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EY Ford Rhodes
BUDGET BRIEFING 2018
This Memorandum is correct to the best of our knowledge and belief at the time of going to the press. It is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. The Firm and Ernst & Young do not accept any responsibility for any loss arising from any action taken or not taken by anyone using this publication.
This Memorandum may be accessed on our website http://www.ey.com/pk
Budget Briefing
EY Ford Rhodes
This Memorandum has been prepared as a general guide for the benefit of our clients and is available to other interested
persons upon request. This should not be published in any manner without the Firm’s consent. This is not an exhaustive
treatise as it sets out interpretation of only the significant amendments proposed by the Finance Bill, 2018 (the Bill) in the
Income Tax Ordinance, 2001 (the Ordinance), the Sales Tax Act, 1990 (the ST Act), the Customs Act, 1969 (the Customs
Act) and the Federal Excise Act, 2005 (the FE Act) in a concise form sufficient enough to amplify the important aspects of the
changes proposed to be made. The Board means the Federal Board of Revenue, Government of Pakistan.
Changes of consequential, administrative, procedural or editorial in nature have either been excluded from these comments
or otherwise dealt with briefly.
The amendments proposed by the Bill after having been enacted as the Finance Act, 2018, shall, with or without
modification, become effective from the tax year 2018, unless otherwise indicated.
It is suggested that the text of the Bill and the relevant laws and notifications, where applicable, be referred to in considering
the interpretation of any provision. Since these are only general comments, no decision on any issue be taken without further
consideration and specific professional advice should be sought before any action is taken.
Contents Page
Highlights i – vii
Income Tax 1 – 50
Sales Tax 51 – 64
Islamabad Capital Territory 65
Federal Excise 66 – 72
Customs 73 - 79
KARACHI: 27 April 2018
Highlights
EY Ford Rhodes
i
Income Tax
The benefit available under non-recognition rules and valuations of assets received by way of a gift, is proposed to
be restricted to such gifts that are given to persons who are relatives.
Tax on issuance of bonus shares has been omitted.
Service of notice on an individual electronically, will also be treated as a valid mode of service of notice
Non-filers will not be allowed to purchase new and imported motor vehicles and immovable property.
Set-up of two new authorities i.e. the Directorate-General of Immovable Property and the Appellate Tribunal of
Immovable Property for regularizing and monitoring transactions of immovable property.
Super tax is proposed to be extended for a further period of three years up to the tax year 2020. However, the rate
of super tax would be reduced by 1% for each subsequent year up till 2020.
The eligible threshold of admissible investment in shares and premium on life insurance for claim of tax credit, is
proposed to be enhanced from Rs.1.5 million to Rs.2 million
Concealed foreign assets and foreign income can be taxed in the year of discovery, irrespective of the year of
acquisition under section 111 of the Ordinance
Explainable sources of foreign assets / expenditure may not be rejected by the Commissioner on the basis that the
source does not relate to the year of discovery of foreign assets / expenditure
Immunity from probe in respect of foreign currency remitted to Pakistan has been restricted to Rs.10 million in a tax
year
The tax collected by the Stock Exchange in Pakistan is being made adjustable against the final tax liability of the
members of the Stock Exchange or their customers, as the case may be.
The concept of ADRC has been re-vamped completely, in terms of constitution and its working.
Unabsorbed depreciation and amortization would be adjustable to the extent of 50% of business income and subject
to income thresholds.
Restrict of the time for passing an assessment order on a person who has been served with the notice to file a return
of income for the last ten years but fails to do so, within two years from the issuance date of such notice.
The Board withdraws demand for online access to banks’ central database with accompanying provisions.
The powers to amend the Second Schedule revert backed to the Federal Government
Mandatory requirement to distribute at least 40% dividend by listed companies to avoid tax on undistributed profits
is proposed to be reduced to 20%. The rate of tax on undistributed profits is also proposed to be reduced from 7.5%
to 5%.
The periods for availing tax credit under sections 65B, 65D and 65E are now proposed to be extended to 30 June
2021.
Highlights
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ii
Income derived by religious or charitable organizations from investment in deposits with microfinance banks also is
eligible for tax credit equal to the amount of tax on such income.
Requirement to file a foreign assets and income statement introduced for resident individuals subject to foreign
income thresholds.
The requirement of payment of 25% of the tax demand along with the appeal filed before the Commissioner
(Appeals) has been reduced to 10% of the tax demand.
Penalty for non-filing of statements under various provisions of the Ordinance is proposed to be rationalized.
The Appellate Tribunal cannot grant stay beyond the period of 180 days, notwithstanding that the appeal is pending
decision before it.
Civil suits are not maintainable in tax cases before the High Courts.
Tax paid at import stage deemed “minimum tax” for commercial importers.
Company being a member of an Association of Person is allowed to take credit of proportionate tax collected or
deducted on its behalf.
Appointment in special audit panels may include a foreign expert or specialist and an International Tax audit expert.
With certain exceptions, cases will now be selected for tax audits only once in 3 years.
Non filling a return of income within the due date will render the tax payer as a non-filer for the entire tax year and
limit the availability of brought forward losses.
Existing non-withholding tax limit on account of payment for goods and rendering of services has been enhanced
from existing Rs.25,000 and Rs.10,000 to Rs.75,000 and Rs.30,000 respectively.
Tax on sale of certain petroleum products will be collected at the prescribed rates and such tax will constitute final
tax.
The ambit of advance tax on purchase or transfer of immovable property has been broadened to include payments
made on installments.
The Bill proposes to provide additional powers to the Commissioner to examine the estimates of advance tax
submitted by the taxpayers and also seek supporting information regarding such estimates.
The concept of Controlled Foreign Company viz-a-viz its taxability in the hands of the resident person has been
introduced.
The concept of “dependent agents” has been proposed to be expanded to include agents who play the principal role
leading to the conclusion of contracts without material modification by the non-resident and who act exclusively or
almost exclusively on behalf of the non-resident.
Tax at the rate of 5% is proposed to be introduced on fee for offshore digital services paid by a resident person or
borne by a permanent establishment of a non-resident person.
Highlights
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iii
It is proposed that every banking company be required to collect adjustable advance tax at the rate of 1% (3% in case
of non-filers) from every credit card, debit card and prepaid card transaction completed with a person outside
Pakistan.
The Bill proposes that tax deducted on payments for services by a permanent establishment of a non-resident should
constitute a minimum tax.
The Bill seeks to expand the scope of Pakistan source business income derived by a non-resident person by including
import of goods, whether or not the title to the goods passes outside Pakistan, if the import is part of an overall
Engineering, Procurement, Construction and Commissioning (EPCC) arrangement irrespective of the fact that the
importer is the person, associate of the person or any other person.
The Bill seeks to introduce the concept of beneficial ownership by empowering the tax authorities to disregard an
entity or a corporate structure that does not have an economic or commercial substance or was created as part of
the tax avoidance scheme. Further, the Bill proposes that the benefits available under a Double Tax Treaty may also
be re-characterized by the tax authorities.
The Bill proposes to introduce a new section whereby disposal of assets outside Pakistan, by a non-resident, may
also be subject to tax in Pakistan if such assets derive their value from assets located in Pakistan.
The First Schedule
Part I
Income tax rates for individual (salaried and non-salaried) reduced and harmonized. Highest rate of tax being 15%.
The income tax rates for AOPs proposed to be rationalized by reducing the highest rate of tax to 30% from 35%.
The corporate tax rate is proposed to be reduced to 29% for tax year 2019 which will be reduced by 1% each year
upto the tax year 2023.
The rate of tax in respect of sale of securities remains unchanged.
Part III
Tax on dividend income derived by an individual from a Rental REIT Scheme is proposed to be reduced to 7.5%.
The withholding tax rates increased for non-filer corporate persons for supply of goods and execution of contracts.
Part IV
Advance tax on banking transactions otherwise than through cash reduced from 0.6% to 0.4%.
The Second Schedule
Part I
Certain charitable institutions have been included in the list of institutions whose income is exempt from tax.
Income from manufacturing activity of Modaraba no longer exempt from tax.
Highlights
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iv
Profits and gains derived by a refinery setup between 1st July 2018 and 30th June 2023 subject to fulfilment of
certain conditions.
Part III
New clauses are proposed to be inserted to provide reduction in the amount of tax payable by 50% on income
derived from film making by foreign film makers / resident companies.
Part IV
Public sector university whose income is exempt from tax under Clause (126) of part I of the Second Schedule to the
Ordinance is proposed to be exempted from the levy of minimum tax as well.
A new clause introduced to provide exemption from withholding tax on dividend paid to Transmission Line Project
under Transmission Line Policy 2015.
Clause (56B) deleted. The option to opt out FTR will no more be available to commercial importers
The Bill proposes to extend the levy of minimum tax under Section 113 of the Ordinance at the reduced rate of 0.5%
upto the tax year 2021.
It is proposed that no tax is to be collected on Imports of plant and machinery / construction material / armored and
security vehicle by certain motorway / CPEC projects on fulfillment of certain condition.
Inspection, certification, testing and training services are proposed to be inserted in the list of services specified in
the aforesaid clause. The period for application of Clause (94) is proposed to be extended to 30 June 2019.
The last date for furnishing an irrevocable undertaking for the tax year 2019 for the purpose of Clause (94) is
proposed to be extended to November 2018.
Section 7B of the Ordinance is proposed to be not applicable to profit on Bahbood Saving Certificates or Pensioner’s
Benefit Account subject to certain conditions.
Sales Tax
Rate of further tax is proposed to be increased from 2% to 3%.
The powers of the Federal Government to issue notifications under various sections of the Sales Tax Act, 1990 (the
ST Act) are sought to be restored which are presently vested with the Board.
Concept of appeal effect order has been proposed in the ST Act, whereby, the Commissioner or the Officer Inland
Revenue shall be required to issue the order within one year from the end of the financial year in which the appellate
order was served to the Commissioner or the Officer Inland Revenue.
Sales tax audit is proposed to be conducted only once in every three years.
Default surcharge is proposed to be fixed at 12% per annum. Presently it is KIBOR plus 3% per annum.
Highlights
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v
The concept of ADRC has been re-vamped completely, in terms of constitution and its working.
The requirement of payment of 25% of the tax demand along with the appeal filed before the Commissioner Inland
Revenue (Appeals) has been reduced to 10% of the tax demand.
The adjustment of input tax paid on import of scrap compressor is proposed to be restricted.
Exemption on import of parts by computer manufacturer certified by the Engineering Development Board is
proposed.
Exemption on import of plant and machinery is proposed to align with the provisions of the Special Economic Zone
Act, 2012.
Zero rating on stationery items is proposed to be restored.
Rate of further tax is proposed to be 1% on zero rated domestic supplies of finished goods covered under SRO 1125.
Adjustment of input tax on packing material is proposed to be allowed to five export oriented sectors covered under
SRO 1125.
Rate of sales tax is intended to be reduced from 7% to 12% on import of LNG by PSO and PLL and further supply of
RLNG to SNGPL by these companies.
Value addition tax of 3% on import of LNG is proposed to be waived off
Reduction in the rate of sales tax to 3% is proposed on all fertilizers.
Reduction in sales tax rate to 5% on supply of natural gas to fertilizer plants is proposed
Exemption of sales tax on import of LNG by fertilizer manufacturer for use as feedback stock.
Rate of sales tax on import and supply of finished articles of leather and textile sector is proposed to be increased to
9%, however, for branded outlets which are integrated with the online system of the Board is proposed at 6%.
Federal Excise Duty
The powers to issue notifications under various Sections of the FE Act reverted back to Federal Government
Appeal effect order proposed to be introduced within one year from the end of the financial year in which the order
is served
Default surcharge fixed at twelve percent per annum, present rate is KIBOR plus three percent per annum
The requirement of payment of 25% of the tax demand along with the appeal filed before the Commissioner
(Appeals) reduced to 10% of the tax demand
The concept of ADRC has been revamped completely in terms of constitution and its working
The powers of the Chief Commissioner and Commissioner to monitoring production, stock position, removal or sale
of goods and maintenance of records withdrawn
Highlights
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vi
Audit to be conducted once in every three years
The rate of FED on tobacco and cement increased
The following exemptions proposed:
Equipment imported by M/s China Railway Corporation for Lahore Orange Line Metro Train Project
Construction materials and goods imported by China State Construction Engineering Corporation Limited for
Sukkur-Multan Motorway
Commission paid by the State Bank of Pakistan to National Bank or any other banking company, acting as
agents for handling banking services of federal and provincial governments
Customs
Additional customs duty is increased from 1% to 2% Customs duty is withdrawn on raw materials / inputs on 104 PCT headings and reduced on 28 PCT headings for
promotion of exports. Customs duty is reduced on aluminum foil for liquid food packaging industry, pre-fabricated structures for hotels,
input material for dairy sector, poultry sector, manufacturing of optical fibre cables, cinema industry, LED lights manufacturing, import of coal, and electric vehicles,
Fixed duty of US$ 5,000 is levied on import of vintage or classic cars/ jeeps. Duty is increased on import of rickshaw tyres, soya bean oil, aluminum auto parts scrap etc. New PCT codes introduced for radial tyres, CKD/SKD kits for home appliances, mobile phones, etc. Regulatory duty on non-essential and luxury items is to be reviewed. Collector (Appeals) is authorized to grant stay against recovery of duty/taxes for a maximum period of 30 days. Customs enforcement activities in the sea is extended up to 24 nautical miles.
Power of the Federal Government for any amendment in the customs law is restored. Currently, it is with the Board
after obtaining approval of the Federal Minister-in-charge. Legal coverage is provided for utilizing any data obtained under mutual assistance agreements for the purpose of
assessment and valuation. The power to take over imported goods is devolved from the Board to the Chief Collector. No proceedings can be initiated where the short paid duties, taxes or other charges is voluntarily paid.
Refund claim is to be decided within 180 days, subject to extension of further 90 days. Provisional release of confiscated imported goods will be possible on payment of duties and furnishing of bank
guarantee or pay order against monetary penalties involved thereof.
Highlights
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vii
Penalties introduced in case of non-compliance of electronic notices issued for requisition of documents Enhancement of penalties for pilferage, replacement enroute or in case transshipped goods failed to reach the port
of destination. Officer or person authorized by the Collector or Director can take and hold possession of confiscated goods. Authorized Economic Operator (AEO) program is introduced to meet the obligations of the Trade Facilitation
Agreement. Opportunity is to be provided to the public for offering comments before introducing any rules.
Table of Contents
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1
Income Tax
Section Page
1. Reduction in tax rates 6
2. Bonus shares Section 2 Clause (29), Section 39, Section 236M, Section 236N
6
3. Super tax for rehabilitation of temporarily displaced persons Section 4B 6
4. Tax on undistributed profits Section 5A 7
5. Setoff of depreciation losses Sections 57 and 59A 7
6. Tax credit for not for profit organizations Section 100C 8
7. Unexplained foreign income or assets Section 111 8
8. Exemptions and tax concessions Section 53 8
9. Fee for Offshore Digital Services Sections 2, 6, 101, 152 and First Schedule
8
10. Advance tax paid by the taxpayer Section 147, sub-section (4), sub-section (4A) and sub-section (6)
9
11. Return not filed within due date Section 182A & 214D 9
12. Advance tax on persons remitting amounts abroad through credit or debit or prepaid cards
Section 236Y and First Schedule
10
13. Tax paid at import stage deemed “minimum tax” for commercial importers
Section 148, Sub-section (8)
10
14. Services rendered by a non-resident through its permanent establishment
Section 152 10
15. Restriction of transfer of assets through gift Sections 37 & 79 11
16. Alternative Dispute Resolution Section 134A 11
17. Service of notice and other documents Section 218 12
18. Business income of a non-resident person Sections 101 and 152 13
19. Gain on disposal of assets outside Pakistan Section 101A 14
20. Re-characterization of income and deductions Sections 107 and 109 15
21. Definition of Permanent Establishment Section 2 15
22. Controlled Foreign Company Section 109A 16
23. Furnishing of information by banks Section 165A 17
Table of Contents
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2
Section Page
24. Restriction on purchase of certain assets Section 227C 18
25. Best judgment assessment Section 121 18
26. Tax credit for investment Section 65B 18
27. Tax credit for newly established industrial undertakings Section 65D 18
28. Tax credit for industrial undertakings established before the first day of July 2011
Section 65E 19
29. Foreign income and asset statements Section 116A 19
30. Return of income Sections 114 and 118 20
31. Recovery of tax Section 140 20
32. Penalties Section 182 20
33. Disclosure of information by public servant Section 216 20
34. Appeal to the Appellate Tribunal – stay of tax demand Section 131(5) 21
35. Bar of suits in Civil Courts Section 227 21
36. Transactions between associates Section 108 21
37. Claim of credit by a company being a member of an Association of Person
Section 168, Sub-section (2)
22
38. Appointment in special audit panel Section 177, Sub-section (11), Clause (d)
22
39. Selection of cases for audit Clause 105 Part IV of Second Schedule
23
40. Threshold limits for non-deduction of tax from payments of goods and services
Section 153 23
41. Tax on sale of certain petroleum products Section 236HA and Division XVA of Part IV of the First Schedule
23
42. Validation Section 241, Sub-section (2)
24
43. Advance tax on purchase or transfer of immovable property
Section 236K, sub-section (3) and Division XVIII of Part IV of the First Schedule
24
44. Directorate General of Immovable Property Section 230F 24
45. Tax credit for investment in shares and life insurance premium paid Section 62 25
46. Collection of tax by a Stock Exchange registered in Pakistan Section 233A 26
Table of Contents
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3
THE FIRST SCHEDULE
Page
47. Rates of tax for Individuals and Association of Persons 27
48. Rates of tax for companies 30
49. Rates of Super tax for rehabilitation of temporarily displaced persons 30
50. Rates of withholding and charge of tax on dividend income 31
51. Rates of tax on profit on debt 31
52. Rates of Tax on Return on investments in Sukuks received from a special purpose vehicle.
31
53. Rates of tax for non-resident taxpayers for certain transactions 31
54. Income from property 32
55. Rates of tax on capital gains on securities 32
56. Rate of tax on capital gain on immovable property 33
57. Advance tax on builders 33
58. Advance tax on developers 34
59. Minimum Tax 34
60. Advance tax on imports 35
61. Advance tax on profit on debt 35
62. Advance tax on return on investments in Sukuks received from a special purpose vehicle.
35
63. Payments to non-residents 36
64. Advance income tax on payment to resident on payments for goods, services and execution of contract
37
65. Exports 38
66. Income from property 38
67. Tax on prize and winnings 38
68. Tax on Petroleum Products 39
69. Tax on CNG Station 39
70. Collection of advance income tax on Brokerage and Commission 39
Table of Contents
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4
Page
71. Rates for collection of tax by a Stock Exchange registered in Pakistan 39
72. Collection of tax by NCCPL 39
73. Collection of tax on motor vehicles 39
74. Collection of tax on electricity consumption 40
75. Collection of Advance Tax on Telephone Users 41
76. Collection of tax on cash withdrawal from bank 41
77. Collection of advance tax on transactions through banking channels 41
78. Advance tax on purchase, registration and transfer of Motor Vehicles 41
79. Advance tax at the time of sale by auction 42
80. Advance tax on purchase of air tickets 42
81. Advance tax on sale/transfer of immovable property 42
82. Collection of advance tax on functions and gatherings 42
83. Advance tax on cable operator and other electronic media 43
84. Advance tax on sales to distributors, dealers or wholesalers 43
85. Advance tax on sale of retailers 43
86. Advance tax on sale of certain petroleum products 43
87. Collection of advance tax by educational institutions 44
88. Advance tax on dealers, commission agents and arhatis, etc. 44
89. Advance tax on purchase of immovable property 44
90. Advance tax on domestic electricity consumption 44
91. Advance tax on international air ticket 44
92. Advance tax on bank transactions 44
93. Payment to a resident person for right to use machinery and equipment 45
94. Collection of advance tax on education related expenses remitted abroad
45
95. Advance tax on insurance premium 45
96. Advance tax on extraction of minerals 45
97. Advance tax on amount remitted abroad through credit, debit or prepaid cards
45
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5
THE SECOND SCHEDULE
Clause Page
98. Exemption to armed forces personnel 45
99. Exemption to income of certain funds/institutions 45
100. Exemption on donations 46
101. Exemption to income of certain charitable and other institutions Clause (66) 46
102. Exemption on profit on debt and gain on transfer of capital asset Clauses (90A & 110C) 47
103. Income of Modaraba (Clause 100) 47
104. Profit and gains derived from refinery operations Clause (126BA) 47
105. Reduce rate of tax on commercial contract Clause (24AA) 47
106. Incentive for film makers Clauses (7 & 8) 47
107. Exemption from provisions of Section 153 Clause (11E) 48
108. Exemption from provisions of Section 150 Clause (12A) 48
109. Exemption from provisions of Section 148 regarding withholding tax on imports
Clause (56) 48
110. Option to commercial importer Clause (56B) 48
111. Trading Houses Clause (57) 48
112. Exemption from collection of advance tax at import stage Clauses (60A), (60AA),
(60B) & (60C) 48
113. Institution deemed to be approved as NPO Clauses (63) 49
114. Minimum tax on services sector companies Clause (94) 49
115. Tax on profit on debt Clause (103) 49
116. Redundant Clauses of Second Schedule to the Ordinance 50
Income Tax
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6
1. Reduction in tax rates
The Federal Government while announcing ‘Economic Reforms Package’, has provided substantial relief to salaried and
non-salaried individuals, whereby tax rates for individuals have been reduced with maximum applicable tax rate of 15%
on income in excess of Rs 4.8 million.
As per the Income Tax Amendment Ordinance, 2018, no tax was required to be paid by individuals deriving annual
income upto Rs.1,200,000. The Bill has however proposed that individuals deriving income from Rs.400,000 to
Rs.1,200,000 would be subject to tax of Rs.1000, and Rs.2,000 for income slabs ranging from Rs.400,000 to
Rs.800,000 and from Rs.800,000 to Rs.1,200,000 respectively
Similarly, the Bill also seeks to provide relief in tax rates for AOPs, which have also been reduced from the maximum
rate of 35% to 30%.
For companies, the tax rates have also been proposed to be reduced by 1% on yearly basis from present rate of 30% in
the tax year 2018 to the tax year 2023 in which the tax rate is proposed to be reduced to 25%.
