budget briefing 2015 ey.pdf

8/20/2019 Budget Briefing 2015 EY.pdf

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Ernst & Young Ford Rhodes Sidat Hyder


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BUDGET BRIEFING2015

This Memorandum is correct to the best of our knowledgeand belief at the time of going to the press. It is intendedto provide only a general outline of the subjects covered.It should neither be regarded as comprehensive norsufficient for making decisions, nor should it be used inplace of professional advice. The Firm and Ernst & Youngdo not accept any responsibility for any loss arising fromany action taken or not taken by anyone using thispublication.

This Memorandum may be accessed on our websitehttp://www.ey.com

http://localhost/var/www/apps/conversion/tmp/scratch_3/WWW.EY.COM/PKhttp://localhost/var/www/apps/conversion/tmp/scratch_3/WWW.EY.COM/PK


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Budget Briefing


This Memorandum has been prepared as a general guide forthe benefit of our clients and is available to other interestedpersons upon request. This should not be published in anymanner without the Firm’s consent. This is not an

exhaustive treatise as it sets out interpretation of only thesignificant amendments proposed by the Finance Bill, 2015(the Bill) in the Income Tax Ordinance, 2001 (theOrdinance), the Sales Tax Act, 1990 (the ST Act), theCustoms Act, 1969 (the Customs Act) and the FederalExcise Act, 2005 (the FE Act) in a concise form sufficientenough to amplify the important aspects of the changesproposed to be made. The Repealed Ordinance means theIncome Tax Ordinance, 1979 since repealed. The Boardmeans the Federal Board of Revenue, Government ofPakistan.

Changes of consequential, administrative, procedural oreditorial in nature have either been excluded from thesecomments or otherwise dealt with briefly.

The amendments proposed by the Bill after having beenenacted as the Finance Act, 2015, shall, with or withoutmodification, become effective from the tax year 2016,unless otherwise indicated.

It is suggested that the text of the Bill and the relevant lawsand notifications, where applicable, be referred to inconsidering the interpretation of any provision. Since theseare only general comments, no decision on any issue betaken without further consideration and specificprofessional advice should be sought before any action istaken.

Contents Page

Highlights i - ii

Income Tax 1 – 29

Sales Tax 31 – 43

Customs 45 – 48

Federal Excise 49 - 54

KARACHI: 06 June 2015


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Highlights


i

Income Tax

A public company deriving profit for the year andhaving reserves in excess of hundred percent of itspaid up capital is now further taxable on suchexcess reserves at the rate of ten percent.

However, a scheduled bank, a modaraba and agovernment owned public company are notchargeable to such tax.

A one-time super tax @ 4% of income of bankingcompanies and 3% of income of Rs.500 million ormore has been proposed to be levied on all personsfor the tax year 2015 invariably on all types ofincome whether taxable under the normal law orunder the Final Tax Regime (FTR).

Capital gain on securities that are held for a periodless than 4 years are proposed to be taxed basedon the following holding period of securities andrates –

Holding period

Tax year

2015 2016

Less than 12 months 12.5% 15%

12 months or more but lessthan 24 months

10% 12.5%


0% 7.5%

Profit on debt derived by all taxpayers is nowtaxable as a separate block of income atprogressive slab rates of ten, twelve and half andfifteen percent applicable on gross amount ofprofit on debt.

Tax credit available to a company on its enlistment

on a registered stock exchange is proposed to beenhanced from 15% to 20% of the tax payable. Like banking companies, other companies and

AOPs are proposed to estimate the advance taxbefore the second instalment is due in cases wherehigher income and tax payable is anticipated. 50%of the estimated advance tax is required to be paidin the second quarter and balance in remainingquarters.

A tax credit of 1% of tax payable, for every 50employees employed by a newly establishedindustrial undertaking shall be allowed for 10years. The maximum credit is allowed upto 10% oftax payable.

The eligible threshold of admissible investment inshares and premium on life insurance for claim oftax credit is proposed to be enhanced from Rs.1million to Rs.1.5 million

Instead of tax credit on profit on debt paid on ahousing loan, the Bill proposes to allow deductibleallowance with reference to profit on debt paid ona housing loan for the purpose of construction of anew house or acquisition of a house.

Exporters are to be given an option to opt out ofthe final tax regime and pay tax on normal basisbut the tax deducted will be treated as minimumtax.

CNIC issued by NADRA to be treated as NTNeffective from the tax year 2015.

Non-filers are proposed to subject to collection oftax @ 0.6% on all banking transactions where thevalue of transactions in a day exceeds Rs.50,000.

The Bill proposes to enact provisions enablingautomatic exchange of information by theGovernment with other countries.

Rate of tax on dividend increased from 10% to12.5%

The due date of payment of tax demand isproposed to be enhanced from 15 days to 30 days.Moreover, the Commissioner (Appeals) has beenempowered to grant stay from recovery of taxdemand for a period of 60 days instead of 30 days

at present. Remittance of education and related expenses

abroad is proposed to be subject to collection oftax @ 5%

Concept of Special Audit Panels comprisingofficers of Inland Revenue and professionalsintroduced.

Automatic selection for audit of such retailersproposed who do not file their returns or pay taxas per the conditions prescribed.

Whistleblower who reports concealment to berewarded. Amendments made on the following taxlaws for this purpose:

Income Tax Ordinance, 2001

Sales Tax Act, 1990

Federal Excise Act, 2005

Single rate of tax for banking companies ondividend income and capital gain of 35% isproposed

Application of minimum tax on builders has beendeferred until 30 June 2018.

Minimum tax on land developers has been levied atthe rate of two percent of the value of land notifiedby any authority for the purpose of stamp duty.

Payments to resident persons for use of machineryand equipment is proposed to be subject towithholding tax @ 10%

Board no longer empowered to exempt goods orperson from collection of tax at import stage.

Manufacturers of cooking oil and vegetable gheesubject to final tax at the rate of two percent onpurchase of locally produced edible oil.

Commissioner empowered to issue reduced/nilwithholding tax certificate to a permanentestablishment of a non-resident person.


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Highlights


ii

Scope of collection of advance tax on privatemotor vehicles has been expanded. The term“motor vehicle” has also been defined.

Collection of advance tax also required in respectof internet bills and prepaid card for internet.

Wholesalers of specified goods now exposed tocollection of advance tax by manufacturers,wholesaler, dealers and distributers.

Exemption from collection of tax under Chapter-XII(transitional advance tax provisions) as available tovarious persons have been consolidated under asingle section for ease of reference.

The rate of default surcharge in respect of variousnon-compliances has been reduced from eighteenpercent to twelve percent.

Penalties for non-filing of statement in respect ofincome governed by the final tax regime,withholding statements, furnishing of informationby banks and wealth statements have beenamended.

Rate of compensation for delayed refund reducedfrom fifteen percent per annum to KIBOR plus zeropoint five percent per annum.

Sales Tax

Certain amendments made in the definitions of

Active taxpayer, Cottage Industry, Retailer and

Supply.

Rate of further tax enhanced from 1% to 2%.

Custom Authorities empowered to recover short

payments or non-payments of sales tax at import

stage

Manner of claiming input tax adjustment on import

rationalized

Disallowance of input tax scope enhanced

Joint or several liability for unpaid sales tax

amount in the supply chain.

Withdrawal of board’s power to grant exemption

except for emergency situation Now such

exemptions would stands rescinded at the close of

the financial year.

Extended requirement of registration under the

Act.

Special audit panel to conduct audit

Certain amendments made in offences andpenalties

Monitoring or tracking of production, sales,

clearance, stocks etc. through electronic or other

means.

Agreements for the exchange of information with

provincial or foreign governments.

Prize scheme to promote tax culture

Certain amendments in the following Schedules:

-Fifth Schedule-Sixth Schedule

-Eighth Schedule-Ninth Schedule

Customs

Withdrawal of Board’s power to grant exemption from customs except for emergency situations.Now such exemptions would stand rescinded at theclose of the financial year.

Enhancement of lower limit of recovery of shortpaid custom duty amount enhanced to Rs.20,000.

Clarification on transshipment of goods to otherdestinations.

Penalty exceeding Rs.50,000/- specified for not

sending invoice with the goods

Rates of custom duty enhanced from 1% to 2% and25% to 20% to the First Schedule.

Fifth Schedule to the Customs Act relating toimports of plant and machinery with certainsubstitution of entries and rates of duty relatedthereto.

