Income Tax:
1. Super tax for rehabilitation of temporarily displaced persons Section 4B
The Finance Act, 2015 introduced a onetime super tax on all persons on all types of income whether taxable under the normal law or under the Final Tax Regime in tax year 2015. It was levied at 4% on banking companies and at 3% on all other persons having taxable income of Rs 500 million or more. This tax was extended to tax year 2016 by the Finance Act, 2016.
The Finance Bill, 2017 proposes to extend the application of Section 4B to tax year 2017. The extension of super tax is not a surprise as the business quarters were anticipating it. However, most of the trade and professional bodies had proposed to the government not to extend this levy any further.It seems that the failure of FBR in broadening the tax base has left no choice but to continue taking adhoc measures like the super tax to boost tax collection.
2. Tax on undistributed profits
Section 5A The Finance Act, 2015 introduced taxation of undistributed reserves at the rate of 10%. Under this section tax was imposed on a public company that derived profit for a tax year but did not distribute cash dividend within six months of the end of tax year or distributed dividend to such an extent that its reserves remained in excess of 100% of its paid-up capital.
However, the tax was not levied if the company distributed profit equal to 40% of its after tax profit or 50% of its paid-up capital, whichever is less.
This taxation of undistributed reserves was criticized severely by taxpayers and was termed detrimental to capital formation since it taxed the already taxed profits of the taxpayer and also did not allow distribution through bonus shares resulting in compulsory cash flow for the public company and resultant hardship to companies who were cash strapped.
The Bill now seeks to revamp the taxation by revising the existing section.
It is now proposed that tax at the rate of 10% shall be imposed on every public company that derives profit for a tax year but does not distribute at least 40% of its after tax profits within six months of the end of the tax year through cash or bonus shares. This tax would not apply to-
(a) Scheduled bank
(b) Modaraba
(c) IPPs that qualify for exemption under Clause 132 of Part I of Second Schedule to the Ordinance
(d) Company in which not less than 50% shares are held by the Government.
It appears that the Federal Government has not acceded to the request of the trade and professional bodies to abolish this tax, but accepted their demand of issue of bonus shares to shareholders as a valid distribution for the purpose of this section. Needless to say that bonus shares have already been subject to levy of tax.
The proposed section further provides that for the tax year 2017, bonus shares or cash dividends may be distributed before the due date for filing of return of income of the public company depending on their tax year.
3. Minimum Tax
Section 113 The rate of minimum tax has been the subject matter of debate now for several years in the government quarters. The rate has intermittently changed over the years from 0.5% to 1% and vise-versa but it has never been increased beyond 1%.
It seems that the constant pressure on the Revenue to achieve a higher tax collection target, it is proposed to increase the rate of minimum tax from 1% to 1.25%. The Finance Minister in his budget speech has tried to justify this increase by saying that it was necessary to facilitate and encourage the organized and compliant sector to make correct declaration of the taxable income and tax liability.
There is no further change in this section. The minimum tax will continue to be recoverable against the normal tax liability within five tax years immediately succeeding the tax year in which it is paid.
4. Taxation of banking companies
Rule 1(g) of the Seventh Schedule An explanation has been added to Rule 1(g) to clarify that nothing in this Rule shall be construed to allow a notional loss or charge to tax any notional gain on any transaction under any regulation or instruction unless the event that determine the gain or loss have occurred and the gain or loss can be determined with reasonable accuracy.
At present Rule 1(g) only excludes adjustments made under International Accounting Standards 39 and 40, however, the explanation proposed to be inserted extends the restriction to any regulation or instruction.
In our view, this provision will discourage financial institution to indulge in long term financial transaction such as derivative contracts as such long term contracts result in intermediate losses which are then reversed over the life of the contract. However, disallowance of unrealized loss would result in cash flow consequences for the banks thus increasing the funding cost of the transaction and thereby making them uncompetitive with the international financial market. In the backdrop of CPEC transaction and need for long term financing for infrastructure projects there is a need to provide conducive tax policy to enable such transactions to take place.
5. Payment to non-resident
Section 152 Presently a non-resident person involved in the execution of a contract or sub-contract under a construction, assembly or installation project in Pakistan including supervisory activities in relation to such project or any other contract for construction or services related there to is subject to final taxation.
However, Clause (41) of Part IV of Second Schedule to the Ordinance requires that the non-resident should opt for presumptive tax regime by filing a declaration of option within three months of commencement of the tax year which will remain in force for three years.
The Bill now proposes to insert a proviso in Sub-Section (1B) of Section 152 requiring the non-resident person to opt for the final tax regime.
Since the requirement for opting for final tax regime has been proposed to be inserted in the main section, Clause (41) of Part IV of the Second Schedule of the Ordinance is proposed to be omitted.
It needs to be highlighted that the present requirement to file an option within three months of commencement of tax year and validity of such option for three tax years is no more there in the proposed proviso. Effectively, a non-resident person may opt for the final tax regime without any time compulsion and is not bound to be taxed as such for the following two tax years as in the past.
In order to facilitate such non-resident persons who opt to be taxed on profit basis, Sub-section (4A) has been re-enacted to authorize the Commissioner to issue exemption certificate to non-resident person for non-deduction of tax after making such inquiry as he deems fit.
6. Exemption from collection of tax on cash withdrawal by branchless banking agents
Section 231A, Clause (101) of Part IV of the Second Schedule Presently tax at the rate of 0.3% and 0.6% is deducted upon aggregate cash withdrawal exceeding Rs 50,000 per day from filers and non-filers respectively. To promote digital payments to achieve universal financial inclusion in Pakistan, the Bill seeks to exempt collection of tax from branchless banking agents account on cash withdrawal made for the purpose of making payments to their customers.
7. Exemption to profit and gains derived by startups in IT sector
Clause 62A of Section 2, Clause 144 of Part II and Clauses 11A and 43E of Part IV of the Second Schedule
In recent times an increasing trend is being realized by Pakistani domestic customers to digitize or automate their complete operations. This realization has also led to stimulate local IT service provider''''s interest to work and offer services within Pakistan.
To strengthen and promote the IT industry of Pakistan, both locally and globally, currently an exemption is available from tax on income from exports of computer software or IT services or IT enabled services up to 30 June 2019. However, no incentive was available for persons involved in IT services or IT enabled services locally.
In order to promote innovation and entrepreneurship in Information Technology for provision of services and products locally, the Bill proposes to allow exemption from tax to such business. Accordingly, a concept of start-up has been introduced to extend tax exemption to such startups.
"Startup" means a business of resident individual, AOP or a company incorporated or registered in Pakistan after 30 June 2012 and is engaged in or intends to offer technological driven products or services to any sector of the economy subject to the following conditions -
-- It is registered with and duly certified by the Pakistan Software Export Board (PSEB)
-- It has turnover of less than Rs 100 million in each of the last five tax years
Any business which fulfills the criteria listed above, its profits and gains would be exempt from tax in the year in which it is certified by the PSEB and for the following two tax years.
It is also proposed to exempt such startup from payment of minimum tax under section 113 and from withholding of tax on local sales and services under section 153 of the Ordinance as a recipient.
8. Lease of depreciable assets under Musharika or Diminishing Musharika financing arrangement
Section 22(15)As per Section 22(15) of the Ordinance "Depreciable Asset" means any tangible movable property, immovable property (other than unimproved land), or structural improvement to immovable property, owned by a person, which
-- has a normal useful life exceeding one year;
-- is likely to lose value as a result of normal wear and tear, or obsolescence; and
-- is used wholly or partly by the person in deriving income from business chargeable to tax
However, assets given under diminishing Musharika are not owned by the lessee ie person obtaining asset under the Islamic mode of financing. These were thus not eligible for depreciation.
The Bill proposes to address the unfavorable tax treatment on account of availing Islamic banking financing which potentially had far reaching negative consequences. In order to provide tax neutrality treatment to customers of Islamic financial Institutions availing Islamic financial services under Musharika and Diminishing Musharika financing, a new proviso is proposed to be inserted in Section 22(15) of the Ordinance whereby a depreciable asset which is co-owned by an Islamic Financial Institution and the lessee under Musharika or Diminishing Musharika financing arrangement, would be treated as owned by the lessee. Accordingly, tax depreciation would be allowed to the lessee on assets financed under Musharika or Diminishing Musharika arrangements.
9 Tax on Dividend
Section 5, First Schedule The rate of tax on dividend is proposed to be enhanced to 15% from 12.5% for filers. Similarly the rate of tax on dividend distributed by a mutual fund is proposed to be enhanced to 12.5% from 10%.
The withholding tax rates have also been proposed to be enhanced accordingly.
10. Computation of capital gains on listed securities
Section 37A,First and Eight Schedule The rate of capital gains taxable under section 37A has been unified to 15% irrespective of the holding period for all securities bought on or after July 01, 2013.
Securities acquired prior to July 01, 2013 shall be exempt from tax. Capital gain on future commodities continue to be taxed at 5%. Under this schedule, capital gain on disposal of listed securities which are liable to tax under Section 37A of the Ordinance is required to be computed and tax thereon is required to be collected by National Clearing Company of Pakistan (NCCPL).
The Bill seeks to relax the compliance date for NCCPL whereby the quarterly statement of capital gains and tax computed is now proposed to be provided to the Board within 45 days, instead of 30 days.
Similarly, the annual fund transfer date of payments collected by NCCPL and deposited in separate bank account with National Bank of Pakistan is now proposed to be extended to 15 August after the end of the financial year, instead of 31st July.
11. Penalties
Section 182 It has time and again been emphasized to the legislature and tax collector that the main purpose of levying penalty is to educate the taxpayers and instill a sense of compliance rather than to create huge tax demands to achieve revenue targets. Not only has it been highlighted that some of the penalties for non-compliance like for late filing of tax returns and statements are very excessive and exorbitant but it has also been pointed out that in some cases the law stands as a naked sword for unmindful taxpayers as there is no statute of limitation provided in the law with regard to imposition of penalties resulting in severe hardship to taxpayers.
However, it seems that the government has yielded a deaf ear to all such proposal which in our view would also help in broadening the tax base as the severity of penalties has also a big role in keeping away persons from the tax net.
The amendments in Section 182 in fact are inclined towards increasing the number of penalties and introducing penalties for non-compliance of some of the newly introduced compliances. The new penalties are as follows-
=======================================================================
Offences Penalties Section of
the
Ordinance
to which
the offence
relates
=======================================================================
Any reporting financial Such reporting 107, 108
institution or reporting financial institution or and 165
entity who fails to furnish reporting entity shall
information or country-by- pay a penalty of two
country report to the thousand rupees for
Board as required under each day of default
Section 107, 108 or 165B subject to a minimum
within the due date. penalty of twenty five
thousand rupees.
Any person who fails to 1% of the value of 108
keep and maintain transaction, the record
document and of which is required to
information required be maintained under
under section 108 or section 108 and
Income Tax Rules, 2002 Income Tax Rules,
2002
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12. Collection of tax by a Stock Exchange registered in Pakistan
Section 233A Since 2004, Stock Exchanges in Pakistan were required to collect tax on the purchase and sale value of the shares traded by their members. The tax so collected is presently being treated as an advance tax adjustable against the final tax liability of the members of the Stock Exchange or their customer as the case may be.
The Bill now seeks to treat the tax collected by the Stock Exchange as a full and final tax liability of the person from whom the tax has been collected.
13. Advance tax on tobacco
Section 236X The Bill proposes to introduce this section to levy advance tax on tobacco. It is proposed that the Pakistan Tobacco Board at the time of collecting cess on tobacco shall collect advance tax at the rate of 5% of the purchase value of tobacco from every person purchasing tobacco including manufacturers of cigarettes. The tax so collected shall be treated as an advance tax adjustable against the ultimate tax liability of the purchaser.
14. Advance tax paid by the taxpayer
Section 147 Currently, every taxpayer, excluding those covered under Final Tax Regime, is required to estimate the total tax liability due for the year and deposit quarterly advance tax based on such calculation. However, the quarterly advance tax reporting is not applicable on such individual taxpayer having latest assessed taxable income of less than Rs 500,000.
The Bill proposes to increase the threshold of non-reporting of quarterly advance tax by individuals to Rs 1,000,000.
15. Principles of taxation of companies
Section 94(3)Presently, the dividend received by a resident person from a non-resident company is chargeable to tax as "income form business" or "income from other sources" unless exempt from tax.
The Bill proposes to omit the Sub-section through which such dividend is taxed as part of income from business or income from other sources. Accordingly, the taxation of dividend received from a non-resident company shall become at par with dividend received from a resident company.
16. Withholding of tax from payments for rendering or providing of services
Section 153, Sub-section (1), Clause (b)Section 153(1)(b) of the Ordinance obliges a withholding agent to deduct tax from the payment made on account of rendering or providing of services at the rates prescribed in the First Schedule. A controversy arose whether tax is to be withheld where a person collects gross amount of fee or other payment on behalf of another person and remits the same after retaining its charges/ collection fee. As a matter of fact, in the case of Pakistan Television Corporation (PTV), the tax authorities treated it to be in default for not withholding tax at the time when it receives license fee from Electricity Distribution & Supply Companies (DISCOs) which collect such fee from PTV''''s consumers along with their monthly bills and retain their service charges. PTV was thus disallowed the claim of service charges retained by DISCOs, in terms of section 21(c) of the Ordinance. It was however argued by PTV that section 153(1)(b) only requires withholding of tax at the time of ''''payment'''' of a sum and does not apply to a situation where a person retains its portion of fee from a sum collected on behalf of another person. It was also contented that under section 153 tax is to be ''''deducted'''' and it does not require the tax to be ''''collected''''. This matter is put to rest by the Hon''''ble Supreme Court of Pakistan in its judgment in Civil Petitions No 3551 to 3555 of 2015 through order dated 24 April 2017. While referring to the provisions of section 158 of the Ordinance, which refers to ''''payment is actually made'''' and section 233(2) of the Ordinance, which requires ''''tax to be collected'''' when an agent retains its commission and remits the amount collected by it to the principal, the Court held that since section 153 speaks of ''''deduction of tax'''' and does not require ''''collection of tax'''', the PTV could not be held liable to withhold tax from the service charges the DISCOs retain from the license fee they collect from consumers and remit to PTV.
