COMMENTS ON FINANCE ACT, 2013

A.R.KHAN & COMPANY CHARTERED ACCOUNTANTS

Comments on Finance Act-2013

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TABLE OF CONTENTS

Page # Income Tax Sales Tax Federal Excise Income Support Levy Act, 2013 03-30 31-37 38-39 40

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Comments on Finance Act-2013

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Comparison
The Comparison of Finance Act, 2013 with Finance Bill-2013 contains amendments made through Finance Act 2013 relating to Income Tax, Sales Tax, Federal Excise Duty and Income Support Levy Act, 2013. All changes through the Finance Act 2013-14 are effective from July 1, 2013, except for the amendments made in Federal Excise Act, 2005 and Sales Tax Act, 1990 which are effective from June 13, 2013. All the amendments enabled through Finance Act 2013 were highlighted with green colour and non-existent amendments were crossed with red colour.

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Comments on Finance Act-2013

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FINANCE ACT-2013
INCOME TAX
SECTION 8 General provisions relating to taxes imposed under section 5,6, & 7 By omission of proviso to this section, withholding tax on dividend income of companies now considered as final tax. SECTION 15 Income from property 15(6)(7)-Omitted By omission of Sub Section 6 of section 15, the rate card for charging income from property is deleted. Now the property income is subject to normal taxation. Through amendment of Sub Section 7 of section 15, the relaxation for individuals or AOP in shape of non-chargeability of income tax where the rentals not exceeding 150,000 in a tax year with the condition that the individual or AOP doesnt derive taxable income under any other head has now been withdrawn. The rental income of individual and AOP is now subject to normal taxation irrespective of quantum of income. SECTION 15A-New Deductions in computing income chargeable under the head Income from Property 15A(1) In computing the income of a person chargeable to tax under the head Income from Property for a tax year, a deduction shall be allowed for the following expenditures or allowances namely:(a) In respect to repairs to a building, an allowance equal to 1/5 of the rent chargeable to tax inrespect of the building for the year, computed before any deduction allowed under this section. (b) Any premium paid or payable by the person in the year to insure the building against the risk of damage or destruction.

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Comments on Finance Act-2013

______________________________________________________________ (c) Any local rate, tax, charge or cess inrespect of the property, not being the income tax. (d) Any ground rent paid or payable. (e) Any profit on borrowed money to construct, renovate, extend or re-construct the property. (f) Any share in rent payable or paid to HBFC or a scheduled bank. (g) The amount of interest paid for mortgage or charge. (h) Any expenditure related to collection charges of rent not exceeding 6% of rent. (i) Any expenditure paid or payable for legal services acquired related to subject property. (j) Where there are reasonable grounds for believing that any unpaid rent inrespect of the property is irrecoverable, an allowance equal to the unpaid rent is allowable where:-

i)

ii)

iii)

The tenancy was bonafide, the defaulting tenant has vacated the property or steps have been taken to compel the tenant to vacate the property and the defaulting tenant is not in occupation of any other property of the person. The person has taken all reasonable steps to institute legal proceedings for the recovery of unpaid rent or has reasonable grounds to believe that legal proceedings would be useless. The unpaid rent has been included in the income of the person chargeable to tax under the head Income from Property for the tax year in which the rent was due and tax has been duly paid on such income.

15A(2) -New Where any unpaid rent was recovered the amount would be chargeable to tax. 15A(3) Where any person allowed a deduction for any expenditure and a person has not paid the liability or part of liability within 3 years, the unpaid amount of the liability shall be chargeable to tax. 15A(4) If any expenditure is allowed as a deduction for rent, the same shall not be allowed under any other head of income.

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______________________________________________________________ 15A(6) The provisions of section 21 of the Income Tax Ordinance, 2001 shall apply in determining the deductions allowed to a person under this section in the same manner as they apply in computing Income from Business SECTION 56 Set off of losses According to section 56 the person shall be entitled to set off the loss against the income under any other head of income. Through amendment, Salary income is no more available as part of income in terms of set off of losses. SECTION 56 Set off of losses According to section 56 the person shall be entitled to set off the loss against the income under any other head of income. Through amendment by Finance Act, 2013, Salary income and property income are no more available as part of income in terms of set off of losses. SECTION 59AA & 59B Group Taxation 59AA(5) & 59B(2)(g) The option of group taxation and group relief is available to those group companies which comply with such corporate governance requirements and group designation rules or regulations as specified by the SECP. SECTION 80 Persons 80(2)(b)(v) This definition of company has been broken into two parts, in clause v only co-operative society, finance society or any other society are included. 80(2)(b)(va) & (vb) A non-profit organization is now separated as clause (va) and a trust, an entity or body of persons established or constituted by or under any law for the time being enforce, as clause (vb). As a result of bifurcation of clause (v) into clause (va) and (vb), non-profit organization is now separately mentioned in clause (va). SECTION 111 Unexplained income or assets 5|Page www.arkhanco.com

