A. F. FERGUSON & CO.

FEDERAL BUDGET 2015

This memorandum gives a brief overview of Pakistan economy and significant amendmentsproposed by the Finance Bill 2015. All changes proposed through the Finance Bill 2015 areeffective July 1, 2015.This memorandum can also be accessed on our website www.pwc.com/pkJune 6, 2015

Table of Contents

Economic Overview 1Executive Summary 5Income Tax 6Sales Tax 14Federal Excise Duty 20Common Provisions 21Islamabad Capital Territory

(Tax on Services) Ordinance, 2001 23Customs Duty 23

1Economic Survey 2014-15Economy has done better than lastyear.Inflation has remained all time low inany year in this decade. Foreignexchange reserves improvedsubstantially on account of increasedhome remittances, issue of Sukuk,decrease in import bill for oil,privatization proceeds and receipt ofthe tranche from the donors. Thesefactors, inter alia, encouraged StateBank of Pakistan to bring discount rateat all time low of 7%, in the last 42years.On the other hand, manufacturing andagriculture sectors being principalemployment generating sectors havenot shown desired improvements.Exports have fallen even in value terms.Current years expected goals in theprivate sector remained sluggish.Resource mobilization efforts do notseem to be in place in the manner thatmay lead to a respectable tax-to-GDPratio of over 15%.These trends would place pressure onemployment creation and availabilityof funds with the Government for socialservices of education, health, law &order and infrastructure.Foreign direct investment is expected infollowing years in infrastructure sectorby way of China-Pakistan economicCorridor (CPEC).In summary, macro-economicindicators are heading in positivedirection, however, private sectorsinitiatives by way of contribution in theform of taxes and investments inmanufacturing and agriculture sectorshave to be accelerated, if nationaleconomic objectives of distributionalequity, increase in level of employmentand economic security cover is to bemade available to the people.

FY 14 15 FY 13 14

GDP growth rate 4.24% 4.03%Per capita income - US$ 1,512 1,384FDI (July April)US$ million 2,057 1,866

Inflation 4.8% 8.7%Public debt(PKR billion)

- Domestic 11,932 10,920- Foreign 5,004 5,076

16,936 15,996Budget deficit -

%age of GDP 3.8% 3.9%

Source: Economic Survey of Pakistan 2014-2015

KEY ECONOMIC INDICATORS

The following table sets out the Key Budget Financials:

2015-2016 2014-2015(Revised)

Rs inBillion %

Rs inBillion %

Tax revenue 3,418 2,910Non-tax revenue 895 1,042Gross revenue receipts 4,313 3,952Public account receipt net 254 288Total receipts 4,567 100 4,240 100

Less: Provincial share in Federal taxes (1,849) (40) (1,575) (37)Net revenue receipts 2,718 60 2,665 63

Expenditure- Current expenditure 3,615 79 3,558 84- Development expenditure 969 21 754 18

4,584 100 4,312 102Deficit (1,866) (40) (1,647) (39)

- Domestic debts non-bank 485 393- Domestic debts banks 283 402- Foreign debt 751 692- Privatization proceeds 50 18- Surplus from provinces 297 142

(1,866) (1,647)

Budget Financials

BUDGET AT GLANCE

2

336%

14%

36%

14%

Domestic debts non-bank Domestic debts banks Foreign debts Surplus from provinces

21%

20% 8% 5%

32%

14%

Income Tax Sales Tax Customs Duty (5%) and FED (3%) Petroleum levy, Gas Infrastructure Cess & Others Borrowings Non-tax revenue

31%

22%13%

11%2%9%

16%

Provincial share in Federal taxes Debt servicing Defence Affairs and Services Grants and transfers Subsidies Federal Government expenses including pensions Development expenditure

IN

OUT

Receipts Borrowings

3%

19%

WHERE FROM THE RUPEE COMES INAND WHERE IT GOES OUT

FY 15 16 FY 14 15(Revised)

Rs inBillion

Rs inBillion

There is nosubstantial changein the ratio of directand indirect taxes.A substantial andincremental shift isrequired to decreasedisparity in incomeand reduce theburden of indirecttaxes on commonman.

Direct Taxes:

Income Tax 1,327 1,092 Workers Welfare Fund 20 16

1,347 1,108Indirect Taxes:

Customs Duty 299 255 Sales Tax 1,250 1,082 Federal Excise Duty 206 159 Petroleum Levy 135 126 Gas Infrastructure Cess 145 145 Natural Gas Surcharge 30 30 Others 6 5

2,071 1,8023,418 2,910

Income Tax39%

CustomsDuties9%

Sales Tax36%

FederalExcise Duty

6%

PetroleumLevy4%

GasInfrastructure

Cess4%

Others2%

33%

12%

BREAK-UP OF TAX REVENUE

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INCOME TAX1. A one-time super tax for tax year 2015 hasbeen proposed on (i) banking companies; and (ii)all other taxpayers having income of Rs 500 millionor above at the rate of 3 and 4% respectively. Thistax is for the rehabilitation of temporary displacedpersons. Incidence will also arise for cases wherefinancial statements have already been finalized,such as banking companies.2. Undistributed reserves of a public company(other than modaraba and a scheduled bank) haveagain been proposed to be taxed at the rate of 10%with effect from tax year 2015. All undistributedreserves so defined in the law shall be subject tothis tax if the same are in excess of 100% of paid upcapital.3. The rate of tax on companies other thanbanking companies has been reduce to 32% for taxyear 2016 in line with the announcement made bythe Finance Minister in 2013 whereby the rate oftax for companies is to be brought to 30% in aphased manner over five years (from tax years 2014to 2018).4. The rate of tax on dividends (other thanfrom stock funds) has been increased from 10% to12.5% for filers and from 15% to 17.5% for non-filers. Dividend from stock funds shall be taxable atthe rate of 15% instead of 12.5%.5. The rates for tax on capital gains have beenrevised upward. The holding period for taxablegains has been extended to 48 months.6. All income of banking company shall nowbe taxable at the rate of 35%. Reduced rate fordividend income and capital gains have beenabolished.7. A 0.6% collection of tax has beenintroduced on almost all banking transactionsundertaken by a non-filer.8. A tax credit has been introduced for newlyestablished manufacturing companies in relation toemployment generation.9. A new concept of audit by a panel consistinginter alia by a firm of Chartered Accountant hasbeen introduced.