This judgment has far reaching consequences and is likely to impact revenue collection by way of withholding of tax in transactions that operate in the manner PTV and DISCOs were indulged in. In order to protect the interest of Revenue, the Bill proposes to insert an Explanation in Clause (c) of Sub-section (1) of section 153 whereby if a person receives the payment through an agent or a third person (who retains service charges/ fee, by whatever name called, from the payment remitted to the recipient), the agent or the third person, as the case may be, shall be treated to have been paid the service charges/ fee by the recipient who shall collect tax along with the payment it received.
17. Furnishing of information by financial institutions including banks
Section 165B read with Chapter XIIA of the Income Tax Rules, 2002 Section 165B, which was inserted in the Ordinance via the Finance Act, 2015, obliges every financial institution to make arrangements to provide information regarding non-resident persons to the FBR (in the prescribed form and manner) for the purpose of automatic exchange of information under bilateral agreement or multilateral convention. The term ''''financial institution'''' has been provided in section 2(24) of the Ordinance and refers to the definition as available under the Companies Ordinance, 1984. Recently, via SRO 166(I)/2017 dated 15 March 2017, Chapter XIIA has been inserted in the Income Tax Rules, 2002 whereby Rules 78A to 78J have been prescribed. These Rules contains mode and manner in which the information is to be furnished under section 165B ibid. The definition given in Rule 78B of a "financial institution" appears to be more elaborative and per se, creates an anomaly when compared with the definition provided in the Ordinance.
In order to address this situation, the Bill proposes to insert Sub-section (3) in section 165B which provides that for the purposes of section 165B, the terms "financial institution'''' and "reportable person" shall have the meaning as contained in Chapter XIIA of the Income Tax Rules, 2002.
18. Tax collected at the time of import
Section 148, Sub-section (7) Under the provisions of Sub-section (7) of section 148 of the Ordinance, the tax required to be collected under section 148 is treated as a final tax on the income of the importer arising from the imports. However, the provisions of Sub-section (7) are not applicable to the following -
(a) raw material, plant, machinery, equipment and parts by an industrial undertaking for its own use;
(b) fertilizer by manufacturer of fertilizer;
(c) motor vehicles in CBU condition by manufacturer of motor vehicles;
(d) large import houses, who fulfill certain specified conditions; and
(e) a foreign produced film imported for the purposes of screening and viewing.
The Bill now proposes to omit Clause (b) above whereby the tax collected under section 148 on import of fertilizer from a person who is engaged in manufacture of fertilizer would now be treated as a final tax on income arising from import and sale of such fertilizer.
19. Advance tax on private motor vehicles
Section 231B, Clause (102), Part V of the Second Schedule The Government, since the preceding three years, has consistently adopted the policy of creating a distinction between compliant and non-compliant taxpayers by prescribing higher rates of withholding of taxes in case of non-filers.
Through the Finance Act, 2016, a new Sub-section (1A) was introduced in section 231B providing for withholding of tax from non-filers on lease of motor vehicle from leasing company, scheduled bank, investment bank, development finance institution, or a modaraba.
The Bill seeks to bring clarity and increase the ambit of collection of advance tax from non-filers @ 3% of the value of motor vehicle at the time of lease / ijara of a vehicle by every leasing company, scheduled bank, non- banking financial institution, investment bank, modaraba and development finance institution, whether shariah compliant or under conventional mode of financing.
However, in order to provide incentive to facilitate the lease of motor vehicles under Prime Minister''''s Youth Scheme in a bid to combat soaring unemployment in the country and to mitigate their hardship, the Bill proposes to exempt collection of advance tax under section 231B in such cases.
20. Taxation of Exploration & Production companies
Section 100, Sub-section (2) read with the Fifth Schedule The provisions of section 100 provides for taxation of Petroleum Exploration & Production companies to be dealt with by the Rules contained in the Fifth Schedule to the Ordinance. However, Sub-section (2) of section 100 states that the profits and gains attributable to the production of petroleum including natural gas discovered before 24 September 1954 shall not be dealt with by the Fifth Schedule ibid. This relates to the profits and gains from exploration and production of petroleum gas from the Sui Gas field located in Baluchistan, which is the largest natural gas field in Pakistan. Pakistan Petroleum Limited (PPL) is the operator and was working under a mining lease agreement called ''''Sui Mining Lease'''' with the Federal Government. This mining lease expired in 2015 but the PPL was allowed to continue to work as it was under discussions with the Federal Government and the Government of Baluchistan for grant of Development & Production Lease (D&PL) in respect of Sui Gas field.
Since the taxation of profit and gains from Sui Gas field was outside the scope of the Fifth Schedule, and was being dealt with by the normal provisions of law, it was PPL''''s demand that enabling provisions may be introduced in section 100 ibid. While the matter of grant of D&PL has been finalized in favour of PPL, in order to remove the anomaly as regards taxation of such profit and gains, the Bill proposes to insert a proviso to Sub-section (2) which provides that effective from the tax year 2017, the provisions of Sub-section (2) shall not apply to profit and gains derived from Sui Gas field.
Accordingly, it is proposed that the profit and gains derived from the Sui Gas field shall also be taxed under the provisions of the Fifth Schedule to the Ordinance effective from the tax year 2017.
21. Tax credit for not for profit organizations
Section 100C The Finance Act, 2014 had omitted the Clauses (58), (58A), (59) and (60), Part I of the Second Schedule to the Ordinance relating to charitable organizations including Welfare Trusts, Non-Profit Organizations, Trusts administered for the benefit and welfare of ex-servicemen and serving personnel including civilian employees of armed forces, ex-employees and service personnel of the Federal and Provincial Governments. Alternatively, Section 100C was inserted whereby such exemptions were allowed subject to fulfilment of certain conditions. Though the text of Section 100C was poorly drafted, however, the conditions specified to claim tax credit equal to 100% of tax payable resulted in such organizations becoming tax compliant and attain ''''filer status''''.
The Bill proposes to add another condition for claiming tax credit ie the administrative and management expenses does not exceed 15% of total receipts. The Bill also proposes to tax ''''surplus funds'''' of such organizations @10%. The term ''''surplus funds'''' has been defined as funds or monies-
-- not spent on charitable and welfare activities during the tax year;
-- received during the tax year as donations, voluntary contributions, subscriptions, and other incomes;
-- 25% or more of total receipts of the NPO received during the tax year;
-- are not part of restricted funds.
The term restricted funds mean any fund received but could not be spent and treated as revenue during the year due to any obligations placed by the donor.
The proposal to tax surplus funds is harsh and unjustified for such compliant NPOs/NGOs when the activities of such organizations are being monitored by Pakistan Center for Philanthropy and Tax Commissioner having jurisdiction over such NPOs/NGOs. There cannot be any taxation as long as such funds are being utilized for charitable activity and Trustees (and/or owners) of such organizations are not drawing any benefit from such surplus funds.
22. Recovery of tax from persons assessed in Azad Jammu & Kashmir and Gilgit Baltistan
Section 146 On 29 August 2009, the GB Order 2009 was promulgated by the Government of Pakistan. By this order, the GB Legislative Assembly has been created, which is an elected body, and this area has gained de-facto province status in the same manner as Azad Jammu & Kashmir.
The Bill proposes to insert the words "Gilgit-Baltistan" after the words ''''Azad Jammu & Kashmir'''' in Section 146 to enable the tax administration (GB Council) to issue a certificate for recovery of tax that remain outstanding in GB from the taxpayer residing in Pakistan in the same manner as is done in case of AJ&K.
23. Statements
Section 165 Currently the Ordinance does not empower the taxpayer / withholding agent to revise monthly withholding tax statement even if an omission or wrong statement is identified. The FBR web-portal also does not cater to the option for revision of monthly withholding tax statement.
The Bill proposes to insert a Sub-section whereby any withholding agent who after filing of such statement discovers any omission or wrong statement shall be able to file revised statement within 60 days of filing of the original statement.
24. Advance tax on sale/ purchase or transfer of immovable property
Section 236C; Section 236 K and Section 236W The Bill seeks to add a proviso after the existing Sub-section (2) to Section 236C, to treat the tax collected as minimum tax if the immovable property is acquired and disposed of within the same tax year. It may however be noted that the proposed proviso refers to acquisition and disposal within the same tax year therefore any immovable property acquired in one tax year and disposed of in another year (within a period of 12 months) shall not be covered within the proposed proviso and such tax collected shall remain advance tax rather than being treated as minimum tax.
Moreover, to remove any anomaly and to provide wider coverage on the collection of advance tax on sale or transfer of immovable property, the word ''''recording'''' is proposed to be inserted after the word ''''registering'''' in Section 236C, Section 236K and Section 236W of the Ordinance.
The explanation proposed to be inserted also provides clarity regarding the responsibility of such advance tax collection on registering, recording or attesting any immovable property by local authority, housing authority, housing society, co-operative society and registrar of properties.
25. Advance tax on sales to distributors, dealers & wholesalers and retailers
Section 236G & 236H Currently every manufacturer, distributor, dealer, wholesaler or commercial importer of the following items is required to collect advance tax on sale of such items to distributors, dealers, retailers and whole sellers at varying rates ranging from 0.1% to 1.4% on the gross amount of sales -
(a) electronic;
(b) sugar;
(c) cement;
(d) iron and steel products;
(e) fertilizer;
(f) motorcycles;
(g) pesticides;
(h) cigarettes;
(i) glass;
(j) textile;
(k) beverages;
(l) paint; or
(m) foam.
The Bill proposes to add ''''batteries'''' to the list of specified items.
26. Validation
Section 241 The Bill proposes to insert a new section whereby all notifications and orders issued and notified, in exercise of the powers conferred upon the Federal Government, before first day of July 2017 shall be deemed to have been validly issued and notified in exercise of the powers, not withstanding, anything contained in any judgment of a High Court or the Supreme Court.
The proposed insertion is made to address the consequences arising from the judgment of Honorable Supreme Court of Pakistan on Article 90 of the Constitution of Islamic Republic of Pakistan subsequent to the 18th Constitutional amendment in April 2010, which regulates the authority of the Federal Government.
27. Appointment of the Appellate Tribunal
Section 130
The Appellate Tribunal is said to be the final fact finding authority under the tax appellate system of the country. Any decision given by the Appellate Tribunal deciding a matter of fact is not challengeable before the High Courts and the Supreme Court of Pakistan. Since inception, the composition of a division bench of the Appellate Tribunal includes a Judicial Member and an Accountant Member. The idea of having a judicial member as well as an Accountant Member was there because a tax case involves both legal interpretation and application of the provisions of the tax laws vis-à-vis examination of the accounting treatment of the disputed transaction.
Before the Finance Act, 2007, a person could be appointed as an Accountant Member if he has been an officer of the Income Tax Department having a rank of Chief Commissioner (BPS 21). The Finance Act, 2007 expanded this criteria to qualify a Commissioner or a Commissioner (Appeals) having atleast 5 years'''' experience as a Commissioner, to become an Accountant Member. Thereafter, the Finance Act, 2010 curtailed the qualifying experience of a Commissioner from 5 years to 3 years. These changes have resulted in affecting the performance of the Appellate Tribunal with the result that the landmark judgments that were rendered by the Appellate Tribunal on various issues are seen quite seldom.
On the other hand, the criteria of becoming a Judicial Member was that the person:
a) has exercised the powers of a District Judge and is qualified to be judge of a High Court; or
b) is or has been an advocate of a High Court and is qualified to be a judge of the High Court.
From the above, it can be seen that only such person was qualified to become a Judicial Member who is qualified to be judge of a High Court. However, the Finance Act, 2013 disturbed the above criteria of appointment of a Judicial Member as it enabled a person who is an officer of Inland Revenue Service in BS-20 or above, and a law graduate.
The above amendment was not given a warm welcome by the law fraternity as well as by the tax professionals at large. This has also effected the composition of the Division Benches, for, a person capable of becoming a Judge of a High Court cannot be equated with an Officer of Inland Revenue Service be him a law graduate and an Officer Inland Revenue in BS-20 or above.
The Bill now proposes to restore the criteria prevalent before the amendment made through the Finance Act, 2013 as discussed above.
As a result of the proposed amendment, the criteria of appointment of a Judicial Member to also include a person who is an Officer of Inland Revenue Service in BS-20 or higher, and a law graduate, is now proposed to be omitted.
28. District Taxation Officer and Assistant Director Audit
Sections 2(38A), 207, and 208 The Bill intends to introduce two new income tax authorities viz; District Taxation Officer and Assistant Director Audit. Appropriate amendments have been proposed in the sections dealing with income tax authorities and appointment thereof.
Similarly, the definition of "Officer of Inland Revenue" is proposed to be amended to include the aforesaid authorities.
However, it remains to be seen what powers and or parameters are assigned to the said authorities.
