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Budget 2020 - 21 | Highlights & Comments

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Budget 2020-21 Highlights & Comments

Deloitte Yousuf Adil Chartered Accountants Member of Deloitte Touche Tohmatsu Limited Tax


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Foreword

This memorandum contains an economic review, highlights of fiscal proposals and explanatory description of the significant changes in the Income Tax, Sales Tax, Federal Excise and Customs Duty laws proposed through Finance Bill, 2020. It also contains our comments on the

amendments introduced through the Tax Laws

(Amendment) Ordinance, 2020, which are now covered under the Finance Bill. Amendments proposed in the Finance Bill, 2020 will take effect from July 01, 2020, unless stated otherwise, once it is approved by the Parliament. The memorandum is aimed

at providing general guidance with the objective of keeping our clients and staff abreast of the changes in the aforementioned laws. Deloitte Yousuf Adil accepts no duty of care or liability for any loss occasioned to any person acting or refraining from

action as a result of any material in this publication. The users are therefore advised to seek professional advice before exercising any judgment, interpretation of any legal provision and acting thereupon.

The memorandum can also be accessed on our Website.

www.deloitte.com/view/en_PK/pk/index Karachi June 13, 2020

http://www.deloitte.com/view/en_PK/pk/index


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Contents

Budget at a Glance 04 Economic Review 05

Highlights of Important Fiscal Proposals 17 Significant Amendments Proposed In

Income Tax Ordinance, 2001 28 Sales Tax Act, 1990 59

Customs Act, 1969 67 Federal Excise Act, 2005 86 Comments on Tax Laws (Amendment) Ordinance, 2020 89

Petroleum Products Surcharge Ordinance, 1961 97


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Budget at a glance

(Budget) Rupees in billion

2020-21

(Revised Budget) Rupees in billion

2019-20

Tax revenue 5,464 4,208

Non-tax revenue 1,108 1,296

Gross revenue receipts 6,572 5,504

Public account receipt – net 215 421

Total receipts 6,787 5,925

Less: Provincial share in Federal taxes (2,873) (2,402)

Net revenue receipts 3,914 3,523

Expenditure

Current expenditure (7,836) (7,586)

Development expenditure (950) (759)

(8,786) (8,335)

Deficit 4,872 4,822

Capital receipts 1,327 756

Credit from banking sector 979 1,724

External receipts 2,224 2,272

Privatization proceeds 100 150

Cash balance built up by provinces 242 (80)

Financing of deficit 4,872 4,822

Source: Annual Budget Statement, 2020-21

Source: Annual Budget Statement, 2019-20


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Economic Review 2019-20

The year 2020 will go down in history as a turning point in terms of how the world operates.

Most of the world is or has been on lockdown for much of the last quarter of fiscal year 2019-20, and most and in some cases, all of the workforce has been working from home. Recession

is certain and work-from-home is the new normal for most workforce. Yet there are innovative sectors which were game changers only a quarter ago which find no place in the new world and are laying off workers by the thousands. There are economies which could never have imagined their tourism based economy can ever see a complete shut-down apart from cyclical crests and troughs in response to business cycles and yet it has been months since they have

had a tourist. Pakistan is no exception. One Pakistani citizen dies every fifteen minutes and by the time you finish reading this sentence, 40 new Covid-19 cases would have been identified. Pakistan’s economy had already been suffering before the COVID-19 outbreak but it was in no imminent danger of a recession; the pandemic has dealt a significant blow.

Pakistan’s economy before COVID-19 was undergoing stabilization efforts and on the road to recovery as per government estimates. International Monetary Fund (IMF) in October 2019 estimated that Pakistan’s economy would slow down to 2.4 per cent in 2020 and pick up quickly after that as stabilisation measures bear result. In January 2020, the Finance Ministry

issued a statement that the economy was “progressively along the adjustment path and stabilization process and economic recovery is expected towards the end of FY2020.”i The

statement noted several achievements in the first five months of FY 2020: the Current Account Deficit dropped by nearly 73%; the “primary balance” was positive, at 0.3% of the GDP; the credit rating had improved from negative to stable; and the country’s rank on the Ease of Doing Business Index had improved from 136 to 108. Many analysts including Moody and Citibank lauded the government on taking measures to stabilize the economy. Credit Suisse also released a report titled: “Pakistan: On the Path to

Recovery,” noting that the fundamentals of the economy had improved significantly as a result


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5.85.5

5.0

0.4

2.6

3.6 3.8 3.7

4.1 4.1 4.5

5.3

5.8

3.3

-0.38

-2

-1

0

1

2

3

4

5

6

7

FY-06 FY-07 FY-08 FY-09 FY-10 FY-11 FY-12 FY-13 FY-14 FY-15 FY-16 FY-17 FY-18 FY-19 FY-20

Perc

en

tag

e %

Real GDP Growth

-0.38

2.4

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Perc

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FY-19P

Budget vs Actual

of the IMF package, fiscal consolidation and the 8 necessary reforms being undertaken by the government.

However, the gains accumulated pre-Covid-19, as with the rest of the world’s economies, were lost in Q4 as the pandemic spread. Exports suffered due to cancelled orders from buyers and

slow demand, production and logistics suffered due to slow economic activity and domestic demand plummeted. The Federal and Provincial Governments took several immediate measures and responded with a multi-pronged strategy to ensure availability of basic goods and groceries, slow down the spread of the virus, provide immediate cash safety net support to the most deprived sections of society and other relief efforts. Central bank also stepped in

to provide support to financial institutions and borrowers with a relief package and gradual

decline in policy rate. Yet, as the year 2019-20 closes, the virus spread has still not peaked, the short-term future remains uncertain and global forecasts continue to be negative for at least in the next fiscal year.

Real GDP

‘’

Source: Economic Survey 2019-20, Ministry of Finance


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Pre-COVID The affirmations of the government’s success in stabilizing the economy and laying a foundation for robust growth were reassuring. However, a closer look at Pakistan’s pre-COVID economy reveals a bleaker picture. The 73% fall in Current Account Deficit and depreciation of Pakistani Rupee came at the cost of the economic growth. The Real GDP growth fell to 3.3% in FY 2019 from 5.5% in FY 2018 and fell even lower to -0.38% in FY 2020. COVID-19 was a contributor to this decline in the GDP, however, pre-Covid-19 the Government had initially estimated at the

time of developing budget for the fiscal year 2019-20 that GDP Growth rate will fall to 2.4%.


During COVID

These were uncharted waters for even the seasoned experts who were unable to predict the extent of shocks that the pandemic will have on the economy. Moody’s has been constantly revising its projections for Pakistan. In Dec 2019, Pre-COVID Pakistan’s economic growth was projected to be 2.4%. This was slashed down to 2% by March-end when the government had announced a lock-down.

However, the Economic Survey revealed that the GDP for FY 2020 was -0.38%, which was largely due to negative growth in the Services Sector that roughly contributes around 61% to the GDP. Covid-19 disruption has also presented a conundrum over the entire process of forecasting which relies on data compilation of the last three quarters to project the annual results. Q4 of the fiscal year 2019-20 is disrupted to such a greater extent that the numbers currently projected might also require revision as more actual data continues to emerge. The Finance Minister also suggested in his speech that it is not easy to quantify the impact of Covid and that the economic

numbers for the next fiscal year are subject to change.


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0

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25

30

35

0

10

20

30

40

50

60

FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20*

Trade Deficit (USD billion) [*Based on July-April month data]

Import Export Trade Deficit


Current Account Deficit

Source: Economic data, SBP


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3.3 3.9 4.7 6.0 7.6 9.5 10.9 12.2 13.6 14.9 16.420.7 22.5

2.9 3.9 4.4 4.85.1

4.8 5.1 5.26.1 6.6

8.5

11.111.7

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10

20

30

40

50

60

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80

90

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FY-08 FY-09 FY-10 FY-11 FY-12 FY-13FY-14 FY-15FY-16 FY-17 FY-18FY-19 FY-20(BE)

Perc

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ge %

Am

ount in

PK

R T

rilli

on

Public Debt and Debt to GDP Ratio

Domestic Currency Debt Foreign Currency Debt Debt to GDP Ratio

Pre-COVID With aggressive slashes in imports and massive devaluation of PKR, the country managed to reduce the current account deficit (CAD) by 73% in the first seven months of Financial Year (FY) 2019-20. However, despite a nearly 30% depreciation in the value of the Pakistani Rupee, exports increased only marginally. In the first nine months of the current fiscal year, exports rose by only 2.2% in dollar terms. This phenomenon has been observed historically as well, where currency devaluation did not yield favorable effects on the trade balance. According to Dr. Ishrat

Husain, close to 60% inputs of export-oriented industries are imported, hence devaluation raises

their costs and renders them non-competitiveii. Imports during the period dropped 14.4% to $34.8 billion. In absolute terms, imports contracted $6.2 billion, which provided some relief to the government.

During COVID On a month-on-month basis, exports fell 15.6% in March over February while imports contracted 21.2%. The month-on-month trade deficit shrank 27%. Since Petroleum products constitute

around 30 percent of Pakistan’s total imports, the sharp fall in oil prices provided some relief to

the Current Account Balance. However it is likely to be dampened by a fall in worker’s remittances from oil producing countries where thousands of Pakistan’s are employed may be at risk to lose their jobs.

Public Debt



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FY-07 FY-08 FY-09 FY-10 FY-11 FY-12 FY-13 FY-14 FY-15 FY-16 FY-17 FY-18 FY-19FY-20(BE)

Interest rates 9.5 10.8 14.0 12.6 13.5 12.3 9.7 9.8 7.3 5.8 6.0 6.5 12.3 8.0

Inflation CPI 7.8 12.0 17.0 10.1 13.7 11.0 7.4 8.6 4.5 2.9 4.8 4.7 6.8 11.2

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5.0

10.0

15.0

20.0

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Monetary Policy Analysis

Pre-COVID

According to the Debt Policy Statement issued by the government earlier this year, Pakistan’s

debt has increased by almost 40% since the new government assumed office. The total debt and liabilities increased from PKR 29.9 trillion in FY18 to PKR 41.5 trillion in September 2019. This was largely due to a sharp rise in domestic interest rates and exchange rate depreciation (that escalated the debt-servicing burden). Additionally, public debt as a percentage of revenue went up from 447% to 667% in the span of one year, and debt servicing as a percentage of revenue increased from 37.3% to 62.5% between FY18 and FY19. According to the IMF’s estimates, Pakistan’s external debt would reach US$ 113 billion by the end of FY20 and that the country

would need over US$ 27 billion to finance its external requirements.

During COVID

Pakistan’s public finances were already in a parlous state. The COVID19 crisis has made it even

more difficult for Pakistan to service its mountain of debt. In FY19, the net revenue of the Federal government was less than the debt servicing incurred by the government, i.e. much of the government’s expenditure was incurred through debt. In the 18 months since the previous PML-N government demitted office, Pakistan’s total debt and liabilities have gone from PKR 30 trillion to PKR 41 trillion. The federal government’s debt has surged from 74% of the GDP in FY 19 to 84% in FY 2020. While the Government lauds its efforts towards the Medium Term Debt Management Strategy and the related steps taken for the development of debt capital markets and explains a

portion of the surge as attributable to devaluation of Pak Rupee, it concedes that the public debt burden increased owing to lower revenue collection and rise in current expenditure attributable to higher interest payments.

The pandemic gave Pakistan an opportunity to obtain the G-20 debt relief, particularly for its external debt that has piled up at US$ 107 billion or 38% of the GDP. So far, Pakistan has managed to obtain a Rapid Financing Initiative loan worth US $1.4 billion from the IMF to meet

its balance-of payments needs to tide over the pandemic. The World Bank and the ADB have also pledged around US$ 2.5 billion in assistance. Much of this comes from funds that had been allocated for projects already under execution but were either moving slowly or were stalled, and are now being diverted for COVID-19 assistance.

Monetary Policy

Source: Economic Survey 2019-20, Ministry of Finance and SBP


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Pre-COVID The data released by the Pakistan Bureau of Statistics shows that the year-on-year inflation in January 2019 was 5.6%, however, by January 2020 the percentage had spiked up to 14.6%, recording at the highest inflation in 12 years. As part of the IMF agreement and to control inflation, the SBP had been steadily raising interest rates. From 6.5% at the time when the previous government demitted office in May 2018, the

SBP’s benchmark interest rate increased to 13.25% in July 2019. The high interest rate was also

meant to attract ‘hot money’ into Pakistan. Around US$ 3 billion flowed into Pakistan in the form of purchases of short-term treasury bonds, but it started to flow back as soon as the COVID-19 crisis started to unfold in the West. Despite significant domestic pressure, SBP did not change the increased policy rate of 13.25% till March 2020 after the worsening Covid-19 impacts exacerbated the demand pressure for fiscal relief. However, even then, much to the dismay of all stakeholders, SBP proceeded languidly with the rate cuts issuing four monetary policy statements

from March 2020 through May 2020 eventually settling the policy rate at 8%.

During COVID

After inflation reached a peak of 14.6% in January, May marked the fourth consecutive month of deceleration. After large month-on-month drops between February and April, the decline in the growth rate for consumer prices during May was less steep. The disinflationary trend for overall consumer prices was driven primarily by the pass-through effects of falling global oil prices. Oil prices are expected to remain weak in the near term, as uncertainty over the timing of a global recovery persists; for a petroleum importer like Pakistan, this will result in significant cost savings

and downward pressure on prices. Although the economy has been largely re‑opened, aggregate

demand is likely to stay depressed during most of this year, which will have a dampening effect on prices. In line with market expectations, Pakistan’s central bank has cut the benchmark interest rate through several notifications to 8% to help its people, businesses and the economy fight against the coronavirus pandemic. The interest rate is a tool available with SBP to create a balance between the rate of inflation and economic activities in the country. The decision to reduce the

policy rate was in line with the view that the inflation outlook has improved further in light of the recent cut in domestic fuel prices. As a result, inflation could fall closer to the lower end of the previously announced ranges of 11-12% this fiscal year and 7-9% next fiscal year.


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FY-07

FY-08

FY-09

FY-10

FY-11

FY-12

FY-13

FY-14

FY-15

FY-16

FY-17

FY-18

FY-19

FY-20

(BE)

Tax Revenue to GDP Ratio 9.6 9.9 9.1 9.9 9.3 10.2 9.8 10.2 11.0 12.4 12.9 12.9 11.8 14.6

Fiscal Deficit as % of GDP 4.1 7.3 5.2 6.2 6.5 8.8 8.2 5.5 5.3 4.6 5.8 6.5 9.1 7.5

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Fiscal Analysis

Fiscal Policy

Pre-COVID

The ambitious tax target of PKR 5.5 trillion set for the Federal Board of Revenue (FBR) became impossible to achieve after the sharp fall in economic growth and backlash and protests from the business community against paying due taxes. In December 2019, at the time of the second review of the EFF program, Pakistan requested the IMF for a lower tax target of PKR 5.23 trillion.

By February 2020, however, Pakistan was forced to demand a further reduction to PKR 4.8

trillion. This steep fall in revenue targets came before the pandemic, even as the expenditures remained static, foreshadowing a fiscal deficit that would breach the target set in the 2019–20 budget.

During COVID Even before COVID-19, economic activity in Pakistan had slowed down to a point that the government was simply unable to collect its tax target. Post COVID19, the IMF has conceded that Pakistan will only be able to collect PKR 3.9 trillion in FY20, a shortfall of PKR 1.6 trillion. Moreover, the latest tax target of PKR 3.9 trillion means that in the last three fiscal years, i.e.

FY18, FY19 and FY20, the revenue collected by Pakistan’s FBR has remained almost identical, even as expenditure has increased by PKR 2.6 trillion. Pakistan incurred 7.5% Fiscal Deficit as a percentage of GDP in FY 2020. Moreover, factoring in the PKR 1.2 trillion stimulus package to combat the COVID-19 crisis would push the fiscal deficit

to double digits in FY20.

For FY21, the IMF has projected a tax revenue of PKR 5.1 trillion, which is PKR 1.2 trillion more than what the FBR is expected to collect in FY20. However, this target seems unachievable in an economy expected to grow by only 2%, by IMF’s own calculation.


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In conclusion, any economic review at this stage has to be a live document due to the inherent

limitations of gathering economic data during the end of a fiscal year and with the time period of

missing data in the fourth quarter so pervasively affected by an unprecedented global disruption,

the revisions are unlikely to be insignificant. The Government and international experts so far

continue to see the affects impact 2021 primarily with the growth prospects continuing to pre-

Covid estimations from 2022. However, any credibility to these forecasts highly depend upon the

developing situation of the country which has so far not peaked its Covid-19 infection rate.


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Budget overview 2020-21

The federal budget 2020-21 has been presented in the backdrop of a complex and unprecedented economic situation. The Minister of Industries and Production has reiterated in this budget that Pakistan must strive for fiscal stability, measured as stabilization of the debt-to GDP ratio, by moderating spending as a share of GDP and reducing of the overall spending. However, the budget numbers laid down by the minister seems like a

far cry from striving for economic stability, nor does it outline any significant measure to stimulate growth. The total outlay of budget 2020-21 is Rs 7,294.9 billion. This size is 11% lower than the size of budget estimates 2019-20. The government has targeted an unrealistic economic growth of 2.1% growth in FY 21 which seems to be a distant dream given the negative growth of -0.38% for FY 20 and the uncertainty surrounding the country due to the coronavirus pandemic.

To meet the expenditures, the government has not made any satisfactory commitments to

increase revenue. While it is some economic relief to introduce a Rs. 1 trillion stimulus package and the fact that no new taxes have been introduced for the upcoming year, it is also concerning how the government will be able to meet its targets. The Budget does not reflect any concrete plans made by the government to overcome or even combat the economic pressures mounting the country. Even though the government has targeted to reduce its expenditure and increase its revenue, the budget does not reflect any innovative strategies to do so.

In the incoming year, debt servicing and the defence budget comprise around 60% of the government’s expenditure. This means the government has to revisit its spending policy. In the last decade, Pakistan spent more than 2.5% of the GDP (3% in the last two years) on defence, slightly above the world average for the same period. Its spending on health as a percentage of the GDP was less than 1% for most of the same period, much below the international average of 9%.

All in all, the government failed to demonstrate a proactive and holistic policy approach, one

which would lend confidence to investors and the markets. There was no clear message on how the government would endeavor to maintain a stable economic environment without any upheavals. There were no plans on how that the national currency will be defended to protect people’s wealth and to aid long-term sustainability on development and growth, provide for the much needed fair allocations on health, education and food security in order to effectively combat

inequality and poverty. To meet the challenge of the economic downturn, the country must initiate sweeping economic, political and security reforms, which may require support from international donors and friendly countries. However, Pakistan will have to strategize the policies towards becoming self-reliant as most donor countries have to provide huge stimulus packages to kickstart their own economies,

leaving little fiscal space to assist other countries.


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Key highlights of budget FY21

The size of Public Sector Development Programme (PSDP) for 2020-21 is Rs 1,324 billion.

Out of this, Rs 676 billion has been allocated to provinces.

To provide relief to the people, there is no new tax in the 2020-21 budget.

The sales tax rate for big retailers has been decreased from 14 to 12%. The decision was taken to facilitate them because of the coronavirus outbreak.

130.55% higher allocation for Hospital Services, in response to the COVID-19 outbreak.

The government has allocated Rs. 208 billion for the Ehsaas Programme for the alleviation of poverty and helping the poor.

The funds for higher education have been earmarked at Rs. 34 billion, while Rs 180 billion

will be spent on energy, food and other sectors.

Funds worth Rs. 30 billion will be spent on the Naya Pakistan Housing Scheme which aims to build 10 million houses for the poor in Pakistan.

Rs. 40 billion have been earmarked for Pakistan Railways

Rs. 13 billion have been allocated for the federal government-run hospitals in Karachi and Lahore.

Pakistan’s Defence budget for 2020-21 is Rs 1.289 trillion (almost 12% higher than last

year’s).

The government reduced the price of petrol by Rs42 per litre and of diesel by Rs. 47 per

litre.


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Income tax 1. Simplifying the withholding tax

regime, withholding tax on following transactions is no more applicable:

(a) Collection of advance tax on

education related expenses remitted abroad;

(b) Tax on steel melters and composite units;

(c) Tax on local purchase of cooking oil or vegetable ghee by certain persons;

(d) Advance tax on functions and gatherings;

(e) Advance tax on cable operators

and other electronic media;

(f) Advance tax on dealers, commission agents and arhatis etc;

(g) Advance tax on insurance

premium;

(h) Advance tax on tobacco. 2. Bifurcation of immoveable property

into open plot and constructed property for computation of capital gains introduced last year is done away with. Limit of taxable capital gains from disposal of immoveable property is further reduced, whereby

no tax will be levied in respect of capital gain on disposal of property held for more than 4 years. The tax rates for capital gains on disposal of immoveable property have also been reduced by 50%.

3. Tonnage tax for a Pakistan resident ship owning company registered with Securities and Exchange Commission

of Pakistan after November 15, 2019 is introduced.

4. Individuals and AOPs can now opt for

taxation of income from house property after deduction of expenses irrespective of any threshold of income. Further, limit of 6% of rent to

claim expenditure including administration and collection charges

is reduced to 2%. 5. Current threshold for disallowance of

any expenditure for a transaction, paid or payable under single account head, made other than crossed cheque, bank draft or pay order or any other crossed

banking instrument is enhanced from Rs.50,000 to Rs.250,000. Further, this condition will not apply for expenditures not exceeding Rs.25,000 as compared to current limit of Rs.10,000.

6. Salary payments other than through crossed cheque or direct transfer to employee’s bank account is now allowable deduction upto Rs.25,000 as compared to current threshold of Rs.15,000.

7. Expenses on account of utility bills in

excess of certain limits and violation of conditions to be prescribed will not be allowed as deduction.

8. Any expenditure attributable to sales

made to persons required to be registered but not registered under Sales Tax Act, 1990 by an industrial

undertaking, will now be disallowed subject to certain limits.

9. Depreciation claim for first year the

asset is brought into use is restricted to 50%. The persons using an asset in deriving business income can now claim 50% tax depreciation in the year of disposal.

Highlights of Important Fiscal Proposals


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10. Threshold of Rs.2.5 million is introduced for deduction on account of lease rentals paid to prescribed institutions on account of a passenger

transport vehicle not plying for hire. 11. Tax credit limit on account of

donations to associated persons is limited to 50% of the limit for donations to non-associated persons.

12. Tax credit on account of enlistment on Pakistan Stock Exchange will now be available for only those companies opting for enlistment by June 30, 2022.

13. Additional requirement for submission of a statement of voluntary contribution and donations is introduced to claim tax credit under section 100C by non-profit organizations. Restricted Funds that are not treated as taxable surplus, will

not include amounts donated by associated persons.

14. Foreign profit on debt payable to

associates entities will not be allowed as deduction if it exceeds 15% of the taxable income before interest,

depreciation and amortization. 15. Minimum tax under section 113 will

now be applicable for a permanent establishment of a non-resident person.

16. Every person whose income is subject

to final taxation is required to file return of income instead of statement

of final taxation. 17. Prescribed persons are now required to

submit taxpayer’s profile in prescribed manner stating prescribed particulars, within prescribed time limit. Failure to timely file / update profile may attract monetary penalties as well as exclusion from Active Taxpayers’ List.

18. The Commissioner shall be required to grant the approval for revision of

return, where such revision is because of bona fide omission or misstatement in the return.