Federal Excise

Powers of the Board granting exemption from the levyof FED are proposed to be withdrawn

Federal Government is now only empowered to

exempt good or services from the levy of FED subjectto the approval of Economic Coordination Committee

Commissioner to pass orders under section 35 of theFE Act, upon receipt of an application from theaggrieved person in addition to taking suo moto action

Board to appoint special audit panels for conductingaudit

Federal Government to enter into bilateral ormultilateral agreements with provincial governmentsor with governments of foreign countries for exchangeof information

Confidentiality to be maintained by Public Servants inrespect of information received under any provision ofthe Act or in pursuance to a bilateral or multilateral

agreements

Rate of duty on aerated waters enhanced Rate of duty on locally manufactured cigarettes

modified Duty on filter rod for cigarettes levied

Withdrawal of duty on socio-economic routes

Exemptions from levy of duty as available throughvarious notifications / SROs has been rationalized andis now proposed to be included in the Third Schedule


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INCOME-TAX

Section Page

1. Excess reserves of public company to suffer tax 5(A) 5

2. Super tax for rehabilitation of temporary displaced persons 4B 5

3. Capital gain on disposal of securities 37A, Fourth Schedule 64. Exemptions and tax concessions - Second Schedule 53 and 159 6

5.Profit on debt now taxable as a separate block for all taxpayers,including companies

7B and 151 6

6.Commissioner empowered to issue reduced/nil withholding taxcertificate to a permanent establishment of a non-resident

Sub-section (4A) of 152 7

7. Tax credit on industrial investments 65 7

8. Tax credit for enlistment 65C 7

9. Tax credit for industrial undertakings 65E 7

10. Advance payment of tax 147 8

11. Tax credit for employment generation by manufacturers 64B 8

12. Tax credit for investment in shares and life insurance premium paid 62 8

13. Deductible allowance for profit on debt 64A 814. Exports 154 9

15. Taxpayers registration 181 9

16. Advance tax on banking transaction otherwise than through cash 236P 9

17. Collection and exchange of information107 sub-section (1), (1A)

and (1B) 165B10

18. Dividend paid by non-resident companies 94 and the First Schedule 10

19. Revision of return 114 10

20. Grant of stay by Commissioner (Appeals) 128 10

21. Due date for payment of tax demand 137 11

22. Withholding tax on services rendered by companies153, Clause (79), Part IV,

Second Schedule11

23. Payment to residents for use of machinery and equipment 236Q 11

24. Collection of tax on remittance of education expenses abroad 236R 11

25. Concept of whistleblower 227B 11

26. Collection of tax by Pakistan Mercantile Exchange Limited 236T 12

27. Audit121, 176, 177, 210 and

21112

28. Automatic selection for audit or retailers 214D 13

29. Single rate of tax for all incomes of banking companies Seventh Schedule 13

30. Deductions against income from property 15A 13

31. Tax on shipping business carried on by resident person7A and Clause (21) ofPart II of the Second

Schedule14

32. Tax credit for non-profit organizations 100C 14

33. Minimum tax on builders 113A 14

34. Minimum tax on land developers 113B 14

35.Power of the Board to exempt goods from collection of income tax atimport stage withdrawn

148 14

36. Tax on local purchase of cooking oil or vegetable ghee 148A, 169 14

37.Reduction in the rate of default surcharge in case of failure to paytax collected or deducted

Sub-section (1B) of 161 14


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38. Advance tax on private motor vehicles 231B 14

39. Tax on motor vehicles 234 15

40. Advance tax on telephone and internet user 236 15

41. Advance tax on purchase of domestic air tickets 236B 15

42. Advance tax on sale or transfer of immovable property 236C 15

43. Advance tax on sale to retailers and wholesalers 236H 15

44. Collection of advance tax by educational intuitions236I & Clause 89 to Part-

IV of Second Schedule15

45. Advance tax on purchase or transfer of immovable property 236K 16

46. Advance tax under Chapter XII 236O 16

47. Default surcharge 205 16

48. Additional payment for delayed refunds 171 16

49. Offences and penalties 182 16

50. Prosecution for making false or misleading statements 195 16

51. Income Tax Authorities 207 16

52. Dividend in specie 236S 17

FIRST SCHEDULE

Page

53. Rates of tax for individuals and Association of Persons 18

54. Association of Persons 18

55. Tax Year 18

56. Salaried taxpayer 18

57. Reduction in tax liability 18

58. Rates of tax for companies 19

59. Rate of Super tax for rehabilitation of temporarily displaced persons 1960. Rate of tax on dividend income 19

61. Rate of tax on profit on debt 19

62. Rate of tax on capital gains on securities 19

63. Rate of tax on capital gain on immovable property 20

64. Minimum Tax 20

65. Advance tax on imports 20

66. Advance tax on dividends 21

67. Advance tax on profit on debt 21

68. Advance Income tax on payment to non-residents 21

69.Advance income tax on payment to resident on payment for goodsand services

21

70. Collection of advance income tax on petroleum products 21


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Page

71. Collection of advance income tax on Brokerage and Commission 21

72. Collection of advance income tax on goods transport vehicles 22

73. Collection of advance income tax on passenger transport vehicles 22

74. Collection of advance income tax on private motor vehicles 22

75. Motor Vehicle tax when collected in lump sum 22

76. Advance tax on electricity consumption 22

77. Advance tax on telephone users 22

78. Advance tax on cash withdrawal 22

79. Advance tax on transaction in bank 22

80.Advance tax on purchase, registration and transfer for motorvehicles

22

81. Advance tax on sale to distributors, dealers or wholesalers 23

82. Advance tax on domestic electricity consumption 23

83. Advance tax on international air ticket 23

84. Advance tax on Banking transactions otherwise than through cash 23

85. Rate of collection of tax by Pakistan Mercantile Exchange Limited 23

86.Advance tax on the payment to residents for use of machinery andequipment

23

87. Collection of Advance tax on remittance of educational expenses 23

THE SECOND SCHEDULE

PART-I

Clause Page

88. Exemption to Inter-corporate Dividend (103A) 24

89. Deletions 20, 113 and 126F 24

90. Tax credit in respect of donations to The Indus Hospital, Karachi (61) 24

91. Exemption to The Indus Hospital, Karachi (66) 25

92. Sale of immoveable property to a REIT Scheme (99A) 25

93. Exemption to the income derived by China Overseas Port Holding

Company Limited

(126A) 25

94. Income of Manufacturer of certain Plant, Machinery & Equipment (126I) 25

95. Income of Warehousing or Cold Chain facilities (126J) 25

96. Income from operating Halal Meat production (126K) 25

97. Income from industrial undertaking set-up in KPK (126L) 25


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Clause Page

98. Income from Transmission Line Project (126M) 25

99. Exemption to LNG Terminal Operators and Terminal Owners (141) 26

100. Exemption to income from social security contribution (142) 26

PART-IIClause Page

101. Deletions 13C, 14, 14A, 14B and21

26

PART-IVClause Page

102. Exemption from minimum tax to KAPCO (11A) (iv) 26

103. Coal Mining Project in Sindh – Exemption from minimum tax (11A), (xviii) 26

104. Exemption from minimum tax and alternate corporate tax to LNGTerminal Operators and Terminal Owners

(11A), (xix) & (11D) 27

105. Exemption from minimum tax for businesses in KPT, FATA & PATA (11A), (xx) 27

106. Rice Mills – Exemption from minimum tax for the tax year 2015 (11A), (xxi) 27

107. Exemption from minimum tax (11A), (xxii), (xxiii), (xxiv)& (xxv)

27

108. Exemption from withholding of tax for advertisement services (16A) 27

109. Exemption from withholding of tax while making payment to PE of anon-resident E&P companies

(46) 27

110. Exemption from payment of tax at import stage under Section 148 (56) 28

111. Deletion 56B, 56H, 59 sub-clause(iii), 72A and 83

28

112. Large Trading Houses (57) 28

113. Deduction of tax from cash withdrawal by exchange companies (61A) and (28B) of Part-II 29

114. Exemption from invocation of Section 111 (86) 29

115. Collection of advance tax on functions and gathering (90) 29

116. Exemption from payment of tax at import stage under Section 148 (91) & (92) 29

117. Exemption from collection of tax on exports (93) 29


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1. Excess reserves of public company to suffer taxSection 5(A)

It may be recalled that excess reserves of a publiccompany were earlier taxed vide introduction of subsection (9A) of Section 12 of the Repealed Ordinanceby the Finance Act, 1999. The said provision remainedapplicable till 30 June 2002 but was not made part ofthe Ordinance, effective from 01 July 2002. The Billnow seeks to reintroduce taxation of excess reservesby proposing insertion of Section 5A in the Ordinance.

By virtue of the proposed amendment, tax shall beimposed on a public company that derives profits for atax year but does not distribute cash dividends withinsix months of the end of the said tax year or distributedividends to such an extent that its reserves are inexcess of hundred percent of its paid-up capital.

