This is a summary of some of the important changes that have been proposed within the Finance Bill 2016.This relates to Sales Tax, Income Tax and Federal Excise and Customs duties and we have prepared this as a guide to share essential information with both our staff and prospective clientele If approved by the National Assembly, all the changes in the Finance Bill will become effective from the 1st July 2016 except where specifically stated.
INCOME TAX
- An extension of the rate of income tax for the tax year 2015-16 has been proposed for the year 2016-17
- A fixed tax regime specifically for developers and builders has been proposed for those projects that are both initiated and approved after the 1st July 2016
- A proposal has been made to tax income from properties for both AOP’s and individuals in a separate income block based on gross income
- Should any business income be exempt, it’s been proposed that any depreciation is deemed permissible during the stated exemption period
- Proposals have been made that any capital gains made on securities sales will be taxable with no bearing on the holding period
- It has been proposed that there will be restrictions on groups rights to surrender losses and these restrictions will apply to the percentage holding within the entity
- Tax credits for investments in health insurance, along with a deductible allowance for educational expenses have both been proposed whilst an increase the limit on the deductible allowance for any profits made on debt has been also been proposed
- Various tax credits for investment and the generation of employment have also been proposed to be both increased and extended
- A proposal of taxation at a flat rate of 10% has been made on capital gains on the sale of immovable properties and this is irrespective of any holding periods although when there had been a holding period of over 5 years a separate proposal has been made to make this exempt
- Foreign trusts will now be included within the definition of a company akin to a local trust
- A reduction in the applicable threshold regarding minimum taxation on both AOPs and individuals has been proposed from Rs. 50 million to Rs. 10 million from the 2017 tax year
- It’s been proposed that the current taxable limit on cash withdrawals of Rs 50,000 for all banking transactions will now be considered on aggregate for all the transactions that take place in one single day for all bank accounts
- It has been proposed that the advance tax paid on the sale and the purchase of listed company shares will see an increase from 0.01% up to 0.02%
- A proposal has been made to increase the advance tax paid on the purchase of immovable property/ies to 2% for the filer and 4% for a non-filer
- The provincial sales tax authorities have proposed that they will collect 3% of the total turnover from any person who is classed as provincial sales tax registered who is a non-filer
- Many exceptions are being proposed from Gawadar port which include the exemption of income that has been derived from the ports operation for 5 companies which are part of the China Overseas Ports Holding Company Limited group plus the contractors and the subcontractors of those companies. Dividends from the companies, the exemption from minimum tax and the tax exemption on any profits made from foreign lender debt are just a few of them
- The abolition has been proposed for the exemption of inter corporate dividends in group structures for those are not a group that is 100% owned
- The proposed extension of up to 3 years is on the table for exemption on the exporting of computer software and IT and IT enabled services
- The rationalization regime for minimum tax for several specified service sectors has been extended until the 30th June 2017 to include IT and IT enabled services
- The entire income of insurance businesses is proposed to be taxed at the current applicable tax rate for corporations
- The scope of the eighth schedule has been enhanced to now include the collection of taxes on gains made from the redemption of both mutual fund units and the future PMEX commodity contracts.
- Contracts executed and services rendered outside of Pakistan are now to be taxed at a higher rate
SALES TAX
- Proposals have been made to amend the definition of ‘cottage industries’ in order to increase the turnover limit to Rs.10 million and to also exclude those classed as small manufacturers
- The definition of a ‘due date’ has also been proposed to be amended in order to permit different dates of filing for the different annexes of sales tax returns
- The amendment of the definition of ‘input tax’ has also been proposed so it will exclude ‘provincial sales taxes’
- Proposals to amend sections 7 and 8 have been made in order to introduce new adjustments for claiming input tax
- A proposed amendment to section 11 with provide assessment powers in regards to the withholding rules of sales tax
- Amendments are expected to the procedure which is prescribed for the transfer of activities pertaining to sales tax by those registered to do so
- The sales tax on bottle of mineral water is proposed to be chargeable at the retail price
- The zero rating on fat filled milk, milk and stationery has been proposed to disappear although the exemption will remain intact
- Proposed sales tax exemptions apply to premixes on personal computers, laptops, pesticides and growth stunting materials
- A proposed increase in sales tax applies to smart phones, mid priced mobile phones and poultry products and ingredients
FEDERAL EXCISE DUTY
- The federal excise duty on all aerated waters is to by increased by 1% or 100bps
- There is also a proposed increase in place for an increase in federal excise duty on locally produced cigarettes
- It has been proposed that federal excise duty will be charged on all cements with the new rate being Re.1 per kilogram rather than 5% of its retail price
- The withdrawal of federal excise duty has been proposed on white, crystallized sugar
- The withdrawal of federal excise duty has been proposed for those services which are provided in the provinces and for which sales tax is charged on their services
CUSTOMS
- It has been proposed that concessions in customs duty will be granted for livestock and poultry sectors, dairy, fish farming, floating fish feed pellet machines and shrimp/fish food
- Exemptions from custom duties have been proposed for Premix imports, the Edhi Foundation’s disposal of used and old ambulances, testing kits for water quality, cool chain machinery, Linear Akyl Benzene etc
- It’s proposed that the period of customs duty relieve on imported solar panels be extended until June 2017
- It has been proposed to enhance the scale of exemption for non profit making and charitable institutions, renewable energy technology, operating hospitals etc
- Proposals have been made to reduce the custom duty paid on such locally manufactured products as LED lighting, raw, PVC resin materials, white spirits, fatty alcohol ethoxylate, stamping foils, deep freeze thermostats, CFC free gases etc
- A proposal is in place to the rationalize the custom duty paid on Betal nuts and leaves, frozen fish, almonds etc
- An increase in customs duty is proposed for cement clinker, medium density fiber boards, printed/semi printed security papers, chicken eggs, birds eggs that aren’t in a shell, live chicken stock etc
- It has been proposed that regulatory duty be removed on the bead wire used by tyre manufacturers, the carbon steel strips that are used by the manufacturers of razor blades etc
- It has been further proposed that the regulatory duty be levied on whey powder and powdered milk at a rate of 25%
SUPER TAX
[Section 4B, Rule 7C, Seventh Schedule]
The super tax regime initially imposed the vide finance act of 2015 on both taxpayers and banking companies who had incomes of Rs. 500 million or over at the rates of 3% and 4% respectively for the tax year 2015 and the same rates have been proposed for the tax year 2016. Additionally, it’s been proposed that the definition of income regarding this section will now exclude the effects of previous business losses and depreciation.
