Download - Budget Insight 2010
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2010-2011
Avais Hyder Liaquat Naum anChartered Accountants
A Correspond ent f i rm of RSM Intern ational
[BUDGET INSIGHT - 2010]
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Avais Hyder Liaquat NaumanChartered AccountantsA Correspondent firm of RSM International
Avais Hyder Liaquat Nau man
Char ter ed Accoun tan ts
Pakistan
Nation wide presence with largest network of offices in 6 major cities.
International presence with office in Kabul, Afghanistan.
Personnel strength of around 300.
Wide range of commerce/industry related services.
Correspondent firm of RSM International.
o RSM International is the sixth largest network of independent accounting and
consulting firm in the world.
o RSM International has 93 affiliate member and correspondent firms in 76 countries.
o 736 offices worldwide.
o 32,492 staff including 3,150 partners
o Combined fee income of US$ 3.87 bn.
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Avais Hyder Liaquat NaumanChartered AccountantsA Correspondent firm of RSM International
With Complimen t
To our Valued Clien ts an d Associates
We are pleased to present the 2010 Budget Insight as part of our continued services to
provide all our clients and associates with up-to-date information affecting them and their
business.
This memorandum has been prepared as a general guide for the benefits of our clients and
is available upon request. This is not an exhaustive commentary and only lays down
interpretations of the amendments proposed in Finance Bill 2010 and takes into
consideration important aspects of the changes made.
It is recommended that the text of the Bill and the relevant notifications/provisions,
where applicable, be referred to in considering the interpretation of any provision. These
comments are correct to the best of our knowledge and belief at the time of printing.
If you require any information or have enquiries with regard to the budget
announcements, please do not hesitate to contact our Partners, Syed Naveed Abbas or Mr.
Adnan Tirmizi.
We trust that you will find this guidebook useful.
Avais Hyder Liaqu at Nau ma n
Chartered Accountants
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Avais Hyder Liaquat NaumanChartered AccountantsA Correspondent firm of RSM International
TABLE OF CONTENTS
SENIOR PARTNERS MESSAGE........................................................................................................... 1
STATE OF THE PAKISTAN ECONOMY.............................................................................................. 2
SUMMARY OF BUDGET 2010-11 ...................................................................................................... 6
INCOME TAX..................................................................................................................................... 6
SALES TAX & FEDERAL EXCISE DUTY...................................................................................... 9
CUSTOMS DUTY.............................................................................................................................10
PROPOSED AMENDMENTS IN THE INCOME TAX ORDINANCE, 20 01.................................14
PROPOSED AMENDMENTS IN SALES TAX ACT, 1990 ..............................................................39
PROPOSED AMENDMENTS IN FEDERAL EXCISE ACT, 2005 ..................................................43
PROPOSED AMENDMENTS IN THE CHAIRMAN AND SPEAKER (SALARIES,
ALLOWANCES AND PRIVILEGES) ACT, 1975 (LXXXII OF 1975) ..........................................48
PROPOSED AMENDMENTS IN CUSTOMS ACT, 1969 (IV OF 1969) ......................................4 9
PROPOSED AMENDMENTS IN THE PETROLEUM PRODUCTS (SURCHARGE)ORDINANCE, 1961 (XXV OF 1961) .................................................................................................52
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Avais Hyder Liaquat Nauman 1Chartered AccountantsA Correspondent firm of RSM International
SENIOR PARTNERS MESSAGE
There is a dire need for revamping the taxation system on modern and progressive
lines which is an essential pre-requisite for the containment of public debt and to
control inflation on a sustained basis. The introduction of VAT, if properly managed
would go a long way in achieving these goals. There is also an urgent need to
heavily reduce government borrowings which have substantially increased over
the past two years.
Reduction in government borrowings together with rationalization of the tax
structure would encourage savings and release larger financial resources to the
private sector and would also help bring down further the mark-up rates.
Modernization / rationalization of the tax system should include extension of
direct taxation to agriculture and services sectors and expansion in the income tax
base by bringing new companies / individuals in the tax net, by plugging loopholes,
by removing concession and exemptions and by improving the tax administration.
An ideal fiscal policy ensures economic growth by reducing deficit financing,
putting no new or additional taxes on common man, encouragement for industrial
investment and personal savings and a sizeable increase in the developmentoutlay. No doubt fiscal space is terribly constrained due to debt servicing and
defense, both of which appear to be irreducible rather in fact have continued to
increase.
In my message for Finance Bill 2008 I had talked of reducing the fiscal deficit to
less than 5% of GDP which was in excess of 7% in the earlier fiscal year, the
budgeted fiscal deficit is 4% of the GDP, which should be strictly followed as
otherwise it is a cause of great concern as it negates all what is required to put the
economy on the right track. I believe that only well tuned management of theeconomy will make it possible to achieve that while adopting practical austerity
measures and curtailing lavish spending.
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STATE OF THE PAKISTAN ECONOMY
Due to inflation and economic crisis worldwide, Pakistan's economy reached a state of
Balance of Payment crisis. "The International Monetary Fund bailed out Pakistan in
November 2008 to avert this crisis and in July last year increased the loan commitment to
$11.3 billion from an initial $7.6 billion."
Economic Comp ar ison of Pakista n 19 99-200 8
Indicator 1999 2007 2008
GDP $ 75 billion $ 160 billion $ 170 billion
GDP Purchasing Power
Parity (PPP)$ 270 billion $ 475.5 billion $ 504 billion
GDP per Capita Income $ 450 $ 925 $1085
Revenue collection Rs. 305 billion Rs. 708 billion Rs. 990 billion
Foreign reserves $ 1.96 billion $ 16.4 billion $ 8.89 billion
Exports $ 7.5 billion $ 18.5 billion $ 19.22 billion
Textile Exports $ 5.5 billion $ 11.2 billion -
KHI stock exchange (100-
Index)
$ 5 billion at 700
points
$ 75 billion at 14,000
points
$ 46 billion at 9,300
points
Foreign Direct Investment $ 1 billion $ 8.4 billion $ 5.19 billion
External Debt & Liabilities $ 39 billion $ 40.17 billion $ 45.9 billion
Poverty level 34% 24% -
Literacy rate 45% 53% -
Development programs Rs. 80 billion Rs. 520 billion Rs. 549.7 billion
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Since the beginning of 2008, Pakistan's economy has been in a state of stagnation. Security
concerns stemming from the nation's role in the War on Terror have created great
instability which is the main cause of a decline in FDI from a height of approximately $3.2
bn to $1.8 bn for the fiscal year 2009-10. Concurrently, the insurgency has forced massive
capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the
dual impact has badly rattled Pakistans economy, with gaping trade deficits, high inflation
and a crash in the value of the Rupee, which fell from 60-1 USD to over 80-1 USD over a
period of a few months.
Despite a modest recovery and stabilization the economy is still very fragile as the
durability of the economic turnaround is far from assured given the significant challenges
the economy faces. Secondly, not all sectors of the economy or regions of the countryappear to have participated so far in the modest upturn. In order to meet the employment
aspirations of the large number of entrants to the labour force, a higher sustained growth
rate will need to be achieved in the medium term.
A combination of limited fiscal space and rising spending, debt, and inflationary pressures,
significantly reduce the governments ability to spend in order to stimulate the economy.
Under the circumstances, the prudent course for the policy makers to follow in the near
term remains the pursuit of greater fiscal consolidation through domestic resource
mobilization, in conjunction with reducing the size of government, and improving the
efficiency of public sector spending.
The situation of public debt is worsening day by day. Pakistans total public debt stood at
an estimated Rs. 8,160 billion as of end March 2010. At this level, public debt is equivalent
to 56% of GDP, and 379% of total budgeted revenue for the year. Of the total, Rupee
denominated debt amounted to 31% of GDP, while foreign currency denominated debt was
the equivalent of 25% of GDP.
The macroeconomic context remains difficult in the near term with continuing challenges.The global economy remains in turmoil, with uncertain prospects for demand for
Pakistans exports. In addition, the energy and water shortage, and the internal security
situation, may continue to constrain growth in 2010-11.
