budget commmentary 2014

8/12/2019 Budget Commmentary 2014

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Budget Commentary2014

COMPARATIVE BUDGET AT A GLANCE

(AMOUNTS ROUNDED TO NEAREST MILLION)

2014-15 2013-14

Rs

% Rs %

Receipts

Revenue Receipts

Direct taxes 1,180 30 975 27

Indirect taxes 1,949 50 1,622 45

3,129 79 2,597 72

Non-tax revenue 816 21 822 23

Grossrevenue receipts 3,945 100 3,419 95

Less: Provincial share (1,720) (44) (1,479) (41)

Net Revenue receipts 2,225 57 1,940 54

Capital receipts 686 17 507 14

External resources 508 13 169 5

Cash balance 289 7 - -

Bank borrowings 228 6 975 27

Total Resources 3,936 100 3,591 100

Expenditure

Current Expenditure

Defence 700 18 627 17

General public services 2,114 54 1,902 53

O thers 316 8 300 8

3,130 80 2,829 79

Development expenditure 806 20 762 21

Total Expenditure 3,936 100 3,591 100


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Investment and Savings

Investment playsa key role in the determination of economic growth of a country. Investment hasbeen hard hit by internal and external factors

during the last few yearsand isconsidered asa key concern. Total investment hasdecreased from 19.21 percent of G DP in 2007-08 to 13.99

percent of GDP in 2013-14. Fixed investment was12.39 percent of GDP against the 12.97 percent of GDP last year. Private investment was8.94

percent of G DP ascompared to 9.64 percent of G DP in the prior year. N ational savingsare 12.9 percent of G DP in 2013-14 compared to 13.5

percent in 2012-13. Domestic savingswas7.5 percent of GDP in 2013-14 ascompared to 8.3 percent of G DP in 2012-13. N et foreign resource

inflowsare financing the saving investment gap.

Balance of payments

Pakistansbalance of paymentsshowsan increase in capital flowsthat hassubstantially offset a gradual widening of the current account deficit

during current fi nancial year. External account turned into surplusduring July-Apri l, 2013-14, compared to the same period last year. O verall

external account balance posted a surplusof US$ 1,938 million during July-April, 2013-14, compared to a deficit of US$ 2,090 mi llion in the

corresponding period of last year. Workers remi ttancesregistered commendable growth during July-April, 2013-14, growing by 11.5 percent

against 6.4 percent growth recorded in the corresponding period of last year. The consistent growth in remittancesreflectsa shift from informal to

formal avenuesto remit fundsfrom overseasPakistanis. The Government and SBP have focused on promotion of formal channel for international

remittancesthrough banksand different money transfer servicesunder the Pakistan RemittancesInitiatives(PRI) . . It isexpected that with the

grant of G SP plusstatus, Pakistan exportsto EU countrieswill gain momentum in coming months.

Monetary policy

M onetary policy isprimarily focused on stimulating and sustaining economic growth through containment of inflationary pressures. M onetary

policy in Pakistan hasundergone substantial changesin tandem with volatile economic conditionswithin the country. The current policy stance

hasbeen largely supportive of the dual objective of promoting economic growth and price stability along with the revival of credit to private

sector. Thishaspurportedly been done primarily to facilitate private sector credit and investment. During the first half of current fiscal year, SBP

reversed itsstance from an accommodative to a tightening policy asthe rate wasincreased by cumulative 100 bps, staggered in two stagesof

50 bpseach. Thispolicy stance change waslargely a reflection of expected inflationary pressuresin the medium term. In the last policy statement

from the SBP, a cautionary stance hasbeen taken by maintaining the policy rate at 10% .

Inflation

The inflationary trend in the economy remained subdued during 2013-14. An overview of inflationary trendsduring ten monthsof the current FY

(July-Apri l) 2013-14 indicatesthat inflation moved at a slow pace on account of improved supply position of essential itemsand declining trend in

major global commoditiesprices. Due to thisslow trend the inflation rate wasrecorded at 8.7 percent on average basisduring July-April, 2013-14,

over an increase of 7.7 percent of corresponding period.

Key economic targets

The following key targetswere announced for the 3 year Medium term Economic Framework:

GDP growth to be increased to 7.1% by 2016-17 Inflation to be maintained in single digits. Fiscal deficit to be brought down to 4% . Tax to G DP ratio to be increased to 13% . Foreign exchange reservesto be increased to USD 22 billion by 2016-17.The above measureswill depend on the management and implementation of revenue measuresintroduced aswell asfiscal discipline in

management of expenditures.


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Taxation measures

The significant measuresprovided for in the Finance Bill are asfollows:

Direct taxes

- Tax rate for companiesreduced to 33%- Differentiation of taxpayersin termsof statusof compliance and differentiation in ratesto encourage broadening of tax net- Incentivesfor export oriented tax sectorsincluding duty draw backsand rebates.- Reduction in tax ratesapplicable to capital market transactions- Withdrawal of exemption of tax on bonusshares- Introduction of Alternative Corporate Tax ( ACT) based on accounting income- Reduced tax ratesfor new industrial unitsset up through Foreign Direct InvestmentIndirect taxes

- Change in salestax regime for retailers- Restriction of input tax to goodsand suppliesactually utilized in the manufacturing of goodsand services- Phasing out of SRO sintroduced in previousyears.- Telecom servicesbeing subjected to provincial salestax will be excluded from FEDLooking ahead

The Budget 2014-2015 appearsto indicate that the Government isintent upon challenging the statusquo and implement changeswhich some

may consider a bitter pill to swallow. The one year track record whilst not conclusive isindicative that the countryseconomy ison a path of tamed

economic recovery. The initiativesoutlined appear to be well thought out and researched along with having the blessing of variouslobbyist groups.

If the initi ativesidentified can be implemented successfully, the intent shall translate into fruition and help to steer the country to a path of

sustainable growth.

BDO EBRAHIM & CO.

DATED: JUNE 4, 2014


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HIGHLIGHTS

The Income Tax Ordinance

A taxpayer whose name appearson the active taxpayerslistissued by FBR or who isholder of a taxpayerscard shall now be

called filer

A new definit ion for non-filer isintroduced which isidentifiedasa person who isnot a filer

Spectrum license feesreceived by PTA isto be treated asincome of the Federal Government, therefore, not taxable

Tax credit hasbeen made available to not for profitorganizationsif they have filed return, complied with the

withholding obligationsand filed withholding tax returnsin lieu

of exemption available which hasnow been withdrawn

New concept of Alternate Corporate proposed to beintroduced from Tax Year 2014 onwards tax on companies

would be the higher of Alternate Corporate Tax at 17% of

adjusted accounting profit or the normal Corporate Tax asper

tax computation

Withholding tax shall be deducted at 20% when makingpayment for directorship feesor fee for attending board

meetingsor such fee by whatever name called. The tax

deducted and paid isan advance tax of the director adjustable

against their final tax liabili ty.

Income of sportsman shall be liable to tax deductible at sourceat 10% and thiswill be final tax

Advance tax ismade payable on purchase of air ticket andpurchase or transfer of immoveable property

Bonusshareswill now be chargeable to withholding tax at 5%of the value thereof and thiswill be the final tax of the

shareholder on thisincome

Tax on capital gain to apply to debt securities Tax on companiesaspartnersin a joint venture to be taxed asa

company and not asa partner of AO P

New provisionsrelating to advance tax on sale of motorvehicles, international travel, cash withdrawals, electricity bills

with higher ratesfor non-filersto encourage them to obtain

Taxpayer Registration

Import of shipsby shipbreakersbrought into thepresumptive/final tax regime

Compulsory Taxpayer Registration requirement for newapplicantsfor electricity and gasconnections

Withholding tax on registration of sale/purchase of immovable

properties

The rate of tax required to be deducted by a collectiveinvestment scheme or a mutual fund shall be asfollows:

Stock FundMoney market Fund,Income Fund or any

other fundIndividual 10% 10%

Company 10% 25%

AO P 10% 10%

In case of a stock fund if dividend receiptsof the fund are lessthan capital gains, the rate of tax deduction shall be 12.5%

The rate of withholding tax to be deducted from paymentmade against sale of goods, servicesother than transport

services, execution of contract other than a contract for the

sale of goodsor rendering of or providing of serviceshave been

revised.

The ratesof withholding taxescollected under section 234with M otor Vehicle Tax have been revised in case where the

motor vehicle tax iscollected in lump sum and in case of other

private motor cars.

The rate of withholding tax on functionsand gatheringsundersection 236D have been reduced from 10% to 5% .

Withdrawal of the reduction in minimum tax on turnoverunder section 113 for certain taxpayers, however, the minimum

tax on these taxpayersisproposed to be taxed at the proposed

rates.

For the purpose of determining distribution of at least 90% ofaccounting income byCollective Investment Scheme or a REIT

Scheme in order to avail exemption from taxation, the income

distributed through bonusshares, unitsor certificatesshall not

be taken into account towardsdistribution.