Comments on Finance Act-2013

______________________________________________________________ 111(1) proviso The credit of agricultural income to the extent of payment of provincial income tax paid as per provincial laws shall be acceptable while probe u/s 111 of the Ordinance. SECTION 113 Minimum tax on the income of certain persons 113(1)(e), 113(2)(b) & 113(2)(c) The rate of minimum tax is enhanced from 0.5% to 1% which was earlier reduced to 0.5%, which was now restored at 1%. 113A A new tax framework is now introduced for builders in which where a builder derives income from the business of construction and sale of residential, commercial or other buildings, he shall pay tax @ Rs. 25/- per sq. ft. as per the construction or site plan approved by the relevant regulatory authority. The tax shall be computed on the basis of total number of sq. ft. sold or booked for sale during the year. The tax paid under this section shall be minimum tax on the income of builder from sale of such residential, commercial or other buildings. 113A A new tax framework is now introduced through Finance Bill 2013 for builders in which where a builder derives income from the business of construction and sale of residential, commercial or other buildings, he shall pay tax @ Rs. 25/- per sq. ft. as per the construction or site plan approved by the relevant regulatory authority. However, the Finance Act, 2013 now enunciates that the rate of minimum tax, mode and manner of payment shall notify in the official gazette. The tax paid under this section shall be minimum tax on the income of builder from sale of such residential, commercial or other buildings. 113B A new tax framework is introduced for land developers also, where a land developer derives income from the business of development and sale of residential, commercial or other plots, he shall pay tax @ Rs. 50/- per sq. yds. as per the layout or site plan approved by the relevant regulatory authority. The tax shall be computed on the basis of total number of sq. yds. sold or booked for sale during the year.

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______________________________________________________________ The tax paid under this section shall be minimum tax on the income of the developer from sale of such residential, commercial or other plots, sold or booked. 113B A new tax framework is introduced through Finance Bill 2013 for land developers also, where a land developer derives income from the business of development and sale of residential, commercial or other plots, he shall pay tax @ Rs. 50/- per sq. yds. as per the layout or site plan approved by the relevant regulatory authority. However, the Finance Act, 2013 now enunciates that the rate of minimum tax, mode and manner of payment shall notify in the official gazette. The tax paid under this section shall be minimum tax on the income of the developer from sale of such residential, commercial or other plots, sold or booked. SETON 114 Return of Income 114(1)(b)(viii) The limit of annual bill for filing tax return being a holder of commercial or industrial connection of electricity is reduced from 1,000,000 to 500,000. 114(1)(b)(ix) A new clause is finally inserted after clause 114(1)(b)(viii) whereby any person is registered with any Chamber of Commerce or any other trade or business association or any market committee or any professional body including Pakistan Engineering Council, Pakistan medical & Dental Council, Pakistan Bar Council or any Provincial bar Council, Institute of Chartered Accountants of Pakistan or Institute of Cost and Management Accountants of Pakistan is required to furnish return of total income. 114(1A) By amendment through Finance Act 2013, the limit of income from business for every individual is now enhanced from 350,000 to 400,000 regarding filing of tax return. 114(4) By introducing the amendment the statutory time limit of 30 days for filing tax return has been done away with. 114(6)(ba) At present no approval from Commissioner was required to file revised return. However, by introducing a new clause 114(6)(ba), prior approval of Commissioner made mandatory for filing revised return. SECTION 115 Persons not required to furnish a return of income 7|Page www.arkhanco.com

