changes in income tax, sales tax and special excise duty through presidential amendment ordinance...

Changes in Income Tax, Sales Tax and Special Excise Duty through Presidential Amendment Ordinance and Notifications (SRO’s)

Presented by:

MUHAMMAD AWAIS, FCAPartner Tax

Ernst & Young Ford Rhodes Sidat Hyder Chartered Accountants, Lahore

Seminar by CPD Committee of Northern Regional Committee of

ICAPAt ICAP House, Lahore

26 March 2011

► The Federal Government on 15 March 2011 has taken certain revenue measures and has promulgated the following amendment Ordinances:

► The Federal Excise (Amendment) Ordinance, 2011

(FE Amendment Ordinance, 2011),

► The Sales Tax (Amendment) Ordinance, 2011 (ST Amendment Ordinance, 2011) and

► The Income Tax (Amendment) Ordinance, 2011 (IT Amendment Ordinance, 2011)

► Issued and rescinded certain Notifications / SRO’s

Changes in Fiscal laws:

Income tax

► The IT Amendment Ordinance, 2011 has inserted Section 4A in the Income Tax Ordinance, 2001 (the Ordinance).

► Through this section, surcharge has been levied on every taxpayer at the rate of 15% of Income Tax payable , including the income tax payable under FTR.

► It is also applicable on payment of advance tax under section 147.

► All withholding agents are liable to deduct withholding tax by adding 15% of income tax deductible at the prevailing rate on payments made between 15th March 2011 to 30th June 2011.

► While making payment of salary, employer is liable to deduct surcharge @ 15% on the income tax payable on portion of the salary pertaining to the period starting from 15th March 2011 to 30th June 2011.

Levy of Surcharge

► All Withholding Agents are liable to deduct and deposit surcharge @

15% of tax, in addition to the tax at the prescribed rates which is required to be deducted/collected under Part V of Chapter X or Chapter XII of the IT Ordinance, 2001,. This is illustrated as follows: –

S. No. Description

Tax deducted at source

Rate

Surcharge @ 15% of

Tax deducted

Effective Rate

1. Sale of goods 3.5% 0.525% 4.025%

2. Rendering of services 6% 0.9% 6.9%

3. Royalty/ Fee for technical services

15% 2.25% 17.25%

4. Dividend/ Commission 10% 1.5% 11.5%

Levy of Surcharge on Withholding Agents

► In case of advance tax under Section 147 of the Ordinance due on 25th March 2011 and 15th June 2011, payment will be made vide two separate computerized payment receipts for advance income tax and surcharge. Further in making the advance tax payment, the following require due consideration:

► For the purpose of calculating the amount of surcharge on the advance tax liability for March 2011 quarter, the taxpayer shall determine the turnover for the period from 15 March 2011 to 31 March 2011 only.

► For those tax payers whose installments of advance tax, fall due between 15 March 2011 to 31 December 2011, i.e. Tax year 2012, surcharge shall not be calculated and paid.

► In case of withholding tax, withholding agents are required to make two entries in respect of withholding tax and related surcharge for each taxpayer to whom payment will be made.

Mode Prescribed for payment of Surcharge

► Short title and commencement.- This Ordinance may be called the Income Tax (Amendment) Ordinance, 2011

► Sub Section (1) of Section 4A states:

“Subject to this Ordinance, a surcharge shall be payable by every taxpyer at the rate of fifteen per cent of the income tax payable under this Ordinance including the tax payable under Part V of Chapter X or Chapter XII, as the case may be, for the period commencing from the promulgation of this Ordinance till the 30th June, 2011.

► Further proviso to sub section (2) states that,

“Provided that this surcharge shall not be payable for the tax year 2010 and prior tax years and shall be applicable, subject to the provisions of sub section (1), for the tax year 2011 only. “

Anomaly in period for Levy of Surcharge

Sales tax

► Tractors

► Previously import and supply of tractors and their components imported in any kit form were exempt from sales tax. The ST Amendment Ordinance, 2011 amends Serial No. 69 of Table-1 of the Sixth-Schedule to the ST Act, 1990 to withdraw the exemption given to tractors.

► Now import and supply of tractors shall be subject to sales tax at the rate of 17% effectively from 15 March 2011.

► Consequently, the facility of refund of input sales tax paid by a recognized manufacturer of agricultural tractors available through SRO 706(I)/2010 of 02 August 2010 has also been withdrawn by rescinding the aforesaid SRO.

