TAXES AND LEVIES APPLICABLE TO MINERAL SECTOR
(Sourced from the National Mineral Policy of Pakistan 2013)
1. Income Tax
1.1 Rate of Corporate Tax
The Government embarked upon a progressive reduction in the effective rate of corporate tax. The applicable rate of tax as regulated under the Income Tax Ordinance, 2001, is 35% for companies.
1.2 Minimum Corporate Tax
A minimum amount of corporate tax is payable annually at the rate of 1.0% of the declared turnover by resident companies. However, where the corporate tax payable exceeds this amount in any year, the minimum tax is not charged.
1.3 Exemption from taxation on refining or concentration of mineral deposits:
Exemption from taxation on profits from refining or concentrating mineral deposits is also allowed at the rate and for the period prescribed under tax laws.
1.4 Pre-commencement expenditure
Expenditure incurred before commencement of business including feasibility studies etc., is also allowed to be amortized on a straight line basis at the specified rates.
1.5 Development Expenditure Deduction and Loss Carry Forward
Expenditure incurred on exploration operations qualifies for immediate deduction in the determination of taxable income. Expenditure incurred for project development operations will be allowed deduction at a rate of 25% per annum, in line with international practice. However, the depletion allowance will be allowed as per provision of current tax laws.
A mining company will be assessed for income tax on the entirety of its mining operations in Pakistan.
2. Withholding Taxes 2.1 Dividends
Except where lower rates are specified in the Avoidance of Double Taxation Treaty with the country of the recipient, the withholding tax levied on dividends paid is 10%.
2.2 Non-Resident Contractors
The rate of withholding tax is 6% on payments made either in full or part to a non-resident on the execution of a contract or sub-contract under a construction, assembly or installation project in Pakistan, including a contract for the supply of supervisory activities in relation to such project.
The tax collected shall be a final tax if the contractor furnishes on option under clause (4) of the Part-IV of the Second Schedule to the Income Tax Ordinance, 2001.
Interest paid to non-residents in respect of availed approved loans is exempt from withholding tax.
2.4 Royalty & Fee for Technical Services
Tax @ 15% shall be deducted from the gross amount paid to a non-resident person on account of royalty and fee for technical services.
3. Other Taxes 3.1 Sales Tax
Mining companies shall be liable to pay general sales tax at the rate prescribed by the Government from time to time.
3.2 Additional Profits Tax (APT)
An Additional Profits Tax is payable by large scale mining companies at agreed rates based on the economic projections as stipulated in the agreement with the Government.
The APT will be determined based on a three-tier mechanism and will be payable only when the mining project achieves the agreed threshold level of profitability. The three-tier mechanism is summarized below:-
Rate of Return (ROR) Threshold
15% 20% 25%
Resource Rent Tax (RRT) Rate
10% 15% 18%
APT will only be paid if the mining project earns an after-tax real (i.e. inflation – adjusted) rate of return of 15%. The second and third tiers of RRT become payable once the profitability levels exceed 20% and 25% respectively.
4. Other Levies
Zakat is withheld from every Muslim who is not only a citizen of Pakistan but also ‘sahib-i-nisab’, at 2.5% of the value of the assets held on the first day of the month of Ramadan.Non-Muslims and non-resident shareholders of a company are exempt from the requirement to pay Zakat on dividends.
4.2 Workers Profit Participation Fund (WPPF)
A levy is payable to the Trustees of WPPF at an agreed percentage of net profits as per accounts for the year by companies and associations of persons with more than 20 members (partners) engaged in industrial undertaking, and employing 50 persons or more, whose paid-up capital is Rs2.00 million or more and/or the fixed assets are Rs4.00 million or more.
4.3 Workers Welfare Fund (WWF)
A levy is payable by companies engaged in industrial undertaking at an agreed percentage of the taxable income of the year where such income is Rs. 500,000 or more.
4.4 Workers Children Education Cess
This is a provincial levy payable in every quarter by an establishment employing 20 workers or more at Rs25 per worker per quarter, except in case the employer has made arrangements for the education of children of his/her workers or cess/excise duty is paid under the Excise Duty on Minerals (Labour Welfare) Act, 1967.
4.5 Employees’ Social Security Contribution
This is a provincial levy requiring every employer employing ten or more workers with wages up to Rs7,000 per month to pay Rs370 per wage earner including Rs20 contributed by the wage earner per month to the Employees’ Social Security Institution while the workers and their family members are provided free medical treatment, maternity benefits and other assistance.
4.6 Employees’ Old-Age Benefits
Every employer employing ten or more persons is to contribute 6% of their salary up to a maximum of Rs210 per month to the Employees’ Old Age Benefits Institution in respect of each employee, including Rs30 per month contributed by such employee who will be entitled to old-age pension on attaining the age of 55 & 60 years in the case of women and men, respectively.
4.7 Excise Duty on Minerals:
All dispatches of specified minerals from mines are subject to levy of a cess/duty of excise at the notified rate from one to five rupee per ton, meant for financing measures for promoting the welfare of labour employed in the mining industry.
4.8 Surface Rent & Compensation
The respective Government will ensure adequate access and freedom to the mineral title holder to carry out the prospecting, exploration, exploitation and processing activities etc. while the mineral title holders will provide fair surface rent and compensation to the landowner as prescribed under the mineral concession rules.
5. Concessions on Imports
5.1 For Mining Companies and Mineral-based Industry
There is no customs duty and sales tax on the import of machinery, equipment, materials, specialized vehicles (4×4 non-luxury), accessories, spares, chemicals and consumables meant for mineral exploration phase. These concessions are applicable to Mineral Exploration and Extraction Companies or their authorized operators or contractors who hold permits, licenses, leases and who enter into agreements with the Government of Pakistan or Provincial Government, subject to the condition that imported goods shall not be sold or otherwise disposed of without prior approval of the Federal Board of Revenue and payment of customs duties and taxes levy-able at the time of import.
However, customs duty at the rate of 5% ad-valorem with no sales tax is payable on import of such machinery meant for the mine construction phase or extraction phase, with the added advantage of entitlement for deferred payment of duty for a period of five years subject to 6% surcharge per annum.