tax handbook 2010-2011

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8/8/2019 Tax Handbook 2010-2011


8/8/2019 Tax Handbook 2010-2011


Tax Handbook 2010

An Information Guide

Tax Handbook 2010

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This handbo ok attempts to ca ter the ne eds of the various post budget queries forthcoming by our clients . We ha ve attempte d to app rise the m

with a comprehen sive explanation of the implications and effect tha t this Finance Bill has brought abou t. The handb ook encompa ss es the

amendments in the Income Tax Ordinance, Sales Tax Act, Customs Act, Federal Excise Act and Petrolum Products (Surchage) Ordinance.

The applicable amendments in the laws after enactment are effective from July 1, 2010 unless otherwise specified.

The commentary should be read in conjunction with the applicable sections of respective Ordinances, Acts and Rules along with the text of

the Finance Bill 2010. This commentary attempts to provide a general guideline and thus should not be considered as a conclusive and

enforceable document. Professional advice should be sought before acting on any amendment in the Finance Bill or on our comments.

We hop e tha t this Handbook enha nces your pe rception of Budget 2 01 0. For bette r unders tanding and convenience, we ha ve also drafted a

Tax Planning Guide appended to this handbook.

This Handbook is the property of Horwath Hussain Chaudhury & Co. and is compiled for the exclusive use of its clients and employees.

No p art o f this Hand book ma y be re prod uced except with prior permission of Horwath Huss ain Chau dhury & Co.

Although be st e fforts ha ve bee n made to ens ure a ccuracy of the information in this Handbook, any errors and omissions a re re gretted.

Lahore

June 07, 20 10

www.horwath.com.pk

Preface

Tax Handbook 2010

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Tax Handbook 2010

Sales Tax

Act, 19 90

Notable Notifications

23-26

2 6

Tax Planning Guide 20 10Income Tax

Sales Tax

Cap ital Value Tax

37-47

48-49

5 0

Contents

Chapter Page

GeneralBudget ‘10 -11 1 -4

Contents

Commentary on the Finance Bill 2010Highlights

Income Tax

Ordinance, 2 001

Schedules

First

Second

Third

FifthSeventh

5 -8

9-17

18-20

20-21

2 2

2 22 2

Fede ral Excise

Act, 20 05

Schedules

First

2 7 - 2 9

2 9 - 3 0

CustomsAct, 19 69

Schedules

First


31-32

3 3

34-35

Petroleum Products (Surcharge) Ordinance, 1961

Ordinance, 1961

Schedules

Fifth

3 6

3 6

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Tax Handbook 2010

Budget, 2010-2011 Budget, 2010-2011

Salient Features of the Budget 2010-2011

The s alient features of the budge t 20 10 -11 are a s follows:

Total outlay of the budge t 20 10 -11 is Rs. 3.2 59 trillion (including provinces) and is a bout 1 0.7% higher tha n the size of budget

estimates for 2009-10

Federa l budgeta ry outlay is propos ed at Rs. 2 .22 9 trillion which is 13 .9% of the GDP

The resource availability during 2010-11 has been estimated at Rs. 2.764 trillion against Rs. 2.462 trillion in the budget estimates

of 2009 -10

Net re venue receipts for 201 0-11 have bee n es timated a t Rs.1.3 77 trillion while the estimate for 200 9-10 was Rs. 1 .371 trillion

FBR collection (including Direct and Indirect taxes) is projected at Rs. 1.667 trillion during 2010-11 which is 22% higher than the

budget e stimates for 200 9-10 of Rs. 1 41 .87 billion

Capital receipts (net) for 20 10 -11 have bee n es timated a t Rs. 325 billion aga inst the budget e stimates of Rs. 1 09.5 billion in 200 9-10

External receipts in 2010-11 are estimated at Rs. 386.62 billion which is lower by Rs. 123.78 billion against budget estimate of

2009-10 which was Rs. 510.40 billion

The overall expenditure during 2010-11 has been estimated at Rs. 1.998 trillion against the estimate for 2009-10 of Rs. 1.699

trillion, up about 17.6%.This includes expected defense expenditure of Rs. 442 billion which is 17% higher than the estimate of

2009-10 of Rs. 378 billion

The s hare of current expenditure in total budgeta ry outlay for 20 10 -11 is 7 2.3% as compare d to 7 4.3% in revised estimates for

2009-10

The expenditure on General Public Services (inclusive of debt servicing, transfer payments and superannuation allowance) is estimated

at Rs. 1 ,38 7.7 billion which is 50 % o f the overall expend iture

The size of Public Sector Development Programme for 2010-11 is Rs. 663 billion including Federal component of Rs. 280 billion

plus Rs. 1 0 b illion for Ear thqu ake Recons truction & Rehab ilitation Autho rity (ERRA). While for “Othe r Developmen t Expenditure ” an

amount of Rs. 123.5 billion has been allocated

Provinces have be en a llocated an a mount of Rs.1.0 33 trillion under the 7th NFC award showing a subs tantial increas e of abo ut 58 %

compared to Rs. 655 billion estimated during 2009-10

An amount of Rs. 131 billion has been allocated for hydel, thermal and nuclear energy projects

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Comparative Budgetary Position 2010-2011 & 2009-20010

Receipts

Net Federal Revenue Receipts (A)

Tax Revenu e (FBR)

Tax Revenue (Other than FBR)

Non Tax Reven ue

Gross Revenue Receipts

Less: Provincial Share in Taxes

Net Capital Receipts (B)

External Resources (C)

Self Financing of PSDP by Provinces (D)

Change in Provincial Cash Balance (E)

Privatization Proceeds (F)

Bank Borrowings (G)

TOTAL RESOURCES (A+ B+ C+ D+ E+ F+ G)

Budget, 2010-2011

1,778.70

-

632.30

2,411.00

1,033.60

1,377.40

325 .40

386 .60

341 .60

166 .90

-

166.50

2,764.40

(Rs. in Billion)

1 ,513 .10

-

513 .60

2026 .70

655 .20

1371 .50

190 .50

510 .40

173 .00

72 .90

19 .40

144 .60

2 ,482 .30

(Rs. in Billion)

2010-2011 2009-2010

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Tax Handbook 2010

Expenditures

Current Expenditure (A)

General Public Services

Defence Affairs and Services

Pub lic Orde r a nd Safety Affairs

Econo mic Affairs

Environment Protection

Housing an d Community Amenities

Health Affairs an d Se rvices

Recreational, Culture Services

Education Affairs and Services

Social Protection

Development Expenditure (B)

Federa l Government

Pro vincial Govern men t

Other Development Expenditure (C)

Estimated Operational Shortfall (D)

TOTAL EXPENDITURES ( A+ B+ C-D)

Budget, 2010-2011

1387.70

442.20

51.30

66.90

0.40

1.80

7.30

4.40

34.50

1.50

1,997.90

290.00

373.00

663.00

123.50

-20.00

2,764.40

(Rs. in Billion)

2010-2011 2009-2010

1189.10

342 .90

34 .60

84 .90

0.40

1.50

6.50

3.70

31 .60

3.90

1,699.10

446 .00

200 .00

1,292.00

157 .10

-20.00

2,482.30

(Rs. in Billion)

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Budget, 2010-2011

Breakup of Receipts

Breakup of Expenditures

49.83%

11.77%

13.98%

12.36%6.04%

6.02%

15.77%

49.48%

13.30%

1.83%2.39% 4.40%

0.71%

0.01%

0.06%

0.05%

1.23%

0.16%

0.26%

10.34%

Environment Protection

Recreational, Culture Services

Provincial Government

Economic Affairs

Health Affairs and Services

Federal Government

Public Order and Safety Affairs

General Public Services

Social Protection

Estimated Operational Shortfall

Defence Affairs and Services

Housing and Community Amenities

Education Affairs and Services

Other Development

Change in Provincial Cash Balance Bank Borrowings

Net Revenue Receipts Net Capital Receipts External Resources Self Financing of PSDP by Provinces

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Tax Handbook 2010

Commentary

The Finance Bill, 2010

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Tax Handbook 2010

Income Tax Ordinance, 2001

Perquisite of interest-free loan to employee by the employer is no more taxable

Capital gain arising on sale of shares of a public company, vouchers of Pakistan Telecommunication Corporation, modaraba certificatesand instruments of redeemable capital is made subject to tax

10% tax credit is proposed to be introduced for balancing, modernization and replacement (BMR) and installation of plant &machineryduring Tax Year 2011 to 2015, in the tax year in which such cost is incurred

5% tax credit is proposed for companies that desire to be enlisted on registered stock exchange of Pakistan

The Bill seeks to crea te first cha rge upon the esta te o f the de ceas ed individual ag ainst his tax liability

The Bill seeks to charg e ta x on une xplained income in the yea r to which such income re late s

The Finance Bill seeks to levy minimum tax on those individuals and on AOPs whose annual turnover is Rs. 50 million or above; therate of minimum tax is proposed to be enhanced to 1%

Through the Finance Bill 2010 the parameters for revision of tax on return of total income, even during the initiation of auditproceedings, is propos ed

The Finance Bill proposes that only those taxpayers, falling under the Final Tax Regime (FTR), are required to file the wealth statement;who ha ve suffered tax of Rs. 3 5,0 00 . Previously this limit was Rs. 25 ,00 0

The Bill proposes to restrict the deadline of filing returns for salaried individuals and non-corporate FTR cases from 30th day of September to 31st day of August

The te rm “Default Surcharge ” is propo se d to be subs tituted with the term “Additional tax”

The Commissioner has been vested with the power to make provisional assessment based on facts available with the department

The Bill proposes that an Officer of Inland Revenue in the rank of Regional Commissioner or Commissioner having at least five yearsexperience, as Commissioner or Collector, may be appointed as Accountant Member of the Appellate Tribunal Inland Revenue

The Bill see ks to shift the tax liability of a b ankrupt taxpayer to his es tate in bankruptcy. The tax liability is propo se d to be dee medas current expenditure and proposed to be settled earlier than the claim of creditors

The date of payment of advance tax for a quarter, except June quarter, is proposed to be extended by 10 days

It is proposed that for the purpose of depositing advance tax the income limit shall be enhanced from Rs. 200,000 to Rs. 500,000

The Bill proposes to collect advance tax on capital gains @ 2 % where sha res a nd stocks are held for less than 6 months and @1.5% where s hares and s tocks a re held for more than six months

The Bill propose s to trea t tax withheld on profit on deb t rece ived on Government s ecurities as final tax

Individuals and AOPs, having turnover of Rs. 50 million or above are proposed to be made withholding agent effective from Tax Year2009

The Bill proposes to alter the requirements of filing withholding tax statements. Certain statements are now required to be filedquarterly instead of filing monthly and annualy

The Bill proposes to enhance the period of retention of record from 5 years to 6 years or later on finalization of legal proceedings

Finance Bill HighlightsFinance Bill Highlights

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Finance Bill Highlights

The Bill proposes the Commissioner of Income Tax to be empowered to appoint the firm of Chartered Accountants to conduct tax

audit, delegate authority to collate information from taxpayers and call for the record for audit purposes without any selection criterion

The Bill propos es to kee p re cord o f active taxpayers to link up imports and exports facilitation

Penalties on certain defaults are proposed to be enhanced through the Finance Bill 2010

The Bill proposes that the Federal Government and the Federal Board of Revenue may exempt a person or class of persons frompayment of the whole or part of penalty and default surcharge

The Bill seeks to introduce autho rities , functions and jurisdiction o f the Directora te Genera l of Training a nd Rese arch a nd its hiera rchical jurisdiction

The Bill seeks to e xtend the scope of withholding ta x @ 0.3% on ba nking s ervices by spe cifying d emand draft, payment orde r, onlinetransfer, telegraphic transfer, CDR, STDR, and RTC

The Bill seeks to declare the minimum tax collected by stock exchanges as adjustable tax

