amendments in tax laws in pakistan -...

AMENDMENTS IN TAX

LAWS IN PAKISTAN

JUNAIDY SHOAIB ASADCHARTERED ACCOUNTANTS

TAXATION FOR INDIVIDUALS AND AOPsUNDER THE INCOME TAX ORDINANCE, 2001

TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001

TAX ON PROFIT ON DEBT

Rate of tax for profit on debt for recipients other than companies for tax year

2018 and onwards shall be charged as follows (Section 7B read with Div IIIA

Part I First Schedule)

S.NoProfit on Debt Slab Rate of tax

Existing Revised Existing Rates Revised

Rates

1

Where profit on debt

does not exceed

Rs.25,000,000


does not exceed

Rs.5,000,000

10% 10%

2


exceeds Rs.25,000,000

but does not exceed

Rs.50,000,000



but does not exceed

Rs.25,000,000

2,500,000 +

12.5% of the

amount

exceeding Rs

25,000,000

12.5%

3Where profit on debt



exceeds

Rs.25,000,000

5,625,000 + 15%

of the amount

exceeding Rs

50,000,000

15%


VALUE OF PERQUISITES

Threshold for interest free loan from employer has been increased from

0.5 million to Rs 1 million. Benchmark rate of 10% on interest free loan is

to be included in the salary income of the employee. However, no addition

on account of interest shall be made where the loan does not exceed

above threshold limit. (Section 13)


DEDCUTIBLE ALLOWANCE FOR EDUCATION EXPENSE FOR

INDIVIDUALS

Threshold of taxable income for availing deductible allowance on account

of education expenses has been increased from Rs 1 million to 1.5 million.

(Section 60D formerly 64AB)


TAX CREDIT FOR INVESTMENT IN SHARES AND INSURANCE

Tax credit for investment in Sukuks offered by public listed companies

has been introduced vide Finance Act to original allottee of Sukuk.

Further, in case of tax credit for life insurance premium, policy should be

held for atleast two years from the date of acquisition otherwise tax credit

shall be disallowed for the previous years. (Section 62)


TAX CREDIT FOR INVESTMENT IN HEALTH INSURANCE

Threshold limit for investment in health insurance for availing tax credit

has been increased from Rs. 100,000 to Rs. 150,000 (Section 62A)


QUARTERLY ADVANCE TAX PAYMENT

Threshold of taxable income for payment of quarterly installment of

advance tax by business individual is increased from Rs. 0.5 million to

Rs. 1 million (Section 147)


PERSON NOT REQUIRED TO FURNISH RETURN OF INCOME

A widow, an orphan below the age of 25 year, a disable person and a

non-resident person owning immovable property are not required to file

return where they only: (Section 115)

i. Owns immovable property with a land area of 250 sq. yds or

more or owns any flat located in the area falling within the

municipal limits or areas in a cantonment or the Islamabad

Capital Territory;

ii. Owns immovable property with a land area of 500 sq. yds. or

more located in a rating area;

iii. Owns a flat having covered area of 250 sq. ft. or more located in

a rating area; or

iv. Owns a motor vehicle having engine capacity above 1000 cc


WEALTH STATEMENT

Revision of wealth statement filed under section 116 is now allowed

before receiving notice under section 122(9) of the Ordinance.

Previously the taxpayer could amend the wealth statement before

issuance of assessment order under section 122 of the Ordinance.

(Section 116)

TAXATION FOR COMPANIESUNDER THE INCOME TAX ORDINANCE, 2001

SUPER TAX

Application of section 4B “Super tax for rehabilitation of temporary

displaced persons” has been extended for tax year 2017 (Section 4B)

TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001


TAX ON UNDISTRIBUTED RESERVES BY PUBLIC COMPANIES OTHER

THAN BANKS OR MODARABA

The Finance Act has replaced provision of tax on undistributed reserves.

Previously tax at the rate of 10% of reserves in excess of 100% of its paid

up capital was payable where the public company did not distribute 40%

of after tax profit or 50% of paid up capital whichever is less.

According to new provision tax at the rate of 7.5% shall be payable on

accounting profit before tax if atleast 40% of after tax are not distributed

by the public company as dividend within six months of the end of the tax

year. For tax year 2017, such distribution may be made at any time before

the due date of filing of return of income for tax year 2017. (Section 5A)


TAX CREDIT FOR ENLISTMENT

Tax credit at the rate of 20% available to newly listed companies

has been extended to subsequent three years after the year of

enlistment. However, tax credit for last two years i.e. third and

fourth tax years shall be restricted to 10%. (Section 65C)


TAX CREDIT FOR NON PROFIT ORGANIZATIONS

The Finance Act has fixed threshold limit for administrative and management expenses upto 15%

of total receipts in order to avail 100% tax credit by NPOs. However, the Finance Act has provided

that this condition shall not be applicable where charitable and welfare activities have

commenced for the first time within last three years and total receipts of NPO during the year are

less than Rs. 100 million. (Section 100C)

Further, the tax at the rate of 10% has been imposed on surplus fund by NPOs. Here, surplus

fund means funds or money:

(a) Not spent on charitable and welfare activities during the tax year;

(b) Received during the tax year as donations, voluntary contributions, subscriptions and

other incomes;

(c) Which are more than 25% of the total receipts of the non-profit organization received

during the tax year; and

(d) Are not part of restricted fund

Note: restricted fund means any fund received by the organization but could not be spent and

treated as revenue during the year due to any obligation placed by the donor.


