Income Tax - 1. Minimum tax restored: Section 113. Minimum tax was introduced for the first time by the Finance Act, 1991 and continued to be applicable with certain modifications over the years until it was a withdrawn by the Finance Act, 2008.
In order to reinforce revenue mobilisation measures, the Legislature seems to have deemed expedient to reintroduce minimum tax on every company resident in Pakistan which shall now again be obliged to pay a minimum tax of 0.5% of its turnover, regardless of whether any tax is otherwise payable or not.
The provisions now sought to be introduced for minimum tax are substantially identical to the provisions which were applicable at the time of the withdrawal. However, there are certain significant new aspects which are proposed to be enacted by the Bill.
As in the past, the minimum tax shall be payable by a resident company 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 0.5% of its turnover from all sources, regardless of the fact whether such resident company incurs a loss for the tax year, or has no taxable income by virtue of the setting off of a loss of an earlier year, or its income is exempt from tax or there is no tax payable by the application of credits or rebates, or on account of allowances or deductions claimed including depreciation and amortisation.
Being a deeming provision, the aggregate turnover shall be treated as the income of the year chargeable to minimum tax. As in the past, there is a provision to equalise the effect of minimum tax over a period of three years immediately succeeding the tax year for which the amount was paid, although this period was five tax years in the past.
The equalisation provision provides that in the event of minimum tax on turnover exceeding the actual tax payable for a tax year calculated on the bottom-line basis, such taxpayer shall be entitled to carry forward the excess amount of minimum tax paid for adjustment against actual tax liability for the subsequent three tax years.
One of the two major changes compared to the repealed provisions of minimum tax deal with an exclusion from the obligation to pay minimum tax if a company has incurred or declared gross loss before the charge of depreciation and other inadmissible expenses under the Ordinance. This, therefore, means that in the event of trading account or cost of sales statement revealing a gross loss taking into account the aforesaid exclusions, such company shall not be made liable to minimum tax.
In invoking this provision, there are, however, almost unfettered powers proposed to be made available to the Commissioner. These powers would enable the Commissioner whereby in the event of gross loss, he may disregard the accounting treatment or a change in accounting policy although the same may be in accord with the recognised accounting standards namely IASs/IFRSs.
As a consequence, the gross loss may be substituted by a positive amount as may be determined by the Commissioner and in that event the provisions of this Section (wrongly stated to be "Ordinance") and all other provisions of Ordinance shall apply to such company. The construction of this proviso carries certain ambiguous expressions such as "changing accounting pattern" and "historical accounting pattern" from which the only inference one can draw is that the word "pattern" seeks to imply accounting treatment or accounting policy and the like.
Another significant element introduced this time in the minimum tax regime seems highly inequitable. Over the years, minimum tax regime was premised on the concept that a resident company shall be obliged to pay aggregate tax atleast equal to the prescribed minimum tax should its actual tax liability on income and receipts from all sources be less than the prescribed minimum.
The manner in which sub-section (3) defines "turnover" excludes deemed income, gross fees for rendering of services including commission and gross receipts from the execution of contracts, which under any provision of the Ordinance, shall be treated as deemed income and made liable to final tax paid or payable separately under the relevant provisions of the Ordinance.
Effectively, the prescribed final tax paid or payable as applicable on receipts, which are sought to be excluded for the purposes of minimum tax on the "turnover" shall not be reckoned or included in the aggregate total tax paid or payable for the purposes of determination of minimum tax. Such tax payers may probably end up paying higher taxes than what was conceptually conceived as being the minimum tax.
2. Accelerated depreciation to alternate energy projects
Section 23B Third Schedule Part II: As one of the measures to curb the ever growing energy crises, the Bill proposes to provide fiscal incentives to alternate energy projects. A new Section 23B is sought to be introduced to provide accelerated depreciation to plant, machinery and equipment installed for generation of alternate energy. This allowance is proposed to be made available to an industrial undertaking set up any where in Pakistan and owned and managed by a company.
Accelerated depreciation - as "First Year Allowance" would be allowed in lieu of initial allowance (of depreciation) under Section 23 of the Ordinance at the rate of 90 % of the cost of the ("eligible [depreciable] assets") put to use after 01 July 2009.
Consequential amendments have been proposed to be made in sub-sections (4) and (5) of Section 57 of the Ordinance with regard to carried forward business losses in respect of unabsorbed depreciation.
3. Tax credit to a person registered under the Sales Tax Act, 1990
Section 65A: As a yet another measure to promote documentation of business and commercial transactions and with a view to augmenting sales tax revenue, a new scheme of tax credit is proposed to be introduced. The new Section seeks to provide that a manufacturer registered under the Sales Tax Act, 1990 shall be entitled to claim a tax credit of 2.5 % of tax payable for a tax year.
To be able to claim this tax credit, the qualifying condition is that such manufacturer's sales equal to atleast 90 percent of his total sales should be to such persons who are registered under the said Act during the tax year. This provision would have the effect of reducing tax liability outright by 2.5 % of the tax otherwise payable by such manufacturer.
In order to curb abuse of the relief envisaged by the proposed Section, sub-section (2) obliges such manufacturers to provide complete details of the persons to whom the sales were made.
In the event of a manufacturer whose income is subject to final tax or is covered under minimum tax, no credit under this Section shall be allowed. Although the purport of the proposed dub-section (4) of this new Section lacks the required degree of clarity, it seems that if for any reason the tax credit envisaged by this Section may not be allowed, such un-availed tax credit shall not be allowed to be carried forward.
4. Ceiling on cost of passenger transport vehicle imposed Section 22, sub-section (13): The cost of passenger transport vehicle for the purposes of depreciation allowance was initially restricted to Rs 750,000/- enacted by the Finance Ordinance, 2001. This limit was raised to Rs 1 million by the Finance Ordinance, 2002. Subsequently, the Finance Act, 2005 removed the aforesaid ceiling in respect of passenger transport vehicle not plying for hire which were acquired on or after 01 July 2005.
The Bill now seeks to reintroduce the ceiling on cost of passenger transport vehicle not plying for hire by restricting it to Rs 1.5 million. As a consequential amendment, proviso to clause (a) of sub-section (13) of this Section is sought to be omitted.
5. Rationalisation of minimum tax regime applicable to certain retailers Section 113B, Clause (c): A retailer being an individual or association of persons having turnover exceeding Rs 5 million for any tax year is obliged to pay final tax at the prescribed rates under clause (b) of this Section. Such retailer subject to final tax under this Section is not entitled to claim any adjustment of withholding tax collected or deducted under any head during the tax year.
The Bill now proposes to introduce a proviso to Clause (c) of this Section whereby turnover chargeable to tax under this Section shall not include the sale of goods on which tax is deducted or deductible under clause (a) of sub-section (1) of Section 153.
In the absence of the proposed proviso, a retailer falling under this Section was subjected to duality of tax, once as final tax on the turnover and additionally the same turnover or a part thereof having been subjected to withholding tax under the clause (a) of sub-section (1) of Section 153 deemed as final tax under sub-section (6) of the said Section of the Ordinance. This anomaly is now sought to be removed.
6. Advance payment of tax
Section 147: It may be recalled that the Finance Act, 1997 made a drastic change in the scheme of advance tax which was in operation for over a decade. As a result of the change, the basis of advance tax shifted from "income-based" to "turnover-based" in respect of companies and association of persons (AOPs). Turnover based scheme of advance tax then continued until it was changed by the Finance Act, 2004 and reverted back to "income-based".
By a proposed amendment in sub-section (2) of this Section, AOPs are now subject to the same advance tax obligation as is now proposed to be made applicable to a company. The Bill proposes to substitute sub-section (4) of this Section whereby a company and an AOP shall be liable to compute their obligations to pay advance tax, not on the basis of their income, but on actual turnover of a quarter.
The Bill thus provides that companies and AOPs shall apply the same effective rate of tax on their quarterly turnover which the tax last assessed bore to the turnover assessed for the latest tax year. However, in determining the advance tax liability on this basis, such turnover as is deemed to be income under relevant provisions of the Ordinance shall be excluded. Likewise, capital gains in terms of Section 37 of the Ordinance shall, as under the existing provisions, also be outside the ambit of advance tax obligations.
It appears that the policy shift from "income-based" to "turnover-based" advance tax imposition is prompted by imperatives of raising higher tax revenue.
The proposed new provision needs reconsideration in one material respect. As each quarterly instalment of advance tax would vary on the basis of the actual turnover attained in a particular quarter, it would not be practically possible to determine and account for actual turnover when the quarterly instalments become due on the prescribed dates pursuant to sub-section (5) of this Section, ie 15 September, 15 December, 15 March and 15 June. This sub-section needs consequential amendment in terms of the said due dates as was done vide the Finance Act, 1998 whereby such dates were prescribed as 07 October, 07 January, 07 April and 21 June and the turnover for the last 15 days of June was allowed to be imputed based on the turnover of the first 15 days of the said month.
In view of the proposed introduction of minimum tax in terms of Section 113 of the Ordinance, a new sub-section (4AAA), which appears to have been inadvertently stated in lieu of (4AA), is sought to be introduced. Accordingly, the proposed Sub-section requires that minimum tax liability shall also be taken into account for determining obligation for payment of advance tax under this Section.
The Bill also proposes to substitute the existing sub-section (6A) to give effect to two consequential changes - one in respect of AOPs proposed to be brought at par with a company in terms of advance tax obligations and secondly to incorporate the consequential effect of change over from "income-based" to "turnover-based" advance tax regime.
The tax payer pursuant to sub-sections (4A) and (6), which remains unchanged, continues to allow a tax payer to estimate the advance tax payable for the relevant tax year, at any time before the last instalment is due.
7. Tax paid at import stage now deemed "minimum tax" of certain classes of tax payers
Section 148, sub-sections (7) & (8): The scheme of Section 148 requiring tax payable at import stage is presently being treated as final tax in respect of commercial importers and as advance tax by an industrial undertaking, fertiliser manufacturer, manufacturer of motor vehicles and large import houses fulfilling certain specified conditions.
There is a substantive conceptual shift now proposed to be made in sub-sections (7) and (8) of this Section. Presently, commercial importers paying tax at import stage are deemed to have paid the same as "final tax". The amendment now sought to be made seeks to change the character of such tax payments from "final" to "minimum" tax. Such commercial importers shall, pursuant to the proposed amendment in Section 115, henceforth be required to file a Return of Income instead of filing of Statement in terms of the said Section of the Ordinance.
Additionally, it would be pertinent to note that the rate of tax payable at the import stage by all classes of tax payers has been proposed to be raised to 4% as against 2% presently in force. It would seem reasonable to comment that the 100% increase in the said rate coupled with the same proposed to be treated as "minimum tax" by virtue of the proposed amendment in Sub-section (7) of this Section is harsh and inequitable.
The unreasonableness of this proposed change would seem compounded by the fact that the state of the economy and the downslide in business and commercial activities do not provide any justification whatsoever for what is sought to be achieved through this measure.
Through a yet another amendment proposed to be made in sub-section (8) of this Section, importers of edible oil shall also be deemed to have paid "minimum tax" as opposed to the same being currently treated as "final tax" on account of tax paid at the import stage.
Another very drastic and unreasonable amendment is proposed to be made in this sub-section whereby tax paid by any tax payer - commercial importers and manufacturers importing "packing material" shall also be deemed to have paid "minimum tax" in respect of such import. Attention is invited to sub-section (7) whereby in terms of Clause (a) thereof, tax paid at the import stage on various items which inter-alia includes "raw material" by an industrial undertaking for its own use, is being rightly treated and shall continue to be so treated as advance tax.
The issue that arises therefore is, is not "packing material" one of the forms of raw material generally used by an industrial undertaking and would the tax paid at the import stage on such packing material by an industrial undertaking going to be treated as "minimum tax" under sub-section (8) or as "advance tax" under sub-section (7). The inclusion of the "packing material" and bringing it within the net of minimum tax without any qualifying criteria either with regard to the class of tax payer or the use thereof is laden with potential controversies and alleged malpractice's in the context of tax administration. This situation needs to be remedied forthwith through appropriate amendment.
The Bill proposes to raise the threshold in the context of "large import houses" paying tax at the import stage which is in the nature of advance tax. Accordingly, the Bill proposes that the paid-up capital and the total assets thresholds be raised to Rs 250 million and Rs 350 million respectively as opposed to Rs 100 million presently applicable on both counts.
8. Tax deducted from payments for services rendered by tax payers other than a company treated as minimum tax Section 153, sub-section (6): Over the years, there have been numerous amendments in this Section seeking to change the ultimate character of the tax deducted from payments on account of sale of goods, rendering of services and execution of contracts. While it is not intended here to trace back the history from year to year of such amendments, it is relevant to note that tax deducted for payment for rendering of services by a non-corporate tax payer is presently being treated as "final tax".
The Bill now proposes to insert clause (iii) in the second proviso of sub-section (6) of this Section to the effect that such tax deducted shall be a "minimum tax" instead of the same being treated presently as "final tax". The proposed amendment would have the effect of switching tax withheld from being treated as "final tax" to "minimum tax" without, however, entitling such tax payers to a refund of tax in the event the ultimate tax liability works out to be lower than the tax deducted pursuant to sub-section (1) of this Section.
The Bill further proposes to amend sub-section (9) of this Section whereby "a non-profit organisation" is now proposed to be included in the list of prescribed persons obliged to withhold tax pursuant to sub-section (1) of this Section. Additionally, the definition of "manufacturer" is sought to be amended whereby "packing" and "repacking" are no longer to be construed as an act of production or manufacturing of goods. Consequently, a tax payer engaged in "packing" or "repacking" on account of having being excluded from the definition of "manufacturer" shall suffer taxes withheld as "final tax" instead of the same being considered as "advance tax".
9. Exports no longer in the final tax regime
Section 154, sub-sections (3C) & (4): There is no denying the fact that the need to promote Pakistan's export in a substantial way has always been and is the need of the hour. With this realisation, a presumptive tax regime was conceived way back in the Finance Act of 1992 whereby exporters were provided a sort of tax facilitation to insulate them from the harsh rigors and vagaries of our tax system.
Since the Finance Act, 1992, a tax payer, regardless of the class, is being subjected to a final tax, generally at the rate of 1 %, applicable on the proceeds of foreign exchange realisation on account of export of goods and the tax so deducted by an Authorised Dealer or bank constitutes full and final discharge of tax liability of an exporter. The Bill proposes to amend sub-section (4) of this Section by substituting the tax deducted as "a minimum tax" which was hitherto deemed a "final tax".
Although, it is not intended to establish empirically whether this provision of "final tax" has contributed favourably in the past in promoting exports from Pakistan, it however seems highly questionable to translate now this "final tax" into "minimum tax" when, at this juncture, the exporters are struggling to maintain their exports let alone succeed in penetrating in other markets which are yet to be explored.
It would therefore, not be unreasonable to anticipate that the proposed amendment in the export tax regime may prove to be counter productive both from the stand point of foreign exchange earnings as also in the context of generation of high tax revenues from this sector. The legislature would be well advised to reconsider this proposed amendment.
The Bill further seeks to introduce a new sub-section (3C) which requires the Collector of Customs to collect tax at the time of clearing of goods exported at 1% of the gross amount of such goods. It should be noted that under sub-section (1), Authorised Dealers in foreign exchange are also required to deduct tax at 1% at the time of realisation of foreign exchange proceeds on account of export of goods.
On the face of it, this appears to be a duplication which needs to be corrected. The only rationale explanation could be that collection of tax under sub-section (3C) only applies to export of such goods for which payment may have been tendered through non-banking channels and would therefore bring within the tax net such export proceeds which are outside the framework of dealings by Authorised Dealers.
