maqbool haroon shahid safdar & co., chartered accountants … · 2019. 10. 30. · 3 maqbool haroon...

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Maqbool Haroon Shahid Safdar & Co., Chartered Accountants www.mhssco.com

This memorandum has drafted to portray the significant changes which have been proposed to be

incorporated in Finance Act 2018. These changes are mainly relating to Income Tax, Sales Tax,

Federal Excise Duties, ICT (Tax on Services) and Custom duties.

We have prepared this commentary for benefit, information and guidance of our prestigious clients

both local and foreign clients doing business in Pakistan and it is available at our website

https://www.mhssco.com.

These changes proposed in Finance Supplementary (Second Amendment) Bill 2019 will be applicable

from passing of this bill from parliament until and unless specified otherwise.

The notes specified in this document are based on Finance Supplementary (Second Amendment) Bill

2019. This finance bill shall be published as Finance Supplementary (Second Amendment) Bill 2019

as and when enacted.

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. MHSS accepts no duty of care or liability

for any loss occasioned to any person acting in this publication. The readers are therefore advised to

seek professional advice before exercising any judgment, interpretation of any legal provision and

acting thereupon.

https://www.mhssco.com/

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TABLE OF CONTENTS

SECTION A: INCOME TAX .......................................................................................................................... 3

SECTION B: SALES TAX ............................................................................................................................. 8

SECTION C: FEDERAL EXCISE DUTY ..................................................................................................... 10

SECTION D: CUSTOM DUTY .................................................................................................................... 11

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Presently, tax is chargeable at 5% of accounting profit before tax of public companies (excluding

scheduled bank and modarabas) which derive profit for a tax year but does not distribute at least

twenty percent of its after-tax profits.

The Bill proposes to abolish such tax, however, this will remain applicable for the Tax Year 2019.

Presently, loss sustained on disposal of securities cannot be carried forward to a subsequent tax year.

By virtue of proposed amendment any unadjusted capital losses for the Tax Year 2019 and onwards

can be carried forward for set-off against capital gain of a person from disposal of securities

chargeable to tax under this section, but no such loss shall be carried forward to more than three tax

years immediately succeeding the tax year for which the loss was computed.

Currently, income from sale of spectrum licenses by Pakistan Telecommunication Authority (PTA) is

treated as income of the Federal Government, hence exempt from tax.

The bill proposes that renewal of spectrum licenses too by PTA shall be treated as income of Federal

Government i.e. the same shall be exempt from income tax.

A new section is proposed to be inserted in the Ordinance, which provides that the Federal

Government may, by notification in the Official Gazette, prescribe special procedure for scope and

payment of tax, filing of return and assessment of such small traders and shopkeepers, in such cities

or territories, as may be specified. The details are yet to be prescribed.

The Bill proposes to introduce a new sub-section in section 123, according to which, Commissioner

is empowered to issue a provisional assessment order or provisional amended assessment order to

a person for the last completed tax year by taking into account the undeclared offshore asset of the

person.

Presently, tax required to be paid on import of goods which are sold in the same condition, as they were imported, is treated as minimum tax.

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Now the bill proposes to restore the position prior to Finance Act, 2018 and the commercial importers will be taxed under final tax regime

Presently, withholding tax statements are required to be filed on monthly basis. The Bill proposes to replace the requirement of filing of withholding tax statements from monthly basis to half yearly basis. Thus, withholding tax statements would be filed only twice a year as per tabulated schedule of deadlines.

Half Year of Tax Year Deadline for Filing Withholding Statement Half Year Ending June 30 July 31 Half Year Ending December 31 January 31

The Bill also proposes to empower the Commissioner to require a withholding tax agent to furnish a withholding tax statement for any period within a specified time period. Further the Bill proposes to immune the banking companies from filling of statements for taxes deducted or collected on profit on deposits and cash withdrawals.

The Bill proposes to further relax the restrictions placed on the registration of vehicles acquired by non-filers. According to the proposed changes, the requirement of being a ‘filer’ will not be applicable for registration of a locally manufactured motor vehicle having engine capacity not exceeding 1300 CC, locally manufactured motorcycle, motorcycle rickshaw and rickshaw; and locally manufactured agricultural tractor. Furthermore, a non-resident Pakistani citizen holding international passport is also allowed to purchase motor vehicle. Advance tax for ‘Non-Filers’ is proposed to be increased as per the engine capacity of motor vehicle as tabulated below:

Sr. No.