10. Royalties for the use or right of use ofequipment etc. provided by residents will now besubject to final tax regime.SALES TAX1. The concept of active taxpayers has alsobeen introduced for the purposes of sales tax.2. Amendments not in line with the VATprinciples have been introduced in relation to theadmissibility of input tax in certain cases.3. Sales tax regime in respect of certain itemshas been revamped. This process inter alia includessubstitution of zero rating with exemption regimeand / or introduction of a reduced rate. Inparticular in the case of both processed andunprocessed milk existing status for the levy ofsales tax has been retained, however, the sales taxregime for other dairy products like flavoured milk,yogurt etc. has been substituted with eitherexemption or reduced tax rate of 10%.FEDERAL EXCISE DUTYFederal Excise Duty on aerated beverages andlocally produced cigarettes have been enhanced.GENERALA new concept of whistleblower has beenintroduced to reward the persons identifyingconcealment or evasion of taxes.GAS INFRASTRUCTURE DEVELOPMENTCESS (GIDC)An Act has been passed by the Parliament whichhas also received Presidential assent for the chargeand recovery of GIDC by the Federal Government.In the aforesaid Act, special enabling provisionshave been placed to recover GIDC levied in theearlier years through various statutes and ruleswhich superior courts had held as ultra vires. Thevalidity of the present legislation particularly in thecontext of retrospective application may be testedunder the Constitutional provisions. Recoveries inrespect of past years can only be made from certainspecified consumers.

EXECUTIVE SUMMARY ON TAX PROPOSALS

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INTRODUCTION OF ONE-TIME SUPERTAX

A one-time super tax for tax year 2015 has beenproposed on (i) banking companies; and(ii) all other taxpayers having income ofRs 500 million or above. The general rate ofsuper tax is 3% while the rate of tax for bankingcompanies shall be 4%.

As specifically stated in the relevant provision,this tax is for the rehabilitation of temporarydisplaced persons.

The term income for the purpose of this sectionshall be the taxable income under section 9 ofthe Income Tax Ordinance, 2001 (excludingexempt income) and also includes profit on debt,dividend, capital gains, brokerage andcommission, even if taxable under the specialprovisions of the Ordinance. In the cases subjectto final regime, such income will representimputable income as newly defined undersection 2(28A) of the Ordinance to mean theincome which would have resulted in the sametax had the amount not been subjected to finaltax.

One time super tax shall also be applicable oncompanies engaged in the extraction andproduction of petroleum and mineral deposits ifsuch companies are taxable at the rateprescribed under the Ordinance not being thosesubject to tax under the respective overridingAgreements with Government of Pakistan.

The income from profit on debt, dividends andbrokerage and commission are susceptible to beincluded separately as well as under theimputable income basis. This matter needs to beclarified.

Super tax is payable for tax year 2015 whichincludes cases having special tax years otherthan June 30, 2015 such as banking companies,insurance companies, sugar companies, etc.which follows special tax years already ended.

This effectively represents retrospective chargein the cases where financial statements havealready been finalised. The right course to settlethis aspect would be the recovery of super tax insuch cases in the following tax year 2016.TAX ON UNDISTRIBUTED RESERVESUndistributed reserves of a public company(other than modaraba, scheduled bank andGovernment-owned companies) have again beenproposed to be taxed with effect from tax year2015. This effectively represents re-introductionof similar levy imposed under section 12(9A) ofrepealed Income Tax Ordinance, 1979 videFinance Act 1999.Such tax is proposed to be payable at the rate of10% on the whole amount of undistributedreserves as are in excess of 100% of paid upcapital of the company after the distribution ofcash dividend within six months of the end oftax year.A special provision has been introduced that anycash distribution before the date of filing thereturn shall be considered as distribution for taxyear 2015.The term reserves has been defined in asub-section to this provision, however, in casethis provision is to be retained, the termreserves shall be required to be defined as theamount reflected in the financial statementsprepared under the accounting framework.This provision in essence levies a tax on entireundistributed accumulated reserves in excess ofpaid up capital. This tax is effectively chargeableon reserves that have arisen out of already taxedincome. When the identical levy was introducedunder the repealed 1979 Ordinance, similarissues were raised and consequently this tax waseffectively related to income for the year and wasnot applicable where distribution for the yearwas lower of 40% of the profit for the year or50% of the paid up capital. This is either anomission or a serious defect as under the earlierlaw the minimum threshold of distribution wasintroduced after realising the aforesaid issues.

INCOME TAX

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This means that the similar mistake has beenrepeated which requires immediate redressal.The economic rationale of this tax regime is tobe examined in the context that all accumulatedreserves in excess of 100% paid up capital willeffectively be used in the payment of tax if thereis no distribution which may arise for variousreasons including non-availability of reserves inliquid form.The other recourse of capitalisation of reservesby way of issue of bonus shares is also notavailable as the same are also taxable.Further, this tax is also payable for tax year 2015which includes cases having special tax yearalready ended. This effectively representsretrospective charge in the cases where financialstatements have already been finalised. Thepreferred option would have been thecommencement of this levy from tax year 2016.REVISION IN TAX RATESThe rate of tax on companies other than bankingcompanies shall be 32% for tax year 2016. Thispositive policy of reduction of the corporate taxrate is in line with the announcement made bythe Finance Minister in 2013 whereby the rate oftax for companies is to be brought to 30% in aphased manner over five years (from tax years2014 to 2018). This step will enhance theconfidence amongst the taxpayers for consistentapplication of policy statements.The rate of tax on dividends (other than fromstock funds) has been increased from 10% to12.5% for filers and from 15% to 17.5% fornon-filers. Dividend from stock funds shall betaxable at the rate of 15% instead of 12.5%.The revised status of tax on Capital Gains ondisposal of securities under section 37A isproposed to be as under:

Holding period Tax Year2016 2015Less than 12 months 15% 12.5%12 months to lessthan 24 months

12.5% 10%24 months to lessthan 48 months

7.5% 0%More than 48 months 0% 0%

This amendment has effectively brought into taxnet long term capital gains which arise ondisposal of securities. This policy changerepresents departure of an understanding at thetime of introduction of tax on capital gains thatonly short term trading gains were intended tobe taxed under the Income Tax provisions.As identified earlier, a consistent policy regimeis essential for bridging the trust gap betweenthe taxpayers and policymakers.

Rate of tax on capital gains of insurancecompanies for tax year 2016 has been prescribedin line with similar income in the hands of othertaxpayers as laid down for income covered undersection 37A.

Adjustable withholding tax of 14% has also beenintroduced on internet services.

The tax slabs for salary income have beenrevised. The maximum rate of 30% has beenretained, however, the slabs within thatstructure have been amended which has resultedin a very minor relief for lower brackets. Similaramendments have been made for non-salariedincome.

Minimum tax on income of distributors ordealers in fertilizers business is proposed to beincreased from 0.2% to 0.5%.

