comments on finance bill 2021

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COMMENTS ON

FINANCE BILL 2021

http://www.krestonhb.com/

COMMENTS ON FINANCE BILL 2021

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This memorandum has been prepared for the convenience, guidance and general knowledge of our valued clients and staff members and may be used as a ready reference to the proposed amendments mentioned in the Finance Bill 2021 (Bill). The memorandum contains Budget – 2021 at a glance, salient features and comments on the changes proposed through this Bill in the taxation laws of the country. All changes are effective from July 01, 2021 unless otherwise specified in these comments. The comments on the Bill represent our interpretation and understanding of the proposed amendments as contained therein. We recommend that the actual text of the Bill should be read in conjunction with these comments for a better understanding of the proposed changes and for considering the precise effect of a particular change. Further, reference should also be made to the specific wording in the relevant statutes. These are general comments on the proposed amendments, which shall be enacted when the Bill is passed by the National Assembly; accordingly, for specific application of any part of this information, guidance / advice may be obtained separately in order to avoid any risk. The firm therefore accepts no liability for any action taken as a result of this commentary. We would be glad to entertain any further clarification regarding our comments. Included in the Bill are the amendments already brought in through Tax Laws Amendment Ordinance 2021 and Tax Laws Amendment Ordinance Second Amendment Ordinance 2021. The comments on Finance Bill 2021 can also be accessed on / downloaded from the website of our firm - http://www.krestonhb.com

KRESTON HYDER BHIMJI & CO. Dated: June 11, 2021 CHARTERED ACCOUNTANTS



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TABLE OF CONTENTS

Sr.

no.

Particulars

Page

no.

1 Budget 2021 at a glance 3

2 Salient Features of amendments proposed in Income Tax Ordinance, 2001

4

3 Comments on amendments proposed vide Finance Bill 2021 in The Income Tax Ordinance, 2001

8

4 Salient Features of amendments proposed in Sales Tax Act, 1990 and rules made thereunder

40

5 Comments on amendments proposed vide Finance Bill 2021 in The Sales Tax Act, 1990

43

6 Salient Features of amendments proposed in Federal Excise Act, 2005

62

7 Comments on amendments proposed vide Finance Bill 2021 in The Federal Excise Act, 2005

63


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BUDGET AT A GLANCE IN COMPARATIVE FORM

---------------------------

2021-22 2020-21

Revenue

Tax Revenue 5,829 4,963

Non-Tax Revenue 2,080 1,610

a) Gross Revenue Receipts 7,909 6,573

b) Less: Provincial Share 3,412 2,874

Net Revenue Receipts (a-b) 4,497 3,699

Non-Bank Borrowing (NSSs & Other) 1,241 1,463

External Receipts (net) 1,246 810

Estimated Provincial Surplus 570 242

Bank Borrowing (T-Bills, PIBs, Sukuk) 681 917

Privatization Proceeds 252 100

TOTAL RESOURCES 8,487 7,231

EXPENDITURE

Current

Debt servicing & General Public Services 5,438 4,429

Defense Services 1,370 1,289

Others 715 627

Total current expenditure 7,523 6,345

Development

Federal PSDP 900 830

Net Lending 64 56

964 886

TOTAL APPLICATION OF RESOURCES 8,487 7,231

….. Rs. in billion …..


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SALIENT FEATURES OF AMENDEMENT PROPOSED IN INCOME TAX ORDINANCE,2001 -

EFFECTIVE FROM JULY 01, 2021, EXCEPT PROVIDED OTHERWISE

A: REVENUE MEASURES

Tax the income from property earned by individual and AOPs in the normal tax regime by eliminating it from the separate block of taxation.

Reduction in block taxation on interest income, if it exceeds Rs. 5 million, which will be taxed at the normal rates as applicable to the taxpayer as “income from other source”.

Reduction of block taxation on capital gain on disposal of immovable properties if gain exceeds Rs. 5 million. Now the whole amount of excess of sales price over written down value of such properties shall be taxed as capital gains.

Export of services shall be taxed @ 1%, at par with export of goods under final tax regime.

Tax on the money value of vehicle disposed of without registration is proposed to be levied.

Reduction in threshold of monthly electricity bill for withholding tax on electricity consumption from 75,000 to 25,000 from domestic users not appearing on Active Taxpayers’ list.

Removal of requirement of issuance of separate notice in concealment cases.

Withholding of tax on rental income of sub-lessee is also proposed to be made.

Broadening of scope of withholding agents for the purpose of collection of withholding tax on commission and brokerage income (section 233) to substitute and include AOP and individuals having turnover of Rs. 100 million or more.

Expansion of scope of withholding tax collection from supply chain below manufacturers and importers of specified sectors (sections 236G and 236H) to include the following business of pharmaceuticals, poultry and animal feed, edible oil and ghee, battery, tiers, varnishes, chemicals, cosmetics and IT equipment.

Streamlining withholding tax collection on sale and purchase of immovable property (section

236C and 236K).

Taxability of profit on debt component of GP fund and other such funds is also proposed.

Withdrawal of personal income tax exemptions.

During the current financial year, Tax Laws (Second Amendment) Ordinance, 2021was promulgated to implement corporate income tax reforms to provide level playing field to all businesses. Certain tax credits, concessions and exemptions were withdrawn. The provisions of the Ordinance have been made part of the Finance Bill.


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B: RELIEF MEASURES

The Bill proposes to delete the following withholding tax provisions:

Provision Description

153B Collection of tax on payment of royalty to residents.

231A Collection of tax on cash withdrawal.

231AA Collection of tax on banking instruments.

236P Collection of tax on banking transactions other than through cash.

236Y Collection of tax from persons remitting amounts abroad through credit or debit or prepaid cards.

236B Collection of tax on domestic air travel.

236L Collection of tax on international air travel.

236V Collection of tax on extraction of minerals.

233A Collection of tax from members by a stock exchange registered in Pakistan.

233AA Collection of tax on marginal financing by NCCPL.

234A Collection of tax from CNG stations.

236HA Collection of tax on certain petroleum products.

The bill also proposes to merge 3 withholding taxes with other existing provisions:

Provision Description Merged with

150A Deduction of tax on return on investment in Sukuks.

Proposed to be merged in section 151 for residents and in section 152 for non-residents which deal with such payments.

152A Deduction of tax on payments for foreign produced commercials.

To be merged with section 152 which deals with payments to non-residents.

236S Collection of tax on dividend in specie.

To be merged with section 150 which deals with dividend.

A separate scheme of taxation is proposed to be introduced for ‘small and medium enterprises’ (SMEs) by inserting a new Fourteenth Schedule to the Ordinance. By virtue of the said proposed Schedule, SME has the flexibility to be taxed either on bottom line profits at a maximum rate of 15% or on gross amount of turnover at a maximum rate of 0.5%. SME is defined as a person who is engaged in manufacturing and whose annual business turnover does not exceed PKR 250,000,000.

Reduction in generalized rate on Minimum Tax on Turnover basis and increase in

threshold for individuals and AOPs for chargeability of minimum tax, which is proposed to be enhanced from Rs. 10 million to 100 million.

Section 113 allows carry forward of minimum tax paid in excess of the normal tax

payable for a period of 5 years. By virtue of a judgment of the Sindh High Court, it was held that if there is no tax payable, the benefit of carry forward is not available. The Bill proposes to allow such benefit of carry forward even in case no tax is payable.

Broadening of scope of IT services by inclusion of cloud computing and data storage

services. Exemption to Special Economic Zone Enterprises from payment of minimum tax. Ten year tax exemption for Special Technology Zone Authority, Zone Developers and

Zone Enterprises.


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Tax exemption on the import of capital goods and dividend income of private funds from investment in special technology zone enterprise.

Exemption from tax on income of deep conversion new refineries and BMR projects of

existing refineries for 10 years.

Reduced rate of withholding tax of 3% on the following services:

a) Oilfield services, b) Warehousing services, c) Logistic services, d) Collateral management services e) Telecommunication services.

Inclusion of telecommunication services in definition of industrial undertaking. Allowance of provincial WWF and WPPF as a deductible allowance while calculating

income is now specifically proposed. Adjustment of business loss against property income, on taking it to normal taxation

regime. Unconditional grant of exemption from tax to certain organizations. Withdrawal of power of Commissioner to reject advance tax estimates presented by

taxpayer.

Non recognition of gain/loss on disposal of assets to non-residents under gift from relative, inheritance and agreement to live apart.

Reduction in tax rate on capital gain tax on disposal of securities from 15% to 12.5%.

Withdrawal of power of tax authorities to conduct inquiry under section 122(5A).

Inclusion of live animals, raw hides and unpackaged meat in definition of agriculture produce.

Reduction in tax liability by 25% for women entrepreneurs.

Exemption from tax on import of books and agriculture equipment.

Exemption from tax for bagasse fired power generating units and reduced rate of tax on dividend income from such projects.

Extension in time limits for availing tax benefits under section 100D and Eleventh Schedule vide Income Tax (Amendment) Ordinance 2021 dated 21.02.2021 made part of the bill.

Tax exemptions and concessions for Roshan digital accounts and implementation of electric vehicles and mobile phone policy implemented vide Tax Laws (Amendment) Ordinance, 2021 dated 11.02.2021 also made part of this bill.


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C: STREAMLING MEASURES

Elimination of requirement of filing of application for automated issuance of refund.

Introduction of time limitation for disposal of show cause notices.

Recording of e-hearing to be admissible evidence.

Automated issuance of exemption certificates if application is not disposed of by

Commissioner within 15 days.

Removal of requirement of updating tax profile.

Income derived by co-operative societies from sale of goods, immovable property or provision of services to its members is proposed to be taxed under the head ‘income from business.

Extension of time limitation for issuance of notice for filing of return in case of foreign income or foreign assets.

Time limitation for completion of assessment in pursuance of orders of the Commissioner.

Streamlining measure for monitoring of withholding taxes requiring taxpayers to file online statement along with reconciliation.

D: DOCUMENTATION MEASURES

Tax credit on installation of point of sale machines.

Notification of business bank accounts made mandatory.

Measures for the documentation of business of used cars.

Harmonization of procedure for investigation and prosecution of offences under domestic tax laws.

________________________


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AMENDMENT PROPOSED IN THE INCOME TAX ORDINANCE, 2001

VIDE FINANCE BILL 2021

A. Finance Bill 2021 incorporates various amendments previously enforced through Tax Laws

amendment Ordinance 2021 and Tax Laws (Second Amendment) Ordinance 2021 since the ordinances are to expire in four months’ time and converted into Act through this Bill. Details of all those amendments are stated hereunder:

1. FBR POWER TO SPECIFY INDUSTRIAL UNDERTAKING WITHDRAWN

SECTION 2 (29C)

The Bill incorporates withdrawal of FBR power to add any further category in the scope of industrial undertaking and thus this power is vested with the Federal Government only. The Bill also proposes to include “telecommunication companies operating under the licenser of Pakistan Telecommunication Authority (PTA) in the scope of “industrial undertaking beside those already specified in the definition of industrial undertaking.

2. FIRST YEAR ALLOWANCE TO ALTERNATE ENERGY PROJECTS WITHDRAWN

SECTIONS 23& 57

Finance At 2015 provided first year allowance to Plant, machinery and equipment installed by any industrial undertaking set up in specified rural and under developed areas or those engaged in the manufacturing of cellular mobile phones and qualifying for exemption under clause (126N) of Part I of the Second Schedule] and owned and managed by a company to a first year allowance of 90% in lieu of initial allowance under section 23 against the cost of the “eligible depreciable assets” put to use after July 1, 2008. The Tax laws amendment ordinance already withdrawn this allowance which is being enacted in the income tax law through this Bill.

Consequential amendment has also been proposed in section 57 which permits carry forward of this allowance to following years if not fully allowed against the income of the relevant year.

3. CHARITABLE DONATIONS

SECTIONS 61, 13TH SCHEDULE

Hitherto, admissibility of charitable donation were categories into two types of donation one which is allowed as deduction from the total income while the other as rebate from the tax payable. The Tax law Second Amendment Ordinance 2021 has deleted the first category of admissibility of amount paid as deduction from total income and thus there remain only one category of entitlement of rebate on tax only.

Amendments in this respect include the following:

Voluntary contributions or subscription to the recipients are also brought entitling it either to admissibility or rebate.

Payments made to any persons eligible for tax credit under section 100C

Entities organizations and fund mentioned in the Thirteen Schedule.


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4. TAX CREDIT FOR EMPLOYING FRESH GRADUATES

SECTION 64C

Finance Act 2019 provided a tax credit to those taxpayer who employ fresh graduates from a university or institution recognized by Higher Education Commission shall be entitled to a tax credit in respect of the amount of annual salary paid to the freshly qualified graduates for a tax year in which such graduates are employed. The tax law amendment ordinance withdrew this tax credit and the Bill proposes to enact the same hence this tax credit will no more be applicable /allowable

5. TAX CREDIT FOR ENLISTMENT

SECTION 65C

Tax Laws second Amendment Ordinance withdrew this tax credit upon enlistment in the stock exchange up to June 30 2022 equal to 20% of the tax payable and the following three tax years while the tax credit for last two year is restricted to 10%. The Tax Laws Amendment Ordinance withdrew this benefit, however this has not been enacted in the Bill hence this benefit will be available as originally enacted.

6. TAX CREDIT FOR CERTAIN PERSONS AND FOR SPECIFIED INDUSTRIAL UNDERTAKINGS

SECTIONS 65F & 65G

The Tax Laws Amendment Ordinance provided the tax credit which has been proposed to be enacted through this Bill which reads as under:

65F. Tax credit for certain persons.–

(1) Following persons or incomes shall be allowed a tax credit equal to one hundred per

cent of the tax payable under any provisions of this Ordinance including minimum, alternate corporate tax and final taxes for the period, to the extent, upon fulfillment of conditions and subject to limitations detailed as under:- (a) persons engaged in coal mining projects in Sindh supplying coal exclusively to

power generation projects;

(b) a startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the next following two tax years; and

(c) Income from exports of computer software or IT services or IT enabled services up to the period ending on the 30th day of June, 2025:

Provided that eighty percent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

(2) The tax credit under sub-section (1) shall be available subject to fulfillment of the

following conditions, where applicable, namely:-

(a) Return has been filed;


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(b) Withholding tax statements for the relevant tax year have been filed in respect of those provisions of the Ordinance, where the person is a withholding agent; and

(c) Sales tax returns for the tax periods corresponding to relevant tax year have

been filed if the person is required to file Sales Tax Return under any of the Federal or Provincial sales tax laws.

65G. Tax credit for specified industrial undertakings.-

(1) When making certain eligible capital investments as specified in sub-section (2), the

eligible taxpayers defined in sub-section (3) shall be allowed to take an investment tax credit of twenty five percent of the eligible investment amount, against tax payable under the provisions of this Ordinance including minimum and final taxes. The tax credit not fully adjusted during the year of investment shall be carried forward to the subsequent tax year subject to the condition that it may be carried forward for a period not exceeding two years.

(2) For the purposes of this section, the eligible investment means investment made in

purchase and installation of new machinery, buildings, equipment, hardware and software, except self-created software and used capital goods.

(3) For the purpose of this section, eligible person means —

(a) Green field industrial undertaking as defined in clause (27A) of section 2 engaged in —

(i) The manufacture of goods or materials or the subjection of goods or

materials to any process which substantially changes their original condition; or

(ii) ship building: Provided that the person incorporated between the 30th

day of June, 2019 and the 30th day of June, 2024 and the person is not formed by the splitting up or reconstitution of an undertaking already in existence or by transfer of machinery, plant or building from an undertaking established in Pakistan prior to commencement of the new business and is not part of an expansion project; and

(b) industrial undertaking set up by the 30th day of June 2023 and engaged in the

manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of renewable energy from sources like solar and wind, for a period of five years beginning from the date such industrial undertaking is set up.

7. TAX CREDIT FOR CHARITABLE ORGANIZATIONS

SECTION 100C Clauses (61) & (66) of Part I of 2nd Schedule

Vide Tax Laws Amendment Ordinance, organizations have been divided into two parts i.e. the first to whom provision of tax credit are not applicable and whose income (from all sources) is exempt under Table I of clause (66) of Part I of Second Schedule and they are not required to get approval or fall under the definition of Non-Profit Organization as provided in Section 2 (36) of the Ordinance. While the other organization to whom the provisions of this section for obtaining tax credit from taxes is applicable.


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The salient features for those organizations to whom tax credit is available are as under: (1) The persons mentioned in sub-section (2) shall be allowed a tax credit equal to one

hundred percent of tax payable under any of the provisions of this Ordinance including minimum and final taxes in respect of incomes mentioned in sub-section (3) subject to the conditions and limitations laid down in sub-section (4).

(2) The provisions of this section shall apply to the following persons, namely:— (a) Persons specified in Table - II of clause (66) of Part I of the Second Schedule to

this Ordinance; (b) a trust administered under a scheme approved by the Federal Government and

established in Pakistan exclusively for the purposes of carrying out such activities as are for the welfare of ex-employees and serving personnel of the Federal Government or a Provincial Government or armed forces including civilian employees of armed forces and their dependents where the said trust is administered by a committee nominated by the Federal Government or a Provincial Government;

(c) A trust; (d) A welfare institution registered with Provincial or Islamabad Capital Territory

(ICT) social welfare department; (e) A not for Profit Company registered with the Securities and Exchange

Commission of Pakistan under section 42 of the Companies Act, 2017; (f) A welfare society registered under the provincial or Islamabad Capital Territory

(ICT) laws related to registration of cooperative societies; (g) A waqf registered under Mussalman Waqf Validating Act, 1913 (VI of 1913) or

any other law for the time being in force or in the instrument relating to the trust or the institution;

(h) A university or education institutions being run by non-profit organization

existing solely for educational purposes and not for the purposes of profit; (i) a religious or charitable institution for the benefit of public registered under

any law for the time being in force; and (j) international non-governmental organizations (INGOs) approved by the Federal Government.