10. Commissioner authorised to delegate powers to a firm of Chartered Accountants for tax audit
Sections 176, 177 & 210, sub-section (1B): A new sub-section (1B) is sought to be inserted in Section 210 which would empower the Commissioner to delegate to a firm of Chartered Accountants appointed by the Board pursuant to sub-section (8) of Section 177 of the Ordinance, such powers to enable the firm to conduct the audit of person(s) selected for audit under Section 177. This is an enabling provision which would however, need to be supplemented by appropriate rules which should be framed by the Board to operationalize the provision. The Rules should clearly delineate the scope of audit and other matters related thereto.
The Bill also proposes to insert a new clause (c) in sub-section (1) of Section 176. Under the proposed Clause, a firm of Chartered Accountants appointed by the Board to conduct audit under Section 177 is authorised, subject to prior approval of the Commissioner concerned, to obtain information, records or computer on which the required information is stored. The provision also contemplates the firm of Chartered Accountants to impound and retain such computer as long as is necessary for the purposes of conducting the audit.
With regard to the powers of the Board for the determination of the criteria for selection of any person for the purposes of audit of his income tax affairs, amendments have been proposed to be made in sub-sections (1), (2), (4), (5) & (8) whereby the expression "classes of persons" have been sought to be inserted. Accordingly, the Board is empowered to select a particular case or classes of cases for the purposes of tax audit.
11. Board empowered to grant condonation of time limit
Section 214A: This is a new Section which has been proposed to be added in the Ordinance. The language of the contemplated provision is not quite clear. However, if it were to be interpreted from the tax payer's angle for facilitating him by condonation of time limit, then it is a positive move forward.
The proposed amendment would empower the Board to condone a time limit within which any application is to be made or any act or thing is to be done by a tax payer, following a logical interpretation. The proposed Section seeks to empower the Board to exercise this power in any case or class of cases.
For this purpose, the Board may condone and determine a time limit to permit a tax payer to make an application or do such act or thing within such time or period as it may consider appropriate. A proviso sought to be inserted in this new Section proposes that the Board may empower any Commissioner or Director General to exercise the aforesaid powers in any case or class of cases as may be notified in the official Gazette and subject to such limitations or conditions as the Board may deem fit to specify.
12. Board empowered to call for records and take certain decisions
Section 214B: The Bill seeks to expand the powers of the Board which it may exercise of its own motion. The powers which are contemplated would authorise the Board to call for and examine the records of any departmental proceedings under the Ordinance or the Rules made thereunder. Such powers may be exercised avowedly to enable the Board to satisfy itself of any decision or order passed therein to determine legality or propriety thereof and in consequence, pass such order as it may deem fit.
A proviso proposed to be added requires that a person likely to be affected by the order of the Board seeking to impose or enhance any tax or penalty more than what was originally levied, such person shall be given an opportunity to show cause and of being heard.
Although the Board is prevented from initiating proceedings in a case where an appeal is pending, the very powers proposed to be exercised by the Board does not appear to be consistent with the norms of good tax administration. The Board should only act in matters of tax policy formulation and effective supervision of the affairs of the tax administration rather than itself perform an interventionist role by taking upon itself the powers to determine and adjudicate a case or class of cases.
Following best practices of good governance, overseeing role and exercise of tax administrative powers should be demarcated and kept separate, lest, erosion of ethical behaviour and malpractice's are likely to creep in and pollute the tax administration system.
Sub-section (3) of this Section provides the bar of limitation whereby the Board is prevented from making any order under this Section after the expiry of three years from the date of original decision or order.
13. For purposes of depreciation, exchange differences on foreign currency loan for assets acquired allowable in the year of "occurrence"
Section 76, sub-section (5), Explanation: Sub-section (5) of this Section provides that the cost of an asset shall be adjusted upward or downward on account of exchange fluctuation if such asset was acquired from a foreign currency denominated loan. Accordingly, depreciation under the Third Schedule is computed on the cost so adjusted.
The Bill now proposes to insert an explanation in sub-section (5) whereby the cost of an asset acquired from a foreign currency loan shall be adjusted for the purposes of depreciation on account of foreign currency fluctuation only in the year of "occurrence". The word "occurrence" used in the above context is rather ambiguous, for, does it mean that in the case of adverse fluctuation of foreign currency, only such exchange difference will be allowed as is realised in the event of repayment of such loan or would it be allowed when the loan is adjusted at the balance sheet date using the year-end exchange rate for purposes of translation. To our mind, as the financial statements are prepared following accrual basis of accounting, there is no reason why such translation losses should not be considered for adjustment of cost for purposes of depreciation.
Since, a substantive amendment is sought to be made by the use of an "explanation", the provision will have a retrospective effect and a number of tax payers may be adversely affected if the tax administration were to hold the view that "occurrence" only implies realised loss incurred at the time of remittance effected for the repayment of the loan and the translation losses are to be disregarded for purposes of adjustment of cost.
14. Admissible business expenses to include loss of animals use for purposes of business
Section 20, sub-section (1A): The Bill is seeking to introduce a new item of deductible expense for determining income chargeable to tax under the head "income from business". The provision proposed to be inserted provides that in the event of death or permanent incapacitation of an animal used for the purposes of business or profession, the difference between the actual cost of such animals and the amount if any realised in respect of carcasses or animal shall be allowed as a deductible expense. However, this provision shall not be applicable if animals comprise the tax payer's stock-in-trade.
15. Place of business defined for purposes of tax jurisdiction
Section 209, sub-section (5): Sub-section (5) prescribes the jurisdiction of tax authorities in respect of "place of business" carried on by any person. In order to provide clarity, the Bill seeks to insert an explanation defining the expression "place of business" to mean:
(a) in the case of listed or unlisted public limited company, the place where the registered office is situated;
(b) in the case of other companies:-
(i) if the company is primarily engaged in manufacture or processing, the place where the factory is situated;
(ii) if the company is primarily engaged in business other than manufacture or processing, the place where main business activities are actually carried on.
16. Definition of Director General Section 2(17): The Bill proposes to define the post of Director General as a person appointed as a Director General of Regional Tax Office or Large Taxpayers Unit under Section 208 of the Ordinance.
The post of Director General was created a few years back under the Tax Reforms Program under which the Director General is envisaged to head the functional based tax offices ie the Regional Tax Office and Large Taxpayers Unit in which multiple tax administrations of Income-tax, Sales-tax and Federal Excise would be working as one unit. Previously the post of Director General was included within the definition of Regional Commissioner, which definition is now proposed to be withdrawn.
17. Dividend Section 2(19) and 150: Through the Finance Act, 2008 the definition of dividend was expanded to include after tax profits of a branch of a foreign company operating in Pakistan. The intention of the amendment was to tax profits that are remitted by the branch to its head office. However, the amendment did not clearly specify the time of taxation of the profits of the branch. A corrective amendment is now sought to be made clarifying that tax shall be imposed at the time when the branch actually remits the profit to its head office.
An amendment is also proposed in Section 150 which requires withholding of tax on payment of dividend. Presently this section requires a resident company to withhold tax from payment of dividend. The term "resident company" is now sought to be replaced by the term "person". This amendment is also aimed at bringing the branch of a non-resident person in Pakistan within the ambit of withholding agent for dividend as at present, a branch not being a resident company for tax purposes is not required to withhold tax.
18. Remittance of profit by petroleum exploration and production (E&P) companies
Section 2(19): Oil and Gas Exploration activities in Pakistan are mainly carried out by branches of E&P foreign companies. These companies carry out their activities under the concession and production sharing agreements with the Government of Pakistan. Under these agreements the tax rate on profits of these companies from the exploration activity is agreed and remains frozen for the entire duration of the agreement irrespective of the changes in the tax legislation.
The amendment to tax on the remittance of profits of a branch as a dividend that was introduced through the Finance Act, 2008 was viewed as a conflict with the terms of taxation agreed in the concession and production sharing agreement. Therefore, in order to clarify the position, remittance of after tax profits by a branch of an E&P foreign company has been specifically excluded from the definition of dividend. Accordingly, branches of E&P foreign companies would not be required to withhold tax on remittance of after tax profits to their head office.
19. Tax credit on charitable donations
Section 61: Presently tax credit can be claimed by a company on donations to charitable institutions upto a maximum amount of 15% of the taxable income for the tax year. It is now proposed that the 15% ceiling be enhanced to 20% of the taxable income for the tax year.
20. Tax credit on profit on debt
Section 64: Presently a person is entitled to a tax credit in respect of any profit or share in rent or share in appreciation for value of house paid by the person in the year on a loan acquired for construction of a new house or the acquisition of a house. The amount on which tax credit is available is at present restricted to the lesser of -
(a) profit paid in the tax year; or
(b) 40% of the person's taxable income for the year; or
(c) Rs 500,000/-.
It is now proposed to enhance the limit to the lesser of; or
(a) profit paid during the year; or
(b) 50% of the person's taxable income for the year; or
(c) Rs 750,000/-.
21. Return of income
Section 114: A return of income is presently required to be filed by:
? every company,
? every person other than a company whose taxable income for the year exceeds the maximum exempt income threshold;
? a non-profit organisation or any welfare institution approved under clause 58 of Part I of the Second Schedule;
? a person who has been charged to tax in respect of any of the two preceding tax years;
? a person who claims a loss carry forward; and
? a person who owns immovable property measuring 250 Sq.Yds or more or flat in the municipal Cantonment limits or the Islamabad Capital Territory.
In order to facilitate increase in the tax base, it is now proposed that the requirement for filing of return may further be extended to the following persons:
(a) who owns a motor vehicle having engine capacity above 1000cc;
(b) who has obtained National Tax Number;
(c) who owns immovable property of 500 Sq.Yds. or more located in a rating area; and
(d) who owns a flat having covered area of 2000 Sq.Ft. or more located in a rating area.
It is now proposed that the revised return can be filed subject to the following conditions:
(a) it is accompanied by the revised accounts or revised audited accounts, as the case may be;
(b) the reason of revision of return, in writing, duly signed, is filed therewith; and
(c) it is filed before the issuance of the notice for amendment of assessment.
In case an audit is being conducted in respect of a taxpayer under Section 177, if an amendment of assessment is to be made, it would be carried out under Section 122. Therefore, it would appear that the taxpayer can still file a revised return if an omission or wrong statement is discovered during the course of audit before the Commissioner issues the notice for amending the assessment under Section 122(9) of the Ordinance.
22. Person not required to furnish a return of income
Section 115: Presently, in the case of a taxpayer whose only income consists of salary and his employer has filed the annual statement of deduction of Income-tax from salary, such person is not required to furnish a return of income. However, in case the salary income during the current or previous tax year is Rs 500,000/- or more, he would be required to file a wealth statement.
It is now proposed that salaried tax payers who have an income of Rs 500,000/- or more shall file a return of income alongwith proof of deduction or payment of tax and wealth statement.
Consequential changes have been proposed in Section 115(4) of the Ordinance that requires filing of a statement instead of a return for the tax year in respect of income of persons covered under final taxation to cater to the changes in the taxability of persons whose receipts are liable to collection/ deduction of tax under Sections 148, 153(1)(b) and 154 that have been brought out of the ambit of final taxation. It is further proposed that persons who are liable to collection of tax on the gas bill for their CNG Stations shall also be required to file a statement of final taxation instead of return of income.
The Bill further proposes to empower a taxpayer to furnish a revised statement of final taxation within five years from the end of the financial year in which the original statement was furnished. Such revision is proposed to be permitted without prejudice to the liability that the person may incur due to the omission or wrong statement.
It is further proposed that a person (other than a company) who has filed statement of final taxation under Section 115(4) of the Ordinance and has paid tax amounting to Rs 20,000/- or more for the tax year shall also be required to file a wealth statement alongwith wealth reconciliation statement.
23. Wealth Statement
Section 116: This section empowers the Commissioner to require a wealth statement from a taxpayer and also obligates certain taxpayers to voluntarily file a wealth statement. It is now proposed that such taxpayers would also file a reconciliation of wealth alongwith the wealth statement.
24. Best judgement assessment
Section 121: This Section presently empowers the Commissioner to carry out a best judgement assessment in case of failure of a person to furnish a return of income under Section 114 or a return required from a non-resident ship owner or charterer and aircraft owner or charterer or failure of a person to furnish a wealth statement. It is now proposed to extend the powers of the Commissioner to carry out a best judgement assessment if a person fails to furnish a statement of final taxation required to be filed under a notice in writing from the Commissioner.
25. Amendment of assessment
Section 122: Presently the Commissioner of Income-tax is empowered to amend an assessment within five years after the Commissioner has issued an assessment order or the return of income has been filed which is treated as an assessment order issued by the Commissioner under Section 120 of the Ordinance.
Further, the Commissioner is authorised to amend as many times as necessary, the original assessment within five years of issuance of the original assessment order or one year of the issuance of the amended assessment order, whichever is the later.
It is now proposed that the aforesaid time limits shall be counted from the end of the respective financial year in which the order is issued or amended by the Commissioner of Income-tax and not from the date of the assessment order or amended order, as the case may be.
26. Appeal to the Commissioner (Appeals)
Sections 127 & 129: An order passed under Section 205 of the Ordinance levying additional tax is presently not appealable before the Commissioner (Appeals). It is now proposed to make such an order appealable before the Commissioner (Appeals).
It is further proposed to make an appeal effect order that is passed to give effect to any finding or directions given by the various appellate forums also appealable before the Commissioner (Appeals).
It is also proposed to simplify the appeal fee structure in respect of an appeal against an assessment by proposing a fixed fee of Rs 1,000/- instead of the present fee of Rs 1,000/- or 10% of the tax assessed, whichever is less.
The time limit for passing the appellate order is presently four months from end of the month in which the appeal was lodged. After expiry of this limitation period, the relief sought by the appellant is deemed to have been allowed subject to the condition that the appellant has served a notice within 30 days of expiry of the time limit.
It is now proposed that the limitation period for passing the appellate order by the Commissioner (Appeals) should be no later than 120 days 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). While calculating the limitation period it is proposed that the period of adjournment at the request of the appellant or postponement due to any appeal or proceeding or stay order, remand or Alternative Dispute Resolution proceedings or a delay for any other reason shall be excluded.
The proposed amendment removes the concept of automatic relief to the appellant in the case of expiry of limitation of time for passing of appellate order. It is not clear that in the event of failure on the part of the Commissioner (Appeals) to decide the appeal within the prescribed time, what shall be the consequence or effect of the appeal filed. In the absence of any specific stipulation, the benefits of prompt decision contemplated by the provision now proposed to be deleted are rendered infructuous and contrary to the ends of justice.
27. Appellate Tribunal
Section130: The Bill seeks to empower the Chairman of the Income Tax Appellate Tribunal to constitute single member benches to hear cases or class of cases specified by the Federal Government by order in writing. A single member bench is proposed to dispose cases where the amount of tax or penalty does not exceed Rs 5 million. This amendment may perhaps enhance the capability of the Appellate Tribunal to dispose of the cases expeditiously.
However, the proposed concept of a single member bench disposing of cases could be detrimental to the dispensation of justice as the combination of an accountant and judicial member has always been regarded the best combination for disposal of matters relating to fiscal disputes as normally such disputes require examination of both legal and factual aspects.
It is also proposed that the Appellate Tribunal shall not stay the recovery of tax without providing an opportunity to the respondent of being heard. It is also proposed to simplify the appeal fee structure to Rs 2,000/- per appeal.
28. Alternative Dispute Resolution (ADR)
Section134A: Presently, an aggrieved person can apply to the Board for the appointment of a Committee for the resolution of any hardship or dispute. The Bill seeks to reduce the wide scope of hardship or dispute for which an application may be filed by removing such cases where prosecution proceedings have been initiated or where the dispute requires interpretation of question of law having effect on identical other cases.