Tax on Builders & Developers
[Section 7C, 7D, 113A, 113B, & Division VIIIA & VIIIB of Part 1 of First Schedule]
It’s been proposed that a fixed tag regime be brought in for both builders and developers which will see builders tax liability determined by the basis of the area they are developing. The government seems to have finally decided on a manner of taxation for this section but, as yet, the mode and manner for the payment and the collection of these taxes hasn’t been prescribed. The government introduced its minimum tax regime in 2013 but wasn’t actually implemented and then in 2015 it was suspended again until 2018. Now it has been proposed that this minimum tax regime be replaced with a final taxation. It has been proposed that this final taxation be applicable to those projects that are initiated after the 1st July 2016 at the rates that follow for all builders and developers respectively;
The proposed final taxation is proposed to be applicable for projects initiated after 1 July 2016 at the following rates:
Income from Property
[Section 15, 15A, Division VIA Part I &Division V Part III of First Schedule]
Income from property in the form of rental income has previously been subject to the normal taxation rates for AOPs, companies and individuals with any deductions such as collection charges, local taxes, maintenance etc being covered under section 15A and being permitted to be deducted from the net rate of taxable rental income. Now, however, it’s been proposed that for AOPs and individuals rental income will be taxed as a separate entity based on gross income and these deductions will no longer be allowed. The slab of withholding tax rates for both AOPs and individuals has also been revised and these uniform slab tax rates for both withholding and taxation are now as follows;
Rental Income
Deductions not Allowed
[Section 21 (c)]
It’s proposed that the scale of business expenses that are disallowed due to the non-deduction of taxes be expanded. Previously, many of these expenses had been specified although it’s now proposed that every type of expense on which tax is not withholding will be disallowed when it comes to calculation the taxable income of a business. However, a restriction of 20% has been put in place in regards to what expenses are disallowed in regards to the purchased of goods, either raw materials or finished products.
Furthermore, it’s been proposed that clarification be given to taxes which have been recovered form either a withholding agent or from a person whom tax wasn’t collected or deducted from as such an expenditure wouldn’t be classified by which taxes hadn’t been deducted.
Non-permissible Deductions
[Section 21 (o)]
It’s been proposed that expenditure that has been incurred by the pharmaceutical manufacturers with respect to sales promotions, advertisements and publicity will be capped at 5% of the turnover
Depreciation
[Section 22]
It has been proposed that clarification regarding the exemption of business income be brought in to remove the assumption that any depreciation has been allowed for during an exemption period. Following the end of the exemption period, assets will have what is known as ‘written down’ value this assuming that the depreciation has been permitted during the relevant exemption period.
Accordingly, after the completion of the exemption period, the assets would have a written down value, assuming that depreciation had been allowed during the exemption period.
Capital gains on the sale of securities
[Section 37A, Division VII of Part 1 of First Schedule]
Capital Gains on the sale/s of securities that have been held for less than one year became taxable in the Finance Act of 2010 then later, in the Finance Act of 2015, those gains on the sale of securities that had a holding period of as many as 48 months would be taxed. It has now been proposes that the capital gains on the sale of securities will be taxable whatever the length of their holding period. The tax rates for filers and non-filers are also the subject of a proposal that will see them prescribed separately for the tax year 2017 as follows;
The above rates of tax have also been proposed to apply to those capital gains for companies on debt securities which were previously taxed at the standard corporate rates. It’s also been proposed that clarification be made on future commodity contracts that are entered into by any Pakistan Mercantile Exchange members and are thus included in the definition of any derivative products are also defined as securities. Any gains on sales of such future contracts are proposed to be taxable at a rate of 5% of any gain.
Exemptions & Tax Concessions
[Section 53]
It’s proposed that general power will be available to our federal government for both the exemption and the reduction of taxes to IFIs and financial institutions owned by foreign governments under any kind of MOU, agreements or arrangements that have been arranged with the Pakistani government.
Group Relief
[Section 59B]
A parent company or subsidiary is, at present, permitted to entirely surrender its tax losses to a subsidiary or its parent company. It’s been proposed that the subsidiary or parent be allowed to surrender any tax loss is strict proportion to the percentage of the shares that are held by a holding company.