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The following table shows a comparison of macroeconomic indicators for the last two
years:
S.No. Indicator 2009-10 2008-09 Remar ks
1 Gross Domestic Product
(GDP)
4.1% 1.1% Favourable
2 Manufacturing sector
Growth
5.2% 5.4% Unfavaourable
3 Inflation Rate 11.5% 22% Favourable
4 Literacy Rate 57% 56% Favourable
5 Per capita income US $ 1,051 US $ 1,071 Unfavourable
6 External Current Account
Deficit
5.6% of GDP
(US $9.3
Billion)
8.3% of GDP
(US $ 13.9
Billion)
Favourable
7 Fiscal Deficit 5.2% of GDP 7.6% of GDP Favourable
8 Foreign Exchange
Reserves
US $ 16
Billion
US $ 11.6
Billion
Favourable
9 International Credit Rating
(Moody)
B Minus CCC Favourable
10 FDI US$ 1.8
billion
US$ 3.2 billion Unfavourable
11 Unemployment Rate 5.5% 5.2% Unfavourable
The medium term prospects for the economy however are promising, provided the current
path of reform is not abandoned. Pakistan has achieved fairly impressive early success in
its efforts to stabilize the economy from a perilous state of affairs in the aftermath of themacroeconomic crisis of 2008. Protecting the recovery is of paramount importance, and the
government needs to keep a strong check on public spending. Greater realism about the
prospects and accurate forecasts about resources and available funds for the development
plans at each level of government is needed. A number of interlinked actions are needed in
the coming year:
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- Checking inflationthis involves limiting borrowing by the government and the
public sector.
- Bringing people to the centre stage, by appropriately designed employment and
training programs to protect those in strifeaffected areas, and new entrants to the
labour force.
But there are major risks to the growth and stabilization prospects if there is
- Non-implementation of the reform of the GST, leading to a VAT, or other significant
tax broadening measures
- This might affect the phased nature of fiscal devolution envisaged under the
Eighteenth Constitutional amendment (to be effective from 2011-12), in the context
of the frontloaded transfers to the provinces under the Seventh NFC Award
(effective from July 1, 2010);- Larger than budgeted security related expenditures;
- Inadequate targeting of subsidies,
- Failing to reform public sector enterprises, including the power sector, with no
resolution of the energy circular debt issue;
- Continued overhang of commodity financing debt stock, if unchecked, threatens to
constrict access to bank credit by the private sector, while simultaneously
increasing the interest rates in the economy;
- A deterioration of the internal security situation.
The tipping of the world economy into a severe recession in the wake of the Euro zone debtcrisis, could hurt Pakistans exports as well as remittances on the one hand, but could
reduce international prices of key commodities such as oil, on the other.
With relatively low levels of capacity utilization in the economy, a turnaround in investor
confidence can unleash large productivity gains even with low levels of fixed investment.
Nonetheless, overall, a combination of rising fiscal pressures, a developing debt overhang,
and an uncertain path of inflation in the near term, significantly reduces policy space to
stimulate the economy.
For the longer term, efforts to meaningfully address Pakistans perennial structuralchallenges, such as the abysmally low tax/GDP ratio and low overall productivity in the
economy, are more than likely to unlock Pakistans substantial economic potential.
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SUMMARY OF BUDGET 2010-11
INCOME TAX
i. For taxpayers deriving their incomes from Salary and business, the limit of Basic
Exemption is proposed to be enhanced from Rs.200,000/- to Rs.300,000/- in
respect of Salaried taxpayers, while in the respect of Non-Salaried taxpayers it has
been proposed to be enhanced from Rs.100,000/- to Rs.300,000/-.
ii. The maximum rate of advance tax deductible under section 235 on monthly
electricity bills is proposed to be reduced from 10% to 5%, on the amount of the
bills payable.
iii. Senior Citizens of the age of 60 years or more, are to be eligible for relief of 50% of
tax on their income, if their income does not exceed Rs.1,000,000/- as compared to
previous maximum limit of Rs.750,000/-. However this relief shall not be available
on income subject to Presumptive Tax Regime.
iv. To rehabilitate the economy of Khyber Paktunkhwa, FATA and PATA, some
amendments are proposed to be introduced in the Income Tax Law. These measures
provide following reliefs to industrial and commercial taxpayers hailing from
severely and moderately affected areas, as prescribed:
a. Waiver of entire amount of default surcharge & penalty till 30th June 2010;b. Exemption from advance tax on electricity for tax years 2010 and 2011;
c. Exemption from withholding tax on exports;
d. Enhancement of income tax exemption limit from Rs.0.1 million to Rs.0.3
million;
e. Exemption from advance tax on import of plant and machinery upto 30th
June 2011;
However these concessions shall not be available to manufacturers and suppliers of
cement, sugar, beverages and cigarettes.
v. For the wellbeing of disabled persons, 100% depreciation expense can be claimed
on Ramp built to provide access to disabled persons, is proposed through a new
provision to be inserted in the law.
vi. Exemption from taxation of perquisites on waiver of employees obligation to pay or
repay, an amount owed to employer, is proposed.
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vii. In order to facilitate the withholding agents, instead of e-filing monthly, quarterly
and annual withholding tax statements, the e-filing of only quarterly withholding tax
statements is proposed;
viii. A Tax credit for BMR (Balancing, Modernization & Replacement) costs incurred by
such a company is proposed to be provided @ 10% for the tax year of its incurrence.
This concession has been proposed to be admissible for the tax years 2011 to 2015;
ix. To encourage enlistment of corporate sector, a 5% tax credit is proposed to be
allowed to a company in the tax year of its enlistment.
x. In order to align with rest of the scheme, 10% withholding tax deductible on
Government Securities is proposed to be a FINAL tax.
xi. Withholding tax deductible on debt instruments is proposed to be a FINAL tax, in
order to relieve the non-resident taxpayers of statutory requirement for filing
income tax return.
xii. For providing incentive to foreign lenders for tax-free repatriation of profits earned
on foreign industrial loans, Clause 72(iii) of Part-IV of Second Schedule to the
Income Tax Ordinance 2001 is proposed to be re-instated. The maximum rate of
withholding tax deductible on payments made to non-resident taxpayers who are
not subject to Avoidance of Double Taxation Treaties
xiii. (other than payments made on account of royalty and fee for technical services) is
proposed to be @ 20% instead of 30%;
xiv. The rate of withholding tax deductible @ 20% on cross-word puzzles is proposed to
be reduced to a rate of 10%;
xv. A uniform tax rate for small companies as well as AOPs is proposed @ 25% of their
taxable income.
xvi. Advance tax deductible on imports made by commercial importers is proposed to be
enhanced to @5% which would continue to be FINAL tax.
xvii. Tax on capital gains accruing on account of holdings of stocks/shares/securities for
six-months or less is proposed @ 10%, while holdings of stocks/shares/securities
exceeding six-months is proposed @ 7.5%. However no tax has been proposed on
such capital gains where holding period exceeds 12 months.
xviii. Advance tax deductible on goods transport vehicles under Item (1) of Division-III ofPart-IV of Second Schedule to the Income Tax Ordinance 2001 are proposed to be
abolished, and tax is proposed @ Re.1 per kilogram of the laden weight capacity of
goods transport vehicle. No change has been proposed in the rate of tax on goods
forwarding contracts, which remain taxable at the existing rate of 2%.