Reduction in the rate of initial allowance on plant andmachinery from 25% to 10%


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Tax would be imposed on net basison income from dividendand income from capital gainsasopposed to tax year 2014

where the dividend and capital gainswere subject to tax on

grossbasis. In order to compute and impose tax on net basis,

certain formulashave been introduced in finance bill 2014.

Sales Tax Act

Proposed amendment in the definition of Retail Price allowsBoard to specify zonesor areasfor the purpose of

determination of highest retail price for any brand or variety of

goods.

Amendment in the section 3 allowsaddition of a new EighthSchedule and Ninth Schedule

Charging salestax at the rate of seventeen percent from CN Gstationsby GasTransmission and Distribution Company

Amendment in section 3 allowstax to be charged fromretailersthrough their monthly electricity bills, at the rate of

five percent where the monthly bill amount doesnot exceed

rupeestwenty thousand and at the rate of seven and half

percent where the monthly bill amount exceedsthe aforesaid

amount.

Finance bill proposesamendment with respect to collection ofexcesstax. Any amount payable to the Federal Government

shall be deemed to an arrear of tax or charge payable and shall

be recoverable accordingly and no claim for refund in respect

of such amount shall be admissible notwi thstanding anythingcontained in any law or judgment of a court including the

Supreme Court and a High Court.

Finance bill proposesamendment in section 4 which allowsFederal Board of Revenue to specify goodswhich shall be

charged to zero percent asare supplied to a registered person

or classof registered personsengaged in the manufacture and

supply of goodssupplied at reduced rate of salestax.

Proposed amendmentsin section 7 with respect to adjustmentof input tax and determination of tax liability of a registered

person.

Finance bill proposesexpansion in li st of caseswhere input taxcredit would not be allowed.

Proposed amendment in section 40B whereby it isdeclaredthat powersof the Board, Chief Commissioner and

Commissioner under thissection are independent of section 40

Insertion of a new section allowsthe Board to implement acomputerized system for the crossmatching and scrutiny of

returns.

Finance bill proposesexpansion in list of itemswhich arechargeable to salestax at zero percent asspecified in Fifth

Schedule.

Amendment and expansion in list of itemsspecified in Table -1and Table -2 of Sixth Schedule and insertion of new Table -3

under the Sixth Schedule

The bill seeksto add a new Eighth and Ninth Schedule underthe SalesTax Act, 1990

The Federal Excise Duty

Duty on locally produced cigaretteshasbeen enhanced 10% Duty on locally produced motor cars, SUVsand other

motor vehiclesof 1,800 cc or above, including station wagons

and racing carsiswithdrawn

Duty on all typesof cement wi ll be charged on Ad.Val. basisinstead of per metric ton basis

Duty on telecommunication serviceshasbeen reduced from19.5% to 18.5% of the charges

Duty on international air travel hasbeen enhanced Duty on chartered flightshasbeen levied at 16% of the charges

The Commissioner (Appeals) isempowered to grant stay ofrecovery to a maximum of 30 daysin hardship cases.

The Customs Act

The Fifth Schedule hasbeen introduced to levy specified ratesof custom duty on goodsand classesof goods.

Trial of narcoticsand narcotic substancescasesshall be held inthe Special Courtsconsti tuted under the Control of Narcotics

SubstancesAct, 1997

FBR isempowered to appoint a senior Collector havingexperience of three (instead of five) years, asTechnical

M ember of Appellate Tribunal


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M aximum rate of duty is reduced from 30% to 25% Duty on importsof a number of i temswhich were subjected to

nil duty, hasbeen imposed at 1% .

The Income Support Levy

The Act introduced through the Finance Act, 2013 hasbeenrepealed asit wasconsidered controversial from inception.


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SECTION(CLAUSE)

THE INCOME TAX ORDINANCE, 2001

2 Definitions

(8), (9), (10) and(11)

The proposed amendment in the Bill seeksto re-number the clausesfor creating the alphabetical order in the section.

(23) A new definit ion for filer isintroduced which isidentified asa taxpayer whose name appearson the active taxpayers

list issued by the Federal Board of Revenue or who isholder of a taxpayerscard.

(29) The proposed amendmentsin thisclause seek to change the definit ion of income to include bonussharesreceived by a

shareholder from a company asincome liable to tax. Tax on bonussharesisexplained in section 236M.

(35C) A new definition for non-filer isintroduced which isidentified asa person who isnot a filer.

(59B) A new definition for Special Judge isintroduced and isidentified asa Special Judge appointed under section 203 of the

O rdinance.

( 6 1A ) A new definition for Stock Fund isintroduced and is identified asa collective investment scheme or a mutual fund

where the investible fundsare invested by way of equity sharesin companies, to the extent of more than seventy

percent of the investment.

4 The section wasintroduced in Finance Bill 2011 and ti tled Surcharge for a one time levy of surcharge in Tax Year 2011.The proposed deletion isto remove the reference of thisredundant section.

8 General provisions relating to taxes imposed under sections 5,6 and 7

(d) and (e) The proposed amendmentsin thissection are of an editorial nature.

13 Value of perquisites

(8) The proposed amendmentsin thissection are of an editorial nature.

18 Income from business

(3) The proposed amendmentsin thissection are of an editorial nature.

2 Deductions not allowed

(e) The proposed amendmentsin thissection are of an editorial nature.

3 Transfer to participatory reserve

(1) The proposed amendment seeksto correct the reference to Financial Insti tutions( Recovery of Finances) O rdinance,2001from the existing reference to Banking TribunalsO rdinance, 1984. T he deductibili ty of the amount transferred to

participatory reserves, created under section 120 of the CompaniesO rdinance, 1984, will now be allowed if the

agreement relating to participatory redeemable capital isbetween the company and a banking company asdefined in

the Financial Institutions(Recovery of Finances) O rdinance, 2001.


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SECTION(CLAUSE)


3 Capital gains

(1A) The proposed amendment seeksto remove referenceswhich are redundant asthe taxability of capital gainson sale ofcapital assetsisexplained in detail in Division VI II of Part 1 of the First Schedule.

37A Capital gain on disposal of securities

(1) The proposed amendment seeksto delete the first proviso which hasbecome redundant asthe section clearly referstotaxability of capital gain on sale of securitiesheld for a period lessthan a year.

(3) and (4) The proposed amendment seeksto include debt securities in the definition of security and explainsthat debt

securitiesincludesthe following:

Corporate Debt Securitiessuch asTerm Finance Certi ficates(TFCs), Sukuk Certi ficates( Sharia Compliant Bonds) ,Registered Bonds, Commercial Papers, Participation Term Certificates( PTCs) and all kindsof debt instruments

issued by any Pakistani or foreign company or corporation registered in Pakistan

Government Debt Securitiessuch asTreasury Bills(T-Bills), Federal Investment Bonds( FIBs) , Pakistan InvestmentBonds(PIBs) , Foreign Currency Bonds, Government Papers, M unicipal Bonds, Infrastructure Bondsand all kindsof

debt instrumentsissued by Federal Government, Provincial Governments, Local Authoritiesand other statutory

bodies

The proposed amendmentsseek to clarify that the tax on capital gainsfrom sale of securitieswould apply to all these

instruments.

39 Income from other sources

(1) The proposed amendment seeksto include issue of bonussharesasincome of a shareholder receiving bonusshares.

49 Federal Government, Provincial Government and Local Government income

(4) proviso Thisproposed new proviso seeksto clarify that the spectrum licenses( 3G and 4G) sold by Pakistan Telecommunication

Authority after M arch 2014 are to be treated asincome of the Federal Government and not income of Pakistan

Telecommunication Authority.

56 Set off of losses of companies operating hotels

The proposed amendmentsin thissection are of an editorial nature.

59AA Group taxation

(6) The proposed amendment seeksupdate the reference the reference to Board (meaning Federal Board of Revenue) from

the redundant Central Board of Revenue. The reference iswith respect to the lawsrelating to regulation of G roup

Taxation.

88 Share profits of company to be added to taxable income

Thissection dealt with taxability of a company that wasa partner in a joint venture taxed asan Association of Persons.

The proposed amendment seeksto delete thisprovision asthe subject matter isdealt with in the new proviso to section

92(1).


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SECTION(CLAUSE)


92 Principles of taxation of association of persons

(1) The provisionsof thissection laid down the principle that the tax of an association of person once paid would exemptthe share of income of the partnersof an association of persons. Joint venture companieswere able to get benefit from

tax on their share of income because of these provisionsand provisionsof section 88A. The proposed new proviso seeks

to replace the existing provisionsof section 88A which allowed companiesto get tax credit for tax paid by the

association of personswith respect to their share of profi t. The proviso will now require association of personsto

exclude the share of income of companieswho will need to include the share of their income in their tax computation

and be liable for tax asa company.