19. It is now mandatory to obtain Commissioner’s approval for the revision of the wealth statement. No such revision is allowed after the expiry of five years from the due date of filing of return of income of the concerned

tax year.

20. Return filed by the taxpayer shall be

subject to automated adjustment assessment to rectify computational errors or wrongly claimed credits, losses or deductions within six months

of filing of return of income. 21. Assessment under section 122(5) can

also be amended based on the Audit, thus, doing away with the requirement of having definite information.

22. Alternate mechanism of agreed assessment by an Oversight Committee

has been introduced to fast track the settlement of assessment proceedings with concurrence of the involved parties. No further assessment proceedings will be conducted in

respect of issues decided by the Committee.

23. Fee for the filing of appeals before the

Commissioner Appeals and Appellate Tribunal is enhanced by 5 times of

existing fee. 24. It is now mandatory for the

Commissioner (Appeals) to specify the

amount upheld in the order before serving it to the concerned taxpayer.

25. In order to file appeal before Appellate Tribunal, taxpayer is required to pay 10% of the demand upheld by the Commissioner (Appeals).

26. Revamped Alternate Dispute Resolution

Committee (ADRC) is introduced. The

taxpayer is allowed to withdraw his case from any court of law or any


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appellate authority after decision of ADRC. Furthermore, the decision of ADRC, once it is conveyed by the taxpayer to the tax authorities, the

same is binding upon the tax authorities, subject to certain conditions.

27. Recovery measures as provided under

clauses (a), (ca) and (d) of section

4B(1) of the Sales Tax Act, 1990 shall

be applicable for recovery of income tax liabilities.

28. Tax deductible from payment made to

a permanent establishment (PE) of non-resident person on account of

purchase of goods, services received and execution of contract will be minimum tax with the exception of payment received on account of sale of goods by PE being manufacturer of goods.

29. The rate of withholding tax on payment against the supply of goods under

cohesive business operation has been reduced from 2.1% to 1.4%.

30. Payment for toll manufacturing services

would be subject to withholding tax as

applicable for supply of goods under section 153.

31. Commissioner is required to issue

exemption certificate to public listed companies within 15 days of date filing

of application. Failure to issue exemption certificate will lead to automatic issuance of certificate on IRIS.

32. Turnover threshold increased from

Rs.50 million to Rs.100 million for

individual and AOP to be treated as withholding agents.

33. The minimum turnover threshold of

Rs.100 million and registration with the Board have been prescribed for qualifying as a withholding agent.

34. The Board is now empowered to make rules for expeditious processing and automatic payment of refunds through centralized processing system.

35. The Commissioner is now empowered

to gain real time electronic access to the company documents and records of the taxpayer.

36. Automated case selection system will

be introduced to bring transparency in audit selection, setting-out audit jurisdictions and assignment of tax officer to audits. Further, audit proceedings can be conducted through electronic video links and through real

time electronic access to taxpayer’s records.

37. The Commissioner is empowered to

assess default surcharge for the period of default against a person liable to pay tax, where the tax due or a part

thereof is unpaid.

38. Advance tax collection exemption is introduced for rickshaw, motorcycle-rickshaw and any other motor vehicle having engine capacity upto 200cc.

39. The Commissioner is now empowered to issue exemption certificate from collection of tax on electricity bills to a person who has discharged his advance income tax liability for the tax year.

40. Advance tax shall be collected in

installments, where the payment in respect of a sale by public auction or

auction by a tender is received in installments.

41. Tax deduction from income earned by a resident person from rental for use of machinery and equipment will now be treated as minimum tax.

42. No changes in tax rates for individuals,

AOPs and corporate sector have been

introduced.


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43. Existing tax rates for capital gains on disposal of listed securities prescribed till tax year 2020 have been extended for subsequent years.

44. Collection of advance tax at import

stage will be at the rate of 1% for capital goods, 2% for raw materials and 5.5% for finished goods irrespective of status of the importer.

Twelfth Schedule to the Ordinance is

introduced providing for the list of goods under each category.

45. Minimum tax is abolished for goods on

which tax is required to be collected at the rate of 1% or 2% at Customs

stage and are imported by an industrial undertaking for its own use. Tax collected at import stage for these goods will be adjustable.

46. Minimum tax regime is abolished for

the edible oil, packing material and

plastic raw material and ships and therefore, the tax collected at import

stage shall be considered as advance tax.

47. The definition of ‘value of goods’ for

collection of advance tax at import

stage has been amended. 48. Prescribed withholding agents are now

required to file withholding tax statement on quarterly basis instead of biannual basis, within 20 days after

end of quarter. 49. Banks are now required to furnish list

of all persons receiving profit on debt

and tax deductions thereon during preceding financial year, as compared to current threshold of profit on debt

exceeding Rs 500,000 in preceding financial year.

50. The Board is now empowered to

receive information from different agencies for tax purposes only.

51. The payer of profit on debt will deduct tax at reduced rate of 10% (instead of

15%), if recipient furnished a certificate to the payer of yield or profit certifying that the yield or profit during the tax year shall upto

Rs.500,000. 52. The rate of deduction of tax under

section 150A has been increased from 15% to 25% in case the Sukuk-holder is a company.

53. Reduced rate of withholding tax at 3% in respect of various services currently applicable for resident persons is now applicable for services rendered by permanent establishments of a non-resident.

54. Toll manufacturing is now to be

treated at par with ‘sale of goods’ for the purpose of deduction of withholding tax under section 153.

55. “Engineering services’ is excluded from

the list of specified services attracting reduced withholding tax rate of 3% in

the case of a resident person providing such services.

56. The rate of collection of tax on the sale

of property or goods by auction is

reduced from 10% to 5% of the gross sale price in case of sale of immovable property.

57. The collection of tax on extraction of

minerals at 5% of the value of

minerals, applicable for persons not appearing in the active taxpayers’ list is now extended for all persons, whether or not appearing in the active

taxpayers’ list. 58. Applicability of the enhanced rates of

withholding tax for payments to permanent establishment of a non-resident person, not appearing in the active taxpayers’ list, is restricted to sale of goods, rendering of or providing services and execution of the contracts.

59. Enhanced withholding tax rates under Tenth Schedule are now not applicable


21

in respect of payments to non-resident person for royalty, fee for technical service, insurance premium or re-insurance premium and payment to

individual in respect of profit on debt earned from a debt instrument fulfilling certain conditions.

60. Withholding of tax on withdrawal of

balance from pension fund as specified

under section 156B has been revoked.

However, the withdrawal in excess of fifty percent before the retirement age, or at the time of or after the retirement age is to be taxed as salary income at normal rate of tax or, at the option of the eligible person, at average rate of

tax. Pension fund manager is made responsible for deduction of this tax.

61. Exemption of profit and gains on

disposal of immovable property to a development REIT has been extended to cover period till June 30, 2021.

62. Income of a co-developer as defined in

Special Economic Zone Rules 2013 shall be exempt subject to the provision of required certification.

63. The benefit of exemption from tax in

respect of profit on debt relating to foreign lender or any local bank having more than 75% of shareholding of the Government or SBP for a period of 23 years under clause 126AB has been extended to Gwadar Marine Services

Limited and Gwadar Free Zone Company.

64. The benefit of exemption to Gwadar

Port is provided in clause (126A) and (126AC) for a period of twenty three years commencing from February 06,

2007 and twenty years with effect from July 01, 2016 respectively. By inserting Gwadar Free Zone, the Bill proposes to extend the tax concessions and exemptions to Gwadar Free Zone as well, which shall be deemed to have been inserted with effect from June 1,

2020.

65. Exemption from income tax to the Federal Government Employees Housing Authority has been granted for the tax year 2020 and the following

four tax years. 66. Payment of profit on debt to a non-

resident individual shall be subject to a reduced rate of 10%. The tax so deducted shall be a final tax on the

income of the non-resident derived

from profit on debt. 67. Reduced rate of 1.5% shall be deducted

on gross amount of payment received for supply to utility store corporation of Pakistan upto 30th day of September

2020 under section 153 of the Ordinance.

68. Modaraba qualifying exemption criteria,

PM COVID 19 Pandemic Relief Fund-2020 and Federal Government Employees Housing Authority shall be

exempt from provisions of minimum tax under section 113.

69. Importing specified medical supplies

and pulses are exempted from collection of advance tax under section 148.

70. Exemption granted to Ehasaas

Emergency Cash Transfer Programme from the withholding provision of advance tax on brokerage and commission payment.

71. Exemption granted to the Prime

Minister’s COVID-19 Pandemic Relief Fund-2020 from the provisions of

section 151, 231A, 231AA and 236P. 72. The exemption provided vide SRO

586(I)/91 have been incorporated in the Second Schedule.

73. The list of businesses and institutions

that are excluded from the ambit of section 148 had been extended.


22

74. Exemption granted to Hajj Operations from withholding tax provisions of payments to non-residents.

75. Exemption from collection of tax under sections 231A, 231AA and 236P in respect of foreign remittances credited to Pak Rupee Account is introduced.

76. Exemption from enhanced deduction of

tax from dividend payments to non-

resident persons, not appearing in Active Tax Payers List has been granted.

77. Exemption is provided from provisions

of section 236P to non-resident rupee

account repatriable or a foreign currency account in Pakistan.

Amendments introduced through Tax Laws (Amendment) Ordinance, 2020, now covered under the Finance Bill

78. The definition of Industrial Undertaking has been amended to include

Construction sector, which will enable the sector to avail tax benefits available to an industrial undertaking.

79. An optional ‘Fixed tax regime’ from tax

year 2020 and onwards for eligible builders and developers on a project by project basis has been introduced on the income, profits and gains derived from the sale of buildings or sale of plots, from a new or an incomplete

existing project to be completed by the 30th day of September, 2022.

80. A builder or developer opting for fixed

tax regime including profit and gains accruing from a low cost housing project shall not be allowed to

incorporate profits and gains accruing from such projects in excess of ten times of the tax paid under this regime.

81. Eligible Developers and Builders shall

be exempted from withholding taxes on purchase of building materials under

section 153, subject to certain exclusions.

82. Dividend income paid to a person by a

builder or developer, being a company out of the profits and gains derived

from a project, shall be exempt from income tax and tax withholding obligations under section 150.

83. Reduced rate of advance tax of 5% has

been introduced for sales of immovable

property through auction.

84. Any tax payable on income, profits or

gains of project of low cost housing under NAYA Pakistan Housing & Development Authority or EHSAAS programme shall be reduced by 90%.

85. Capital gains derived by resident

individual on residential property not exceeding 500 sq. yards in case of house or 4000 sq. feet in-case of flat shall be exempt subject to certain conditions.

86. No questions to be asked under section

111 of the Ordinance from the investors, regarding source of funds, making capital investment in new construction projects in the form of money or land, either as an individual,

as an association of persons or a company, subject to certain conditions.

87. First purchaser of building or unit of building shall also be immune from the provisions of section 111 where subject to fulfilment of other conditions, the payment is routed through crossed banking instrument for both new and

existing incomplete projects.

88. No questions shall be asked from the purchaser of plot for building construction where the purchase, the payment thereof and commencement of construction has been made on or before December 31, 2020 subject to construction completion by September

30, 2022 and subject to registration of such purchaser with FBR on IRIS portal.

89. Eleventh Schedule to the Income Tax Ordinance, 2001 has been introduced


23

to prescribe the mechanism for eligibility of fixed tax regime, rates of taxes, registration and certification requirements.

Sales Tax

1. Criteria of Active Taxpayers’ List

regarding filing of two consecutive

income tax withholding statements

streamlined with proposed statements

filing requirement on quarterly basis.

2. Definition of output tax is proposed to

be rectified to replace sales tax

charged on provincial services with

sales tax charged under the Islamabad

Capital Territory (Tax on Services)

Ordinance, 2001.

3. Definition of value of supply of

electricity under section 2(46)(h)

amended to include WAPDA along with

independent power producer to restore

the value of supply as per the repealed

Sales Tax Special Procedure Rules,

2007 which was restricted to the

extent of amount received on account

of energy purchase price.

4. Value of supply of used vehicles on

which sales tax has already been paid

at the time of import/manufacture has

been defined to be the difference

between the sale and purchase price.

5. Section 3(7) to be amended to include

recipient of services as withholding

agent in order to make it consistent

with the rules for withholding sales

tax.

6. The Board is to be empowered to

impose restrictions on admissibility of

input tax on wastage of material in

respect of goods or classes of goods.

7. Disallowance in respect of input tax

attributable to supplies made to

unregistered persons, the invoices of

which not bearing NIC number or NTN,

has been extended to include

services’ input tax.

8. Provision identical to Section 124A of

the Income Tax Ordinance, 2001

binding the Commissioner to follow the

decision of High Court or Tribunal in

case of question of law, has been

proposed to be introduced in sales tax

law.

9. Threshold for registered retailers

making taxable supplies to un-

registered persons, whose name,

address and NIC or NTN are to be

included in the sales tax invoice, has

been proposed to be enhanced from

Rs.50,000 to Rs.100,000.

10. Commissioner to be granted power to

conduct audit proceedings

electronically through means of video

links or any other facility as prescribed

by the Board.

11. Returns are to be ‘complete’ along

with being ‘true’ and ‘correct’.

12. Time limit for integration of business

of registered person with the Board

without penalty under clause 25 of

section 33, has been proposed to be

reduced from 6 months to 2 months.

13. Failure to provide real-time access by

the registered person to the Board for

information and databases has been

proposed to be subject to fine up to

Rs.25,000 for first default and

Rs.50,000 for each subsequent

default.

14. Officer, on behalf of the Board or the

Commissioner, will be authorized to

access real-time electronic data

belonging to any registered persons, a

person liable to be registered or


24

person whose business activities are

covered under the relevant provisions

of the Act.

15. Documentary material or evidence not

provided before the Officer Inland

Revenue is not to be taken into

consideration by the Commissioner

(Appeals) with an exception where the

appellant was prevented from

sufficient cause from producing such

material or evidence before the Officer

Inland Revenue.

16. ‘Registered manufacturer’, making

taxable supplies of value exceeding Rs.

100 million in the financial year and

value exceeding Rs. 10 million per

month, is to be substituted with

‘registered persons’ in order to restrict

input tax adjustment to every

registered person making supplies to

unregistered persons in excess of

prescribed threshold.

17. Withholding provisions currently

applicable in respect of payments

made to unregistered suppliers, now

proposed to be applicable on payments

made to registered persons not falling

in ATL.

18. The existing sales tax rate for

organized retail sector integrated

online with FBR through point of sales

system, is proposed to reduce from

14% to 12%.

19. Fixed sales tax of Potassium Chlorate

has been proposed to increase from

Rs. 70 to Rs. 80 per kg.

20. Sales tax on import of dietetic foods

for children suffering from inherent

metabolic disorder is proposed to be

exempt.

21. Exemption from value addition tax of

3% for manufacturers on import of

raw material and intermediary good

for in-house consumption, has been

proposed to be restored.

Federal Excise Duty

1. The Board is now empowered to

restrict adjustment of input FED on

materials wastages.

2. The judgment of High Court and

Appellate Tribunal deciding a question

of law in case of a registered person

will now be binding on Commissioner

by virtue of insertion of new proposed

section 14C.

3. Un-manufactured tobacco now shall

not be liable to seizure in terms of

proposed amendment in section 26(1).

Powers of custom officer have also

been enhanced to seize all dutiable

goods besides existing specified goods.

4. The Board is to keep the parameters

confidential with regard to selection of

audit through random parametric

computerized balloting.

5. Registered persons can now be

selected for audit every year instead of

once in every 3 years as per current

provisions.

6. Notices and documents which are

currently served electronically only to

public and private limited companies

will now be served to every registered

person.

7. FED on caffeinated energy drinks is to

be levied at 25% of the retail price.

8. FED on e-liquids for electric cigarette

kits is to be levied at Rs.10 per ml.


25

9. FED on filter rod for cigarettes is

proposed to be enhanced from Rs.

0.75/filter rod to Rs. 1/per filter rod.

10. FED on cigars, cheroots, cigarillos and

cigarettes of tobacco and tobacco

substitutes is proposed to be enhanced

from 65% of retail price to 100% of

retail price.

11. FED on double cabin (4x4) pick-up

vehicles is to be levied at the rate of

25% ad val. and 7.5% ad val. for

imported and locally manufactured

vehicles respectively.

12. FED on Portland cement, aluminous

cement, slag cement, super sulphate

cement and similar hydraulic cements,

whether or not colored or in the form of

clinkers is proposed to be reduced from

Rs. 2/kg to Rs. 1.75/kg in the wake of

worsening affect of COVID-19 and

reduction in production of cement.

13. As per salient features the Board is

empowered to fix minimum production

on the basis of single or more inputs

and for fixation of wastage.

The Customs Act, 1969 1. The definition of ‘Advance Ruling’ has

been revised and the applicant has been allowed to obtain a binding

‘Advance Ruling’ in respect of certain questions including classification of goods, determination of origin of goods

etc.

2. The scope of the term ‘smuggle’ has been enhanced to also include those

being concerned in any ways in transporting, keeping and concealing such goods.

3. Related penalties are proposed to be more rationalized with reference to threshold of the value of smuggled

goods.

4. Current open ended period of

detention/ confiscation of goods by the authorized officer has been proposed to

be restricted to 15 days with powers to Chief Collector and Director General to extend such period for further 15 days.

5. Currently cumulative amount of duties and taxes on a GD are not demanded

under the Customs law, now no amount

of duty or taxes shall be demanded if value of the imported goods does not exceed Rs.5,000.

6. Goods imported in new condition shall not be allowed for scrapping and

mutilation at the request of owner and are proposed to be classified and chargeable to duty and taxes as new goods.

7. The scope of fiscal fraud has been proposed to be broadened to include

declaration of value of goods by a person which is significantly higher or

lower than the actual price.

8. Customs officer to issue a notice to the importer, through Customs Computerized System in case of

reassessment of goods declaration under section 80, for providing the importer an opportunity of being heard, if so desired by the importer.

9. The time period for deciding show

cause notice by customs officer in respect of cases involving smuggling has been reduced to 30 days from current 90 days.

10. The burden of proof now also lies on

person allegedly committed offence

under Customs Act to prove that any property owned by him in his name or someone else’s name was not acquired from the proceeds of such crime.

11. The time period for deciding appeal by Appellate Tribunal has been reduced

from existing 60 to 30 days in respect of cases involving smuggling.


26

12. Residual amount from the sale

proceeds of goods sold through auction, tender etc. (other than confiscated

goods) has been restricted to the extent of declared value of goods to discourage mis-declaration of goods.

13. Legal cover has been provided to the benefits granted to the Authorized

Economic Operations (AEOs),

prescribed under the relevant rules and to fulfill Pakistan’s category-C commitment under WTO, Trade Facilitation Agreement (TFA) by inserting a new sub-section (3) under section 212A.

14. The additional customs duty of 2%

applicable on import of goods falling under tariff slab of 0% under SRO 670(I)/2019 is proposed to be exempted as per salient features.

15. Tariff has been rationalized by reducing customs duty on different tariff lines

from 11% to 3% and 0%.

16. Regulatory duty on Hot Rolled Coils (HRC) of Iron and steel is proposed to be reduced from 12.5% and 17.5% to

6% and 11% as per salient features.

17. Concessional rate or exemption on imports are being allowed to various local industries, subject to the IOCO quota determination, through the

following proposed measures: Exemption of custom duty – on

import of raw materials by

manufacturers of Butyl Acetate, syringes & saline infusion sets, buttons, beverages can

manufacturers and import of machinery, equipment and other project related items for setting up of internet cable landing stations.

Reduction of custom duty – on import of raw material by

manufacturers of

interlining/buckram, wire rod and food packaging industry.

Exemption of additional

custom duty – on import of raw materials by manufacturers of Wire rod and food packaging industry.

Exemption of regulatory duty –

on import of raw materials by

manufacturers of Wire rod and import of machinery, equipment and other project related items for setting up of internet cable landing stations

18. The exemption of custom duty, regulatory duty and additional custom duty granted on import of 61 COVID-19 related medical items by virtue of SRO 235(I)/ 2020 which is due to expire on June 20, 2020, is proposed to be extended as per salient features due to

the continuation of pandemic.

19. As per salient features 2% additional custom duty on import of edible oils and oil seeds is proposed to be exempted under Prime Minister’s COVID19 relief package.

20. The Bill seeks to exempt duties on

import of dietetic foods for children with inherited metabolic disorders, diagnostic kits for cancer & coronavirus, life saving drug Megalumine Antimonite

and Ready to use Supplementary Foods (RUSF).

21. The exemption of customs duties on

imports for setting up new industries in erstwhile FATA area which was available till year 2020 has been

proposed for extension up to 2023.

22. The scope of concessions available to Special Economic Zones has been enhanced for co-developers to avail same incentives and exemptions as available to the Developer subject to

condition that the Developer of the SEZ relinquishes its rights to the incentives


27

and exemptions in favour of the Co-developer.

23. As per salient features, reduction in

regulatory duty is proposed for the smuggling prone items to bring these items under legal imports and several industrial inputs to reduce cost of doing business.

24. To provide protection to domestic

industry, Regulatory Duty (RD) has been proposed to be increased/ levied on import of such items which are also locally manufactured.

25. Salient features indicate reduction in

rate of additional customs duty on Palm Stearin for incentivizing soap industry.

Budget 2020-21 | Highlights & Comments

28

Income Tax Ordinance, 2001

1. Integrated enterprise

[Sections 2] “Integrated enterprise” means a person integrated with the Board through approved

fiscal electronic device and software, and who fulfills obligations and requirements for

integration as may be prescribed. “IRIS” means a web based computer programme for operation and management of Inland Revenue taxes administered by the

Board. “Local Government” shall have the same meaning for respective provisions and Islamabad Capital Territory as contained in the Baluchistan Local Government Act, 2010 (V of 2010), the Khyber Pakhtunkhwa Local

Government Act, 2013 (XXVIII of 2013), the Sindh Local Government Act, 2013 (XLII of 2013), the Islamabad Capital Territory Local Government Act, 2015 (X of 2015) and the

Punjab Local Government Act, 2019 (XIII of 2019).

2. Tax on certain payments to

non-residents [Sections 6]

As per existing provision, fee for offshore

digital services is subject to tax under section 6 to the Ordinance at the rate of 15% as prescribed under the Division IV of Part I of the First Schedule. However, sub section 2 of section 6 of the Ordinance, which provides that payment is

liable to tax on the gross amount does not cover fee for offshore digital services. The Bill proposes to include fee for offshore digital services under sub-section 2. The above insertion is an editorial change as

the fee for offshore digital services is taxable on the gross amount under the Final Tax Regime as per section 8 of the Ordinance. However, at the time of insertion of “fee for offshore digital services” through the

Finance Act, 2018, necessary amendments under sub-section 2 to the Ordinance inadvertently were not made.

3. Tax on shipping of a resident

person [Sections 7A]

The Bill proposes to introduce new clause, whereby Pakistan resident shipping company registered with the Securities and Exchange Commission of Pakistan after the November 15th, 2019 and having its own sea worthy

vessel registered under Pakistan Flag shall pay tonnage tax of an amount equivalent to US 75 cent per ton of gross registered tonnage per annum. The Bill further proposes to extend the existing presumptive tax regime for resident

shipping companies from June 30, 2020 to June 30, 2023.