TAX REGIME OF BANKING COMPANIESDividend income and capital gains for bankingcompanies are subject to tax under SeventhSchedule at the rate of 10% and 12.5%respectively. All other income of bankingcompanies are taxable at the rate of 35%.It is important to note that special regime ofrates of tax are applicable in such cases andbanking companies were not extended thebenefit of the reduction of tax rate from 35% to30% over the period of 5 years (2014 to 2018)which is otherwise available to all othercompanies. It is now proposed that the taxregime for the banking companies will be revisedand all incomes including dividend and capitalgains shall also be taxable at the rate of 35%.In addition to this, as described earlier, one-timesuper tax at the rate of 4% shall also be payableby banking companies for tax year 2015.

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The provisions relating to attribution ofexpenses have been omitted as now the wholeincome is taxable at a gross rate of 35%.COLLECTION OF TAX ON BANKINGTRANSACTIONS FROM NON FILERSA unique regime for collection of tax on bankingtransactions has been introduced for personswho are non-filers for tax purposes. Under thisregime almost all banking transactions inter aliaincluding sale of instrument like demand draft,pay order, etc. and transfer of any sum throughcheque and other similar manners or clearinginterbank transfer through cheques shall besubject to collection of tax at the rate of 0.6% ofthe transaction amount. This provision will onlybe applicable where the sum total of paymentsfor all transactions exceed Rs 50,000 in a day.The amounts so collected are adjustable againstthe tax liability if the person files the return ofincome. On a practical side, the position appearsto be that almost all banking transactionsundertaken by all persons will be subject to thisregime of collection of tax except those caseswhere the persons name is on the list of activetaxpayers. Validity of this provision will bequestioned by persons who are otherwise nottaxable or are exempt under the Federal taxregime.REAL ESTATE INVESTMENT TRUSTS(REIT)The gain on disposal of immovable propertyto a REIT scheme is exempt from tax uptoJune 30, 2015. This period of exemption isproposed to be extended to June 30, 2020 forsale of immovable property to a DevelopmentalREIT Scheme with the objective of developmentand construction of residential buildings.Furthermore, dividend income fromDevelopmental REIT Scheme set up by June 30,2018 shall be allowed a rebate of 50% for 3 yearsfrom June 30, 2018. The aforesaid concession isalso required to be extended to the dividendincome on REITs which are established or set upbefore the said date.

In line with mutual funds and CollectiveInvestment Schemes, REIT Schemes have alsobeen obliged to collect Capital Gains Tax onredemption of securities at the applicable rates.

TAX CREDIT FOR EMPLOYMENTGENERATION

A tax credit has been introduced for companiesto encourage employment generation. Underthis provision, any company engaged inmanufacturing formed between July 1, 2015 toJune 30, 2018 shall be allowed a tax credit of1% of tax payable for every 50 employeesregistered with EOBI and social securityschemes. The maximum tax credit shall,however, not exceed 10% of the tax payable.This is a positive step in relation to economicneed for employment generation, therefore it isimperative that this regime should alsobe applicable to all persons includingnon-corporate taxpayers and persons engaged inactivities other than manufacturing.Equity demands that this provision should alsobe applicable to existing taxpayers generatingnew employments.

TAX ON PROFIT ON DEBTThe tax regime for profit on debt derived byresident taxpayers has been revamped.Henceforth, all profits on debt received frompersons who are withholding tax agent forsection 151 shall be taxed at the slab ratesranging from 10% to 15%. This effectively meansthat except for banking companies which aretaxed under special provisions of SeventhSchedule, the gross amount of profit on debtshall be taxed at the newly prescribed rates.The taxability of profit on debt in the case ofcompanies (other than banking companies)under this regime needs to be reviewed.

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TAX EXEMPTIONSTax (including minimum tax) exemptions havebeen introduced for the following sectors andactivities:

Manufacture of plant and machinery forrenewable energy resources;

Operation of warehousing and cold chainfacilities for agricultural produce;

Operating Halal meat production; Any manufacturing unit set up in the

Province of Khyber Pakhtunkhwa; Transmission line project; and LNG Terminal owner and operators.AGREEMENTS FOR AVOIDANCE OFDOUBLE TAXATION AND PREVENTIONOF FISCAL EVASIONEnabling provisions have been introduced toallow Government of Pakistan to enter intoAgreements for Exchange of Information andsuch allied matters in addition to the existingpowers to enter into Agreements for Avoidanceof Double Taxation and Prevention of FiscalEvasion with other countries.This amendment will empower the governmentto obtain or render information in respect oftransactions or activities undertaken in othercountries or Pakistan respectively.Furthermore, a new section 165B has beenintroduced to enable the banks and financialinstitutions to provide information in relation tonon-resident persons to FBR that may berequired to be furnished to any other countryunder the agreement referred above. It appearsthat the right of seeking information under thissection is limited to that required by the othercountry.These amendments have apparently beenmade to cater for reporting and otherrequirements introduced in various countriessuch as US FATCA regulations.

FORMATION OF PANEL FOR SPECIALAUDITA new concept of formation of panel forconducting special audit has been introduced.Under these provisions, a panel comprising oftwo or more persons will be empowered toconduct an audit including a forensic audit ofincome tax affairs of a taxpayer. The Panel shallconsist of an Officer of Inland Revenue or aFirm of Chartered Accountant or Cost andManagement Accountant or any other person asdirected by the FBR.The procedure prescribed envisage that memberof the Panel other than Officer of the InlandRevenue shall effectively provide the supportfunction only. The legal and procedural aspectsfor conducting such audit shall be undertaken bythe member of the panel being the Officer ofInland Revenue.This process is supposed to overcome practicaland legal difficulties that arose when the processof audit by the firms of Accountants wasintroduced.

STAY BY THE COMMISSIONER(APPEALS)Currently, the Commissioner (Appeals) isempowered to grant a stay of tax demand inan appeal before him for a period of 30 daysonly. Practical and legal difficulties are beingfaced under the present regime as in many cases,appeals are not decided within the said 30 days.In order to address this difficulty, a positiveaction has been undertaken wherebyCommissioner (Appeals) has been empowered togrant a stay for a further period of 30 days and isrequired to decide the appeal within suchextended period.Based on interpretation of Article 199 of theConstitution of Islamic Republic of Pakistan,this implies that the stay shall continue to beoperative until the appeal is disposed of.This positive amendment should also beintroduced in the parallel provisions laid downin Sales Tax and Federal Excise laws.