2. Bonus shares
Section 2 Clause (29), Section 39, Section 236M, Section 236N
Under the scheme of taxation that has prevailed in Pakistan historically, the face value of bonus shares or the amount
of any bonus declared, issued or paid by a company to its shareholders (bonus shares) was excluded from the definition
of “income”. Non-taxability of bonus shares at the time of their issuance was based on the simple principle that the
shareholder does not derive any real income from the receipt of bonus shares and consequently income, if any, was
taxed as capital gain at the time when the bonus shares were actually disposed-off by the shareholders.
However, through Finance Act, 2014, bonus shares were declared as income of the recipient and corresponding
amendments were made in the Ordinance to tax receipt of bonus shares in the hands of the recipients. These tax
amendments were widely disliked. In reality, this measure did not generate tax as per the original estimates of the
Board, and at the same time the practice of issuance of bonus shares also declined substantially, hampering capital
accumulation, which is essential for expansion in the corporate sector.
After considerable persuasion by the capital market, business and professional forums, the Board has acceded to the
demands and it is now proposed that the taxation of bonus shares may be abolished. Consequently, several
amendments are proposed to withdraw the withholding of tax on issuance of bonus shares, treating the income from
bonus shares as other income, etc.
This is a much needed corrective measure, which will considerably promote capital formation and consolidation in the
corporate sector, simultaneously providing an impetus to the capital market.
3. Super tax for rehabilitation of temporarily displaced persons
Section 4B
The Finance Act, 2015, introduced a one-time super tax on all persons on all types of income, whether taxable under
the normal law or under the Final Tax Regime, in the tax year 2015. It was levied at 4% on banking companies and at 3%
on all other persons having taxable income of Rs.500 million or more. This levy was extended to the tax year 2017 by
the Finance Act, 2017. The Bill proposed to extend the application of Section 4B up to the tax year 2020. The Bill
further seeks to reduce the rate of super tax by one percent for each subsequent tax year, until tax year 2020.
The extension of super tax is not a surprise as the business quarters were anticipating it. However, most of the trade
and professional bodies had proposed to the government not to extend this levy any further. It seems that the constant
Income Tax
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7
increase in the tax collection targets by the Federal Government, coupled with the failure of the BOARD in broadening
the tax base, has left the Federal Government with little choice but to continue taking ad hoc measures like super tax, to
boost tax collection.
4. Tax on undistributed profits
Section 5A
The Finance Act, 2015, introduced taxation of undistributed reserves at the rate of 10%. Under this section tax was
imposed on a public company that derived profit for a tax year but did not distribute cash dividend equal to 40% of its
after tax profit or 50% of its paid-up capital, whichever is less, within six months of the end of the tax year, or which has
distributed a dividend to such an extent that its reserves remained in excess of 100% of its paid-up capital.
The Finance Act, 2017, revamped the taxation under the above section by changing undistributed reserves to
undistributed profits, and tax at 7.5% was imposed in case of non-distribution of 40% of after tax profits in the form of
cash dividend or bonus shares.
The Bill now seeks to reduce the tax rate from 7.5% to 5% in case the criterion as specified above is not met.
Furthermore, it is proposed that the condition of distribution of 40% of after tax profits may be reduced to 20%. The
distribution in this respect is to be made in cash as the option of bonus shares has been omitted, apparently due to the
withdrawal of taxation on bonus shares.
The Bill also seeks to omit the reference of this section from the provisions of section 8 of the Ordinance, which
contains general provisions regarding income falling under the final tax regime.
5. Setoff of depreciation losses
Sections 57 and 59A
The concept of adjustment of unabsorbed depreciation brought forward from previous years against income of the
current year, is an age-old concept. It was initially adopted in the Income Tax Act, 1922. It was then carried further
when the Income Tax Ordinance, 1979, was promulgated, repealing the Income Tax Act, 1922. When the Ordinance
was promulgated in the year 2003, this concept was pocketed by virtue of the provisions of sections 57 and 59A of the
Ordinance with minor amendments including taking the effect of amortization of intangibles and pre-commencement
expenditure. The concept dictates that in computing income from business, deduction on account of depreciation of
assets used in business (and amortization as above), if not completely absorbed by the profits and gains of business, the
unabsorbed depreciation and amortization is clubbed with the expense for the next year and so on until it is completely
utilized. In subsequent years, it becomes part of the depreciation and amortization deduction and after its adjustment, if
there is a loss computed, the same can be set off against income from any other head excluding gains from speculation
business. We have seen in a number of cases where unabsorbed depreciation and amortization are set off against
income from property (when Section 15 allowed such set off) and income falling under Section 39 of the Ordinance, i.e.
income from other sources.
The concept has also been tested in appeals a number of times and there is a plethora of case laws explaining the
application of the relevant provisions. Some of the cases that dealt with this issue are (i) Hon’ble High Court of Sindh
judgement in the case of Commissioner of Income Tax Vs. Karachi Electric Supply Corporation Ltd. (1985) 52 Tax 98,
(ii) judgment of the Supreme Court of India in the case of United Commercial Bank Ltd. Vs. CIT (1957) 32 ITR 688 and
(iii) judgment of full Bench of Bombay High Court in the case of B.M. Kamdar (1946) 14 ITR 10.
The Bill now intends to disturb this age-old concept by proposing amendments aiming to dislodge the allowability of such
adjustment. It is proposed that the adjustment of unabsorbed depreciation and amortization would be available against
income from business only and that too, to the extent of fifty percent of taxable income (after offsetting business
losses, if any) in a tax year. Where, however, the income from business in a tax year is less then Rs.10 million, the
unabsorbed depreciation and amortization would be set off without any limit i.e. to the extent of such income.
Income Tax
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8
The aim of the amendment per se seems nothing but to generate more tax collection by deferring the offset of losses,
which otherwise are available infinitely. However, the bigger loss is the inability to offset income from sources other
than business, against depreciation. As a result, despite losses the taxpayer will be forced to pay tax on such other
sources of income.
6. Tax credit for not for profit organizations
Section 100C
This section allows a tax credit equal to one hundred percent of the tax payable, including minimum tax and final taxes
to non-profit organizations, trusts and welfare institutions.
Currently tax credit is available on profit on debt derived from scheduled banks only. The Bill now proposes that the
same credit shall be extended to profit on debt derived from microfinance banks.
7. Unexplained foreign income or assets
Section 111
The Prime Minister announced an Economic Reforms package on 05 April 2018, which provided wide ranging measures
to solicit declaration of undeclared foreign as well as local assets and income. To compel persons to avail the tax
amnesty scheme, certain amendments were felt necessary in the Ordinance with respect to certain loop holes, which
were facilitating persons to remain out of the tax net without declaring their income and assets. For this purpose an
Ordinance, namely the Income Tax (Amendment) Ordinance, 2018, was promulgated, which inter-alia, introduced
amendments in section 111 of the Ordinance. These have now been made part of the Bill and are discussed in the
ensuing paragraphs.
8. Exemptions and tax concessions
Section 53
Before the Finance Act, 2017, the Federal Government was empowered to amend the Second Schedule in order to
provide or withdraw exemptions and tax concessions, or to provide conditions in respect thereof. Subsequently, through
the Finance Act, 2017, the Minister In-charge, pursuant to the approval of the Economic Coordination Committee of the
Cabinet, was empowered to make such amendments. However, the powers of the Minister on their own have been
challenged and there are decisions of the superior courts, which require the Federal Government to make such changes
in the law. The Bill now seeks to revert to the position prior to Finance Act, 2017 and surrender the powers back to the
Federal Government for making all such amendments in the Second Schedule.
9. Fee for Offshore Digital Services
Sections 2, 6, 101, 152 and First Schedule
With the advent of digitalization of businesses and e-commerce, taxpayers may derive income even from jurisdictions
where they are not physically present. This has led the tax authorities to question the right of a State to tax the
revenues derived by such taxpayers and the manner in which such tax may be collected. The existing provisions of the
Ordinance are also not equipped to deal with the rigors of e-commerce.
To address the above, the Bill proposes to introduce a concept of tax on fee for offshore digital services paid by a
resident person, or borne by a permanent establishment of a non-resident person. The term fee for offshore digital
services has been defined to mean any consideration for providing or rendering services by a non-resident person for
online advertising space, designing, creating, hosting or maintenance of websites, digital or cyber space for websites,
advertising, e-mails, online computing, blogs, online content and online data, providing any facility or service for
uploading, storing or distribution of digital content including digital text, digital audio or digital video, online collection
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or processing of data related to users in Pakistan, any facility for online sale of goods or services or any other online
facility. The tax rate on fee for off shore digital services is proposed to be 5% of the gross amount of such services.
The definition is quite extensive in nature and attempts to capture all e-commerce transactions that were previously not
covered by the Ordinance.
10. Advance tax paid by the taxpayer
Section 147, sub-section (4), sub-section (4A) and sub-section (6)
Section 147 deals with payment of advance tax by taxpayers on a quarterly basis. The Bill seeks to insert a proviso to
sub-section (4) in terms of which, while working out the advance tax liability for the quarter, in the case of a company or
AOP, if the tax payer fails to provide the turnover value for the said quarter, or the quantum of turnover is not known,
the advance tax liability in such case for the quarter is to be worked out by taking the value of turnover for the quarter
as being ¼th of 110% of the turnover of the latest tax year, for which a return has been filed.
Presently, under sub-section (4A) of section 147 of the Ordinance, the taxpayer is entitled to estimate the tax liability
for the relevant tax year at any time before the second instalment is due i.e. even before completion of the half year
after such estimation. This effectively requires payment of 50% of the estimated advance tax by the due date of the
second quarter of the relevant tax year. The remaining 50% is required to be paid in the third and fourth quarterly
instalments. Under the aforesaid sub-section, a taxpayer is not permitted to make a lower estimate of its income. The
Bill seeks to amend the aforesaid sub-section, whereby banking companies are proposed to be included within the ambit
of a taxpayer, with the result that the banking companies will be required to absolve their advance tax liability in
accordance with the provisions of sub-section (4A). However, banking companies under Rule 5(1) of the Seventh
Schedule and sub-section (4A) of section 147 have been specifically excluded. Since the Bill has not proposed any
amendment with regard to the provision of Rule 5 of the Seventh Schedule, therefore, in our opinion, the legal position
relating to the advance tax obligation of the banking company remains intact, as contained in Rule 5 of the Seventh
Schedule.
Moreover, the Bill seeks to amend the provision of sub-section (6), in terms of which a banking company is excluded for
the purpose of making its estimate under the aforesaid sub-section. However, under Rule 5(1) of the Seventh Schedule,
sub-section (6) of section 147 has been specifically excluded. The Bill also requires the taxpayer to provide the following
details to the Commissioner while working out the estimate of the amount of tax payable:
Turnover for the completed quarters of the relevant tax year;
Estimated turnover of the remaining quarters along with any valid reason for any decline in estimated turnover, if
any;
Documentary evidence of the estimated expenses or deductions which may result in lower payment of advance tax;
and
The computation of the estimated taxable income of the relevant tax year.
The Bill further seeks to empower the Commissioner to consider the rejection of the estimate, if the above information
is not made available by the taxpayer. In such a case, the advance tax liability is to be worked out on the basis of the
provisions of Sub-section (4).
11. Return not filed within due date
Section 182A & 214D
It would be recalled that Section 214D automatically selects a case for tax audit in case the return of income has not
been filed by the tax payer by the due date, or the extended due date, or the tax payable along with the return of
income has not been paid.
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Further, penalizing provisions were embedded under Section 182 whereby the non / late filing of the return of income
was subject to a penalty, at the prescribed rates.
Although the penal provisions have been retained, the bill proposes to omit Section 214D thereby relieving the tax
payer from selection of tax audit in case of non/ late filing of the return of income. However, in order to check on non /
late filing of tax return, the bill proposes to insert a new Section 182A, whereby it is proposed that if a taxpayer fails to
file the return of income within the due date or the extended due date, its name will not be included in the Active
Taxpayers List, and it will not be entitled to carry forward any loss for the year.
12. Advance tax on persons remitting amounts abroad through credit or debit or prepaid cards
Section 236Y and First Schedule
The Bill proposes to insert a new section wherein every banking company will now be required to collect adjustable
advance tax at the rate of 1% of the gross amount remitted abroad for filers and 3% in case of non-filers from every
credit card, debit card and prepaid card transaction with a person outside Pakistan.
Given the increasing trend of online transactions, the proposed advance tax is likely to have a positive impact on the
revenue collection. However, this increase in collection would come at the expense of an already administratively over-
burdened banking sector.
13. Tax paid at import stage deemed “minimum tax” for commercial importers
Section 148, Sub-section (8)
Presently tax required to be collected under this section on import of plastic raw material imported by an industrial
undertaking, falling under PCT headings 39.01 to 39.12, edible oils and packing material is treated as minimum tax. The
Bill proposes to amend the above sub-section whereby, in addition to the above mentioned goods, the tax required to be
collected on import of goods that are sold in the same condition as they were when imported is to be treated as
minimum tax. This is a substantive conceptual shift with respect to taxation of commercial importers being proposed to
be made in sub-section (8) of this section. Presently, commercial importers paying tax at the import stage are deemed
to have paid the same as “final tax”. The amendment now seeks to change the character of such tax payments from
“final tax” to “minimum tax”. Such commercial importers, pursuant to the proposed amendments will be required to file
a return of income instead of filing of statement in terms of section 115 of the Ordinance, and may be subject to
amendment of assessment/tax audit under section 177.
14. Services rendered by a non-resident through its permanent establishment
Section 152
Subject to certain exceptions, taxes withheld from resident service providers constituted a minimum tax pursuant to
section 153. Conversely, taxes withheld from a non-resident rendering services through its permanent establishment
was considered as an advance tax under section 152.
In order to provide a level playing field, the Bill proposes to amend section 152 with the effect that the taxes withheld
from payments to the permanent establishment of the non-resident service provider, would also now be regarded as a
minimum tax. However, the exception to such minimum taxation, as available to resident service providers under
section 153, would also mutatis mutandis apply to non-resident service providers.
The proposed amendment may be in conflict, in specific situations, with the taxation of non-resident service providers
who are from countries with whom Pakistan has signed Agreements for Avoidance of Double Taxation and Fiscal
Evasion, which overrides the domestic law .
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15. Restriction of transfer of assets through gift
Sections 37 & 79
Section 37 deals with taxation of capital gains on sale of assets. For the purpose of valuation of a capital asset, it is
inter-alia provided that where an asset becomes the property of a person under a gift, the fair market value of asset on
the date of its transfer shall be treated to be the cost of the asset.
Similarly, section 79 provides non-recognition rules which inter-alia provide that no gain or loss shall be taken to arise
on the disposal of an asset by reason of a gift.
The bill now seeks to restrict the gift to those which have been received from a relative. The term relative has been
defined in Section 85 of the Ordinance which deals with Associate. The definition of a relative in relation to an individual
is provided as under:
a) Ancestor, a descendant of any of the grand parent or an adopted child of the individual or of a spouse of the
individual;
or
b) A spouse of the individual or of any person specified in Clause (a).
It is understood that the aforesaid amendments are one of several anti-avoidance measures that are being introduced in
the law to check misuse of a legal provision to evade tax.
16. Alternative Dispute Resolution
Section 134A
The concept of Alternative Dispute Resolution (ADR) was introduced via the Finance Act, 2004 whereby a taxpayer may
bring any disputed matter, which is pending before an appellate authority before the Board by making an application.
For this purpose, the Board is required to constitute a Committee (ADRC) comprising an Officer of Inland Revenue (not
below the rank of a Commissioner) and two persons from a panel of Cost or Chartered Accountants, or Advocates or
Income Tax Practitioners being reputable taxpayers, before which the matter is to be placed for examination and
recommendations to the Board.
The ADRC shall undertake an examination of the issue and may make enquiry, obtain expert opinion and cause an audit
by any officer of Inland Revenue or any other person. Based on the findings, the ADRC shall make recommendations as
may be appropriate in the facts and circumstances of the case. The ADRC is required to be formed within the period of
sixty days of the making of an application by the taxpayer. The ADRC is then required to make its recommendations
within ninety days of its constitution. If the ADRC fails to make the recommendation within the above period of ninety
days, the Board is empowered to dissolve the ADRC and constitute a new ADRC, which is required to dispose of the
matter within a further period of ninety days. However, if the new ADRC fails to the resolve the dispute in the above
period, the matter shall be taken up by the appellate forum, where it is pending.
In case, the ADRC makes recommendation within the statutory period of ninety days, the Board is then required to pass
an order on the recommendations of the ADRC, as may be appropriate within ninety days of the receipt of ADRC’s
recommendations and if such an order is not passed, the recommendations would be treated to be an order passed by
the Board.
The most controversial provision was the powers of the Board either to reject the ADRC’s recommendations or to
accede to such recommendations, in the manner the Board deems appropriate. It was objected to on the basis that the
ADRC, which comprises of a senior officer of the Board and professionals/ reputable taxpayers, and which works on a
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pro-bono basis, does not have any say in the conclusion of the dispute. As a result, the process of ADR has not yielded
the desired results of reducing the pending litigation before the appellate authorities.
The Bill now proposes substantial changes in the entire process of constitution and working of ADRC. These are
discussed as under:
The ADRC members would be selected from a panel of retired Chartered Accountants or retired Advocates (the
term retired seems to be a mistake as no such condition is provided in ADRC mechanism prescribed for sales Tax
Act 1990 through this bill), and retired Judges of High Court besides an officer of Inland Revenue not below the
rank of a Commissioner.
The taxpayer invoking the powers of ADRC and the Board shall withdraw the appeals pending before the Appellate
Authority.
The ADRC shall not commence the proceedings unless the order of withdrawal by the Appellate Authority is
communicated to the Board. In the event the order of withdrawal is not communicated within seventy five days of
the appointment of the ADRC, the ADRC so appointed shall be dissolved.
The ADRC shall decide the dispute within one hundred and twenty days of its appointment excluding the period of
communicating the order of withdrawal.
The ADRC is now empowered to decide the matter, and such decision shall be binding on the aggrieved person as
well as on the Board.
If the ADRC fails to decide the matter within the period of one hundred and twenty days, the Board shall dissolve
the ADRC, inform the Appellate Authority (which passed the order of withdrawal of matter) and the matter would
be deemed to be pending before the Appellate Authority, which shall decide the matter as if the appeal was never
withdrawn. The Appellate Authority is required to decide the appeal within six months of the communication of the
order of dissolution of the ADRC.
The proposed amendments however, do not appear to achieve the objects with which the concept of ADR was
introduced. This is for the reason that the very concept of “Alternate” would fade away with the requirement to give
up the appellate process. Presently, the order passed by the Board on the recommendations of the ADRC is not
binding on the aggrieved person but on the Board officials. Such an order is to be presented before the Appellate
Authority, which is required to take into consideration while deciding the matter pending before it. This gives the
aggrieved person an option to evaluate the outcome of the ADR proceedings and decide whether to pursue the
appeal or not. However, since the appeal is now proposed to be withdrawn before the ADRC takes up the matter for
decision, the aggrieved person would not have this option. The law makers are therefore urged to make the order of
the ADRC binding on the Board and not on the aggrieved person.
17. Service of notice and other documents
Section 218
This section provides the manner in which a notice, or any other documents, are to be served on a taxpayer by the tax
authorities. It presently provides the following to be the acceptable manner in which a notice or other documents shall
be treated as properly served:
a) Personally served on the individual;
b) Sent by registered post or courier service to the registered office or address of the taxpayer; or
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c) Served on the person in the manner prescribed for service of Summons under the Code of Criminal Procedure,
1908.
The bill now seeks to amend this section to legitimize the procedure for service of notice, or any other documents,
which are sent electronically in the prescribed manner.
It may be noted that rules were formulated for service of notices through electronic medium, and practically the Board
was delivering notices and orders through its e-portal. Owing to the fact, however, that the main statute did not permit
service of notices electronically, notices and orders that were served through the e-portal of the Board were often
challenged in appeals.
Recently, the Board also acknowledged this shortcoming and directed its officers to ensure that along with electronic
service, the taxpayers were also sent hard copies of notices and orders through courier or post, in order to ensure
proper legal service. With this proposed amendment, however, the bill now seeks to rectify the shortcoming and enable
electronic servicing with full legal support.
18. Business income of a non-resident person
Sections 101 and 152
As in international tax, the Ordinance while defining the geographical source of income under section 101, recognizes
the force of attribution principle, whereby non-residents, in respect of their business income, are considered to derive
Pakistan source income if their income is attributable to the permanent establishment in Pakistan. The legislation also
recognized the limited force of attraction principle, whereby if the non-resident enters into same or similar activities or
sale of same or similar goods as that of the permanent establishment, such income is also regarded as Pakistan source.
Therefore, ordinarily, sales of goods made by non-residents outside Pakistan, fall outside the purview of Pakistan tax
even if the non-resident has a permanent establishment in Pakistan, which is engaged in the installation, erection and
commissioning into service of such goods. This principle was endorsed by the Honorable Appellate Tribunal Inland
Revenue in its judgment cited as (1999) 80 Tax 17(Trib.).
The Bill now proposes to undo the effect of this principle by inserting a new clause in Sub-section (3) of section 101,
under which Pakistan sourced income from business derived by a non-resident person, would include income on account
of import of goods, whether or not the title to the goods passes outside Pakistan, if the import is part of an overall
Engineering, Procurement, Construction and Commissioning (EPCC) arrangement, irrespective of the fact that the
importer is the person, associate of the person or any other person.
Keeping in view the proposed amendment in section 101(3), corresponding amendments have also been proposed in
Sub-section (7) of section 152, whereby a taxpayer would invariably now be required to obtain a tax exemption
certificate from the Commissioner, in case the taxpayer intends to make payments on account of such transactions
without deduction of tax.
Given that the government is focusing on expanding its economic horizon, including via C-PEC, in our view, such
amendments may have an adverse impact on the foreign investors. Additionally, it is practically witnessed that most of
the foreign contractors pass their tax burden on resident persons through tax gross-up clauses. Hence, the cost of
doing business for such resident persons would increase significantly due to the proposed amendments. Further, it
remains unclear what costs may be admissible to such a non-resident against such income.
Without prejudice to the above, it needs to be highlighted that the BEPS Action Plan 7 also recommends that Treaty
provisions are amended to ensure that PE formation is not avoided through artificial splitting of contracts to bypass any
timeframe requirements. While we may assume that the BEPS Action Plan 7 was a consideration in drafting the
suggested amendments, in our view however, the core essence of the Action Plan has not been correctly reflected.