29. Tax on builders and developers
Sections 7C, 7D, and 8
It would be recalled that the Finance Act 2016 introduced a scheme of Final Taxation for land builders and developers in relation to projects initiated and approved after 01 July 2016. For this purpose, Part IV was introduced in Chapter II of the Rules, wherein the mode and manner of payment of tax liability, by such taxpayers, was also prescribed.
The Bill now proposes that Normal Tax Regime be reintroduced for such taxpayers. Accordingly section 8 has been amended to exclude sections 7C, and 7D from the scheme of final taxation. Correspondingly, it is also proposed that sections 7C, and 7D would apply only on projects initiated and approved during tax year 2017. Thus, for such projects the tax liability would continue to be determined in accordance with Divisions VIIIA and VIIIB of Part I of First Schedule to the Ordinance, based on their location and area.
Accordingly, projects initiated and approved from tax year 2018 onwards would be taxed as per the normal tax regime.
30. Tax credit for investment in health insurance
Section 62A The maximum limit for calculation of tax credit for investment in health insurance is proposed to be enhanced from Rs 100,000 to Rs 150,000.
31. Withdrawal of tax credit to a person registered under the Sales Tax Act
Section 65A Section 65A offers a tax credit of 3% of tax payable for a tax year to every manufacturer who makes at least 90% of the sales to persons registered under the Sales Tax Act. The Bill now proposes to withdraw this tax credit.
At a time when the Government aims to actively follow a policy of increased focus on documentation of economy, such a proposal to withdraw an incentive for doing business with registered persons appears to be in complete contrast with the stated policy.
Therefore, we recommend that the legislature revisits its proposal to withdraw the tax incentive.
32. Enhancement in tax credit for enlistment
Section 65C Section 65C offers a tax credit equal to 20% of tax payable to every company who enlists on the registered stock exchange in Pakistan. The tax credit is allowed for the tax year in which the said company is enlisted and the following tax year.
The Bill now proposes to extend the period of tax credit to 3 tax years following the year of enlistment. However, the tax credit is proposed to be 10% in the last 2 years.
33. Prosecution for non-compliance with certain statutory obligations
Section 191 Section 191 deals with the prosecution for non-compliance with certain statutory obligations. The said section prescribes a fine or imprisonment for a term not exceeding 1 year (or both) for a first offense and a fine not exceeding Rs 50,000 or imprisonment for a term not exceeding 2 years (or both) for a second offense.
The Bill proposes that section 191 would also apply in case of a failure to file a return on a notice from the Commissioner under section 114(4) or in case advance tax under Chapter XII has not been collected by required persons.
34. Withdrawal of concept of provisional assessment
Sections 122C, 114, 116, 121, 122, 127, and 137 Finance Act 2010 introduced section 122C which empowered the Commissioner to make a provisional assessment where a taxpayer failed to furnish a return of income in response to a notice by the Commissioner. Furthermore, pursuant to the amendments enacted by the Finance Act 2011, a taxpayer could not file an appeal with the Commissioner Appeals, against such a provisional assessment.
In order to alleviate the hardship being faced by various taxpayers who are unable to file a return of income within 45 days on account of genuine reasons and have no remedy against such order, the concept of provisional assessment is proposed to be withdrawn. Correspondingly, an amendment is also proposed in section 121 whereby in case a taxpayer fails to furnish a return of income in response to a notice by the Commissioner, the Commissioner may make an assessment on the basis of best judgement.
Consequential amendments are also proposed in certain sections to remove the reference to section 122C.
35. List of persons not required to furnish a return of income
Section 115
As a general rule, if a person owns immovable property, he is required to file a return of income pursuant to section 114. However, section 115 provided an exception to this general principle whereby widow, orphan under the age of 25 years, disabled person, or in case of ownership of immovable property- a non-resident person, were permitted not to file a return of income solely for the reason that such taxpayers owned immovable property with a land area of 250 sq. yards or more, or owned any flat located in areas falling within the municipal limit existing immediately before the commencement of local Government laws in the province; or areas in a cantonment; or the Islamabad capital territory.
The Bill now proposes to further extend the list of circumstances where such persons are permitted not to file a return of income, to include such person who :
-- owns imovable property with a land area of 500 sq. yards or more, located in a rating area;
-- owns a flat having covered area of 2,000 sq. feet or more, located in a rating area;
-- owns a motor vehicle having engine capacity above 1,000CC.
36. Timing of revision of Wealth Statement
Section 116 Currently, a taxpayer can amend his wealth statement for a tax year to which it relates, at any time before an assessment is made under subsection (1) or subsection (4) of section 122.
The Bill now proposes that the wealth statement can only be revised prior to the receipt of a notice for amendment of assessment under section 122.
37. Extension of time for furnishing of return and other documents
Section 119 Currently only the Commissioner can grant an extension of time for furnishing of return and other documents. The Bill now proposes that where the Commissioner has not granted the extension, the Chief Commissioner may, on application made by the taxpayer, grant extension or further extension for a period not exceeding 15 days, unless there are exceptional circumstances justifying a longer extension of time.
38. Advance ruling
Section 206A Per section 206A, a non-resident can seek an advance ruling from the FBR regarding the application of the Ordinance to a transaction proposed or entered into by the taxpayer. Such a ruling is binding on the tax authorities. However, currently only non-residents not having a Permanent Establishment are allowed to obtain an advance ruling.
The Bill now proposes to omit the proviso which restricts non-residents having a Permanent Establishment from obtaining an advance ruling. In our view, this is a positive initiative from the legislators and should be extended to resident persons as well.
39. Disclosure of information by a public servant
Section 216 The Bill proposes to allow the sharing of information regarding salaries in statements furnished under section 165 with the Employees Old Age Benefit Institution.
40. Tax on CNG stations
Section 234A Currently, persons preparing gas consumption bill, are required to charge advance tax on the amount of gas bill of a CNG station and such tax is a final tax on the income of a CNG station arising from the consumption of such gas.
The Bill now proposes to amend this section by inserting an explanation which clarifies that the advance tax is to be collected on an amount inclusive of sales tax and all incidental charges. Further, the Bill seeks to provide that the tax collected from CNG station in respect of their electricity bill is also not adjustable.
Furthermore, currently as per subsection (4), the taxpayer is not entitled to claim any adjustment of withholding tax collected or deducted under any other head. The Bill now proposes to omit this subsection.
41. Advance tax on commercial & domestic electricity consumption
Sections 235 and 235A Currently, persons preparing the electricity consumption bill, are required to charge advance tax on the amount of electricity bill of commercial and domestic electricity users.
The Bill now proposes to insert an explanation which clarifies that the advance tax is to be collected on an amount inclusive of sales tax and all incidental charges.
Furthermore, in relation to non-corporate commercial and industrial consumers of electricity, the tax collected for bills not exceeding Rs 30,000 per month is deemed as a minimum tax. With a view to synchronize the taxability provisions over the period of a tax year, the Bill proposes to harmonize the per month amount of Rs 30,000 into an annual figure of Rs 360,000.
42. Definitions - Fast moving consumer goods
Section 2(22A)It would be recalled that the concept of "Fast moving consumer goods" (FMCG) was introduced through the Finance Act, 2015 viz-a-viz deduction of tax on payments pursuant to section 153. Per section 2(22A), the expression FMCG means consumer goods which are supplied in retail marketing as per daily demand of a consumer.
The Bill seeks to restrict the scope of definition of FMCG by excluding durable goods from the ambit of the definition of FMCG. The expression durable goods has not been defined and therefore would again leave margin of judgement for both the taxpayers and tax authorities. Therefore, it is recommended that the definition of durable goods should also be provided in order to avoid interpretation issues.
43. Interest on loan given by employer to employee
Section 13, Sub-section (7)
The benefit arising to an employee on account of an interest-free or concessional loan provided by the employer is treated as a taxable prerequisite in the hands of the employee. Where no mark-up is charged or the mark-up charged on the loan is less than the benchmark rate, the differential amount is deemed as a taxable benefit to the employee and taxed accordingly.
It would be noted that through an earlier amendment introduced in this Sub-section through Finance Act, 2012, an exception was provided whereby notional taxation of mark-up under the aforesaid provision would not apply in cases where the loan does not exceed Rs 500,000.
The Bill now seeks to enhance the above loan limit of Rs 500,000 to Rs 1,000,000.
44. Limit on claim of sales promotion, advertisement and publicity expenses by pharmaceutical manufactures
Clause (o) of Section 21 Through the Finance Act, 2016, Clause (o) to Section 21 was inserted whereby restriction was imposed on a pharmaceutical manufacturer in respect of the claim of sales promotion, advertisement and publicity expenditure upto a maximum of 5 percent of turnover.
The Bill now seeks to enhance the capping of 5 percent to 10 percent of the turnover.
45. Exemption and tax concessions - Second Schedule
Section 53, Sub-section 2 and 4 Presently, the Federal Government, pursuant to the approval of the Economic Coordination Committee of the Cabinet, is empowered to amend the Second Schedule to the Ordinance in order to provide or withdraw exemptions and tax concessions or to provide conditions in respect thereof. All such amendments made during the financial year are required to be placed before the National Assembly for ratification. However, in case such notification issued by the Federal Government is not ratified by the Parliament, it stands rescinded at the end of the financial year in which it was issued. Keeping in view the long drawn process of getting the exemptions legislated, the said powers of the federal Government and the procedure thereof was criticized by different quarters. In order to address the concern, the Bill proposes to empower the FBR to grant exemptions and concessions subject to the approval of the Minister Incharge of the Federal Government. Such an amendment, in our view, will streamline the process of exemption and tax concession.
Further, in relation to the time bound validity of the exemption issued by the Federal Government that have not received ratification from the Parliament, the Bill proposes to sanction their validity uptil 30 June 2018.
46. Deductible allowances
Section 64A and 64AB The deductible allowances are currently provided under Part IX of Chapter III of the Ordinance which presently include Zakat, Workers'''' Welfare Fund and Workers'''' Participation Fund under sections 60, 60A and 60B respectively.
Further, the deductible allowance on profit on debt and for education expenses are currently provided separately under Part X of Chapter III dealing with tax credits under section 64A and 64AB respectively.
The Bill now seeks to harmonize the arrangement of sections dealing with deductible allowance and therefore, deductible allowance on profit on debt and for education expense are proposed to be re-numbered as 60C and 60D under Part IX of Chapter III.
Further the allowance for education expenses is available to an individual whose taxable income is less than 1 million. This capping has now been enhanced to 1.5 million.
47. Commissioner authorized to delegate powers to a firm of Chartered Accountants, Cost and Management Accountants for tax audit
Clause (c) of Sub-section 1 of Section 176 Currently, under section 210(1B) of the Ordinance, the Commissioner is empowered to delegate to a firm of chartered accountants and a firm of cost and management accountants appointed by the Board pursuant to Sub-section 8 of section 177, such powers to enable the firm to conduct the audit of persons selected for audit under section 177.
Pursuant to the above delegation, appropriate/ suitable amendment was also made through Finance Act, 2009 in Clause (c) Sub-section 1 of Section 176 for obtaining information, records or computer on which the required information is stored, only to a firm of chartered accountants.
This creates an anomaly although on one hand a firm of cost and management accountants can be appointed by the Board to conduct audit under section 177 of the Ordinance, however, they are not authorized to obtain relevant information required in connection with audit under the existing provisions of section 176.
The Bill now seeks to remove the aforesaid anomaly and it is proposed to include a firm of cost and management accountants as defined under the Cost and Management Accountants Act, 1966, appointed by the Board to conduct audit under section 177, is authorized, subject to prior approval of Commissioner concerned, to obtain information, records or computer on which the required information is stored.
48. Default Surcharge
Section 205(1B)Under the existing provisions of Sub-section 1B of Section 205, in the event of failure to pay the advance tax under Sub-sections 4A or 6 of Section 147 of the Ordinance, or the tax paid falls short of ninety percent of the tax eventually determined to be chargeable for the relevant tax year, such taxpayer shall be liable to default surcharge at the rate of 12 percent per annum, based on the eventual tax liability or the amount of the shortfall, in such advance tax payment, as the case may be. The default surcharge as aforesaid shall be computed from the first day of April of that tax year until the date of assessment or the thirtieth day of June of the financial year, whichever be the earlier.
The aforesaid computation of default surcharge provides a discriminatory treatment for taxpayers following special year as their accounting year, which is demonstrated as per the following illustration
=====================================================================
Tax Year 2016 Tax Year 2016
Accounting Year 01 January 2015 to 31 01 July 2015 to 30
December 2015 June 2016
=====================================================================
Period of default 15 months * (01 April 12 months * (01
Tax Year 2016 Tax Year 2016 April 2015 to June
2015 t30 June 2016) 2016)
=====================================================================
-- Method of calculating the period of default is based on earlier of -
-- 01 April in that year to the date of assessment (ie the date on which return is filed) OR;
-- 01 April in that year to 30 June of the financial year next following.
In view of the above discriminatory treatment clarification was also sought for from the Federal Board of Revenue (FBR). The FBR while providing clarification in case of a banking company has directed to work out the period of default in case of taxpayers following special tax year to be from the first day of December in that special tax year to the date on which assessment is made or thirty-first day of December next following, whichever is earlier. However, the assessing officers while levying default surcharge in cases of taxpayers following special tax year continued following the discriminatory treatment based on the existing provisions, which is causing unnecessary litigation.
The Bill now seeks to eliminate the above anomaly in the existing provisions of section 205(1B) and it is now proposed to calculate the default surcharge in case of persons having a special tax year from the 01 day of the fourth quarter of the special tax year till the date on which the assessment is made or the last day of special tax year, whichever is earlier.