COLLECITION OF TAX BY STOCK EXCHANGE FROM ITS MEMEBERS

Tax collected by stock exchange from its members shall be final tax

instead of adjustable tax from tax year 2018 and onwards (Section 233A)


PENALTY FOR FAILURE TO MAINTAIN AND FURNISH RECORD OF

TRANSACTION BETWEEN ASSOCIATES

Penalty in case of failure to maintain record of transaction between

associates (Transfer pricing) has been imposed at Rs 10,000 or 5%

of amount of tax whichever is higher. Further, non-maintenance of

document and information as required under rule 108 would attract

penalty @ 1% of the value of transaction for which record is not

maintained (Section 182)

Further, non-furnishing of information regarding transaction between

associates will attract penalty of Rs. 25,000 for first default and Rs

50,000 for each subsequent default (Section 182)

Rules have been circulated for comments and not yet finalised


PENALTY FOR FAILURE TO FURNISH INFORMATION TO THE BOARD

BY FINANCIAL INSTITUTION OR REPORTING ENTITY

Under section 165B Financial Institution are required to make

arrangement to provide information to FBR relating to non resident

under bilateral arrangement. Under this arrangement Common

reporting standard has been introduced.

Failure to furnish information by financial institution or reporting entity

to the Board shall attract penalty of Rs 2,000 for each day of default

subject to minimum penalty of Rs. 25,000. (Section 182)


DEDUCTION OF ADVAMCE TAX ON DIVIDENDS

Rate of advance tax on dividend has been increased from 12.5% to

15% whereas rate of tax on dividend from Stock Fund and Money

Market Fund has been increased from 10% to 12.5%. However, the

Finance Act has further provided that rate of tax on dividend received

by person other than a company from a money market mutual fund

shall be 10% where the amount of dividend does not exceed Rs. 2.5

million. (Section 150)


DEDUCTION OF ADVANCE TAX ON RETURN ON INVESTMENT IN

SUKUKS

Every company offering investment in sukuk shall be required to deduct tax

from payments of a return on investment in sukuks at the following rates

provided under Division IB, Part III of the First Schedule to the Ordinance.

(Section 150A)

Sukuk Holder Tax Rate Condition

Company 15%

Individual or AOP 12.5% Where return on investment is

more than 1 million

Individual or AOP 10% Where return on investment is

less than 1 million

Non-filers 17.5%


COLLECTION OF ADVANCE TAX ON PRIVATE MOTOR VEHICLES

Non-banking financial institution are included in the ambit of

withholding agent for collecting advance tax at the rate of 4% of value

of motor vehicle at the time of leasing. Further, leasing include

shariah compliant or conventional mode leasing either through ijara

or otherwise. (Section 231B)


FIXED RATE FOR HAJJ GROUP OPERATORS

Fixed tax of Rs. 5,000 per Haji for Hajj group operator has been

extended for tax year 2017 (Section 72A Part IV 2nd Schedule)


CONDITIONS FOR CLAIMING EXEMPTION ON IMPORT U/S 148 BY

INDUSTRIAL UNDERTAKINGS

Quota eligibility for import for availing exemption under section 148

has been increased from 110% to 125% of raw material imported

and consumed during the previous tax year. The Finance Act further

provides that the exemption shall not be available in respect of raw

material specified in sub-section 8 of section 148 of the Ordinance.

(Clause 72B Part IV 2nd Schedule). Such raw material includes

i. edible oils;

ii. packing materials; and

iii. plastic raw material falling under PCT heading 39.01 to 39.12

(Clause 72B Part IV 2nd Schedule)


REDUCED RATE OF MINIMUM TAX ON CERTAIN SERVICE

PROVIDERS

Reduced rate of 2% on certain service sector has been extended to

tax year 2018 along-with requirement for audit and irrevocable

undertaking for tax year 2018. Further, the Act now include following

service sectors in the list.of companies eligible for exemption. (Clause

94 Part IV 2nd Schedule)

i. Service rendered by Pakistan Stock Exchange

ii. Building maintenance services

iii. Service rendered by Pakistan Mercantile Exchange Limited.