4. Deductions in Computing Income Chargeable Under

the head “Income from Property”

[Section 15A]

Presently, expenses incurred to the extent of 6% of rent chargeable wholly and exclusively for deriving rent are admissible as deduction against rental income. The Bill propose to reduce the limit from 6% to 2%.

We do not see any rationale for further reducing such limit, which would deprive a taxpayer for claiming a legitimate expense

incurred solely for deriving taxable income and would ultimately lead to higher tax

payable by the taxpayer. It may encourage taxpayers to underreport their taxable income on the grounds that their legitimate expenses are disallowed. Presently, income from property derived by an individual or an Association of Persons is

subject to tax at the specified slab rates and treated as a separate block of income. However, individuals or AOPs whose income


29

from property exceeds Rs 4 million per annum can opt to claim deductions under section 15A of the Ordinance and pay tax at normal rates specified in Division I of Part I

of the First Schedule. The Bill proposes to abolish such limit of Rs. 4 million and therefore an individual or AOP can now opt for claiming tax deductions and pay tax at normal rates irrespective of

amount of income derived from property.

5. Deductions not allowed

[Section 21] The threshold limit for disallowance of expenditure for a transaction, paid or payable under single account head, made other than crossed cheque, bank draft or

pay order or any other crossed banking instrument is enhanced from Rs 50,000 to Rs 250,000. Further, this condition will not apply for expenditures not exceeding Rs 25,000 as compared to current limit of Rs 10,000.

The disallowance threshold for salary payments if paid other than by a crossed bank draft or crossed pay order or any other crossed banking instrument is enhanced from Rs 10,000 to Rs 25,000.

This is long due amendment considering the inflationary trend in the country and will facilitate the industry to make routine nominal payments in cash. The Bill also proposes to insert following new clauses:

Clause (p), whereby any expenditure

of utility bill in excess of limits and in violation of condition as may be prescribed shall be disallowed.

The amendment does not prescribe any conditions under the proposed clause, therefore, it appears necessary guideline would be issued through separate notification under the Rules.

Clause (q), an expense claimed by an industrial undertaking against the sales made to the person who is required to register under Sales Tax

Act, 1990 but not registered. The expense under the said head shall be disallowed as per following formula.

(A/B) x C

where—

A is the total amount of

deductions claimed under this Part;

B is the turnover for the tax

year; and C is the total amount of sales

exclusive of sales tax and federal excise duty to persons required to be registered but not registered

under the Sales Tax Act, 1990 where sales equal or

exceed rupees one hundred million per person.

Illustrations 1 Rupees in Millions

A 1,000

B 1,500

C 500

Disallowance Limit (20% of A)

200

Disallowance as per formula

333

Hence, the total disallowance shall be Rs

200 million, as the disallowance calculated as per formula of Rs 333 million exceeds 20% of the total deductions claimed.


30

Illustrations 2 Rupees in

Millions

A 1,000

B 1,500

C 150

Disallowance Limit(20% of A)

200

Disallowance as per formula

100 Hence, the total disallowance under the section shall be Rs 100 million The disallowance shall not exceed 20% of total deductions claimed under the said

head: Thus doing business with unregistered persons would be more costly to the Companies thereby forcing Companies to make sales to registered person and to persuade their existing customers to obtain

sales tax registration. Further, the wording in the Bill suggests that 20% disallowance

limit is applicable for all the expenses covered under Part IV of Chapter III of the Income Tax Ordinance, 2001, including depreciation, amortization, profit on debt, etc. Such huge disallowance of expense

would adversely affect the business in an environment where substantial economic activity is carried on by undocumented sector. The government needs to revisit sudden introduction of harsh provisions without creating conducive atmosphere for incentivizing businesses to get registered.

Such provisions are also likely to attract agitation from the business community.

6. Depreciation [Section 22]

Under the existing provisions of law, full year’s tax depreciation is allowed as

deduction for computing taxable income, in the year of purchase, even when the asset is used for in person’s business for a single day. However, no tax depreciation is allowed in the year of disposal.

The Bill proposes to restrict the claim of depreciation to 50% in the year asset is brought to use in business, for the assets used in person’s business for the first time in

a tax year commencing on or after July 1, 2020. The remaining depreciation would be allowed over the useful life of assets and at prescribed rates. This would affect the cash flows of the investors in the first year due to increase in tax liability attributed to

restricted tax depreciation.

The Bill also proposes to allow claim of tax depreciation in the year of disposal equal to 50% of tax depreciation computed using applicable rates given in the Third Schedule.

7. Profit on debt, financial cost

and lease payments [Section

28] Under existing law, a deduction is allowed for any lease rental incurred by a person in the tax year to a scheduled bank, financial

institution, an approved modaraba, an approved leasing company or a Special Purpose Vehicle on behalf of the Originator

for an asset used by the person for the purposes of business. The Bill proposes to limit the claim of lease rentals upto Rs 2.5 million on account of a passenger transport vehicle not plying for hire.

8. Capital Gains

[Section 37 (3A) & (3B)] Through Finance Act, 2019 taxability on account of gain arising on disposal of open plot as well as constructed property was

changed depending on holding period and structure as under:

S.No. Holding period in case of

open plot

Holding period in case of constructed

property

Gain

1. Upto one year

Upto one year 100%

2. Exceeding one year

Exceeding one year and

75%


31

S.No. Holding period in case of

open plot

Holding period in case of constructed

property

Gain

and upto eight years

upto four years

3. Exceeding eight years

Exceeding four years

0%

In order to incentivize real estate sector, the Bill proposes to abolish such amendment by introducing taxability of capital gains on

disposal of all kinds of immoveable property as under:

S.No. Holding Period Taxable Capital

Gains

1 Where the holding period of an immoveable property does not exceed one year

100% gains

2 Where the holding period of an immoveable

property exceeds one year but does not exceed two years

75% of the gains

3 Where the holding period of an immoveable property exceeds two years but does not exceed three years

50% of the gains

4 Where the holding period

of an immoveable property exceeds three years but does not exceed four years

25% of

the gains

5 Where the holding period

of an immoveable property exceeds four

years

0%

The Bill also seeks to reduce the tax rates by 50% on capital gains arising on disposal of immovable property. This is in line with the Government’s vision to promote construction industry and to provide stimulus for the growth in economy as construction sector

provide employment to a number of sub-sectors.

S. No.

Amount of gain

Rate of tax

Existing Proposed

1. Where the gain does not exceed Rs.5 million

5% 2.5%

2. Where the gain exceeds Rs.5 million but does not

exceed Rs.10 million

10% 5%

3. Where the gain exceeds Rs.10 million but does not exceed Rs.15 million

15% 7.5%

4. Where the gain exceeds Rs.15 million

20% 10%

9. Charitable donations

[Section 61]

Under the existing provisions of law, a person is entitled to tax credit on account of charitable donation paid in cash or in kind. Currently such credit is allowed to the extent of lesser of:

(a) Total amount donated in the year, including fair market value of any property given; or

(b) Where the person:

(i) an individual or association of

person, 30% of the taxable income of the person the year; or

(ii) a company, 20% of the taxable

income of the person the year.

The Bill proposes to reduce the limit of credit by 50% in case of donations made to an associate as under: (a) Total amount donated in the year,

including fair market value of any property given; or


32

(b) Where the person: (i) an individual or association of person,

15% of the taxable income of the

person for the year; or (ii) a company, 10% of the taxable income

of the person for the year.

10. Tax Credit for enlistment [Section 65C]

Under existing law, tax credit is allowed for a company opting for enlistment on Pakistan Stock exchange for the year of enlistment and following three years, without stating any time limit of enlistment. The Bill proposes to restrict the time limit for enlistment on or before June 30, 2022.

11. Tax Credit for Certain

Persons [Section 100C]

The Bill propose to make following changes:

Additional condition of filing of

statement of voluntary contributions

and donations received in the immediately preceding tax year in the prescribed form and manner to claim tax credit under section 100C of the Ordinance.

Surplus funds of trusts and welfare

institutions will also be taxed. Currently Surplus funds includes funds which are not part of restricted funds. Restricted funds have been defined to mean any fund received by the organization but could not

be spent and treated revenue during the year due to any obligations placed by the donor. The Bill now proposes that such donor should not be an associate of the organization. Accordingly, any funds received from associated entities and could not be spent due to obligations placed by the

associated donor will not be treated as restricted fund and therefore will be treated as taxable surplus fund.

12. Restriction on deduction of profit on debt payable to

associated enterprise [Section 106A]

Under existing law, section 106 provides for disallowance of profit on debt for a foreign

controlled resident company (other than a

financial institution or a banking company or a branch of foreign company operating in Pakistan), where foreign debt to foreign equity ratio is in excess of three to one at any time during a tax year.

The Bill now proposes to introduce disallowance of profit on debt payable to foreign affiliates which exceeds 15% of the taxable income before interest, depreciation and amortization. It appears that such disallowance is in addition to disallowance

under section 106, however, no guidance is provided as to any adjustment of disallowance under section 106 from the disallowance under this newly introduced

section. Sub-section (4) of the Section 106A appears to cater such adjustment, however, the drafting is incomplete, which needs to be

rectified in the Finance Act. Disallowance under this section is applicable for foreign controlled resident company (as defined under section 106), but does not apply to an insurance company or a banking company. This section is not applicable

where total foreign profit on debt is less than Rs. 10 million in a tax year. This section is applicable in respect of foreign profit on debt accrued with effect from July 1, 2020 even if debts were contracted before July 1, 2020.

In case, where foreign profit on debt cannot be deducted due to this provision for a tax year, the excessive profit on debt shall be added to foreign profit on debt for following tax year and shall be treated as deduction for that following year. If there is no foreign profit on debt for following tax year, such

excessive profit on debt not claimed as deduction in previous year shall be treated as deduction for that subsequent year and so on for three tax years.


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"Foreign profit on debt” means interest paid or payable to a non-resident person or an associate of the foreign-controlled resident

company and includes- (i) interest on all forms of debt; (ii) payments made which are

economically equivalent to interest; (iii) expenses incurred in connection with

the raising of finance;

(iv) payments under profit participating loans;

(v) imputed interest on instruments such as convertible bonds and zero coupon bonds;

(vi) amounts under alternative financing

arrangements such as islamic finance; (vii) the finance cost element of finance

lease payments; (viii) capitalized interest included in the

balance sheet value of related asset, or the amortisation of capitalised interest;

(ix) amounts measured by reference to a

funding return under transfer pricing rules;

(x) where applicable, notional interest amounts under derivative instruments or hedging arrangements related to an entity's borrowings;

(xi) certain foreign exchange gains and

losses on borrowings and instruments connected with the raising of finance;

(xii) guarantee fees with respect to financing arrangements; and

(xiii) arrangement fee and similar cost related to the borrowing funds.”

13. Unexplained Income

[Section 111]

As per existing law, suppressed amount of production, sales or any amount chargeable to tax or of any item of receipt liable to tax shall be included in the person’s income

chargeable to tax under head “Income from Other Sources” to the extent it is not adequately explained. The Bill proposes to tax such amount under head of “Income from Business”. Since, such items pertain to business activities of a

person, therefore, the same should be liable to tax under head of Income from Business. Consequent to proposed amendments, the relevant expenses incurred would then be

allowable. However, the amount credited, value of the investment, money, value of the article, or amount of expenditure shall still be included in the person’s income chargeable to tax

under the head "Income from Other

Sources” to the extent it is not adequately explained.

14. Minimum tax on the income of certain persons [Section

113] Currently minimum tax under section 113 is not applicable to permanent establishment of a non-resident company. The Bill proposes to enhance the scope of section 113 to such permanent establishment to

streamline the provisions with resident persons.

15. Return of Income for Persons subject to Final Taxation

[Section 114 & 115(4)(4A)(5)(6)]

Pursuant to section 115(4), persons whose income is subject to final tax under the

Ordinance are required to submit a “Statement of Final Taxation” instead of the normal return of income. In order to streamline the return filing process, this statement is proposed to be replaced with the normal return of income to be filed

under section 114. In this regard, FBR may prescribe separate return forms for different classes of income or persons including persons subject to final taxation.

In accordance with the above amendment, all references to section 115(4) is proposed to be deleted in other sections of the Ordinance.


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16. Revision of Return [Section 114(6)] The Bill proposes that the Commissioner

shall be required to grant the approval for revision of return, where such revision is because of bona fide omission or misstatement in the return.

However, the Bill has not explained or defined what is to be treated as a bona fide omission or misstatement. This may again

generate more disputes.

17. Taxpayer’s Profile

[Section 114A] Presently, every person filing return of income is required to furnish information about their business operations including

bank accounts, utilities etc. on annual basis. In order to simplify the return filing process and avoid repetition, taxpayer is now required to submit taxpayer’s profile once,

instead of provision of information along with the return of income on annual basis.

The taxpayer’s profile shall contain prescribed information regarding bank accounts, utility connections, business operation including business type, manufacturing and storage facilities or retail outlets operated or leased business premises by the taxpayer etc. The profile is to be

submitted electronically in the prescribed format and to be accompanied by such documents and annexures as may be prescribed by the Board. The profile shall be signed by the taxpayer or his authorized representative.

This profile is required to be submitted:

latest by December 31, 2020, where

the person has obtained registration under section 181 of the Ordinance before September 30, 2020, or

in any other case, within 90 days of

registration.

Subsequently, any change in information provided in the profile shall be updated within 90 days of the change.

Furthermore, any non-compliance of the above will attract monetary penalties and will lead to non-inclusion of the taxpayer’s name in the ATL.

18. Wealth Statement [Section 116]

Presently, revision of wealth statement is allowed without a requirement to obtain approval of the Commissioner, as is otherwise required for revision of return of income. It is now proposed that such revision of wealth statement shall be contingent upon the similar approval of the

Commissioner, which shall be granted, in case of bona fide omission or misstatement. However, no such revision is allowed after the expiry of five years from the due date of filing of return of return of concerned tax year.

19. Assessments

[Section 120 (1) & (2A)] Currently, where a taxpayer has furnished a return of income, the Commissioner shall be treated to have made an assessment of taxable income and tax due thereon equal to amounts specified in the return. Further,

such return shall be taken for all purposes to be an assessment order issued by the Commissioner. In order to ensure accuracy of the returns filed by taxpayers, automated adjusted

assessment mechanism is being proposed. Under this mechanism, the return filed shall be subject to an automatic review and adjustment within six months of filing of return for rectification of any numerical errors or incorrect claims, losses, deductible allowances or tax credit, or wrongful carry

forward of losses that are apparent from the return of income. In this regard, a notice shall be issued to the taxpayer before the adjustments are effected in the return,


35

which is required to be responded within 30 days of the date of notice. Further, where no such adjustments are

made within the specified period of six months, the return filed shall be deemed to have been automatically adjusted on the day the return is filed and automatic intimation through IRIS shall be forwarded to the taxpayer.

The existing provisions as to deemed assessment order will now apply to adjusted return rather than the original return filed by the taxpayer. For the purposes of this section, the

following definition are proposed to be introduced vide Finance Bill 2021: “Arithmetical Error” includes any wrong or incorrect calculation of tax payable including any minimum or final tax payable

“An incorrect claim apparent from any information in the return" shall mean a

claim, based on an entry, in the return

i. of an item, which is inconsistent with another entry of the same or some other item in such return;

ii. regarding any tax payment which is

not verified from the collection system; or

iii. in respect of a deduction, where

such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction.

The amended provision does not cater for situations where the tax payers have to

make adjustments in the return due to inability of the online return form to cater to unique circumstances of the business of the taxpayer. Application of this automated adjustment mechanism may create problems for the tax payers unless the online return is amended to cater for all situations that a tax

payer may face in line with the provisions of law.

20. Amendment of Assessment based on Audit [Section 122]

Presently, the assessment order can only be

amended based on the definite information acquired from audit or otherwise. The Bill proposes to introduce enabling provisions in section 122 of the Ordinance, whereby

assessment under section 122(5) can also be amended based on the Audit thus doing away with the requirement of having definite

information. Apparently this amendment is to counter the plethora of decisions of the courts on the necessity of “definite information” for amending a completed assessment. Thus the Tax Officer would now be at liberty to amend an assessment without having to prove that such

amendment is being made on the basis of definite information available with him

21. Agreed assessment in certain cases [Section 122D]

The Bill proposes to introduce a new mechanism under section 122D for

settlement of assessment proceedings. A taxpayer, in response to notice under section 122(9), if intends to settle case, may file an offer of settlement before the assessment oversight committee in prescribed form, in addition to filing reply with the Commissioner. The objective of

such settlement is to conclude the assessment proceedings within a shorter time period with concurrence of both the parties. The assessment oversight committee for the

said purpose will comprise of Chief Commissioner Inland Revenue and Additional Commissioner Inland Revenue. The Committee after receiving settlement offer from taxpayer will call record and after providing necessary opportunity may decide

to accept or modify the offer of the taxpayer and communicate the same to the taxpayer. If the taxpayer is satisfied with Committee’s decision, he shall deposit the tax payable


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alongwith any penalty and default surcharge as per Committee’s decision. The Commissioner will amend the assessment as per Committee’s decision after receipt of

payment of tax demand from the taxpayer. The taxpayer will waive the right to prefer the appeal against such assessment. No further assessment proceedings will be conducted in respect of issues decided by

the Committee, unless the taxpayer fails to

deposit the tax. Where the Committee is unable to arrive at consensus or where the taxpayer is not satisfied with the Committee’s decision, the matter will be referred back to

Commissioner for decision on the basis of reply submitted by the taxpayer. This section however shall not apply in cases involving concealment of income or where interpretation of question of law is involved having effect on other cases.

22. Appeal to the Commissioner

(Appeals) [Section 127] The Bill proposes to provide opportunity to file an appeal before the Commissioner Appeals against the automated adjustment in the return of income introduced vide

section 120(2A). Further, the Bill also proposes the following revision in fee for filing of appeal before the Commissioner Appeals:

Appeal against assessment order

Existing (Rs)

Proposed

(Rs)

Company 1,000 5,000

Other than Co. 1,000 2,500

Appeal against other cases

Existing (Rs)

Proposed

(Rs)

Company 1,000 5,000

Other than Co. 200 1,000

23. Decision in appeal [Section 129] Currently, there is no specific requirement to

include the amount of tax demand upheld in the Order of the Commissioner Appeals while deciding a case. The Bill proposes to bound the Commissioner Appeals to specify the

upheld amount in his order before serving it on taxpayer or Commissioner.

24. Appeal to Appellate Tribunal

[Section 131] A new requirement is proposed in the Bill for filing of appeal before the Appellate Tribunal for challenging the order of Commissioner Appeals. Proof of payment by the taxpayer of ten percent of the amount of tax upheld

by the Commissioner Appeals is required to be submitted along with the appeal documents. Currently, no such payment requirement exists for filing of appeal before

the appellate tribunal. No appeal shall be admitted unless 10% of amount upheld by the Commissioner Appeals is deposited. The

proposed amendment is against the principle of natural justice and would create cash flow problems for the tax payers considering the illegal tax demands that are generally created through assessment proceedings and are mostly upheld at Commissioner Appeal’s level.

Further, fee for filing of appeal has also been revised from Rs 2,000 to Rs 5,000 in case of a company and Rs 2,500 in case of an individual or AOP.

25. Alternate Dispute Resolution

[Section 134A] The Bill proposes to modify the Alternate Dispute Resolution process, earlier revamped vide Finance Act, 2018 for making it further amicable for the taxpayers. The Bill proposes that in Alternate Dispute

Resolution process an aggrieved person may apply to the Board for the appointment of a


37

committee for the resolution of any hardship or dispute mentioned in detail in the application, which is under litigation in any court of law or an appellate authority. This is

not applicable in case where criminal proceedings have been initiated or where interpretation of question of law having effect on identical cases is involved having effect on other cases.

The Board, after examination of application

will appoint a committee within sixty days of receipt of application. The Bill also proposes change in the composition of the Alternate Dispute Resolution Committee (the Committee). It

will now comprise of Chief Commissioner Inland Revenue, having jurisdiction over the case and two persons from a panel notified by the Board comprising of chartered accountants, cost and management accountants, advocates, having minimum of ten years’ experience in the field of taxation

and reputable businessmen. Under the proposed Bill, the Board is also

required to communicate the appointment of the Committee to the Commissioner and court of law or the appellate authority where the dispute is pending.

The Committee will examine the issue and if it deemed necessary, will conduct inquiry, seek expert opinion, direct any officer of the Inland Revenue or any other person to conduct an audit and decide the dispute through consensus, within 120 days of its

appointment. The Committee in case of hardship, stay recovery of tax payable in respect of dispute

pending before it for a period not exceeding 120 days in aggregate or till the decision of the committee or its dissolution, whichever

is earlier. Further, the Bill also proposes a condition for making the decision of the Committee binding on the Commissioner. It requires the aggrieved person to withdraw the appeal pending before the court of law or any

appellate authority and communicates the order of withdrawal to the Commissioner

within 60 days of the service of decision of the Committee upon the aggrieved person, otherwise decision of the Committee shall not be binding on the Commissioner.

The Committee will be dissolved by the Board if it fails to decide the dispute within the period of one hundred and twenty days by an order in writing and the matter will be decided by the court of law or the appellate authority where the dispute was pending.

The Board is required to communicate the order of dissolution to the court of law or the appellate authority and the Commissioner. The aggrieved person, on receipt of the order of dissolution, shall communicate it to the court of law or the appellate authority,

where the dispute is pending. The aggrieved person may make the payment of income tax and other taxes as decided by the Committee and all decisions and orders made or passed shall stand modified to that extent. The Board will have the power to prescribe

the amount to be paid as remuneration for the services of the members of the

committee, except for Chief Commissioner Inland Revenue.

26. Recovery of tax out of property and through arrest

of taxpayer [Section 138] For facilitating FBR in recovery of outstanding taxpayers’ liabilities, the Bill proposes to include the following additional

methods in the aforesaid section as enumerated in section 48 of the Sales Tax Act, 1990:

I. deduct the amount from any money owing to person from whom such amount is recoverable and which may be

at the disposal or in the control of such officer or any officer of Income Tax, Customs or Central Excise Department.

II. require by a notice in writing any person

to stop clearance of imported goods or manufactured goods or attach bank

accounts.


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III. seal the business premises till such time the amount of tax is paid or- recovered in full.

27. Advance tax paid by the

taxpayer [Section 147] For the calculation of advance tax liability of a taxpayer, the Bill proposes that the Board

may prescribe procedure for filing and calculation of turnover for the quarter through an automated system.

28. Shifting advance tax at

import stage from person-specific rates to goods

specific [Section 148(1)]

The Bill proposes to rationalize tax on imports by shifting from person-specific rates to goods specific rates cascaded according to the type of goods. The Bill

proposes to collect advance tax at rate of 1% for capital goods, 2% for raw materials

and 5.5% for finished goods irrespective of status of the importer. Twelfth Schedule to the Ordinance is proposed to be introduced providing for the list of goods under each category.

The Bill also proposes to empower the Board to add, omit or amend any entry in the Twelfth Schedule. Through the proposed amendments,

prevailing concessional rates on certain items such as remeltable scrap of iron and steel, potassic and urea fertilizers, LNG, Gold, Cotton, goods that were importable by

manufacturers under the rescinded SRO 1125(I)/2011 dated 31.12.2011, mobile phones etc. are being maintained.

29. Shifting from minimum tax to

adjustable in case of certain goods imported by industrial

undertaking for its own use [Section 148(7)]

The Bill proposes to abolish minimum tax on goods on which tax is required to be collected at the rate of 1% or 2% and are imported by an industrial undertaking for its

own use. Advance tax collected at the rate of 1% or 2% on import of specified goods by an industrial undertaking for its own use would be adjustable.

