Federal Budget 2011-12 TMRCs Comments

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TMR CONSULTING (PVT.) LIMITED ERP, I.T. & MANAGEMENT CONSULTANTS

TARIQ MUSTAFA RAMZAN & CO COST & MANAGEMENT ACCOUNTANTS

Head Office:

House 15, Street 38, F-6/1,

Islamabad, Pakistan.

Tel: +92 51 2278423

Fax: +92 51 2872965

E-mail: [email protected]

Lahore Office:

Suite 4-C, Model Town, Lahore,

Pakistan

Tel: +92 42 5857747-48

Fax: +92 42 5857745

E-mail: [email protected]

UK Office:

TMR Consulting Limited

109 Grafton Road, Dagenham,

Essex, RM8 3EU, United Kingdom

Tel: +44 208 1333 786

Fax: +44 208 5953 289

http://www.tmrconsult.com, http://www.tmrc.com.pk

Pakistan Budget 2011-12

Tariq Mustafa Ramzan & Co. , Cost and Management Accountants

PREFACE

This Memorandum has been prepared as a general guide for the benefit of our clients and is

also available to other interested persons upon request.

This memorandum is correct to the best of our knowledge and belief. However, this should

not be taken as legal text as it sets out interpretation of only the significant amendments

proposed by the Finance Bill 2011 in the Income Tax Ordinance, 2001, the Sales Tax Act,

1990, the Federal Excise Act, 2005 and the Customs Act, 1969, etc. in a brief manner to

assist the readers in understanding important changes proposed in the Bill.

We hope that this memorandum will be beneficial for the readers in understanding the

budget proposals. It is suggested that the text of the Bill and the relevant notifications,

where applicable, be referred to in considering the interpretation of any provision of the

law. Since these are only general comments, no final decision on any issue may be arrived

at without further consideration. Specific professional advice should be sought before any

action is taken. TMRC will not accept any responsibility in this regard.

This memorandum can also be downloaded from our website at http://www.tmrc.com.pk;

http://www.tmrconsult.com and http://budget.tmrc.com.pk

We value your suggestions. Please e-mail us your questions and comments at

[email protected]

Pakistan Budget 2011-12


TABLE OF CONTENTS

TABLE OF CONTENTS .................................................................................................. 3

CURRENT STATE OF ECONOMY................................................................................ 4

ECONOMIC TRENDS ..................................................................................................... 6

COMPARATIVE SUMMARY ......................................................................................... 9

GRAPHICAL OVERVIEW ............................................................................................ 10

BUDGET HIGHLIGHTS ............................................................................................... 11

SALES TAX AND FEDERAL EXCISE ............................................................................................. 11

CUSTOMS ACT .............................................................................................................................. 11

INCOME TAX ................................................................................................................................. 12

SALES TAX ACT, 1990 ................................................................................................ 14

FEDERAL EXCISE ACT, 2005 .................................................................................... 21

THE CUSTOMS ACT, 1969......................................................................................... 25

INCOME TAX ORDINANCE, 2001 ............................................................................ 28

THE 1ST SCHEDULE (AFTER CHANGES PROPOSED BY FINANCE BILL, 2011)

....................................................................................................................................................... 32

THE SECOND SCHEDULE .................................................................................................... 38

THE SEVENTH SCHEDULE ................................................................................................. 39

AMENDMENTS IN OTHER LAWS ............................................................................ 40

Economic Review


CURRENT STATE OF ECONOMY

The federal budget 2011-12 has been announced at the eve of a number of continuing issues faced by the country. Among the key disastrous shocks, which jolted the economy, were unprecedented commodity and oil prices, the fallout of the global financial crisis and the worst floods, which caused massive damage of $10 billion, displacement of some 20 million people and destruction in more than 50,000 Sq. KM area. During the year oil prices also shot up from $70 per barrel to $125 per barrel threatening the macro framework. The country witnessed worsened law and order situation with attacks on government structures, military and other assets causing not only financial and life losses but also the morale of everyone in view of escalating national and international pressures. Under these circumstances, even a modest growth rate of 2.4 percent registered during the year 2010-11 seems reasonable. The set back was due to the agriculture sector which was badly affected by floods. However, the strong performance of services sector which grew at 4.1 percent has kept the overall growth in a reasonable range. Although much below its potential and targets, the performance signifies the enormous elasticity in the economy in view of continuous problems over a decade. Thus we foresee great potential of recovery with tight fiscal controls, political stability and improved governance. We witnessed a decline in growth rate due to the destruction of major crops, particularly rice and cotton. This year the manufacturing sector growth was negligible mainly due to reduced output in the textiles and petroleum products caused by reduced supply of raw materials destroyed by flood, submersion of refineries under flood waters and the circular debt issues. Similarly, the services sector’s growth was 4.1% against targeted 5.4%. The above challenges required tremendous pace of reforms by government, which could not be achieved due to its deviation of focus to make difficult tradeoffs and cater to unexpected demands for flood rehabilitation and the impacts of increasing oil prices. The burden of subsidies, though significantly reduced from previous years, exerted continuing pressure on the fiscal system and the adjustment path was affected. During the late part of the year, the macro-framework was stabilized to some extent and the anticipated damage to the overall fiscal position was avoided due to strict economic measures, resource mobilization measures and bold decisions on pricing. This year witnessed historic growth of 28% in exports in the first ten months coupled with record remittances of $ 11.2 billion and reduced imports resulted in current account surplus $ 748 million. Textile sector accounted for 62 percent of unprecedented export growth, food contributed 17 percent and leather 11.5%. These positive developments resulted in growth of external reserves of $ 17.1 billion till April, which is again a record. Since December 2008, Pakistan has also enjoyed sustained period of exchange rate stability. However, inflation remained a key challenge for the economy. Although it was coming down in last part of the current year, but the shocks of floods and oil price have reversed the declining trends. It should be noted that with rising commodity and oil prices, inflation has affected all countries both regionally and globally. However, the rising inflationary trend has been contained to some extent and inflation is now hovering around 14 percent. Inflation has inflicted pressure on the interest rate. Accordingly, the overall investment in the year was also below its level in the recent past.

Economic Review


Consumer Price Index (CPI) after touching 25.3 percent in August 2008 is now at 14.0 percent during July-May 2010-11 as against 11.6 percent in the comparative period of last year. The Wholesale Price Index

(WPI) during first eleven months of 2010-11 has increased by 23.2 percent, as against 12.2 percent in the comparable period of last year. The Sensitive Price Indicator (SPI) has recorded an increase of 17.9 percent during the period (Jul-May 2010-11) as against 12.9 percent in the same period of last year. Despite many challenges, the overall performance of the economy has been moderately satisfactory. The recent measures announced for fiscal correction should contribute to a faster recovery and resumption of growth. Although the estimates about the budget deficit were quite high, due to sound economic management and fiscal discipline, towards the second half of the year, the deficit has been contained and is estimated at 5.1% of GDP. To settle the circular debt and get more production out of the existing energy plants, the government has decided to pay additional Rs. 120 billion subsidies from for previous years. This will add an additional 0.6 percent to the deficit, bringing it to 5.7%. However, the forecasts for the next year seem to be quite positive. A decreasing trend in subsidies has been witnessed this year and substantial correction in such burdens is likely to be made in the years ahead. Agriculture sector recorded modest growth of 1.2 percent in 2010-11 against the target of 3.8 percent but provided much needed support to boost exports, revival of manufacturing sector and responsible for upbeat in the consumption. Given the lucrative prices to the producers, the agriculture sector is likely to lead economic growth in the next fiscal year as well. The lower growth owing to recent floods necessitated downward adjustments in the estimates of some of major crops like rice, and cotton. The wheat production stood at 24.2 million tons as against last year’s actual production of 23.8 million tons. Sugarcane is estimated at 55 million tons which is highest during the last three years. Minor crops are estimated at 4.1 percent mainly because of enormous price incentive available. The estimate for growth in the livestock sector is 3.7 percent as against 4.2 percent last year. The shortfall was caused by floods destroying some of the livestock. The fertilizer demand kept low by 11.3 percent, indicating less usage by the farmers due to high prices, which requires immediate attention of the government. Large-scale manufacturing faced power outages and lower domestic demand and it slowed down from projected 4.9 percent to 1.7 percent. The total investment has declined from 22.5 percent of GDP in 2006-07 to 13.4 percent of GDP in 2010-11. The national savings rate has decreased to 13.8 percent of GDP in 2010-11 as against 15.4 percent of GDP last year. Domestic savings has also declined substantially from 16.3 percent of GDP in 2005-06 to 9.5 percent of GDP in 2010-11. During the period from July-March 2010-11 the capital markets demonstrated wavering rising trend and posted modest gains. It has got stable now and the index is around 12,000 during the last few months. The medium term prospects for the economy seem promising, provided the current path of reform is not abandoned. A number of interlinked actions are needed in the coming year to stimulate the growth. These include checking inflation, limiting borrowing, bridging energy gap, increasing Tax-to-GDP ratio etc. The budgetary measures taken by the Government for the year 2011-12 have been discussed briefly in the following pages for the information of the users.