Tax Credit for Investments in Health Insurance
[Section 62A]
It’s been proposed that any resident tax payer, apart from company that derives income from business or salaries, will be entitled to tax credits for health insurance contributions or premiums. The rate of tax credit will be calculated by using the average taxpayers tax rate on the lower end of the following;
- The total of the insurance premium that’s been paid
- 5% of that persons taxable income
- 100,000
Contributions to Approved Pension Funds
[Section 63]
Tax credits were available for contributions to an approved pension fund subject to certain restrictions related to how old the taxpayer was. A proviso has been proposed that will have an effect of any additional contributions of 2% per year for every year over the age of 40 will permitted up to the 30th June 2019. This is subject to a further condition that any total contribution permitted will not exceed 30% of the total taxable income from the previous year.
Deductible Allowance For Profits Made on Debt
[Section 64A]
Deductible allowances were allowed for individuals for the total of any profits or shares in rent paid by individuals to schedule banks or NBFC’s on loans obtained for either the construction of a new home of the purchase of one. One of the limits for this deductible allowance was Rs. 1 million but it’s been proposed that this is increased to Rs. 2 million in one tax year.
Deductible Allowances for Educational Expenses
[Section 64 AB]
It’s been proposed that a parent should get a deductible allowance on the expenses laid out for tuition fees during a tax year should the taxable income of that parent fall below Rs. 1,000,000 per year.
The proposed deductible allowance shall the least of the following;
- 5% of the tuition fees paid
- 25% of their taxable income
- 60,000 for each child
The deductions covered by this section won’t be adjustable from any salary tax deductions.
Tax Credit for Employment Generation by Manufacturers
[Section 64B]
The proposed timeline for tax credits on the establishment of a new manufacturing unit that was set from the 1st July – 30th June 2018 has been proposed to have an extension until the 30th June 2019 and there is also a proposal in place for the tax credit to be increased by 1% to 2% of the tax which is payable for every 50 employees.
Tax Credit to a Person Registered under the Sales Tax Act, 1990
[Section 65A]
It’s been proposed that the tax credit manufacturers are allowed for those sales to registered persons should be increased from 2.5% to 3% of the tax payable.
Tax Credit for Investment
[Section 65B]
The timeline for the purchase and the installation of machinery and plant by an industrial undertaking to become eligible for tax credits has been proposed for an extension from the 30th June 2016 to the 30th June 2019.
Tax Credit for Enlistment
[Section 65C]
The tax credit relating to enlistment on the stock exchange that is available within the year of enlistment is under proposal to become available for 2 years rather than just one.
Tax Credits for Newly Established Industrial Undertakings
[Section 65D]
As it currently stand, a company that is established and operating under a new industrial undertaking that was set up between the 1st July 2011 and the 30th June 2016 that has been financed via 100% equity raised through the issuance of a new shares for cash initiative is entitled to a tax credits amounting to 100% of the tax that is payable for a period of 5 years.
It has also been proposed that the current condition of 100% equity be reduced to 70% and it’s been proposed that that eligibility period be extended for another 3 years until the 30th June 2019. The tax credit should also be permitted in proportion to the equity raised through the issuance of shares against cash. It’s also been proposed that in the case of a business discontinuing before 5 years the tax credit this allowed will be deemed to have been wrongly allowed and the tax will be recomputed.
Tax Credit for Industrial Undertaking Established before 1st July 2011
[Section 65E]
Currently, any company that was established before the 1st July 2011 that has purchased and installed machinery plant for industrial undertakings, either for expansion or the new undertaking of a new project, between the 1st July and the 30th June 2016 that is financed by 100% of equity that was raised through the issuance of new shares is entitled to a tax credit that is equal to 100% of the tax that would be payable over a 5 year period.
It has also been proposed that the current condition of 100% equity be reduced to 70% and it’s been proposed that that eligibility period be extended for another 3 years until the 30th June 2019. The tax credit should also be permitted in proportion to the equity raised through the issuance of shares against cash.
It’s also been proposed that in the case of a business discontinuing before 5 years the tax credit this allowed will be deemed to have been wrongly allowed and the tax will be recomputed.
Apportionment of Deductions
[Section 67]
Currently, any expenditure must be apportioned between the various heads of income covered by the differing taxation regimes. It’s been proposed that, apart from expenditure, allowances and deductibles will also be apportioned in a similar manner as that which is applicable to the allocation of expenditure.
Fair Market Value
[Section 68]
It’s been proposed that any value notified or fixed by any provincial authority for either stamp duty or any other purpose will also be disregarded when it comes to determining fair market value.
Persons
[Section 80]
Trusts are currently included with the definition of a company in the Income Tax Ordinance 2001. The status of a foreign trust is pretty similar to a trust that was formed under the applicable law in Pakistan. In this aspect, it’s been proposed that clarification be introduced as a means of explanation.
Agreements for The Avoidance of Double Taxation & Prevention of Fiscal Evasion
[Section 107 and 165B]
The federal government is currently empowered to enter into any multilateral or bilateral agreements with foreign governments with the aim of avoiding double taxation and to prevent fiscal evasion. It’s proposed that the scale of this section be broadened in order to empower the government to enter into treaties, tax information exchange agreements, multilateral conventions, inter-governmental agreements and any similar agreements which have the same objective.
It’s also been proposed that information obtained through the aforementioned treaties or agreements will remain confidential. Previously, this information was permitted to be revealed for the certain, specified purposed that were listed in
section 216(3).
A similar amendment has been proposed for section 165B – the furnishing of information by all financial institutions including banks- whereby the information obtained from any financial institutions regarding any non-residents for the purpose of any exchanges under bilateral agreements or multilateral conventions would remain confidential therefore not be permitted to be revealed under section 216(3).