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______________________________________________________________ 115(1) & proviso-Omission By omission of sub section 1 and proviso to this sub section, all salaried persons, whether having other source of income or not, are required to file return of income regardless of quantum of taxable salary income. Annual Statement of withholding tax from salary, filed by the employer of such taxpayer will no more treat as return of total income furnished by the salaried person. SECTION 116 Wealth Statement 116(1), (2), (3), (4) Before amendment, this section was required to file wealth statement alongwith wealth reconciliation by every individual having income of 1,000,000 or more. The member of an AOP whose share from AOP was Rs. 1000,000 or more was also obliged to file wealth statement. The person having FTR income was also obliged to file wealth statement where tax paid is 35,000 or above in a tax year. Now, in the light of proposed amendment, all individuals are required to file wealth statement alongwith wealth reconciliation statement regardless of quantum of taxable income. SECTION 116 Wealth Statement 116(1), (2), (3), (4) Before amendment, this section was required to file wealth statement alongwith wealth reconciliation by every individual having income of 1,000,000 or more. The member of an AOP whose share from AOP was Rs. 1000,000 or more was also obliged to file wealth statement. The person having FTR income was also obliged to file wealth statement where tax paid is 35,000 or above in a tax year. Now, in the light of amendment made through Finance Act 2013, all individuals having business income, salary income or income subject to final taxation are required to file wealth statement alongwith wealth reconciliation statement regardless of quantum of taxable income. All the amendments made through Finance Act-2013 in section 116 of the Income Tax Ordinance, 2001 shall be effective for the Tax Year 2013. SECTION 118 Method of furnishing returns and other documents 118(1) No employer certificate is required to file from the salaried persons. Now all the salaried persons, having taxable salary are required to file tax returns alongwith wealth statement and reconciliation irrespective of quantum or threshold of taxable income. 8|Page www.arkhanco.com

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______________________________________________________________ 118(2A) The insertion of section 118(2A) is same as deleted proviso to sub section 1 of section 115 which requires that where salary income is 500,000 or more, the taxpayer shall file the return, electronically accompanied by the proof of payment of tax and wealth statement. 118(3), 118(6) By amendment of this sub section Employers Annual statement is no more treated as return, hence out of the ambit of schedule of filing return of income and other documents. SECTION 119 Extension of time 119(1)Clause(b)-Omission 119(2), (3)-amendment. The word employer certificate or certificate is now omitted and no more be treated as return for salaried persons, hence extension of time will not be allowed. SECTION 120A Investment Tax on Income Section 120A dealt with powers of Board to issue amnesty scheme. By omitting this section powers of FBR to issue Investment Tax Scheme (Amnesty Scheme) regarding undisclosed income stand withdrawn. SECTION 122C Provisional Assessment In the light of amendment made through Act, duration of provisional status of assessment u/s 122C reduced from 60 to 45 days. SECTION 130 Appointment of the Appellate Tribunal 130(3)(C) The criteria of appointment of judicial member of the Appellate Tribunal is now revamped and an Officer of Inland Revenue who is law graduate having service of atleast 15 years in BS 17 is proposed to be qualify for the post. 130(3)(C) The criteria of appointment of judicial member of the Appellate Tribunal is now again revamped through the Finance Act-2013 and now an Officer of Inland Revenue service in BS 20 who is law graduate also is eligible to qualify for the post. 130(5)-New The addition in criteria of appointment of accountant member of the Appellate Tribunal is introduced by Finance Act, 2013. 9|Page www.arkhanco.com

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______________________________________________________________ Now a Chartered Accountant who has practices professionally for a period not less than ten years is also eligible for the post. SECTION 147 Advance tax paid by the taxpayer With the corresponding changes in Section 147, the Act now includes the persons having rental income, in the list of taxpayers who required to pay advance tax. SECTION 148 Imports. 148(7)(e) The Act now make the tax should be withheld on import of foreign produced film imported for the purpose of screening and viewing at import stage. SECTION 149 Deduction of tax at source from salary: The Finance Bill sought to withdraw the facility of adjusting advance tax deducted from various bills of employees from tax liability, upon obtaining documentary evidences by the employers. After the proposed amendment, the employees shall file refund application in order to obtain tax refunds. SECTION 149 Deduction of tax at source from salary: The Finance Bill sought to withdraw the facility of adjusting advance tax deducted from various bills of employees from tax liability, upon obtaining documentary evidences by the employers. After the proposed amendment, the employees shall file refund application in order to obtain tax refunds However, the act has not adopted the above proposal and employers are still empowered to adjust tax deductible from salary upon obtaining documentary evidence on account of taxes withheld from employees. SECTION 152 Payment to non-residents It is proposed that definition of prescribed persons shall be adopted from section 153(7) of the Income Tax Ordinance, 2001 for the purpose of withholding tax from payment to permanent establishment in Pakistan of a non-resident person. SECTION 152 Payment to non-residents