The proposed amendment would lead to restrictions on bringing a matter before the ADR where industry issues requiring legal interpretation are involved. It is further proposed that the Board shall appoint a committee within 60 days of receipt of application and the Committee shall examine the matter and form its recommendations within 180 days of constitution of the Committee. It is further proposed that if the Committee fails to make recommendations within the time specified, the Board may dissolve the Committee and reappoint a new Committee.
It is also proposed that the Board shall pass an order within 45 days of receipt of recommendations of the Committee.
29. Evidence of collection or deduction of tax
Section 164: A person collecting or deducting tax is presently required to furnish a certificate of the tax collected or deducted in a format prescribed in the Income Tax Rules. Similarly, the person whose tax has been collected or deducted is required to furnish such certificate alongwith his return of income as evidence of claiming the tax so collected or deducted.
Such certificate provided by the withholding agent and furnished by the taxpayer is, as per law, regarded as sufficient evidence in respect of the tax collected or deducted.
It is now proposed that copies of challans of tax payment or any other similar document will also be required as evidence for such collection or deduction of tax. Accordingly, it is now proposed that the withholding agent must provide copies of challans of payment or any other equivalent document to the taxpayer from whom the tax has been withheld who is then required to furnish the same alongwith the prescribed certificate with his tax return.
Although, as per law, presently only a certificate is as evidence required for tax deducted at source, however, practically for claiming credit for the tax, the field officers require the taxpayer to file tax challans as evidence. Therefore, by all means the amendment seeks to reinforce the prevailing practice.
30. Filing of annual statement
Section 165: Presently, the annual statement of collection or deduction of tax is required to be submitted by the withholding agent within two months after the end of financial year. This practice is creating hardship for both the taxpayer and the department in cases where the taxpayer has a special tax year. To resolve this issue it is proposed that the annual statement would be filed within two months of the end of the taxpayer's tax year. For example, a company having a year end of 31 December would now be filing the annual statement prepared on a calendar year basis by the end of February.
This is a welcome change as practical difficulties were being faced by such assesses as the tax officer invariably ask for a reconciliation between the amounts shown in the statement with the amounts appearing in the audited accounts. This was very difficult if the statement was filed on a financial year basis and the accounts were prepared on a calendar year basis.
31. Credit for tax collected or deducted
Section 168: The Bill seeks to state that no withholding agent would be allowed to deduct any service charges from the tax withheld or collected. In case any such charges are deducted, the amount deducted would be payable to the Federal Government and any arrear in this regard shall be recovered as recovery of tax.
32. Refunds
Section 170: The time limit for disposal of refund application by Commissioner of Income-tax is proposed to be enhanced to 90 days from 45 days.
33. Power to withhold refund
Section 170A: The repealed Income Tax Ordinance, 1979 provided powers to the tax authorities to withhold refund in case the order giving rise to the refund was under appeal. Since the promulgation of Ordinance, these powers were not available to the Commissioner of Income-tax. It is now proposed that similar power to withhold refund in certain cases be vested in the Commissioner. It is, however, proposed that before withholding the refund, the taxpayer may be given a reasonable opportunity of being heard. Furthermore, the order of the Commissioner to withhold the refund shall state the reason for withholding the refund.
34. Additional payment for delayed refund
Section 171: Presently, where a refund due to the taxpayer is not settled within three months of becoming due, the Commissioner is required to pay a compensation at the rate of 6% per annum. Due to increase in interest rates, the charge of 6% is proposed to be replaced by KIBOR. The term KIBOR has been defined in Section 2(30AA) to mean Karachi Interbank Offered Rate applicable on the first day of each quarter of the financial year. Accordingly, the compensation would now be available on the basis of KIBOR rate prevailing at the beginning of each quarter of the financial year.
It is further proposed that if there is reason to believe that a person has claimed a refund which is not admissible to him, the provision relating to payment of compensation for delayed refund will not be payable till the investigation of the claim is completed and the claim is either accepted or rejected.
35. Maintenance of records
Section 174: Taxpayers are required to maintain accounts and documents for five years after end of the tax year to which they relate. This requirement is proposed to be enhanced to require the taxpayer to maintain records as above or until the final decision in any pending tax proceedings including revision, appeals etc.
36. Prosecution for non-compliance with certain statutory obligation
Section 191: Presently, any person who receives a notice from the Commissioner to file a return and fails to do so is liable to a fine or imprisonment for one year or both.
It is now proposed to penalise the non-compliance of voluntary filing of return or filing of statement of final taxation under section 115(4) of the Ordinance or a wealth statement as required under Section 116 of the Ordinance or a failure to comply with a notice for recovery of tax liable to prosecution under this section.
It is further proposed that the fine should be capped upto Rs 50,000/-.
37. Prosecution for false statement
Section 192: Presently no ceiling is provided for a fine for the purpose of false statement in any verification. It is proposed that a ceiling of Rs 100,000/- be provided for the fine.
38. Prosecution for concealment of income
Section 192A: It is proposed that where in the course of tax proceedings any person has concealed income or furnished inaccurate particulars of such income and the revenue impact of such concealment is Rs 500,000/- or more, such person would then be treated as having committed an offence which will be punishable with fine or imprisonment upto two years or both. Concealment of income or furnishing of inaccurate particulars of income shall include the suppression of an income or the claiming of any deduction for any expenditure not-actually incurred or any act referred as unexplained income or assets in terms of Section 111 of the Ordinance.
39. Ceiling of fines under various prosecution proceedings
Sections 193, 194, 195, 196, 197 & 198: Fines proposed in Sections 193, 194, 195 and 196 are proposed to be capped at Rs 50,000/-. The fine for disposal of property to prevent attachment is proposed to be capped at Rs 100,000/-. The fine for unauthorised disclosure is proposed at Rs 25,000/-.
40. Power to compound offences
Section 202: Presently the Commissioner is empowered to compound offence. It is proposed that this power may be delegated to the Director General who may, with the prior approval of the Board, compound offence subject to payment of tax due alongwith the additional tax and penalty.
41. Additional tax
Section 205: The rate of additional tax for failure to pay any tax, advance tax by the due date, or pay atleast 90% of the advance tax liability is presently 12% per annum. This is proposed to be changed to KIBOR plus 3% per quarter.
Failure to pay atleast 90% of the advance-tax liability requires additional tax to be calculated from 1st day of April to the date of assessment or 30 day of June of the financial year next following. Due to taxpayers being allowed to adopt special tax year, there was an ambiguity with regard to the period for which additional tax was to be charged in such cases.
An amendment is now proposed whereby the date of 1 April is proposed to be replaced by the first day of the last quarter of the relevant tax year.
42. Directorate General (Intelligence and Investigation of Income-tax)
Section 229A: A new Directorate General is proposed to be established consisting of a Director General, Directors, Additional Directors, Deputy Directors and Assistant Directors and other officers that the Board may appoint to exercise such powers as may be assigned to the Directorate by the Board.
43. Advance tax on private motor vehicles
Section 231B: It appears that the changes proposed will extend the scope of existing collection on purchase of new locally manufactured cars/jeeps to all types of motor vehicles. Further, the Local Government has also been exempted from applicability of this section.
44. Collection of tax from electricity bills
Section 235: Presently, tax collected on monthly electricity bills in respect of non-corporate commercial and industrial consumers is treated as a final tax. An amendment has been proposed in Section 235 by virtue of which the tax deducted on the monthly electricity bills exceeding Rs 30,000/- will be adjustable against the final tax liability. This means that any excess amount paid would be refundable.
45. Collection of tax on sale by auction
Section 236(A): Collection of tax on sale of property by public auction was introduced way back in 1981 through insertion of Section 50(7A) in the repealed Income Tax Ordinance, 1979. However, this provision was omitted through the Finance Ordinance, 2001.
It is now proposed to reintroduce the provision in the Ordinance which would require a person making sale by public auction of any property or goods confiscated or attached either belonging to or not belonging to the Government, Local Government, any authority, company, foreign association, foreign consultant, foreign contractor, Collector of Custom, Commissioner of Income-tax or any other authority to collect tax at the rate of 5% from the person to whom such property or goods are sold.
The tax so withheld would be an advance tax adjustable against the ultimate liability of the taxpayer for the tax year. It has been further elaborated through an explanation that sale of property would include awarding any leasing to a person including lease of the right to collect tolls, fees or other levies.
THE FIRST SCHEDULE
46. Rates of tax for individuals and association of persons (AOPs):
The basic threshold for charge of income tax for salaried taxpayers is proposed to be raised from the existing Rs 180,000/- to Rs 200,000/- and accordingly, the rates of tax chargeable for the tax year 2010 (corresponding to the income year ending at any time between 01 July 2009 to 30 June 2010) have been revised as under. The basic threshold as well as the rates of tax for non-salaried taxpayers has remained unchanged.
Salaried Taxpayers:
============================================================================
Taxable Income Rate of Tax (%) Taxable Income Rate of Tax (%)
Upto Rs 200,000 Nil
============================================================================
Rs 200,001 - 250,000 0.50 Rs 1,050,001 - 1,200,000 10.00
Rs 250,001 - 350,000 0.75 Rs 1,200,001 - 1,450,000 11.00
Rs 350,001 - 400,000 1.50 Rs 1,450,001 - 1,700,000 12.50
Rs 400,001 - 450,000 2.50 Rs 1,700,001 - 1,950,000 14.00
Rs 450,001 - 550,000 3.50 Rs 1,950,001 - 2,250,000 15.00
Rs 550,001 - 650,000 4.50 Rs 2,250,001 - 2,850,000 16.00
Rs 650,001 - 750,000 6.00 Rs 2,850,001 - 3,550,000 17.50
Rs 750,001 - 900,000 7.50 Rs 3,550,001 - 4,550,000 18.50
Rs 900,001 - 1,050,000 9.00 Rs 4,550,001 - 8,650,000 19.00
Over Rs 8,650,000 20.00
============================================================================
Non Salaried Taxpayers
============================================================================
Taxable Income Rate of Tax (%) Taxable Income Rate of Tax (%)
============================================================================
Upto Rs 100,000 Nil Rs 300,001 - 400,000 7.50
Rs 100,001 - 110,000 0.50 Rs 400,001 - 500,000 10.00
Rs 110,001 - 125,000 1.00 Rs 500,001 - 600,000 12.50
Rs 125,001 - 150,000 2.00 Rs 600,001 - 800,000 15.00
Rs 150,001 - 175,000 3.00 Rs 800,001 - 1,000,000 17.50
Rs 175,001 - 200,000 4.00 Rs 1,000,001 - 1,300,000 21.00
Rs 200,001 - 300,000 5.00 Over Rs 1,300,000 25.00
============================================================================
47.Exemption to women taxpayers:
In the case of a woman taxpayer, no tax is levied if the taxable income is within the threshold mentioned below. The threshold for salaried taxpayer for the tax year 2010 has been raised while for non-salaried taxpayer continues at the same level.
===========================================
Category Threshold
===========================================
Non-salaried taxpayer Rs 125,000
Salaried taxpayer Rs 260,000
===========================================
48.Marginal Relief: For a salaried taxpayer, marginal tax relief continues to be available. The relief works in the following manner.
==================================================================
Total income does not exceed Increase in tax not to exceed
tax payable on the maximum of
the relevant slab Plus
==================================================================
Rs 550,000 20%
Rs 1,050,000 30%
Rs 2,250,000 40%
Rs 4,550,000 50%
Over Rs 4,550,000 60%
==================================================================
49. Internally Displaced Persons Tax (IDPT):
Income tax designated as IDPT is proposed for individuals and AOPs for the tax year 2009 (corresponding to the income year ending at any time between 01 July 2008 to 30 June 2009) at 5% of the tax payable where the taxable income is one million rupees or more.
It is also proposed to tax the bonus paid or payable to a corporate employee receiving salary income of one million rupees or more (excluding such bonus) as a separate block of income at 30%. This income tax designated as IDPT is proposed as a one time levy.
50. 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.
51. Salaried taxpayer:
"Salaried taxpayer" is a person having salary income in excess of 50% of his/her taxable income.
52. 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 less than Rs 500,000/-. The said rebate continues with the increased threshold of Rs 750,000/- in place of the existing Rs 500,000/-.
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 but at a reduced rate. The tax liability in such cases is reduced by an amount equal to 50% of the tax payable on his / her income from salary. Previously this limit was 75%.
53. Rates of tax on retailers:
The rate of tax applicable on a retailer continues at 0.50% of the turnover in case his declared turnover is less than 5 million.
54. Rates of tax for companies:
a) For public, private and banking companies, the rate of tax remains unchanged at 35% for tax year 2010.
b) A Co-operative and finance society is taxed at the income tax rate applicable to a company.
c) A slab rate of tax for a "small company" was introduced for the tax year 2009 which was based on turnover where the lowest rate was 20% based on turnover upto Rs 250 million and highest was 35% on turnover exceeding Rs 500 million. It is now proposed that the rate of tax on "small company" shall be 20% for the tax year 2010.
55. Rate of tax on dividend income:
The rate of tax on dividend received by all taxpayers continues at 10%.
56. Income from property:
The rates of tax to be paid in respect of income from property for the tax year 2010 (corresponding to the income year ending at any time between 01 July 2009 to 30 June 2010) has remained unchanged and is as under:
i) Individuals and Association of Persons.
=================================================================================
Gross amount of rent Rate of Tax
=================================================================================
Upto Rs 150,000 Nil
Rs 150,001 - Rs 400,000 5% of the amount exceeding Rs 150,000
Rs 400,001 - Rs 1,000,000 Rs 12,500 + 7.5% of the amount exceeding Rs 400,000
Over Rs 1,000,000 Rs 57,500 + 10% of the amount exceeding Rs 1,000,000
=================================================================================
ii) Company:
=================================================================================
Gross amount of rent Rate of Tax
=================================================================================
Upto Rs 400,000 5%
Rs 400,001 - Rs 1,000,000 * Rs 20,500 + 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
=================================================================================
-- appears to be a typographic error, since it should be Rs 20,000/-.
57. Advance income tax on private motor vehicles:
Advance income tax payable at the time of paying annual motor vehicle tax, in the case of private motor vehicles continues as under:
========================================
Engine capacity Amount of Tax
========================================
Upto 1000 cc Rs 750
1001 cc - 1199 cc Rs 1,250
1200 cc - 1299 cc Rs 1,750
1300 cc - 1599 cc Rs 3,000
1600 cc - 1999 cc Rs 4,000
Over 1999 cc Rs 8,000
========================================
58. Advance tax on registration of private motor vehicles:
The rate of collection of advance tax by manufacturer or authorised dealers of motor vehicles is as follows:
========================================
Engine capacity Amount of final
tax (Rs )
========================================
Upto 850 cc Rs 7,500
851 cc - 1000 cc Rs 10,500
1001 cc - 1300 cc Rs 16,875
1301 cc - 1600 cc Rs 16,875
1601 cc - 1800 cc Rs 22,500
1801 cc - 2000 cc Rs 16,875
Over 2000 cc Rs 50,000
========================================
59. Advance tax at the time of sale by auction:
The rate of collection of tax by person making sale by public auction of any property or goods to which Section 236A applies shall be 5% of the gross sale price of such property or goods.