(Some contents have been taken from Economic Survey)

Economic Review


ECONOMIC TRENDS

Economic Review


Budget at a Glance

Tariq Mustafa Ramzan & Co. Cost & Management Accountants

COMPARATIVE SUMMARY

BUDGET 2011-12 Comparative Analysis with Previous Budget

Figures in Rs. Millions

Budget

2010-11

Revised

2010-11

Budget

2010-12

%

increase

(i) RESOURCES

Revenue Receipts (net) 2,410,994 2,235,889 2,732,150 22.2%

Capital Receipts(net) 163,890 319,061 299,977 -6.0%

External Receipts 386,620 289,824 413,929 42.8%

Public Accounts Receipts 216,144 201,238 164,232 -18.4%

Gross Federal Resources 3,177,648 3,046,012 3,610,288 18.5%

Less Provincial Share in Federal Taxes 1,033,643 997,701 1,203,321 20.6%

Net Federal Resources 2,144,005 2,048,311 2,406,967 17.5%

Cash Balance built up by Provinces 166,925 119,805 124,882 4.2%

Credit from Banking Sector 166,543 452,219 303,524 -32.9%

TOTAL RESOURCES 2,477,473 2,620,335 2,835,373 8.2%

(ii) EXPENDITURE:

Current Expenditure 2,052,542 2,356,887 2,383,416 1.1%

Development Expenditure (PSDP) 321,385 275,727 354,872 28.7%

Other Development Expenditure 123,545 45,517 97,085 113.3%

Estd. Operational Shortfall in Expenditure (20,000) (57,796) - -100.0%

Total Expenditure 2,477,472 2,620,335 2,835,373 8.2%

Sources:

1. Federal Board of Revenue, 2. Ministry of Finance,

Budget at a Glance


GRAPHICAL OVERVIEW

Budget Highlights


BUDGET HIGHLIGHTS

SALES TAX AND FEDERAL EXCISE

The rate of Sales Tax is proposed to be reduced from 17% to 16%.

The exemption of sales tax on Dump Trucks, Concrete Mixer, Agricultural Equipment/Machinery, CKD kits, CNG kits, cylinders and valves for CNG kits, Commercial catalogues, Rock Phosphate, Phosphoric Acid and Mineral oil has been withdrawn.

Exemption of Sales Tax on bricks, building blocks, computer software, surgical tapes, aircraft, ambulances, fire fighting vehicles and other items of 6th schedule to be withdrawn.

The exemption of sales tax on defence stores at import and local supply is proposed to be withdrawn.

Zero Rating of CNG Buses, Trucks, Dumpers, Trailers and Road Tractors has been withdrawn.

The value addition tax levied on commercial importers is being enhanced from 2% to 3%.

Excise duty on cement is being reduced. Further, duty on white cement is proposed to be withdrawn.

Reclaimed lead, if supplied to recognized manufacturers of lead batteries has been exempted from Sales Tax.

SED @ 2.5% chargeable to importers and manufacturers has been abolished.

FED leviable on aerated beverages is proposed to be reduced from 12% to 6% to make it in line with its substitute juices.

FED levied on services provided by property developers or promoters is proposed to be abolished.

FED on locally produced Cigarettes is proposed to be increased by increasing the upper limit of duty slabs.

The FED leviable on filter rods for cigarettes has been rationalize from Rs.1/- per filter rod to 20% ad val.

The FED on unmanufactured tobacco is being enhanced from Rs.5/- per kg to Rs.10/- per kg.

The reduced rate of sales tax @8% on supply of sugar has been withdrawn and now sugar will be taxable at normal rates. Further Crystaline Sugar has been exempted from sales tax and would be subject to federal excise duty @ 8% payable in sales tax mode.

The zero-rating regime has been rationalized to limit its application only to selected sectors.

Inspector Inland Revenue is proposed to be included as an authority under the sales tax act, 1990.

Officers with designation assistant commissioner and above have been empowered to carry out investigative audit under 38b of the sales tax act, 1990.

Officers inland revenue is being empowered to reject refunds filed under section 66 of the Sales Tax Act, 1990 where incidence has been passed on to the consumers.

CUSTOMS ACT

Regulatory duty on certain items including

edible items, is proposed to be removed.

Duty on pharmaceutical raw materials is

proposed to be reduced to 5%.

The budget proposes tariff rationalization

on bars, rods and profiles of refined copper

and copper alloy.

To provide incentives to local

manufacturers and suppliers of domestic

goods against international tenders, finance

bill proposes to treat these supplies as

exports to entitle them duty drawback.

Budget Highlights


The following concessions have been proposed

for industries:

Butyl acetate industry through concession

on import of its raw materials (Sabutol)

Glass industry through concession on its

two major raw materials namely “mirror

backing paint” and “waste / scrap of glass”

Machinery and equipment used in oil

exploration.

INCOME TAX

The federal budget 2011-12 seeks to

enhance basic exemption limit from

Rs.300,000/- to Rs.350,000/-.

Individual taxpayers whose normal

income is between Rs.300,000/- to

Rs.350,000/- shall now be required to file

return of income, for the purposes of

documentation.

Individual Tax Payers would be required

to file Wealth Statement if income exceeds

Rs.1,000,000 as compared to current limit

of Rs.500,000/-

Tax on services, in case of companies

which is currently adjustable is proposed

to be the minimum tax.

To encourage equity financing, and to

provide relief to new corporate industrial

undertakings established on or after 1st

July 2011, with 100% equity financing, a

tax credit equal to 100% of tax payable is

proposed. The existing companies may

also take benefit under this arrangement if

investment in BMR is financed through

100% equity, on or after by 1st July 2011.

The rate of tax on Cash Withdrawals from

Banks is proposed to be reduced to 0.2%

from existing 0.3%.

In order to harmonize the existing tax

credits available to individuals for

investment in shares and for premium

paid to Insurance Company, the maximum

cumulative limit for both the investments

is fixed @ 15% of the taxable income, with

maximum upper limit for investment up to

Rs. 500,000 as compared to current limit

of Rs.300,000/- and the time period for

holding the investment to get the benefits

of tax credit is enhanced from one year to

three years

Tax relief is proposed to be provided to

withdrawals from a Voluntary Pension

Fund exceeding Rs. 500,000/-.

To encourage enlistment on stock

exchange, the existing tax credit equal to

5% is proposed to be enhanced to 15%.

Filing of withholding tax statements are

proposed to be filed on monthly basis

before 15th of the subsequent month.

For Broadening of Tax Base and utilization

of third party databases, NTN and CNIC of

eligible taxpayers are proposed to be

provided expressly along with other

particulars, in the withholding tax

statements filed by withholding agents.

For broadening of tax base, the

requirement of mandatory filing of return

of income by the commercial and

Industrial consumers of electricity with

annual billing above one million rupees, is

proposed.

The rate of tax on return on receiving

‘dividends’ from Asset Management

Companies by banks is proposed to be

enhanced from 10% to 20% to discourage

the practice of arbitrage by banks.

To encourage investments made by non-

residents in Government Securities, the

withholding tax on profit on debt

deductible @ 10% is proposed to be a final

Budget Highlights


tax. Now they will not be required to file

return of income.