49. Directorate General of Broadening of Tax Base
Section 230D The Bill seeks to introduce a Directorate General of Broadening of Tax Base. The Board shall notify the functions, jurisdictions and powers of such directorate.
50. Directorate General of Transfer Pricing
Section 230E The Bill seeks to introduce a Directorate General of Transfer Pricing which shall consist of a Director General and as many Directors, Additional Directors, Deputy Directors, Assistant Directors and such other officers.
The primary function of the Directorate General is to conduct transfer pricing audit. The Bill also seeks to provide explanation regarding transfer pricing audit to mean the audit for determination of transfer price at arm''''s length in transactions between associates and which would be independent from other audits of income tax affairs of the taxpayers that are conducted under sections 177, 214C and 214D.
It is further proposed that the Board may by notification in the official Gazette, specify the criteria for selection of taxpayer for a transfer pricing audit and may further specify functions, jurisdiction and powers of Directorate - General of Transfer Pricing. Considering the growing global emphasis, the intricacy of the issues involved in transfer pricing compliances and ensuring transparency between transactions between related parties, it is imperative that the person appointed as Directorate General should be well versed with the transfer pricing rules and regulations and is fully conversant with the global practices that are being employed with regard to determination of transactions between related parties meeting the arm''''s length principles.
51. Rates of tax for individuals and Association of Persons
The rates of tax chargeable for the tax year 2018 (corresponding to the income year ending at any time between 01 July 2017 to 30 June 2018) and basic threshold have remained unchanged, and are as under:
Salaried taxpayers
=====================================================
Salaried taxpayers Rate
=====================================================
Up to Rs 400,000 Nil
Rs 400,001-500,000 2% of excess over
Rs 400,000
Rs 500,001-750,000 Rs 2,000 + 5% of excess over
Rs 500,000
Rs 750,001-1,400,000 Rs 14,500 + 10% of excess
over Rs 750,000
Rs 1,400,001-1,500,000 Rs 79,500 + 12.5% of excess
over Rs 1,400,000
Rs 1,500,001-1,800,000 Rs 92,000 + 15% of excess
over Rs 1,500,000
Rs 1,800,001-2,500,000 Rs 137,000 + 17.5% of
excess over Rs 1,800,000
Rs 2,500,001-3,000,000 Rs 259,500 + 20% of excess
over Rs 2,500,000
Rs 3,000,001-3,500,000 Rs 359,500 + 22.5% of
excess over Rs 3,000,000
Rs 3,500,001-4,000,000 Rs 472,000 + 25% of excess
over Rs 3,500,000
Rs 4,000,001-7,000,000 Rs 597,000 + 27.5% of
excess over Rs 4,000,000
Over Rs 7,000,000 Rs 1,422,000 + 30% of
excess over Rs 7,000,000
=====================================================
Non-salaried taxpayers
=====================================================
Non-Salaried taxpayers Rate
=====================================================
Up to Rs 400,000 Nil
Rs 400,001-500,000 7% of excess over
Rs 400,000
Rs 500,001-750,000 Rs 7,000 + 10% of excess
over Rs 500,000
Rs 750,001-1,500,000 Rs 32,000 + 15% of excess
over Rs 750,000
Rs 1,500,001-2,500,000 Rs 144,500 + 20% of excess
over Rs 1,500,000
Rs 2,500,001-4,000,000 Rs 344,500 + 25% of excess
over Rs 2,500,000
Rs 4,000,001-6,000,000 Rs 719,500 + 30% of excess
over Rs 4,000,000
Over Rs 6,000,000 Rs 1,319,500 + 35% of
excess over Rs 6,000,000
=====================================================
52. Rates of tax for companies
Rates of tax for companies, for the tax year 2018 are as under:
======================================================
Companies Rate
======================================================
Public and Private 30%
Cooperative and Finance Society 30%
Banking 35%
Small 25%
======================================================
53. Rate of Super tax for rehabilitation of temporarily displaced persons
Rates of super tax for rehabilitation of temporarily displaced persons under Section 4B (which is proposed to be extended for the tax year 2017) remains unchanged, are as under:
========================================================
Taxpayer Rate
========================================================
Banking Company 4%
Person, other than a banking company, having 3%
income of Rs 500 million or more
========================================================
54. Rate of withholding and charge of tax on dividend income
Rate of withholding and charge of tax on dividend received by all taxpayers for the tax year 2018 remains unchanged except for others (filer), are as under:
=============================================================
Rate
Dividend from
Filer Non-
Filer
=============================================================
Existing Proposed
=============================================================
Companies owning
power project 7.5% 7.5% 7.5%
privatized by
WAPDA, companies
set-up for power
generation and
companies supplying
coal, exclusively to
power generation
projects
Others 12.5% 15% 20%
Mutual Fund (Stock Fund) 10% 12.5% 12.5%
Stock fund, if
dividend receipts are 12.5% 12.5% 12.5%
less than capital
gains
Money Market Fund,
Income Fund or
REIT scheme or any
other fund*
Company 25% 25% 25%
Other taxpayers 10% 12.5% 15%
=============================================================
-- Provided further that if a Development REIT Scheme with the object of development and construction of residential buildings is set up by 30th day of June, 2018, rate of tax on dividend received by a person from such Development REIT Scheme shall be reduced by fifty percent for three years from 30th day of June, 2018.
55. Rate of tax on profit on debt
The Bill propose to provide the slab rate for tax on profit on debt for the tax year 2018 by withdrawing the scheme of progressive rate of taxation applicable in the tax year 2017. Accordingly, the schedule of existing rate of tax on profit on debt is replaced. The proposed rates of tax are as under:
==========================================================
Profit on debt Rate
==========================================================
Where profit on debt does not exceed 10%
Rs 5,000,000
Where profit on debt exceeds Rs 5,000,001 but 12.5%
does not exceed Rs 25,000,000
Where profit on debt exceeds Rs 25.000,000 15%
==========================================================
56. Rate of Tax on Return on investments in Sukuks received from a special purpose vehicle.
Rate of tax on return on investments in Sukuks received from a special purpose vehicle have remained unchanged and are as under:
=======================================================
Sukuks Holder Amount of return on Rates
Investment
=======================================================
Company Any amount 25%
Individual or AOP More than one million 12.5%
Individual or AOP Less than one million 10%
=======================================================
57. Rates of tax for non-resident taxpayers for certain transactions
The applicable rate of tax for tax year 2018 on certain income of non-residents remains unchanged, is as under:
==================================================
Type of payment Rate (%)
Existing Proposed
==================================================
Technical services fee 15% No change
Royalty 15% No change
Shipping income 8% No change
Air transport income 3% No change
==================================================
58. Income from property
The rate of tax on income from property in the case of individual and AOPs have remained unchanged as under:
=========================================================
Gross amount of rent Rate
=========================================================
Up to Rs 200,000 Nil
Rs 200,001 to 600,000 5% of the amount exceeding
Rs 200,000
Rs 600,001-1,000,000 Rs 20,000 plus 10% of the
amount exceeding Rs 600,000
Rs 1,000,001-2,000,000 Rs 60,000 plus 15% of the
amount exceeding
Rs 1,000,000
Over Rs 2,000,000 Rs 210,000 + 20% of the
amount exceeding
Rs 2,000,000
=========================================================
The above rates also apply for the purpose of withholding of tax from rent of immovable property.
The withholding tax rates in the case of a company for filers remain unchanged at 15% while for non-filers the proposed rate is 17.5%.
59. Rates of tax on capital gains on securities
The rate card for levying tax on capital gains arising on sale of securities as referred to in Section 37A is proposed to be replaced as under:
========================================================================
Tax Year
========================================================================
2017 2018
Holding period
========================================================================
Filer Non- Filer Non-
filer Filer
========================================================================
Less than 12 months 15% 18%
More than 12
months but less than 12.5% 16%
24 months
15% 20%
More than 24
months but then
security was 7.5% 11%
acquired on or after
01 July 2013
Where the security
was acquired before 0% 0% 0% 0%
01 July 2013
Future commodity
contracts entered
intby the members 5% 5% 5% 5%
of Pakistan Mercantile
Exchange .
========================================================================
60. Rate of tax on capital gain on immovable property
Rates of tax on capital gain on immovable property are unchanged, as under:
==========================================================================
Holding period of immovable property Rate
Immovable property allotted to
persons mentioned in Sub-
section (4) of section 236C. This
applies tdependent of a
Shaheed belonging to Pakistan Any holding period 0%
Armed Forces or a person who
dies while in the service of the
Pakistan Armed Forces or the
Federal/Provincial Government
Immovable property acquired on Up to 1 year 10%
or after 01 July 2016
Equal tor more
than 1 year but 7.5%
less than 2 years
Equal tor more
than 2 years but 5%
less than 3 years
More than 3 years 0%
Immovable property acquired Up to 3 years 5%
before 01 July 2016 More than 3 years 0%
==========================================================================
61. Minimum Tax
The rates of minimum tax as a percentage of the taxpayers'''' turnover have remained unchanged except for ''''In all other cases'''', the rates are as under:
=============================================================
Taxpayer Existing Proposed
=============================================================
a) Oil marketing companies, oil
refineries, Sui Southern Gas
Company Limited and Sui
Northern Gas Pipelines
Limited (where annual
turnover exceeds Rs 1 billion)
b) Pakistan International Airlines 0.5% No change
Corporation
c) Poultry industry including
breeding, broiler production,
egg production, feed
production
d) Dealers or distributors of
fertilizers
a) Distributors of pharmaceutical
products, fast moving
consumer goods and
cigarettes
b) Petroleum agents and 0.2% No change
distributors registered under
the Sales Tax Act, 1990
c) Rice mills and dealers
d) Flour mills
Motorcycle dealers registered
under the Sales Tax Act 1990 0.25% No change
In all other cases 1% 1.25%
=============================================================
62. Advance tax on imports
There is no change in respect of rate of collection at import stage, the rates are as under.
=========================================================================
Rate % (of import
value as
increased by
customs duty,
Taxpayer sales tax and
federal excise
duty)
=========================================================================
Filer Non-
filer
=========================================================================
Industrial undertaking importing
remeltable steel (PCT Heading 72.04)
and directly reduced iron for its own use
Persons importing plastic fertilizers in
pursuance of Economic Coordination
Committee of the cabinet''''s decision No.
ECC-155/12/2004 dated 9 December
2004
Persons importing urea 1% 1.5%
Manufacturers covered under Notification
No. S.R.O. 1125 (I)/2011 dated 31
December 2011
Proposes tinsert Persons importing
Gold; and
Proposes tinsert Persons importing
Cotton
Persons importing pulses 2% 3%
Commercial importers covered under
Notification No. S.R.O. 1125 (I)/2011 3% 4.5%
dated 31 December 2011
Ship breakers on import of ships 4.5% 6.5%
Industrial undertakings not covered above 5.5% 8%
Companies not covered above 5.5% 8%
Persons not covered above 6% 9%
=========================================================================
63. Advance tax on profit on debt
The advance tax rate remains unchanged at 10% for filer and 17.5% for non-filers (10% if the yield or profit paid is below Rs 500,000.)
64. Advance Tax on Return on investments in Sukuks received from a special purpose vehicle.
Rate of withholding tax to be applied on payments made to investors in relation to return on Sukuks have remained unchanged as under:
===============================================================
Sukuks Holder Rates
===============================================================
Company 15%
Individual or AOP (More than one million) 12.5%
Individual or AOP (Less than one million) 10%
Non-filers 17.5%
===============================================================
65. Payments to non-residents
The withholding tax rates on payments to non-residents remains unchanged except for withholding tax rates in case of non-filers on certain payments are as under:
===============================================================
Rate (%)
Type of payment
===============================================================
Existing Proposed
===============================================================
Technical services fee 15% No change
Royalty 15% No change
Shipping income 8% No change
Air transport income 3% No change
Execution of a contract
-contract or sub-contract under
a construction, assembly or
installation project in Pakistan,
including a contract for the
supply of supervisory activities in
relation tsuch project.
Filer 7% No change
Non-Filer 12% 13%
Insurance premium/re- 5% No change
insurance premium
Others (excluding those 20% No change
specifically mentioned herein)
Advertisement services ta 10% No change
media person relaying from
outside Pakistan
Receipt on account of sale of
goods by a PE of a non-resident
in Pakistan
Company
Filer 4% No change
Non-filer 6% 7%
Other Taxpayers
Filer 4.5% No change
Non-filer 6.5% 7.5%
Receipt on account of rendering
of services through a PE
Transport services 2% No change
Other than transport (if company)
Filer 8% No change
Non-filer 12%
Others (excluding those 14%
mentioned herein)
Filer 10% No change
Non-filer 15% 17.5%
Receipt on account of execution
of contract through a PE other
than a contract for sale of goods
or rendering of services
Sports person
Other person 10% No change
Filer 7% No change
Non-filer 12% 13%
===============================================================
66. Advance income tax on payment to resident on payments for goods, services and execution of contract
The rate of withholding tax on account of sale of rice, cotton seed or edible oils and supplies made by the distributor of fast moving consumer goods are as under:
===============================================================
Rate
Existing Proposed
===============================================================
Sale of rice, cotton seed 1.5% No change in rate-
or edible oils explanation added
Supplies made by
distributers of fast
moving consumer goods
Company 3% 2%
Other than 3.5% 2.5%
company
===============================================================
The Bill seeks to include an explanation that "For the removal of doubt, it is clarified that cotton seed and edible oils means cotton seed oil and edible oils".