60. Withholding tax rates:
===========================================================================================================
Rate % Whether under
Type of Payment Existing Proposed final tax régime
===========================================================================================================
Collection of tax at imports
Value of goods inclusive of customs duty and sales tax 2 4 No
Profit on debt
a) Yield on a National Savings Deposit 10 No change Yes
Certificate including a Defence Savings
Certificate under the National Savings
Scheme;
b) Profit on a debt, being an account or deposit 10 No change Yes
maintained with a banking company or a
financial institution;
c) Profit on any bond, certificate, debenture,
security or instrument of any kind (excluding 10 No change Yes
loan agreement between a borrower and a
banking company or a development finance
institution) issued by a banking company, a
financial institution, company as defined in
the Companies Ordinance, 1984 and a body
corporate formed by or under any law for the
time being in force, to any person other than
a financial institution.
d) Profit on any security issued by the Federal
Government, a Provincial government or a
local authority to any person other than a
financial institution
10 No change No
Goods and services
a) Sale of rice, cotton seed or edible oils 1.5 No change Yes
b) Sale of cigarettes and pharmaceutical
products by distributors of such goods 3.5 1 Yes
c) Sale of any other goods
d) For passenger transport services
e) For other services 3.5 No change Yes
f) Execution of a contract 2 No change No
g) For news print media services 6 No change No
6 No change Yes
6 2 No
CNG Station - Refer to Section 234A 6 No change Yes
Exports
Export proceeds 1 of export No
Proceeds from sale of goods to an exporter under proceeds No change
an inland back-to-back letter of credit or any other No
arrangement
Export of goods by an industrial undertaking No
located in an Export Processing Zone
Collection by collector of customs at the time of
clearing of goods exported - 1 No
Indenting commission - 5 No
Income from property At varying
slab rates of
Annual rent of immovable property including rent 5 to 10 for No change
of furniture and fixtures and amounts for services individual, Yes
relating to such property. AOPs and
company
Prizes and winnings
a) Amount of prize bond winning 10 No change Yes
b) Amount of raffle/lottery winning, cross-word
puzzle or prize on winning a quiz offered by 20 No change Yes
companies for promotion of sales
Telephone users
Telephone subscriber (other than mobile phone) 10 of No
amount
exceeding No change
Rs 1,000
Amount of bill of mobile telephone, sale price of
prepaid telephone card or sale of units through
CD or whatever form 10 No No
Cash withdrawal
0.3 of the
Amount exceeding Rs 25,000 amount No change No
withdrawn
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 indenting commission
agents, advertising agents and yarn agents
Amount of payment
10 No change Yes
Commission income of others
Amount of payment 10 No change Yes
Collection of tax by stock exchange
0.01 of No change No
Purchase of shares purchase
value .
Sale of shares 0.01 of sale No change No
value
Trading of shares 0.01 of No change No
traded value
l0 of the
Financing of COT carry over No change No
Charge
===========================================================================================================
61. Rates of tax for non-resident taxpayers:
The applicable withholding tax for Tax Year 2010 on certain payments to non-residents is as under:
=====================================================================================================
Rate%
=====================================================================================================
Type of payment
Existing Proposed
=====================================================================================================
Dividends from:
- a company engaged in power generation project 7.5 No change
- others 10 No change
Branch profit remittance tax (other than branch offices of E&P companies) 10 No change
Technical services fee 15 No change
Insurance premium Ire-insurance premium 5 No change
Advertisement services to a media person relaying from outside Pakistan 10 No change
Royalty 15 No change
Shipping income 08 No change
Air transport income 03 No change
Profit on debt 30 No change
Profit on debt where non-resident does not have a PE in Pakistan 10 No change
Others (excluding those specifically mentioned herein) 30 No change
Execution of a contract
- contract or sub-contract under a construction, assembly or installation project in Pakistan,
including a contract for the supply of supervisory activities in relation to such project
- contract for construction or services rendered relating thereto 6 No change
- a contract for advertisement services rendered by TV satellite channels 6 No change
6 No change
=====================================================================================================
The taxes withheld in all the above cases except for taxes withheld under the head "Profit on debt" and "Others" constitute full and final settlement of the non-resident's tax liability in Pakistan in respect of such income.
A non-resident contractor earning income from "execution of contract" can opt for the final tax regime, which means that the taxes withheld would 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
62. Increased exemption on payment out of voluntary pension system
Clause (23A):
The accumulated balance received from the voluntary pension system offered by a pension fund manager under the Voluntary Pension System Rules, 2005 at the time of an eligible person's retirement, disability rendering him unable to work, or on his death is exempt upto 25% of such accumulated balance. The Bill now seeks to enhance the exemption to 50% of such accumulated balance.
63. Income of religious or charitable trust
Clause (59):
This Clause provides exemption to specified classes of income when such income is utilised wholly or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto. However, such exemption was subject to the condition that the amount is spent within Pakistan.
Where any sum out of the amount so set apart was spent outside Pakistan, the Clause inadvertently stated the amount to be included in the total income of the tax year in which it is so spent or of the year in which it was set apart, whichever was the 'greater'. Further, the Clause also inadvertently provided that the provisions of Section 122, relating to amendment of assessment, would not apply to such amount.
The Bill seeks to rectify such mistakes with the intent that the amount, if expended outside Pakistan, would be included in the total income of the tax year in which it is so expended or of the year in which it is set apart, whichever is the earlier and would also be exposed to assessment under Section 122 of the Ordinance.
64. Donation to specified institutions
Clause (61):
This Clause provides for exemption to donors in respect of donations made to specified institutions. Such exemption, for corporate taxpayers is subject to a limit of 15% of the taxable income of the company for the year. The Bill seeks to enhance this limit to 20%.
65. Exemption to educational institutions
Clause (92):
Income of the universities or other educational institutions established solely for educational purposes and not for purposes of profit enjoys unconditional exemption. The Bill proposes that new universities or other educational institutions established on or after 30 June 2009 shall be required to have prior approval of the Director General for the purposes of claiming exemption under the Clause.
Further, all existing universities or other educational institutions established before 30 June 2009 shall be required to have approval of the Director General for the purposes of claiming exemption under the clause within six months from the date of notification of the Finance Act, 2009.
PART-II
66. Export indenting commission
Clause (5):
Export indenting commission received by an export indenting agent or an export buying house is subject to tax at the rate of 1% ie the same rate at which the exporter is liable to tax. The said clause is proposed to be deleted with the result that such persons would now be subject to tax at the rate of 5%.
67. Local purchase of edible oil
Clause (13C):
The rate of tax on purchase of locally produced edible oil by manufacturers of cooking oil or vegetable ghee or both is presently 2% of the purchase price. The Bill seeks to extend such tax in respect of local purchase of imported edible oil as well.
68. Dividend distributed by power projects privatised by WAPDA
Clause (17):
Presently dividends declared or distributed by power projects privatised by WAPDA is subject to tax at the reduced rate of 7.5%. The Bill seeks to withdraw this concession.
69. Withholding tax on distributors of cigarettes and pharmaceutical products
Clause (24A):
A new clause is proposed to be inserted which prescribes a reduced rate of withholding tax of 1% of the gross amount of payment as against 3.5% presently applicable on sale of cigarettes and pharmaceutical products by distributors of such goods.
70. Reduced rate of taxes on rental income
Clauses (27) & (28):
The clauses provide reduced rates of tax in respect of rental income derived by the owner of immovable property being an individual, association of persons or a company. Since the effect of the said reduced rates has now been incorporated in the First Schedule itself prescribing the rates of tax on rental income, the Bill seeks to withdraw the two clauses as being infructuous.
PART-III
71. Senior citizen allowance
Clause (1A):
Presently, a senior citizen of Pakistan, being a tax payer, aged sixty years or more on the first day of the relevant tax year, is allowed a rebate of 50 percent of the tax payable if his/her incomes in that tax year is less than Rs 500,000/-. The Bill seeks to enhance the monetary limit of Rs 500,000/- to Rs 750,000/-.
72. Full time teacher or researcher
Clause (2):
The tax payable by a full time teacher or a researcher, employed in a non profit education or research institution duly recognised by Higher Education Commission, a Board of Education or a University recognised by the Higher Education Commission, including government training and research institution, stands reduced by an amount equal to 75% of tax payable on his income from salary by virtue of this Clause. The Bill seeks to reduce the extent of reduction in tax liability from 75% to 50%.
PART-IV
73. Non application of minimum tax
Clauses (11A), (16), (19) & (57):
With the proposed reinstatement of Section 113 by the Bill, Part IV has suitably been amended to re-introduce exemption from the application of Section 113 for certain categories of taxpayers and classes of income. These exemptions are invariably the same as were previously available prior to the Finance Act, 2008.
The list may be summarised as follows:
a) National Investment (Unit) Trust;
b) a collective investment scheme as authorised or registered under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003;
c) a real estate investment trust as approved and authorised under Real Estate Investment Trust Rules, 2006;
d) any other company in respect of turnover representing transactions in shares, or securities listed on a registered stock exchange;
e) petroleum dealers (irrespective of their personal status), in so far as they relate to turnover on account of sale of petroleum and petroleum products, engaged in retail sale of petroleum and petroleum products through petrol pumps;
f) Hub Power Company Limited so far as they relate to its receipts on account of sale of electricity;
g) Kot Addu Power Company Limited for the period it continues to be entitled to exemption under clause (138) of Part-I of the Second Schedule;
h) companies, qualifying for exemption under clause (132) of Part-I of Second Schedule, in respect of receipts from sale of electricity;
i) Provincial Governments and local government, qualifying for exemption under Section 49 and other Government bodies which are otherwise exempt from income tax;
j) Pakistan Red Crescent Society;
k) special purpose, non-profit companies engaged in securitizing the receivables of Provincial Governments;
l) non-profit organisations approved under clause (36) of Section 2 or clause (58) or included in clause (61) of Part-I of Second Schedule;
m) a taxpayer who qualifies for exemption under clause (133) of Part-I of Second Schedule, in respect of income from export of computer software or IT services or IT enabled services;
n) a resident person engaged in the business of shipping who qualifies for application of reduced rate of tax on tonnage basis as final tax under clause (21) of Part II of the Second Schedule;
o) a venture capital company, venture capital fund and private equity and venture capital fund which is exempt under clause (101) of Part-I of Second Schedule;
p) a Modaraba registered under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980;
q) Corporate and Industrial Restructuring Corporation;
r) The corporatized entities of Pakistan Water and Power Development Authority, so far as they relate to their receipts on account of sale of electricity, from the date of their creation upto the date of completion of the process of corporatization ie till the tariff is notified;
s) a morabaha bank or a financial institution approved by the State Bank of Pakistan or the Securities and Exchange Commission of Pakistan, as the case may be, for the purpose of Islamic Banking and Finance in respect of turnover under a morabaha arrangement;
t) WAPDA First Sukuk Company Limited;
u) Institutions of the Aga Khan Development Network (Pakistan) listed in Schedule I of the Accord and Protocol dated 13 November 1994, executed between the Government of Islamic Republic of Pakistan and the Aga Khan Development Network;
v) Non-residents (excluding local branches or subsidiaries or offices of foreign banks, companies, associations of persons or any other persons operating in Pakistan), in respect of their rupees denominated government and corporate securities and redeemable capital, as defined in the Companies Ordinance, 1984, listed on the registered stock exchange where the investments are made exclusively from foreign exchange remitted into Pakistan through a Special Convertible Rupee Account maintained with a bank in Pakistan; and
w) Companies operating 'trading houses' as specified, subject to the condition that the exemption from application of Section 113 shall be available for the first ten years, starting from the tax year in which the business operations commenced.
A comparison of the newly inserted provisions with those of the deleted Clauses shows that exemption is not being extended to the following categories of taxpayers which were originally available to them at the time of deletion by the Finance Act, 2008. This would mean that now the minimum tax provisions would as such apply to the following categories of tax payers / classes of income:
a) semi government bodies which are otherwise exempt from income tax;
b) special purpose, non-profit companies engaged in securitizing the receivable of companies; and
c) small companies as defined in section 2.
74. Power to issue exemption certificate under Sections 151 & 155
Clause (47):
The Clause empowers the Commissioner to issue a nil withholding tax certificate in respect of profit on debt and rental income from immovable property where the income of the taxpayer was exempt from charge of tax. The Bill seeks to withdraw such powers.
It may be noted that Section 159 of the Ordinance provides a blanket power to the Commissioner to issue exemption / reduced rate withholding tax certificate. Accordingly, even if the said Clause is deleted, the taxpayer may seek such exemption certificate under Section 159 of the Ordinance.
75. Exemption from applicability of withholding tax provisions of Section 235 to cotton ginners
Clause (66A):
The Bill seeks to exempt application of Section 235 viz. tax collection on electricity consumption to cotton ginners and suppliers of lint.
76. Clauses proposed to be deleted by the Bill
The following Clauses are proposed to be deleted owing to the same becoming infructuous due to efflux of time:
================================================
Clause No Description of Clause
================================================
46B Manufacturers of goods being individual
and AOP for the tax year 2007.
64 Non application of Section 231B during
the period 21 February 2008 and
ended on the 30 June 2008.
================================================
THE THIRD SCHEDULE
77. Accelerated depreciation to alternative energy projects
Part-II, Para (2):
With the proposed insertion of Section 23B in the Ordinance, Part II of the Third Schedule is proposed to be amended to allow a first year allowance, at the rate of 90% of the cost of the eligible depreciable asset, being installed for generation of alternate energy.
THE SEVENTH SCHEDULE
78. Classified advances and off balance sheet items-allowed
subject to maximum threshold
Rules 1(c), (ca), (cb) & (cc):
The Seventh Schedule was introduced through the Finance Act, 2007; however, it was made applicable from the tax year 2009 (financial year beginning 1 January 2008). The rationale behind introducing this specific Schedule was to provide special provisions for taxation of income of banking companies like those available to companies involved in the business of insurance and petroleum exploration.
The original version of the Seventh Schedule when enacted carried the following provisions for the tax treatment of the bad debts, which nevertheless always gave rise to contentious issues between the tax department and the banking companies in the past.
The said provisions contained in Rule 1 of the Schedule were to the following effect:
a) provisions for classified advances and off balance sheet items claimed in the accounts are allowable on the basis of a certificate from the external auditors to the effect that such provisions are in accordance with the Prudential Regulations issued by the State Bank of Pakistan (SBP);
b) irrecoverable debt, classified as 'substandard' in accordance with the Prudential Regulations is not allowed;
c) a 'substandard' irrecoverable debt is eligible for deduction upon its subsequent classification as 'doubtful' or 'loss' under the Prudential Regulations; and
d) an item classified as 'substandard' and having been taxed in a previous tax year is subsequently reclassified as 'recoverable', also qualifies for deduction.
The above provisions laid to rest the major issue faced by banking companies for claiming their doubtful debts as an allowable deduction primarily on account of the fact that it was based on the SBP's Prudential Regulations. However, certain issues of transitional provisions like unabsorbed depreciation on assets given on lease by banks, and bad debts of prior years remained unresolved and, hence, were required to be addressed by appropriate amendments in the said Schedule.
Instead of appropriate and satisfactory redressal of the prior year issues, through the Finance Act, 2008, the entire concept of allow ability of bad debts based on Prudential Regulations was, to the serious detriment of the banking sector, scrapped and the banks were asked to claim bad debts in accordance with Sections 29 and 29A of the Ordinance which are general provisions for bad debts and do not address bank-specific issues.
This amendment exposes the banking companies to the old status where allow ability of bad debts has always remained a major contentious issue with the tax authorities. The Board on its part attempted to put the onus on the SBP by stating that the SBP enhanced provisioning by banks by withdrawing the facility to take into account the forced sale value of collateral for the purpose of calculating provisions and therefore, the tax authorities contended that they were constrained to change the basis of allow-ability of bad debts.
Since the Finance Act, 2008, several meetings took place between the Taxation Committee of the Pakistan Banks Association, a collective body of the commercial banks in Pakistan, where it was desired that the Seventh Schedule in its original form be restored and issues relating to prior years be promptly settled as the banks being the custodian of public deposits and funds need to be stabilised and liberated from undue exposure.