By implication therefore, it would mean that a loss

making company in any income year shall not beexposed to this additional imposition even if itsreserves exceed the stipulated limit of hundredpercent.

Tax shall be charged at the rate of ten percent of somuch of the reserves as exceed hundred percent ofthe company’s paid-up capital.

The Bill proposes a proviso to sub section (1) ofSection 5A whereby for tax year 2015, cash dividendsmay be distributed before the due date for filing of thereturn for tax year 2015. Although if enacted, theproposed section would be effective from the tax year

2016, it appears from the proviso that retrospectiveeffect for tax year 2015 may also be envisaged.

Sub section (3) of the proposed Section 5A defines theterm “reserves” which includes amounts set-aside outof revenue or other surpluses excluding capitalreserves, share premium reserves and reservesrequired to be created under any law, rules orregulations.

This section shall not apply to a public company beinga scheduled bank, modaraba or a public company inwhich fifty percent or more shares are held by theGovernment.

It should be noted that the proposed section aims tolevy a charge on income which has already beensubject to corporate tax as part of the company’s

profit for the year. Hence the proposed section, ineffect, creates a double tax on the company’s income;

first on the company’s profits through the provision ofnormal taxation and then again as part of its reserves.Furthermore, it should be observed that on account of

the manner of drafting of the proposed section, theremay be multiple tax charges on the same reserveswhich have not been paid out in subsequent years.This arises because the proposed section does notcharge tax on the additional reserves arising duringthe year but instead levies a charge on the entireamount in excess of hundred percent of paid upcapital.

The proposed insertion of Section 5A in the Ordinancewould tend to slow down growth of corporatebusinesses as the profits instead of being reinvested inthe business would be distributed among theshareholders due to imposition of the suggested taxon excess reserves. It is perhaps for this reason thatthe said provision when originally introduced in therepealed Ordinance was not included in the Ordinance.

2. Super tax for rehabilitation of temporary displacedpersons

Section 4B

A one-time super tax has been proposed to be leviedon all persons for the tax year 2015 invariably on alltypes of income whether taxable under the normal lawor under the Final Tax Regime (FTR). To remove anysort of ambiguity, it has been stated that the super-taxwill apply to income from all sources and on allpersons including income of insurance companies, oiland gas and mineral companies, banking companiesand on capital gains of listed securities.

Corresponding amendments have also been proposedin the Fourth, Fifth, Seventh and Eight Schedules to

the Ordinance to provide for applicability of section 4Bto incomes falling in the respective Schedules.

For charging super-tax on such persons who aresubjected to tax under FTR, the concept of imputableincome has been reintroduced which has been definedthrough insertion of Clause (28A) in section 2 of theOrdinance.

The super tax is proposed to be charged as follows –

Banking company 4% of income

Person other than a banking

company having income equalto or exceeding Rs.500 million

3% of income

The super tax is required to be paid at the time offiling the return of income and in case it is not paid,the Commissioner is empowered to collect the sameby passing an order in writing.


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3. Capital gain on disposal of securitiesSection 37A, Fourth Schedule

Presently gain on disposal of securities is taxablewhere the security is held for a period less than 2years.

The Bill now seeks to tax capital gain on securities thatare held for a period less than 4 years. Rates of taxbased on the holding period of securities are–

Holding period

Tax year

2015 2016

Less than 12 months 12.5% 15%


10% 12.5%

24 months or more but lessthan 4 years

0% 7.5%

Corresponding amendments have also been made inthe Fourth Schedule to the Ordinance to amend thecapital gain tax rates in line with the above.

The Bill further seeks to provide that if a companyholds a debt security and derives any capital gain onits disposal, such gain shall be chargeable to tax at theapplicable corporate tax rate.

The Bill also proposes that a mutual fund or acollective investment scheme or a REIT scheme wouldbe required to deduct capital gain tax on redemptionof securities in the following manner –

Category Filer Non-filer

Individuals and AOP 10% 17.5%

Company 10% for stockfunds25% for others

25%

It is further provided that where dividend receipts of astock are less than capital gains, the rate of taxdeduction would be 12.5%.

4. Exemptions and tax concessions - Second ScheduleSections 53 and 159

Presently the Federal Government is empowered toamend the Second Schedule to the Ordinance in orderto provide or takeaway exemptions and taxconcessions or to provide conditions in respectthereof. Such powers are exercised by the Boardunder delegated authority of the Federal Governmentwhich at times is criticized by certain quarters on thetouchstone of discretion exercised by the FederalGovernment.

The Bill proposes to takeaway the discretion availableto the Federal Government and thus relocate theauthority of granting exemptions or concessions to thelegislature i.e. the Parliament.

However the Federal Government, subject to approvalof the ECC of the Cabinet, can still amend the SecondSchedule if the following circumstances exist –

national security issues

natural disaster

national food security in emergencysituations

protection of national economic interests insituations owing to abnormal fluctuation ininternational commodity prices

removal of anomalies in taxes

development of backward areas

implementation of bilateral/ multilateralagreements

Similarly, the Bill proposes to withdraw the powers ofthe Board available under section 159 to amend therates of withholding tax, exempt persons, classes ofpersons, goods or classes of goods form withholdingtax under the Ordinance.

5. Profit on debt now taxable as a separate block for alltaxpayers, including companiesSection 7B and Section 151

As per Section 151 of the Ordinance, profit/yield oncertain categories of debt is subject to withholding taxat the gross amount, after deduction of zakat. The tax

deducted under this section is generally construed asa final discharge of tax liability for all categories oftaxpayers, other than companies.

The Bill proposes to introduce a separate scheme oftaxation in respect of profit on debt derived by allcategories of taxpayers, including corporatetaxpayers. Such profit on debt, is to be taxed throughthe newly proposed Section 7B at the following rates:

S.No Profit on Debt Rate of Tax

(1) (2) (3)

1 Where profit on debt doesnot exceed Rs.25,000,000

10%

2 Where profit on debtexceedsRs.25,000,000 but doesnot exceed Rs.50,000,000

2,500,000 + 12.5%of the amountexceedingRs.25,000,000

3 Where profit on debtexceedsRs.50,000,000

Rs.5,625,000 + 15%of the amountexceedingRs.50,000,000


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Consequently, it would appear that the tax deductedunder Section 151 will be adjustable against the taxdetermined pursuant to the proposed Section 7B.

The amendments proposed by the Bill in respect ofprofit on debt would be welcomed by the corporatesector, which is currently taxable at the applicablecorporate tax rates. However, under the proposedamendments, companies would no longer be able toallocate expenses against its interest income.

Amendments rationalizing the proposed insertion ofSection 7B have also been suggested in the provisionsof Section 151. However, in the proposedamendments to the provisions of Section 151reference has inadvertently been made to Section 5A(tax on excess reserves) instead of Section 7B.

6. Commissioner empowered to issue reduced/nilwithholding tax certificate to a permanent

establishment of a non-residentSub-section (4A) of Section 152

It would be recalled that previously, payments forgoods and services made to a PermanentEstablishment (PE) of a non-resident person werecaptured within the ambit of Section 153. Theprovisions of Section 153(4) permit the Commissionerto issue a nil or reduced withholding certificate incertain specific circumstances.

Pursuant to the amendments made by the FinanceAct, 2012, the withholding requirements on paymentsmade to a PE of a non-resident person were

transferred to Section 152. However, nocorresponding powers were given to theCommissioner in respect of providing a nil or reducedwithholding certificate in respect of such payments.Therefore, presently, PEs of non-resident persons,which have already paid sufficient taxes or havesignificant brought forward losses, cannot obtain a nilor reduced withholding tax certificate since the samecannot be issued in such circumstances under Section159, and no other powers exist for the provision ofsuch a certificate. This has resulted in significantfinancial burdens for such taxpayer.

In order to address the above issues, the Bill now

proposes to introduce sub section (4A) in Section 152which confers powers to the Commissioner to providenil or reduced withholding tax certificates inappropriate circumstances to PEs of non-residentpersons.

7. Tax credit on industrial investmentsSection 65

Sections 65B, 65D and 65E provide tax credit forindustrial investment against the tax payable by anindustrial undertaking including on account ofminimum tax and final tax payable under theOrdinance. The claim of tax credits against the taxliability under FTR was disputed by the tax authoritieson the premise that section 169 provides that no taxcredits are available against taxes impose under FTR.However, subsequently the FBR issued a clarificationthat the tax credit being specific is allowable againstFTR.

In order to remove any ambiguity, a new sub section(6) is proposed to be inserted in section 65 thatprovides general guidance with regard to claim of taxcredits. The proposed amendment seeks to providethat in case of tax credits under section 65B, 65D and

65E, the restriction of non-allowance of tax creditunder section 169 that treats the tax withheld undervarious provisions of the Ordinance as a final tax willnot be applicable.