Engine Capacity Existing Rate

(Rupees)

Proposed Rate

(Rupees) 1. Up to 850 CC 10,000 15,000 2. 851 CC to 1000 CC 25,000 37,500 3. 1001 CC to 1300 CC 40,000 60,000 4. 1301 CC to 1600 CC 100,000 150,000 5. 1601 CC to 1800 CC 150,000 225,000 6. 1801 CC to 2000 CC 200,000 300,000 7. 2001 CC to 2500 CC 300,000 450,000 8. 2501 CC to 3000 CC 400,000 600,000 9. Above 3000 CC 500,000 675,000

The Bill proposes to omit section 230E, which will result in abolishment of Directorate General of Transfer Pricing which was introduced vide Finance Act, 2017.

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Presently, the Stock Exchanges registered in Pakistan are required to collect advance tax from their members on purchases and sales of shares in lieu of tax on commission earned by them. The Bill proposes to abolish the collection of this advance tax effective 01 February 2019. This change may trigger applicability of section 233 – withholding of tax on commission income.

The Finance Act, 2018 had proposed a year wise reduction in rate of super tax to be charged on banking companies. However, the Finance Supplementary (Second Amendment) Bill, 2019 has proposed the following new rates of super tax:

Tax Year

Banking Company Other than Banking Company Current Rates Proposed Rates Current Rates Proposed Rates

2018 0% 4% 3% 3% 2019 4% 4% 2% 2% 2020 3% 4% 1% 0% 2021 2% 4% 0% 0%

By virtue of Finance Supplementary (Second Amendment) Bill, 2019 advance tax has been proposed on import of mobile phones according to the table given below:

Sr. No. C & F Value of Mobile Phone (USD) Tax(PKR) (Filer/Non Filer) 1 Up to 30 70 2 Exceeding 30 and up to 100 730 3 Exceeding 100 and up to 200 930 4 Exceeding 200 and up to 350 970 5 Exceeding 350 and up to 500 3,000 6 Exceeding 500 5,200

Currently advance tax on cash withdrawal is charged @ 0.3% for filers and 0.6% for Non-filers. By virtue of Finance Supplementary (Second Amendment) Bill, 2019 such withholding tax on cash withdrawals for filers has been abolished.

Presently advance tax on banking transaction e.g. bank draft, pay order, CDR, STDR, SDR, RTC or any other instrument of bearer, nature or on receipt of cash on cancellation of these instruments is collected at the rate of 0.3% from filer and 0.6% from non-filer. Bill now proposes to introduce same rate of 0.6% for filer and non-filer, hence, increase in the case of filer.

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Presently, the advance tax to be collected for marriage functions in larger cities is higher of 5 per cent of bill ad valorem or Rs. 20,000 and for those in smaller cities, the advance tax to be collected is higher of 5 per cent of bill ad valorem or Rs. 10,000. The Bills seeks to restrict the rate of tax collectible on functions and gatherings to higher of Rs. 5,000 or 5% of the bill ad valorem in respect of function of marriage in a marriage hall, marquee or a community place with the total function area less than 500 square yards or, in case of a multi storied premises, with the largest total function area on one floor less than 500 square yards.

➢ National Disaster Risk Management Fund; and ➢ Deposit Protection Corporation established under sub section (1) of sub section 3 of Deposit

Protection Corporation Act, 2016

The exemption already granted on the profits and gains derived by an industrial undertaking set up by the 31st day of December 2016 engaged in the manufacturing of the plant, machinery, equipment and items with dedicated use from generation of renewable energy from sources like solar and wind has been proposed to be extended to new industrial undertakings setup between 01 March 2019 and 30 June 2023 for a period of five (05) years beginning from the date of such industrial undertaking is set up. This provision is proposed to be effective from 01 July 2019.

The Bill seeks to reduce the tax on dividend income in case of companies availing the benefit of Group Relief under section 59B. The reduction in tax on dividend will be proportionate to the percentage of ordinary shareholding of the recipient in the distributing company. This change will effectively give rise to varied taxation of dividend income on case to case basis. This clause is proposed to be effective from 01 July 2019.