Whilst the salient features for the Budget 2009-2010 characterises the amendment in the Seventh Schedule a relief measure and claims to have restored the facility for claim of bad debts, the overall effect of the actual amendments, despite insertion of sub-rules (c), (ca), (cb)and (cc) is just the converse.
This is evident from the fact that under the new sub-rule (c) sought to be introduced, provisions for classified advances instead of being proposed to be restricted to 1% of the total advances made by the bank in a tax year, the actual amendment proposed in the Seventh Schedule states that provisions for classified advances and off balance sheet items shall be allowed as a deduction at the rate of 1% of such classified advances only.
There is a serious contradiction in the proposed amendment in sub-rule (c). On one hand, the provision is restricted as aforesaid, while on the other, it requires such provisions to be "based upon and in line with the Prudential Regulations". Both these requirements cannot co-exist, for, the Prudential Regulations require a much higher provision than the paltry "1% of the classified advances" specified in the same sub-rule.
It needs to be appreciated that banks are required to carry out provisioning on the basis of the overall advances portfolio which comprise of performing loans as well as classified loans/facilities.
Therefore, restriction of claim of bad debts at 1% of such classified advances grossly restricts the bad debt claims of the bank and would result in very high effective tax rate for banking companies. In some cases the additional tax due to the disallowance of bad debts could be so substantial that it could trigger "going concern" issues in certain banks.
Apart from the issue of a liability of bad debts in the tax year 2009 and thereafter, issues of prior year bad debts reclaim and carry forward of unabsorbed depreciation of leased assets that pertain to tax years 2008 and earlier also needed to be addressed. Failure to restore these claims may lead to substantial write-off of deferred tax assets created in respect of these claims. Thus, again failure to provide adequate legal provisions in the Schedule potentially challenges the continuity of some of the banks and hence, it is detriment to depositors and other stakeholders.
It is disappointing to note that despite understanding of the issues by the Board, the core issues affecting the banks are yet to be resolved. Due to the above factors, there is an urgent need to look into the matter afresh and the legislature needs to exercise extreme caution while enacting tax provisions related to banks.
Consequential amendment has been made in Section 29A of the Ordinance whereby reference to banking companies has been removed from the Section since banks would be claiming bad debts which no longer permits claim of bad debts under Section 29A of the Ordinance.
79. Minimum tax
Rule 7A:
The Bill proposes that minimum tax as applicable under Section 113 of the Ordinance to other resident companies shall also apply in the same manner and extent to banking companies.
INCOME TAX RULES, 2002:
In exercise of the powers conferred under sub section (1) of Section 237 of the Ordinance the Board has brought about certain amendments in the Income Tax Rules, 2002 (the Rules) via SRO.392 of 2009 dated 19 May, 2009. Following are the significant amendments that have been brought about in the Rules.
80. Particulars for claiming depreciation and amortisation
Rule 12:
The said Rule requires furnishing of particulars for claiming deduction for depreciation and amortisation at the time of filing the return of income for a particular tax year. The said particulars included a declaration of period for which depreciable assets and intangibles were used partly in deriving income from business chargeable to tax. Since the said information did not have any relevance to the claim of depreciation for the period, it has now been omitted and hence is no longer required to be furnished as part of depreciation / amortisation schedule.
81. Apportionment of expenses
Rule 13 and Rule 231:
Common expenses incurred by a taxpayer to earn more than one class of income are required to be apportioned amongst the different classes of income. The general principles on the basis of which such common expenses are to be apportioned are contained in Rule 13. However, for the purpose of apportionment of common expenses incurred by the taxpayer to derive income from export of goods and other income chargeable to tax, Rule 231 prescribed a specific procedure for computation of export profits and tax attributable to export sales.
Accordingly, for the purpose of apportionment of common expenses incurred by the taxpayer to derive income from export of goods and other income chargeable to tax, Rule 231 prevailed over Rule 13. In order to harmonise the scheme of apportionment of common expenses, Rule 231 has been deleted with the result that Rule 13 would now govern the apportionment of expenditure in respect of exports and other income of the taxpayer.
Rule 13 has also been suitably re-drafted so as to allow apportionment of common expenses relatable to business, including presumptive and exempt income. We are of the view that such re-drafting would not substantially affect the basis of apportionment of common expenses as from the provisions prior to the amendment, especially in relation to financial expenses.
82. Certificate of residence
Certificate of payment of tax
Rule 19A & 19B:
Rules 19A and 19B respectively provide for the procedure for obtaining a 'certificate of residence' and the 'certificate of payment of tax' from the competent authorities in Pakistan. For the purpose of issuance of such certificate, If the competent authority so requires, it may call for a report from the concerned Commissioner to verify the matter. The concerned Commissioner, after verifying all the relevant facts, was required to file his report within 15 days of the receipt of such application by him. The said time limit for submission of report by the Commissioner has now been extended to 30 days.
83. Certificate for tax sparing credit
Rule 19C:
In terms of Rule 19C, where any non-resident person in Pakistan seeks to obtain a certificate for tax sparing credit in respect of income earned through a permanent establishment situated in Pakistan, the person may submit an application to the competent authority in Pakistan. If required, the competent authority is authorised to call for a report from the concerned Commissioner in order to verify the matter.
The concerned Commissioner, after verifying all the relevant facts, was required to file his report within 15 days of the receipt of such application by him. The said time period for submission of report by the Commissioner has now been extended to 60 days.
Also, the time period for issuance of such certificate by the competent authorities has also been extended from forty five days to ninety days.
84. Return of income - submission of audited accounts
Rule 34:
Whether audited financial statements form part of the return of income of a company or not has always been put to question before the Board as nothing was specifically mentioned in the Ordinance or Rules in this regard. Even though for certain tax years, the form of return of income for companies specifically mentioned audited accounts to be furnished as part of an attachment to the return of income, the veracity of such requisition was put to question by the corporate taxpayers.
Rule 34 has now specifically been amended so as to require companies to file the following alongwith the return of income filed for the relevant tax year:
audited accounts; and reconciliation of profits as per accounts and taxable income as declared in the return
85. Wealth statement
Rule 36:
Wealth statement required to be filed by a taxpayer shall now include a wealth reconciliation statement. Although the contents of wealth reconciliation statement have not been prescribed, we infer that such reconciliation would be in comparison with the preceding tax year.
86. Payment of tax collected or deducted
Rule 43:
Tax collected or deducted by a taxpayer, other than the Federal Government or a Provincial Government, was required to be remitted to the Government treasury or deposited in an authorised branch of the State Bank of Pakistan or the National Bank of Pakistan within 07 days from the end of each fortnight. Hence, tax collected or deducted by a taxpayer was deposited twice a month ie by 07 and 22 in a calendar month.
The said time lines have now been changed so that the tax collected or deducted by the taxpayer, not being a Federal Government or Provincial Government, is now required to be deposited within 07 days from the end of each week ending on every Sunday. Thus, tax collected or deducted in a week is now required to be deposited into the Government by Sunday of the following week. This means that the withholding agent is now required to deposit the tax atleast 04 times in a calendar month.
In terms of Section 10 of the General Clauses Act, 1897 where by any central act or regulation..., any act or proceeding is directed or allowed to be done or taken in any Court or office on a certain day or within a prescribed period, than, if the Court or office is closed on that day or the last day of the prescribed period, the act or proceeding shall be considered as done or taken in due time if it is done or taken on the next day afterwards on which the Court or office is open. Since the last day for the deposit of tax falls on Sunday then, by virtue of the General Clauses Act, the said tax may be deposited on Monday.
87. Furnishing of documents and returns etc.
Rule 73:
Effective 01 July, 2009, all Federal Government departments shall now file withholding tax statements electronically.
88. Taxpayer's registration by the Commissioner
Rule 81A:
A new Rule has been inserted which empowers the Commissioner having jurisdiction to register a person as a taxpayer where the Commissioner is satisfied that the income of the person is taxable and the person is required to file a return of income. A letter may be issued by the Commissioner requiring the person to submit an application for registration within a reasonable time as specified in the said letter. In case of non-compliance with such letter, the Commissioner shall register the taxpayer on a 'trial registration' number, after verification of particulars of the taxpayer. In case any assessment is made or any liability is created by the Commissioner against the taxpayer, the Commissioner is required to allot a National Tax Number Certificate to the taxpayer within 15 days of completion of assessment or creation of liability under the Ordinance.
89. Appeal to Board against cancellation
of registration of Income Tax Practitioner
Rule 90:
The said Rule has been replaced with the effect that an appeal against the decision of the Director General, Regional Tax Office can be made with the Board. However, the Board, on filing of an appeal may, pending decision of appeal, allow the ITP to represent cases pending, before a decision is made by the Director General. The Board is expected to decide the case within 60 days of the filing of appeal.
90. Limit on contribution by employers to recognised Provident Fund
Rule 97:
The said Rule empowers the Commissioner to relax the limits fixed for contribution of an employer to the individual account of an employee in any year. Subject to the specified limits, the said Rule inter alia allowed the employer to contribute double the amount of contribution of the employee in a year where the salary of the employee does not exceed Rs 1,000/- per month. The Rule has been amended to omit the monetary limit with the effect that the employer, subject to other conditions, can now contribute double the amount of contribution made by the employee in the year.
91. Non Profit Organisations
Rules 211 - 220A:
For tax purposes, a 'non-profit organisation' inter alia is one whose status as such is duly approved by the Commissioner. It would be noted that in order to avail exemption from charge of tax as available under the provisions of the Ordinance, or to allow the donor to claim a tax credit in respect of donations made by it, it is essential that the organisation is duly approved by the Commissioner as such.
Rules 211 to 220B contain various provisions relating to the manner of operation and the procedure for approval of the non-profit organisations. Besides various editorial amendments that have been made in the said Rules, the following are significant.
By way of amendment in sub Rule (1) of Rule 213, non-profit organisations are now also permitted to invest their surplus fund in National Savings Schemes, issued by the Central Directorate of National Savings. It should be noted that the surpluses or moneys validly set apart by the organisation should not exceed 25% of the total income of the year of such organisation.
In terms of the amendments brought about in sub Rule (2) of Rule 213, the Commissioner is now empowered to refuse to grant approval to the non-profit organisation where the salary payments by the organisation exceeds 50% of its total receipts, excluding restricted donations or funds received during the tax year. Whereas such restriction on distribution of salary may appear reasonable to avoid manipulation of funds received by the organisation, at the same time, it may affect certain organisations such as those operating schools / educational institutions and hospitals whose prime cost represents salary payment to employees.
In terms of a new sub clause inserted in Rule 217, the Commissioner of Income Tax is now empowered to withdraw the approval of the non-profit organisation if it fails to file statements of deduction of income tax under Section 165 read with Rule 44.
As per amendments brought about in Rule 219, a non-profit organisation aggrieved by an order of the Commissioner refusing to grant or withdrawing its approval as such, may now make an application to the Director General, Regional Tax Office or Large Tax Payer Unit, as the case may be, within 60 days of the receipt of order from the Commissioner. The respective Director General is required to pass his order within 60 days of the filing of such application.
Clause (58) of Part I of the Second Schedule to the Ordinance allows exemption to certain classes of income derived by a trust / welfare institution / non-profit organisation duly approved by the Regional Commissioner. Rule 220A while prescribing the procedure of approval has been suitably amended and now the Regional Commissioner is required to take a decision on the application of the organisation within 2 months of the receipt application.
As in Rule 217, the Regional Commissioner is now empowered to withdraw the approval of the organisation if it fails to file statements of deduction of income tax under Section 165 read with Rule 44.
92. Valuation of assets
Rule 228:
The Rule prescribes the procedure for valuing immovable property and other assets which are unexplained pursuant to Section 111 of the Ordinance. Amendments have been made in the said Rule relating to the manner of valuing immovable property as under:
========================================================================================
Category of immovable property Valuation basis
========================================================================================
In the case of open plot The value determined by the development
authority or government agency on the basis of
the auction price in respect of similar plots in
the area where the plot in question is situated or
in case where such value is not determined, the
value fixed by the District Officer Revenue or
provincial authority authorised in this behalf for
the purposes of stamp duty.
In the case of agricultural land The value equal to the average sale price
of the sales recorded in the revenue record
of the estate in which the land is
situated for the relevant period or time.
In the case of constructed immovable property Value shall be determined at the
fair market value as defined in Section
68 or the value fixed by the District
Officer (Revenue) whichever is higher.
========================================================================================
93. Procedure for Group taxation under section 59AA
Rule 231D:
It would be recalled that the Finance Act 2007 inserted section 59AA in the Ordinance whereby the concept of 'group taxation' was introduced for the first time in the income.
In terms of the said section holding companies and subsidiary companies of 100% owned group were allowed to tax themselves as one fiscal unit, by filing an irrevocable declaration to this effect with the concerned taxation authorities. Rule 231D has now been inserted which provides for the procedure that needs to be complied with for group taxation by a 100% wholly owned group.
The significant requirements under the said Rule are summarised as follows:
A declaration of irrevocable option for group taxation as one fiscal unit must be filed with the concerned Commissioner in the prescribed form within the first quarter of the tax year for which group taxation is opted for.
The holding company as well as each subsidiary company shall furnish a certificate issued by the Securities and Exchange Commission of Pakistan verifying that the company has been complying with the Code of Corporate Governance as notified from time to time by the SECP.
The return for the tax year following the option for group taxation shall be prepared as one fiscal unit under the name of the holding company and the tax liability shall be discharged or the refund shall be claimed respectively as if the business of the subsidiary companies were the business of the holding company. Although it may not be the intent of the legislation, it appears from the manner in which the provision has been drafted that group taxation would take place in the year following the exercise of option and not in the year of option.
Although Section 59AA restricted the availability of losses prior to formation of the group, Rule 231D explicitly provides that no effect shall be taken for losses including unabsorbed depreciation of subsidiary companies for the tax year prior to the exercise of option for group taxation. The said provision therefore appears to be in contravention to the main legislation as contained in section 59AA.
Audited accounts of every company in the group shall be attached alongwith the return of income. On filing option for group taxation, the subsidiary companies shall furnish their returns of income in their respective tax jurisdiction along with a copy of application for group taxation for record and future adjustments and intimating non-taxability of the returned income. The subsidiary companies shall also intimate to the Commissioner having jurisdiction over the holding company regarding their option for group taxation.
Relief under group taxation shall be limited only to those companies which are locally incorporated under the Companies Ordinance, 1984. In case, there is divestment of a subsidiary company and the provisions of group taxation become inapplicable, no effect shall be taken for group taxation during the year of disposal.
All the provisions of the Ordinance, including withholding provisions as applicable on a holding company shall mutatis mutandis apply to a subsidiary company during the period when the group is taxed as one fiscal unit. Each company shall file independent withholding statements as required under the provisions of the Ordinance.
The transaction by any company within the group and with its associated companies shall be carried out at arm's length.
SALES TAX:
===================================================================
Section Page
===================================================================
1 Definitions 2 43
2 Adjustable input tax 8B 43
3 Assessment of tax 11 43
4 Tax invoices 23 43
5 Retention of record and documents 24 43
6 Offences and penalties 33 43
7 Default surcharge 34 44
8 Recovery of tax not levied/
short-levied/ erroneously refunded 36 44
9 Power of adjudication 45 44
10 Power of Board and Collector to call for record 45A 44
11 Appeals 45B 45
12 Appeals to Appellate Tribunal 46 45
13 Alternative dispute resolution 47A 46
14 Delayed refund 67 46
15 Sixth Schedule 13 46
16 Summary of significant SROs of 2009 47
===================================================================
1. Definitions
Section 2:
Definition of "KIBOR" is proposed to be added by inserting clause (14A) in section 2 of the Act, which means Karachi InterBank Offered Rates applicable on the first day of each quarter of the financial year.