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19. Gain on disposal of assets outside Pakistan
Section 101A
Section 101 of the Ordinance identifies the different circumstances under which a taxpayer is considered to derive
Pakistan source income. Under the said section, the indirect disposal of an asset in Pakistan generally does not
constitute Pakistan source income. The only exception to this rule is in relation to the gain arising from the disposal of
immovable property or shares in a company, the assets of which consist wholly or principally of immovable property,
including rights to explore for and exploit natural resources in Pakistan.
Historically, the Indian legislation also did not tax indirect disposals. However, after the Vodafone controversy, the
Indian Income Tax Act was amended to levy tax on the disposal of shares of foreign companies in circumstances where
such companies derived significant value from assets located in India.
The Bill seeks to introduce a similar concept of taxing indirect disposal of assets located in Pakistan by non-residents
through insertion of a new section 101A. The salient features of the proposed section are:
Gain from disposal of an asset located in Pakistan by a non-resident shall be Pakistan sourced income;
Where the asset is any share or interest in a non-resident company, it shall be treated to be located in Pakistan if it
derives its value, directly or indirectly, wholly or principally, from assets located in Pakistan and it represents 10
percent or more of the disposed share capital of the non-resident company;
The share or interest shall be treated to derive its value principally from the assets located in Pakistan, if the value
of such assets exceed one hundred million Rupees and represents at least fifty per cent of the value of all the assets
owned by the non-resident company;
Where the assets of the non-resident company are not wholly located in Pakistan, only income to the extent that is
reasonably attributable to such assets as are located in Pakistan, and is determined as may be prescribed, would be
taxable;
Where the assets in Pakistan are held through a resident company, such company shall be required to provide the
prescribed information to the Commissioner within 60 days of the transaction;
The buyer would be required to withhold tax at the rate of 15 percent of the gross amount of the consideration paid
to the non-resident;
Where the buyer has not withheld tax, the resident company is required to collect the requisite tax from the non-
resident seller;
The rate of tax to be withheld by the buyer or collected by the resident company shall be the higher of :
20% of the gain (i.e. fair market value less cost of acquisition of the asset); or
10% of the fair market value of the asset; and
Where the tax has been withheld by the buyer or collected by the resident company, no tax shall be payable by the
non-resident company in respect of the gain under the head “Income from Business” or “Capital Gains”.
Whilst the proposed insertion of the new section attempts to ensure that the revenue authorities receive a fair share of
tax on gains arising from the alienation of assets, whose underlying value is located in Pakistan, the proposed section
has not been drafted in a coherent manner. Issues like possible differences in interpretation, potential multiple taxation,
onerous compliance requirements and practical limitations on availability of information have not been considered,
which shall result in unnecessary litigation. Furthermore, there are ambiguities arising from the manner in which the
proposed section has been drafted.
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An example of the said anomalies is evident from the conflict in the rate at which the buyer is required to withhold tax
from the non-resident seller. As per one of the provisions, the buyer is required to withhold tax at 15% of the gross
consideration, whereas another provision requires the buyer to withhold the tax at the higher of 20% of the gain and
10% of the fair market value of the asset.
Overall, in our view, while the idea behind the proposed new section may be appreciated, it needs to be revisited and
redrafted rationally in order to address the key issues, which have not been duly considered.
20. Re-characterization of income and deductions
Sections 107 and 109
In light of the recommendations of the OECD Action Plans 5 and 6, relating to transparency and substance, and treaty
abuse, respectively, the Bill has proposed to amend the provisions of section 109 of the Ordinance by introducing the
concept of beneficial ownership and empowering the tax authorities to disregard an entity or a corporate structure, that
does not have an economic or commercial substance, or was created as part of a tax avoidance scheme.
Furthermore, while the Ordinance states that a tax avoidance scheme would include any transaction where the main
purpose is to reduce any person’s tax liability, the Bill now seeks to define the term reduction in tax liability. The
proposed definition states that such a term means the reduction, avoidance or deferral of tax, or the increase in a
refund of tax and includes a reduction, avoidance or deferral of tax that would have been payable under this Ordinance,
but are not payable due to a tax treaty for the avoidance of double taxation as referred to in section 107.
Moreover, an amendment in section 107 has also been proposed, whereby the benefits available under a double tax
treaty would be subject to section 109.
21. Definition of Permanent Establishment
Section 2
Currently, the definition of a permanent establishment, inter-alia, covers a dependent agent acting in Pakistan on behalf
of a non-resident person, if he has and habitually exercises an authority to conclude contracts on behalf of the non-
resident. The current definition in the Ordinance is narrower than the internationally accepted concept of a dependent
agent , which also encompasses persons who act exclusively on behalf of another person.
The Bill now seeks to align the local concept of a dependent agent with international practice, including BEPS Action
Plan 7, by expanding the definition. It is proposed that a dependent agent would include any person, who has and
habitually exercises an authority to conclude contracts on behalf of a non-resident person, or has and habitually plays
the principal role leading to the conclusion of contracts that are routinely concluded without material modification, and
these contracts are:
(a) in the name of the non-resident person; or
(b) for the transfer of the ownership of, or for the granting of the right to use property owned by that non-resident or
that the non-resident has the right to use; or
(c) for the provision of services by that person.
It may be appreciated that under the current definition, the concept of a dependent agent was confined only to dealing
in goods, and therefore, agents appointed in Pakistan vis-à-vis rendering of services and use of property were
interpreted to fall outside the purview of a dependent agency. However, it seems that the anomaly has now been
addressed by bringing such agents specifically within the scope of permanent establishment.
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The Bill also proposes to insert an explanation, whereby it is clarified that a dependent agent would include a person
acting exclusively, or almost exclusively, on behalf of the person of which it is an associate.
A new term of “cohesive business operation” has been inserted as part of the explanation, whereby an arrangement for
the supply of goods, installation, construction, assembly, commission, guarantees or supervisory activities, undertaken
or performed either by the person or the associates of the person, and a supply of goods including goods imported in
the name of the associate or any other person, whether or not the title to the goods passes outside Pakistan, has been
included.
22. Controlled Foreign Company
Section 109A
In line with BEPS Action Plan 3, the Bill seeks to introduce taxability of income derived by a Controlled Foreign Company
(CFC) by inserting a new section 109A of the Ordinance. The salient features of which are as follows:
A CFC is a corporate entity that is registered and conducts business in a different jurisdiction other than a
jurisdiction of a residency of the controlled owners.
The concept of CFC has been introduced in order to tax the income of a resident person by attributing its income in
CFC. It has been designed to limit artificial deferral of tax by using off-shore low taxed or exempt entities.
The definition of CFC proposed in the Bill is as follows:
(a) more than fifty percent of the capital or voting rights of the non-resident company are held, directly or
indirectly, by one or more persons resident in Pakistan or more than forty percent of the capital or voting
rights of the non-resident company are held, directly or indirectly, by a single resident person in Pakistan;
(b) tax paid, after taking into account any foreign tax credits available to the non-resident company, on the income
derived or accrued, during a foreign tax year, by the non-resident company to any tax authority outside
Pakistan is less than sixty percent of the tax payable on the said income under this Ordinance;
(c) the non-resident company does not derive active business income as defined under sub-section (3); and
(d) the shares of the company are not traded on any stock exchange recognized by law of the country or
jurisdiction of which the non-resident company is resident for tax purposes.
•The income to be offered for tax under CFC represents active income which accrues if:
(a) more than eighty percent of income of the company does not include income from dividend, interest, property,
capital gains, royalty, annuity payment, supply of goods or services to an associate, sale or licensing of
intangibles and management, holding or investment in securities and financial assets; and
(b) principally derives income under the head “Income from Business” in the country or jurisdiction, of which it is a
resident.
Taxable income of CFC is worked out by taking into account the provisions of the Ordinance on the assumption that
it is a resident tax payer.
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The income of CFC attributable to a Resident tax payer is computed as under:
A x (B/100)
Where -
A is the amount of income of a CFC under sub-section (2); and
B is the percentage of capital or voting rights, whichever is higher, held by the person, directly or indirectly,
in the CFC
•No income of the CFC will be attributable to a resident taxpayer if :
-capital or voting rights of the resident in such CFC are less than 10%; or
-the amount of income is less than Rs.10 million.
•In relation to working out the income of CFC, a concept of Foreign Tax Year has been introduced, which in relation
to a non-resident company, means any year or period of reporting for income tax purposes by such non-resident
company in its country or jurisdiction of residence, or if such company is not subject to income tax, any annual
period of financial reporting by such company.
•Income of a CFC in respect of the Foreign Tax Year shall be determined in the currency of that CFC. However, for
the purposes of determining the amount to be included in the income of any resident person during any tax year,
the same shall be converted into Pak Rupees at the applicable foreign exchange conversion rates, as notified by the
State Bank of Pakistan.
•Income attributable to CFC once taxed in Pakistan shall not be offered to tax upon its subsequent receipt in
Pakistan by a resident tax payer.
23. Furnishing of information by banks
Section 165A
The Finance Act, 2013, introduced a separate section requiring banking companies to furnish information about the
banking transactions of their customers, to the tax authorities. The law provides an overriding effect to the Protection
of Economic Reforms Act, 1992, the Banking Companies Ordinance, 1962, the Foreign Exchange Regulation Act, 1947,
and the regulations made under the State Bank of Pakistan Act, 1956. Apart from seeking particulars of deposits and
card transactions, the law requires details of loans written-off and certain other transactions. However, the most
contentious requirement was the provision of online access of the banks’ central database containing details of its
account holders and all transactions made in their accounts to the Board. This requirement in particular led to a lot of
controversy and the banks, due to their compulsion of maintaining secrecy of client data, were forced to approach the
courts for seeking a resolution of the matter. However, since 2013 to-date, the banking sector has neither provided the
requisite information nor access to the Board.
The Bill now seeks to omit the requirement of online access to the Board and instead required banks to provide
information about cash withdrawals by filers and non-filers in excess of Rs.1 million per month. It is further proposed
that the minimum threshold for providing details of deposits be enhanced from Rs.1 million to Rs.10 million per month.
Similarly, the limit of card transactions is also proposed to be enhanced to Rs.200,000 from the present prescribed limit
of Rs.100,000 per month.
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24. Restriction on purchase of certain assets
Section 227C
The bill seeks to introduce a new section, which provides that any person who is a non-filer will not be allowed to book,
register, purchase or transfer:
a) A new locally manufactured motor vehicle or an imported vehicle - applications for registration or purchase of such
motor vehicles will not be accepted by any vehicle registering authorities of the Excise and Taxation Department, or
a manufacturer of the motor vehicle unless the applicant, being a person, is a filer;
b) Immovable property - applications or requests for registering, recording or attesting the transfer of such
immovable properties shall not be accepted unless the applicant, being a person, is a filer.
This is a welcome step and will assist the Government in broadening the tax base.
25. Best judgment assessment
Section 121
The provisions of section 114 empower the Commissioner to issue a notice to any person who has not filed the return of
income in respect of one or more of the last five completed tax years. However, in cases where a person has not filed
any tax returns for the last five completed tax years, the Commissioner is empowered to issue a notice to such a person
for up to the last ten completed tax years.
Section 121 deals with powers of the Commissioner to pass a best judgment assessment in case where a person fails to
file a return in response to a notice issued by the tax authorities. The statute of limitation presently provided for any
action under this section, is that an assessment order can be passed within five years after the end of the tax year to
which it relates.
It is now proposed that in cases where the Commissioner uses his powers under section 114(5) and requires any person
to file tax returns upto ten years, then in such a case it is proposed that the time limit for passing an assessment order
would be within two years from the end of the tax year in which such notice was issued.
26. Tax credit for investment
Section 65B
Currently, corporate taxpayers investing any amount for purchase of plant and machinery for the purpose of extension,
expansion, balancing, modernization and replacement of plant and machinery already installed in the industrial
undertaking are entitled to a credit equal to 10% of the amount so invested, against the tax payable, subject to the
condition that the plant and machinery is purchased and installed at any time between 01 July 2010 to 30 June 2019.
The Bill now proposes to extend the date of installation to 30 June 2021.
27. Tax credit for newly established industrial undertakings
Section 65D
The Finance Act, 2011, introduced section 65D, which allows a tax credit equal to 100% of the amount of tax payable,
to a company set up after 01 July 2011 through a 100% equity investment. This is subject to the condition that the
company is incorporated and the industrial undertaking is set up between 01 July 2011 to 30 June 2016.
The Finance Act, 2016, extended the period to 30 Jun, 2019 and the above condition of equity financing of 100% was
relaxed to 70%, thereby allowing investment from debt financing upto 30%.
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The Bill now seeks to extend the availability of tax credit to companies set up until 30 June 2021.
28. Tax credit for industrial undertakings established before the first day of July 2011
Section 65E
In line with allowing a tax credit to a newly established industrial undertaking, Section 65E allows a similar tax credit to
industrial undertakings established prior to 01 July 2011, which invest through equity in new projects or balancing,
modernization, replacement, expansion or extension (BMREE) of the existing plant and machinery, subject to the
condition that plant and machinery is installed between 01 July 2011 to 30 June 2016.
The Finance Act, 2016, extended the period to 30 June 2019 and the above condition of equity financing of 100% was
relaxed to 70% thereby allowing investment from debt financing upto 30%.
The Bill now seeks to further extend the availability of tax credit to companies that install a new projector invest in
BMREE by 30 June 2021.
29. Foreign income and asset statements
Section 116A
In terms of Section 116 of the Ordinance, a resident individual is mandatorily required to file a Wealth Statement along
with the Return of Income for a tax year, declaring therein his total assets and liabilities (including assets held in others’
names) as on the 30th day of June preceding the due date for filing of the Return of Income. Although the Wealth
Statement was meant to declare all assets and liabilities including those held outside Pakistan, the declaration of foreign
assets had been debated in the past.
The new section 116A now requires resident persons, who have foreign income or foreign assets, to furnish a separate
statement namely “Foreign Income and Assets Statement” in addition to filing a Wealth Statement under section 116,
as discussed above. The minimum threshold of foreign assets and foreign income for filing of the ‘Foreign Income and
Assets Statement’ is as follows:
(a) Foreign income equal to or in excess of USD 10,000; and
(b) Foreign assets with a value of USD 100,000 or more.
The following particulars are to be incorporated in the ‘Foreign Income and Assets Statement’ to be filed by the person:
(a) Total foreign assets and liabilities as on the last day of the tax year;
(b) Any foreign assets transferred by the person to any other person during the tax year and the consideration for the
said transfer; and
(c) Complete particulars of foreign income, the expenditure incurred during the tax year and the expenditure wholly and
necessarily for the purposes of deriving the said income.
Like section 116 of the I.T. Ordinance,2001, section 116A also empowers the Commissioner to issue a notice to a
person (being an individual) who was required to furnish the ‘Foreign Income and Assets Statement’ and has failed to do
so, to furnish such a statement on the date specified in the notice. However, the Commissioner is required to give
reasons in writing on the basis of which he has issued such a notice.
It is pertinent to highlight that unlike section 116, which authorizes the revision of a Wealth Statement (in case where
any omission or wrong statement is made therein), section 116A does not provide for the revision of the ‘Foreign
Income and Assets Statement’.
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30. Return of income
Sections 114 and 118
Consequent to the insertion of section 116A, an amendment is also proposed in section 114, whereby resident
individuals filing a Statement of Foreign Income and Assets under Section 116A, are required to furnish a return of
income under section 114. A consequent amendment is also proposed in section 118 of the Ordinance, which deals with
the method of furnishing returns and other documents.
31. Recovery of tax
Section 140
Currently, on payment of 25% of the tax due against an order issued under sections 121, 122, 143.144, 162, 170, 182
or 205, a taxpayer is entitled to an automatic stay against the recovery of the remaining amount, till the matter is
decided by the Commissioner (Appeals).
The Bill now proposes to reduce the threshold of payment of 25% to 10% of the tax demand.
32. Penalties
Section 182
It has time and again been held by the Courts that the main purpose of levying penalties is to educate the taxpayers and
instill a sense of compliance, rather than to create tax demands to achieve revenue targets. Not only has it been
highlighted that some of the penalties for non-compliance, like those for late filing of tax returns and statements, are
excessive and exorbitant, but it has also been pointed out that in some cases, the law stands as a naked sword for
unmindful taxpayers as there is no statute of limitation provided in the law with regard to imposition of penalties,
resulting in severe hardship to taxpayers.
It seems, however, that the government has yielded a deaf ear to all such proposals, which in our view would also help in
broadening the tax base, as the severity of penalties has also played a big role in keeping away persons from the tax
net.
The amendments made so far in section 182 of the Ordinance are in fact inclined towards increasing the number of
penalties, with reference to non-compliance with some of the later introduced provisions containing compliance
requirements. In line with the introduction of filing of the Foreign Income and Assets Statement under section 116 of
the Ordinance, a new entry is proposed in section 182 for a penalty in case such a statement is not filed by the due
date. This penalty is proposed to be 2% of the foreign income or value of the foreign assets, for each year of default.
In addition, the Bill also seeks to rationalize the penalty for failure to file statements, under sections 115, 165, 165A or
165B of the Ordinance, from the existing penalty of Rs.2,500 for each day of default subject to a minimum penalty of
Rs.10,000. It is now proposed to impose a fixed penalty of Rs.5,000, where the person has already paid tax within the
due date, and has duly filed the statements within ninety days of the due date. The suggested amendment also includes
an amount of Rs.10,000, which in our view is ambiguous and contradictory and should be appropriately amended,
before the Bill is approved.
33. Disclosure of information by public servant
Section 216
The section was initially introduced for the purpose of preventing disclosure of information by public servants and to
maintain the confidentiality of statements, returns, documents and evidences submitted by taxpayers. It also includes
certain exceptions provided in order to allow disclosure in certain circumstances. The Bill proposes to extend such
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exceptions to the National Database and Registration Authority for the purpose of broadening of the tax base, by adding
clause (kb) to sub-section 3 of section 216.
34. Appeal to the Appellate Tribunal – stay of tax demand
Section 131(5)
The Appellate Tribunal Inland Revenue is empowered to grant a stay of tax demand to a taxpayer who is in appeal
before the Appellate Tribunal, upon filing an application seeking such stay. In terms of sub-section (5), an aggregate
period of one hundred and eighty days has been provided, for which the Appellate Tribunal is empowered to stay the tax
demand. It is seen that in some cases, while the appeal remained pending, the stay granted by the Appellate Tribunal
expired after the aforesaid period lapsed and the taxpayers were left with no option but invoke the extra ordinary
jurisdiction of the High Court by way of filing Constitution Petitions. In the case of Dowell Schlumberger Vs. Federation
of Pakistan (2016 PTD 1702), the Hon’ble Islamabad High Court has held that the time period specified in section
131(5) of the Ordinance is directory, and where the appeal is not decided within the said period, the stay granted by the
Appellate Tribunal would continue till the decision of the appeal. Following this judgement, the Appellate Tribunal, in
many cases, has ordered that the stay granted by it will continue till the decision of the appeal, notwithstanding that the
period of one hundred and eighty days has expired.
The Bill intends to undo the effect of the aforesaid judgement of the Hon’ble Islamabad High Court. It has been proposed
that the stay order issued by the Appellate Tribunal, shall cease to have effect on the expiration of the period of one
hundred and eighty days, after which the Commissioner will be empowered to recover the disputed tax demand.
35. Bar of suits in Civil Courts
Section 227
The provisions of section 227 of the Ordinance contains a bar as to the filing of a Suit or other legal proceedings in a
Civil Court, against any order or rules made or intended to be made, during the proceedings undertaken by FBR officials
under the Ordinance. However, it is seen that in a number of cases, show cause notices issued as well as orders passed
by the FBR officials under the Ordinance are challenged in High Courts through Suits filed by the taxpayers, which
resulted in ad-interim orders in favour of the taxpayers, and in some cases even the quashment of such proceedings. In
a recent judgement given by the Hon’ble Sindh High Court in the case of Naveena Industries in HCA 263 of 2016, the
assessment of customs duty was challenged (in a suit filed) and the Hon’ble High Court has held that the normal
procedure (of appeal) available in the Customs Act, 1969 was to be followed, thus the suit filed was held not
maintainable. Following this judgement, the Hon’ble Sindh High Court dismissed certain suits filed in other tax matters.
This judgement in the Naveena Industries case was challenged in the Hon’ble Supreme Court, which has suspended the
operation thereof and the matter is pending a decision.
The Bill intends to expand the scope of the bar contained in section 216 of the Ordinance to the effect that in addition to
the bar on filing a Suit against an order passed by the Board officials, the specific mention of notices issued is proposed
to be inserted. In addition, it is also proposed to insert an explanation to provide that the term ‘Civil Court’ used in
section 216, includes any court exercising the power of the Civil Court. This appears to negate the powers of the High
Courts, which act as Civil Courts in suits filed before them in tax matters.
36. Transactions between associates
Section 108
Section 108 of the Ordinance empowers the tax authorities to examine the transactions between associates on the
arm’s length principle. However, these requirements, as originally framed, did not require the tax payer to maintain any
documents or files in relation to such transactions. The Finance Act, 2016 introduced the requirement to maintain
specified documents, including a Country-by-Country (CBC) report, in line with the Organization for Economic Co-
Operation and Development’s (OECD) Action Plan on Base Erosion and Profit Shifting (BEPS). Subsequently, detailed
Rules on the mode and manner of preparing and submitting the CBC report and other documents, under certain
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circumstances, were issued. However, since the Rules are subordinate to the Ordinance, there were arguments that the
CBC Report may not legally be required to be furnished to the tax authorities.
In order to harmonize the requirement of submission of the CBC report and other documents as prescribed under the
Rules, the Bill now seeks to insert a requirement in section 108 to maintain and furnish the CBC Report as prescribed,
and to provide other documents when requested by the tax authorities.
37. Claim of credit by a company being a member of an Association of Person
Section 168, Sub-section (2)
The bill seeks to amend Sub-section (2) of section 168 of the Ordinance by giving reference to the newly inserted sub-
sections (2A) and (2B). Through the above insertion of sub-section (2A), the claim of credit of taxes deducted and
collected at source is proposed to be rationalized for a company, being a member of an Association of Persons (AOP)
and is being taxed in accordance with section 92 of the Ordinance. In terms of section 92, shares of a company being a
member of an AOP, are to be excluded for the purposes of computing its total income, or the company shall be taxed
separately according to their respective share in the AOP. The bill seeks to provide for an explicit mechanism in the
Ordinance, for the purpose of claiming credit of tax deducted or collected from its income earned from the AOP. The tax
credit in respect of tax collected or deducted from the AOP is to be worked out as under:
(A/B) x C
where –
A is the amount of share of profits before tax received by the company as a member from the association of
persons;
B is the taxable income of the association of persons; and
C is the amount of tax withheld in the name of the association of persons.