The Bill seeks to broaden the scope of withholding tax by including sale of telephone units through electronic or other medium

The Bill se eks to app ly withholding ta x on purcha se of domestic air ticket @ 5% of gross amount of the air ticket

Threshold of basic exemption for all individuals enhanced to Rs. 300,000 whether salaried or non-salaried and regardless of gender

Bill propose s to enha nce the limit of income of se nior citizen from Rs.750 ,00 0 to Rs.1,00 0,0 00 to a vail 50% reduction in ta x liability

Rate of fixed tax for retailers is proposed to be enhanced from 0.5% to 1% for all taxpayers

Flat tax rate of 25% proposed for AOPs

Rate of small companies is propose d to be enhanced from 20% to 25 %

Tax collected from members of stock exchange on commission on sale and purchase of shares and in respect of trading of sharesby such members made adjustable, instead of being treated as minimum tax

Advance withholding tax @ 5% to app ly on sa le by pub lic auction of any property or g oods including property or go ods confiscate d or attached

Withholding tax rate o n imports is propo se d to be increa se d from 4% to 5 %

Rate of withholding tax on payments to non-residents not otherwise specified reduced from 30% to 20%

Withholding tax on prize on cros sword puzzle is prop ose d to be reduce d from 20% to 10 %

Withholding tax @ Re.1 per kg o f lade n weight is propos ed to be introduced for good s tra nsport vehicles instea d of slab rates

Maximum rate o f advan ce tax on electricity bills for indus trial and comme rcial cons umers is propos ed to be re duce d from 10 % to 5 %

Provision for advances and off balance sheet items @ 5% of total advances for consumers and SMEs is proposed to be allowed tobanking companies

Individuals and AOPs are proposed to be prescribed as prescribed person

Various exemptions and concessions are proposed to rehabilitate the economy of Khyber Pakhtunkhwa, FATA and PATA

Reduce d withholding ta x rate facility of 1% o n imports extende d to large tra ding hous es

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Tax Handbook 2010


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Sales Tax Act, 1990

The introduction of Value Added Tax (VAT) in place of the Sales Tax Act, 1990 is proposed to be deferred uptil October 1, 2010

Changes sought through Finance (Amendment) Ordinance, 2009 have been incorporated in the Finance Bill, 2010. These changesprimarily aim at harmonizing the nomenclature of the thre e d omes tic taxes of Pakistan

The rate of sales ta x is propos ed to b e raised to 1 7% from 16%

The pre scribed period of retaining relevant records ha s be en e nhanced from 5 years to the later of 6 years or finalization of anypen ding proce eding b efore a ny autho rity including an Alterna te Dispute Reso lution Committee

Procedure of issuing audit report is proposed to be changed. It is proposed that audit observations for seeking explanations of theregistered person would not be issued; explanations from the registered person would be sought, if considered necessary

The conce pt of determining the transfer price of taxable s upplies made between a sso ciates to reflect the fair market value of suppliesin an arm’s length transaction is proposed to be introduced

The Finance Bill, 2010 proposes to empower the Federal Board of Revenue to select persons or classes of persons for audit throughtax ballot and the Board is deemed to always have had this power vested in it

Specific powers of adjudication of various Inland Revenue Officers (previously the Sales Tax Officers) are proposed to be omitted

The Finance Bill, 2010 proposes comprehensive mode of serving orders, decision etc. for resident individuals, non-resident individuals,an association of persons that is dissolved and a discontinued business through redraft ing the exist ing legislat ion

The Finance Bill, 2010 proposes that the Commissioner may also appoint auditors, in addition to the Federal Board of Revenue, toconduct spe cial aud it of records of registere d pers ons without notifying in the official Gaze tte

The Commissioner is proposed to be empowered, besides the Federal Board of Revenue, to authorise officers to have free accessto business and manufacturing premises, records, stocks etc. during the course of an enquiry

Owing to the restructuring of the Inland Revenue, the Appellate Tribunal, established under Section 130 of the Income Tax Ordinance,20 01, is propos ed to b e referred to for all the ap peals made unde r the Sales Tax Act, 199 0

The Finance Bill, 2010 proposes to introduce the hierarchical position of “Chief Commissioner Inland Revenue” appointed underSection 30 of the Sales Tax Act, 1990

The Finance Bill, 2010 proposes to change the nomenclature of the hierarchical structure of authorities thus streamlining it withthe other two domestic taxes of Pakistan

The Fede ral Board o f Revenue is propos ed to be e mpowered for se lecting pe rsons or classes of persons for aud it through tax randomcomputerized balloting

Federal Excise Act, 2005

Domestic tax laws are harmonized to give uniform nome nclature unde r the jurisdiction o f the Inland Revenue

The Bill se eks to withdraw res triction o n a djustment o f Fede ral Excise Duty paid on bevera ge concentra te

By virtue of the Finance Bill, rat e o f Federa l Excise Duty on na tura l gas is increas ed from Rs. 5 .09 pe r MMBTu to Rs. 1 0 p er MMBTu

Levy of Federal Excise Duty @ Rs. 1/- per filter rod of cigarettes

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08

The Finance Bill proposes Federal Excise Duty on electricity intensive home appliances to be @ 10% i.e air conditioners and deep

freezers etc.

The Bill seeks to rationalize the scope of service of notice

The timeline for the retention of records and documents is enhanced for 6 years

The Board is proposed to be authorised to select cases for audit through computerized balloting

Customs Acts, 1969

The term “Appe llate Tribuna l” is re defined subs eque nt to th e re structuring of the Inland Revenue

The limit of inbound or outbound precious metals and s tones is propos ed to be e nhanced from Rs. 50 ,000 to Rs. 1 50 ,000 for thesake of definition of smuggling

The regulatory duty is proposed to be included in the value of the export duty

Custom value determined is proposed to remain applicable unless revised or rescinded by the competent authority

Time to file review application against the customs value determined is proposed to be restricted to 30 days

Mis-declaration of payment of revenue through self-assessment is proposed to be treated in fiscal fraud

Legislation re gard ing mutilation of good s is propos ed to be simplified

The Finance Bill, 2010 proposes to clarify the relevant date in connection with the date of detection on post clearance audit onCustoms Computerized System

The facility to file goods declaration after examining the imported goods is proposed to be restricted to used goods only

Time period for determining the correct amount of taxes from provisional determination is proposed to be reduced from 6 monthsto 3 months

It is proposed that a person or an officer of Customs could file an appeal before the Appellate Tribunal for review of valuationdetermined by the Collector or Customs or Director of Valuation

Customs duty on certain farm animals, medicines and other items is proposed to be slashed

Penalties for contravention of law are proposed to be enhanced

Petroleum Products (Surchage) Ordinance, 1961

The Bill seeks to propose that petroleum levy should be collected on rates specified in the amended 5 th Schedule to the Ordinance

The Bill proposes that pe troleum levy collected from March 1 , 20 10 to June 30 , 20 10 would be valid, uncollected amounts areproposed to be collected under the provisions of this ordinance

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Tax Handbook 2010

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Income Tax Ordinance, 2001 Income Tax Ordinance, 2001

Nomenclature of Inland Revenue Designated Section 2 (2)

In the wake of promulgation of Inland Revenue Ordinance, 2009, an effort is underway to integrate the domestic taxes and the Bill seeks to alterthe designation-nomenclature of taxing authorities as under:

Present Proposed

Appe llate Tribuna l Appe llate Tribuna l Inland Reven ueChief Commissione r Chief Commissione r Inland Revenue

The proposed insertion also seeks to redefine Director General that means a person appointed as Director General of Regional Tax Office or LargeTaxpayers Unit and includes a Director General of Income Tax, Sales Tax, Federal Excise Duty (FED) and Regional Commissioner of Income Tax. Inthe wake of transitional phase of integration of Inland Revenue the definition also encompasses the spheres of Sales Tax and Federal Excise Duty.

Perquisite of Interest-free Loan by Employer to Employee Excluded from Taxability Section 13(7)Presently the loan advanced by an employer to an employee on soft terms is considered as perquisite for the employee and it is added to the taxableincome of the employee based on benchmark interest rate policy given under the provisions of the law. The Bill proposes to exclude such benefitfrom the clutches of taxable income.

Capital Gains Tax on Sale of Securities Section 37A

The Bill see ks to tax the capital gain arising o n s ale of sha res of a pu blic compan y, vouchers of Pakistan Telecommunication Corpora tion, ModarabaCertificates or instruments of redeemable capital in the following manner:

Proposed Rate of Tax

Holdings of stocks/shares/securities for six-months or less 10.00%Holdings of stocks/shares/securities exceeding six-months 7.50%

However, no tax has been proposed on capital gains arising on sale of such securities held for a period exceeding 12 months. This is important tomention here that this clause would not be applicable on banking companies.

Tax Credit for Investment on BMR Section 65B

The Finance Bill see ks to introduce s ome re lief meas ures for rece ss ion s tricken industry and a tax credit for BMR costs incurred b y corporate se ctoris proposed to be provided @ 10% in the tax year of its incurrence. This concession has been proposed to be available in between the Tax Years2011 to 2015.

Tax Credit for Enlistment with Stock Exchange Section 65C

The Bill proposes tax credit of 5% on tax pa yable by the companies s eeking enlistment with the re gistered s tock exchange s o f Pakistan to encoura geenlistment of corporate sector.

Tax as a First Charge Against Deceased Estate Section 87(2A)

The Bill seeks to crea te first cha rge upon the e sta te o f the dece as ed individual aga inst his tax liability.

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Taxability-Period of Unexplained Income Prescribed Section 111(2) & (4)

The income detected by the Commissioner on account of unexplained investment is treated as income in the year it is discovered; irrespective of the year to which it actually relates. The Bill seeks to tax such income in the year to which such income, in actual terms, relates and it also impliesto empower tax authorities to weed out preceding years irrespective to any time limitation. This, however, might be contradictory with other provisionsof law.

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Minimum Tax Scope Extended and Rate Enhanced Section 113

Minimum tax shows the trust deficit amongst the taxpayers and regulators and by virtue of Finance Act, 2008 a highly hailing move was taken andthis levy was abolished to encourage the taxpayers to get their version verified through proper documentation. Minimum tax was reintroduced videFinance, Act 2009 and presently the minimum tax is merely applicable for loss making resident companies; however, the Bill seeks to enlarge itsscope to the following categories of taxpayers:

Taxpayer Category Turnover Threshold

An individual Having turno ver of Rs. 50 million or above in Tax Yea r200 9 or in any subsequent tax year

An AOP Having turnover of Rs. 50 million or ab ove in Tax Yea r200 7 or in any subsequent tax year

Moreover, the rate of minimum tax has also been enhanced from 0.5% to 1%.

Rights of Revisions of Tax Return Elaborated Section 114(6)

The proposed substitution envisages the parameters for revision of tax on return of total income even during the initiation of audit proceedings.The proposed amendment has been inserted vide Finance (Amendment) Ordinance, 2009, however, the sanctity of the substitution has been sought

to be reinforced vide Finance, Act 2010:

Revised Return Basis Requirement

Voluntarily revision on discovering omission or wrong statement Revised Audited Accounts/Reas ons for revision

Voluntarily revision on evasion of tax Deposit of the amount of tax evaded or short paidalongwith d efault surcharg e

Pointed out by the Commissioner during audit proceedings Deposit of the amount of tax evaded alongwith default surchargeand 25% of the penalties leviable

Pointed out by the Commissioner during amendment proceedings Deposit of the amount of tax evaded alongwith default surchargeand 50% of the penalties leviable

The Bill seeks to substitute the subsection 6 of Section 114 and seeks to elaborate the procedure of revising the return of total income within thetimeframe of 5 years.