(3) The following income is eligible for tax credit, namely:

(a) Income from donations, voluntary contributions and subscriptions;

(b) Income from house property;

(c) Income from investments in the securities of the Federal Government;

(d) Profit on debt from scheduled banks and microfinance banks;

(e) Grant received from Federal, Provincial, Local or foreign Government;


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(f) So much of the income chargeable under the head "income from business" as is

expended in Pakistan for the purposes of carrying out welfare activities: Provided that in the case of income under the head "income from business", only so much of such income shall be eligible for tax credit under this section that bears the same proportion as the said amount of business income bears to the aggregate of income from all sources; and

(g) Any income of the persons mentioned in clauses (a), (b) and (h) of sub-section

(2) of this section. (4) Eligibility for tax credit shall be subject to the following conditions, namely:-

(a) Return has been filed; (b) Tax required to be deducted or collected has been deducted or collected and paid;

(c) Withholding tax statements for the relevant tax year have been filed; (d) The administrative and management expenditure does not exceed 15% of the

total receipts: Provided that clause (d) shall not apply to a non-profit organization, if-

(i) charitable and welfare activities of the non-profit organization have

commenced for the first time within last three years; or

(ii) total receipts of the non-profit organization during the tax year are less than one hundred million Rupees;

(e) Approval of Commissioner has been obtained as per requirement of clause (36)

of section 2:

Provided that the condition of approval in respect of persons mentioned in Table – II of clause (66) of Part I of the Second Schedule to this Ordinance, shall take effect from the first day of July, 2022 and the requirements of clause (36) of section 2, shall not be applicable for earlier years;

(f) none of the assets of trusts or welfare institutions confers, or may confer, a

private benefit to the donors or family, children or author of the trust or his descendants or the maker of the institution or to any other person: Provided that where such private benefit is conferred, the amount of such benefit shall be added to the income of the donor; and

(g) A statement of voluntary contributions and donations received in the

immediately preceding tax year has been filed in the prescribed form and manner.

(5) Notwithstanding anything contained in sub-section (1), surplus funds of organizations to

which this section applies shall be taxed at a rate of ten percent. (6) For the purpose of sub-section (5), surplus funds mean funds or monies —

(a) Not spent on charitable and welfare activities during the tax year; (b) received during the tax year as donations, voluntary contributions,

subscriptions and other incomes;


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(c) Which are more than twenty-five percent of the total receipts of the non-profit organization received during the tax year; and

(d) Are not part of restricted funds. Explanation.- For the purpose of this clause,

"restricted funds" mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor or funds received in kind.

8. EXTENSION OF TAX WITHHOLDING SCOPE - ON CAPITAL GAIN ON DEBT INSTRUMENTS ETC. & SUKUK

SECTION 152(1DA) & (1DB)

Tax Laws Amendment Ordinance enforced the above source of tax withholding and the Bill also seeks to incorporate the same. The same reads as under: (1DA) Every banking company maintaining a Foreign Currency Value Account (FCVA) or a non-

resident Pakistani Rupee Value Account (NRVA) of a non-resident individual holding Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP) or Computerized National ID Card (CNIC) shall deduct tax from capital gain arising on the disposal of debt instruments and government securities and certificates (including Shariah compliant variant) invested through aforesaid accounts at the rate specified in Division II of Part III of the First Schedule.

(1DB) every special purpose vehicle or a company, at the time of making payment of a return

on investment in sukuks to a nonresident sukuk holder shall deduct tax from the gross amount of return on investment at the rate specified in Division IB of Part III of the First Schedule.”

Tax deductible under the aforesaid section falls under the final tax regime as provided in the income tax law.

9. OFFENCES AND PENALTIES

SECTION 182

Tax Laws Amendment Ordinance enforced the amendments in the captioned subject and which the Bill has proposed to enact in the income tax law. Salient features of amendment are as under:

1. In the case where any person fails to furnish a return of income penalty as provided shall

be restricted as under the in following cases

Where taxable income is up-to eight hundred thousand Rupees, the minimum amount of penalty shall be five thousand Rupees: and

the amount of penalty shall be reduced by 75%, 50% and 25% if the return is filed within one, two and three months respectively after the due date or extended due date of filing of return as prescribed under the law."

2. In a case where any person fails to furnish a statement of tax with-holding it is clarified

that where it stands established that no tax was required to be deducted or collected during the relevant period, minimum amount of penalty shall be ten thousand Rupees.

3. Beside as provided in the Tax Laws Amendment Ordinance, it is also stated here that

penalty upon failure to furnish or update tax profile is being deleted since legal provision are being deleted / omitted from the income tax law.


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4. Penalty in the case of violating provisions of section 181AA with respect to compulsory

registration of commercial connections of various utilities is being increased from Rs. 10,000 to Rs. 100,000.

5. For persons who repeats erroneous calculation in the return for more than one year whereby amount of tax paid is less than the actual, it is provided that no penalty shall be imposed to the extent of the tax shortfall occurring as a result of the taxpayer taking a reasonably arguable position on the application of this Ordinance to the taxpayer's position.

6. Any person who makes a false or misleading statement to an Inland Revenue Authority either in writing or orally or electronically including a statement in an application, certificate, declaration, notification, return, objection or other document including books of accounts made, prepared, given, filed or furnished under this Ordinance is liable to a penalty of Rs. 25,000 or 100% of the amount of shortfall. The Tax Laws Second Amendment Ordinance already provided and Bill proposes to reduce this penalty to the extent of 50%.

7. Any person who denies or obstructs the access of the Commissioner or any officer authorized by the Commissioner to the premises, place, accounts, documents, computers or stocks is liable to penalty of fifty thousand rupees or one hundred per cent of the amount of tax involved, whichever, is higher. The Tax Laws Second Amendment Ordinance already provided and Bill proposes to reduce this penalty to the extent of 50%.

8. Serial number 19 and 20 provides penalty respectively where (a) any manufacturer of a motor vehicle accepts or processes any application for booking or purchase of a locally manufactured motor vehicle in violation of the provisions of clause (a) of section 227C or (b) Where any registering authority of Excise and Taxation Department accepts, processes or registers any application for registration of a locally manufactured motor vehicle or for the first registration of an imported vehicle in violation of the provisions of clause (a) of section 227C (ii) Where any authority responsible for registering, recording or attesting the transfer of immovable property accepts or processes the registration or attestation of such property in violation of the provisions of clause (b) of 227C. . The Tax Laws Second Amendment Ordinance already provided and Bill proposes to delete this provision hence provides no penalty against these two matters.

9. The Bill proposes to insert new penal provision Where any person fails to declare business bank account(s) under section 181, in his registration application or fails to amend his registration profile to declare existing business bank account(s), such person shall pay a penalty of Rs. 10,000 for each day of default since the date of submission of application for registration or date of opening of undeclared business bank account whichever is later. Provided that if penalty worked out as aforesaid is less than Rs.100,000 for each undeclared bank account, such person shall pay a penalty of Rs.100,000 for each undeclared business bank account.

Provided further that this provision shall be applicable from the first day of October, 2021 during which period the taxpayer may update their registration forms.

10. ADVANCE TAX ON MOTOR VEHCILES SOD PRIOR TO REGISTRATION

SECTION 231B (2A)

Tax Laws Amendment Ordinance already enforced and the Bill Seeks to incorporate these provisions into the Law and provides that every motor vehicle registration authority of Excise and Taxation Department shall, at the time of registration, collect tax at the rates specified in Division VII of Part IV of the First Schedule, if the locally manufactured motor vehicle has been sold prior to registration by the person who originally purchased it from the local manufacturer. The rates provided in this respect are as under:


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Engine capacity Tax Up to 1000cc Rs.50,000 1001cc to 2000cc Rs.100,000 2001cc and above Rs.200,000

11. ADVANCE TAX ON SALE OR TRANSFER OF IMMOVABLE PROPERTY

SECTION 236C

Advance tax deducted @ 1% under section 236C is an adjustable tax against the tax liability on disposal of immovable property. Tax Laws Amendment Ordinance already provided and the Bill seeks to incorporate the same in the tax law that if the seller or transferor is a non-resident individual holding Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP) or Computerized National ID Card (CNIC) who had acquired the said immovable property through a Foreign Currency Value Account (FCVA) or NRP Rupee Value Account (NRVA) maintained with authorized banks in Pakistan under the foreign exchange regulations issued by the State Bank of Pakistan, the tax collected under this section from such persons shall be final discharge of tax liability in lieu of capital gains taxable under section 37 earned by the seller or transferor from the property so disposed of." The provision enacted does not permit adjustment in this case where the tax payable may be less than the tax deducted as not necessarily in every transaction, there is profit and profit in excess of tax deducted at source. Thus this should have been taken care of.

12 ADVANCE TAX ON PURCHASE OR TRANSFER OF IMMOVABLE PROPERTY

SECTION 236K

Advance tax deducted @ 2% under section 236k is an adjustable tax against the tax liability on disposal of immovable property. Tax Laws Amendment Ordinance already provided and the Bill seeks to incorporate the same in the tax law that if the buyer or transferee is a non-resident individual holding a Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP) or Computerized National ID Card (CNIC) who has acquired the said immovable property through a Foreign Currency Value Account (FCVA) or NRP Rupee Value Account (NRVA) maintained with authorized banks in Pakistan under the foreign exchange regulations issued by the State Bank of Pakistan, the tax collected under this section from such persons shall be final discharge of tax liability for such buyer or transferee." The provision enacted does not permit adjustment in this case where the tax payable and in fact where the source is explainable then there is no element of tax involved and in the case of non- resident the payment is being made and recorded through prescribed banking channels and thus this final tax at the time of purchase is questionable. Further at the time of disposal of the same property, the same person will again be liable to tax under section 236C if sold in the period prescribed in section 236C. Furthermore, the Bill also proposes to prescribed that where in installments tax has been collected by the registering authority then no tax will be payable at the time of registration or transfer. In this respect the Bill provides that where tax has been collected along with installments, no further tax under this section shall be collected at the time of transfer of property in the name of buyer from whom tax has been collected in installments which is equal to the amount payable in this section.


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13 Following document gives an overview of the further amendments made by the Finance Bill

2021-22. All changes proposed through the Finance Bill 2021, subject to approval by National Assembly and Presidential assent, are effective July 1, 2021. 1. Definitions:

Section 2 Following new definitions has been added through the Bill

a) business bank account

Section 2 (10A) “Business bank account” means a bank account utilized by the taxpayer for business transaction declared to the Commissioner through original or modified registration form prescribed under section 181;”

b) concealment of income Section 2 (13AA)

Concealment of income includes -

(a) The suppression of any item of receipt liable to tax in whole or in part,

or failure to disclose income chargeable to tax;

(b) Claiming any deduction or any expenditure not actually incurred; and

(c) Any act referred to in sub-section (1) of section 111.

Explanation.- For the removal of doubt, it is clarified that where any item of receipt declared by the taxpayer is claimed as exempt from tax, or where any deduction in respect of any expenditure is claimed, mere disallowance of such claim shall not constitute concealment of income or the furnishing of inaccurate particulars of income, unless it is proved that the taxpayer deliberately claimed exemption from tax in respect of the aforesaid item of receipt or claimed deduction in respect of such expenditure not actually incurred by him.”

c) Information Technology Section 2 (30AD)

Information Technology (IT) services include software development, software maintenance, system integration, web design, web development, web hosting and network design;

d) IT enabled services Section 2 (30AE)

IT enabled services include inbound or outbound call centers, medical transcription, remote monitoring, graphics design, accounting services, Human Resource(HR) services, telemedicine centers, data entry ,operations, cloud computing services, data storage services, locally produced television programs and insurance claims processing;


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e) Small and medium enterprise Section 2 (59A)

A new definition of small and medium enterprise is introduced to give tax benefits to small and medium business and means a person who is engaged in manufacturing as defined in clause (iv) of subsection (7) of section 153 of the Ordinance and his business turnover in a tax year does not exceed two hundred and fifty million rupees: Provided that if annual business turnover of a small and medium enterprise exceeds two hundred and fifty million rupees, it shall not qualify as small and medium enterprise in the tax year in which annual turnover exceeds that turnover or any subsequent tax year.

f) Exclusion of Small and Medium Enterprise from the ambit of Small Company. Section 2 (59AB)

A new definition of small and medium enterprise has been added by the Bill and as a consequence of which the same is excluded from the purview of “small Company” as such an entity will fall under the proposed small and medium enterprise taxation mechanism.

g) Vesting power of Federal Government to specify “startup” to Board with the

approval of minister in charge. Section 2 (62A)

Presently Federal government had power to declare any business of a person or class of person as startup. This power is now been proposed to be vested to board with the approval of minister in charge.

2. PROFIT ON DEBT

SECTION 7B Hitherto the taxation of profit on debt in the hand of a person other than a company upto Rs. 36 million was liable to a fixed rate of tax. The Bill seeks to tax profit on debt exceeding Rs 5 million to be charged at normal tax rates. The tax rate for profit on debt upto Rs 5 million will remain 15%.

3. SALARY INCOME

SECTION 12 The Bill seeks to add an Explanation which provides that such amount paid as allowance solely expanded in the performance of employee’s duty does not include the following and hence the same will be included in the salary

(i) Allowance which is paid in monthly salary on fixed basis or percentage of salary; or

(ii) Allowance which is not wholly, exclusively, necessarily or actually spent on

behalf of the employer.


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4. INCOME FROM PROPERTY

SECTION 15 Currently individual and AOPs deriving income chargeable to tax are charged under final tax regime further under this section individual and AOP’s having income from property not exceeding two hundred thousand rupees in a tax year and does not derive taxable income under any other head are exempted from taxation. With removal of this provision in proposed bill this exemption will now withdraw. It has been proposed in the bill that income from property will now be taxed under normal tax regime further exemption of Rs 250,000 has also been removed.

5. DEDUCTIONS IN COMPUTING INCOME CHARGEABLE UNDER THE HEAD “INCOME FROM

PROPERTY

SECTION 15A

While computing the income chargeable to tax under the head “Income from Property” for a tax year certain deductions are allowed. Earlier only companies were allowed to deduct these expenses now after the amendment Individual and AoP will also be allowed to take benefit of deductions of section 15A.

6. BUSINESS INCOME OF CO-OPERATIVE SOCIETIES

SECTION 18

It is clarified that income derived by co-operative societies from the sale of goods, immoveable property or provision of services to its members is and has always been chargeable to tax under the provisions of this Ordinance.

7. GAIN ON DISPOSAL OF DEPRECIABLE IMMOVABLE ASSET:

SECTION 22

Currently, if consideration received on disposal of depreciable immovable exceeds its cost the consideration received shall be treated as the cost of the property. It means that tax is only charged on depreciation allowed previously on such property. However after the amendment tax on disposal of depreciable immovable asset will be charged on excess consideration received under section 37A,

8. GAIN ON DISPOSAL OF IMMOVABLE PROPERTY:

SECTION 37 (3A)

Gain on disposal of immovable property is currently taxed according to holding period as a separately provided tax rate after considering the effect of holding period .It has been proposed in Bill that gains on disposal of immovable property upto Rs 5 million shall be taxed at the rate of 5% instead of existing slab rates i.e. (2.5% -10%) after taking benefit of holding period.

On other gains exceeding Rs 5 million normal rate considering holding period will be applied.


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Further it has been clarified that benefits of holding period is not allowed to person habitually engaged in transaction of sale and purchase of properties and will be charged under head income from business.

9. CAPITAL ASSET ACQUIRED THROUGH GIFT:

SECTION 37(4A) Currently, to calculate disposal of capital asset which is acquired through gift, cost of such assets is considered as fair market value on the date of transfer of asset as a gift to the person. On disposal of such gift transferee is entitled to claim the cost as fair value. A new provision is proposed that if capital asset acquired through gift is disposed of within two year of acquisition and the commissioner is satisfied that such transfer is a part of tax avoidance than the provision of section 79(3) will be applied in determining the cost of Asset acquired through gift.

10. GIFT FROM RELATIVES

SECTION 39 In this section, “relative” in relation to an individual, means — (a) An ancestor, a descendant of any of the grandparents, or an adopted child, of the individual, or of a spouse of the individual; or (b) A spouse of the individual or of any person specified in clause (a). Earlier gifts received from grandparents, parents, spouse, brother, sister, son or a daughter were non-taxable now the gifts received without consideration from any person as defined as relative is non-taxable.

11. EXEMPTIONS AND TAX CONCESSIONS IN THE SECOND SCHEDULE:

SECTION 53 Federal government power has now given to board with the approval of minister in-charge to make amendments in second schedule of income tax ordinance.

12. WWF AND WPPF

SECTION 60A &B Deductibility allowance for amounts paid to provincial funds was not available under law after the proposed amendment deduction from the income of amount paid to funds established by provinces will be allowed. However, this deduction is not allowed to trans-provincial establishments.


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13. TAX CREDIT FOR POINT OF SALE MACHINES:

SECTION 60D The Bill proposes to introduce a new section 64D whereby a person who integrate with FBR's computerized system for real time reporting of sale or receipt is entitled to tax credit of amount lower of ; 1. Amount invested or 2. 150,000

14. A NEW REGIME FOR SMALL AND MEDIUM ENTERPRISES:

SECTION 100E & SCHEDULE The Bill proposes to introduce a new tax regime for Small and Medium Size Enterprise (SME) for the tax year 2021 and onwards. As per definition of SME, a person A. who is engaged in manufacturing as defined in section 153 of the Ordinance and

b. His business turnover in a tax year does not exceed Rs 250 Million. In case, annual business turnover exceeds Rs 250 Million, it shall cease to be an SME for such tax year and onwards.

The rules as contained in the 14th Schedule are as under:

RULES FOR COMPUTATION OF PROFIT AND GAINS FOR SMALL AND MEDIUM ENTERPRISES

1. Application.-

These rules shall apply to small and medium enterprises as defined in Clause (59A) of Section 2 of the Ordinance.

2. Registration.-

Small and medium enterprise shall be required to register with FBR on its Iris web portal or Small and Medium Enterprises Development Authority on its SME registration portal (SMERP).

3. Categories and tax rates.-

There shall be following two categories of small and medium enterprises and tax on their taxable income shall be computed at the tax rates given in the table below, namely:-

Category Turnover and Rates

Category-1 Where annual business turnover does not exceed Rupees 100 million 7.5% of taxable income

Category-2 Where annual turnover exceeds Rupees 100 Million but does not exceed Rupees 250 Million 15% of taxable income


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4. Option for Final Tax Regime.-

(1) The small and medium enterprises may opt for taxation under final tax

regime at the rates given in the table below: Category Turnover and Rates

Category-1 Where annual business turnover does not exceed Rupees 100 million 0.25% of gross turnover

Category-2 Where annual business turnover exceeds Rupees 100 million but

does not exceed Rupees 250 million 0.5% of gross turnover

(2) Option under sub-rule (1) of this rule shall be exercised at the time of filing of return of income and option once exercised shall be irrevocable for three tax years.

(3) The provisions of section 177 and 214C shall not apply to SME who opts

for taxation under sub-rule (1) of this rule. 5. Audit.-

(1) SMEs who opt for taxation under normal law under rule 3 may be selected for tax audit through risk based parametric computer ballot under section 214C of the Ordinance if its tax to turnover ratio is below tax rates given in rule 4 of these rules.

(2) The cases selected under sub-rule (1) of this rule shall not exceed 5% of

the total population of SMEs whose tax to turnover ratio is below tax rates given in rule 4 of these rules.

6. Provisions of Ordinance to apply.-

The other provisions of the Ordinance shall apply mutatis mutandis to the SMEs.”

15. NON RECOGNITION RULES: SECTION 79

Transfer of asset under certain circumstances is regarded as non-taxable under section 79 of the Ordinance. However, such non-recognition rule applies only under the situation where both the transferor and transferee are resident of Pakistan.