The Bill further seeks to insert a new sub-section (2B) for clarity purposes. The said sub-section provides that no tax
credit shall be allowed to the AOP for which credit has been allowed under sub-section (2A) to such company being a
member of an AOP.
38. Appointment in special audit panel
Section 177, Sub-section (11), Clause (d)
Under the existing provisions of section 177, the Board is empowered to appoint special audit panels for the purpose of
conducting tax audit, including forensic audit of a person or classes of persons, within the parameters as determined by
the Board.
In relation to appointment of special audit panels by the Board, the Bill proposes to include the following:
A foreign expert or specialist; and/or
A Tax audit expert deployed under an audit assistance programme of an international tax organization or a tax
authority outside Pakistan.
Provided that in case the member is not an Officer of Inland Revenue, the person shall only be included as a member in
the special audit panel, if an agreement of confidentiality has been entered into between the Board and the person, an
international tax organization or a tax authority.
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39. Selection of cases for audit
Clause 105 Part IV of Second Schedule
Sections 177 and 214C respectively empowers the Commissioner and the Board to select the case of a tax payer for
conducting tax audit. Further, the fact that a person has been audited in a year shall not preclude the person from being
audited again in the next and following years, where there are reasonable grounds for such audits.
The bill proposes to insert Clause 105 in Part IV of the Second Schedule, whereby provisions of sections 177 and 214C
have been made inapplicable, in cases where the income tax affairs of the tax payer have been audited in any of the
preceding 3 tax years. However, as an exception to these newly proposed restrictions on the selection of cases for
audit, a proviso is also proposed to be inserted whereby the Commissioner Inland Revenue is empowered to select a
person’s case for an audit with the approval of the Board.
40. Threshold limits for non-deduction of tax from payments of goods and services
Section 153
Currently, the threshold limits prescribed for non-deduction of tax from payments made on account of sale of goods or
rendering of services, is governed through SRO 586(I)/91 dated 30 June, 1991. These limits are to be considered on a
financial year basis for each vendor/ service provider. The prescribed threshold payments are listed as under:
Nature of payment Threshold Limit
Sales of goods Rs.25,000 in a financial year
Services rendered Rs.10,000 in a financial year
The Bill now seeks to enhance the above limits by proposing amendments directly in section 153 of the Ordinance,
through which the existing limits are enhanced to Rs.75,000 and Rs.30,000, respectively.
Further, the Bills seeks to expand the scope of the meaning of a prescribed person, as provided under sub-section (7) of
section 153 of the Ordinance, to include the following:
A person deriving income from the business of construction and sale of residential, commercial, or other buildings
(builders); or
A person deriving income from the business of development and sale of residential, commercial or other plots
(developers).
Further, certain other editorial amendments have been proposed in the definition of a prescribed person, in order to
synchronize it with the existing law.
41. Tax on sale of certain petroleum products
Section 236HA and Division XVA of Part IV of the First Schedule
The Bill seeks to insert a new section requiring collection of tax by every person selling petroleum products to a petrol
pump operator or distributor, where such operator or distributor is not allowed a commission or discount. The collection
of tax is to be made on ex-depot sales price of such products at the following rates:
For filers 0.5%
For non-filers 1%
The tax deductible is proposed to be a final tax on the income arising from the sale of the aforesaid petroleum products.
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42. Validation
Section 241, Sub-section (2)
It would be recalled that the Hon’ble Supreme Court of Pakistan issued a judgement in relation to Article 90 of the
Constitution of Islamic Republic of Pakistan, subsequent to the 18th Constitutional amendment in April 2010, with
regards to the regulation of the authority of the Federal Government. In order to address the implications of the said
judgement, the Finance Act, 2017 had introduced a new section 241 whereby all notifications and orders issued and
notified, in exercise of the powers conferred upon the Federal Government, before the first day of July, 2017 were
deemed to have been validly issued.
The Bill now proposes to insert a new sub-section, through which it validates all the orders passed, notices issued and
actions taken in exercise or purported exercise of the powers and functions of the Commissioner Inland Revenue under
the Ordinance, by the Directorate-General (Intelligence and Investigation), Inland Revenue or the authorities specified in
section 230 of the Ordinance.
43. Advance tax on purchase or transfer of immovable property
Section 236K, sub-section (3) and Division XVIII of Part IV of the First Schedule
Section 236K of the Ordinance deals with the collection of advance tax on purchase or transfer of immovable property.
The Bill seeks to insert a new sub-section, which requires that the tax shall also be collected on installment payments for
purchase of allotment of any immovable property, where transfer of such property is made subsequently after payment
of all the installments. The advance tax is to be collected at the following rates:
Period Rate of tax
Where value of immovable property is up to 4 million 0%
Where value of immobile property is more than 4 million Filer 2%
Non-filer 4%
Provided that the rate of tax for non-filers shall be 1% ,from the date appointed by the Board through notification in the
Official Gazette.
44. Directorate General of Immovable Property
Section 230F
It is evident that the background to the insertion of this section is the announcement of an Economic Reforms Package
on 8th April, 2018 by the Prime Minister of Pakistan, which included four Ordinances providing, inter-alia, schemes for
the declaration of foreign and local assets, certain amendments in the Income Tax Law and Foreign Exchange Laws. The
measures in the package included steps to curb avenues of parking black money and enable the tax authorities to
acquire immovable properties declared as having been acquired / transferred at less than fair market values. Through
the proposed section 230F, the tax authorities appear to have been handed a powerful tool to control the purchases and
transfers of immovable properties, that has raised speculation on its misuse through the unwarranted harassment of
taxpayers.
The proposed new section 230F creates two new authorities: a Directorate-General of Immovable Property; and an
Appellate Tribunal of Immovable Property. It empowers the Directorate-General of Immovable Property to initiate
proceedings for the acquisition of property based on an independent valuation which confirms that:
a) Immovable property has been transferred by one person to another for a consideration less than fair market value;
b) Such consideration has been understated in the instrument of transfer;
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c) The fair market value of property exceeds the consideration by more than 50% of the consideration
The intention for such understatement is:
Avoidance or reduction of withholding tax on transfer;
Concealment of unexplained amount invested in immovable property u/s 111(1); or
Avoidance or reduction of capital gain tax under section 37
The Directorate-General of Immovable Property may not initiate proceedings after the lapse of six months from the end
of the month in which the subject transfer was registered, recorded or attested. The provisions of the proposed section
will also only apply to transfers of property by sale, exchange or lease of terms of at least ten years. In any such case,
prior to initiation of the proceedings, the transferee will be provided an opportunity of being heard.
The transferee has right of appeal to the Appellate Tribunal of Immovable Property against an order of the Directorate-
General of Immovable Property, and thereafter to the High Court.
For any immovable property acquired through proceedings under this section, the Board will pay the consideration for
such acquisition to the entitled person(s) at a sum equal to the consideration for transfer of the immovable property,
plus 100% of such consideration.
It is interesting to note that proposed section places the burden of establishing justification for the declared
consideration, for purchase or transfer of immovable property, squarely on the shoulders of the transferee while
apparently absolving the transferor of any accountability, which may raise further objections to its implementation.
All transfer taxes applicable under the Federal Law will stand replaced by a 1% Federal Tax which will become applicable
on such date to be notified by the Federal Government.
It is expected that proper rules of business of the Directorate General of Immovable Property and Appellate Tribunal of
Immovable Property will be prescribed in due course of time.
45. Tax credit for investment in shares and life insurance premium paid
Section 62
This section provides for tax credit to encourage investment in shares, sukuks and life insurance by a resident person
other than a company. A tax credit in the ratio of a person’s assessed tax to the person’s taxable income in a tax year is
presently allowed up to the lesser of the cost of acquiring the shares/ premium paid, or 20% of the person’s taxable
income for the year, or Rs.1.5 million. The Bill now seeks to enhance the limit of Rs.1.5 million to Rs.2 million.
a) Removal of statute of limitation for taxing undeclared foreign assets and income
Under the provisions of section 111, all undeclared, concealed or unexplained assets were chargeable to tax in the
tax year to which such amount was related, i.e. such discovered income or asset was to be added to the income of
the tax year to which it related. This has been fundamentally changed with regard to concealed foreign assets and
concealed foreign source income.
In respect of foreign assets and foreign income, the concept of taxability in the year of acquisition has been
replaced with the ‘year of discovery’, while for income or assets that are not foreign sourced, the concept of ‘year
of acquisition’ remains intact.
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This would mean that if the tax authorities have found a person holding foreign income or assets, which have not
been declared, they are now empowered to require such person to file a return in respect of such foreign assets
and foreign income for any prior tax year without any time limitation. For this purpose, section 114 of the
Ordinance has suitably been amended authorizing the Commissioner to issue such a notice while recording the
reasons of issuing the notice in writing.
Moreover, the Bill proposed to insert an explanation to clarify that if the source of foreign asset, income or
expenditure which is discovered by the tax authorities is provided by the person, the tax authorities should not
disregard it for the reason that the source does pertain to the year of discovery of foreign assets, income or
expenditure or its immediate preceding tax year.
b) Limiting the immunity to foreign currency repatriation
In terms of Sub-section (4) of section 111, any amount of foreign exchange remitted to Pakistan through normal
banking channels and encashed in Pak rupees enjoy immunity for income tax purposes as regards the source. This
has now been restricted to Rs.10 million in a tax year.
It is to be noted that since the Income Tax (Amendment) Ordinance, 2018, was effective from the date of its
promulgation, the above amendments came into force forthwith. This has apparently resulted in the lifting of the
immunity from probe of remittances of foreign exchange to Pakistan, exceeding the threshold of Rs.10 million for
the tax year 2018 as well, for which earlier an immunity under section 111(4) of the Ordinance was in place
without any limitation. However, now the Bill also seeks to introduce the above provisions in section 111 of the
Ordinance, which would be applicable for the periods starting from 01 July 2018. This has created an anomaly as
regards the effective date of the above provisions.
46. Collection of tax by a Stock Exchange registered in Pakistan
Section 233A
Since 2004, Stock Exchanges in Pakistan are required to collect tax on purchase and sale value of shares traded by their
members. Till the tax year 2008 the tax so collected was a final tax, which was subsequently made a minimum tax up till
the tax year 2010. In tax year 2010, the tax so collected was made adjustable against the final tax liability of the
members of the Stock Exchange or their customer as the case may be. However, the Finance Act, 2017 again made the
tax collected by the Stock Exchange a full and final tax liability of the person from whom the tax has been collected.
The Bill now seeks to restore the position prior to the tax year 2017 by making the tax collected by the Stock Exchange
adjustable against the final tax liability of the members of the Stock Exchange, or their customers as the case may be.
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THE FIRST SCHEDULE
PART I
47. Rates of tax for Individuals and Association of Persons
Through Finance Bill 2018, the rates of tax applicable on every individual and AOPs have been reduced significantly to
provide relief.
The income tax rates for individuals (salaried and non-salaried) were substantially reduced and harmonized by the
Income Tax (Amendment) Ordinance, 2018 for the tax year 2019. As per the amended Ordinance, no tax was required
to be paid by individuals deriving annual income up to Rs.1,200,000. The Finance Bill 2018 proposed that individuals
deriving income from Rs.400,000 to Rs.1,200,000 instead of enjoying zero tax, should pay nominal tax of Rs.1000, for
individuals in income brackets ranging from Rs.400,001 to Rs.800,000, and Rs.2,000 for individuals in income
brackets ranging from Rs.800,001 to Rs.1,200,000.
The rates of tax chargeable for individuals and AOPs for the tax year 2019 (corresponding to the income year ending at
any time between 01 July 2018 to 30 June 2019) is proposed to be substituted as under:
Individuals
Taxable income Rate of tax
Up to Rs.400,000 0%
Rs.400,001 – 800,000 Rs.1000
Rs.800,001 – 1,200,000 Rs.2,000
Rs.12,00,001 – 2,400,000 5% of amount exceeding Rs.1,200,000
Rs.2,400,001 – 4,800,000 Rs.60,000 + 10% of amount exceeding 2,400,000
Amount exceeding Rs.4,800,000 Rs.300,000 + 15% of amount exceeding 4,800,000
Impact of change in rates of tax for tax year 2019 applicable to individuals who are currently regarded as salaried
individuals
Taxable income per Tax incidence
Decrease in tax incidence Before
amendment After
amendment Month Annum Rupees % age
35,000 420,000 400 1,000 (600) (150.00)
50,000 600,000 7,000 1,000 6,000 85.71
66,666 799,992 19,499 1,000 18,499 94.87
66,667 800,004 19,500 2,000 17,500 89.74
75,000 900,000 29,500 2,000 27,500 93.22
100,000 1,200,000 59,500 2,000 57,500 96.64
100,001 1,200,012 59,501 1 59,500 100.00
125,000 1,500,000 92,000 15,000 77,000 83.70
150,000 1,800,000 137,000 30,000 107,000 78.10
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Taxable income per Tax incidence
Decrease in tax incidence Before
amendment After
amendment Month Annum Rupees % age
200,000 2,400,000 242,000 60,000 182,000 75.21
250,000 3,000,000 359,500 120,000 239,500 66.62
300,000 3,600,000 497,000 180,000 317,000 63.78
350,000 4,200,000 652,000 240,000 412,000 63.19
400,000 4,800,000 817,000 300,000 517,000 63.28
450,000 5,400,000 982,000 390,000 592,000 60.29
500,000 6,000,000 1,147,000 480,000 667,000 58.15
550,000 6,600,000 1,312,000 570,000 742,000 56.55
600,000 7,200,000 1,482,000 660,000 822,000 55.47
650,000 7,800,000 1,662,000 750,000 912,000 54.87
700,000 8,400,000 1,842,000 840,000 1,002,000 54.40
1,000,000 12,000,000 2,922,000 1,380,000 1,542,000 52.77
1,200,000 14,400,000 3,642,000 1,740,000 1,902,000 52.22
1,500,000 18,000,000 4,722,000 2,280,000 2,442,000 51.72
2,000,000 24,000,000 6,522,000 3,180,000 3,342,000 51.24
2,500,000 30,000,000 8,322,000 4,080,000 4,242,000 50.97
3,000,000 36,000,000 10,122,000 4,980,000 5,142,000 50.80
3,500,000 42,000,000 11,922,000 5,880,000 6,042,000 50.68
4,000,000 48,000,000 13,722,000 6,780,000 6,942,000 50.59
4,500,000 54,000,000 15,522,000 7,680,000 7,842,000 50.52
5,000,000 60,000,000 17,322,000 8,580,000 8,742,000 50.47
5,500,000 66,000,000 19,122,000 9,480,000 9,642,000 50.42
6,000,000 72,000,000 20,922,000 10,380,000 10,542,000 50.39
6,500,000 78,000,000 22,722,000 11,280,000 11,442,000 50.36
7,000,000 84,000,000 24,522,000 12,180,000 12,342,000 50.33
7,500,000 90,000,000 26,322,000 13,080,000 13,242,000 50.31
8,000,000 96,000,000 28,122,000 13,980,000 14,142,000 50.29
Impact of change in rates of tax for tax year 2019 in case of individuals who are currently regarded as non-salaried
individuals
Taxable income per Tax incidence
Decrease in tax incidence Before
amendment After
amendment Month Annum Rupees % age
35,000 420,000 1,400 1,000 400 28.57
50,000 600,000 17,000 1,000 16,000 94.12
66,666 799,992 39,499 1,000 38,499 97.47
66,667 800,004 39,501 2,000 37,501 94.94
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Taxable income per Tax incidence
Decrease in tax incidence Before
amendment After
amendment Month Annum Rupees % age
75,000 900,000 54,500 2,000 52,500 96.33
100,000 1,200,000 99,500 2,000 97,500 97.99
100,001 1,200,012 99,502 1 99,501 100.00
125,000 1,500,000 144,500 15,000 129,500 89.62
150,000 1,800,000 204,500 30,000 174,500 85.33
200,000 2,400,000 324,500 60,000 264,500 81.51
250,000 3,000,000 469,500 120,000 349,500 74.44
300,000 3,600,000 619,500 180,000 439,500 70.94
350,000 4,200,000 779,500 240,000 539,500 69.21
400,000 4,800,000 959,500 300,000 659,500 68.73
450,000 5,400,000 1,139,500 390,000 749,500 65.77
500,000 6,000,000 1,319,500 480,000 839,500 63.62
550,000 6,600,000 1,529,500 570,000 959,500 62.73
600,000 7,200,000 1,739,500 660,000 1,079,500 62.06
650,000 7,800,000 1,949,500 750,000 1,199,500 61.53
700,000 8,400,000 2,159,500 840,000 1,319,500 61.10
1,000,000 12,000,000 3,419,500 1,380,000 2,039,500 59.64
1,200,000 14,400,000 4,259,500 1,740,000 2,519,500 59.15
1,500,000 18,000,000 5,519,500 2,280,000 3,239,500 58.69
2,000,000 24,000,000 7,619,500 3,180,000 4,439,500 58.26
2,500,000 30,000,000 9,719,500 4,080,000 5,639,500 58.02
3,000,000 36,000,000 11,819,500 4,980,000 6,839,500 57.87
3,500,000 42,000,000 13,919,500 5,880,000 8,039,500 57.76
4,000,000 48,000,000 16,019,500 6,780,000 9,239,500 57.68
4,500,000 54,000,000 18,119,500 7,680,000 10,439,500 57.61
5,000,000 60,000,000 20,219,500 8,580,000 11,639,500 57.57
5,500,000 66,000,000 22,319,500 9,480,000 12,839,500 57.53
6,000,000 72,000,000 24,419,500 10,380,000 14,039,500 57.49
6,500,000 78,000,000 26,519,500 11,280,000 15,239,500 57.47
7,000,000 84,000,000 28,619,500 12,180,000 16,439,500 57.44
7,500,000 90,000,000 30,719,500 13,080,000 17,639,500 57.42
8,000,000 96,000,000 32,819,500 13,980,000 18,839,500 57.40
Based on the above calculations, a maximum relief in tax incidence of around 97% may be witnessed in view of the
amended tax rates for individuals.
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Association of Persons (AOPs)
Taxable Income Rate of tax
Up to Rs.400,000 0%
Rs.400,001 – 1,200,000 5% of amount exceeding Rs.400,000
Rs.1,200,001 – 2,400,000 Rs.40,000 + 10% of amount exceeding Rs.1,200,000
Rs.2,400,001 – 3,600,000 Rs.160,000 + 15% of amount exceeding Rs.2,400,000
Rs.3,600,001 – 4,800,000 Rs.340,000 + 20% of amount exceeding Rs.3,600,000
Rs.4,800,001 – 6,000,000 Rs.580,000 + 25% of amount exceeding Rs.4,800,000
Amount exceeding Rs.6,000,000 Rs.880,000 + 30% of amount exceeding Rs.6,000,000
48. Rates of tax for companies
Rates of tax for companies, for the tax years 2019 through 2023 are proposed to be revised. However, the rates for the
Banking Companies and Small Companies have remained unchanged. The proposed revised rates are as under:
Companies
Rate
Existing (Tax year
2018)
Tax year 2019
Tax year 2020
Tax year 2021
Tax year 2022
Tax year 2023 and onwards
Public and Private 30% 29% 28% 27% 26% 25%
Cooperative and Finance Society 30% 29% 28% 27% 26% 25%
Banking 35% 35% 35% 35% 35% 35%
Small 25% 25% 25% 25% 25% 25%
49. Rates of Super tax for rehabilitation of temporarily displaced persons
The levy of super tax for rehabilitation of temporarily displaced persons under Section 4B, is proposed to be retained up
to tax year 2021 for banking companies and persons other than banking companies having income of Rs.500 million and
above.
However, the rate is proposed to be reduced by 1% for each successive year starting from the tax year 2019 as under:
Person
Rate of Super Tax
Existing (Tax year
2018)
Tax year 2019
Tax year 2020
Tax year 2021
Banking company 4% 3% 2% 0%
Persons other than a banking company, having income equal to or exceeding Rs.500 million
3% 2% 1% 0%
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50. Rates of withholding and charge of tax on dividend income
Rate of withholding and charge of tax on dividends received by all taxpayers for the tax year 2019, remains unchanged,
except for a new proviso inserted in Division I, Part III of the First Schedule to the Ordinance, whereby the tax on dividends
received by an individual from a Rental REIT Scheme, has been proposed to be reduced from 12.5% to 7.5%.
The rate of tax on dividend for tax year 2019 would be as under:
Dividend from Rate
Filer Non-Filer
Companies owning power projects privatized by WAPDA, companies set-up for power generation and companies supplying coal exclusively to power generation projects
7.5% 7.5%
Others 15% 20%
Mutual Fund (Stock Fund) 12.5% 12.5%
Stock fund, if dividend receipts are less than capital gains 12.5% 12.5%
Money Market Fund, Income Fund or REIT scheme or any other fund*
Company 25% 25%
Other than company 12.5% 15%
* Provided that the rate of tax on dividend received by an individual from a Rental REIT Scheme shall be 7.5%.
51. Rates of tax on profit on debt
The rates of tax on profit on debt for the tax year 2019 have remained unchanged and are as under:
Profit on debt Rate
Where profit on debt does not exceed Rs.5,000,000 10%
Where profit on debt exceeds Rs.5,000,000 but does not exceed Rs.25,000,000 12.5%
Where profit on debt exceeds Rs.25.000,000 15%
52. Rates of Tax on Return on investments in Sukuks received from a special purpose vehicle.
Rates of tax on return on investments in Sukuks received from a special purpose vehicle have remained unchanged and
are as under:
Sukuks Holder Amount of return on investment Rate
Company Any amount 25%
Individual or AOP Exceeding one million 12.5%
Individual or AOP Not exceeding one million 10%
53. Rates of tax for non-resident taxpayers for certain transactions
The Bill proposes to introduce a new category of tax on payments to non-residents on account of fee for offshore digital services at 5%.