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xix. Advance tax deductible on Cash Withdrawals from Banks, various banking
transactions including modes like withdrawals through Demand Draft, Pay Order,
Online Transfer, Telegraphic Transfer, TDR, CDR, STDR and RTC, are proposed to be
subject to 0.3% deduction of the advance tax, if such transactions exceed threshold
of Rs.25,000/- in a single day. The advance tax is adjustable.
xx. Turnover Tax on Loss Making Companies is proposed to be enhanced to @ 1%.
xxi. Withholding tax on gross value of Inland Air Ticket has been proposed @ 5%. Under
the scheme the Inland Air-Ticketing persons shall withholding the tax, which will be
adjustable against the tax liability of the purchaser of such ticket;
xxii. Section 4 of the Income Tax Ordinance 2001 is proposed to be amended to include a
reference regarding tax credit on account of share of profits received by a company
from an AOP.
xxiii. In order to bring clarity, expression CD appearing in Division-V of Part-IV of First
Schedule to the Income Tax Ordinance 2001 is proposed to be replaced by any
electronic medium.
xxiv. The mandatory requirement of Filing of Wealth Statement by the Taxpayers in FTR
cases with yearly tax amounting to Rs.35, 000/- is proposed to be included in
section 116 of the Income Tax Ordinance 2001.
xxv. For enforcing checks on non-compliant taxpayers, and to encourage compliant-
taxpayers, a new section 181A is proposed to be inserted in the Ordinance.
xxvi. In order to streamline accounting of Advance Tax payments, certain amendments
are proposed in section 147 of the Ordinance, so that quarterly advance taxpayments are paid by 25th of last month, as compared to earlier requirement of
such payments by 15th of every month after the end of a quarter.
xxvii. Through an editorial amendment, the reference of minimum tax on importer of
edible oil and packing materials under section 148, is proposed to be incorporated
in provisions referring to final tax on the income of an importer.
xxviii. For the purposes of clarity, through an editorial amendment the reference of sub-
section (1AA) of section 152 is proposed to be inserted in sub-section (2) of section
152.
xxix. In order to rationalize the definition of Prescribed Persons as given in sub-section(9) of section 153, an individual with turnover of Rs.50 millions or above is
proposed to be added.
xxx. In order to perceive better audit of withholding taxes, the withholding agents shall
be required to e-file quarterly statements even in the cases where no-tax was
deducted. For the purpose of alignment and uniformity, the words a person
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collecting tax are proposed to be replaced with the words a withholding agent in
sub-section (2) of section 165.
xxxi. Editorial amendments in Section 236A of the Ordinance are proposed in order to
bring clarity and remove confusion about the charge of advance tax on public
auction of all kind of property including confiscated or attached goods.
xxxii. On merger of Investment Corporation of Pakistan with Industrial Development
Bank, the exemption available to ICP on dividend received from any other company
is proposed to be withdrawn.
xxxiii. Exemption under clause (52) of Part-IV of the Second Schedule to the Income Tax
Ordinance 2001 available to Vanaspati Ghee or Oil is proposed to be withdrawn, in
view of demise of SRO. 593(I) 1991 Dated 30th June 1991.
SALES TAX & FEDERAL EXCISE DUTY
MEASURES (FY 2010-11)
The budgetary measures pertaining to Sales Tax & Federal Excise are primarily aimed at:
i. Enhancing the federal excise and sales tax revenues without inducing any additional
burden on the common man and poor segments of society.
ii. Distributing the burden of extra taxation measures on all sectors of the economy.
iii. Enhancing tax incidence on cigarettes which are injurious to health.
BRIEF POINTS ON MAJOR FISCAL MEASURES:
RELIEF MEASURES
i. Withdrawal of restriction on adjustment of Federal Excise Duty paid on beverage
concentrate.
ii. Withdrawal of restriction on adjustment of FED paid on beverage concentrate is
aimed at attracting new investment in beverage industry and reducing the prices of
aerated waters in the country.
REVENUE MEASURES
i. Increase in the rate of sales tax from 16% to 17%.
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ii. Increase in the rate of sales tax from 16% to 17% is aimed at distributing the
burden of extra tax measures on all sectors of the economy.
Enforced through amendment in Section 3 of the Sales Tax Act, 1990, effective from the 1st
July, 2010 and Notifications Nos. SRO 395 to 398(I)/2010, dated 05.06.2010.
i. Increase in rate of Federal Excise Duty on Natural Gas from Rs. 5.09 per MMBTu to
Rs. 10/- per MMBTu.
ii. Enhancement of rate of Federal Excise Duty on Natural Gas is aimed at
implementation of the NFC recommendations.
Enforced through amendment in Table I of First Schedule to the Federal Excise Act, 2005,
effective from the 1st July, 2010.
i. Upward revision of Federal Excise duty structure on cigarettes.
ii. Enhancement of rate of Federal Excise Duty on locally produced Cigarettes in
different slabs is aimed at bringing tax incidence on cigarettes up to the
international standards and discouraging smoking.
Enforced through amendment in Table I of First Schedule to the Federal Excise Act, 2005,
effective from the 6th June, 2010.
i. Levy of Federal Excise Duty @ Rs. 1/- per filter rod of cigarettes.
ii. Levy of Federal Excise Duty @ Rs. 1/- per filter rod for cigarettes is aimed at
realization of revenue on sale of filter rods to unregistered and illicit manufacturers
of cigarettes. Enforced through amendment in Table I of First Schedule to the
Federal Excise Act, 2005, effective from the 6th June, 2010.
iii. Levy of 10% Federal Excise Duty on electricity intensive home appliances
iv. Levy of Federal Excise Duty on electricity intensive home appliances is aimed at
reducing the consumption of electricity and generation of some extra revenue.
Enforced through amendment in Table I of First Schedule to the Federal Excise Act, 2005,
effective from the 6th June, 2010.
CUSTOMS DUTY
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Policy Objectives :
i. Relief to general public
ii. Minimizing the cost of doing business.iii. Industrial incentives for growth and expansion.
iv. Boosting the export oriented sectors.
v. Amendments in legal provisions to make them more transparent and simple.
1) Relief Measures:
i. Reduction of customs duty on crude palm oil from Rs.9,000/MT to Rs.8,000/MT to
decrease cost of vegetable ghee and oil.
ii. Exemption of customs duty on import of photographic plates and film for X-ray to
lower cost of medical diagnoses for general public.
iii. Reduction of duty to 5% on pharmaceutical raw materials and drugs to provide
relief to common man.
iv. Reduction of duty on equipment for dedicated use of renewable energy to
encourage use of renewable energy resources.
v. Reduction of duty on raw materials for laundry soap and detergent to provide relief
to general public.
vi. Concession of customs duty on import of Road Sweeping Lorries to increase
efficiency of municipal and local governments.
vii. Exemption of customs duty on import of fully dedicated LPG buses and dispensing
equipment to encourage use of cheaper environment friendly fuel.
2) Incentive to Local Industr y:
i. Exemption of customs duty on import of raw materials/components for energy
saving lamps to support its local manufacturers.
ii. Exemption of customs duty and sales tax on rice processing machinery to boost
value addition and export of rice.
iii. Reduction of duty on raw materials of leather industry to encourage leather exports.
iv. Reduction of duty on raw materials of glass industry to make them more
competitive.
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v. Reduction of duty on secondary quality tin mill black plate for manufacturers of tin
plate to reduce their manufacturing cost.
vi. Exemption of duty on milk filters to support dairy industry.
3) Tariff rat ionalization:
i. Exemption of duty on other than pure bred breeding animals to bring their duty at
par with pure bred breeding animals.
ii. Rationalization of duty on glucose and glucose syrup to avoid misdeclaration.
iii. Rationalization of duty on prepared industrial colours to rationalize their duty
structure.
iv. Inclusion of LED T.V. in industry specific concessionary regime to encourage their
local manufacturing.
v. Levy of 5% concessionary duty on copper & aluminum tubes and electro galvanized
steel sheets if imported by manufacturers of evaporators and washing machines.
vi. Exemption of duty on silk yarn spun from other than silk waste to rationalize tariff.
vii. Rationalization of duty on two PCTs of adhesives.
4) Miscellaneous:
i. Creation of separate PCT code for auto parts scrap in pressed bundles to streamlineits clearance process.
ii. Correction of PCT code for asphalt paver.
iii. Correction in description of PCT codes 6813.2010 & 6813.8110.
iv. Rationalization of PCT code 3920.6300 with Pak-China FTA.
5) Legal Chan ges in Cust oms Act, 196 9
i. Keeping in view the change in rate of exchange of US $ vis--vis Pak rupees and
increase in prices of gold and other items the limit for taking cognizance under thesmuggling related provisions is being enhanced from Rs.50,000/- to Rs.150,000/-.
ii. The valuation formula for the goods to be exported is being simplified by including
regulatory duty instead of export duty in section 25 in sub-section (15)(b).
iii. The customs value determined under section 25A shall be applicable until and
unless revised or superseded or rescinded by the competent authority.