100B Special provision relating to capital gains tax

(2) (d) Thisproposed new sub clause seeksto exclude the applicability of Eighth Schedule on a company with respect to debtsecurities introduced in the section relating to tax on capital gain on sale of securities.

100C Tax credit for certain persons

Thisproposed new section seeksto lay down provisionswith respect to tax credit for non- profit organizations. Asper

these new provisionsnon-profit organizations, trustsor welfare institutionsshall be allowed a tax credit equal to one

hundred percent of the tax payable, including minimum tax and final taxespayable under any of the provisionsof the

O rdinance subject to the following conditions:

(a) return hasbeen filed

(b) tax required to be deducted or collected hasbeen deducted or collected and paid

(c) withholding tax statementsfor the immediately preceding tax year have been filed.

Personseligible for tax credit under thissection are:

a) Any income of a trust or welfare insti tution or non-profit organization from donations, voluntary contributions,subscriptions, house property, investmentsin the securitiesof the Federal Government and so much of the income

chargeable under the head income from business asisexpended in Pakistan for the purposesof carrying out

welfare activities the exemption isproposed to be limited to an amount that bearsin proportion to the income

from businessthe same proportion asthe income from businessbearsto the income from all the sourcesof

income.

b) A trust administered under a scheme approved by the Federal Government and established in Pakistan exclusivelyfor the purposesof carrying out activitiesasare for the benefit and welfare of:

i) ex-servicemen and serving personnel, including civilian employeesof the Armed Forcesand their dependents

ii ) ex-employeesand serving personnel of the Federal Government or a Provincial Government and theirdependentswhere the trust isadministered by a committee nominated by the Federal Government or the

Provincial Government.

c) A trust or welfare insti tution or non-profit organization approved by the Chief Commissioner for the purposesofthissub-clause


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SECTION(CLAUSE)


d) Income of a university or other educational institution being run by a non-profit organization existing solely foreducation purposesand not for purposesof profit

e) Any income which isderived from investmentsin securiti esof the Federal Government, profit on debt fromscheduled banks, grant received from Federal Government or Provincial Government or Distri ct Governments,

foreign grantsand house property held under trust or other legal obligationswholly, or in part only, for religiousor

charitable purposesand isactually applied or finally set apart for thisapplication subject to following provisos:

i) Exemption will not apply to the extent amount isnot expended within Pakistanii ) If amount set apart isexpended outside Pakistan the amount shall be included in total income of the tax year

in which the amount wasexpended or set apart whichever isgreater and the provisionsrelating to audit shall

not apply to thisproviso.

The proposed section includesan explanation that excludesfrom the definition of charitable and religiouspurpose any

amount which isset apart, expended or disbursed for the maintenance and support wholly or partially for the family,

children or descendantsof the author of the trust or the donor or the maker of the institution or for hisown

maintenance and support during hislifetime or payment to himself or hisfamily, children, relationsor descendantsor

for the payment of hisor their debtsout of the income from house property dedicated or if any expenditure ismade

other than for charitable purposes.

f) Any income of a religiousor charitable institution derived from voluntary contributionsapplicable solely forreligiousor charitable purposesof the institution, excluding income of a private religioustrust which doesnot

ensure benefit for the public.

113 Minimum income tax on the income of certain persons

(1) and (2) The proposed amendmentsto thissection seek to transfer the identification of applicable tax ratesunder thissection toDivision IX of Part I of First Schedule.

113C Alternative Corporate Tax

Thisproposed new section seeksto provide for an Alternate Corporate Tax which would be the tax payable for Tax Year

2014 onwardsif it ishigher than the Corporate Tax.

Alternate Corporate Tax isdefined asthe tax at 17% of a sum equal to accounting income lessthe following:

( i) exempt income

(ii) income subject to tax/ tax credit under the following sections

Section Subject

37A Capital gain on disposal of securities

148(7) Income under final tax on imports

150 Dividends

153(3) Income under final tax on paymentsfor goods, servicesand contracts

154(4) Income under final tax on exports

156 Income from prizesand winnings

233(3) Income under final tax from brokerage and commission

65D Tax credit for newly established industrial undertakings

65E Tax credit for industrial undertakingsestablished before July, 2011


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SECTION(CLAUSE)


The accounting income isdefined asthe accounting profit before tax for the tax year, asdisclosed in financial

statementsor asadjusted for exclusion of the above income and after adjusting for proportionate allocation of expenses

attributable to income excluded. The accounting income isalso excluding income from associatesunder equity method

of accounting.

Corporate Tax isthe total tax payable by the company, including tax payable on account of minimum tax and final taxes

payable under the O rdinance excluding the tax payable under the above sectionsand including tax due under:

Section 161(failure to pay tax collected or deducted) Section 162 (recovery of tax from the person from whom tax wasnot collected or deducted). Any amount charged or paid on account of default surcharge or penalty

The provisionsof thissection also allow for carry forward of excessamount paid asalternate corporate tax for

adjustment against corporate tax for a period of ten yearsimmediately succeeding the year in which the excesswasfirst

computed. Thisadjustment doesnot affect the adjustment allowed for carry forward of minimum tax in section 113 of

the O rdinance.

The provisionsof thisproposed new section do not apply to companieswhose tax iscomputed under the following

sections:

Section Subject

Fourth Schedule Profitsand gainsof insurance companies

Fifth Schedule Profi tsand gainsfrom exploration and production of petroleum companies

Profitsand gainsfrom exploration and extraction of mineral deposits

Seventh Schedule Profi tsand gainsof banking companies

The tax credit for investment under section 65B would be allowed against the Alternate Corporate Tax payable.

The section empowersthe Commissioner to make adjustmentsand proceed to compute accounting income asper

historical accounting pattern after providing an opportunity to the taxpayer of being heard.

114 Return of income

(1) The proposed amendment seeksto exempt non-resident persons, who are registered with any of the bodies, from fi lingof return of income.

122B Revision by the Regional Commissioner

The proposed amendmentsin thissection seek to replace the wordsRegional Commissioner by the wordsChief

Commissioner to correct the referencesin accordance with the new designations. Thissection dealswith revision of

orderspassed for exemption and lower rate certificatesissued under the O rdinance by the Commissioners.

127 Appeal to the Commissioner (Appeals)

The proposed amendmentsin thissection are of an editorial nature replacing reference to Taxation O fficer by O fficer of

Inland Revenue.


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SECTION(CLAUSE)


130 Appointment of Appellate Tribunal

(4) The proposed amendment seeksto include Cost and Management Accountantswith ten yearsprofessional experience

to be eligible for appointment asAccountant M ember of the Income Tax Appellate Tribunal.

148 Imports

(7)(d)(viii) and (ix) Tax deducted on importsisconsidered to be final tax liability and the personsexcluded from thistreatment are large

import houseswho meet the conditionsspecified. The proposed amendment seek to correct the referencesto

registration under the SalesTax Act, 1990 and making suppliesto personsregistered under the SalesTax Act, 1990.

(8A) Thisproposed new clause seeksto include tax paid at the time of import of shipsby ship breakersinto the

final/presumptive tax regime.

149 Salary

(3) Thisproposed new clause seeksto provide for withholding tax at 20% when making payment for directorship feesor feefor attending board meetingsor such fee by whatever name called. The tax deducted and paid isan advance tax of the

director adjustable against their final tax liability.

150 Dividends

The proposed amendment seeksto amend the reference to Di vision I of Part II I being the applicable Division where rate

of tax on dividendsare specified.

15 Profit on debt

(1) The proposed amendment seeksto amend the reference to Division IA of Part III being the applicable Division where

rate of tax on profit on debt are specified.

(3) The proposed new proviso seeksto allow the non-filer to adjust the amount deducted in excessof the amount required

to be deducted for filersagainst tax payable at the time of filing of return of income.

153 Payments for goods, services and contracts

(1)(c) The proposed amendment to this sub section seeksto clarify that contract signed by a sportsman are included in the

reference to contracts. The tax deducted at source on paymentsunder these contractsisdeemed to be the final tax on

the income earned by the recipientsfrom these payments. The other proposed amendment in thissection isof an

editorial nature.

156 Prizes and winnings

(3) The proposed amendment in thissub-section isof an editorial nature.

159 Exemption or lower rate certificate

(4) The proposed amendment in thissub-section isof an editorial nature.

169 Tax deducted or collected as a final tax

(1)(b) The proposed amendment in thissub-section isof an editorial nature.


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SECTION(CLAUSE)


181AA Compulsory registration in certain cases

Thisproposed new section seeksto make it compulsory for all new applicantsfor an electricity or gasconnection to

obtain a taxpayersregistration certificate under section 181of the Ordinance. Thisprovision isbeing introduced to

widen the tax net.

203 Trial by Special Judge

(1) The proposed new proviso seeksto empower a Special Judge appointed under section 185 of the CustomsAct, 1969 to

try offencesunder the O rdinance.

231 Advance tax on private motor vehicles

Thisproposed new section seeksto replace the existing section with the same heading to provide payment of advance

tax at the time of registration of vehicles.