Transaction Between Associates
[Section 108]
At present, the commission has the power to distribute, allocate and apportion income, tax credits or deductions between those persons who are associated in order to reflect what income those persons would have realized had they been in a transaction at arms length.
It’s been proposed that every taxpayer who enters into a transaction with their associates will;
- Maintain both local and master files containing the information and documents that may be described
- Keep and maintain country-by-country reports where applicable
- Keep and maintain all other documents and information in respect of any transactions with their associates
- Keep the documents, files, reports and information specified above for whatever period that has been prescribed
It has also been proposed that taxpayers will present any documents before
the commissioner with a 30 day time frame of any extended time that the commissioner requires for any proceedings.
Minimum Tax Threshold
[Section 113]
It’s been proposed that the turnover threshold for both AOPS and individuals be reduced from Rs. 50 million right down to Rs. 10 million and for this to be applicable from the 2017 tax year. It would appear that the minimum tax threshold won’t be applicable for either individuals or AOPs during the 2106 tax year due to this change.
It’s also proposed that the minimum tax will also apply to those companies who have gross losses which represent the excesses of their expenditure apart from that through depreciation and any other inadmissible expenditures over turnover. Furthermore, it’s been proposed that clarification of minimum tax will be application along with super tax and final taxes.
Return of Income
[Section 114(6)]
As it currently stands, the application for the revision of yearly income tax returns is that it must be approved within 60 days of it being filed if there is no order from the commissioner to the contrary.
Another provision has been proposed to insert a proviso whereby approval to revise any returns won’t be required in the case when the taxable income is more or the taxable loss is of a lesser amount that what was originally declared on the return under section 120.
Provisional Assessment
[Section 122C]
At present, provisional assessments don’t become final assessments until the taxpayer has filed income tax returns and audited accounts/wealth statements within 45 of the assessment. It’s also proposed that another condition should be added whereby taxpayers will have to present their accounts and other documents for the audit of their income tax affairs.
Advance Tax paid by Taxpayer
[Section 147]
It’s been proposed that a specific clarification be inserted to clarify the fact that ACT; Alternative Corporate Tax covered under section 113C should be considered when it comes to calculating advanced taxes.
Payment for Foreign Produced Commercials
[Section 152A]
It has been produced that a new section be introduced whereby those commercial produced overseas be subject to withholding tax of 20% of the payments gross amount. Such tax will be a final tax for that non-residents income.
Payments for Goods and Services
[Section 153]
It’s proposed that a the tax that is deducted on the advertisement services provided by electronic and print media should be made into a final tax.
Tax Collected or Deducted as a Final Tax
[Section 169]
It’s been proposed to add a proviso where any tax that has been collected or deducted be a final tax and that the rates of collection or deduction are separate for filers and for non-filers. The tax rate that will be applicable for filers shall be a final tax whilst the excess tax that is collected from non-filers will be adjustable.
Refunds
[Section 170]
It has been proposed that the period of time in which refund applications can be filed will be extended from 2 years to 3.
Cash Withdrawals from a Bank and Banking Transactions
[Section 231A and 236P]
It is proposed that the current taxable limit of 50,000 rupees will be considered as the average of all the transactions within a single day from all bank accounts.
Advance Tax on Private Motor Vehicles
[Section 231B]
It is proposed that every leasing company or scheduled bank or investment bank or a development financial institution shall collect advance tax @ 3% from non‐filer at the time of lease of motor vehicle.
Advance Tax at the Time of Sale by Auction
[Section 236A]
It is proposed that the tax collected on lease of the right to collect tolls shall be final tax.
Advance Tax on Sale or Transfer of Immovable Property
[Section 236C]
The immovable property sold after holding for a period of five years or more has been excluded from the applicability of this section. Earlier it was being collected on all transactions regardless of the holding period of the property.
Advance Tax on Insurance Premium
[Section 236U and Division XXV, Part IV, First schedule]
It is proposed that adjustable advance tax on insurance premium be collected from non‐filers by insurance companies on general insurance @ 4% and on life insurance @ 1%, if the premium is more than exceeding Rs. 200,000 per annum.
Advance Tax on Extraction of Minerals
[Section 236V]
It is proposed that every provincial royalty collection authority shall collect adjustable advance tax @ 5% of the value of minerals from non‐filer person extracting minerals.
Advance Tax from Provincial Sales Tax Registered Person
[Section 236W]
It is proposed that every provincial revenue authority shall collect adjustable advance tax @ 3% of turnover declared in sales tax return from a non‐filer provincial sales tax registered person.
Capital Gain on Disposal of Immovable Property
[Division VIII, Part I, First Schedule]
It is proposed that the gain on sale of immovable property be taxed @ 10% of the amount of gain if holding period of the property is less than five years. Earlier the gain on sale was exempt if the holding period was more than two years while for below two years holding period sliding rates of 10% and 5% were applicable.
Advance Tax on Dividend
[Division I, Part III, First Schedule]
The rate of deduction of tax at source on dividend for non‐filer has been proposed to be increased from 17.5% to 20%.
Moreover, the rate of deduction of tax at source on dividend from money market fund, income fund or REIT scheme has been increased for non‐filers from 10% to 15% in case of individuals and AOPs.
Payment for Goods and Services
[Division III, Part III, First Schedule]
It is proposed that the rate of deduction of tax at source on distributors of fast moving consumer goods (FMCG) shall be reduced to 3% from 4% in case of company and to 3.5% from 4.5% in case of non‐companies.