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iv. Section 25D is being elaborated by inserting the words under section 25A in order
to clarify that review application before Director General Valuation shall lie in cases
of the values determined by Director Valuation or Collector of Customs under
section 25A. For filing a review application under section 25D, the time period of 30
days from the date of determination of customs value is being fixed.
v. Section 32 is being amended so that cognizance could be taken in cases where
revenue is paid through self assessment in order to curb the tendency of mis-
declaration and less payment of revenue through computerized clearance system.
vi. Section 32A is being amended by inserting words and comma payment of revenue
through self-assessment, to curb the tendency of deliberate wrong self-assessments
on the part of the importers.
vii. Proviso to sub-section (1) of section 79 is being amended in order to restrict the
facility of filing of goods declaration after examining the goods by the importer toonly in case of used goods. Besides, the permission for filing of goods declaration
after examination of goods can now only be granted by the Additional Collector.
viii. Section 81, sub-section (2) is being amended in order to finalize the cases of
provisional assessment within three months.
ix. Section 81, sub-section (4) is being amended in order to streamline procedure for
passing an order after final determination of provisional assessment.
x. Section 156, sub-section (1), is being amended to enhance the general penalty to the
extent of Rs.50,000/-.
xi. Section 156, sub-section (1), clause (64) is being amended to enhance the penalty tothe extent of not less than twice the value of the offending goods besides the
confiscation of goods for violation of section 128 and 129 of Customs Act, 1969. This
penalty will create a deterrence vis--vis the smuggling of transit trade goods.
xii. In section 194A, sub-section (1), a new clause (e) is being added which would
enable any person or an officer of Customs to file an appeal before the Appellate
Tribunal in cases of review order passed by the Director General Customs Valuation
under section 25D provided the appeal is heard by the double bench of the
Appellate Tribunal.
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PROPOSED AMENDMENTS IN THE
INCOME TAX ORDINANCE, 2001Section 2 (2)
(Definition
substituted)
Appellate Tribunal
This amendment seeks to provide unified Appellate Tribunal for
domestic taxes. Many such changes have been proposed to brought in
line the change already made by unifying domestic taxes. These changes
had been made vide Finance (Amendment) Ordinance, 2009. However,
these are now being proposed in the Finance Bill to obtain the approval
of the National Assembly.
App r opr iate officer a nd Associate (associated pe rs ons)
As already discussed above, the amendment seeks to change the names
of the authorities mentioned in these definitions to represent the
change already introduced by unifying three domestic taxes under one
authority. i.e. Inland Revenue. These changes had been made vide
Finance (Amendment) Ordinance, 2009. There are many such changes
in the Income Tax Ordinance, 2001 the detail of which is as under:
Section 2(11A), Section 2(13), Section 2(13A), Section 2(38A) & Section122A(1)
Section 13
(Amendment
in section)
Value of per qu isites
At the end of sub section 7 of section 13, following proviso shall be
inserted:
Provided that this sub section shall not apply to such benefit arising to
an employee due to waiver of interest by such employee on his account
with the employer.
The said proviso seeks to provide exemption in such benefit to
employee due to waiver of his right of interest on any account balance
of employee with the employer.
Section 37 Capital Gains
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(Amendment
in section)
The proposed amendment shall exclude shares of public companies
including the vouchers of Pakistan Telecommunication Corporation,
modaraba certificates or any instrument of redeemable capital as
defined in the Companies Ordinance, 1984 (XLVII of 1984) from the
purview of section 37 as these are now dealt with u/s 37A specifically.
Further it is proposed to exclude stocks and shares from the definition
of capital assets.
Section 3 7A
(Newly
inserted
section)
Cap ita l Gain s on sale of Secur ities
The purpose of the proposed amendment is to tax the capital gains
arising on sale of securities as under:
i. Securities sold within 6 months of their purchase shall betaxable @ 10%.
ii. Securities sold within 6 to 12 months of their purchase shall betaxable @ 7.5%.
iii. Securities sold after 12 months of their purchase shall not betaxable.
Provided further that the provisions shall not apply to a banking
company.
Securities means shares of a public company, vouchers of Pakistan
Telecommunication Corporation, Modaraba Certificates or instruments
of redeemable capital.
The amount of capital gain under this section shall be treated as a
separate block of income.
Section 6 5B
(Newly
inserted
section)
Tax Cr edit for Invest me nt
1) where a taxpayer being a company invests any amount in the
purchase of a plant and machinery for installation, for the purposes
of balancing, modernization and replacement in an industrialundertaking set up in Pakistan and owned by it, credit equal to ten
per cent of the tax payable shall be allowed for the tax year in which
the said costs are incurred against the tax payable by the company.
2) The provisions of sub-section (1) shall apply if the plant and
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machinery is purchased and installed at any time between the first
day of July, 2010, and the 30th day of June, 2015.
3) Where any credit is allowed under this section and subsequently itis discovered by the Commissioner Inland Revenue that any one or
more of the conditions specified in this section was, or were, not
fulfilled, as the case may be, the credit originally allowed shall be
deemed to have been wrongly allowed and the Commissioner
Inland Revenue may, notwithstanding anything contained in this
Ordinance, re-compute the tax payable by the taxpayer for the
relevant year and the provisions of this Ordinance shall, so far as
may be, apply accordingly.
The proposed tax credit shall be in addition to tax credits available to ataxpayer.
Section 6 5C
(Newly
inserted
section)
Tax Cr edit for Enlistme nt
Where a taxpayer being a company opts for enlistment in any
registered stock exchange in Pakistan, a tax credit equal to five per cent
of the tax payable shall be allowed for the tax year in which the said
company is enlisted.
The proposed tax credit shall be in addition to tax credits available to a
taxpayer and it will promote companies to be listed on stock exchange.
Section 87
(Newly
inserted sub-
section)
Deceased Individuals
The proposed change shall create 1st charge of tax recovery on
deceaseds estate against his liability.
Section 1 11
(Amendment
in section)
Unexplained income or assets
The proposed amendment seeks to tax the unexplained income or asset
in the tax year to which it relates, currently it was taxable in the year
preceding to tax year in which it was discovered.
The effect of proposed omission is that the unexplained income or asset
relating to a period beyond preceding five tax years or assessment
years can now be probed into by the Commissioner and included in the
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taxpayers income.
Section
113(1)
(Amendment
in section)
Minimum ta x on the income of certain pe rson s
The proposed amendment seeks to levy minimum tax on individuals
having turnover of fifty million rupees or above in the tax year 2009 or
in any subsequent tax year and association of persons having turnover
of fifty million rupees or above in the tax year 2007 or in any
subsequent tax year.
The rate of minimum tax is proposed to be 1% instead of 0.5%.
Section 114,
119, 121 &
122
(Section
substituted)
Amen dme nt t hr ough Finance (Amen dme nt) Ordinance, 2009
Section 114(6), 114(6A), Section 119(6), Section 121(1)(a) & Section122(3) proposed to be substituted have already been incorporated
through Finance (Amendment) Ordinance, 2009 which are now added
in the Finance Bill, 2010 for approval by National Assembly.
Section
115(4B)
(sub-section
omitted)
116(4)
(Newly
inserted sub-
section)
Persons not r equired to furnish a r eturn of income
The mandatory requirement of Filing of Wealth Statement by the
Taxpayers in FTR cases with yearly tax amounting to Rs.35,000/- is
proposed to be included in section 116 of the Income Tax Ordinance
2001.
Section
116(2A)
(Amendment
in section)
Wealth statemen t
According to the proposed amendment, Where a person files a return
in response to a provisional assessment under section 122C, he shall
furnish a wealth statement for that year along with that return and suchwealth statement shall be accompanied by a wealth reconciliation
statement and an explanation of sources of acquisition of assets
specified therein.
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Section
118(3)
(sectionsubstituted)
Method of fur nishing of ret ur ns and other document s
A return of income for any person (other than a company), an Annual
Statement of deduction of income tax from salary, filed by the employerof an individual or a statement required under sub-section (4) of
section 115 shall be furnished as per the following schedule, namely:-
(a) In the case of an Annual Statement of deduction of income tax from
salary, filed by the employer of an individual, return of income
through e-portal in the case of a salaried person or a statement
required under sub-section (4) of section 115, on or before the 31st
day of August next following the end of the tax year to which the
return, Annual Statement of deduction of income tax from salary,
filed by the employer or statement relates.
(b) in the case of a return of income for any person (other than a
company), as described under clause (a), on or before the 30th day
of September next following the end of the tax year to which the
return relates.
