finance act 2012

RIAZ AHMAD & COMPANY Chartered Accountants

I N D E X

FINANCE ACT 2012

DESCRIPTION PAGE NO.

INTRODUCTION 1

EXECUTIVE SUMMARY 2 — 4

INCOME TAX 5 — 43

SALES TAX 44 — 49

FEDERAL EXCISE DUTY 50 — 53

CAPITAL VALUE TAX 54

CONTACT PARTNERS 55


INTRODUCTION

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This Memorandum has been prepared to facilitate our clients in better understanding of the changes made in income tax, sales tax, federal excise duty and capital value tax through the Finance Act, 2012. The changes have been explained in a concise manner and insignificant changes of consequential, administrative, procedural or editorial nature have been ignored for the sake of brevity.

Included under the heading of Income Tax Ordinance, 2001 is a dedicated portion, titled “General”, which covers complete rates of income tax, schedule of filing of various periodical statements, rates for deduction of income tax at source, filing date of income tax return, computation of advance tax, etc., for convenience and ready reference of our clients.

The Finance Act, 2012, unless otherwise stated, has come into force on 01 July 2012.

This Memorandum may be accessed on our web-site: www.racopk.com

It is recommended that the text of the Finance Act, 2012 as published in the official Gazette and the relevant laws and notifications, wherever applicable should be referred to in considering the interpretation of any provision. This Memorandum contains only general comments. Final decision on any issue should not be taken without detailed consideration and professional advice.

This Memorandum should not be published in any manner without the consent of the firm. For professional advice, you may contact our following tax experts: • Sarfraz Mahmood • Muhammad Arshad

• Inaam Ellahi Sheikh• M. Kamran Nasir

• Liaqat Ali Panwar • Sajid Rasool Saghar

• Atif Bin Arshad • Muddassar Mehmood

Lahore Office Karachi Office Faisalabad Office Islamabad Office

LAHORE: 06 July 2012


EXECUTIVE SUMMARY

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Income Tax

• National Clearing Company of Pakistan Limited (NCCPL) has been established as “Clearing House” to determine capital gain on sale of listed securities, collect and deposit tax thereon. Nature and source of the amount invested in purchase of listed securities will not be enquired: if the investment is made before 30 June 2012 and securities are held for 45 days; and if the investment is made after 30 June 2012 till 30 June 2014 and minimum holding period is not less than 120 days.

• Bench mark rate of profit on loan to employees has been fixed at 10%. Further, benefit arising due to concessional rate of profit will not be taxed, if loan granted to employee does not exceed Rupees 500,000.

• Restricted cost of vehicle for depreciation purpose has been enhanced to Rupees 2.5 million.

• Gain on sale of immovable property held for a period not more than 2 years will be chargeable to tax and advance tax @ 0.5% of gross amount will be collected from seller or transferor. Property held for more than two years will remain exempt.

• Compensation due to late payment of refunds will be paid @ 15% per annum and will be chargeable to tax as income from other sources.

• Maximum limits have been enhanced to 20% of taxable income and Rupees 1,000,000 for allowance of tax credit on account of investment in shares or insurance.

• Tax credits to companies u/s 65B, 65D, and 65E will be available against normal tax as well as minimum and final taxes.

• Equity for investment in plant and machinery and new industrial undertaking for the purposes of availing tax credits may now be raised though issuance of new shares for cash consideration. Moreover, tax credits will also be allowed to newly established corporate dairy farms.

• FBR may prescribe rules for determination of cost and consideration received for any asset.

• Rate of minimum tax has been reduced to 0.5% of turnover for the year. Moreover, minimum tax “payable or paid” will be computed by excluding final tax liability.

• Limitation for issuance of notice by the Commissioner in respect of incomplete return has been enhanced till expiry of one hundred and eighty days from the end of the financial year.

• Commissioner has also been empowered to amend provisional assessment.

• Now Commissioner can make enquiries for amendment or further amendment of assessment order.

• Commissioner (Appeals) may grant stay against recovery of tax demand for 30 days. Further, time limitation of four months period for passing appeal order has been removed.

• Commissioner or Commissioner (Appeals) having 3 years experience is now eligible to be appointed as accountant member/chairperson of Appellate Tribunal Inland Revenue (ATIR).

• ATIR may grant stay against recovery of demand for maximum 180 days which will be reduced by the period of stay granted by High Court, if any.

• Tax demand of a provisional assessment order may also be paid before expiry of 60 days.

• Advance tax will be collected by manufactures @ 0.5% of sales made to distributors, dealers and wholesalers.


EXECUTIVE SUMMARY

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• Tax short deducted or not deducted with reference to final tax may be recovered from whom such tax was short deducted or not deducted.

• Additional tax will be charged @ 18% per annum instead of Karachi Interbank Offered Rate (KIBOR) plus three percent per quarter.

• No additional tax will be charged, if tax determined after first appeal is paid within due date and no further appeal is filed.

• No tax will be withheld by banks on withdrawal upto Rupees 50,000 per day.

• Threshold of taxable income for individuals has been enhanced from Rupees 350,000 to Rupees 400,000. AOP will also be eligible for this exemption and tax on its income will be charged on slab rate basis instead of flat rate of 25%. Further, slab rates will now be applied on progressive income basis.

• Monthly installment received from income payment plan invested out of accumulated balance of pension account has been exempted from tax provided accumulated balance is invested for a period of ten years. Moreover, accumulated balance withdrawn from approved pension fund that represent the transfer of balance of approved provident fund to the said pension fund has been exempted from tax.

• Income of the Citizens Foundation as well as donation paid to this Foundation has been exempted.

• Period of tax exemption on profits/gains of venture capital company and fund has been extended upto tax year 2024.

• 3% reduced rate on import of raw material for own use has been subjected to exemption certificate issued by the Commissioner.

• Withholding tax provisions will not be applicable on inter-corporate dividend and profit on debt.

• Option to opt out of presumptive tax will be available to importer, exporters and suppliers subject to certain conditions.

• Initial allowance on buildings will be allowed @ 25% instead of 50%.

• Tax on dividend income received from money market funds and income funds by a banking company will be charged at the rate of 25% for tax year 2013 and at the rate of 35% for tax years 2014 and onwards.

• Rules to compute and determine the capital gains and to collect and deposit the tax thereon are laid down in newly introduced eighth schedule.

Sales Tax • Time limit of three years for the recovery of short tax, due to error or misconstruction, has been

enhanced to five years.

• Supply against international tenders has been exempted from sales tax.

• Supply of cotton seed oil to registered manufacturers of vegetable ghee and cooking oil will be zero rated.

• Supply of locally produced crude vegetable oil obtained from locally produced seeds, other than cotton seeds, has been exempted.


EXECUTIVE SUMMARY

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• Ten percent fixed minimum value addition for the purposes of payment of sales tax on supply of computer hardware and parts has been removed.

• Zero rating on import and supply of polyethylene and polypropylene for manufacturing of mono filament yarn and net cloth to green house farming has been withdrawn.

• Mono filament of more than 67 decitex only, is now excluded from textile and articles thereof for zero rating or levy of sales tax at reduced rate of five percent, as the case may be.

• Notification granting exemption for sales tax on import of industrial raw material and other specified items by manufacturer liable to turnover tax or manufacturing non-taxable goods has been withdrawn.

• Values fixed for sales tax purpose on import and supply of potassic fertilizers and for locally produced nitrogenous fertilizers, calcium ammonium nitrate are withdrawn.

• Higher sales tax rates of 22% and 19.5% on import and supply of certain goods mentioned in Table I and II of S.R.O. 644(I)/2007 dated 27 June 2007 has been withdrawn.

• Waste paper, remeltable scrap, sprinkler and drip equipment, spray pumps and nozzles have been exempted from sales tax.

• Minimum fixed rates for value of locally produced ‘Billets’ and ‘Ingots’ have been enhanced to Rupees 65,000 and Rupees 60,000 from Rupees 55,000 and Rupees 50,000 respectively.

• Sales tax rate on import of soyabeen seed by solvent extraction industries has been reduced from 7% to 6%. Similarly, import of rapeseed, sunflower and canola seeds will be charged to tax at 14% on the value of import instead of 15%.

• Five percent sales tax will be charged on import and supply of black tea.

• Import and supply of urine drainage bags has been exempted from sales tax. Federal Excise Duty (FED)

• FED rates on locally produced cigarettes have been revised.

• FED rate on cements has been reduced from Rupees 500 to Rupees 400 per metric ton.

• FED on lubricants, cosmetics and make up preparation items is abolished.

• Rate of FED on air travel services has been enhanced.

• Services provided in respect of live stock insurance and services provided by Asset Management Companies have been exempted from FED.

Capital Value Tax (CVT)

• CVT @ 0.01% on purchase value of shares of a public company listed on stock exchange has been levied.

• CVT rates applicable on purchase of immovable property within Islamabad Capital Territory have been revised.


INCOME TAX ORDINANCE, 2001

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National Clearing Company of Pakistan Limited (NCCPL) Section 2(35AA)

NCCPL has been incorporated under the Companies Ordinance, 1984 and licensed as ‘Clearing House’ by the Securities and Exchange Commission of Pakistan for the purpose of collecting capital gain tax on behalf of the taxpayer in the prescribed manner and deposit the same into Government treasury. By adding clause (35AA) in section 2, the NCCPL has been defined as under:

“(35AA) “NCCPL” means National Clearing Company of Pakistan Limited, which is a company incorporated under the Companies Ordinance, 1984 (XLVII of 1984) and licensed as “Clearing House” by the Securities and Exchange Commission of Pakistan;”

Taxable Income and Total Income Sections 9, 10 & 53(1A)

Taxable income of a person for tax year has been clarified as sum of the persons’ income under all heads of income for the year excluding exempt income. For this purpose clause (a) of amended section 10 has been referred in section 9, taxable income.

Section 10 has also been amended to include ‘exempt income’ in the definition of ‘total income’ with reference to sub-section (1A) of section 53 which has now been omitted by this Finance Act. Hence section 10 will now read as under:

“10. Total income. — The total income of person for a tax year shall be the sum of the;

(a) Person’s income under all heads of income for the year; and (b) Person’s income exempt from tax under any of the provisions of this Ordinance.”

Value of perquisites Section 13(7)(14)

Sub-section (7) of this section deals with loan taken by the employee from his employer either on no profit basis or on concessional rate of profit. The benefit arising to the employee due to difference between such concessional and bench mark rate, applicable on any amount of loan, was included in salary income of the employee for tax purpose.

Now the provisions of this sub-section (7) will not be applicable if the amount of loan obtained by employee does not exceed five hundred thousand rupees. For this purpose, following proviso has been added in this sub-section:

“Provided further that this sub-section shall not apply to loans not exceeding five hundred thousand rupees.”

Moreover, maximum limit of bench mark rate has been fixed at 10% per annum instead of rate to be specified by the Federal Government by notification.

Depreciation Section 22(13)(a)

The restricted cost of depreciable asset being a passenger transport vehicle not plying for hire has been enhanced from one and half million rupees to two and half million rupees for claim of depreciation.

Capital Gains Section 37(1A) & (5)

New sub-section (1A) has been inserted in this section to charge tax on gain arising on the disposal of immovable property held for a period not exceeding two years in the year of disposal. Gain arising on such disposal will be taxed @ 10% and 5% if the immovable property was held for a period not exceeding one year and two years respectively. Newly inserted sub-section is as under:

“(1A) Notwithstanding anything contained in sub-sections (1) and (3), gain arising on the disposal of immovable property, held for a period up to two years, by a person in a tax year, shall be chargeable to tax in that year under the head Capital Gains at the rates specified in Division VIII of Part I of the First Schedule.”



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Capital gain on sale of securities Section 37A(1) & (1A)

Amendments regarding capital gain tax on sale of securities were introduced through Finance (Amendment) Ordinance, 2012 effective from 24 April 2012. Now the Ordinance has been made part of the Finance Act, 2012. Besides amendments in Finance Act 1989, relating to Capital Value Tax (CVT), certain amendments have been made in the Income Tax Ordinance, 2001 to provide method for calculation of gain (Section 37A), to introduce special provision relating to capital gain tax (section 100A) and the rules for computation of capital gains on listed securities (Eight Schedule).

Sub-section (1) of section 37A has been amended to specifically exclude the exempt capital gains from this head of income. New sub-section (1A) has been inserted to provide formula for computation of gain arising from disposal of a security as under:

“(1A) The gain arising on the disposal of a security by a person shall be computed in accordance with the following formula, namely:-

A - B

Where —

(i) A is the consideration received by the person on disposal of the security; and

(ii) B is the cost of acquisition of the security.”

Income from other Sources Section 39(1)(cc)

Additional payment on delayed refunds under any tax law will now be chargeable to tax under the head of income from other sources. Clause (cc) has been added in sub-section (1) for this purpose.

Moreover, compensation u/s 171 will be now paid at fixed rate of 15% per annum instead of KIBOR.

Limitation on set off and carry forward of losses Section 59A(1) to (4)

Sub-sections (1) and (2) relevant to apportionment of losses among members of association of persons with reference to sub-section (2) of section 93 which was omitted by Finance Act, 2007, having become redundant have now been omitted. Similarly, references of omitted sub-section (3) of section 92 provided in sub-sections (3) and (4) of this section have been done away to harmonize the provisions of adjustment of losses in case of association of persons.

Tax credit for investment in shares and insurance Section 62(2) & (3)

To avail tax credit on purchase of new shares or payment of life insurance premium, maximum limit of the person’s taxable income for tax credit has been enhanced from fifteen percent to twenty percent. Similarly, maximum limit of total cost of acquiring the shares or premium paid on life insurance has been enhanced from five hundred thousand rupees to one million rupees. Moreover, condition of non-disposal of shares acquired to avail tax credit within thirty six months has been reduced to twenty four months.

Summing up the aforesaid amendments, now a resident person, other than a company, can avail benefit of tax credit under this section in proportion to the lesser of total cost of acquiring the shares or premium paid on life insurance or twenty percent of taxable income for the year or one million rupees. Further, the shares acquired for this purpose can be disposed of after a period of 24 months.

Tax credit for investment Section 65B(1), (4), (5) & (6)

By amendment in sub-section (1) of this section, it has been clarified that tax credit for investment available to a company will also be allowed against tax payable on account of minimum tax and final taxes under any of the provisions of the Ordinance.