The provisionsof the new section are asfollows:

Advance tax at ratesprescribed in Division VII of Part IV of the First Schedule shall be paid at the time ofregistration of new locally manufactured vehiclesand at the time of registration of transfer of private motor

vehicleswith the Excise and Taxation Department

Advance tax at ratesprescribed in Division V II of Part IV of the First Schedule shall be collected by themanufacturer of a motor car or jeep at the time of sale

Advance tax isnot payable at the time of registration with the Excise and Taxation Department if evidence isproduced that tax due on the same vehicle from the same person waspaid at the time of transfer of locally

manufactured vehiclesor at the time of clearance of importsfor imported cars

The advance tax collected under thissection are adjustable against tax payable by the person The provisionsof thissection are not applicable to Federal Government, Provincial Government, Local

Government, foreign diplomat and a diplomatic mission in Pakistan.

235 Domestic electricity consumption

Thisproposed new section seeksto provide for collection of advance tax on domestic electri city consumption at rates

specified in Division IV of Part IV of the First Schedule.

The amount isto be added to the bill for electricity consumption at the time of making the bill and isadjustable against

the tax payable by the person to whom the bill ischarged.

236A Tax on steel smelters

Thisproposed new section seeksto provide for collection of tax from steel melter and steel re-roller operating

composite steel unitsand registered for the purpose of Chapter XI of the SalesTax Special Procedure Rules, 2007 at Re 1

per unit of electricity consumed for the production of steel billets, ingotsand mild steel (M S products) excluding

stainlesssteel.


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SECTION(CLAUSE)


The advance tax isrequired to be charged and collected on electricity billsprepared and the amount collected isdeemed

to be the tax collected under section 153(1) of the O rdinance on the payment for local purchase of scrap.

The tax collected under thissection isnon adjustable and credit will not be allowed to any person on the tax collected

under thissection.

236B Advance tax on purchase of air ticket

(2) The proposed amendment in thissub-section seeksto transfer the responsibility for collection of advance tax onpurchase of t icket to airlinesfrom travel agentswho are presently responsible for collecting thistax. Thisisto ensure

thistax iscollected on all airline bookingsasa growing number of bookingsare now online directly with the airlines. The

proposed amendment also clarifiesthat the mode, manner and time of collection of thistax will be asprescribed.

236 Advance tax on purchase or transfer of immovable property

Thisproposed new section seeksto introduce advance tax payable at the time of purchase or transfer of immovable

property. The tax isto be collected at ratesspecified in Division XV II of Part IV of the First Schedule and isto be

collected by the person responsible for registering or attesting transfer.

The tax collected will be an advance tax adjustable against the tax liability of the person.

Thistax isnot to be collected in the case of the Federal Government, Provincial Government, Local Government or a

foreign diplomatic mission in Pakistan.

The provisionsof thissection also do not apply to a scheme introduced by the Federal Government, Provincial

Government or an Authority formed under a Federal or Provincial law for expatriate Pakistanis.

236 Advance tax on purchase of international air tickets

Thisproposed new section seeksto provide for collection of advance tax on grossamount of single or return journey by

airlinesissuing international air ticketsat ratesspecified in Division XX of Part IV of the First Schedule.

The amount isto be charged and collected asthe amount of the fare ischarged and collected either manually or

electronically.

The mode, manner and time of collection are to be asprescribed and the tax collected isadjustable against the tax

payable by the person.

236M Bonus shares

Thisproposed new section seeksto provide for collection of tax on bonussharesissued to a shareholder of the company

at the rate of five percent on the value of the bonussharesdetermined on the basisof day end price on the first day of

closure of books.

Bonussharesare presently exempt from charge of tax.

The provisionsseem to indicate that adequate arrangementsare to be made by the company for collection and deposit

of the tax amount failing which the tax ispayable by the company without prejudice to any other liability for which the

company may become liable on thisaccount.

The tax collected and deposited isto be considered asthe final tax liability of the shareholder on thisincome.


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It isnot clear from the provisionsof thissection asto the applicability on bonussharesissued by companieswhich are

not listed on the stock exchanges. Asthe reference to the value iswith respect to the market value on day end on the

first day of book closure, it appearsthat provisionsmay apply only to bonussharesissued by listed companies.

239 Savings

(13) The proposed amendment to thissub-section appearsto be of an editorial nature.


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First Schedul Rates of Tax

Part I Rates of Tax

Division I Rates of Tax for individuals and Association of Person

(1B) The bill proposesto insert a new clause thereby reducing the rate of tax payable by a disabled person or taxpayer of the

age of 60 yearsby 50% on income up to Rs. 1million asfollows:

Where the taxable income in a tax year, other than income on which the deduction of tax isfinal, doesnot exceed one

million rupeesof a person-

( i) holding a National Database Registration Authoritys Computerized National Identity Card for disabled persons; or(ii)

a taxpayer of the age of not lessthan sixty yearson the first day of that tax year, the tax liability on such incomeshall be reduced by 50% .

(2) The bill proposesto make technical amendment by deleting the redundant clause relating to the rate of tax payable on

bonusasIDPT asincome tax at 30% which wasinserted for the tax year 2010 when there wasflood situation in

Pakistan. The proposed omission hasno consequential effect on taxability.

Division III Rate of Dividend Ta

The proposed substitution of Division III seeksto amend rate of tax on dividend asfollows:

The rate of tax imposed under section 5 on dividend received from a company shall be

(a) 7.5% in the case of dividendsdeclared or distributed by purchaser of a power project privatized by WAPDA or onsharesof a company set up for power generation or on sharesof a company, supplying coal exclusively to power

generation projects; and

(b) 10% , in all other cases:Provided that the dividend received by a person from a stock fund shall be taxed at the rate of 12.5% for tax year 2015

and onwards, if dividend receiptsare lessthan capital gains:

Provided further that the dividend received by a company from a collective investment scheme or a mutual fund, other

than a stock fund, shall be taxed at the rate of 25% for tax year 2015 and onwards.

Division VII Capital Gains on Disposal of Securities

The bill proposesto substitute table of rate of tax thereby revising rate of tax on capital gain for the tax year 2015. The

proposed table for Capital Gain Tax rate isreproduced asfollows:


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S.

No.Period

Tax

Year

Rate

of tax

(1) (2) (3) (4)

1. Where holding period of a security islessthan six months. 2011

2012

2013

2014

10%

10%

10%

10%

2. Where holding period of a security ismore than six monthsbut lessthan twelve

months.

2011

2012

2013

2014

7.5%

8%

8%

8%

3. Where holding period of a security islessthan twelve months. 2015 12.5%

4. Where holding period of a security istwelve monthsor more but lessthan twenty-four

months.

2015 10%

5. Where holding period of a security istwenty-four monthsor more. 2015 0%

Division VIII Capital Gains on Disposal of Immovable Property

The bill proposesto make technical amendment thereby clarifying that the capital gain arising on disposal of immovable

property where holding period of immovable property ismore than two yearswould be taxable at the rate of 0% .

Division I Minimum Tax under Section 113

The bill proposesto insert a new division thereby prescribing the rate of minimum tax for different personsasfollows:

S.No.

Person(s)

Minimum Tax aspercentage of thepersons turnover

for the year(1) (2) (3)

1. a) O il marketing companies, O il refineries, Sui Southern GasCompany Limited andSui Northern GasPipelinesLimited ( for the caseswhere annual turnover exceeds

rupeesone billion.)

b) Pakistan International AirlinesCorporation; andc) (c) Poultry industry including poultry breeding, broiler production, egg production

and poultry feed production.

0.5%

2. a) Distributorsof pharmaceutical products, fertilizersand cigarettes;b) Petroleum agentsand distributorswho are registered under the SalesTax Act,1990;c) Rice millsand dealers; andd) Flour mills.

0.2%

3. M otorcycle dealersregistered under the SalesTax Act, 1990. 0.25%

4. In all other cases. 1%


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Part II Rates of Advance Tax

The bill proposesto substi tute Part II thereby prescribing and revising the rate of advance tax to be collected byCollector of Customs against importsunder section 148 asper the following:

S.No.

Person(s) Rate

(1) (2) (3)

1. i) Industrial undertaking importing remeltable steel (PCT Heading72.04) and directly reduced iron for itsown use;

ii ) Personsimporting potassic fertilizersin pursuance of EconomicCoordination Committee of the cabinetsdecision No. ECC-

155/12/2004 dated the 9th December, 2004;

iii) Personsimporting urea; andiv) M anufacturerscovered under Notification No. S.R.O . 1125(I )/2011

dated the 31st December, 2011 dated the 31st December, 2011.

1% of import value asincreased by

customs-duty, salestax and

federal excise duty.

2. Personsimporting pulses 2% of import value asincreased

by customs-duty, salestax and

Federal excise duty

3. Commercial importerscovered under Notification No. S.R.O . 1125(I) /2011

dated the 31st December, 2011.

