfumes and toilet waters Ten percent of retail
price if packed in retail
packing and ten
percent ad volarem if
in bulk
43 Beauty or make-up Ten percent of retail
preparations and preparations price if packed in retail
for the care of the skin (other packing and ten
than medicaments), including percent ad valorem if
sunscreen or sun tan in bulk
preparations; manicure or
pedicure preparations
44 Preparations for use on the Ten percent of retail
hair excluding herbal hair oil price if packed in retail
and kali mehndi packing and ten
percent ad valorem if
in bulk
45 Pre-shave, shaving of after- Ten percent of retail
shave preparations, personal price if packed in retail
deodorants, bath packing and ten
preparations, depilatories and percent ad valorem if
other perfumery, cosmetic or in bulk
toilet preparations, not
elsewhere specified or
included; prepared room
deodorizers, whether or not
perfumed or having
disinfectant properties
(excluding agarbatti and other
odoriferous preparations
which operate by burning)
=========================================================================
Now through this amending SRO, the said proviso is omitted which will result in levy of regulatory duty on export of goods made from the material imported under DTRE or the scheme of manufacturing bonds as provided in the Customs Rules, 2001.
SRO 579(I)/2012
This SRO has amended SRO 209(I)/2009 dated 05 March 2009 which allows duty drawback on export of textile and allied products. Through this amending SRO a number of H.S. codes of raw materials and finished goods have been substituted for proper administration of SRO 209(I)/2009.
SRO 580(I)/2012
This SRO has amended SRO 210(I)/2009 dated 05 March 2009 which allows duty drawback on export of leather and allied products and sports goods. Through this amending certain H.S. code of raw materials and finished goods have been substituted/ omitted for proper administration of SRO 210(I)/2009.
SRO 581(I)/2012
This SRO has amended SRO 212(I)/2009 dated 05 March 2009 which allows duty drawback on export of miscellaneous products like packing materials, edible products, plastic products, etc. Through this SRO 581(I)/2012, numerous H.S. codes of raw materials and finished goods have been substituted/ omitted for proper administration of SRO 212(I)/2009.
SRO 582(I)/2012
This SRO is effective from 02 June 2012 and has amended SRO 659(I)/2007 dated 30 June 2006, whereby the Federal Government has provided exemption to certain imports into Pakistan from China. Through the amendments, Tables I and II of SRO 659(I)/2007 have been updated/ substituted for proper administration.
SRO 583(I)/2012
This SRO is effective from 02 June 2012 and has amended SRO 1261(I)/2007 dated 31 December 2007, whereby the Federal Government has provided exemption to certain imports into Pakistan from Malaysia. Through the amendments, the Tables I and II of SRO 1261(I)/2007 have been updated/ substituted for proper administration.
SRO 584(I)/2012
This SRO is effective from 02 June 2012 and has amended SRO 1296(I)/2005 dated 31 December 2005, whereby the Federal Government has provided exemption to certain imports into Pakistan from China under the bilateral Early Harvest Programme (EHP). Through the amendments, the Tables I and II of SRO 1296(I)/2005 have been updated/ substituted for proper administration.
SRO 585(I)/2012
This SRO is effective from 02 June 2012 and has amended SRO 558(I)/2004 dated 01 July 2004, whereby the Federal Government has provided exemption to imports into Pakistan from ECO and SAARC countries. Through the amendments, the Tables I and II of SRO 558(I)/2004 have been updated/ substituted for proper administration.
SRO 586(I)/2012
This SRO is effective from 02 June 2012 and has amended SRO 570(I)/2005 dated 06 June 2005, whereby the Federal Government has provided exemption to imports into Pakistan from Sri Lanka. Through the amendments, the Tables I, III and IV of SRO 570(I)/2005 have been updated/ substituted for proper administration.
SRO 587(I)/2012
This SRO is effective from 02 June 2012 and has amended SRO 894(I)/2006 dated 31 August 2006 whereby the Federal Government has provided exemption to imports into Pakistan from Iran under Preferential Trade Agreement. Through the amendments certain HS Code have been substituted for proper administration.
SRO 588(I)/2012
This SRO is effective from 02 June 2012 and has amended SRO 1274(I)/2006 dated 29 December 2006, whereby the Federal Government has provided exemption to imports into Pakistan from SAARC countries under SAFTA agreement. Through the amendments the Table of SRO 1274(I)/2006 has been updated/ substituted for proper administration.
SRO 601(I)/2012
This SRO seeks to amend the Customs Rules, 2001. Through the amendment, the word "PACCS"
FEDERAL EXCISE
1.Rates of duty on cigarettes changed
First Schedule, Table I
====================================================================
SRO Section/ Description
Reference Schedule/
Rule
reference
====================================================================
598(I)/2012 Section 3 This notification amends the
notification No.SRO 649(I)/ 2005
dated 01 July 2005, which levied
duty on specified goods entering
the tariff area from a non-tariff
area of Pakistan.