30. Abolishment of minimum tax

regime for edible oil, packing material and plastic raw

material and ships [Section 148(8) / (8A)]

The Bill proposes to delete sub-sections (8) and (8A) of section 148 of the Ordinance, which would result in abolishment of minimum tax regime for the edible oil, packing material and plastic raw material and ships. Therefore, the tax collected at import stage would be considered as

advance tax

31. Determination of value of

goods to levy advance tax at import stage [Section

148(9)] Under the existing law, for levying of advance tax on imports, value of the imported goods is determined under

Customs Act, 1969 as if the goods were subject to ad valorem duty increased by the customs-duty, federal excise duty and sales tax, if any, payable in respect of import of the goods.

The Bill proposes to change definition of value of goods as value of goods means:

a) in case of goods chargeable to tax at

retail price under the Third Schedule of the Sales Tax Act, 1990, the retail price of such goods increased by

sales tax payable in respect of the import and taxable supply of the goods; and


39

b) in case of all other goods; the value of the goods as determined under the Custom Act, 1969 (IV of 1969), as if the goods were subject to ad

valorem duty increased by the custom-duty, federal excise duty and sales tax, if any, payable in respect of the import of the goods.

32. Abolishment of final tax on local purchase of cooking oil

or vegetable ghee by certain persons [Section 148A]

Currently, manufacturers of cooking oil or vegetable ghee or both are chargeable to tax at 2% on purchase of locally produced edible oil. Tax charged on purchase of locally produced edible oil is final tax in respect of income accruing from locally produced edible

oil. The Bill proposes to abolish final tax of 2% on purchase of locally produced edible oil.

Resultantly, the income of manufacturers of cooking oil or vegetable ghee or both would be chargeable to tax at normal tax rates.

33. Abolishment of Final Tax

Regime for advertisement services rendered by a non-

resident media person relaying from outside

Pakistan [Section 152(IAAA)]

Under the existing law, tax deducted from a payment made for advertisement services to

a non-resident media person relaying from outside Pakistan is final tax. The Bill proposes to add a new sub-section

(1BBB) under section 152 to change the final tax regime to minimum tax regime in case of payments made for advertisement services to non-resident media person. By virtue of insertion of new sub-section, the tax deductible from payment made for advertisement services to a non-resident

person shall be minimum tax on the income of non-resident person arising out of such payment.

However, it would be a challenging task to calculate net taxable income arising out of such income of non-resident media person who are relaying advertisement from outside Pakistan and have no physical and legal presence in Pakistan.

Under the Pakistan tax law, the non-resident person are subject to tax in Pakistan on only Pakistan source income. By virtue of aforesaid proposed changes in law, the non-resident person shall be required to calculate normal taxable Pakistan source income after

deduction of expenses allocated to the income derived from Pakistan.

34. Introducing parity between resident person and PE of a

non-resident person [Section 152(2B)] Under the provisions of current law, every prescribed person making a payment in full

or part including a payment by way of advance to a permanent establishment (PE) in Pakistan of a non-resident person is required to withhold tax from the payment on account of goods purchased, services received and execution of contract. Tax is deducted on the same lines as for payment

made to a resident person for purchase of goods, services received and execution of contract. Currently, tax deducted from payment to a resident person is minimum tax. Exception is

only provided where sale or supply of goods is made by a company being a manufacturer or company being listed on a registered stock exchange in Pakistan. Whereas, in case of PE of a non-resident person, tax deductible from payments made

on account of services received only is minimum tax. The Bill proposes to create parity between


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resident person and PE of a non-resident person and by virtue of proposed amendment, tax deductible from payment made to a PE of non-resident person on

account of purchase of goods, services received and execution of contract will be minimum tax. Exception has been proposed for payments received on account of sale of goods by the PE of non-resident company, being a manufacturer of such goods, which

would be liable to tax under normal tax

regime.

35. Exemption certificate

application by non-resident

person having PE in Pakistan [Section 152(4A)]

By virtue of provisions of sub-section (4A) of section 152, a non-resident person having

PE in Pakistan may apply for exemption from withholding tax from the payment subject to withholding tax under sub-section (1A) or sub-section (2A). However, currently, as

such no form has been prescribed and there are no specified procedures to file the application.

The Bill proposes to add the word “in the prescribed form” as a procedural requirement. After insertion of aforesaid word in sub-section 152(4A), the taxpayer would be required to file application in the manner as may be prescribed by the Board.

36. Withholding tax on payment

that constitutes part of an overall arrangement of a

cohesive business operation [Section 152(4B)]

Under the provisions of existing law, the Commissioner is empowered to issue an order in writing in response to an application filed in writing by a person intending to make a payment on account of cohesive business operations, to make such payment after deduction of tax at 30% of the tax

chargeable under section 152(IA) on such payment. Accordingly, tax at 2.1% [30% of

7% of tax under section 152(1A)] is required to be deducted by the payer. The credit of tax so deducted is available to the PE of the non-resident person accounting for overall

profits arising on overall cohesive business operations. The Bill proposes to reduce the rate of tax deduction from 30% to 20% of the tax chargeable under section 152(IA).

Resultantly, tax at 1.4% [20% of 7% of tax

under section 152(1A)] would be required to be deducted by the payer after obtaining order in writing from the Commissioner.

37. Exemption application for non-deduction of withholding

tax on payment to non-resident [Section 152(5)]

The proposed amendment seeks to authorize the Commissioner to ask for any particulars that may be prescribed, for issuing the exemption certificate for non-withholding of

tax while making payment to a non-resident person.

Currently, the taxpayer is required to set out following particulars in application to obtain exemption certificate from the Commissioner:

a) the name and address of the non-resident person; and

b) the nature and amount of the

payment. The proposed new clause gives indication that such particulars may be prescribed in the Rules to be included in the application for obtaining exemption certificate.

38. Withholding tax on toll

manufacturing [Section 153(1)(a)]

The Bill proposes to add the words “including

toll manufacturing” after the word “goods” in clause (a) of sub-section (1) of section 153 of the Ordinance.


41

Under the current law, payment for toll manufacturing is subject to withholding tax at the rates applicable for payments for services received under clause (b) of sub-

section (1) of section 153. By virtue of proposed amendment, payment for toll manufacturing services would be subject to withholding tax as applicable for supply of goods. This would resolve classification disputes between the taxpayers and tax

authorities. There have been litigations on

this issue and courts have issued decisions in this regard.

39. Procedure for issuance of certificate for non-deduction

of withholding tax under section 153 to Public Listed

Companies [Section 153(4)] Under current law, where tax deductible under section 153(1) is not minimum, recipient of payment may apply to the Commissioner to allow making payment

without deduction of tax or to deduct tax at reduced rate. The Commissioner is empowered to issue order in writing allowing any person to make payment without deduction of tax or deduction of tax at a reduced rate. However, there are no specified procedures for any type of

taxpayer. The Bill proposes to add new proviso to prescribe procedure for issuance of certificate for non-deduction of withholding tax under section 153 to a public company listed on registered stock exchange in

Pakistan subject to the condition that advance tax liability has been discharged.

By virtue of proposed proviso to section 153(4), the Commissioner shall issue certificate for payment for supply of goods

without deduction of tax within 15 days of filing of application to a public company listed on a registered stock exchange in Pakistan, subject to the condition that advance tax liability has been discharged. Where the Commissioner does not issue the

deduction certificate within 15 days of filing of application, the certificate shall be automatically processed and issued by IRIS. The Commissioner shall then be deemed to

have issued the exemption certificate upon the expiry of fifteen days to the applicant public listed company. The Commissioner may modify or cancel the certificate issued automatically by IRIS on

the basis of reasons to be recorded in

writing after providing an opportunity of being heard. Aforesaid amendment seems to ease the procedure for obtaining exemption and to reduce inordinate delays to issue exemption

order.

40. Withholding Agent

[section 153(7)] The Bill proposes to increase the threshold of turnover from Rs.50 million to Rs.100 million for individual and AOP to be treated as

withholding agents. This amendment has been made in line with the agreement signed between traders / business community and the Board. Currently, every person registered under the Sales Tax Act, 1990 is a withholding agent.

The Bill also proposes that only those persons who have turnover of Rs.100 million and above in any of the preceding tax years and are registered with FBR for sales tax purses shall be treated as withholding agent. This will reduce the cost associated with

withholding tax requirements for small businesses.

41. Withdrawal of withholding tax provisions on withdrawal

of balance under Pension Fund [Section 156B]

Under existing law, a Pension Fund Manager making payment from individual pension

accounts, maintained under any approved Pension Fund, is required to deduct tax at


42

average rate of ‘total tax paid to total taxable income for three proceeding tax years’ from any payment:

a) withdrawn before the retirement age b) withdrawn, if in excess of fifty per cent

(50%) of his accumulated balance at or after the retirement age.

The Bill proposes to withdraw provisions

requiring Pension Fund Manager to withhold

taxes from withdrawal of balance under Pension Fund. Resultantly, there will be no withholding tax from payment of balance under Pension Fund. The Bill, however, proposes to tax

withdrawal in excess of fifty percent before the retirement age, or at the time of or after the retirement age as salary income at normal rate of tax or, at the option of the eligible person, at average rate of tax. Pension fund manager is made responsible for deduction of this tax.

42. Exemption or lower rate

certificate [Section 159] By virtue of provisions of section 159, in response to an application in writing submitted by the person, the Commissioner is empowered to issue the person with an

exemption or lower rate certificate if income:

a) is exempt from tax; or b) is subject to tax at a rate lower; or c) is subject to hundred percent tax

credit under section 100C.

Further, on receipt of application from a

person whose income is not likely to be chargeable to tax, the Commissioner is also empowered to issue exemption certificate for the profit on debt referred to in clause (c) of

sub-section (1) of section 151. Currently, neither there is any prescribed form to file application nor there are specified procedures to file the application. The Bill proposes to add the word “in the

prescribed form” as a procedural requirement. After insertion of aforesaid word in section 159(1) and 159(1A), the taxpayer shall be required to file application

in the manner as may be prescribed the Board. The Bill proposes to insert the word “in the prescribed form” after the word “application” in section 159(2) of the Ordinance whereas

there is no such a word in section 159(2). It

seems that regulator intended to insert aforesaid words in 159(1A) and this anomaly may be removed in the Finance Bill.

43. Filing of withholding tax statement [Section 165]

Under the existing law, every person

collecting / deducting tax under provisions of the Ordinance is required to file withholding statement on biannual basis. The Bill proposes to file withholding tax statement on quarterly basis instead of

biannual basis. The deadline to file quarterly statement would be as per below: a) in respect of quarter ending on the 31st

day of March, on or before the 20th day of April;

b) in respect of quarter year ending on the

30th day of June, on or before the 20th day of July;

c) in respect of quarter ending on the 30th day of September, on or before the 20th day of October; and

d) in respect of quarter ending on or before the 31st day of December, on or

before the 20th January.

The Bills also proposes to insert new sub-section (1A) in section 165 whereby a person engaged in economic transaction as prescribed by the Board may also be

required to furnish quarterly statement in the prescribed form and manner. Aforesaid, proposed amendment empower the Board to require a specified economic sector to file the statement declaring prescribed details / information.


43

44. Furnishing of information by Banks [Section 165A]

By virtue of provisions of section 165A, amongst other information as stated therein,

the banks are required to furnish to the Board list of persons receiving profit on debt exceeding Rs 500,000 and tax deductions thereon during preceding financial year.

The Bill proposes to remove threshold of profit on debt of Rs 500,000 and resultantly,

the banks would be required to furnish a list of all persons receiving profit on debt and tax deductions thereon during preceding financial year.

45. Credit for tax collected or deducted [Section 168]

Payment to non-resident, for foreign produced commercial and capital gain arising on the disposal of debt instruments and Government securities including

treasury bills and Pakistan investment bonds invested through SCRA of non-resident person, is already subject to Final tax under

relevant sections. The Bill now proposes to insert reference of these sections under section 168 (3), applicable for transactions covered under final tax regime.

46. Refunds [Section 170] The Bill proposes to insert new sub-section (6) in section 170 whereby the Board is empowered to make rules regulating procedure for expeditious processing and

automatic payment of refunds through centralized processing system.

The Board is already processing and making payment of refunds through centralized processing systems. The Bill now proposes

to add new sub-section in section 170 for reference to rules regulating procedure for expeditious and automatic payment of refund through centralized processing system.

47. Power to enter and search premises [Section 175]

The Commissioner and any officer authorized by Commissioner is empowered

to enter, retain or search the documents, records or the premises of the taxpayer without prior notice at any time.

The proposed amendment seeks to empower the Commissioner to have real time electronic access also.

The Bill also proposes to insert new sub-section enabling the Board to make rules for real time electronic access to the information of the taxpayer for audit or survey of the persons liable to tax.

48. Real-time access to

information and databases [Section 175A]

The Bill proposes to insert new section 175A

requiring other agencies and describing procedures for such other agencies to furnish information to the Board. The Bill proposes to empower the Board to make arrangements for laying the infrastructure for real-time access to

information and database held with other agencies and aligning it with its own database in the manner as may be prescribed. By virtue of proposed section, arrangement shall be made to provide real-time access of

information and database in the prescribed form and manner by:

a) the National Database and Registration

Authority with respect to information pertaining to National Identity Card,

Pakistan Origin Card, Overseas Identity Card, Alien Registration Card, and other particulars contained in the Citizen Database;

b) the Federal Investigation Agency and the Bureau of Emigration and Overseas Employment with respect to details of


44

international entry and exit of all persons and information pertaining to work permits, employment visas and immigration visas;

c) the Islamabad Capital Territory and

provincial and local land record and development authorities with respect to record-of-rights including digitized edition of record-of-rights, periodic

record, record of mutations and report of

acquisition of rights;

d) the Islamabad Capital Territory and provincial Excise and Taxation Departments with respect to information regarding registration of vehicles,

transfer of ownership and other associated record;

e) All electricity suppliers and gas transmission and distribution companies with respect to particulars of a consumer, the units consumed and the

amount of bill charged or paid;

f) any other agency, authority, institution or organization notified by the Board

It has also been clarified that where the connection is shared or is used by a person

other than the owner, the name and CNIC of the owner and the user shall also be furnished by all electricity suppliers and gas transmission and distribution companies. Provided further that all electricity suppliers and gas transmission and distribution

companies shall make arrangements by the 1st day of January, 2021 for allowing consumers to update the ratio of sharing of a connection or the particulars of users, as

the case may be. It has also been proposed that until real-

time access to information and database is made available, such information and data shall be provided periodically in such form and manner as may be prescribed. The provisions of the proposed section ensures that all information received from

other agencies would be used only for tax purposes and kept confidential.

49. Electronic audit [Section 177(2A)]

Under the existing law, no power is vested

with the Commissioner to conduct audit proceedings electronically nor is prescribed by the Board.

The Bill proposes to empower the Commissioner to conduct audit proceedings electronically through video links or any

other facility as prescribed by the Board. The Bill also proposes to empower the Commissioner to determined taxable income on the basis of sectoral benchmark ratio to be prescribed by the Board. The Bill proposes that it would be construed that

taxable income has not been correctly declared and the Commissioner would determine taxable income on the basis of sectoral benchmark ratios to be prescribed by the Board, if a taxpayer:

a) has not furnished record or documents including books of accounts;

b) has furnished incomplete record or books of accounts; or

c) is unable provide sufficient explanation

regarding the defects in records, documents or books of accounts,

Further, the expression “sectoral benchmark ratios” has been defined to mean as standard business sector ratios notified by the Board on the basis of comparative cases

and includes financial ratios, production ratios, gross profit ratio, net profit ratio,

recovery ratio, wastage ratio and such other ratios in respect of such sectors as may be prescribed.

50. Offences and penalties

[Section 182] The Bill proposes to delete penalties pertaining to filing of statement of income subject final tax which is in consequence of


45

amendment of removing the requirement to file statement of income subject to final tax under section 115 rather a return is to be filed under section 114 by all persons

irrespective of income stream. The Bill also proposes to introduce new penalties for non-furnishing or late furnishing of taxpayer’s profile and for a person who contravenes the provisions of

section 181AA. Table providing proposed

penalties is as under:

S. No

Offence Penalty Section

4A Any person who is required to furnish or

update a taxpayer’s profile but fails to furnish or update

within the

due date.

Such a person shall pay a penalty of

Rs. 2,500 for each day of default from the due date

subject to

a minimum penalty of Rs. 10,000.

duty, whichever is higher.

114A

4B Any person

who contravenes the provisions of section 181AA.

Such a

person shall pay a penalty at the rate of Rs. 10,000 for each connection

provided

to an unregistered person.

181AA”;

51. Profile not filed within due

date [Section 182A] The Bill proposes to insert a new sub-section in section 182A prescribing procedure for exclusion of taxpayer from active taxpayer

list if he fails to update his profile and for inclusion in the list after filing his profile along with payment of surcharge.

By virtue of proposed sub-section, a person who fails to furnish or update taxpayer’s

profile within the due date or within the date as extended by the Board under section 214A, such person shall not be included in the active taxpayers’ list for the latest tax

year ending prior to the aforesaid due date or extended date.

The Bill also proposes that the taxpayer, filing the taxpayer’s profile after the due

date or extended date, shall be included in the active taxpayer list upon payment of surcharge as follows: Type of Taxpayer

Surcharge (Rs)

Company 20,000 Association of Persons 10,000 Individual 1,000

This surcharge shall be payable without

prejudice to any other liability applicable under the Ordinance.

52. Default Surcharge [Section 205]

A new sub-section is proposed to be added to grant discretionary powers to the Commissioner to assess default surcharge

for the period of default against a person liable to pay tax, where the tax due or a part thereof is unpaid. This is likely to cause hardships to the taxpayers, especially where the cases involving the due tax are pending before the appellate authorities. This would

also defeat the Government’s intentions of

easing out the assessment process and would increase the litigation cost of the taxpayers to avoid coercive recovery of the default surcharge computed under the proposed sub-section.

53. Jurisdiction of income tax

authorities [Section 209] Currently, the Board or the Chief Commissioner may by an order delegate or


46

assign to any Officer of Inland Revenue all or any of the powers and functions conferred upon or assigned to the Commissioner in respect of any persons/ classes of persons or

areas as may be specified. The Bill proposes to empower the Board to confer or assign any such powers and functions and make rules for such conferment or assignment of powers and

functions through the “Automated Case

Selection System”. The “Automated Case Selection System” has been defined as an algorithm for randomized allocation of cases via suitable technological modes.

54. Delegation [Section 210] An order issued under section 161 can be amended or further amended if the Commissioner considers the order to be

erroneous in so far as it is prejudicial to the interest of revenue. The Bill seeks to restrict the delegation of the powers by the Commissioner to a person not below the

rank of the Additional Commissioner. This proposal is at par with the delegation of

the powers for the amendment of assessment under section 122(5A).

55. Advance Tax on private motor vehicles

[Section 231B]

The Bill seeks to exempt rickshaw,

motorcycle-rickshaw and any other motor vehicle having engine capacity upto 200cc from collection of advance tax by adding an explanation. This tax is collectible at the

time of registration or transfer of registration of a motor vehicle.

56. Advance tax on electricity

Consumption [Section 235 (1) and 235 (3)]

The Bill seeks to empower the Commissioner to issue exemption certificate to a person who has discharged his advance income tax liability for the tax year. Previously, the

Commissioner could issue the certificate where the income of a person was exempt from tax.

57. Advance Tax on Steel

melters and composite units [Section 235B]

The Bill proposes to withdraw the collection

of advance tax from steel melters and

composite steel units. This tax is non-adjustable and its withdrawal would provide relief to this sector and help achieve Government the revival of construction industry.

58. Advance tax at the time of

sale by auction Section 236A]

The Bill seeks to insert an explanation to section 236A to include renewal of a license previously sold by public auction or auction by a tender in the ambit of sale by public

auction or auction by a tender. It also clarifies that where the payment in respect of a sale by public auction or auction by a tender is received in installments, advance tax shall also be collected in installments.

59. Advance tax on sale or

transfer of immoveable property [Section 236C]

A person responsible for registering, recording, or attesting transfer of immovable property is required to collect advance tax

from seller of such property. Such advance tax is not collected where the immovable

property is held for a period exceeding 5 years. The Bill proposes to reduce this time limit of 5 years to 4 years.

60. Payment to residents for use

of machinery and equipment [Section 236Q]

Income earned by a resident person from rental for use of machinery and equipment is


47

chargeable to tax under the final tax regime. The Bill proposes to treat the tax deduction under this section as minimum tax instead of final tax.

61. Collection of advance tax by

educational institutions [Section 236I]

The Bill seeks to withdraw collection of advance tax on tuition fee by educational institutions from persons appearing in the active taxpayers’ list. Henceforth, only the persons not appearing in the active taxpayers’ list shall be subject to collection

of advance by the education institutions.

62. Withdrawal of advance tax

provisions The Bill proposes to withdraw the following provisions related to collection of advance tax:

Advance Tax on Functions and gatherings

Section 236D

Advance Tax on Cable

operators and other

electronic media

Section 236F

Advance tax on dealers, commission agents and arhatis

Section 236J

Collection of advance tax

on education related expenses remitted abroad

Section

236R

Advance tax on insurance premium

Section

236U

Advance tax on tobacco

Section 236X


48

The First Schedule

Division VII (Capital gains on disposal of securities) Rate of tax on capital gains were prescribed upto the tax year 2020. The bill now proposes to extend the applicability of the rate of tax for the tax year 2020 to subsequent tax years as well.

Division VIII (Tax on Capital Gains on disposal of Immovable Property) The Bill seeks to reduce the tax rates by 50% on capital gains arising on disposal of immovable property. This is in line with the Government’s vision to promote construction industry and to provide stimulus for the growth in economy as construction sector provide employment to a number of sub-sectors.

S. No. Amount of gain Rate of tax

Existing Proposed

1. Where the gain does not exceed Rs.5 million 5% 2.5%


10% 5%


15% 7.5%

4. Where the gain exceeds Rs.15 million 20% 10%

Part II

Rates of Advance Tax The bill proposes a paradigm shift in tax regimes of imports from person-specific rates to goods-specific rates. These rates shall apply irrespective of the status of the importer. This is a welcome move and shall serve to provide level playing field to commercial importers and the manufacturers. A new schedule is also proposed to be introduced to categorize the imports into raw material, capital goods and finished goods.

S. No. Persons Rate

1. Persons importing goods classified in

Part I of the Twelfth Schedule

1% of the import value as increased by

customs-duty, sales tax and federal excise duty.

2. Persons importing goods classified in Part II of the Twelfth Schedule

2% of the import value as increased by customs-duty, sales tax and federal excise duty.

3. Persons importing goods classified in Part III of the Twelfth Schedule

5.5% of the import value as increased by customs-duty, sales tax and federal excise

duty.

Rates of advance tax on import of the following materials shall remain unchanged.


49

Advance tax collection in case of manufacturers covered under Notification No. S.R.O 1125(I)/2011 dated December 31st, 2011 as it stood on the June 28th, 2019 on import of items covered under the aforementioned S.R.O. shall remain 1%; and

Advance tax collection on import of finished pharmaceutical products that are not manufactured in Pakistan and are certified by the Drug Regulatory Authority of Pakistan shall remain 4%.