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Profiling of Wealth Statement Obligation for FTR Cases Section 115 (4B), 116(4)

By virtue of Finance, Act 2009 wealth statement filing was made mandatory for the taxpayers falling under final tax regime (FTR). This provision formandatory filing of wealth statement is capped on the criterion of tax paid under the FTR. The proposed amendment seeks to enhance the tax paidamount from Rs. 25 ,00 0 to Rs. 35 ,00 0 where by the ta xpayer falls under Final Tax Regime (FTR).

Wealth Statement Requirement for Provisional Assessment Elaborated Section 116

The propo sed amendment s eeks tha t where a taxpayer files return in response to a provisional ass ess ment, the wealth state ment would be underpinnedwith the following attachments:

Wea lth reco nciliation state mentAn e xplana tion of acquisition of as se ts spe cified there in

Return Filing Deadline for Salaried Individuals and Non-corporate FTR Cases Changed Section 118 (3)

The Bill proposes to change the deadline of filing of returns for salaried individuals and non-corporate FTR cases from 30th day of September to31st day of August.

Nomenclature of Additional Tax Replaced with Default Surcharge Section 119(6)

By virtue o f Finance Bill, 20 10 the p ropos ed amend ment s ee ks to s ubstitute the term “Default Surcharge” with the term “Additional tax”.

Best Judgement Assessment Section 121(1)

The Finance (Amendment) Ordinance, 2009 has sought omission of certain provisions of law as old concept of provisional assessment has beenrevived. This Section envisages a situation where a person has not filed a return when he was required to file it or in response to a notice issuedby the Commissioner to file return, or is trying to avoid tax by not filing returns, or has failed to produce accounts, documents or evidence whencalled for by the Commiss ioner or a ny pers on employed by a firm of Charte red Accountants .

The proposed insertion seeks to include the Cost and Management Accountants for the purpose of exercising the powers of outsource tax audits.

Amendment of Assessment Section 122 (3)(4)

The Finance ( Amendment) Ordinance, 2 00 9 inserted a ne w sub-se ction (6 A) in section 114 and thus subse quent a mendment is made in Section122(3). The revised return has also been brought under the purview of amendment of the Universal assessment Scheme.

The original order whereby termed as prejudicial to the interest of revenue may also be sought to be re-amended by initiating the re-amendmentproceedings.

The proposed insertion seeks to re-amend the order whereby an appeal is pending or decided on any point that is termed as prejudicial to theinterest of revenue on the matter that ha s not taken at the appellate forum.

Procedure of Provisional Assessment Prescribed Section 122C, 137

The p ropose d ame ndment se eks to insert the new provision regarding provisional asse ssment whereb y a pers on fails to file the return of total income.The Commissioner has been vested with the power to make provisional assessment based on facts available with the department. This assessmentis proposed to remain provisional for 60 days and it would be termed as permanent assessment until the taxpayer files the return of total incomealongwith the copy of the wealth statement and an explanation of acquisition of assets.

The corresponding change has been sought whereby the provisional assessment takes into effect after the expiry of 60 days to recover the taximposed the reon.

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Period Quarter Payment Date

1 st of July to 30th September September quarter On or before the 25 th of September

1 st October to 31st December December quarter On or before the 25 th of Decembe r

1 st January to 31st March March quarter On or before the 25 th March

1 st April to 30th June June quarter On or before the 15 th of June

Advance Tax Payment Threshold Enhanced for Individuals Section 147(2)

By virtue o f the Finance Bill, 2 01 0, the propos ed amendmen t se eks to rationalize the a dvance ta x payment criteria for bus iness individuals byenhancing the income limit from Rs. 200,000 to Rs. 500,000.

Advance Tax on Capital Gains Section 147(1), (5B)

The Bill proposes to collect advance tax on capital gains in the manner given as under:

Holding Period Proposed Rate of Tax

Holdings of stocks/shares/securities for six-months or less 2.0%Holdings of stocks/shares/securities exceeding six-months 1.5%

Advance tax shall be payable by the taxpayer to the Commissioner within seven days after the close of each quarter.

Tax Collected on Edible Oil Imports Be Treated as Minimum Tax Section 148 (7)

The proposed amendment seeks to remove anomaly so as to treat the tax colleted at the port on import of edible oil and packing material as aminimum tax meaning thereby the tax cases of such taxpayers would be processed under normal law and tax liability would be determined underthe clutches of normal law, however, it would not be less than the tax collected at source.

Criteria of Appointment of Accountant Member of Appellate Tribunal Relaxed Section 130

The Bill proposes to relax the criteria of appointment of Accountant Member of the Appellate Tribunal whereby an Officer of Inland Revenue in therank of Regional Commissioner or Commissioner having at least five years experience as Commissioner or Collector may be appointed as AccountantMember of the Appellate Tribunal Inland Revenue.

Estate in Bankruptcy Section 138B

The Bill seeks to insert a new section whereby if a taxpayer becomes bankrupt, his tax liability would shift to the estate in bankruptcy and that taxliability shall be deemed to be the current expenditure in the operations of the estate in bankruptcy and would be settled earlier than the claim of creditors.

Advance Tax Payment Criteria of Tax vis-a-vis Turnover Introduced for AOPs Section 147(2)(4)(6A)

The Bill proposes to reintroduce the criteria of advance tax payment on the basis of turnover for an AOP in connection with a company and there isno threshold for payment of advance tax.

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1 st of July to 30th September September quarter On or before the 20 th day of October

1

st

October to 31st December December quarter On or before the 20

th

day of January

1 st January to 31st March March quarter On or be fore the 2 0 th day April

1 st April to 30th June June quarter On or before the 20 th day of July

Assessment on Final Tax Regime Explained Section 169

The Bill proposes to insert explanation that a n as ses sment s hall be taken a s original ass ess ment when the Commissioner s hall be taken to ha vemade a n as ses sment of income for that tax year, a nd the tax due the reon eq ual to those res pective amounts spe cified in the return or state mentto treat it as a n ass ess ment Order.

Timeframe for Retention of Record Extended Section 174(3)

The Bill proposes to enhance the period of retention of record from 5 years to 6 years; however, in case of legal proceedings the limitation onretention of record would not be restricted for 6 years.

Commissioner Empowered to Appoint CA Firm as Tax Auditors Section 176(c)

By virtue o f the propo se d insertion the Commissioner of Income Tax has b een soug ht to be empowered to a ppoint the firm of Chartere d Accountantsto conduct the tax audit and to delegate the a uthority to collate information from taxpayers as required under the Income Tax Ordinance, 2 00 1.

Tax Handbook 2010

Finality of Withholding Tax on Profit on Debt on Government Securities Section 151(4)

The Bill proposes to treat withholding tax on profit on debt received on Government securities as final tax liability inter-alia:

Debt instrumentsGovernment SecuritiesTreasury BillsPakistan Investment Bonds

Individuals Prescribed as Prescribed Persons Section 153 (9)

The Bill proposes to make individuals and AOP liable, having turnover of Rs. 50 million or above in Tax Year 2009 or in any subsequent year, asprescribed person to withhold tax at so urce on a ccount of payments of supplies, s ervices a nd contracts to take it as a mea sure to expand the ta xbase. The Bill seeks to include non-corporate taxpayers in the definition of prescribed person to make them liable to deduct tax whilst making payment

on account of supply of goods, services and contracts based on the following criteria:

Timeframe for Filing of Withholding Tax Statements Rationalized Section 165

The Bill proposes to simplify the compliance procedure of filing of withholding tax statements and proposes to substitute monthly statements withquarte rly state ments. It a lso propos es to e liminate the filing of annua l withholding tax sta tement. The propo sed timeline of filing of state ments wouldbe as under:


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Audit Initiation Mode Modified Section 177

The Finance Bill, 2010 proposes to extend the scope for the Commissioner to call for the record for audit purposes without any selection criterion.The Bill seeks to substitute the prevailing provisions of initiating the audit proceedings under some criterion, however, the proposed substitutionsseeks to grant extensive powers to the Commissioner to pick the case for audit purposes on any unfounded reasons. In accordance with the schemeof the Income Tax Ordinance, 20 01 the p rovisions of law in relation to audit and amendment proceed ings should be transpa rent for taxpayers.

By virtue of subsection (6) the Commissioner is empowered to amend the original order on obtaining explanations from taxpayers on all the issuesarising from the audit proceedings.

In cas e any taxpayer is una ble to provide the re cord that is re quired to be maintained under the provisions of the Income Tax Ordinance, 2 00 1,the Commissioner is empowered to make best judgment assessment and the original assessment would be treated as null and void ab-initio.

Active Taxpayers Record to be Maintained Section 181A

The Bill propos es to kee p re cord o f active taxpayers to link up imports and exports facilitation.

Penalties on Defaults Enhanced Section 182

Penalties on certain defaults are p roposed to b e enha nced as unde r:

14

Default Rate / Extent of PenaltySection of theIncome Tax

Ordinance, 2001

Failure to furnish a return or statement of wealth orquarterly statements

Failure to issue cash memo or invoice or receipt

Failure to make application for registrat ion &Failure to notify changes of material nature in theparticulars of registration

Failure to d epos it amount of tax due or a ny part thereof within s tipulated time

First defaultSecond defaultThird and subsequent defaults

Repeating erroneous calculations in returns for morethan one year and tax paid is less than the actualamount

Failure to maintain records other than during the courseof tax audit

0.1% of the tax payable for each day of defaultMinimum penalty Rs. 5,000 &Maximum penalty

25% of the tax payable

Rs. 5,000 or 3% of the amount of tax,whichever is higher

Rs. 5,00 0

5% of tax dueAdditional penalty of 25% of tax in defaultAdditional penalty of 50% of tax in default



114 , 115 , 116 and 165

Section 1 74 and Chapte r VIIof the Income Tax Rules,200 2 (i.e. Rule 34 , 35, 36 ,37, 38 and 39)

181

137

137

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These pena lties are propos ed to be paid upon order in writing p ass ed by the Commissioner, Commissioner ( Appea ls) or the AppellateTribunal

A copy of order passed by the Commissioner (Appeals) or the Appellate Tribunal is proposed to be served on the Commissionerand the recovery of penalty is proposed to apply as if the order was made by the Commissioner

Where the amount of tax payable is reduced , the amount of pena lty is prop ose d to be re duced a ccordingly

Exemption from Penalty and Default Surcharge Section 183

The Finance Bill 2010 propose s that the Fede ral Government and the Federal Board of Revenue may exempt a p erson or class of persons frompayment of the whole o r part o f penalty and de fault surcharge pa yable unde r the Income Tax Ordinance, 2 00 1. It is p roposed that the reaso ns of such an order shall be reduced to writing and certain conditions and limitations may be imposed. Such an order shall be notified in the Official Gazette.