The bill proposes to provide exemption from application of minimum tax under section 113 to the following entities;

➢ National Disaster Risk Management Fund; and ➢ Deposit Protection Corporation established under sub section (1) of sub section 3 of Deposit

Protection Corporation Act, 2016.

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Exemption from withholding of tax under section 151 on payment of profit on debt and section 153 on payments on account of goods, services and execution of contracts is proposed to be allowed to National Disaster Risk Management Fund.

The bill proposed to absolve banking companies from providing of details e.g. CNIC #, NTN and address in the case of withholding of tax on payments of interest under section 151 and cash withdrawals under section 231A for the purpose of withholding tax statements under section 165.

The Bill proposes to exempt collection of advance tax at the time of sale through auction under section 236A in case of auction of franchise rights to participating teams in a national or international league organized by any board or other organization established by the Federal Government for the purposes of controlling, regulating or encouraging major games and sports recognized by the Federal Government. This clause shall take effect from 01 July 2019.

The Bill proposes to exempt collection of advance tax on cash withdrawals from a bank account maintained in Pak Rupees in which the deposits are made solely through remittances in foreign currency.

The Bill proposes to exclude taxable income of banking company that is subjected to reduced rate of tax under newly inserted rules 7D, 7E and 7F to the Seventh Schedule for four (04) years (from Tax Year 2020 to Tax Year 2023) for payment of super tax under section 4B. This clause is proposed to be effective from 01 July 2019.

Income of the banking companies originating from additional advances to: ➢ Micro, small and medium enterprises ➢ Low cost housing finance as Farm Credit

shall be subject to reduced tax rate @ 20% instead of normal rate @ 35%.

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Normally, the Government is paying sales tax refunds to exporters electronically in order to maintain transparency. A totally new concept of clearance of refunds available to taxpayers has been introduced by way of introduction of a tradeable, negotiable instrument to be issued for the amount of Sales Tax refunds due. Now, the persons entitled to refunds can opt for acquiring a sovereign negotiable instruments in the form of promissory notes issued by the Government of Pakistan, instead of cash. Salient features of such instruments will be as under:

➢ The notes will be transferable in the manner provided; ➢ Maturity period will be three years from the date of issuance; ➢ These will be traded freely in the country’s secondary market; ➢ The notes shall bear annual simple profit at 10 percent; ➢ These shall be redeemable after the period of maturity; ➢ These shall be accepted by banks as collateral; and ➢ These shall not be subject to compulsory deduction of zakat.

Following changes are proposed to be made in the Sixth Schedule:

Certain items with dedicated use of renewable source of energy like solar and wind were exempt from applicability of Sales Tax subject to certification by the Alternative Energy Development Board (AEDB) Islamabad. It is proposed through the Second Amendment Bill, 2019 that the said exemption shall be available till 30 June 2023.

Exemption from sales tax on import or supply of appliances for colostomy has been proposed to be restricted for such appliances and items required for ostomy procedures as specified in Chapter 99 of the First Schedule to the Customs Act, 1969.

A new entry is proposed for exemption from sales tax on import of plant and machinery, excluding consumer durable goods and office equipment as imported by Greenfield industries to manufacture taxable goods, during their construction and installation period, subject to certain conditions and issuance of exemption certificate by the Commissioner Inland Revenue.

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Exemption from sales tax on import or supply of colostomy and urostomy bags has been proposed to be withdrawn.

Machinery, equipment and spares meant for initial installation, balancing, modernization, replacement or expansion of projects for power generation through nuclear and renewable energy sources and certain items with dedicated use of renewable source of energy like solar, wind, micro-hydel, bio-energy, ocean, waste-to-energy, hydrogen cell and geothermal etc. are exempt from applicability of Sales Tax. It is now proposed the said exemption shall be available till 30 June 2023.

Rates of sales tax on import or local supply of cellular mobile phones have been rationalized by proposing substitution of Serial, No 2 in the following manner:

Import Value per Set (USD) Sales Tax chargeable at the time of Import (PKR)

Sales Tax chargeable at the time of registration (PKR)

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:--

Not exceeding 30 150 150 Exceeding 30 but not exceeding 100

1,470 1,470

Exceeding 100 but not exceeding 200

1,870 1,870


1,930 1,930


6,000 6,000

Exceeding 500 10,300 10,300

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Section 29(2) (aa)(ii) empowers the Board to confer powers of authorities specified in Section 29(1) upon the Directorate General (Intelligence & Investigation) and its officers. However, instead of referring to Section 29(1), reference was made to Section 30, which is now being corrected.