The Bill proposes to mandate the residency requirements, for both the transferor and the transferee, only in respect of the following three categories of transactions:

a. by reason of the compulsory acquisition of the asset under any law where the consideration received for the disposal is reinvested by the recipient in an asset of a like kind within one year of the disposal

b. by a company to its shareholders on liquidation of the company; or

c. By an association of persons to its members on dissolution of the association where the assets are distributed to members in accordance with their interests in the capital of the association.


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Based on new amendment, it would appear that in the following three transactions, no gain or loss would be recognized in the hands of the transferor even if the transferee is a non-resident person:

a. between spouses under an agreement to live apart

b. by reason of the transmission of the asset to an executor or beneficiary on the death of a person

c. By reason of a gift of the asset to a relative.

16. DELEGATION OF POWER BY FEDERAL GOVERNMENT

SECTION – 99B

Finance bill 2021-22 proposes to delegate the power to provide special procedure for small traders and shopkeepers are transferred from Federal Government to Board with the approval of the Minister in charge.

SECTION – 99C

Finance bill 2021-22 proposes to delegate the power to provide special procedure for payment of tax, record keeping, filing of return and assessment in respect of small businesses, construction businesses, medical practitioners, hospitals, educational institutions are transferred from Federal Government to Board with the approval of the Minister in charge.

SECTION – 100-3

Finance bill 2021-22 proposes to delegate the power to provide special procedure relating to the production of oil and natural gas, and exploration and extraction of other mineral deposits are transferred from Federal Government to Board with the approval of the Minister in charge.

17. SPECIAL PROVISION RELATING TO BUILDERS AND DEVELOPERS:

SECTION 100D

The Finance bills 2021-22 proposes to extent the deadlines as under:

a. For new and incomplete existing project date change from September 30, 2022 to September 30, 2023. (Section 100D-1a).

b. If the investment is made by a builder or developer being an individual date changes from December 31, 2020 to June 30, 2021 (Section 100D-3a).

c. In definition of “new project” date change from September 30, 2020 to September 30, 2021 (Section 100D- 9fi).

18. UNEXPLAINED INCOME OR ASSETS.

SECTION 111

The Bill proposes separate notice under this section is not required to be issued if the explanation regarding nature and sources of amount credited or the investment of money, valuable article, or the funds from which expenditure was made has been confronted through notice issued under section 122(9) of The Ordinance.


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19. MINIMUM TAX ON THE INCOME OF CERTAIN PERSONS.

SECTION 113

The Bill proposes to extend limit of Rs. 10 million to Rs. 100 million for chargeability of section 113 applicable to individual and association of persons.

Further the Bill further proposes to clarify that definition of turnover shall cover receipts from all business activities in line with expression “ turnover from all sources” used in sub-section (1) including but not limited to receipts from sale of immoveable property where such receipt is taxable under the head Income from Business.

There is also a significant change with respect to carry forward of minimum tax for adjustment in the subsequent years. The Bill in this respect proposes that the tax paid under this section due to no tax is otherwise payable or paid for the year the entire amount of tax paid under this section can be carried forward for adjustment against the tax payable in the following five year subsequent to year of happening.

20. RETURN OF INCOME.

SECTION 114

The Bill proposes to abolish time limitations for issuance of notice for filing of return in respect of any of last five years where commissioner is satisfied on the basis of reasons to be recorded in writing that a person who failed to furnish his return has foreign income or owns foreign assets.

The Bill also proposes to waive the condition of providing revised accounts or revised audited accounts for cases involving revision of tax return already filed.

21. TAXPAYER’S PROFILE.

SECTION 114A

The Bill proposes to omit section 114A and withdraw requirement of filing of taxpayer’s profile.

22. ASSESSMENT

SECTION 120

The Bill proposes to restore provisions of the section 120 as if sub-section (2A) is not in operation and no automated adjusted assessment mechanism was enacted until the Board notifies the date from which provisions of sub-section (2A) shall apply. For the purposes of this section, the following provisos are proposed to be inserted under sub-clause (b) of section (1) of section 120:

"Provided that until the date specified under the fourth proviso to sub-section (2A) is notified, this subsection shall be in force as if sub-section (2A) is not in operation: Provided further that once the date under the fourth proviso to sub-section (2A) is notified, clauses (a) and (b) shall only apply when the provisions of sub- section (2A), if invoked, are first complied with:


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Provided further once compliance is made under the second proviso: (i) the adjusted amount under subsection (2A) shall be construed to be the tax

payable and due under clause (a);and

(ii) The date of the compliance under sub-section (2A) shall be the date for the purposes of clause (b).

The Bill proposes to empower Board to notify date for the applicability of provisions regarding system based issuance of notice for automated adjustments in the return of income. The provisions of sub-section (2A) and automated adjusted assessment mechanism shall only apply once the date of application is notified by the Board.

23. AMENDMENT OF ASSESSMENTS.

SECTION 122 The Bill proposes that the power conferred to Commissioner under section 122(5A) to conduct inquiry is not necessitated for passing any order under that section. Thus he is being empowered to proceed to make order without making any inquiry. The Bill also proposes to insert a proviso to finalize the assessment order under section 122 within 120 days of issuance of show cause notice under section 122(9). This time may further be extended by the commissioner for reasons to be recorded in writing to a maximum of 90 days. Furthermore, these time limitations will only apply for notices issued after July 01, 2021. The Bill further provides that any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or agreed assessment proceedings under section 122D or the time taken through adjournment by the taxpayer not exceeding sixty days shall be excluded from the computation of the period specified in the first proviso.

24. REVISION BY THE COMMISSIONER SECTION 122A

The Bill proposes that where any order is remanded back to any lower authority by the Commissioner for modification, alteration, implementation of directions or de novo proceedings, the order giving effect to the directions of the Commissioner shall be issued within 120 days.

The amendment will now bind the assessing officer to frame the order with in the timelines given in the Bill and otherwise the proceedings are prolonged indefinitely.

25. APPEAL TO THE COMMISSIONER (APPEALS).

SECTION 127 The Bill proposes to integrate a mechanism of filling of all appeals electronically through IRIS.


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26. ALTERNATIVE DISPUTE RESOLUTION.

SECTION 134A

The Bill proposes to specifically exclude criminal proceedings from the negative list. Meaning thereby in case of criminal proceedings that have been initiated an application can still be made to the board for the appointment of a committee for the resolution of dispute. Further the Bill proposes that if the issue involves a mixed question of fact and law, the Board, while taking into consideration all relevant facts and circumstances, shall decide whether or not ADRC may be constituted. The Bill further proposes that application for dispute resolution shall be accompanied by an initial proposition for resolution of the dispute, from which proposition, the taxpayer would not be entitled to retract. Time limit for appointing a committee is proposed to be reduced from 60 days to 30 days. The committee shall decide the dispute within 60 days of its appointment and extended upto 30 days for the reason to be recorded in writing.

27. DUE DATE FOR PAYMENT OF TAX.

SECTION 137

The Bill proposes that period of 30 days for payment of tax demand shall not apply in respect of the tax demand created through an appeal effect order and would be immediately payable upon passing of the appeal effect order. This proposal seems to be a harsh on the part of taxpayer and this the first appellate forum and officials of tax department are assigned to undertake this process and while the taxpayer still has the other appellate forum.

28. ASSISTANCE IN THE RECOVERY AND COLLECTION OF TAXES.

SECTION 146C

The Bill proposes inclusion of a new section that describes as the application of the following sections will, mutatis mutandis, apply is respect of assistance in collection and recovery of taxes in pursuance of a request from a foreign jurisdiction under a tax treaty, a multilateral convention, an intergovernmental agreement or similar arrangement or mechanism: 138A Recovery of tax by District Officer (Revenue). 138B Estate in bankruptcy. 139 Collection of tax in the case of private companies and associations of persons. 140 Recovery of tax from persons holding money on behalf of a taxpayer. 141 Liquidators. 142 Recovery of tax due by non-resident member of an association of persons. 143 Non-resident ship owner or charterer. 144 Non-resident aircraft owner or charterer. 145 Assessment of persons about to leave Pakistan. 146 Recovery of tax from persons assessed in Azad Jammu and Kashmir and Gilgit Baltistan.

146A Initiation, validity, etc., of recovery proceedings. 146B Tax arrears settlement incentives scheme.


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29. ADVANCE TAX PAID BY THE TAXPAYER

SECTION 147 The Bill proposes to revoke Commissioner’s authority to reject the revised estimation filed by the taxpayer forcing him to pay more amount of advance tax then he is actually calculated under this section.

30. DIVIDENDS

SECTION 150 The Bill proposes merging of withholding under section 236S in respect of dividend in specie with section 150. Thus there is no change in this behalf as both sections have been consolidated into one place.

31. SHIFTING OF TAX WITH-HOLDING ON RETURN ON INVESTMENT IN SUKUK FROM ONE

PLACE TO OTHER.

SECTION 150A AND 151 (1A) Thus there is no change in substance being incorporated in the law and bring conformity to the placement of the section being relates to profit on debt.

32. TAX WITHHELD ON PAYMENT OF INSURANC EPREMIUM AND ADVERTISEMENT

SERVICES TO NON-RESIDENT TO BE TREATED AS MINIMUM TAX.

SECTION 152 (1AA) & (1AAA) (1B)

Presently the provision with respect to tax with-holding are listed below on these two accounts namely (1AA) every person making a payment of insurance premium or reinsurance premium

to a non-resident person shall deduct tax from the gross amount paid at the rate specified in Division II of Part III of the First Schedule.

(1AAA) every person making a payment for advertisement services to a non-resident

media person relaying from outside Pakistan shall deduct tax from the gross amount paid at the rate specified in Division II of Part III of the First Schedule.

The Bill seeks to provide that tax paid under the aforesaid sub-section shall be treated as minimum tax if the tax liability worked out to be lower as is also applicable in the case of payment under sub-section (1A) regarding execution of work under a contract or sub contract as stated in that sub-section.

33. EXTENSION OF EXEMPTION CERTIFICATE FROM PUBLIC LISTED COMPANY TO ANY

COMPANY

SECTION 153(4) Presently the Commissioner may, on application made by the recipient of a payment referred to in sub-section (1) and after making such inquiry as the Commissioner thinks fit, may allow in cases where tax deductible under sub-section (1) is not minimum, by an order in writing, any person to make the payment,—


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(a) Without deduction of tax; or (b) Deduction of tax at a reduced rate;

Provided that the Commissioner shall issue certificate for payment under clause (a) of sub-section (1) without deduction of tax within fifteen days of filing of application to a public company listed on a registered stock exchange in Pakistan if advance tax liability has been discharged:

Provided further that the Commissioner shall be deemed to have issued the exemption certificate upon the expiry of fifteen days to the aforesaid public listed company and the certificate shall be automatically processed and issued by Iris:

Provided also that the Commissioner may modify or cancel the certificate issued automatically by Iris on the basis of reasons to be recorded in writing after providing an opportunity of being heard. The Bill seeks to extend the scope of exemption to any company hence the other companies will be entitled to get the exemption certificate on this ground as well.

Withholding Tax related to the payment of royalty to resident persons shall be omitted.

34. TAX WITHHOLDING FROM TAX ON ROYALTY PAYMENTS

SECTION 153B Presently every person paying an amount of royalty, in full or in part including by way of advance, to a resident person is required to deduct tax from the gross amount payable (including Federal excise duty and provincial sales tax, if any) at the rate specified in Division IIIB of Part III of the First Schedule and that the so tax deductible is adjustable. The Bill seeks to omit this section hence there will be no tax withholding as proposed. It is reiterated that tax deduction on this account apparently seems to be very low which has make it a cause for omission from the law.

35. INTRODUCITON OF FINAL TAXATION REGIME ON EXORT OF SERVICES.

SECTION 154A A new mechanism of tax with-holding and chargeability is being introduced by the Bill on the same lines applicable to export as provided in Section 154 of the Ordinance at 1% of the gross amount of proceeds. It reads as under: “154A. Export of Services.– (1) Every authorized dealer in foreign exchange shall, at the time of realization of

foreign exchange proceeds on account of the following, deduct tax from the proceeds at the rates specified in Division IVA of Part III of the First Schedule –

(a) Exports of computer software or IT services or IT enabled services in

case tax credit under section 65F is not available;

(b) Services or technical services rendered outside Pakistan or exported from Pakistan;


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(c) royalty, commission or fees derived by a resident company from a foreign enterprise in consideration for the use outside Pakistan of any patent, invention, model, design, secret process or formula or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided to such enterprise;

(d) Construction contracts executed outside Pakistan; and

(e) Other services rendered outside Pakistan as notified by the Board from time to time;

(2) The tax deductible under this section shall be a final tax on the income arising

from the transactions referred to in this section, upon fulfilment of the following conditions –

(a) Return has been filed;

(b) Withholding tax statements for the relevant tax year have been filed; and

(c) Sales tax returns under Federal or Provincial laws have been filed, if required under the law;

(d) No credit for foreign taxes paid shall be allowed.

(3) The provisions of sub-section (2) shall not apply to a person who does not fulfill the specified conditions or who opts not to be subject to final taxation:

Provided that the option shall be exercised every year at the time of filing of return under section 114.

(4) Where a taxpayer, while explaining the nature and source of any amount, investment,

money, valuable article, expenditure, referred to in section 111, takes into account any source of income which is subject to final tax in accordance with the provisions of this section, he shall not be entitled to take credit of a sum that can be reasonably attributed to the business activity or activities mentioned in sub-section (1).

(5) The Board in consultation with State Bank of Pakistan shall prescribe mode, manner

and procedure of payment of tax under this section. (6) The Board shall have power to include or exclude certain services for applicability of provisions of this section.

Thus the Bill proposes tax regime of export of services introduced and its chargeability to tax @ 1% from proceeds in line with exports proceeds and also proposes to make tax deductible under this section to be final tax upon fulfillment of enlisted above.

36. ISSUANCE OF EXEMPTION SECTION 159

The Bill seeks to make two changes on the captioned subject and under that section as under:

(I) The income tax law presently provides issuance of exemption certificate from tax at source if (a) the income of the person is exempt from tax under this Ordinance; or (b) subject to tax at a rate lower than that specified in the First Schedule or (c) is subject to hundred percent tax credit under section 100C. The Bill seeks to enlarge the scope of exemption to whom tax credit is available under any provision of the ordinance. And


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(II) Exemption certificate in case of a company shall be issued or lower rate

certificate under this section within fifteen days of filing of application by the company and that the Commissioner shall be deemed to have issued the exemption certificate upon the expiry of fifteen days from filing of application by the aforesaid company and the certificate shall be automatically processed and issued by Iris: Furthermore the Commissioner may modify or cancel the certificate issued automatically by Iris on the basis of reasons to be recorded in writing after providing an opportunity of being heard.

37. STATEMENT OF TAX WITH-HODING FILING

SECTION 165

The Bill seeks to introduce filing of two new statements of tax with-holding by adding two new sub-sections (7) and (8) under section 165 by withholding agents which is reproduced hereunder: (7) Every prescribed person collecting tax under Division II of this Part, Chapter XII or the Tenth Schedule or deducting tax from a payment under Division III of this Part, Chapter XII or the Tenth Schedule shall, e-file to the Commissioner an annual statement for the relevant tax year within thirty days of the end of tax year in addition to statement to be filed under sub-section (6) of this section. (8) Every prescribed person collecting tax under Division II of this Part or Chapter XII, the Tenth Schedule or deducting tax from a payment under Division III of this Part, Chapter XII or the Tenth Schedule shall also e-file to the Commissioner a statement in the prescribed form reconciling the amounts mentioned in annual statement filed under sub-section (7) with the amounts declared in the return, audited accounts or financial statements by the due date of filing of return of income as provided under section 118 of the Ordinance. Above two new sub-sections introduced in this Bill for e-filling of annual statement and reconciling the amount mentioned in annual return with the amount mentioned in annual statement and audited account or financial statements.

38. INADMISSIBILLITY OF TAX COLLECTED FROM EXPORT OF SERVICES

SECTION 168

Due to introduction of new section 154A Export of services as a final tax, hence provision for its adjustability or refund has been restrained under section 168 Credit for tax collected or deducted.

39. EXPORT OF IT SERVICES

SECTION 169

A final tax regime for export of services has been proposed to be introduced as section 154A as pointed out above wherein, a final withholding tax rate of 1% shall apply on specified IT services.

The list of services in Section 154A is not exhaustive and may be amended to include revenue from other platforms as well.


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40. ELECTRONIC PROCESSING AND ISSUANCE OF REFUNDS

SECTION 170A It is proposed to establish a mechanism whereby refunds can be issued to the taxpayer via electronic transfer to notified bank accounts in accordance with the system generated tax credits. Persons who have filed their tax returns will be allowed to avail this facility. This facility would also relieve the taxpayers from filing refund applications and passing of refund orders. This facility would be available to taxpayers effective from Tax Year 2021.

41. TAX PAYERS PROFILE

SECTION 182A (2) Through Finance Act, 2020, a concept of taxpayer’s profile was introduced which was required to be updated by June 30, 2021 and any failure thereof would have resulted in taxpayer's status becoming inactive besides attracting penalties. However, due to the withdrawal of section 114A, the penal provisions have also been proposed to be withdrawn due to be infructuous.

42. PENALTY PROVISIONS

SECTION 191 Among all the penalties, FBR has also imposed a penalty and prosecution for taxpayers who have not declared their ‘Business Bank Account’ to the Commissioner. Such an account is to be declared through original or modified registration form.

43. WITHDRAWAL OF SECTION 202 AND 203

SECTION 202 / 203 The following section have been proposed to be withdrawn: (i) Section 202 – Power to compound offences; (ii) Trial by Special Judge.

44. ARREST AND PROSECUTION

SECTION 203A TO 203H Section 203A to 203H have been proposed to be introduced in place of section 202 and 203 as retribution for concealment of income. Through these sections, authorized officers are empowered to arrest any person, who on the basis of material evidence, is believed to have committed such offence. Detailed provisions are proposed for procedural and other aspects relating to such powers. However, it is imperative to state that such powers should not be misused leading to unwarranted harassment of taxpayers.

45. POWER TO TENDER IMMUNITY FROM PROSECTION ALSO TO BE GRANTED TO THE

BOARD WITH THE APPROVAL OF THE MINISTER IN CHARGE

SECTION 204

Hitherto, the Federal Government is entitled to tender immunity to a person who has been found guilty of concealment of income. However, the Federal Government has vested its power to the FBR with the approval of the minister in charge.


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46. FEE AND SERVICES CHARGES FOR VALUATION SERVICES

SECTION 222A FBR has the power to appoint an expert for audit or valuation, if considered necessary. For this purpose, FBR can levy impose fee and service charges for such services. This amendment has proposed to empower FBR to prescribe the manner in which the collected fee is to be utilized.