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Sub-section (4) of this section has been substituted to allow further tax credit to a company set up in Pakistan before 01 July 2011 which makes investment for the purposes of balancing, modernization and replacement (BMR) between the period from 01 July 2011 to 30 June 2016. This tax credit will also be available against the normal tax as well as minimum and final taxes at the rate of twenty percent of the amount invested for the purposes of BMR of the plant and machinery already installed in an industrial undertaking owned by the company.

However, the tax credit will remain available under sub-section (1) to the company which has invested any amount in purchase and installation of plant and machinery, between the 01 July 2010 and 30 June 2015, or for the purposes of extension, expansion and BMR of plant and machinery already installed, at the rate of ten percent of the amount so invested.

In case the allowable tax credit is more than the tax payable by the company, the balance amount of credit will be carried forward and deducted from the tax payable in the following two years and five years in case of investment referred to in sub-section (1) and (4) respectively. Substituted sub-sections (4) to (6) are reproduced as under:

“(4) The provisions of this section shall mutatis mutandis apply to a company setup in Pakistan before the first day of July, 2011, which makes investment, through hundred per cent new equity, during first day of July, 2011 and 30th day of June, 2016, for the purposes of balancing, modernization and replacement of the plant and machinery already installed in an industrial undertaking owned by the company. However, credit equal to twenty per cent of the amount so invested shall be allowed against the tax payable, including on account of minimum tax and final taxes payable under any of the provisions of this Ordinance. The credit shall be allowed in the year in which the plant and machinery in the purchase of which the investment as aforesaid is made, is installed therein.

Explanation.—For the purpose of this section the term “new equity” shall, have the same meaning as defined in sub-section (7) of section 65E.

(5) Where no tax is payable by the taxpayer in respect of the tax year in which such plant or machinery is installed, or where the tax payable is less than the amount of credit as aforesaid, the amount of the credit or so much of it as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the taxpayer in respect of the following tax year and so on, but no such amount shall be carried forward for more than two tax years in the case of investment referred to in sub-section (1) and for more than five tax years in respect of investment referred to in sub-section (4), however, the deduction made under this section shall not exceed in aggregate the limit specified in sub-section (1) or sub-section (4), as the case may be;

(6) Where any credit is allowed under this section and subsequently it is discovered by the Commissioner Inland Revenue that any one or more of the conditions specified in this section was, or were, not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner, notwithstanding anything contained in this Ordinance, shall re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.”

Tax credit for newly established industrial undertaking Section 65D

Available tax credit equal to hundred percent of the tax payable will now also be allowed to newly established corporate dairy farming. Tax payable will include minimum and final taxes payable under any provisions of this Ordinance. The most critical condition to avail this tax credit regarding ownership of hundred percent equity by the company has been removed. Now the industrial undertaking which is



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set up with hundred percent equity raised through issuance of new shares for cash consideration will be eligible to avail tax credit under this section.

Other conditions to avail tax credit under this section remain intact. However, it is provided that short term loans obtained to meet the working capital requirements will not disqualify the taxpayer from claiming such tax credit. For this purpose following proviso has been added after amended clause (d) of sub-section (2) of this section:

“Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section.”

By inserting the following sub-section (5) in this section date of set up of industrial undertaking has been prescribed as under:

“(5) For the purposes of this section and sections 65B and 65E an industrial undertaking shall be treated to have been setup on the date on which the industrial undertaking is ready to go into production, whether trial production or commercial production.”

Tax credit for industrial undertakings established before the first day of July 2011

Section 65E

This section has been redrafted to extend the scope of tax credit and to harmonize it with other similar sections. After the amendments, tax credit under this section wil be available to the company which alongwith other conditions, invests hundred percent new equity, raised though issuance of new shares for cash in plant and machinery for industrial undertaking, including corporate dairy farming, for the purposes of expansion of existing plant and machinery or undertaking a new project. Tax credit will be allowed equal to hundred percent of tax payable including minimum and final taxes attributable to such expansion project or new project if the taxpayer maintains separate accounts of such projects. In case where such separate accounts are not maintained, the credit will be allowed equal to the proportion between the new equity and the total equity including new equity. This tax credit will be admissible against the tax payable for the tax year in which the plant and machinery is installed and for the subsequent four years. It is also clarified that equity raised through fresh issue of shares against cash by the company shall not include loans obtained from shareholders or directors. The section now reads as under:

“65E. Tax credit for industrial undertakings established before the first day of July, 2011.-(1) Where a taxpayer being a company, setup in Pakistan before the first day of July, 2011, invests any amount, with hundred per cent new equity raised through issuance of new shares, in the purchase and installation of plant and machinery for an industrial undertaking, including corporate dairy farming, for the purposes of-

(i) expansion of the plant and machinery already installed therein; or (ii) undertaking a new project,

a tax credit shall be allowed against the tax payable in the manner provided in sub-section (2) and sub-section (3), as the case may be, for a period of five years beginning from the date of setting up or commencement of commercial production from the new plant or expansion project, whichever is later.

(2) Where a taxpayer maintains separate accounts of an expansion project or a new project, as the case may be, the taxpayer shall be allowed a tax credit equal to one hundred percent of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, attributable to such expansion project or new project.



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(3) In all other cases, the credit under this section shall be such proportion of the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, as is the proportion between the new equity and the total equity including new equity.

(4) The provisions of sub-section (1) shall apply if the plant and machinery is installed at any time between the first day of July, 2011 and the 30th day of June, 2016.

(5) The amount of credit admissible under this section shall be deducted from the tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, by the taxpayer in respect of the tax year in which the plant or machinery referred to in sub-section (1) is installed and for the subsequent four years.”

(6) Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner Inland Revenue that any of the condition specified in this section was not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall apply accordingly.

(7) For the purposes of this section, ‘new equity‘ means equity raised through fresh issue of shares against cash by the company and shall not include loans obtained from shareholders or directors:

Provided that short term loans and finances obtained from banking companies or non-banking financial institutions for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section.”

Cost Section 76(11)

This section provides manners / rules to establish the cost of an asset for the purposes of the Ordinance. Now by adding the following sub-section (11), the FBR has been empowered to prescribe rules for determination of cost of any asset:

“(11) Notwithstanding anything contained in this section, the Board may prescribe rules for determination of cost for any asset.”

Consideration received Section 77(6)

The FBR has been also empowered to prescribe rules for determination of consideration received for any asset. For this purpose, sub-section (6) has been added in this section as under:

“(6) Notwithstanding anything contained in this section, the Board may prescribe rules for determination of consideration received for any asset.”

Special provisions relating to capital gain tax Section 100B

This section has been inserted in the Ordinance to introduce ‘Eighth Schedule’ wherein rules are laid down to compute, determine, collect and deposit the capital gain tax on disposal of the listed securities. This section is not applicable to certain persons. New section reads as below:

“100B Special provision relating to capital gain tax.- (1) Capital gains on disposal of listed securities and tax thereon, subject to section 37A, shall be computed, determined, collected and deposited in accordance with the rules laid down in the Eighth Schedule.

(2) The provisions of sub—section (1) shall not apply to the following persons or class of persons, namely:-



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(a) a mutual fund;

(b) a banking company, a non-banking finance company, and an insurance company subject to tax under the Fourth Schedule;

(c) a modaraba;

(d) a “foreign institutional investor” being a person registered with NCCPL as a foreign institutional investor; and

(e) any other person or class of persons notified by the Board.”

Geographical source of income Section 101(6)

Remittance of after tax profit by branch of a foreign company operating in Pakistan was classified as dividend by Finance Act, 2008 with certain exceptions with reference to clause (f) of sub-section (19) of section 2. Now by amending sub-section (6) of this section, the said dividend has been termed as Pakistan Source Income.

Minimum tax on income of certain persons Section 113(1)

Minimum tax rate has been reduced from one percent to one-half percent of the amount representing the turnover from all sources for that year.

Following explanation has been added after sub-section (1) of this section to clarify that the expression, “tax payable or paid” used in sub-section (1) does not include tax paid or payable as final tax u/s 169 or under any provision of the Ordinance:

“Explanation.- For the purpose of this sub-section, the expression “tax payable or paid” does not include tax already paid or payable in respect of deemed income which is assessed as final discharge of the tax liability under section 169 or under any other provision of this Ordinance.”

Return of income Section 114(6)(c)

Another condition to revise the return of income has been laid down by inserting the following clause (e) in sub-section (6) of this section:

“(c) taxable income declared is not less than and loss declared is not more than income or loss, as the case may be, determined by an order issued under sections 121, 122, 122A, 122C, 129, 132, 133 or 221:

Provided that if any of the above conditions is not fulfilled, the return furnished shall be treated as an invalid return as if it had not been furnished.”

Assessments Section 120(6)

Limitation for issuance of notice by the Commissioner in respect of incomplete return furnished by the taxpayer has been amended. Now the Commissioner can issue notice, mentioning deficiencies in return of income and directing the taxpayer to provide the short document, etc., under sub-section (3) of this section within the period of one hundred and eighty days from the end of the financial year in which the return was furnished.

Best judgment assessment Section 121(1)

Under this section, the Commissioner, subject to prescribed conditions, is authorized to make ex-parte assessment on the basis of available information or material and to the best of his judgment. Now, by amendment in sub-section (1) of this section, it is clarified that the assessment treated to have been made on the basis of return or revised return filed by the taxpayer will have no legal effect on the said ex-parte assessment.



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Amendment of assessments Section 122 (1) & (5A)

By virtue of amendment in sub-section (1) of this section, the Commissioner has been empowered to amend the provisional assessment made u/s 122C. Now the Commissioner may amend assessment order treated as issued u/s 120 or issued under sections 121 or 122C by making such alterations or additions as he considers necessary.

Moreover, by amending sub-section (5A), the Commissioner has also been empowered to make such enquires from the taxpayer as he deems necessary before amending or further amending the assessment order, if he considers that the order is erroneous in so far it is prejudicial to the interest of revenue.

Provisional assessment Section 122C

The proviso of sub-section (2) of this section has been amended to clarify the documents required to be filed by the person being an individual or an association of persons or a company. Since the company is required to furnish audited accounts alongwith its return of income instead of wealth statement or wealth reconciliation statement, hence another proviso has been inserted as under:

“Provided further that the provisions of sub-section (2) shall not apply to a company if return of income tax alongwith audited accounts or final accounts, as the case may be, for the relevant tax year are filed by the company electronically during the said period of sixty days.”

Procedure in appeal Section 128(1A)

Commissioner (Appeals) has expressly been granted power to stay the recovery of tax levied under the Ordinance for a period of thirty days in aggregate. New sub-section (1) has been inserted in this section as given below:

“(1A) Where in a particular case, the Commissioner (Appeals) is of the opinion that the recovery of tax levied under this Ordinance, shall cause undue hardship to the taxpayer, he, after affording opportunity of being heard to the Commissioner against whose order appeal has been made, may stay the recovery of such tax for a period not exceeding thirty days in aggregate.”

Decision in appeal Section 129(5), (6) & (7)

Limitation of time of four months for passing the appeal order by the Commissioner (Appeals) has been removed by omitting the sub-sections (5), (6) and (7) of this section.

Earlier, the Commissioner (Appeals) was obliged to pass the appellate order within four months from filing of appeal subject to the condition that expiry notice was served by the appellant not less than thirty days before the expiration of period. Even then, if the Commissioner (Appeals) failed to pass the order the relief sought in appeals was treated to be granted to the appellant.

Appointment of the Appellate Tribunal Section 130(4) & (5)

Sub-sections (4) and (5) of this section have been amended whereby the Commissioner Inland Revenue or Commissioner Inland Revenue (Appeals) may be appointed as accountant member of Appellate Tribunal Inland Revenue (ATIR) if he has three years experience as Commissioner or Collector. Earlier the required minimum experience was of five years. Moreover, the accountant member has also been entitled to be appointed as chairperson of the ATIR without any exception.

Appeal to the Appellate Tribunal Section 131(5)

Provisos of sub-section (5) of this section regarding stay of recovery of tax demand have been substituted and now the time period of such stay of one hundred and eighty days will be reduced by the period of stay if any granted by the High Court. New provisos are as under:



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“Provided that if on filing of application in a particular case, the Appellate Tribunal is of the opinion that the recovery of tax levied under this Ordinance and upheld by the Commissioner (Appeals), shall cause undue hardship to the taxpayer, the Tribunal, after affording opportunity of being heard to the Commissioner, may stay the recovery of such tax for a period not exceeding one hundred and eighty days in aggregate:

Provided further that in computing the aforesaid period of one hundred and eighty days, the period, if any, for which the recovery of tax was stayed by a High Court, shall be excluded.”;

Due date for payment of tax Section 137(2)

Tax demand created by passing a provisional assessment order u/s 122C was payable immediately after a period of sixty days from the date of service of notice of demand. Now by adding the following new proviso, the tax demand may be paid before expiry of the period of sixty days:

“Provided further that the taxpayer may pay the tax payable prior to expiry of the period of sixty days specified in the first proviso.”

Final tax regime Sections 148 (7) & (8), 151(3), 152(1B) & (1BB), 153(3) & clause (b) of the proviso, 154(4), 156(3),

156A(2), 169(1)(a), (b) & 233(3)

The words ‘tax collected’ with reference to final tax, wherever occur in the Ordinance have been replaced with the words ‘tax required to be collected’. Similarly the words ‘tax deducted’ have been replaced with the words ‘tax deductable’. It appears that the amendments have been made to nullify the possible arguments that income on which tax is not deducted or short deducted cannot be brought into the ambit of final taxation.

Payments to non-residents Section 152(1AAA), (2) & (2A)

Payments on account of advertisement services to a non resident media person are subject to withholding tax at the rate of ten percent of gross amount paid under section 153A. The section 153A has been renumbered as sub-section (1AAA) of section 152 which prescribes withholding tax provisions against payments to non-residents. The tax so collected will be final tax as sub-section (1AAA) has been included in section 169(1)(a).

Withholding tax provisions in respect of ‘permanent establishment in Pakistan of a non-resident person’ are placed in this section as sub-section (2A) which is reproduced below:

“(2A) Every prescribed person making a payment in full or part including a payment by way of advance to a permanent establishment in Pakistan of a non-resident person-

(i) for the sale of goods; (ii) for the rendering of or providing services; and (iii) on the execution of a contract, other than a contract for the sale of goods or the

rendering of or providing services, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division II of Part III of the First Schedule.“

Moreover, withholding tax provisions will not be applicable, with the written approval of the Commissioner, on payments on account of insurance premium or reinsurance premium to a permanent establishment in Pakistan of the non-resident person. Following sub-section (2A) has been inserted in this section for this purpose.