The Bill seeks to enhance the rate of withholding tax for non-filer when making payments on account of goods and services are proposed to be as under:
===========================================================
Rate
Existing Proposed
Filer Non Non
===========================================================
filer filer
===========================================================
For supply of goods
Company 4% 6% 7%
Other than 4.5% 6.5% 7.75%
company
Transport services 2% No change
Rendering of or
providing of services
Company 8% 12% 14.5%
Other than
company 10% 15% 17.5%
Electronic and print
media advertising
services
Company 1.5% 12% No change
Other than 1.5% 15% No change
Company
On the execution of
Contract
Company 7% 10% 12%
Other than 7.5% 10% 12.5%
company
===========================================================
67. Exports
Rate of collection of advance tax for exports, indenting commission and services to export house remains unchanged as under:
======================================================================================
>Export proceeds
Proceeds from sale of goods tan exporter
under an inland back-to-back letter of credit or % of export proceeds
any other arrangement
Export of goods by an industrial undertaking 1%
located in an Export Processing Zone
Collection by collector of customs at the time of 1%
clearing of goods exported
Indenting commission 5%
======================================================================================
68. Tax on prize and winnings
The Bill seeks to enhance the rate of withholding tax for non-filer on a prize on prize bond and cross-word puzzle and the rate of tax on prize on winnings as under:
==============================================================
Rate
Filer Non-filer
Existing Existing Proposed
==============================================================
Prize on prize bond 15% 20% 25%
and cross-word puzzle
Winnings from a raffle, 20% 20% No change
lottery, prize on
winning a quiz, prize
offered by a company
for promotion of sale
==============================================================
69. Tax on Petroleum Products
The Bill seeks to enhance the rate of withholding tax for non-filer as under:
=======================================================
Rate
Filer Non-filer
Existing Existing Proposed
=======================================================
Petroleum 12% 15% 17.5%
products
=======================================================
70. Tax on CNG Station
The withholding tax rate in the case of a Compressed Natural Gas station for filers remain unchanged at 4%, while for non-filers the proposed rate is 6%
71. Collection of advance income tax on Brokerage and Commission
The rate for collection of advance tax remains unchanged as under.
=============================================================
Rate
Filers Non-filers
=============================================================
For advertising agents 10% 15%
Life insurance agent where
commission received is less than 8% 16%
Rs 500,000 per annum
Persons not covered above 12% 15%
=============================================================
72. Rates for collection of tax by a Stock Exchange registered in Pakistan
The rate for collection of advance tax remains unchanged as under.
=================================================================
S.No. Description Rate
=================================================================
1. Purchase of shares as per Clause 0.02% of
(a) of Sub-section (1) of Section purchase
233A value
Sale of shares as per Clause (b) 0.02% of sale
2. of Sub-section (1) of section 233A value
=================================================================
73. Collection of tax by NCCPL
The rate of collection by NCCPL on profit or markup or interest earned by the member, margin financier or securities lender remains unchanged at 10%.
74. Collection of tax on motor vehicles
The rate of collection of tax remains unchanged as under.
================================================================
Passenger transport vehicle Rs per seat per annum
having Capacity Filer Non-Filer
================================================================
Four or more persons but less than 50 100
ten persons.
Ten or more persons but less than 100 200
twenty persons
Twenty persons or more 300 500
================================================================
============================================================
Private motor vehicle
For filers For non-filers
============================================================
Engine Capacity
============================================================
Up to 1000cc Rs 800 Rs 1,200
1001cc t1199cc Rs 1,500 Rs 4,000
1200cc t1299cc Rs 17,50 Rs 5,000
1300cc t1499cc Rs 2,500 Rs 7,500
1500cc t1599cc Rs 3,750 Rs 12,000
1600cc t1999cc Rs 4,500 Rs,15,000
2000cc t& above Rs 10,000 Rs 30,000
============================================================
=======================================================
Motor vehicle having
=======================================================
Engine Capacity For filers For non-filers
(collected in lump sum)
=======================================================
Up to 1000cc Rs 10,000 Rs 10,000
1001cc t1199cc Rs 18,000 Rs 36,000
1200cc t1299cc Rs 20,000 Rs 40,000
1300cc t1499cc Rs 30,000 Rs 60,000
1500cc t1599cc Rs 45,000 Rs 90,000
1600cc t1999cc Rs 60,000 Rs,120,000
2000cc t& above Rs 120,000 Rs 240,000
=======================================================
75. Collection of tax on electricity consumption
The Bill seeks to insert the word ''''gross'''' with the amount of electricity bill. The rate for tax has remained unchanged as under.
========================================================
Tax Amount
========================================================
does not exceed Rs 400 Rs 0
exceeds Rs 400 but does not exceed Rs 80
Rs 600
exceeds Rs 600 but does not exceed Rs 100
Rs 800
exceeds Rs 800 but does not exceed Rs 160
Rs 1000
exceeds Rs 1000 but does not exceed Rs 300
Rs 1500
exceeds Rs 1500 but does not exceed Rs 350
Rs 3000
exceeds Rs 3000 but does not exceed Rs 450
Rs 4500
exceeds Rs 4500 but does not exceed Rs 500
Rs 6000
exceeds Rs 6000 but does not exceed Rs 650
Rs 10000
exceeds Rs 10000 but does not Rs 1000
exceed Rs 15000
exceeds Rs 15000 but does not Rs 1500
exceed Rs 20000
exceeds Rs 20000 i. At the rate of
12% for
commercial
consumers
ii. At the rate of
5% for industrial
consumers
========================================================
76. Collection of Advance Tax on Telephone Users
The bill seeks to reduce the rate of withholding tax on subscriber of internet, mobile telephone and pre-paid internet or telephone card. The rate of tax are as under.
======================================================================
Rate
Existing Proposed
======================================================================
Telephone subscriber 10% of No change
where the amount of exceeding
monthly bill exceeds amount
Rs 1,000
Subscriber of internet, 14% of the 12.5% of the
mobile telephone and amount of bill or amount of bill or
pre-paid internet or sales price sales price
telephone card.
======================================================================
77. Collection of tax on cash withdrawal from bank
The rate of collection of tax on cash withdrawal from bank remains unchanged for filer at 0.3% and 0.6% for non-filers.
78. Collection of advance tax on transaction in bank
The rate of collection of tax on transaction in bank remains unchanged for filer at 0.3% and 0.6% for non-filers.
79. Advance tax on purchase, registration and transfer of Motor Vehicles
The Bill proposes to reduce the advance tax on few slabs of filer on purchase and registration of Motor Vehicles as per the following rates:
============================================================
Engine Amount of tax
capacity
Filer Non-filers
============================================================
Existing Proposed
============================================================
Up to 850cc Rs 10,000 Rs 7,500 Rs 10,000
851cc-1000cc Rs 20,000 Rs.15,000 Rs.25,000
1001cc-1300cc Rs.30,000 Rs.25,000 Rs.40,000
1301cc-1600cc Rs.50,000 No change Rs.100,000
1601cc-1800cc Rs.75,000 No change Rs.150,000
1801cc-2000cc Rs.100,000 No change Rs.200,000
2001cc-2500cc Rs.150,000 No change Rs.300,000
2501 cc-3000cc Rs.200,000 No change Rs.400,000
Above 3000cc Rs.250,000 No change Rs.450,000
============================================================
Further, the rates of collection of taxes on transfer of motor vehicles have remained unchanged as follows.
===================================================
Amount of tax
Engine capacity
Filers Non-filers
===================================================
Up to 850 cc - Rs.5,000
851 cc-1000 cc Rs.5,000 Rs.15,000
1001 cc-1300 cc Rs.7,500 Rs.25,000
1301 cc-1600 cc Rs.12,500 Rs.65,000
1601 cc-1800 cc Rs.18,750 Rs.100,000
1801 cc-2000 cc Rs.25,000 Rs.135,000
2001 cc & 2500cc Rs.37,500 Rs.200,000
2501 cc & 3000cc Rs.50,000 Rs.270,000
Above 3000cc Rs.62,500 Rs.300,000
===================================================
80. Advance tax at the time of sale by auction
The Bill seeks to introduce rate of collection of tax from a non-filer at the rate of 15%. The advance tax on filer remains unchanged at 10%.
81. Advance tax on purchase of air tickets
The rate of collection of tax remains unchanged at 5% of the gross amount of air ticket.
82. Advance tax on sale/transfer of immovable property
The rate of advance tax to be collected on sale/ transfer of immovable property has remained unchanged as under:
=======================
Rate
=======================
Filer 1%
Non-Filer 2%
=======================
83. Collection of advance tax on functions and gatherings.
The rate of collection of tax remains unchanged at 5%.
84. Advance tax on cable operator and other electronic media
The rate of collection of advance tax remains unchanged.
=======================================
H Rs.7,500 Rs.10,000
H-1 Rs.10,000 Rs.15,000
H-II Rs.25,000 Rs.30,000
R Rs.5,000 Rs12,000
B Rs.5,000 Rs.4,000
B-1 Rs.30,000 Rs.35,000
B-2 Rs,40,000 Rs.45,000
B-3 Rs.50,000 Rs.75,000
B-4 Rs.75,000 Rs.100,000
B-5 Rs.87,500 Rs.150,000
B-6 Rs.170,000 Rs.200,000
B-7 Rs.262,500 Rs,300,000
B-8 Rs.437,500 Rs.500,000
B-9 Rs.700,000 Rs.800,000
B-10 Rs.875,500 Rs,900,000
=======================================
85. Advance tax on sale to distributors, dealers or wholesalers
Advance tax on sale to distributors, dealers or wholesalers remain unchanged as under.
============================================================
Category of sale Rate of tax
Filer Non-filer
============================================================
Fertilizers 0.7% 1.4%
Other than fertilizers 0.1% 0.2%
============================================================
86. Advance tax on sale of retailers
The Bill seeks to replace the rate of advance tax on retailers previously at the rate of 0.5% with the following table:
====================================================
Category of sale Rate of tax
Filer Non-filer
====================================================
Electronics 1%
1%
Others 0.5%
====================================================
87. Collection of advance tax by educational institutions
The rate of collection of tax remains unchanged at 5%.
88. Advance tax on dealers, commission agents and arhatis, etc.
The collection of advance tax on dealers, commission agents and arhatis remains unchanged as under:
========================================
Group Amount of tax
(per annum)
========================================
Group or Class A Rs.10,000
Group or Class B Rs.7,500
Group or Class C Rs.5,000
Any other category Rs.5,000
========================================
89. Advance tax on purchase of immovable property
The rate of advance tax to be collected purchase of immovable property have remained unchanged as under:
========================================================
Rate of tax
Period Non-
Filer filer
========================================================
Where value of immoveable 3%
Proper is up t4 million
Where value of immoveable
property is more than 4 million 2% 4%
========================================================
90. Advance tax on domestic electricity consumption
The rate of advance tax collection remains unchanged at 7.5% if the monthly bill is Rs.75,000 or more.
91. Advance tax on international air ticket
The rate of collection of advance tax remains unchanged as under:
=========================================================
Type of Ticket Rate
=========================================================
First/Executive class Rs. 16,000 per person
Others excluding economy Rs. 12,000 per person
Economy Class Rs. 0
=========================================================
92. Advance tax on bank transactions
The advance tax to be collected on banking transaction for non-filers have remained unchanged at 0.6%.
However, the bill seeks to add the words "Board with the approval of Minister Incharge of" before the words Federal Government in the second proviso.
93. Payment to a resident person for right to use machinery and equipment
The rate of tax remains unchanged at 10%
94. Collection of advance tax on education related expenses remitted abroad.
The rate of tax remains unchanged at 5%
95. Advance tax on insurance premium
The rate of advance tax to be collected from non-filers on insurance premium has been proposed to be amended as under:
==================================================================
Type of premium Rate
Existing Proposed
==================================================================
General insurance No change 4%
premium
Life insurance premium if Life insurance premium
exceeding Rs.0.2 million if exceeding Rs. 0.3
per annum million in aggregate per 1%
annum
Others No change 0%
==================================================================
96. Advance tax on extraction of minerals
The rate of tax remains unchanged for non-filer at 5% and 0% for filer.
THE SECOND SCHEDULE
PART - I
97. Income of certain charitable and other institutions
Clause (66)(xxxi)
The Bill proposes to change the name of welfare society of SIUT from "Society for Welfare of Patients of SIUT" to "Society for the Welfare of SIUT".
98. Income of certain charitable and other institutions
Clause (66) (xxxvi) (xxxvii) (xxxviii) (xxxix)
The Bill proposes to insert the following in Clause (66) which provides exemption from tax to any income of the institutions:
-Asian Infrastructure Investment Bank and persons as provided in Article 51 of Chapter IX of the Articles of Agreement signed and ratified by Pakistan and entered into force on 25 December 2015
-Gulab Devi Chest Hospital
-Pakistan Poverty Alleviation Fund
-National Academy of Performing Arts
99. Correction of spelling
Clause (126A) (126AA) (126AC) (126D)
The Bill proposes to correct the spelling used in the above referred Clauses from "Gawadar" to "Gwadar".
100. Exemption from tax on profit on debt derived by Japan International Cooperation Agency (JICA)
Clause (140A)
A new clause is proposed to be inserted to exempt from tax any profit on debt received by JICA from Islamabad-Burhan Transmission Reinforcement Project (Phase-I) undertaken in pursuance to a loan agreement for the said project.
101. Exemption on income of Political Parties
Clause (143)
A new clause is proposed to be inserted to exempt from tax any income of a political party registered with the Election Commission of Pakistan under the Political Parties Order, 2002.