3% of import value asincreased

by customs-duty, salestax and

federal excise duty

4. Ship breakerson import of ships 4.5%

5. Industrial undertakingsnot covered under S. Nos. 1 to 4 5.5%

6. Companiesnot covered under S. Nos. 1to 5 5.5%

7. Personsnot covered under S. Nos. 1 to 6 6%

Part IIA Collection of Tax from Distributors, Dealers and Wholesalers

The bill proposesto delete Part IIA relating to the rate of tax to be collected from Distributors, Dealersand Wholesalers

under section 153A as the same hasbecome redundant after the omission of section 153A.

Part III DEDUCTION OF TAX AT SOURC Division I Advance Tax on Dividend

The bill proposesto insert Division I and Division IA relating to Advance tax on Dividend and Profit on Debt respectively

thereby substi tuting existing Division I. The insertion seeksto stipulate rate of withholding tax on dividend. The Division

I hasbeen reproduced asfollows:The rate of tax to be deducted under section 150 shall be-

(a) 7.5% in the case of dividendsdeclared or distributed by purchaser of a power project privatized by WAPDA or onsharesof a company set up for power generation or on sharesof a company, supplying coal exclusively to power

generation projects;

(b) 10% for filersother than mentioned in (a) above;


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(c) 15% for non-filersother than mentioned in (a) above:Provided that the rate of tax required to be deducted by a collective investment scheme or a mutual fund shall be-

Stock Fund

Money marketFund, Income

Fund or any otherfund

Individual 10% 10%

Company 10% 25%

AO P 10% 10%

Provided further that in case of a stock fund if dividend receiptsof the fund are lessthan capital gains, the rate of tax

deduction shall be 12.5% .

Division IA Profit on Debt

The bill proposesto insert Division I and Division IA relating to Advance tax on Dividend and Profit on Debt respectively

thereby substi tuting existing Division I. The insertion seeksto stipulate rate of withholding tax on profit on debt from

non-filersabove Rs. 500,000 at 15% . The Di vision IA hasbeen reproduced asfollows:

The rate of tax to be deducted under section 151shall be 10% of the yield or profi t for fi lersand 15% of the yield or

profit paid, for non-filers:

Provided that for a non-filer, if the yield or profit paid isrupeesfive hundred thousand or less, the rate shall be ten per

cent.

Division III Payments for Goods or Service (1)(b) The proposed amendment seeksto revise the rate of withholding tax to be deducted from payment made against sale

of goodsasfollows:

i) 4% of the grossamount payable in the case of companies; andii ) 4.5% of the grossamount payable in the case of other taxpayers.

(2)(ii) The proposed amendment seeksto revise the rate of withholding tax to be deducted from payment made against

servicesother than transport servicesas follows:

(a) 8% of the grossamount payable in the case of companies; and(b) 10% of the grossamount payable in the case of other taxpayers.

3(i), (ii) & (iii) The proposed amendment seeksto revise the rate of withholding tax to be deducted from payment made against

execution of contract other than a contract for the sale of goodsor rendering of or providing of servicesand insertsnew

sub clause (ii i) asfollows:

i) 7% of the grossamount payable in the case of companies;ii ) 7.5% of the grossamount payable in the case of other taxpayers; andiii) 10% of the grossamount payable in case of sportspersons.


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Division I Export (3) The proposed amendment seeksto increase the rate of withholding tax from 0.5% to 1% to be deducted by every

exporter or an export house making a payment in full or part including a payment by way of advance to a resident

person or permanent establishment in Pakistan of a non-resident person for rendering of or providing servicesof

stitching, dying, printing, embroidery, washing, sizing and weaving from the grossamount payable.Division VI Petroleum Product

The proposed amendment seeksto increase the rate of withholding tax from 10% to 12% to be deducted by every

person selling petroleum productsto a petrol pump operator from the amount of commission or discount allowed to

the operator.

Part I DEDUCTION OR COLLECTION OF ADVANCE TA

Division II Brokerage and Commission

The bill proposesto substi tute the Division relating to rate of collection / deduction of tax from any payment on

account of brokerage or commission to agent asfollows:

The rate of collection under sub-section (1) of section 233 shall be.-

(a) 7.5% of the amount of the payment, in case of advertising agents;(b) 12% of the amount of payment in all other cases.

Division III

Tax on Motor Vehicle

(3) The proposed substi tution seeksto revise the ratesof withholding taxescollected under section 234 with Motor VehicleTax in case of other private motor cars. The proposed rate of withholding tax for fi lersand non-filersare asfollows:

S. No. Engine capacity For filers For non-filers

(1) (2) (3) (4)

1. Up to 1000cc Rs. 1,000 Rs. 1,000

2. 1001cc to 1199c Rs. 1,800 Rs. 3,600

3. 1200cc to 1299c Rs. 2,000 Rs. 4,000

4. 1300cc to 1499c Rs. 3,000 Rs. 6000

5. 1500cc to 1599c Rs. 4,500 Rs. 9,000

6. 1600cc to 1999c Rs. 6000 Rs. 12,000

7. 2000cc & above Rs. 12,000 Rs. 24,000


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(4) The proposed substi tution seeksto revise the ratesof withholding taxescollected under section 234 with M otor VehicleTax in case where the motor vehicle tax iscollected in lump sum. The proposed rate of withholding tax for filersand

non-filersare asfollows:

S. No. Engine capacity For filers For non-filers

(1) (2) (3) (4)

1. Up to 1000c Rs. 10,000 Rs. 10,000

2. 1001cc to 1199c Rs. 18,000 R . 36,000

3. 1200cc to 1299cc Rs. 20,000 Rs. 40,000

4. 1300cc to 1499c Rs. 30,000 Rs. 60,000

5. 1500cc to 1599cc Rs. 45,000 Rs. 90,000

6. 1600cc to 1999c Rs. 60,000 Rs. 120,000

7. 2000cc & above Rs. 120,000 Rs. 240,000

Division V Telephone User

The proposed amendment seeks to reduce the rate of collection of tax under section 236 in the case of subscriber of

mobile telephone and pre-paid telephone card from 15% to 14% of the amount of bill or sales price of pre-paidtelephone card or sale of unitsthrough any electronic medium or whatever form.

Division VI Cash withdrawal from a ban

The proposed amendment seeksto stipulate the rate of deduction of advance tax on cash withdrawal at 0.3% for fi lers

and at 0.5% for non-filers.

Division VII Advance Tax on Purchase of Private Motor Car and Jee

The bill proposesto substi tute the existing Division with a new one asfollows:

The rate of tax under sub-sections(1), ( 2) and (3) of section 231B shall be asfollows:

S. No. Engine capacity Tax for filers Tax for non-filers

(1) (2) (3) (4)

1. Upto 850c Rs. 10,000 Rs. 10,000

2. 851cc to 1000c Rs. 20,000 Rs. 25,000

3. 1001cc to 1300cc Rs. 30,000 Rs. 40,000

4. 1301cc to 1600c Rs. 50,000 Rs. 100,000

5. 1601cc to 1800cc Rs. 75,000 Rs. 150,000

6. 1801cc to 2000c Rs. 100,000 Rs. 200,000

7. 2001cc to 2500cc Rs. 150,000 Rs. 300,000

8. 2501cc to 3000cc Rs. 200,000 Rs. 400,0009. Above 3000c Rs. 250,000 Rs. 450,000


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Division Advance Tax on Sale or Transfer of Immovable Property

The proposed amendment seeksto provide ratesof deduction of advance tax on sale of immovable property under

section 236C at 0.5% of the grossamount of the consideration received for filersand 1% for non-filers.

Division XI Advance Tax on Functions and Gathering

The proposed amendment seeksto reduce the rate of withholding tax on functionsand gatheringsunder section 236D

from 10% to 5% .Division XVIII Advance Tax on Purchase of Immovable Property

The bill proposesto insert a new Division to stipulate the ratesof withholding tax on purchase of immovable property.

The proposed new Division hasbeen reproduced asfollows:The rate of tax to be collected under section 236K shall be:-

S.

No.Period Rate of Tax

(1) (2) (3)

1. Where value of Immovable property isup to 3 million. 0%

2. Where the value of Immovable property ismore than 3 million Filer 1%

Non-Filer

2%

Provided that the rate of tax for Non-Filer shall be 1% up to the date appointed by the Board through notification in

official gazette.

Division XI Advance Tax on Domestic Electricity Consumption

The bill proposesto insert a new Division to stipulate the ratesof withholding tax on domestic electricity consumption.

The proposed new Division hasbeen reproduced asfollows:The rate of tax to be collected under section 235A shall be-

i) 7.5% if the amount of monthly bill isRs. 100,000 or more; andii )

0% the amount of monthly bill islessthan Rs. 100,000.