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“(2AA) Sub-section (1AA) shall not apply to an amount, with the written approval of the Commissioner, that is taxable to a permanent establishment in Pakistan of the non-resident person.”

Payments for goods, services and contracts Section 153(1)

Consequential amendment has been made in sub-section (1) of this section to omit the expression “permanent establishment in Pakistan of a non-resident person”, as withholding tax provisions in respect of payments to permanent establishments have now been provided in sub-section (2A) of section 152.

Payment to traders and distributors Section 153(A)

Tax at the rate of 0.5 percent will be collected by the manufacturer at the time of sale to distributors, dealers and wholesalers. Such tax collected will be adjustable against the tax liability for the tax year in which the tax was so collected. The withholding tax is leviable on the gross sales to all dealers, distributors and wholesalers irrespective of whether registered or unregistered with Income Tax or Sales Tax. The gross sale will be inclusive of sales tax, federal excise duty and any trade discount shown on the invoice or bill. Section 153A has been substituted as under:

“153A Payment to Traders and Distributors.- (1) Every manufacturer, at the time of sale to distributors, dealers and wholesalers, shall collect tax at the rate specified in Part IIA of the First Schedule, from the aforesaid persons, to whom such sales have been made.

(2) Tax credit for the tax collected under sub-section (1) shall be allowed in computing the tax due by the person on the taxable income for the tax year in which the tax was collected.”

Tax collected or deducted as final tax Section 169(2)

If any tax deductible has not so been deducted or short deducted, the same may be recovered from the person from whom such tax was not so deducted or collected with reference to section 162. Following clause (f) has been inserted in sub-section (2) for this purpose:

“(f) tax deductible has not been deducted, or short deducted, the said non-deduction or short deduction may be recovered under section 162, and all the provisions of this Ordinance shall apply accordingly.”

Additional payment for delayed refunds Section 171(1)

Compensation on delayed payment of refunds was paid at the KIBOR prevalent on first day of each quarter of the financial year as defined in section 2(30AA). Now such compensation will be paid at the rate of fifteen percent per annum of the amount of delayed refund.

Notice to obtain information or evidence Sections 176(1)(c) & 210(1B)

Now the firm of chartered accountants, appointed by the FBR or by the Commissioner to conduct tax audit, may obtain any information from the taxpayer whos tax audit is being conducted. Earlier such powers were allowed only in case which was selected for audit. Consequential amendment has also been made in sub-section (1B) of section 210.

Tax Payer Card Section 181B

The FBR has been empowered to make scheme to introduce ‘tax payer honour card’ for individuals who meet the criteria of the scheme. Section 181B has been inserted in the Ordinance as under:

“181B Tax Payer Card.- Subject to this Ordinance, the Board may make a scheme for introduction of a tax payer honour card for individual taxpayers, who fulfill a minimum criteria to be eligible for the benefits as contained in the scheme.”



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Offences and penalties Section 182(1)

This section deals in cases where penalty is payable on written order passed by the Commissioner. Now it is provided that if the taxpayer admits his default he may voluntarily pay the amount of penalty due without waiting for such written order.

Default surcharge Section 205

The default surcharge (additional tax) due to failure in payment of any tax or penalty will now be levied at the flat rate of eighteen percent per annum instead of KIBOR plus three percent per quarter.

Moreover, the taxpayer has been provided option to pay the tax due after the order of Commissioner (Appeals) within due date and without filing further appeal in Tribunal, to avoid the default surcharge leviable in this regard. For this purpose following proviso has been added after sub-section (1) of this section.

“Provided that if the person opts to pay the tax due on the basis of an order under section 129 on or before the due date given in the notice under sub-section (2) of section 137 issued in consequence of the said order, and does not file an appeal under section 131, he shall not be liable to pay default surcharge for the period beginning from the due date of payment in consequence of an order appealed against to the date of payment in consequence of notice under sub-section (2) of section 137.”

Similar option has been made available to avoid the default surcharge in case of default in withholding tax u/s 161. The proviso added after sub-section (3) states as under:

“Provided that if the person opts to pay the tax due on the basis of an order under section 129 on or before the due date given in the notice under sub-section (2) of section 137 issued in consequence of the said order and does not file an appeal under section 131, he shall not be liable to pay default surcharge for the period beginning from the date of order under section 161 to the date of payment.”

Income Tax Authorities Section 207(3) & (3A)

Certain amendments have been made in sub-section (3) to make all the income tax authorities subordinate to the FBR. Moreover, new sub-section (3A) is inserted to further clarify the sequence of authorities subordinate to the Chief Commissioners Inland Revenue as under:

“(3A) Commissioners Inland Revenue, Additional Commissioners Inland Revenue, Deputy Commissioners Inland Revenue, Assistant Commissioners Inland Revenue, Inland Revenue Officers, Inland Revenue Audit Officer, Superintendents Inland Revenue, Auditors Inland Revenue and Inspectors Inland Revenue, shall be subordinate to the Chief Commissioners Inland Revenue.”

Power or function exercised Section 211(3)

The FBR has clarified the powers of an inland revenue authority by adding following sub-section (3) in this section:

“(3) the Board or with the approval of the Board an authority appointed under this Ordinance, shall be competent to exercise all powers conferred upon any authority subordinate to it.”

Condonation of time Section 214A

Condonation of time limit will now also be available to income tax authorities specified in section 207 for any act or thing which could not be done within the time specified under any provision of the Ordinance. For this purpose, explanation has been added in this section as under:



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“Explanation,- For the purpose of this section, the expression “any act or thing is to be done” includes any act or thing to be done by the taxpayer or by the authorities specified in section 207.”

Directorate General (Intelligence and Investigation), Inland Revenue Section 230

Like sales tax, federal excise and custom laws, new authority in the name of Directorate General (Intelligence and Investigation) Inland Revenue has been created by inserting this section in the Ordinance. The FBR has been empowered to specify functions and jurisdiction of the Directorate General and its officers. Section 230 states as under:

“230 Directorate General (Intelligence and Investigation), Inland Revenue.-(1) The Directorate General (Intelligence and Investigation) Inland Revenue shall consist of a Director General and as many Directors, Additional Directors, Deputy Directors and Assistant Directors and such other officers as the Board, may by notification in the official Gazette, appoint.

(2) The Board may, by notification in the official Gazette,-

(a) specify the functions and jurisdiction of the Directorate General and its officers; and

(b) confer the powers of authorities specified in section 207 upon the Directorate General and its officers.”

Cash withdrawal from a bank Section 231A(1)

Limit of cash withdrawal with reference to withholding tax has been enhanced from twenty five thousand rupees to fifty thousand rupees per day. Now banking company will deduct tax at the rate of 0.2% if the sum total of the payments for cash withdrawal in a day exceeds fifty thousand rupees.

Collection of tax by a stock exchange registered in Pakistan Sections 233A & 233AA

Clauses (c) and (d) of sub-section (1) of section 233A have been omitted in consequent to amendments in capital gains on sale of listed securities. Now tax on margin financing in share business will be collected by NCCPL. For this purpose, following section 233AA has been inserted.

“233AA Collection of tax by NCCPL.- NCCPL shall collect advance tax from the members of Stock Exchange registered in Pakistan, in respect of margin financing in share business at the rate specified in Division IIA of Part IV of First Schedule.”

Advance tax on sale or transfer of immovable property Section 236C

Adjustable tax at the rate of 0.5% percent of gross amount will be collected in advance from the seller. Such tax will be collected by the person registering or attesting transfer of immovable property. New section 236C prescribes as under:

“236C Advance Tax on sale or transfer of immovable Property.-(1) Any person responsible for registering or attesting transfer of any immovable property shall at the time of registering or attesting the transfer shall collect from the seller or transferor advance tax at the rate specified in Division X of Part IV of the First Schedule.

(2) The Advance tax collected under sub-section (1) shall be adjustable.

(3) The advance tax under this section shall not be collected in the case of Federal Government, Provincial Government or a Local Government.”


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THE FIRST SCHEDULE

PART I — RATES OF TAX

Rates of Tax for Individuals and Association of Persons — Division I

Threshold of taxable income Clauses (1) & (1A) Basic threshold of taxable income of non-salaried individuals has been enhanced to Rupees 400,000 from Rupees 350,000. Moreover, Association of Persons (AOP) has been included in this division to charge tax using slab rates instead of flat rate of 25%. New slab rates of tax imposed on the taxable income of individuals except salaried taxpayers and Association of Persons are as under:

S.No. Taxable Income Rate of tax

1. Where taxable income does not exceed Rs. 400,000 0%

2. Where the taxable income exceeds Rs. 400,000 but does not exceed Rs. 750,000

10% of the amount exceeding Rs. 400,000

3. Where the taxable income exceeds Rs. 750,000 but

does not exceed Rs. 1,500,000 Rs. 35,000 + 15% of the amount exceeding Rs. 750,000

4. Where the taxable income exceeds Rs. 1,500,000

but does not exceed Rs. 2,500,000 Rs. 147,500 + 20% of the amount exceeding Rs. 1,500,000

5. Where the taxable income exceeds Rs. 2,500,000 Rs. 347,500 + 25% of the amount

exceeding Rs. 2,500,000

The rates of tax to be applied on income of an individual chargeable under the head salary are provided as under:

S. No. Taxable Income Rate of tax

1. 0 to Rs. 400,000 0%

2. Rs. 400,000 to Rs. 750,000 5% of the amount exceeding Rs. 400,000

3. Rs. 750,000 to Rs. 1,500,000 Rs. 17,500 + 10% of the amount exceeding Rs. 750,000

4. Rs. 1,500,000 to Rs. 2,000,000 Rs. 95,000 + 15% of the amount exceeding Rs. 1,500,000

5. Rs. 2,000,000 to Rs. 2,500,000 Rs. 175,000 + 17.5% of the amount exceeding Rs. 2,000,000

6. Rs. 2,500,000 and above Rs. 420,000 + 20% of the amount exceeding Rs. 2,500,000

The proviso of clause (IA) regarding marginal relief allowed to the salaried individual has been done away.


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DIVISION VII — CAPITAL GAINS ON DISPOSAL OF SECURITIES Substituted rates of tax on capital gains with reference to section 37A are as under:

Where holding period of a security is

Tax Year Less than 6 months

6 months or more but less than 12

months % %

2011 10 7.5 2012 10 8 2013 10 8 2014 10 8 2015 17.5 9.5 2016 (not provided) 10

Rate of tax will be 0% where holding period of a security is twelve months or more. Mutual fund or a collective investment scheme will deduct capital gains tax at the rates specified above, on redemption of securities. DIVISION VII — CAPITAL GAINS ON DISPOSAL OF IMMOVABLE PROPERTY Rates of tax on capital gains on disposal of immovable property have been provided as under:

S. No. Period Rate of Tax

1. Where holding period of Immovable property is up to one year. 10%

2. Where holding period of Immovable property is more than one year but not more than two years.

5%

PART IIA — COLLECTION OF TAX FROM DISTRIBUTORS, DEALERS AND WHOLESALERS Tax at the rate of 0.5% will be collected by the manufacturer at the time of sale to distributors, dealers and wholesalers u/s 153A. PART III — DIVISION II — TAX RATE ON PAYMENTS TO NON-RESIDENTS Clause (3) has been inserted in this Division to provide 10% withholding tax rate on gross amount paid to non-resident media person for advertisement services, under sub-section IAAA of section 152. The rate of tax to be deducted from a payment on account of sale of goods to a permanent establishment referred to in clause (a)* of sub-section (2A) of section 152 will be 3.5% of gross amount payable. The rate of tax to be deducted from following payments referred to in clause (b)* of sub-section (2A) of section 152 will be:

i. In case of transport services, 2% of the gross amount ii. In any other case 6% of the gross amount


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The rate of tax to be deducted from payment referred to in clause (c)* of sub-section (2A) of section 152 will be 6% of the gross amount payable. * The above mentioned references of clauses (a), (b) and (c) are not in accordance with sub-section (2A) of section 152 of the Ordinance. PART IV — DIVISION III — CLAUSE (I) — TAX ON MOTOR VEHICLES Motor vehicle tax u/s 234 will now be collected at the rate of five rupees instead of one rupee per kilogram of the laden weight. Clause 2(c) - In case of passenger transport vehicles plying for hire with registered seating capacity of 25 persons or more, tax at the rate of Rupees 500 per seat per annum will be collected. Earlier such tax was collected at the rate of Rupees 100 per seat per annum. DIVISION VII — PURCHASE OF MOTOR CARS AND JEEPS The rate of payment of tax u/s 231B on registration of motor vehicles with engine capacity from 1801 to 2000 CC will be Rupees 25,000. DIVISION X — ADVANCE TAX ON SALE OR TRANSFER OF IMMOVABLE PROPERTY The rate of tax to be collected under section 236C shall be 0.5% of the gross amount of the consideration received.

THE SECOND SCHEDULE

EXEMPTIONS AND TAX CONCESSIONS

PART I — EXEMPTIONS FROM TOTAL INCOME

Income payment plan Clause (23B) The monthly installments received from income payment plan invested out of accumulated balance of pension account, has been exempted from tax provided accumulated balance is invested for a period of ten years. Newly added clause (23B) states as under:

“(23B) The amounts received as monthly installment from an income payment plan invested out of the accumulated balance of an individual pension accounts with a pension fund manager or an approved annuity plan or another individual pension account of eligible person or the survivors pension account maintained with any other pension fund manager as specified in the Voluntary Pension System Rules 2005 shall be exempt from tax provided accumulated balance is invested for a period of ten years: Provided that where any amount is exempted under this clause and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner that any of the conditions specified in this clause were not fulfilled, the exemption originally allowed shall be deemed to have been wrongly allowed and the Commissioner may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant years and the provisions of this Ordinance shall, so far as may be, apply accordingly.”



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Balance withdrawal from approved pension fund Clause (23C)

Accumulated balance withdrawn from approved pension fund that represent the transfer of balance of approved provident fund to the said pension fund has been exempted from tax by inserting the following clause:

“(23C) Any withdrawal of accumulated balance from approved pension fund that represent the transfer of balance of approved provident fund to the said approved pension fund under the Voluntary Pension System Rules , 2005.”

Donation Clause 61(IA)

Any amount paid as donation to the Citizens Foundation will now be exempted from tax.