The proposed amendment seeks to provide the dates of filing of return
of income for various persons.
Section 1 22
(Newly
inserted
section)
Amen dme nt of assessmen ts
The following section is proposed to be inserted:
The Commissioner is deemed to have, and always had, the powers to
amend or further amend an assessment order under sub-section (5A),
where appeal has been filed or decided against the order of the
Commissioner, in respect of any point or issue which was not the
subject matter of such appeal.
Section 12 2C
(Newlyinsertedsection)
Provisional assessmen t
According to this new section where a person fails to furnish return of
total income for any tax year in response to a notice u/s 114(3) & (4),
the commissioner may make a provisional assessment of taxable
income and tax liability.
Provisional assessment order shall be considered as final assessment
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order after the expiry of 60 days from the service of order of
provisional assessment, if the return of total income along with wealth
statement is not filed within the said period of 60 days.
Section 1 24
(Amendment
in section)
Assessm en t giving effect to a n or der
Certain editorial changes are proposed by the finance bill to remove
editorial mistakes.
Section 1 27
(Amendment
in section)
App eal to th e Comm issioner (App eals)
According to the proposed amendment appeal fee against an
assessment order shall be Rs. 1,000/- in case of company and Rs. 200/-
for other than company.
Section 1 30
(Amendment
in section)
Appointm ent of the Appellate Tribun al
According to the proposed amendment Collector having at lease 5 years
experience shall also be eligible for the appointment as an accountant
member of Appellate Tribunal.
Section 13 4A
(Amendment
in section)
Alter na tive Disput e Resolution
Editorial changes are proposed for the harmonization of the
nomenclature of tax authorities.
Section 1 37
(Amendment
in section)
Due d ate for pa yment of tax
According to the proposed amendment tax payable as a result of
provisional assessment order made u/s 122C shall be payable after the
period of 60 days from the date of service of the notice.
Section 13 8B
(Newly
inserted
section)
Estate in bankr uptcy
According to the proposed amendment if a taxpayer is declared
bankrupt, the tax liability under this Ordinance shall pass on to the
estate in bankruptcy. It shall be considered as current expenditure and
shall have preference over other creditors.
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Section 14 6B
(Amendment
in section)
Tax ar re ar s settlement incentives schem e
The word additional tax substituted with default surcharge by the
Finance (amendment) Ordinance, 2009.
Section 1 47
(Amendment
in section)
Advan ce tax paid by the t axpayer
According to the proposed amendment Association of Persons are
required to pay advance tax irrespective of their latest assessed taxable
income. Further, individuals are only required to pay advance tax if
their latest taxable income exceeds Rs. 500,000/-. Previously,
Individuals & AOPs are required to pay advance tax if their latest
taxable income exceeds Rs. 200,000/-.
According to the proposed amendment AOPs are required to pay
advance tax according to their quarterly turnover as like companies.
Further individuals and AOPs are required to pay advance tax as
follows:
Quar ter Pr oposed Existing
September 25th of September 15th of October
December 25th of December 15th of January
March 25th of March 15th of April
June 15th of June 15th of June
Advance tax on capital gains is proposed to be as follows which is
payable within 7 days after the close of each quarter:
Per iod Rate
Where holding period of a security is less
than six months
2%
Where holding period of a security is more
than six months but less than twelve months.
1.5%
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Section 1 48
(Amendment
in section)
Imports
Proposed amendment clarifies that tax on import on edible oils shall
not be final but minimum tax.
Section 1 51
(Amendment
in section)
Profit on debt
According to the proposed amendment tax deducted on profit on debt
from Debt instruments, Government securities including Treasury Bills
and Pakistan Investment Bonds shall be final tax on profit on debt.
Section 1 52
(Amendment
in section)
Payments to non-resident s
The maximum rate of withholding tax deductible on payments made to
non-resident taxpayers who are not subject to Avoidance of DoubleTaxation Treaties (other than payments made on account of royalty and
fee for technical services) is proposed to be @ 20% instead of 30%.
Section 1 53
(Amendment
in section)
Payments for goods and se rvices
According to the proposed amendment an individual having turnover of
Rs 50 million or above in the tax year 2009 or in any subsequent tax
year shall withheld tax while making payments of goods and services.
Section 155 &
169
(Amendment
in section)
Income from proper ty
According to the proposed amendment tax deducted under this section
shall not be the final tax on the income from property. However,
according to the proposed amendment in section 169 income derived
by a person under income from property shall be considered as
assessment under section 120 and the person shall not be required to
furnish a return of income under section 114 for the year.
Further, expression an assessment shall be treated to have been made
under section 120 has been explained.
Section 1 65
(Amendment
in section)
Statements
According to the proposed amendment every person collecting tax
under Division II of this Part III of Chapter XII or deducting tax from a
payment under Division III of this Part IV of Chapter XII shall e-file the
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withholding statements quarterly with following due dates:
Quar ter Due date
September Quarter 20th October
December Quarter 20th January
March Quarter 20th April
June Quarter 20th July
Section 1 74
(Amendment
in section)
Records
According to the proposed amendment the accounts and documents
shall be maintained for 5 years after the end of the tax year to whichthey relate. Currently, accounts and documents needs to be maintained
for 6 years.
Further, where any proceeding is pending before any authority or court
taxpayer shall maintain the record till final decision of the proceedings.
Section 176 &
210
(Amendment
in section)
Notice to obta in infor ma tion or eviden ce
According to the proposed amendment the commissioner is also
authorized to appoint firm of chartered accountants to conduct the
audit u/s 177.
U/s 210, a firm of Cost and Management Accountants may also be
appointed to conduct the audit of persons.
Section 1 77
(Amendmentin section)
Audit
The amendment has already been made through Finance (amendment)
Ordinance, 2009. However, this is now being proposed in the Finance
Bill to obtain the approval of the National Assembly.
Section 1 77
(Newlyinsertedsection)
Active t axpa yer s list
The Board shall have the power to institute active taxpayers list. Activetaxpayers list shall be regulated as may be prescribed.
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Section 1 82
(Section
substituted)
Offences a nd p en alties
Offences and penalties which were given in sections 182, 183, 184, 185,
186, 187, 188, 189 & 190 have been consolidated into this newlysubstituted section with revised rates. Further, no penalty shall be
payable unless an order in writing is passed by Commissioner,
Commissioner (Appeals) or Appellate Tribunal. Accordingly, other
sections relating to offences and penalties have been deleted.
Offences Penalties Relevant section
Where any person
fails to furnish a
return of income or astatement as required
under section 115 or
wealth statement or
wealth reconciliation
statement or
statement under
section 165 within the
due date
Such person shall pay
a penalty equal to 0.1
% of the tax payablefor each day of default
subject to a minimum
penalty of five
thousand rupees and a
maximum penalty of
25% of the tax
payable in respect of
that tax year
114, 115,116 and 165
Any person who failsto issue cash memo or
invoice or receipt
when required under
this Ordinance or the
rules made there
under.
Such person shall paya penalty of five
thousand rupees or
three per cent of the
amount of the tax
involved, whichever is
higher.
174 and Chapter VIIof the Income Tax
Rules
Any person who is
required to apply for
registration under thisOrdinance but fails to
make an application
for registration
Such person shall pay
a penalty of five
thousand rupees.
181
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Any person who fails
to notify the changes
of material nature in
the particulars of
registration.
Such person shall pay
a penalty of five
thousand rupees.
181
Any person who fails
to deposit the amount
of tax due or any part
thereof in the time or
manner laid down
under this Ordinance
or rules made there
under.
Such person shall pay
a penalty of five per
cent of the amount of
the tax in default.
For the second default
an additional penalty
of 25% of the amountof tax in default.
For the third and
subsequent defaults
an additional penalty
of 50% of the amount
of tax in default.
137
Any person who
repeats erroneouscalculation in the
return for more than
one year whereby
amount of tax less
than the actual tax
payable under this
Ordinance is paid.
Such person shall pay
a penalty of fivethousand rupees or
three per cent of the
amount of the tax
involved, whichever is
higher.
137
Any person who fails
to maintain recordsrequired under this
Ordinance or the rules
made there under.