DivisionX Advance Tax on International Air Ticket

The bill proposesto insert a new Division to stipulate the ratesof withholding tax on international air tickets. The

proposed new Division hasbeen reproduced asfollows:


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The rate of tax to be collected under section 236L shall be:-

S. No. Type of Ticket Rate(1) (2) (3) (4)

Filer Non-Filer

1. Economy 0% 0%

2. First / Business/ Club

class

3% 6%


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Second Schedule Exemptions and Tax concession

Part I Exemptions from Total Income

(4)(b) The proposed substi tution seeksto replace income year with tax year which hasno consequential effect. The said clause

exempts salary earned by a Pakistani seafarer working on a foreign vessel provided he remitssuch income within 2

monthsof the relevant tax year through normal banking channel.

(35) The proposed omission seeksto withdraw exemption from tax on any income representing compensatory allowance

payable to a citizen of Pakistan locally recruited in Pakistan Mission abroad.

(57)(3)(xiii) The proposed insertion seeks to exempt Sindh Province Pension Fund established under the Sindh Province Pension Fund

O rdinance, 2002 from tax.

The proposed omission seeksto withdraw exemption from tax on the following:

(58) Donations, voluntary contributions, subscriptions, house property, investmentsin the securit iesof the Federal

Government and so much of the income chargeable under the head "Income from business" of a trust or welfare

insti tution or a trust administered under a scheme approved by the Federal Government and established in Pakistan

exclusively for the benefit and welfare of ex-servicemen and serving personnel, including civilian employeesof the

Armed Forcesor of the Federal Government or a Provincial Government and their dependentsor a trust approved by

the Regional Commissioner of Income Tax asisexpended in Pakistan for the purposesof carrying out welfare activit ies.

The withdrawal of thisexemption hasbeen substituted by the introduction of a tax credit asexplained in the proposed

new section 100C of the O rdinance.

(58A) Income of a university or other educational institution being run by a non-profit organization existing solely for

educational purposesand not for purposesof profit.



(59) Any income which isderived from investmentsin securiti esof the Federal Government,profi t on debt from scheduled

banks, grant received from Federal Government or Provincial Government or D istrict Governments, foreign grantsand

house property held under trust or other legal obligationsfor religiousor charitable purposes.



(60) Any income of a religiousor charitable institution derived from voluntary contributionsapplicable solely to religiousor

charitable purposesof the institution.




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(66)(v) & (XXX) The proposed bill seeksto withdraw exemption from tax on income derived by Hamdard Laboratories(Waqf) Pakistan

and to exempt any income derived by Greenstar Social M arketing Pakistan (Guarantee) Limited. M oreover, there are few

editorial amendmentsproposed in the clause (66).

The proposed omission seeksto withdraw exemption from tax on the following:

(81A) The existing holdersof Foreign Currency Bearer Certificate whether certificatesare encashed or not.

(88A) The existing holdersof Federal Government Securitiesand redeemable capital whether the securit iesand redeemable

capital are matured or not.

(92A) Any income of any university or any other educational institution established in the most affected and moderately

affected areasof Khyber Pakhtunkhwa, FATA and PATA.

The withdrawal of thisexemption hasbeen substituted by the introduction of a tax credit asexplained in the proposednew section 100C of the O rdinance.

(93A) Profi tsand gainsderived by a taxpayer from the running of any vocational insti tute or technical insti tute or poly-

technical institute, recognized by a Board of Technical Education or a university or any other authority appointed in this

behalf by the Federal Government or a Provincial Government.



(99) The proposed bill seeksto insert a proviso clarifying that for the purpose of determining distribution of at least 90% of

accounting income byCollective Investment Scheme or a REIT Scheme in order to avail exemption from taxation, theincome distributed through bonusshares, unitsor certificatesshall not be taken into account.

(126) The proposed substi tution seeksto exempt from tax any income derived by a public sector university.



(126A) The proposed substitution seeksto exempt from tax any income derived by China O verseasPortsHolding Company

Limited from G wadar Port operationsfor a period of twenty yearswith effect from the sixth day of February, 2007. By

virtue of the proposed substi tution, exemption from tax on income of G awadar Free Zone Company Limited, PSA

Gawadar International Terminal Limi ted, Gawadar M arine ServicesLimited and P.S.A. Gawadar (PTE) Limited will be

withdrawn.

(126H) The proposed insertion seeksto exempt any profitsand gainsderived by a taxpayer, from a fruit processing orpreservation unit set up in Balochistan Province, M alakand Division, G ilgit-Baltistan and FATA between tax year 2015 to

tax year 2017, engaged in processing of locally grown fruitsfor a period of five years.

(132B) The proposed insertion seeksto exempt any profitsand gainsderived by a taxpayer from a coal mining project in Sindh,

supplying coal exclusively to power generation projects.


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(24) Import of pulses. However, tax at the rate of 2% on import value of pulsesisproposed to be imposed in Part I I Ratesof

Advance tax of the First Schedule.

(24B) Purchase of steel scrap by Steel M eltersand purchase of ingotsand billetsby Steel Re-rolli ng M ills.

(26) Payment to advertising agent .

(29) Cigarette manufacturerswho are registered under the SalesTax Act, 1990.

Part III Reduction in Tax Liability

(1)(1)(a) The proposed omission seeksto withdraw the reductionsin tax liabili ty on flying allowance of pi lots.

(1A) The proposed omission seeksto withdraw the reductionsin tax liability of a taxpayer aged 60 yearsor more on the first

day of the tax year by an amount equal to 50% of histax liabili ty.

The withdrawal of thisexemption hasbeen substituted by the introduction of clause (1B) in Division I Ratesof Tax for

individualsand Association of Personsof Part I of First Schedule.

(1AA) The proposed amendment seeksto provide reduction in liabili ty by imposing tax at a rate of 7.5% on total allowances,

exceeding basic pay, received by pilotsof any Pakistani airlines.

The proposed omission seeksto withdraw the reduction in minimum tax on turnover under section 113 of the following:

(5) Corporatized entit iesof Pakistan Water and Power Development Authority (D ISCO s) and National Transmission and

Dispatch Company (NTDC) .

(7) Any taxpayer engaged in the businessof distribution of cigarettesmanufactured in Pakistan.

(8) Distributorsof pharmaceutical products, fertilizers, consumer goodsincluding fast moving consumer good . However,

the minimum tax on these taxpayersisproposed to be taxed at the rate of 0.2% in Division IX of Part I of the First

Schedule.

(9) O il marketing companies, O il refineries, Sui Southern GasCompany Limited and Sui Northern GasPipelinesLimited

whose annual turnover exceedsrupeesone billion. However, the minimum tax on these Companiesisproposed to be

taxed at the rate of 0.5% in Division IX of Part I of the First Schedule.

(10) Flour mills. However, the minimum tax on flour mills isproposed to be taxed at the rate of 0.2% in Division IX of Part I

of the First Schedule.

(12) Pakistan International Ai rlinesCorporation. However, the minimum tax on Pakistan International AirlinesCorporation is

proposed to be taxed at the rate of 0.5% in Division IX of Part I of the First Schedule.

(13) Petroleum agentsand distributorswho are registered under the SalesTax Act, 1990 and rice millsand dealers.

However, the minimum tax on these taxpayersisproposed to be taxed at the rate of 0.2% in Division IX of Part I of the

First Schedule.


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(14) Poultry industry including poultry breeding, broiler production, egg production and poultry feed production. However,

the minimum tax on these industriesisproposed to be taxed at the rate of 0.5% in Division IX of Part I of the First

Schedule.

(15) M otorcycle dealersregistered under the SalesTax Act, 1990. However, the minimum tax on these taxpayersis

proposed to be taxed at the rate of 0.25% in Division IX of Part I of the First Schedule.

Part I Exemption from Specific Provision

(9A) The proposed new insertion seeksto make the provisionsof clause (a) of sub-section (1) of section 153 inapplicable to

steel melters , steel re-rollers , composite steel units, asa payer, in respect of purchase of scrap, provided that tax is

collected in accordance with section.

(9AA) The proposed new insertion seeksto make the provisionsof clause (a) of sub-section (1) of section 153 inapplicable to

ship breakersasrecipient of payment in respect of purchase of shipsafter July 1, 2014.

(10) The proposed amendment seeksto impose provision of section 111on any amount invested in the purchase of Special

US Dollar Bondsissued under the Special U.S. D ollar Bond Rules, 1998.

(10A) The proposed amendment seeksto impose provision of section 148 on import ofplant and machinery forestablishment of businessesin the most affected and moderately affected areasof Khyber Pakhtunkhwa, section 154 on

export of goodsoriginating from the most affected and moderately affected areasof Khyber Pakhtunkhwa, FATA and

PATA, section 235 on commercial and industrial consumersof electricity located in the most affected and moderately

affected areasof Khyber Pakhtunkhwa, FATA and PATA, section 182 and section 205 on businesslocated in the most

affected and moderately affected areasof Khyber Pakhtunkhwa, FATA and PATA.

(9AA) The proposed new insertion seeksto make the provisionsof clause (a) of sub-section (1) of section 153 inapplicable toship breakersas recipient of payment in respect of purchase of shipsafter tax year 2014.