Tax Handbook 2010


Default Rate / Extent of PenaltySection of theIncome Tax

Ordinance, 2001

Failure to maintain records during the course of taxaudit

First noticeSecond n oticeThird notice

Failure to furnish information when notice to providesuch information is se rved

First defaultSubsequent default

Furnishing false, misleading or incomplete informationin any form for any purpose other than where anassessment order is deemed under Section 120

Denying or obstructing the access of the Commissioneror any authorized officer to the p remises , place, accounts,documents, computers or s tocks

Willful con cea lment o f income , furnishing inaccura teparticulars of income, suppressing income, claimingdedu ction of fictitious expens e, or u nexplained income

Obstructing Income Tax Authority in th e performanceof official duties

Contravention of any provision of the Income TaxOrdinance, 2001 for which no penalty is mentioned

Failure to collect, deduct and pay tax in accordancewith the requirements of the Income Tax Ordinance,2001

Rs. 5,00 0Rs. 10,000Rs. 50,000

Rs. 5,00 0Rs. 10,000

Rs. 25,000 or 100% of the amount of taxshortfall whichever is higher

Rs. 25,000 or 100% of the amount of taxshortfall whichever is higher

Rs. 25,000 or amount equal to tax evadedwhichever is higher

Rs. 25,000



17 7

17 6

114, 115, 116, 174, 176,177 and general

175 and 177

2 0 , 1 1 1 a n d g e n e r a l

2 0 9 , 2 1 0 a n d g e n e r a l

General

148, 149, 150, 151, 152,153, 153A, 154, 155, 156,156A, 156B, 158, 160,231A, 231B, 233, 233A,234, 234 A, 235, 236 , 236A

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Trial by special judge Section 203

The Finance Bill 2010 proposes certain changes in the trial by and appointment of special judges as under:

The references to “Pakistan Criminal Law (Amendment) Act, 1958” is proposed to be removed

It is proposed that the Federal Government may, by notification in the Official Gazette, appoint one or more special judges and specifythe territorial limits, if more tha n one spe cial judge is app ointed

It is proposed that the special judge be a present or ex-Sessions judge and would have jurisdiction over all the offences covered inPart XI of Chapte r X except for “prose cution for una uthorised d isclosure of information by a public se rvant” (i.e. Section 1 98 )

It is pro pos ed that the provisions of the “Code of Criminal Proce dures , 1 89 8”, except th ose of Chapte r XXXVIII shall be a pplicableto the court of the special judge

The court of the special judge shall be deemed to be a Court of Sessions and the person conducting prosecutions before the courtof a special judge be deemed to be a public prosecutor

It is propos ed tha t the Fede ral Government may direct the trans fer the case , at a ny stage of trial, from the court o f one sp ecial judgeto the other

It is proposed that the special judge may or may not recall any witness who has given evidence in the case before transfer. Thespecial judge is propos ed to ha ve accepted the evidence a lready recorded by the court from where the case has b een trans ferred

Hierarchical Jurisdiction of Income Tax Authorities Section 207

The Bill se eks to s ynchronize the nomenclature of tax authorities in the wake of integration of dome stic tax laws with the concept of Inland Revenueand the vertical hierarchical jurisdiction o f the ta x authorities as under:

The Federa l Board of RevenueChief Commissione r Inland Reven ueCommissioner Inland RevenueCommissioner Inland Revenue (Appeals)Additional Commissione r Inland RevenueDeputy Commissioner Inland RevenueAssistant Commissioner Inland RevenueInland Revenue OfficerInland Revenue Audit OfficerSuperintende nt Inland RevenueInspe ctor Inland RevenueAuditor Inland Revenue

It also reiterates that the reference made to the older nomenclature would be construed as reference made to the proposed nomenclature:

The Chief Commissioner Inland Revenue and the Commissioner Inland Revenue (Appeals) shall be subordinated to the Federal Boardof Revenue

T he C ommi ss i one r I n l and R evenue sha l l be subor d i na t ed t o t he C h i e f C ommi ss i one r I n l and R evenue

The Addi t ional Commiss ioner Inland Revenue shal l be subordinated to the Commiss ioner Inland Revenue

Deputy Commissioners Inland Revenue, Assistant Commissioner Inland Revenue, Superintendent Inland Revenue, Inland RevenueAudit Officer, Inland Revenue Officer and Officer of Inland Revenue with any other designation shall be subordinated to the AdditionalCommissioner Inland Revenue

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This proposed hierarchy shall harmonize the authorities of the three domestic taxes of Pakistan. The Bill also seeks to make corresponding changes

of the nomenclature wherever it is needed.

Board Empowered to Select the cases for Audit Purposes Section 235

The Bill proposes to insert a new section that seeks to empower the Board to select the cases for audit of income tax affairs through computerizedballoting rando mly or pa rametrically as the Board ma y dee m fit.

Directorate General of Training and Research Section 229

The Bill seeks to introduce the authorities, functions and jurisdiction of the Directorate General of Training and Research and its hierarchical jurisdictionwould be as under:

Director General

Additional Direct or Gene ralDeputy Director GeneralAssistant Director General

The Bill seeks to empower the Board for specifying the functions, jurisdiction and powers of the Directorate of Training (DOT).

Scope of Withholding Tax on Bank Transactions Broadened Section 231AA, First SchedulePart IV Division VIA

Currently the withholding tax is applicable on the cash withdrawals @ 0.3%. The Bill proposes to extend the scope of withholding tax @ 0.3% ontransaction in bank if the payment for withdrawal is made through certain modes of banking transactions including Demand Draft, Payment Order,Online Transfer, Telegraphic Transfer, CDR, STDR, and RTC. The Bill seeks to put cap, if the sum of transaction in a day exceeds Rs. 25,000 forapplicability of withholding tax.

The Bill seeks to insert the following exceptions for inapplicability of withholding tax:

The Federal Government or a Provincial GovernmentA foreign diplomat or a diplomatic mission in PakistanOn production of exemption certificate from the Commissioner

Minimum Tax to Be Treated as Adjustable Tax Collected by Stock Exchanges Section 233A

The Bill se eks to declare the minimum tax collected by Stock Exchang es as Adjustable Tax. This is a relieving s tep ena bling th e ta xpayers to adjustthe tax de ducted aga inst their tax liability.

Withholding Tax on Telephone Usage Broadened Section 236A

The Bill se eks to broad en the s cope of withholding ta x on the sa le of units thro ugh a ny electronic medium or whatever form in the net of withholding

tax.

Advance Tax on Purchase of Air Ticket Section 238B, First SchedulePart IV Division IX

The Bill proposes to insert new section that seeks to apply withholding tax @ 5% on the purchase of gross amount of domestic air ticket.

Tax Handbook 2010


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TaxableSalary

Tax Liability for the Tax Year 2009 Average Tax Rate

Pre-Budget Post-Budget Increase/(Decrease)

300,000350,000400,000450,000550,000650,000750,000900,000

1,050,00012,000,000

1,450,0001,700,0001,950,0002,250,0002,850,0003,550,0004,550,0008,650,000

-2,6256,000

11,25019,25029,25045,00067,50094,500

120,000159,500212,500273,000337,500456,000621,250841,750

1,643,500

-2,6256,000

11,25019,25029,25045,00067,50094,500

120,000159,500212,500273,000337,500456,000621,250841,750

1,730,000

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

86,500

-0.75%1.50%2.50%3.50%4.50%6.00%7.50%9.00%

10.00%11.00%12.50%14.00%15.00%16.00%17.50%18.50%19.00%

-0.75%1.50%2.50%3.50%4.50%6.00%7.50%9.00%

10.00%11.00%12.50%14.00%15.00%16.00%17.50%18.50%20.00%

Rs. Rs. Rs. Rs. % %

Pre-Budget Post-Budget


First Schedule

Par t I (Rates of Tax)

Basic Exemption Limit for Salaried Tax Payers Enhanced Division I, Clause 1A

The Bill proposes to enhance the basic exemption limit for salaried taxpayers from Rs. 200,000 to Rs. 300,000. The applicable tax rates varyingfrom 0.75% to 20 % a ccording to the pre scribed s alary slabs have remained unchanged.

Taxability of Salary Income

18

Graphical Representation

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

3 0 0 , 0 0

0

3 5 0 , 0 0

0

4 0 0 , 0 0

0

4 5 0 , 0 0

0

5 5 0 , 0 0

0

6 5 0 , 0 0

0

7 5 0 , 0 0

0

9 0 0 , 0 0

0

1 , 0 5

0 , 0 0

0

1 2 , 0 0 0

, 0 0 0

1 , 4 5 0 , 0 0

0

1 , 7 0

0 , 0 0

0

1 , 9 5

0 , 0 0

0

2 , 2 5

0 , 0 0

0

2 , 8 5

0 , 0 0

0

3 , 5 5

0 , 0 0

0

4 , 5 5

0 , 0 0

0

8 , 6 5 0 , 0 0

0

Taxable Salary (Rs.)

T a x L i a b

i l i t y ( R s . )

Pre-Budget Tax Liabi lty Post-Budget Liabi li ty

Three changes have been made in the proposed rates of taxation for salaried individuals;

Exemption limit has been increased from Rs. 200,000 to Rs. 300,000.Different exemption limits for male and female employees have been unified.Salaries be tween Rs. 4,550 ,000 and Rs. 8,650 ,000 are propose d to be ta xed at 2 0% which was 1 9 % last year.

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Tax Handbook 2010


19

Basic Exemption Limit for Non-Salaried Taxpayers Enhanced Division I, Clause 1

The Bill propo se s to enha nce the ba sic exemption limit for non-sa laried taxpayers from Rs. 10 0,0 00 to Rs. 30 0,0 00 . The ap plicable tax rates arevarying from 7.5 % to 25 % a ccording to the table in First Sched ule Part I of Division-I to the Income Tax Ordinance, 2 00 1.

Rate of Minimum Tax on Retailers Increased Division IA

The Finance Bill, 2010 proposes to increase minimum tax under the retail tax scheme from 0.50 % to 1 % of the turnover for the retailer whoseannua l turnover is less than 5 million.

Flat Tax Rate on Association of Person (AOP) Division IB

The Bill proposes to implement the flat tax rate of 25% on association of persons retrospectively from the tax year 2010 and onwards.

Tax Rate for Small Company Increased Division II Clause (iii)

The Bill proposes to increase the tax rate of small company, having turnover upto Rs. 250 million or more, from 20.00% to 25.00 % from the taxyear 2011.

Rate of Tax on Capital Gain on Sale of Securities Division VII

The Bill seeks to levy the tax on sale of securities and shares in order to broaden the base of income tax at the following rates:

Holding period Upto 6 months From 6 to 12 months

Tax Rates

2010

2011

2012

2013

2014

2015

10.00%

10.00%

12.50%

15.00%

17.50%

-

7.50%

8.00%

8.50%

9.00%

9.50%

10.00%

Tax Year

The rate for Tax Year 2015 under the category “upto 6 months” is missing and needs to be clarified.

Part II (Rates of Advance Tax)

Rate of Withholding Tax on Imports Increased

The Bill seeks to enhance the rate of advance tax from 4% to 5% on all imports under Section 148 of the Income Tax Ordinance 2001 that wouldbe treated as final tax.

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Part III (Deduction of Tax at Source)

Rate of Tax Payment to Non-Residents on Non-Specific Payments Curtailed Division II Clause 2

The Bill seeks to curtail the tax rate form 30% to 20% on non-specific payments made to non-resident persons.

Rate of Tax on Cross Word Puzzle Winnings Minimized Division VI

The Bill seeks to reduce the withholding tax rate on cross-word puzzle from 20% to 10%.

Part IV (Deduction or Collection of Advance Tax)

Flat Rate of Tax on Motor Vehicle Division III

The Bill se eks to introduce flat rate of Rs. 1 per kilogra m of the laden weight of goods trans port vehicle in place o f existing s lab rate s.

Advance Tax on Electricity Bills for Industrial and Commercial Consumer Reduced Division IV

The Bill seeks to give re lief to Industrial and commercial consumer by reducing the withholding ta x rate from 10 % to 5% perce nt unde r Section 23 5of the Income Tax Ordinance, 2001.

Second Schedule(Exemption & Tax Concessions)

Par t I (Exemption from Total Income)

The Seco nd Schedu le re lates to spe cific exemptions gran ted in res pect o f total income. This Bill propose s to e xempt or extend the scopeof exemption in respe ct of the following s ources of income:

Exemption of Educational Institution in FATA & PATA Clause 92A

The Bill seeks to provide exemption for income of educational institutions established in the Most Affected and Moderately Affected Areas of KhyberPakhtunkhwa, PATA and FATA for two years ending on 30th June 2011.

Withdrawal of Exemption Available to ICP Clause102

The Finance Bill se eks to withdraw the exemption available to Investment Corpora tion of Pakistan ( ICP) on dividends rece ived b y it from any oth ercompany since the ICP merged with Industrial Development Bank of Pakistan (IDBP).