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______________________________________________________________ The withholding tax on property income in Pakistan of a non-resident person is now liable to deducted u/s 155 of the Ordinance read with Division V, Part III of the First Schedule. Further, It is now enables by the finance act that definition of prescribed persons shall be adopted from section 153(7) of the Income Tax Ordinance, 2001 for the purpose of withholding tax from payment to permanent establishment in Pakistan of a non-resident person. SECTION 153 Payment for goods, services and contracts 153(7)(j)-Insertion This newly introduced strategy is to enlarge the ambit of withholding tax by including the sales tax registered persons as prescribed persons for the purpose of withholding taxes. 153A-Omitted Section 153A was introduced by FA 2008 earlier it was substituted by FA 2012 to withhold advance tax while making sale to distributors, dealers and wholesalers made by every manufacturer. This section is now re-introduced by Finance Act 2013 as section 236G. SECTION 155 Income from property 155(3) In order to enlarge the scope of withholding tax, the following persons are now included in the list of prescribed persons: a) Charitable institution b) A private educational institution, a boutique, a beauty parlour, a hospital, a clinic or a maternity home. c) Individual or AOP paying gross rent of Rs. 1,500,000 or above in a year. SECTION 164 Certificate of collection or deduction of tax 164(2) By this amendment only challans are now acceptable as attachement with the return at the time of filing. SECTION 165 Statements 165(1) Explanation According to newly added explanation to sub section (1) of section 165, all the prescribed requirements of this section has to be filed with the FBR. 11 | P a g e www.arkhanco.com

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______________________________________________________________ 165(6) proviso-omission By omitting the proviso filing of annual statement for the prescribed threshold of Rs. 300,000 to 350,000 is no longer required. SECTION 165A Furnishing of information by banks By insertion of newly introduced section 165A after section 165, every banking company will make arrangement to provide to the FBR the following information: a) Online access to database of account holders. b) A list containing particulars of deposits aggregating Rs. 1,000,000 or more made during the preceding calendar month. c) A list of payment made against credit card aggregating Rs. 100,000 or more during the preceding calendar month. d) A list of loans written off exceeding Rs. 1,000,000 during a calendar year. e) A copy of each currency transaction report and suspicious transaction report generated and submitted by it to the financial monitoring unit under the Anti-Money laundering Act, 2010 165A(2) Each banking company will nominate senior officer to coordinate with the officers of the FBR in order to provide documents and information in addition to those listed in Section 165A(1). 165A(3) The banking company shall not be liable to any civil, criminal or disciplinary proceedings for furnishing information required under this ordinance. 165A(4) Subject to section 216, all information received under this section shall be used only for tax purposes and kept confidential. SECTION 168 Credit for tax collected or deducted. 168(3) The Act now enables to keep clause (a) (c) and (d) of sub section (3) of section 153 and section 234(5) out from the list as envisaged in section 168(3) of the Ordinance, comprising no tax credit shall be allowed which is final tax SECTION 169 Tax collected or deducted as a final tax. 12 | P a g e www.arkhanco.com

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______________________________________________________________ 169(3) Before amendment dividend received by the company was taxed at normal rates, now with the proposed amendment the dividend is subject to FTR in the hands of company. SECTION 169 Tax collected or deducted as a final tax. 169(1) Before the amendment made through Finance Act, the advance tax so collected from any person being the owner of goods transport vehicle was final tax on the income of such person from plying or hiring out of such vehicle and no other tax was payable on such income. Now the advance tax collected under this section shall be adjustable and treated as advance tax. The act omits the reference to section 153 (3)(a)(c) and (d) and making a general reference to type of withholding taxes classified as final tax under section 153(3).

169(3) Before amendment, dividend received by the company was taxed at normal rates, now with the proposed amendment the dividend is subject to FTR in the hands of company. The omission has been made in section 169(3) and as a result the income from property has been brought to normal tax regime.