2. Adjustable input tax
Section 8B:
It is proposed to insert the word "refund" in sub-section (2), which was earlier omitted to be mentioned, though sub-section (3) makes a reference of refund mentioned in sub-section (2).
3. Assessment of tax
Section 11:
The proviso to sub-section (4) of Section 11 allowed an Officer of Sales Tax a time limit of 120 days to pass an order of assessment of tax after issuance of show cause notice or on granting of an extension thereof of further 120 days by the Collector.
It is proposed to curtail the power of Collector to extend the time to 60 days. It is also proposed to insert a second proviso in sub-section (4) to exclude from the above time limits the periods during which the proceedings are adjourned on the request of taxpayer or are postponed due to any appeal or proceedings or stay order, remand or alternative dispute resolution proceedings or for any other reason.
The aforesaid time limits practically did not work because of Section 74 which provides power to the FBR to extend the time limits wherever specified in the Act or rules made thereunder either directly or extending such power to the Collector by issuing a notification in the official Gazette.
4. Tax invoices
Section 23:
Section 23 provides a listing of information required to be mentioned in the sales tax invoice. It is proposed to mention National Tax Number or Computerised National Identity Card number where sales tax invoices are issued for goods sold to unregistered person.
5. Retention of record and documents
Section 24:
There was a time period of five years provided for retention of the records and documents required to be maintained under the Act. It is proposed to amend it to the later of five years or till the final decision in any proceedings including proceedings for assessment, appeal, revision, reference, petition and any proceedings before the Alternate Dispute Resolution Committee.
6. Offences and penalties
Section 33:
Currently, a penalty of Rs 25,000/- or 100% of the amount of tax involved, whichever is higher, and, upon conviction by a Special Judge, to imprisonment for a term which may extend to five years, or with fine which may extend to an amount equal to the loss of tax involved, or with both, is imposed on any person who denies or obstructs the access of an authorised officer to the business premises, registered office or to any other place where records are kept, or otherwise refuses access to the stocks, accounts or records or fails to present the same when required under Sections 25, 38 or 38A.
It is proposed to extend this penalty if a registered person denies or obstructs the access to an Officer of Sales Tax who is posted either by the FBR or the Collector under their powers under Section 40B of the Act to monitor production or sale of taxable goods and stocks position.
7. Default surcharge
Section 34:
Currently, a default surcharge is payable at the rate of 1.5% per month of the amount of tax due or the amount of refund erroneously made. It is proposed to impose default surcharge at the rate of KIBOR plus 3% per annum. Please note that KIBOR is defined as Karachi InterBank Offered Rate applicable on the first day of each quarter of the financial year.
Accordingly, the amount of default surcharge will be determined on a quarterly basis. It is also proposed to delete the higher rate of default surcharge at 2% in case of default on account of tax fraud, thereby making it subject to default surcharge at KIBOR plus 3% per annum.
It is also proposed to delete the explanation provided in sub-section (2) of Section 34 wherein it is explained that tax due does not include amount of penalty for the purpose of calculation of default surcharge. The deletion of this explanation would now make the default surcharge also applicable on penalty.
8. Recovery of tax not levied/ short-levied/ erroneously refunded
Section 36:
The proviso to sub-section (3) of Section 36 allowed an Officer of Sales Tax a time limit of 120 days to pass an order for recovery of tax not levied or short-levied or erroneously refunded after issuance of show cause notice or on granting of an extension thereof of further 120 days by the Collector. It is proposed to curtail the power of the Collector to extend the time to 60 days. It is also proposed to insert a second proviso in sub-section (3) to exclude from the above time limits the periods during which the proceedings are adjourned on the request of taxpayer or are postponed due to any appeal or proceedings or stay order, remand or alternative dispute resolution proceedings or for any other reason.
9. Power of adjudication
Section 45:
The power to adjudicate cases where the person required filing a return fails to file or pays an amount which for some miscalculation is less than the amount of tax actually payable under sub-section (1) of Section 11 has been with the Deputy Collector without any limit.
It is proposed to shift this power to Additional Collector and also extend it to Deputy Collector, Assistant Collector and Superintendent within the limits already prescribed.
10. Power of Board and Collector to call for record
Section 45A:
The FBR is currently empowered to examine the record of any departmental proceedings under the Act and rules made thereunder for the purpose of satisfying itself as to the legality or propriety of any decision or order passed therein by an Officer of Sales Tax and pass an order imposing or enhancing sales tax, penalty or fine within a period of five years from the date of original decision or order of an Officer of Sales Tax. It is proposed to reduce the time limit to three years.
11. Appeals
Section 45B:
The first proviso to sub-section (2) of section 45B allows 120 days to Collector Appeals to pass an appellate order from the date of filing of the appeal. The second proviso also provides power to the Collector Appeals to extend the time up to further 120 days by recording reasons in writing.
It is proposed to curtail this power to 60 days. It is also proposed to insert a third proviso in sub-section (2) to exclude from the above time limits the periods during which the hearing of an appeal is adjourned at the request of the appellant or is postponed due to any appeal or proceedings or stay order or remand or alternative dispute resolution proceedings or for any other reason.
12. Appeals to Appellate Tribunal
Section 46:
It is proposed to substitute sub-section (2) and delete remaining sub-sections (3) to (9) of Section 46 provided for admittance, hearing and disposing of appeal in the Appellate Tribunal. It is proposed that the Appellate Tribunal may admit, hear and dispose of the appeal as per procedure laid down in Sections 194A, 194B, and 194C of the Customs Act, 1969 and rules made thereunder.
Effectively the following procedure is proposed:
The Appellate Tribunal may in its discretion refuse to admit an appeal in respect of an order subject to certain conditions. On receipt of the notice that an appeal has been preferred, the party against whom the appeal has been preferred may file within 30 days of the receipt of the notice, a memorandum of cross objections.
An appeal shall be decided by the Tribunal within 60 days of filing the appeal or within such extended period of not more than 90 days. The Appellate Tribunal would not pass any order to suspend recovery of any amount of duty and taxes without providing an opportunity to the respondents of being heard and the period of the stay order would not exceed one hundred and eighty days in aggregate.
The Appellate Tribunal may at any time within the duration of one year from the date of the order, amend any order passed by it with a view to rectify any mistake apparent from the record or brought to its notice.
However where the amendment has the effect of enhancing the assessment or reducing a refund or increasing the liability of the other party, the order would not be passed unless a notice is given to the party with a reasonable opportunity of being heard.
The proceedings before the Appellate Tribunal would be deemed to be judicial proceedings within the meaning of-
-- sections 193 and 228 of the Customs Act, 1969
-- section 196 of the Pakistan penal Code (Act XLV of 1860)
-- section 480 and 482 of the Code of Criminal Procedure, 1898 (Act V of 1898)
13. Alternative dispute resolution
Section 47A:
The Alternate Dispute Resolution Committee is empowered to examine the issue referred to it and may, if deemed necessary, conduct inquiry, seek expert opinion, direct any officer of sales tax or any other person to conduct an audit and make recommendations within 60 days of its constitution. It is proposed to increase the time limit of 60 days to 180 days. It is also proposed to delete the power of the FBR to grant a further time of 60 days on specific request of the Committee.
It is also proposed to insert sub-section (3A) in Section 47A to empower the FBR to dissolve a Committee and appoint a new Committee if a Committee fails to make recommendations within a period of 180 days.
It is also proposed to amend sub-section (4) of section 47A to provide to FBR a time limit of 45 days of the receipt of recommendations of the Committee to pass an order, as it may deem appropriate.
Sub-section (4A) of Section 47A empowers the Chairman FBR to pass an order to rectify an error in the order or decision passed by the FBR based on recommendations of the Committee, but the coverage of such an order was not given in sub-section (5) for settlement of sales tax and its submission for consideration before the appellate forum, tribunal or the Court where the matter is subjudice. It is proposed to also provide coverage to the rectified order.
14. Delayed refund
Section 67:
A delay in payment of refund is currently subject to an additional payment of 6% per annum, which is proposed to be payable at KIBOR per annum. Please note that KIBOR is proposed to be defined in the Act as Karachi InterBank Offered Rate applicable on the first day of each quarter of the financial year. Accordingly, the amount of additional payment on delayed refund will be determined on a quarterly basis.
15. Sixth Schedule
Section 13:
The Sixth Schedule provides a listing of goods that are exempt from sales tax. The following changes have been proposed therein:
It is proposed to withdraw the exemption on ware potato and onion at import stage. The exemption on local supply of the same would remain available.
Exemption available on import of Tractors, Bulldozers and Combined Harvesters and CKD kits is proposed to be extended to components (which include sub-components, components, sub-assemblies and assemblies but exclude consumables) imported in any kit form and direct materials for assembly or manufacture thereof.
16. Summary of significant SROs of 2009:
=======================================================================================================================================
New SRO SRO amended
by new SRO Effect
=======================================================================================================================================
471(I)/2009, dated 13 June 2009 509(I)/2007, dated 09 June 2007 The facility of zero rating is withdrawn
on supply and import of monofilament,
sun sheding, Nylon fishing net, other
fishing net, rope of poly ethylene and
rope of nylon, tyre cord fabric previously
included under the head 'Textile and articles
thereof'. This change is effective from 14 June 2009.
472(I)/2009, dated 13 June 2009 549(I)/2008, dated 11 June 2008 Specification and amendment of certain
goods has been made in SRO 549(I)/2008 - under
which sales tax is charged at the rate
of zero percent. Further, the previous
negative list of tariff headings provided
vide FBR clarification dated 15 July 2008
relating to plant, machinery and
equipment not covered under the facility
of zero rating has now been made part of
the SRO. Further the previous exclusion
of consumer durables and office machines
from the definition of plant, machinery
and equipment has now been removed.
It is also provided that in case of
imported components, sub-components and
parts, the zero rating of sales tax is
made subject to fulfilment of conditions
prescribed in the relevant notification
issued under Section 19 of the Customs
Act, 1969 granting exemption from
customs duty to such components,
sub-components and parts.
This change is effective from 14 June 2009.
473(I)/2009, dated 13 June 2009 551(I)/2008, dated 11 June 2008 Cinematographic film exposed and
developed against PCT Code 3706.1000 and
3706.9000 are added to the list of exemption
from sales tax. This exemption is
effective from 14 June 2009.
476(I)/2009, dated 13 June 2009 542(I)/2008, dated 11 June 2008 Reduction of sales tax on import
and supply of Cellular telephone sets
from Rs 500 to Rs 250 per set.
This change is effective from 1 July 2009.
477(I)/2009, dated 13 June 2009 1007(I)/2005, dated 26 September 2005 Sulphate is added in the list of
ingredients of poultry and cattle feed,
which is exempt from sales tax on
supply and import. This exemption
is effective from 14 June 2009.
=======================================================================================================================================
CUSTOMS:
================================================================================
Section Page
================================================================================
1. Definitions 2 51
2. Prohibitions 15 51
3. Power to defer collection of customs duty 21A 52
Clearance for home consumption 83 52
Submission of post-dated cheque and indemnity bond 86 52
Levy of surcharge 202A 52
4. Power to determine the customs value 25A 52
5. Review of the value determined 25D 52
6. Effective rate of duty 31A 52
7. Untrue statement, error etc. 32 53
Fiscal fraud 32A 53
8. Refund to be claimed within one year 33 53
9. Cancellation of registration of registered user 155F 53
10. Power of adjudication 179 53
11. Vesting of confiscated property in the Federal Government 182 54
12. Procedure in appeal 193A 54
13. Orders of Appellate Tribunal 194B 54
14. Procedure of Appellate Tribunal 194C 54
15. Power of Board or Collector to pass certain orders 195 55
16. Alternative Dispute Resolution 195C 55
17. Maintenance of record 211 55
18. First Schedule 55
19. Customs Notifications 55
================================================================================
1. Definitions
Section 2, Clause (k)
Customs Station:
The Bill proposes to add the words "declared as such under Section 9" after the word station occurring for the second time in order to remove any ambiguity with regard to the meaning of the term station as defined under this clause. Section 9 deals with declaration of certain ports, airports for loading and unloading/imported or exported goods.
Clause (kka)
Document:
The Bill seeks to include in the definition of the term "documents" after the word manifest "Certificate of Country of Origin, Vessel Information Report (VIR), Carrier Declaration". It may be recalled that vide Finance Act, 2006 the definition of the term "document" was added with the objective that instead of filing conventional bill of entry or bill of export, the importer and exporter have been granted, first the concession of simple declaration of the goods and second, to modernise the present working system of the customs department.
The rationale behind the introduction of the above mentioned specified terms appears to make the manifest, which has to be submitted by every importer and exporter, more specific and illustrative.
Clause (lb)
KIBOR:
The Bill seeks to introduce a new definition KIBOR (Karachi InterBank Offered Rate) in the Act. The rate of the surcharge levied under the Act under different Sections has been prescribed at 14%, 1% and 1 and a 1/2% respectively. The Bill now seeks to link and attach the rate of surcharge with that of KIBOR.
Clause (s)
Smuggle:
The Bill proposes to enhance the limit for taking cognisance of the smuggled gold and other precious items from Rs 50,000/- to Rs 200,000/-. This amendment appears to be reasonable by looking at the increase in the prices of gold and other precious items internationally. It would not be out of place to mention that the present value of Rs 50,000/- was introduced vide Finance Act, 1998 as against the previous limit of Rs 5,000/-.
2. Prohibitions
Section 15:
This Section deals with certain items prohibited to be imported or exported to and from Pakistan. It may be recalled that this Section was re-introduced vide Finance Act, 2004 whereby this Section was updated by bringing it in conformity with certain newly introduced Ordinances. The present proposal seeks to enlarge the scope of this Section by adding a proviso in the said Section that the offences relating to goods imported or exported in violation of intellectual property rights will now be adjudicated upon by an appropriate officer of the customs department.
The term intellectual property has been defined in Intellectual Property Organisation of Pakistan Ordinance, 2007 to include a patent, industrial design, layout-design (topographies) of integrated circuits, copyright and related rights, service mark, trade mark, trade name, undisclosed information or trade secrets, traditional knowledge, geographical indications, Plant Breeders Rights, technical know-how and ideas for new products and markets, including the commercial information about customer or any combination thereof.
3. Power to defer collection of customs duty
Clearance of home consumption
Submission of post dated cheque and indemnity bond
Levy of surcharge
Section 21A, 83, 86 and 202A:
The surcharge leviable under this Act for violating Sections 21A and 83 has been fixed at 14% per annum whereas for violating Sections 86 and 202A of the Act it has been fixed at 1% and 1 and a 1/2% per month. The Bill now seeks to rationalise the levy of the surcharge for the violation of these Sections at KIBOR plus 3%. The rationale behind this proposed amendment appears to be linking the surcharge rate with the interest rate prevalent in the market at a particular point of time.
4. Power to determine the customs value
Section 25A:
The Bill seeks to bring in two changes in this Section firstly to enhance the powers of Director Customs Valuation (DCV) to determine the customs value on his own motion and secondly to insert after the word person used in the Section "including an officer of the customs". Vide Finance Act, 2007 the Director was given the power to make the assessment under any of the manner and mode prescribed in Section 25 of the Act in respect of the matter, reference of which is made to him by any person.
By virtue of the present proposal the Director will now have the authority to make the assessment under the provision of Section 25 of the Act not only in respect of the matter reference of which is made to him by any person including that of a customs department but also on his own motion. It may be recalled that in our comments for the Finance Act, 2007 it was apprehended that the powers given to the Director could be misused by him to the detriment of a person paying the duty however the new proposal now seeks to further enlarge the power of the Director to make the said assessment.