Withdrawal of Exemption on Capital Gain Clause110

The Finance Bill seeks to withdraw exemption on capital gains arising from sale of Modaraba certificates, securities listed on Stock exchange andPakistan Telecommunication vouchers issued by Government of Pakistan subject to holding of such stocks under one year time.

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Withdrawal of Exemption on Gain of Transfer of Capital Assets Clause110A

The Finance proposes to withdraw exemption on transfer of a capital asset from existing stock exchanges to newly corporatized stock exchange.

Part II (Reduction in Tax Rates)

Reduction in Tax Rate for Large Import Houses Clause 24A

The Finance Bill seeks to extend concession of 1% to large distribution houses on fulfilling conditions laid out for a large import house.

Part III (Reduction in Tax Liability)

Limit of Income of Senior Citizen Enhanced Clause 1A

The Finance Bill seeks to enhance the limit of taxable Income (other than that falling in final tax regime) of senior citizen from Rs.750, 000 to1,000,000 with a view to reduce the tax liability by 50%.

Exemption to Affected Arrears of Khyber Pakhtunkhwa FATA/PATA Clause 10A

The Finance Bill seeks to provide;

Exemption from penal provisions a nd de fault surcharg e to business es located in Most and Modera ted Areas of Khyber Pa khtunkhwaFATA/PATA provided that principal amount tax due is paid by June 30, 2010.

Exemption on tax collection at source on electricity bills for commercial and industrial consumers till June 30, 2011.

Exemption of tax collection on export proceeds to exporter based in Most and Moderated Areas of Khyber Pakhtunkhwa FATA/PATAtill June 30, 2011.

Exemption on tax collection at source on import of plant and machinery for establishment of businesses in Most and Moderated Areasof Khyber Pakhtunkhwa FATA/PATA has also bee n p rovided till 30 .06 .20 11 but this conce ss ion will not a vailable to ma nufacturersof cement, sugar, cigarette a nd beverages .

For this pu rpos e the Most Affecte d Area s me ans district Pe sha war, Malakand Agen cy and district of Sawat, Buner, Sha ngla, Upper Dir, Lower Dir,Hang u, Banny, Tank, Koha t an d Chitral and mos t affecte d a rea s me ans districts o f Chars add a, Nowshe ra, DI Khan Batagra m, Lakki Marwat, Swabiand Mardan.

Tax Exemption for Foreign Expert (Clause 73)

The Finance Bill 2010 propose to exempt income tax payable by foreign experts to mitigate part of the cost of obtaining foreign support to fill

productivity gap provided that such expert is engaged after approval of Ministry of Textile Industry.

Tax Handbook 2010


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Third Schedule

(Depreciation, Initial Allowance & Pre-Commencement Expenditure)

Depreciation on Ramp Part I (Sub-Clause-IV)

The Finance Bill 2010 see ks to provide 1 00 % de preciation for ramps of value not exceeding Rs. 25 0,0 00 each a nd built to provide a ccess to disabledpersons.

Fifth Schedule

(Rules for the Computation of the Profits and Gains from the Exploration and Production of Petroleum)

Decommissioning Cost for the Purpose of Depreciation (Sub-Clause-IV)

The Finance Bill 2010 seeks to provide de-commissioning cost over a period of ten years or life of development and production or mining leasewhichever is less. The Bill proposes such provision w.e.f the year of commencement of commercial production or July 1, 2010 if commencement of production too k place e arlier. Certification to this effect s hall be acq uired by a Charte red Accountant or a Cost Accountant.

Seventh Schedule

(Rules for Taxation of Banking Company)

Restriction for SMEs Regarding Provision for Bad Debts Against Advances (Clause 1Sub-Clause-c)

The Finance Bill 2010 see ks to introduce the provision for bad debts for advances and o ff balance s heet items a t 5% of total advances for consumersand SMEs (Small and medium enterp rises ) for res triction of claim of bad deb ts.

Transactional Provisions Prescribed (Rule 8A)

The Finance Bill 2010 seeks to provide for deduction for irrecoverable or doubtful advances, upto the tax year 2008 in the tax yearin which these advances were actually written off.It is also proposed that all the write backs incorporated in the tax year 2009 shall not be accounted for in computing the taxableincome of that year.The provisions of this schedule are not proposed to be applicable for assets acquired or given by a banking company under financeleas e upto he ta x year 20 08 . It is p ropose d that u nabso rbed d epreciation of such as set would be allowed for setting off against

the lease rental income of such asset only.

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Nomenclature of “Appellate Tribunal” Re-designated Section 2(1), 46(2)

Owing to the structural changes in the Federal Board of Revenue and constitution of the Appellate Tribunal under Section 130 of the Income TaxOrdinance, 2001, the Finance Bill, 2010 proposes to refer to the aforesaid Tribunal and Sections 131 and 132 of the Income Tax Ordinance, 2001in place o f the Customs , Excise and Sales Tax Appe llate Tribuna l constituted under Section 1 94 of the Customs Act, 19 69 and Sections 19 4A, 19 4Band 194C of the Customs Act, 1969.

Designation-Nomenclature of Authorities Integrated Section 4A, 25A, 26(3)

The Finance Bill, 20 10 propo se s to introduce the a ppointment of “Chief Commiss ione r Inland Revenue ”. By virtue of the prop ose d s ubstitutions theBill seeks to replace the designation-nomenclature of authorities in line with the Inland Revenue concept. The designation-nomenclature has beensought to bring in uniformity with the authorities given in other domestic taxes and such substitution is also sought to be made wherever it is occurringin this Act.

In order to seek harmony in nomenclature of authorities of all the three domestic taxes of Pakistan, the Finance Bill, 2010 proposes to change theword “Collectorate” with “Large Taxpayer Unit or Regional Tax Office”. Likewise it is proposed to replace the words “Collector of Sales Taxes” withthe words “Commiss ioner Inland Revenue ”.

Sales Tax Rate Enhanced Section 3

The Finance Bill, 20 10 proposes to enhance the rate of sales tax from 16% to 17 %.

Owing to the deferment of VAT uptil October 1, 2010, the Bill seeks to enhance GST rate by 1%. VAT aimed at increasing the tax base andsimultaneous ly increase s the revenue o f the FBR. In the a bsence of this move, the propose d increase in rate shall aide the Board to a chieve itstarge t revenue . However, with the promulgation of VAT, the e xisting rate of 17% sha ll be dropp ed to 15 %.

Timeline of Retaining Records Enhanced Section 24

The Finance Bill, 2010 proposes to enhance the period of retaining record and documents from 5 years to 6 years or finalization of any pendingprocee ding before any a uthority including an Alterna te Dispute Res olution Committee , if later tha n 6 years.

Procedure of Issuing Audit Report Amended Section 25, 26

The Finance Bill, 2010 proposes to amend the procedure of issuing audit report as under:

Tax Handbook 2010

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Sales Tax Act, 1990Sales Tax Act, 1990

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Sales Tax Act, 1990

24

Procedure of Issuing Audit Report

The Ass istant Commiss ioner (Audit) to issue the a udit obse rvations

Contraventions under the Sales Tax Act, 1990, its associated rulesand the amount of tax evaded to be included in the report

The a udit observations to be collected on the bas is of the s crutinyof records as prescribed under the Sales Tax Act, 1990, itsassociated rules or directions given by the Federal Board of Revenue

The registered person is to submit his viewpoint in writing within15 days of the receipt of the audit observations

If the registered person does not submit his viewpoint in writingwithin 15 days of the receipt of the audit observations or hisresponse seems unsatisfactory, the Assistant Commissioner shallissue the audit report

The audit report shall specify the amount of tax, charge not levied,charge that has been short levied, erroneous refunds or violationof any provision of Sales Tax Act, 1990 and its associated rules

Audit observations shall not be issued

No reference made to this

Audit sha ll be conducted in accordance withthe provisions of the Sales Tax Act, 1990

Soliciting the explanation of the registeredperson may not be considered necessary

The Officer o f the Inland Revenue sha ll issuethe a udit repo rt after the completion of theaudit under Section 11 or Section 36 of the Sa les Tax Act, 19 90

Amount of tax may be imposed includingdefault surcharge, pe nalty and re covery of erroneous refunds

Section 25 (3)

Section 25 (3)

Section 25 (3)

Section 25 (3)

Section 25 (4)

Section 25 (4)

Proposed ProcedurePrevailing Procedure

Determination of Transfer Pricing With Respect to Associates Section 25AA

In line with the concept of determining transfer price of transactions between associates as given in the Income Tax Ordinance, 2001, the FinanceBill, 2010 proposes to introduce the powers of Commissioner or an Officer of Inland Revenue to determine the transfer price of taxable suppliesmade between associates to reflect the fair market value of supplies in an arm’s length transaction.

Hierarchical Restructuring of Authorities Section 30 & Section 72A

The Finance Bill, 2010 proposes to change the nomenclature of the hierarchical structure of authorities as under. It also reiterates that the referencemade to the older nomenclature would be construed as reference made to the propos ed nomenclature:

The Chief Commissioner Inland Revenue and the Commissioner Inland Revenue (Appeals) shall be subordinated to the Federal Boardof Revenue

The Commissioner Inland Revenue shall be subordinated to the Chief Commissioner Inland Revenue

The Additional Commissioner Inland Revenue shall be subordinated to the Commissioner Inland Revenue

Deputy Commiss ioners Inland Revenue, Ass ista nt Commissioner Inland Revenue , Supe rintend ent Inland Revenue , Inland RevenueAudit Officer, Inland Revenue Officer and Officer of Inland Revenue with any other designation shall be subordinated to the AdditionalCommissioner Inland Revenue

This proposed hierarchy shall harmonise the authorities of the three domestic taxes of Pakistan

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Commissioner Restricted to Delegate Power Section 32

The Finance Bill, 2010 proposes to restrict the Commissioner to authorise either of his subordinate officers to exercise any of his powers or thepowers of any other Officer of the Inland Revenue, within a specified area under the Sales Tax Act, 1990. The proposed amendment would meanthat the Federal Board of Revenue would be the only authority to delegate powers amongst different officers of the Inland Revenue.

Commissioner Authorized To Outsource Tax Audits Section 32A

The Finance Bill, 2010 proposes that the Commissioner may outsource audits to Chartered Accountants and Cost and Management Accountants toconduct s pecial audit of records of registere d p erso ns. It also pro pose s to waive the requirement o f notifying this a ppointment in the Official Gaze tte.

Commissioner Authorized to Delegate Officers To HaveAccess To Premises, Stocks, Accounts And Records Section 38

The Finance Bill, 2010 proposes to empower the Commissioner, besides the Federal Board of Revenue, to authorise officers to have free access tobusiness and manufacturing premises, records, stocks etc. during the course of an enquiry.

Powers of Adjudication Removed Section 45, 45B

The Finance Bill, 2010 proposes to omit the specific powers of adjudication of various Inland Revenue Officers. This shall not only streamline theaudit procedures and processes as given by the Sales Tax Act, 1990 with the other two domestic taxes of Pakistan but also enhance the adjudicationspectrum under the relevant provisions of the Sales Tax Act, 1990.

Mode of Service of Orders and Decisions Made More Comprehensive Section 56

The Finance Bill, 2010 proposes to comprehensively redraft the existing legislation contained in Section 56 regarding serving orders and decisionsetc. upon registered persons. An order, decision etc. is deemed to be validly served as under:

For Resident Individuals

Pers onally served on the individual

Served on the repre se ntative of the individual, where the individual is unde r a lega l disa bility

Sent by registered post or courier service to the person’s registered office or address for service of notice or any office or place of business in Pakistan or his usual or last known address in Pakistan

Served on the individual in the manner prescribed for service of summons under the Code of Civil Procedures, 1908

For Non-Resident Individuals

Served on the repre se ntative of the individual, where the individual is a non-re sident individual

Sent by registered post or courier service to the person’s registered office or address for service of notice or any office or place of business in Pakistan

Served on the individual in the manner prescribed for service of summons under the Code of Civil Procedures, 1908

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Sales Tax Act, 1990

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Goods Change of RateSRO No.