47. ELECTRONIC HEARING OF TAX AUDIT AND ASSESSMENT CASES

SECTION 227E Federal Board of Revenue (FBR) has launched software for electronic hearing of tax audit and assessment cases to facilitate the taxpayers. This has been done by enabling and functionalizing the e-hearings module in the Iris. This module enables online hearing both from the dedicated hearing rooms established in the field formations and from the places of the taxpayers. Such e-hearings would be recorded and archived for further legal and administrative utilization. In this respect, Section 227E has been proposed to be introduced, which governs the mechanism of the above-mentioned E-hearing module.

48. DIRECTORATE GENERAL OF COMPLIANCE RISK MANAGEMENT

SECTION 230I Section 230I has been proposed to be introduced wherein a new function by the name of ‘Compliance Risk Management’ has been established. This amendment governs the composition of the directorate general of this function and as to what its powers are.

49. ABOLISHMENT OF WITHOLDING TAX PROVISIONS

The Bill proposes to abolish several withholding taxes as highlighted above. These taxes are as follows:

Section Detail

153B Payment of royalty to residents.

231A Cash withdrawals by those not appearing on ATL.

231AA Banking instruments sold / cancelled against cash by those not appearing on ATL

236P Banking transactions by those not appearing on ATL.

236Y Amounts remitted abroad through credit or debit or prepaid cards.

236B Domestic air travel.

236L International air travel.

236V Extraction of minerals.

233A Commission earned by member of stock exchange. The said withholding was otherwise made inapplicable with effect from March 1, 2019. A clarity is required whether such commission would render withholding tax under section 233 applicable on the commission earned by members of the stock exchange.

233AA Margin financing by NCCPL.

234A Gas bill of CNG stations.

236HA Sale of petroleum products to petrol pump operator or distributor not receiving commission or discount.

236S Dividend in specie


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50. WITHOLDING TAX ON MOTOR VEHICLES

SECTION 231B This amendment proposed withholding tax on motor vehicles which have been sold before registration by persons who have originally purchased the same from local manufacturers. This amendment has been proposed in order to curb the system of ‘sale of cars in own’ wherein persons benefiting from this practice are not accountable for the receipts earned by them.

51. ADVANCE TAX ON BROKERAGE ALSO TO BE LEVIED ON INDIVIDUALS WITH A CERTAIN

THRESHOLD OF INCOME

SECTION 233 Previously, individuals were exempt from being the ‘principal’ for the deduction of advance tax with respect to brokerage or commission under Section 233. However, this amendment proposes to include individuals having a turnover of Rs 100 million or more to act as principals for the deduction of such payments.

52. ADVANCE TAX ON ELECTRICITY CONSUMPTION BY DOMESTIC CONSUMERS

SECTION 235 The Bill proposes to impose advance tax on the amount of electricity bill of domestic consumers whose names do not appear on the Active Taxpayers’ List.

53. ADVANCE TAX ON SALES TO DISTRIBUTORS, DEALERS, WHOLESALERS AND RETAILERS

SECTION 236G

Manufacturers or commercial importers of the following sectors are also proposed to be

liable to collect advance tax on sales to distributors, dealers and wholesalers.

(i) Pharmaceuticals; (ii) Poultry and animal feed; (iii) Edible oil and ghee; (iv) Battery; (v) Tyers; (vi) Varnishes; (vii) Chemicals; (viii) Cosmetics; and (ix) IT equipment.

54. ADVANCE TAX ON SALES TO RETAILERS

Manufacturers, distributors, dealers, wholesalers or commercial importers of the following sectors are also proposed to be liable to collect advance tax on sales to

distributors, dealers and wholesalers.

(i) Pharmaceuticals; (ii) Poultry and animal feed; (iii) Edible oil and ghee; (iv) Battery;


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(v) Tyers; (vi) Varnishes; (vii) Chemicals; (viii) Cosmetics; and (ix) IT equipment.

55. BENEFITS OF REPEALED PROVISIONS SECTION 242

The Bill proposes that the existing beneficiaries of exemptions or concessionary provisions of the Ordinance, already expired or expiring on June 30, 2021, shall continue to enjoy benefits of the repealed provisions for the periods prescribed therein and subject to conditions and limitations specified.

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IMPORTANT CHANGES PROPOSED BY THE FINANCE BILL 2021 IN THE SCHEDULES TO THE INCOME

TAX ORDINANCE, 2001 ARE BRIEFLY EXPLAINED AS UNDER:

Amendments in the First Schedule PART – I

As being pointed out by us in our previous comments, this time no changes have been made in the tax rate tables for Salaried and non-Salaried Individuals, AOPs and Companies and thus the taxation rates would be the same for tax year 2022 as those applicable to the tax year 2021.

However, other proposed changes, insertions deletions proposed in Schedules, which are listed as under:-

1. Division IIA This deals with the rate of super tax on the income of banking companies and persons having

income of Rs.500 Million and above in a tax year. The insertion of words after 2021 “and onwards” intended to continue levy of super tax on banking companies @ 4% of its income beyond 2021 has been enabled.

2. Division IIIA Rate of tax on income from profit on debt has been restructured at 15% up to Rs 5 Million which

is presently taxed as per graduated slab up to Rs 36 Million. Therefore, instances where profit on debt is more than 5 million, normal tax rates will apply.

3. Division VIA Rate of tax on income from rent of immovable property is presently taxed as per graduated

slab which now been proposed to be charged at normal slab. Hence Division VI has been proposed for deletion.

4. Division VII Rate of tax on capital gains on listed securities has been proposed for downward revision for

the Tax Year 2022 which is as under:-

Tax Year 2022 2021 Capital Gains on listed securities 12.5% 15%

Where security acquired before 01-July-2013 0% 0%

On Commodity future trades with PMEX 5% 5%

5. Division VIII Rate of tax on capital gains on disposal of immovable property has been changed to 5% which is

presently taxed as per graduated slab up-to Rs.15 Million and above between 5% to 10%. 6. Division IX Rate of minimum tax on declared turnover has been proposed for downward revision to 1.25%

from 1.5% on general categories while special rates have been continued on specified cases.


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Amendments in the First Schedule PART – II

7. Rate of one percent shall be applicable on the import of CKD kits of electric vehicles for small

cars or SUVs with 50 kWh battery or below and LCVs with 150 kWh battery or below.

Amendments in the First Schedule PART – III 8. Division 1A-Omission of 10% Profit on debt Withdrawal of tax rate on profit on debt on 10% where income is up to Rs 500,000 has been

proposed to be withdrawn. Hence, it will be liable to tax at the rate of 15%. 9. Division III-Omission of paragraph (ab) of paragraph (1) Rate of withholding tax on fast moving consumer goods is presently withheld at 2% and 2.5% for

companies and non-companies which has now been proposed to be deleted. Therefore, normal rate in this case will apply.

10. Division III-amendment in paragraph (i) of paragraph (2) Reduced rates of tax @ 3% on “oilfield-services, telecommunication services, warehousing

services, collateral management services, and travel and tour services” have been proposed in addition to other specified services.

11. Division III-amendment in paragraph (2)-reduced tax rates on specified services Caveat imposed on reduced tax rates on services whereby tax rate of 3% is chargeable on gross

amount of services i.e. inclusive of provincial sales tax on services and this befitting provision of law will not be available to those who have challenged taxing services on gross basis.

12. Division IIIB-Omission

Rate of withholding tax royalty paid to resident person has been proposed to be deleted.

13. Division IVA-Insertion

Rate of withholding tax on export of services has been proposed @1% of amount of realization of export proceeds.

14. Division V-Amendment

Rate of withholding tax on income from rent of immovable property has been changed whereby

presently 6 slabs have been sub-merged into 4 slabs, as tabulated below:- Income from Rent of immovable property Tax withholding rates

From Re. 1 to Rs. 300,000 NIL

From Re. 300,001 to Rs. 600,000 5% of amount exceeding Rs.300,000

From Re. 600,000 to Rs.2, 000,000 Rs.15,000 + 10% of amount exceeding Rs.600,000

From Re.2,000,000 and above Rs.155,000 + 25% of amount exceeding Rs.2 Million

15. Division IVB-Omission

Rate of withholding tax on CNG has been proposed to be deleted.


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Amendments in the First Schedule PART – IV

16. Division IIA and IIB-Omission

Rate of withholding tax on shares trading by Stock and Exchange and profit / mark up earned by member, margin financier and security lender has been proposed to be deleted.

17. Division IV -Amendment

Rate of withholding tax on electricity bills has been rationalized on industrial and commercial consumers while advance tax has been imposed on domestic consumers which are not in Active taxpayers list maintained by FBR. Details are stated below:-

Bill Amount Tax Rs.

Upto Rs. 500/- 0/-

Above Rs.500/- up-to Rs.20,000 10%

Above Rs.20,000/- Rs.1,950/- Plus

12% on Commercial Consumers

5% on Industrial Consumers

Domestic Consumers not in ATL

Upto Rs. 20,000/- 0/-

Above Rs.20,000/ 7.5%

18. Division V –Reduction in rates

Rate of withholding tax on subscriber of mobile phones pre-paid card have been reduced to 10% for the year 2022 and 8% later from existing 12.5%.

19. Division VI and VIA-Omission

Rate of withholding tax on cash withdrawals and banking transactions have been proposed to be withdrawn.

20. Division VII –clause (3) -Insertion

Rate of withholding tax on transfer of new vehicles before registration have been imposed on the basis of engine capacities from Rs.50,000 to Rs.200,000.

21. Division XIV -Amendment

Rate of Advance tax on sale to distributors, dealers and whole sellers of fertilizers @ 0.25% have been restricted to the condition that if they are appearing in Active Taxpayers list for Income Tax and sales tax as maintained by FBR.

22. Division XV –Rate Rationalization

Rate of Advance tax on sale to retailers @ 0.50% have been rationalized from 0.5% to 1% presently.

23. Divisions XVA, XIX, XX, XXI, XXVI and XXVII -Omission

Rate of advance tax collected under the stated provisions have been proposed to be withdrawn. Details are stated below:-

XVA - Advance Tax on sale of certain petroleum Products

XIX - Advance tax on domestic electricity bills have been merged with commercial and industrial.

XX - Advance Tax on International Air Tickets

XXI - Advance Tax on non-cash banking transactions

XXVI - Advance Tax on extraction of minerals

XXVII - Advance Tax on amount remitted abroad through debit, credit or prepaid cards.


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Important Amendments in the Second Schedule PART – I

24. Omissions

Several exemptions have been proposed to be withdrawn from the Second Schedule some of which include the following:- Section Details

4 Tax on income from salary of specified seafarer

39 Any special allowance or benefit (not being entertainment or conveyance allowance) or other perquisite within the meaning of section 12 specially granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit.

40 Any income of a newspaper employee representing Local Travelling Allowance paid in accordance with the decision of the Third Wage Board for Newspaper Employees constituted under the Newspaper Employees (Conditions of Service) Act, 1973, published in Part II of the Gazette of Pakistan, Extraordinary, dated the 28th June, 1980. This exemption is proposed to be withdrawn.

53A The following perquisites received by an employee by virtue of his employment, namely:- (ii) free or subsidized food provided by hotels and restaurants to its employees during duty hours; (iii) free or subsidized education provided by an educational institution to the children of its employees; (iv) free or subsidized medical treatment provided by a hospital or a clinic to its employees; and (v) Any other perquisite or benefit for which the employer does not have to bear any marginal cost, as notified by the Board.

53 (1) (iii) Exemption for Shaikh Sultan Trust

72 Profit on debt payable to a non-resident person

72 A Income derived by Sukuk holder in relation to Sukuk issued by “The Second Pakistan International Sukuk Company Limited” and the Third Pakistan International Sukuk Company Limited], including any gain on disposal of such Sukuk.

74 Any profit on debt derived by Hub Power Company Limited

90 Profit on debt payable by an industrial undertaking in Pakistan

90A Any profit on debt derived by any person on bonds issued by Pakistan Mortgage Refinance Company to refinance the residential housing mortgage market, for a period of five years with effect from the 1st day of July, 2018.

91 Any income of a text-book board of a Province established under any law for the time being in force

98 Any income derived by any Board or other organization established by Government in Pakistan for the purposes of controlling, regulating or encouraging major games and sports recognized by Government

100 Any income, not being income from 10[manufacturing or] trading activity, of a modaraba registered under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980.

101 Profits and gains derived between the first day of July, 2000 and the thirtieth day of June, 2024 both days inclusive, by a venture capital company And venture capital fund registered under Venture Capital Companies and Funds Management Rules, 2000 and a Private Equity and Venture Capital Fund.

25. Clause (22), (23) and (23C)

Exemption from tax on income from provident funds or pension funds of a contributory out of profit on debt of the fund up-to Rs.500,000 have been exempted from tax while excess amount is proposed to be tax chargeable @10% as a separate block of income.

26. Clause (61) & (66) Reorganization Exemption from tax for specified institutions has been reorganized and moved from the ambit

of Clause (61) to (66) and certain institutions have been moved for tax credit @100% under section 100C of the Ordinance.


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27. Clause (66)

Two categories have been proposed to be categorized into table 1 and table 2. Table 1 specifies the names of those, which are exempt under the Income Tax Law where Table 2 specifies the names of those entities whose income is subject to tax credit under section 100C.

28. Clause (103D)

Exemption from tax for a venture capital fund on dividends and long term capital gains on investments on zone enterprises being established under Special Technology Zones Authority Ordinance, 2020 for a period of ten years commencing from issuance of license by the Authority to the zone enterprise.

29. Clause (126B)

Exemption from tax for 10 years for setting up of new refineries as per specified conditions. 30. Clause (126EA)

Insertion of exemption for zone developer as defined in section 2 of the Special Technology Zones Authority Ordinance, 2020.

31. Clause (132C)

Exemption from tax for baggase/biomass based cogeneration based power projects as per specified conditions.

32. Clause (139)

Withdrawal of medical benefit of 10% of salary or actual re-imbursement of hospitalization for medical treatment.

Important Amendments in the Second Schedule PART – I I

33. Clause (18)

Withdrawal of reduced rate of tax of 25% on income of a Modaraba. 34. Clause (18C)

Reduced rate of tax of 7.5% on dividends by a baggase/biomass based cogeneration based power projects as per specified conditions.

35. Clause (24C)

Reduced rate of tax of 0.25% on in the case of distributors, dealers, sub-dealers, wholesalers and retailers of fast moving consumer goods, fertilizer, electronics excluding mobile phones, sugar, cement, and edible oil as recipient of payment shall be 0.25% of gross amount of payments subject to the condition that beneficiaries of reduced rate are appearing on the Active Taxpayers’ Lists issued under the provisions of the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001 Provided that the benefit under this clause shall only be available to


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those Tier-1 retailers as defined under Sales Tax Act, 1990 who are integrated and configured with Board or its computerized Tax Act, 1990 who are integrated and configured with Board or its computerized system for real time reporting of sales or receipts.

36. Clause (24D)

Reduced rate of tax of 0.25% on in the case of in the case of distributors, dealers, sub-dealers, wholesalers and retailers of fast moving consumer goods, fertilizer, locally manufactured mobile phones, sugar, electronics excluding imported mobile phones, cement and edible oil shall be 0.25% subject to the condition that beneficiaries of reduced rate are appearing on the Active Taxpayers’ Lists issued under the provisions of the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001: Provided that the benefit under this clause shall be available to only those Tier-1 retailers as defined under Sales Tax Act, 1990 who are integrated and configured with Board or its computerized system for real time reporting of sales or receipts.

Important Amendments in the Third Schedule PART – III

37. Duty exemptions are proposed in respect of following, subject to the conditions specified:

(i) Imported vegetable and animal fats and their oils and fractions, if consumed within the limits of Border Sustenance Markets (BSM) to be established in cooperation with Iran and Afghanistan subject to certification of consumption by relevant Commissioner and proof of owning a business premises in such markets;

(ii) Import and supply of raw material, components, parts and plant and machinery by persons registered under Export Facilitation Scheme, 2021

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SALIENT FEATURES OF AMENDMENTS IN SALES TAX ACT, 1990

AND RULES MADE THEREUNDER, AS PROPOSED BY FINANCE BILL 2021

The definition of the term ‘online market place’ introduced to include an electronic interface for online

market places and e-commerce platform portals, which facilitate the online sale of goods, including third party sales.

It is proposed that in case of supply of goods through an online market place, the liability to pay sales tax would be on the person running the online market place, whether or not the goods are owned by him.

Threshold for annual turnover to qualify as cottage industry increased from PKR 3,000,000 to PKR 10,000,000.

The area threshold of shops for a Tier-1 retailers of furniture is proposed to be increased from 1,000 to 2,000 square feet.

Entitlement for cash back schemes for customers buying goods from Tier-1 retailers, has been proposed to be omitted, and a new scheme for ’mystery shopping’ is proposed to be introduced.

Requirement for declaration and payment of sales tax on receipt of advances from customers is proposed to be omitted.

It is proposed to exclude listed companies from the restriction of input tax adjustment in excess of 90% of output tax.

It is proposed that the FBR will specify the goods for which the manufacturer is required to obtain a brand license for each brand or Stock Keeping Unit (SKU) from the FBR. Sales of such branded goods, without obtaining the requisite license, would be considered as counterfeited goods and would be confiscated and destroyed.

It is proposed that a show-cause notice under section 11 may be issued within 5 years from the end of the financial year in which the relevant date falls, instead of the “relevant date” itself. Effectively, the time limit for issuance of show-cause notices shall now be counted from the end of financial year in line with the Income Tax Ordinance, 2001.

The definition of ‘Tier-1 retailer’ is proposed to be expanded to include retailers who are running an online market place and retailers who have acquired point of sale machines for receipt of payments through digital means.

The concept of ‘common identification number’ is proposed to be introduced, whereby the CNIC number of an individual and the NTN of an AOP and company would be treated as a common identifier number in addition to the sales tax registration number.

Procedure and conditions for grant of extension in time for submission of returns has been proposed.

It is proposed that the provision for recovery of tax under section 48 would also apply in case of recovery of tax on the request of a foreign tax authority under a tax treaty.

It is proposed to empower the FBR to share information with the Federal and Provincial Governments subject to certain conditions. It is further proposed to empower the Federal Government to enter into agreements, conventions and similar arrangements with foreign governments for assistance in recovery of taxes.

It is proposed that an adjustment, with prior approval of the CIR, in respect of amounts payable and receivable to and from same party, would be treated as satisfying the requirements of payment under section 73; provided that the applicable sales tax has been charged and paid by both parties.

It is proposed to provide compensation for delayed payment of a refund determined under section 66.


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Sales tax on supply of sugar is proposed to be levied at manufacturer’s fixed maximum retail price except supplies to pharmaceuticals, beverages and confectionary industry as industrial raw material.