(11A)(v) The proposed new insertion seeksto make the provisionsof section 113 regarding minimum tax inapplicable on a

Company supplying coal exclusively to power generation projectsin respect of receipt from sale of electricity.

The proposed amendment seeksto withdraw the following exemption from the provision of:

(41A) Section 148 and section 169 in respect of a person if he optsout of presumptive tax regime subject to the condition thatminimum tax liability under normal tax regime is60% or more of tax already collected at import stage.

(41AA) Section 154 and section 169 in respect of a person if he optsout of presumptive tax regime subject to the condit ion thatminimum tax liability under normal tax regime is50% or more of tax already deducted by Collector of Customsorauthorized dealer.

(41AAA) Section 153 and section 169 in respect of a person if he optsout of presumptive tax regime subject to the condit ion thatminimum tax liabili ty under normal tax regime is70% or more of tax already deducted by the buyer.


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(41B) Section 152 in respect of paymentsto foreign newsagencies, syndicate servicesand non-resident contributors. By virtueof the proposed amendment, now tax wi ll be deducted from payment to foreign newsagencies, syndicate servicesand

non-resident contributors.

(56B) The proposed new insertion seeksto make the provisionsof sub-section (7) of section 148, and clause (a) of sub-section(1) of section 169 inapplicable on a person by providing exemption from final tax regime being a commercial importer if

the person optsto file return of total income along with accountsand documentsasmay be prescribed, subject to the

condition that minimum tax liabili ty under normal tax regime shall not be lessthan 5.5% , of the imports, i f the person is

a company and 6% otherwise.

(56C) The proposed new insertion seeksto make the provisionsof sub-section (3) of section 153, in respect of sale of goods

and clause (a) of sub-section (1) of section 169 inapplicable on a person by providing exemption from final tax regime, i f

the person optsto file return of total income along with accountsand documentsasmay be prescribed subject to the

condition that minimum tax liabili ty under normal tax regime shall not be lessthan 3.5% of the grossamount of sales, i f

the person isa company and 4% otherwise.

(56D) The proposed new insertion seeksto make the provisionsof sub-section (3) of section 153, in respect of contractsand

clause (a) of sub-section (1) of section 169 inapplicable on a person by providing exemption from final tax regime if the

person optsto file return of total income along with accountsand documentsasmay be prescribed subject to the

condition that minimum tax liabili ty under normal tax regime shall not be lessthan 6% of contract receipts, if the

person isa company and 6.5% otherwise.

(56E) The proposed new insertion seeksto make the provisionsof sub-section (2) of section 153 and clause (a) of sub-section(1) of section 169 inapplicable on a person by providing exemption from final tax regime if the person optsto file return

of total income along with accountsand documentsas may be prescribed subject to the condition that minimum tax

liabili ty under normal tax regime shall not be lessthan 0.5% of grossamount of servicesreceived.

(56F) The proposed new insertion seeksto make the provisionsof sub-section (2) of section 156A and clause (a) of sub-section (1) of section 169 inapplicable on a person by providing exemption from final tax regime if the person optsto fi le

return of total income along with accountsand documentsasmay be prescribed, subject to the condition that

minimum tax liabili ty under normal tax regime shall not be lessthan 10% of the commission or discount received.

(56G) The proposed new insertion seeksto make the provisionsof sub-section (3) of section 233 and clause (a) of sub-section(1) of section 169 inapplicable on a person by providing exemption from final tax regime if the person optsto file return

of total income along with accountsand documentsas may be prescribed, subject to the condition that minimum tax

liabili ty under normal tax regime shall not be lessthan 10% of the commission.

(57) The proposed new amendment seeksto explain that exemption granted from section 153 on a person shall only beavailable asa recipient and not aswithholding agent.

(80) The proposed new omission seeksto withdraw the exemption from the provisionsof section 153A to manufacturers.


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Third SchedulePart II Initial Allowance and First Year Allowanc (1) The proposed amendment seeksto reduce the rate of initial allowance on plant and machinery from 25% to 10% .

Seventh Schedule Rules for the computation of the profits and gains of a banking company and tax payable thereon

Rule 6 The proposed amendment seeksto impose tax on net basison income from dividend and income from capital gainsasopposed to tax year 2014 where the dividend and capital gainswere subject to tax on grossbasis.

Rule 6A & 6 In order to compute and impose tax on net basis, following formula isproposed in finance bill 2014:

For Dividend

(A/C) x B

where-

A isthe total amount of expenditure asper thisSchedule;

B isthe grossamount of dividend received; and

C isthe grossamount of receiptsincluding dividend.

For Capital Gain

(A/C) x B

where-

A isthe total amount of expenditure asper thisSchedule;

B isthe grossamount of capital gains; and

C isthe grossamount of receiptsincluding capital gains.


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THE INCOME SUPPORT LEVY ACT, 2013

The Act was introduced in the Finance Act, 2013 and wasconsidered controversial from inception. The Courts have

granted stay against thislevy. Asa result the law isnow being repealed. It isnot clear asto the fate of the levy paid by

some taxpayersasthisamount should strictly be refunded or adjusted against future tax liability.


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Section 2 (27) Retail Price

The Bill seeksto insert the proviso in the definition of Retail Price. The definition of retail price isimportant especially

in the case of 3rd Schedule itemsand it meansprice fixed by the manufacturer inclusive of all chargesand taxes

excluding salestax. The bill now seeks to insert the proviso that the Board through General O rder shall specify Zones

or areasfor the purpose of determination of highest retail price for any brand or variety of goods.

Section 3 Scope Of Tax

Section 3 isthe charging section which createsa charge on all taxable suppliesmade in Pakistan by a registered person

in the course or furtherance of any taxable activity carried on by him and on all goodsimported.

(aa) The Bill now seeksto insert a new clause (aa) after clause (a) of subsection (2) of section 3 which statesthat goodsspecified in the Eighth Schedule shall be charged to tax at ratesand subject to such conditionsand limitationsas

specified in the Eighth Schedule.

(3B) Further, the Bill also seeksto insert sub- section (3B) after sub- section (3A) which statesthat goodsspecified in the

Ninth Schedule shall be charged to tax at the rate specified therein. Further the liabi lity to pay salestax to the salestax

department shall be of the person specified in the Ninth schedule.

(8) The Bill seeksto substi tute sub-section (8) of section 3. Previously in case of supply of natural gasto CN G stations, the

GasTransmission and Distribution Company shall charge salestax from the CNG stationsat the rate of nine percent in

addition to the salestax chargeable at the rate of seventeen percent on the value of supply.

The Bill now seeksto substi tute sub section 8 of section 3 where by in case of supply of natural gasto CN G stations,

the GasTransmission and Distribution Company shall charge salestax from the CN G stationsat the rate of seventeen

percent of the value of supply to the CNG consumers.

(9) The Bill seeksto add a new sub section (9) after subsection (8) of Section 3 whereby tax shall be charged from

retailersthrough their monthly electricity bills, at the rate of five percent where the monthly bill amount doesnot

exceed rupeestwenty thousand and at the rate of seven and half percent where the monthly bill amount exceedsthe

aforesaid amount, subject to the conditions, procedure and restri ctionsasprescribed in the special procedure for

payment of salestax by retailers. The tax would be in addition to the tax payable under subsection (1) asseventeen

percent, tax payable under (1A) asfurther tax and tax payable under subsection (5) asextra tax.

Section 3 Collection of excess tax

(2) . Presently the provisionsof section are only applicable on a person who hascollected tax under misapprehension of

any provision of the Act which wasnot payable astax or which isin excessof the tax or charge actually payable and

the incidence of which hasbeen passed on to the consumer, shall pay the amount of tax or charge so collected to the

Federal Government. Furthermore, under sub section (2) of section 3B any amount payable to the Federal Government

shall be deemed to be an arrear of tax or charge payable and shall be recoverable accordingly and no claim for refund

in respect of such amount shall be admissible.

Section 4 Zero rating

(d) The Bill seeksto substi tute the words goodssupplied at reduced rate of salestax for the wordsZero rated goods in

clause (d) of section 4. Finance bill proposesamendment in section 4 which allowsFederal Board of Revenue to specify

goodswhich shall be charged to zero percent asare supplied to a registered person or classof registered persons

engaged in the manufacture and supply of goodssupplied at reduced rate of salestax.


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Section 7 Determination of tax liability

(1) A registered person isentitled to deduct hisinput tax during the tax period for the purpose of taxable suppliesmade orto be made from hisoutput tax li ability subject to the provision of section 8B (Adjustable input tax) . The bill now seeks

to amend subsection (1) of section 7 which allowsconsideration of section 8 (Tax credit not allowed) aswell assection

8B (Adjustable input tax).

Further, the Bill also seeksto provide that for the purpose of determining tax liability in respect of taxable supplies, a

registered person shall be entitled to deduct input tax paid during the tax period for the purpose of taxable supplies

made by him from the output tax excluding the amount of further tax.