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UPWARD ESTIMATE FOR ADVANCETAXPresently taxpayers, other than banks are notmandatorily required to discharge advance taxliability to the extent of 90% of the tax payablebased on an estimate before the last instalmentis due. This envisages a possibility of notdischarging the advance tax liability in line withthe income earned during that period.It is now proposed that advance tax to the extentof 50% of the estimate if higher than the latestassessed basis is paid by the due date of secondinstalment for that particular year. The regimenow introduced is in line with that applicable forbanking companies in Seventh Schedule.RESTRICTION ON POWERS OFFEDERAL GOVERNMENT TO ISSUESROs FOR TAX EXEMPTIONS ANDCONCESSIONSAs a policy measure, it is proposed that thediscretionary powers of the Federal Governmentand FBR for granting concessions andexemptions will be eliminated. Now, suchactions, if required, can only be undertaken inspecial cases by way of a decision of theEconomic Coordination Committee of theFederal Cabinet.Under sections 148(2) and 159(3), (4) and (5) ofthe Income Tax Ordinance, 2001 various SROshave been issued which provide concessions orexemptions on collection of advance tax onimports and other withholding tax provisions.The Finance Bill proposes to omit sections148(2) and 159(3), (4) and (5) of the Ordinance.The relevance of the SROs already in force priorto omission of this section will be ascertained onthe basis of principle of prospective applicationof legal provision.It is considered that retrospective application isnot envisaged, however, in order to avoidunnecessary litigation and disputes at fieldlevels, it is essential that the protection / savingsfor the substantive provision are introduced.

EXEMPTION CERTIFICATES TO NON-RESIDENTSUpto June 30, 2012, the Commissioner InlandRevenue was allowed to issue exemptioncertificates in cases of residents and permanentestablishments (PE) of non-resident companies.Through Finance Act, 2012, some withholdingprovisions applicable to PEs of non-residentswere transposed in section 152 where the entirewithholding tax provisions relating to non-residents were consolidated.In this process, the enabling provisions for theissue of exemption certificates were missed out.As a corrective measure, a new sub-section isproposed in section 152 to allow theCommissioner to issue exemption certificates ineligible cases of non-residents.MINIMUM TAX ON SERVICES OFCOMPANIESA clarificatory as well as explanatory provisionhas been introduced in respect of minimum taxon services rendered or provided by a company.Accordingly, in essence there is no change in thelaw. The provisions contained in clause 79 ofPart IV of the Second Schedule to the Ordinanceare proposed to form part of the substantiveprovision of the law.This alignment has been undertaken to addressthe matter raised by the Federal TaxOmbudsman. That authority had questioned theright of the Federal Government to allowconcessions through a notification instead of anenactment by the Parliament. Accordingly, thisprovision has been proposed to take effect fromtax year 2009 being the year in which theminimum tax provisions were originallyintroduced.OPTION FOR NORMAL TAX REGIMEFOR EXPORTERSThe exporters are subject to tax at the rate of 1%of export proceeds. This collection of tax is alsothe discharge of final tax liability in respect ofincome from such exports. Under clause 41AA(inserted by Finance Act, 2012 and omitted byFinance Act, 2014) the exporters were entitled toopt out on a year to year basis from thepresumptive tax regime subject to minimumpayment of tax.

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By way of expressed provision, a right ofirrevocable option to be taxed under normalregime has been re-introduced. The newprovision prescribes that the amount deductedat source shall be the minimum tax liability onincome from such exports. This appears to a onetime option as against the year to year basisprescribed under the earlier law. FBR issuggested to clarify the matter.

Since the tax deducted is being treatedas minimum tax under this provision whichis otherwise equal to minimum tax undersection 113, therefore, for practical purposes,benefit shall inter alia accrue only in relation tolosses (if any) arising from export business,which could be set off and carried forward(including the rights available under the grouprelief provisions).

COMPUTERISED NATIONAL IDENTITYCARD (CNIC) NUMBERAs a policy measure, the Federal Governmenthad shown its intention to replace the NationalTax Number (NTN) with CNIC number which isrequired to be obtained by every Pakistanicitizen.Through this amendment, it is proposed that inthe case of an individual, CNIC number shallreplace NTN. The amendment appears to be inline with the aforesaid policy, however, it isimportant to note that CNIC is issued to allPakistani Citizens irrespective of their tax statuswhereas all NTN holders are required to file areturn of income. The policy measure appears tobe in the right direction however substantiveprovisions need to be aligned in relation to thepersons holding CNIC not required to complywith the tax filing and other requirements forNTN holders.In practical sense, this amendment also impliesthat henceforth, there is no requirement for anindividual to obtain an NTN for filing the returnof income. Now, a return of income can be filedwith reference to the CNIC of that person. If theobjective is limited to this aspect then throughthis amendment the process of obtaining NTNfor filing of return is removed.

SELECTION OF RETAILERS FOR AUDITRetailers registered under the sales tax law shallbe immune from selection of audit if certainconditions are fulfilled. Retailers, who areregistered under Sales Tax Special ProcedureRules, 2007 shall not be subject to compulsoryand automatic selection for audit of their incometax affairs under section 177 of the Ordinance if:(a) Name of the person appears in the sales tax

active taxpayers list;(b) Complete return of income has been filed

within the due date;(c) Tax payable as per return has been paid;(d) 2% tax on turnover under section 113

(Minimum Tax) has been paid by a personregistered as retailer who files a returnbelow taxable limit and who, in thepreceding tax year, had either not filed thereturn or had declared income below taxablelimit; and

(e) 25% higher than last years tax liability hasbeen paid.

This regime has been introduced apparently tocater for the cases where compliance to the salestax laws were not being made on account of theperceived actions for income tax purposes on thebasis of returns filed under the sales tax law.Now an effective immunity from audit isavailable irrespective of the amounts declaredfor sales tax purposes if the income tax is paid inexcess of 25% of last years tax liability. This isthe introduction of another form of presumptiveincome tax and self-assessment scheme.This regime shall be applicable from the date tobe notified by the FBR.PRESUMPTIVE TAX ON PAYMENTS TORESIDENTS FOR CERTAIN ROYALTIESA new presumptive tax at the rate of 10% hasbeen introduced on payments to a residentperson for the use or right to use any industrial,commercial or scientific equipment. Presently,such payments to non-residents are subject tofinal tax regime. Even in such cases of non-residents, presumptive tax is not applicable ifthe person has a Permanent Establishment inPakistan.

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This provision requires to be re-examined inrelation to the activities undertaken by certaininstitutions who are earning income by way ofconsideration for the use of equipment, etc.Presumptive regime for such activities /transactions is not in line with the principle oftaxation especially for companies where suchactivities are supposed to be taxed on net incomebasis instead of a final tax liability based ongross consideration received. The correctmeasure would have been the introduction ofadjustable withholding regime if there is aperception of avoidance of tax on suchconsiderations.

COLLECTION OF TAX ON REMITTANCEOF EDUCATION RELATED EXPENSES

In line with the tax collection regime forpayments of education fees to local institutionsin certain cases, a parallel regime is proposed tobe introduced for tax collection at 5% onadjustable basis for remittance of educationexpenses abroad.