Zero rating on supply of following items is proposed to be withdrawn

a. Aircrafts, ships of specified weight or used for recreation or pleasure purpose and spare parts and equipment thereof

b. Equipment and machinery for pilotage, salvage, towage, air navigation and other services related to handling of ships and aircrafts in a port

c. Locally manufactured plant and machinery to petroleum and gas sector’s exploration and production companies

d. Petroleum crude oil.

e. Raw material, components and sub-components for manufacturing of zero-rated plant and machinery.

Zero rating is proposed to be introduced for local supplies of raw materials, components, parts and plant and machinery to registered exporters authorized under Export Facilitation Scheme, 2021.

Exemption available on supply of following items is proposed to be withdrawn: a) Ordinary ice, water and table salt, even without under a brand name or packing. b) Glass bangles, bicycles, energy saver lamps and components thereof.

Exemption available on import of various edible products including cereals and products of milling industry, fruit juices, dairy products, sausages, poultry, meat etc. is proposed to be withdrawn. However, exemption on local supply of these items would continue.

Exemption available to export oriented leather manufacturers on import of raw and pickled hides and skins, wet blue hides and skins, finished leather, and accessories, components and trimmings is proposed to be withdrawn.

Exemption available on import and supply of ships and all floating crafts (except for demolition purposes or for use of recreation or pleasure), aircrafts, whether imported or acquired on wet or dry lease, kits, spare parts for training aircrafts and simulators is proposed to be withdrawn.

Local supply of locally produced silos is proposed to be exempted.

Import of following items are proposed to be exempted: a) Plant, machinery, equipment and raw materials for consumption of these items within Special Technology Zone by the Special Technology Zone Authority, zone developers and zone enterprises. b) Raw materials, components, parts and plant and machinery by registered persons authorized under Export Facilitation Scheme, 2021 notified by the FBR.

CKD kits for 4-wheeler electrical vehicles imported by local manufacturers for small cars with 50Kwh batteries or below and light commercial vehicles with 150Kwh batteries or below is proposed to be exempted. Moreover, local supply of such locally manufactured or assembled 4-wheeler electrical vehicles is proposed to tax at the rate of 1%.

Supply of various specified edible agriculture produce and certain other specified raw material and household machines and equipment are proposed to be exempted, if supplied within the limits of the Border Sustenance Markets, established in cooperation with Iran and Afghanistan subject to certain conditions. However, if such goods are availed or brought outside the limits of such markets then these goods would be taxed.


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Locally manufactured or assembled motor cars of cylinder capacity upto 850cc is proposed to be taxed at reduced rate of 12.5%.

Import and local supply of hybrid electrical vehicles upto 1800cc are proposed to be taxed at reduced rate of 8.5%, whereas, from 1801cc to 2000cc hybrid electrical vehicles are proposed to be taxed at 12.75%.

Import of 2, 3 and 4-wheeler small electrical vehicles, heavy commercial vehicles in CBU condition and motor cars of cylinder capacity upto 850cc are proposed to be exempted from levy of value added tax at import stage. Import of auto disable syringes and raw material for local manufacturing of the same is proposed to be exempted upto 30 June 2021.

Reduced rates available for import and supply of various goods including following is proposed to be withdrawn: a) Soya bean meal and seed, raw cotton and ginned cotton. b) Ingredients of poultry and cattle feed, machinery of poultry sector. c) Machinery and equipment for harvesting, threshing and storage. d) Plant and machinery not manufactured locally and having no compatible local substitutes e) Dairy products sold in retail packing under brand name. f) Plant, machinery and equipment of biodiesel g) Waste paper h) LNG/RLNG i) Unworked gold and silver and jewellery

Sales tax on supply of Subscriber Identification Module (SIM) Cards by Cellular Mobile Operators is proposed to be treated as withdrawn, effective from 01 July 2020 onwards with the explanation that such withdrawal shall not be affect the stance of FBR or its position in pending cases for chargeability of sales tax thereof.

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COMMENTS ON PROPOSED AMENDMENTS VIDE FINANCE BILL 2021

IN THE SALES TAX ACT, 1990

The effective date of all the Proposed Changes is 01.07.2021 1. SECTIONS 1.1 Commissioner (Appeals) [Section 2 (4AA)]

The Bill proposed to insert the definition of “Commissioner (Appeals)”. The proposed definition would be as under: (4AA) “Commissioner (Appeals)” means Commissioner of Inland Revenue (Appeals) appointed under section 30;”

1.2 Cottage Industry [Section 2(5AB)( d )]

The term cottage industry has been defined in clause (5AB) of section 2 and means a manufacturing concern which fulfills each of four conditions at (a) to (d) inter alia including the unit whose annual turnover from all supplies does not exceed Rs.3 million. The Bill proposed to increase the minimum annual threshold of turnover from all supplies for cottage industry from Rs. 3 million to Rs. 10 million. After amendment clause (5AB) would read as under: (5AB) “cottage industry” means a manufacturing concern, which fulfils each of following conditions, namely:−

(a) does not have an industrial gas or electricity connection; (b) is located in a residential area; (c) does not have a total labour force of more than ten workers; and (d) annual turnover from all supplies does not exceed three ten million rupees;

1.3 Online Market Place [Section 2(18A)]

The Bill proposed to brought into the sale of goods through online market place into the sales tax net by deeming the online market place as supplier in respect of third party sales through their platform. Accordingly, Bill proposed to insert a new clause (18A) in section 2, which would define the term online market place as under: (18A) “online market place” includes an electronic interface such as a market place, e-

commerce platform, portal or similar means which facilitate sale of goods, including third party sale, in any of the following manner, namely:– (a) by controlling the terms and conditions of the sale; (b) authorizing the charge to the customers in respect of the payment for the supply; or

(c) ordering or delivering the goods.

1.4 Tax Fraud [ Section 2(37)(iii)]

The Bill proposed to make a corrective amendment in sub-clause (iii) of clause (37) by adding word “of” after the word “falsification “. Now after the proposed amendment clause (37), would read as under:

(37) “tax fraud” means knowingly, dishonestly or fraudulently and without any lawful excuse (burden of proof of which excuse shall be upon the accused) –

(i) doing of any act or causing to do any act; or


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(ii) omitting to take any action or causing the omission to take any action, including the making of taxable supplies without getting registration under this Act; or,

(iii) falsifying or causing falsification of the sales tax invoices,

in contravention of duties or obligations imposed under this Act or rules or instructions issued thereunder with the intention of understating the tax liability or underpaying the tax liability for two consecutive tax periods or overstating the entitlement to tax credit or tax refund to cause loss of tax;

1.5 Tier-1 Retailer [Section 2(43A)(f), Section 2(43A)(g)]

Clause (43A) defines the term "Tier-I retailer". The Bill proposed to add furniture showrooms having two thousand sqr. Ft. area or more, retailer operating on online market place and retailer who has acquired point of sales and accepting payment through debit or credits under the definition of “Tier-1retailer”. Accordingly, sub clause (e) is proposed to be amended and new sub clauses (f) and (g ) are proposed to be inserted. The aforesaid clause (43A) after the proposed amendments would read as follows:

(43A) “Tier-1 retailer” means a retailer falling in any one or more of the following categories, namely:-

(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 twelve hundred thousand;

(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;

(e) a retailer, whose shop measures one thousand square feet in area or more or two thousand square feet in area or more in the case of retailer of furniture;

(f) a retailer operating an online market place supplying goods through e-commerce platform, whether or not the goods are owned by him;

(g) a retailer who has acquired point of sale for accepting payment through debit or credit

cards from banking companies or any other digital payment service provider authorized by State Bank of Pakistan; and

(h) any other person or class of persons as prescribed by the Board.

1.6 Time of Supply [Section 2(44)(a)]

Clause (44) defines the time of supply for the charging of sales tax under the Sales Tax Act, 1990.

The Bill proposed to amend the definition of term "time of supply" by deleting the words “or the time when any payment is received by the supplier in respect of that supply whichever is earlier” in sub clause (a) of clause. The proposed amended clause (44) would read as under:

(44) “time of supply”, in relation to,–

(a) a supply of goods, other than under hire purchase agreement, means the time at which the goods are delivered or made available to the recipient of the supply;

(b) a supply of goods under a hire purchase agreement, means the time at which the agreement is entered into; and


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(c) services, means the time at which the services are rendered or provided;

Provided that in respect of sub clause (a) ,(b) or (c), where any part payment is received, –

(i) for the supply in a tax period, it shall be accounted for in the return for that tax period; and

(ii) in respect of exempt supply, it shall be accounted for in the return for the tax period during which the exemption is withdrawn from such supply.

This is a major relief given to the taxpayers who will be required to charge sales tax only at the time when the goods are delivered or made available to the recipient of the supply and will not be required to charge sales tax at the time when advance payment is received.

1.7 SECOPE OF TAX [Section 3]

A) [Section 3(1B)(a)]

In terms of sub section (1B) read with Tenth Schedule, sales tax on bricks and cement or concrete blocks shall be paid on fixed basis at the rates specified in the Table of Tenth Schedule. The Bill proposed to make a corrective amendment in sub section (1B)(a) by substituting word “on” with the word “or” occurring for the second time.

After the proposed correction, sub section (1B) would read as follows:

“(1B) On the goods specified in the Tenth Schedule, in lieu of levying and collecting tax under sub-section (1), the tax shall be levied and collected, in the mode and manner specified therein−

a) on the production capacity of plants, machinery, undertaking, establishments or installation producing or manufacturing such goods; or

(b) on fixed basis, from any person who is in a position to collect such tax due to the nature of the business, and different rates may be so prescribed for different regions or areas.”

B) [Section 3(3)(c)]

The Bill proposed to insert a new clause (c) in sub section (3) after clause (b) to make responsible for payment of sales tax by any person who is running online market place whether or not the goods are owned by him. Accordingly, sub section (3) would read as under:

(3) The liability to pay the tax shall be,- (a) in the case of supply of goods, of the person making the supply; (b) in the case of goods imported into Pakistan, of the person importing the goods; and (c) in the case of supply of goods through online market place, of the person running online

market place, whether or not the goods are owned by him.

C) [Section 3(9A)]

The Bill proposed to omit first proviso to sub section (9A). Sub section (9A) was inserted in the Sales Tax Act, 1990 through Finance Act, 2017 and was substituted through Finance Act, 2019 which overrides the other provisions of the Act and it has been prescribed therein that Tier-I retailers shall pay sales tax at the rate of 17% or any higher or lower rate prescribed in Eight Schedule to the Sales Tax Act sold under relevant provisions of this Act or a notification issued there under. As per first proviso to sub section (9A) the customers of a Tier-1 retailer shall be entitled to receive a cash back of up to five percent of the tax involved, from such date in the manner and to the extent, as may be prescribed by the Board.


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The Bill proposed to omit the aforesaid first proviso meaning thereby that the facility of receiving cash back up to 5% of the amount of tax by the customers of Tier-I retailer has been withdrawn.

1.8 Adjustable Input Tax [Section 8B(1)]

In terms of sub section (1) of section 8B, a registered person shall not be allowed to adjust input tax in excess of ninety percent of the output tax for that tax period.

The Bill proposed to exclude public limited companies listed on Pakistan Stock Exchange from the purview of section 8B. Accordingly, the Bill proposed to insert the words “other than public limited companies listed on Pakistan Stock Exchange” after the word “ person” in sub section (1) of section 8B.

After the proposed amendment sub section (1) of section 8B would be read as under:

8B. Adjustable input tax.– (1) Notwithstanding anything contained in this Act, in relation to a tax period, a registered person other than public limited companies listed on Pakistan Stock Exchange shall not be allowed to adjust input tax in excess of ninety per cent of the output tax for that tax period:

Provided that the restriction on the adjustment of input tax in excess of ninety percent of the output tax, shall not apply in case of fixed assets or capital goods:

Provided further that the Board may by notification in the official Gazette, exclude any person or class of persons from the purview of sub-section (1).

1.9 Assessment of Tax and Recovery of tax not levied or short levied or erroneously refunded [Section 11]

Under section 11(5), a show-cause notice can be issued for recovery of amounts not paid or short-paid within five years of relevant date. Since sales tax is payable on monthly basis, the time bar also applies on monthly basis. However, audits are undertaken on full-6.year basis. Furthermore, audits for income tax and sales tax for the same financial or tax year are undertaken concurrently, the demand in case of sales tax may get time-barred one to two years earlier as compared to demand for income tax. In order to streamline the said provision, the Bill proposed to substitute the words “relevant date”, with the words “end of the financial year in which the relevant date falls” in sub section (5) of Section 11 of the Sales Tax Act, 1990.

The provisions of sub section (5) of section 11, after the proposed amendment would read as under:

(5) No order under this section shall be made by an officer of Inland Revenue unless a notice to show cause is given within five years, of the end of financial year in which the relevant date falls, to the person in default specifying the grounds on which it is intended to proceed against him and the officer of Sales Tax shall take into consideration the representation made by such person and provide him with an opportunity of being heard:

Provided that order under this section shall be made within one hundred and twenty days of issuance of show cause notice or within such extended period as the Commissioner may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed ninety days:


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Provided further that any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding sixty days shall be excluded from the computation of the period specified in the first proviso.

1.10 Common Identifier Number [Section 21B] The Bill proposed to insert a new section 21B in the Sales Tax Act, 1990 which would read as under: 21B. Common Identifier Number.– (1) From the tax period July 2021 and onward, in the case of individual, having

Computerized National Identity Card (CNIC) issued by the National Database and Registration Authority (NADRA), registered or liable to be registered under the provisions of section 14, CNIC shall be common identifier number in addition to sales tax registration number (STRN).

(2) From the tax period July 2021 and onward, in the case of association of persons or

company, having National Tax Number (NTN), registered or liable to be registered under the provisions of section 14, NTN shall be common identifier number in addition to sales tax registration number (STRN).

1.11 Records [Section 22(1)(e), Section 22(1)(eb)]

The Bill proposed to add cashbook and electronic version of records required to be maintained by a registered person under the Sales Tax Act, therefore words “cash book” proposed to be added in clause (e) of sub section (1) of section 22 and proposed to insert a new clause (eb) after clause (ea) “Electronic version of records mentioned in clauses (a) to (ea) of this sub section. “

After the proposed amendment sub section (1) of section 22, would read as under:

22. Records.– (1) A registered person making taxable supplies shall maintain and keep at his business premises or registered office in English or Urdu language the following records of goods purchased, imported and supplied (including zero-rated and exempt supplies) made by him or by his agent acting on his behalf in such form and manner as would permit ready ascertainment of his tax liability during a tax period –

(a) records of supplies made shall indicate the description, quantity and value of goods, name and address of the person to whom supplies were made and the amount of the tax charged;

(b) records of goods purchased shall show the description, quantity and value of goods, name, address and registration number of the supplier and the amount of the tax on purchases;

(c) records of goods imported shall show the description, quantity and value of goods and the amount of tax paid on imports;

(d) records of zero-rated and exempt supplies; (da) double entry sales tax accounts;

(e) invoices, credit notes, debit notes, bank statements, banking instruments in terms of section 73, inventory records, utility bills, cash book, salary and labour bills, rental agreements, sale purchase agreements and lease agreements;

(ea) record relating to Gate passes, inward or outward and transport receipts; (eb) electronic version of records mentioned in clauses (a) to (ea) of this sub section. (f) such other records as may be specified by the Board:

Provided that the persons paying retail tax shall keep such record as may be specified by the Board.


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1.12 Transection between Associates [Section 25AA (1), Section 25AA (2)]

Section 25AA was inserted in the Sales Tax Act, 1990 through Finance Act, 2010, which inter alia prescribes that the Commissioner or an officer of Inland Revenue may, in respect of any transaction between persons who are associates, determines the transfer price of taxable supplies between the persons as is necessary to reflect the fair market value of supplies in an arm’s length transaction.

The Bill proposed insert a new sub section (2) in section 25AA and after amendment, would read as follows:

25AA. Transactions between Associates.–

(1) The Commissioner or an office of Inland Revenue may, in respect of any transaction between persons who are associates, determine the transfer price of taxable supplies between the persons as is necessary to reflect the fair market value of supplies in an arm’s length transaction.

(2) The Board may, by notification in the official gazette, prescribe rule for carrying out the purpose of sub section (1).

1.13 Extension of Time for Furnishing Returns [Section 26AB]

The Bill proposed to insert a new section 26AB to introduce the procedure for getting extension of time for furnishing sales tax return.

The proposed new section would read as follows:

26AB. Extension of time for furnishing returns. (1) A registered person required to furnish a return under section 26 may apply, in writing, to the Commissioner for an extension of time to furnish the return.

(2) An application under sub-section (1) shall be made by the due date for furnishing the return in terms of section 2(9) for the period to which the application relates.

(3) Where an application has been made under sub-section (1) and the Commissioner is satisfied that the applicant is unable to furnish the return to which the application relates by the due date because of–

(a) absence from Pakistan; (b) sickness or other misadventure; or (c) any other reasonable cause,

the Commissioner may, by order in writing, grant the applicant an extension of time for furnishing the return.

(4) An extension of time under sub-section (3) shall not exceed fifteen days from the due date for furnishing the return, unless there are exceptional circumstances justifying a longer extension of time:

Provided that where the Commissioner has not granted extension for furnishing the return under sub-sections (3) or (4), the Chief Commissioner may on an application made by the registered person for extension or further extension, as the case may be, grant extension or further extension for a period not exceeding fifteen days, unless there are exceptional circumstances justifying a longer extension of time.

(5) An extension or further extension of time granted under sub-sections (3) or (4), as the case may be, shall not, for the purpose of charge of default surcharge under section 34, change the due date for payment of sales tax under section 6.


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1.14 Provision Relating to Goods Supplied from Taxes Exempt Areas [Section 40D(5)]

Section 40D was inserted in the Sales Tax Act, 1990 through Tax Laws (Amendments) Act, 2020 which contains provisions related to goods supplied from tax exempt areas including AJK; Gilgit Baltistan; Tribal Areas as defined in Article 246 of the Constitution and such other areas as may be prescribed.

The Bill proposed to declare "Border Sustenance Markets" within the meaning of expression "tax exempt areas" for this purpose the Bill proposed to amend sub section (5) of section 40D by inserting the words "Border Sustenance Markets" after the words “Gilgit Baltistan”.

1.15 Licensing of Brand Name [Section 40E]

The Bill proposed to made mandatory for manufacturers of specified goods to obtain brand license for each separate brand or stock keeping unit (SKU). Accordingly, the Bill proposed to insert a new section 40E, which would read as follows:

40E. Licensing of brand name.- (1) Manufacturers of the specified goods shall be required to obtain brand license for each brand or stock keeping unit (SKU) in such manner as may be prescribed by the Board.

(2) Any specified brand and SKU found to be sold without obtaining a licence from the Board shall be deemed counterfeit goods and liable to outright confiscation and destruction in the prescribed manner and such destruction and confiscation shall be without prejudice to any other penal action which may be taken under this Act.