PART - IV
102. Withholding tax on various imports
Clause (56)
Clause (56) of Part IV of the Second Schedule to the Ordinance provides exemption from collection of tax under section 148 of the Ordinance at import stage. The following companies are proposed to be inserted in Sub-clause (ia):
-Z&M Oils (Private) Limited
-Exceed Petroleum (Private) Limited
-Petrowell (Private) Ltd
-Quality-1 Petroleum (Private) Limited
-Horizon Oil Company (Private) Limited
-Outreach (Private) Limited
-Kepler Petroleum (Private) Ltd
103. Exclusion from final tax regime on import of foreign produced TV plays and serial
Clause (56A)
The Finance Act, 2016 deleted, Section 236E which required the licensing authority to collect advance tax at a specified rate on certification of a foreign produced TV drama serial or a play dubbed in Urdu or any other regional language. Under Clause (56A) tax collected at import stage from the importer of foreign produced TV drama serial or a play was not considered as a final tax if the aforesaid collection of advance tax was made. By proposing omission of clause (56A) appropriate change has been proposed since the relevant Section 136E was already omitted.
104. Hajj group operators
Clause (72A)
This Clause was inserted by Finance Act, 2013 whereby, the provision of Section 21(1), Section 113 and Section 152 do not apply in case of Hajj Group Operator in respect of Hajj operations. The concession is conditional upon the fact that tax has been paid @ Rs.3,500/- per Haji for the tax year 2013 and Rs.5,000/- per Haji for the tax years 2014 to and 2016 in respect of income from Hajj operation. The Bill proposes to extend the validity of the clause from 2016 to 2017.
105. Concession of exemption from payment of tax under Section 148
Clause (72B)
Under this clause an industrial undertaking is not liable for payment of tax under Section 148 of the Ordinance, if the determined tax liability for any of the two preceding years, whichever is higher, has been paid and a certificate to that effect has been issued by the concerned Commissioner subject to fulfillment of certain conditions as specified.
The Bill proposes to enhance the limit of exempt raw material permitted to be imported from 110% to 125% of the raw material imported in the previous tax year.
106. Exemption from provision of Section 148 of the Ordinance
Clause (91)
The above clause provides exemption from collection of tax under section 148 of the Ordinance at import stage on import of certain equipment. The Bill proposes to change the following tariff codes:
================================================================
S.No. Equipment Existing PCT Proposed PCT
Code Code
================================================================
1. Sub soiler 8432.3090 8432.3900
Tractor mounted 8701.9020 8701.9200
2. trancher
3. Seed-cum- 8432.3010 8432.3100
fertilizer drill
(wheat rice
barley, etc.)
4. Cotton or maize 3432.3090 8432.3900
planter with
fertilizer
attachment
5. PotatPlanter 3432.3090 8432.3900
6. Fertilizer or
manure spreader 8432.4000 8432.4100
or broadcaster
7. Rice transplanter 3432.3090 8432.3900
8. Canola or 8432.3010 8432.3100
sunflower drill
9. Sugarcane 3432.3090 8432.3900
planter
================================================================
107. Minimum Tax on Service Sector Companies
Clause (94)
This Clause provides that the rate of tax deductible from payments against service rendered by certain corporate service providers shall be reduced to 2%.
The aforesaid clause was valid upto the tax year 2017. The Bill proposes to extent it to the tax year 2018 and also include services rendered by the following-
-Pakistan Stock Exchange Limited
-Car rental services.
-Corresponding changes to extend the benefit to 2017 are also proposed to be made.
Sales Tax
1. Sales Tax on Tier-1 Retailers
Section 2(43A) and 3(9A)
Tax on Tier-1 Retailers, which was earlier introduced through the Sales Tax Special Procedures Rules, 2007 but was withdrawn by the Court order, is now proposed to be reintroduced through insertion of Sub-section (43A) in Section 2 and Sub-section (9A) in Section 3 of the ST Act.
Under the proposed amendments, the term "Tier-1 Retailers" has been defined to mean :
(a) a retailer operating as a unit of a national or international chain of stores;
(b) a retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks;
(c) a retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds rupees six hundred thousand; and
(d) a wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of the consumers.
Under the proposed Sub-section (9A) of Section 3, Tier-1 Retailers are required to charge sales tax at the rate of 17% on the value of supplies and are required to file sales tax returns on a monthly basis.
Tier-1 Retailers have option to pay tax under the turnover regime at the rate of 2%, including on exempt supplies, subject to the condition that Tier-1 Retailers shall file an option to the Chief Commissioner Inland Revenue having jurisdiction. Such an option is to be filed by fifteenth day of July and shall be applicable for the whole financial year. Adjustment of input tax shall not be available under this option.
Local retail supplies of finished goods of the five export oriented sectors specified in the SRO 1125(I)/2011, which shall be subject to sales tax at the rates specified in the above notification shall not be included in the above proposed Tier-1 Retailers'''' taxation scheme.
2. Sales Tax on Imports for non-tariff areas
Section 3(1)(b)
The Bill seeks to extend the applicability of sales tax on import of taxable goods even if the same are imported for utilization and consumption in the non-tariff areas. The Courts earlier held that a person carrying on business in the non-tariff areas did not require specific exemption through sub-ordinate legislation and the sales tax payable on imports would not be applicable if the goods were imported for utilization and consumption in the non-tariff areas.
Consequent to the proposed amendment, sales tax on import of taxable goods shall be applicable even if they are for consumption and utilization in the non-tariff areas.
3. Further tax
Sections 3(1A) and 4
The Bill seeks to extend the application of Further tax at the rate of two percent on supplies which are subject to sales tax at the rate of zero percent under Section 4 of the ST Act.
There was a controversy on the application of Further tax under Section 3(1A) of the ST Act on items subject to sales tax at the rate of zero percent under Section 4 of the ST Act and a position was taken that the goods subject to sales tax at zero percent were outside the ambit of application of Further tax.
As a result of the proposed amendments in Section 3(1A) and the corresponding amendment in preamble of Section 4 of the ST Act, the supply of zero rated goods shall also be made liable to Further tax at the rate of 2%. However, since Further tax has conceptually been applicable to persons who are required to get registration under the ST Act but failed to do so, hence it is expected that supplies made to diplomats, privileged persons, duty free shops and other similar categories like goods exported would be excluded through notification.
4. Exemption
Sections 13(7)
Presently, the Federal Government, pursuant to the approval of the Economic Coordination Committee of the Cabinet, is empowered to exempt any taxable supplies made or import of any taxable goods from whole or any part chargeable under the ST Act through a notification. All such notifications issued during the financial year are required to be placed before the National Assembly for ratification. Notifications issued by the Federal Government which were not ratified by the Parliament, stand rescinded at the end of the financial year in which they were issued.
The Bill seeks to ratify the notifications issued by the Federal Government, if not rescinded earlier, from the Parliament. The Bill proposes all such notifications shall be deemed to have been in force with effect from 01 July 2016 and shall continue to be in force till 30th June 2018. It is further envisaged that all notifications which have been issued on or after 01 July 2016, if not rescinded earlier, shall also continue to be in force till 30 June 2018.
5. District Taxation Officer and Assistant Director Audit
Sections 30
The Bill intends to introduce two new officer cadre in hierarchy of sales tax authorities viz; District Taxation Officer and Assistant Director Audit.
However, it remains to be seen what powers and responsibilities are assigned to the said officers.
6. Penalties on Cigarettes Manufacturers etc.
Section 33
The Table under Section 33 of the ST Act provides general and specific penalties in the specified circumstances. The Bill now seeks to expand the scope of penalties by inserting new Sr. No.23 to the table which provides that any person who manufactures, possesses, transports, distributes, stores or sells cigarette packs without, or with counterfeited, tax stamps, banderoles, stickers, labels or barcodes shall be liable to outright confiscation and also be liable for a penalty of twenty five thousand rupees to one hundred percent of the amount of tax involved, whichever is higher. Certain other penalties are also prescribed which includes imprisonment upto five years or with additional fine which may extend to an amount equal to the loss of tax involved, or with both.
7. Automatic stay against recovery
Section 48(1)(f)
It was repeatedly urged that in deference to the principle of natural justice and equity, it would be reasonable that pending disposal of the appeal by the Appellate Authorities, the disputed tax demand should remain stayed. However, the Bill seeks to provide stay of the disputed demand on payment of 25% of the disputed tax demand.
It is proposed to add a proviso to Section 48 of the ST Act which deals with the recovery of arrears of tax whereby the taxpayer would have an option to avail automatic stay after payment of 25% of the tax due in the cases where the appeal is filed before the Commissioner Inland Revenue (Appeals) under section 45B of the ST Act.
The power of the Commissioner Inland Revenue (Appeals) to grant stay for a period of maximum thirty days remains intact in pursuance of Sub-section (1A) of Section 45B of the ST Act.
It would not be out of place to refer to Rule 71 of the Sales Tax Rules, 2006 which provides that the recovery should not be initiated before expiry of 30 days from the date of order. Hence a taxpayer who intends to avail the proposed automatic stay should consider the date of the order rather than the date of receipt of the order for depositing 25% of the disputed tax demand so as to avoid the risk of recovery of the demand.
8. Transferring Powers from Federal Government to the Federal Board of Revenue
The Bill seeks to grant power to the Federal Board of Revenue with the approval of the Minister in charge of the Federal Government to exercise powers conferred under the following provisions of the ST Act.
=====================================================================
Provisions of the Description
ST Act
=====================================================================
3 (2) (b) Power of fixation of lower and higher sales tax
rates and manner of charging, collection and
payment of sales tax on any taxable goods
3 (3A) Power tdefine responsibility of payment of tax
tthe recipient of supply
3 (5) Power tlevy and collect extra rate of sales tax
not exceeding seventeen percent
4 (c) Power tdeclare any goods as subject tsales
tax at zerpercent
7 (3) Granting permission tdeduct input tax
through special order
7 (4) Granting permission tdeduct input tax
through notification
7A (1) (2) Levy and collection of tax on specified goods
on value addition
8 (1) (b) Restriction on the adjustment of input tax
13 (2) (a) Granting exemption of sales tax on the import
and supply of goods
13 (6) Placement of notification issued under section
13 of the ST Act tthe National Assembly
60 Authorization timport goods or class of goods
without payment of the whole or any part of tax
71 Prescribe special procedure for scope and
payment of tax, registration and book keeping
and invoicing requirements and returns of
supplies
=====================================================================
9. Service of Orders, Decisions etc.
Section 56
Section 56 of the ST Act deals with the service of orders, decisions, notices or requisition records and any such document to the resident individuals and other than individuals. Any notice, order or decision if not served according to the criteria laid down shall not be treated as served and would not be binding on the person to whom such notice, order or decision is delivered.
The Bill seeks to add electronic delivery of notices, orders, decisions etc. through the e mail or to the e-folder maintained by the resident individuals and other than individuals, for the purpose of e-filing of sales tax-cum-federal excise returns, having public and private Company status by inserting clause (d) in Sub-section (1) and Sub-section (2) of Section 56 of the ST Act.
Sub-section (1) of Section 56 applies only to the resident individuals. Therefore, reference to limited companies, both public and private, in the proposed insertion of clause (d) in Sub-section (1) seems to be an error and needs to be rectified while approving the Bill.
10. Validation
Section 74A
The bill proposes to insert a new section whereby all notifications and orders issued and notified in exercise of the powers conferred upon the Federal Government, before first day of July 2017 shall be deemed to have been validly issued and notified in exercise of the powers, notwithstanding anything contained in any judgment of a High Court or the Supreme Court.
The proposed insertion is based on the recent judgment of Honorable Supreme Court of Pakistan on Article 90 of the Constitution of Islamic Republic of Pakistan subsequent to the 18th Constitutional amendment, which regulates the authority of the Federal Government.
11. Sales tax measures announced in the budget documents
Through the salient features it was indicated that certain measures are taken in the ST Act and Islamabad Capital Territory (Tax on Services) Ordinance, 2001. However, coverage of the same is not provided under the Bill. It appears that since the SROs have not been issued with the Budget, the following measures in sales tax would be covered when the related SROs are issued-
-Extra sales tax
Extra sales tax at the rate of two percent leviable under Chapter XIII of the Sales Tax Special Procedures Rules, 2007 on lubricating oil is proposed to be withdrawn. Through this proposed amendment in the rules, industrial consumers would be eligible to avail the adjustment of input tax on the purchase of lubricating oil as this would be treated as a taxable supply.
-Sales Tax Withholding
Under the existing Sales Tax Special Procedure (Withholding) Rules, 2007 enacted vide SRO 660(I)/2007 dated 30 June 2007, every withholding agent is required to withhold sales tax at the rate 20% or 10%, as the case may be, of the amount of sales tax mentioned on the invoice and with respect to provision of advertisement services full amount of sales tax is required to be withheld.
It is proposed that the withholding of sales tax would not be applicable, except on purchase of advertisement services, if the supplier and recipient are both registered persons.
-Export of IT Services and
Taxation on Turnover basis
Under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001, tax is applicable if the services are rendered or provided in the Islamabad Capital Territory (ICT). It would, therefore, be inferred that any service rendered or provided outside ICT is regarded as export and would be out of the ambit of the Islamabad Capital Territory (Tax on Services) Ordinance, 2001. It is now proposed that the export of IT services would be declared exempt. This needs further analysis once SRO is issued.
In addition, it has also been proposed that similar to Provincial sales tax laws, taxation based on turnover and restrictions on adjustment of input tax would be introduced in the Islamabad Capital Territory (Tax on Services) Ordinance, 2001.
-Sales tax on steel sector
Rate of sales tax on steel sector is sought to be increased from current rate of Rs.9 unit to Rs.10.5 per electricity unit consumed.