Welfare fund Clause (65A) S.R.O. 819(I)/2012 dated 04 June 2012

New clause (65A) has been inserted in Part I of Second Schedule to exempt income for any tax year commencing from the tax year 2003, derived from the Welfare Fund created under Rule 26 of Emigration Rules, 1979 [made under section 16 of the Emigration Ordinance, 1979 (XVIII of 1979)] except the income generated by the aforesaid Fund through commercial activities.

Income of the Citizens Foundation Clause 66 (XXVIII)

Income of the Citizens Foundation has been exempted from tax by adding its name in this clause.

Wapda Second Sukuk Company Limited SRO 463(1)/2012 dated 28 April 2012

Any income derived by Wapda Second Sukuk Company Limited has been exempted from tax by adding sub-clause (xxviii) in clause (66) of this part. [Sub-clause (xxviii) in respect of FBR Foundation is already there].

Profits and gains of venture capital company and venture capital fund Clause (101)

Available exemption to profits and gains derived by registered venture capital company and venture capital fund has been extended up to 30 June 2024. Earlier such profits and gains derived between 01 July 2010 and 30 June 2014 were exempted.

PART II — REDUCTION IN TAX RATES

Imports for own use by industrial undertaking Clause (9A)

Application of reduced rate of 3% on raw material imported by industrial undertaking for its own use has been made conditional by adding the following proviso:

“Provided that the rate of 3% shall be applicable on production of an exemption certificate issued by the Commissioner.”

Remeltable steal Clause (9B) - S.R.O. 772(1) 2012 dated 26 June 2012

Tax under section 148 will be collected at the rate of 1% on import value of remeltable steal (PCT heading 72.04) imported by an industrial undertaking for its own use.

Transport facility Clause (27) - S.R.O. 569(1)/2012 dated 26 May 2012

Following clause (27) has been added to charge tax on the compulsory monetization of transport facility, effective from 26 May 2012:

“(27) Tax on payments under Compulsory Monetization of Transport Facility for Civil servants in BS-20 to BS-22 (as reduced by deduction of driver’s salary) shall be charged at the rate 5% as a separate block of income.”



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PART III — REDUCTION IN TAX LIABILITY

Motorcycle dealers — Minimum Tax Clause (15) - SRO 549(1)/2012 dated 22 May 2012

Rate of minimum tax u/s 113 for motorcycle dealers registered under Sales Tax Act, 1990 will be reduced by seventy five percent for the tax year 2012 and onwards. Moreover, such rate will be reduced to fifty percent for the tax year 2011 provided that minimum tax is deposited by 30 June 2012. The provision needs further clarification regarding the tax year for which minimum tax is paid by 30 June 2012 as the minimum tax for the tax year 2011 would have already been paid along with return of income.

PART IV — EXEMPTION FROM SPECIFIC PROVISIONS

Withholding tax on inter-corporate dividend and profit on debt Clauses (11B) & (11C) Exemption from withholding tax on inter-corporate dividend and profit on debt within group companies has been granted by adding the clauses (11B) and (11C) as follows:

“(11B) The provisions of section 150 shall not apply in respect of inter-corporate dividend within the group companies entitled to group taxation under section 59AA or section 59B.”;

“(11C) The provisions of section 151 shall not apply in respect of inter-corporate profit on debt within the group companies entitled to group taxation under section 59AA or section 59B.”

Option to opt out of Presumptive Tax Regime (PTR) Clauses (41A), (41AA) & (41AAA) Options to opt out of PTR have been made available to importers, exporters and suppliers on sale of goods in certain cases, with reference to sections 148(7), 154(4) and 153(1)(A), respectively. However conditions have been imposed that minimum tax liability under normal tax regime (NTR) will be at least:

I. 60% of tax already collected on imports u/s 148(7); II. 50% of tax already deducted on exports u/s 154(4); or III. 70% of tax already deducted on sale of goods u/s 153(1)(a).

For this purpose following clauses have been inserted in this part:

“(41A) The provisions of sub-section (7) of section 148 and clause (a) of sub-section (1) of section 169 shall not apply in respect of a person if he opts out of presumptive tax regime subject to the condition that minimum tax liability under normal tax regime shall not be less than 60% of tax already collected under sub-section (7) of section148”.

“(41AA) The provisions of sub-section (4) of section 154 and clause (b) of sub-section (1) of section 169 shall not apply in respect of a person if he opts out of presumptive tax regime subject to the condition that minimum tax liability under normal tax regime shall not be less than 50% of tax already deducted under sub-section (4) of section 154.” “(41AAA) The provisions of clause (a) of sub-section (1) of section 153 and clause (b) of sub-section (1) of section 169 shall not apply in respect of a person if he opts out of presumptive tax regime subject to the condition that minimum tax liability under normal tax regime shall not be less than 70% of tax already deducted under clause (a) of sub-section (1) of section 153.”


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Exemption of capital gain tax on sale of securities Clause (47B) Withholding tax provisions will not be applicable to any person making payment on account of capital gains on sale of listed securities to National Investment Unit Trust or a collective investment scheme or a modaraba or an approved pension fund or an approved income payment plan or a REIT or a private equity and venture capital fund or a recognized provident fund or an approved superannuation fund or an approved gratuity fund. Withholding tax on goods imported for subsequent exportation Clause (56)(III) Under this clause, withholding tax provisions u/s 148 are not applicable on goods temporarily imported into Pakistan for subsequent exportation. Such goods were also exempt from customs duty and sales tax under SRO 165(1)/2005 dated 20 October 2005 which was superseded by S.R.O. 492(1)/2009 dated 13 June 2009. Hence, the reference of prevailing SRO dated 13 June 2009 has been substituted in this clause for the rescinded SRO dated 20 October 2005.

THE THIRD SCHEDULE

PART II — INITIAL ALLOWANCE AND FIRST YEAR ALLOWANCE The allowable rate of initial allowance on buildings has been reduced from 50% to 25% of the cost.

THE FOURTH SCHEDULE

RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS OF INSURANCE BUSINESS Tax rates on Capital Gains Rule (6B) Rates of tax on capital gains on disposal of shares of listed companies, vouchers of Pakistan Telecommunication Corporation, modaraba certificate or instruments of redeemable capital and derivative products have been substituted as under:

S. No. Tax Year Where holding period of securities is less than six

months

Where holding period of securities is more than six months but less than

twelve months 1 2011 10.0% 8.0% 2 2012 10.0% 8.0% 3 2013 12.5% 8.5% 4 2014 15.0% 9.0% 5 2015 17.5% 9.0%

THE FIFTH SCHEDULE

PART I — RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS FROM THE EXPLORATION

AND PRODUCTION OF PETROLEUM Limitation on Payment to Federal Government and Taxes Rule 4(4A)

One time irrecoverable option has been offered to pay tax at the rate of forty percent of the profits and gains, net of royalty, for the tax year 2012 and onward. However this option will be available if whole outstanding liability up to tax year 2011 is paid by 30 June 2012 and pending appeals, petitions are withdrawn. New clause (4A) added in this regard states as under:


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“(4A) Notwithstanding anything contained in this Schedule, a person, for tax year 2012 and onward, may opt to pay tax at the rate of forty per cent of the profits and gains, net of royalty, derived by a petroleum exploration and production undertaking: Provided that this option shall be available subject to withdrawal of appeals, references and petitions on the issue of tax rate pending before any appellate forum: Provided further that the outstanding tax liability created under this Ordinance up to tax year 2011 is paid by the 30th June, 2012: Provided also that this option is available only for one time and shall be irrevocable.”

THE SEVENTH SCHEDULE

RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS OF A BANKING COMPANY AND TAX PAYABLE THEREON

Tax on income computed Rule 6 Tax on dividend income received from money market funds and income funds will be charged at the rate of 25% for tax year 2013 and at the rate of 35% for tax years 2014 and onwards. Following proviso has been added in this rule:

“Provided also that the dividend received from Money Market Funds and Income Funds shall be taxed at the rate of 25% for tax year 2013 and at the rate of 35% for tax years 2014 and onwards.”

Advance tax Rule 5 - S.R.O. 561(1)/2012 dated 24 May 2012 After the amendment in sub-rule (1) of Rule 5 of this Schedule, sub-sections 4(A) and (6) of section 147 dealing with payment of advance tax on estimate basis shall not apply to a banking company. By inserting new sub-rule (1A), the procedure to pay advance tax on estimate basis by a banking company is specified as under:

"(IA) A banking company required to make payment of advance tax in accordance with sub-rule (1), shall estimate the tax payable by it for the relevant tax year, at any time before the installment payable on 15th June of the relevant year is due. In case the tax payable is likely to be more than the amount it is required to pay under sub-rule (1), the banking company shall furnish to the Commissioner an estimate of the amount of tax payable by it and thereafter pay in the installment due on 15th June the difference, if any, of fifty percent of such estimate and advance tax already paid upto 15th June of the relevant tax year. The remaining fifty percent of the estimate shall be paid after 15th June in six equal installments payable by 15thof each succeeding month of the relevant tax year.”

THE EIGHTH SCHEDULE (Section 100B)

RULES FOR THE COMPUTATION OF CAPITAL GAINS ON LISTED SECURITIES

The eighth schedule to the Ordinance has been introduced through Finance (Amendment) Ordinance 2012, wherein rules are laid down to compute and determine the capital gain and to collect and deposit the tax thereon. The capital gain will be computed and tax thereon will be collected and deposited by NCCPL as defined in section 2(35AA).


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These rules also provides that nature and source of the amount invested prior to introduction of this schedule, i.e. 24 April 2012, will not be enquired if the same remained invested for a period of forty five days upto 30 June 2012. In case the investment is made from the date of enforcement of this schedule till 30 June 2014 and the amount remains invested for a period of one hundred and twenty days, enquiries regarding nature and source of the amount invested will not be made. Complete text of this schedule is reproduced as under: 1. Manner and basis of computation of capital gains and tax thereon.- (1) Capital gains on disposal of listed

securities, subject to tax under section 37A, and to which section 100B apply, shall be computed and determined under this Schedule and tax thereon shall be collected and deposited on behalf of taxpayers by NCCPL in the manner prescribed.

(2) For the purpose of sub-rule (1), NCCPL shall develop an automated system.

(3) Central Depository Company of Pakistan Limited shall furnish information as required by NCCPL

for discharging obligations under this Schedule.

(4) NCCPL shall issue an annual certificate to the taxpayer on the prescribed form in respect of capital gains subject to tax under this Schedule for a financial year:

Provided that on the request of a taxpayer or if required by the Commissioner, NCCPL shall issue a certificate for a shorter period within a financial year.

(5) Every taxpayer shall file the certificate referred to in sub-rule (4) along with the return of income

and such certificate shall be conclusive evidence in respect of the income under this Schedule.

(6) NCCPL shall furnish to the Board within thirty days of the end of each quarter, a statement of capital gains and tax computed thereon in that quarter in the prescribed manner and format.

(7) Capital gains computed under this Schedule shall be chargeable to tax at the rate applicable in

Division VII of Part I of the First Schedule. 2. Sources of Investment.-(1) Where a person has made any investment in the listed securities, enquiries as

to the nature and source of the amount invested shall not be made for any investment made prior to the introduction of this Schedule, provided that

(a) a statement of investments is filed with the Commissioner along with the return of income and

wealth statement for tax year 2012 within the due date as provided in section 118 of this Ordinance and in the manners prescribed; and

(b) that the amount remains invested for a period of forty- five days upto 30th of June 2012, in the

manner as may be prescribed.

(2) Where a person has made any investment in the shares of a public company traded at a registered stock exchange in Pakistan from the date of coming into force of this Schedule till June 30, 2014, enquiries as to the nature and sources of amount invested shall not be made provided that —

(a) the amount remains invested for a period of one hundred and twenty days in the manner as may

be prescribed ;


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(b) tax on capital gains, if any, has duly been discharged in the manner laid down in this Schedule; and

(c) a statement of investments is filed with the Commissioner along with the return of income and

wealth statement for the relevant tax year within the due date as provided in section 118 of this Ordinance and in the manner prescribed.

(3) For the purpose of this rule, amount of investment shall be calculated in the prescribed manner,

excluding market value of net open sale position in futures and derivatives, if such sale is in a security that constitutes the said investment.

3. Certain provisions of this Ordinance not to apply.- The respective provisions for collection and recovery

of tax, advance tax and deduction of tax at source laid down in the Parts IV and V of Chapter X shall not apply on the income from capital gains subject to tax under this Schedule and these provisions shall apply in the manner as laid down in the rules made under this Ordinance, except where the recovery of tax is referred by NCCPL to the Board in terms of rule 6(3).

4. Payment of tax collected by NCCPL to the Board.- The amount collected by NCCPL on behalf of the

Board as computed in the manner laid down under this Schedule shall be deposited in a separate bank account with National Bank of Pakistan and the said amount shall be paid to the Board along with interest accrued thereon on yearly basis by July 31st next following the financial year in which the amount was collected.

5. Persons to whom this Schedule shall not apply.- If a person intends not to opt for determination and

payment of tax as laid down in this Schedule, he shall file an irrevocable option to NCCPL after obtaining prior approval of the Commissioner in the manner prescribed. In such case the provisions of rule 2 shall not apply.

6. Responsibility and obligation of NCCPL.- (1) Pakistan Revenue Automation Limited (PRAL), a company

incorporated under the Companies Ordinance, 1984 (XLVII of 1984) or any other company or firm approved by the Board and any authority appointed under section 209 of this Ordinance, not below the level of an Additional Commissioner Inland Revenue, shall conduct regular system and procedural audits of NCCPL on quarterly basis to verify the implementation of this Schedule and rules made under this Ordinance. (2) NCCPL shall implement the recommendations, if any, of the audit report under sub-rule (1), as

approved by the Commissioner, and make adjustments for short or excessive deductions. However, no penal action shall be taken against NCCPL on account of any error, omission or mistake that has occurred from application of the system as audited under sub-rule (1).

(3) NCCPL shall be empowered to refer a particular case for recovery of tax to the Board in case NCCPL

is unable to recover the amount of tax. 7. Transitional Provisions.- In respect of tax year 2012, for the period commencing from coming into force

of this Schedule till June 30, 2012, the certificate issued by NCCPL under rule 1(4) shall be the basis of capital gains and tax thereon for that period.


INCOME TAX ORDINANCE, 2001 — GENERAL

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Important provisions regarding income tax rates, advance tax, rates for deduction of tax at source, filing dates of various periodical statements and income tax return, etc., are given in this part for convenience of our clients.