To encourage domestic investments in the

Government Securities, the withholding

tax on profit on debt deductible @ 10%

arising from investment in Government

securities by individual is also proposed to

be a final tax. They will also be relieved

from statutory filing of return of income.

After imposition of capital gain tax on

Modarba certificates and instruments of

redeemable capital traded at stock

exchange through Finance Act 2010, the

0.01% CVT on such instruments is

proposed to be withdrawn

Exemption from income tax of the income

of Computer Training Institutes is

proposed to be withdrawn.

Sales Tax Act


SALES TAX ACT, 1990

Decrease of Sales Tax Rate by 1% Section 3, subsections (1), 2 (a) & 5

The general rate of Sales Tax is proposed to be decreased from 17% to 16% through the Finance Bill 2011. Through this amendment the general as well as the tax rate on the third schedule items would also been reduced to 16%. The decrease in rates would be effective from 1st July, 2011. Originally, the rate of Sales Tax in 1990 was 12.5%, revised in 1993 to 15% then raised to 18% in 1996. In March 1997 was reduced to 12.5% then raised to 15% in 1998 which remained in force till June 2008. Effective from July 2008 the rate was increased to 16% and through Finance Act, 2010; the rate was increased to 17% & now proposed to decrease it to 16% again. This will be a good step by the Government to reduce the sales tax rate & will give some relief to the masses. Adjustable Input Tax on Fixed Assets or Capital Goods Section 8B

Section 8B was originally inserted through Finance Act, 2007, limiting the adjustment of input tax to 90% of the output tax for a particular tax period & the tax paid on the acquisition of fixed assets is adjustable against the output tax in twelve equal monthly installments.

Now, through the bill it is proposed to allow immediate full adjustment of sales tax paid on import or local purchase fixed assets or capital goods to mitigate the cash flow of industrial sector and to ensure timely and quick adjustment of input tax paid. De-Registration, blacklisting and suspension of registration Section 21

Section 21 prescribes the procedure for de-registration of registered person on satisfaction of the authorities that such person is not required to be registered under the law or may blacklist or suspend any registered person on satisfaction that such person has issued fake invoices or committed any tax fraud. Now through Finance Bill, 2011, a new sub-section (3) is proposed to be inserted after sub-section (2) that during the period of suspension of registration, the invoices issued by such person shall not be entertained for the purposes of sales tax refund or input tax credit, and once such person is blacklisted, the refund or input tax credit claimed against the invoices issued by him, whether prior or after such blacklisting shall be rejected through a self speaking appealable order and after affording an opportunity of being heard to such person. This provision is harsh from the purchaser point of view being penalized on the default on part of other party which is against the norms of justice. Returns, Special Returns Section 26, 27

Sub-section (3) of section 26 describes that a registered person may revise a return within 120 days of filing of original return with the approval of Commissioner of Inland Revenue & section 27

Sales Tax Act


describes the special returns to be filed by a registered person. Now, through Finance Bill, amendment has been proposed in sub-section (3) of section 26 that the special returns required to be filed under section 27 may also be revised within 120 days with the prior approval of Commissioner Inland Revenue. Appointment of Authorities Section 30

Section 30 was substituted through Finance Act, 2010, describes the appointment & hierarchy of the authorities. Through Finance Bill, a new position of “Inspector Inland Revenue” has been introduced, subordinate to the Commissioner Inland Revenue. Alternate Dispute Resolution Section 47A

Sub-section 4A of section 47 describes the powers of Chairman to pass the amended order passed under sub-section 4 by the Board. Now, the sub-section 4A is proposed to be substituted bestowing powers to the member nominated by the Chairman FBR viza viz the Chairman FBR. Refund to be Claimed with in one Year Section 66

Section 66 describes the terms & conditions for issuance of refunds with in one year of the date of payment. A new proviso has been proposed that no refund shall be admissible under this section if incidence of tax has been passed directly or indirectly to the consumer. The insertion of proposed proviso is against the spirit of the Sales Tax Law. Ultimately, the incidence of sales tax is passed to the consumer. Condonation of time-limit Section 74

Section 74 of the Act authorizes the Board to permit the condonation of time limit for any application is to be made or any act or thing is to be done. Now, an explanation is proposed to be inserted specifying the act or thing is to be done include any act or thing to be done by the registered person as well as by the tax authorities.

Withdrawal of exemption Section 13 (1),

Sixth Schedule

Section 13 specifies the supply of goods or import of goods exempt from tax under the Act specified in the Sixth Schedule. The following table illustrates the items, against which the exemption are proposed to be withdrawn.

Sales Tax Act


Table-I (Imports or Supplies)

Sr.

No.

Sr. No. of

Sixth

Schedule

Description of goods upon which withdrawal of

exemption has been proposed

Heading Nos. of the First

Schedule to the Customs

Act, 1969 (IV of 1969)

1 29A Surgical tapes 30.05

2 29B Ultrasound gel 3006.7000

3 30 Diapers for adults (patients) 4818.4010

4 34 Bricks. 6901.0000

5 35 Building blocks of cement including ready mix concrete blocks.

6810.1100

6 41 Computer software. 8523.2990, 8523.4010, 8523.4090, 8523.5990 and 8523.8090

7 42 Ambulances, fire fighting vehicles, waste disposal trucks, brake down lorries, special purposes vehicles for the maintenance of streetlights and overhead cables.

87.02, 87.03, 8704.2200, 8704.2300, 8705.3000 and 8705.9000

8 43 Aircrafts 8802.2000, 8802.3000 and 8802.4000

9 44 Ships of gross tonnage exceeding 15 LDTs, excluding those for recreational or pleasure purpose.

8901.2000, 8901.3000 and 8901.9000

10 62 Defence stores, whether manufactured locally or imported by the Federal Government against foreign exchange allocation for defence, including trucks, trailers and vehicles falling under PCT heading 87.04 of the First Schedule to the Customs Act, 1969 (IV of 1969), specially modified for mounting defence equipments, their parts and accessories for supply to Armed Forces.

Respective headings

11 64 Spare parts and equipment for aircraft and ships covered by serial number 43 and 44 above.

Respective headings

12 65 Equipment and Machinery for pilotage, salvage or towage for use in ports or airports

Respective headings

13 66 Equipment and Machinery for air navigation Respective headings

14 67 Equipment and machinery used for services provided for handling of ships or aircrafts in a customs port or Customs airport.

Respective headings

15 68 Such plant and machinery as is notified by the Federal Government in the official Gazette but if imported, these shall be entitled to exemption from sales tax on importation if these are not manufactured in Pakistan.

Respective headings

Sales Tax Act


16 69 Tractors, bulldozers and combined harvesters; and components (which include sub-components, components, sub-assemblies an assemblies but exclude consumables) imported in any kit form and direct materials or assembly or manufacture thereof, subject to the same conditions as are envisaged for the purposes of exemption under the Customs Act, 1969 (IV of 1969).]

Respective headings

17 70 Import and supply of fully dedicated CNG Euro-2 buses whether in CBU or CKD condition.

8702.9010 and 8702.9090

Table-II (Imports or Supplies)

Sr.

No.

Sr. No. of

Sixth

Schedule

Description of goods upon which withdrawal of

exemption has been proposed

Heading Nos. of the First

Schedule to the Customs

Act, 1969 (IV of 1969)

1 5 Supply of other such agricultural implements as may be specified in a notification to be issued by the Federal Government in the official Gazette.

Respective headings.

Withdrawal of Exemptions –SROs S.R.O 480 (1)/2011

The exemptions available through different S.R.Os have been withdrawn effective from 4th June, 2011 by rescinding the previous SROs as follows;

S.No. S.R.O Rescinded Items upon which exemption Withdrawn Other Details

1. S.R.O. 1240(I)/2005, dated 16th December, 2005

Dump Trucks for Offhighway Use and Concrete Mixer

2. S.R.O. 542(I)/2006, dated the 5th June, 2006

• Tillage and seed bed preparation equipments as specified in the rescinded SRO.

• Seeding or planting equipments as specified in the rescinded SRO.

• Irrigation, drainage and agro-chemical application equipments as specified in the rescinded SRO.