It is further proposed that the rate of deduction of tax at source on payment to electronic and print media for advertising services shall be enhanced from 1% to 1.5%.
Prizes and Winnings
[Division VI, Part III, First Schedule]
The rate of deduction of tax at source on prizes and winnings for non-filers is proposed to be increased from 15% to 20%.
Brokerage and Commission
[Division II, Part IV, First Schedule]
It is proposed that the tax on commission on life insurance agents receiving annual commission of 500,000 or less shall be 8% for filer and 16% for non- filer.
Sale and Purchase of Listed Shares
[Division IIA, Part IV, First Schedule]
Rate of collection of tax by stock exchange on purchase and sale of shares to be increased from 0.01% to 0.02%
Electricity Consumption
[Division IV, Part IV, First Schedule]
The Rate of collection of tax from commercial consumers of electricity with monthly bill exceeding Rs. 20,000 be increased from 10% to 12%.
Advance Tax on Sale or Transfer of Immovable Property
[Division X, Part IV, First Schedule]
It is proposed that the tax rate of sale or disposal of immovable property shall be enhanced from 0.5% to 1% in case of filer and from 1% to 2% in case of non‐ filer of the amount of consideration received.
Advance Tax on Purchase of Immovable Property
[Division XVIII, Part IV, First Schedule]
It is proposed that the tax rate on purchase of immovable property shall be enhanced from 1% to 2% in case of filer and from 2% to 4% in case of non‐filer of the value of property purchased.
Sports Boards and Organizations
[Clause 98, Part I, Second Schedule]
Exemption to sports boards has been restricted to sports boards or organizations established by Government only.
Inter-corporate dividend for Group Relief
[Clause 103A, Part I, Second Schedule, Clause 11B and 11C, Part IV, Second Schedule]
Exemption to inter‐corporate dividend to group companies entitled to group relief under section 59B is proposed to be withdrawn.
Gawadar Port
[Clause 126A, 126AB and 126AC, Part I, Second Schedule, Clause 11A and 38AA, Part IV, Second Schedule]
The bill proposes various exemptions for the development of Gawadar port as following:
- Income derived by China Overseas Ports Holding Company Limited, China Overseas Ports Holding Company Pakistan (Private) Limited, Gawadar International Terminal Limited, Gawadar Marine Services Limited and Gawadar Free Zone Company from Gawadar port operations is proposed to be exempt for a period of 23 years from 1 July 2016;
- Income derived by contractors and sub-contractors of the above-mentioned companies from Gawadar Port operations is proposed to be exempt for a period of 20 years from 1 July 2016;
- Income derived by the first mentioned company above being dividend received from the remaining four companies is proposed to be exempt;
- Income derived by the second mentioned company above being dividend received from the remaining three companies is proposed to be exempt;
- The above mentioned companies have also been proposed to be exempt from minimum tax for a period of 23 years from 1 July 2007;
- Profit on Debt derived by any foreign lender or a local bank having more than 75% shareholding of the Government or State Bank of Pakistan is proposed to be exempt.
- It is proposed that withholding tax on payment of dividend in respect of the above mentioned five companies shall not be made for a period of 23 years.
Export of Computer software, IT services and IT enabled services
[Clause 133, Part I, Second Schedule]
It is proposed that the exemption of income from export of computer software, IT Services and IT enabled services be extended from 2016 to 2019, subject to the condition that eighty percent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.
Services Rendered and Construction Contracts Executed Outside Pakistan
[Clause 3, Part II, Second Schedule]
Currently gross receipts from services rendered and construction contracts executed outside Pakistan are taxed at the rate of 1%, provided the receipt from services and income from construction contract are brought into Pakistan through normal banking channel.
It is proposed that the tax rate be increased and linked with 50% of the withholding rate applicable on services and contracts under section 153 of the Ordinance. Based on the existing withholding rates prescribed for section 153, the tax rate applicable on services rendered and construction contract executed outside Pakistan shall be as under:
Pakistan Cricket Board
[Clause 3B, Part II, Second Schedule]
It is proposed that income derived by the Pakistan Cricket Board from sources outside Pakistan is to be taxed at 4 per cent of gross receipts.
Pakistan Cricket Board may opt to pay tax at 4 per cent of gross receipts from tax year 2010 and onwards withdrawal of appeals, references and petitions, and payment of outstanding tax liabilities up to tax year 2015 by 30 June 2016.
Transmission Line Project
[Clause 11A, Part IV, Second Schedule]
It is proposed that companies qualifying for exemption under clause (126M) of Part‐I of Second Schedule in respect of profits and gains derived from a transmission line project should also be exempt from minimum tax under section 113.
Minimum Tax on Trading Houses
[Clause 57, Part IV, Second Schedule]
It is proposed that exemption from minimum tax under section 113 for trading houses be withdrawn. However, a reduced rate of 0.5% is proposed to be applicable upto tax year 2019.
Withholding Tax on TFC
[Clause 59(i), Part IV, Second Schedule]
It is proposed that the exemption from withholding tax on profit or interest paid on Term Finance Certificate be withdrawn.
Hajj Group Operators
[Clause 72A, Part IV, Second Schedule]
It is proposed that the exemptions and concessions available to Hajj group operators be extended for another year.
Exemption Certificate on Imports
[Clause 72B, Part IV, Second Schedule]
It is proposed that the taxpayers who have obtained tax exemption certificate under section 148 on imports shall be treated to have been selected for audit under section 214C and according shall be subject to audit in the year in which such exemption certificate is issued. If the taxpayer fails to present accounts or documents, the certificate issued shall be cancelled and tax not collected shall be recovered.