The Bill also seeks to provide that the condition forcharge of minimum tax under Clause (d) of sub section(1) of section 113 i.e. due to applicability of taxcredits to a taxpayer shall not apply, in case of taxcredits for industrial investment availed under theabove referred sections. Accordingly, such taxpayerwill not be liable to pay minimum tax under section113 of the Ordinance.

8. Tax credit for enlistmentSection 65C

Presently, a company is allowed a tax credit equal to15% of the tax payable for the tax year in which thecompany is enlisted on a registered stock exchange inPakistan.

The Bill proposes to enhanced the tax credit from 15%to 20% of the tax payable.

9. Tax credit for industrial undertakingsSection 65E

The existing provisions allow a tax credit to a companysetup in Pakistan before 1 July 2011 which investsany amount with 100% new equity raised throughissuance of new shares, in the purchase andinstallation of plant and machinery for an industrialundertaking including corporate dairy farming for thepurpose of expansion of the existing plant andmachinery installed or undertaking a new project. This


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is however subject to certain conditions to be met bythe company.

The tax credit admissible against the tax payable ofthe tax year in which the plant or machinery isinstalled and for the subsequent 4 years.

The Bill proposes to allow the tax credit for a period of5 years beginning from the date of setting up oncommencement of commercial production from thenew plant or expansion project whichever is later.

10. Advance payment of taxSection 147

Presently a company or an AOP is required to payadvance tax in 4 equal instalments on a quarterlybasis. Where they estimate that the tax payable forthe relevant tax year is likely to be more than theamount based on latest assessed income and tax

liability they can make an estimate at any time beforethe last instalment is due and pay the advance taxaccordingly.

The Bill now seeks to require the above taxpayers toestimate the tax payable for the relevant tax year atany time before the second instalment is due i.e. evenbefore completion of half year after such estimation.The proposed amendment requires payment of 50% ofthe estimated advance tax by the due date of thesecond quarter of the relevant tax year . Theremaining 50% is required to be paid in the 3 rd and 4th instalments.

11. Tax credit for employment generation bymanufacturersSection 64B

A new tax credit is proposed to be introduced wherebya taxpayer being a company set up a newmanufacturing unit between 1 July 2015 to 30 June2018. The tax credit will be available for a period of10 years at the rate of 1% for every 50 employeesregistered with EOBI and Employee Social SecurityInstitution of the provincial government during a taxyear subject to the following conditions –

A new company is incorporated in Pakistanand manufacturing unit is setup between 1

July 2015 and 30 June 2018

Employs more than 50 employees in a taxyear and get them registered with EOBI andEmployee Social Security Institution of theprovincial government

The manufacturing unit is not established bythe splitting up or reconstruction of an

undertaking already in existence or bytransfer of machinery or plant from anexisting undertaking

It is further provided that the manufacturing unit shallbe treated to have been setup on the date on whichthe manufacturing unit is ready to go into either trialor commercial production.

12. Tax credit for investment in shares and life insurancepremium paidSection 62

This section provides for tax credit to encourageinvestment in shares and life insurance by a residentperson other than a company. A tax credit in the ratioof a persons assessed tax to the person’s taxable

income in a tax year is presently allowed upto lessor ofthe cost of acquiring the shares/ premium paid or20% of the person’s taxable income for the year or

Rs.1 million.

The Bill now seeks to enhance the limit of Rs.1 millionto Rs.1.5 million.

13. Deductible allowance for profit on debtSection 64A

Presently a person is entitled to a tax credit in respectof any profit or share in rent/ share in appreciation forvalue of house which is paid on a loan given by a bankor NBFI or by government or local government or apublic company listed on the stock exchange. The taxcredit is available if the loan is utilized for constructionof a new house or acquisition of house. The tax creditis presently available at the average rate of tax of theperson on the lessor of the total amount paid or 50%of the person’s taxable income for the year or

Rs.750,000.

The Bill seeks to omit section 64 and insert a newsection 64A in the same Part X of Chapter III whichdeals with tax credits. Although this section caters toalmost the same benefit on the amount paid for thepurpose of construction a new house or acquisition ofa house, however, instead of allowing a tax credit, theproposed section seeks to allow a deductibleallowance to the individual. All other aspects andthreshold for eligibility remain the same as discussed

above except that the ceiling of Rs.750,000 isproposed to be enhanced to Rs.1 million. It needs tobe appreciated that effectively, the benefit to thetaxpayer is enhanced as per the proposed amendmentsince section 64 which is now proposed to be omittedprovided for a tax credit at the average rate of taxwhilst the deduction from income would reduce the taxat the top rate applicable to the individual.


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It is however, suggested that the new section 64A beplaced in Part IX of Chapter III which is meant fordeductible allowances.

14. ExportsSection 154

Presently the tax deductible on proceeds of anexporter or an indenting commission agent andpayments by a direct exporter to an indirect exporteris considered final tax on such transactions.

The Bill now seeks to provide an irrevocable option tosuch person to opt out of final taxation at the time offiling the return. However, the option suggests thatthe tax deducted under this section shall be treated asminimum tax instead of a final tax of the person optingout of FTR.

This effectively means that the taxpayer so opting out

could be taxed at normal tax rate based on his profitsand the tax so deducted would be adjustable againsthis ultimate tax liability. However, it needs to beappreciated that in case the tax liability works out toless than the amount of tax withheld, then in such acase the tax withheld will be considered as minimumtax liability.

It appears that the exporters will not opt out of FTRfor the following reasons –

(a) The exporter is still required to pay the amount oftax withheld which will be treated as minimum taxand therefore he will not benefit from opting out

of FTR.

(b) It should be noted that the current rate ofminimum tax under section 113 is also 1% for alltaxpayers except for certain classes of personsthat have been allowed a reduced rate of less than1%. Therefore, unless a reduce rate of minimumtax is provided in section 113 for exporters, therewould not be any benefit of opting out of FTR.

15. Taxpayers registrationSection 181

The government is keen to broaden the tax base by

increasing the number of taxpayers which isinsignificant considering the country’s population and

as a result, the tax to GDP ratio is not at the desiredlevel.

The Bill proposes to adopt, effective tax year 2015, inthe case of individuals, Computerized National IdentityCards issued by the National Database andRegistration Authority as NTN. This would mean that

every CNIC holder would become NTN holderregardless of the fact whether he has taxable incomeor not. Accordingly, such an individual will be requiredto file a tax return since under section 114 of theOrdinance, the requirement of filing a return ofincome is also on a person who has obtained NTN.

16. Advance tax on banking transaction otherwise thanthrough cashSection 236P

In order to enhance the incidence of taxation on non-filers using the banking system, the non-cash Bankingtransaction of such persons are now also proposed tobe exposed to collection of tax @ 0.6% at the time ofissuing –

Demand draft

Pay order

Special deposit receipt

Cash deposit receipts Short term deposit receipts

Call deposits receipts

Rupees traveler cheque

Sale of any instrument

It is further proposed that tax may be collected fromnon-filers on transfer of any sum through –

Cheque or clearing

Interbank or intra bank transfers throughcheques

Online transfer

Telegraphic transfer

Mail transfer

Direct debit

Payment through internet

Payment through mobile phone

Account to account fund transfer

Third party account to account fund transfer

Real time account to account fund transfer

Real time third party account fund transfer

Automated teller machine (ATM) transfers

Any other mode of electronic or paper basetransfer

The tax is required to be collected @ 0.6% on the total

payments for all transactions above exceedingRs.50,000 in a day.

It is further proposed that tax will not be collected inthe case of Pakistan Real-time Interbank SettlementMechanism (PRISM) or to payments made for federal,provincial and local government tax.


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17. Collection and exchange of informationSection 107 sub section (1), (1A) and (1B)Section 165B

The past few years have seen a concentrated globalinitiative towards information sharing and exchangefor the purposes of combating tax evasion andavoidance. The precursor to this initiative was theForeign Account Tax Compliance Act (FATCA),introduced by the United States of America and aimedat disclosure of information by foreign financialinstitutions (FFIs) and other financial intermediarieswith a view to prevent tax evasion by US citizens andresidents through use of offshore accounts.

Following the success of FATCA, the Organization forEconomic Co-operation and Development (OECD)developed Common Reporting Standard (CRS),formally referred to as the Standard for AutomaticExchange of Financial Account Information, an

information standard for the automatic exchange ofinformation (AEoI). On 6 May 2014, the OECDDeclaration on Automatic Exchange of Information inTax Matters was endorsed by 34 member countriesalong with several nonmember countries. More than65 jurisdictions publicly committed to implementation,with more than 40 having committed to a specific andambitious timetable leading to the first AEoI by 2017.