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The applicable rates of tax for tax year 2019 on certain income of non-residents are as under:
Type of payment Rate
Existing Proposed
Fee for offshore digital services Not applicable 5%
Technical services fee 15% No change
Royalty 15% No change
Shipping income 8% No change
Air transport income 3% No change
54. Income from property
The rates of tax on income from property in the case of individuals and AOPs have remained unchanged as under:
Gross amount of rent Rate
Up to Rs.200,000 Nil
Rs.200,001 to 600,000 5% of the amount exceeding Rs.200,000
Rs.600,001– 1,000,000 Rs.20,000 plus 10% of the amount exceeding Rs.600,000
Rs. 1,000,001– 2,000,000 Rs.60,000 plus 15% of the amount exceeding Rs.1,000,000
Over Rs.2,000,000 Rs.210,000 + 20% of the amount exceeding Rs.2,000,000
The above rates also apply for the purpose of withholding of tax from rent of immovable property. The withholding tax rates in the case of a company for filers and non-filers remain unchanged at 15% and 17.5%.
55. Rates of tax on capital gains on securities
The rate card for levying tax on capital gains arising on sale of securities, as referred to in Section 37A, have remained
unchanged as under:
Holding period
Tax Year
2017 2018 and 2019
Security acquired before 01 July 2016
Security acquired on or after 01 July 2016
Filer Non-filer Filer Non-filer Filer Non-Filer
Less than 12 months 15% 18% 15% 18%
15% 20% More than 12 months but less than 24 months
12.5% 16% 12.5% 16%
More than 24 months but then security was acquired on or after 01 July 2013
7.5% 11% 7.5% 11%
Where the security was acquired before 01 July 2013
0% 0% 0% 0% 0% 0%
Future commodity contracts entered into by the members of Pakistan Mercantile Exchange.
5% 5% 5% 5% 5% 5%
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56. Rate of tax on capital gain on immovable property
The Bill seeks to replace sub-section (4) of section 236C by inserting a proviso to sub-section (1) of section 236C of the Ordinance whereby the capital gain in respect of sale of immovable properties is to be taxed at 0% irrespective of where the seller falls in Serial No. 1 in the below table. Rates of tax on capital gain on immovable property are unchanged, as under:
57. Advance tax on builders
The tax on builders remains unchanged as under:
Karachi, Lahore & Islamabad
Hyderabad, Sukkur, Multan, Faisalabad, Rawalpindi, Gujranwala,
Sahiwal, Peshawar, Mardan, Abbottabad, Quetta
Urban Areas not specified
For commercial buildings
Rs.210/Sq.Yd Rs.210/Sq.Yd Rs.210/Sq.Yd
For residential building
Area in Sq. Yd Rate/ Sq.Yd Area in Sq. Yd Rate/ Sq.Yd Area in Sq. Yd Rate/ Sq.Yd Rs. Rs. Rs.
Up to 750 20 Up to 750 15 Up to 750 10
751 to 1500 40 751 to 1500 35 751 to 1500 25
1501 & more 70 1501 & more 55 1501 & more 35
Holding period of immovable property Period Rate
Immovable property allotted to persons mentioned in proviso to Sub-section (1) of section 236C. This applies to the seller being the:
dependent of a Shaheed belonging to Pakistan Armed Forces; or
a person who dies while in the service of the Pakistan Armed Forces or the Federal/ Provincial Government,
in respect of the first sale of immovable property acquired from or allotted by the Federal Government or Provincial Government or any authority duly certified by the official allotment authority, and the property acquired or allotted is in recognition of or for services rendered by the Shaheed or the person who dies in service.
Any holding period 0%
Immovable property acquired on or after 01 July 2016
Up to 1 year 10%
Equal to or more than 1 year but less than 2 years
7.5%
Equal to or more than 2 years but less than 3 years
5%
More than 3 years 0%
Immovable property acquired before 01 July 2016 Up to 3 years 5%
More than 3 years 0%
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58. Advance tax on developers
The tax on developers remains unchanged as under:
Karachi, Lahore & Islamabad
Hyderabad, Sukkur, Multan, Faisalabad, Rawalpindi, Gujranwala,
Sahiwal, Peshawar, Mardan, Abbottabad, Quetta
Urban Areas not specified
For commercial buildings
Rs.210/Sq.Yd Rs.210/Sq.Yd Rs.210/Sq.Yd
For residential building
Area in Sq. Yd Rate/ Sq.Yd Area in Sq. Yd Rate/ Sq.Yd Area in Sq. Yd Rate/ Sq.Yd Rs. Rs. Rs.
Up to 120 20 Up to 120 15 Up to 120 10
121 to 200 40 121 to 200 35 121 to 200 25
201 & more 70 201 & more 55 201 & more 35
59. Minimum Tax
The rates of minimum tax as a percentage of the taxpayers’ turnover have remained unchanged as under:
Taxpayer Rate
Existing Proposed
a) Oil marketing companies, oil refineries, Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited (where annual turnover exceeds Rs.1 billion)
b) Pakistan International Airlines Corporation
c) Poultry industry including breeding, broiler production, egg production, feed production
d) Dealers or distributors of fertilizers
0.5% No change
a) Distributors of pharmaceutical products, fast moving consumer goods and cigarettes
b) Petroleum agents and distributors registered under the Sales Tax Act, 1990
c) Rice mills and dealers
d) Flour mills
0.2% No change
Motorcycle dealers registered under the Sales Tax Act 1990 0.25% No change
In all other cases 1% 1.25%
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PART II
60. Advance tax on imports
The Bill seeks to include coal importers in the list of persons from whom advance tax is required to be collected at the time of import under section 148 of the Ordinance. The updated table specifying the rates of tax at import stage are as under:
Taxpayer
Rate
(% of import value as increased by customs duty, sales tax and
federal excise duty)
Filer Non-Filer
Industrial undertaking importing remeltable steel (PCT Heading 72.04) and directly reduced iron for its own use
1% 1.5%
Persons importing plastic fertilizers in pursuance of Economic Coordination Committee of the cabinet's decision No. ECC-155/12/2004 dated 9 December 2004
Persons importing urea
Manufacturers covered under Notification No. S.R.O. 1125(I)/2011 dated 31 December 2011
Persons importing Gold; and
Persons importing Cotton
Persons importing pulses 2% 3%
Commercial importers covered under Notification No. S.R.O. 1125(I)/2011 dated 31 December 2011
3% 4.5%
Persons importing coal 4% 6%
Ship breakers on import of ships 4.5% 6.5%
Industrial undertakings not covered above 5.5% 8%
Companies not covered above 5.5% 8%
Persons not covered above 6% 9%
PART III
61. Advance tax on profit on debt
The advance tax rate remains unchanged at 10% for filers and 17.5% for non-filers (10% if the yield or profit paid is below
Rs. 500,000.)
62. Advance tax on return on investments in Sukuks received from a special purpose vehicle.
Rate of withholding tax to be applied on payments made to investors in relation to return on Sukuks have remained
unchanged as under:
Sukuks Holder Rate
Company 15%
Individual or AOP (More than one million) 12.5%
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Sukuks Holder Rate
Individual or AOP (Less than one million) 10%
Non-filers 17.5%
63. Payments to non-residents
The withholding tax rates on payments to non-residents remains unchanged except for withholding tax rates in case of
non-filers on certain payments are as under:
Taxpayer Rate
Existing Proposed
Technical services fee 15% No change
Royalty 15% No change
Fee for offshore digital services Not
applicable 5%
Shipping income 8% No change
Air transport income 3% No change
Execution of a contract
- contract or sub-contract under a construction, assembly or installation project in Pakistan, including a contract for the supply of supervisory activities in relation to such project.
Filer 7% No change
Non-Filer 13% No change
Insurance premium / re-insurance premium 5% No change
Others (excluding those specifically mentioned herein) 20% No change
Advertisement services to a media person relaying from outside Pakistan 10% No change
Receipt on account of sale of goods by a PE of a non-resident in Pakistan
Company
Filer 4% No change
Non-filer 7% No change
Other Taxpayers
Filer 4.5% No change
Non-filer 7.75% No change
Receipt on account of rendering of services through a PE
Transport services 2% No change
Other than transport (if company)
Filer 8% No change
Non-filer 14% No change
Others (excluding those mentioned herein)
Filer 10% No change
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Taxpayer Rate
Existing Proposed
Non-filer 17.5% No change
Receipt on account of execution of contract through a PE other than a contract for sale of goods or rendering of services
Sports person 10% No change
Other person
Filer 17% No change
Non-filer 13% No change
64. Advance income tax on payment to resident on payments for goods, services and execution of contract
The rates of withholding tax on account of sale of rice, cotton seed or edible oils and supplies made by the distributor of fast moving consumer goods remains unchanged as under:
Types of Payment Rate
Sale of rice, cotton seed or edible oils 1.5%
Supplies made by distributers of fast moving consumer goods
Company 2%
Other than company 2.5%
The Bill seeks to enhance the rate of withholding tax for non-filer when making payments on account of goods, services and contracts are proposed to be as under:
Types of Payment
Rate
Existing Proposed
Filer Non-Filer Non-Filer
For supply of goods
Company 4% 7% 8%
Other than company 4.5% 7.75% 9%
Transport services 2% No change
Rendering of or providing of services
Company 8% 14.5% No change
Other than company 10% 17.5% No change
Electronic and print media advertising services
Company 1.5% 12% No change
Other than company 1.5% 15% No change
On the execution of contract
Company 7% 12% 14%
Other than company 7.5% 12.5% 15%
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65. Exports
Rate of collection of advance tax for exports, indenting commission and services to export house remains unchanged as
under:
Types of Payment Rate
Export proceeds
Proceeds from sale of goods to an exporter under an inland back-to-back letter of credit or any other arrangement
1% of export proceeds
Export of goods by an industrial undertaking located in an Export Processing Zone 1%
Collection by collector of customs at the time of clearing of goods exported 1%
Indenting commission 5%
66. Income from property
The rates of tax on income from property have remained unchanged as under: For Individuals and Association of Persons
Gross amount of rent Rate
Up to Rs.200,000 Nil
Rs.200,001 to 600,000 5% of the amount exceeding Rs.200,000
Rs.600,001– 1,000,000 Rs.20,000 plus 10% of the amount exceeding Rs.600,000
Rs. 1,000,001– 2,000,000 Rs.60,000 plus 15% of the amount exceeding Rs.1,000,000
For Companies The rate of tax to be deducted on payment for rent in the case of company shall be 15% of the gross amount of rent for
filers and 17.5% of the gross amount of rent for non-filers. 67. Tax on prize and winnings
The rate of withholding tax on prize bonds, cross-word puzzles and prize on winnings remains unchanged as under:
Description Rate
Filer Non-Filer
Prize on prize bond and cross-word puzzle 15% 25%
Winnings from a raffle, lottery, prize on winning a quiz, prize offered by a company for promotion of sale
20% 20%
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68. Tax on Petroleum Products
The rates of withholding tax on Petroleum Products remain unchanged as under:
Description Rate
Filer Non-Filer
Petroleum products 12% 17.5%
69. Tax on CNG Station
The withholding tax rate in the case of a Compressed Natural Gas station remain unchanged at 4% for filers and 6% for non-filers.
PART IV
70. Collection of advance income tax on Brokerage and Commission
The rates for collection of advance tax remains unchanged as under:
Description Rate
Filer Non-Filer
For advertising agents 10% 15%
Life insurance agent where commission received is less than Rs.500,000 per annum 8% 16%
Persons not covered above 12% 15%
71. Rates for collection of tax by a Stock Exchange registered in Pakistan
The rates for collection of advance tax remains unchanged as under:
Description Rate
Purchase of shares as per Clause (a) of Sub-section (1) of Section 233A 0.02% of purchase value
Sale of shares as per Clause (b) of Sub-section (1) of section 233A 0.02% of sale value
72. Collection of tax by NCCPL
The rate of collection by NCCPL on profit or markup or interest earned by the member, margin financier or securities lender remains unchanged at 10%.
73. Collection of tax on motor vehicles
The rate of collection of tax remains unchanged as under:
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Vehicle type Per seat per annum
Filer Non-Filer
Passenger Transport Vehicle having Capacity
Four or more persons but less than ten persons. Rs.50 Rs.100
Ten or more persons but less than twenty persons Rs.100 Rs.200
Twenty persons or more Rs.300 Rs.500
Private Motor Vehicle Engine Capacity
Upto 1000cc Rs.800 Rs.1,200
1001cc to 1199cc Rs.1,500 Rs.4,000
1200cc to 1299cc Rs.1,750 Rs.5,000
1300cc to 1499cc Rs.2,500 Rs.7,500
1500cc to 1599cc Rs.3,750 Rs.12,000
1600cc to 1999cc Rs.4,500 Rs,15,000
2000cc to & above Rs.10,000 Rs.30,000
Motor vehicle having Engine Capacity (collected in lump sum)
Upto 1000cc Rs.10,000 Rs.10,000
1001cc to 1199cc Rs.18,000 Rs.36,000
1200cc to 1299cc Rs.20,000 Rs.40,000
1300cc to 1499cc Rs.30,000 Rs.60,000
1500cc to 1599cc Rs.45,000 Rs.90,000
1600cc to 1999cc Rs.60,000 Rs,120,000
2000cc to & above Rs.120,000 Rs.240,000
74. Collection of tax on electricity consumption
The rates for tax on the gross amount of electricity bill has remained unchanged as under:
Description Tax Amount
does not exceed Rs.400 Rs.0
exceeds Rs.400 but does not exceed Rs. 600 Rs.80
exceeds Rs.600 but does not exceed Rs. 800 Rs.100
exceeds Rs. 800 but does not exceed Rs.1,000 Rs.160
exceeds Rs.1,000 but does not exceed Rs.1,500 Rs.300
exceeds Rs.1,500 but does not exceed Rs.3,000 Rs.350
exceeds Rs.3,000 but does not exceed Rs.4,500 Rs.450
exceeds Rs.4,500 but does not exceed Rs.6,000 Rs.500
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Description Tax Amount
exceeds Rs.6,000 but does not exceed Rs. 10,000 Rs.650
exceeds Rs.10,000 but does not exceed Rs.15,000 Rs.1,000
exceeds Rs.15,000 but does not exceed Rs.20,000 Rs.1,500
exceeds Rs.20,000 i. At the rate of 12% for commercial consumers
ii. At the rate of 5% for industrial consumers
75. Collection of Advance Tax on Telephone Users
The rate of withholding tax on subscribers of internet, mobile telephone and pre-paid internet or telephone cards have remained unchanged as under:
Description Rate
Telephone subscriber where the amount of monthly bill exceeds Rs.1,000 10% of exceeding amount
Subscriber of internet, mobile telephone and pre-paid internet or telephone card.
12.5% of the amount of bill or sales price
76. Collection of tax on cash withdrawal from bank
The rate of collection of tax on cash withdrawal from bank remains unchanged for filer at 0.3% and 0.6% for non-filers.
77. Collection of advance tax on transactions through banking channels
The rates of collection of tax on transactions through banking channels remains unchanged at 0.3% for filers and 0.6% for non-filers.
78. Advance tax on purchase, registration and transfer of Motor Vehicles
The advance tax on purchase and registration of Motor Vehicles remains unchanged as per the following rates:
Engine capacity Tax Amount
Filer Non-Filer
Up to 850cc Rs.7,500 Rs.10,000
851cc – 1000cc Rs.15,000 Rs.25,000
1001cc – 1300cc Rs.25,000 Rs.40,000
1301cc – 1600cc Rs.50,000 Rs.100,000
1601cc – 1800cc Rs.75,000 Rs.150,000
1801cc – 2000cc Rs.100,000 Rs.200,000
2001cc - 2500cc Rs.150,000 Rs.300,000
2501 cc -3000cc Rs.200,000 Rs.400,000
Above 3000cc Rs.250,000 Rs.450,000
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Further, the rates of collection of taxes on transfer of motor vehicles have also remained unchanged as follows.
Engine capacity Tax Amount
Filer Non-Filer
Up to 850 cc - Rs.5,000
851 cc – 1000 cc Rs.5,000 Rs.15,000
1001 cc – 1300 cc Rs.7,500 Rs.25,000
1301 cc – 1600 cc Rs.12,500 Rs.65,000
1601 cc – 1800 cc Rs.18,750 Rs.100,000
1801 cc – 2000 cc Rs.25,000 Rs.135,000
2001 cc & 2500cc Rs.37,500 Rs.200,000
2501 cc & 3000cc Rs.50,000 Rs.270,000
Above 3000cc Rs.62,500 Rs.300,000
79. Advance tax at the time of sale by auction
The rate of collection of tax remains unchanged at the rate of 10% for filers and 15% for non-filers.
80. Advance tax on purchase of air tickets
The rate of collection of tax remains unchanged at 5% of the gross amount of air ticket.
81. Advance tax on sale/transfer of immovable property
The rates of advance tax to be collected on sale/ transfer of immovable property has remained unchanged as under:
Description Rate
Filer 1%
Non-Filer 2%
82. Collection of advance tax on functions and gatherings
Currently the rate of collection of tax on functions and gatherings is 5% of the total amount of bill. However, the Bill seeks to provide that the rate for the function of marriages in a marriage hall, marquee, hotel, restaurant, commercial lawn, club, a community place or any other place used for such purpose shall be as under:
Description Rate
For Islamabad, Lahore, Multan, Faisalabad, Rawalpindi, Gujranwala, Bahawalpur, Sargodha, Sahiwal, Sheikhupura, Dera Ghazi Khan, Karachi, Hyderabad, Sukkur, Thatta, Larkana, Mirpur Khas, Nawabshah, Peshawar, Mardan, Abbottabad, Kohat, Dera Ismail Khan, Quetta, Sibi, Loralai, Khuzdar, Dera Murad Jamali and Turbat.
5% of the bill ad valorem or Rs.20,000 per function, whichever is higher
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Description Rate
For cities other than those mentioned above; 5% of the bill ad valorem or Rs.10,000 per function, whichever is higher
83. Advance tax on cable operator and other electronic media
The rate of collection of advance tax remains unchanged as under:
License Category as provided in PEMRA Rules Tax on License Fee Tax on Renewal
H Rs.7,500 Rs.10,000
H-1 Rs.10,000 Rs.15,000
H-II Rs.25,000 Rs.30,000
R Rs.5,000 Rs12,000
B Rs.5,000 Rs.40,000
B-1 Rs.30,000 Rs.35,000
B-2 Rs,40,000 Rs.45,000
B-3 Rs.50,000 Rs.75,000
B-4 Rs.75,000 Rs.100,000
B-5 Rs.87,500 Rs.150,000
B-6 Rs.170,000 Rs.200,000
B-7 Rs.262,500 Rs,300,000
B-8 Rs.437,500 Rs.500,000
B-9 Rs.700,000 Rs.800,000
B-10 Rs.875,500 Rs,900,000
84. Advance tax on sales to distributors, dealers or wholesalers
Advance tax on sales to distributors, dealers or wholesalers remains unchanged as under:
Category of sale Rate
Filer Non-Filer
Fertilizers 0.7% 1.4%
Other than fertilizers 0.1% 0.2%
85. Advance tax on sale of retailers
The rate of tax on sale of retailers remains unchanged as under:
Category of sale Rate
Filer Non-Filer
Electronics 1% 1%
Others 0.5%
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86. Advance tax on sale of certain petroleum products
The Bill seeks to introduce deduction of tax from person selling petroleum products to a petrol pump operator or distributor, where such operator or distributor is not allowed a commission or discount at the rate of 0.5% of ex-depot sale price for filers and 1% for non-filers.
87. Collection of advance tax by educational institutions
The rate of collection of tax remains unchanged at 5%. 88. Advance tax on dealers, commission agents and arhatis, etc.
The collection of advance tax on dealers, commission agents and arhatis remains unchanged as under:
Group Tax Amount (per annum)
Group or Class A Rs.10,000
Group or Class B Rs.7,500
Group or Class C Rs.5,000
Any other category Rs.5,000
89. Advance tax on purchase of immovable property
The rates of advance tax to be collected purchase of immovable property have remained unchanged as under:
Period Rate
Filer Non-Filer
Where value of immoveable property is up to 4 million 0%
Where value of immoveable property is more than 4 million 2% 4%
90. Advance tax on domestic electricity consumption
The rate of advance tax collection remains unchanged at 7.5% if the monthly bill is Rs.75,000 or more. 91. Advance tax on international air ticket
The rate of collection of advance tax remains unchanged as under
Type of Ticket Rate
First/Executive class Rs. 16,000 per person
Others excluding economy Rs. 12,000 per person
Economy Class Rs. 0
92. Advance tax on bank transactions
The Bill seeks to reduce the advance tax to be collected on banking transactions otherwise than through cash of non-filers from 0.6% to 0.4%.
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93. Payment to a resident person for right to use machinery and equipment
The rate of tax remains unchanged at 10% 94. Collection of advance tax on education related expenses remitted abroad
The rate of tax remains unchanged at 5% 95. Advance tax on insurance premium
The rate of advance tax to be collected on insurance premium have remained unchanged as under:
Type of premium Rate
General insurance premium 4%
Life insurance premium if exceeding Rs. 0.3 million in aggregate per annum 1%
Others 0%
96. Advance tax on extraction of minerals
The rates of tax remains unchanged for non-filers at 5% and 0% for filers. 97. Advance tax on amount remitted abroad through credit, debit or prepaid cards
The Bill seeks to introduce a withholding obligation on every banking company to collect advance tax, at the time of transfer of any sum remitted outside Pakistan, on behalf of any person who has completed a credit card transaction, a debit card transaction, or a prepaid card transaction with a person outside Pakistan at the rate of 1% of the gross amount remitted abroad for filers and 3% for non-filers.
THE SECOND SCHEDULE
PART –I
98. Exemption to armed forces personnel
Clause (39A)
A new clause is proposed to be inserted to exempt certain allowances, which include kit allowance, ration allowance,
special messing allowance, SSG allowance, northern areas compensatory allowance, special pay northern areas and
height allowance in the hands of armed forces personnel.
99. Exemption to income of certain funds/institutions
Clause (57)
Sub-clause (3) of Clause (57) of Part I of the Second Schedule to the Ordinance provides exemption on income of certain
funds/institutions as specified therein. The bill proposed to add the following to the list of exempt funds/intuitions:
Khyber Pakhtunkhwa Retirement Benefits and Death Compensation Fund.