It is also proposed that the exemption on imports shall be applicable to the extent of 110 per cent of quantity of raw material imported and consumed during the previous tax year.
Investments in Industrial Undertakings
[Clause 86, Part IV, Second Schedule]
Currently the provisions of section 111 (Unexplained income or assets) are not applicable in case investment in industrial undertakings by a company is made between on or after 1 January 2014 and commercial production commences on or before 30 June 2017. It is proposed the last date for commencement of commercial production be extended from 2017 to 2019.
Minimum Tax on Services Provided by Companies
[Clause 94, Part IV, Second Schedule]
It is proposed that the benefit of reduced rate of 2% of minimum tax of the gross amount of turnover shall be extended up to 30 June 2017 for the twelve categories of service providers in the corporate sector. To avail this reduced rate, the taxpayer is required to file an irrevocable undertaking by November 2016 to present its accounts to the Commissioner.
It is also proposed that “IT services and IT enabled services” as defined in clause 133 of part I to the second schedule be included as specified service sector to obtain the said benefit.
Insurance Companies
[Rule 6B, Fourth Schedule]
Currently capital gains of insurance companies on disposal of shares of listed companies, vouchers of Pakistan Telecommunication Corporation, modaraba certificates or instruments of redeemable capital and derivative products is taxable at reduced rates. It is proposed that tax on capital gains and dividend be taxed at corporate rate of tax.
Provident Fund
[Rule 3, Part I, Sixth Schedule]
It is proposed that the non‐taxable limit of employer annual contribution to provident fund, for the purpose of salary income, be increased from Rs. 100,000 to Rs. 150,000.
Capital Gains on Listed Securities
[Division VII, Part I, First Schedule and Rule 1, Eighth Schedule)
Currently Capital gains on units of open ended mutual funds are subject to withholding tax which is now proposed to be omitted.
It is proposed that the gains on redemption of units of open ended mutual funds shall also be subject to the mechanism as laid down in the Eighth Schedule and NCCPL would compute and collect tax on such capital gains.
Cottage Industry
[Section 2, Clause 5AB]
A manufacturer falls in the definition of “cottage industry” if annual turnover from taxable supplies made in any tax period during the last twelve months ending any tax period exceed the limit of Rs. 5 million. This limit on turnover is now proposed to be enhanced to Rs. 10 million rupees hence those having turnover in excess of Rs.10 million will be excluded from definition of “cottage factory”.
Due Date
[Section 2, Clause 9]
Technical correction proposed to omit the expression “and 26AA” in the definition of “Due Date” in relation to furnishing of Sales Tax return.
A proposal is under consideration for providing different dates for submission of different annexes of the tax return. In line with the said proposal the definition of “due date” is proposed to be amended so that due date would fall on different dates as may be specified for furnishing of different parts or annexures of the return.
Input Tax
[Section 2, Clause 14(d)]
The proposed change seeks to omit clause (d) in the definition of “Input Tax” apparently to disallow input tax relating to provincial sales tax paid on services procured.
Time and Manner of Payment
[Section 6, Subsection 2]
The proposed change seeks to substitute the words “at the time of filing the return in respect of that tax period under Chapter‐V”, by the words “by the date as prescribed in this respect”. Hence payment is to be made by the prescribed date which may be different from time of filing of return.
Determination of Tax Liability
[Section 7, Subsection 2 (i)]
The proposed amendment seeks to add criteria for deducting input tax from output tax as in section 7, in sub‐section (2), in clause (i), for the semi‐colon at the end, a colon is proposed to be substituted and thereafter the following proviso is to be added, namely:−
“Provided that from the date to be notified by the Board in this respect, in addition to above, if the supplier has not declared such supply in his return or he has not paid amount of tax due as indicated in his return;”
Tax Credit not Allowed
[Section 8, Subsection1, (l)]
The proposed amendment will restrict a registered person entitlement to reclaim or deduct input tax paid on such goods and services which, at the time of filing of return by the buyer, have not been declared by the supplier in his return or where supplier has not paid amount of tax due as indicated his return.
Assessment of Tax & Recovery of Tax not levied or short levied or erroneously refunded
[Section 11, Subsection 4A]
There have been some recent decisions whereby a lacuna in sales tax law has been identified whereby no assessment provisions apply to in respect of sales tax withholding provisions.
Accordingly a new subsection is proposed to be inserted in Section 11, thus giving powers to an officer of Inland Revenue to determine the amount in default after serving a show cause notice to the person who fails to withhold sales tax or withholds the same but fails to deposit the same in the prescribed manner.
Exemption
[Section 13, Subsection 2(a)]
The proposed amendment seeks to enhance powers of Federal Government with respect of exemption for matters relating to international financial institutions or foreign government‐owned financial institutions.
Return
[Section 26, Subsection (2)]
The proposed amendment has omitted subsection 2, following which,
Directorate General of Input Output Co‐efficient Organization
[Section 30DDD]
After section 30DD, the following new section is proposed to be inserted which will ascertain the constitution of IOCO. The section quotes,
“The Directorate General of Input Output Coefficient Organization (IOCO)‐ Inland Revenue shall consist of a Director General and as many Directors, Additional Directors, Deputy Directors, Assistant Directors and such other officers as the Board may, by notification in the official Gazette, appoint.”;
Offenses and Penalties
[Section 33]
The proposed amendment seeks to insert the words “or the rules there under’’ after the word “Act” against serial number 19, in the entry in column (1), in the Table given in Section 33, thus it extends the scope for penalties and includes sales tax rules for penalties to be imposed.