The rate of excise duty on imported motor cars, SUVs and other motor vehicles principally designed for the transport of persons (other than those of headings 87.02), including station wagons and racing cars has been proposed to be increased as under:

Sr. No. Description Rate of Duty 55 Imported Motor Vehicles of 1800cc not exceeding

3000cc 25% ad valorem (Previously 20%)

55A Imported Motor Vehicles of 3000cc or above 30% ad valorem (New Slab) 55B Locally manufactured or assembled Motor Vehicles of

1800cc or above 10% ad valorem (Previously 0%)

Excise duty of 10% has been proposed to be levied on locally manufactured or assembled motor cars, SUVs and other motor vehicles of cylinder capacity of 1800 cc or above, principally designed for transport of persons (other than those of headings 87.02), including station wagons and racing cars of cylinder capacity of 1800 cc or above at serial no. 55B as tabulated above.

A new levy was imposed on smart phones, through the Finance Act 2018, valuing in excess of Rs. 10,000. This is payable at Rs 1,000, Rs 3,000 and Rs 5,000 depending on their import values in Rupee terms. It is now proposed to impose the levy on the basis of C&F value in terms of US Dollars instead of Rupees. Mobile handset levy on smart phones of different categories is proposed to be abolished up to USD 100 C&F value (earlier for Rs 10,000 including duties and taxes). While the maximum levy is enhanced to Rs 7,000 from Rs 5,000 as under:

C&F Value per Set (USD) Rate of Levy per Set (PKR)

Not exceeding 100 0 Exceeding 100 but not exceeding 200 500 Exceeding 200 but not exceeding 350 1,500 Exceeding 350 but not exceeding 500 3,500 Exceeding 500 7,000

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Under PCT Code 9925 zero rating was applicable inter alia on “colostomy bags and appliances identifiable for Ostomy use”. The Bill seeks to broaden the list of exempt items under PCT code 9925. The Updated list contains various types of medical equipment, instruments and accessories for the diagnosis and treatment of cancer.

➢ Proposed reduction of customs duty on Polymers of ethylene in primary form and Polymers

of propylene or of other olefins in primary form from 5% to 3%.

➢ Proposed reduction of customs duty on Newsprints in rolls or sheets from 5% to 0%.

The Bill proposes to insert Part VIII with effect from 31 March 2019 to provide reduced rates of customs duty for the following specified sectors /items (except for three items having PCT Codes 3906.9020, 9606.2920 and 9606.2990 where the rates are proposed to be enhanced).

Sr. No.

Description Existing rate Proposed rate

1 Footwear Sector (xii) Machinery for making or repairing

footwear (PCT Code 8453.2000) 3% 0%

(xiii) Parts (PCT Code 8477.9000) 3% 0% (xiv) injection or compression types (PCT Code

8480.7100) 3% 0%

2 Tanners (i) Formic acid (PCT Code 2915.1100) 20% 16% (vii) Other (PCT Code 3204.9000) 20% 16% (viii) Of a kind used in the paper or like

industries (PCT Code 3809.9200) 16% 11%

(ix) Of a kind used in the leather or like industries (PCT Code 3809.9300)

16% 11%

(x) Acrylic binders (PCT Code 3906.9020) 16% 20% (xi) Polyurethanes (PCT Code 3909.5000) 3% 0% (xii) Machinery for preparing, tanning, or

working hides, skin or leather (PCT Code 8453.1000)

3% 0%

(xiii) Parts (PCT Code 8453.9000) 3% 0% 3 Leather Sector (i) Magnesium oxide (PCT Code 2519.9010) 3% 0%

(ii) Other (PCT Code 2836.9990) 3% 0%

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(iii) Sodium format (PCT Code 2915.1210) 3% 0%

(vi) Stamping foils (PCT Code 3212.1000) 16% 11%

(vii) Of a kind used in leather or like industries (PCT Code 3403.1110)