Various spe cified go ods

Import of soya bean seed by solvent extraction industries

Import of rapese ed, s unflower s eed and ca nola s eed by solvent

extraction indus tries

Supply of natural gas to CNG stations by the gas transmission and

distribution companies

18.5% to 19.5%

2 1 % t o 2 2 %

6% to 7%

1 4 % t o 1 5 %

2 5 % t o 2 6 %

395(I)/2010

396(I)/2010

397(I)/2010

398(I)/2010

Sales Tax Act, 1990

26

For an Association of Persons that is Dissolved

Served on any pe rson who was the principal officer o r membe r of the a ss ociation immediately before dissolution

For a Discontinued Business

Served on the person personally or his representative at the time of discontinuance

The Finance Bill, 2010 proposes that the validity of a notice served under the above-mentioned modes shall not be brought in question.

FBR Empowered to Make Audit Selection through Computerized Balloting Section 72B

The Finance Bill, 2010 proposes to empower the Federal Board of Revenue to select persons or classes of persons for audit through computerizedballoting randomly or parametrically and such power is proposed to have always been vested in the Federal Board of Revenue.


Certain SROs have also been issued that enhance the Sales Tax rate as under:

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Nomenclature of “Appellate Tribunal” Re-designated Section 2(3)

In the wake of integration of domestic federal taxes, the Finance Bill 2010 seeks to rename the Appellate Tribunal as the Appellate Tribunal InlandRevenue so as to streamline the nomenclature of the three domestic taxes of Pakistan.

Jurisdiction and Nomenclature of Authorities Re-designated Section 2(4A)

The Finance Bill 2010 proposes to introduce the hierarchical position of “Chief Commissioner Inland Revenue” and the Bill also seeks to replacethe nomenclature of “Collector” with the “Commiss ioner” where ver use d in the Federa l Excise Act, 20 05 .

The Finance Bill 2010 seeks to substitute sub-section 12 of the Federal Excise Act, 2005 by introducing “Officer of Inland Revenue” which wouldmean any officer appointed by the FBR under Section 29 of the Act or any person (including an officer of the Provincial Government) entrusted bythe FBR with any of the powers of an Officer of Inland Revenue under Federal Excise Act or its associated rules.

Through Finance Bill 2010, the words “Federal Excise Officer”, wherever occurring, are proposed to be replaced with the words “Officer of inland Revenue”.

Timeline for Retention of Record Enhanced Section 17

The Finance Bill 2010 seek to extend the period of retaining the records of excisable goods purchased, manufactured and cleared from 5 years to6 years or till the finalization of any proce edings for a ss ess ment, a ppea l, revision, reference, petition including any proce edings before a n AlternativeDispute Resolution Committee.

Appointment of Federal Excise Officers and Delegation of Powers Section 29. 42A

The Finance Bill 2010 seeks to rephrase the nomenclature of hierarchies and make certain hierarchical changes as under:

1. The Federal Board of Revenue is proposed to appoint the following officers in relation to any specific area, person or class of persons

Chief Commissione r Inland Reven ueCommissioner Inland RevenueCommissioner Inland Revenue (Appeals)Additional Commissione r Inland RevenueDeputy Commissioner Inland RevenueAssistant Commissioner Inland RevenueInland Revenue OfficerSuperintende nt Inland RevenueInspe ctors Inland RevenueInland Revenue Audit OfficersOfficer of Inland Revenue with any other designation

2. The Finance Bill 2010 s eeks to introduce the following hierarchical structure:

The Chief Commissioner Inland Revenue and the Commissioner Inland Revenue (Appeals) shall be subordinated to the Federal Boardof RevenueThe Commissioner Inland Revenue shall be subordinated to the Chief Commissioner Inland RevenueThe Additional Commissioner Inland Revenue shall be subordinated to the Commissioner Inland RevenueDeputy Commissioners Inland Revenue, Assistant Commissioner Inland Revenue, Inland Revenue Officers, Superintendent InlandRevenue , Inland Revenue Audit Officers , Inspe ctors Inland Revenue and Officer of Inland Revenue with any othe r de signation s hallbe subo rdinated to th e Additional Commiss ioner Inland Revenue

This proposed hierarchy shall harmonize the authorities of the three domestic taxes of Pakistan

3. The Finance Bill 201 0 proposes to empower the Chief Commissioner, besides the Federal Board of Revenue, to further empower itssubordinates, with the approval of the Board.

Federal Excise Act, 2005Federal Excise Act, 2005

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28


4. The Finance Bill 20 10 s eeks to withdraw Section 29( 4) which would restrict the Commissioner to authorize any of his subordinate officersto exercise any of his powers or the powers of any other Officer of the Inland Revenue, within a specified area, under the Federal ExciseAct, 2005. The proposed amendment would mean that the Federal Board of Revenue would be the only authority to delegate powersamongs t differe nt o fficers of the Inland Revenue.

The Finance Bill 2010 seeks to reiterate that the reference made to the older nomenclature would be construed as reference made to the newproposed nomenclature.

Powers of Adjudication Removed Section 31

The Finance Bill 2010 proposes to omit the specific powers of adjudication of various Inland Revenue Officers. This shall not only streamline theaudit procedures and processes as given by the Federal Excise Act, 2005 with other domestic taxes of Pakistan but also enhance the adjudicationspectrum under the relevant provisions of the Federal Excise Act, 2005. In line with the proposed change, the reference to “conclusion of originaladjudication proceedings” is proposed to be replaced with the phrase “determination of liability under sub-section 2A”.

Jurisdiction of Customs Appellate Tribunal for FED Withdrawn Section 34(2)

Owing to the structura l changes in the Federa l Board of Revenue and with the introduction o f Inland Revenue concept the Appellate Tribuna l InlandRevenue is very much in place, therefore, the proposed omission seeks to withdraw the anomalous provision of referring appellate matters of adomestic tax to the Appellate Tribunal operating under the Customs Act, 1969.

Reference to High Court With Respect to FED Included Section 34(A)

The Finance Bill 2010 seeks to allow aggrieved person or Commissioner to file reference before High Court against the order of Appellate Tribunalwithin 90 days of communication of order by inse rting a new section.

The following proposals are made in this respect:

Application by the aggrieved person, not the Commissioner, shall be accompanied by a fee of Rs. 100A ben ch of two judges of the High Court sha ll hear the referenceThe provisions of Section 98 of the Code of Civil Procedures shall apply to the hearing of such applicationThe tax sha ll remain payable in accord ance with the decisions of the Appe llate TribunalThe court proceed to hear whereby any question of law arisesThe refund of the tax shall be postponed if the Commissioner wants to prefer petition for leave to appeal to the Supreme CourtSection 5 of the Limitation Act, 19 08 sha ll be app licable to app lications ma de to the High Court

FBR Empowered to Make Audit Selection through Computerized Balloting Section 42(B)

The Finance Act, 2010 proposes to empower the Federal Board of Revenue to select persons or classes of persons for audit through computerizedballoting. This balloting may be random or parametric and such powers are proposed to have always been vested in the Federal Board of Revenue.

Empowerment of Passing an Order after Audit Finalization Section 46(2A)

The Finance Bill 2010 seeks to insert new subsection to harmonize the audit procedures by empowering the Officer of Inland Revenue to pass anorder after the completion of audit and impose duty, charge default surcharge, impose penalty and recover erroneous refunds after giving anopportunity of explanation to the registered person, if necessary.

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SerialNo.

8

9

24.02

24.02

Cigars , cheroo ts,cigarillos andcigarettes, of tobaccoor of tobaccosubstitute.

Locally producedcigare ttes if their retailprice exceedsseventeen rupees perten cigarettes

64.3%

64% of retai l price

Cigars, cheroots,cigarillos andcigarettes, of tobaccoor of tobaccosubstitute.

Locally producedcigare ttes if their retailprice exceeds ninetee nrupee s a nd fifty paisa

per ten cigarettes

65%


Current ProposedHeading / Sub-Heading

Number Description Rate Description Rate

First Schedule

Table I (Excisable Goods)

The Bill seeks to make the following amendments in Table I of the First Schedule:

Procedure of Services of Notices and other Documents Defined Section 47

The Finance Bill, 2010 proposes to omit the existing provisions regarding serving of notices and other documents and streamline it with the modeof serving notices and documents as proposed in Sales Tax Act, 1990 as under:For Resident Individuals

Pers onally served on the individualServed on the repre se ntative of the individual, where the individual is und er a lega l disab ilitySent by registered post or courier service to the person’s registered office or address for service of notice or any office or place of business in PakistanSent by registered post or courier service to the person’s usual or last known address in PakistanServed on the individual in the manner prescribed for service of a summons under the Code of Civil Procedures, 1908

For Non-Resident Individuals

Served on the repre se ntative of the individual, where the individual is a non-res ident individualSent by registered post or courier service to the person’s registered office or address for service of notice or any office or place of business in PakistanServed on the individual in the manner prescribed for service of a summons under the Code of Civil Procedures, 1908

For an Association of Persons that is Dissolved

Served on any pe rson who was the principal officer o r member of the a ss ociation immediately before disso lution

For a Discontinued Business

Served on the person personally or his representative at the time of discontinuance

The Finance Act, 2010 proposes that the validity of any notice served under the above-mentioned modes shall not be brought in question after anotice has been complied in every manner.

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“Restriction.— For the purpos e of levy, collection an d pa yment of duty at the rates specified in column (4) against se rial numbers 9 , 10 and 1 1,no cigarette manufacturer shall reduce price from the level adopted on the day of the announcement of the Budget 2010-11 i.e. June 5, 2010.

It is also proposed that except for reference to the High Court against order by the Appellate Tribunal and increase in tariff on natural gas and otherpetroleum products as mentioned in entry 36 and 3 7 a bove; all the prop ose d change s in the Federa l Excise Act, 200 5 s hall be d eemed to be effectivefrom June 5, 2010

SerialNo.

10

11

12

36

37

50

51

52

24.02

24.02

24.02

2711.2100

2711.2900

5502.0090

Res pective Hea dings

Res pective Hea dings

Locally producedcigare ttes if their retailprice exceeds eightrupees and twenty-ninepaisa per ten cigarettesbut does not exceedseventeen rupees perten cigarettes

Locally produced

cigare ttes if their retailprice does not exceedeight rupees a nd twentynine pa isa per tencigarettes

Cigarettesmanufactured by amanufacturer whoremains engaged onand after the 10 th June,19 94 . either directly orthrough any otherarrangement, if the

manufacture of anybrand of cigarette innon-tariff area s

Natural Gas in gaseousstate

Other petroleum Gasesin gaseous state

Filter rod for cigarettes

Air Conditioners

Deep Freezers

Rs.4.75 paisa per tencigarette s plus se ventyper cent perincremental rupee orpart thereof

R s . 4 . 7 5 p e r t e n

cigarettes


Rs.5.09 per MillionBritish Thermal Units(MMBTu)

Rs.5.09 per MillionBritish Thermal Units(MMBTu)

N/A

N/A

N/A

Locally producedcigare ttes if their retailprice exceeds tenrupees per tencigarettes but does notexceed nineteen rupeesand fifty paisa p er te ncigarettes

Locally produced

cigare ttes if their retailprice does not exceedten rupees per tencigarettes

Cigarettesmanufactured by amanufacturer whoremains engaged onand after the 10th June,19 94 . either directly orthrough any otherarrangement, if the

manufacture of anybrand of cigarette innon-ta riff area s

Natural Gas in gaseousstate

Other petroleum Gasesin gaseous state

Filter rod for cigarettes

Air Conditioners

Deep Freeze rs

Rs.5.25 per tencigarettes plus seventyper cent perincremental rupee orpart thereof

R s . 5 . 2 5 p e r t e n

cigarettes


Rs.10 Million BritishThermal Units (MMBTu)

Rs.10 Million BritishThermal Units (MMBTu)

Re.1 per f i l ter rod

10% ad valorem

10% ad valorem

CurrentProposedHeading / Sub-Heading

Number Description Rate Description Rate

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Customs Act, 1969Customs Act, 1969

Nomenclature of “Appellate Tribunal” Re-designated Section 2(aaa)

In the wake of promulgation of Inland Revenue Ordinance, 2009 the domestic federal taxes like income tax, sales tax and federal excise duty havebeen integrated administratively. The Bill seeks to re-designate the Appellate Tribunal as Appellate Tribunal Inland Revenue in order to bring theunification in nomenclature of the Appellate Authority falling under the jurisdiction of domestic federal taxes.