Khyber Pakhtunkhwa General Provident Investment Fund
Khyber Pakhtunkhwa Pension Fund
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100. Exemption on donations
Clause (61)
The bill proposed to insert the following in Clause (61) which provide exemption on any amount paid as donation to the
charitable institutions specified therein:
Pakistan Sweet Home, Angels and Fairies Place
Al-Shifa Trust Eye Hospital
Aziz Tabba Foundation
Sindh Institute of Urology and Transplantation, SIUT Trust and Society for the Welfare of SIUT
Sharif Trust
The Kidney Centre Post Graduate Institute
Pakistan Disabled Foundation
101. Exemption to income of certain charitable and other institutions
Clause (66)
The bill proposed to insert the following in Clause (66), which provides exemption from tax to any income of the
institutions:
SAARC Energy Centre
Pakistan Bar Council
Pakistan Centre for Philanthropy
Pakistan Mortgage Refinance Company Limited
Aziz Tabba Foundation
Al-Shiffa Trust Eye Hospital
Saylani Welfare International Trust
Shaukat Khanum Memorial Trust
Layton Rahmatullah Benevolent Trust (LRBT)
The Kidney Centre Post Graduate Training Institute
Pakistan Disabled Foundation
Forman Christian College
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102. Exemption on profit on debt and gain on transfer of capital asset
Clauses (90A & 110C)
The bill proposed to insert new clauses to exempt any profit on debt on bonds issued by the Pakistan Mortgaged
Refinance Company (PMGC) and/or capital gain on transfer of capital assets derived by any person on bonds issued by
PMGC to refinance the residential housing mortgage market. The exemption on profit on debt is available for a period of
five years effective from 01 July 2018 while the exemption on capital gain is applicable from 1 July, 2018 to 30 June,
2023.
103. Income of Modaraba
(Clause 100)
Currently, any income, not being income from trading activity, of a Modaraba registered under the Modaraba Companies
and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), is exempt from tax, provided that not less than
ninety per cent of its total profits in the year as reduced by the amount transferred to a mandatory reserve, as required
under the provisions of the Modaraba Ordinance or the Rules, has been distributed among the certificate holders.
The bill proposed to exclude manufacturing activity income from the ambit of exempt income of the Modaraba.
104. Profit and gains derived from refinery operations
Clause (126BA)
The bill proposed to insert a new Clause to provide an exemption from tax to profit and gains derived by a refinery setup
between 1st July 2018 to 30th June 2023 with a minimum production capacity of 100,000 barrels per day for a period of
20 years, beginning in the month in which the refinery is set up or commercial production is commenced, whichever is
later. Exemption under this clause shall also be available to existing refineries, if:-
a) existing production capacity is enhanced by at least 100,000 barrels per day;
b) the refinery maintains separate accounts for income arising from aforesaid additional production capacity; and
c) the refinery is a deep conversion refinery. The exemption period starts from the month in which the refinery is setup
or commercial production is commenced, whichever is later.
Part II
105. Reduce rate of tax on commercial contract
Clause (24AA)
The bill proposed to insert a new clause to provide a reduced rate of tax of 6% of the gross amount of payments under
section 152 of the Ordinance, in the case of CR-NORINCO JV (Chinese Contractor) as a recipient, on payment arising out
of a commercial contract agreement signed with the Government of Punjab, for installation of electrical and mechanical
(E&M equipment for construction of the Lahore Orange Line Metro Train Project.
Part III 106. Incentive for film makers
Clauses (7 & 8)
The bill proposed to insert new clauses to provide reduction in the amount of tax payable by 50%, on income derived by:
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- foreign film makers for making films in Pakistan; and
- resident companies from film making.
Part IV
107. Exemption from provisions of Section 153
Clause (11E)
The bill proposed to insert a new clause to provide exemption from the provisions of Section 153 of the Ordinance, on
payments received by Sui Southern Gas Company Limited and Pakistan LNG Terminal Limited, from Sui Northern Gas
pipelines Limited on account of re-gasification charges.
108. Exemption from provisions of Section 150
Clause (12A)
The bill proposed to insert a new clause to provide exemption from withholding provisions of section 150 of the
Ordinance, on dividends paid to transmission line projects under Transmission Line Policy 2015.
109. Exemption from provisions of Section 148 regarding withholding tax on imports
Clause (56)
The bill proposes to replace “Bakri Trading Company Pakistan (Pvt.) Ltd., Overseas Oil Trading Company (Pvt.) Ltd. as
provided in sub-clause (ia) to Bakri Energy Pakistan (Private) Limited.
110. Option to commercial importer
Clause (56B)
Clause (56B) of Part-IV of the Second Schedule to the Ordinance provides an option to a commercial importer to opt out
of the Final Tax Regime (FTR), subject to fulfillment of certain conditions specified therein. Now, the bill proposes to
delete the said clause. Consequently, the option will no longer be available to commercial importers.
111. Trading Houses
Clause (57)
Currently clause (57) of Part IV of the Second Schedule to the Ordinance is providing the levy of minimum tax under
Section 113 of the Ordinance at a reduced rate of 0.5% upto the tax year 2019 and 1% thereafter. The bill proposed to
extend the reduce levy of minimum tax upto the tax year 2021.
112. Exemption from collection of advance tax at import stage
Clauses (60A), (60AA), (60B) & (60C)
The bill proposed to insert new clauses to provide exemption from the provisions of Section 148 of the Ordinance on
import of:
Plant, machinery and equipment including dumpers and special motor vehicles imported by the following for
construction of Sukkur – Multan section of Karachi – Peshawar Motorway project and Karakorum Highway (KKH)
Phase-II (Thakot to Havellian section) of the following CPEC project:
(a) China State Construction Engineering Corporation Ltd.
(b) China Communication Construction Company
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Construction materials or goods up to a maximum of 10,898.000 million rupees imported by China State
Construction Engineering Corporation Ltd. for construction of Sukkur – Multan section of Karachi – Peshawar
Motorway project of National Highway Authority under CPEC.
Thirty five armored and security vehicles imported by or for Ministry of Foreign Affairs, Government of Pakistan
meant for security of vising foreign dignitaries, subject to fulfillment of the following conditions:
(a) the vehicles imported shall not be used for the security of foreign dignitaries and will be parked Central Pool of
Cars in the Cabinet Division for further use as and when needed; and
(b) the importing Ministry shall furnished and undertaking at the time of import to the concerned Collector of
Customs, to the extent of customs dues exempted under this clause on a consignment to consignment basis,
binding themselves that the vehicles imported under this clause shall not be re-exported, sold or otherwise
disposed of without prior approval of the Board and in the manner prescribed therefor.
Equipment to be furnished or installed for Rail Based Mass Transit Projects in Lahore, Karachi, Peshawar and Quetta
under CPEC.
113. Institution deemed to be approved as NPO
Clauses (63)
Under the provision of Clause (63) of Part IV of the Second Schedule to the Ordinance Dawat-e-Hadiya, Karachi is
deemed to be approved as a non-profit organization by the Commissioner under Section 2(36) of the Ordinance. The bill
proposed to add the name of Lahore University of Management Sciences (LUMS), Lahore as well to the above Clause.
Consequently, LUMS would also be deemed to be a non-profit organization approved by the Commissioner under Section
2(36) of the Ordinance.
114. Minimum tax on services sector companies
Clause (94)
A new category of services namely, inspection, certification, testing and training is proposed to be inserted in the list of
services specified in the aforesaid Clause, for which tax deductible from payments against service rendered under
section 153(1)(b) of the Ordinance would no longer be treated as minimum tax and would be adjustable against the
eventual tax liability of the taxpayer. The period for application of Clause (94) is proposed to be extended upto 30 June
2019. Moreover, the last date for furnishing an irrevocable undertaking for the tax year 2019 is proposed to be
November 2018.
115. Tax on profit on debt
Clause (103)
The bill proposed that the provisions of Section 7B of the Ordinance shall not apply in respect of profit on investment in
Behbood Saving Certificates or Pensioner’s Benefit Account, provided that the tax on the said profit is paid at the
applicable rates provided under Part I of the First Schedule to the Ordinance. However, the tax payable in respect of this
income shall not exceed 10% of such profit as provided under Clause (6) of Part III of the Second Schedule to the
Ordinance.
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116. Redundant Clauses of Second Schedule to the Ordinance
Certain Clauses are proposed to be inserted / substituted in the Second Schedule to the Ordinance; however, the said clauses are already provided in the relevant Schedules. Accordingly, it is expected that the same be removed from the amendments, which will be passed by the Assembly. These Clauses are: Clause (72A) of Part I
Clause (6) Part III
Clause (1A) of Part IV
Clause (11A) of Part IV
Clause (36A) Part IV
Clauses (95 & 96) Part IV
Clause (99) Part IV
Clause (100) Part IV
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SALES TAX
Section Page
1. Further Tax 3(1A) 52
2. Audit of a registered person 25 52
3. Recovery of arrears of tax 48 52
4. Posting of Inland Revenue Officer 40B 52
5. Assessment giving effect to an Order 11B 53
6. Default surcharge 34 53
8. Alternate Dispute Resolution 47A 53
7. Tax credit not allowed 8 53
9. Directorate General (Intelligence and Investigation) Inland Revenue 30A 54
10. Restoration of power of Federal Government to issue notifications 3, 4, 7, 7A, 8, 13, 60, 65
and 71 55
11. Fifth Schedule 4 55
12. Sixth Schedule 13 56
13. Eighth Schedule 3(2) (aa) 61
14. Sales tax measures announced in the budget documents 63
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1. Further tax
Section 3(1A)
The Bill seeks to increase the rate of further tax from 2% to 3%. Conceptually, further tax has been introduced to
penalize the persons who were required to be registered but have not obtained registration under the ST Act.
Practically, it is not possible for suppliers to ascertain whether the recipient of goods is otherwise required to be
registered or not, hence suppliers are generally charging further tax from all persons who are unregistered under the
ST Act. This would further increase the cost of sales of persons who are otherwise not required to get registered, being
not engaged in taxable activity.
However, SRO is intended to be issued to reduce the rate of further tax to 1% on local supply of finished fabrics by
amending SRO 1125(I)/2011. It is further envisaged to absolve Pakistan Foam Manufacturers from further tax.
2. Audit of a registered person
Section 25
Under Section 25 of the ST Act the Officer of Inland Revenue authorized by the Commissioner may conduct audit of the
records of a taxpayer obtained under sub—section (1) of Section 25, once in a year. The Bill seeks to insert a third
proviso in sub-section (2) of Section 25 of the ST Act, whereby the audit of the records shall now be performed only
once in every three years.
Presently, the Board may select the case of a registered person for audit. If the case of a registered person was not
selected by the Board in a year, the Commissioner Inland Revenue may select its case for audit for that year.
Effectively, a registered person has to get audited for every year, which is a time consuming exercise and is not the
intention of the legislature. Under the proposed amendment, an audit shall only be conducted once in every three
years, which shows better confidence level of the Government on the records maintained by the registered persons.
3. Recovery of arrears of tax
Section 48
The Finance Act, 2017 had inserted a proviso to Section 48 of the ST Act, whereby the notice of recovery of sales tax
would not be issued, where the registered person had filed an appeal under Section 45B of the ST Act and paid an
amount of 25% of the amount of tax due. An automatic stay under the said proviso remains valid till the decision of the
appeal by the Commissioner Inland Revenue (Appeals). However, this proviso was hardly invoked by the registered
persons as the prerequisite payment at the rate of 25% of the disputed demand proved to be substantial. Similarly, the
life of the stay was also not commensurate with the cost of payment.
The Bill envisages to reduce the payment to 10% of the tax due for seeking the automatic stay of the tax due.
4. Posting of Inland Revenue Officer
Section 40B
Section 40B empowers the Board or Chief Commissioner Inland Revenue and Commissioner Inland Revenue to post
Officers of Inland Revenue at the premises of a registered person, to monitor production, sale of taxable goods and
stock positions.
The Bills seeks to restrict the authority for posting of an Officer of Inland Revenue at the premises of the registered
person with the Board, and seeks to omit the reference of Chief Commissioner Inland Revenue and Commissioner Inland
Revenue from the above Section. Resultantly, it is now proposed that the Chief Commissioner Inland Revenue and
Commissioner Inland Revenue are no more authorized to post the Officers of Inland Revenue at the premises of a
registered person.
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5. Assessment giving effect to an Order
Section 11B
Similar to Section 124 of the IT Ordinance, the Bill seeks to introduce a new Section 11B in the ST Act whereby an
officer or the Commissioner of Inland Revenue is empowered to give effect to the findings or the directions given in the
order passed by the Commissioner Inland Revenue (Appeals), Appellate Tribunal Inland Revenue, High Court or
Supreme Court of Pakistan. Under sub-section (1) of the proposed section, the appeal effects order shall be passed
within one year from the end of the financial year in which the order of the Commissioner Inland Revenue (Appeals),
Appellate Tribunal Inland Revenue, High Court or Supreme Court of Pakistan, as the case may be, was served on the
Commissioner or on the Officer Inland Revenue.
Sub-section (2) of the proposed section provides that where the Appellate Tribunal Inland Revenue, High Court or
Supreme Court of Pakistan has wholly or partially set-aside the order, the Commissioner (Appeals) or the Commissioner
Inland Revenue or the Officer of Inland Revenue, as the case may be, shall pass a new order within one year of the
financial year in which the order was served on the Commissioner (Appeals) or the Commissioner Inland Revenue or the
Officer of Inland Revenue. The time limitation of one year shall not apply where the appeal or reference has been
preferred against the order of the Appellate Tribunal or High Court.
6. Default surcharge
Section 34
The Bill proposes a fixed rate of default surcharge at 12% per annum, which is currently KIBOR plus 3%. Considering the
prevailing rate of KIBOR, the proposed rate of default surcharge seems to be on the higher side, but the apparent
objective of the amendment is to align the rate of default surcharge with the rate as provided under the IT Ordinance.
7. Tax credit not allowed
Section 8
Section 8 of ST Act envisages the scenarios or goods where adjustment of input tax is not allowed. The Bill seeks to
insert clause (m) in sub-section (1) of Section 8 of ST Act, whereby the adjustment of input tax shall also not be
admissible on account of sales tax paid on import of scrap compressors falling under PCT heading 7204.4940 of the
First Schedule to the Customs Act, 1969.
8. Alternate Dispute Resolution
Section 47A
The concept of Alternative Dispute Resolution (ADR) was introduced by the Finance Act, 2004, whereby a taxpayer may
bring any disputed matter, pending at any appellate forum, before the Board by making an application. For this
purpose, the Board is required to constitute a Committee (ADRC) within the period of sixty days of the filing of an
application by the taxpayer, comprising of an officer of Inland Revenue (not below the rank of a Commissioner) and two
persons from the notified panel, comprising of a retired judge not below a District and Sessions Judge, Chartered or
Cost Accountants, or Advocates or Income Tax Practitioners or reputable taxpayers, before which the matter is to be
placed for examination and recommendations to the Board.
The ADRC is required to examine the issue and may make enquiry, obtain expert opinion and cause an audit to be conducted by any officer of Inland Revenue or any other person. Based on the findings, the ADRC shall make recommendations as may be appropriate in the facts and circumstances of the case. The ADRC is required to make its recommendations within ninety days of its constitution. If the ADRC fails to make the recommendation within the above period of ninety days, the Board is empowered to dissolve the ADRC and constitute a new ADRC which is required to dispose of the matter within a further period of ninety days. However, if the new ADRC fails to resolve the dispute in the above period, the matter shall be taken up by the appellate forum where it is pending.
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In case, the ADRC makes its recommendations within the statutory period of ninety days, the Board is then required to
pass an order on the recommendations of the ADRC, as may be appropriate, within ninety days of the receipt of ADRC’s recommendations and if such an order is not passed, the recommendations would be treated to be an order passed by the Board.
The most controversial provision was the powers of the Board either to reject the ADRC’s recommendations or to accede to such recommendations in the manner the Board deems appropriate. It was objected to on the basis that the ADRC, which comprises of a senior officer of the Board and professionals/reputable taxpayers, and which works on a pro-bono basis devoting its time, does not have any say in the conclusion of the dispute. As a result, the process of ADR has not yielded the desired results of reducing the pending litigation before the appellate authorities.
The intended substituted section now proposes substantial changes in the entire process of constitution and working of
the ADRC. These are discussed as under:
The ADRC members would be selected from a panel of Chartered or Cost Accountants or Advocates and retired Judges of High Court, retired District and Session Judges, income tax practitioner or reputable taxpayer besides an officer of Inland Revenue not below the rank of a Commissioner
The taxpayer invoking the powers of ADRC and the Board shall withdraw the appeals pending before the Appellate
Authority
The ADRC shall not commence the proceedings unless the order of withdrawal by the Appellate Authority is communicated to the Board . In the event the order of withdrawal is not communicated within seventy five days of the appointment of the ADRC, the ADRC so appointed shall be dissolved.
The ADRC shall decide the dispute within one hundred and twenty days of its appointment excluding the period of
communicating the order of withdrawal
Instead of making the recommendations by the ADRC for consideration by the Board , the ADRC would be now empowered to decide the matter and such decision shall be binding on the aggrieved person as well as on the Board .
If the ADRC fails to decide the matter within the period of one hundred and twenty days, the Board shall dissolve the ADRC, inform the Appellate Authority (which passed the order of withdrawal of matter) and the matter would be deemed to be pending before the Appellate Authority which shall decide the matter as if the appeal was never withdrawn. The Appellate Authority is required to decide the appeal within six months of the communication of the order of dissolution of the ADRC.
The proposed provisions however, do not appear to achieve the objects with which the concept of ADR was introduced.
This is for the reason that the very concept of “Alternate” would fade away with the requirement to give up the
appellate process. Presently, the order passed by the Board on the recommendations of the ADRC is not binding on the
aggrieved person but on the Board officials. Such an order is to be presented before the Appellate Authority which is
required to take into consideration while deciding the matter pending before it. This gives the aggrieved person an
option to evaluate the outcome of the ADR proceedings and decide whether to pursue the appeal or not. However, since
the appeal is now proposed to be withdrawn before the ADRC takes up the matter for decision, the aggrieved person
would have not this option. The law makers are therefore, urged to make the order of the ADRC binding on the Board
and not on the aggrieved person.
9. Directorate General (Intelligence and Investigation) Inland Revenue
Section 30A
Under Section 30A of the ST Act, the Board has established the Directorate General (Intelligence and Investigation)
Inland Revenue (DG I&I) and has appointed Officers of DGI&I . However, when functions and jurisdictions of the Officers
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of DG I&I were defined by the Board, the same were declared ultra-vires by the Higher Courts since such powers were
not bestowed upon the Board under the above Section.
In order to remove this anomaly, the Bill seeks to insert sub-section (2) of Section 30 of the ST Act empowering the
Board to specify the functions and jurisdictions of the DG I&I and its Officers and also confer the powers of authorities
specified in Section 30 of the FE Act.
Further, the Bill seeks to insert a new sub-section (2) in section 74A, which provides that the powers of the DGI&I and all
the orders passed, notices issued, actions taken and purported exercise of the powers and functions of the Officers of
DGI&I or the authorities specified in sub-section (2) of Section 30A of the ST shall be treated to have been validly
passed, issued and taken under the ST Act. The proposed amendment seems to protect the previous
actions/orders/notifications issued in this regard.
10. Restoration of power of Federal Government to issue notifications
Sections 3, 4, 7, 7A, 8, 13, 60, 65 and 71
The Finance Act, 2017 has empowered the Board, subject to the approval of the Minister-in-Charge, under various
Sections of the ST Act to issue notifications. The Bill seeks to restore the powers of the Federal Government to issue
notifications under the following provisions of the ST Act:
Provisions of the ST Act
Description
3(2)(b) Power of fixation of lower and higher sales tax rates and manner of charging, collection and payment of sales tax on any taxable goods
3(3A) Power to specify the goods in respect of which the liability to pay tax shall be of the recipient of supply
3(5) Power to levy and collect extra rate of sales tax not exceeding seventeen percent
4(c) Power to declare any goods as subject to sales tax at zero percent
7(3) Allowing to deduct input tax through special order
7(4) Allowing to deduct input tax through notification
7A(1)(2) Levy and collection of tax on specified goods on value addition
8(1)(b) Restriction on adjustment of input tax
13(2)(a) Allowing exemption on import and supply of goods
60 Authorization to import goods or class of goods without payment of the whole or any part of tax
65 Exemption of tax not levied or short levied as a result of general practice
71 Prescribe special procedure for scope and payment of tax, registration and book keeping and invoicing requirements and returns of supplies
11. Amendment in the Fifth Schedule
Section 4
The Fifth Schedule to the ST Act deals with goods which are subject to sales tax at the rate of zero percent. The Bill
seeks to provide Zero-rating on the import and local purchases of raw materials, sub-components and components, sub-
assemblies and assemblies for manufacture of the following stationary items by inserting the following new entries
under serial No.12 of the Fifth Schedule to the ST Act.
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Raw materials, components and other items used for production and supply of the above items are now proposed to be
zero rated, which may reduce cost of production to the extent of the amount of sales tax, otherwise payable currently.