• Harvesting, threshing and storage equipments as specified in the rescinded SRO.

• Post-harvest handling and processing & miscellaneous machinery as specified in the rescinded SRO.

Supply of locally manufactured agricultural machinery, equipment and implements and Import of agricultural machinery, equipment and implements as specified in the SRO 542(1) 2006

3. S.R.O. 275(I)/2008, dated the 12th March, 2008

CKD kits of single cylinder agriculture diesel engines of 3 to 36 HP

Sales Tax Act


4. Notification No. 1(3)STM/2004 (Pt-II), dated the 23rd August, 2009

Application of reduced rate @ 8% of Sales tax on local supplies of sugar has been withdrawn Now supply of Sugar will be subject to normal rate of Sales Tax

Exemptions –Amendments in SRO 551(1)/2008 S.R.O 481 (1)/2011

S.R.O 551(1)/2008 dated 11th June, 2008 has been further amended Withdrawing /Granting Exemption on the items as follows.

S.No. Sr. No. of the

S.R.O

551(1)/2008

Items upon which exemption

Withdrawn

Other Details

1. 2 CNG kits, cylinders and valves for CNG kits If supplied for automotive vehicles

2. 12 Commercial catalogues, falling under PCT Heading 4911.1000.

3. 15 Rock Phosphate PCT Heading 2510.1000 and 2510.2000 Phosphoric Acid falling under PCT Heading 2809.2010

Added through SRO 646(1)/2008 dated 19-06-2008

4. 17 Phosphoric Acid falling under PCT Heading 2809.2010


5 18 Mineral oil 97% (W/V) 110% (W/V) falling under PCT Heading 2710.1991


Sales Tax Act


S.No. Sr. No. of the

S.R.O551(1)/2008

Items Exempted From Sales Tax Other Details

1. 27 *White crystalline sugar

Previously through SRO 232(1) 2011 dated 15th March 2011 value fixed for sales tax purpose @ Rs.29/Kg for locally produced white crystalline sugar was withdrawn as was provided in S.R.O.564(I)/2006 and sales tax was chargeable at normal rates.

2. 28 Reclaimed lead if supplied to recognized manufacturers of lead batteries.

*White crystalline sugar exempted from sales tax and has been taxed under the Federal Excise Act, 2005 in sales tax mode @ 8%.

Minimum Value Addition by Importers at Import

Stage- Special Procedure for Payment of Sales Tax

By Importers

SRO 482(1)/2011 dated 3rd June, 2011

amending Rule 58B- Chapter X Sales

Tax Special Procedure Rules, 2007

The sales tax on account of minimum value addition is levied and collected at import stage on goods the rate of two per cent of the value of goods in addition to the tax chargeable under section 3 of the Sales Tax Act, 1990 which is treated as input tax and the importer deducts the same from the output tax due for the tax period at the time of filing of Sales Tax Returns. This value addition tax is not charged on the goods as are imported by a manufacturer for in-house consumption Now the minimum value addition rate has been increased to 3% (three percent) of the value of goods in addition to the tax chargeable as amended through SRO 482(1)/2011 dated 3rd June, 2011 effective from 4th June, 2011

Zero Rating Withdrawn

SRO 485(1)/2011 &

SRO 486 (1)/2011

The facility of zero rating of sales tax on import of Raw Materials for manufacture of Diapers of HS Code 5601.1040 has been withdrawn by rescinding the S.R.O. 1161(I)/2007 dated 30th November, 2007 effective from 4th June 2011. Further, through amendment in SRO 549(1)/2008 dated 11th June 2008, the zero rating on import and supply of the following items has also been withdrawn.

• Dedicated CNG buses and all other buses meant for transportation of forty or more passengers whether in CBU or CKD condition (PCT Heading 87.02);

• Trucks and dumpers with g.v.w. exceeding 5 tonnes (PCT Heading (87.04);

Sales Tax Act


• Trailers and semi-trailers for the transport of goods having specifications duly approved by the Engineering Development Board (PCT Heading 87.16);

• Road tractors for semi-trailers, prime movers and road tractors for trailers whether in CBU condition or in kit form (PCT Headings 8701.2010, 8701.2020, 8701.2030, 8701.2090, 8710.9030, 8701.9040, 8701.9050 and 8701.9060);

ADRC to report FBR within 90 days of its appointment

Rule 65 of the Sales

Tax Rules, 2006

The time period to submit report to FBR by Alternative Dispute Resolution Committee (ADRC) has been enhanced from 60 days to 90 days by amending the relevant sales tax rules to make it in line with section 47A of the Sales Tax Act 1990.

Federal Excise Act


FEDERAL EXCISE ACT, 2005

Special Excise Duty Abolished -Section 3A of the Federal Excise

Act,2005 and SRO 655 (1)/2007 SRO 489(1)/2011

Currently, Special Excise Duty is applicable @2.5% on excisable goods imported or produced or manufactured in Pakistan levied through SRO 655(1)/2007 dated 29th June 2007 and section 3A of the Federal Excise Act 2005. The rate was enhanced from 1% to 2.5% through Federal Excise (Amendment) Ordinance 2011 on 15th March 2011. Now, by rescinding the SRO 655(1)/2007 dated 29th June 2007 and omitting Section 3A of the Federal Excise Act, 2005 through Finance Bill 2011, the Special Excise is being abolished effective from 1st July 2011. Recovery of unpaid Duty or of Erroneously Refunded Duty or Arrears

Duty, etc. Section 14

Sub-section (1) of section 14 describes the time for issuance of show cause to the tax payer within a time period of three years who has not levied or paid any duty or has short levied or short paid duty or where any amount of duty has been refunded erroneously. It is proposed to enhance the time limit for issuance of such show cause to five years. Further, a new proviso has also been proposed prescribing the time limit of 120day for issuance of order after the show cause. Or within such extended period as the Commissioner may, for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed sixty days. Further any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding thirty days shall be excluded from the above time period. Power to seize, Confiscation of Cigarettes Section 26, 27

Section 26 & 27 are related to the seizure & confiscation of the counterfeited cigarettes or cigarettes which have been manufactured unlawfully or on which duty has not been paid as required under this Act and Rules made thereafter besides the conveyance which has been used for the movement, carriage or transportation of such cigarettes. Now, through the Finance Bill, 2011, it is proposed to enhance the scope of section 26 & 27 by including Beverages as well along with Cigarettes. Alternative Dispute Resolution (ADRC) Section 38

The Finance Bill proposes to specify the time limit for the Board to pass order within 45 days of the receipt of the recommendation of the Committee, earlier no time limit was provided for such order.

Federal Excise Act


Excisable Goods Section 3, First Schedule

Section 3 specifies the excisable goods in the Table I of the First Schedule. The following table illustrates the items, against which the duty rates are proposed to be changed.

Table-I (Excisable Goods)

Sr.

No.

Sr. No. of

1st

Schedule

Description of goods upon which

duty has been proposed to be

changed

Heading/

Sub-

heading

No.

Current Rate

of duty

Proposed

Rate of duty

1 4 Aerated waters 2201.1020 Twelve per cent of retail price

Six per cent of retail price

2 5 Aerated waters, containing added sugar or other sweetening matter or flavored

2202.1010 Twelve per cent of retail price


3 6 Aerated waters if manufactured wholly from juices or pulp of indigenous vegetables, food grains or fruits and which do not contain any other ingredient, indigenous or imported, other than sugar, coloring materials, preservatives or additives in quantities prescribed under the West Pakistan Pure Food Rules, 1965.

Respective headings

Ten per cent of retail price


4 7 Un-manufactured tobacco 24.01 Five rupee per kilogram

Ten rupee per kilogram

5 9 Current: Locally produced cigarettes if their retail price exceeds Rs. 19.50 per ten cigarettes.

Substituted:Locally produced cigarettes if their retail price exceeds Rs. 21 per ten cigarettes

24.02 Sixty-three

per cent of the

retail price.

Sixty-five per

cent of the

retail price.

6 10 Current: Locally produced cigarettes if their retail price exceeds Rs. 10 per ten cigarettes but does not exceed Rs. 19.50 per ten cigarettes.