The Finance Bill also seeks to categorize and revise the rates of advance tax on value of import of mobile phone (including smart phones) on the basis of PCT Headings as under:

S. No.

C & F Value of mobile phone

(in US Dollar)

Tax (in Rs.)

In CBU condition PCT

Heading

8517.1219

In CKD/SKD condition under

PCT Heading

8517.1211

1. Up to 30 except smart phones 70 0

2. Exceeding 30 and up to 100 and smart phones up to 100

100 0

3. Exceeding 100 and up to 200 930 0

4. Exceeding 200 and up to 350 970 0

5. Exceeding 350 and up to 500 3,000 5,000

6. Exceeding 500 5,200 11,500

Part III (Deduction of tax at source) Division I (Advance Tax on Dividend) Currently, tax rate of deduction of tax on dividend under section 150 and 236S is: 7.5% in case of Independent Power Producers where such dividend is a pass through item

under an Implementation Agreement or Power Purchase Agreement or Energy Purchase Agreement and is required to be reimbursed by Central Power Purchasing Agency or its predecessor or successor entity.

15%, in all other cases.

To align the rate of tax chargeable and tax withholding, the Bill proposes to provide for tax withholding at the rate of 25% on dividend paid by a company where no tax is payable by such

company, due to exemption of income or carry forward of business losses or claim of tax credits.

There is a drafting mistake in the bill as it does not cater for exclusion of the new proposed category from the general category of all other companies that are liable to tax withholding at 15%.

Division IA (Profit on Debt) General rate of advance tax withholding on yield or profit on debt is 15%. However, this rate is reduced to 10%, where the yield or profit is upto five hundred thousand rupees.


50

The Bill seeks to ask the taxpayer to furnish a certificate to the payer of yield or profit certifying that the yield or profit during the tax year shall be five hundred thousand rupees or less. Thus the payer shall be bound to withhold tax at reduced rate only if such certificate is provided by the recipient of profit on debt.

Division IB (Return on Investment in Sukuks) The Bill proposes to increase the rate of deduction of tax under section 150A from 15% to 25% in case the Sukuk-holder is a company.

Division II (Payments to non-residents)

To provide a level playing field to permanent establishments of non-residents and promote ease of doing business, as in case of some other sectors, the Bill proposes to provide for the reduced rate of withholding tax at 3% in respect of various services rendered by permanent establishments of non-residents. These services are:

transport services; freight forwarding services;

air cargo services; courier services; manpower outsourcing services; hotel services; security guard services; software development services;

IT services and IT enabled services as defined in clause (133) of Part I of the Second Schedule;

tracking services; advertising services (other than by

print or electronic media); share registrar services; car rental services; building maintenance services; services rendered by Pakistan Stock

Exchange Limited and Pakistan

Mercantile Exchange Limited; inspection and certification; and testing and training services.

In case of resident persons, aforesaid services are currently liable to tax withholding at 3%. Consequent to this amendment taxation of resident and non-resident person having a permanent establishment in Pakistan shall be at par.

Division III (Payments for Goods and Services) The Bill seeks to treat ‘toll manufacturing’ at par with ‘sale of goods’ for the purpose of deduction of withholding tax under section 153. This is a welcome move and would lay to rest the

classification controversy between the taxpayers and tax collectors for the purpose of withholding tax.

The Bill proposes to exclude ‘engineering services’ from the list of specified services attracting withholding tax at the rate of 3% in the case of a resident person providing such services.

Part IV (Deduction or Collection of Advance)

Division VIII (Advance tax at the time of sale by auction) The rate of collection of tax on the sale of property or goods by auction is 10% of the gross sale price. This rate is now proposed at 5% of the gross sale price in case of sale of immovable property.


51

Various Advance taxes proposed to be excluded

To simplify the withholding tax regime and reducing the cost of compliance with the withholding tax provisions, the Bill proposes to withdraw the following advance tax provisions:

Advance tax on functions and gatherings, Advance tax on cable operators and other electronic media, Advance tax on dealers, commission agents and arhatis etc., Advance tax on education related expenses remitted abroad,

Advance tax on insurance premium,

Advance tax on Tobacco.

Division XXVI (Advance tax on extraction of minerals)

The rate of collection of tax on extraction of minerals is 5% of the value of minerals for persons who are not appearing in the active taxpayers’ list. The Bill proposes to collect this tax from all persons whether or not appearing in the active taxpayers’ list.


52

Second Schedule Part I

Withdrawal of accumulated balance before retirement [Clause 23A]

Withdrawal from the voluntary pension system offered by a fund manager under the Voluntary Pension Rules, 2005 at the time of eligible person’s retirement, disability rendering him unable to work or death is exempt from tax upto 50% of the accumulated balance. The Bill proposes to tax the withdrawal of funds, in excess of fifty percent before the retirement age, or at the time of or

after the retirement age, as salary income at normal rate of tax or, at the option of the eligible person, at average rate of tax. Pension fund manager is made responsible for deduction of this tax. New non-profit charitable institutions included [Clause 61]

In order to encourage people and organizations paying charity to documented non-profit institution, the Bill proposes to include the following organizations within the scope of exemptions:

(i) The Prime Minister’s COVID-19 Pandemic Relief Fund-2020

(ii) Ghulam Ishaq Khan Institute of Engineering Sciences and Technology (GIKI)

(iii) Lahore University of Management Sciences (iv) Dawat-e-Hadiya, Karachi (v) Baitussalam Welfare Trust (vi) Patients’ Aid Foundation (vii) Alkhidmat Foundation

Donations paid to these organizations would now be available for deduction from taxable income of the payer.

The Bill proposes to limit the donations made by associates at 15% of the taxable income, in case of an individual or an association of persons and 10% of taxable income, in case of a company. These limits of 15% and 10% are 50% of the limits provided if the donor and the donee were not associates. The Bill also proposes to donate through a crossed cheque drawn on a bank to qualify for

deduction from taxable income. Non-profit charitable institutions included [Clause 66] The Bill seeks to substitute Clause (66). Entities listed in the existing clause and the ones

proposed for insertion in clause (61) above have been bifurcated into two tables, Table 1 and Table 2. Whilst Entities in Table 1 remain exempt from tax without any condition, exemption to other set of entities is made conditional on fulfilling the conditions laid down under section 100C.


53

TABLE 1

S. No. Name

(i) International Islamic Trade Finance Corporation.

(ii) Islamic Corporation for Development of Private Sector.

(iii) National Memorial Bab-e-Pakistan Trust.

(iv) Pakistan Agricultural Research Council.

(v) The corporatized entities of Pakistan Water and Power Development Authority from the

date of their creation upto the date of completion of the process of corporatization i.e. till the tariff is notified.

(vi) The Prime Minister’s Special Fund for victims of terrorism.

(vii) Chief Minister’s (Punjab) Relief Fund for Internally Displaced Persons

(IDPs) of NWFP.

(viii) The Institutions of the Agha Khan Development Network (Pakistan) as contained in

Schedule 1 of the Accord and Protocol, dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and the Agha Khan Development Network.

(ix) Pakistan Council of Scientific and Industrial Research.

(x) The Pakistan Water and Power Development Authority established under the Pakistan

Water and Power Development Authority Act, 1958 (W. P. Act XXXI of 1958).

(xi) WAPDA First Sukuk Company Limited.

(xii) Pension of a former President of Pakistan and his widow.

(xiii) State Bank of Pakistan and State Bank of Pakistan Banking Services Corporation.

(xiv) International Finance Corporation established under the International Finance

Corporation Act, 1956 (XXVIII of 1956) and provided in section 9 of Article VI of Articles of Agreement 1955 as amended through April 1993.

(xv) Pakistan Domestic Sukuk Company Ltd.

(xvi) ECO Trade and Development Bank.

(xvii) The Islamic Chamber of Commerce and Industry under the Organization of Islamic Conference (OIC).

(xviii) Commission on Science and Technology for Sustainable Development in the South (COMSATS) formed under International Agreement signed on 5th October, 1994.

(xix) WAPDA on issuance of twenty billion rupees TFC’s/SUKUK certificates for consideration of DiamerBhasha Dam Projects.

(xx) Federal Board of Revenue Foundation.

(xxi) WAPDA Second Sukuk Company Limited.

(xxii) Pakistan International Sukuk Company Limited.

(xxiii) Second Pakistan International Sukuk Company Limited.

(xxiv) Third Pakistan International Sukuk Company Limited.

(xxv) Asian Infrastructure Investment Bank and persons as provided in Article 51 of Chapter

IX of the Articles of Agreement signed and ratified by Pakistan and entered into force on the 25th December, 2015.

(xxvi) Supreme Court of Pakistan – DiamerBhasha & Mohmand Dams – Fund.

(xxvii) National Disaster Risk Management Fund.

(xxviii) Deposit Protection Corporation established under sub-section (l) of section 3 of Deposit

Protection Corporation Act, 2016 (XXXVII of 2016).

(xxix) SAARC Energy Centre.


54

S. No. Name

(xxx) The Asian Development Bank established under the Asian

Development Bank Ordinance, 1971 (IX of 1971).

(xxxi) The Prime Minister’s COVID-19 Pandemic Relief Fund-2020.

(xxxii) Saarc Arbitration Council (SARCO).

(xxxiii) International Parliamentarians’ Congress.

TABLE 2

S. No. Name

(i) Abdul Sattar Edhi Foundation.

(ii) Al-Shifa Trust.

(iii) Bilquis Edhi Foundation.

(iv) Fatimid Foundation.

(v) Pakistan Engineering Council.

(vi) The Institution of Engineers.

(vii) Liaquat National Hospital Association.

(viii) The Citizens Foundation.

(ix) Sindh Institute of Urology and Transplantation, SIUT Trust and Society for the Welfare

of SIUT.

(x) Greenstar Social Marketing Pakistan (Guarantee) Limited.

(xi) Indus Hospital, Karachi.

(xii) Gulab Devi Chest Hospital.

(xiii) Pakistan Poverty Alleviation Fund.

(xiv) National Academy of Performing Arts.

(xv) Pakistan Sweet Homes Angels and Fairies Place.

(xvi) National Rural Support Programme.

(xvii) Pakistan Bar Council.

(xviii) Pakistan Centre for Philanthropy.

(xix) Pakistan Mortgage Refinance Company Limited.

(xx) Aziz Tabba Foundation.

(xxi) Shaukat Khanum Memorial Trust.

(xxii) Layton Rahmatullah Benevolent Trust (LRBT).

(xxiii) The Kidney Centre Post Graduate Training Institute.

(xxiv) Pakistan Disabled Foundation.

(xxv) Forman Christian College.

(xxvi) Habib University Foundation.

(xxvii) Begum AkhtarRukhsana Memorial Trust Hospital.

(xxviii) Al- Khidmat Foundation.

(xxix) Dawat-e-Islami Trust.

(xxx) Sardar Trust Eye Hospital, Lahore.

(xxxi) Akhuwat.

(xxxii) Audit Oversight Board.


55

S. No. Name

(xxxiii) Patient’s Aid Foundation.

(xxxiv) Al-Shifa Trust Eye Hospital.

(xxxv) Saylani Welfare International Trust.

(xxxvi) SARMAYA-E-PAKISTAN LIMITED.

(xxxvii) Lahore University of Management Sciences, Lahore.

(xxxviii) Dawat-e-Hadiya, Karachi.

(xxxix) Ghulam Ishaq Khan Institute of Engineering Sciences and Technology.

(xl) Society for the Promotion of Engineering Sciences and Technology in Pakistan

(SOPREST).

(xli) Businessmen Hospital Trust.

(xlii) Baitussalam Welfare Trust.

Profit and gains on sale of immovable property to a Developmental REIT Scheme Clause [99A]

The Bill seeks to extend exemption of profit and gains on sale of immovable property to a Developmental REIT scheme from June 30, 2020 to June 30, 2021.

Tax concessions and exemptions to

Gwadar Port and Gwadar Free Zone Clauses [126A, 126AC] The benefit of exemption to Gwadar Port has been provided in clause (126A) and (126AC) for a period of twenty three years commencing from February 06, 2007 and

twenty years with effect from July 01, 2016 respectively. By inserting Gwadar Free Zone, the Bill proposes to extend the tax concessions and exemptions to Gwadar Free Zone as well, which shall be deemed to have been inserted with effect from June 1, 2020.

Tax concessions and exemptions to Profit

on Debt Clauses [126AB] The benefit of exemption from tax in respect of profit on debt is provided to a foreign

lender or any local bank having more than 75 per cent of the shareholding of the Government of the State Bank of Pakistan for a period of twenty three years

commencing from July 01, 2016 under a financing arrangement with China Oversees Ports Holding Company Limited. The Bill seeks to include China Overseas Ports

Holding Company Pakistan (Private) Limited, Gwadar International Terminal Limited, Gwadar Marine Services Limited and Gwadar Free Zone Company Limited in the list of the financing agreement companies. This amendment shall be deemed to have been

inserted with effect from June 1, 2020.

Tax concessions and exemptions to Co-Developers of Special Economic Zone (SEZ) Clauses [126E] The Bill proposes to extend the tax exemption

to a Co-Developer as defined in the Special Economic Zone Rule 2013 subject to the condition that a certificate has been furnished: - By the developer that he has not claimed

any exemption under this clause and has

relinquished his claim in favor of the co-developer and

- By the Special Economic Zone Authority validating that the developer has not claimed exemption under this clause and has relinquished claim in favor of the co-developer.

Tax concessions and exemptions to Federal Government Employees Housing Authority Clauses [147]


56

The Bill proposes to allow exemption from income tax to the Federal Government Employees Housing Authority for the tax year 2020 and the following four tax years.

Part II

Reduction in tax rate to non-resident

individual on account of Profit on debt to non-resident individual

[Clauses 5AA] The bill proposes to introduce reduced rate of withholding tax of 10% under sub-section (2) of section 152, in respect of payments to an

individual, on account of profit on debt earned from a debt instrument, whether conventional or shariah compliant, issued by the Federal Government under the Public Debt Act, 1944 and purchased exclusively through a bank account maintained abroad, a non-resident

Rupee account repatriable (NRAR) or a foreign currency account maintained with a banking company in Pakistan. The tax so deducted shall be a final tax on the income of the non-resident individual derived from profit on debt.

Incorporation of Relief measures

provided through SROs during the COVID pandemic [Clauses 24CA]

The new insertion is introduced for tax deduction under section 153 at reduced rate of 1.5% of the gross amount of payment received for supply utility store corporation of Pakistan upto 30th day of September, 2020.

Part IV

Non-Applicability of 153(1)(a) to steel melters and composite steel units as

payers

[Clauses 9A]

The Bill seeks to omit this clause in line with the deletion of Section 235B.

Additional Institutions absolved from application of Section 113 [Clause 11A]

This clause contains the list of businesses and institutions that are absolved from the application of minimum tax provisions of

section 113. The bill seeks to include the following in this list.

- A modaraba qualifying for exemption under clause (100) of Part I of the Second Schedule.

- The Prime Minister’s COVID-19 Pandemic Relief Fund-2020.

- The Federal Government Employees

Housing Authority for the tax year 2020 and the following four tax years.

A Modaraba registered under the Modaraba Companies Ordinance and Modaraba (Floatation and Control) Ordinance, 1980 is

excluded from this list.

Incorporation of Relief measures

provided through SROs during the COVID pandemic [Clauses 12B, 12C, 102A, 116, 117]

Through the insertion of above mentioned clauses, the Bill seeks to incorporate relief measure provided during COVID pandemic. Following measures were incorporated

through these insertions:

- Importing specified medical supplies and pulses exempted from collection of advance tax under section 148.

- Exemption to Ehasaas Emergency Cash Transfer Programme from the withholding provision of advance tax on brokerage and commission payment.

- Exempting the Prime Minister’s COVID-19 Pandemic Relief Fund-2020 from the

provisions of section 151, 231A, 231AA and 236P.

Transactions and institutions absolved from application of Section 153 [Clause 46A]

The Bill proposes to incorporate the tax exemptions provided in SRO 586(I)/91 dated June 30, 1991, into the main law. A new

clause is proposed to be introduced providing exemption from deduction of tax under section 153 to the following:

- Provincial Government; - a local authority;


57

- persons who are residents of Azad Kashmir and execute contracts in Azad Kashmir only and produce a certificate to this effect from the concerned income tax

authority; - persons receiving payments from a

company or an association of persons having turnover of fifty million rupees or more or from an individual having turnover of fifty million rupees or more

exclusively for the supply of agriculture

produce including fresh milk, fish by any person engaged in fish farming, live chicken, birds and eggs by any person engaged in poultry farming and by an industrial undertaking engaged in poultry

- processing which has not been subjected

to any process other than that which is ordinarily performed to render such produce fit to be taken to market;

- companies receiving payments for the supply of electricity and gas;

- companies receiving payments for the supply of crude oil;

- hotels and restaurants receiving payments in cash for providing

accommodation or food or both, as the case may be; and

- shipping companies and air carriers receiving payments for the supply of passenger tickets and for the cargo

charges of goods transported. Additional Institutions Absolved from

application Section 148 [Clause 56]

This clause contains the list of businesses and institutions that are exempted from the application of section 148 (withholding of

income tax at import stage). The bill seeks to extend the list of such institutions by

including the following institutions:

- the Federal Government - a Provincial Government - a Local Government - a foreign company and its associations

whose majority share capital is held by a

foreign government - a person who imports plant and

machinery for execution of a contract with the Federal Government or a provincial

government or a local government and produces a certificate from that government

- companies importing high speed diesel

oil, light diesel oil, high octane blending component or kerosene oil, crude oil for refining and chemical used in refining thereof in respect of such imports

- Petroleum (E&P) companies covered under the Customs and Sales Tax

Notification No. S.R.O.678 (I)/2004,

dated the 7th August, 2004, except motor vehicles imported by such companies.

Corrective measure [Clause 56C, 56D, 56E, 56G & 63]

Through Finance Act, 2019, final tax regime was replaced with the minimum tax regime. The Bill proposes to make corrective measure by deleting the options previously available to the taxpayers for final tax regime.

Hajj Operators absolved from Section 152 [Clause 72AA]

The Bill seeks to introduce a new clause to

provide exemption to Hajj Operators from withholding tax provisions on payments to non-residents.

Withdrawal of exemption for Import [Clause 72B]

The Bill seeks to omit clause (72B) for issuance of exemption certificate for import of good. This is a consequential change to curb import and stimuli local manufacturing of raw material and other goods.

Exemption to foreign remittance [Clause 101A]

The Bill seeks to add a new clause to provide

exemption from collection of tax under section 231A, 231AA and 236P to for Pak Rupee Account in a tax year to the extent of foreign remittances credited into such account. This is to promote foreign remittance through banking channels and curb non-banking

means of inward foreign remittances. Non-resident payment of dividend absolved from Active Taxpayer [Clause 111A]


58

The Bill seeks to add a new clause to provide exemption from deduction of tax at enhanced rate on dividend payment to non-resident persons not appearing in the active taxpayers’

list. This will provide a relief to the foreign companies paying dividend to their parent companies.

Non-resident individual absolved from advance tax on banking transactions

[Clause 112A]

The Bill seeks to add a new clause exempting a non resident individual, investing in debt instrument, conventional or Shariah compliant through non-resident rupee account

repatriable (NRAR) or a foreign currency account in Pakistan, from provisions of section 236P, requiring collection of advance tax at 0.6% where the name of the person is not appearing on Active Tax Payers List.

Incentive to Non-resident Individual [Clause 114A]

This clause seeks to exempt a non-resident individual from the application of newly

inserted clause (ae) of sub-section 114 and section 181 requiring filing of return and levy of penalty for non-filing of the return, where the only source of income was from profit on debt earned from a debt instrument whether conventional or Shariah compliant and purchased exclusively from a bank account

maintained abroad, non-resident rupee account repatriable (NRAR) or a foreign currency account in Pakistan. This is to provide relief to non-resident individual from penalty provision and filing of return only being receiving profit on debt from banking company.

The Seventh

Schedule

Rules for the Computation of the Profits and Gains of a Banking

Company and Tax Payable thereon

Section 4B was inserted vide the Finance

Act, 2015 to provide for imposition of super

tax for rehabilitation of temporarily

displaced persons. Division IIA of Part of

First Schedule prescribed the rate of super

tax for banking companies for the tax year

2021. On the other hand, Rule 7C of

Seventh Schedule provided for imposition

of super tax upto the tax year 2020. In

order to remove this anomaly, Rule 7C of

the Seventh Schedule is proposed to be

amended to protect imposition of super tax

upto tax year 2021.

The Tenth

Schedule

Rules relating to persons not appearing in the Active

Taxpayers’ List

Pursuant to doing away with filing of the statement of final taxation under section 115(4), reference to that statement in the schedule is proposed to be removed.

The bill proposes to restrict the applicability of

the enhanced rates of withholding tax for payments to permanent establishment of a non-resident persons, not appearing in the active taxpayers’ list, to sale of goods, rendering of or providing services and execution of the contracts.

The bill also proposes to exclude the payments to non-resident person on the account of royalty payment, fee for technical

service, insurance premium or re-insurance

premium and payment to Individual in respect of profit on debt earned from a debt instrument, whether conventional or Shariah compliant, issued by the Federal Government under the Public Debt Act, 1944 and

purchased exclusively through a bank account maintained abroad, a non-resident Rupee account repatriable (NRAR) or a foreign currency account maintained with a banking company in Pakistan from enhanced rate of withholding tax under this Schedule.


59

Sales Tax Act, 1990

1. Active Taxpayer

[Section 2(1)(a)&(d)]

An editorial change has been proposed in the definition of Active Taxpayer by

removing the term ‘blocked’ status of registration as no such concept exists under the law.

In line with the newly proposed requirement of filing quarterly income tax withholding statements through

the Bill as against the existing requirement of filing bi-annual statement under section 165 of the Income Tax Ordinance, 2001, the Bill proposes to amend the ATL criteria connected with filing of income tax withholding statements by replacing

the existing condition therein for filing “two consecutive monthly statements” to “two consecutive quarterly statements”. This would also address the existing inconsistency which arose due to non- existence of corresponding

amendment in the definition of ATL when the income tax withholding statement filing requirement was changed from monthly to biannually in 2019.

2. Output Tax [Section 2(20)(c)]

At present, the scope of output tax as per clause (c) of section 20(2) erroneously includes sales taxes levied on services rendered or provided by a

person at every Provincial jurisdiction which is the sole domain of the

respective provincial revenue authorities. The Bill has proposed to rectify this flaw in the scope of output tax by substituting the aforesaid

clause (c) to restrict the output tax on services to the extent of sales tax levied on services under Islamabad Capital Territory (Tax on Services) Ordinance, 2001.

3. Value of Supply [Section 2(46)(h)&(j)]

Reduction in base amount of

electricity charges for levy of sales

tax by WAPDA – clause (h)

Through Finance Act, 2019, the

definition of term ‘value of supply’ was

amended to make said definition in line with Sales Tax Special Procedure Rules, 2007. As per amended clause (h) of the said definition , the value of supply in case of supply of electricity by an independent power producer

was restricted to the extent of amount received on account of energy purchase price only and the amount received on account of capacity purchase price, energy purchase price premium etc. was excluded from the value of supply for sale tax purposes.

WAPDA was previously omitted from inclusion in said definition, accordingly,

the Bill proposes to extend the scope of power producer companies for the purpose of this clause to include therein Water & Power Development Authority (WAPDA). This amended has

been proposed to take effect retrospectively from July 01, 2019.