There is a change in the rate of tax during a tax period, a separate return in respect of each portion of tax period showing the application of different rates of tax shall not be required to be furnished.
Sales of Taxable Activity or Transfer of Ownership
[Section 49, Subsection 2]
The proposed amendment provides guide for chargeability of sales tax and payment thereto in case of sales of taxable activity or transfer of ownership (whether wholly or in part) of a taxable activity.
In the case of sale or transfer of ownership of a taxable activity or part thereof to another registered person as an ongoing concern, the taxable goods or part thereof shall be transferred to the new owner through a zero‐rated invoice and the sales tax chargeable thereon shall be accounted for and paid by the registered person to whom such taxable activity or part thereof is transferred.
Previously sales tax was to be accounted for and paid by the registered person to whom such sale is made or ownership is transferred.
Disclosure of Information by a Public Servant
[Section 56b]
The proposed amendment in subsection (1) is related to confidentiality of information to be maintained by the public servant. The public servant will not be allowed to disclose any information obtained or received under any of the provisions of the Sales tax Act, 2001 except as provided under section 216 of the Income Tax Ordinance, 2001 (XLIX of 2001).
Notwithstanding anything contained in sub‐section (1) and the Freedom of Information Ordinance, 2002 (XCVI of 2002), any information received or supplied by the public servant in pursuance of bilateral or multilateral agreements with government of foreign countries for exchange of information
under section 56A shall be confidential.
Third Schedule
[Serial No. 37]
The proposed amendment seeks to include mineral water/ bottled water within the purview of third schedule leading to charging of sales tax on basis of retail price rather than value of supply.
Fifth Schedule
[Serial No. 12]
The proposed amendment seeks to exclude stationery items, milk and fat filled milk from purview of zero rating though these remain exempted under sixth schedule.
Sixth Schedule
[Serial No. 100A & 100B, 130 to 133]
For the development of Gawadar port certain exemptions subject to conditions are proposed to be provided through insertion of Serial No. 100A and 100B to Table 1 of Sixth Schedule.
Moreover Serial No. 130 to 133 has been proposed to be inserted to provide exemption to following items:
Premixes for growth stunting
Laptops
Personal computers
Pesticides
Eighth Schedule
[Serial No. 15, 20, 31 to 33]
Following changes are proposed in Eighth Schedule:
Apart from substation of some entries relating to reduced rate on ingredients of poultry feed and cattle feed, the rate of sales tax has been enhanced from 5% to 10%.
Specified items used in production of biodiesel excluded
Pesticides excluded from reduced rate and included in sixth schedule
White crystalline sugar excluded from Federal Excise Duty and now
made subject to sales tax at the same rate of 8% of value of supply
Urea is now subject to 5% sales tax
Ninth Schedule
[Serial No. 2]
Rates of sales tax on medium prices and smart phones are proposed to be increased from Rs.500 and Rs.1,000 to Rs.1,000 and Rs.1,500 respectively.
Due Date
[Section 2 (8a) & Section 4 (2)]
A proposal is under consideration for providing different dates for submission of different annexes of the return. In line with the said proposal the definition of “due date” is proposed to be amended so that due date would fall on different dates as may be specified for furnishing of different parts or annexures of the return.
Exemptions
[Section 16 (2)]
It is proposed to insert the words “and matter relating to international financial institutions or foreign government owned financial institutions” to limit the wider scope of powers of Federal Government.
Offenses, Penalties, Fine & allied Matters
[Section 19(13)
A new sub-section is proposed to be inserted to cover any contravention of the provision of FED Act for which no penalty has been specifically provided. A penalty of Rs 5,000 or 3% of duty involved whichever is higher; is specified as penalty for all such contraventions.
Disclosure of Information by a Public Servant
[Section 47B]
It is proposed to substitute Section 47 B to exclude disclosure of any information received or supplied in pursuance of bilateral or multilateral agreements with Governments of foreign countries for exchange of information under section 47A from Freedom of Information Ordinance 2002.
Aerated Waters
[S. No.04, 5 & 6 Table I, First Schedule]
Aerated waters if manufactured wholly from the juices or pulp of vegetable, food grain or fruit and which do not contain any other ingredient, indigenous or imported, other than sugar, coloring materials, preservatives or additives in quantities prescribed under the West Pakistan Pure Food Rules, 1965.
Locally Produced Cigarettes
[S. No.09 & 10, Table I, First Schedule]
It is proposed to substitute following to redefine locally produce cigarettes as well as to increase the rate of federal excise duty.
Description of Goods
For the period from July 01, 2016 to November 30, 2016 locally produced cigarettes if their on-pack printed retail price exceeds Rs4,000 per 1000 cigarettes
24.02
Rs. 3,436 per 1,000 cigarettes
Rs. 3,030 per 1,000 cigarettes
9b
For the period from December 01, 2016, locally produced cigarettes if their on-pack printed retail price exceeds Rs4,400 per 1000 cigarettes
24.02
Rs.3,705 per 1,000 cigarettes
Rs.3,030 per 1,000 cigarettes
Description of Goods
For the period from July 01, 2016 to November 30, 2016 locally produced cigarettes if their on‐pack printed retail price does not exceeds Rs4,000 per 1000 cigarettes
24.02
Rs. 1,534 per 1,000 cigarettes
Rs. 1,320 per 1,000 cigarettes
10b
For the period from December 01, 2016, locally produced cigarettes if their on-pack printed retail price does not exceeds Rs4,400 per 1000 cigarettes
24.02
Rs.1,649 per 1,000 cigarettes
Rs.1,320 per 1,000 cigarettes
Cement
(Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers)
[S. No.13, Table I, First Schedule; S.No. 18 Table I, Third Schedule]
It is proposed to charge federal excise duty at the rate of Re. 1 per Kg instead of 5% of the retail price.