12. Sixth Schedule
Section 13
The Sixth Schedule deals with exemption of goods from levy of sales tax. The Bill proposes to insert the following
entries in the Sixth Schedule to the ST Act:
Table 1 (on import and local supplies)
S. No. Description Tariff
Heading
137. Paper weighing 60 g/m2 for printing of Holy Quran imported by Federal or Provincial Governments and Nashiran-e- Quran as per quota determined by IOCO
4802.5510
138. Fish Feed Respective heading
139. Fans for dairy farms 8414.5990
140. Bovine semen 0511.1000
141. Preparations for making animal feed 2309.9000
142. Promotional and advertising material including technical literature, pamphlets, brochures and other give-aways of no commercial value, distributed free of cost by the exhibitors
9920(3)
143. (i) Hearing aids (all types and kinds) (ii) Hearing assessment equipment; (a) Audiometers (b) Tympanometer (c) ABR (d) Oto Acoustic Omission
9937
144. Liquefied Natural Gas imported by fertilizer manufacturers for use as feed stock
2711.1100.;
145. Plant, machinery, equipment including dumpers and special purpose motor vehicles, if not manufactured locally, imported by M/s China State Construction Engineering Corporation Limited (M/s CSCECL) for the construction of Karachi – Peshawar Motorway (Sukkur – Multan Section) and M/s China Communication Construction Company (M/s CCCC) for the construction of Karakorum Highway (KKH) Phase-II (Thakot - Havellian Section) subject to the following conditions:
Respective heading
Clause No. Description PCT Heading
(xx) Colors in sets 3213.1000
(xxi) Writing, drawing and marking inks 3215.9010 and
3215.9090
(xxii) Erasers 4016.9210 and
4016.9290
(xxiii) Exercise books 4820.2000
(xxiv) Pencil sharpeners 8214.1000
(xxv) Geometry boxes 9017.2000
(xxvi) Pens, ball pens, markers and porous tipped pens 96.08
(xxvii) Pencils including color pencils 96.09
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S. No. Description Tariff
Heading
(i) that the exemption under this Notification shall only be available to contractors named above;
(ii) that the equipment and construction machinery imported under this Notification shall only be used for the construction of the respective allocated projects;
(iii) that the importer shall furnish an indemnity bond, in the prescribed manner and format as set out in Annex-A, at the time of import to the extent of customs-duties exempted under this Notification on consignment to consignment basis;
(iv) that the Ministry of Communications shall certify in the prescribed manner and format as set out in Annex-B that the imported equipment and construction machinery are bonafide requirement for construction of Sukkur – Multan Section (392.0 km) of Karachi – Peshawar Motorway or for the construction of Karakorum Highway(KKH) Phase-II – Thakot to Havellian Section (118.057 km) as the case may be;
(v) for the clearance of imported goods through Pakistan Customs Computerized System the authorized officer of the Ministry shall furnish all relevant information, as set out in Annex- B, online against a specific user ID and password obtained under section 155D of the Customs Act, 1969 (IV of 1969). In Collectorates or Customs stations where the Pakistan Customs Computerized System is not operational, the Director Reforms and Automation or any other person authorized by the Collector in this behalf shall enter the requisite information in the Pakistan Customs Computerized System on daily basis, whereas entry of the data obtained from the customs stations which have not yet been computerized shall be made on weekly basis;
(vi) that the equipment and construction machinery, imported under this Notification, shall not be re-exported, sold or otherwise disposed of without prior approval of the Board . In case goods are sold or otherwise disposed of with prior approval of the Board the same shall be subject to payment of duties as may be prescribed by the Board ;
(vii) in case the equipment and construction machinery, imported under this Notification, is sold or otherwise disposed of without prior approval of the Board in terms of para (vi) above, the same shall be subject to payment of statutory rates of customs duties as were applicable at the time of import;
(viii) notwithstanding the condition at para (vi) and (vii) above, equipment and construction machinery, imported under this Notification, may be surrendered at any time to the Collector of Customs having jurisdiction, without payment of any customs- duties, for further disposal as may be prescribed by the Board ;
(ix) the indemnity bond submitted in terms of para (iii) above by the importer shall be discharged on the fulfillment of conditions stipulated at para (vi) or (vii) or (viii) above, as the case may be; and
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S. No. Description Tariff
Heading
(x) that violation of any of the above mentioned conditions shall render the goods liable to payable of statutory rate of customs duties leviable on the date of clearance of goods in addition to any other penal action under relevant provisions of the law.
146. Equipment, whether or not locally manufactured, imported by M/s China Railway Corporation to be furnished and installed in Lahore Orange Line Metro Train Project subject to the following conditions:
(a) that the equipment imported under this Notification shall only be used in the aforesaid Project;
(b) that the importer shall furnish an indemnity bond, in the prescribed manner and format as set out in Annex-C to this Notification, at the time of import to the extent of sales tax exempted under this Notification on consignment to consignment basis;
(c) that the Punjab Mass Transit Authority, established under the Punjab Mass Transit Authority Act, 2015 (ACT XXXIII of 2015), hereinafter referred as the Regulatory Authority, shall certify in the prescribed manner and format as set out in Annex-D to this Notification that the imported equipment is bona fide requirement of the Project under the Contract No. PMA-CR-NORINCO-OL, dated 20.04.2015, hereafter referred as the contract, signed between the Regulatory Authority and CR-NORINCO;
(d) in the event a dispute arises whether any item is entitled to exemption under this Notification, the item shall be immediately released by the Customs Department against a corporate guarantee, valid for a period of six months, submitted by the importer. A certificate from the Regulatory Authority duly verified by the Transport and Communication Section of the Ministry of Planning, Development and Reform, that the item is covered under this Notification shall be given due consideration by the Customs Department towards finally resolving the dispute. Disputes regarding the local manufacturing only shall be resolved through the Engineering Development Board of the Federal Government;
(e) for the clearance of imported equipment through Pakistan Customs Computerized System the authorized officer of the Regulatory Authority shall furnish all relevant information, as set out in Annex-D to this Notification, online against a specific user ID and password obtained under section 155D of the Customs Act, 1969 (IV of 1969). In Collectorates or Customs stations where the Pakistan Customs Computerized System is not operational, the Director Reforms and Automation or any other person authorized by the Collector in this behalf shall enter the requisite information in the Pakistan Customs Computerized System on daily basis, whereas entry of the data obtained from the customs stations which have not yet been computerized shall be made on weekly basis;
(f) that the equipment, imported under this Notification, shall not be re- exported, sold or otherwise disposed of without prior approval of the Board. In case goods are sold or otherwise disposed of with prior
Respective heading
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S. No. Description Tariff
Heading
approval of the Board the same shall be subject to payment of sales tax as may be prescribed by the Board ;
(g) in case the equipment, imported under this Notification, is sold or otherwise disposed of without prior approval of the Board in terms of condition (f), the same shall be subject to payment of statutory rates of sales tax as were applicable at the time of import;
(h) notwithstanding the condition (f) and (g), equipment imported under this Notification may be surrendered at any time to the Collector of Customs having jurisdiction, without payment of any sales tax, for further disposal as may be prescribed by the Board ;
(i) the indemnity bond submitted in terms of condition (b) above shall stand discharged on submission of a certificate from the Regulatory Authority to the effect that the equipment has been installed or consumed in the said Project. In case the equipment is not consumed or installed in the project the indemnity bond shall be discharged on fulfillment of conditions stipulated at (f) or (g) or (h), as the case may be; and
(j) that violation of any of the above conditions shall render the goods liable to payment of statutory rate of sales tax leviable on the date of clearance of goods in addition to any other penal action under relevant provisions of the law.
Explanation. For the purpose of this provision, “equipment” shall mean machinery, apparatus, materials and all things to be provided under the contract for incorporation in the works relating to Lahore Orange Line Metro Train Project.
147. Goods supplied to German Development Agency (Deutsche Gesellschaft für Internationale Zusammenarbeit) GIZ
Respective heading
148. Imported construction materials and goods imported by M/s China State Construction Engineering Corporation Limited (M/s CSCECL), whether or not locally manufactured, for construction of Karachi-Peshawar Motorway (Sukkur- Multan Section) subject to fulfilment of same conditions, limitations and restrictions as are specified under S. No. 145 of this table, provided that total incidence of exemptions of all duties and taxes in respect of construction materials and goods imported for the project shall not exceed ten thousand eight hundred ninety-eight million rupees.
Respective heading
The Bill also proposes a prescribed format for indemnity bond in Annex- A and a format of certificate to be issued by the
Ministry of Communications in Annex- B in case of serial No. 145 to the Sixth Schedule of the ST Act. Similarly, for
serial No. 146 Annex-C and D have been prescribed.
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Table 3
The Bill proposes the following new entries to be inserted in Table 3 of the Sixth Schedule:
S. No. Description PCT Heading Conditions
17
Machinery, equipment, raw materials, components and other capital goods for use in building, fittings, repairing or refitting of ships, boats or floating structures imported by Karachi Shipyard and Engineering Works Limited.
Respective heading
Nil
18
The following parts for assembling and manufacturing of personal computers and laptops:
If imported by manufacturers and assemblers of computers and laptops, registered with and certified by Engineering Development Board in accordance with quota determined by IOCO
Bare PCBs 8534.0000
Power Amplifier 8542.3300
Microprocessor/ Controllers 85.42
Equipment for SMT Manufacturing 8486.2000
Laptop batteries 8506.5000
Adopters 8504.4020
Cooling fans 8414.5190
Heat sink 7616.9920
Hard Disk SSD 8471.7020
RAM/ROMS 8471.7060 and
8471.7090
System on Chip/FPGA-IC 85.42
LCD / LED Screen 8528.7211
Motherboards 8534.0000
power supply 84.73
Optical Drives 8471.7040
External Ports 8536.209
Network cards 8517.6990
Graphic cards 8471.5000
wireless cards 8517.6970
micro phone 8518.3000
Trackpad 8471.6020
19
Plant and machinery, except the items listed under Chapter 87 of the Pakistan Customs Tariff, imported for setting up of a Special Economic Zone (SEZ) by zone developers and for installation in that zone by zone enterprises, on one time basis as prescribed in the SEZ Act 2012 and rules thereunder subject to such condition, limitations and restriction as a Board may impose from time to time.
9917(2) Nil”; and
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13. Amendment in the Eight Schedule
Section 3(2)(aa)
Under Section 3(2)(aa), sales tax on the items listed in the Eight Schedule are subject to sales tax at the rates provided
in the Schedule subject to certain conditions and limitations provided therein.
The Bill seeks to reduce the rate of sales tax in case of the following entries in Table-1 of the Eight Schedule to the ST
Act:
S. No. Description PCT Heading Existing rate Proposed
rate
26 Tillage and seed bed preparation equipment (specified)
8432.8010, 8432.2910, 8432.3900, 8432.8090, 8432.1090, 8432.2990 8432.2100, 8701.9020, 8432.8090
7% 5%
27 Seeding or planting equipment (specified) 8432.3010, 8432.3090, 8432.4100, 8432.3100, 8432.3900
7% 5%
28 Irrigation, drainage and agro-chemical application equipment (specified)
8421.2100, 8421.9990, 8424.2010
7% 5%
29 Equipment relating to harvesting, threshing and storage (specified)
8433.5200 , 8433.5900, 8433.5300, 8716.8090, 8433.5900, 8433.5100
7% 5%
30 Post-harvest handling and processing & miscellaneous machinery (specified)
8437.1000 & 8433.4000 7% 5%
43 Natural gas Respective heading 10% 5%
The Bill also seeks to omit the following entries from Table-1 of the Eight Schedule to the ST Act and simultaneously,
new entries are proposed to be inserted in the said Table-1, which include all types of fertilizers and Liquefied Natural
Gas. Hence, it would neutralize the effect except where the rate is adversely changed.
S. No. Description Tariff Heading Rate Condition
33 Urea, whether or not in aqueous solution
3102.1000 5%
35 DAP Respective heading Rs.100 per 50 kg bag Nil
36 NP (22-20) Respective heading Rs.168 per 50 kg bag If manufactured from gas other than imported LNG
37 NP (18-18) Respective heading Rs.165 per 50 kg bag If manufactured from gas other than imported LNG
38 NPK-I Respective heading Rs.251 per 50 kg bag If manufactured from gas other than imported LNG
39 NPK-II Respective heading Rs.222 per 50 kg bag If manufactured from gas other than imported LNG
40 NPK-III Respective heading Rs.341 per 50 kg bag If manufactured from gas other than imported LNG
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S. No. Description Tariff Heading Rate Condition
41 SSP Respective heading Rs.31 per 50 kg bag If manufactured from gas other than imported LNG
42 CAN Respective heading Rs.98 per 50 kg bag If manufactured from gas other than imported LNG
48 Liquefied Natural Gas 2711.1100 5% Imported by fertilizer manufacturers for use as feed stock
49 Fish feed 2309.9090 10% Nil
The Bill seeks to insert the following new Entries in Table-1 of the Eighth Schedule to the ST Act.
S. No. Description
Heading Nos. of the First Schedule to the
Customs Act, 1969 (IV of 1969)
Rate Condition
50. LNG 2711.1100 12%
If imported by M/s Pakistan State Oil and M/s Pakistan LNG Limited
51. RLNG 2711.2100 12%
If supplied by M/s Pakistan State Oil and M/s Pakistan LNG Limited to M/s SNGPL
52. Fertilizers (all types) Respective heading 3% Nil
53.
The following cinematographic equipment imported during the period commencing on the 1st day of July, 2018 and ending on the 30th day of June, 2023
Subject to same limitations and conditions as are specified in Part-1 of Fifth Schedule to the Customs Act, 1969 for availing 3% concessionary rate of customs duty on the import of these equipment.
(i) Projector 9007.2000
5%
(ii) Parts and accessories for projector 9007.9200
(iii) Other instruments and apparatus for cinema
9032.8990
(iv) Screen 9010.6000
(v) Cinematographic parts and accessories
9010.9000
(vi) 3D Glasses 9004.9000
(vii) Digital Loud Speakers 8518.2200
(viii) Digital Processor 8519.8190
(ix) Sub-woofer and Surround Speakers 8518.2990
(x) Amplifiers 8518.5000
(xi) Audio rack and termination board 7326.9090
8537.1090
(xii) Music Distribution System 8519.8990
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S. No. Description
Heading Nos. of the First Schedule to the
Customs Act, 1969 (IV of 1969)
Rate Condition
(xiii) Seats 9401.7100
(xiv) Recliners 9401.7900
(xv) Wall Panels and metal profiles 7308.9090
(xvi) Step Lights 9405.4090
(xvii) Illuminated Signs 9405.6000
(xviii) Dry Walls 6809.1100
(xix) Ready Gips 3214.9090
54. lithium iron phosphate battery (Li-Fe- PO4) 8506.5000 12% Nil
The Bill seeks to insert the following new entry in Table-2 of the Eighth Schedule to the ST Act which shall be applicable on import of such item.
S. No. Description Tariff Heading Condition
9 Capital goods otherwise not exempted, for Transmission Line Projects.
Respective heading
The concession will be available in respect of those Transmission Line Projects which are being executed under Standard Implementation Agreement under Policy Framework for Private Sector Transmission Line Projects, 2015 and Projects Specific Transmission Services Agreement. Provided that sales tax charged under this provision shall be non-adjustable and non-refundable.
14. Sales tax measures announced in the budget documents
In the salient features attached to the Bill, it is indicated that certain measures would be introduced in the ST Act and
Islamabad Capital Territory (Tax on Services) Ordinance, 2001. However, they are not referred to in the Bill. It appears
that as the SROs have not been issued with the Budget documents, the following measures in sales tax would be taken
when the related SROs are issued:
VAT on Liquid Natural Gas
It appears that the value addition tax at the rate of three percent leviable under Rule 58B of the Sales Tax Special Procedure Rules, 2007 may be withdrawn on import of liquid natural gas.
Zero rating on Potato
It is intended to declare import of 200,000 MT potato during the period 05 May 2014 to 31 July 2014 as zero rated retrospectively.
Textile, Leather and other export-oriented Sectors
It is intended to-
reduce the rate of six percent on import of ready to use articles of artificial leather generally used by the public
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introduce a reduced rate of further tax, at the rate of one percent, on local supply of finished fabrics
exclude the value addition tax on the import of second hand worn clothing and foot wear to grant relief to general masses
allow adjustment of input tax paid on packing material by the export oriented sector covered under SRO 1125(I)/2011
increase the rate of sales tax to 9% on import and supply of finished articles of leather and textile sector. However, all those branded outlets, which will be integrated through Electronic Fiscal Devices with the Board, shall be charged to sales tax at 6%.
Sales tax on steel sector
Rate of sales tax on steel sector is sought to be increased from the current rate of Rs.10.5 per unit to Rs.13 per unit of electricity consumed. Moreover, the rate of sales tax for other allied steel industries i.e. ship breakers and re-rollers is also being rationalized.
Further tax and Extra tax on Foam manufacturers
The exemption of extra tax and further tax @ 2% is intended to be granted to Pakistani Foam manufacturers.
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ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES) ORDINANCE, 2001
The scope of services taxable under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001 may be
widened. It is stated that the services which are chargeable to sales tax in Provinces shall also be made subject to
sales tax in the Islamabad Capital Territory.
In the salient features, it seems that such amendments would be implemented by amending or issuing notifications.
However, the widening the scope of taxable services could not be achieved without making an amendment in the
Schedule as provided under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001. It is also not clear
as to how the legislature shall align the list of taxable services with taxable services in different Provinces. It may be
clarified when the amending notifications or amendments through the Finance Act are available.
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FEDERAL EXCISE DUTY
Section Page
1. 46 67
2. 8 67
3. 14B 67
4. 37 67
5. (Intelligence and Investigation) Inland Revenue 29 68
6. 38 68
7. 45 69
8. Government to issue notifications 3 & 16 69
9. First Schedule, Table-I 70
10. Third Schedule, Table-I 71
Amendments in the Third Schedule Third Schedule, Table-II 72
11 - 72
Mobile handset levy New levy 72
Health levy on tobacco New levy 72
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1. Audit
Section 46
Under Section 46 of the FE Act the Officer of Inland Revenue authorized by the Commissioner may conduct audit of the
records of a taxpayer obtained under sub—section (2) of Section 46, once in a year. The Bill seeks to insert sub-section
(10) of Section 46 of the FE Act, whereby the audit of the records shall now be performed only once in every three
years.
Presently, the Board may select the case of a registered person for audit. If the case of a registered person was not
selected by the Board in a year, the Commissioner Inland Revenue may select its case for audit for that year.
Effectively, a registered person has to get audited for every year, which is a time consuming exercise and is not the
intention of the legislature. Under the proposed amendment, an audit shall only be conducted once in every three
years, which shows better confidence level of the Government on the records maintained by the registered persons.
2. Default surcharge
Section 8
The Bill proposes the fixed rate of default surcharge at twelve percent per annum which is currently KIBOR plus three
percent. Considering the prevailing rate of KIBOR, the proposed rate of default surcharge seems to be on the higher
side but, the apparent objective of the amendment is to align the rate of default surcharge with the rate as provided
under the IT Ordinance.
3. Assessment giving effect to an Order
Section 14B
Similar to Section 124 of the IT Ordinance, the Bill seeks to introduce a new Section 14B in the FE Act, whereby an
Officer or the Commissioner of Inland Revenue is empowered to give effect to the findings or the directions given in the
order passed by the Commissioner Inland Revenue (Appeals), Appellate Tribunal Inland Revenue, High Court or
Supreme Court of Pakistan. Under sub-section (1) of the proposed section, the appeal effect order shall be passed
within one year from the end of the financial year, in which the order of the Commissioner (Appeals), Appellate
Tribunal , High Court or Supreme Court as the case may be was served on the Commissioner or Officer.
Sub-section (2) of the proposed section provides that where the Appellate Tribunal, High Court or Supreme Court has
wholly or partially set-aside the order, the Commissioner (Appeals) or the Commissioner or the Officer of Inland
Revenue, as the case may be, shall pass a new order within one year of the financial year in which the order was served
on the Commissioner (Appeals) or the Commissioner or the Officer of Inland Revenue. The time limitation of one year
shall not be applicable where the appeal or reference has been preferred against the order of the Appellate Tribunal or
the High Court.
4. Deposit, pending appeal, of duty demanded or penalty
Section 37
The Finance Act, 2017 has inserted a second proviso to sub-section (3) of Section 37 of the FE Act, whereby the notice
of recovery of duty would not be issued where the registered person has filed an appeal under Section 33 of the FE Act
and paid an amount of twenty five percent of the amount of duty due. The automatic stay under the said proviso
remains valid till the decision of the appeal by the Commissioner (Appeals). However, this proviso was hardly invoked by
registered persons, as the prerequisite payment at the rate of twenty five percent of the disputed demand proved to be
substantial. Similarly the life of the stay also did not commensurate with the cost of payment.
The Bill envisages to reduce the payment to 10% of the duty due for seeking the automatic stay of the duty due.
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5. Directorate General (Intelligence and Investigation) Inland Revenue
Sections 29 and 47C
Under Section 29(2) of the FE Act, the Board has established the Directorate General (Intelligence and Investigation)
Inland Revenue (DG I&I) and has appointed Officers of DGI&I . However, when functions and jurisdictions of the Officers
of DG I&I were defined by the Board, the same were declared ultra-vires by the Higher Courts since such powers were
not bestowed upon the Board under the above Section.
In order to remove this anomaly, the Bill seeks to insert clause (aa) in sub-section (2) of Section 29 of the FE Act
empowering the Board to specify the functions and jurisdictions of the Directorate General and its Officers and also
confer the powers of authorities specified in Section 30 of the FE Act.
Further, the Bill seeks to insert a new sub-section (2) in section 47C, which provides that the powers of the DGI&I and all
the orders passed, notices issued, actions taken and purported exercise of the powers and functions of the Officers of
DGI&I or the authorities specified in sub-section (2)(a) of Section 29 of FE Act shall be treated to have been validly
passed, issued and taken under FE Act. The proposed amendment seems to protect the previous
actions/orders/notifications issued in this regard.
6. Alternate Dispute Resolution
Section 38
The concept of Alternative Dispute Resolution (ADR) was introduced by the Finance Act, 2004, whereby a taxpayer may
bring any disputed matter, pending at any appellate forum, before the Board by making an application. For this
purpose, the Board is required to constitute a Committee (ADRC) within the period of sixty days of the filing of an
application by the taxpayer, comprising of an officer of Inland Revenue (not below the rank of a Commissioner) and two
persons from the notified panel, comprising of a retired judge not below a District and Sessions Judge, Chartered or
Cost Accountants, or Advocates or Income Tax Practitioners or reputable taxpayers, before which the matter is to be
placed for examination and recommendations to the Board .
The ADRC is required to examine the issue and may make enquiry, obtain expert opinion and cause an audit to be conducted by any officer of Inland Revenue or any other person. Based on the findings, the ADRC shall make recommendations as may be appropriate in the facts and circumstances of the case. The ADRC is required to make its recommendations within ninety days of its constitution. If the ADRC fails to make the recommendation within the above period of ninety days, the Board is empowered to dissolve the ADRC and constitute a new ADRC which is required to dispose of the matter within a further period of ninety days. However, if the new ADRC fails to resolve the dispute in the above period, the matter shall be taken up by the appellate forum where it is pending.
In case, the ADRC makes its recommendations within the statutory period of ninety days, the Board is then required to
pass an order on the recommendations of the ADRC, as may be appropriate, within ninety days of the receipt of ADRC’s recommendations and if such an order is not passed, the recommendations would be treated to be an order passed by the Board .
The most controversial provision was the powers of the Board either to reject the ADRC’s recommendations or to accede to such recommendations in the manner the Board deems appropriate. It was objected to on the basis that the ADRC, which comprises of a senior officer of the Board and professionals/reputable taxpayers, and which works on a pro-bono basis devoting its time, does not have any say in the conclusion of the dispute. As a result, the process of ADR has not yielded the desired results of reducing the pending litigation before the appellate authorities.