Such person shall pay
a penalty of tenthousand rupees orfive per cent of theamount of tax onincome whichever ishigher
174
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Where a taxpayer
who, without any
reasonable cause, in
non compliance with
the provisions of
section 177:
177
a) fails to produce the
record or
documents on
receipt of first
notice;
b) fails to produce the
record or
documents on
receipt of second
notice; and
c) fails to produce the
record or
documents on
receipt of third
notice.
a) Such person shall
pay a penalty of
five thousand
rupees;
b) such person shall
pay a penalty of
ten thousand
rupees
c) such person shall
pay a penalty of
fifty thousand
rupees
Any person who fails
to furnish the
information required
or to comply with any
other term of the
notice served under
section 176
Such person shall pay
a penalty of five
thousand rupees for
the first default and
ten thousand rupees
for each subsequent
default.
176
Any person who:
a) makes a false or
misleading
statement to an
Inland Revenue
Authority either in
Such person shall pay
a penalty of twentyfive thousand rupees
or 100% of the
amount of tax shortfall
whichever is higher:
114,115,116,174,176,
177 and general.
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writing or orally or
electronically
including a
statement in an
application,
certificate,
declaration,
notification, return,
objection or other
document
including books of
accounts made
,prepared, given,filed or furnished
under this
ordinance;
b) furnishes or files a
false or misleading
information or
document or
statement to an
Income tax
Authority either in
writing or orally or
electronically;
c) omits from a
statement made or
information
furnished to an
Income tax
Authority any
matter or thingwithout which the
statement or the
information is false
or misleading in a
Provided that in case
of an assessment
order deemed under
section 120, no
penalty shall be
imposed to the extent
of the tax shortfall
occurring as a result of
the taxpayer taking a
reasonably arguable
position on the
application of this
Ordinance to thetaxpayers position.
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material particular.
Any person who
denies or obstructs theaccess of the
Commissioner or any
officer authorized by
the Commissioner to
the premises, place,
accounts, documents,
computers or stocks.
Such person shall pay
a penalty of twentyfive thousand rupees
or one hundred per
cent of the amount of
tax involved,
whichever is higher.
175 and177
Where a person has
concealed income orfurnished inaccurate
particulars of such
income, including but
not limited to the
suppression of any
income or amount
chargeable to tax, the
claiming of any
deduction for any
expenditure not
actually incurred or
any act referred to in
sub-section (1) of
section 111, in the
course of any
proceeding under this
Ordinance before any
Income tax authority
or the appellatetribunal.
Such person shall pay
a penalty of twentyfive thousand rupees
or an amount equal to
the tax which the
person sought to
evade whichever is
higher. However, no
penalty shall be
payable on mere
disallowance of a
claim of exemption
from tax of any
income or amount
declared by a person
or mere disallowance
of any expenditure
declared by a person
to be deductible,
unless it is proved that
the person made theclaim knowing it to be
wrong.
20, 111 and General.
Any person who
obstructs any Income
Such person shall pay
a penalty of twenty
209, 210 and General
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tax Authority in the
performance of his
official duties.
five thousand rupees.
Any person who
contravenes any of the
provision of this
Ordinance for which
no penalty has,
specifically, been
provided in this
section.
Such person shall pay
a penalty of five
thousand rupees or
three per cent of the
amount of tax
involved, whichever is
higher.
General.
Any person who failsto collect or deduct tax
as required under any
provision of this
Ordinance or fails to
pay the tax collected
or deducted as
required under
section 160.
Such person shall paya penalty of twenty
five thousand rupees
or the 10% of the
amount of tax
whichever is higher.
148,149,150,151,152,153, 153A, 154, 155,
156, 156A, 156B,
158, 160, 231A,
231B, 233, 233A,
234, 234A, 235, 236,
236A.
Section 1 83
(Sectionsubstituted)
Exemption from pe nalty and d efault sur charge
The Federal Government may, by notification in the official Gazette, or
the Board by an order published in the official Gazette for reasons to be
recorded in writing, exempt any person or class of persons from
payment of the whole or part of the penalty and default surcharge
payable under this Ordinance subject to such conditions and limitations
as may be specified in such notification or, as the case may be, order.
Section 2 03
(Amendment
in section)
Tria l by Special Jud ge
The Federal Government may, by notification in the official Gazette,appoint as many special judges as it may consider necessary, and whereit appoints more than one Special Judge, it shall specify in thenotification the territorial limits within which each of them shallexercise jurisdiction.
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Section 2 07
(Section
substituted)
Income tax auth orities
The amendment has already been made through Finance (amendment)
Ordinance, 2009. However, this is now being proposed in the FinanceBill to obtain the approval of the National Assembly.
Section 2 08
(Amendment
in section)
Appointm ent of income ta x author ities
The proposed amendment substitutes clause (1) as follows:
The Board may appoint as many Chief Commissioners Inland Revenue,
Commissioners Inland Revenue, Commissioners Inland Revenue
(Appeals), Additional Commissioners Inland Revenue, Deputy
Commissioners Inland Revenue, Assistant Commissioners Inland
Revenue, Inland Revenue Officers, Inland Revenue Audit Officers,
Superintendents Inland Revenue, Inspectors Inland Revenue, Auditors
Inland Revenue and such other executive or ministerial officers and
staff as may be necessary.
Section 21 4C
(Newly
inserted
section)
Selection for aud it by the Boar d
The Board may select persons or classes of persons for audit of Income
Tax affairs through computer ballot which may be random or
parametric as the Board may deem fit.
Audit of Income Tax affairs of persons selected under sub-section (1)
shall be conducted as per procedure given in section 177 and all the
provisions of the Ordinance, except the first proviso to sub-section (1)
of section 177, shall apply accordingly.
For the removal of doubt it is hereby declared that Board shall be
deemed always to have had the power to select any persons or classes
of persons for audit of Income Tax affairs.
Section 2 26
(Amendment
in section)
Comp uta tion of limitation pe r iod
According to the proposed amendment while calculating the limitation
period, the period for which any proceedings for the tax year remained
pending before any Court, Appellate Tribunal or any other Authority
shall also be considered.
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Section 2 27
(Amendment
in section)
Bar of suits in Civil Cour ts
Following new clause is proposed to be inserted:
Notwithstanding anything contained in any other law for the time
being in force, no investigation or inquiry shall be undertaken or
initiated by any governmental agency against any officer or official for
anything done in his official capacity under this Ordinance, rules,
instructions or direction made or issued there-under without the prior
approval of the Board
Section 2 29
(Newly
inserted
section)
Advance tax on tr ansactions in ban k
According to the proposed amendment advance tax deductible on Cash
Withdrawals from Banks, various banking transactions including
modes like withdrawals through Demand Draft, Pay Order, Online
Transfer, Telegraphic Transfer, TDR, CDR, STDR and RTC, are proposed
to be subject to 0.3% deduction of the advance tax, if such transactions
exceed threshold of Rs.25,000/- in a single day. The advance tax is
adjustable.
Further, advance tax shall not be collected where withdrawals are made
by Federal Government, Provincial Government, Foreign Diplomat or
person having certificate from the Commissioner that his income
during the tax year is Exempt.
Section 23 3A
(Amendment
in section)
Collection of tax by a stock excha nge r egister ed in Pa kistan
According to the proposed amendment advance tax collected by the
stock exchanges shall be now adjustable instead of minimum tax.
Section 23 6A
(Amendment
in section)
Advan ce tax at th e time of sale by au ction
Editorial amendments in Section 236A of the Ordinance are proposed
in order to bring clarity and remove confusion about the charge of
advance tax on public auction of all kind of property including
confiscated or attached goods.
Section 23 6B
(Newly
Advan ce tax on pur chase of air ticket
Withholding tax on gross value of Inland Air Ticket has been proposed
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inserted
section)
@ 5%. Under the scheme the Inland Air-Ticketing persons shall
withhold the tax, which will be adjustable against the tax liability of the
purchaser of such ticket.
Proposed amen dmen ts in The First Schedu le Rate of Tax
1. Taxable income of business and salaried individuals up to Rs. 300,000/- will be
exempt from tax.
2. The rate of tax imposed on the taxable income of association of persons for the tax
year 2010 and onwards shall be @25%.