Effectively, duty leviable on
cosmetics goods as listed out in
serial no. 42 to 45 of Table I of
the Act, has now also been
withdrawn at the time of entering
into tariff area from a non-tariff of
Pakistan.
This notification shall be effective
from 02 June 2012.
599(I)/2012 Section 16 This notification amends the
notification No.SRO 474(I)/ 2009
dated 13 June 2009 which
exempts certain goods or
services from the levy of duty.
SRO 599(I)/ 2012 has effectively
withdrawn the exemption
available to Viscose staple fiber.
This notification shall be effective
from 02 June 2012.
603(I)/2012 This notification rescinds the
following notification.
SRO 807(I)/2005 dated 12
August 2005 whereby rebate
on Federal Excise Duty was
granted on base oil used in
manufacturing of certain types
of lubricating oils.
SRO 671(I)/2006 dated 29
June 2006 whereby minimum
price for the purpose of
assessment of excise duty at
import stage was fixed in case
of lubricating oil in packs (PCT
headings 2710.1951 and
2710.1952).
SRO 777(I)/2006 dated 01
August 2006 whereby special
rate of excise duty was fixed
on the tickets issued for travel
by air to certain specified
destinations.
SRO 949(I)/2006 dated 06
September 2006 whereby
import and supply of solvent
oil (PCT heading 2710.1150)
for manufacturing of shoe
adhesive were exempted from
excise duty.
SRO 1229(I)/2007 dated 18
December 2007 whereby
special excise duty was
exempted on the tractor parts
supplied by registered vendors
to the manufacturers of
agricultural tractors (PCT
heading 8701.9019)
This notification shall be effective
from 02 June 2012.
====================================================================
The rates of duty on cigarettes have been proposed to be changed by substituting serial No. 9 to 11 of Table I of First Schedule to the Federal Excise Act, 2005 (the Act) alongwith the description of goods. Proposed entries are as follows:
However, duty levied on filter rods for cigarettes through serial No. 50 of Table I of the First Schedule has been withdrawn.
The interpretation clause of Table I of the First Schedule to the Act provides restriction on manufacturers of cigarettes that they shall not reduce price from the level adopted on the day of announcement of Budget in serial No. 9 to 11 above for the purpose of levy and collection of duty at the prescribed rates. The Bill now seeks to substitute this restriction clause as under:
a.For the purpose of levy, collection and payment of duty at the rates specified in column (4) against serial number 9, 10 and 11 of Table I of the First Schedule, no cigarette manufacturer shall reduce price from the level adopted on the day of announcement of the latest Budget.
b. Variants at different price points
No manufacturer or importer of cigarette can introduce or sell a new cigarette brand variant of the same existing brand family at a price lower than the lowest actual price of the existing variant of the same brand family. For the purposes of this restriction, current minimum price variant of existing brand means the lowest price of a brand variant on the day of announcement of Budget 2012-13.
c.Minimum Price of New Brands
Any new brand introduced in the market shall not be priced and sold lower than 5% below the price of the Most Popular price Category (MPPC). MPPC is the price point at which the highest number of excise tax paid cigarettes are sold in the previous fiscal year?.
2.Rate of duty on cement decreased
First Schedule, Table I
The rate of duty on cement has been proposed to be decreased by amending serial No. 13 of Table I of the First Schedule to the Act:
3.Excise duty on travel by air
First Schedule, Table II
With effect from 01 July 2007, FED is leviable on tickets issued for International travel to and from Pakistan irrespective whether the ticket has been issued from Pakistan or elsewhere. As a result the Inland Revenue recently raised huge demands against various airlines operating in Pakistan. The levy has been challenged on various grounds including the rationale of charging FED on arriving passengers and imposing a levy beyond the jurisdiction of Pakistan. It appears that the Board taking cognizance of the views of the airlines has proposed to resolve the dispute by proposing to amend the charging Schedule of the Act.
Accordingly, the scope and the rate of duty in this respect has been proposed to be changed by substituting Clause (b) of serial No.3 of Table II of the First Schedule as under:
Pursuant to the aforesaid proposed amendment, SRO 600(1)/2012 dated 02 June 2012 has been issued whereby consequential amendments in Rule 41A of the FE Rules, 2005 relating to collection of excise duty on issuance of ticket for international travel are made so as to withdraw the levy of FED on passengers embarking to Pakistan or journeys terminating in Pakistan. These amendments are effective from 01 July 2012.
Whilst the controversy on chargeability of FED will be resolved from 1 July 2012 onwards, in absence of a retrospective amendment, the existing dispute covering the period from 01 July 2007 to 30 June 2012 remains unresolved.
In the case of domestic travel, the Bill proposes to increase the rate of FED from 16% of the charges plus Rs.20 to 16% of the charges plus Rs.60.