INCOME TAX RATES

TAX YEAR 2013 (Financial Year Ending on 30 June 2013)

RATES OF TAX FOR COMPANIES

The rates of tax imposed on taxable income of companies falling under various categories are as under:

S. No. Description Rate of Tax

1. Modaraba Company [clause (18), Part II, Second Schedule] 25% 2. Public Company, Private Company and a Banking Company 35% 3. Small Company [Paragraph (iii), Division II, Part I, First Schedule] 25%

INCOME TAX OF AMALGAMATED COMPANY

Rate of income tax of amalgamated company for its different businesses shall be same as before amalgamation for the year of amalgamation and in the following two tax years as per clause (19) of Part II of the Second Schedule.

INCOME TAX RATES ON DIVIDEND

• The rate of tax imposed under section 5 on dividend received from a company is 10% (Division III, Part I, First Schedule)

• The rate of tax in case of dividends declared or distributed on shares of a power generation company continues to 7.5% as per clause (20) of Part II of the Second Schedule.

• The rate of tax on dividend received by a banking company from its asset management company is 20%. Moreover, dividend received by a banking company from Money Market Fund and Income Fund will be taxed at the rates of 25% and 35% for the Tax Years 2013 and 2014 and onwards respectively, as per proviso of Rule 6 of the Seventh Schedule.

TAX RATES FOR INDIVIDUALS AND ASSOCIATION OF PERSONS

The rates of tax chargeable for the “Tax Year 2013” are as under:

• Non-Salaried Individuals and association of persons (AOP)


1. Where taxable income does not exceed Rs.400,000

0%

2. Where the taxable income exceeds Rs.400,000 but does not exceed Rs.750,000

10% of the amount exceeding Rs.400,000

3. Where the taxable income exceeds Rs.750,000 but does not exceed Rs.1,500,000

Rs.35,000+15% of the amount exceeding Rs. 750,000

4. Where the taxable income exceeds Rs.1,500,000 but does not exceed Rs.2,500,000

Rs.147,500+20% of the amount exceeding Rs.1,500,000

5. Where the taxable income exceeds Rs.2,500,000 Rs.347,500+25% of the amount exceeding Rs.2,500,000



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• Salaried Individuals, where income from salary exceeds 50% of taxable income:


1. 0 to Rs.400,000 0% 2. Rs.400,000 to Rs.750,000 5% of the amount exceeding Rs. 400,000 3. Rs.750,000 to Rs.1,500,000 Rs.17,500+10% of the amount exceeding Rs.750,000 4. Rs.1,500,000 to Rs.2,000,000 Rs.95,000+15% of the amount exceeding Rs.1,500,000 5. Rs.2,000,000 to Rs.2,500,000 Rs.175,000 + 17.5% of the amount exceeding Rs.2,000,000 6. Rs.2,500,000 and above Rs.420,000+ 20% of the amount exceeding Rs. 2,500,000

ADJUSTMENT OF TAX CREDIT BY EMPLOYER

Every employer, while deducting tax on the income chargeable under the head salary of its employees, is allowed to make adjustments for any excess tax deduction or deficiency arising out of any previous deduction or failure to make deduction during the tax year under the provisions of section 149 of the Income Tax Ordinance, 2001 [Section 149(1)].

Presently following tax adjustments and tax credits are available to the salaried persons:

Adjustment of tax deducted/collected on:

• motor vehicle under section 234 in respect of motor vehicle registered in employee’s own name; • telephone bill as subscriber of telephone. • cash withdrawals from banks; and • registration of a new motor vehicle under section 231B.

Tax credits on:

• donations to approved NPOs (section 61); • investment in shares and insurance (section 62); • contribution to approved pension funds (section 63); and • profit on debt paid in respect of housing loans, etc. (section 64).

The employers will, however, be responsible to obtain documentary evidences alongwith declaration from employees on prescribed form “IT-3”, for correct application of relevant provisions of law. The said declaration and evidences are required to be retained by the employer for at least 5 years.

VALUATION OF PERQUISITES, ALLOWANCES AND BENEFITS

In case of salaried taxpayers special allowance and medical allowance (other than personal expenditure on medical services) are exempt from tax under Clause (39) and Clause (139) respectively of Part I of Second Schedule. However, value of other perquisites, allowances and benefits provided by the employer shall be included in income of the employee in accordance with the rules 4 to 7 of Part I of Chapter II of Income Tax Rules, 2002 as reproduced below:

4. Valuation of Accommodation - The value of accommodation provided by an employer to the employee shall be taken equal to the amount that would have been paid by the employer in case such accommodation was not provided.

Provided that the value taken for this purpose shall, in any case, not be less than forty five percent of the minimum of the time scale of the basic salary or the basic salary where there is no time scale.

Provided further that where House Rent Allowance is admissible @ thirty per cent, the value taken for the purpose of this rule shall be an amount not less than thirty per cent of minimum of the time scale of basic salary or the basic salary where there is no time scale.



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5. Valuation of conveyance.- The value of conveyance provided by the employer to the employee shall be taken equal to an amount as below: -

6. For the purpose of this part, “employee” includes a director of a company.

REDUCTION IN TAX LIABILITY OF SENIOR CITIZENS, TEACHERS AND RESEARCHERS Clause (IA), Part III, Second Schedule Where taxable income other than income on which the deduction of tax is final discharge of tax liability, in a tax year, of a taxpayer aged 60 years or more on the first day of that tax year does not exceed Rupees 1,000,000, his tax liability on such income shall be reduced by 50%. Clause (2), Part III, Second Schedule The provision to reduce the income tax liability of a full time teacher or a researcher employed in a non profit educational or research institution duly recognized by Higher Education Commission, a Board of Education or a University recognized by the Higher Education Commission including government training and research institution, continues to be available. The tax liability in such cases shall be reduced by an amount equal to 75% of the tax payable. RATE OF TAX FOR CAPITAL GAIN ON SALE OF SECURITIES

Where holding period of a security is

Tax Year Less than 6 months

6 months or more but less than 12

months % %

2011 10 7.5 2012 10 8 2013 10 8 2014 10 8 2015 17.5 9.5 2016 (not provided) 10

(i)

Partly for personal and partly for official use

5% of:(a) the cost to the employer for acquiring the motor vehicle;

or,

(b) the fair market value of the motor vehicle at the commencement of the lease, if the motor vehicle is taken on lease by the employer;

(ii) For personal use only 10% of: (a) the cost to the employer for acquiring the motor vehicle;

or,

(b) the fair market value of the motor vehicle at the commencement of the lease, if the motor vehicle is taken on lease by the employer; and



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Rate of tax will be 0% where holding period of a security is twelve months or more.

Mutual fund or a collective investment scheme will deduct capital gains tax at the rates specified above, on redemption of securities. (Division VII, Part I, 1st Schedule)

RATE OF CAPITAL GAINS ON DISPOSAL OF IMMOVABLE PROPERTY.

Holding period Rate of tax Up to one year 10% More than one year but not more than two years 5%

Advance tax @ 0.5% of gross amount will be collected from the seller at the time of registration or transfer of immovable property.

INCOME FROM PROPERTY UNDER SECTION 15 & 155

The rate of tax to be paid / deducted under sections 15 and 155 in case of individuals, association of persons and companies are as under:

Gross Amount of Rent (Rupees) Rate of Tax

Individuals and Association of Persons

Up to 150,000 Nil 150,001 — 400,000 5% of the amount exceeding Rs. 150,000 400,001 — 1,000,000 Rs. 12,500 + 7.5% of the amount exceeding Rs. 400,000 Over 1,000,000 Rs. 57,500 + 10% of the amount exceeding Rs. 1,000,000

Company

Up to 400,000 5% 400,001 — 1,000,000 Rs. 20,000 + 7.5% of the amount exceeding Rs. 400,000 Over 1,000,000 Rs. 65,000 + 10% of the amount exceeding Rs. 1,000,000

TAXATION OF RETAILERS

Turnover up to Rupees 5 Million (Section 113A)

A retailer, being an individual or association of persons, having turnover up to Rupees 5 million for any tax year, may opt for payment of tax as final tax at the rate of 1% of its turnover.

Turnover exceeding Rupees 5 Million (Section 113B)

A retailer, being an individual or association of persons, having turnover exceeding Rupees 5 million and who is subject to special procedure for payment of sales tax under Chapter II of the Sales Tax Special Procedure Rules, 2007 shall pay final tax at the following rates which will form part of single stage sales tax:

S.No. Annual Turnover (Rupees) Rate of Tax

1. 5 million — 10 million Rupees 25,000 plus 0.5% of the turnover exceeding Rupees 5 million

2. Exceeding 10 million Rupees 50,000 plus 0.75% of turnover exceeding Rupees 10 million



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However, turnover chargeable to tax under this section will not include the sale of goods on which tax is deducted or deductible under section 153(1)(a). (Proviso of Section 113B) ADVANCE TAX UNDER SECTION 147 Every taxpayer whose income was charged to tax for the latest tax year under this Ordinance excluding the followings shall pay advance tax for the year under section 147 of Income Tax Ordinance, 2001 as reduced by the tax already paid/deducted at source in the year:

i) Dividend received from a company. (Section 5) ii) Income of a non resident from Pakistan-source royalty or fee for technical services, shipping and

transport.(Section 6&7) iii) Property income.(Section 15) iv) Salary income subject to deduction of tax. (Section 149) v) All income where the tax collected or deducted is considered as final tax. (Section 168)

Advance tax in case of an individual, will be calculated in accordance with the following formula:

( A / 4 ) - B

Where – A is the tax assessed to the taxpayer for the latest tax year under the Ordinance; and B is the tax paid in the quarter for which a tax credit is allowed under section 168, other than tax

deducted on dividend income, salary income or income from property. Individual whose latest assessed income excluding incomes referred to in items (i) to (v) above is less than Rupees 500,000 is not required to pay advance income tax under section 147 of Income Tax Ordinance, 2001. Where the taxpayer is an association of persons or a company, advance tax will be computed according to the following formula:

( A x B / C ) - D Where –

A is the taxpayer’s turnover for the quarter,

B is the tax assessed of the taxpayer company for the latest tax year,

C is turnover of the taxpayer for the latest tax year, and

D is the total amount of tax paid/deducted in the quarter other than tax collected/deducted which is considered as final tax and tax deducted on income from property under section 155.

Adjustable advance tax on capital gain from sale of securities shall be payable to the Commissioner within 21 days from the close of each quarter except last quarter which is payable on or before 30 June of each year. The advance tax will be computed at following rates:

• Where holding period of a security is less than 6 months

2% of the capital gains derived during the quarter

• Where holding period of a security is 6 months or more but less than 12 months

1.5% of the capital gains derived during the quarter



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However, provisions regarding advance tax on capital gain from sale of securities are not applicable to individual investors. In case the taxpayer is an association of persons or a company, it will compulsorily estimate the tax payable by it for the relevant tax year at any time before the last installment is due. In case the tax payable is more than the tax due on the basis of tax assessed for the latest tax year, it shall furnish estimates to the Commissioner and thereafter pay such amount, after making adjustments to the amounts already paid in accordance with section 147(4). Similarly, according to the provisions of sub-section (6), if the tax payable is less than the tax due on the said basis, every taxpayer who is required to pay advance tax, after furnishing the estimates to Commissioner will pay such estimated amount after adjustment of tax already paid. The provision of minimum tax will also be taken into account while computing advance tax liability on such basis. New company or an association of persons, are required to pay advance income tax even in the first year of their operation. The taxpayer will estimate the amount of advance tax payable on the basis of its quarterly turnover after taking into account minimum tax payable under section 113. If minimum tax payable comes more than the advance tax calculated on the basis of quarterly turnover, then advance tax will be paid equal to minimum tax calculated @ 1% on aggregated turnover of the quarter after adjustment of the amount already paid during the quarter, if any. Where the advance tax paid on the basis of estimation under sub-section (4A) or (6) of section 147 is less than 90% of the tax chargeable for the relevant tax year, the taxpayer shall be liable to pay default surcharge under section 205(IB) at the rate of KIBOR plus 3% per quarter on the amount by which the tax paid by him falls short of the 90%. Such default surcharge shall be calculated from 1st day of April in that year to the date on which the assessment is made or the 30th day of June of the financial year next following whichever is the earlier. [Sub-section (1B) of Section 205] DATE OF PAYMENT OF ADVANCE TAX

On or Before Tax Payable For Individuals Companies and AOPs (excluding

Banking Company) September quarter 15 September 25 September December quarter 15 December 25 December March quarter 15 March 25 March June quarter 15 June 15 June

Advance tax on capital gain from sale of securities is payable within 21 days from the close of each quarter except last quarter which is payable on or before 30 June of each year. Banking company will be required to pay advance tax under section 147 in 12 equal installments on or before 15th of every month. [Rule 5(1) of the Seventh Schedule]



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PAYMENT OF TAX COLLECTED / DEDUCTED (RULE 43 OF INCOME TAX RULES, 2002)

DATE OF FILING OF STATEMENTS UNDER SECTION 165 (Rule 44 of Income Tax Rules, 2002) Every prescribed person shall furnish or e-file statement under sub-section (1) of section 165 by 15th day of the month following the month to which the withholding tax pertains. ANNUAL STATEMENT Annual statements will furnished on or before 31 August of each year by the person deducting tax from salary under section 149. [Section 165(6)]. However, the Commissioner may grant extension for filing of statement, on application by the taxpayer, if he is satisfied that a reasonable cause exists for non-furnishing of statement by the due date. [Section. 165(4)] DATE OF FILING OF RETURN OF INCOME / STATEMENT UNDER SECTION 115(4)

Category of Taxpayer Date of Filing Companies: (For return under section 114, statements under sections 115(4) and 165)

• Having tax year ending between 01 January to 30 June 31 December • Other cases 30 September • Annual Statement of deduction of Income tax from salary to be filed by the

employer

31 August

Other than Companies

• Annual Statement of deduction of Income tax from salary to be filed by the employer

31 August

• Return of income through e-portal in the case of salaried person 31 August

• Statement of final tax under section 115(4) 31 August

• Return of income 30 September

Tax collected / deducted by Deposit into Government treasury Federal / Provincial Government On the same day Other persons Within 7 days from the end of each week ending on Sunday


INCOME TAX ORDINANCE, 2001 — GENERAL - SUMMARY OF WITHHOLDING TAX REGIME

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Section Nature of Payment / Transactions Tax Rate for

Deduction / Collections

Responsibility for Deduction / Deposit

Remarks

148 - Imports (not otherwise specified) 5% of the value including custom duty Federal Excise & Sales Tax if any

Collector of customs

Final - except the followings (Sec.148(7)): (a) raw material, plant, machinery, equipment

and parts by an industrial undertaking for its own use.