Under this provision, the banks, financialinstitutions etc. shall collect tax on payment ofeducational expenses abroad. This regime haspresumably been introduced to collect tax frompersons outside the normal tax regime remittingeducation fees abroad through bankingchannels. This provision is effectively applicableonly where payments are to be made underForeign Exchange Act 1947.

Notwithstanding the conceptual validity of theprovision introduced, for practical purposesusually in the case of persons outside tax regime,payment on that account are generally routedthrough private foreign currency accounts wherein practice, there is no enquiry for income taxpurposes in respect of the purpose of remittancemade abroad.

DIVIDEND IN SPECIEDividend in specie was not subject towithholding and the said matter has beendecided by the higher courts in favour oftaxpayers. It is now proposed that withholdingtax provisions will be applicable on distribution

by way of dividend in specie. Withholding underthis provision will be on the amountrepresenting the value of asset released from thereserves as per the financial statements.

TAX COLLECTION BY PAKISTANMERCANTILE EXCHANGE LIMITED

A special regime of taxation has been introducedfor transactions undertaken by PakistanMercantile Exchange Limited.

RATE OF DEFAULT SURCHARGE &COMPENSATION

The rate of default surcharge in case of failure topay tax deducted or collected has been reducedfrom 18% to 12%. Similarly, the rate of statutorycompensation on delayed refund is proposed tobe reduced from 15% to KIBOR plus 0.5%.

PAYMENT OF TAX ON DEMAND

A positive amendment has been made byreinstating the time period of 30 days instead of15 days for payment of tax demand pursuant toan order.

MINIMUM TAX ON LAND DEVELOPERS

Enabling provisions to collect minimum tax onland developers were introduced through theFinance Act, 2013. Federal Government wassupposed to prescribe the rate of tax. Sinceno rate has so far been prescribed, therefore,land developers were not subject to minimumtax. Now, a minimum tax is proposed @ 2% ofvalue of land notified by the authorities forstamp duty.

FILING OF REVISED RETURNS

The condition of obtaining prior approval fromthe Commissioner for filing a revised return isproposed to be dispensed with if the revisedreturn is filed within 60 days of filing of theoriginal return.

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TAX ON RESIDENT SHIPPINGCOMPANIES

The presumptive tax regime for residentshipping companies has been revamped.At present, in case of a loss, the presumptiveregime of tax was effectively not applicable.Now, such cases will also be subject topresumptive tax regime applicable to shippingcompanies.MINIMUM TAX ON TRADING HOUSESLarge trading houses as defined under clause 57of Part IV of the Second Schedule are exemptfrom payment of minimum tax for a period often years. Disputes emanated in certain caseswhen the field forces denied exemption ofminimum tax on the alleged contention that theminimal activity of preparation and sale ofbakery items alters the character of entity fromtrading house to a manufacturer. This action hasnow been undone by a clarificatory amendment.Now, the activity of preparation and sale ofbakery items to the extent of 2% of totalturnover shall not disqualify such companiesfrom the aforesaid exemption subject tofulfilment of other conditions.TAX CREDIT ON INVESTMENT INSHARES & LIFE INSURANCE PREMIUMThe monetary threshold for claiming tax crediton investment in shares of public company andlife insurance premium is enhanced from Rs 1million to Rs 1.5 million.TAX CREDIT ON ENLISTMENT OFCOMPANIESThe tax credit on enlistment of companies isproposed to be enhanced from 15% to 20% oftax payable.

TAX DEDUCTION FOR PROFIT ON DEBTON HOUSE BUILDING LOANS INSTEADOF TAX CREDITA special provision has been introduced to allowdeduction for profit on debt or share inappreciation of house by an individual on loanfrom a bank or other such institutions, obtainedfor the construction of a new house oracquisition of a house. At present, a tax credit isallowed on this account which is now proposedto be removed.The maximum amount of deduction allowedunder this provision shall be restricted to 50% oftaxable income or Rs 1 million, whichever islower.INCOME FROM PROPERTYAn important amendment has been proposed inrespect of income from property. Expensesincurred to the extent of 6% of rent chargeablewholly and exclusively for the purpose ofderiving rent are admissible against rentalincome. Previously, such expenses were limitedto collection charges only. This amendment hasprincipally brought the taxability of rentalincome in line with other heads of income.

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ACTIVE TAXPAYERSThe concept of Active Taxpayers is proposed tobe introduced in line with that applicable underthe Income Tax provisions. In the case ofIncome tax, a non-active taxpayer / non-filer isinter alia subject to higher rate of withholdingtax. In the case of sales tax, FBR will make rulesfor restrictions and limitations in respect ofsuch persons which may inter alia includenon-availability of input tax.All registered persons are to be treated as activetaxpayers except the following:

Black listed, blocked or suspended;

Fails to file return for 2 consecutive months; Fails to file income tax return by due date;

Fails to file two consecutive monthly orannual statements under section 165 of theIncome Tax Ordinance, 2001.

TOLL MANUFACTURINGToll manufacturing represents supply of goodstaxable under the Federal Sales tax laws.Provincial revenue authorities have incorrectlyconsidered the same as being a service renderedsubject to tax by Provincial governments underrespective provincial sales tax laws. Thisamendment has been proposed to reiterate theFederal Governments stance on this matter.Toll manufacturing is effectively a part of thewhole process of manufacturing of goodsundertaken by two persons. An amendment isproposed in the definition of supply toconsolidate the aforesaid status of tollmanufacturers as being a supplier of goods forFederal sales tax purposes.

INCREASE IN THE RATE OF FURTHERTAXSupply of taxable goods to unregistered personswas subject to tax @ 18%. Such rate of 18%represents 17% being the standard sales tax and1% as the amount of further tax. Now, the rate oftax on such supplies is proposed to be increasedto 19% on account of enhancement of further taxto 2%.INPUT TAXFollowing regressive amendments have beenmade in respect of admissibility of input taxrepresenting a significant departure from theVAT principles:(a) Services for which input tax adjustment is

barred under respective provincial sales taxlaws will not be allowed as input tax fordetermining the Federal sales tax liability.There is no rationale of relating theadmissibility of input tax on genuineservices rendered in relation to supply ofgoods under the Federal Sales tax law.

(b) Input tax on certain goods and services to beidentified by the FBR has been declaredinadmissible for the buyer if the supplier hasnot declared the output for the same in thereturn. This amendment effectively meansthat an eligible input tax shall becomeinadmissible only for the reason that thesupplier of goods has not declared suchsupply in his return of sales tax. There is norationale for relating these two differentaspects with the admissibility of input tax.The items which will fall within this mischiefwill be notified by the FBR.

(c) Input tax on import or purchase ofagricultural machinery or equipment whichis subject to sales tax at 7% under EighthSchedule shall not be admissible as input taxin respect of supply of goods.