3. Turnover Tax on Loss Making Companies is proposed to be enhanced to @ 1%.
4. Small company shall pay tax @ 25%.
5. The rate of advance tax to be collected by the collector of customs u/s 148 (tax on
imports) shall be 5% of the value of the goods.
6. The maximum rate of withholding tax deductible on payments made to non-resident
taxpayers who are not subject to Avoidance of Double Taxation Treaties (other than
payments made on account of royalty and fee for technical services) is proposed to
be @ 20% instead of 30%.
7. Advance tax deductible on goods transport vehicles under Item (1) of Division-III of
Part-IV of Second Schedule to the Income Tax Ordinance 2001 are proposed to be
abolished, and tax is proposed @ Re.1 per kilogram of the laden weight capacity of
goods transport vehicle. No change has been proposed in the rate of tax on goods
forwarding contracts, which remain taxable at the existing rate of 2%.
8. The maximum rate of advance tax deductible under section 235 on monthly
electricity bills is proposed to be reduced from 10% to 5%, on the amount of the
bills payable.
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9. According to proposed amendment advance tax deductible on Cash Withdrawals
from Banks, various banking transactions including modes like withdrawals through
Demand Draft, Pay Order, Online Transfer, Telegraphic Transfer, TDR, CDR, STDR
and RTC, are proposed to be subject to 0.3% deduction of the advance tax, if such
transactions exceed threshold of Rs.25,000/- in a single day. The advance tax is
adjustable.
10. Withholding tax on gross value of Inland Air Ticket has been proposed @ 5%. Under
the scheme the Inland Air-Ticketing persons shall withholding the tax, which will be
adjustable against the tax liability of the purchaser of such ticket.
11. The rate of tax on wining of cross word puzzle shall be @ 10% instead of 20%.
12. Income of the business individuals shall be subject to following tax rates:
Sr. # Taxable Income Rate
1. Where taxable income does not exceed Rs.300,000 0%
2. Where the taxable income exceeds Rs.300,000 but does not exceed
Rs.400,000
7.50%
3. Where the taxable income exceeds Rs.400,000 but does not exceed
Rs.500,000
10%
4. Where the taxable income exceeds Rs.500,000 but does not exceedRs.600,000
12.50%
5. Where the taxable income exceeds Rs.600,000 but does not exceed
Rs.800,000
15%
6. Where the taxable income exceeds Rs.800,000 but does not exceed
Rs.10,00,000
17.50%
7. Where the taxable income exceeds Rs.10,00,000 but does not exceed
Rs.13,00,000
21%
8. Where the taxable income exceeds Rs.13,00,000 25%
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13. Income of the salaried individuals shall be subject to following tax rates:
Sr. # Taxable Income Rate
1. Where taxable income does not exceed Rs.300,000
2. Where the taxable income exceeds Rs.300,000 but does not exceed
Rs.350,000,
0.75%
3. Where the taxable income exceeds Rs.350,000 but does not exceed
Rs.400,000,
1.50%
4. Where the taxable income exceeds Rs.400,000 but does not exceed
Rs.450,000
2.50%
5. Where the taxable income exceeds Rs.450,000 but does not exceed
Rs.550,000,
3.50%
6. Where the taxable income exceeds Rs.550,000 but does not exceed
Rs.650,000,
4.50%
7. Where the taxable income exceeds Rs.650,000 but does not exceed
Rs.750,000,
6%
8. Where the taxable income exceeds Rs.750,000 but does not exceed
Rs.900,000,
7.50%
9. Where the taxable income exceeds Rs.900,000 but does not exceed
Rs.1,050,000,
9%
10. Where the taxable income exceeds Rs.1,050,000 but does not exceed
Rs.1,200,000,
10%
11. Where the taxable income exceeds Rs.1,200,000 but does not exceed
Rs.1,450,000,
11%
12. Where the taxable income exceeds Rs.1,450,000 but does not exceed
Rs.1,700,000,
12.50%
13. Where the taxable income exceeds Rs.1,700,000 but does not exceed
Rs.1,950,000
14%
14. Where the taxable income exceeds Rs.1,950,000 but does not exceed
Rs.2,250,000,
15%
15. Where the taxable income exceeds Rs.2,250,000 but does not exceed
Rs.2,850,000,
16%
16. Where the taxable income exceeds Rs.2,850,000 but does not exceed
Rs.3,550,000
17.50%
17. Where the taxable income exceeds Rs.3,550,000 but does not exceed
Rs.4,550,000,
18.50%
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18. Where the taxable income exceeds Rs.4,550,000. 20%
14. Capital gain tax shall taxed as follows:
Sr. # Taxable Income Year Rate
1. Where holding period of a security is less than six
months.
2010 10%
2011 10%
2012 12.5%
2013 15%
2014 17.5%
2. Where holding period of a security is more than six
months but less than twelve months.
2010 7.5%
2011 8%
2012 8.5%
2013 9%
2014 9.5%
2015 10%
Proposed a men dmen ts in The Second Schedule Exemptions and Tax
Concessions
PART I EXEMPTIONS FROM TOTAL INCOME
Clause (72 )
(Sub-clauseinserted)
For providing incentive to foreign lenders for tax-free repatriation of
profits earned on foreign industrial loans, Clause 72(iii) of Part-IV of
Second Schedule to the Income Tax Ordinance 2001 is proposed to be re-
instated.
Claus e (92A) Any income of any university or any other educational institution
established in the most affected and moderately affected areas of Khyber
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(Newly insertedclause)
Pakhtunkhwa, FATA and PATA, for a period of two years ending on the
30th day of June, 2011.
Clause (10 2)
(Clause
omitted)
On merger of Investment Corporation of Pakistan with IndustrialDevelopment Bank, the exemption available to ICP on dividend received
from any other company is proposed to be withdrawn.
Clause (11 0)
(Clause
omitted)
Capital gains are no more exempt from tax.
Claus e ( 11 0A)
(Clause
omitted)
Any gain on transfer of a capital asset of the existing stock exchanges to
new corporatized stock exchange, in the course of corporatization of anexisting stock exchange is no more exempt.
Claus e (12 6F)
(Newly inserted
clause)
Profits and gains derived by a taxpayer located in the most affected and
moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA for a
period of three years starting from the tax year 2010:
Provided that this concession shall not be available to the manufacturers
and suppliers of cement, sugar, beverages and cigarettes
PART II REDUCTION IN TAX RATES
Claus e (24A)
(Amendment in
clause)
Large distribution houses who fulfill all the conditions for a large import
house as laid down under clause (d) of sub section 7 of section 148, for
large import houses are subject to 1% of gross amount of payments on
account of withholding under section 153.
PART III REDUCTION IN TAX LIABILITY
Clau se (1 A)
(Amendment in
clause)
The Senior Citizens of the age of 60 years or more, are proposed to beeligible for relief of 50% of tax on their income, if their income does not
exceed Rs.1,000,000/- as compared to previous maximum limit of
Rs.750,000/-. However this relief shall not be available on income subject
to Presumptive Tax Regime.
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PART IV EXEMPTION FROM SPECIFIC PROVISIONS
Claus e (10A)
(Newly inserted
clause)
To rehabilitate the economy of Khyber Paktunkhwa, FATA and PATA
following amendments are proposed:
a) Waiver of entire amount of default surcharge & penalty till 30th
June 2010;
b) Exemption from advance tax on electricity for tax years 2010 and
2011;
c) Exemption from withholding tax on exports;
d) Exemption from advance tax on import of plant and machinery up
to 30th June 2011;
However these concessions shall not be available to manufacturers andsuppliers of cement, sugar, beverages and cigarettes.
Clause (73 )
(Newly inserted
clause)
To mitigate part of the cost of obtaining foreign support to fill
productivity gap, income tax payable by a foreign experts shall be
exempted provided that such expert is acquired with the prior approval
of the Ministry of Textile Industry.
Proposed am en dmen ts in The Th ird Sched ule DEPRECIATION
PART I Depr eciation
Depreciation
table
For the wellbeing of disabled persons, 100% depreciation expense can be
claimed on Ramp built to provide access to disabled persons, is proposed.