(b) fertilizer by manufacturer of fertilizer. (c) Motor vehicles in CBU condition by

manufacturer of motor vehicles. (d) Large import houses. (e) Edible oil and packing material (will be

treated as minimum tax) [Sec. 148(8)].

- Imports of all fiber, yarns and fabrics and goods covered by the Zero Rating Regime of Sales Tax [Cl. (9), Part II, 2nd Sch.]

1%


Final

- Import of raw material by an industrial undertaking for its own use [Cl. (9A), Part II, 2nd Sch.]

Import of potassic fertilizers [Cl. (13E), Part II,2nd Sch.]

3%

1%

Collector of customs Collector of customs

Adjustable - deduction @ 3% is subject to certificate issued by the commissioner Final

- Import of gold, silver and mobile telephone sets [Cl. (13G), Part II, 2nd Sch.]

1%


Final

- Import of Urea fertilizers [Cl. (23), Part II 2nd Sch.]

1%


Final

- Import of pulses [Cl. (24), Part II 2nd Sch.]

2%


Final

- Old and used automotive vehicles [Cl. (4) Part III, 2nd Sch.]

As per SRO 577(I)/2005


Final

Import of remeltable steel (PCT Heading 72.04) for own use[Cl. (9B) Part II, 2nd Sch.]

1% Collector of customs Adjustable — SRO 772(I)/2012 dated 26 June 2012



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Remarks

149 Basic salary and taxable allowances

Average rate Employer Adjustable, exempt where the taxable income does not exceed Rupees 400,000. [Cl (IA), Division I, Part I, 1st Sch.]

Tax deducted at source of the employee, short / excess tax deducted from salary, tax credits under sections 61,62,63,64, etc. can be adjusted by the employer. [Sec. 149(1)].

Payment of salary more than Rupees 15,000 should be through crossed cheques or direct transfer of funds to the employee’s bank account. [Sec. 21(m)]

150 - Payment of dividend 10%

Every person paying dividend

Final tax for the persons other than company [Sec. 8]

- Dividend declared or distributed by purchaser of power project privatized by WAPDA. [Cl. (17), Part II, 2nd Sch].

7.50%

Every person paying divided

Final

- Dividend declared or distributed by power generation companies.[Cl (20), Part II, 2nd Sch.]

7.5%

Every person paying dividend

Final

Followings are exempt:

- any income derived from inter-corporate dividend within the group companies entitled to group taxation under section 59AA or 59B. [Cl (103A), Part I, 2nd Sch.]

- Payment to approved Pension fund, recognized provident fund, approved superannuation fund or approved gratuity fund etc.[Cl. (47B), Part IV, 2nd Sch.]

151(1): (a) Yield on an account, deposit or a

certificate under the National Saving Scheme or post office saving account

10%

Every person making payment

Final tax for a person other than a company.



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Remarks

(b) Profit on a debt, being an account or deposit maintained with the Banking company or financial institution

10%

Banking company or financial institution


(c) Profit on any security other than that referred in Cl.(a), issued by Federal Government, Provincial Government or local Government.

10%

Federal Government, Provincial Government or local Government


(d) Profit on bond, certificate, debenture, security or instrument of any kind to any person other than financial institution

10%

Banking company, financial institution, etc.


No tax will be deducted in following cases: - Yield or Profit on investment in Bahbood

Saving Certificates or Pensioners Benefit Account [Cl. (36A), Part IV, 2nd Sch]

- If deposit does not exceed Rupees 150,000 [Cl. (59) (iv) (a), Part IV, 2nd Sch.].

- if monthly installment in monthly income saving scheme does not exceed Rupees 1,000- [Cl. (59) (iv) (b), Part IV, 2nd Sch.].

- any yield from national Saving Schemes of Directorate of National Savings where investment was made on or before 30 June 2001 and any income derived from Mahana Amdani Account where monthly installment does not exceed Rupees 1,000 shall continue to remain exempt and any person paying such yield or income shall not deduct tax u/s 151. The recipient of such receipt or income is not required to produce exemption certificate in this regard [S. 239(14)]



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Remarks

152 (1) Royalty or fee for technical services to non

resident

15% Every person making payment

Final

(1A) Payment to non-resident persons on account of certain contracts


Final

(1AA) Payments to non-resident on account of insurance or re-insurance premium


Final

(1AAA) Payment for advertisement services to non-resident media person relaying from outside Pakistan


Final

(2) Payment to non-resident other than amount of sub-section (1), (IA) or (IAA) above


Adjustable

(2) Payment to non-resident having no PE in Pakistan, in respect of profit on debt. [Cl. (5A) Part II, 2nd Sch.].


Final Subject to proviso of clause (5A) of part II of 2nd Schedule

(2A)(a) Payment to PE for sale of goods

3.5% Every person making payment

Adjustable

(2A)(b) i) Payment to PE for transport services

ii) Payment to PE for services in other cases

2%

6%

Every person making payment Every person making payment

Adjustable Adjustable

(2A)(c) Payment to PE in any other case 6% Every person making

payment Adjustable

153 (1)(a) -Sale of rice, cotton seed or edible oil

[Div III, Part III, 1st.Sch.]

1.5% Every prescribed person making payment

Final- (Adjustable for manufactures & listed Co.)

Gross amount payable for sale of goods shall include the sales tax.[S.153(1)]



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Remarks

Tax will not be deducted on account of payments made for:

-Sale of any other goods [Div III, Part III, 1st.Sch.]

3.5% Every prescribed person making payment

Final (Adjustable for manufacturing Co. & listed Co.)

-Sale of rice by Rice Exporters Association of Pakistan to Utility Store Corporation.[Cl. (13HH), Part II, 2nd Sch.]

1% Every prescribed person making payment

Final (Adjustable for manufacturing Co. & listed Co.)

-Sale of cigarettes and pharmaceutical products by distributors of such products and by large distribution houses subject to the fulfillment of conditions u/s 148(7). [Cl. (24A), Part II, 2nd.Sch.]

1%

Every prescribed person making payment

Final (Adjustable for manufacturing Co. & Listed Co.)

• Sale of goods not exceeding Rs. 25,000 in a financial Year

• Services and execution of contracts not exceeding Rs. 10,000 in a financial year. Provided that where the total payments in a financial year, exceed Rs. 25,000/10,000 as stated above, the taxpayer will deduct tax from the payments including the payments made earlier without deduction of tax during the same financial year [SRO586(1)/91 dated 30.06.1991]

Local sales, supplies to sales tax zero rated taxpayers as per clause (45A) of Part IV of 2nd Schedule

1%

Every person making payment

Final · Tax will not be deducted on account of payments made for news print media services in respect of advertising services



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Remarks

(1)(b) Rendering or providing of services: [ Cl. (2), Div III, Part III, 1st Sch.] - transportation - others

2% 6%

Every prescribed person making payment

Minimum

Tax deducted on account of the followings will not be final tax: [Sec.153(3)]

Services provided to sales tax zero rated taxpayers as per clause (45A) of Part IV of 2nd Schedule


Minimum

(1)(c) Execution of a contract (Residents) [ Cl. (3), Div III, Part III, 1st Sch.]

6% Every prescribed person making payment

Final (Adjustable for listed companies)[Sec.153(3)]

(2) Payments made by every exporter or an export house to a resident person or permanent establishment in Pakistan, on account of rendering of services of stitching, dying etc. [Cl. (3), Division IV, Part III, 1st Sch.]

0.5% Every exporter or export house

Final

• Sale of goods and execution of contracts by a public company listed on a registered stock exchange in Pakistan.

• Advertisement services by owners of newspaper and magazines.

• Rendering or providing of service.

153A On sale by manufacturer to distributors, dealers and wholesalers

0.5% Every manufacturer Adjustable

154(1)

Realization of foreign exchange on account of export of goods by exporter.

1%

Every authorized dealer in foreign exchange

Final

(2) Commission due to an indenting commission agent.

5% Every authorized dealer in Foreign Exchange

Final

(3) Sale of goods to an exporter under in land back to back L/C.

1% Every banking company Final

(3A) Export of goods — Export Processing Zone 1% Export Processing Zone Authority

Final

(3B) Indirect exporter 1% Direct exporter, export house

Final



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Remarks

(3C) Clearing of goods 1% Collector of customs Final 155 Payment in full or part (including advance)

on account of rent of immovable property (including rent of furniture and fixture and services relating to such property), where the gross amount of rent is;

Federal Government, Provincial Government, Local Government, a company, non profit organization, diplomatic mission of a foreign state or any other person notified by FBR

Final

Individuals and Association of Persons

Up to 150,000

Nil

150,001 — 400,000 5% of the amount exceeding Rs.150,000

400,001 — 1,000,000 Rs. 12,500 + 7.5% of the amount exceeding Rs. 400,000

Over 1,000,000 Rs. 57,500 + 10% of the amount exceeding Rs. 1,000,000

Company Up to 400,000 5% 400,001 — 1,000,000 Rs. 20,000 + 7.5% of

the amount exceeding Rs. 400,000

Over 1,000,000 Rs. 65,000 + 10% of the amount exceeding Rs. 1,000,000

156 -Payment of prize on a prize bond or cross word puzzle.


Final Where the prize is not in cash, the person while giving the prize shall collect tax on the



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Remarks

-Payment on winning from a raffle, lottery, prize on winning a quiz, prize offered by companies for promotion of sales.


Final tax fair market value of the prize. [Sec.156(2)]

156(A) Commission paid or discount allowed to petrol pump operator

10% Every person selling petroleum products

Final tax

156(B) Withdrawal of balance under pension fund: (a) Withdrawn before the retirement age (b) Withdrawn if in excess of 50% of accumulated balance at or after the age of retirement

Average rate [Sec. 12(6)] of tax for the last 3 years or tax rate for the year which ever is less

- do -

Pension fund manager Adjustable Tax Tax will not be deducted i) in care of disability ii) on share of the nominated survivor of the deceased person iii) invested in an approved income payment plan iv) paid to life insurance company for purchase of approved annuity plan

TRANSITIONAL ADVANCE TAX

231(A) Cash withdrawal from a bank 0.2% Banking company Adjustable tax - No tax deduction, if cash withdrawal does not exceed Rupees 50,000, in a day. However, if cash amount withdrawn exceeds Rs. 50,000 in a day, tax will be deducted on the whole amount withdrawn. [Circular No. 9 of 2008 dated 15 August 2008].

-Further, no advance tax will be collected from government, a foreign diplomat, a diplomatic mission in Pakistan, foreign currency accounts or a person who produces exemption certificate from the Commissioner.



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Remarks

231(AA) Sale of various banking instruments against cash, receipt of cash on cancellation of any of these instruments and transfer of any sum against cash through online transfer, telegraphic transfer, mail transfer or any other mode of electronic transfer.

0.3% Banking company, non-banking financial institution, exchange company, authorized dealer of foreign exchange.

Adjustable — No tax will be collected in case of inter bank or intra bank transactions and where payment is made through crossed cheque. No tax will be collected where sum total of the transaction does not exceed Rupees 25,000 in a day.

Further, tax will not be deducted on transactions made by Federal or a Provincial Government, foreign diplomat or a diplomatic mission in Pakistan or a person who produces a certificate from the Commissioner that his income during the tax year is exempt.

231(B) Registration of a new locally manufactured motor vehicle:

Motor vehicle registration authority of Excise and Taxation Department

Adjustable - No tax will be collected in case of: - Federal / Provincial/ Local Government - a foreign diplomat / diplomatic mission in

Pakistan.

Earning Capacity upto 850cc Rs. 7,500 851cc to 1000cc Rs. 10,500 1001cc to 1300cc Rs. 16,875 1301cc to 1600cc Rs. 16,875 1601cc to 1800cc Rs. 22,500 1801cc to 2000cc Rs. 25,000 Above 2000cc Rs. 50,000

233 Payment on account of brokerage or commission made to a person:

Final

- Commission agents other than advertising agents and export indenting commission agents

10%

Federal Government, Provincial Government, Local Government, a Company or an Association of Persons (termed as principal)

-Advertising agents [Cl. (26), part II, Second Sch.].

5%



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Remarks

233A(I) - Purchase of shares as per clause (a) 0.01% Stock Exchange Adjustable - Sale of shares as per clause (b) 0.01% Stock Exchange Adjustable - Margin financing in share business * NCCPL Adjustable. *Withholding tax rate is not yet clear

as the corresponding amendment in Division IIA of Part IV of First Schedule has not been made.

234 Advance tax will be collected at the time

of collecting motor vehicle tax:

Motor vehicle tax Collecting Authority

Final tax in respect of income earned by owner from plying or hiring out of such vehicles. In other cases the tax so collected is adjustable against final tax liability [Sec.234(5)]

(1) In the case of goods transport vehicles

Rupee 5 Per Kilogram of the laden weight

No advance tax shall be collected in case of motor vehicles owned by the Federal / Provincial or local Government.

(2) In the case of passenger transport vehicles plying for hire with registered seating capacity of:

No advance tax after 10 years from the date of first registration in Pakistan on vehicle with registered laden weight less than 8120 Kgs.[ S. 234(4)]

a) Four or more persons but less than ten persons

Rupees 25 per seat per annum

b) Ten or more persons but less than twenty persons

Rupees 60 per seat per annum

c) Twenty persons or more Rupees 500 per seat per annum

Advance tax after period of 10 years from the date of first registration of vehicle in Pakistan shall be collected at the rate of Rupees 1200 per annum. (for category of 8120 Kgs or more) [Cl. (IA) of Division III, part IV, 1st Sch.] Advance tax on passenger transport vehicles with registered seating capacity of ten or more persons, shall not be collected after a period of 10 years from 1st day of July of the year of make of the vehicle. [S. 234(3)]. In case of motor cars used for more than 10 years in Pakistan, no advance tax shall be collected after a period of 10 years. [S. 234(2A)]



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Remarks

(3) Other private motor cars with engine capacity of:

a) up to 1000 cc Rupees 750 b) 1001 - 1199 cc Rupees 1,250 c) 1200 - 1299 cc Rupees 1,750 d) 1300 - 1599 cc Rupees 3,000 e) 1600 — 1999 cc Rupees 4,000 f) 2000 cc and above Rupees 8,000

234A Advance tax shall be collected on the amount of gas bill of a Compressed Natural Gas (CNG) station.