20% 16%

(viii) of a kind used in the leather or like industries including fat liquors (PCT Code 3403.9110)

20% 16%

4 Gloves (i) Latex (PCT Code 4002.1100) 3% 0%

(ii) Other (PCT Code 4002.1900) 3% 0% (iii) Other (PCT Code 4016.1090) 20% 5% (iv) Machines for reeling,

unreeling, folding, cutting or pinking textile fabrics (PCT Code 8451.5000)

3% 0%

(v) Other (PCT Code 8452.2900) 3% 0% (vi) Other (PCT Code 8477.3090) 3% 0%

(vii) Buttons (PCT Code 9606.2920) 16% 20% (viii) Other (PCT Code 9606.2990) 16% 20% 5 Furniture Other (PCT Code 8465.9190) 3% 0% 6 Ceramics (i) Verifiable enamels and glazes, engobes

(slips) and similar preparations (PCT Code 3207.2000)

11% 3%

(ii) Containing by weight more than 50 % of graphite or other carbon or of a mixture of these products (PCT Code 6903.1000)

11% 3%

(iii) Other (PCT Code 6903.2090) 11% 3%

7 Diapers / Sanitary Napkins (i) Other (PCT Code 3506.9190) 16% 5%

(ii) Other (PCT Code 3906.9090) 11% 5% (iii) Of polymers of ethylene (PCT Code

3920.1000) 20% 16%

(iv) Of other plastics (PCT Code 3921.1900) 20% 16%

(v) Of polymers of ethylene (PCT Code 3923.2100)

20% 5%

(vi) Weighing not more than 25 g/m2

(PCT Code 5603.1100)

16% 11%

(vii) Weighing more than 25 g/m2

but not more

than 70 g/m2

(PCT Code 5603.9200)

20% 16%

(viii) Weighing more than 70 g/m2

but not more

than 150 g/m2

(PCT Code 5603.9300)

16% 11%

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8 Home Appliance Sector (i) Cyclopentane (PCT Code 2902.1910) 3% 0%

(ii) Tetrafluoroethane (PCT Code 2903.3930) 3% 0%

(iii) Acrylonitrile butadiene styrene (ABS) copolymers (PCT Code 3903.3000)

3% 0%

(iv) Other poly-ethers (PCT Code 3907.2000) 3% 0%

(v) Insulation tape double sided (PCT Code 3919.1010)

11% 0%

(vi) Adhesive tape (PCT Code 7607.1910) 3% 0%

(vii) Used with HCFC and non-CFC gases (PCT Code 8414.3010)

3% 0%

(viii) Of machines of heading 8414.1000 and 8414.3010 (PCT Code 8414.9010)

3% 0%

(ix) Evaporators (roll bond / fin / tube on plate types) (PCT Code 8418.9910)

3% 0%

(x) Motors of an output not exceeding 37.5W (PCT Code 8501.1000)

3% 0%

(xi) Other (PCT Code 8501.4090) 20% 16% (xii) Burglar or fire alarms and similar

apparatus (PCT Code 8531.1000) 3% 0%

(xiii) Other (PCT Code 9030.8900) 3% 0% (xiv) Of a kind used in refrigerators, deep

freezers and airconditioners (PCT Code 9032.1010)

3% 0%

(xv) Other (PCT Code 9032.1090) 20% 16%

9 Infant Formula

Others (PCT Code 1901.9090) 20% 5% 10 Chemical Manufacturing Sector (i) o-Xylene (PCT Code 2902.4100) 3% 0% (ii) Octanol (octyl alcohol) and

isomers thereof (PCT Code 2905.1600) 3% 0%

Conditions: Proposed Part VIII specifies the following conditions for the aforesaid reduced rates:

➢ The person importing the above items should be registered under Sales Tax Act, 1990 as importer and manufacturer. However, Tanners shall only be registered as importer.

➢ With regard to the sectors of Diapers/Sanitary Napkins, Home Appliances and Infant Milk Formula, the respective sectors shall not only be required to be registered as importer and manufacturer under Sales Tax Act, 1990 but also the import of such goods shall be subject to annual quota determined and verified by Input Output Co-Efficient Organization (IOCO).

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maqbool haroon shahid safdar & co., chartered accountants … · 2019. 10. 30. · 3 maqbool haroon...

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