Value of supply of used Vehicles –

clause (j)

The Bill also proposes to introduce a new clause (j) whereby the value of supply of used vehicles, purchased by a registered person from the general public is to be the

difference between sale and purchase price of the said vehicle where:

sales tax had already been paid at the time of import or manufacturing of such vehicle; and

such registered person sales such

vehicle in the open market after making

further value addition.


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4. Withholding of Sales Tax [Section 3(7)]

The Bill proposes to amend Section 3(7) by extending the scope of person responsible to withhold sales tax to include therein both purchaser of goods or recipient of services. This proposition is being made in line with the Rule 150ZZH of the Sales Tax Rules

regarding withholding sales tax, introduced

last year whereby the scope of withholding rules was extended to apply on such services which are subject to levy of Federal Excise Duty or ICT service tax.

5. Determination of tax liability [Section 7]

At present, registered person is entitled to adjust input tax from the output tax subject to certain conditions, limitations or/and restrictions as may be specified by the relevant authority. The Bill now seeks to empower the Board to impose restrictions on

admissibility of input tax on wastage of material in respect of goods or classes of goods, as may be notified by the Board. Such restriction would adversely impact the registered person as the input tax, on wastage of materials restricted by the Board,

or exceeds the wastage limit prescribed by the Board, may no longer be available for adjustment.

6. Tax Credit Not Allowed [Section 8] By virtue of insertion of new clause (m) in

section 8 through Finance Act, 2019, if the invoice does not bear the NIC number or NTN, the input tax on goods is not claimable against the supplies attributable to un-registered persons, on pro-rata basis. The Bill has now proposed to extend such disallowance in respect of input related to

service as well.

7. Power to Tax Authorities to Modify Orders, etc.

[Section 11C] Unlike section 124A of the Income Tax Ordinance, 2001, currently there is no parallel law available in the sales tax law whereby the judgments of a High Court or Appellate Tribunal deciding a question of law

in case of taxpayer, are binding on the

Commissioner. The Bill now proposes to introduce a new section 11C in the Sales Tax Act, 1990, identical to section 124A of the Income tax Ordinance, 2001 whereby, in case of a

registered person, if a question of law has been decided by a High Court or the Appellate Tribunal on or after July 1, 1990, the Commissioner or an officer of Inland Revenue may follow the said decision in the case of the said taxpayer so far as it applies to an identical question arising in any case

pending before him until the decision of the High Court or of the Appellate Tribunal is

reversed or modified subsequently. This proposition has been introduced notwithstanding that the Commissioner or the officer of Inland Revenue has preferred to file an appeal against the decision of the

High Court or made an application for reference against the order of the Appellate Tribunal, as the case may be. The Bill has further proposed that in case the decision of High Court or the Appellate

Tribunal is reversed or modified, the Commissioner or officer of Inland Revenue may give effect of the order reversed within a period of one year from the date of receipt

of decision, notwithstanding the expiry period of limitation of 5 years, as prescribed under section 11(5) of the Act, for making

any assessment or order.

8. Tax Invoices [Section 23]

Pursuant to amendment introduced vide Finance Act, 2019, registered retailers making taxable supplies of Rs.50,000 or more to un-registered person are required to include name, address and NIC or NTN, as


61

the case may be in the sales tax invoice. The Bill has proposed to enhance this threshold from Rs.50,000 to Rs.100,000.

9. Access to Records, Documents, etc.

[Section 25]

As a step towards use of technology in

conducting proceedings and considering the current circumstances of COVID-19, the Bill has proposed to introduce a new subsection in Section 25 whereby the Commissioner has been empowered to conduct audit proceedings electronically through means of

video links or any other facility as prescribed by the Board.

10. Returns [Section 26(1)]

Presently, returns that are to be furnished within the stipulated time are to be true and correct in the prescribed form in accordance with section 26 of the Sales Tax Act. The Bill

has proposed to also associate the term ‘complete’ with return in order to highlight

that the return are not only to be true and correct but should also present complete information to the Board.

11. Penalties [Section 33]

The Bill has proposed two changes in the

penalty section which are as follows, namely:

Non-integration of business with FBR – (S. No. 25)

As per serial number 25 inserted vide Tax Laws (Second Amendment) Ordinance, 2019, a registered person would be liable to

pay penalty up to Rs. 1,000,000 if he fails to integrate his business for monitoring, tracking, reporting or recording of sales,

production and similar business transactions with the Board or its computerized system. After imposition of such penalty the Board has the power to seal the business premises of such person after a period of 6 months if the said person continues to be non-compliant with placing embargo on his sales.

The Bill has proposed to shrink the aforesaid limit from 6 months to 2 months with the business to remain sealed till the time he integrates his business with the Board.

However, the condition of placing an embargo on the sales has been proposed to be withdrawn.

12. Authorized Officers to have

Access to Premises, Accounts and Records

[Section 38]

With the introduction of section 56AB, the

Bill has proposed to authorize any officer on behalf of the Board or the Commissioner to also have real-time electronic access belonging to any registered persons, a person liable to be registered or a person whose business activities are covered under

the relevant provisions of the Act. For this purpose, the Bill has also proposed to empower the Board to make rules relating to electronic real-time access for audit or

survey of persons liable to tax.

13. Appeals [Section 45B] The Bill has proposed to introduce the

following provisions regarding filing of appeals and its related matters:

Sub-section (1A) has been proposed to

be inserted whereby the form, manner, statement of grounds, prescribed fees and to whom the

aforesaid information is to be lodged with, as the such information is not presently described in section 45B;

The prescribed fee mentioned in sub-

section (1A), has been proposed to be enhanced from existing Rs. 1,000 to

following amounts;

Appellant Assessment Other than Assessment

Company 5,000 5,000

Other than

Company

2,500 1,000


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A new sub-section (5) has been proposed to be inserted whereby the Commissioner (Appeals) would be restricted from accepting any

documentary material or evidence which were not produced previously by the appellant before the Officer Inland Revenue. The Commissioner (Appeals) shall only accept such material or evidence if he is satisfied that the

appellant was prevented by sufficient

cause from producing such material or evidence before the Officer Inland Revenue.

14. Representatives [Section 58A]

By virtue of sub-section (3) of Section 58A,

a representative of a non-resident person shall be any person in Pakistan for a tax year for the purposes of fulfilling the requisite duties and obligations on behalf of such non-resident person. The Bill seeks to amend the said sub-section by stating that

such persons are to be the representative of the non-resident person for the financial year in which the relevant tax period falls. The Bill has further proposed to introduce the explanation of the non-resident person whereby, for the purpose of the aforesaid

sub-section, the term non-resident person shall have the same meaning as the one defined under Income Tax Ordinance, 2001.

15. Certain Transactions not

Admissible [Section 73] By virtue of sub-section (4) introduced vide Tax Laws (Second Amendment) Ordinance,

2019, if a registered manufacturer makes taxable supplies to an un-registered person of the values exceeding the below

thresholds, the registered manufacturer shall not be entitle to claim attributable input tax adjustment against its output tax: Value exceeding Rs. 100 million in a

financial year; and

Value exceeding Rs. 10 million in a month.

The Bill has proposed to broaden the scope of applicability of the above condition of monetary threshold by substituting the word

‘manufacturer’ from ‘person’ consequent to which the above inadmissibility of input tax will be applicable on every person registered person under the Act.

Fifth Schedule (Zero rated goods) The Bill has proposed zero rating of sales tax on of the following entries which had already been made part of the Schedule through the Tax Laws (Amendment) Ordinance 2019 dated October 09, 2019. The amendments are to be retained through the Bill and applicable with effect from June 01, 2020:

Sr. No. Description

13. Supplies of raw materials, components and goods for further manufacture of goods in the Gwadar Free Zone and export thereof, provided that in case of supply to tariff area of Pakistan, tax shall be charged on the value assessed on the Goods Declaration for import

14. Supplies of locally manufactured plant and machinery of the following specifications, to manufacturers in the Gwadar Free Zone, subject to the conditions, restrictions and procedure given below, namely:-

(i) Plant and machinery, operated by power of any description, as is used for the manufacture or production of goods by that manufacturer;


63

Sr. No. Description

(ii) Apparatus, appliances and equipment specifically meant or adapted for use in conjunction with the machinery specified in clause (i);

(iii) Mechanical and electrical control and transmission gear, meant or adapted for use in conjunction with machinery specified in clause (i); and

(iv) Parts of machinery as specified in clauses (i), (ii) and (iii), identifiable for use

in or with

such machinery. Conditions, restrictions and procedures:-

(a) the supplier of the machinery is registered under the Act;

(b) proper bill of export is filed showing registration number;

(c) the purchaser of the machinery is an established manufacturer located in the Gwadar Free Zone and holds a certificate from the Gwadar Port Authority to that effect;

(d) the purchaser submits an indemnity bond in proper form to the satisfaction of the concerned Commissioner Inland Revenue that the machinery shall, without prior permission from the said Commissioner, not be sold , transferred or otherwise moved out of the Gwadar Free Zone before a period of five years from

the date of entry into the Zone;

(e) if the machinery is brought to tariff area of Pakistan outside Gwadar Free

Zone, sales tax shall be charged on the value assessed on the Goods Declaration for import; and (f) breach of any of the conditions specified herein shall attract legal action under the relevant provisions of the Act, besides recovery of the amount of sales tax along with default surcharge and penalties involved.

Sixth Schedule (Exempt Goods)

Table 1

The Bill has proposed certain explanatory words in entry no. 100A and its conditions which had

already been inserted through the Tax Laws (Amendment) Ordinance 2019 dated October 09,

2019. The amendments are to be retained through the Bill and applicable with effect from June

01, 2020:

The Bill has also proposed exemption of sales tax through insertion of the following entry which

has already been inserted through the Tax Laws (Amendment) Ordinance 2019 dated October 09,

2019. The amendments are to be retained through the Bill and applicable with effect from June

01, 2020:


64

Sr. No. Description

100D Machinery, equipment, materials and goods imported either for exclusive use within the limits of Gwadar Free Zone, or for making exports therefrom, subject to the conditions that such machinery, equipment, materials and goods, are imported by investors of Gwadar Free Zone, and all the procedures, limitations

and restrictions as are applicable on such goods under the Customs Act, 1969 (Act IV of 1969) and rules made thereunder shall, mutatis mutandis, apply. Provided also that if any of such goods is taken out of the Zone for purpose other than the

export, the tax on the same shall be paid by the importer.

Exemption period extended (Table-1)

The Bill seeks to enhance the scope of time limit of exemption from the year 2020 to the year

2023 by amending entry no. 103 regarding import and supply of ships and all floating crafts

including tugs, dredgers, survey vessels and other specialized crafts purchased or bare-boat

chartered by a Pakistan entity and flying the Pakistan flag, except ships or crafts acquired for

demolition purposes or are designed or adapted for use for recreation or pleasure purposes,

subject to certain conditions

New Items Exempted (Table 1)

The Bill proposes to exempt sales tax on import of dietetic foods for children who are suffering

from inherent metabolic disorder by inserting following entry no. 154 in Table 1 of the Sixth

Schedule to the Act:

Sr. No.

Description

154 Dietetic foods intended for consumption by children suffering from inherent metabolic disorder subject to the conditions that the importer shall acquire approval and quota from Ministry of National Health Services, Regulations and Coordination.

Revisions in description of Items conditionally exempt (Table 3)

The Bill proposes to substitute description of items specified under entry no 15A of Table 3 as

under:

Sr. No.

Existing description Proposed description

15A Parts and Components for manufacturing LED lights:-

i. Aluminum Housing /shell for LED (LED Lights Fixture)

ii. Metal Clad Printed Circuit Boards (MCPCB) for LED

iii. Constant Current Power Supply for of LED Lights and Bulbs (1-300W)

Parts and Components for manufacturing LED lights:-

i. Housing /shell. Shell cover and base cap for all kinds of LED lights and

bulbs

ii. Bare and stuffed Metal Clad Printed Circuit Boards (MCPCB) for LED

iii. Constant Current Power Supply for of LED Lights and Bulbs (1-300W)


65

Sr. No.

Existing description Proposed description

iv. Lenses for LED lights and bulbs iv. Lenses for LED lights and bulbs

Eighth Schedule (Goods subject to Specified rates)

Revision of sales tax rates - Table 1

The Bill has proposed to revise sales tax rates in respect of the following items in the serial no. 56

and 66 as under:

Entry. No.

Description Sales Tax Rate

Existing Proposed

56 Potassium Chlorate (KCLO3)

17% along with Rs.70/KG

17% along with Rs.80/KG

66 Supplies as made from retail outlets as are integrated with Board’s computerized system for realtime reporting of sales

14% 12%

Ninth Schedule

Modification in the description of goods/ specification of goods

The Bill has proposed to revise description of the following categories of cellular mobile phones or satellite phones as under:

Sr. No.

Description Existing Description of

Category

Proposed Description of Category

Sales tax on import/ supply

and on IMEI registration

2. Cellular mobile phones or satellite phones to be charged on the basis of import value per set, or equivalent value in rupees in

case of supply by the manufacturer, at the rate as indicated against each category

A. Not exceeding US$ 30

B. Exceeding US$ 30 but not

exceeding US$ 100

A. Not exceeding US$ 30 excluding smart phones

B. Exceeding US$ 30 but not exceeding

US$ 100 including smart phones valuing upto US$ 30

Rs.130

Rs.200


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Eleventh Schedule (Withholding of Sales Tax)

The Bill proposes to make amendments in Eleventh Schedule to the Sales Tax Act, 1990 by

amending description of suppliers’ categories. Through the proposed amendments, a registered

supplier not appearing in the Active Taxpayer’s list (ATL), shall be subject to 100% withholding

which is currently applicable only in case of unregistered supplier. The comparison of the change

in schedule is explained in the table below:

Sr. Withholding agent Existing

supplier category

Proposed

supplier category

Rate or extent of

deduction

1. Federal and provincial government departments; autonomous bodies; and public sector organizations (b) Companies as defined in the Income Tax Ordinance, 2001 (XLIX of 2001)

Registered persons

Active Taxpayers

1/5th of Sales Tax as shown on invoice

2. (a) Federal and provincial government departments; autonomous bodies; and public sector organizations

(b) Companies as defined in the Income Tax Ordinance, 2001 (XLIX of 2001)

Person registered

as a wholesaler, dealer or distributor

Active Taxpayer

registered as a wholesaler, dealer or distributor

1/10th of Sales Tax as shown on invoice

3. Federal and provincial government

departments; autonomous bodies; and public sector organizations

Unregistered Persons

Persons other than Active Taxpayers

Whole of the tax

involved or as applicable to supplies on the basis of gross value of supplies

4. Companies as defined in the Income Tax

Ordinance, 2001 (XLIX of 2001)

5% of gross value

of supplies

6. Registered persons purchasing cane

molasses.

Whole of sales tax

applicable

Twelfth Schedule (Value Addition Tax)

The Bill seeks to substitute clause I of Twelfth Schedule for availing exemption against

applicability of Value Addition Tax (VAT) on import of raw materials and intermediary goods in the

following manner thereby eliminating the limit of maximum rate of customs duty of less than

16% and to restore such exemption for manufacturers for in-house consumption:

Existing clause Proposed substitution

Raw materials and intermediary goods meant for use in an industrial process which are subject to customs duty at a rate less than 16% ad valorem under First Schedule to the Customs Act, 1969

Raw materials and intermediary goods imported by a manufacturer for in-house consumption


67

Customs Act, 1969

1. Advance Ruling

[Section 2(ai)]

At present, the definition of advance ruling refers to the classification as determined by the Board, any officer or a committee authorized by the Board for the assessment of goods

intended to be imported or exported.

The Bill has proposed to substitute the definition whereby the Advance Ruling would now refer to a decision, to be made in writing by the Board or any officer or a committee authorized by

Board, on the request by the applicant for determination of classification, origin or applicability of a particular relief or exemption on goods prior to their importation or exportation, which would be valid for specified time.

2. Smuggle

[Section 2(s)]

Presently, the term ‘smuggle’ includes bringing into or taking out of Pakistan the prescribed goods in breach of any prohibition or restriction for the time being in force. The Bill proposes to

enhance the scope of the term ‘smuggle’ by virtue of which, carrying, transporting, removing, depositing, harbouring, keeping and concealing of goods, would also be treated as ‘smuggle’.

3. Detention, seizure and

confiscation of imported goods which are prohibited

or restricted [Section 17]

Section 17 provides for detention/ confiscation of goods imported in violation of provisions regarding prohibition and restrictions, with the approval of the officer not below the

rank of Assistant Collector. However, no time period for such

detention/confiscation has been prescribed under the said section.

Through insertion of proviso to the section 17, the Bill now proposes to prescribe the period of detention/confiscation whereby such

period shall not exceed 15 days. The

Bill also proposes to grant powers to the Chief Collector and Director General who may extend the aforesaid period for further 15 days.

4. Minimal duties not to be

demanded [Section 19C]

At present, Section 19C provides that no duty shall demanded in case of

imports where cumulative amounts of all duties and taxes on a Goods Declaration are equal to or less than Rs. 100. The Bill seeks to revamp the

threshold where value of imported goods does not exceed Rs 5,000 then no duties and taxes shall be demanded

subject to certain conditions and restrictions as prescribed by the Board under the rules.

5. Allowing mutilation or scrapping of goods

[Section 27A]

At present, goods those are imported, at the request of the owner, can be mutilated and scrapped as notified by the Board and duty shall be charged at

such rates as applicable on goods as if they were imported in mutilated form and as scrapped goods.

The Bill proposes to insert a proviso in the said section which provides that goods imported in new condition

shall not be allowed scrapping and mutilation and shall be classified and chargeable to duty and taxes as new goods.


68

6. Fiscal Fraud [Section 32A]

The Bill has proposed to enhance the scope of Fiscal fraud by introducing a new clause whereby a person who declares the value significantly higher or lower than the actual price, that is, the price actually paid or payable for

the goods when such goods are sold

for export to Pakistan, shall be treated as guilty of fiscal fraud and that proceedings may be initiated against such person under this section subject to such conditions and limitations as prescribed by the Board under the

rules.

The Bill also proposes that in case of an offence having no revenue implications but covered in the list of offences provided in the section 37A(1), the person committing such

offence shall be served with show cause notice within a period of 180

days of detection of such fraud for penal action.

7. Checking of goods declaration by the Customs

[Section 80]

Section 80 requires customs officer to

satisfy himself regarding the correctness of the particulars of imports, including declaration, assessment, and in case of the Customs Computerized System, payment of duty, taxes and other

charges thereon upon receipt of the goods declaration which may be reassessed in case of any document or declaration filed is subsequently found incorrect.

Considering the requirement of “fair

notice” in dispensation of natural justice, the Bill seeks to insert a proviso under the aforesaid section

whereby it requires the customs officer to issue a notice to the importer through Customs Computerized System in case of reassessment and

provide the importer an opportunity of being heard if importer so desires.

8. Declaration by passenger or crew of baggage

[Section 139]

A passenger or member of the crew being owner of the baggage is required to make a verbal or written declaration of contents of baggage in the prescribed manner to the appropriate officer.

Currently, under subsection (2) of the aforementioned section, in case of recovery or seizure subsequent to false declaration or failure to declare, offence is to be treated at par with smuggling.

In order to differentiate general passengers or crew at airport from unscrupulous elements with the intent of smuggling, the Bill proposes to substitute the said subsection (2) as per which now a passenger or a

member of the crew will be said as guilty of an offence under Customs Act, 1969 if he makes a false declaration or fails to make such declaration.

The Bill also seeks to insert a new sub-

section (3), with overriding effect over above substituted subsection (2).

According to the new sub-section, a person shall be guilty of an offence of smuggling who attempts to bring into or takes out of Pakistan, currency

gold, precious metals or stones, in any form, through concealment in baggage or circumventing customs controls at airports, sea-ports and land border customs-stations.


69

9. Punishment for offences [Section 156]

The Bill proposes to substitute sub-serial (i) against serial no.8 in the

Table of section 156 through which penalties for the offence of smuggling of goods into or out of Pakistan have now been prescribed with reference to

threshold of the value of goods (from Rs.150,000 to the amount in excess of Rs.10,000,000) besides confiscation of

the said goods in order to rationalize the punishments for smuggling of goods in a cascading manner and to make them consistent with the COVID-19 (Prevention of Smuggling) Ordinance, 2020.

The Bill also seeks to substitute penalty for offence of smuggled or prohibited goods comprising currency and other precious items.

10. Power of adjudication

[Section 179 (3)]

Currently, subsection (3) of section 179 requires a customs officer to

decide cases involving confiscation of goods or recovery of duty and other taxes not levied, short levied or erroneously refunded within a period of 90 days of the issuance of show cause notice or within such extended

period of time not exceeding 60 days.

The Bill seeks to make an exception by inserting a proviso to the subsection

(3). The new proviso curtails period of 90 days for deciding the show cause notice in cases where provisions of

smuggling are invoked, which is to be decided within 30 days of the issuance of show cause notice without any powers to extend such period which is currently available with the Collector for further 60 days.

11. Burden of proof as to lawful authority etc.

[Section 187]

Section 187 provides that where any person who is alleged to have committed an offence under the Act

and in case any question arises

whether he did any act or was in possession of anything with lawful authority or under a permit, license or other document, the burden of proving that he had such authority, permit, license or other document shall lie on

him.

The Bill proposes to insert a proviso under the above section whereby burden of proof is further imposed on a person alleged to have committed an

offence that any property owned by him in his name or someone else’s name, was not acquired from the proceeds of such crime.

Further, the Bill also seeks to empower the Board to prescribe rules for

forfeiture of such property by insertion of second proviso to the section.

12. Orders of Appellate Tribunal [Section 194B (1)]

In terms of existing provisions of the above mentioned section, the

Appellate Tribunal has to decide a case within a period of 60 days of the filing of appeal or within such extended period as the Tribunal may, for

reasons to be recorded in writing, fix.

By inserting second proviso to the

section, the Bill seeks to decrease the aforesaid time of deciding the appeal from 60 to 30 days for cases involving charges of smuggling for expeditious disposal of smuggling cases.


70

13. Alternative Dispute Resolution

[Section 195C]

The Bills seeks to bring changes in above law in similar lines as proposed in income tax, sales tax and federal excise law.

14. Procedure for sale of goods

and application of sale proceeds

[Section 201 (3)] Where any goods (other than confiscated goods) are to be sold in terms of the provisions of the Customs Act, section 201 deals with procedure for sale of such goods by public

auction or by tender or by private offer or, with the consent of the owner along with application of the sale proceeds in the given order as

provided in the law with the residual amount of which paid to the owner of the goods.

The Bill seeks to restrict the share of importer (owner of the goods) in the sale proceeds of such goods to the extent of the declared value so as to discourage mis-declaration of value.

15. Authorized economic

operator programme [Section 212A]

This section empowers Federal Government to devise authorized

economic operator programme to provide facilitations relating to secure supply chains of imported and exported goods through simplified procedures with regard to regulatory controls applicable thereon.

The Bill seeks to insert a non-obstante subsection (3) under the above section to provide legal cover to the benefits granted to the Authorized Economic

Operations (AEOs), prescribed under the relevant rules and to fulfill Pakistan’s category-C commitment under WTO, Trade Facilitation

Agreement (TFA).