SALES TAX

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The absurdity of the aforesaid restrictions couldlead to a challenge for the same under theConstitutional provisions.Input tax paid in respect of prefabricatedbuildings are proposed to be allowed, previouslythis was not an allowable adjustment.PRIZE SCHEMEIt is proposed to introduce prize schemes toencourage the general public to make purchasesfrom registered persons issuing sales taxinvoices. Such provisions exist in many otherjurisdictions and the entitlement to prize isusually made on the basis of lottery where thepossession of a receipt / invoice of sales tax is aneligible criteria.COTTAGE INDUSTRYAny person having utility bills of Rs 800,000 ormore during the last 12 months instead ofprevious limit of Rs 700,000 has been excludedfrom the definition of cottage industry.JOINT AND SEVERAL LIABILITYIn the context of joint and several liabilityrelated provision, onus to prove collusion foravoidance of payment of sales tax shall be on thedepartment.INPUT TAX ADJUSTMENT ONIMPORTED GOODSInput tax adjustment on imports based onprovisional bill of entry or goods declarationunder section 81 of the Customs Act, 1969 is nowproposed to be allowed.FIFTH SCHEDULE ZERO RATINGSupply of locally manufactured plant andmachinery earlier zero rated underSRO 397(I)/2001 are proposed to continue to bezero rated under Fifth Schedule.Export of exempted goods by manufacturer shallbe zero rated. Accordingly, respective input taxadjustment would be available to suchmanufacturer/exporter.

SIXTH SCHEDULE - EXEMPTIONSImport or supply of the following goods isproposed to be exempted:

Description PCTHeading

Aircraft, whether imported oracquired on wet or dry lease

8802.2000,8802.3000,8802.4000

Maintenance kits for use intrainer aircrafts of PCT headings8802.2000 and 8802.3000

RespectiveHeadings

Spare parts for use in aircrafts,trainer aircrafts or simulators

RespectiveHeadings

Machinery, equipment and toolsfor setting up maintenance, repairand overhaul (MRO) workshop byMRO company recognized byAviation Division

RespectiveHeadings

Operational tools, machinery,equipment and furniture andfixtures on one-time basis forsetting up Greenfield airports by acompany authorized by AviationDivision

RespectiveHeadings

Aviation simulators imported byairline company recognized byAviation Division

RespectiveHeadings

Local supply of the following goods is proposedto be exempted:

Description PCT HeadingRaw and pickled hides and skins, wetblue hides and skins

41.01, 41.02,41.03,

4104.1000,4105.1000,4106.2100,4106.3000,4106.9000

Bricks (upto June 30, 2018) 6901.1000Crushed stone (upto June 30, 2018) 2517.1000

Items exempted under SRO 880(I)/2007, SRO408(I)/2012 and SRO 760(I)/2012 are proposedto continue to be exempted under SixthSchedule.

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Supplies of marble and granite by manufacturersexempted under SRO 76(I)/2008 are proposedto continue to be exempted under SixthSchedule subject to conditions of annualturnover of less than Rs 5 million and annualutility bills not more than Rs 800,000.Items covered under Fifth Schedule to theCustoms Act, 1969 now proposed to beexempted under Sixth Schedule.Import and supply of equipment under PCTcodes 3006.9100, 3926,9050 and 8539.3930 areproposed to be exempted under Sixth Schedule.

EIGHTH SCHEDULEFollowing items are proposed to be subject toreduced rate of 7%:

Description PCT HeadingTillage and seed bed preparationequipment

Certain PCTheadings

Seeding or planting equipment Certain PCTheadings

Irrigation, drainage and agro-chemical application equipment

Certain PCTheadings

Harvesting, threshing and storageequipment

Certain PCTheadings

Post-harvest handling and processing& miscellaneous machinery

8437.1000 &8433.4000

Following items are proposed to be subject toreduced rate of 10% instead of 5%:

Description PCT HeadingMachinery and equipment fordevelopment of grain handlingand storage facilities.

Respectiveheading

Complete plants for relocatedindustries.

Respectiveheading

Machinery, equipment and othercapital goods meant forinitial installation, balancing,modernization, replacement orexpansion of oil refining (mineraloil, hydro- cracking and othervalue added petroleumproducts), petrochemical andpetrochemical down-streamproducts including fibers andheavy chemical industry,cryogenic facility for ethylenestorage and handling.

Respectiveheading

Following items subject to reduced rate of 5%are proposed to be omitted from the EighthSchedule:

Description PCT Heading

Following items imported by CallCenters, Business ProcessingOutsourcing facilities duly approvedby Pakistan TelecommunicationAuthority.(1) Telephone sets/head sets.(2) Cat 5/Cat 6/Power cables(3) PABX Switch(4) Plasma TV(5) Dedicated telephone exchange

system for call centres.(6) Other digital cell recorders

Various

Proprietary Formwork System forbuilding/structures of a height of 100ft and above and its various items/components consisting of thefollowing, namely:-(1) Plastic tube.(2) Plastic tie slot filters/plugs,plastic cone.(3) Standard steel ply panels, Specialsized steel ply panels, wedges, tubeclamps (B-Type & G Type), push/pullprops, brackets (structure), steelsoldiers (structure), drop head,standard, prop tic, buard rail post(structure), coupler brace, cantileverframe, decking beam/Infill beam anddoorway angles.(4) Lifting Unit (Structure)(5) Bolts, tie bolts, anchor boltassembly (fastener), anchor screw(fastener).(6) Nuts(7) Steel pins, tie wing nut (fastener).(8) Steel washers, water plate(fastener).(9) Adjustable base jack (thread rodwith nut and steel plate), adjustablefork head (threaded rod with nut andsteel channel).

Various

Import and supply of ingredients of poultry andcattle feed exempt under SRO 1007(I)/2005 areproposed to be taxed at 5% under EighthSchedule.

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Reduced rate notified vide the followingnotifications are proposed to be subject to samereduced rate and conditions under the EighthSchedule:- SRO 69(I)/2006 @ 16%- SRO 313(I)/2006 @ 6%- SRO 657(I)/2013 @ 5%- SRO 572(I)/2014 @ 10%NINTH SCHEDULESales tax rates under the Ninth Schedule onimport and/or registration of IMEI by CellularMobile Operators have been doubled.

SALES TAX ON DAIRY PRODUCTSIn case of both processed and unprocessed milkexisting status for the levy of sales tax has beenretained, however, the sales tax regime for otherdairy products like flavoured milk, yogurt etc.has been revamped by way of substitution intoeither exemption or reduced tax rate of 10%.REVAMPING OF SALES TAX REGIMEFOR CERTAIN ITEMSSales tax regime for certain items identified inthe Annexure A has been revamped.This revamping inter alia includes substitutionof zero rating with the exemption regime andintroduction of reduced rate of tax for certainitems which were earlier exempt / zero rated. Allthese aspects have been identified in theAnnexure referred above.