COMMON PROVISIONSUNDER THE INCOME TAX ORDINANCE, 2001

COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001

TAX ON DIVIDEND

Rate of tax on dividend other than power sector and mutual funds has

been increased from 12.5% to 15% whereas rate of tax on dividend

from mutual fund has been increased from 10% to 12.5%. However,

Finance Act has provided that rate of tax shall remain 10% where

amount of dividend do not exceed Rs. 2.5 million (Section 5)


TAX ON RETURN ON INVESTMENT IN SUKUKS

Scope of tax on return on investment in sukuks has been broadened

vide Finance Act. Now the person receiving return on investment in

Sukuks from any company shall be liable to tax at the rate provided

in Division IIIB, Part I, First Schedule to the Ordinance Section 5AA)

Sukuk Holder Tax Rate Condition

Company 25%

Individual or AOP 12.5% Where return on

investment is more

than 1 million

Individual or AOP 10% Where return on

investment is less than

1 million


TAX ON BUILDERS AND DEVELOPERS

Application of fixed tax on builders and developers now restricted to

tax year 2017 if projects undertaken for construction and sale of

residential, commercial or other building and plots initiated and

approved during tax year 2017. Thus, projects undertaken after 2017

will be taxable on net income basis. However, such tax is applicable

to residential and commercial buildings and plots vide Finance Act.

Words “any other” buildings and plots has been excluded. (Section

7C & 7D)


DEDUCTION NOT ALLOWED AGAINST BUSINESS INCOME

Threshold for allowable expenditure on account of sale promotion,

advertisement and publicity for pharmaceutical manufacturer has

been increased from 5% to 10%. (Section 21)


DEPRECIABLE ASSETS

Ownership of the depreciable assets is deemed as owned by the

taxpayer where the asset is jointly owned by a taxpayer and an

Islamic Financial Institution in arrangement of Musharika or

Diminishing Musharika Financing (Section 22)


CAPITAL GAIN ON SALE OF SECURITIES

Rates of tax for capital gain on disposal of securities has been provided as

follows (Section 37A)

S.NO. Period

Tax Year 2018 and

onwards for

securities acquired

before 1st July 2016

Tax Year 2018 and

onwards for

securities acquired

after 1st July 2016

FilerNon -

FilerFiler Non - Filer

1

Where holding period of a

security is less than twelve

months

15% 18% 15% 20%

2


security is twelve months or

more but less than twenty-four

months

12.5% 16% 15% 20%

3


security is twenty-four months or

more but the security was

acquired on or after 1st July,

2013

7.5% 11% 15% 20%

4Where the security was

acquired before 1st July, 20130% 0% 0% 0%

5

Future commodity contracts

entered into by members of

Pakistan Mercantile Exchange

5% 5% 5% 5%

Finance Act has provided that rate of tax on cash settled derivatives traded

on the stock exchange shall be 5% for the tax years 2018 to 2020.


TAX CREDIT TO A PERSON REGISTERED UNDER THE SALES TAX

ACT 1990

Tax credit available to manufacturer making sales not less than

90% to sales tax registered person has been withdrawn. (Section

65A)


MINIMUM TAX ON TURNOVER

General minimum tax rate on turnover has been increased from 1%

to 1.25% However, Minimum tax for person running an online market

place as defined in clause 2(38B) shall be 0.5% as provided vide the

Finance Act. (Section 113)


TAXABILITY OF IMPORT OF FERTILIZERS

Import of fertilizer by manufacturer of fertilizer previously been taxed

on net income basis shall now be final tax. (Section 148(7))


ADVANCE TAX ON SALE OR TRANSFER OF IMMOVABLE

PROPERTY

Advance tax collected on sale or transfer of immovable property

shall be minimum tax where property is acquired and disposed off

within the same tax year (Section 236C)


EXTENSION IN TIME FOR FURNISHING RETURN

Extension in time for filing return may be granted by the Chief

Commissioner upon application by the taxpayer where the

Commissioner has refused to grant the extension or further extension.

Such extension would be allowed for maximum 15 days unless further

extension is justified on the basis of exceptional circumstances.

(Section 119)


PROVISIONAL ASSESSMENT

Provisional assessment by the Commissioner in the absence of return

filed has been withdrawn. (Section 122C). Now the department may

made assessment on best judgment.


REVISION OF WITHHOLDING TAX STATEMENTS

Revision of withholding statement filed under statement 165 is now

allowed within 60 days of filing (Section 165)


DISCLOSURE OF INFORMATION BY FBR TO EOBI

EOBI can obtain information from FBR regarding salaries (Section

216)


AMENDMENT IN WITHHOLDING TAX RATES ON CERTAIN

PAYMENTS TO NON-RESIDENTS

The withholding tax rate for a non-resident deriving income from contract has

been increased from 12% to 13% where non-resident is a non-filer. Further,

tax deducted shall be adjustable and shall be assessed on net income basis

unless such non-resident opts for final tax regime (Section 152)

Following are withholding rates for payment made to non-filer non-resident.

(Section 152)

Existing

rates

Revised

rates

GoodsCompany 6% 7%

Non-Company 6.5% 7.75%

Services

Company 12% 14%

Non-Company 15% 17.5%

Contract 12% 13%


AMENDMENT IN WIHHOLIDNG TAX RATES ON CERTAIN PAYMENTS

TO RESIDENTS

Withholding agent is required to collect tax from agent or any third person on

account of payment for services where such agent / third person retains his

services charges / fees (Section 153). According to recent judgment of Supreme

court no withholding was required on such payment.