-Sales Tax on retail sale of five export oriented sectors
Sales tax on retail sale of five export oriented sectors under SRO.1125(I)/2011 is proposed to be enhanced from 5% to 6%. The rate of sales tax on commercial import of fabrics is also proposed to be enhanced from 0% to 6%.
12. Third Schedule
The Third Schedule lists out the goods that are subject to sales tax at retail price set by manufacturers. The Bill proposes to appropriately refer to the tariff heading of the following entry:
==========================================================================
S.No. Description Existing Tariff Proposed
Heading Tariff Heading
==========================================================================
2 Ice cream 21.05 2105.0000
==========================================================================
The Bill also seeks to omit Serial No. 32, which pertains to Fertilizers. The Bill has proposed to tax fertilizer now at the reduced fixed amounts of tax under the Eighth Schedule.
13. Fifth Schedule
The Fifth Schedule lists out the goods that are subject to tax at the rate of zero percent. The Bill has proposed to substitute the description of sub- serial number (xvii) of Serial No. 12:
=========================================================================
S.No. Existing Proposed Description
Description
=========================================================================
Preparations for Preparations suitable for
12 (xvii) infant use put up for infants or young children, put
retail sale up for retail sale
=========================================================================
14. Sixth Schedule
The Sixth Schedule deals with exemption of goods from levy of sales tax. The Bill has proposed to include the following goods in Sixth Schedule to the ST Act :
Table 1 (on import and local supply)
===================================================================
Tariff
S.No. Description Heading
===================================================================
Vehicles imported by China Overseas
Ports Holding Company Limited (COPHCL)
and its operating companies namely
100C 9917 (3)
(i) China Overseas Ports
HoldingCompany Pakistan (Private)
Limited
(ii) Gwadar International Terminal
Limited,
(iii) Gwadar Marine Services Limited and
(iv) Gwadar Free Zone Company
Limited, for a period of twenty three
years for construction, development
and operations of Gwadar Port and
Free Zone Area subject tlimitations,
conditions prescribed under PCT
heading 9917 (3).
134 Goods received as gift or donation froma 9908
foreign government or organization by the
Federal or Provincial Governments or any
public sector organization subject to
recommendations of the Cabinet
Division and concurrence by the Federal
Board of Revenue.
135 Sunflower and canola hybrid seedsmeant for Respective
sowing heading
136 Combined harvesters up tfive years old 843.5100
137 Single cylinder agriculture dieselengines 8408.9000
(compression-ignition internalcombustion
piston engines) of 3 t36HP, and CKD kits
thereof
===================================================================
The Bill proposes to omit the following tariff headings:
===================================================================
Omitted
S.No. Description Tariff
Heading
===================================================================
0102.1010
1 Live animals and live poultry and
0105.1900
15 Edible fruits excluding imported fruits 0803.0000
(except fruits imported from Afghanistan)
whether fresh, frozen or otherwise
preserved but excluding those bottled or
canned
19 Cereals and products of milling industry 1102.3000
26 Fruits juices, whether fresh, frozen or
otherwise preserved but excluding those 2009.8000
bottled, canned or packaged
31 Holy Quran, complete or in parts, with or 8523.5100
without translation; Quranic Verses and
recorded on any analogue or digital media; 8523.5200
other Holy books
83 Meat and similar products of prepared, 1604.3000
frozen or preserved meat or meat offal of
all types including poultry meat and fish.
106 Import of Halal edible offal of bovine 0206.2000
animals
133 Pesticides and their active ingredients
registered by the Department of Plant and
Protection under the Agricultural
Pesticides Ordinance, 1971 (II of 1971),
stabilizers, emulsifiers and solvents,
namely :-
Ingredients for pesticides 2903.3040
Cadusafos Technical Material 2903.6900
Ingredients for pesticides 2918.9010
Ingredients for pesticides 2919.0010
Other Ingredients for pesticides 2919.0090
Triethanolamine and its salts 2922.1300
Ingredients for pesticides 2924.2930
===================================================================
The Bill has proposed to substitute certain tariff headings under the Sixth Schedule to the Act. The said tariff headings are as follows.
=========================================================================================
S.No. Description Existing Tariff Proposed Tariff
Heading Heading
=========================================================================================
1 Live animals and live 0101.3100 0101.3000
poultry
15 Edible fruits 0805.2010 0805.2910
0805.2090 0805.2100,
0805.2200 and
0805.2990
17 Ginger excluding those 0910.1000 09.10
sold in retail packing
bearing brand name
and trademarks.
23 Sugar cane 1212.9990 1212.9300
33 Currency notes, bank 4907.0000 49.07
notes, shares, stocks
and bonds
38 Monetary gold 7108.2000 7108.1390
81 Cotton seed 1207.2000 1207.1000
91 Energy saver lamps 8539.3910 8539.3110
108 Components or sub- 3824.9099 3824.8400
components of energy
saver lamps, namely:-
(h) Al-Oxide
Suspension
110 The following items with 8543.7090 8539.5010 and
dedicated use of 8539.5020
renewable source of
energy like solar and
wind, subject to
certification by the
Alternative Energy
Development Board
(AEDB), Islamabad:-
(c) SMD, LEDs with or
without ballast, with
fittings and fixtures
113 High Efficiency 8424.8100 8424.4100
Irrigation Equipment
(2) Sprinklers including
high and low pressure
(center pivotal) system,
conventional sprinkler
equipment, water reel
travelling sprinkler, drip
or trickle irrigation
equipment, mint
irrigation sprinkler
system
114 Greenhouse farming 9406.0010 9406.1010 and
and other Greenhouse 9406.9010
equipment
(2) Greenhouses
(prefabricated)
130 Premixes for growth Respective Sodium Iron (Na Fe
stunting Headings and EDTA), and other
subject to premixes of
conditions Vitamins, Minerals
imposed for and micro-nutrients
importation (food grade) and
under the subject to
Customs Act, conditions imposed
1969 for importation
under the Customs
Act, 1969
133 Pesticides and their 2939.9910 2939.8010
active ingredients
registered by the
Department of Plant
Protection under the
Agricultural Pesticides
Ordinance, 1971 (II of
1971), stabilizers,
emulsifiers and
solvents, namely:-
Ingredients for
pesticides
Chemical preparations 3824.9099 3824.9999
=========================================================================================
=====================================================================================
S.No. Existing Description Proposed Description
=====================================================================================
Preparations for infant Preparations suitable for infants or
84 use, put up for retail sale young children, put up for retail sale
97 Pens and ball pens Pens, ball pens, markers and porous
tipped pens
100A Materials and Materials and equipments (plant,
equipments machinery, equipment, appliances
and accessories)
=====================================================================================
========================================================================================
S.No. Description PCT Heading Conditions
========================================================================================
Following items for use 8501.3110
with
14 solar energy:-
Solar Power Systems. 8501.3210
(1) Off-grid/On-grid solar
power
system (with or without
provision
for USB/charging port)
comprising of :
(i) PV Module. 8541.4000
(ii) Charge controller. 9032.8990
(iii) Batteries for specific 8507.2090
utilization with the
system (not
exceeding 50 Ah in
case of portable
system).
8507.3000
(iv) Essential connecting 8507.6000
wires (with or without
switches).
(v) Inverters (off-grid/ 8544.4990
on-grid/hybrid with
provision for direct
connection/input
renewable energy
source and with
Maximum Power
Point Tracking
(MPPT).
8504.4090
(vi) Bulb holder
(2) Water purification
plants operating on
solar energy 8536.6100
8421.2100
Following systems and
items for dedicated use
with renewable source of
energy like solar, wind,
geothermal etc.
1. (a) Solar Parabolic 8502.3900
Trough Power
Plants.
(b) Parts for Solar 8503.0010
Parabolic Power
Plants.
(i) Parabolic Trough
collectors modules.
14A 8503.0090
(ii) Absorbers/Receivers tubes. 8406.8100
(iii) Steam turbine of
an output exceeding
40MW.
(iv) Steam turbine of an 8406.8200
output not
exceeding 40MW.
(v) Sun tracking control 8543.7090
system.
(vi) Control panel with
other accessories. 8573.1090
2. (a) Solar Dish Stirling 8412.8090
Engine.
(b) Parts for Solar Dish
Stirling Engine.
(i) Solar 8543.7000
concentrating
dish.
8543.7000
(ii) Sterling engine. 8543.7090
(iii) Sun tracking 8406.8200
control system.
(iv) Control panel 8501.6100
withaccessories.
(v) Stirling Engine
Generator
3. (a) Solar Air
Conditioning
Plant
(b) Parts for Solar 8415.1090
AirConditioning
Plant
(i) Absorption
chillers. 8418.6990
(ii) Cooling towers.
(iii) Pumps. 8419.8910
(iii) Air handling units.
(iv) Fan coils units. 8413.3090
(v) Charging &
testing 8415.8200
equipment.
8415.9099
9031.8000
4. (a) Solar 8421.2100
Desalination System
(b) Parts for Solar
Desalination System
(i) Solar photvoltaic 8541.4000
panels.
(ii) Solar water pumps. 8413.3090
(iii) Deep Cycle Solar 8507.2090
Storagebatteries.
(iv) Charge controllers. 9032.8990
(v) Inverters (off grid/on 8504.4090
grid/hybrid) with
provision fordirect
connection/input
fromrenewable
energy sourceand
with Maximum
PowerPoint Tracking
(MPPT)
5. Solar Thermal Power 8502.3900
Plants with accessories.
6. (a) Solar Water 8419.1900
Heaters with
accessories.
(b) Parts for Solar 7309.0000
Water Heaters
(i) Insulated tank 7310.0000
(ii) Vacuum tubes 7020.0090
(Glass)
(iii) Mounting stand Respective
headings
(iv) Copper and Respective
Aluminum tubes heading
(c) Accessories:
(i) Electronic controller
(ii) Assistant/feeding
tank
(iii) Circulation Pump
(iv) Electric heater/
immersion
rod (one piece with one
solar
water heater)
(v) Solenoid valve (one
piece
with one solar water
heater)
(vi) Selective coating for
absorber plates
7. (a) PV Modules. 8541.4000
(b) Parts for PV Modules
(i) Solar cells. 8541.4000
(ii) Tempered Glass. 7007.2900
(iii) Aluminum frames. 7610.9000
(iv) O-Ring. 4016.9990
(v) Flux. 3810.1000
(vi) Adhesive labels. 3919.9090
(vii) Junction box & cover. 8538.9090
(viii) Sheet mixture of paper 3920.9900
and plastic
(ix) Ribbon for PV Modules Respective
(made of silver &Lead). headings
(x) Bypass diodes. 8541.1000
(xi) EVA (Ethyl Vinyl 3920.9900
Acetate)
Sheet (Chemical).
8. Solar Cell
ManufacturingEquipment
(i) Crystal (Grower) Puller 8479.8990
(if machine).
(ii) Diffusion furnace. 8514.3000
(iii) Oven. 8514.3000
(iv) Wafering machine. 8486.1000
(v) Cutting and 8461.9000
shapingmachines for
silicon ingot.
(vi) Solar grade 3824.9999
polysiliconmaterial.
(vii) Phosphene Gas. 2853.9000
(viii) Aluminum and silver Respective
paste. headings
9. Pyranometers 9030.8900
andaccessories for solar
data collection.
10. Solar chargers 8504.4020
forcharging electronic
devices.
11. Remote control for 8543.7010
solar charge controller
12. Wind Turbines.
(a) Wind Turbines for 8412.8090
gridconnected solution
above 200KW (complete
system).
(b) Wind Turbines upto 8412.8090
200 KWfor off-grid
solutions comprising of:
(i) Turbine with Generator/ Respective
Alternator. Headings
(ii) Nacelle with rotor with
or without tail.
(iii) Blades.
(iv) Pole/Tower.
(v) Inverter for use with
Wind Turbine.
(vi) Deep Cycle Cell/ 8507.2090
Battery (for use with wind
turbine).
13. Wind water pump 8413.8100
14. Geothermal
energyequipment.
(i) Geothermal heat 8418.6100
pumps.
(ii) Geothermal 8418.6990
Reversible Chillers.
(iii) Air handlers for 8415.8300
indoor quality control
equipment.
(iv) Hydronic heat 8418.6100
pumps.
(v) Slim Jim heat
exchangers.
(vi) HDPE fusion tools. 8419.5000
(vi) Geothermal 8515.8000
energyinstallation
tools andequipment.
(vii) Dehumidification 8419.8990
equipment.
(viii) Thermostats and 8479.6000
intellizone.
9032.1090
15. Any other item Respective
approved by the headings
Alternative Energy
Development Board (AEDB)
and concurred tby the FBR
Following items for
Promotion of renewable
energy technologies or
for conservation of energy:-
(i) SMD/LED/LVD 9405.1090
lights with orwithout 8539.3290
ballast, fittings
and fixtures.
8543.7090
(ii) SMD/LED/LVD
street lights, with or
without ballast, PV 9405.4090
module, fitting and 8539.3290
fixtures
8543.7090
(iii) Tubular day lighting 9405.5010
device.
15
(iv) Wind turbines 8502.3100
including alternators
and mast.
(v) Solar torches. 8513.1040
(vi) Lanterns and 8513.1090
relatedinstruments.
(vii) LVD induction lamps. 8539.3290
(ix) LED bulb/tube lights. 8543.7090
(ix) PV module, with or 8541.4000
without, the related
components
including invertors 8504.4090
(off grid/ongrid/
hybrid) with 9032.8990
provision for direct 8507.0000
connection/input
from renewable
energy source and
with Maximum
Power Point
Tracking (MPPT),
charge controllers
and solar batteries.