In affirmation of this global trend, the Bill proposes toamend Section 107 and introduce a new Section 165Bto deal with the powers of the revenue in respect ofexchange of financial information. The Bill proposesthat by virtue of Section 107, the Federal Government

may now also enter into agreements for the exchangeof information including AEoI. The Bill furtherproposes to empower the Board to obtain and collectinformation when solicited by another country undersuch agreements.

The Bill also proposes to insert a new Section 165Bwhereby every financial institution would be requiredto provide information to the Board in respect of non-resident persons.

The information received under both the proposedamendments may be used only for tax and relatedpurposes and is required to be kept confidential.

18. DividendSection 94 & the First Schedule

The rate of tax on dividends for all tax payers has beenincreased from 10% to 12.5%. The reduced rate of taxof 7.5% applicable to dividends paid by certainspecified companies remains unchanged.

Under the existing scheme of taxation, dividendincome derived by an investor, whether from aresident company or a foreign company, is taxable onthe gross amount in accordance with Section 5.However, Section 94, while dealing with the principlesof taxation of companies provides that dividendsreceived from a resident company will be taxed inaccordance with Section 5 whereas dividends receivedfrom a foreign company will be taxed either under thehead “income from business” or “income from other

sources”. Therefore, there was a conflict between the

provisions of Section 5 and Section 94 vis-à-visdividend income derived by a resident person fromforeign companies.

The Bill proposes to rationalize the provisions ofSection 94 with the existing scheme of taxation underSection 5 by omitting the word “resident” in subsection (2). However, the provisions of sub section (3),dealing with dividends paid by foreign companies,

have still not been omitted. Although taxability ofdividend income would still ultimately be governed bySection 5, a conflict between the various provisionswill continue to exist until sub section (3) of Section94 is also omitted.

19. Revision of returnSection 114

Section 114 specifies the persons who are obliged tofile a return of income for a tax year and the mode andmanner in which the return is to be filed. The sectionalso authorizes revision of a return already filed incertain circumstances subject to certain conditions.

One such condition recently prescribed is obtainingapproval of the Commissioner in order for a return tobe revised.

The Bill now proposes that where a return of income isrevised within 60 days of its filing, the condition ofobtaining prior approval from the Commissioner willnot be applicable.

20. Grant of stay by Commissioner (Appeals)Section 128

The Commissioner (Appeals) is empowered to grantstay from recovery of tax demand to a taxpayer for anaggregate period not exceeding 30 days. It isexperienced that in certain cases while the stay wasgranted, the appeal remained undecided beyond 30days in which case the taxpayers had to approach theAppellate Tribunal or the High Court for further stay.

The Bill now proposes to grant powers to theCommissioner (Appeals) to grant stay from recoveryof tax demand for a further period of 30 days subject

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to the condition that the appeal shall be decided withinthe extended period of 30 days.

21. Due date for payment of tax demandSection 137

Under the Income Tax Ordinance, 1979 (sincerepealed) as well as when the Ordinance waspromulgated, 30 days’ time was provided for paymentof tax demand arising from an order passed by the taxauthorities, from the date the order wascommunicated to the taxpayer. The Finance Act, 2008shortened the period of 30 days to 15 days.

The Bill now proposes to revert to the earlier positionwhereby 30 days would be available for payment oftax demand arising from an order passed by the taxauthorities.

22. Withholding tax on services rendered by companies

Section 153, Clause (79), Part IV, Second Schedule

Through the Finance Act, 2009, an amendment wasmade to make the tax withheld on payment againstservices rendered as a minimum tax. However, therewas ambiguity on the interpretation of this provisionwhereby applicability of such minimum tax on thecorporate sector was unclear. However, in the circularissued by the Board on amendments introduced viathe Finance Act, 2009, it was clarified that taxwithheld from payments relating to services renderedwould only be considered minimum tax in case of non-corporate taxpayers. Subsequently, Clause (79) wasinserted in Part IV of the Second Schedule via SRO

1003 (I)/2011 dated 31 October 2010 for thepurpose. The matter however, remained in dispute atvarious forums.

To clarify this position, the Bill now seeks to substituteClause (b) in the proviso to sub section (3) of section153 to provide that in case of companies, the tax sodeducted is adjustable effective from the tax year2009 and that in case of a person other than acompany, the tax so withheld will be a minimum tax.Correspondingly, the Clause (79) ibid, is proposed tobe deleted.

23. Payment to residents for use of machinery and

equipmentSection 236Q

The provisions of the Ordinance at present, do notspecifically provide for withholding of tax frompayments to residents on account of hire of machineryand/ or equipment. Accordingly, there have beendifferent views on withholding of tax from suchpayments. Certain quarters are of the view that on

such payments tax is deductible under section153(1)(b) i.e. on account of services rendered whilesome are of the view that withholding of tax from suchpayment is governed by section 153(1)(c) i.e. onaccount of execution of contract.

The Bill proposes to insert a new section whichprovides for withholding of tax @ 10% from paymentsto a resident person for use of or right to useindustrial, commercial and scientific equipment as wellas on account of rent of machinery. It is furtherproposed that the tax deducted under this sectionshall be final tax of the person. The obligation towithhold tax under this section has been proposed ona “prescribed person” as per the definition given in

section 153(7) of the Ordinance.

24. Collection of tax on remittance of educationexpenses abroadSection 236R

The Bill proposes to insert a new section 236Rrequiring collection of advance tax @ 5% on theamount of education expenses remitted abroad.Education expenses have been defined to includetuition fee, boarding and lodging expenses, anypayment for distant learning to any institution oruniversity in a foreign country and any other expenserelated or attributable to foreign education.

The obligation to collect tax from education relatedexpenses is on banks, financial institutions, foreignexchange companies or any other person responsiblefor remitting foreign currency from the payer ofeducation related expenses.

The tax collected under this section is proposed to beadvance tax which would be available for adjustmentagainst the tax liability of the payer of educationrelated expenses.

25. Concept of whistleblowerSection 227B

One of the biggest challenges that the currentgovernment faces in improving economy of thecountry is an alarmingly small tax base. It isundoubtedly a bitter fact that even in this modern erawhere the access of information is now more readily

available, there still remains a substantial revenue inPakistan which is outside the ambit of tax net. Thestakeholders i.e. the tax officials at the FederalGovernment and tax professionals have beenstruggling for years in devising methodologiesenabling people at large to pay their due taxesvoluntarily. However, unfortunately the level ofvoluntary compliance is still negligible due to variety


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of reasons including fear of harassment andcorruption.

In view of this backdrop, the Bill seeks to propose anew concept of whistleblower in the following tax laws:

Income Tax Ordinance, 2001 Sales Tax Act, 1990

Federal Excise Act, 2005

The Bill defines whistleblower separately under eachof the above laws as a person who reportsconcealment or evasion of tax/duty leading todetection or collection of tax/duty, corruption ormisconduct, to the competent authority having powerto take action against the person or a income tax,sales tax or federal excise authority committing fraud,corruption, misconduct, or involved in concealment orevasion of tax/duty.

With the introduction of the proposed new concept ofwhistleblower, the Bill also proposes to add a newsection under the respective laws dealing with rewardto whistleblowers. It is proposed that Board maysanction reward to whistleblowers in cases ofconcealment or evasion of tax/duty, corruption ormisconduct providing credible information leading tosuch detection of evasion of tax/duty.

It is proposed that the procedure for sanction of awardand its apportionment is to be notified in the officialGazette by the Board.

It is also proposed that the claim of reward by the

whistleblower shall be rejected in the followingcircumstances-

(a) the information provided is of no value;(b)

the Board already had the information;(c) the information was available in public records;

or(d)

no collection of duties is made from theinformation provided from which the Board canpay the reward.

26. Collection of tax by Pakistan Mercantile ExchangeLimitedSection 236T

The proposed Section 236T obliges PMEX to collecttax @ 0.1% from its members (i) on purchase and saleof futures commodity contracts, and (ii) ) on purchaseand sale of futures commodity contracts in lieu of taxon the commission earned by such members. It isproposed that the tax so collected shall be a minimumtax. PMEX has been defined in the proposed Clause(42A) of Section 2 of the Ordinance to mean PakistanMercantile Exchange Limited a futures commodity

exchange company incorporated under the CompaniesOrdinance, 1984 and is licensed and regulated by theSECP.

27. AuditSections 121, 176, 177, 210 and 211

Under the existing provisions of Section 177, theBoard is inter-alia, empowered to appoint a firm ofChartered Accountants or a firm of Cost andManagement Accountants to conduct tax audit of anyperson or classes of person within the parameters asdetermined by the Board.