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Prop osed a me nd men ts in The Fifth Sched ule
PART I RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS FROMTHE EXPLORATION AND PRODUCTION OF PETROLEUM
Rule 4 A
(Newly inserted
rule)
Decomm issioning cost
With effect from the Tax Year 2010, Decommissioning Costas certified
by a Chartered Accountant or a Cost Accountants, in the manner
prescribed, shall be allowed over a period of ten years or the life of the
development and production or mining lease whichever is less, starting
from the year of commencement of commercial production or
commenced prior to the 1st July, 2010, deduction for decommissioningcost as referred earlier shall be allowed from the Tax Year 2010 over the
period of ten years or the remaining life of the development and
production or mining lease, which ever is less
Proposed amendments in The Seventh Schedule Rules for the
computation of the profits and gains of a banking company and tax
payable ther eon
Rule 1(c)
(Amendment in
rule)
According to the proposed amendment provisions for advances and off-
balance sheet items shall be allowed at 5% of total advances for
consumers and small and medium enterprises (SMEs) (as defined under
the State Bank Prudential Regulations) shall be inserted
Rule 8 A
(Newly inserted
rule)
Transactional pr ovisions
Amounts provided for in the tax year 2008 and prior to the said tax year
for or against irrecoverable or doubtful advances, which were neither
claimed nor allowed as a tax deductible in any tax year, shall be allowed
in the tax year in which such advances are actually written off against
such provisions, in accordance with the provision of sections 29 and 29A.
Amounts provided for in the tax year 2008 and prior to the said tax year
for or against irrecoverable or doubtful advances, which were neither
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claimed nor allowed as a tax deductible in any tax year, which are written
back in the tax year 2009 and thereafter in any tax year and credited to
the profit and loss account, shall be excluded in computing the total
income of that tax year under rule 1 of this Schedule.
The provisions of this Schedule shall not apply to any asset given or
acquired on finance lease by a banking company up to the tax year 2008,
and recognition of income and deductions in respect of such asset shall
be dealt in accordance with the provisions of the Ordinance as if this
Schedule has not come into force:
Provided that un-absorbed depreciation in respect of such assets shall be
allowed to be set-off against the said lease rental income only
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PROPOSED AMENDMENTS IN SALES TAX
ACT, 1990
SALES TAX REFORMS IMPLEMENTATION OF VAT
According to budget speech of finance minister
The Government of Pakistan is committed to reform the existing system of General Sales
Tax. The existing General Sales Tax (GST) has degenerated into an unfair tax, with multiple
rates (between 16% and 25 %), exemptions and domestic zero rated facilities for vested
groups and the privileged. It has also contributed greatly to the opportunities forcorruption and rent seeking. The proposed GST reforms, will address both policy and
administrative shortcomings of our current GST to remove all the deficiencies listed above.
The proposed GST reform: - Will eliminate multiple tax rates and replace it with a single
lower rate of 15%. - Will not apply on health, education and food items consumed by the
poor. - Will not apply to turnover less than Rs. 7.5 million per year where as the current
threshold is Rs 5 million per year. - Will be automated thus reducing possibilities of
corruption and refund delay. - Will broaden the tax base instead of burdening the existing
tax payer thus introducing greater equity into the tax system.
We expect the proposed GST reform to be in place by October 1, 2010 in consultation with
all the provinces and other stakeholders.
Meanwhile as an interim measure the GST rates are proposed to be raised by 1 percentage
point. Once the reform GST is in place the proposed single lower rate of 15 % will become
effective. In addition, an accompanying relief measure of the GST reform will be the
abolition of the current 1% Special Excise Duty presently levied on most items of imports
and local manufacture.
However, transitional proposed amendments in Sales Tax Act, 1990 are as follows:
Section 2 (1)
(Amendment
in definition)
Appellate Tribunal
This amendment seeks to provide a unified Appellate Tribunal for
domestic taxes. Many such changes have been proposed in the
Finance Bill for the purpose of unifying domestic taxes. These
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changes were originally made vide Finance (Amendment)
Ordinance, 2009 and Finance (Amendment) Ordinance, 2010.
However, these are now being proposed in the Finance Bill to
obtain the approval of the National Assembly.
Section 2 (2)
and (3)
(Amendment
in definition)
Appr opr iate officer and Associate (associated per sons)
As already discussed above, the amendment seeks to change the
names of the authorities mentioned in these definitions to
represent the change already introduced by unifying three
domestic taxes under one authority. i.e. Inland Revenue. These
changes had been made vide Finance (Amendment) Ordinance,
2009 and Finance (Amendment) Ordinance, 2010. There are many
such changes in the Sales Tax Act, the detail of which is as under:
Section 2 (4A), Section 2 (5), Section 2 (15), Section 2 (18),
Section 2 (46) (e), Section 10 (3), Section 11 (1), Section 11 (2),
Section 11 (4), Section 11 (5), Section 21 (2), Section 23 (3),
Section 25A, Section 26(3), Section 27, Section 28, Section 31,
Section 32(1), Section 32A(2), Section 32A(3), Section 33, Section
36, Section 37, Section 37A, Section 38A, Section 38B, Section 40,
Section 40B, Section 45A, Section 45B, Section 46, Section 47,
Section 47A, Section 48, Section 49A, Section 52, Section 55,
Section 58A, Section 58B, Section 66, Section 69 and Section 72.
Section 3
(section
amended)
Scope of Tax
It proposes to enhance the rate of Sales Tax from Sixteen to
Seventeen percent.
Section 25
(1) and (2)
(section
amended)
Access to r ecord , docum en ts etc.
Three important changes are proposed in this section. First, it is
proposed that only Commissioner, and not an officer of sales tax,
should be authorized to demand records under this section and
access to records should be allowed to officer authorize by the
Commissioner.
Second proposed change is that the officer who has completed the
audit be allowed to pass order under relevant provisions of law,
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even without compulsorily obtaining any explanation from the
registered person. Sub-section (3) makes it obligatory for the
officer to issue audit observations to the registered person before
issuing audit report.
However, now it is proposed that it would be the discretion of the
officer and not his obligation to obtain explanation from
registered persons on the issues raised during the audit. This
amendment takes away the right of registered person to explain
his position to the revenue authorities before the issuance of show
cause notice.
Thirdly, it is proposed to done away with the issuance of audit
report by the officer who had carried out the audit of theregistered person.
Section 25 AA
(Newly
inserted
section )
Transaction between a ssociates
The propose insertion authorize the Commissioner or an officer of
Inland Revenue to determine the transfer price of taxable supplies
between the persons to reflect the fair market value of the
supplies. This section has already been inserted vide Finance
(Amendment) Ordinance, 2009 and Finance (Amendment)
Ordinance, 2010.
Section 26
(4)
(section
amended)
Return
As already proposed to done away with the issuance of audit
report after completion of the audit, any deposit of amount in lieu
audit report become redundant. Therefore, the words in lieu of
audit report are proposed to be deleted from this section.
Section 30
(Sectionsubstituted)
Appointm ent of auth orities
This amendment seeks to harmonize the appointment ofauthorities and empowering the Board to appoint authorities.
This section has already been inserted vide Finance (Amendment)
Ordinance, 2009 and Finance (Amendment) Ordinance, 2010.
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Section
32A(1)
(sectionamended)
Special audit by Char ter ed Accoun tan t or cost accounta nt s
This amendment proposed to authorize the Commissioner to
appoint accountants to conduct special audit of records ofregistered persons. It further proposes to done away with the
requirement to notify such appointments in the official Gazette.
Section 38 Authorized officer to have access to pr emises, stocks,
accounts and r ecords
This amendment seeks to include Commissioner in addition to the
Board who can authorize a person under the provisions of this
section to have free access to business and manufacturing
premises.
Section 45
(Section
amended)
Power of Adjud ication
This section has already been deleted vide Finance (Amendment)
Ordinance, 2009 and Finance (Amendment) Ordinance, 2010.
Section 56
(Section
substituted)
Ser vice of or der s, decisions, etc.
This section has already been substituted vide Finance
(Amendment) Ordinance, 2009 dated October 28, 2009 and seeks
to elaborate the procedures of service of orders, decisions andnotices by the tax authorities on the resident individual, other
than individuals, AOPs and discontinued businesses.
Section 72A
(New Section
inserted)
Refere nce to Auth or ities
This section is inserted to clarify that the reference to various
authorities with their previous nomen