5. Review of the value determined
Section 25D:
The present Bill seeks to provide a time limit for filing a review application before the Director General of Valuation against the value determined by the Collector of Custom or Director of Valuation or any other authority competent to do so. Originally this Section was introduced vide Finance Act, 2007 in order to end disputes between persons paying duty and the customs authorities by virtue of which though some proceedings are pending before any court, authority or tribunal a person was given the facility to file a review application to the Director General of Valuation.
6. Effective rate of duty
Section 31A:
Section 31A was introduced vide Finance Act, 1988 to nullify the effect of the decision given by the Honourable Supreme Court of Pakistan in the case of Al-Samrez reported as PTCL 1987 Cl.99 whereby it was held that exemption granted through a notification by the Federal Government cannot be refused if the steps to import have already been undertaken before the withdrawal of the notifications granting the exemption. This Section, as mentioned supra, was introduced to defeat the law laid down by the Honourable Supreme Court in the above mentioned case which is why this Section starts with the non-obstante Clause "Notwithstanding".
This Section states that any amount of effective rate of duty which becomes payable in consequence of withdrawal of a concession or exemption from duty, even though such withdrawal takes place after conclusion of a contract for sale of goods or opening of a letter of credit would now be payable in terms of this Act. Previously only the duties as mentioned in Section 18 were part of this Section but now the present Bill seeks to include the special customs duty on imported goods as mentioned in Section 18A, rates of duties and taxes and determination of origin under trade agreements as mentioned in Section 18C and levy of fee and service charges as mentioned in Section 18D to be a part of this Section.
7. Untrue statement, error etc.
Fiscal fraud
Section 32, Section 32A:
The Bill seeks to add a new clause in Section 32 by which a person would be considered guilty of an offence if the said person electronically files any untrue statement and pays lesser amount of duty which is legally payable by him under the customs self assessment scheme. Similarly in Section 32A also a person would be considered to have committed a fiscal fraud if the said person misuses self assessment scheme and pays lesser amount of duty as against the amount actually required to be payable by the said person.
8. Refund to be claimed within one year
Section 33:
The Bill seeks to add a proviso after sub-section (1) whereby refund shall not be allowed to a person if the sanctioning authority is satisfied that the incidence of the customs duty and other levies has been passed by him to the buyer or consumer. The rationale behind this proviso appears to be that in the case where the sanctioning authority is satisfied that the person has passed the duty by adding the same in the selling price then in such case no refund shall be allowed to that person as in such case the burden of the duty has been passed on to the buyer or the consumer. In our opinion, this proposed amendment could be misused by the sanctioning authority.
9. Cancellation of registration of registered user
Section 155F:
The Bill seeks to grant an authority to the Collector to suspend Unique User Identifier (UUI) immediately without hearing the aggrieved person on the information that the same is being misused by that person. However, the Collector will have the authority to pass an order confirming his suspension of the UUI after giving an opportunity of being heard to the aggrieved person.
In our opinion this proposed amendment could be misused by the Custom Authorities as this proposal seeks to give the Collector the authority to suspend forthwith the use of UUI by taking unilateral action against a registered user on receipt of any complaint or information about violation of the provisions of the Act. This amendment in our view is in violation of the legal maxim "audi alteram partem".
10. Power of adjudication
Section 179:
The Bill seeks to re-introduce the powers of adjudication to the Principal Appraiser or Superintendent not exceeding Rs 50,000/- in the cases involving confiscation of goods or imposition of penalty under this Act or the Rules made thereunder. It would not be out of place to mention that vide Finance Act, 2002 the power of adjudication was withdrawn from Principal Appraiser or Superintendent.
The Bill further seeks to substitute the words "receipt of contravention report" with the words "issuance of show cause notice" in sub-section (3) so that the time limit for the finalisation of the adjudication process will start from the date of the receipt of the show cause notice.
The Bill further seeks to curtail the extended period of adjudication from 90 days to 60 days. However, a proviso is proposed to be added whereby the proceedings which are adjourned, postponed due to stay order, remand or alternative dispute resolution proceedings or for any other reason shall be excluded from the computation of this period.
11. Vesting of confiscated property in the Federal Government
Section 182:
The Bill now seeks to include the members of the Appellate Tribunal also to be the persons who can take and hold possession of the confiscated vehicles.
12. Procedure in appeal
Section 193A:
This Section deals with the power of adjudication by the Collector (Appeals). The Customs Act makes it mandatory for the adjudicating authority to decide the appeal within a period of 90 days from the date of filing of the appeal. Such period however is extendable to a further period of 90 days for which reasons have to be recorded in writing by the said Collector. The Bill seeks to enhance the mandatory period of adjudication from 90 days to 120 days. We understand that this extension of period would lead to enhancement of litigation period for deciding the issues. Moreover, the Bill further seeks to curtail the extendable period of 90 days to 60 days.
However, the Bill further seeks to add a proviso by which if the hearing of the appeal is adjourned, postponed due to stay order, remand or alternative dispute resolution proceedings or for any other reason shall be excluded from the computation of this period.
13. Orders of Appellate Tribunal
Section 194B:
The Bill seeks to provide that in cases where stay order to suspend recovery of any amount of duty or taxes has been granted by the learned Appellate Tribunal, that could only be done after providing opportunity of being heard to the respondent and the period of stay shall not exceed 180 days in aggregate.
14. Procedure of Appellate Tribunal
Section 194C:
The Bill seeks to propose that the appeals involving revenue of less than Rs 10 million shall now be heard and decided by a bench comprising of a single member only.
The Bill further seeks to omit the proviso whereby a bench comprising of two or more technical members will not hear the matter involving question of law. This proviso appears to be proposed to be added by keeping in view a recent decision given by the Honourable High Court of Sindh whereby it has been held that a technical member has no authority to decide a matter involving a question of law.
15. Powers of Board or Collector to pass certain orders
Section 195:
The Bill seeks to extend the period of re-opening the cases by the Collector or the Board from a period of two years to three years. In our view this proposed amendment would give a new lease to the cases which have already attained finality.
16. Alternative Dispute Resolution (ADR)
Section 195C:
The Bill seeks to extend the period of appointing a committee for the ADR from 30 days to 60 days. The Bill further seeks to enhance the period of making recommendations by the ADR committee from 60 days to 180 days.
The Bill also proposes that if the said committee fails to give its recommendation within the stipulated period, the Board may dissolve that committee and constitute a new committee.
The Bill further proposes that the Board after the receipt of the recommendations by the ADR committee will pass appropriate order within 45 days of the receipt of the said recommendations by the said ADR committee.
17. Maintenance of records
Section 211:
The Bill seeks to enlarge the period of retention of the records till the final decision in any proceedings for assessment, appeal, revision, reference, petition and any proceeding before ADR committee.
18. First Schedule:
A number of changes have been proposed in the First Schedule, affecting a large number of items for which reference may be made to the substituted Schedule of Customs Tariff.
19. Customs Notification:
Certain amendments have been made in the existing customs tariffs as well as certain notifications issued in previous years have been rescinded or modified. A summary of certain significant notifications is as under:
SRO 482(1)/2009:
This SRO has modified regulatory duty on various luxury/non-essential items by rescinding the earlier SRO No 896(1)/2008 dated 27 August 2008. By virtue of this notification certain items have been added and existing duty on certain items has been increased. It has also given some concession on imports to manufacturers.
SRO 483(1)/2009:
Vide SRO 507(1)/2006, dated 05 June 2006, the Federal Government has exempted certain goods from the levy of customs duty. The Bill now seeks to enlarge the scope of this SRO by granting exemption to certain dairy items and has also reduced the duty on certain items if imported for in house use in the manufacture of specified pharmaceutical substances.
SRO 487(1)/2009:
As per earlier SRO 492(1)/2007 the Federal Government had granted exemption of so much of the custom duty as was in excess of 5% ad valorem in respect of import of vehicle tracking system of various brands which comprise an on board computer, GSM radio modem with installed software and accessories imported during the period commencing 01 October 2002 to 12 June 2004. This SRO has now rescinded the previous SRO.
SRO 488(1)/2009:
As per earlier SRO 565(1)/2006, dated 5 June 2006, as amended vide SRO 42(1)/2007 Federal Government had exempted levy of custom duty on raw materials, sub-components, components, sub-assemblies and assemblies which are not manufactured locally and are imported for the manufacturing of goods by a Sales tax registered manufacturer-cum importer having suitable in house facilities subject to the fulfilment of prescribed conditions. As per this notification certain related items have been added/ substituted.
SRO 492(1)/2009:
This SRO has exempted the whole of the customs duty and sales tax on temporary importation of goods for subsequent exportation as specified in the table mentioned in the said SRO.
SRO 493(1)/2009:
Through this SRO, the Board has made certain amendments in the Rules -
1. Rule 235 has been amended to allow exporters to purchase goods from within the units in Zone to be exported to foreign destinations directly from Export Processing Zone subject to fulfilling of certain formalities/conditions.
2. Rule 350 has been amended to allow input on the goods imported or produced locally by a manufacturing bond licensee to consume goods within a period of three years from the date of filing of Goods Declaration or procurement of locally purchased items. However, in cases of palm oil/olein period for consumption will be six months only.
3. Rule 352 has also been amended which prescribes the treatment for left over quantities of raw materials imported and wastage of input goods etc.
SRO 494(1)/2009:
This SRO has introduced certain changes in Export Oriented and Small and Medium Enterprises Rules whereby certain amendments have been made in the definitions. It has also identified that post- exportation audit shall be conducted by the Collector of Customs, in whose jurisdiction the licensee is registered.
SRO 495(1)/2009:
As per earlier SRO 482(1)/2007, dated 09 June 2007, regulatory duty @25% ad valorem was extended to export of bars, roads, ingots, slabs and billets made thereof. The Federal Government has now rescinded the aforesaid SRO.
SRO 496(1)/2009:
By virtue of this SRO, the Federal Government has notified formation of the Directorate General, Post Clearance Audit, Pakistan Customs Islamabad. The FBR has also issued a Custom General Order No 3 of 2009 dated 13 June 2009, specifying the organisational structure, functions and the rules of business for the Post Clearance Audit (PCA).
SRO 497(1)/2009:
Through this SRO the Federal Government has exempted so much of the custom duty on import of specific goods into Pakistan from China, in excess of rates given in column (4) of the table mentioned in the notification.
SRO 498(1)/2009:
By virtue of this SRO, the Federal Government has substituted the earlier procedure for obtaining Customs Agent Licensing. By this notification a person desirous of becoming a customs agent would now be required to obtain license by the licensing authority to carryout customs business under these rules.
SRO 499(1)/2009:
This SRO has been issued in suppression of the earlier notification No SRO 487(1)/2007, dated 09 June 2007, whereby no option shall be given to pay fine in lieu of confiscation in respect of certain smuggled goods, lawfully registered vehicles carrying or used in smuggled goods, goods imported in violation of Custom laws etc. It has also identified certain goods where the option is given to pay fine in lieu of confiscation over and above the custom duties and other taxes and penalties imposed under the relevant laws.
SRO 500(1)/2009
SRO 501(1)/2009
SRO 502(1)/2009
SRO 503(1)/2009:
These SROs have been issued in suppression of the earlier notification No SRO 1077(1)/2008, dated 18 October 2008, whereby the Federal Government has notified the formation of Directorate General, Post Clearance Audit (PCA), Pakistan Custom Islamabad. It also contains jurisdiction, function and powers of the PCA.
FEDERAL EXCISE:
===================================================================================================
S. No Section Page
===================================================================================================
1 Due Date 2(8a) 61
2 KIBOR 2(15) 61
3 Duties specified in the First Schedule to be levied 3(5)(d) 61
4 Assessment of duty 4A 61
5 Default surcharge 8 61
6 Records 17(1) 61
7 Invoices 18(1)(b) 62
8 Offences, penalties, fines and allied matters 19(9) 62
9 Power of adjudication 31(1)(3) 62
10 Appeals to Collector (Appeals) 33(2) 63
11 Appeals to the Appellate Tribunal and Reference to High Court 34(2) to (13) 63
12 Powers of Board or Collector to pass certain order 35(3) 64
13 Alternative Dispute Resolution 38 (3)(3A) & (4) 64
14 Delayed refund 44A 64
15 Services provided by banking companies
and on-banking financial companies Schedule I, Rule 40A 65
16 Rates of Federal Excise Duty Schedule I 65
17 Exemption from Excise Duty 67
18 Federal Excise Notification 68
19 Amendments in the Federal Excise Rules, 2005 68
===================================================================================================
1. Due Date
Section 2, Clause (8a):
It is proposed to transfer the authority of issuing notification of any other date as due date for furnishing of return under the F E Act from the Federal Government to the FBR.
2. KIBOR
Section 2, Clause (15):
Definition of "KIBOR" is proposed to be added by inserting clause (15a) in Section 2 of the FE Act, which means Karachi InterBank Offered Rates applicable on the first day of each quarter of the financial year. This is proposed to provide the basis for charging default surcharge and compensation for delayed refunds under the FE Act.
3. Duties specified in the First Schedule to be levied
Section 3, Sub-section (5), Clause (d)
Section 3 of the FE Act provides the scope for levy of excise duty on goods and services. Sub-section (5) thereof fixes the liability to pay duty in respect of specified goods and services. Under clause (d) the liability to pay duty in respect of goods produced or manufactured in non-tariff areas for sale or consumption therein is on the person bringing or causing to bring such goods to tariff areas.
It is proposed to empower the FBR to specify goods or services in respect of which the liability to pay tax shall be of any other person as specified in the notification, subject to such conditions and restrictions as may be specified therein.
4. Assessment of duty
Section 4A:
It is proposed to introduce a new Section authorising an officer of the Federal Excise not below the rank of Assistant Collector to determine the minimum liability of duty of the registered person who fails to file a return by the due date. The liability in such case is to be determined in the same manner as prescribed under the ST Act. It is further proposed that where a person who files a return after the due date and pays the amount of duty payable in accordance with the return alongwith default surcharge and penalty, the notice for payment of minimum amount of duty shall be withdrawn.
5. Default surcharge
Section 8:
Currently, a default surcharge is payable at the rate of 1.5% per month of the amount of duty due but not paid or a refund of duty or drawback received or an adjustment made which is not admissible under the FE Act. It is proposed to impose default surcharge at the rate of KIBOR plus 3% per annum. Accordingly, the amount of default surcharge will be determined on a quarterly basis.
6. Records
Section 17, Sub-section (1):
There was a time period of five years provided for retention of the records and documents required to be maintained under the FE Act. It is proposed to amend it to the later of five years or till the final decision in any proceedings including proceedings for assessment, appeal, revision, reference, petition and any proceedings before the Alternate Dispute Resolution Committee.
7. Invoices
Section 18, Sub-section (1) Clause (b)
Section 18 provides a listing of information required to be mentioned in the invoice issued under the FE Act, 2005. It is proposed that the invoice should also mention the National Tax Number or Computerised National Identity Card number in case of an unregistered buyer.
8. Offences, penalties, fines and allied matters
Section 19, Sub-section (9)
Section 19 of the FE Act, provides the penalties to be levied on a person committing various offences specified therein. Sub-section (9) provides that where any goods are chargeable to duty on the basis of retail price under the FE Act and the retail price is not indicated on the goods in the manner specified therein or in the rules made thereunder, the duty shall be charged at the rate of 500% ad valorem in case of cigarettes. It is proposed to extend the scope of offence in case of cigarettes to include the default of non-mentioning of health warning and name of the manufacturer. Accordingly, such default would also be liable to a duty at the rate of 500% ad valorem.
9. Power of adjudication
Section 31, Sub-section (1) Clauses (ii), (iii) & (iv)
Sub-section (3)
It is proposed to redefine the limits of the amount of duty involved for adjudication powers of different Federal Excise Officers as tabulated below:
=====================================================================================================================================
Clause Assigned Federal Excise Officers Existing limit Proposed limit
=====================================================================================================================================
(ii) Deputy Collector Amount of duty involved is not less than one million Amount duty involved does not
rupees but does not exceed two million exceed two million five
five hundred thousand rupees. hundred thousand rupees.