Substituted: Locally produced cigarettes if their retail price exceeds Rs. 11.50 per ten cigarettes but does not exceed Rs. 21 per ten cigarettes.

24.02 Three rupees and seventies paisa per ten cigarettes plus sixty nine per cent per Incremental rupee or part thereof.

Six rupees and four paisa per ten cigarettes plus seventy per cent per Incremental rupee or part thereof.

Federal Excise Act


7 11 Current: Locally produced cigarettes if their retail price does not exceed 1[Ten rupees] per ten cigarettes.

Substituted: Locally produced cigarettes if their retail price does not exceed eleven rupees and fifty paisa per ten Cigarettes.

24.02 Three rupees and seventies paisa per ten cigarettes

Six rupees and four paisa per ten cigarettes

8 13 Portland cement, aluminous cements, super sulphate cements, whether or not coloured or in the form of clinkers

25.23

Seven hundred rupees per metric ton.

Five hundred rupees per metric ton.

9 50 Filter rods for cigarettes One rupee per filter rod

Twenty per cent ad val.

10 53 White Crystalline Sugar

1701.9910 &

1710.9920

NA Eight per cent ad val. in the sales tax mode

The following table illustrates the items, against which the duty has been proposed to be abolished through Finance Bill, 2011.

Table-I (Excisable Goods) (Omitted items)

S.N Sr. No. of 1st

Schedule

Description of Goods Heading/Sub-

heading No.

Rate of duty

1 17 Solvent oil (non-composite) 2710.1150 Thirteen rupee per liter.

2 18 Other 2710.1190 Eighty eight paisa per liter.

3 21 Other fuel oils

2710.1949

One hundred and eighty five rupees per Metric Ton.

4 26 Mineral greases

2710.1992 Twenty five rupees per

kilogram.

5 28 Transformer oil 2710.1997 Ten percent of the retail

price or seven rupees

and fifteen paisa per

liter, whichever is higher.

6 29 Other mineral oil excluding sewing machine oil

2710.1990 Fifteen percent Ad Val.

7 30 Waste oil 2710.9100 and 2710.9900

Ten per cent of the retail price or seven rupees and fifteen paisa per liter whichever is higher.

Federal Excise Act


8 39 Carbon black oil (carbon black feedstock) Including residue carbon oil

2707.99102713.9010 and 2713.9020

Seven rupees and Fifteen paisa per liter.

9 40 Methyl tertiary butyl ether (MBTE)

2909.1910

Eighty Eight paisa per liter.

10 46 Greases 3403.1910 Twenty five rupees per

kilogram.

11 47 Organic composite solvents and thinners not elsewhere specified or included; prepared paint or varnish removers. (i) Solvent oil (composite) (ii) Other (excluding thinners)

3814.0000 Thirteen rupee per liter. Ten per cent of retail price.

12 48 Viscose-staple fiber Respective heading

Ten per cent ad valorem.

13 49 Motor cars and other ; motor vehicles principally designed for the transport of persons(other than those of heading 87.02), including station wagons and racing cars of cylinder capacity exceeding 850cc.

87.03 Five per cent ad valorem

Excisable Services Section 3, First

Schedule, Table II, Sr.12

Through Finance Act, 2008, Federal Excise duty has been imposed to the services provided by the property developers or promoters (a) @ Rs. 100 per Square yard for the development of purchased or leased land for conversion into residential or commercial plots & (b) @ Rs. 50 per square foot of covered area for the construction of residential or commercial units. Now, it is proposed to withdraw the duty through the Finance Bill, 2011.

FED on Cable TV Operators SRO 484(1)/2011

Excise duty leviable on the services provided by Cable TV operators being charged at the rate of eight rupees per subscriber per month has been withdrawn by rescinding S.R.O. 364(I)/2007 dated 3rd May 2007

Excise Duty on Franchise Fee enhanced from 5% to 10% SRO 488(1)/2011

Rule 43A of the Federal Excise Rules 2005 - Special procedure for payment of Federal Excise duty on franchise fee or technical fee or royalty under a franchise agreement- As per First Schedule of the Federal Excise Act,2005 the duty rate is 10% whereas in Rule 43Athe rate mentioned is 5%. Now the rate of duty is in Rule 43A has also been enhanced to 10 percent through SRO 488(1)/2011 effective from 4th June 2011 to remove the anomaly.

Customs Act


THE CUSTOMS ACT, 1969

The Finance Bill proposes the following amendments to the Customs Act, 1969: Repayment in whole or in part of custom-duties paid

on goods supplied against international tenders.

Section 21,Clause (C)

The Finance Bill seeks to amend clause (c) of section 21 to allow repayment of customs duties paid on the importation of any goods used in the manufacturing of goods supplied against international tenders. False Statement, error, etc. - Notice Time Period Section 32 (3A)

The Finance Bill proposes to amend section 32, sub-section (3A) by substituting the word “five” for the word “three” to align it with provisions of sub-section (2) where time limit for taking cognizance of cases is already five years of relevant date. Refund to be claimed within one year Section 33 (2)

The Finance Bill proposes to insert a new sub-section (3) in section 33 to allow claim of refund within one year from the date of the decision or judgment by any officer / Board/ Appellate Tribunal/Court. Levy of transit fee Section 129A

The Bill Seeks to add a new section, namely; 129A to empower the Board to levy a transit fee on any goods or class of goods in transit across Pakistan to foreign territory at such rates as the Board may prescribe by a notification in official Gazette. This is a revenue generating measure through which Government can generate extra revenue and can cover its cost on depreciation of infrastructure by such transit. This would help to provide self-sustaining infrastructure and services at customs stations and en-route.

Customs Notifications

A number of new notifications have been issued suggesting certain amendments in the existing customs tariffs. Also some notifications issued in previous years have been rescinded. A summary of certain significant notifications is given below:

Relief for Mirror and Acetate Industry SRO 475(1)/2011

Through this notification SRO 565(1)2006 dated 5th June 2006, shall be amended. These amendments would result in some corrections required to ensure expeditious clearance. Also through this SRO concession has been provided on raw material Sabutol used in acetate industry. Incentive to glass industry has also been provided through reduction in duty of its two major raw materials mirror backing paint and waste/scrap of glass.

Customs Act


Relief on Pharmaceutical raw materials SRO 476(1)/2011

Through this amendments shall be made in Notification No. S.R.O. 567(I)/2006, dated the 5th June, 2006 . This SRO shall provide relief to common person by reducing duty to 5% on pharmaceutical raw materials. Sales Tax Exemption withdrawn on certain items SRO 477(1)/2011

Through this notification amendments shall be made in Notification No. SRO 575(I)/2006 titled Exemption from Customs Duty and sales tax on machinery and equipments dated the 5th June, 2006. Sales Tax exemption on following items listed on S.NO of 1, 5, 22, 28, 28A, 29, 36 on table of Notification No. SRO 575(I)/2006 have been withdrawn as under:-

Serial

No.

Description

1 Agricultural Machinery

5 i. Compressors

ii. Mass Flow CNG dispensers

iii. Storage cylinders

iv. CNG vehicle Cylinders

v. CNG vehicle conversion kits

vi. LPG Dispensers imported by a company having LPG license,

22 i. Off-highway dump trucks of 320hp and above.

ii. On Highway Dump Trucks of 320 HP and above

iii. Cement bulk semi-trailers, without prime movers.

28 i. Ambulances

ii. Fire fighting vehicles.

iii. Waste disposal truck

iv. Incinerators for disposal waste management.

v. Motorized sweepers

vi. Brake down lorries

vii. Special purpose vehicles for the maintenance of streetlights and overhead cables.

viii. Snow ploughs

ix. Road sweeping lorries

28A Fire fighting vehicles and equipment imported by town and municipal authorities.

29 Aircraft spares, parts etc

36 Items imported by Civil Aviation Authority (CAA) for air traffic services and training

Customs Act


Concession in Custom Duty for machinery &equipment’s of

Oil Exploration Companies

SRO.478

(I)/2011

This notification further amends 678(I)/2004, dated the 7th August to provide concession in Custom Duty for machinery and equipments imported by oil exploration companies.