(x) Light emitting
diodes (light
emitting in different
colors).
(xi) Water pumps 8541.5000
operating on solar
energy along with
solar pump
controllers
(xii) Energy saver lamps
ofvarying voltages
(xiii) Energy Saving Tube 8413.7010
Lights.
(xiv) Sun Tracking 8413.7090
Control System
8504.4090
(xv) Invertors (off-
grid/ongrid/hybrid) 8539.3110
with provision for 8539.3210
direct 8539.3120
connection/input
from renewable 8539.3220
energy source and
with Maximum
Power Point
Tracking (MPPT).
(xvi) Charge controller/ 8543.7090
current controller. 8504.4090
Provided that exemption 9032.8990
under this serial shall be
available with effect from
01.07.2016.
Parts and components If imported
for manufacturing LED by LED
lights: light manufacturers
registere
dunder
(i) Aluminum housing/ 9405.1090 the Sales
shell for LED (LED Tax Act,
light fixture)
1990 subject
15A tannual
quota determi
(ii) Metal clad printed 8543.0000 nation by the
circuit boards Input Output
(MCPCB) for LED Coefficient Or
(iii) Constant current ganization
powersupply for of (IOCO)
LED lights (1-300W) 8504.4090
(iv) Lenses for LED
lights
9001.9000
========================================================================================
15. Eighth Schedule
The Eighth Schedule deals-with items that are liable to sales tax at reduced rates. The Bill proposes to appropriate correct tariff headings of certain goods. The proposed entries are as follows:
=============================================================================
S.No. Description Existing Tariff Proposed Tariff
Heading Heading
=============================================================================
26 Tillage and seed bed 8432.3090 8432.3900
preparation equipment:
(iv.) Sub soiler
Seeding for planting
equipment:
(iv) Fertilizer or manu 8432.4000 8432.4100
spreader or
broadcaster
27
(vi) Canola or sunflowe 8432.3010 8432.3100
drill
(vii) Sugarcane planter 8432.3090 8432.3900
=============================================================================
Under Serial No.34 certain broadcasting and transmission equipment approved by PEMRA are liable to tax at the reduced rate of 5%, this concession will expire on 30th June 2017. The Bill now proposes to extend the date of concession up to 30 June 2018.
The following new Entries are proposed to be inserted in the Eighth Schedule.
==============================================================================================================
Heading Nos.
of the First
Rate of
Schedule to
S.No. Description Sales Condition
the Customs
Tax
Act, 1969 (IV of
1969)
==============================================================================================================
Rs.100
Respective per
35 Nil
DAP heading 50 kg
bag
If
Rs.168
manufactured
Respective per
36 NP (22-20) from gas other
heading 50 kg
than imported
bag
LNG
37 NP (18-18) Respective Rs.165 If
heading per 50 kg manufactured
bag from gas other
than imported
LNG
If
Rs. 251 manufactured
Respective
38 NPK-I per 50 kg from gas other
heading
bag than imported
LNG
If
Rs. 222 manufactured
Respective
39 NPK-II per 50 kg from gas other
heading
bag than imported
LNG
If
Rs. 341 manufactured
Respective
40 NPK-III per 50 kg from gas other
heading
bag than imported
LNG
If
Rs. 31 manufactured
Respective
41 SSP per 50 kg from gas other
heading
bag than imported
LNG
If
Rs. 98 manufactured
Respective
42 CAN per 50 kg from gas other
heading
bag than imported
LNG
If supplied to
fertilizer plants
Respective
43 Natural gas 10% for
heading
manufacturing
of urea
If imported by
fertilizer
Phosphoric
44 2809.2010 5% company for
acid
manufacturing
of DAP
Following
Import and
45 machinery for
supply
poultry sector :
(i) Machinery
for preparing 8436.1000 7%
feeding stuff
(ii) Poultry
8436.2100 and
incubators and 7%
8436.2900
brooders
(iii) Insulated
sandwich 9406.0090 7%
panels
(iv) Poultry
9406.0020 7%
sheds
(v)Evaporative
air cooling 8479.6000 7%
system
(vi)Evaporative
8479.9010 7%
cooling pad
46 Multimedia 8528.6210 10% If imported by
projectors educational
institution
Rs. 425
per
metric
tonne or
47 Locally 27.01 17% ad Nil
produced coal valorem,
whichever
is
higher
==============================================================================================================
16. Ninth Schedule
Ninth Schedule inter-alia deals with levy of sales tax on import and supply of locally manufactured cellular and satellite phones. The Bill proposes to streamline the rates of sales tax on cellular and satellite phones. The proposed changes in the rate of sales tax are as follows:
================================================================================================
Sales tax on Sales tax chargeable
Description/ import or at the time of
S.No. Specification of local supply registration of IMEI
Goods number by CMOs
Present Proposed Present Proposed
Rate Rate Rate Rate
Rs. Rs. Rs. Rs.
================================================================================================
A. Low Priced
Cellular Mobile
Phones or
Satellite Phones
i. All
cameras:
2.0 mega- 300 300 650
pixels or
less 650
ii. Screen
size; 2.6
Inches or
less
iii.
B. Medium
Priced
Cellular
Mobile
Phones or
Satellite
Phones
i. One or two
cameras:
between
2.1 t10 1000 1000 650
mega-
pixels
650
ii.Screen
size:
between
2.6 inches
and 5.0
inches
iii.Micro-
processor:
less than 2
Ghz
================================================================================================
FEDERAL EXCISE DUTY
1. Transferring Powers from Federal Government to the Federal Board of Revenue
The Bill seeks to grant power to the Federal Board of Revenue with the approval of the Minister in charge of the Federal Government to exercise powers conferred under the following provisions of the Federal Excise Act, 2005 [FE Act].
=====================================================================
Section Description
=====================================================================
2 (8a) Power of fixation of due date of filling of federal
excise returns
3 (1) (c) Power tlevy and collection of federal excise
duty on goods manufactured or produced in
non-tariff areasand brought ttariff area for
sale or consumption.
3 (4) Power of fixation of lower and higher federal
excise rates and manner of charging,
collection and payment of federal excise duty
on any excisable goods and services
16 (2) Granting exemption of federal excise duty on
goods and services
16 (5) Placement of notification issued under section
16 of the FE Act tthe National Assembly
=====================================================================
2. Exemptions
Section 16
Presently, the Federal Government, pursuant to the approval of the Economic Coordination Committee of the Cabinet, is empowered to exempt any excisable goods imported, produced or manufactured in Pakistan and services provided or rendered under the FE Act through a notification. All such notifications issued during the financial year are required to be placed before the National Assembly for ratification. Notifications issued by the Federal Government which were not ratified by the Parliament, stand rescinded at the end of the financial year in which they were issued.
The Bill seeks to ratify the notifications issued by the Federal Government, if not rescinded earlier, from the Parliament. The Bill proposes all such notifications shall be deemed to have been in force with effect from 01 July 2016 and shall continue to be in force till 30 June 2018. It is further envisaged that all notifications which have been issued on or after 01 July 2016, if not rescinded earlier, shall also continue to be in force till 30 June 2018.
3. Offences and Penalties
Section 19(10)
The Bill proposes to extend the scope of penalty with respect to manufacture of illegitimate cigarettes by including violations in respect of affixing tax stamps, banderoles, stickers, labels or barcodes on the pack of cigarettes and providing power to the Commissioner to destroy the plant & machinery used for this purpose in addition to other penal actions taken against the persons involved.
Erstwhile, the penalty was imposed on person engaged in production of cigarettes in the manner contrary to law or counterfeited cigarettes only and production of other items like tax stamps, banderoles etc. was not covered under the ambit of penal action in the scope of penalty.
4. Appointment of Federal Excise Officers and Delegation of Powers
Section 29
The Bill proposes to introduce new designation of "District Taxation Officer" who will be subordinate to Deputy Commissioner Inland Revenue as may be appointed by the Board.
The Bill further proposes that the Board may appoint "Assistant Director Audit" who will be subordinate to Assistant Commissioner Inland Revenue to perform his duties as assigned.
Moreover, the Bill proposes to redefine the powers and functions of the Chief Commissioner, Inland Revenue and Commissioner Inland Revenue. The Chief Commissioner, Inland Revenue will execute his duties in accordance with the Board''''s directions; whereas, Commissioner, Inland Revenue will perform his duties and functions as per the directions issued from Chief Commissioner''''s office and not otherwise.
5. Deposit, pending appeal, of duty demanded or penalty
Section 37
The Bill proposes to hold the recovery proceedings till the decision of appeal by the Commissioner Inland Revenue (Appeals), subject to payment of 25% of the duty due.
The concept of seeking automatic stay is already available in terms of the first proviso to the section 37 of the FE Act which allows a person to deposit an amount equal to 15% of the liability at the time of filing of appeal and such stay shall be valid for maximum period of six months or till the decision of appeal whichever is earlier. Current option of automatic stay is available at each level of appellate forum. Whereas the proposed option of getting automatic stay is restricted the first level of appeal only ie Commissioner Inland Revenue (Appeals).
Therefore, in the presence of existing provision of seeking automatic stay from the Commissioner Inland Revenue (Appeals) by depositing 15% of the demand. The proposed amount of paying 25% to get the stay seems to be ineffective.
It would not also be out of place to refer to Rule 71 of the Sales Tax Rules, 2006 (mutatis mutandis applies to Rule 60 of the Federal Excise Rules, 2005) which provides that the recovery should not be initiated before expiry of 30 days from the date of order. Hence a taxpayer who intends to avail the proposed automatic stay option should consider the date of the order rather than the date of receipt of the order for depositing 25% of the disputed tax demand so as to avoid the risk of recovery of the demand.
6. Service of notices and other documents
Section 47
The Bill seeks to provide legal coverage to electronic submissions of documents/records or response to the letters/notices issued by the tax authorities. This proposition may authorize the taxpayers and tax officers to make correspondence with each other through emails and online on eFBR portal.
Section 47 deals with the service of orders, decisions, notices or requisition records and any such document to the resident individuals and other than individuals. Any notice, order or decision if not served according to the criteria laid down shall not be treated as served and would not be binding on to the person to whom such notice, order or decision is delivered.
The Bill now seeks to add electronic delivery of notices, orders, decisions etc. through the e mail or to the e-folder maintained by the resident individuals and other than individuals for the purpose of e-filing of sales tax-cum-federal excise returns having public and private Company status by inserting clause (d) in Sub-section (1) and Sub-section (2) of Section 47.
Sub-section (1) of section 47 applies only to the resident individuals. Therefore, reference to limited companies, both public and private, in the proposed insertion of clause (d) in Sub-section (1) seems to be an error and needs to be rectified while approving the Bill.
7. Validation
Section 43A
The Bill proposes to insert a new section 43A whereby all notifications and orders issued and notified, in exercise of the powers conferred upon the Federal Government, before first day of July 2017 shall be deemed to have been validly issued and notified in exercise of the powers, notwithstanding anything contained in any judgment of a High Court or the Supreme Court.
The proposed insertion is based on the recent judgment of Honorable Supreme Court of Pakistan on Article 90 of the Constitution of Islamic Republic of Pakistan subsequent to the 18th Constitutional amendment, which regulates the authority of the Federal Government.
Section 43A already exists in the FE Act which deals with the issuance of duplicate of Inland Revenue documents. This would require renumbering.
8. Rate of duty on cigarettes
First Schedule, Table I
The rate of duty on cigarettes is proposed to be changed and three Tier structure is being introduced by substituting serial No. 9a and 9b with 9; whereas, serial No.10a and 10b is proposed to be substituted by serial No. 10 and third tier is being introduced under Serial No. 10a of Table I of the First Schedule to the FE Act along with the description of goods. The proposed entries enhancing the rate of duty in three tiers are as follows:
==========================================================================================================================
Existing Entry Proposed Entry
S. Description Rate S. No. Description Rate
No of duty of duty
==========================================================================================================================
1st TIER
For the period Rupees Locally Rupees
from 01-07- 3,436 per produced 3,740
2016 t30-11- thousand cigarettes if per
2016, locally cigarettes their on-pack thousan
produced printed retail d
cigarettes if price exceeds cigarett
their on-pack Four thousand es
printed retail five hundred
price exceeds rupees per
four thousand thousand
9a 9
rupees per cigarettes.
thousand
cigarettes
9b For the period Rupees
from 01-12- 3,705 per
2016 onwards, thousand
locally cigarettes
produced
cigarettes if
their on-pack
printed retail
price exceeds
four thousand
four Hundred
rupees per
thousand
cigarettes
2nd TIER
For the period Rupees Locally Rupees
from 01-07- 1,534 per produced 1,670
2016 t30-11- thousand cigarettes if per
2016, locally cigarettes their on-pack thousa
produced printed retail nd
cigarettes if price exceeds cigarett
their on-pack twthousand es
printed retail nine hundred
price does not and twenty-five
exceed four rupees per
thousand thousand
10a rupees per 10 cigarettes but
thousand does not
cigarettes exceed four
thousand five
10b For the period Rupees hundred
from 01-12- 1,649 per rupees per
2016 onwards, thousand thousand
locally cigarettes cigarettes.
produced
cigarettes if
their on-pack
printed retail
price does not
exceed four
thousand four
hundred rupees
per thousand
cigarettes
3rd TIER
10 Locally produced cigarettes if their on- Rupees 800 per thousand
a pack printed retail price exceeds two cigarettes
thousand nine hundred and twenty-five
rupees per thousand cigarettes but does
not exceed four thousand five hundred
rupees per thousand cigarettes.
==========================================================================================================================