4% The person preparing gas consumption bill

Final

Rate of collection of advance tax on electricity bill of commercial or industrial consumers, where the amount of bill:

(a) does not exceed Rs.400 - (b) 401-600 Rupees 80 (c) 601 — 800 Rupees 100 (d) 801 - 1,000 Rupees 160 (e) 1,001 - 1,500 Rupees 300 (f) 1,501 - 3,000 Rupees 350 (g) 3,001 - 4,500 Rupees 450

235

(h) 4,501 - 6,000

Rupees 500

The person preparing electricity bills.

No tax shall be collected from the taxpayers who fall under zero rated regime of sales tax and registered as exporter or manufacturers of carpets, leather and articles thereof, surgical goods, sports goods and textile and articles thereof. [Cl (66) Part IV, 2nd Sch].

No advance tax shall be collected from a person who produces a certificate from Commissioner that his income during the tax year is exempt from tax. [S. 235(3)]

(i) 6,001 - 10,000 Rupees 650 As per section 235(4), tax collected will be: (j) 10,001 - 15,000 Rupees 1,000 (k) 15,001 - 20,000 Rupees 1,500 - In case of company, adjustable. (l) Exceeds Rs. 20,000: - In case of other than Company: - Commercial consumers 10% - minimum tax upto monthly bill of Rupees

30,000 - Industrial consumers 5% - adjustable if monthly bill exceeds Rupees

30,000



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Remarks

236 Advance tax shall be collected on account of the following:

The person preparing telephone bills / issuing prepaid card.

a) in case of telephone subscriber (other than mobile phone subscriber) where the amount of monthly bill exceeds Rs. 1,000

10% of the exceeding amount of bill.

Adjustable - No advance tax shall be collected from Government, a foreign diplomat, a diplomatic mission in Pakistan, or a person who produces a certificate from the Commissioner that his income during the tax year is exempt from tax. [S. 236(4)]

b) in case of subscriber of mobile telephone and prepaid telephone card

10% of the amount of bill or sales price of prepaid telephone card or sale of units through any electronic medium or whatever form.

236A Collection of advance tax at the time of sale by public auction or auction by a tender.

5% of the gross sale price of any property or goods sold by auction.

Any person making sale by public auction or auction by a tender

Adjustable

236B Collection of advance tax on purchase of domestic air ticket.

5% of the gross amount of air ticket.

The person preparing air ticket.

Adjustable - No Tax shall be collected from the Federal or a Provincial Government or holder of exemption certificate. Section [236b (3)]

236C Advance tax on sale or transfer of immovable property

0.5% of gross amount of the consideration received

The person responsible for registering or attesting the transfer

Adjustable - No advance tax will be collected from Federal, Provincial and local governments.


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Assessment of tax and recovery of tax not levied or short - levied or erroneously refunded

Sections 11 & 36

The provisions of section 36 have been consolidated with the provisions of section 11. Consequently section 36 has been omitted.

The substituted section 11 contains the same provisions except that:

(1) prescribed time limit for recovery of short tax due to error or misconstruction has been enhanced from three years to five years;

(2) the Commissioner may now grant extension, for reasons to be recorded, for passing order under this section for a maximum period of ninety days instead of sixty days.

THE FIFTH SCHEDULE ZERO RATING (SECTION 4)

Supplies against international tenders S.R.O. 595(I)/2012 dated 01 June 2012

Zero rating facility on supplies against international tenders has been withdrawn with effect from 02 June 2012. Such supplies will now be exempt from tax as these items have been included in Table-II of the Sixth Schedule. Moreover, by amending the notification No. S.R.O. 551(I)/2008 dated 11 June 2008, available exemption on raw materials, sub-components and components imported for manufacturing of goods to be supplied against international tenders has also been withdrawn. Such goods are now taxable at import stage with effect from 02 June 2012. Hence, input tax on such supplies is no more available.

Cotton seed oil S.R.O. 602(I)/2012 dated 01 June 2012

Zero rating facility has been granted on cotton seed oil, if supplied to registered manufacturers of vegetable ghee and cooking oil, effective from 02 June 2012.

THE SIXTH SCHEDULE Exemption (SECTION 13)

Import and supplies Table - I

Certain PCT headings in Table I of this schedule has been substituted for commodity classification. The amendment has been made to bring the classification structure in accordance with the Pakistan Custom Tarrif (PCT).

Local supplies only — Crude vegetable oil Table - II

Supply of locally produced crude vegetable oil obtained from locally produced seeds, other than cotton seeds, has been exempted from sales tax. This amendment is effective from 02 June 2012 as cotton seed oil has been included in the Fifth Schedule for zero rating facility through Notification No. S.R.O. 602 (I)/2012 dated 01 June 2012.

Commercial Importers of computer hardware and parts S.R.O. 590(I)/2012 dated 01 June 2012

Fixed minimum value addition at the rate of ten percent for the purpose of payment of sales tax on supply of computer hardware and parts has been removed. S.R.O. 1020(I)/2006 dated 02 October 2006 has been amended to give effect in this regard from 02 June 2012.

Import and supply of polyethylene and polypropylene S.R.O. 591(I)/2012 dated 01 June 2012

Zero rating facility on import and supply of polyethylene and polypropylene for manufacturing of mono filament yarn and net cloth to green house farming has been withdrawn. Such supplies are now exempt from sales tax. S.R.O. 811(I)/2009 dated 19 September 2009 has been amended with effect from 02 June 2012.


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Mono filament S.R.O. 593(I)/2012 dated 01 June 2012

The facility of zero rating or levy of sales tax at reduced rate of five percent, as the case may be, was available on textile and articles thereof excluding monofilament. Now, such facility of zero rating or reduced rate has been made available on such goods excluding ‘monofilament of more than 67 decitex’. The amendment in Notification No. S.R.O. 1125(I)/2011 dated 31 December 2011 in this regard is effective from 02 June 2012.

Rescinded Notifications S.R.O. 594(I)/2012 dated 01 June 2012

Notifications rescinded with effect from 02 June 2012 by this SRO are briefly given as under:

(1) S.R.O. 555(I)/1996 dated 01 July 1996

Adjudication powers were allowed to sales tax officers in case of assessments, levy of default surcharge or penalty and recovery of the amount erroneously refunded.

(2) S.R.O. 849(I) 1997 dated 25 September 1997

Exemption from sales tax was allowed on imported industrial raw material, components and sub-components and goods other than consumer goods and consumer durables excluding the specified mild steel products and their raw materials, if imported directly by the manufacturers liable to pay turnover tax or engaged in manufacturing of goods other than taxable goods.

(3) S.R.O. 103(I)/2005 dated 03 February 2005

Value of potassic fertilizers was fixed for tax chargeable at import stage and for local supply at Rupees 4,610 per metric ton.

(4) S.R.O. 15(I)/2006 dated 06 January 2006

Value of locally produced nitrogenous fertilizer, calcium ammonium nitrate was fixed at Rupees 3,765 per metric ton for sales tax purpose.

(5) S.R.O. 644(I)/2007 dated 27 June 2007

Sales tax was charged at the rate of twenty two percent of the value of goods imported and supplied as mentioned in Table — I and nineteen and half percent of value of goods as mentioned in Table — II of this notification.

Exemption from sales tax S.R.O. 595(I)/2012 dated 01 June 2012

Exemption from whole of sales tax is allowed on following goods effective from 02 June 2012. For this purpose, further amendment has been made in SRO 551(I)/2008 dated 11 June 2008 by adding the following entries:

Sr. No.

Description of goods Conditions and restrictions

30 Waste Paper Supplies thereof 31 Remeltable Scrap (PCT heading 72.04) Import and supplies thereof 32 (i) Sprinkler equipment Supplies thereof (ii) Drip equipment (iii) Spray pumps and nozzles

Consequently, zero rating facility available on the aforesaid remeltable scrap, sprinkler equipment, drip equipment, and spray pumps and nozzles has been withdrawn. S.R.O. 549(I)/2008 dated 11 June 2008 has been amended in this regard by S.R.O. 602(1)/2012 dated 01 June 2012 effective from 02 June 2012.


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Repayment of sales tax S.R.O. 596(I)/2012 dated 01 June 2012

Rates of repayment of sales tax paid on steel products under Chapter XI of the Sales Tax Special Procedure Rules 2007, allowed to the registered person on export from Pakistan have been enhanced with effect from 02 June 2012. For this purpose, S.R.O. 308(I)/2008 dated 24 March 2008 has been further amended by substituting the table as under:

Sr. No.

Description Repayment-cum-Drawback rate (For export made against invoices issued

from the 2nd June, 2012)

1. Ingots or billets other than imported or of Pakistan Steel Mills or Peoples Steel Mills.

Rs. 7,349 per metric ton

2. Mild steel re-rolled products manufactured from ingots and billets other than imported or Pakistan Steel Mills or of People Steel Mills.

Rs. 8,387 per metric ton

3. Mild steel re-rolled products manufactured from imported billets or billets of Pakistan Steel Mills or People Steel Mills.

Rs. 9,651 per metric ton.

Fixed rate for Sales Tax on advaloram basis S.R.O. 597(I)/2012 dated 01 June 2012

Minimum rates fixed for value of locally produced ‘Billets’ and ‘Ingots’ have been increased to Rupees 65,000 and Rupees 60,000 per metric ton respectively. Before amendment in SRO 345(1)/2012 dated 24 May 2010, such rates were Rupees 55,000 and Rupees 50,000 per metric ton. The amendment is effective from 02 June 2012.

Rate of sales tax on soyabeen seed S.R.O. 604(I)/2012 dated 01 June 2012

Sales tax rate on import value of soyabeen seed by solvent extraction industries has been reduced from 7% to 6% effective from 02 June 2012.

Import of Rapeseed, sunflower and canola seed S.R.O. 605(I)/2012 dated 01 June 2012

Rate of sales tax on value of rapeseed, sunflower seed and canola seed imported by solvent extraction industries has been reduced from 15% to 14% applicable from 02 June 2012.

Supplies of black tea S.R.O. 608(I)/2012 dated 01 June 2012

Lower rate of five percent is being charged on import and supply of black tea with effect from 02 June 2012.

Exemption / depreciation S.R.O. 607(I)/2012 dated 02 June 2012

Sales tax, customs duty and withholding tax, as are in excess of 75% of the applicable rates thereof, on import of Hybrid Electric Vehicles (HEV) falling under PCT Code 87.03 have been exempted. Depreciation in the duties and taxes, in case of old and used HEVs shall be admissible at the rate of 2% per month subject to a maximum of 60%.

Exemption on urine drainage bags S.R.O. 760(I)/2012 dated 22 June 2012

Whole of the sales tax payable on import and supply of urine drainage bags has been exempted from tax effective from 22 June 2012.

THE SALES TAX RULES 2006

SRO 589(I)/2012 dated 01 June 2012 (Effective from 02 June 2012)

Further amendments have been made in the Sales Tax Rules, 2006 as under:


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CHAPTER I — REGISTRATION, COMPULSORY REGISTRATION AND DEREGISTRATION Application for registration Rule 5(1)(c) The Federal Board of Revenue (FBR) has been empowered to transfer the registration of any registered person to the place of its jurisdiction. For this purpose, new proviso has been added in clause (c) of sub-rule (1) of rule 5 as under:

“Provided further that the Federal Board of Revenue may transfer the registration of any registered person or any business of a registered person to an area of jurisdiction where the place of business or registered office or manufacturing units is located.”

Change in the particulars of registration Rule 7(4) Following sub-rule (4) has been inserted in this rule to lay down procedure for change in nature / transfer of business:

“(4) The change of nature of business (e.g. from individual to AOP or corporate person) shall be allowed as under, namely:-

(i) in case of transfer of individual business from any person to his spouses or children, the change shall be made by LRO on receipt of verification of documents from RTO; (ii) in case of change in nature of business from individual to AOP, the change shall be made by LRO on receipt of verification of documents from RTO; (iii) in case of change of nature of business from AOP to corporate entity, the same shall only be allowed by LRO on receipt of verification from RTO or LTU, however, this change shall only be allowed in cases where the same persons who are members of AOP are nominated as directors in the corporate entity; and (iv) in case of transfer of business or change in nature on any other account, a new Sales Tax Registration Number shall be issued to the entity.”

Blacklisting and suspension of registration Rule 12 Rule 12 prescribes procedure for black listing and suspension of registered person which has now been removed. The substituted rule provides as under:

“Where the Commissioner or Board has reasons to believe that the registered person is to be suspended or blacklisted, the procedure as prescribed by the Board shall be followed.”

In this regard, FBR has laid down procedure for blacklisting and suspension of registration by amending Sales Tax General Order No. 03/2004 dated 12 June 2004 through Sales Tax General Order No. 35/2012 dated 30 June 2012:

"(N) BLACKLISTING AND SUSPENSION OF REGISTRATION 31. In order to ensure that the Large Taxpayers Units (LTU) and Regional Tax Offices (RTO) follow a uniform policy for suspension and blacklisting of sales tax registered persons under section 21(2) of the Sales Tax Act, 1990 read with Rule 12 of the Sales Tax Rules, 2006, and for subsequent proceedings in such cases, the Federal board of Revenue is pleased to make the following procedure:


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SUSPENSION

32. Where a Commissioner, having jurisdiction, is satisfied that a registered person has issued fake invoices, evaded tax or committed tax fraud, registration of such person may be suspended by the Commissioner through the system, without prior notice, pending further inquiry. The basis for such satisfaction may inter alia include the following:

(a) Non-availability of the registered person at the given address;

(b) Refusal to allow access to business premises or refusal to furnish records to an authorized Inland Revenue Officer;

(c) Abnormal tax profile, such as taking excessive input tax adjustments, continuous carry-forwards, or sudden increase in turnover;

(d) Making substantial purchases from or making supplies to other blacklisted/ suspended persons;

(e) Non-filing of sales tax returns.

(f) On recommendation of a commissioner of any other jurisdiction.

(g) Any other reason to be specified by the Commissioner.

33. The suspension of registration shall take place through a written order of the Commissioner concerned, giving reasons for suspension. This order shall be endorsed to the registered person concerned, all other LTUs/RTOs, the FBR/PRAL computer system, the STARR computer system and the Customs Wing computer system for information and necessary action as per law.

34. A registered person who does not file sales tax return for six consecutive months shall be suspended by the system without any notice.