SECTION 171 Additional payment for delayed refunds. 171(2)-Explanation The newly introduced explanation to sub section 2 of section 171 is now enacted in order to clarify that for the purpose of compensation, the refund become due from the date refund order is made and not from the date the assessment of income treated to have been made u/s 120. SECTION 172 Representatives. 172(3)(b)-Explanation The newly introduced explanation to clause (b) of sub section 3 of section 172 is enacted in order to widen the term business connection by defining the term which includes transfer of an asset or business in Pakistan by a non-resident. SECTION 177 Audit. 13 | P a g e www.arkhanco.com

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______________________________________________________________ 177(10)-Explanation In the tax year 2010 section 214C was introduced being selection of audit by the Board only and powers of commissioners to select the cases for audit was stand withdrawn, but Commissioners continued to select cases for audit and left no option for taxpayers but to approach Honable High Courts for relief. The Honable High Courts given due relief to taxpayers and instruct Commissioners not to select the cases for audit. Now with the amendment, it is declared that powers of the Commissioners u/s 177 are independent of the powers of the Board u/s 214C. The Commissioners are now empowered to conduct audit and call for the records / documents including books of account, independently. SECTION 181 Taxpayers registration 181(3)-proviso It is enacted by newly added proviso that FBR may allow use of CNIC in place of NTN, in case of individuals. SECTION 181C Displaying of NTN This newly added section now restricts every person who have an NTN, to display the same at a visible place of his business. SECTION 182 Offences and penalties Penalty for non-filing of return Before amendment the penalty for non-filing of return was 0.1% of tax payable for each day of default subject to minimum penalty of 5,000 and maximum penalty of 25% of tax payable in respect of that tax year. After amendment, the maximum penalty should increase to 50% of tax payable with the provision that if the penalty worked out as aforesaid is less than Rs.20,000 or no tax is payable for that tax year such person shall pay a penalty of Rs.20,000. Penalty for non-filing of statement u/s 115, 165 or 165A It is now proposed to impose a penalty of Rs. 2500 for each day of default subject to minimum penalty of Rs.50,000. Penalty for non-filing of wealth statement /reconciliation 181(1)(1AA)

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______________________________________________________________ It is now enacted to impose a penalty of Rs.100 for each day of default. No minimum / maximum penalty is proposed. The amount of penalty should calculate on the days of default @ Rs. 100/- only. Penalty for non-compliance of notices u/s 177 It is enacted that penalty should enhance from Rs. 5,000 to Rs. 25,000 if taxpayer fails to produce the records and documents on receipt of first notice, from 10,000 to 50,000 on receipt of second notice and from 50,000 to 100,000 on receipt of third notice. Penalty for non-displaying of NTN It is enacted that penalty should be Rs. 5000 for non-displaying of NTN at the place of business. SECTION 214C Selection for audit by the Board. 214C(1A) A new sub Section 214C(1A) is inserted after Sub-Section (1) of section 214C, where by the Board shall keep the audit selection parameters, confidential. 214C(3)-Explanation In the tax year 2010 section 214C was introduced being selection of audit by the Board only and powers of commissioners to select the cases for audit was stand withdrawn, but Commissioners continued to select cases for audit and left no option for taxpayers but to approach Honable High Courts for relief. The Honable High Courts given due relief to taxpayers and instruct Commissioners not to select the cases for audit. However, it is declared that powers of the Commissioners u/s 177 are independent of the powers of the Board u/s 214C. The Commissioners are now empowered to conduct audit and call for the records / documents including books of account, independently. SECTION 233AA Collection of tax by NCCPL By the proposed amendment in addition to collection of advance tax from members of stock exchange of Pakistan, NCCPL shall collect advance tax from members of margin financer, trading financiers and lenders. SECTION 233AA Collection of tax by NCCPL 15 | P a g e www.arkhanco.com

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______________________________________________________________ By the amendment introduced by the Act, in addition to collection of advance tax from members of stock exchange of Pakistan, NCCPL shall collect advance tax from members of margin financer, trading financiers and lenders. A proviso to section 233AA of the Ordinance has been added by Finance Act 2013 clarifying that this section shall not apply to any Mutual Fund specified Clause 57(2) of Part 1 of Second Schedule. SECTION 234 Tax on motor vehicle 234(1) Division III of part IV of First Schedule is proposed to be categorizing for collection of advance tax along with motor vehicle tax. 234(2) As a streamline measure, if motor vehicle tax is collected in installments or lump sum the advance tax may also be collected in like manner. 234(5) Before the proposed amendment the advance tax so collected from any person being the owner of goods transport vehicle was final tax on the income of such person from plying or hiring out of such vehicle and no other tax was payable on such income. Now it is enacted through Finance Act 2013 that advance tax collected under this section shall be adjustable which means that the income should be taxed under Normal Tax Regime (NTR). It is worth mentioning that provisions of section 113 regarding minimum tax should also be attracts where turnover is 50 million rupees or more. SECTION 236D Advance tax on functions and gathering. A new section 236D is introduced whereby every owner, lease holder, an operator or manager of a marriage hall, marquee, hotel, restaurant, commercial lawn, club, a community place or any other place used for such purpose, is required to collect advance tax @ 10% on the total amount of bill from a person arranging or holding a function including food, service or any other facility, in the places, mentioned above. For the purpose of this section, function means, wedding related event, seminar, workshop, a session, an exhibition, a concert, a show, a party or any other gathering held for such purposes. SECTION 236E Advance tax on foreign produced films, TV plays and serials. A newly added section is now legislated to collect advance tax at various rates ranging from Rs. 100,000 to Rs. 1,000,000 before screening and viewing the foreign produced film, TV drama serial or a play. The authority 16 | P a g e www.arkhanco.com