16. Advance ruling [Proposed

section 212B] In consonance with the proposed

amendment in the definition of the term ‘advance ruling’ and to define the scope of “Advance Ruling”, the Bill seeks to insert new section 212B whereby an applicant desirous of advance ruling may make an

application stating any of question on which advance ruling is sought in respect of:

i. classification of goods under First

Schedule to the Act;

ii. determination of origin of the goods under the rules of origin

notified for bilateral and multilateral agreements;

iii. applicability of notifications issued

in respect of duties under this Act

or any tax or duty chargeable under any other law for the time being in force in the same manner as duty of customs leviable under this Act; or

iv. any other matter as the Board may specify by notification in the official Gazette.

The advance ruling shall be binding on the applicant and in case of customs collectorates, such ruling shall be

binding for the period specified by the Board.


71

First Schedule

1. The Bill proposes to introduce 0% Customs Duty on import of raw

materials/industrial inputs. These items are listed as under:

PCT Code Description CD (%)

(Existing) (Proposed)

2529.1000 Feldspar 3 0

2803.0030 Acetylene black 3 0

2827.1000 Ammonium chloride 3 0

2915.3200 Vinyl acetate 3 0

2917.1200 Adipic acid, its salts and esters 3 0

3806.1010 Gum Rosin 3 0

3810.1000

Pickling preparations for metal surfaces; soldering brazing or welding powders and pastes consisting of metal and other materials

3 0

3810.9010 Preparations of a kind used as cores or coatings for welding electrodes or rods

3 0

3903.2000 Styrene acrylonitrile (SAN) copolymers Other

3 0

3910.0000 Silicones in primary forms. 3 0

8901.3000 Refrigerated vessels, other than those of subheading 8901.20

11 0

8902.0000 Fishing vessels; factory ships and other vessels for processing or preserving fishery products.

11 0

9013.8000 Other devices, appliances and instruments 3 0

9028.2000 Liquid meters 20 0

2. The Bill proposes to reduce Customs duty on following items.



2530.9030 Earth colours 11 3

2801.2000 Iodine 11 3

2801.3000 Fluorine; bromine 11 3

2811.1100 Hydrogen fluoride (hydrofluoride acid) 11 3

2811.1200 Hydrogen cyanide (hydrocyanic acid) 11 3

2811.1920 Phosphorous acid hypo phosphoric acid 11 3

2811.1990 Other 11 3

2812.1100 Carbonyl dichloride (phosgene) 11 3

2812.1200 Phosphorus oxychloride 11 3

2812.1300 Phosphorus trichloride; 11 3

2812.1400 Phosphorus pentachloride 11 3

2812.1500 Sulphur monochloride 11 3

Tax


72



2812.1600 Sulphur dichloride 11 3

2812.1700 Thionyl chloride 11 3

2812.1910 Arsenic trichloride 11 3

2812.1990 Other 11 3

2812.9000 Other 11 3

2813.1000 Carbon disulphide 11 3

2813.9000 Other 11 3

2816.1010 Magnesium hydroxide 11 3

2816.1090 Other 11 3

2821.1020 Iron hydroxides 11 3

2821.2000 Earth colours 11 3

2835.3900 Other 11 3

2836.9930 Bicarbonate of ammonium 11 3

2837.1100 Of sodium 11 3

2902.1920 Limonene(Dipentene) 11 3

2902.9010 Naphthalene 11 3

2903.9200 Hexachlorobenzene (ISO) and DDT (ISO) (clofenotane (INN), 1,1,1-trichloro-2,2-bis(p-chlorophenyl)ethane)

11 3

2904.1010 Benzene sulphonic acid 11 3

2915.2100 Acetic acid 11 3

2915.7090 Other 11 3

2929.9020 N,N-Dialkyl(methyl, ethyl, n-propyl, or isopropyl) phosphor amidic dihalides

11 3

2929.9030 Dialkyl(methyl, ethyl, n-propyl or isopropyl)N,N-dialkyl (methyl, ethyl, n-propyl or isopropyl)phosphoramidates

11 3

2929.9090 Other 11 3

2933.7990 Other 11 3

2933.9100 Alprazolam (INN), camazepam (INN), chlordiazepoxide (INN), clonazepam (INN), clorazepate, delorazepam (INN), diazepam (INN), estazolam (INN), ethyl loflazepate (INN), fludiazepam

(INN), flunitrazepam (INN), flurazepam (INN), halazepam (INN), lorazepam (INN), lormetazepam (INN), mazindol (INN), medazepam (INN), midazolam (INN), nimetazepam (INN), nitrazepam (INN), nordazepam (INN), oxazepam (INN), pinazepam (INN), prazepam (INN), pyrovalerone (INN),

temazepam (INN), tetrazepam (INN) and triazolam

(INN);salts thereof

11 3

2933.9200 Azinphos-methyl (ISO) 11 3

2934.1090 Other 11 3

2935.1000 N-Methylperfluorooctane sulphonamide 11 3

2935.2000 N-Ethylperfluorooctane sulphonamide 11 3

2935.3000 N-Ethyl-N-(2-hydroxyethyl) perfluorooctane sulphonamide

11 3

2935.4000 N-(2-Hydroxyethyl)-N-methylperfluorooctane sulphonamide

11 3

2935.5000 Other perfluorooctane sulphonamides 11 3


73



2939.6900 Other 11 3

2939.7900 Other 11 3

2939.8090 Other 11 3

3002.3000 Vaccines for veterinary medicine 11 3

3204.1110 Powdered* 3

3204.1710 Powdered 16 3

3205.0000 Colour lakes; preparations as specified in Note 3 to

this Chapter based on colour lakes.

11 3

3207.2000 Vitrifiable enamels and glazes, engobes (slips) and similar preparations

11 3

3207.3000 Liquid lusters and similar preparations 11 3

3802.1000 Activated carbon 11 3

3802.9000 Other 11 3

3807.0000 Wood tar; wood tar oils; wood creosote; wood naphtha; vegetable pitch; brewers' pitch and similar preparations based on rosin, resin acids or on vegetable pitch.

11 3

3824.8500 Containing 1,2,3,4,5,6-hexachlorocyclohexane (HCH (ISO)), including lindane (ISO, INN)

11 3

3824.8600 Containing pentachlorobenzene (ISO) or hexachlorobenzene (ISO)

11 3

3824.8700 Containing perfluorooctane sulphonic acid, its salts, perfluorooctane sulphonamides, or perfluorooctane

sulphonyl fluoride

11 3

3824.8800 Containing tetra-, penta-, hexa-, hepta- or octabromodiphenyl ethers

11 3

3824.9100 Mixtures and preparations consisting mainly of (5-

ethyl-2-methyl-2-oxido-1,3,2-dioxaphosphinan-5-yl)methyl methyl methylphosphonate and bis[(5-ethyl-2-methyl-2-oxido-1,3,2-dioxaphosphinan-5-yl)methyl] methylphosphonate

11 3

3824.9920 Ion exchangers 11 3

3824.9930 Prepared binders 11 3

3824.9980 Chloroparaffins liquid 11 3

3909.3100 Poly(methylene phenyl isocyanate) (crude MDI, polymeric MDI)

20 3

4005.1020 Sheets 11 3

4005.9100 Plates, sheets and strip 11 3

4804.2100 Unbleached 16 3

4804.2900 Other 16 3

4805.3000 Sulphite wrapping paper 11 3

4805.4000 Filter paper and paperboard 11 3

4809.2000 Self- copy paper 11 3

6903.1000 Containing by weight more than 50 % of graphite or other carbon or of a mixture of these products

11 3

6903.2090 Other 11 3

7604.1010 Bars and rods 11 3

8007.0010 Tin plates, sheets and strip, of a thickness exceeding 0.2 mm.

11 3


74



8007.0020 Tin foil (whether or not printed or backed with paper, paperboard, plastics or similar backing materials), of a thickness (excluding any backing) not exceeding 0.2 mm; tin powders and flakes.

11 3

8410.1100 Of a power not exceeding 1,000 kW 11 3

8410.9010 For machines of heading 8410.1100 11 3

8412.8090 Other 11 3

8412.9090 Other 11 3

8413.8200 Liquid elevators 11 3

8413.9140 Other parts for machines of heading 8413.1100 11 3

8414.2000 Hand- or foot- operated air pumps 11 3

8424.2020 For industry 11 3

8425.4200 Other jacks and hoists, hydraulic 11 3

8504.9040 Toroidal cores and strips 11 3

8506.5000 Lithium 11 3

8535.2110 Up to 17.5 kV 20 3

8536.5010 Pressure switches 11 3

8539.9030 Base cap for tube light 11 3

8539.9090 Other 11 3

8543.1000 Particle accelerators 11 3

8543.2000 Signal generators 11 3

8901.2000 Tankers 11 3

9402.1010 Dentists' chairs 11 3

2710.1997 Transformer oil 16 11

3204.1120 Liquid* 11

3204.1720 Liquid 16 11

3204.1990 Dyes, synthetic 16 11

3212.9010 Aluminium paste and powder 16 11

3506.9110 Shoe adhesives 16 11

6903.9010 Refractory products of a kind used in industrial ovens,

kilns and furnaces

16 11

7613.0010 Aerosol cans without valves and covers 11 11

8481.1000 Pressure- reducing valves 16 11

8501.5210 Submersible motors of stainless steel 3 11

2707.5000 Other aromatic hydrocarbon mixtures of which 65 % or more by volume (including losses) distils at 250oC by the ISO 3405 method (equivalent to the aStM D 86 method)

20 16

2803.0020 Carbon black (other than rubber grade) 20 16

2915.1100 Formic acid 20 16

3202.9010 Tanning substances, tanning preparations based on chromium sulphate

Disperse dyes and preparations based thereon:

20 16

3204.1790 Other 16 16

3403.1910 Greases 20 16

3911.1010 Petroleum resins 20 16

3921.1300 Of polyurethanes 20 16

4007.0010 Single cord 20 16

4007.0090 Other 20 16


75



7616.9920 Aluminium slugs 20 16

8308.9020 Buckle 20 16

8419.9020 Of machine of heading 8419.4000 and 8419.5000 16 16

8504.3100 Having a power handling capacity not exceeding 1 kVA 20 16

*these items also appear with same description and CD rate with different PCT Code.

3. The Bill seeks to levy Customs duty on the following items:

PCT code Description Rate

3903.9010 Styrene acrylic emulsion 11

3903.9090 Other 11

7326.1911 Forgings of crank shaft: ----Upto 10 Kg 11

7326.1919 Other 11

3204.1190 Other 16

4. The Bill has proposed to increase the rate of CD on following item:



9406.9100 Modular clean room panels 3 20

5. The Bill seeks to widen the scope of certain exemptions available to

imports by privileged persons, organizations and other dignitaries under

Chapter 99 of the First Schedule to the Act in the following manner:

PCT

Code

Exemption

Existing Proposed

9903 Imports by Privileged personnel/

organization:

Goods imported by privileged personnel

or by organizations or by any person

authorized by the contracting parties,

under grant-in- aid agreements

(including those agreements which

cover off budget foreign contributions or

funds brought by registered INGO’s

without any financial liabilities to the

Government of Pakistan) signed by the

Economic Affairs Division (EAD) and or

by any Ministry authorized by the

Government of Pakistan and duly

Imports by Privileged personnel/

organization:

(i) Goods imported by privileged

personnel or by organizations or by any

person authorized by the contracting

parties, under grant-in- aid agreements

(including those agreements which cover

off budget foreign contributions or funds

brought by registered INGO’s without any

financial liabilities to the Government of

Pakistan) signed by the Economic Affairs

Division (EAD) and or by any Ministry

authorized by the Government of Pakistan


76

PCT

Code

Exemption

Existing Proposed

concurred by the Federal Board of

Revenue (FBR)

and duly concurred by the Federal Board of

Revenue (FBR)

(ii) Goods imported by the foreign

airlines under Air Services Agreements

signed by the Aviation Division,

Cabinet Secretariat, Government of

Pakistan with other countries on the

basis of reciprocity and duly concurred

by the Federal Board of Revenue.

9917 (1) Goods imported into and exported

(except to tariff area of Pakistan) from

the

Export Processing Zones established

under the Export Processing Zone

Authority

Ordinance, 1980 (IV of 1980) and any

enactment relating to Gwadar Special

Economic Zone, subject to such

conditions, limitations and restrictions

as the

Federal Board of Revenue may impose

from time to time.

(2) Plant and machinery, except the

items listed under Chapter 87 of the

Pakistan

Customs Tariff, imported for setting up

of a Special Economic Zone (SEZ) by

zone

developers and for installation in that

zone by Zone Enterprises, on one time

basis

as prescribed in the SEZ Act, 2012 and

rules thereunder subject to such

conditions,

(1) Goods imported into and exported

(except to tariff area of Pakistan) from the

Export Processing Zones established under

the Export Processing Zone Authority

Ordinance, 1980 (IV of 1980) and any

enactment relating to Gwadar Special

Economic Zone, subject to such conditions,

limitations and restrictions as the Federal

Board of Revenue may impose from time to

time.

(2) Capital goods, as defined in the

preamble of Part-I of the Fifth Schedule to

the Customs Act, and firefighting

equipment, except the items listed under

Chapter 87 of the Pakistan Customs Tariff,

imported for setting up of a Special

Economic Zone (SEZ) by zone developers

and for installation in that zone by Zone

Enterprises, on one-time basis as

prescribed in the SEZ Act, 2012 and rules

thereunder subject to such conditions,

limitations and restrictions as the Federal

Board of Revenue may impose from time to

time. Co-developer as defined in

Special Economic Zone Rules, 2013,

shall also be entitled to avail the same

incentives and exemptions for the

same period as available to the

Developer under the SEZ Act 2020*,

subject to condition that the Developer

of the SEZ relinquishes its rights to the


77

PCT

Code

Exemption

Existing Proposed

limitations and restrictions as the


from time

to time.

(3) Following imports for construction,

development and operations of Gwadar

port

and Free Zone Area subject to such

conditions, limitations and restrictions

as the


from time to time:-

(i) Equipments and materials (plant,

machinery, equipment, appliances and

accessories), imported by the

Concession holder, its operating

companies and

contractors/sub-contractors exclusively

for construction and operation of the

terminals and the Free Zone Area for a

period of forty (40) years;

(ii) Ship bunker oils imported by the

Concession holder for the sole purposes

of

supplying fuels and lubricants to the

ships used in the port and its terminals

for a period of forty (40) years;

(iii)Vehicles imported by the concession

holder and its operating companies for a

incentives and exemptions in favour of

the Co-developer; provided further

that the respective Special Economic

Zone Authority duly endorses such

reassignment, and ensures that such

reassignment shall not be misused.

*should be SEZ Act 2012

(3) Following imports for construction,

development and operations of Gwadar

port and Free Zone Area subject to such

conditions, limitations and restrictions as

the Federal Board of Revenue may impose

from time to time: -

(i) Equipments and materials (plant,

machinery, equipment, appliances and

accessories), imported by the Concession

holder, its operating companies including

Gwadar International Terminals

Limited and Gwadar Marine Services

Limited*, and their contractors and sub-

contractors exclusively for construction and

operation of the terminals and the Free

Zone Area for a period of forty (40) years;

(ii) Ship bunker oils imported by the

Concession holder for the sole purposes of

supplying fuels and lubricants to all

visiting ships including foreign and

local and fishing vessels at Gwadar

Port for a period of forty (40) years;

(iii)Vehicles imported by the concession

holder and its operating companies for a

period of twenty-three (23) years for

construction, development and operations

of Gwadar Port and Free Zone Area under

the regulatory mechanism. The regulatory

mechanism for such vehicles, including the

number and types importable, shall be

devised by the Ministry of Port & Shipping


78

PCT

Code

Exemption

Existing Proposed

period of twenty three (23) years for

construction, development and

operations

of Gwadar Port and Free Zone Area

under the regulatory mechanism. The

regulatory mechanism for such vehicles,

including the number and types

importable, shall be devised by the

Ministry of Port & Shipping and FBR (in

consultation with the Provincial

Government if so required) and notified

by the

FBR;

(iv) Imports for port-related businesses

established in the Free Zone Area for a

period of 23 years.

and FBR (in consultation with the Provincial

Government if so required) and notified by

the FBR;

(iv) Imports by the following

businesses to be established in the

Gwadar Free Zone Area for a period of

23 years with effect from 1st July,

2016, packaging, distribution, stuffing

and de-stuffing, CFS, container yard,

warehousing including cool and cold

rooms, transhipment, labelling, light

end assembly and re-assembly,

imports and exports/value added

exports, value adding of imports, other

similar or related businesses activities

and such commercial activities as are

required to support the free zone.

*the amendment once approved will have

retrospective effect from June 01, 2020.

9925 Artificial kidneys, hemodialysis

machines, hemodialyzers, A.V. fistula

needles,

hemodialysis fluids & powder, blood

tubing tines for dialysis, reverse

osmosis plants

for dialysis, double lumen catheter for

dialysis, catheters for renal failure

patients,

peritoneal dialysis solution and cardiac

catheters. colostomy bags and

appliances

identifiable for Ostomy use.

(A) Artificial kidneys, hemodialysis

machines, hemodialyzers, A.V. fistula

needles, hemodialysis fluids and powder,

blood tubing tines for dialysis, reverse

osmosis plants for dialysis, double lumen

catheter for dialysis, catheters for renal

failure patients, peritoneal dialysis solution

and cardiac catheters.

(B) Following items and appliances for

Ostomy use: -

1. Baseplate/Stoma Wafer/Flange.

2. Ostomy (Colostomy/Ileostomy/

Urostomy) bags (All type)


Urostomy) Paste


Urostomy) Belt


Urostomy) Deodorizers


79

PCT

Code

Exemption

Existing Proposed

6. Ostomy (Colostomy/ Ileostomy/

Urostomy) Strip Paste

7. Stoma Powder/Ostomy Powder

(Colostomy/Illeostomy/Urostomy

Powder/ Ileostomy/Urostomy

Powder)


Urostomy) Skin Barrier Spray and Wipe


Urostomy) Adhesive Remover Spray

and Wipe.

10. Ostomy

(Colostomy/Ileostomy/Urostomy)

Adhesive Spray & Wipe.


Urostomy) Mouldable Ring


Urostomy) Elastic Tape


Urostomy) Barrier Cream


Urostomy) Protective Sheets


Urostomy) Cap


Urostomy) Protective Seal

17. Plastic Clips for closing the Ostomy

bags.

18. Liquid washers and wipes for

cleaning and washing peristomal skin

19. Night Drainage Bag

20. Cystoscope

21. Lithotripter

22. Colonoscope

23. Sigmoidoscope

24. Laparoscope

25. Suprapubic Cystostomy Set

26. Ryles Tube (Nasogastric Tube)

27. Foley's Catheter


80

PCT

Code

Exemption

Existing Proposed

28. Endoscope (Video Endoscopes)

29. Linear Cutter/Stapler

30. Circular Stapler

31. Right Angle Cutter/Stapler

32. Laparoscopic Hand Instruments:

a) Dissector

b) Grasper

c) Scissors

d) Clipper

e) Hook

f) Retractors

g) Needles Holders

h) Knot Pusher

i) Telescope (0o, 30o)

33. Urological Endoscopic Instruments:

(a) Resectoscope (Rotating and Fix)

(b) Optical Urethrotone

(c) Telescope (0o, 30o, 75o)

(d) Turp Resecting Loops

(e) Diathermy Cord

(C) Dietetic foods for medicinal

purposes, subject to submission of

provisional enlistment certificate duly

issued under the Drug Regulatory

Authority Act, 2012 (XXI of 2012), and

the rules made thereunder, by the

Drug Regulatory Authority of Pakistan.

9939 Diagnostic kits for HIV and Hepatitis Diagnostic kits for HIV, Hepatitis. Cancer

and Corona Virus

Fifth Schedule Part-I Imports of Plant, Machinery, Equipment and Apparatus, including Capital Goods for

various industries/sectors The Bill proposes to enhance the meaning of capital goods given under Part-I of the Fifth Schedule to include within its scope plant, machinery and equipment imported by the IT sector,


81

storage, communication and for infrastructure development of SEZs by Zone Developer whereby a duty free import of such goods will be allowed to these sectors which is currently available to other industries like mining, agriculture, fisheries etc.

The Bill also seeks to extend the period of exemption from CD on import of plant and machinery for setting up of industries in erstwhile FATA areas from June 30, 2020 to June 30, 2023 under serial number 26 of the table under Part-I. In addition to above, the Bill proposes to reduce the rate of customs duty on items imported under following PCT headings under table to the Part I subject to the condition mentioned against

the same.

Sr. No.

Description PCT Code Customs duty

% Condition

Existing Proposed

23 Parts, Components and inputs for manufacturing LED lights:

(ii) Pickling preparations for metal surfaces; soldering brazing or welding powders and pastes consisting of metal and other materials

(iii) Poly Butylene Terephthalate

3810.9090 3907.7000

20

20

0 0

If imported by LED

Light and Bulbs manufacturers registered under the Sales Tax

Act, 1990 subject to annual quota determination by the Input

Output Coefficient Organization (IOCO).

36 Machinery, equipment and other project related items for setting up of

Submarine Cable Landing stations

(i) Tubes Pipes and

hollow profiles of cast iron

7303.0000

20

0 If

imported by Internet Service providers registered

under the Sales Tax Act 1990,

(ii) Articles of non-malleable cast iron

7325.1000

20

(iii) Static Converters

8504.4090

16

(iv) Machines for the reception, conversion and

8517.6290 16


82

Sr. No.


% Condition

Existing Proposed

transmission or regeneration of

voice, images or other data, including switching and

routing apparatus

duly certified

by the Ministry of Information

Technology and Telecomm

unication and Pakistan Telecommunication Authority

(PTA), and subject to annual quota determination by the Input

Output Co-efficient Organization (IOCO).

(v) Optical fiber Cables

8544.7000

20

37 Other Electric Conductors exceeding 32000 V

8544.6090 20 11

If imported by manufacturers of transformers, registered under the Sales Tax Act 1990.

Part-II

Import of Active Pharmaceutical Ingredients, Excipients/Chemicals, Drugs, Packing Material/ Raw Materials for Packing and Diagnostic Kits and Equipment, Components

and other Goods The Bill proposes to reduce customs duty from 11% to 0% on “Meglumine antimonite” under PCT heading ‘3004.9099’ without any applicable condition under Table C of Part-II. Part-III

Ships and Floating crafts, Nashir-e-Quran, Raw Materials/Inputs for Poultry and Textile Sector; Other Goods


83

The Bill seeks to extend the period of exemption from CD on import of Ships and other floating crafts including tugs, survey vessels and other specialized crafts purchased or bare-boat chartered by a Pakistani entity and flying Pakistani flag from June 30, 2020 to June 30, 2030

under serial number 105 of the table under Part-III. The Bill proposes to allow exemption for those Nashir-e-Quran who do not have their own in-house printing facility in respect of paper of certain specification imported for printing of Holy Quran subject to certain conditions.

The Bill proposes to further reduce rate of customs duty on import of following goods under Part-

III as given hereunder:

Sr. No.


%

Existing Proposed

96 (i) Coils of aluminium alloys 7606.9290 5 0

109 (i) Other craft paper 4804.3900 16 15

116 (xiii) Glass board for manufacturing TV panels (LCD, LED, OLED, HDI etc.) 8529.9090 10 0

Besides above, the Bill proposes to insert the following entries under Part-III for granting reduced rate of CD:

Sr. No.

Description PCT Code Customs duty %

Condition

Existing under First Schedule

Proposed

119 Organic composite

solvents and thinners, not elsewhere specified or included; prepared paint or varnish

removers.