The Bill now proposes to insert sub section (11) toprovide for appointment of special audit panels by theBoard for the purpose of conducting tax auditincluding a forensic audit of a person or classes ofperson within the parameters as determined by theBoard.

The special audit panels so appointed will comprise of2 or more members among the following –

(a)

an officer or officers of Inland Revenue;

(b)

a firm of Chartered Accountants;

(c) a firm of Cost and Management Accountants; or

(d)

any other person as directed by the Board.

It is also proposed that the special audit panel will beheaded by a Chairman who will be an officer of InlandRevenue. The officer or officers Inland Revenue beingmembers of the special audit panel (duly authorized by

the Commissioner) will be authorized to exercise thepower available under Section 175 and 176 of theOrdinance for the purpose of conducting tax auditunder the proposed provisions. In case where theperson being audited fails to comply with therequirements of the audit, best judgment assessmentcan be framed under Section 121 of the Ordinanceagainst the person. It is further provided that if anymember of the special audit panel, other than theChairman is absent from the audit proceedings, theaudit may continue and such audit will not be invalid orcalled in question due to absence of the member. It isalso proposed that functions performed during theaudit by an officer or officers of Inland Revenue asmembers of special audit panel shall be treated tohave been performed by the special audit panel. TheBoard will be authorized to prescribe the mode andmanner of constitution, procedure and working of thespecial panel.


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Corresponding amendments have also been proposedin the following sections –

(a)

section 176 – to provide for authorizing thespecial audit panel to enter the business premisesof a taxpayer in order to obtain any information,

require production of any record and to exercisethe powers as are vested in a Court under theCode of Civil Procedure, 1908

(b)

section 210 - to provide for authorizing theCommissioner to delegate to a special audit panelor to a firm of Chartered Accountants or a firm ofCost And Management Accountants to conductaudit under section 177

(c)

section 211 – to provide for enabling the specialaudit panel to exercise the powers as are availableto a Commissioner for conducting the audit.

Taking all the above amendments together it appears

that the Board has been empowered to constitute a joint team of Inland Revenue Officers andprofessionals and has given a framework of theproposed special audit panel(s). However, yet againthe proposal fails to answer the lingering questions ofselection of cases. It is still unclear as to who isauthorized to select cases and assign them to thespecial audit panel.

28. Automatic selection for audit of retailersSection 214D

A new section is proposed to be inserted for selectionof cases for audit of retailers. It is proposed thatretailers who are registered under Rules (4) and (6) of

Sales Tax Special Procedures Rules, 2007 i.e. largeretailers either operating as unit of a national orinternational chain of stores, operating an air-condition mall, retailer who has a credit and debit cardmachine, retailer whose annual preceding electricitybill exceeds Rs.600,000 and a wholesaler-cum-retailerengaged in bulk import and other retailers who paysales tax on electricity bills. The aforesaid retailers aproposed to be automatically selected for audit if theydo not fulfill the following conditions –

(a)

enlistment on the active taxpayer list in case oflarge retailer registered under Rule (4)

(b) Complete return of income furnished within time

(c)

The tax payable alongwith the return has beenduly paid

(d) 2% tax is paid under section 113 i.e. on turnoverbasis in case of small retailer registered underRule (6) who files the return below taxable limitand in the preceding tax year has either declaredincome below taxable limit or not filed the return

(e)

In case of small retailer who has declared taxableincome in previous year he must pay 25% highertax than the previous tax year

The proposed section provides that the scheme willbecome effective from the date notified by the Board

in the official Gazette.

Based on past history where we understand that afterabolition of minimum tax on retailers, most of themhave not filed their returns, the conditionsenumerated above for avoiding an audit by retailersseem to be tough and it would be difficult to assesswhether those retailers who are non-filers at presentwould agree to file their returns.

29. Single rate of tax for all incomes of bankingcompaniesSeventh Schedule

At present, the Seventh Schedule applicable to banks

provides for taxation of dividend income and capitalgains at reduced rates of tax. Besides this, the FinanceAct, 2014 also introduced the concept of proration ofexpenses between dividend income, capital gains andincome taxable at the full rate of tax.

The Bill now proposes to abolish the reduce rate of taxon dividend income and capital gains. In line with theseproposed amendments, the provisions relating toproration of expenses between different sources ofincome have also been proposed to be abolished.Consequently, income derived by a banking companyfrom all sources including dividend and capital gain isproposed to be taxed @ 35%.

Consequent to proposed Section 4B introducing supertax on certain taxpayer, amendments have also beenproposed in the Seventh Schedule to levy super tax onbanking companies @4%. It may be noted that unlikethe threshold of income of Rs.500 million for a taxyear for the purpose of levy of super tax on taxpayersother than banking companies, there is no thresholdproposed in the Seventh Schedule.

30. Deductions against income from propertySection 15A

Section 15A provides for deductions in computing

income chargeable under the head income fromproperty. Presently a deduction not exceeding 6% ofthe rent chargeable to tax in respect of property isallowed on account of expenditure incurred for thepurpose of collecting rent. However, presently anyadministrative expenses like salaries etc. incurred bythe owner of property are not explicitly deductibleagainst income from property.


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The Bill now proposes to enhance the deductionallowed to also cover expenses incurred includingadministration expenses subject to the threshold of 6%of rent chargeable to tax in respect of such property.

31. Tax on shipping business carried on by residentpersonSection 7A and Clause (21) of Part II of the SecondSchedule

Taxability of shipping business carried on by a residentperson is currently governed by as Clause (21) of PartII of the Second Schedule of the Ordinance. The Billproposes to transfer the provision to the main text ofthe Ordinance as a newly inserted Section 7A.

32. Tax credit for non-profit organizationsSection 100C

Section 100C deals with tax credits available to

welfare trust, charitable and non-profit organizationson fulfilment of specified conditions. The Bill proposesto make editorial amendments to the said section inorder to rationalize availability of tax credits.

33. Minimum tax on buildersSection 113A

The said section was introduced through the FinanceAct, 2013. In the Finance Bill, 2013, minimum tax atthe rate of Rs.25 per square foot as per theconstruction or site plan had been proposed. However,at the time of enactment, the rate of minimum tax wasnot incorporated in the legislation and instead the rate

was deferred until notification in the official gazette.To date we are not aware of any such notification thatmay have been issued by the Federal Government.

The Bill now proposes insertion of sub section (3)which states that the provisions of Section 113A shallnot be effective till 30 June 2018. It should be notedthat in the absence of a notification specifying the rateof minimum tax, the existing provisions were, for allpractical purposes, not operational. Hence theproposed amendment to the said section simplyappears to resolve the apprehension of builders inrespect of levy of minimum tax until 2018.

34. Minimum tax on land developersSection 113B

The Finance Act, 2013 introduced the concept ofminimum tax on land developers. In the Finance Bill,2013 minimum tax at the rate of Rs.50 per squareyard as per the layout or site plan had been proposed.However, at the time of enactment, the rate ofminimum tax was not incorporated in the legislation

instead, the rate was deferred until notification in theofficial gazette.

The Bill now proposes to levy minimum tax at the rateof two percent of the value of land notified by anyauthority for the purpose of stamp duty.

35. Power of the Board to exempt goods from collectionof income tax at import stage withdrawnSection 148

Under the existing provision of Section 148, the Boardhas the power to exempt certain goods or personsfrom collection of income tax at the time of import.The Bill now proposes to withdraw such power.

36. Tax on local purchase of cooking oil or vegetablegheeSection 148A, Section 169

The Bill seeks to introduce a new Section 148Awhereby the manufacturers of cooking oil or vegetableghee shall be chargeable to tax at the rate of twopercent on purchase of locally produced edible oil.Such tax shall be final tax in respect of incomeaccruing from locally produced edible oil.

Being a final tax, corresponding amendment has alsobeen made in Section 169.

37. Reduction in the rate of default surcharge in case offailure to pay tax collected or deductedSub-section (1B) of Section 161

Section 161 applies where a person fails to collect ordeduct tax as required under the Ordinance or wherehaving collected or deducted the tax fails to depositthe same with the Government Treasury. This sectionempowers the tax authorities to collect such tax fromthe withholding agent by treating him as an assesseein default under specific circumstances. The saidsection also imposes a default surcharge on theamount of tax not collected, deducted or paid at therate of eighteen percent. The Bill proposes to reducethe rate of default surcharge payable by such a personto twelve percent.

38. Advance tax on private motor vehicles

Section 231BPresently, every manufacturer of motor car or jeep isrequired to collect advance tax at the time of sale.However, the Bill seeks to broaden the scope ofadvance tax collection under this section by replacingthe words “car or jeep” with “vehicle “. As per the

proposed amendment motor vehicle includes car, jeep,van, sports utility vehicle, pickup trucks, caravan


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automobile, limousine, wagon or any other automobileused for private use. The Bill also proposes to insertthe definition of the expression “date of first

registration” for different modes of acquisition of

vehicles.