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ANNEXURE A

Description HS Code Current Law Proposed5th 6th 8th 5th 6th 8th

Soyabean meal 2304.0000 Tax rate 5% Tax rate 10%Poultry feed and Cattle feedincluding their allingredients except soyabeanmeal of PCT heading2304.0000 and oil-cake ofcottonseed falling underPCT heading 2306.1000.

2301.2090,2305.0000,2306.2000,2306.3000,2306.4100,2306.5000,2309.9010,2309.9020,2309.9090,2936.2100,2936.2200,2936.2300,2936.2400,2936.2500,2936.2600,2936.27002936.2800

Exempt Proposedto beomitted

Tax rate 5%

WheyFlavored milkButterDesi gheeCheeseMilk and cream,concentrated or containingadded sugar or othersweetening matterYogurt

04.040402.990405.10405.90406.1010402.1000

04.03.1000

Zero ratedsubject tocertainconditionsspecified inChapterXIV ofSales TaxSpecialProcedureRules,2007(STSPR)

Exemptif notcoveredunderFifthSchedule

Proposedto beomitted

Exemptif notsold inretailpackingunderbrandname

Reduced rateof 10% if soldin retailpacking undera brand name

Processed cheese not gratedor powdered

0406.3 Exempt Exemptif notsold inretailpackingunderbrandname

Cream 04.01 and04.02

Zero ratedsubject tocertainconditionsspecified inChapterXIV ofSTSPR

Omitted Reduced rateof 10% if soldin retailpacking undera brand name

Directly reduced iron 72.03 Tax rate 5% Proposed to beomitted

Incinerators of disposal ofwaste management,motorized sweepers andsnow ploughs

8417.8000,8430.2000

and8479.8990

Exempt Proposedto beomitted

Tax rate 5%

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Description HS Code Current Law Proposed5th 6th 8th 5th 6th 8th

Re-importation of foreignorigin goods which weretemporarily exported out ofPakistan subject to similarconditions as are envisagedfor the purposes of applyingzero-rate of customs dutyunder the Customs Act,1969.Plant, machinery,equipment and specificitems used in production ofbio-dieselReclaimed lead, if suppliedto recognized manufacturerof lead batteriesWaste papers

99.18

RespectiveHeadings

Respectiveheadings

Respectiveheadings

Oilseeds meant for sowing. Respectiveheadings

Tax rate 5% Tax rate 10%

Plant and machinery notmanufactured locally andhaving no compatible localsubstitutes

Respectiveheadings

Tax rate 5% Tax rate 10%

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AERATED BEVERAGESThe rate of duty is proposed to be enhancedfrom 9% to 12% of retail price with effect fromJuly 1, 2015.LOCALLY PRODUCED CIGARETTESDescription of and duty on the locallyproduced cigarettes (PCT heading 24.02) isproposed to be enhanced as under, with effectfrom July 1, 2015:S.No. Description of goods

Revisedrate

9 Locally produced cigarettes iftheir on-pack printed retailprice exceeds Rs 3,350 per1,000 cigarettes

Rs 3,030per 1,000cigarettes.

10 Locally produced cigarettes iftheir on-pack printed retailprice does not exceedRs 3,350 per 1,000 cigarettes

Rs 1,320 per1,000cigarettes.

It appears that average tax incidence wouldincrease from 58% to 63%.FILTER ROD FOR CIGARETTESIt is proposed to charge duty on filter rod forcigarettes (PCT heading 5502.0090), with effectfrom July 1, 2015:S.No. Description of goods

Revisedrate

56 Filter rod for cigarettes Rs 0.75 perfilter rod.

EXEMPTIONSTravel by air on socio economic routesIt has been proposed to exempt excise duty onservices provided or rendered in respect of travelby air of passengers on socio economic routes.Duty is currently payable at Rs 500 perpassenger.Socio economic routes are proposed to beredefined as the shortest part of journeysstarting from or ending at an airport located inMakran coastal region, FATA, Azad Jammu andKashmir, Gilgit-Baltistan or Chitral. The phrasethe shortest part of journeys needs to befurther clarified to avoid tax disputes.Exemptions available under notificationconsolidated in 3rd ScheduleThe exemptions earlier available in respect offollowing goods/ services under notificationSRO 778(I)/2006, notification SRO 474(I)/2009, notification SRO 802(I)/2009 and81(I)/2010 are proposed to be incorporated inThird Schedule to the Federal Excise Act, 2005(FE Act): Services of air travel for Hajj passengers,

diplomats and Supernumerary crew; White cement (PCT heading 25.23) ; Motor cars and other motor vehicles

principally designed for the transport ofpersons including station wagons and racingcars of cylinder capacity exceeding 850cc;

Services provided or rendered by bankingcompanies and non-banking financialcompanies in respect of Hajj and Umrah,cheque book, insurance, Musharika andModaraba financing and utility billcollection; and

Advertisement in newspapers andperiodicals.

FEDERAL EXCISE DUTY

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WHISTLEBLOWERSA new concept of whistleblower is proposed tobe introduced in income tax, sales tax andfederal excise duty laws. This will empower FBRto reward persons in addition to its officers whoprovide information regarding concealment orevasion of tax/duty, tax fraud, corruption ormisconduct.POWERS TO GRANT EXEMPTIONS BYFBR/ FEDERAL GOVERNMENTAs a positive policy measure, the discretionarypowers of the Federal Government and the FBRto grant exemptions from taxes and dutiesunder all the four fiscal legislations have beenproposed to be abolished. However, in specialcircumstances identified below, suchnotifications can be issued by the FederalGovernment subject to approval of EconomicCoordination Committee of Cabinet: national security; natural disaster; national food security in emergency

situations; protection of national economic

interests in situations arising out ofabnormal fluctuation in internationalcommodity prices;

removal of anomalies in taxes; development of backward areas; and implementation of bilateral and

multilateral agreements.This amendment was introduced recentlythrough Presidential Ordinance. Through theFinance Bill, 2015 the contents of the Ordinancehave been adopted in the respective taxingstatutes.Further, it has been proposed that exemptions tobe granted by Federal Government underthese provisions have to be placed beforeNational Assembly (a requirement alreadythere in the Income Tax Ordinance) and thatexemptions would not extend beyond theend of financial year in which these are granted.

It is, however, apt to highlight that powersavailable with the Federal Government tosubject specified goods to lower rate of tax/duty, available under section 3(2)(b) of ST Actand section 3(4) of FE Act, have not beenproposed to be made subject to aboveconditions.