Review of Regulatory duty on luxury/ non-essential goods

under SRO 482(I)/2009 dated 13-06-09

SRO.479

(I)/2011

This notification further amends 482(I)/2009, dated the 13th June 2009 to provide a reviewed list of Luxury/ non-essential goods with regulatory duty by substituting the table in this SRO.

First Schedule of Custom Act, 1969

The finance Act proposes changes in the First Schedule of Custom Act. These changes include:-

• Correction in descriptions of PCT codes 2923.9010 and 2930.9060.

• Custom duty would be reduced to 5% on bars of copper.

• Creation of separate PCT Codes for brass scrap i-e 7404.0010 and armoured cash carrying vehicles i-e 8710.0010

• Tariff correction to remove ambiguity in re-import scheme.

Income Tax Ordinance


INCOME TAX ORDINANCE, 2001 Provisional Assessment Section 2(5)

Provisional Assessment is proposed to be included under the definition of assessment to broaden the scope of Assessment, to legalize the provisional Assessment and to remove anomalies under section 122C of the Income Tax Ordinance 2001.

Collective Investment Scheme Section 2(11C)

In order to harmonize Income Tax Ordinance 2001 with NBFC Law and Companies Ordinance 1984, definition of Collective Investment Scheme is proposed to be inserted in the Income Tax Ordinance 2001 and this scheme would include closed-end fund and open-ended scheme.

Income from Business Section 18(1d)

In order to broaden the tax base and to discourage waiver of loans by Banks on political bases it is proposed to treat the waiver of either profit on debt or debt itself as a business income of the person and all the benefits of such type available through ay policy or Circular already issued or to be issued by State Bank of Pakistan. Deductions of Profit on Debt , Financial Costs and Lease

Payments

Section 28(1g)

Any amount incurred by SME Bank to State Bank of Pakistan (SBP) on account of share of the SBP in the profits derived from investments in small business out of credit line provided by SBP on Profit & loss sharing basis is allowed as deduction from income. There was anomaly because of the word corporation instead of SME Bank. In order to remove anomaly the word “corporation” is replaced with SME Bank. Tax Credit for Investment in shares and Insurance Section 62

Previously investment in new shares of public companies were subject to tax credit only .To encourage the investment in insurance policies as well by salaried and business persons Finance Bill proposes tax credit on payment of life insurance premium to a company registered with SECP under Insurance Ordinance 2000 (XXXIX of 2000) Further the maximum investment limit subject to tax credit is enhanced from 10% to 15% and Rs.300,000/- to Rs. 500,000/- and the time period for holding the investment to get the benefits of tax credit is enhanced from one year to three years. Tax Credit for Contribution to an Approved Pension Fund Section 63

To provide the tax relief against contributions in approved pension fund, Maximum limit of contribution of Rs. 500,000/- is proposed to be withdrawn through amendment in the section. Now the tax credit will be available on the investments up to maximum of 20% of the taxable income.



Tax Credit for Enlistment Section 65C

Through Finance Act. 2010 5% tax credit was allowed to a company, which enlists itself in any registered stock exchange in Pakistan and the said tax credit is allowed in the tax year in which the company is enlisted on stock exchange. To encourage the corporate sector to get its shares enlisted on stock exchanges, this tax credit is proposed to be enhanced to 15%. Tax Credit for Equity Investment Section 65D

To encourage equity financing and to provide relief to set up of new industrial undertakings on or after July 01, 2011 Finance Bill proposes that Tax credit @100% of the tax payable shall be allowed to a Company for the period of five years from the date of commencement of commercial production. This relief is also available for the period of five years to existing companies for the Purposes of balancing, modernization and replacement in an industrial undertaking already set up in Pakistan and owned by it subject to the condition that such investment is made on or after July 01, 2011 through 100% equity financing . Unexplained Income or Asset Section 111

In order to broaden the tax base, concealment of income or furnishing of inaccurate information and particulars relating to the production, sales , amount and any item liable to tax in whole or part is also proposed to be included under the scope of un disclosed income or assets.

Minimum Tax on the Income of certain persons Section 113

Excess payments of minimum tax under this section against the actual tax liability of the companies for subsequent period is currently allowed to be carried forward for three years immediately succeeding the tax year for which the amount is paid . The Finance Bill proposes to increase the period to five years for carry forward of excess payment of minimum tax under this section. Now gross sales or gross receipts, excluding those which fall under PTR, are proposed to be included under the definition of turnover for this section. Under current definition of turnover, only gross receipts, other than those which fall under PTR, are included in the definition. Return of Income Section 114(1) ,

114(1A),114(2) , 114(6A)

In order to broaden the tax base and documentation of the economy, mandatory filing of income tax return by Commercial & Industrial consumer of electricity with annual billing over rupees one million is proposed in the Finance Bill. Finance Bill also proposes enhancement of basic exemption of income for individual taxpayers from Rs.300,000/- to Rs.350,000/-. However, in order to document the economy, they would still be required to file income tax return, if their income is between Rs.300,000/- to Rs. 350,000/-. The additional conditions of attachment of tax payment proof as per return and wealth statement



as required under section 116 is proposed to be inserted for a valid return of Income. Persons not required to file Return of Total income Section 115 (4)

Previously profit paid by Federal Government, a Provincial Government or a Local Government to any person on any security issued by them except deposits or certificates under National Savings Scheme or Post Office Savings Account was not subject to Final Tax under section 151. Finance Bill 2011 proposes to treat tax deducted against profits of said securities as final tax and therefore persons deriving income under section 151(1c) also proposes to file statement in lieu of Income Tax Return under section 115(4). Through Finance Act. 2010 tax deducted by Stock Exchanges registered in Pakistan from its members was made adjustable and the members were required to file Income Tax return instead of Statement in lieu of return. There was anomaly in this regard under this section and the same is removed. Wealth Statement Section 116(2) ,

116(2A)

It is proposed in the Finance bill that the taxpayers being an individual or member of association of persons whose last declared or assessed income or the declare income for the year is one million rupees or more shall file wealth statement along with wealth reconciliation statement for that year along with return of income. Currently the limit of income for filing of wealth statement is five hundred rupees or more. Subsection 2A was inserted vide Finance Act. 2010 and the persons whose Income is assessed under Section 122C are also required to file wealth statement for the year along with return of total income and such statement are required to be accompanied by wealth reconciliation statement explaining the sources of acquisition of assets specified therein. There was ambiguity for the filing of wealth statement and the same is removed after insertion of the word individual and member of association. Appeal to the Commissioner (Appeals) Section 127

The provisional Assessment order passed under section 122C is proposed to be out of the scope of appealable orders. This is very harsh provision and against the basic rights and norms of justice. Appointment of Appellate Tribunal Section 130

It is proposed that the amount of tax or penalty to decide the appeal by single member bench is reduced from five million to one million rupees. Advance Tax paid by the Tax payer Section 147(5B)

It is proposed that advance tax on capital gains against sales of securities shall be deposited in to government treasury within twenty one days from the close of each quarter. Currently this period is seven days.



Profit on Debt Section 151 ,

Section 169

It proposed that the tax deducted on profit on debt from investment made by individuals in Debt instruments, Government securities including Treasury Bills and Pakistan Investment Bonds, shall be final tax on profit on debt for all types of taxpayers. This will encourage domestic investment in the Government Securities. Taxpayer would not required to file Income tax return and he would file statement under section 15(4)

Withholding Tax on Payment for Goods and Services Section 153, Clause 47D , Part-IV,

2nd Schedule

The section 153 is substituted in order to remove anomalies in this section. The tax deducted against the payments to companies on account of rendering or providing of services is proposed to be minimum tax as in the case of individuals and AOPs. It is also proposed to empower the commissioner to issue certificate for non deduction of tax or deduction of tax at reduced rate on receipt of application made by recipient of a payment against sales of goods. The payments made to traders of yarn by the taxpayers specified in the zero rated regime of sales tax are also proposed to be exempt from withholding tax under this section. Turnover is also proposed to be defined to remove ambiguity for the purpose of this section. In case of Cotton ginners tax deducted / paid would not be final tax.

Consequent to the substitution of this section and reorganization of sub-sections, the references of sub-sections of this section in other sections, clauses are also proposed to be amended accordingly.