Withdrawal of Sales Tax Exemptions

► Fertilizers

► Similarly, import and supply of specified fertilizers were exempt until now through SRO 535(I)/2008 dated 11 June 2008. SRO 229(I)/2011, issued on 15 March 2011 has withdrawn the exemption hitherto available on import and supply of such specified fertilizers. Accordingly, its import and supply would now be taxable at the rate of 17% effective from 15 March 2011.

► Pesticides

► Import and supply of specified pesticides and active ingredients of such pesticides were exempt from sales tax through SRO 536(I)/2008 dated 11 June 2008. The SRO 229(I)/2011, issued on 15 March 2011 has withdrawn the exemption on import and supply of such specified pesticides. Now such specified pesticides would be taxable at the rate of 17% effective from 15 March 2011.

Withdrawal of Sales Tax Exemptions

► Sugar

► Supply of locally produced white crystalline sugar was liable to sales tax on a deemed value of Rs. 28.88 per kg @ 8% as specified in SRO 564(I)/2006 dated 05 June 2006. SRO 232(I)/2011, issued on 15 March 2011 has rescinded the aforesaid SRO.

► Consequently, sales tax on supply of sugar will now be charged on the transactional value of sugar. However, the rate of sales tax would remain at 8% as provided by sales tax notification dated 23 August 2009.

Sales tax on supply of Sugar

► Import and supply of Plant, Machinery and Equipment no more zero rated

► The import and supply of plant, machinery and equipment including parts thereon previously enjoyed zero-rated status, as provided under SRO 549(I)/2008 dated 11 June 2008. This concession has now been withdrawn by SRO 230(I)/2011 effective from 15 March 2011 by removing serial no. 3 under the table given in SRO 549(I)/2008 dated 11 June 2008.

► Consequently, import and supply of plant, machinery and equipment including parts thereof would now be subject to sales tax @ 17%

Zero Rating

► Certain conditions are to be fulfilled for availing zero rate by Five Export Oriented Sectors

► Sales tax was to be charged at the rate of zero percent on import and local supply of leather, textile, carpets, sports, surgical and numerous other goods as specified in SRO 509. Under SRO 231(I)/2010 dated 15 March 2011, this concession has now been restricted to the goods, whether imported or locally produced, are sold or purchased between persons registered as manufacturer-cum-exporters or as exporters, for use or utilization in goods meant for export.

► It means that such a condition is provided to restrict application of zero rate only to such goods which are imported or purchased for manufacturing of goods to be exported or for supply to a manufacturer com exporter or exporter for export. In other words, all local supplies of such goods except made to manufacturer cum exporters or exporters for export are now taxable at the rate of 17%.

Zero Rating

► The relevant excerpt is as under:

► In exercise of the powers conferred by clause (c) of section 4 of the Sales Tax Act, 1990, and in supersession of the Notification No. S.R.O. 525(I)/2006, dated 5th June, 2006, the Federal Government is pleased to notify the goods specified in column (2) of the Table below, falling under the PCT Heading No. mentioned in column (3) of the said Table, to be the goods on which sales tax shall be charged at the rate of zero per cent on the supply and import thereof, if these goods after import or domestic production are sold or purchased between persons registered as manufacturers-cum exporters or as exporters, for use or utilization of goods meant for export, namely:--

Sr. No.

Description of goods PCT Heading No.

(1) (2) (3) 1. Leather and articles thereof including artificial leather

footwear 41.01 to 41.15, 64.03, 64.04, 6405.1000, 6405.2000 and other respective headings

2. Textile and articles thereof excluding monofilament, sun sheding, Nylon fishing net, other fishing net, rope of poly ethylene and rope of nylon, tyre cord fabric.

Chapter 50 to Chapter 63 and other respective headings excluding , 5407.2000, 5608.1100, 5608.1900, 5608.9000.

Amendment in SRO 509 vide SRO 231(I)/2011 dated 15 March 2011,

Special excise duty

► All goods imported into Pakistan or produced or manufactured in Pakistan were until recently liable to SED at the rate of 1%. The FE Amendment Ordinance, 2011, has amended Sub-section (1) of Section 3A of the FE Act, 2005 to increase the SED rate from 1% to 2.5% with immediate effect i.e. 15 March 2011.

► Effectively all goods imported into Pakistan or produced or manufactured in Pakistan except the goods excluded vide table given in SRO 655(I)/2007 dated 29 June 2007 (SRO 655) are now liable to SED @ 2.5%.

► Under SRO 655, the goods specified in SRO 509 has been excluded for levy of SED. Now by withdrawing zero rating from local supply of Textile, Leather, sports, carpets and surgical goods, the local supply of these goods will be subject to SED @ 2.5%.

Increase in rate of Special Excise Duty (SED)

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