1.16 Recovery of Arrears of Tax [Section 48(3)]

Sub sections (1) & (2) of section 48 of the Sales Tax Act, 1990 covers provisions for recovery of arrears of tax. The Bill proposed to insert a new sub section (3) in section 48 to facilitate foreign countries for collection and recovery of taxes in pursuance of a requests made by them under a tax treaty, bilateral or a multilateral convention, and inter-governmental agreement or similar agreement or mechanism etc.

Accordingly, Bill proposed to insert a new sub section (3) in section 48, which would read as under:

(3) The provision of sub-sections (1) and (2) shall mutatis mutandis apply regarding assistance in collection and recovery of taxes in pursuance of a request from a foreign jurisdiction under a tax treaty, bilateral or a multilateral convention, and inter-governmental agreement or similar agreement or mechanism.

1.17 Power to Make Rule [Section 50(2)]

The Bill proposed to make amendment in sub section (2) of section 50 of the Sales Tax Act by inserting the words “or may be placed regularly on the official website maintained by the Board” after the word “price”. The amended section after the proposed amendment would read as follows:

50. Power to make rules.– (1) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this Act, including rules for charging fee for processing of return, claims and other documents and for preparation of copies thereof.

(2) All rules made under sub-section (1) or any other provisions of this Act, shall be collected, arranged and published along with general orders and departmental instructions and rulings, if any, at appropriate intervals and sold to the public at reasonable price or may be placed regularly on the official website maintained by the Board.


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1.18 Agreement for Exchange of Information [Section 56A(1A), Section 56A(3)]

A new sub section (1A) was inserted in section 56A through Tax Laws Amendment Ordinance 2021 promulgated on 11-09-2021 which contained provisions regarding sharing of data with foreign countries on reciprocal basis. The said Ordinance is going to expire on afflux of period of four months therefore the Bill proposed to insert sub section (1A).

The Bill further proposed to insert a new sub section (3) in section 56A through which it has been proposed to formulate a mechanism for assistance in recovery of taxes on requests from foreign countries on reciprocal basis. After the proposed amendment section 56A, would read as under:

56A. Agreement for the exchange of information or assistance in recovery of taxes.– (1) The Federal Government may enter into bilateral or multilateral agreements with provincial governments or with governments of foreign countries for the exchange of information, including electronic exchange of information, with respect to sales tax imposed under this Act or any other law of Pakistan and under the corresponding laws of such countries and may, by notification in the official Gazette, make such provisions as may be necessary for implementing such agreements.

(1A) Notwithstanding anything contained in this Act, the Board shall have power to share data or information including real time data videos, images received under the provisions of this Act with any other Ministry or Division of the Federal Government or Provincial Government, subject to such limitations and conditions an may be specified by the Board.

(2) The provisions of section 107 of the Income Tax Ordinance, 2001 (XLIX of 2001) shall, mutatis mutandis, apply to the provisions of this section.

(3) The Federal Government may enter into bilateral or multilateral convention, and inter-governmental agreement or similar agreement or mechanism for assistance in the recovery of taxes.

1.19 Prize Scheme to Promote Tax Culture [Section 56C(2)]

Section 56C was inserted in the Sales Tax Act, 1990 through Finance Act, 2015 which provides for prize scheme to promote tax culture. To ensure that the said incentive is not misused, the Bill proposed to insert a new sub section (2) to provide for randomize “mystery shopping”.

Accordingly, the Bill proposed to renumber the existing provisions as sub section (1) and add a new sub section (2) thereafter as.

(2) The Board may prescribe procedure for “mystery shopping” in respect of invoices issued by tier-1 retailers integrated with FBR online system randomly and in case of any discrepancy, all the relevant provisions of this Act shall apply accordingly.

After the proposed amendment section 56C would read as follow:

56C. Prize schemes to promote tax culture.- (1) The Board may prescribe prize schemes to encourage the general public to make purchases only from registered persons issuing tax invoices.

(2) The Board may prescribe procedure for “mystery shopping” in respect of invoices issued by tier-1 retailers integrated with FBR online system randomly and in case of any discrepancy, all the relevant provisions of this Act shall apply accordingly.

1.20 Delay Refund [Section 67)]

Section 67 provide for the compensation for delay of sales tax refund. The Bill proposed to add a second proviso in section 67 to prescribes that where a refund due in the consequence of any order passed under section 66 is not made within forty five days of date of such order, there shall be paid to the claimant in addition to the amount of the refund due to him, a further sum equal to KIBOR per annum of the amount of refund, due from the date of the refund order.


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After the proposed amendment in section 67, it would read as under:

67. Delayed Refund.– Where a refund due under section 10 is not made within the time specified in section 10 from the date of filling of refund claim, there shall be paid to the claimant in addition to the amount of refund due to him, a further sum equal to KIBOR per annum of the amount of refund due, from the date following the expiry of the time specified as aforesaid, to the day preceding the day of payment of refund:

Provided that where there is reason to believe that a person has claimed the refund which is not admissible to him, the provision regarding the payment of such additional amount shall not apply till the investigation of the claim is completed and the claim is either accepted or rejected.

Provided further that where a refund due in the consequence of any order passed under section 66 is not made within forty five days of date of such order, there shall be paid to the claimant in addition to the amount of the refund due to him, a further sum equal to KIBOR per annum of the amount of refund, due from the date of the refund order.

1.21 Certain Transaction not Admissible [Section 73(1)]

The Bill proposed to insert second proviso in sub section (1) of section 73 to introduce the concept of constructive payments as under:

“Provided further that adjustments made by a registered person in respect of amounts payable and receivable to and from the same party shall be treated as payments satisfying the provisions of this sub-section subject to following conditions, namely:–

(a) sales tax has been charged and paid by both parties under the relevant provisions of this Act and rules prescribed thereunder, wherever applicable; and

(b) the registered person has sought prior approval of the Commissioner before making such adjustments.”

After insertion of proposed amendment, sub section (1) of section 73 would read as under:

73. Certain transactions not admissible.– (1) Notwithstanding anything contained in this Act or any other law for the time being in force, payment of the amount for a transaction exceeding value of fifty thousand rupees, excluding payment against a utility bill, shall be made by a crossed cheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossed banking instrument showing transfer of the amount of the sales tax invoice in favour of the supplier from the business bank account of the buyer:

Provided that online transfer of payment from the business account of buyer to the business account of supplier as well as payments through credit card shall be treated as transactions through the banking channel, subject to the condition that such transactions are verifiable from the bank statements of the respective buyer and the supplier.

Provided further that adjustments made by a registered person in respect of amounts payable and receivable to and from the same party shall be treated as payments satisfying the provisions of this sub-section subject to following conditions, namely:–

(a) sales tax has been charged and paid by both parties under the relevant provisions of this Act and rules prescribed thereunder, wherever applicable; and

(b) the registered person has sought prior approval of the Commissioner before making such adjustments.


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1.22 Fee and Services Charges [Section 76(2)]

Section 76 was added in the Sales Tax Act, 1990 through Finance Act, 2019 to provide for levying fee and services charges for valuation and any service or control mechanism provided by any formation under the control of Board.

The Bill proposed to renumber the existing provisions as sub section (1) and add a new sub section (2) thereafter as.

“(2) The Board may authorize and prescribe the manner in which fee and service charges collected under sub-section (1) shall be expended.”

After the proposed amendment, section 76 would read as under:

76. Fee and service charges.– (1) The “Board with approval of the Federal Minister-in-charge” may, by notification in the official Gazette, subject to such conditions, limitations or restrictions as it may deem fit to impose, levy fee and service charges for valuation, in respect of any other service or control mechanism provided by any formation under the control of the Board, including ventures of public-private partnership, at such rates as may be specified in the notification.

(2) The Board may authorize and prescribe the manner in which fee and service charges collected under sub-section (1) shall be expended.

2. THE THIRD SCHEDULE: In terms of section 3(2)(a) of the Sales Tax Act, 1990, taxable supplies and import of goods specified in the Third Schedule shall be charged to tax at the rate of 17% of retail price which along with the amount of sales tax shall be legibly, prominently and indelibly printed or embossed by the manufacturer or the importer, in case of imported goods, on each article, packet, container, package, cover or label as the case may be.

The Bill proposed to add a new Sr. No. 50 in the Third Schedule to include “Sugar”. Now sale of sugar shall be subjected to sales tax at the rate of 17% of retail price which shall be fixed by the manufacturer and he will also be obliged to print on emboss the retail price along with sales tax on each packet, container etc. However the sugar supplied as industrial raw material to pharmaceutical, beverage and confectionery industries would remain chargeable to sales tax at the rate of 17% of the value.

3. THE SIXTH SCHEDULE:

In terms of section 4(a) of the Sales Tax Act, 1990, the goods specified in the Fifth Schedule to the Act shall be subjected to zero rating of sales tax. Presently the goods have been specified at Sr. Nos. 1 to 14 on whose supplies, sales tax shall be charged at 0%.

The Bill proposed to omit serial number 1,6,10 and 11 in the Fifth Schedule, meaning thereby that the item specified in the aforesaid serial numbers are now proposed to be subject to sales tax @ 17% w.e.f. 01-07-2021.

A) Omitted serial number 1, 6, 10 and 11 are as under: 3.1 In terms of Sr. No. 1, zero rating of sales tax shall be applied on (i) Supply, repair or maintenance of any ship which is neither; (a) a ship of gross tonnage of less than 15 LDT; nor (b) a ship designed or adapted for use for recreation or pleasure. (ii) Supply, repair or maintenance of any aircraft which is neither; (a) an aircraft of weight-less than 8000 kilograms; nor (b) an aircraft designed or adapted for use for recreation or pleasure.


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(iii) Supply of spare parts and equipment for ships and aircraft falling under (i) and (ii) above. (iv) Supply of equipment and machinery for pilot age, salvage or towage services. (v) Supply of equipment and machinery for air navigation services. (vi) Supply of equipment and machinery for other services provided for the handling of ships or aircraft in a port or Customs Airport.

3.2 In terms of Sr. No. 6, zero rating of sales tax shall be charged on supplies of such locally manufactured plant and machinery to petroleum and gas sector Exploration and Production companies, their contractors and sub-contractors as may be specified by the Federal Government, by notification in the official Gazette, subject to such conditions and restrictions as may be specified in such notification.

3.3 In terms of Sr. No. 10, zero rating of sales tax shall be charged on supplies of petroleum crude oil of PCT Heading 2709.0000.

3.4 In terms of Sr. No. 11, zero rating of sales tax shall be charged on supplies of raw materials, components, sub-components and parts, if imported or purchased locally for use in the manufacturing of such plants and machinery as is chargeable to sales tax at the rate of zero percent, subject to the condition that the importer or purchaser of such goods holds a valid sales tax registration showing his registration category as “manufacturer”; and in case of import , all the conditions, restrictions, limitations and procedures as are imposed by notification under section 19 of the Customs Act,1969, shall apply.

B) Inserted serial number 15

The bill proposed to insert serial number 15:

3.5 In order to introduce umbrella Export Facilitation Scheme by Customs Wing, exemption on import and zero-rating on local supplies in respect of raw materials, components, parts and plant and machinery to authorized exporters is proposed. It has been proposed to add a new Sr. No. 15 in the Fifth Schedule. If the proposal is accepted then zero rating of sales tax shall be applied on local supplies of raw materials, components, parts and plant and machinery to registered exporters authorized under Export Facilitation Scheme, 2021 notified by the Board with such conditions, limitations and restrictions.

4. SIXTH SCHEDULE

The goods specified in Table 1, whether supplied locally or imported, are exempt from sales tax whereas the goods specified in Table 2 are exempt from sales tax only when supplied locally.

Table-1

The Bill proposed to omit the following serial numbers in Table 1 and added most of them in Table 2:

4.1 In terms of Sr. No. 11 of Table 1, exemption of sales tax has been given on import and supply of eggs including eggs for hatching. The Bill proposed to omit the said Sr. No. 11 from Table 1 and proposed to add a new Sr. No. 27 in Table 2 of the Sixth Schedule. If the proposal is accepted, local supply of eggs including eggs for hatching shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.2 In terms of entry at Sr. No. 19 of Table 1, exemption of sales tax has been given on import and supply of cereals and products of milling industry excluding the products of milling industry, other than wheat and meslin flour, as sold in retail packing bearing brand name or a trademark. The Bill proposed to omit Sr. No. 19 from Table 1 and proposed to add a new Sr. No. 28 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.


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4.3 In terms of entry at Sr. No. 22 of Table 1, exemption of sales tax has been given on import and supply of sugar beet. The Bill proposed to omit Sr. No. 22 from Table 1 and proposed to add a new Sr. No. 29 in Table 2. If the proposal is accepted, local supply of sugar beet shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of sugar beet.

4.4 In terms of entry at Sr. No. 24 of Table 1, exemption of sales tax has been given on edible oils and vegetable ghee, including cooking oil, on which Federal Excise Duty is charged, levied and collected by a registered manufacturer or importer as if it were a tax payable under section 3 of the Act. In terms of entry at Sr. No. 1 of Table 1 of the First Schedule read with Sr. No. 1 of Second Schedule to the Federal Excise Act, 2005, federal excise duty at the rate of 17% has been levied on edible oils in sales tax mode. In terms of Sr. No. 2 of Table 1 of the First Schedule to Federal Excise Act, 2005, FED at the rate of 17% has been levied on vegetable ghee, including cooking oil. The Bill proposed to omit Sr. No. 24 from Table 1 of Sixth Schedule to the Sales Tax Act, 1990; Sr. Nos. 1 & 2 of Table 1 of First Schedule; and Sr. Nos. 1&2 of Second Schedule to Federal Excise Act, 2005. If these proposal are accepted then w.e.f. 01.07.2021 import and local supply of edible oils and vegetable ghee, including cooking oil would be charged to sales tax at the rate of 17% and would be exempt from federal excise duty.

4.5 In terms of entry at Sr. No. 26 of Table 1, exemption of sales tax has been given on import and supply of fruit juices, whether fresh, frozen or otherwise preserved but excluding those bottled, canned or packaged. The Bill proposed to omit Sr. No. 26 from Table 1 and proposed to add a new Sr. No. 30 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.6 In terms of entry at Sr. No. 27 of Table 1, exemption of sales tax has been given on ice and waters excluding those for sale under brand names. The Bill proposed to omit Sr. No. 27 from Table 1. If the proposal is accepted, these goods would be charged to sales tax at the rate of 17%.

4.7 In terms of entry at Sr. No. 29 of Table 1, exemption of sales tax has been given on table salt including iodized salt excluding salt sold in retail packing. The Bill proposed to omit Sr. No. 29 from Table 1. If the proposal is accepted, these goods would be charged to sales tax at the rate of 17%. In terms of Sr. No. 107 of Table 1, exemption of sales tax has been given on import and supply of iodized salt bearing brand name whether or not sold in retail packing.

4.8 In terms of entry at Sr. No. 29C of Table 1, exemption of sales tax has been given on import and supply of glass bangles. The Bill proposed to omit Sr. No. 29C from Table 1. If the proposal is accepted, these goods would be charged to sales tax at the rate of 17%.

4.9 In terms of entry at Sr. No. 73A of Table 1, exemption of sales tax has been given on import and supply of milk and cream, concentrated or containing added sugar or other sweetening matter, excluding that sold in retail packing under a brand name. The Bill proposed to omit Sr. No. 73A from Table 1 and proposed to add a new Sr. No. 31 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.10 In terms of entry at Sr. No. 74 of Table 1, exemption of sales tax has been given on import and supply of flavoured milk, excluding that sold in retail packing under a brand name. The Bill proposed to omit Sr. No. 74 from Table 1 and proposed to add a new Sr. No. 32 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.11 In terms of entry at Sr. No. 75 of Table 1, exemption of sales tax has been given on import and supply of yogurt, excluding that sold in retail packing under a brand name. The Bill proposed to omit Sr. No. 75 from Table 1 and proposed to add a new Sr. No. 33 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.


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4.12 In terms of entry at Sr. No. 76 of Table 1, exemption of sales tax has been given on import and supply of whey, excluding that sold in retail packing under a brand name. The Bill proposed to omit Sr. No. 76 from Table 1 and proposed to add a new Sr. No. 34 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.13 In terms of entry at Sr. No. 77 of Table 1, exemption of sales tax has been given on import and supply of butter, excluding that sold in retail packing under a brand name. The Bill proposed to omit Sr. No. 77 from Table 1 and proposed to add a new Sr. No. 35 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.14 In terms of entry at Sr. No. 78 of Table 1, exemption of sales tax has been given on import and supply of desi ghee, excluding that sold in retail packing under a brand name. The Bill proposed to omit Sr. No. 78 from Table 1 and proposed to add a new Sr. No. 36 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.15 In terms of entry at Sr. No. 79 of Table 1, exemption of sales tax has been given on import and supply of cheese, excluding that sold in retail packing under a brand name. The Bill proposed to omit Sr. No. 79 from Table 1 and proposed to add a new Sr. No. 37 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.16 In terms of entry at Sr. No. 80 of Table 1, exemption of sales tax has been given on import and supply of processed cheese not grated or powdered, excluding that sold in retail packing under a brand name. The Bill proposed to omit Sr. No. 80 from Table 1 and proposed to add a new Sr. No. 38 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.17 In terms of entry at Sr. No. 82 of Table 1, exemption of sales tax has been given on import and supply of frozen prepared or preserved sausages and similar products of poultry meat or meat offal, excluding those sold in retail packing under a brand name or a trademark. The Bill proposed to omit Sr. No. 82 from Table 1 and proposed to add a new Sr. No. 39 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.18 In terms of entry at Sr. No. 83 of Table 1, exemption of sales tax has been given on import and

supply of meat and similar products of prepared frozen or preserved meat or meat offal of all types including poultry, meat and fish, excluding those sold in retail packing under a brand name or a trademark. The Bill proposed to omit Sr. No. 83 from Table 1 and add a new Sr. No. 40 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.19 In terms of entry at Sr. No. 84 of Table 1, exemption of sales tax has been given on import and supply of preparations suitable for infants, put up for retail sale. The Bill proposed to omit Sr. No. 84 from Table 1 and proposed to add a new Sr. No. 41 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.20 In terms of entry at Sr. No. 85 of Table 1, exemption of sales tax has been given on import and supply of fat filled milk excluding that sold in retail packing under a brand name or a trademark. The Bill proposed to omit Sr. No. 85 from Table 1 and proposed to add a new Sr. No. 42 in Table 2. If the proposal is accepted, local supply of these goods shall remain exempt from sales tax whereas sales tax at the rate of 17% would be charged on import of these goods.

4.21 In terms of entry at Sr. No. 91 of Table 1, exemption of sales tax has been given on import and supply of energy saver lamps. The Bill proposed to omit Sr. No. 91 from Table 1. If the proposal is accepted, import and local supply of these goods would be charged to sales tax at the rate of 17%.