39. Tax on motor vehiclesSection 234

Presently, any person collecting motor vehicles tax isrequired to also collect advance tax on motor vehicles.The word motor vehicle is not defined in theOrdinance. The Bill has proposed to define the term“motor vehicle” by making reference to the newlyproposed definition inserted through sub section (7) ofSection 231B.

40. Advance tax on telephone and internet userSection 236

Presently, under Section 236 advance tax is collectedon telephone bill, prepaid card and sales of unitsthrough electronic medium. Now the Bill seeks toinclude internet bills and prepaid card for internetwithin the ambit of this section. Tax is to be collectedat the rate of fourteen percent of the amount of bill.

41. Advance tax on purchase of domestic air ticketsSection 236B

Currently, advance tax on purchase of domestic airtickets is collected under this Section irrespective offlight routes. Now the Bill seeks to provide exemptionfrom collection of advance tax on purchase ofdomestic air ticket for the following routes:

Baluchistan coastal belt

Azad Jammu and Kashmir

FATA Gilgit-Baltistan and Chitral

Furthermore, the exemption available to FederalGovernment, Provincial Government and the personwho produces certificate of exemption of income fromcollection of advance tax under this section isproposed to be deleted from this section but to beconsolidated in a newly proposed Section 236O.

42. Advance tax on sale or transfer of immovable

propertySection 236C

Currently, Federal Government, ProvincialGovernment and Local Government enjoy exemptionfrom collection of advance tax on sale or transfer ofimmovable property under this Section. Theexemptions have now been proposed to be relocated

to Section 236O. However, the latter section does notprovide any exemption for the local government.

43. Advance tax on sale to retailers and wholesalersSection 236H

Presently, every manufacturer, distributor, dealer,wholesaler or commercial importer of various itemslisted in this section including fertilizer are required tocollect advance tax on sale to a retailer. Now the Billseeks to exclude sales of fertilizer from collection ofadvance tax under this section.

Furthermore, the Bill, in order to broaden the scope ofcollection of advance tax under this section, proposesto include sale to wholesalers along with sale toretailers under this section. It should be noted that thesale to wholesaler by manufacturers or commercialimporters of the specified items is already captured inSection 236G. Hence the proposed amendments may

lead to double collection of advance tax fromwholesalers in case of sales made by manufacturers,both under Sections 236G and 236H. If the intent ofthe legislation is to broaden the collection of advancetax by including sales to wholesalers made bydistributors and dealers, the law should be rationalizedby omitting wholesalers from the provisions of Section236G to avoid double collection of tax from thewholesalers.

44. Collection of advance tax by educational institutionsSection 236I & Clause 89 to Part-IV of SecondSchedule

Currently, as per Clause (89) of Part-IV of the Second

Schedule, following persons are exempted fromcollection of advance tax by educational institutions:

a)

the Federal Government or a ProvincialGovernment

b)

an individual entitled to privileges under theUnited Nations (Privileges and Immunities) Act,1948 (XX of 1948)

c)

a foreign diplomat or a diplomatic mission inPakistan

d)

a person who is a non-resident and he:

i.

furnishes copy of passport as an evidence to theeducational institution that during previous tax

year, his stay in Pakistan was less than onehundred eighty-three days;

ii.

furnishes a certificate that he has no Pakistan-source income; and

iii.

fee is remitted directly from abroad throughnormal banking channels to the bank account ofthe educational institution.


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The bill proposes to retain the above exemptions onlyfor persons specified in (a)(c) and (d) above byinserting sub section (6) of Section 236I and Section236O. Consequentially, Clause (89) of Part-IV of theSecond Schedule has been proposed to be deleted.

45. Advance tax on purchase or transfer of immovablepropertySection 236K

The exemptions available to the Federal Government,Provincial Government, Local Government and ForeignDiplomatic mission in Pakistan from collection ofadvance tax on purchase or transfer of immovableproperty under this section is proposed to be deletedfrom this section. However, a similar exemption issought to be provided to the Federal Government andProvincial Government under the newly proposedSection 236O.

46. Advance tax under Chapter XIISection 236O

As highlighted above, exemptions available to variouspersons under Sections 231A, 231AA, 236B, 236C,236D, 236I and 236K are proposed to be deleted fromtheir respective sections. The bill proposes to insert anew Section 236O, whereby the following personsshall be exempted from collection of advance taxunder the entire chapter XII:

a) the Federal Government or a ProvincialGovernment

b)

a foreign diplomat or a diplomatic mission in

Pakistanc)

a person who produces a certificate from theCommissioner that his income during the tax yearis exempt.

It should be noted that in providing the exemption,Section 236O uses the words “the advance tax underthis chapter shall not be collected in the case ofwithdrawals made by…..”. It may be observed that thespecific drafting of the proposed section may inpractice restrict its applications. It is, therefore,proposed that the Section 236O should appropriatelybe re-drafted to avoid any adverse inferences at alater stage.

47. Default surchargeSection 205

The rate of default surcharge, for failure to pay anytax or advance tax by the due date or payment ofatleast 90% of the advance tax liability, is presently18% per annum. The Bill now proposes to reduce therate of default surcharge to 12% per annum.

48. Additional payment for delayed refundsSection 171

The compensation rate for delay in refunds payable bythe Revenue to the tax payer, is presently fifteenpercent per annum of the amount of refund. The Billnow proposes to change the rate of compensation toKIBOR plus 0.5% per annum.

49. Offences and penaltiesSection 182

Penalties for non-compliance had been consolidated inSection 182 via the Finance Act 2010. The Bill nowseeks to amend S.No (1A) and (1AA) of Section 182 ofthe Ordinance in the following manner:

a)

Minimum penalty of Rs.50,000 is proposed to bereduced to Rs.10,000 for failure to file final taxstatement under Section 115, withholding tax

statement under Section 165 or failure to furnishinformation under Section 165A. Such areduction had previously been offered by virtue ofClause (16) of Part III of the Second Schedulewhich has now been proposed to be incorporatedin the provisions of Section 182. Theaforementioned clause has correspondingly beenproposed to be deleted.

b) Penalty for failure to furnish wealth statement orwealth reconciliation statement under Section116 has been proposed to be charged at 0.1% ofthe taxable income per week or Rs.20,000,whichever is higher instead of Rs.100 for each

day of default.

50. Prosecution for making false or misleadingstatementsSection 195

An editorial amendment is sought by the Bill. The Billseeks to substitute reference to sub section (3) ofSection 187 with “Entry against S.No 10 in column (2)of the Table in sub section (1) of section 182” asSection 187 was already omitted by the Finance Act2010.

51. Income Tax Authorities

Section 207

Consequent to the proposal of Section 177 whereby“special audit panel” shall be appointed, the Bill also

seeks to insert a new clause in section 207 whereby“special audit panel” shall also be treated as a tax

authority.


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52. Dividend in specieSection 236S

The Bill proposes to insert a new section viz. section236S which provides for collection of tax from thegross amount of dividend in specie @ 12.5%. The taxso collected shall be final tax in terms of section 5 ofthe Ordinance.


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THE FIRST SCHEDULE

53. Rates of tax for individuals and Association ofPersons

The rates of tax chargeable for the tax year 2016

(corresponding to the income year ending at any timebetween 01 July 2015 to 30 June 2016) have beenrevised as under. The basic threshold has remainedunchanged:

Salaried taxpayers

Salariedtaxpayers

Rate

Upto 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 overRs.750,000

Rs.1,400,001 – 1,500,000

Rs.79,500 + 12.5% of excessover Rs.1,400,000

Rs.1,500,001 – 1,800,000

Rs.92,000 + 15% of excess overRs.1,500,000

Rs.1,800,001 – 2,500,000


Rs.2,500,001 – 3,000,000


Rs.3,000,001 – 3,500,000


Rs.3,500,001 – 4,000,000


Rs.4,000,001 – 7,000,000


OverRs.7,000,000

Rs.1,422,000 + 30% of excessover Rs.7,000,000

Non-salaried taxpayers

Non-Salaried

taxpayers Rate

Upto Rs.400,000 Nil

Rs.400,001 – 500,000

7% of excess over Rs.400,000

Rs.500,001– 750,000


Non-Salariedtaxpayers

Rate

Rs.750,001– 1,500,000


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 excessover Rs.2,500,000

Rs.4,000,001 – 6,000,000

Rs.719,500 + 30% of excessover Rs.4,000,000

OverRs.6,000,000

Rs.1,319,500 + 35% of excessover Rs.6,000,000

54. Association of Persons

Association of persons continues to be taxed as perthe rate card of non-salaried taxpayers for the tax

year 2016.