(iii) Assistant Collector Amount of duty involved is not less than Amount of duty involved
ten thousand rupees but does not does not exceed
exceed one million rupees. one million rupees.
=====================================================================================================================================
Sub-section (3) requires a Federal Excise Officer to adjudicate the case within 120 days of the issuance of show cause notice or within such extended period as he may for reasons to be recorded in writing fix provided that such extended period shall in no case exceed ninety days.
The Bill seeks to reduce the extended period of 90 days to 60 days. It is also proposed to insert a proviso in sub-section (3)to exclude from the above time limits the period during which the proceeding are adjourned on the request of the taxpayer or are postponed due to any appeal or proceedings or injunction order, remand or alternative dispute resolution proceedings or for any other reason.
10. Appeals to Collector (Appeals)
Section 33, Sub-section (2)
The proviso to sub-section (2) of Section 33 allows 120 days to the Collector Appeals to pass an appellate order from the date of filing of the appeal. The proviso also provides power to the Collector Appeals to extend the time by a further 90 days by recording the reasons in writing. It is proposed to curtail this power to 60 days. It is also proposed to insert a second proviso in sub-section (2) to exclude from the above time limits the periods during which the hearing of an appeal is adjourned at the request of the appellant or is postponed due to any appeal or proceedings or stay order, remand or alternative dispute resolution proceedings or for any other reason.
11. Appeals to the Appellate Tribunal and Reference to High Court
Section 34, Sub-sections (2) to (13)
It is proposed to substitute sub-section (2) of Section 34 regarding admittance, hearing and disposing of appeal in the Appellate Tribunal. It is proposed that the Appellate Tribunal may admit, hear and dispose of the appeal as per procedure laid down in Sections 194A, 194B & 194C of the Customs Act, 1969 and rules made thereunder.
Effectively the following procedure is proposed:
The Appellate Tribunal may in its discretion refuse to admit an appeal in respect of an order subject to certain conditions.
On receipt of a notice that an appeal has been preferred, the party against whom the appeal has been preferred may file, within 30 days of the receipt of the notice, a memorandum of cross objections.
An appeal shall be decided by the Tribunal within 60 days of filing the appeal or within such extended period of not more than 90 days. The Appellate Tribunal would not pass any order to suspend recovery of any amount of duty and taxes without providing an opportunity to the respondents of being heard and the period of the stay order would not exceed 180 days in aggregate.
The Appellate Tribunal may at any time within the duration of one year from the date of the order, amend any order passed by it with a view to rectify any mistake apparent from the record or brought to its notice. However where the amendment has the effect of enhancing the assessment or reducing a refund or increasing the liability of the other party, the order would not be passed unless a notice is given to the party with a reasonable opportunity of being heard.
The proceedings before the Appellate Tribunal would be deemed to be judicial proceeding within the meaning of:
-- Sections 193 & 228 of the Customs Act, 1969
-- Section 196 of the Pakistan penal Code (Act XLV of 1860)
-- Section 480 & 482 of the Code of Criminal Procedure, 1898 (Act V of 1898)
The Bill also seeks to omit sub-sections (3) to (13) of Section 34 dealing with procedures for filing reference before the High Court against the order of the Appellate Tribunal. These omissions in our opinion, have been made inadvertently as it would deprive both the aggrieved person and the Federal Excise Officer to seek recourse from the High Court against the order of the Appellate Tribunal. This cannot be the intention of legislature being contrary to the exercise of the vested right of a person being available under the Constitution of Pakistan. It is therefore, anticipated that this omission will be rectified before the Bill is passed by the Parliament.
12. Powers of the Board or Collector to pass certain order
Section 35, Sub-section (3)
Section 35 empowers the Board or the Collector to take suo moto action, calling for and examination of records of any proceedings under the FE Act, in order to confirm the legality or propriety of any decision or order passed by the sub-ordinate officer and to pass such order as it or he deems fit. Sub-section (3) thereof prohibits the calling for the records of any proceedings relating to any decision or order passed by any Federal Excise Officer after the expiry of two years. It is proposed to increase such time limit from two years to three years.
13. Alternative Dispute Resolution
Section 38, Sub-section (3), (3A) and (4)
Section 38 of the FE Act, deals with the modus operandi and other matters relating to Alternative Dispute Resolution. Sub-section (3) thereof requires the Alternate Dispute Resolution Committee to examine the issue and if it deems necessary, conduct inquiry, seek expert opinion, direct any officer of Federal Excise or any other person to conduct an audit and make recommendations within 60 days of its constitution in respect of the resolution of the dispute as it may deem fit.
It is further provided that the above period of 60 days for making recommendation by the committee may be extended by the Board for a period of another 60 days. The Bill seeks to extend the existing period of 60 days to 180 days. The Bill further seeks to omit the proviso to sub-section (3) providing for the extended period of 60 days for the committee to make recommendations.
The Bill further seeks to introduce a new sub-section (3A) in terms of which where the committee constituted under sub-section (2) of Section 38 fails to make recommendations within the stipulated period as prescribed under sub-section (3), the Board in such case may dissolve the committee and constitute a new committee.
Sub-section (4) of Section (38) requires the Board to pass an order on the recommendation of the committee. However, no time limit is provided for the Board to pass such an order. The Bill seeks to provide a time limit of 45 days for the Board to pass an order on the receipt of recommendations of the committee.
14. Delayed Refund
Section 44A:
It is proposed to introduce a new Section 44A in the FE Act to allow compensation on the delayed refund under the FE Act. It is proposed that where a refund due under Section 44 is not made available to the claimant within the time specified in this behalf, the claimant would be entitled to a further sum in addition to the amount of refund due to him.
This additional amount will be equal to KIBOR per annum of the refund due, which is to be calculated from the date following the expiry of the time specified for receiving the refund amount to the day proceeding the day of payment of the refund. However, where there is a reason to believe that a person has claimed the refund which is not admissible to him, the payment of compensation on delayed refund would not apply till the investigation of the claim is either accepted or rejected.
15. Services provided by banking companies and non-banking financial companies
Entry 8 of Table II of the First Schedule, Rule 40A, read with 478(I)/2009, dated 13 June 2009:
The Bill seeks to omit the word "non-fund" from entry 8 of Table II of the FE Act, thereby all services provided or rendered by banking companies or non-banking financial companies have been brought under the purview of excisable services. It is also proposed to enhance the rate of duty from 10% to 16% of the charges, and it is also declared to be a duty collected in the sales tax mode by making an amendment in SRO 550(I)/2006, dated 5 June 2006.
The Federal Government in exercise of the powers conferred by sub-section (2) of Section 16 of the FE Act has issued SRO 474(I)/2009 dated 13 June 2009 whereby the following services provided or rendered by banking companies and non-banking financial companies have been exempted from levy of duty and necessary amendments in rule 40A have also been made.
-- Hajj and Umrah;
-- Cheque book;
-- Insurance;
-- Musharika and Modaraba financing; and
-- Utility bills collection.
It appears that the markup on financing other than musharika and modaraba financing will now be subject to this levy which, being charged in the sales tax mode will be passed on to the customers.
Banking companies and non-banking financial companies are required to file quarterly reconciliation of excisable services provided by them as required under sub-rule (6A) of Rule 40A. The format of the reconciliation has also been substituted vide SRO 475(I)/2009 dated 13 June 2009.
16. Rates of Federal Excise Duty
16.1. The following services have been proposed to be brought under the purview of excisable services by including the same in Table II of the First Schedule to the FE Act:
==========================================================================================================
S. No Nature of Services Rate of Duty
==========================================================================================================
1. Advertisements in newspapers and periodicals, and 16% of the charges.
on hoarding boards, pole signs,
sign boards and shop boards (Entry No 2A).
2. Short Message Service (SMS) (Entry No 6A). Twenty paisa per SMS in addition to
the rate specified for
telecommunication services i.e
. 19% of the charges.
3. Services provided or rendered by stock brokers (Entry No 13). 16% of the charges.
4. Service provided or rendered by port and terminal
operators in relation to imports
excluding stevedoring services (Entry No 14). 16% of the charges.
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16.2 The rates of duty in respect of the following goods and services have been proposed to be changed alongwith the description of goods and services:
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Existing Provision Proposed Provision
Table No Relevant entry in Table Description Rate of duty Description Rate of duty
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I 9 Locally produced cigarettes if 63% of the retail price. Locally produced cigarettes if their 64% of the retail price.
their retail price exceeds retail price exceeds nineteen rupees
sixteen rupees per ten cigarettes. and fifty paisa per ten cigarettes.
I 10 Locally produced cigarettes if their Three rupees and seventeen paisa Locally produced cigarettes if their Four rupees and seventy five paisa per
retail price exceeds seven rupees and per ten cigarettes plus 69% per retail price exceeds ten rupees per ten ten cigarettes plus 70% per
forty three paisas per ten cigarettes incremental rupee or part thereof. cigarettes but does not exceed nineteen incremental rupee or part thereof.
but does not exceed sixteen rupees and fifty paisa per ten cigarettes.
rupees per ten cigarettes.
I 11 Locally produced cigarettes if their retail price Three rupees and seventeen Locally produced cigarettes if their Four rupees and seventy
does not exceed seven rupees and paisas per ten cigarettes. retail price does not exceed five paisa per ten cigarettes.
forty three paisas per ten cigarettes. ten rupees per ten cigarettes.
II 8 Non-funded services provided by banking 10% of the charges. Services provided by banking 16% of the charges.
companies or non-banking financial companies. companies or non-banking financial companies.
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16.3. The Finance Act, 2008 brought restriction in the interpretation clause as given in Table I of the First Schedule to the FE Act which provides that for the purpose of levy, collection and payment of duty at the prescribed rate in respect of locally produced cigarettes as mentioned in serial Nos.9, 10 and 11 of Table I of the First Schedule, no cigarette manufacturer shall reduce the price from the level adopted on the day of the announcement of the budget 2008-2009. The Bill seeks to substitute year 2008-2009 with the year 2009-2010.
16.4. The rates of duty in respect of the following goods and services have been proposed to be changed:
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S. No Nature of Goods and Services Current Rate of Duty Proposed Rate of Duty
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1. Cigars, Cheroots, Cigarillos and cigarettes, of tobacco or of tobacco substitutes. 63% of retail price 64% of retail price
2. Cigarettes manufactured by a manufacturer who remains engaged on 63% of retail price 64% of retail price
and after the 10 June, 1994, either directly or through
any other arrangement, if the manufacture of any brand of cigarette in non-tariff areas.
3. Portland cement, aluminous cement, slag cement, Nine hundred Seven hundred
super sulphate cement and similar hydraulic rupees per metric ton rupees per metric ton
cements, whether or not coloured or in the form of clinkers.
4. Telecommunication services
(all sub- headings) 21% of the charges 19% of the charges
5. Services provided or rendered in respect of insurance to a policy 10% of the gross premium paid 16% of the gross premium paid
holder by an insurer, including a re-insurer in case where
direct insurance service has been provided in respect
of Goods, Fire, Theft, Marine and Other insurance.
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17. Exemption from Excise Duty
SRO 474(I)/2009 dated 13 June 2009
17.1. The Federal Government in exercise of the powers conferred by sub-section (2) of Section 16 of the FE Act, exempts the following goods and services from the whole of excise duty:
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Table No Relevant Entry in Table Nature of Goods and Services Current Rate of Duty
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I 48 Viscose staple fibre. 10% ad val.
I 49 Motor cars and other motor vehicles principally 5% ad val.
designed for the transport of persons including
station wagons and racing
cars of cylinder capacity exceeding 850cc.
II 8 Services provided or rendered by banking 10% of the charges.
companies and non-banking financial companies
in respect of Hajj and Umrah, cheque book,
insurance, Musharika and Modaraba
financing and utility bill collection.
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18.Federal Excise Notifications
The Federal Government has issued the following notification to declare the services mentioned therein as chargeable to excise duty in the sales tax mode:
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SRO Section!
Reference Schedule! Rule Description
And date reference
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SRO 478(I)/2009 First Schedule This SRO has amended SRO 550(I)/2006 dated 5 June 2006. SRO
13 June 2009 550(I)/2006 specifies certain excisable services on which duty would be
levied and collected as if it were a tax payable under Section 3 of the Sales
(Applicable from Tax Act, 1990. After amendment duty on following excisable services are
1 July 2009) required to be levied and collected in Sales Tax mode.
(i) Advertisements.
(ii) Services provided or rendered in respect
of travel by air of passengers within territorial limits of Pakistan.
(iii) Carriage of goods by air.
(iv) Shipping agents.
(v) Telecommunication services.
(vi) Services provided or rendered
by banking companies and non-banking
financial companies.
(vii) Services provided by insurance companies.
(viii) Services provided or rendered by stockbrokers.
(ix) Services provided or rendered by port and terminal operators.
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19. Amendments in the Federal Excise Rules, 2005
19.1. The Federal Government through SRO No 475(I)/2009 dated 13 June 2009 has made certain amendments in the Federal Excise Rules, 2005, which are summarised as under:
The following new terms have been defined as under:
"Port Operator" includes Karachi Port Trust (KPT) or any other person or organisation managing the operations of any customs-port as declared under Section 9 of the Customs Act, 1969.
"Terminal Operator" includes Karachi International Container Terminal (KICT), Pakistan International Container Terminal (PICT) and Qasim International Container Terminal (QICT).
Rule 40 describes a special procedure for insurance companies for payment of duty leviable on the services provided or rendered by them in respect of all kinds of insurance except life insurance. Since health insurance, crop insurance and marine insurance for export are also exempt from duty as specified in the Third Schedule, therefore, references to the above types of insurance have been included in Rule 40 in addition to life insurance to which the special procedures are not applicable.
Rule 43 specifies a special procedure for collection of duty on telecommunication services. SRO 475(I)/2009 dated 13 June 2009 has amended the monthly statement which is required to be submitted by the telecommunication service provider.
The following new Rules have been inserted:
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Rule Reference Description
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43B Special procedure for services
provided Port Operator and
Terminal Operator in
relation to imports.
43C Special procedure for services
provided by stockbrokers.
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Capital Value Tax:
The Finance Act, 1989 (the FA) introduced for the first time a tax on the capital value of assets referred to as the CVT. Presently, CVT is charged on the following:
Purchase of immovable property:
Purchase / import of motor vehicle not previously used in Pakistan; and
Purchase of modaraba certificates, instruments of redeemable capital and shares of a public company listed on a stock exchange in Pakistan by a resident person.
The Bill proposes to withdraw the levy of CVT on purchase value of shares of a public company listed on any stock exchange in Pakistan.
In addition the Bill proposes to enhance the levy of CVT on purchase of immovable property by almost 100 percent. The revised schedule of levy of CVT on immovable property is as under:
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Category of Property Rate of CVT
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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 immovable property is recorded. 4% of the recorded value
(ii).Where the value of immovable property is not recorded. Rs 100 per square yard of the landed area;
(iii) Where the immovable property is a constructed property Rs 10 per square feet of the constructed
area in addition to the value worked out above
Commercial immovable property of any size.
(i).Where the value of immovable property is recorded. 4% of the recorded value
(ii) Where the value of immovable property is not recorded. Rs 100 per square feet* of the landed area
(iii) Where the immovable property is a constructed property Rs 10 per square feet* of constructed
area in addition to the value worked out above
Residential flats
(i) Where the value of immovable property is recorded 4% of the recorded value
(ii) Where the value of immovable of property is not recorded Rs 100 per square feet of the covered area.
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