Limit of Precious Metals and Stones of Exclusion from Smuggling Increased Section 2(s)(ii)

The Finance Bill, 20 10 propose s to enhance the limit of inbound or outbound precious metals and s tones from Rs. 5 0,00 0 to Rs. 1 50 ,000 for thesake of definition of smuggling. The proposed amendment has sought to enhance the limit to bring it in parity with the increased prices of preciousmetals in local as wel l as in internat ional market gold and the change in exchange in of US dol lar wi th Pak Rupees .

Regulatory Duty Included in Export Duty Section 25(15)(b)

By virtue of Finance Bill 2010 the proposed amendment seeks to include the regulatory duty in the value of export duty.

Applicability of Customs Value Determined Section 25A(4)

The Finance Bill 201 0 p ropos es that the custom value dete rmined by the Officers o f the Customs sha ll remain ap plicable unless revised or res cindedby the competent authority.

Introduction of Time Period for Review Application Section 25(D)

The Finance Bill 2010 proposes that the review application against the customs value determined by the Collector of Customs or Director of Valuationcould be f i led before Director General of Valuat ion wi thin 30 days f rom the date of determinat ion of cus toms value .

Allowing Mutilation or Scrapping of Certain Goods Section 27A

The Finance Bill 2010 seeks to simplify the existing legislation by removing reference to denaturing and request of owner for mutilation before filingof goods declaration and by making reference to the notification of the Federal Board of Revenue.

Relevant Date for Customs Computerized System Clarified Section 32(5) (e)

The Finance Bill 2010 proposes to clarify the relevant date in connection with date of detection on post clearance audit on Customs ComputerizedSystem. The Bill seeks to include the date of detection on post clearance audit in case of clearance of goods through the Customs ComputerizedSystem, se lf asses sment or electronic ass ess ment.

Fiscal Fraud Redefined Section 32(A)(c)

The Finance Bill 2010 proposes to term mis-declaration of payment of revenue through self-assessment as fiscal fraud. The proposed clause aimsto curb the tendency of deliberate wrong assessment by importers.

Scope of Correct and Complete Declaration of Goods Imported Restricted Section 79 (1)

The Finance Bill 2010 proposes to provide an opportunity to the importer of goods to provide a declaration of goods after inspecting the goods.However, this opportunity is restricted to used goods only. It is also proposes that such request may be made to an officer of rank of AdditionalCollector or above.

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Review of Value Determined and Appeal before the Appellate Tribunal Section 194A (1) (e)

The new propos ed amend ment in Finance Bill 201 0 would ena ble any pe rson or a n officer o f Customs to file an app eal be fore the Appe llate Tribunalin cases of review order passed by the Director General Customs Valuation provided the appeal is heard by the double bench of the Appellate Tribunal.

Customs Act, 1969

Time Period for ‘Actual Value Determination’ Reduced Section 81 (2),(5)

The Finance Bill 2010 proposes to reduce the time period for determining the correct amount of taxes, duty and charges payable on goods clearedupon pro visional determination from 6 months to 3 mon ths. It is also propo se d that the time period during the adjournment of proceedings or onaccount of stay orders shall not be included in the said 3 months period.

The Finance Bill 2010 also proposes that an appropriate officer shall issue the order for adjustment, refund or recovery of amount secured on finalde termina tion o f liab ility.

Penalty on Certain Offences Enhanced Section 156(1) Serial No.1

The Finance Bill 201 0 se eks to increas e the pena lties on th e following offence s in the following manne r:

Offence

If any person contravenes the provision of this act,any rule made thereunder, or fails to comply with anysuch provision with which was his duty to comply.

If any person contravenes any rule or condition relatableto section 128 or 129.

Proposed Penalty

Rs. 50,000

Not less than twice o f the amountof goods.

Rs. 25,000

Penalty not exceeding Rs. 25,00 0and goods in respect of whichsuch offence ha s be en committedshal l a l so be conf i scated.

Prevailing Penalty

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Customs Act, 1969

First Schedule to Customs Act, 1969 (IV of 1969)Customs Duty on Certain Items Slashed

The Finance Bill 2010 seeks to whittle down the customs duty on certain items and list of some of them is enumerated as under:

Description

Buffaloes

Bulls

Cows

Oxen

Other

Crude Oil

Glucose and glucose Syrup, not

containing fructose or conta ining in the dry state less

than 20% by weight of fructose

Ceramic Colors

Other

For X-ray

Silk yarn (othe r than yarn spu n from silk was te) not

put up for retail sale.

Fully depreciated CNG buses (CBU)

Fully depreciated CNG buses (CBU)

Proposed CD%

0

0

0

0

0

Rs.8000/MT

20

5

5

0

0

0

0

5

5

5

5

5

Rs.9000/MT

25

0

10

5

5

15

15

Existing CD%

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Customs Act, 1969

Noteable Notifications

SRO 391(1)2010

Through amendment in the SRO 567(1 )/2 00 6 da ted June 05, 2 00 6 the Federal Government has provided conces sionary customs duty of 5% onfollowing raw materials used in pharmaceuticals:

Description PCT Heading Custom Duty

Protacine (Proglumet, Dimaleate) 2933.5990 5%

Celecoxib 2935.0090 5%

Sodium Casinate 3501.9000 5%

Activated Glucuronate 3824.9099 5%

Tasigna (Nilotinib) - 5%

SRO 392(1)/2010

The Federal Government has granted the exemption from customs duty on import of raw materials, sub-components, components, sub-assembliesand assemblies for manufacture of specified goods ranging from 0% to 15% as specified therein.


Diode 8541.1000 0%

Transistor 8541.2900 0%

Resister 8533.1000 0%

Torridal 8505.1900 0%

Ferrite Core with Bobbin 8505.9000 0%

Electro galvanized steel sheet in coils. 7210.3090 5%

Sodium sulphate 2833.1100 10%

Shavings/Fleshing /Splitting Blades 8208.9090 15%

Tin Mill Black Plate (of secondary quality) 7209.1810 15%

Stamping Foil 3212.1000 15%

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Customs Act, 1969

SRO 393(1)/2010

By virtue o f this amendmen t, the Federal Government ha s re duced the rate of customs duty on import of crude oil from Rs. 76 50 /MT to Rs. 6 80 0/MT.

SRO 394(1)/2010

Through an amendment in the SRO 575( 1)/ 200 6 dated June 0 5, 2 00 6 the Federal Government ha s provided the following concess ionary rates of customs duty on the flowing equipments, machinery and tools etc.


Rice whitener 8437.8000 0%

Rice polisher 8437.8000 0%

Rice Flow Meter 8437.8000 0%

Milk Filter 8421.3990 0%

LPG Dispenser 8413.1100 5%

Road Sweeping lorries 0087.0500 5%

Pyranometers and Accessories for solar data collection. 9030.8900 5%

Solar chargers for charging electronic devices 8504.4020 5%

Remote control for solar charge controller. 8543.7010 5%

Wind water pump 8413.8190 5%

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Petroleum Products (Surcharge) Ordinance, 1961Petroleum Products (Surcharge) Ordinance, 1961

Phraseology of Surcharge and Development Surcharge Replaced with Petroleum Levy Section 3

The Finance Bill 2010 seeks to substitute the phraseology of “surcharge” and “development surcharge” with “Petroleum Levy” in the titleand preamble of Petroleum Products (Surcharge) Ordinance, 1 96 1 a nd also s eeks to replace it with the petroleum levy wherever occurringin the Ordinance.

Reference of Repealed Laws Substituted with Reference of Prevailing Laws Section 3A

The Finance Bill 201 0 see ks to remove re ference s to “Central Excise Act, 19 44 ” with Fede ral Excise Act, 20 05 and “the Income Tax Ordinance,19 79 with the Income Tax Ordinance, 2 00 1.

Payment of Levy on Petroleum Products Section 3(1)

By virtue of Finance Bill 201 0 the prop osed amendment see ks that e very company and license e s hall pay the petroleum levy to the Federa lGovernment on such products produced by a refinery or purchased by a company for resale as contained in the 5 th Schedule. This levy ispropos ed to be a pplicable on such ra tes a s s pecified by the Fede ral Government. The mann er of payment is propo sed to be p rescribed byrules given by the Federal Government.

Anomaly of Price Determination Authority Removed Section 8

Currently Oil and Gas Regulatory Authority (OGRA) is authorized to determine the prices of petroleum products and the proposed omissionse eks to remove the anoma lous reference of “Secretary of Oil Companies Advisory Committee or his d uly autho rized nominee” for pricedetermination of petroleum products.

Petroleum Development Levy Validated Section 9

By virtue of Finance Bill 2010 the proposed insertion seeks to validate the petroleum development levy charged and collected during March

1, 2010 and June 30, 2010. It also proposes that such levy would not be refunded and any levy not collected or recovered would be collectedin accordance with this Ordinance.

The Fifth Schedule

(Rates of Petroleum Levy)

The Finance Bill 2010 proposes to substitute the existing 5th Schedule with the following:

1

2

3

4

5

6

S.No Petroleum ProductsPrevailing PetroleumLevy Rate (Rs./liters

Proposed PetroleumLevy Rate (Rs./liters)

High Speed Diesel Oil (HSDO)

Motor Gasoline 87 ROM

SKO

Light Diesel Oil (LDO)

HOBC

E-10 GASOLINE

8

10

6

3

14

9

8

10

6

3

14

9

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Tax Planning Guide

For Corporat ions & Individuals

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Income Tax Income Tax

Who is Required to File a Return of Income?

Following persons are required to furnish a return of income for a tax year:

every companyevery AOPindividual whose taxable income for the year exceeds Rs. 300,000any no n-profit org anizationany person who

has been charged to tax in respect of any of the two preceding tax yearsclaims a loss carried forward unde r the Income Tax Ordinance for a tax yearowns immovable property with a land area of 250 sq. yards or more, or owns any flat located in areas falling within the municipallimits existing immediately before the commencemen t of Local Government laws in the provinces , or area in a Canton ment, o rthe Islamabad Capital Territory. The following are excluded from this category:

• widows• orphans be low t he age o f 25 yea rs• disabled persons• non-resident Pakistanis in case of ownership of immovable property

ow ns i mmovab l e p r ope r t y w i t h a l and a r ea o f 500 squa r e ya r ds o r mor e l oca t ed i n a r a t i ng a r eaowns a flat having covered area of 2,000 square feet or more located in a rating areaowns a motor vehicle having engine capacity above 1000cchas obta ined National Tax Number

Who is Required to File Wealth Statement?

Every resident taxpayer f i l ing a return of income whose declared or assessed income is Rs. 500,000 or moreEvery resident taxpayer filing sta tement und er FTR and ha s pa id tax of Rs. 3 5,0 00

What Year End Can a Taxpayer Adopt?

Class of Person Tax Year Type Year End

Companies, Association of persons Normal Tax Year July 01 to June 30and Individuals

Sugar Special Tax Year October 01 to September 30

Banking and Insurance Companies Special Tax Year January 01 to December 31

Ginners, Rice huskers, Oil mills Special Tax Year September 01 to August 31

Shawl manufacturers Special Tax Year April 01 to March 31

The FBR is empowered to notify any special tax year.