Further, SRO 47(I)/2012 dated 20 January 2012 providing enhanced rates of FED on domestic and international travel has been rescinded through SRO 603(I)/2012 dated 01 June 2012. This SRO is effective from 02 June 2012. This creates an anomaly as it leads to the conclusion that the rates prior to the increase in rates on domestic and international air travel would be applicable for period from 02 June 2012 to 30 June 2012.
4.Exemption from excise duty
Third Schedule
The goods and services specified in the Third Schedule are exempt from FED subject to fulfillment of specified conditions. The Bill seeks to include the following services in the Third Schedule:
5.Services provided by Asset Management Companies
Third Schedule
Currently under serial No.8 of Table II of the First Schedule to the FE Act, services provided by banking companies or non-banking financial companies are subject to FED at the rate of 16%. During 2011, the Inland Revenue issued notices to asset management companies for payment of FED on the management fee charged by them on the grounds that asset management companies are covered under non-banking financial companies as defined in the Act. Accordingly, orders were passed against asset management companies wherein huge demands were raised for the period from July 2007. The asset management companies challenged the orders passed against them on the grounds that the asset management services are not specified in PCT heading 98.13 of Chapter 98 of the Pakistan Customs Tariff, and therefore FED is not leviable on their fee.
It appears that in order to resolve this dispute, the Board has proposed insertion of an exemption in Table II of the Third Schedule to the Act from the charge of FED in respect of services provided by asset management companies with retrospective effect from 01 July 2007.
However, it should be appreciated that the fee of asset management companies continues to be taxable under the Sindh Sales Tax on Services Act, 2011. Hence asset management companies located in Sindh will continue to be subject to sales tax at the rate of 16% unless a similar exemption is granted through the Sindh Finance Act, 2012.
6.Withdrawal of Federal Excise Duty
First Schedule
The Bill seeks to withdraw duty on a number of goods, which are in nature lubricants and cosmetics with effect from 02 June 2012, as enumerated below:
7.Federal Excise Notification
In exercise of the power conferred by the FE Act, the Federal Government has issued certain notifications which are enumerated below:
8.Excise duty on services
In pursuance of the 18th Amendment to the constitution of Pakistan, it has now been settled that revenue pertaining to services falls within the Provincial domain and in this aspect, the Sindh Revenue Board has been established which administers and collects sales tax on services in the province of Sindh. Similarly, it is anticipated that the Punjab provincial government is due to establish its own authority for administering and collecting sales tax on services in the province of Punjab.
Although it was anticipated that the Federal government would withdraw excise duty from excisable / taxable services at the Federal level since the sales tax on services is a provincial levy, however, it has not withdrawn such excise duty. Given the circumstances, the anomaly that a respective service remains exposed to both provincial sales tax as well as federal excise duty at the same time remains unresolved.
The Finance Act, 1989 (the FA 89) introduced for the first time a tax on the capital value of assets referred to as the Capital Value Tax (CVT). Presently, CVT is charged on the following:
-- Purchase of immovable property
-- Purchase / import of motor vehicle not previously used in Pakistan
-- Purchase of shares of a public company listed on a registered stock exchange
Extension of scope of CVT
The charge of CVT on shares of public company listed on a stock exchange was earlier omitted vide Finance Act, 2009. The Charge was restored vide the Finance Amendment Ordinance, 2012 promulgated on 24 April 2012. The Bill now seeks to enact this amendment. The responsibility of collecting the CVT on shares lies with the registered stock exchanges.
Restrictive applicability
Pursuant to the 18th Amendment made in the Constitution of the Islamic Republic of Pakistan, CVT on immovable property being a provincial subject now comes under the domain of the provinces. The bill proposes applicability of CVT through the FBR in respect of immovable property located in Islamabad Capital Territory and to such areas which the FBR may notify in the official Gazette.
Rationalization of rates of collection of CVT
The Bill proposes to rationalize the rates of CVT on purchase of immovable property as under:
===================================================================
Category of Property Rate of CVT
===================================================================
Residential immovable property (other than flats) situated in urban
area, measuring at least one kanal or 500 square yards whichever
is less.
(i) Where the value of 2% of the recorded value or
immovable property is Rs.100 per square yard of the
recorded landed area whichever is higher
(ii) Where the value of Rs.100 per square yard of the
immovable property is not landed area
recorded
(iii) Where the immovable Rs.10 per square feet of the
property is a constructed constructed area in addition to
property the value worked out above
Commercial immovable property of any size
(i) Where the value of 2% of the recorded value or
immovable property is Rs.100 per square yard of the
recorded landed area whichever is higher
(ii) Where the value of Rs.100 per square yard of the
immovable property is not landed area
recorded
(iii) Where the immovable Rs.10 per square feet of the
property is a constructed constructed area in addition to
property the value worked out above
Residential flats
(i) Where the value of 2% of the recorded value or
immovable of property is Rs.100 per square feet of the
recorded covered area whichever is
higher
(ii) Where the value of Rs.100 per square feet of the
immovable of property is not covered area
recorded
===================================================================
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