Rate of collection of withholding tax on supply of goods and services to resident

person has been amended as follows. (Section 153)

Existing Revised

Company Non-

CompanyCompany

Non-

Company

Distribution of FMCG 3% 3.50% 2% 2.5%

Sale of goods (non-

filers)6% 6.50% 7% 7.75%

Services (non-filers) 12% 15% 14.5% 17.5%

Contract (non-filers) 10% 10% 12% 12.5%


AMENDMENT IN WITHHOLDING TAX ON RENT PAYMENTS TO

COMPANIES

Rate of advance tax on rent for companies being non-filer is

chargeable to tax at the rate of 17.5% of gross amount of rent.

(Section 155)


AMENDMENT IN WITHOLDING TAX RATE ON DISTRIBUTION OF PRIZE

AND WINNINGS

Rate of advance tax on prizes and winnings has been increased from

20% to 25% (Section 156)


BROKERAGE AND COMMISSION

Computation of amount of commission to advertising agents has been provided

vide Finance Act through insertion of new sub-section. Principal is required to

deduct tax at the rate provided under Division II of Part IV of First Schedule to the

Ordinance i.e. at the rate of 10% being a filer and 15% for non-filer on amount of

commission to be calculated as follows:

A x 15 / 85; where

A = amount paid or to be paid to electronic or print media for advertising services

(excluding commission) on which tax is deductible under section 153(1)(b) of the

Ordinance.

Such tax deducted shall be final tax on income of the advertising agent and shall

be deducted irrespective of tax deductible under section 153(1)(b) of the

Ordinance on payment to electronic and print media.

The purpose of insertion of this new sub-section is to fix the percentage of

commission on which tax is to be deducted irrespective of the fact whether or not

the advertising agent receive any commission. (Section 233(2A))


COLLECTION OF ADVANCE TAX AT THE TIME OF SALE TO RETAILER

Rate of collection of advance tax on sales to retailer by distributor,

dealers or wholesaler in respect of certain products has been amended

as follows (Section 236H)

Category of

sale

Existing Revised

Rate of tax Rate of tax

Filer FilerNon-

filer

Electronics 0.5% 1% 1%

Others 0.5% 0.5% 1%


ADVANCE TAX ON INSURANCE PREMIUM

Threshold limit for collection of advance tax at 1% from non-filer in

respect of life insurance premium has been increased from Rs. 0.2

million to Rs. 0.3 million (Section 236U)


REDUCTION IN TAX RATE FOR PERSON RUNNING ONLINE MARKET

PLACE

Rate of tax on commission derived by person running online market

place as defined in clause 2(38B) shall be 5% instead of 12% or 15%

being a filer and a non-filer respectively. (Clause 28C Part II, 2nd

Schedule)


EXEMPTIONS FOR STARTUP BUSINESS OF INFORMATION

TECHNOLOGY

Concept of startups has been introduced for information, technology business

offering technology driven products or services provided that business is

registered and is duly certified by the Pakistan Software Export Board (PESB)..

However business has been commenced on or after 1st July 2012. (Section

2(62A))

Following exemptions have been provided under the Ordinance for such

business:

i. Exemption on Profit and gain derived by start-up business of information

technology for the tax year in which the business starts up and the

following two tax years. (Clause 144 Part I 2nd Sch)

ii. Exemption from minimum tax under section 113 of the Ordinance. (Clause

43F Part IV 2nd Sch.)

iii. Exempt from withholding under section 153 of the Ordinance on payments

received. (clause 43F of Part IV of 2nd Sch.)

DEFINITIONS

Durable goods has been excluded from Fast Moving Consumer Goods

(FMCG). Durable goods have however not being defined (Section 2(22A))

Definition of “Liaison office” has been provided vide Finance Act, 2017.

However, place of business shall not be treated as liaison office if it

engages in commercial activities, trading or industrial activities, or the

negotiation and conclusion of contracts. (Section 2(30C))


AMENDMENTS IN SALES TAX ACT, 1990


NEW CONCEPT

“Tier- 1 Retailers” is define to mean following persons: (Section 2(43A))

a. A retailer operating as a unit of a national or international chain of stores

b. A retailer operating in an air-conditioned shopping mall, plaza or center,

excluding kiosks

c. A retailer whose cumulative electricity bill during the immediately preceding

twelve consecutive months exceeds rupees six hundred thousand; and

d. A wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods

on wholesale basis to the retailers as well as on retail basis to the general body

of consumers.

Such retailers shall pay sales tax at the rate of 17% and shall be liable for filing monthly

sales tax return. If such retailers are making supplies of finished goods of the five

sectors specified in notification S.R.O 1125(I)/2011 they shall pay sales tax at the rates

prescribed in said notification.

Such retailers shall have an option to pay sales tax at the rate of 2% of their total

turnover, including turnover of exempt supplies without adjustment of any input tax. To

exercise such option, such retailers will have to file an option before the respective

Chief Commissioner having jurisdiction by 15th of July and this option shall remain in

force for the whole financial year.


CHARGABILITY OF SALES TAX ON IMPORTED GOODS

Sales tax is required to be charged on goods imported into Pakistan

irrespective of their final destination in territories of Pakistan. (Section 3).