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4.22 In terms of entry at Sr. No. 93 of Table 1, exemption of sales tax has been given on import and supply of bicycles. The Bill proposed to omit Sr. No. 93 from Table 1. If the proposal is accepted, import and local supply of these goods would be charged to sales tax at the rate of 17%.

4.23 In terms of entry at Sr. No. 101 of Table 1, exemption of sales tax has been given on raw and pickled hides and skins, wet blue hides and skins, finished leather, and accessories, components and trimmings, if imported by a registered leather goods manufacturer, for the manufacture of goods wholly for export, provided that conditions, procedures and restrictions laid down in rules 264 to 278 of the Customs Rules, 2001 are duly fulfilled and complied with. The Bill proposed from Table 1. If the proposal is accepted, import of these goods would be charged to sales tax at the rate of 17%.

4.24 In terms of entry at Sr. No. 103 of Table 1, exemption of sales tax has been given on import and supply thereof, up to the year 2030, of ships and all floating crafts including tugs, dredgers, survey vessels and other specialized crafts purchased or bare-boat chartered by a Pakistan entity and flying the Pakistan flag, except ships or crafts acquired for demolition purposes or are designed or adapted for use for recreation or pleasure purposes, subject to the condition that such ships or crafts are used only for the purpose for which they were procured and in case such ships or crafts are used only for the purpose for which they were procured, and in case such ships or crafts are used for demolition purposes within a period of five years of their acquisition, sales tax applicable to such ships purchased for demolition purposes shall be chargeable. The Bill proposed to omit Sr. No. 103 from Table 1. If the proposal is accepted, import and local supply of these goods would be charged to sales tax at the rate of 17%.

4.25 In terms of entry at Sr. No. 106 of Table 1, exemption of sales tax has been given on import of halal edible offal of bovine animals. The Bill proposed to omit Sr. No. 106 from Table 1. If the proposal is accepted, import and local supply of these goods would be charged to sales tax at the rate of 17%.

4.26 In terms of entry at Sr. No. 108 of Table 1, exemption of sales tax has been given on import and supply of components or sub-components of energy saver lamps, namely (a) Electronic Circuit; (b) Plastic Caps (upper and lower); (c) Base Caps B22 and E27; (d) Tungsten Filaments; (e) Lead-in-wire; (f) Fluorescent powder (Tri Band Phospher); (g) Adhesive Additive; (h) Al-oxide Suspension; (i) Capping Cement; (j) Stamp Pad Ink; (k) Gutter for Suspension. The Bill proposed to omit Sr. No. 108 from Table 1. If the proposal is accepted, import and local supply of these goods would be charged to sales tax at the rate of 17%.

4.27 In terms of entry at Sr. No. 115 of Table 1, exemption of sales tax has been given on plant, machinery and equipment imported for setting up fruit processing and preservation units in Gilgit-Baltistan, Balochistan Province and Malakand Division upto the 30th June, 2019 subject to the same conditions and procedure as are applicable for import of such plant, machinery and equipment under the Customs Act, 1969 (IV of 1969). The Bill proposed to omit Sr. No. 115 from Table 1. If the proposal is accepted, these goods would be charged to sales tax at the rate of 17%.

4.28 In terms of entry at Sr. No. 123 of Table 1, exemption of sales tax has been given on aircraft, whether imported or acquired on wet or dry lease provided that in case of import or acquisition on wet or dry lease by Pakistan International Airlines Corporation, this exemption shall be available with effect from 19th March, 2015. The Bill proposed to omit Sr. No. 123 from Table 1. If the proposal is accepted, these goods would be charged to sales tax at the rate of 17%.

4.29 In terms of entry at Sr. No. 124 of Table 1, exemption of sales tax has been given on import and supply of maintenance kits for use in trainer aircrafts of PCT headings 8802.2000 and 8802.3000. The Bill proposed to omit Sr. No. 124 from Table 1. If the proposal is accepted, import and local supply of these goods would be charged to sales tax at the rate of 17%.

4.30 In terms of entry at Sr. No. 125 of Table 1, exemption of sales tax has been given on import and supply of spare parts for use in aircrafts, trainer aircrafts or simulators. The Bill proposed to omit Sr. No. 125 from Table 1. If the proposal is accepted, import and local supply of these goods would be charged to sales tax at the rate of 17%.


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4.31 In terms of entry at Sr. No. 128 of Table 1, exemption of sales tax has been given on aviation simulators imported by airline company recognized by Aviation Division. The Bill proposed to omit Sr. No. 128 from Table 1. If the proposal is accepted, these goods would be charged to sales tax at the rate of 17%.

4.32 In terms of entry at Sr. No. 153 of Table 1, exemption of sales tax has been given on import and supply of steel billets, ingots, ship plates, bars and other long re-rolled profiles, on such imports and supplies by the manufacturer on which federal excise duty is payable in sales tax mode. In terms of entry at Sr. No. 58 of Table 1 of the First Schedule read with Sr. No. 4 of the Second Schedule to the Federal Excise Act, 2005, federal excise duty at the rate of 17% has been levied on steel billets, ingots, ship plates, bars and other long re-rolled products in sales tax mode. The Bill proposed to omit Sr. No. 153 from Table 1 of Sixth Schedule to the Sales Tax Act, 1990; Sr. No. 58 of Table 1 of First Schedule; and Sr. No. 4 of Second Schedule to the Federal Excise Act, 2005. If these proposal are accepted then w.e.f. 01.07.2021 import and local supply of steel billets, ingots, ship plates, bars and other long re-rolled profiles would be charged to sales tax at the rate of 17% and would be exempt from federal excise duty.

The Bill proposed to add following serial numbers in Table 1:

4.33 The Bill proposed to grant exemption on import and supply of art and printing paper for publication and printing of Holy Quran by amending entry at Sr. No. 137 of Table 1 of Sixth Schedule which, after amendment would grant exemption of sales tax on paper weighing 60 g/ m2 art paper and printing paper for printing of Holy Quran imported by Federal or Provincial Government and Nashiran-e-Quran as per quota determined by IOCO classified under PCT Headings 4802.5510, 4810.1990, 4810.1910 and 4802.6990.

4.34 The Bill proposed to add new Sr. No. 157 in Table 1 of Sixth Schedule through which exemption of sales tax would be granted on import of CKD (in kit form) of following electric vehicles (4 wheelers) by local manufacturers till 30th June, 2026 (i) Small cars/SUVs with 50 Kwh battery or below; and (ii) Light commercial vehicles (LCVs) with 150 kwh battery or below.

4.35 The Bill proposed to add new Sr. No. 158 in Table 1 of Sixth Schedule through which exemption of sales tax would be granted on goods temporarily imported into Pakistan by International Athletes which shall be subsequently taken by them within 120 days of temporary import.

4.36 The Bill proposed to add new Sr. No. 159 in Table 1 of Sixth Schedule through which exemption of sales tax would be granted on import of auto disable Syringes till 30th June, 2021 (i) with needles; (ii) without needles.

4.37 The Bill proposed to add new Sr. No. 160 in Table 1 of Sixth Schedule through which exemption of sales tax would be granted on import of following raw materials for the manufacturers of auto disable syringes till 30th June, 2021 (i) Tubular metal needles; (ii) Rubber Gaskets.

4.38 The Bill proposed to add new Sr. No. 161 in Table 1 of Sixth Schedule through which exemption of sales tax would be granted on import of plant, machinery, equipment and raw materials for consumption of these items within Special Technology Zone by the Special Technology Zone Authority, zone developers and zone enterprises.

4.39 The Bill proposed to add new Sr. No. 162 in Table 1 of Sixth Schedule through which exemption of sales tax would be granted on import of raw materials, components, parts and plant and machinery by registered persons authorized under Export Facilitation Scheme, 2021 notified by the Board with such conditions, limitations and restrictions.

The Bill proposed to omit or add the following serial numbers in Table - 2

4.40 In terms of Sr. No. 17 of Table 2 of Sixth Schedule, exemption of sales tax has been granted on local supply of raw and pickled hides and skins, wet blue hides and skins. The Bill proposed to omit the aforesaid Sr. No. 17. If the proposal is accepted, these goods would be charged to sales tax at the rate of 17%.


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4.41 In terms of Sr. No. 19 of Table 2 of Sixth Schedule, exemption of sales tax has been granted on local supply of bricks up to 30.06.2018. The exemption of sales tax on bricks has already expired and these goods have been subjected to fixed rate of sales tax in terms of Tenth Schedule inserted in the Sales Tax Act, 1990 through Finance Act, 2019. Sr. No. 19 is superfluous therefore the Bill proposed to omit the aforesaid Sr. No. 19.

4.42 In terms of Sr. No. 24 of Table 2 of Sixth Schedule, exemption of sales tax has been granted on

local supply of LED and SMD lights and bulbs meant for conservations of energy. The Bill proposed to omit the aforesaid Sr. No. 24. If the proposal is accepted, these goods would be charged to sales tax at the rate of 17%.

4.43 In terms of Sr. No. 25 of Table 2 of Sixth Schedule, exemption of sales tax has been granted on

local supply of cotton seed oil. The Bill proposed to omit the aforesaid Sr. No. 25. If the proposal is accepted, these goods would be charged to sales tax at the rate of 17%.

4.44 The Bill proposed to insert a new Sr. No. 26 in Table 2 of Sixth Schedule which would grant

exemption of sales tax on supply of locally produced silos till 30.06.2026.

5. Insertion of new Table 4 in the Sixth Schedule:

For establishment of Border Sustenance Markets, exemption from sales tax is proposed to be granted on food related and other consumable goods. The Bill proposed to insert a Table 4 in the Sixth Schedule to the Sales Tax Act, 1990 through which exemption from whole of sales tax shall be granted on the 114 classes of goods specified in column 2 of the annexure below falling under PCT code specified in column 3 of the said annexure when supplied within the limits of border sustenance markets established in cooperation with Iran and Afghanistan subject to following conditions:

(i) Such goods shall be supplied only within the limits of Border Sustenance Markets established in cooperation with Iran and Afghanistan;

(ii) If the goods, on which exemption under this Table has been availed, are brought outside the limits of such markets, sales tax shall be charged on the value assessed on the goods declaration import or the fair market value, whichever is higher;

(iii) Such items in case of import, shall be allowed clearance by the Customs Authorities subject to furnishing of bank guarantee equal to the amount of sales tax involved and the same shall be released after presentation of consumption certificate issued by the Commissioner Inland Revenue having jurisdiction;

(iv) The said exemption shall only be available to a person upon furnishing proof of having a functional business premises located within limits of the Border Sustenance Markets; and

(v) Breach of any of the conditions specified herein shall attract relevant legal provisions of this Act, besides recovery of the amount of sales tax alongwith default surcharge and penalties involved.

6. THE EIGHTH SCHEDULE: In terms of section 3(2)(aa) of the Sales Tax Act, 1990, the goods specified in the Eight Schedule shall be charged to tax at such rates and subject to such conditions and limitations prescribed therein. The Bill proposed to omit and add certain entries in the Eight Schedule as under.

6.1 In terms of Sr. No. 1 of Table 1 of Eighth Schedule, soya bean meal is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 1. If the proposal is accepted, soya bean meal would become subjected to standard rate of 17% sales tax.

6.2 In terms of Sr. No. 5 of Table 1 of Eighth Schedule, raw cotton and ginned cotton is subjected to sales tax at the reduced rate of 5% on import. The Bill proposed to omit the aforesaid Sr. No. 5. If the proposal is accepted, import of raw and ginned cotton would be subjected to standard rate of 17% sales tax.


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6.3 In terms of Sr. No. 6 of Table 1 of Eighth Schedule, plant and machinery not manufactured locally and having no compatible local substitutes imported by registered manufacturers is subjected to sales tax at the reduced rate of 10% subject to certain conditions including that the registered manufacturer shall furnish postdated cheque equal to the differential amount of sales tax to the custom authorities which shall be returned on furnishing of proof of filing of first sales tax return after import of machinery showing the import of such machinery. The Bill proposed to omit the aforesaid Sr. No. 6. If the proposal is accepted, import of plant and machinery would be subjected to standard rate of 17% sales tax.

6.4 In terms of Sr. No. 7 of Table 1 of Eighth Schedule, flavored milk sold in retail packing under a brand name is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 7. If the proposal is accepted, flavored milk sold in retail packing under a brand name would become subjected to standard rate of 17% sales tax.

6.5 In terms of Sr. No. 8 of Table 1 of Eighth Schedule, yogurt sold in retail packing under a brand name is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 8. If the proposal is accepted, yogurt sold in retail packing under a brand name would become subjected to standard rate of 17% sales tax.

6.6 In terms of Sr. No. 9 of Table 1 of Eighth Schedule, cheese sold in retail packing under a brand name is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 9. If the proposal is accepted, cheese sold in retail packing under a brand name would become subjected to standard rate of 17% sales tax.

6.7 In terms of Sr. No. 10 of Table 1 of Eighth Schedule, butter sold in retail packing under a brand name is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 10. If the proposal is accepted, butter sold in retail packing under a brand name would become subjected to standard rate of 17% sales tax.

6.8 In terms of Sr. No. 11 of Table 1 of Eighth Schedule, cream sold in retail packing under a brand name is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 11. If the proposal is accepted, cream sold in retail packing under a brand name would become subjected to standard rate of 17% sales tax.

6.9 In terms of Sr. No. 14 of Table 1 of Eighth Schedule, milk and cream concentrated or containing added sugar or other sweetening matter sold in retail packing under a brand name is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 14. If the proposal is accepted, these goods would become subjected to standard rate of 17% sales tax.

6.10 In terms of Sr. No. 15 of Table 1 of Eighth Schedule, ingredients of poultry feed, cattle feed is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 15. If the proposal is accepted, these goods would become subjected to standard rate of 17% sales tax.

6.11 In terms of Sr. No. 19 of Table 1 of Eighth Schedule, waste paper is subjected to sales tax at the reduced rate of 5%. The Bill proposed to omit the aforesaid Sr. No. 19. If the proposal is accepted, waste paper would become subjected to standard rate of 17% sales tax.

6.12 In terms of Sr. No. 20 of Table 1 of Eighth Schedule, plant machinery and equipment used in production of bio-diesel is subjected to sales tax at the reduced rate of 5%. The Bill proposed to omit the aforesaid Sr. No. 20. If the proposal is accepted, these goods would become subjected to standard rate of 17% sales tax.

6.13 In terms of Sr. No. 22 of Table 1 of Eighth Schedule, soya bean seed imported by solvent extraction industries is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 22. If the proposal is accepted, these goods would become subjected to standard rate of 17% sales tax.

6.14 In terms of Sr. No. 29 of Table 1 of Eighth Schedule, 18 classes of agricultural equipment are subjected to sales tax at the reduced rate of 5%. The Bill proposed to omit the aforesaid Sr. No. 29. If the proposal is accepted, these equipment would become subjected to standard rate of 17% sales tax.


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6.15 In terms of Sr. No. 45 of Table 1 of Eighth Schedule, as many as six classes of machinery for poultry sector is subjected to sales tax at the reduced rate of 7%. The Bill proposed to omit the aforesaid Sr. No. 45. If the proposal is accepted, these goods would become subjected to standard rate of 17% sales tax.

6.16 In terms of Sr. No. 50 of Table 1 of Eighth Schedule, import of LNG / RLNG is subjected to sales tax at the reduced rate of 12%. The Bill proposed to omit the aforesaid Sr. No. 50. If the proposal is accepted, import of LNG / RLNG would become subjected to standard rate of 17% sales tax.

6.17 In terms of Sr. No. 51 of Table 1 of Eighth Schedule, supply of LNG / RLNG to gas transmission and distribution companies is subjected to sales tax at the reduced rate of 12%. The Bill proposed to omit the aforesaid Sr. No. 51. If the proposal is accepted, these goods would become subjected to standard rate of 17% sales tax.

6.18 In terms of Sr. No. 56 of Table 1 of Eighth Schedule, sales tax at the rate of 17% along with Rs. 80 per kilogram is levied on import and supply of Potassium Chlorate provided that rate of Rs. 80 per kilogram shall not apply on imports made by and supplies made to organizations under the control of Ministry of Defence production. The Bill proposed to amend the aforesaid entry at Sr. No. 56. If the proposal is accepted, Potassium Chlorate would become subjected to sales tax at the rate of 17% along with Rs. 90 per kilogram is levied on import and supply of Potassium Chlorate provided that rate of Rs. 90 per kilogram shall not apply on imports made by and supplies made to organizations under the control of Ministry of Defence production.

6.19 In terms of Sr. No. 60 of Table 1 of Eighth Schedule, fat filled milk sold in retail packing under a brand name or trade mark is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 60. If the proposal is accepted, fat filled milk sold in retail packing under a brand name or trade mark would become subjected to standard rate of 17% sales tax.

6.20 In terms of Sr. No. 61 of Table 1 of Eighth Schedule, sliver, in un-worked condition is subjected to sales tax at the reduced rate of 1%. The Bill proposed to omit the aforesaid Sr. No. 61. If the proposal is accepted, silver, in un-worked condition would become subjected to standard rate of 17% sales tax.

6.21 In terms of Sr. No. 62 of Table 1 of Eighth Schedule, gold, in un-worked condition is subjected to sales tax at the reduced rate of 1%. The Bill proposed to omit the aforesaid Sr. No. 62. If the proposal is accepted, gold, in un-worked condition would become subjected to standard rate of 17% sales tax.

6.22 In terms of Sr. No. 63 of Table 1 of Eighth Schedule, articles of jewellery or parts thereof, or precious metal or of metal clad with precious metal is subjected to sales tax at the reduced rate of 1.5% of value of gold + 0.5% of value of diamond, used therein, 3% of making charges. The Bill proposed to omit the aforesaid Sr. No. 63. If the proposal is accepted, these goods would become subjected to standard rate of 17% sales tax.

6.23 In terms of Sr. No. 65 of Table 1 of Eighth Schedule, ginned cotton is subjected to sales tax at the reduced rate of 10%. The Bill proposed to omit the aforesaid Sr. No. 65. If the proposal is accepted, these goods would become subjected to standard rate of 17% sales tax.

6.24 In terms of Sr. No. 67 of Table 1 of Eighth Schedule, LNG imported for servicing CNG sector and local supplies thereof is subjected to sales tax at the reduced rate of 5%. The Bill proposed to omit the aforesaid Sr. No. 67. If the proposal is accepted, these goods would become subjected to standard rate of 17% sales tax.