Withdrawal of balance under Pension Fund Section 156B

It is proposed to enhance the limit of withdrawal subject to withholding tax under this section from 25% of cumulative balance of individual pension fund to 50% of cumulative balance in the approved pension fund. Statements Section 165

It is proposed that withholding agents shall file statements on monthly basis instead of quarterly basis and these statements are to be filed by 15th of month following the month to which the withholding tax pertains. In order to broaden the tax base it is proposed that NTN and CNIC are to be provided in the withholding statement filed by the withholding agents along with other particulars. It is also proposed that an annual statement is to be filed by the person deducting tax from salaries and annual statement shall also be filed in case of salaries ranging from Rs. 300,000-350,000



Rupees.

Credit for Tax Collected or deducted Section 168(3)

It is proposed that no credit shall be allowed for the taxes collected or deducted under different sections of the Income Tax Ordinance 2001 which are final tax on the income of the person.

Offences and Penalties Section 182

Under section 182(1), the amount of penalty is computed on the basis of fraction of tax payable. For the purpose of this section, tax payable is proposed to be explained, which means the tax chargeable on the taxable income on the basis of assessment made or treated to have been made under sections 120, 121, 122, 122C.

Advance Ruling Section 206A

It is proposed that option to get advance ruling is not available to non- resident taxpayer who has permanent establishment in Pakistan.

Jurisdiction of Income Tax Authorities Section 209

It proposed to delegate the powers of transfer of cases or persons from one Commissioner to other by the Board and Chief Commissioner.

Advance Tax at the time of sale by auction Section 236A

It is proposed to enhance the scope of advance tax collection on sales by action after including the auction through tenders also under the preview of this section.

Rates of Tax First Schedule

THE 1ST SCHEDULE (AFTER CHANGES PROPOSED BY FINANCE BILL, 2011) Although, there are little changes proposed in the finance bill, we are reproducing some of the important rates after incorporating the changes for the convenience of the readers

Rates of tax for Individuals Part 1, Division I

S.N. Taxable income Tax Rate

1 Where the taxable income does not exceed Rs.350,000 0.00%

2 Where the taxable income exceeds Rs.350,000 but does not exceed Rs.500,000

7.50%


10.00%

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

15.00%

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

20.00%

6 Where the taxable income exceeds Rs.15,00,000 25.00%



Tax Rates for Salaried Individuals Part I

Division I

S.

N. Taxable income Rate of

tax %

1 Where the taxable income does not exceed Rs.350,000 0.00%


1.5%


2.50%


3.50%


4.50%


6.00%


7.50%

8 Where the taxable income exceeds Rs.900,000 but does not exceed Rs. 1,050,000

9.00%

9 Where the taxable income exceeds Rs.1,050,000 but does not exceed Rs. 1,200,000

10.00%


11.00%


12.50%


14.00%


15.00%


16.00%


17.50%


18.50%

17 Where the taxable income exceeds Rs. 4,550,000 20.00%

• Where the total income of a taxpayer marginally exceeds the maximum limit of a slab in the table, the income tax payable shall be the tax payable on the maximum of that slab plus –

a. 20% of the amount by which the total income exceeds the said limit where the total income does not exceed Rs.550, 000.

b. 30% of the amount by which the total income exceeds in each slab but total income does not exceed Rs.1, 050,000.

c. 40% of the amount by which the total income exceeds in each slab but total income



does not exceed Rs.2,250,000. d. 50% of the amount by which the total income exceeds in each slab but total income

does not exceed Rs.4,550,000. e. 60% of the amount by which the total income exceeds in each slab but the total

income exceeds Rs.4,550,000.

Rates of Tax for Certain persons Part 1, Division IA

The rate of tax to be paid under section 113A (1) One per cent Rates of Tax for Association of Persons Part 1, Division IB

The rate of tax on taxable income of the Association of Persons for the tax year 2010 & onward shall be 25% Rates of Tax for Companies Part 1, Division II

• Public company, private company and a banking company 35%

• Small Company 25% Rates of Dividend Tax Part 1, Division III (Section 5)

• 10% of the gross amount of dividend. Withholding tax rates on Certain Payments to Non-Residents Part 1, Division IV (Section 6)

• 15% of the gross amount of the royalty or fee for technical services. Rates of Tax on Shipping or Air Transport

Income of a Non-Resident Person

Part 1, Division V

(Section 7)

• In case of Shipping Income, 8% of the gross amount received or receivable.

• In case of air transport income, 3% of the gross amount received or receivable.

Rates of Tax on Property Income Part 1, Division VI (Section 15)

(a) The rate of tax to be paid under section 15, in the case of individual and

association of persons, shall be-

S.No. Gross amount of rent Rate of tax

(1) Where the gross amount of rent does not exceed Rs.150,000.

Nil.

(2) Where the gross amount of rent exceeds Rs.150,000 but does not exceed Rs.400,000.

5 per cent of the gross amount exceeding Rs.150,000.

(3) Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000.

Rs.12,500 plus 7.5 per cent of the gross amount exceeding Rs.400,000.

(4) Where the gross amount of rent exceeds Rs.1,000,000.

Rs.57,500 plus 10 per cent of the gross amount exceeding Rs.1,000,000.



(b) The rate of tax to be paid under section 15, in the case of company, shall be-

Capital Gains on Sale of Securities Part 1, Division VII (Section 37A)

The rate of tax to be paid under section 37A shall be as follows

Advance tax on Imports Part II, (Section 148)

• 5% of the gross amount of the value of goods. (In case of imports by industrial undertaking for their own use, the reduced rate of 3% will be applicable as provided in 2nd schedule) Tax deduction from Profit on Debt Part III, Division I (Section 151)

• 10% of the yield or profit paid. Tax deduction on payments to non-residents

Part III, Division II, (Section 152 (1A), (1AA), 2)

• 6% from payments on execution of a construction contract including supervisory activities, related services & advertisement services rendered by T.V. Satellite Channels.

• 5% from a payment of insurance or re-insurance premium.

• In other cases, 20% of the gross amount paid.

S.No

.

Gross amount of rent

Rate of tax

(1) Where the gross amount of rent does not exceed Rs. 400,000.

5 per cent of the gross amount of rent.


Rs. 20,000 plus 7.5 percent of the gross amount of rent exceeding Rs. 400,000.


Rs. 65,000 plus 10 percent of the gross amount of rent exceeding Rs. 1,000,000.

S.No. Period

Tax Year Rate of tax 1. Where the holding period of a security is less

than six months 2011 2012 2013 2014 2015

10.0%. 10.0%. 12.5% 15.0% 17.5%

2. Where the holding period of a security is six months or more but less than twelve months.

2011 2012 2013 2014 2015 2016

7.50%. 8.00%. 8.50% 9.00% 9.50% 10.0%

3. Where the holding period of a security is one year or more

- 0.00%



Tax deduction on payments for goods and services Part III, Division III (Section 153)

• In case of sale of rice, cotton seed or edible oil, 1.5% of the gross amount payable.

• In case of sale of any other goods, 3.5% of the gross amount payable.

• In the case of transport services & News print media services 2% of the gross amount payable.

• In case of other services and contracts, 6% per cent of the gross amount payable.

Deduction of tax on Exports Part III, Division IV (Section 154)

• 1% of the proceeds of the export

• 5% in case of indenting commission as per provisions of subsection 2 of section 154

Withholding tax on payments of Property Rentals Part III, Division V (Section 155)

(a) The rate of tax to be deducted under section 155, in the case of an individual and association of persons, shall be-

S.N. Gross amount of rent Rate of tax


Nil.

(2) Where the gross amount of rent exceeds Rs.150,000 but does not exceed Rs.400,000.

5 per cent of the gross amount exceeding Rs.150,000.


Rs.12,500 plus 7.5 per cent of the gross amount exceeding Rs.400,000.


Rs.57,500 plus10 per cent of the gross amount exceeding Rs.1,000,000.

(b) The rate of tax to be deducted under section 155, in the case of a company, shall be-

S.N. Gross amount of rent Rate of tax


5 per cent of the gross amount


Rs. 20,000 plus 7.5 per cent of the gross amount of rent exceeding Rs.400,000.