Purpose of said amendment to tax goods imported for FATA / PATA.


SALES TAX ON SPECIFIED RATES ON GOODS COVERED UNDER

EIGHTTH SCHEDULE

Goods specified in Eight Schedule shall be charged to sales tax at the specified rate

further, retail price along with amount of sales tax is required to be legibly,

prominently and indelibly printed by the manufacturer on each article as required in

case of Third Schedule item. (Section 3(2))

Certain goods shall be charged to sales tax at the rates specified in Eight Schedule

to the Act. which includes following (Eighth Schedule)

a. Supply of fertilizers are chargeable to sales tax at the specified rates

b. Some gases and locally manufactured coal are charged at specific rates subject

to certain conditions

c. Imports and supply of specific Poultry machines will be charged at the rate of 7%

d. Multimedia projectors at the rate of 10%

e. Fish feed at the rate of 10%


AMENDMENT IN SALES TAX RATES

1. MOBILE PHONES

Sales tax on low priced cellular mobile phones or satellite phones has been increased from Rs.

300 to Rs. 650 whereas sales tax medium priced cellular or satellite mobile phones has been

reduced from Rs. 1,000 to Rs. 650. (Ninth Schedule)

1. HYBRID ELECTRIC VEHICLES

Sales tax on local supply of Hybrid Electric Vehicles (HEVs) falling under the PCT heading 87.03

at the following rates: (SRO 587(I)/2017 dated 1st July 2017)

Upto 100cc 50% of the standard rate i.e. 8.5%

1801 to 2500cc 75% of the standard rate i.e. 12.75%

1. STEEL SECTOR

Fixed rate of sales tax for steel sector has been increased from Rs.9 per unit of electricity to Rs.

10.5 per unit of electricity. (Rule 58H of the Sales Tax Special Procedure Rules, 2007)

1. TEXTILE GOODS

Sales tax on retail sales to five export oriented sectors has been enhanced from 5% to 6%. (SRO

584(I)/2017 dated 1st July 2017)


EXEMPTION FROM CHARGEABILITY OF FURTHER SALES TAX

The Federal Government vide SRO 585(I)/2017 dated 1st July 2017

has exempted the following goods from chargeability of further tax.

i. Fertilizers

ii. Supplies by steel melters, re-rollers and ship breakers

operating under chapter XI of the Sales Tax Special Procedure

Rules, 2007; and

iii. Supplies covered under Fifth Schedule to the Sales Tax Act,

1990 at zero rate


EXEMPTION FROM SALES TAX WITHHOLDING

Sales tax is not required to be withheld anymore where supplies are

made by an active taxpayer to another registered person with the

exception of advertisement services (SRO 586(I)/2017 dated 1st July

2017)


RECOVERY OF TAX

Stay against recovery proceedings has been provided where taxpayer

files an appeal with the Commissioner Appeals under section 45B of the

Act in respect of any order and has paid 25% of the amount of tax.

(Section 48)

AMENDMENTS IN FEDERAL EXCISE ACT, 2005


CHARGABILITY OF SALES TAX ON IMPORTED GOODS

The Finance Act has provided for chargeability of duty on goods

imported into Pakistan irrespective of their final destination in territories

of Pakistan (Section 3). Purpose of said amendment to tax goods

imported for FATA / PATA.


RECOVERY OF TAX

Stay against recovery proceedings has been provided where taxpayer

files an appeal with the Commissioner Appeals under section 33 of the

Act in respect of any order and has paid 25% of the amount of tax.

(Section 37)

AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011


DEFINITIONS

FRANCHISE

Amendment in the definition of “Franchise” has been made regarding

determination of franchise services irrespective of consideration or fee against

the franchise. Now the franchise service shall be chargeable to sales tax even

in case no payment is made or required to be made in franchise arrangement.

(Clause 2(46))

PLACE OF BUSINESS IN SINDH

Amendment in the definition of “place of business in Sindh” has been made to

include following person who carries on an economic activity through: (Clause

2(64(b))

i. Virtual presence

ii. A website

iii. Web portal; or

iv. Any other form of e-commerce by whatever named called or treated

PERSON LIABLE TO PAY TAX

Amendment has been made to include recipient of taxable service as a

person liable to pay tax. Service provider and service recipient shall be

jointly and severally liable to pay tax where service provider has failed to

make payment of tax within the prescribed due date and the person

receiving taxable supply fails to make payment to the service provider

within 180 days from the date of tax invoice. Further, it is also clarified

that the withholding agent shall also be considered as “registered

person” liable to pay tax and the amount of tax liable to be withheld by

the withholding agent is also proposed to be included in the “amount of

tax”. (Section 9)


CHARGEABILITY OF SALES TAX ON LABOUR AND MANPOWER

SUPPLY SERVICES

Exclusion / exemption from sales tax on reimbursement of salaries

and allowances received on actual basis by the person providing

labour and manpower supply services has been done away with vide

notification no. SRB-3-4/12/2017 dated 5th June 2017. Now the

service provider is required to charge sales tax on gross amount

including reimbursement of salaries and allowances. Such

amendment shall take effective from 1st July 2017. (Rule 42E(3))