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______________________________________________________________ responsible for issuing censor certificate shall be responsible to collect advance tax at the rates specified in Division XII of Part IV of First Schedule. The advance tax so collected shall be adjustable. SECTION 236F Advance tax on cable operators and other electronic media. A newly added section is ordained to collect advance tax at various rates ranging from Rs. 5,000 to Rs. 875,000 before issuance of license for distribution services or renewal of the license. M/s Pakistan Electronic Media Regulatory Authority (PEMRA) shall be responsible to collect advance tax at the rates specified in Division XIII of Part IV of First Schedule. The advance tax so collected shall be adjustable. SECTION 236G Advance tax on sale to distributor, dealers and wholesalers This section authorized every manufacturer or commercial importer of electronics, sugar, cement, iron and steel products, fertilizers, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint or foam sector to collect advance tax @ 0.1% of gross amount of sales, from distributors, dealers and wholesalers. Earlier this section was introduced by FA2008 as section 153A, which was substituted by FA 2012. The provision of this section was held in abeyance till 30.6.2013. This section is now re-introduced by Finance Act 2013 as section 236G. The tax collected is adjustable tax and the credit for the tax collected under this section is allowed while computing tax on taxable income for the same tax year. SECTION 236H Advance tax on sale to retailers This section authorized every manufacturer or commercial importer of electronics, sugar, cement, iron and steel products, fertilizers, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint or foam sector to collect advance tax @ 0.5% of gross amount of sales, from retailers. The tax collected is adjustable tax and the credit for the tax collected under this section shall be allowed while computing tax on taxable income for the same tax year. SECTION 236I Collection of advance tax by educational institutions

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______________________________________________________________ The newly introduced section authorized every person preparing fee voucher or challan to collect advance tax @ 5% of tuition fee and all other charges received by the educational institution by whatever name called excluding the amount which is refundable, from parents or guardian. As per proposed section, advance tax shall not be collected where annual fee doesnt exceed Rs. 200,000/The tax collected is adjustable tax against the tax liability of either of the parents or guardian. SECTION 236J Advance tax on dealers, commission agents and arhatis etc. A newly added section is now legislated to collect advance tax at various rates ranging from Rs. 5,000 to Rs. 10,000 from dealers, commission agents and arhatis. The market committee shall be responsible to collect advance tax at the rates specified in Division XVII of Part IV of First Schedule. The advance tax so collected shall be adjustable. FIRST SCHEDULE Rates of tax for individuals and AOP
There is no change in basic limit of exemption which is maintained at Rs. 400,000/for both individual and AOP. The proposed Slab as would be applicable both for business Individuals and firms is as under;

Individual & AOP

S.# 1 2 3 4 5 6 7 TAXABLE INCOME Upto 400,000 400,001 -750,000 750,001-1,500,000 1,500,001-2,500,000 2,500,001-4,000,000 4,000,001-6,000,000 6,000,001 and above RATE OF TAX 0% 10% of the amount exceeding 400,000 35,000+15% of the amount exceeding 750,000 147,500+20% of the amount exceeding 1,500,000 347,500 + 25% of the amount exceeding 2,500,000 722,500 + 30% of the amount exceeding 4,000,000 1,322,500 + 35% of the amount exceeding 6,000,000

Salaried Persons
S.# 1 2 3 TAXABLE INCOME Upto 400,000 400,001 -500,000 500,001-800,000 RATE OF TAX 0% 5% of the amount exceeding 400,000 5000+7.5% of the amount exceeding 500,000