White Crystalline Sugar
[S. No.53, Table I, First Schedule; S.No. 3 Second Schedule]
It is proposed to withdraw federal excise duty at the rate of 8% ad val.
Services Taxable by Provinces
[S. No.1, 2, 2A, 5, 8, 11 & 13, Table II, First Schedule]
It is proposed to withdraw federal excise duty on following services provided in the provinces where provincial sales tax has been levied thereon.
‐ Advertisement on closed circuit TV;
‐ Advertisement on cable TV network;
Advertisements in newspapers, & periodicals (excluding and classified advertisements) of hoarding boards, pole signs and facilities of sign boards;
‐ Shipping agents;
‐ Services provided or rendered by banking companies, cooperative
financing g societies, modarbas , musharikas, leasing companies, foreign exchange dealers, non‐banking financial institutions, Assets Management Companies and other persons dealing in any such services;
‐ Franchise services; and
‐ Services provided of rendered by stock brokers
Gawadar Port & Ancillary
[S. No. 19 & 20 Table I, Third Schedule]
Exemption from Federal Excise Duty for a period of 40 years on the import and supply of materials, equipment, ship bunker oils brought and sold to ships calling on/visiting Gawadar Port, for the development of Gawadar Port and Free Zone for Gawadar Port is being granted to Concession Holder of Gawadar Port Authority and its operating companies, their contractors and subcontractors for development of Gawadar Port and Gawadar Free Zone.
Exemption for a period of 23 years from Federal Excise Duty is being granted to businesses to be established in Gawadar Free Zone. This exemption shall be available to sales/supplies within the Gawadar Free Zone. However, sales/ supplies outside the free zone and into the territory of Pakistan shall be subjected to applicable rates of sales tax and Federal Excise Duty.
CUSTOMS
It is proposed to substitute 10% and 15% slabs with 11% and 16% slabs respectively.
Concessions, Exemptions & Enhancements in Periods & Scope
‐ It is proposed to grant concessions of Custom Duty for Dairy, Livestock & Poultry Sectors from 5% to 2%.
‐ It is proposed to grant concessions of Custom Duty for Fish Farming, fish feed pellet (floating type) machines from 5% to 2% and in case of fish / shrimp feed 10% & 20% to 0%.
‐ It is proposed to grant exemption from Custom Duty on import of Premixes to prevent growth stunting (from 5 – 20 to 0%).
‐ It is proposed to grant exemption from Custom Duty and taxes on disposal of old & used ambulances imported by Edhi Foundation.
‐ It is proposed to exempt import of Water Quality Testing Kits from Custom Duty chargeable at the rate of 20%.
‐ It is proposed to exempt import of Linear Akyl Benzene from Custom Duty chargeable at the rate of 2%.
‐ It is proposed to provide custom duty relief on import of cool chain machinery.
‐ It is proposed to increase the period of relief on import of Solar Panels till June, 2017.
‐ It is proposed to enhance in scope of exemption for charitable non‐profit making Institutions Operating Hospitals.
It is proposed to enhance the scope of exemption on Renewable Energy Technologies.
Reductions in Custom Duty
‐ It is proposed to reduce custom duty on local manufacturing of LED lights from 20% to 5%.
‐ It is proposed to reduce custom duty on Raw Materials of PVC Resin from 5% to 3%.
‐ It is proposed to reduce custom duty on White Spirits from 10% to 3%.
‐ It is proposed to reduce custom duty on Stamping Foil from 20% to 16%.
‐ It is proposed to reduce custom duty on Fatty Alcohol Ethoxylate from 15% to 5%.
‐ It is proposed to reduce custom duty on CFC Free Gases from 15% to 11%.
‐ It is proposed to reduce custom duty on Thermostats of Deep Freezers
from 20% to 3%.
Rationalization & Increase in Custom Duty
‐ It is proposed to rationalize custom duty on Betal nuts and Betal Leaves from 10% to 20% and Rs 300 per kg to Rs 600 per kg respectively.
‐ It is proposed to rationalize custom duty on Almonds from 10% to 20%
‐ It is proposed to rationalize custom duty on Frozen Fish from 10% to 20%
It is proposed to increase custom duty on Medium Density Fiber Board from 15% to 20%.
‐ It is proposed to increase custom duty on Cement Clinker from 2% to 11%.
‐ It is proposed to increase custom duty on Semi Printed/Printed Security Paper from 5% to 16%.
‐ It is proposed to increase custom duty on Live Chicken stock and Eggs of Chicken from 5% to 11%.
‐ It is proposed to increase custom duty on Birds eggs (not in shell) from 5% to 16%.
Regulatory Duty (Removal & Levy)
‐ It is proposed to remove regulatory duty from Bead Wire for tyres manufacturers from 10% to 0%.
‐ It is proposed to remove regulatory duty from Carbon Steel Strips used by Razor blade manufacturers from 17.5% to 0%.
‐ It is proposed to levy regulatory duty on Powdered Milk and Whey Powder at the rate of 25%.