TAX CREDIT NOT ALLOWED

Restriction / limitation for claiming input tax adjustment in respect of certain goods and

services has been included in section 15A of the Act which is currently covered under Rule

22A(ii) of the Sindh Sales Tax on Services Rules, 2011. The provision provide for exclusion of

input tax adjustment in respect of following goods or services which are liable to sales tax

whether Federal or Provincial sales tax and are used or consumed in the provision of services

taxable under the Sindh Sales Tax on Services Act, 2011:

i. Goods or services chargeable to sales tax at the specific rate

ii. Goods or services chargeable to sales tax at the fixed rate

iii. Goods or services chargeable to sales tax at such rates not based on value; or

iv. Goods or services chargeable to sales tax at the rate lesser than 13% ad volorem

In addition to the above, the person providing taxable telecommunication services chargeable

to sales tax at the rate of 19.5% ad volorem, can claim adjustment of input tax paid on goods

and services chargeable to sales tax at the rate not exceeding 17% ad volorem (Section

15A(1)(jj))

Further, rate of sales tax on telecommunication services for claiming input tax adjustment has

been increased from 19% to 19.5%. Such increase is in line with the increase in rate for

telecommunication services from 19% to 19.5% in Schedule to the Act. (Section 15A(1)(k))


INPUT TAX ADJUSTMENT FOR CAPITAL GOODS

New provision has been inserted for adjustment of input tax in respect

of capital goods, machinery and fixed assets as are classified under

Chapter 84 and 85 of the First Schedule to the Customs Act, 1969

against output tax in twelve equal monthly installments. Chapter 84

and 85 of the Customs Act include following class of goods: (Section

15B)

i. Chapter 84 “Nuclear reactors, boilers, machinery and

mechanical appliances, parts thereof”

ii. Chapter 85 “Electrical machinery and equipment and parts

thereof; sound recorders and reproducers, television image

and sound recorders and reproducers, and parts and

accessories of such articles”


ASSESSMENT OF TAX

Period for passing assessment order has been increased from 120

days to 180 days from issuance of the show cause notice. (Section

23(3))

Further, period for passing order for recovery of tax not levied or short

levied has been increased from 120 days to 180 days from issuance of

the show cause notice. (Section 47(3))


OFFENCES & PENALTIES

New provision has been inserted regarding monitoring or tracking by electronic or other means in

respect of registered person or class of registered person or any of the service or class of the service.

As and when prescribed by the Board the person providing taxable services shall compulsorily use

the electronic means for issuance of tax inovices. (Section 54A)

Penalty has been imposed in respect of non-compliance of above provision. Such penalty would be

Rs. 100,000 or an amount equal to tax involved whichever is higher. Further, such person upon

conviction by a special judge shall be liable imprisonment upto one year or fine upto Rs.

100,000 or both. (Section 43(7B))


APPEALS

The Commissioner Appeal is empowered to decide the cases of de-

registration under section 25A of the Act. (Section 57(1))


RECOVERY OF ARREARS

Stay against recovery proceedings has been allowed till the decision in

appeal where appeal has been filed by the taxpayer before the

Commissioner Appeals against the order passed by the officer of the

SRB and the taxpayer has paid 25% of amount of tax due. (Section

66(1))

Further, New section has been inserted regarding recovery of tax from

the taxpayer without giving notice where the taxpayer has paid tax less

than the tax due as indicated in his return. Such tax short paid alongwith

default surcharge shall be recovered by attaching his bank account.

However, penalty shall not be imposed unless show cause notice is

given to such person. (Section 47A)


AMENDMENT IN SINDH SALES TAX ON SERVICES RULES, 2011

Certain amendments has been made vide notification no. SRB-3-4/12/2017 dated 5th June 2017

and such amendment shall take effect from 1st July 2017.

PERIOD FOR CLAIMING INPUT TAX ADJUSTMENTS

Period for claiming input tax adjustment has been increased from four to six months

w.e.f. 1st July 2017. Previously the registered taxpayers can claim adjustment of

unadjusted input tax during four succeeding tax periods. (Rule 22)

ADVERTISING SERVICES

Services of advertising agents in respect of advertisement on walls shall be chargeable

to sales tax. (Rule 33)

Further, scope of taxable advertising services has been widened by including services of

advertisement on buildings and walls in the definition of advertisement services as per

Rule. (Rule 34)


RENTING OF IMMOVABLE PROPERTY SERVICES

Rate of sales tax on services for renting of immovable property has been reduced from 8% to

3%. (Rule 42BBB)

FRANCHISE SERVICES

Option was previously available to elect tax rate of 13% on franchise services (tariff heading

9823.0000) instead of 10% by resident franchise service provider or franchisee receiving franchise

services from service provider resident outside Pakistan. Such option has been withdrawn vide

SRO 3-4/18/2017 dated 6th July 2017. Therefore, franchise services are chargeable at the rate of

10% without any input tax adjustment.