35. In cases, where the buyers and suppliers of any such person, whose registration is being suspended, belongs to another LTU/RTO, and these buyers / suppliers are also required to be suspended, the Commissioner shall intimate the Chief Commissioner of the concerned LTU/RTO in whose jurisdiction such buyers/suppliers fall, in writing explaining the complete facts of the case and the reasons on the basis of which these buyers/suppliers are to be suspended, to initiate proceedings for suspension/blacklisting of the buyers/suppliers.

36. No input tax adjustment/refund shall be admissible to the registered person during the currency of suspension. Similarly, no input tax adjustment/refund shall be allowed to any other registered persons on the strength of invoices issued by such suspended person (whether issued prior to or after such suspension), during the currency of suspension.

37. The Commissioner shall, within seven days of issuance of order of suspension, issue a show cause notice (through registered post or courier service) to the registered person to afford an opportunity of hearing within 15 days of the issuance of such notice clearly indicating that he will be blacklisted in case:

(a) There is no response to the notice.

(b) has not provided the required record.

(c) has not allowed access to his business record/premises.

(d) any other reason specified by the commissioner.

38. In case show cause notice is not issued within 07 days of the order of suspension, the order of suspension shall become void ab initio.


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38A. In case of non-availability of the suspended person at the given address, the notice may be affixed on the main notice board of the LTU/RTO.

38B. On receipt of the reply to the notice and after giving an opportunity of hearing to the registered person, if the Commissioner is satisfied, he may order for revoking of suspension of the registered person.

BLACKLISTING

38C. In case, after giving an opportunity of hearing, the offence is confirmed, the Commissioner shall issue an appealable self-speaking order for blacklisting of the registered person, and shall proceed to take legal and penal action under the relevant provisions of the Act.

38D. The order of blacklisting shall contain the reasons for blacklisting, the time period for which any refund or input tax claimed by such person or by any other registered person on the strength of invoices issued by him from the date of his registration shall be inadmissible, any recovery to be paid or penalties to be imposed.

38E. The order of blacklisting shall be issued within 90 days of the issuance of the notice of hearing. In case, the order of blacklisting is not issued within this time period the suspension of registered person shall become void ab initio.

38F. Copies of the order shall be endorsed to the registered person concerned, all other LTUs/RTOs. the FBR/PRAL computer system, the STARR computer system and the Customs Wing computer system. Each LTU/RTO shall circulate all such lists to their refund sections, audit sections and other concerned staff to ensure that the order is implemented in letter and spirit by all concerned.”

CHAPTER VIIA — SUPPLIES AGAINST INTERNATIONAL TENDER Rules 50A, 50B & 50C

Since the supply against international tender has been exempted and excluded from zero rating, therefore the rules 50A, 50B and 50C of this chapter, stipulating the procedures and conditions regarding zero rated supplies have been substituted for making exempt supplies.

CHAPTER IX — TAXPAYERS’ AUTHORIZED REPRESENTATIVES

Power to disqualify Rules 58 and 62

Now the FBR (Board), on receipt of complaint against any, ‘Authorized Representative’ (AR) for misconduct from any officer of the Board, may disqualify him from representing the taxpayer. Earlier such AR was disqualified on complaint from Appellate Tribunal or an adjudicating authority.

THE SALES TAX SPECIAL PROCEDURE RULES 2007

S.R.O. 592 (I)/2012 DATED 01 JUNE 2012 (EFFECTIVE FROM 02 JUNE 2012) S.R.O. 801(I)/2012 DATED 30 JUNE 2012 (EFFECTIVE FROM 01 JULY 2012)

CHAPTER XI SPECIAL PROCEDURE FOR PAYMENT OF SALES TAX BY STEEL MELTERS, RE-ROLLERS AND SHIP BRAKERS

For payment of sales tax by steel melting, steel re-rolling, ship breaking units, Pakistan Steel Mills, Heavy Mechanical Complex and Peoples Steel Mills, substantial amendments have been made in related special procedure rules.


FEDERAL EXCISE DUTY

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FIRST SCHEDULE — TABLE I (EXCISABLE GOODS) Duty on Locally Produced Cigarettes Federal Excise Duty (FED) rates on locally produced cigarettes have been revised by amending serial numbers 9 to 11 in Table — I of this schedule as under:

S. No.

Description of goods Heading/sub-heading No.

Rate of duty

9. Locally produced cigarettes if their retail

price exceeds twenty two rupees and eighty six paisas per ten cigarettes.

24.02 Sixty five per cent of the retail price


price exceeds thirteen rupees and thirty six paisas per ten cigarettes but does not exceed twenty two rupees and eighty six paisas per ten cigarettes.

24.02 Seven rupees and two paisa per ten cigarettes plus seventy per cent per incremental rupee or part thereof.


price does not exceed thirteen rupees and thirty six paisas per ten cigarettes.

24.02 Seven rupees and two paisa per ten cigarettes.

Moreover, the restrictions for the purpose of levy, collection and payment of duty against above stated locally produced cigarettes have also been substituted. Now cigarette manufacturers will not reduce sale price from the price adopted on the day of announcement of the latest budget. Substituted restrictions are as under:

“Restrictions.— (1) For the purpose of levy, collection and payment of duty at the rates specified in column (4) against serial numbers 9, 10 and 11, no cigarette manufacturer shall reduce price from the level adopted on the day of announcement of the latest Budget. (2) Variants at different price points. — No manufacturer or importer of cigarette can introduce or sell a new cigarette brand variant of the same existing brand family at a price lower than the lowest actual price of the existing variant of the same brand family. For the purposes of this restriction, current minimum price variant of existing brand means the lowest price of a brand variant on the day of announcement of Budget 2012-13.

(3) Minimum Price of New Brands. — Any new brand introduced in the market shall not be priced and sold lower than 5% below the price of the Most Popular Price Category (MPPC). MPPC is the price point at which the highest number of excise tax paid cigarettes are sold in the previous fiscal year.”

Rates of Duty on Cement Serial No. 13 of Table I FED rate on portland cement, aluminous cement, slag cement, super sulphete cement and similar hydraulic cement whether or not coloured or in the form of clinkars (under heading of 25.23) has been reduced to four hundred rupees from five hundred rupees per metric ton.


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Duty on Lubricants, Cosmetics, etc.

FED on lubricants, cosmetics, etc., has been withdrawn by omitting the following serial numbers in Table-I:

S. No. Description of goods Heading/sub-heading No.

Rate of duty

22 Libricating oil in packs not exceeding 10 litres

2710.1951 Ten percent per litre.

23 Lubricating oil in packs exceeding 10 litres 2710.1952 Ten percent per litre.

24 Lubricating oil in bulk (vessels, bouzers, lorries etc.)

2710.1953 Seven rupees and fifteen paisa per litre.

25 Lubricating oil manufactured form reclaimed oils or sludge or sediment, subject to the condition if sold in retail packing or under brand names the words manufactured from reclaimed oil or sludge or sediment should be clearly printed on the pack

Respective headings

Two rupee per litre.

27 Base lube oil 2710.1993 Seven rupees and fifteen paisa per litre

42 Perfumes and toilet waters 3303.0000 Ten percent of retail price if pack in retail packing and 10 percent ad valorem if in bulk.

43 Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or sun tan preparations; manicure or pedicure preparations.

33.04 Ten percent of retail price if pack in retail packing and ten percent ad valorem if in bulk.

44 Preparations for use on the hair excluding herbal hair oil and kali mehndi


45 Pre-shave, shaving or after-shave preparations, personal deodorants, bath preparations, depilatories and other perfumery, cosmetic or toilet preparations, not elsewhere specified or included; prepared room deodorizers, whether or not perfumed or having disinfectant properties (excluding agarbatti and other odoriferous preparations which operate by burning).


50 Filter rods for cigarettes 5502.0090 Twenty percent ad val.


FEDERAL EXCISE DUTY

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Table II (EXCISABLE SERVICES) Travel by Air Clause (a) of Serial No. 3 Rate of FED on services provided in respect of air travel within Pakistan has been increased to sixteen percent of the charges plus sixty rupees per ticket from sixteen percent plus twenty rupees per ticket. Clause (b) of Serial No. 3 Clause (b) regarding duty on international air travel has been substituted as under:

“(b) services provided or rendered in respect of travel by air of the passengers embarking on international journey from Pakistan,—

9803.1100

(i) Economy and economy plus. Three thousand eight hundred and

forty rupees (ii) Club, business and first class.

Six thousand eight hundred and forty rupees”

THE THIRD SCHEDULE (Conditional exemptions)

TABLE II (Services) Serial No. 7 Live Stock Insurance Services in respect of live stock insurance (heading number 9813.1600) have been exempted from FED. Asset Management Companies Serial No. 8 Services provided by Asset Management Companies (respective headings) have been exempted from FED with effect from 01 July 2007. Cosmetics S.R.O. 598(I) /2012 dated 01 June 2012 S.R.O. 649(I)/2005 dated 01 July 2005 is further amended with reference to duty withdrawn on cosmetics goods. Hence items like perfumes, beauty or make-up preparations, shaving and after shave preparations, deodorants, etc., produced or manufactured in non tariff areas and brought to the tariff areas for sale or consumption have been omitted from the said S.R.O. dated 01 July 2005. Hence duty on such items will not be levied and collected. The S.R.O. dated 01 June 2012 is effective from 02 July 2012. Viscos Staple Fiber S.R.O. 599(I) /2012 dated 01 June 2012 Exemption available to viscos staple fiber has been withdrawn by virtue of amendment in S.R.O. 474(I) /2009 dated 13 June 2009. The amendment is effective from 02 June 2012.


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Rescinded Notifications S.R.O. 603(I) /2012 dated 01 June 2012 Following notifications have been rescinded with effect from 02 June 2012:

S. No. S.R.O. Number Description (i) 807(I)/2005 dated 12 August 2005 Rebate on FED was allowed on export of

certain types of lubricating oils. (ii) 671(I)/2006 dated 29 June 2006 Minimum price was fixed to assess duty on

lubricating oils at import stage. (iii) 777(I)/2006 dated 01 August 2006 FED rates chargeable on air tickers were

fixed. (iv)

949(I)/2006 dated 06 September 2006 Exemption from FED was granted on import and supply of solvent oil for manufacturing of shoe adhesive.

(v) 1229(I)/2007 Special excise duty was exempted on

tractor parts supplied by registered vendor to the manufacturer of agricultural tractors.

(vi) 47(I) / 2012 dated 20 January 2012 FED was levied on services in respect of air

travel within the territorial jurisdiction of Pakistan or passenger embarking on international journey to or from Pakistan.

FEDERAL EXCISE RULES 2005

Special Procedure for collection of Excise Duty on services provided by air craft operators in respect of travel by air of passengers within Pakistan and international air travel of passengers embarking from Pakistan for abroad or embarking for Pakistan from anywhere in the world

Rule 41A — S.R.O. 600(I)/2012 Dated 01 June 2012

Corresponding amendments have been made in sub-rules (1), (6), (7) and (15) of rule 41A in respect of FED on air tickets issued for international travel to withdraw the levy on passengers embarking to Pakistan or journeys terminating in Pakistan. Substituted sub-rule (7) is as under:

“(7) where an airline operating in Pakistan uplifts passengers from Pakistan for another airline, the liability to charge, collect and pay Federal Excise Duty with respect to such passengers, shall be of the uplifting airline.”

The amendments have been made effective from 01 July 2012.


CAPITAL VALUE TAX

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CAPITAL VALUE TAX [FINANCE ACT, 1989 (V OF 1989)] Levy of tax on Capital Value of certain assets Section 7(1) Capital Value Tax (CVT) is now payable by every individual, company or association of persons, at the rate of 0.01 percent on purchase value of shares of a public company listed on a registered stock exchange in Pakistan. In this regard, section 7 of Finance Act 1989 has been amended. CVT rates of immoveable property Section 7(2) CVT will be payable on purchase of immoveable property situated in urban area, falling within the limits of the Islamabad Capital Territory, or such area as may be specified by FBR. Paragraph (A) specifying the rates of CVT on purchase of immoveable property as inserted in sub-section (2) of this section are given below:

“(A) (a) Residential immovable property, (other than flats), situated in urban area, measuring at least 500 square yards or one kanal (whichever is less) and more,--

(i) Where the value of immovable

property is recorded

2% of the recorded value Which-ever is higher

(ii) Where the value of immovable property is not recorded

Rs. 100 per square yard of the landed area

(iii) Where the value of immovable property is a constructed property

Rs. 10 per square feet of the constructed area in addition to the value worked out above;

(b) residential flats of any size situated in urban area



2% of the recorded value Which-ever is higher

(ii) Where the value of the immoveable property is not recorded.

One hundred rupees per square feet of the covered areas of the immovable property; and

(c) commercial immovable property of any size situated in an urban areas —



2% of the recorded value of the landed area

Which-ever is higher

(ii) Where the value of the immoveable property is not recorded.

One hundred rupees per square feet of the landed area

(iii) Where the immoveable property is a constructed property

Ten rupees per square feet of the constructed area in addition to the value worked out above. “


CONTACT PARTNERS

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For further explanations, please contact following partners:

LAHORE: Principal Office

10-B, Saint Mary Park Main Boulevard, Gulberg-III LAHORE-54660 Phones : (042) 35718137-9 Fax : (042) 35718136, 35714340 E-Mail : [email protected] [email protected]

Mr. Sarfraz Mahmood FCA, FITM, FICS

Mr. Muhammad Atif Mirza FCA

Syed Mustafa Ali FCA

Mr. Mubashar Mehmood ACA

Other offices at:

ISLAMABAD: 2-A, ATS Centre, 30-West Fazal-e-Haq Road, Blue Area ISLAMABAD Phones : (051) 2274121-22 Fax : (051) 2278859 E-Mail : [email protected] [email protected] :

Mr. Atif Bin Arshad ACA

Mr. Muddassar Mehmood ACA

FAISALABAD: 560-F, Raja Road, Gulistan Colony FAISALABAD-38000 Phones : (041) 8861042, 8863644 Fax : (041) 8863611 E-Mail : [email protected] [email protected]

Mr. Liaqat Ali Panwar FCA, FITM, FICS

KARACHI: 108, Park Avenue, Block-6, P.E.C.H.S., Shahrah-e-Faisal KARACHI Phones : (021) 34310826-7, 34313952 Fax : (021) 34313951 E-Mail : (1) [email protected] [email protected]

Mr. Inaam Ellahi Sheikh FCA, FCA (England & Wales)

Mr. Muhammad Kamran Nasir FCA, AITM, AICS, APA

Website www.racopk.com

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