6.25 The Bill proposed to add a new entry at Sr. No. 71 in Table 1 of Eighth Schedule through which sales tax at the rate of 1% would be levied on local supply of following locally manufactured or assembled electric vehicles (4 wheelers) till 30th June, 2026:

(i) Small cars/ SUVs with 50 Kwh battery or below; and

(ii) Light commercial vehicles (LCVs) with 150 kwh battery or below


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6.26 Rising prices of locally manufactured small cars is a major concern for low earning families. Accordingly it is proposed that small cars upto engine capacity of 850cc may be exempted from value added tax besides reducing sales tax rate from 17% to 12.5%. The Bill proposed to add a new entry at Sr. No. 72 in Table 1 of Eighth Schedule through which sales tax at the rate of 12.5% would be levied / charged on locally manufactured or assembled motor cars of cylinder capacity up to 850 cc.

6.27 The Bill proposed to add a new entry at Sr. No. 73 in Table 1 of Eighth Schedule through which sales tax at the rate of 8.5% would be levied / charged on import and local supply of hybrid electric vehicles up to 1800 cc; and sales tax at the rate of 12.75% would be levied / charged on import and local supply of hybrid electric vehicles from 1801 cc to 2500 cc.

7. THE NINTH SCHEDULE:

In terms of section 3(3B) read with Table 1 of Ninth Schedule of the Sales Tax Act, 1990, sales tax on SIM cards is payable at the rate of Rs.250 at the time of supply by CMOs. In order to address litigation issue, fixed tax on SIM cards is proposed to be deleted with effect from 1st July, 2020 through the Finance Bill. The Bill also proposed to add a proviso and explanation after Table 1 which would prescribe that the provisions of Table 1 shall not be applicable from 01.07.2013 onwards. Through explanation it is clarified that the amendment in law addition of proviso shall not prejudicially affect, the Board's stance or position in pending cases on the issue of chargeability of sales tax on SIM cards before any court of law.

8. THE ELEVENTH SCHEDULE

In terms of sub section (7) of section 3 read with Eleventh Schedule to the Sales Tax Act, 1990, six (6) classes of withholding agents specified in column (2) of the Table of Eleventh Schedule are required to withhold sales tax at the rates prescribed in column (4) from the payments made to the suppliers specified in column (3) thereof, however withholding provisions shall not be applicable to goods and supplies specified in clauses (i) to (viii) of the Table. The Bill proposed to insert a new Sr. No. 7 in the Table of Eleventh Schedule which would prescribe that the registered persons manufacturing lead batteries would deduct whole of sales tax applicable from the payments made to the persons supplying reclaimed lead or used lead batteries.

9. THE TWELFTH SCHEDULE In terms of sub section (2) of section 7A read with Twelfth Schedule to the Sales Tax Act, 1990, all imported goods shall be subjected to 3% value addition tax in addition of standard rate of 17% sales tax subject to exclusions as in conditions and procedure given after the Table. In terms of clause (2) of "Procedure and conditions", value addition tax under Twelfth Schedule shall not be charged on goods specified in sub clauses (i) to (x).

9.1 The Bill proposed to insert a new clause (xi) which would prescribe that 3% value addition tax would not be charged on import of electric vehicles (4 wheelers) CKD kits for small cars/SUVs, with 50 kwh battery or below and LCVs with 150 kwh battery of below till 30th June, 2026.

9.2 The Bill proposed to insert a new clause (xii) which would prescribe that 3% value addition tax would not be charged on import of electric vehicles (4 wheelers) small cars/SUVs, with 50 kwh battery or below and LCVs with 150 kwh battery of below in CBU condition till 30th June, 2026.

9.3 The Bill proposed to insert a new clause (xiii) which would prescribe that 3% value addition tax would not be charged on import of electric vehicles (2-3 wheelers and heavy commercial vehicles) in CBU condition till 30th June, 2025.

9.4 The Bill proposed to insert a new clause (xiv) which would prescribe that 3% value addition tax would not be charged on import of motor cars of cylinder capacity upto 850cc.

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PROPOSED AMENDMENTS IN FEDERAL EXCISE ACT 2005

SALIENT FEATURES OF BUDGETARY MEASURES IN FEDERAL EXCISE ACT 2005

The effective date of all the Proposed Changes is 01.07.2021 except specifically mentioned in respective clauses. REVENUE MEASURES 1. Federal excise on mobile phone calls exceeding three minutes @ Rs. 1 per call, SMS message @ Rs. 0.1 per

SMS, and internet data usage @ Rs. 5 per GB is being proposed. This will result into mild taxation of a broad spectrum of population.

2. Electronically heated tobacco products are also proposed to be brought into the tax net by inserting new

S. No. 8c of Table-1 of the First Schedule to the Federal Excise Act, 2005. RELIEF MEASURES 3. In order to facilitate the people of tribal area and encourage investment and economic growth in these

areas, exemption is being given from levy of FED to the industrial units located in FATA and PATA. 4. The provision to revise return without prior approval of the Commissioner-IR which is available in Sales

Tax Act, 1990 is now proposed to be made available in Federal Excise Act, 2005. 5. Exemption from federal excise duty to 4-wheelers granted vide granted vide Tax Laws (Amendment)

Ordinance, 2021 is proposed to be incorporated in the Federal Excise Act. 6. The rate of federal excise duty on telecommunication is proposed to be reduced from 17% to 16%. 7. Payment on account of Merchant Discount Rate (MDR) is proposed to be excluded from the purview of

FED. 8. For establishment of Border Sustenance Markets, exemption from federal excise duty is proposed to be

granted on food related and other consumable goods. 9. Rising prices of locally manufactured small cars is a major concern for low earning families. Accordingly it

is proposed that small cars upto engine capacity of 850cc may be exempted from federal excise duty. 10. In order to introduce new Export Facilitation Scheme, 2021, exemption on import and zero-rating on local

supplies in respect of raw materials, components, parts and plant and machinery to registered persons is proposed.

11. Federal excise duty on fruit juices was imposed vide Finance Act, 2019 and resultantly, prices of juices

were increased. Moreover due to pandemic, this sector is faced with adverse situation. In order to provide relief to this sector, it is proposed to withdraw federal excise duty on juices.

STREAMLINING MEASURES 12. Section 14(4) Enabling provision has been inserted in respect of request from a foreign jurisdiction under

a tax treaty, a multilateral convention, and inter-governmental agreement or similar agreement or mechanism.

13. Section 47A Provisions regarding sharing of data with foreign countries on reciprocal basis were

introduced through Tax Laws (Amendment) Ordinance, 2021 which is now being incorporated in Federal Excise Act, 2005. Moreover, mechanism for assistance in recovery of taxes on request from foreign countries on reciprocal basis is also proposed by inserting sub-section (3).

14. Section 49(2) Enabling provision has been inserted for authorizing and prescribing the manner for utilizing

the fees and service charges collected under section 49(1)

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COMMENTS ON PROPOSED AMENDMENTS THROUGH FINANCE BILL 2020-2021

1. Harmonizing the provision of filing revised return

Insertion of Provision after Section 4(4) In line with the provisions of Income Tax Ordinance, 2001, and Sales tax Act, 1990, the Bill proposed to

relax the provision of filing a revised sales tax return to correct any omission or wrong declaration made therein without the permission of the Commissioner Inland Revenue under the Federal Excise Act, 2005 provided that the revised sales tax return shall be filed within sixty days of filling of concerned Federal Excise return and the tax payable therein is more than the amount paid or the refund claimed herein is less than the amount as claimed, under the return sought to be revised.

Accordingly the Bill proposed to add a new proviso after sub section (4) of section 4 as under:

“Provided that the approval under this sub-section shall not be required if revised return is filed within sixty days of filing of the original return and either the duty payable as per the revised return is more than the amount paid or the refund claimed therein is less than the amount as claimed, under the return sought to be revised.”

2. Widen the scope of Recovery of unpaid duty or of erroneously refunded duty or arrears of duty Insertion of Section 14(4)

Section 14 of the Excise Act deals with the recovery of unpaid duty, erroneously refunded duty or arrears. The scope of this section was enlimited within the territorial jurisdiction of Pakistan. By virtue of this insertion the scope is proposed to be widen by taking assistance from foreign jurisction / government for the purpose of recovery. Enabling provision has been proposed in respect of request from a foreign jurisdiction under a tax treaty, a multilateral convention, and inter-governmental agreement or similar agreement or mechanism. Accordingly the Bill proposed to add a new proviso after sub section (4) of section 4 as under: “(4) The provision of sub-section (2) shall mutatis mutandis apply regarding assistance in collection and recovery of duties in pursuance of a request from a foreign jurisdiction under a tax treaty, a multilateral convention, and inter-governmental agreement or similar agreement or mechanism as the case may be.”;

3. Harmonizing the requirement regarding Licensing of Brand name Insertion of Section 45AA In line with the section 181D of Income Tax Ordinance, 2001 namely “Business Licesnse Scheme’

introduced by Finance Act, 2019, the bill seeks to insert section 40E under Sales tax Act, 1990, and Section 45AA under Federal Excise Act, 2005, wherein for specified goods, the Bill proposes, to make it mandatory for manufacturers of such goods to obtain brand license for each separate brand or Stock Keeping Unit (“SKU”). SKU is a used as scan able bar code, printed on product labels. The label allows vendors to track the movement of inventory. The characters are a code that provides the price, product details, and the manufacturer.

The bill further seeks to clarify that goods old without obtaining a license from the board shlaa be deemed counterfeit goods and liable to outright confiscation and destruction. Accordingly the Bill proposed to add a new proviso after section (45A) as under: “45AA. Licensing of brand name.- (1) Manufacturers of the specified goods shall be required to obtain brand licence for each brand or stock keeping unit (SKU) in such manner as may be prescribed by the Board.


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(2) Any specified brand and SKU found to be sold without obtaining a licence from the Board shall be deemed counterfeit goods and liable to outright confiscation and destruction in the prescribed manner and such destruction and confiscation shall be without prejudice to any other penal action which may be taken under this Act.”

2. Sharing of Data or Information with Other Ministries or Division of Federal Government or Provincial Government and enter into bilateral or multilateral conventions

Insertion of Section 47A

The bill seeks to insert section 47A in line with proposals in Sales Tax Act, 1990. Hitherto this introduction, the FBR proposed to empower for sharing of data or information including real time data videos, images received under the provisions of the Federal Excise Act, 2005 with the Ministries or Divisions of Federal and Provincial governments subject to such limitations and conditions as may be specified by FBR. It is also proposed to give power to Federal Government to enter into bilateral or multilateral convention, and inter - governmental agreement or similar agreement or mechanism for assistance.

Accordingly the Bill proposed to add a new sub-section 1A after sub-section 1 of Section 47A as under: “(1A) Notwithstanding anything contained in this Act, the Board shall have power to share data or information including real time data videos, images received under the provisions of this Act with any other Ministry or Division of the Federal Government or Provincial Government, subject to such limitations and conditions an may be specified by the Board. “and (iii) after sub-section (2), the following new sub-section (3) shall be added, namely:– “(3) The Federal Government may enter into a bilateral or multilateral convention, and inter-governmental agreement or similar agreement or mechanism for assistance in the recovery of duties”.

Note: All other proposed changes in First Schedule to the Federal Excise Act, 2005 have been discussed separately and we have placed our comments in respective columns of schedules tabulated below:


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PROPOSED AMENDMENTS IN TABLE I OF FIRST SCHEDULE OF THE FEDERAL EXCISE ACT 2005

Sr. Sr No. Comments

No. in Table Description Rate of duty Description Rate of duty

1 1 Edible oils excluding deoxidized soybean

Entry No. 15.07, 15.08, 15.09, 15.10,

15.11, 15.12, 15.13, 15.14, 15.15, 15.16

1517, and 15.18,

Seventeen percent ad val. Omitted - 3) The bill seeks to omit levy of FED on Edible Oils

which now by virtue of proposed amendment are to

be brought under Sales Tax Act, 1990. However the

rate would remain the same i.e., 17%.

2 2 Vegetable ghee and cooking oil

(a) in retail packing

(b) not in retail packing

Seventeen percent ad val. Omitted - 3) The bill seeks to omit levy of FED on Edible Oils

which now by virtue of proposed amendment are to

be brought under Sales Tax Act, 1990. However the

rate would remain the same i.e., 17%.

3 57 Fruit juices, syrups and squashes, waters

containing added sugar or sweetening

matter etc. excluding mineral and aerated

waters

Five percent of retail price. Omitted - Fresh Juices Syrups and squashes were

chargeable to Fed and Third Schedule. Now the bill

seeks to omit levy of FED on such items. By virtue

of this amendment all such drinking matrials will

cover under only third schedule of Sales tax Act

,1990.

4 58 Steel Billets, ingots, ship plates, bars and

other long re-rolled products

Seventeen percent ad val. Omitted - Steel Billets, ingots, ship plates, bars and other

long re-rolled products were chargeable to Fed.

Now the bill seeks to omit levy of FED on such

items and brought under sales tax.Serial 153 of the

Sixth Schedule of Sales Tax Act, 1990 has been

omitted accordingly

5 8b New insertion New insertion Tobacco mixture in an electrically heated

tobacco product by whatever name called,

intended for consumption by using a

tobacco heating system without

combustion

Rupees five thousand two

hundred per kg”;

(

The government aiming to discourage this

unhealthy and injurious activity, impose FED on

Tobacco Mixture frquently used. The bill seeks to

continue this policy for levy of duties and taxes on

cigarettes and its ancillary products.

6 8a New insertion New insertion E-liquids by whatsoever name called, for

electric cigarette kits

Rupees ten per ml The government aiming to discourage this

unhealthy and injurious activity increases FED on

cigarettes every year. The bill seeks to continue

this policy of enhancement in rate of FED on

cigarettes.

7 55 Imported motor cars, SUVs and other

motor vehicles, excluding auto rickshaws,

principally designed for the transport of

persons (other than those of headings

87.02), including station wagons and

racing cars

(a) of cylinder capacity up to 1000cc

(b) of cylinder capacity from 1001cc to

1799cc

(c) of cylinder capacity 1800cc to 3000cc

(d) of cylinder capacity exceeding 3001cc

2.5% ad val

5% ad val.

25% ad val.

30% ad val

ported motor cars, SUVs and other motor

vehicles, excluding auto rickshaws,

principally designed for the transport of

persons (other than those of headings

87.02) and till 30th day of June 2026

electirc vehicles (4 wheelers), including

station wagons and racing cars



1799cc

(c) of cylinder capacity 1800cc to 3000cc

(d) of cylinder capacity exceeding 3001cc

No Change By virtue of this amendment, the exemption on

electric vehicles proposed to be ehanhce till 30th

Day of June 2026.

8 55B

Locally manufactured or assembled motor

cars, SUVs and other motor vehicles,

excluding auto rickshaws principally

designed for the transport of persons

(other than those of headings 87.02),

including station wagons and racing cars:



2000cc

(c) of cylinder capacity 2001cc and above

2.5% ad val.

5% ad val.

7.5% ad val.

Locally manufactured or assembled motor

cars, SUVs and other motor vehicles,

excluding auto rickshaws principally

designed for the transport of persons

(other than those of headings 87.02 and till

the 30th June 2026 electric vehicles (4

wheelers), including station wagons and

racing cars: (a) of cylinder capacity 851 to

1000cc (b) of cylinder capacity from

1001cc to 2000cc (c) of cylinder capacity

2001cc and above

No Change By virtue of this amendment, the exemption on

electric vehicles proposed to be ehanhce till 30th

Day of June 2026. Rising prices of locally

manufactured small cars is a major concern for low

earning families. Accordingly it is proposed that

small cars upto engine capacity of 850cc may be

exempted from federal excise duty.

Existing Proposed amendments


66

PROPOSED AMENDMENTS IN TABLE II OF FIRST SCHEDULE OF THE FEDERAL EXCISE ACT 2005

PROPOSED AMENDMENTS IN SECOND SCHEDULE OF THE FEDERAL EXCISE ACT 2005

PROPOSED AMENDMENTS IN THIRD SCHEDULE OF THE FEDERAL EXCISE ACT 2005

Sr. Sr No. Comments


1 6 Telecommunication services, excluding

such services in the area of a Province

where such Province has imposed

Provincial sales tax and has started

collecting the same through its own Board

or Authority, as the case may be.

Seventeen percent of

Charges

Telecommunication services, excluding

such services in the area of a Province

where such Province has imposed

Provincial sales tax and has started

collecting the same through its own Board

or Authority, as the case may be.

Sixteen percent of Charges

2 6A New Insertion New Insertion Following telecommunication services: (a)

Mobile phone call duration exceeds three

minutes

(b) Internet Services

(c) Sms Services

One rupee per call in addition to

the rates of duty specified under

Serial No.6 Five rupees per GB

in addition to the rates of duty

specified under Serial No.6. Ten

paisa per sms in addition to the

rates of duty specified under

serial no.6


On One hand the bill seeks to reduce levy of FED

on telecommunication services by 1% and on other

hand Federal excise on mobile phone calls

exceeding three minutes @ Rs. 1 per call, SMS

message @ Rs. 0.1 per SMS, and internet data

usage @ Rs. 5 per GB is being proposed. This will

result into mild taxation of a broad spectrum of

population.

Sr. Sr No. Comments


1 1 Edible oil excluding epoxidized soyabean

oil falling under heading 15.18.

Seventeen percent of

Charges

Omitted

2 2 Vegetable ghee and cooking oil Goods on which duty is

collectible under sales tax

mode with entitlement for

adjustment with sales tax

and vice versa

Omitted

3 4 Steel Billets, ingots, ship plates, bars and

other long re-rolled products

Goods on which duty is

collectible under sales tax

mode with entitlement for

adjustment with sales tax

and vice versa

Omitted


Comments produced above

Sr. Sr No. Comments


1 24 New Insertion Exemption The following goods, when supplied within

the limits of the Border Sustenance

Markets, established in cooperation with

Iran and Afghanistan:

(a) Animal Fats and Oil and

their fractions

(b) Vegetable Fats and their fractions

(c) Vegetable Oils and their fractions

Provided that, such items in case of

import, shall be allowed clearance by the

Customs Authorities subject to furnishing

of bank guarantee equal to the amount of

duty involved and the same shall be

released after presentation of consumption

certificate issued by the Commissioner

Inland Revenue having jurisdiction:

Provided further that, the said exemption

shall only be available to a person upon

furnishing proof of having a functional

business premises

located within limits of the Border

Sustenance Markets

For establishment of Border Sustenance Markets,

exemption from federal excise duty is proposed to

be granted on food related and other consumable

goods. In order to facilitate the people of tribal area

and encourage investment and economic growth in

these areas, exemption is being given from levy of

FED to the industrial units located in FATA and

PATA.

2 2 New Insertion Exemption Import and supply of raw materials,

components, parts

and plant and machinery by registered

persons authorized under Export

Facilitation Scheme, 2021 notified by the

Board with such conditions, limitations

and restrictions.

In order to introduce new Export Facilitation

Scheme, 2021, exemption on import and zero-

rating on local supplies in respect of raw materials,

components, parts and plant and machinery to

registered persons is proposed.



67

TEXT OF FINANCE BILL – 2021

For convenience, the complete text of

Finance Bill 2021

http://www.krestonhb.com

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