The intended substituted section now proposes substantial changes in the entire process of constitution and working of
the ADRC. These are discussed as under:
The ADRC members would be selected from a panel of Chartered or Cost Accountants or Advocates and retired Judges of High Court, retired District and Session Judges, income tax practitioner or reputable taxpayer besides an officer of Inland Revenue not below the rank of a Commissioner
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The taxpayer invoking the powers of ADRC and the Board shall withdraw the appeals pending before the Appellate
Authority
The ADRC shall not commence the proceedings unless the order of withdrawal by the Appellate Authority is communicated to the Board . In the event the order of withdrawal is not communicated within seventy five days of the appointment of the ADRC, the ADRC so appointed shall be dissolved.
The ADRC shall decide the dispute within one hundred and twenty days of its appointment excluding the period of
communicating the order of withdrawal
Instead of making the recommendations by the ADRC for consideration by the Board , the ADRC would be now empowered to decide the matter and such decision shall be binding on the aggrieved person as well as on the Board .
If the ADRC fails to decide the matter within the period of one hundred and twenty days, the Board shall dissolve
the ADRC, inform the Appellate Authority (which passed the order of withdrawal of matter) and the matter would be deemed to be pending before the Appellate Authority which shall decide the matter as if the appeal was never withdrawn. The Appellate Authority is required to decide the appeal within six months of the communication of the order of dissolution of the ADRC.
The proposed provisions however, do not appear to achieve the objects with which the concept of ADR was introduced.
This is for the reason that the very concept of “Alternate” would fade away with the requirement to give up the
appellate process. Presently, the order passed by the Board on the recommendations of the ADRC is not binding on the
aggrieved person but on the Board officials. Such an order is to be presented before the Appellate Authority which is
required to take into consideration while deciding the matter pending before it. This gives the aggrieved person an
option to evaluate the outcome of the ADR proceedings and decide whether to pursue the appeal or not. However, since
the appeal is now proposed to be withdrawn before the ADRC takes up the matter for decision, the aggrieved person
would have not this option. The law makers are therefore, urged to make the order of the ADRC binding on the Board
and not on the aggrieved person.
7. Access to records and posting of excise staff
Section 45
Section 45 of the FE Act empowers the Board or Chief Commissioner Inland Revenue and Commissioner Inland Revenue
to post Officers of Inland Revenue at the premises of a registered person, to monitor production, sale of taxable goods
and stock positions.
The Bills seeks to restrict the authority for posting of an Officer of Inland Revenue at the premises of the registered
person with the Board, and seeks to omit the reference of Chief Commissioner Inland Revenue and Commissioner Inland
Revenue from the above Section. Resultantly, it is now proposed that the Chief Commissioner Inland Revenue and
Commissioner Inland Revenue are no more authorized to post the Officers of Inland Revenue at the premises of a
registered person.
8. Restoration of power of Federal Government to issue notifications
Sections 3, 16
The Finance Act, 2017 has empowered the Board under various Sections of the FE Act to issue notifications subject to
the approval of the Federal Minister-in-charge. The Bill seeks to restore the powers of the Federal Government to issue
notifications under the following provisions of the FE Act:
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Provisions of the FE Act
Description
3(1)(c) Power to levy and collection of Federal Excise Duty (FED) on goods manufactured or produced in non-tariff areas and brought to tariff areas for sale or consumption.
3(4) Power of fixation of lower and higher FED rates and manner of charging, collection and payment of FED on any excisable goods and services
16(2) Granting exemption of FED on goods and services
9. Rate of duty on locally produced cigarettes and cement
First Schedule, Table-I
The Bill seeks to enhance the rate of duty on locally produced cigarettes and cement as follows:
Existing Entry Proposed Entry
S. No Description Rate of duty S. No. Description Rate of duty
9
Locally produced cigarettes if their on-pack printed retail price exceeds Four thousand five hundred rupees per thousand cigarettes.
Rupees 3,740 per thousand cigarettes
9
Locally produced cigarettes if their on-pack printed retail price exceeds Four thousand five hundred rupees per thousand cigarettes.
Rupees 3,964 per thousand cigarettes
10
Locally produced cigarettes if their on-pack printed retail price exceeds two thousand nine hundred and twenty-five rupees per thousand cigarettes but does not exceed four thousand five hundred rupees per thousand cigarettes.
Rupees 1,670 per thousand cigarettes
10
Locally produced cigarettes if their on-pack printed retail price exceeds two thousand nine hundred and twenty-five rupees per thousand cigarettes but does not exceed four thousand five hundred rupees per thousand cigarettes.
Rupees 1,770 per thousand cigarettes
10 a
Locally produced cigarettes if their on-pack printed retail price exceeds two thousand nine hundred and twenty-five rupees per thousand cigarettes but does not exceed four thousand five hundred rupees per thousand cigarettes.
Rupees 800 per thousand cigarettes
10 a
Locally produced cigarettes if their on-pack printed retail price exceeds two thousand nine hundred and twenty-five rupees per thousand cigarettes but does not exceed four thousand five hundred rupees per thousand cigarettes.
Rupees 848 per thousand cigarettes
13
Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers
One rupee and twenty five paisa per kilogram
13
Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers
One rupee and fifty paisa per kilogram
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10. Amendments in the Third Schedule
Section 16
The Third Schedule to the FE Act lists down the goods and services that are exempt from excise duty whether
conditionally or otherwise. The Bill proposes to insert new serial numbers to the Table-I (Goods) and Table-II (Services)
so as to enlarge the scope of exemption. The proposed entries are as follows:
TABLE – I (GOODS)
Entry No.
Description
22
Equipment, whether or not locally manufactured, imported by China Railway Corporation to be furnished and installed in Lahore Orange Line Metro Train Project subject to the following conditions: (a) that the equipment imported under this proposed entry of Table-I shall only be used in the
aforesaid Project; (b) that the importer shall furnish an indemnity bond, in the prescribed manner and format as set out
in Annex-A to the Table-I, at the time of import to the extent of FED exempted under this proposed entry of Table-I on consignment to consignment basis;
(c) that the Punjab Mass Transit Authority, established under the Punjab Mass Transit Authority Act,
2015 (ACT XXXIII of 2015), hereinafter referred to as the Regulatory Authority, shall certify in the prescribed manner and format as set out in Annex-B to the Table-I that the imported equipment is bona fide requirement of the Project under the Contract No. PMA-CR-NORINCO-OL, dated 20 April 2015, hereafter referred to as the contract, signed between the Regulatory Authority and CR-NORINCO;
(d) in the event a dispute arises whether any item is entitled to exemption under this proposed entry of
Table-I, the item shall be immediately released by the Customs Department against a corporate guarantee, valid for a period of six months, submitted by the importer. A certificate from the Regulatory Authority duly verified by the Transport and Communication section of the Ministry of Planning, Development and Reform, certifying that the item is covered under this proposed entry of Table-I, shall be given due consideration by the Customs Department towards finally resolving the dispute. Disputes regarding the local manufacturing only shall be resolved through the Engineering Development Board of the Federal Government;
(e) for the clearance of imported equipment through Pakistan Customs Computerized System the
authorized officer of the Regulatory Authority shall furnish all relevant information, as set out in Annex-B to the Table-I, online against a specific user ID and password obtained under section 155D of the Customs Act, 1969 (IV of 1969). In Collectorates or Customs stations where the Pakistan Customs Computerized System is not operational, the Director Reforms and Automation or any other person authorized by the Collector in this behalf shall enter the requisite information in the Pakistan Customs Computerized System on daily basis, whereas entry of the data obtained from the customs stations which have not yet been computerized shall be made on weekly basis;
(f) that the equipment, imported under this proposed entry of Table-I, shall not be re-exported, sold or
otherwise disposed of without prior approval of the Board . In case goods are sold or otherwise disposed of with prior approval of the Board the same shall be subject to payment of FED as may be prescribed by the Board ;
(g) in case the equipment, imported under this proposed entry of Table-I, is sold or otherwise disposed
of without prior approval of the Board in terms of condition (f), the same shall be subject to payment of statutory rates of FED as were applicable at the time of import;
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The Bill has also proposed a prescribed format for indemnity bonds in Annex- A and for certificates to be issued by the
Authorized Officer of Regulatory Authority, in Annex- B.
TABLE – II (SERVICES)
11. Other new levies
Mobile handset levy. The bill proposed a new Mobile handset levy on import of smart phones of different categories at the rates specified in
the below table:
Health levy on tobacco
The Bill has sought to introduce health levy on tobacco at the rate of ten rupee per kg. The Pakistan Tobacco Board or
its contractors, at the time of collecting cess on tobacco, directly or indirectly, shall collect health levy from every
person purchasing tobacco including manufacturers of cigarettes.
(h) notwithstanding the condition (f) and (g), equipment imported under this proposed entry of Table-I may be surrendered at any time to the Collector of Customs having jurisdiction, without payment of any FED, for further disposal as may be prescribed by the Board ;
(i) the indemnity bond submitted in terms of condition (b) above shall stand discharged on submission
of a certificate from the Regulatory Authority to the effect that the equipment has been installed or consumed in the said Project. In case the equipment is not consumed or installed in the project the indemnity bond shall be discharged on fulfillment of conditions stipulated at (f) or (g) or (h), as the case may be; and
(j) that violation of any of the above conditions shall render the goods liable to payment of statutory
rate of FED leviable on the date of clearance of goods in addition to any other penal action under relevant provisions of the law.
Explanation. For the purpose of this provisions, “equipment” shall mean machinery, apparatus, materials and all things to be provided under the contract for incorporation in the works relating to Lahore Orange Line Metro Train Project.
Entry No.
Description Heading / Sub-
heading Number
14 Commission paid by State Bank of Pakistan and its subsidiaries to National Bank of Pakistan or any other banking company for handling banking services of Federal or Provincial Governments as State Bank of Pakistan’s agents.
Respective Headings
Entry No.
Category of smart phone Rate of levy per
Set
1 Where Import value of handset (including duties and taxes) does not exceed Rs.10,000/-
Nil
2 Where Import value of handset (including duties and taxes) exceeds Rs.10,000 but does not exceed Rs.40,000 /-
Rs.1,000
3 Where Import value of handset (including duties and taxes) exceeds Rs.40,000 but does not exceed Rs.80,000 /-
Rs.3,000
4 Where Import value of handset (including duties and taxes) exceeds Rs.80,000 Rs.5,000
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CUSTOMS
Section Page
1. Definitions 74
2. Goods dutiable Section 18(3), (5) 74
3. General power to exempt from customs-duties Section 19(1), (5) 74
4. Power to use data exchange information for determination of customs value
Section 25AA 74
5. Power to take over the imported goods Section 25C(1) 74
6. False statement, error, etc. Section 32(3) 75
7. Refund to be claimed within one year Section 33(3A) 75
8. Provisional release of imported goods Section 83B 75
9. Frustrated cargo how dealt with Section 138(1) 75
10. Punishment for offences Section 156 75
11. Vesting of confiscated property in the Federal Government Section 182 76
12. Procedure in appeal Section 193A(2A) 76
13. Authorized economic operator programme Section 212A, Third Schedule
76
14. Power to make rules Section 219(3A) 77
15. Validation Section 221A(2) 77
16. First Schedule and Fifth Schedule 77
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1. Definitions
Pakistan customs-waters
Section 2(p)
It means the waters extending into the sea to a distance of twelve nautical miles measured from the appropriate
base line on the coast of Pakistan. The bill seeks to extend the distance to twenty-four nautical miles.
Person
Section 2(pa)
Currently, the expression “person” includes a company, an association, a body of individuals whether incorporated
or not. The Bill seeks to add “ a local manufacturer” in this list, which addition is by nature of activities instead of by
legal status.
2. Goods dutiable
Section 18(3), (5)
The bill seeks to restore the power of the Federal Government to levy regulatory duty. Through Finance Act, 2017, the said power was shifted to the Board with the approval of the Federal Minister-in-charge. The proposed amendment is introduced to address the decisions of the courts disapproving the amendment made vide Finance Act, 2017. It is also proposed to remove the reference of sub section 3, dealing with levy of regulatory duty, in sub section 5. As a result, the regulatory duty shall not be counted while computing the cumulative incidence of rate of customs duty agreed by the Government of Pakistan under the multilateral trade agreements.
3. General power to exempt from customs-duties
Section 19(1), (5)
The bill seeks to restore the power of the Federal Government to exempt duties in specific circumstances. Through Finance Act, 2017, the said power had been shifted to the Board with the approval of the Federal Minister-in-charge pursuant to the approval of the Economic Coordination Committee of the Cabinet. The proposed amendment is in line with the decisions of the courts disapproving the amendment made vide Finance Act, 2017. The bill also seeks to extend the date of enforcement to 30 June 2019 to all notifications issued up to 1st July 2016 or thereafter, which was previously available till 30 June 2018.
4. Power to use data exchange information for determination of customs value
Section 25AA
The bill seeks to introduce a new section authorizing the use of any information or data obtained in pursuance of any
bilateral or multilateral agreement entered into by the Board with any international organization, foreign customs
administration or any other foreign competent authority, for assessment of duty and valuation of goods.
5. Power to take over the imported goods
Section 25C(1)
In order to curb clearance of goods at under invoiced value, section 25C currently authorize the Collector to take over
such goods with the approval of the Board. The bill seeks to devolve this power from the Board to the Chief Collector.
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6. False statement, error, etc.
Section 32(3)
Any duty/ taxes or charge not levied, short-levied or erroneously refunded for any reason including by inadvertence,
error or misconstruction, can be recovered from the person after serving a show cause notice. The bill seeks to insert a
proviso, which provides that no show cause notice will be issued to any such person, who pays the amount of duties and
voluntarily prior to initiation of audit inquiry or investigation.
7. Refund to be claimed within one year
Section 33(3A)
Currently, there is no time limit within which the refund of customs duty is to be paid. The bill seeks to introduce a time
period of 180 days for deciding the refund claim from the date of filing of the claim, subject to extension of further 90
days.
8. Provisional release of imported goods
Section 83B
The bill seeks to introduce a new section to deal with release of imported goods where any offence was detected but not
liable to confiscation or needed further evidence at later stage. Under this section the Collector of Customs may allow
release of such goods only on written request of the owner of the goods, subject to payment of duties or taxes and
furnishing of bank guarantee or pay order against penalties or fine to be imposed.
9. Frustrated cargo how dealt with
Section 138(1)
This section deals with permission to re-export of goods without payment of duty subject to rules, where the good were
brought into the customs station due to inadvertence, misdirection or untraceability of the consignee. The bill seeks to
extend the scope to such consignees, who had dishonored their commitments.
10. Punishment for offences
Section 156
Section 156 deals with the penal provisions for offences defined under the Customs Act, 1969. Following new offences
have been added to the scope of this section.
Reference of section 155M (requisition of documents) has been added to clause 12A. Consequently, the following
penalties will attract in case of any violation of section 155M. However, it is to be noted that reference of section
155M has not been mentioned in the column “offences”. Therefore, levy of penalty without considering it an
offence seems to be an omission in the proposed amendment.
Clause Offences Penalties Reference to the
Section
12A If any person contravenes the provisions of section 26A and does not furnish any information as required by the rules,
such person shall be liable to a penalty not exceeding one million rupees and on conviction by a Special Judge shall be liable to imprisonment for a term not exceeding one year or with both.
26A, 155M
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Clause 63 provides for penalties on contravention of rules relating to transshipment of goods. The bill seeks to elaborate the penalties in the following manner:
Clause Offences Penalties Reference to the
Section
63 (i) If any goods which are loaded for transshipment, are pilfered, replaced en-route or failed to reach the port of destination, or any person transships goods not allowed to be transshipped
such goods and the conveyance illegally carrying these goods shall be liable to confiscation and any person including the custodian and the bonded carrier shall be liable to a penalty not exceeding ten times the value of the goods and he shall further be liable, upon conviction by a Special Judge, to imprisonment for term not exceeding seven years;
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63 (ii) If any person contravenes any rule relating to transshipment other than mentioned in clause (i),
such person including the custodian and the inland carrier shall be liable to penalty not exceeding five hundred thousand rupees or three times the amount of duties and taxes involved.
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11. Vesting of confiscated property in the Federal Government
Section 182
This section provides that any goods confiscated under the Act shall forthwith vest in the Federal Government and the
officer who orders confiscation shall take and hold possession of such goods. This bill seeks to extend the authority for
taking and holding the possession of such goods to any officer or person authorized by the Collector or Director.
12. Procedure in appeal
Section 193A(2A)
The bill seeks to add a new sub section (2A) to empower the Collector (Appeals) to grant stay against recovery of duty/taxes for a maximum period of 30 days on filing of appeal and after affording an opportunity of hearing to the officer of the concerned Collectorate or Directorate.
13. Authorized economic operator programme
Section 212A, Third Schedule
An Authorized Economic Operator (AEO) is defined by the World Customs Organization Framework of Standards to Secure and Facilitate Global Trade (WCO SAFE) as a party involved in the international movement of goods, in whatever function, that has been approved by, or on behalf of, a national Customs administration as complying with WCO or equivalent supply chain security standards. In the framework, several standards are included that can assist Customs administrations in meeting these new challenges. The bill seeks to insert a new section authorizing the Federal Government to device Authorized Economic Programme by notification in the Official Gazette. Further, the Board, with the approval of the Federal Government, may prescribe rules on matters pertaining to AEO, including criteria for granting status of AEO to an applicant, suspension and revocation of the AEO status and the extent of benefits under AEO programme.
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14. Power to make rules
Section 219(3A)
It is proposed to insert a new sub section (3A) which requires the publication of draft rules before issuance of the final
rules. This is intended to provide opportunity to the stakeholders for offering their comments.
15. Validation
Section 221A(2)
The bill seeks to insert a new sub-section (2) to validate the levy and collection of regulatory duty between 01 July
2017 to 30 June 2018, notwithstanding any order or judgment of any court held such levy as ultra vires. The proposed
amendment will give legal protection to the regulatory duty levied during the aforementioned period while nullifying the
effects of the courts
16. First Schedule and Fifth Schedule
The bill seeks to substitute the First Schedule and the Fifth Schedule; the proposed substitutions have not been released
yet.
The salient features available at the FBR’s website reveals the following:
Revenue Measure
Increase of additional customs duty from 1% to 2%.
Relief Measures
Import of duty free paper for printing of Quran weighing 60 g/m2 is allowed besides extending this facility to
Nashir-e-Quran registered with the government.
Customs duty (CD) on raw materials / inputs (104 PCTs) withdrawn and (28 PCTs) reduced for promotion of
exports.
Concessionary import of vintage or classic cars and jeeps allowed at fix duty/taxes of US$ 5,000.
Import of solar panels were exempted from the condition of ‘local manufacturing’ till 30th June 2018 which is
extended till 30th June, 2019.
Exemption, withdrawal and reduction of duty
Exemption of 5% CD on specified LED parts and components for manufacturers of LED lights and Levy of 2%
Regulatory Duty (RD) on LED bulb & Tubes, Energy Saving Bulbs & Tube to protect local industry.
Exemption of 3% CD on tanned hides in wet state.
Exemption of 3% CD on Micro Feeder Equipment used for food fortification.
Exemption of 5% CD on Tasigna (an anti-cancer medicines).
Exemption of 16% CD on charging stations for electric vehicles.
Exemption of duty to bovine semen for dairy sector.
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Withdrawal of 11% CD on acrylic tow.
Withdrawal of CD on two catalysts for use by PTA industry i.e. Hydrogen Bromide (11%) and Palladium-on-carbon
(3%)
To encourage local manufacturing of Optical Fiber Cables, CD on input materials i.e., Optical fiber (20%), Cable filing
compound (11%), Polybutylene (20%), Fiber reinforced plastic (20%) and Water blocking/ swellable tape (11%)
reduced to 5% besides reduction of RD on Optical Fiber Cables from 20% to 10%.
Reduction of CD to 3% on specified equipment used in cinema industry.
Reduction of CD on preparations for making animal feed from 10% to 5%,. Further, import of fans for corporate
dairy farmers allowed at concessionary rate of 3%, to support dairy sector
Reduction of CD on Acetic Acid from 20% to 16%.
Reduction of CD on growth promoters premix, vitamin premix, Vitamin B12 and Vitamin H2 for poultry sector from
10% to 5%.
Reduction of CD on Multi-ply and Aluminum foil from 20% to 18% for Liquid Food Packaging Industry.
Reduction of CD on finished rooms (Pre-fabricated structures) from 20% to 10% for setting up of new hotels/motels.
Reduction of CD on plasters from 16% to 11%.
Reduction of CD on film of ethylene from 20% to 16% for Liquid Food Packaging Industry.
Reduction of CD on Carbon Black (rubber grade) from 20% to 16%.
Reduction of concessionary rate of CD from 10% to 5% on silicon electrical steel sheets for manufacturing
transformers.
Reduction of CD from 16% to 8% on Coils of aluminum alloys used in manufacturing of Aluminum beverage cans.
Reduction of CD on import of coal, across the Board, from 5% to 3%.
Reduction of CD on import of Fire fighting vehicles from 30% to 10%
Reduction of CD from 50% to 25% and Exemption of 15% RD on Electric Vehicles and CD on kits of electric vehicle
reduced from 50% to 10%.
Reduction of CD from 16% to 11% and levy of 5% RD on Medium Density Fiber.
Reduction of CD on corrective glasses from 11% to 3%.
Reduction of CD on Lithium iron phosphate battery (LiFePO4) from 11% to 8%.
Tariff Rationalization
Increase of CD on double-sided tape from 3% to 11%.
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Increase of CD on rickshaw tyres from 11% to 20%, to protect domestic manufacturers.
Increase of CD on Soya bean oil from Rs.9050/MT & Rs.10200/MT to Rs.12000/MT and Rs.13,200/MT
respectively.
Increase of CD on aluminum auto parts scrap from 30% to 35%.
Increase of CD on Di-octyl Terephthalate (DOTP) from 3% to 20%.
New PCT codes created for Radial tyres, CKD/SKD kits for home appliances, CKD / SKD of Mobile Phone, Semi-
automatic washing machines, Petrol Generating sets, Kerosene based mineral oils, Relays, Fuses, Gear pumps and
Turbo chargers for vehicles, Electric conductors, Light fittings with fixed/fitted LED/SMD, Refrigerated out door
cabinet designed for insertion of electric and electronic apparatus, Digital/Processed Printing Inks, DOTP (Di-Octyl
Terephthalate) and Pigments and preparations based thereon.
Review of Regulatory Duty (RD)
Levy of 30% RD on export of waste & scrap of copper
Review of RD on non-essential and luxury items
10% RD levied on CKD/SKD kits of specified Home Appliance
Levy of RD @ Rs.175/set on CKD/SKD kits of mobile phone
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