The relevance of the SROs already in force priorto omission of relevant provisions will beascertained on the basis of principle ofprospective application of legal provision. It isconsidered that retrospective application is notenvisaged, however, in order to avoidunnecessary litigation and disputes at field level,it is essential that the protection / savings for thesubstantive provision are introduced.

AGREEMENTS FOR EXCHANGE OFINFORMATION & DISCLOSURE OFINFORMATION

New provisions are proposed to be introduced inthe income tax, sales tax and federal excise dutylaws whereby Federal Government has beenempowered for entering into bilateral ormultilateral agreements with the provincialgovernments as well as the governments offoreign countries with respect to exchange ofinformation concerning all three levies.Further, in line with the provisions already therein the Income Tax Ordinance, informationobtained under such agreements or that inpossession of public servants under ST Act andFE Act have been prescribed to be confidentialnotwithstanding other laws.

MONITORING & TRACKING OF GOODSBy virtue of certain amendments introducedthrough Finance Act, 2013, certain provisionswere inserted in sales tax/excise duty law vestingFBR with the powers to require specific goods tobe affixed with stamps, banderols, stickers,labels etc. so as to these could be electronicallymonitored/ identified.

COMMON PROVISIONS RELATING TO FISCAL STATUTES

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An amendment is proposed in these provisionswhereby barcodes could also be used aselectronic identifiers and FBR to be empoweredto prescribe vendors from which such identifierscould be procured at notified prices.

SPECIAL AUDIT PANELS

The provisions relating to conduct of specialaudit, as described earlier in income tax sectionof this memorandum has also been placed forsales tax and excise duty purposes.

POWERS OF BOARD ORCOMMISSIONER TO REVIEW THEORDER BY SUBORDINATE OFFICERS

Under the section 45A of ST Act and section 35of FE Act, FBR and Commissioner InlandRevenue are empowered, on a suo moto basis, toexamine/call for the record of any proceedingsand review an order passed by any ofsubordinate authorities.

An amendment is proposed in these legalprovisions which will effectively enable the FBRto undertake revisionary powers even on thebasis of application by the taxpayer in additionto the right of suo moto action.

Similar amendment is also required in provisionrelating to revisionary powers of the relevantCommissioner in both Statutes.

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In 2001, certain services were subjected to SalesTax in the four Provinces and Islamabad CapitalTerritory (ICT) through respective Ordinances.Since promulgation of ICTO, no addition /amendment to the list of services taxable in ICTwas made although after the 18th amendment,the Provinces whilst reiterating their right to taxservices, have expanded their list of taxableservices. Furthermore, Sindh, Punjab and KPKhave formed their own regulatory bodies tocollect the taxes whereas FBR regulates thecollection of sales tax on services rendered inBaluchistan and ICT.

TRANSHIPMENT OF GOODSUnder the Customs Act, 1969, transhipment ofgoods is allowed without payment of duty, ifgoods are transported to other station. It hasnow been clarified that assessment and paymentof duties and other charges in case oftranshipment of goods will be made at the portof destination. Some other procedural aspectshave been clarified in this respect.OFFENCES AND PENALTIESA new penalty of Rs 50,000 is being introducedfor a person contravening the requirement ofplacement of invoice and packing list inside theimport container or consignment. Furthermore,offence relating to untrue declaration and illegalremoval or concealment of goods during transithas also been penalised.WITHDRAWAL OF EXEMPTIONS ANDCONCESSIONSLast year, the Government announced a policyto withdraw concessionary SROs in three phases(years). For that purpose, Fifth Schedule to theCustoms Act, 1969 was introduced throughFinance Act, 2014, and SROs 575(I)/2006 and567(I)/2006 were consolidated therein withcertain changes. The framework for review ofSROs, as announced, is based on following:

In order to harmonise the tax regime on serviceson national basis, the list of services taxable inICT has been enlarged. Now the services taxableunder the ICTO are generally in line with theprevalent basis in the three other provinces.

(i) Minimally utilized concessions are beingwithdrawn;

(ii) Socially sensitive concessions areretained; and

(iii) Remaining concessions are eitherwithdrawn or continued at enhancedrates.

Through this Budget, being the second phase ofimplementation of aforesaid policy, some moreSROs are expected to be withdrawn, which havenot been notified so far. The concession inrespect of following sectors has been withdrawnby virtue of amendment in the Fifth Schedule,resulting that regular rate is applicable thereon:

Sector / GoodsExisting

concessionaryrate (nowwithdrawn)

Business ProcessesOutsourcing / Call CenterEntities

15%

Relocated Industries 10%Proprietary Formwork systemfor building / structures of100 ft and above

10%

Petroleum oils and oilsobtained from bituminousminerals, crude, motor sprit,furnace oil

0%

CUSTOMS DUTY

ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES)ORDINANCE, 2001 (ICTO)

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Sector / GoodsExisting

concessionaryrate (nowwithdrawn)

Soyabean meal 5%Hi-speed diesel 7.5%Concentrated Coccidiostats 5%Certain Medecaments 5%Certain poly items 4% / 8.5%Certain textile products (of /or relating to yarn

9% / 7%

REDUCTION IN CUSTOMS DUTYBy virtue of amendment in First Schedule,reduction in customs duty has been provided forthe following, in addition to reduction inmaximum tariff rate from 25% to 20% across theboard.

PCT Code RateOld New4011.10008517.61003402.13004011.20107605.29007606.92908517.62908529.1090

25%20%20%20%20%20%20%20%

15%10%15%15%15%15%15%15%

Reduction in customs duty in respect offollowing sectors has been provided by placingthe same under the Fifth Schedule:

Sector ConcessionAgricultural Reduction in customs duty on

import of agriculturalmachinery from 5 20% to2%.

Construction Reduction in customs duty to10%, on import ofconstruction machinery inused condition, by theconstruction companiesregistered with PakistanEngineering Council andSECP.

Sector ConcessionAviation Customs duty on various

items used in aviation sectorreduced to 0%, subject tocertain conditions.

INCREASE IN CUSTOMS DUTY

As part of review / rationalization ofcustoms duty, following major changes havebeen made:(i) Goods subject to duty at the rate of

1% under the First Schedule, willnow be subject to duty at the rate of2%.

(ii) Concessionary rate under the FifthSchedule is increased for thefollowing:

SectorConcessionary

RateOld New

Machinery Equipmentand Other Capitalgoods for initialinstallation , BMR orexpansion of OilRefining petrochemical and petrochemical downstreamproducts includingfiber and heavychemical industry

5% 10%

Machinery andEquipment by anindustrial concern

10% 15%

Fresh and Dry Fruitsfrom Afghanistan(Chapter 8)

5% 10%

Preparations of a kindused in animal feeding

5% 10%Nucleic acids and theirsalts (Furazolidone)

5% 10%Defence stores,excluding those of theNational Logistic Cell

10% 15%

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