Rs. 65,000 plus 10 per cent of the gross amount of rent exceeding 1,000,000.

Withholding tax on Prizes and Winnings Part III, Division VI (Section 156)

On a prize on bond or cross-word puzzle 10% of the gross amount paid On winnings from a raffle, lottery, prize on winning a quiz, prizes offered by a company for promotion of sale

20% of the gross amount paid

Withholding Tax on Petroleum Products Part III, Division VI A (Section 156A)

• 10% of the amount of payment.



Collection of tax from CNG Stations Part III, Division VIB (Section 234A)

• 4% of the gas consumption charges of CNG Station

Withholding tax on Brokerage and Commission Part IV, Division II (Section 233)

• 10% of the amount of payment.

Rate for Collection of Tax by a Stock Exchange

Registered in Pakistan

Part IV, Division IIA (Section 233A)

• 0.01% of the share purchase value, in case of purchase.

• 0.01% of the share sale value, in case of sale.

• 0.01% of the share traded value, in case of trade.

• In case of financing of Carry Over Trades (COT or Badla), 10% of the carry over charge.

Tax on Motor Vehicle Part IV, Division III (Section 234)

• In case of goods transport vehicles, tax of one rupee per kilogram of the laden weight shall be charged.

Electricity Consumption Part IV, Division IV (Section 235)

Rate of collection of tax under section 235, (Where the amount of electricity bill) exceeds 20000 Telephone Users Part IV, Division V (Section 236)

Rate of collection of tax under section 236, In the case of subscriber of mobile telephone and pre-paid telephone card, or units through any electronic medium or whatever form

10% of the amount of bill or sales price of pre- paid telephone card [or sale of units through any electronic medium or whatever form]

Rate of tax on Cash Withdrawal from Bank Part IV, Division VI (Section 231A)

• 0.2% of the aggregate amount of cash withdrawal from a bank account exceeding Rs.25,000 in a day

Advance tax on Transactions in Bank Part IV, (Division VIA Section 231AA)

• The rate of tax to be deducted under section231AA shall be at the rate of 0.3% of the transactions.

Advance tax at the time of sale by auction Part IV Division VIII (Section 236A)

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

Advance tax on Purchase of Air Ticket Part IV, Division IX (Section 236B)

• The rate of tax to be deducted under section236B shall be 5% of the gross amount of air ticket.

5% for industrial consumption & 10% for commercial consumption



THE SECOND SCHEDULE

Following are significant amendments proposed in the Second schedule of the Income Tax Ordinance 2001.

Finance bill proposes to omit subclauses (xi) and (xxv) of clause 61 of Part1 of the Second Schedule of the Income Tax Ordinance, 2001 withdrawing the exemptions from income tax against any amount paid as donation to the Fatimid Foundation Karachi and BCCI Foundation

Finance bill proposes to omit clause 74A of Part1 of the Second Schedule of the Income Tax Ordinance, 2001 withdrawing the exemptions from income tax against any profit on debt, payable to National Bank of Pakistan, on foreign currency loan of US $ 100 million, given to Pakistan State Oil Company Limited (PSO) under agreement executed at Bahrain on the 29th May, 2001, approved by the Federal Government vide Finance Division‘s letter No.F.3(3)EF(B-III)/2001,dated the May 29, 2001.]

Finance bill proposes to omit clause 93 of Part1 of the Second Schedule of the Income Tax Ordinance, 2001 withdrawing the exemption of income tax on profits and gains of Computer Training Institutions.

Finance bill proposes to omit clause 114A of Part1 of the Second Schedule of the Income Tax Ordinance, 2001 wherein the income chargeable under the head capital gains, derived by a person from sale of ships and all floating crafts including tugs, dredgers, survey vessels and other specialized craft is exempt up to tax year ending on the thirtieth day of June, 2011.

Finance bill proposes to insert a new clause 107 in Part1 of the Second Schedule of the Income Tax Ordinance, 2001 allowing exemption from tax on the income derived by the Islamic Development Bank from its operations in Pakistan in connection with its social and economic development activities on profits and gains of Computer Training Institutions. Further, the bill proposes to insert a new clause 38C in Part IV of the second schedule that the withholding tax provisions of section 151, 152, 153 and 233 would not be applicable on the receipts of Islamic Development Bank.

Donations paid –Exemption Withdrawn Clause 61 of Part-I

Profit on Debt of NBP - Exemption Withdrawn Clause 74A of Part-I

Income of Computer Training Institutes-Exemption Withdrawn Clause 93 of Part-I

Capital Gains on Sales of Ships and crafts-Exemption Discontinued Clause 114A of Part-I

Income of Islamic Development Bank-Exempted from Tax

Clause 107 of Part-I

Clause 38C of Part IV



The rate of tax to be deducted under sub-section (2) of section 152, in respect of payments from profit on debt payable to a non-resident person having no permanent establishment in Pakistan, shall be 10% of the gross amount paid The Finance bill proposes to insert a proviso making tax deducted on profit on debt from debt instruments, Government securities including treasury bills and Pakistan Investment Bonds shall be final tax on profit on debt payable to a non-resident person having no permanent establishment in Pakistan and the investments are exclusively made through a Special Rupee Convertible Account maintained with a Bank in Pakistan”.

Finance bill proposes to substitute clause 4 of Part-III of the Second Schedule of the Income Tax Ordinance, 2001. After the amendment the tax to be collected under section 148 on import of automotive vehicles would not exceed by including other duty and taxes from the total amount of duty and taxes as specified in SRO. 577(I)/2005. Dated 6th June, 2005 as amended through S.R.O 560(I)/2008 - dated 11.06.2008, S.R.O.25(I)/2009 - dated 12.01.2009, S.R.O.84(I)/2010 - dated 15.02.2010 and S.R.O.275(I)/2011 - dated 26.03.2011.

Finance bill proposes to amend clause 11A of Part-IV of the Second Schedule of the Income Tax Ordinance, 2001 that minimum tax would not be payable by a pension fund registered under the Voluntary Pension System Rules, 2005 along with other NBFCs.

THE SEVENTH SCHEDULE

The Seventh Schedule was introduced vide Finance Act, 2007 with the objective to provide special set of rules for taxation of banking business similar to insurance companies and oil and gas exploration companies and to minimize litigations describing rules for the computation of the profits and gains of a banking company and tax payable thereon. Rule 1(c ) provides admissibility of provisions for advances and off - balance sheet items at the rate 1% for a banking company and five percent of total advances for consumer and small medium enterprises. As per this rule, where the actual bad debts are in excess of the amount of provisions computed at the rate of 1% percent of the total advances, the excess amount is allowed to be carried forward to subsequent tax years. Through Finance bill, inconsistency has been removed in case of Consumer & SMEs as provided above that 1% of the total advances is allowed for a banking company and 5% of total advances for the Consumer and Small and Medium Enterprises (SMEs). The finance bill also seeks to increase the Tax on Dividends received by a banking company from its Assets Management Company to be taxed at the rate of 20% instead of 10%.

Profit on Debt Payable to Non-Resident-Final Tax Clause 5A of Part-II

Withholding Tax on Imports of Automotive Vehicles Clause 4 of Part-III

Minimum Tax u/s 113 not payable by Pension Fund Clause 11A of Part-IV

Banking Companies Taxation Rules-Provision for Classified advances Rule 1C

Other Laws


AMENDMENTS IN OTHER LAWS

Financial Autonomy of Autonomous Bodies

Through Finance Bill 2011, the financial autonomy of the following public sector organizations is proposed to be contained by amending the relevant statutes through which these bodies has been established.

• Pakistan Telecommunication Authority (PTA)

• Securities & Exchange Commission of Pakistan (SECP)

• Pakistan Nuclear Regulatory Authority (PNRA)

• Pakistan Electronic Media Regulatory Authority (PEMRA)

• Oil and Gas Regulatory Authority (OGRA) The surplus receipts over the actual expenditure in a financial year would be required to be remitted to the Federal Government Fund and in case of deficit, the actual expenditure would be paid by the Federal Government. Similarly all penalties and fines charged by these bodies would be deposited in Government Treasury.

Other Laws


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