INTELLECTUAL PROPERTY SERVICES

Option was previously available to elect tax rate of 13% on intellectual property services (tariff

heading 9838.0000) instead of 10% by resident service provider or person receiving services from

service provider resident outside Pakistan. Such option has been withdrawn vide SRO 3-4/23/2017

dated 11th July 2017. Therefore, intellectual property services are chargeable at the rate of 10%

without any input tax adjustment.


REDUCTION IN SALES TAX RATES

Amendment has been made in reduced sales tax rates for certain services vide notification no. SRB-3-

4/11/2017 dated 5th June 2017. Such amendment shall take effect from 1st July

Tariff

Heading

Description of service Current rate New rate

9805.5000 Travel Agents 10% 8%

9805.5100 Tour Operators 10% 8%

9806.3000 Renting of immovable property services 8% 3%

98.12 Telecommunication Services 19% 19.5%

9819.1200 Services provided or rendered by an indenter

from a place of business in Sindh for which the

registered person receives the value of service

from place outside Pakistan in foreign exchange

through normal banking channels in the business

bank account of the registered person in the

manner prescribed by the State Bank of Pakistan

13% 3% subject to the

condition that the

input tax credit /

adjustment shall not

be admissible

9835.0000 Services provided or rendered by a call centre

from a place of business in Sindh for which the

registered person receives the value of the

service from a place outside Pakistan in foreign

exchange through banking channels in the

business bank account of the registered person in

the manner prescribed by the State Bank of

Pakistan

13% 3% subject to the

condition that the

input tax credit /

adjustment shall not

be admissible


EXEMPTION

Exemption from sales tax on services of life insurance under tariff heading

9813.1500 (other than its related re-insurance service) has been extended

from 30th June 2017 to 30th June 2018 vide notification no. SRB-3-

4/10/2017 dated 5th June 2017.

AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012


DEFINITIONS

DUE DATE OF FILING

The Finance Act has amended the definition of the due date of filing of return to provide for

different dates for furnishing different annexures of the Punjab sales tax return in line with

the Federal Sales Tax Act, 1990 whereby annexure of sales is to be e-filed on 10th of the

month following the month of sales. (Section 2(17)). Notification for submission of Annexure

C by 10th of the month from tax period July 2017 has been issued notification no.

PRA/Orders.06/2017(I) dated 5th July 2017.

PLACE OF BUSINESS

The Finance Act has extended the definition of place of business by amending sub-clause

(b) of sub-section(30) of section 2 of the Punjab Sales Tax on Services Act, 2012

(PSTSA’2012). Through the said amendment, the activities performed through ecommerce

or virtual presence including web portals shall now be treated as place of business for levy

of the Punjab sales tax on the activities carried out through e-commerce, web-portals, etc.

Now any business activity carried via virtual presence in Punjab through any computer

application / software shall be subjected to Punjab sales tax. (Section 2(30))


PERSON LIABLE TO PAY TAX COLLECTED AT SOURCE

A new section 11A has been inserted in the statute book whereby, in case

the recipient of taxable service being withholding agent fails to make the

payment of tax to the service provider within 180 days and the service

provider has also not made payment of tax within the due date, the

recipient and the provider of services shall jointly and severally be liable for

payment of tax. (Section 11A)

Another section has been inserted which empowers the Authority to

declare any person as tax collecting agent. The said person shall be liable

to pay the tax so collected to the Government as per procedures to be

prescribed by the Authority, including related to registration, record

keeping, invoicing, returns and other related matters. (Section 14A)


INPUT TAX CREDIT / ADJUSTMENT

The amendment has been made to allow a registered person to claim

adjustment, deduction or refund of the tax paid or payable under any other

law with the condition to furnish tax invoice or Goods Declaration (GD)

bearing the name of claimant and its National Tax Number (NTN), in case of

domestic purchases or imports respectively. The Authority will be empowered

to put restrictions on claim/ adjustment of input tax by issuing notification with

the approval of the Government. (Section 16)


INPUT TAX ADJUSTMENT FOR CAPITAL GOODS

New provision has been inserted for adjustment of input tax in respect of

capital goods, machinery and fixed assets as are classified under Chapter

84 and 85 of the First Schedule to the Customs Act, 1969 against output tax

in twelve equal monthly installments. Chapter 84 and 85 of the Customs Act

include following class of goods: (Section 16C)

i. Chapter 84 “Nuclear reactors, boilers, machinery and mechanical

appliances, parts thereof”

ii. Chapter 85 “Electrical machinery and equipment and parts

thereof; sound recorders and reproducers, television image and

sound recorders and reproducers, and parts and accessories of

such articles”


ASSESSMENT OF TAX

The current period of issuance of show cause notice for amendment of

assessment has been increased from five years to eight years. (Section 24)


RECOVERY OF ARREARS

The new clause (bb) to the sub-section (1) has been inserted whereby

the Authority upon issuance of notice in writing would be authorized to

recover the amount of tax payable by a taxpayer from any other person

who owe any amount to the taxpayer under legally enforceable relation

including purchase contracts, contracts with credit or financial institutions

or banking companies, lease contracts, loan agreements, building loan

contracts, life insurance contracts, employment or work contracts etc.