(2) The Bill seeks to insert a new clause (i iia) after clause (ii i) in sub section (2) of section 7 which providesthat a

registered person shall not be enti tled to deduct input tax from output tax unlessthe goodsand servicesagainst which

input tax i sclaimed are:

(a) imported or purchased for the purpose of sale or resale by the registered person on payment of tax(b) used directly asraw material by the registered person in the manufacture or production of taxable goods.(c) Electricity, natural gasand other fuel consumed directly by the registered person in hisdeclared businesspremises

for the manufacture, production or supply of taxable goods.

(d) Plant, machinery and equipment used by the registered person in hisdeclared businesspremisesfor themanufacture, production or supply of taxable goods.

Section 8 Tax credit not allowed

The Bill seeksto add new clausesafter clause( e) in sub section (1) of section 8 which providesthat input tax credit is

not available in the following cases:

Goodsand servicesnot related to the taxable suppliesmade by the registered person Goodsand servicesacquired for personal or non- businessconsumption Goodsused in, or permanently attached to , immovable property, such asbuilding and construction materials,

paints, electri cal and sanitary fitt ings, pipes, wiresand cablesbut excluding such goodsacquired for sale or resale

or for direct use in production or manufacture of taxable goods.

Vehiclesfalling in Chapter 87 of the First Schedule to the CustomsAct, 1969, partsof such vehicles, electricaland gasappliances, furniture but excluding goodsacquired for sale or re-sale.

Section 40 Posting of Inland Revenue Officer

Presently section 40B empowersthe Board or Commissioner Inland Revenue to post an officer of salestax to the

premisesof the registered person who isinvolved in tax fraud or in tax evasion to monitor hisproduction, sale and

stock position. The Bill now seeksto add an explanation in section 40B in order to remove doubt that the powersof

the Board, Chief Commissioner and Commissioner under thissection are independent of the provisionsof section 40 (

Searchesunder warrant) .

Section 50 Electronic scrutiny and intimation

The Bill seeksto add a new section 50B after section 50A in order to empower Board to implement a computerized

system for the purpose of automated scrutiny, analysisand crossmatching of returnsand other available data relating

to registered personsand to electronically send intimationsto such registered personsabout any issue detected by the

system.


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Further, the intimation sent by the computerized system shall be in the nature of advice aimed at allowing the

registered person to clarify the issue before any penal action isinit iated. The computerized system shall keep record of

the issuesdetected, intimationssent and action taken and also present information to the office of Inland Revenue and

to the Board.

Fifth Schedule Addition of items in Fifth Schedule of the Sales Tax Act 1990

Goodsspecified in section 4 and fifth Schedule are chargeable to salestax at 0% . The Bill proposesto add following

itemsin Fifth Schedule after serial no 8:

Goodsexempted under section 13, i f exported by a manufacturer who makeslocal suppliesof both taxable andexempt goods.

Petroleum Crude O il Raw materials, componentsif imported or purchased locally for use in manufacturing of such plant and

machinery.

The following goodsand raw materialsimported or purchased locally for the manufacture of the said goods Colorsin sets Writing, drawing and marking inks Erasers Exercise books Pencil sharpeners Geometry Boxes Pens, ball pens Pencils M ilk including flavored milk Yogurt Cheese Butter Cream Desi ghee Whey M ilk and cream, concentrated and added sugar or other sweetening matter Preparationsfor infant use put up for retai l sale Fat filled milk Bicycles

Sixth Schedul Certain importsand suppliesof goodsfalling under thiscategory are outside the scope of salestax and therefore not

subject of salestax.

TabIe -1 (Imports orSupplies)

The Bill seeksto insert the figuresand comma 1511.1000 after the figure and comma 1510.0000 in column (3)

against serial number 24 in column (1) in Table -1in the Sixth Schedule


The Bill seeksto insert the words cochlear implantssystem after word solution i n column (2) against S. No 59 and

in column (3) after the figure 99.25, the comma and figure 99.37


The Bill seeksto add new serial numbersand entries relating thereto after serial No 71 and entriesrelating thereto in

column (2) and (3) i n column (1) in Table -1 in the Sixth Schedule.

The Sixth Schedule Table 1 refersto exemptionsof goodson importsand supplies. Additionsto thistable are as

follows:


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S.

NoDescriptions

72 Uncooked poultry meat

73 M ilk and cream

74 Flavored milk

75 Yogurt

76 Whey

77 Butter

78 Desi ghee

79 Cheese

80 Processed cheese not grated or powdered

81 Cotton seed

82 Frozen, prepared or preserved sausagesand similar productsof poultry meat or meat offal

83 M eat and simi lar productsof prepared frozen or preserved meat or meat offal of all typesincluding poultry

meat and fish84 Preparationsfor infant use, put up for retail sale

85 Fat filled milk

86 Coloursin sets(Poster colours)

87 Wri ting, drawing and marking inks

88 Erasers

89 Exercise books

90 Pencil sharpeners

91 Energy saver lamps

92 Sewing machinesof the household type

93 Bicycles

94 Wheelchairs

95 Vesselsfor breaking up

96 O ther drawing, marking out or mathematical calculating instruments(geometry box)

97 Pensand ball pens

98 Pencilsincluding colour pencils

99 Compost (non-chemical fertilizer) produced and supplied locally

100 Construction materialsto Gawadar Export Processing Zonesinvestors and to Export Processing Zone

Gawadar for development of Zonesinfrastructure.

101 Raw and pickled hidesand skins, wet blue hidesand skins, finished leather, and accessories, componentsand

trimmings, if imported by a registered leather goodsmanufacturer, for the manufacture of goodswholly for

export, provided that conditions, proceduresand restrictionslaid down in rules264 to 278 of the Customs

Rules, 2001 are duly fulfilled and complied with.

102 M achinery, equipment and materialsimported either for exclusive use within the limitsof Export ProcessingZone or for making exportstherefrom, and goodsimported for warehousing purpose in Export Processing

Zone, subject to the conditi onsthat such machinery, equipment, materialsand goodsare imported by

investorsof Export Processing Zones, and all the procedures, limitationsand restrictionsasare applicable on

such goodsunder the CustomsAct, 1969 ( IV of 1969) and rulesmade thereunder shall mutatismutandis,

apply.


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103 Import and supply thereof, up to the year 2020, of shipsof grosstonnage of lessthan 15 LDT and all floating

craftsincluding tugs, dredgers, survey vesselsand other specialized craftspurchased or bare-boat chartered by

a Pakistan entity and flying the Pakistan flag, except shipsor craftsacquired for demolition purposesor are

designed or adapted for use for recreation or pleasure purposes, subject to the condition that such shipsor

craftsare used only for the purpose for which they were procured, and in case such shipsor craftsare used for

demolit ion purposeswithin a period of five yearsof their acquisition, salestax applicable to such ships

purchased for demolition purposesshall be chargeable.

104 Substancesregistered asdrugsunder the DrugsAct, 1976 (XXXI of 1976) and medicamentsasare classifiable

under Chapter 30 of the First Schedule to the CustomsAct, 1969 ( IV of 1969) except the following, even if

medicated or medicinal in nature, namely:-

a) filled infusion solution bagsimported with or without infusion given sets;b) scrubs, detergentsand washing preparations;c) soft soap or no-soap soap;d) adhesive plaster;e) surgical tapes;f) liquid paraffin;g) disinfectants; andh) cosmeticsand toilet preparations.

105 Raw materialsfor the basic manufacture of pharmaceutical active ingredientsand for manufacture of

pharmaceutical products, provided that in case of import, only such raw materialsshall be entitled to

exemption which are liable to customsduty not exceeding ten per cent advalorem, either under the First

Schedule to the CustomsAct, 1969 (IV of 1969) or under a notification issued under section 19 thereof.

106 Import of Halal edible offal of bovine animals.

107 Import and supply of iodized salt bearing brand namesand trademarkswhether or not sold in retail packing.

108 Componentsor sub-componentsof energy saver lamps, namely:-

a) Electronic Circuitb) Plastic Caps(Upper and Lower)c) Base CapsB22 and E27d) Tungsten Filamentse) Lead-in-wiref) Fluorescent Powder (Tri Band Phospher)g) Adhesive Additiveh) Al-O xide Suspensioni) Capping Cementj) Stamp Pad Inkk) Gutter for Suspension

109 Goodsimported temporarily with a view to subsequent exportation, asconcurred by the Board, including

passenger service item, provision and storesof Pakistani Airlines.

110 The following itemswith dedicated use of renewable source of energy like solar and wind, subject to

certi fication by the Alternative Energy Development Board (AEDB), Islamabad:-

a) Solar PV panels;b) LVD induction lamps;c) SMD, LEDswith or without ballast, with fittingsand fixtures;d) Wind turbinesincluding alternatorsand mast;e) Solar tor

budget commmentary 2014

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