55. Tax year

Tax year means a period of twelve months ending on30 June and corresponds to the period to which theincome of the taxpayer relates.

56. Salaried taxpayer

Salaried taxpayer is a person having salary income inexcess of 50% of his/her taxable income.

57. Reduction in tax liability

A senior citizen of Pakistan, being a taxpayer, agedsixty years or more on the first day of the relevant taxyear, is allowed a rebate of 50% of the tax payable ifhis/her taxable income in that tax year isRs.1,000,000/- or less. The said rebate continues andthe rule, that in determining the threshold as above,income under final tax regime shall be excluded, alsoremains unchanged.

In addition, the relief as above shall also be availableto an individual who, irrespective of his age, isregistered as a disabled person according to his/herComputerized National Identity Card.


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58. Rates of tax for companies

The rates of tax for companies, for tax year 2016,have been revised, and are as under:

CompaniesTax Year

2015 2016

Public and Private 33 32

Cooperative and FinanceSociety

33 32

Banking 35 35

Small 25 25

The threshold on capital for small Companies isproposed to be enhanced for a maximum Rs.25 millionto Rs.50 million.

59. Rate of Super tax for rehabilitation of temporarilydisplaced persons

The rate of super tax for rehabilitation of temporarilydisplaced persons have been proposed as under:

Taxpayer Rate %

Banking Company 4

Person, other than a banking company,having income of Rs.500 million or more

3

60 Rate of tax on dividend income

The rate of tax on dividend received by all taxpayersfor tax year 2016 have been revised and are as under:

Dividend fromTax Year

2015 2016

Companies owning power projectprivatized by WAPDA, companiesset-up for power generation andcompanies supplying coal,exclusively to power generationprojects

7.5 7.5

Others 10 12.5

Stock fund, if dividend receipts areless than capital gains

12.5 15

Dividend received by a company from a collectiveinvestment scheme, REIT Scheme or a mutual fund,other than a stock fund, shall be taxed at the rate of25%.

However, if a Developmental REIT Scheme with theobject of development and construction of residentialbuildings is set up by 30th June, 2018, dividend

received by a person from such Developmental REITScheme shall be reduced by fifty percent for threeyears from 30th June, 2018.

61. Rate of tax on profit on debt

The existing rate of tax on profit on debt is 10%. Theproposed rates of tax are as under:

Rate %

UptoRs.25,000,000

10%

Rs.25,000,001 –50,000,000

Rs.2,500,000+ 12.5% of theamount exceedingRs.25,000,000

Over

Rs.50.000,000

Rs 5,625,000 + 15% of the

amount exceedingRs.50,000,000

62. Rates of tax on capital gains on securities

The rate card for levying tax on capital gains arisingon sale of securities (other than Companies), asreferred to in Section 37A have been proposed asunder:

Holding periodTax Year

2015 2016

Less than 12 months 12.5 15.0

More than 12 months but less than24 months

10.0 12.5

More than 24 months but less than48 months

- 7.5

The rate for companies in respect of debt securitiesshall be as specified in Division II of Part I of FirstSchedule which is proposed to be 32%

However, mutual fund or a collective investmentscheme or a REIT scheme shall deduct, on redemptionof securities, capital gains tax at the revised rates asspecified below:

Taxpayer Rate (%)Filer

Non-Filer

Individual and AOP10% for stock funds

17.510% for others

Company10% for stock funds 2525% for others


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In case of a stock fund if dividend receipts of the fundare less than capital gains, the rate of tax deductionshall be 12.5%

63. Rate of tax on capital gain on immovable property

The rate of tax on capital gain on immovable propertyremained unchanged and are as under:

Holding period of immovableproperty Rate %

Upto 1 year 10

More than 1 year but not more thantwo years

5

More than 2 years -

64. Minimum Tax

The rates of minimum tax as a percentage of thetaxpayers’ turnover have remained unchanged and areas under:

Taxpayer Rate %

Oil marketing companies, oil refineries,Sui Southern Gas Company Limited andSui Northern Gas Pipelines Limited(where annual turnover exceeds Rs. 1billion.)

0.5Pakistan International AirlinesCorporation

Poultry industry including breeding,broiler production, egg production, feedproduction

Dealers or distributors of fertilizers

Distributors of pharmaceutical products,fast moving consumer goods andcigarettes

0.2Petroleum agents and distributorsregistered under the Sales Tax Act, 1990

Rice mills and dealers

Flour mills

Motorcycle dealers registered under theSales Tax Act 1990

0.25

In all other cases 1

65. Advance tax on imports

The Bill proposes to enhance the scope of the tableand has specified separate tax rates for filer and non-filer and now the table reads as under:

Taxpayer

Rate % (ofimport valueas increasedby customs

duty, sales taxand federalexcise duty)

FilerNon-filer

Industrial undertaking importingremeltable steel (PCT Heading72.04) and directly reduced ironfor its own use

1 1.5

Persons importing plasticfertilizers in pursuance ofEconomic CoordinationCommittee of the cabinet'sdecision No. ECC-155/12/2004dated 9 December 2004

Persons importing urea

Manufacturers covered underNotification No. S.R.O.1125(I)/2011 dated 31December 2011

Proposes to insert Persons

importing Gold; and

Proposes to insert Personsimporting Cotton

Persons importing pulses 2 3

Commercial importers coveredunder Notification No. S.R.O.1125(I)/2011 dated 31December 2011

3 4.5

Ship breakers on import of ships 4.5 6.5

Industrial undertakings notcovered above

5.5 8

Companies not covered above 5.5 8

Persons not covered above 6 9


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66. Advance tax on dividends

The Bill proposes to enhance the rate of withholdingtax on dividend for non-filer to 17.5% from existing15%.

However, a collective investment scheme, REITScheme and mutual fund would deduct tax on paymentto a non-filer as per the following table:

StockFund

Moneymarket fund,Income Fundor any other

fund

Individuals 10 10

Company 10 25

AOP 10 10

Further, the Bill proposes to reduce the withholdingrates of taxes to 50% on the dividend paid by theDevelopmental REIT scheme set up to 30th June 2018for development and construction of residentialbuildings for three years from 30 June 2018.

However, in the case of stock fund, if dividend receiptsare less than the capital gains, the rate of tax to bededucted shall be 15% instead of the existing 12.5%.

67. Advance tax on profit on debt

The advance tax rate for recipients who are non filersis proposed to be 17.5% from 15% if the yield or profitpaid exceeds Rs. 500,000.

68. Advance income tax on payment to non-residents

The Bill proposes to segregate the rates ofwithholding taxes between corporate and others onaccount of making payment to a permanentestablishment (PE) and brings the rate of withholdingin line with the rates applicable to a resident personwhich are as under:

Rate of tax

CorporateNon-

Corporate

Filer Non-filer

Filer Non-filer

For supply of goods 4 6 4.5 6.5

For services otherthan transportservices 8 12 10 15

For execution ofcontract 7 10 7.5 10

The Bill also seeks to include the payment to asportsperson under the ambit of execution of contractby PE on which the rate of withholding tax at 10% ofthe gross amount payable.

69. Advance income tax on payment to resident onpayments for goods and services

The Bill seeks to introduced the rate of withholding taxfor non-filer when making payments on account ofgoods and services, which are as under

Rate of tax

CorporateNon-

Corporate

Filer Nonfiler

Filer Nonfiler

For supply of

goods 4 6 4.5 6.5For services otherthan transportservices 8 12 10 15

For execution ofcontract 7 10 7.5 10

The Bill seeks to treat the payment of sportspersonunder the ambit of execution of contract at 10% asfinal tax effective from the tax year 2013.

70. Collection of advance income tax on petroleumproducts

The Bill seeks to introduce the rate of collection of taxfor non-filer which at 15% of gross amount for everyperson selling petroleum products to a petrol pumpoperator. However, the withholding rates for a filerremain unchanged at 12% of the gross amount.

71. Collection of advance income tax on Brokerage andCommission

The Bill seeks to enhance the rate of collection of taxfrom advertising agents along with introduction ofrate of collection of taxes from a non-filer which areas under:

Rate of tax

FilersNon-filers

For advertising agents 10% 15%

Other than advertising agents 12% 15%


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72. Collection of advance income tax on goods transportvehicles

Vide Finance Act, 2012 a tax was introduced on goodstransport vehicles at the rate of Rs.5 per KG of theladen weight. Now the Bills seeks to reduce the ratesof collection of tax on goods transport vehicles whichare as under:

Amount of tax

Filers Non-filers

Amount of tax on perKG of laden weight Rs. 2.5 Rs. 4

73. Collection of advance income tax on passengertransport vehicles

The Bill seeks to revise the ra

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