3814.0000 20 5 If imported by manufacturers of

Butyl Acetate registered under the Sales Tax Act 1990, subject to annual quota determination by Input Output Co-efficient Organization

(IOCO).

120 Semi-finished products of Iron or non- alloy steel

7207.1110 7207.1190 7207.1210 7207.1290 7207.1910 7207.1920 7207.1990

7207.2010 7207.2020 7207.2090

11 5 If imported by manufacturers of Wire Rods registered under the Sales Tax Act 1990, subject to annual quota determination by

Input Output Co-efficient Organization (IOCO).


84

Sr. No.


Condition


Proposed

121 Plasticised (Poly Vinyl

Chloride)

3904.2200 20 0 If imported by manufacturers of

disposable syringes and saline infusion sets, registered

under the Sales Tax Act 1990, subject to annual quota determination by

Input Output Co-efficient Organization (IOCO).

122 Other unsaturated Polyesters

3907.9100 20 0 If imported by manufacturers of buttons, registered under the Sales Tax Act 1990, subject to

annual quota

determination by Input Output Co-efficient Organization (IOCO).

123 Other saturated Polyesters

3907.9900 20 5

If imported by manufacturers of interlining/ buckram, registered under the Sales Tax Act 1990, subject to annual quota determination by Input Output Co-efficient Organization (IOCO).

124

(i) Skimmed milk powder

0402.1000 20 0

If imported by manufacturers of Ready to Use Supplementary Foods (RUSF), duly authorized by United Nations World Food Program (UNWFP) and subject to annual quota determination by Input

(ii) Chickpeas 0713.2010 3

(iii) Soyabean oil

1507.9000 Rs 11700MT

(iv) Palm Olein 1511.9030 Rs 9050MT

(v) Hydrogenated vegetable fats

1516.2010 Rs 10200MT


85

Sr. No.


Condition


Proposed

(vi) Malto dextrins

1702.9030 11 Output Co-efficient Organization (IOCO).

(vii) Premixes of vitamins and minerals

2106.9090 20

(viii) Emulsifier 3404.9090 11

(ix) Antioxidant 3824.9999 11

Part-VI

Imports of Aviation Related Goods i.e. Aircrafts and Parts etc. by Airline

Companies/Industry under National Aviation Policy 2015

The Bill seeks to provide incentive on the import of Aircraft engine classified under PCT heading ‘8407.1000’ by further decreasing already reduced rate of 3% under first schedule to 0% under serial number 7 of the Part-VI of fifth schedule with the condition that same is used in aircraft and trainer aircraft.


86

Federal Excise Act, 2005

1. Adjustment of Duties of

Excise [Section 6]

The Bill proposes to amend Section 6 to

empower Board to restrict adjustment of

input FED on materials wastage. Similar

amendment has been proposed in Section 7

‘Determination of tax liability’ of the Sales

Tax Act, 1990 which has been discussed in

detail in sales tax section of this

commentary and is therefore not being

discussed separately in this section.

2. Power to Tax Authorities

[Section 14C]

The Bill proposes insertion of Section 14C in

the FE Act whereby the judgment of High

Court and Appellate Tribunal deciding a

question of law in case of a registered

person, are binding on Commissioner.

Similar proposition has been made through

insertion of Section 11C of the Sales Tax

Act, 1990 which has been discussed in

detail in sales tax section of this

commentary and is therefore not being


However, the date of above referred

decision of Appellate Tribunal or High Court,

in this case, shall not be prior to July 01,

2005.

3. Power to Seize [Section 26]

At present, subsection (1) of section 26

provides that counterfeited cigarettes or

beverages and cigarettes, un-manufactured

tobacco or beverages which have been

manufactured unlawfully or on which duty

has not been paid, shall be liable to seizure

besides the conveyance which has been

used for the movement, carriage or

transportation of such goods.

The Bill now proposes to substitute the aforesaid sub-section to exclude un-manufactured tobacco from the ambit of this section. The scope of power to seize goods is proposed to be extended to all other dutiable goods, in addition to counterfeited cigarettes or beverages

manufactured unlawfully.

4. Confiscation of cigarettes,

un-manufactured tobacco or

beverages [Section 27]

At present, section 27 only covers

cigarettes, un-manufactured tobacco or

beverages, which if seized for the reason of

counterfeiting, to be confiscated. The Bill

now seeks to include all goods subject to

Federal Excise Duty in order to broaden the

scope of confiscation on account of

counterfeiting.

5. Appeals to the

Commissioner Appeals

[Section 33]

The Bill proposes amendment in Section 33

of the FE Act whereby provisions regarding

Appeal form filing, prescribed fee and

restriction regarding consideration of

documents not previously submitted by the

registered person, have been discussed.

Similar propositions have been made

through amendment in Section 45B of the

Sales Tax Act, 1990 which have been

discussed in detail in sales tax section of

this commentary and is therefore not being


6. Appeals to Appellate

Tribunal [Section 34(3)]

The Bill proposes to reinstate previously

omitted sub section 2A of Section 34 by


87

renumbering the same as sub section (3) of

Section 34. By virtue of said proposed

reinstatement, it is proposed that the

Appellate Tribunal may admit, hear and

dispose an appeal in accordance with

section 131 and 132 of the Income Tax

Ordinance, 2001.

7. Alternative Dispute

Resolution [Section 38]

Similar amendments regarding ADRC

provisions have been proposed in Section

134A ‘Alternative Dispute Resolution’ of the

Income Tax Ordinance, 2001 which have

been discussed in detail in income tax

section of this commentary and is therefore

not being discussed separately in this

section

8. Selection for audit by the

Board [Section 42B]

The Board, at present, can select a person

or class of persons for audit through

computerized balloting which may be

random parametric as the Board deem fit.

The Bill seeks to require the Board to keep

such parameters confidential.

9. Audit [Section 46]

By virtue of insertion of sub-section (10)

into section 46 vide Finance Act, 2018,

audit of a registered person under section

46 can only be conducted once in every 3

years. The Bill has proposed to abolish this

condition through omission of sub-section

(10), consequent to which such person can

again be selected for audit under this

section every year.

10. Services of notices and

other documents [Section

47]

At present, notices and other documents

are treated to be served if sent

electronically through email or to the e-

folder maintained for the purposes of e-

filing of sales tax-cum-Federal excise

returns by the public and private limited

companies only.

The Bill seeks to broaden the service of

such notices and other documents in case

of other registered persons as well by

substituting the words ‘limited companies,

both public and private’ with ‘registered

person’.

11. Real-time access to

information and databases

[Section 47AB]

Similar proposition has been made through

insertion of Section 175A ‘Real-time access

to information and databases’ of the

Income Tax Ordinance, 2001 which has

been discussed in detail in income tax

section of this commentary and is therefore

not being discussed separately in this

section.


88

FIRST SCHEDULE

a) The Bill proposes to introduce FED on the following items, namely:

Sr. No. Description of Goods Heading / Sub-

Heading Number

Rate of Duty

proposed

6a. Caffeinated energy drinks 2202.1010

2202.9900

25% of the retail price

8a. E-liquids by whatsoever name called, for electric cigarette

kits

Respective heading Rs. 10 per ml

55C. Imported double cabin (4x4) pick-up vehicles

8704.2190

8704.3190

25% ad val

55D. Locally manufactured double cabin (4x4) pick-up vehicles

8704.2190

8704.3190

7.5% an val

b) The Bill proposes to bring changes in FED rates for the following items, namely:

Sr. No. Description of Goods Heading / Sub-

Heading

Number

Existing FED

rate

Proposed

FED Rate

8. Cigars, cheroots, cigarillos and cigarettes of *tobacco and tobacco substitutes

24.02 65% of retail price

100% of retail price

13. Portland cement, aluminous cement, slag cement, super

sulphate cement and similar hydraulic cements, whether or not colored or in the form of clinkers

25.23 Rs. 2 per KG Rs. 1.75 per KG

56. Filter rod for cigarettes 5502.0090 Rs. 0.75 per

filter rod

Rs. 1 per filter

rob

*(through substitution, tobacco substitutes has been proposed to be replaced with tobacco and tobacco substitutes)


89

1. Definition of “Industrial Undertaking” [Section

2(29C)]

As part of Government’s commitment to grant the status of Industry to the real

estate and construction, the definition of an Industrial Undertaking has been amended to include the following:

“From the 1st day of May 2020, a person directly involved in the construction of buildings, roads, bridges and other such

structures or the development of land, to the extent and for the purpose of import of plant and machinery to be utilized in such activity, subject to such conditions as may be notified by the Board”. Presently, Companies other than involved in

the business of real estate and construction sector can apply for exemption certificate for non-collection of advance tax under section 148 of the Ordinance at the import stage. Consequent to aforesaid amendment, real

estate and construction sector may apply for

exemption certificate subject to the conditions are met as outlined in the relevant SROs. Further, companies operating in real estate and construction sector may also entitled to claim tax credit available under section 65D

of the 2001, Ordinance, if they do not opt to be taxed under newly introduced Eleventh Schedule.

2. Special Provisions relating

to Developers & Builders [Section 100D]

Section 100D has been introduced entailing the special provisions relating to taxation of Developers and Builders deriving income

from sale of plots and buildings both commercial and residential.

2.1 Key Definitions for section 100D

The Ordinance introduces the following definitions under section 100D:

‘Builder’ means a person who is registered as a builder with the Board and is engaged in the construction and disposal of residential and commercial buildings.

‘Capital Investment’ means investment as equity resources and does not include borrowed funds. ‘Developer’ means a person who is

registered as a developer with the Board and

is engaged in the development of land in the form of plots of any kind either for itself or otherwise. ‘Existing project’ means a construction or development project, which

(i) has commenced before the date of

commencement of the Tax Laws (Amendment) Ordinance, 2020 i.e. April 16, 2020;

(ii) is incomplete;

(iii) is completed on or before the 30th day

of September, 2022; and

(iv) a declaration is provided in the registration form under Eleventh Schedule to the effect of percentage of the project completed up to the last day

of the accounting period pertaining to tax year 2019.

‘First purchaser’ means a person who purchases a building or a unit, as the case may be, directly from the builder and does

not include a subsequent or a substituted purchaser; ‘new project’ means a construction or

development project, which – (i) is commenced during the period

starting from the date of commencement of the Tax Laws (Amendment) Ordinance, 2020 and ending on the 31st day of December, 2020; and

(ii) is completed on or before the 30th day

of September, 2022.

Comments on Tax Laws (Amendment) Ordinance, now part of Finance Bill 2020


90

‘Project’ means a project for construction of a building with the object of disposal, or a project for development of land into plots with the object of disposal or otherwise;

‘registered with the Board’ means registered after submission of form on project-by-project basis on the online IRIS web portal;

2.2 New Fixed Tax Regime (a) Income and Projects Covered The Ordinance introduces optional

‘Fixed tax regime’ from tax year 2020 and onwards for eligible builders and developers on a project by project basis on the income, profits and gains derived from the sale of buildings or sale of plots, from

(a) a new project to be completed by the 30th day of September, 2022; or

(b) an incomplete existing project to

be completed by the 30th day of September, 2022:

Any income, profits and gains of a

builder or developer of an incomplete existing project earned up to tax year 2019 and any other income for tax year 2020 and onwards that is not liable to

be taxed under this section will be taxed according to existing provisions of law.

(b) Features of new regime

(i) the income shall not be chargeable

to tax under any head of income in computing the taxable income of the person;

(ii) no deduction shall be allowed

under the Ordinance for any

expenditure incurred in deriving the income;

(iii) the amount of the income shall not

be reduced by (any deductible allowance e.g. Zakat or the set off of any loss;

(iv) no tax credit shall be allowed

against the tax payable under this

regime except credit for tax under

section 236K collected from the builder or developer after the commencement of the Tax Laws (Amendment) Ordinance, 2020 on purchase of immoveable property utilized in a project;

(v) there shall be no refund of any tax collected or deducted under the Ordinance;

(vi) if the tax payable has not been

paid or short paid, the said amount of tax may be recovered

and all the provisions of the Ordinance shall apply accordingly;

and (vii) sections 113 and 113C shall not

apply on the turnover, income, profits and gains of a builder or

developer from a project.


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3. Tax Amnesty on Investment in Construction

Sector In order to stimulate investment in real estate and construction sector, a no-questions-asked amnesty has been introduced. Both previous and current federal governments have launched tax

amnesty schemes in 2018 and 2019, albeit

the scope of this scheme is limited to investment made in construction sector only. The proponent of this particular amnesty scheme argues that this would act as a

catalyst to increase economic activity in the country thereby improving employment opportunities as number of sub-sectors and small and medium size industries are

associated with construction industry. The newly introduced scheme provides immunity from the provisions of section 111 of the Ordinance , and no questions will be asked regarding source of funds from

investors making capital investment in new

construction projects in the form of money or land, either as an individual, as an association of persons or a company, subject to conditions as explained below.

Type of

Investor

Investment

Mode Conditions

Individual

Monetary

Land

Investor shall open a new bank account and deposit such amount in it on or before the 31st day of December, 2020

Investor shall have the ownership title of the land at the time of commencement of the Tax Laws (Amendment)

Ordinance, 2020

Corporate shareholder / Partner

Monetary

Land

Such amount shall be invested through a crossed banking instrument deposited in the bank account of such association of persons or company, as the case may be, on

or before the 31st day of December, 2020

Such land shall be transferred to such association of

persons or company, as the case may be, on or before the 31st day of December, 2020. Provided that the person shall have the ownership title of the land at the time of commencement of the Tax Laws (Amendment) Ordinance, 2020

Registration: The Company or AOP shall be a single object

company duly registered under the Companies Act, 2017 or Partnership Act, 1932 as the case may be.

Additional conditions to be met Prescribed IRIS form shall be submitted

by the person making investment.

The investments made shall be wholly utilized in a project.

Grey structure in case of builders and landscaping in case of developers have been completed on or before September 30, 2022, and duly certified


92

by NESPAK or respective map approving authority.

Further, for land developer, the

following additional conditions should be met;

- 50% of plots have been booked for

sale and 40% of sale proceeds thereof have been received by

September 30, 2022 as duly certified by specified chartered accountancy firm.

- 50% of the project roads have been laid upto sub-grade level as duly certified by NESPAK.

The value or price of the land or

building shall be higher of

a) 130% of FBR assessed fair market value; or

b) At the option of person making investment, lower of the value determined by at least two

independent SBP approved valuers.

Exclusion The following incomes or persons are excluded from the relief provided under the amnesty scheme:

Holder of public office, benamidar or his

spouse or dependents; or

Public Listed Company, real estate investment trust or any company whose income is exempt under the Ordinance.

Proceeds of crime including money laundering, terror financing excluding tax evasion.

Restriction of Ownership Changes Under the new amnesty, no change in

ownership shall be allowed for incomplete projects except where 50% cumulative cost on the project has been

incurred as certified by prescribed Chartered Accountants firm, with the exception of legal transmission to heirs.

Inclusion of partners or shareholders after December 31, 2020 is permissible; however, such investors shall not be eligible to avail tax amnesty.

Amnesty to the purchaser Provisions of section 111 shall also not apply to:

the first purchaser of a building or a unit in the building in respect of the purchase price both in case of new project or existing incomplete project where payment is routed through crossed banking instrument between the date of registration of project with

the FBR and September 30, 2022. The purchaser of plot for building

construction where the purchase, the payment thereof and commencement of construction has been made on or before December 31, 2020 subject to

construction completion by September 30, 2022 and subject to registration of such purchaser with FBR on IRIS portal.

Thus no questions would be asked from the purchaser of building or plot regarding

source of funds who complies with the above mentioned conditions.

4. Additional Reliefs Allowed

Advance Tax on Auction Sale

[Division VIII Part IV 1st

Schedule]

Reduced rate of advance tax of 5% has been introduced for sale of immovable property through auction.

Reduction in Tax Liability for Low

Cost Housing [Clause 9A Part III

1st Schedule]


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In pursuance of the government’s policy to exploit the demand gap in the urban housing sector of Pakistan, the federal government launched its flagship “Naya Pakistan Housing

Project” to undertake low cost housing initiatives. Any tax payable on the income, profits and gains of projects of low cost housing under NAYA Pakistan Housing & Development

Authority or EHSAAS programme shall be

reduced by 90%.

Exemption of Capital Gains Tax

[Clause 114AA Part I 2nd Schedule] Capital gains derived by resident individual on residential property not exceeding 500 sq. yards in case of house or 4000 sq. feet in-case of flat, that is used by such individual or his / her spouse or dependents for personal accommodation and the related

utility bills are issued in the name of such individual shall be exempt.

Provided that exemption has not been availed previously by such individual or his / her spouse or dependents with respect to

Cessation of Capital Value Tax Collection of Capital Value Tax stands ceased effective 17 April 2020 with respect to assets or a right to use for 20 years acquired thereafter.

5. Eleventh Schedule to the

Ordinance Eleventh Schedule is introduced providing

for the computation of income and tax payable thereon as derived by developers and builders on Project-by-Project basis.

I. Key Definitions Following terms have been defined in the Eleventh Schedule: ‘area’ means

(i) in case of a builder, –

(a) in case of a commercial or a residential building excluding a house, the saleable area of the building; and

(b) in case of a house, the covered

area of house; (ii) in case of a developer, the total

land area of the project.

‘building’ means a residential or commercial building or unit thereof. ‘commercial building’ includes any building or part thereof which is to be used for commercial purposes in accordance with

the relevant laws;

‘commencement of project’ means,– (i) in case of a construction project, when

layout plan is approved by the concerned authority; and

(ii) in case of a development project, when the development plan is approved by the concerned authority:

Provided that where the builder or developer has taken all actions and done all things which are required and necessary to procure any approvals but any such approval is delayed beyond a period of 30 days from date of relevant application and the cutoff

date of 31st day of December, 2020 is not adhered to by the builder or developer, the Board may provisionally accept commencement of such project on a case to case basis

‘completion of project’ means. –

(i) in the case of a builder, the date on

which the grey structure is completed: (ii) in the case of a developer, the date on

which – (A) at least 50% of the total plots

have been booked in name of buyers;


94

(B) at least 40% of the sale proceeds have been received;

(C) landscaping has been completed;

and (D) at least 50% of the roads have

been laid up to sub-grade level as certified by the approving authority or NESPAK;

Provided that such grey structure shall only be considered as completed when the roof of the top floor has been laid as per the approved plan; 'Low cost housing' means a housing

scheme as developed or approved by NAPHDA or under the ‘Ehsaas Programme’; ‘NAPHDA’ means Naya Pakistan Housing and Development Authority; ‘NESPAK’ means National Engineering

Services Pakistan (Private) Limited;

‘residential building’ means a building which is not a commercial building but does not include buildings used for industrial purposes;

‘saleable area’ in case of buildings, means saleable area as determined by the approving authority or map approving authority or NESPAK under the relevant laws;

‘unit’ means a self-contained or independent building or part thereof including houses, apartments, shops, offices, etc.

I. Tax Rates under Fixed Tax

regime Newly introduced Eleventh Schedule

provides following fixed tax rates based on covered area to be computed on project by project basis:

II. Tax on Builders

Area

Commercial Buildings

Rupees. /

Sq. Ft.

Residential Buildings

Rate /

Sq. Ft.

Any size Upto 3000

Sq. Ft.

Others

Karachi, Lahore & Islamabad

250 80 125

Hyderabad, Sukkur, Multan, Faisalabad,

Rawalpindi, Gujranwala, Sahiwal, Peshawar, Mardan, Abbottabad, Quetta

230 65 110

Urban areas not specified above

210 50 100

III.Tax on Developers

Area

Entire Projects

Rupees. / Sq. Yd.

For Development of Industrial

Area

Rate / Sq. Yd.

Any size Any Size

Karachi, Lahore & Islamabad

150 20

Hyderabad, Sukkur, Multan,

Faisalabad, Rawalpindi,

Gujranwala, Sahiwal, Peshawar, Mardan, Abbottabad, Quetta

130 20

Urban areas not specified above

100 10

These rates shall be applicable for computing tax liability for the project


95

on annual basis. The annual tax liability shall be worked out as under:

Tax liability as per the rates in rule 10 / Estimated project life in years

The estimated project life for tax

purposes shall not exceed two and a half years. In case of existing incomplete projects, the estimated project life shall be treated as three

years from tax year 2020 through tax

year 2022, and the tax payable shall be reduced by the percentage of completion up to the last day of the accounting period pertaining to tax year 2019 as declared in registration form.

Tax liability of tax year 2020 shall be paid along with return.

Year shall include fraction of a year;

and The tax liability so calculated and paid

shall be final tax.

Quarterly advance tax equivalent to one fourth of the tax liability shall be payable in four equal installments on dates as prescribed under section 147 of the Ordinance.

In case of mixed use buildings having

both commercial and residential areas, respective rates mentioned above shall apply.

In case of development of plots and constructing buildings on the same plots as one project, both rates shall apply: Provided that in the case of ‘low

cost housing’ and all projects developed by NAPHDA, the higher rates shall apply.

(i) Registration and Certification

requirements A builder or developer shall

electronically register a project on IRIS through FBR website on or before the

31st day of December, 2020 through submission of prescribed registration

form alongwith an irrevocable option to be assessed under this Schedule in respect of each project. A developer who is also a builder in case of a project

shall submit two separate forms for registration as a developer and as a builder.

A builder or developer availing this

scheme shall electronically file a return

of income and wealth statement as may

be prescribed accompanied with evidence of payment of due tax which shall be taken for all purposes of the Ordinance to be an assessment order issued to the taxpayer by the Commissioner to the extent of income

computed under these rules. Every builder or developer shall be

required to obtain and provide to the Board in the prescribed manner a certificate from approving authority or map approving authority or NESPAK,

following details:

(a) ‘total land area’ in square yards; (b) ‘covered area’ in square feet; (c) ‘saleable area’ in square feet; and (d) type (commercial, residential or

industrial) of saleable area or the

total land area, as the case may be.

(ii) Incorporation of profits and

gains for computation of

income. – A builder or developer opting for

taxation under section 100D shall not be allowed to incorporate profits and

gains in its books of accounts accruing from such projects (including incorporate profits and gains accruing from a low cost housing project) in excess of ten times of the tax paid under this regime.

(iii) Exemption from certain

withholding tax provisions


96

Eligible Developers and Builders shall be exempted from withholding taxes on purchase of building materials under section 153 of the Ordinance except for

the following:

Steel & cement; Plumbing, electrification,

shuttering and related services

provided by companies.

Dividend income paid to a person by a

builder or developer being a company out of the profits and gains derived from a project shall be exempt from tax in the hands of such person and also

from tax withholding obligations under section 150.


97

Petroleum Products

Surcharge Ordinance, 1961

Powers to grant exemption from payment, authorise refund and

procedure for collection and refund of Petroleum Levy

[Section 3A]

As per current provisions of the Ordinance Petroleum Levy in respect of petroleum products is

collected in the same manner as duty of excise leviable under Federal Excise Act, 2005. In addition to

this, the Bill proposes amendment in section 3A(2) of the Ordinance to include the collection of

Petroleum Levy in the same manner as general sales tax payable under the Sales Tax Act, 1990.

Besides current provisions of Customs Act, 1969 and Federal Excise Act, 2005 applicable in respect of

the levy, collection and refund of the Petroleum Levy, the Bill seeks to amend subsection (3) whereby

provisions of Sales Tax Act, 1990 will also apply in relation to the said levy, collection and refund of

the Petroleum Levy.


98

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Contacts

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