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When to File the Return of Income?

Status Year End Date of Filing Tax Year

Salaried Individuals & June 30, 2011 August 31, 2011 2011Non-corporate Taxpayer (falling under FTR)

Other Individual & AOP June 30, 2011 September 30, 2011 2011

Company (including falling under FTR) June 30, 2011 December 31, 2011 2011

Company September 30, 2011 September 30, 2012 2012

Company December 31, 2011 September 30, 2012 2012

Who is Required to Pay Advance Tax?

Every business individual whose latest assessed taxable income excluding the presumptive tax income is more thanRs. 50 0,000

Every Association of Person

Every Company

When to Pay Advance Tax by an AOP or Company?


1st of July to 30th September September quarter On or before the 25th of September

1st October to 31st December December quarter On or before the 25th of December

1st January to 31st March March quarter On or before the 25th March

1st April to 30th June June quarter On or before the 15th of June

Income Tax

38

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Rate of Tax for Non-Salaried Individual Taxpayers

The basic exemption limit for non-salaried individuals is Rs. 300,000 and the varying slab rates range from 7.5% to 25% as under:

Income Brackets Proposed Rates

Where ta xable income:

Does not exceed Rs. 300,000 NIL

Exceeds Rs. 300,000 but does not exceed Rs. 400,000 7.50%




Exceeds Rs. 800,000 but does not exceed Rs. 1 ,000,000 17.50%

Exceeds Rs. 1 ,000,000 but does not exceed Rs. 1 ,300,000 21.00%

Exceeds Rs. 1 ,300,000 25.00%

39

Special Rebates

To Senior Citizens

A rebate of 50% of the tax payable is allowed to senior citizen who has attained the age of 60 years or above, provided his total income excludingFTR income does not exceed Rs. 1,00 0,00 0.

To Teachers and Researchers

A further rebate of 50% is allowed to a full time teacher or a researcher, employed in a non profit education or research institution recognized by aBoard of Education or Higher Education Commission including Government training and research institution.

Rates of Tax for Association of Persons (AOP)

The rate of tax imposed on taxable income of an association of persons (AOP) for the Tax Year 2010 and onward shall be 25%.

Minimum Tax

Minimum tax is app licable to a re sident compa ny, AOP a nd individuals a t the rate of 1% of turnover if the bus ines s s usta ins loss es .

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Income Tax

Rates of Tax for Salaried Individuals Taxpayers

The basic exemption limit for salaried individuals is Rs. 300,000 and the varying slab rates ranges from 7.5% to 25% as under:

Income Brackets Proposed Rates

Where the taxable income:

Does not exceed Rs. 300,000 NIL

Exceeds Rs. 300,000 but does not exceed Rs. 350, 000 0.75%







Exceeds Rs. 900,000 but does not exceed Rs. 1 ,050,000 9.00%









Exceeds Rs. 4 ,450,000 20.00%

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Income Tax

Marginal Tax Relief for Salaried Taxpayers

Where the to tal income o f the ta xpayer marg inally excee ds the maximum slab limit, the income ta x payable shall be th e tax payable upto the ma ximumof the slab exceeded plus tax on marginal amount as under:

Income Bracket Marginal Taxable Amount

Wher e to tal income :

Does not exceed Rs. 550,000 20%

Does not exceed Rs. 1 ,050,000 30%



Exceeds Rs. 4,550,000 60%

Tax on Rental Income

In case of non-corporate taxpayers:

Gross Amount of Rent Rate of Tax

Where the gross amount of rent:

Does not exceed Rs. 150,000 Nil

Exceeds Rs. 150,000 but does not exceed Rs. 400,000 5.00% of the gross amount exceeding Rs. 150,000

Exceeds Rs. 400,000 but does not exceed Rs. 1,000,000 Rs. 12,500 plus 7.50% of the gross amount exceeding Rs. 400,000

Exceeds Rs. 1 ,000,000 Rs. 57 ,500 plus 10.00% of the gross amount exceeding Rs. 1 ,000,000

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Income Tax

In case of corporate taxpayers:

Gross Amount of Rent Rate of Tax

Where the gross amount of rent:

Does not e xceed Rs. 400 ,000 5.00% of the gross amount of rent

Exceeds Rs. 400,000 but does not exceed Rs. 1,000,000 Rs. 20,500 plus 7 .50% of the gross amount exceeding Rs. 400,000

Exceeds Rs. 1,000 ,000 Rs. 65,000 plus 10.00% of the gross amount exceeding Rs. 1,000,000

Allowances and Tax Credit

Section Particulars Concession Maximum Limit

6 0 Za ka t St ra ight income deduct ion N/ A

6 1 Ch a r ita b le Do n a t io n Straight income Lower of amount of donations or:d ed uctio n / Ta x cre dit 3 0 % o f ta xa ble in co me in ca se o f in divid ua l a nd AOP

20% of taxable income in case of company

6 2 In ve s tm e n t in Sh a re s Tax credit Lower of:total cost of acquiring shares10.00% of taxable incomeRs. 300 ,000 pe r annum

6 3 Ap p ro ve d P e n s io n Fu n d Tax credit Lower of:total contribution or premium paid by individual20.00% of taxable incomeRs. 500 ,000 pe r annum

6 4 Profit on Debt or Share Tax credit Lower of:total profit paid50.00% of total incomeRs. 750,000 per annum contribution of mark up onhouse loan

65A If 90% of sales by the Tax credit 2.50% of tax payablemanufacturer are made tosales tax registered p ersons

65B Balancing, modernization Tax credit 10.00% of tax payableand replacement of plant &machinery from July 1, 2010to June 30, 2015

65C Enlisting a company on Tax credit 5.00 % of tax payablestock exchange

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Income Tax

Tax Rates for Companies

Company Tax Rate

Banking Company 35%

Public Company (other than a banking company) 35%

Private Company (other than a banking company) 35%

Small Company having turnover upto Rs. 250 million 25%

Minimum Tax for Builders & Developers

Category Rates

In case of:

Builders Rs. 50 per Sq. ft. on covered constructed area

Developers Rs. 100 per Sq. yard on the area of land developed

Fixed Tax in Case of Individual and AOP

Category Rate

In case of individual or AOP being retailer and having turnover

upto Rs. 5 ,000,000 1% of turnover as final tax

In case of individual or AOP being retailers having turnover

Exceeding Rs. 5,000,000 but does not exceed Rs. 10,000,000 Rs. 25,000 plus 0.5% of the turnover exceeding Rs. 5,000,000

Exceeding Rs. 10,000,000 Rs. 50,000 plus 0 .75% of the turnover exceeding Rs. 10,000,000

Consequential change has not been incorporated in Section 113B and needs clarification.

Individual and AOP retailer cannot claim any adjustment of withholding tax collected or deducted under any head during the year

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Income Tax

Tax Depreciation Rates

Third Schedule (Part I)

Description Rate

Building (all types) 10%

Furniture (including fittings) 15 %Machinery and plant (no t othe rwise spe cified)Motor vehicles* (all types)Ships, technical or professional books

Co mp ute r ha rdwa re includ ing printe r, mo nito r a nd a llie d ite ms 3 0%

Machinery and equipment u se d in manufacturing of I.T. prod uctsAircraft and a ero engines

Below ground installations 100%

Offshore platform and production installations 20%

A ramp built to provide access to person with disabilities, 100%not exceeding Rs. 250,000 each

*Value of pass enger vehicles is restricted upto Rs. 1 .50 million for de preciation purpos es.

Depreciation Allowance

Third Schedule (Part II)

Description Section Rate

Initial allowance 23 50%

First year allowance 23A 90%

First year allowance 23B 90%(in case of alternate energy projects)

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Income Tax

Penalties

Default Rate of Penalty

Failure to file any return of income 0.1% of tax payable per day subject to minimumRs. 5 ,00 0 & maximum 25 % of tax payable

Failure to pay any tax (other than a penalty)

In case of first default 5% of the amount of tax on defaultIn case of second default additional penalty 25% of the amount of tax on defaultIn case of third and subsequent defaults addit ional penalty 50% of the amount of tax on default

Concea lment of income or furnishing of Amount equa l to tax soug ht to be evade d by concea lment

i inaccurate particulars of income or furnishing of inaccurate particulars

Failure to maintain records Rs. 10 ,00 0 or 5% of the amount of tax on income

whichever is high

Non compliance of notice issued for filing of

wea lth s tateme nt or obtaining information or evidence :

In case of first default Rs. 2 ,000In case of second default Rs. 5 ,000In case of third and subsequent defaults Rs. 10,000

Making of false or misleading state ment Rs. 25 ,00 0 or 10 0% of the amount of tax sho rt fall,whichever is higher

Fa ilure to give no tice of d is continua tion of b us ine ss Not e xce ed ing the a mount of ta x p aya bleby the person

Fa ilure to give notice by liquida tor of his appointme nt Not e xce eding Rs .1 0,0 00

Penalty for obstruction Rs. 25,000 or 100% of the tax involved, whichever is high

Failure to

collect taxdeduct taxdeposit tax deducted or collected

KIBOR plus 3% per quarter of amount of default

pay tax excluding advance taxpay any penaltypay any other amount of tax underthe Income Tax Lawpay advance tax

Additi onal Tax

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Sales Tax

Sales Tax Applicabi lity

Sales Tax is a pplicable a t the rate of 16% on the following:

Manufacturers or producers

Retailers

Importers

Exporters

Wholesa lers (including d ea ler)

Distributors

Filing of Sales Tax Return

The sales tax return is to be filed within 15 days from the close of month by the registered persons

Sales Tax Registrat ion Threshold

Sales TaxExempt u/s 1 3

Manufacturers or ProducersImporters a nd

Exporters

Wholes alers(including Dea lers )

and Distributors

Up toRs. 5 ,000 ,000

Making Taxable Supply

Annual Turnover of Taxable Supply

Sales Tax

More thanRs. 5 ,000 ,000

Sales Tax

48

General Sales Tax @ 17%

Monthly Filing of Return

Input Tax Claimable Aga inst Outp ut Tax

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Capital Value Tax

50

Capital Value Tax (CVT)

Certificates / Instruments of Redeemable Capital

Capital Value Tax is levied on the trans actions o f certificate s or any instrument o f redee mable cap ital as unde r:

Purchase Rate of CVT Collected by

Modaraba ce rtifica te s or any 0 .0 2 % of purcha se va lue Regis te red Stock Exchangeinstrument of redeemable capital

CVT on Real Estate Transactions

Capital Value Tax is leviable on the re al esta te tra nsa ctions of sale an d pu rchas e in the following ma nner:

Nature of Transaction Rate of CVT

Residential immovable property (other than flats)situated in urban area, measuring atleast 500 square yards or one kanal whichever is less

Where the va lue o f Immovab le pr ope rt y is recorded 4 % of t he recorded va lue

Where the value of immovable property is not recorded Rs.100 per square yard of the landed area

Where the immovable property is a constructed property Rs.10 per square feet of the constructedarea in ad dition to the value worked out a bove

Commercial immovable of any size situated in urban area

Where the va lue o f immovab le p roper ty is recorded 4 % of t he recorded va lue

Where the value of immovable property is not recorded Rs.100 per square feet of the landed area

Where the immovable property is a constructed Rs.10 per squa re feet of the constructedarea in prop erty addition to the value workedout above

Residential flats

Where the va lue o f immovab le p roper ty is recorded 4 % of t he recorded va lue

Where the value of immovable property is not recorded Rs.100 per square feet of the covered area

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Tax Handbook 2010

Notes:

8/8/2019 Tax Handbook 2010-2011


Designed & Prin ted By: The Fine Graph

Tel: 042-36365099

Arranged By: Muhammad Munir

Abdul Razaq

Huma Ijaz

8/8/2019 Tax Handbook 2010-2011