Further, the Act has provided for automatic stay against recovery of the

disputed tax till the decision in appeal where 25% of the demand as a

result of assessment order has been deposited. (Section 70)


GENERAL ADMINISTRATION

RESTRICTION ON AUTHORITY ISSUING OR RENEWING A BUSINESS

LICENSE

New section has been inserted which authorizes the Authority requiring

any competent authority to hold the issue or renew a license or

permission to any person to engage in an economic activity which is

taxable under the Act unless the licensee or grantee furnishes the

evidence that he is a duly registered person under section 25, 26or 27 of

the Act. (Section 76A)

COMMUNICATOIN OF NOTICE, ORDERS ETC

The Authority, while issuing notification, may communicate electronically

in respect of all communications including notifications, order,

assessment or requisition from officers. This facility of electronic

communication has been extended for the service of notices and show

cause notices as well. (Section 78)


TAX CHARGEABLE

The following amendments have been made in the Second Schedule to the Act:

Telecommunication Services (Serial No. 6)

Note that the exclusion from chargeability of tax under “Telecommunication Services” has

been amended and now only the internet services whether dialup or broadband including

email services, data communication network services (DCNS) and value added data

services when the charges do not exceed Rs. 1500 per month per student.

)Serial no.

of the

Table

Description Rate of Tax

6 (z) i. internet services whether dialup or broadband

including e mail services, data communication

network services (DCNS) and value added data

services

ii. such charges payable on the international leased

lines or bandwidth services used by:

(a) software exporting firms registered with Pakistan

Software Export Board; and

(b) data and internet service providers licensed by

the Pakistan Telecommunication Authority; and

i. such charges payable on the international leased

lines used by the software exporting firms

registered with Pakistan Software Export Board for

software exports. And

Nineteen and

a half percent


Construction Services (Serial no. 14)

The Government of Punjab on the recommendations of the Authority had issued a notification No.

SO (TAX) 5-24/2016 dated 05 October 2016 effective from 01 July 2016 whereby a reduced rate

scheme was announced for construction services. The aforesaid notification is valid up to 30 June

2017. The Finance Act has introduced a similar scheme by inserting explanation in the taxable

service category under Sr. No. 14 of the Second Schedule to the PSTSA’2012. Amendment has

been made as follows:

Type of Construction Service Rate of sales tax

All services specified at S.No.14 without input tax credit or adjustment to the

extent of Government civil works including those of cantonment boards

involved in the ongoing development schemes and projects launched during

Financial Year 2016-17 and funded under the Annual Development Plan of the

Punjab Government or funded through foreign loans where the negotiations

were finalized after 1st of July 2016 or funded under Public Sector Development

Program of the Federal Government or funded by the Cantonment Boards

One percent

All services specified at S.No.14 without input tax credit/adjustment to the

extent of Government civil works including those of cantonment boards

involved in the ongoing development schemes and projects launched prior to

Financial Year 2016-17 and funded under the Annual Development Plan of the

Punjab Government or funded through foreign loans where the negotiations

were finalized as on 1st of July 2016 or funded under Public Sector

Development Program of the Federal Government or funded by Cantonment

Boards

Zero percent

Note all other construction services are taxable at reduced rate of five percent without input tax

credit/adjustment.


Services provided by persons engaged in contractual execution of work or

furnishing supplies (Serial no. 16)

Exemption available in the scenario where the annual turnover of the

contractual works or supplies does not exceed Rs.50 million has been

withdrawn. After the said amendment the services of the persons

engaged in the contractual execution of work or furnishing supplies

shall be taxable irrespective of the value of the work, except for the

contracts involving printing or supplies of books which will remain

exempt irrespective of the value of contracts.

AMENDMENTS IN ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES) ORDINANCE, 2001


REDUCTION IN SALES TAX RATE

Service provided or rendered by marriage halls and lawns, by whatever

named called, including “pandal” and “shamiana” services and caterers

shall be subjected to sales tax at the rate of 5% without any input tax

adjustment (SRO 589(I)/2017 dated 1st July 2017 read with SRO

495(I)/2016 dated 4th July 2016.


EXEMPTION FROM SALES TAX

Sales tax on export of IT services or IT enabled services has been exempted

vide SRO 590(I)/2017 dated 1st July 2017

AMENDMENTS IN THE KHYBER PAKHTUNKHWA

SALES TAX ON SERVICES ACT, 2013

AMENDMENTS IN THE KHYBER PAKHTUNKHWA SALES TAX ON SERVICES ACT, 2013

SCOPE OF SERVICES

“Ride hailing services” are included in the list of services under First

Schedule to the Act. However, corresponding amendment to levy sales

tax would be notified by the Provincial Government.

AMENDMENTS IN THE KHYBER PAKHTUNKHWA SALES TAX ON SERVICES ACT, 2013

EXEMPTION FROM SALES TAX

Various services including money transfer, construction of bridges, gas

supply and sanitation services are proposed for exemption. However

separate notification in this regard will be issued by KPKRA to give

effect to this announcement.

THANK YOU

amendments in tax laws in pakistan -...

Documents