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4 5 6 7 8 9 10 11 12 800,001-1,300,000 1,300,001-1,800,000 1,800,001-2,200,000 2,200,001-2,600,000 2,600,001-3,000,000 3,000,001-3,500,000 3,500,001-4,000,000 4,000,001-7,000,000 7,000,000 and above 27,500+10% of the amount exceeding 800,000 77,500 + 12.5% of the amount exceeding 1,300,000 140,000 + 15% of the amount exceeding 1,800,000 200,000 + 17.5% of the amount exceeding 2,200,000 270,000 + 20% of the amount exceeding 2,600,000 350,000 + 22.5% of the amount exceeding 3,000,000 462,500 + 25% of the amount exceeding 3,500,000 587,500 + 27.5% of the amount exceeding 4,000,000 1,412,500 + 30% of the amount exceeding 7,000,000

Salaried Persons
S.# 1 2 3 4 5 6 8 9 10 11 12 TAXABLE INCOME Upto 400,000 400,001 -750,000 750,001-1,400,000 1,400,001-1,500,000 1,500,001-1,800,000 1,800,001-2,500,000 2,500,001-3,000,000 3,000,001-3,500,000 3,500,001-4,000,000 4,000,001-7,000,000 7,000,000 and above RATE OF TAX 0% 5% of the amount exceeding 400,000 17,500+10% of the amount exceeding 750,000 82,500+12.5% of the amount exceeding 1,400,000 95,000 + 15% of the amount exceeding 1,500,000 140,000 + 17.5% of the amount exceeding 1,800,000 262,500 + 20% of the amount exceeding 2,500,000 362,500 + 22.5% of the amount exceeding 3,000,000 475,000 + 25% of the amount exceeding 3,500,000 600,000 + 27.5% of the amount exceeding 4,000,000 1,425,000 + 30% of the amount exceeding 7,000,000

Marginal Relief-omission The facility of Marginal relief to salaried persons is no more available. Division II Part I Rate of Tax for Companies The rate of tax is 34% for the TY 2014 for company only. Division VI Part I Income from property The rate of tax to be paid u/s 15 in the case of an individual and an AOP shall be

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The rates of tax to be paid u/s 15 in the case of company shall be

Division VI Part 1 of First Schedule is now omitted and no more in existing nature. PART II Rates of Advance Tax The revised rates of advance tax at import stage shall be a) 5% of the value of goods in case of industrial undertaking b) 5% in all other cases of companies. c) 5.5% in case of all taxpayer other than those covered at (a) and (b) above. PART II Rates of Advance Tax The revised rates of advance tax at import stage shall be a) 5% of the value of goods in case of industrial undertaking b) 5% in all other cases of companies. c) 5.5% in case of all taxpayer other than those covered at (a) and (b) above. d) 12% of the value of the film in the in the case of a foreign produced film imported for the purpose of screening and viewing. PART III DIVISION III Payments for goods and services 20 | P a g e www.arkhanco.com

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______________________________________________________________ Part III Division III(1)(b) The proposed rates of WHT in case of sale of goods are as under: a) 3.5% of the gross amount payable in the case of companies b) 4% of the gross amount payable in the case of other taxpayer. The rate of WHT is now increased from 3.5% to 4% in case of payment to both individual and AOP. Part III Division III(2)(ii) The proposed rates of WHT in case of providing of services are as under: c) 6% of the gross amount payable in the case of companies d) 7% of the gross amount payable in the case of other taxpayer. The rate of WHT is now increased from 6% to 7% in case of payment to both individual and AOP. Part III Division III(3) The proposed rates of WHT in case of contracts are as under: a) 6% of the gross amount payable in the case of companies b) 6.5% of the gross amount payable in the case of other taxpayer. The rate of WHT is now increased from 6% to 6.5% in case of payment to both individual and AOP. Part III Division V The rate of tax to be deducted u/s 155 in the case of an individual and an AOP shall be

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Part III Division V The rate of tax to be deducted u/s 155 in the case of an individual and an AOP shall be
S.No 1 2 Gross amount of rent Upto 150,000 150,000-1,000,000 Rate of Tax Nil 10% of the gross amount exceeding 150,000 85,000+15% of the gross amount exceeding 1,000,000

Exceeds 1,000,000

The rates of tax to be deducted u/s 155 in the case of company shall be 15% of the gross amount of rent. DIVISION VI PART III The rate of withholding tax on prizes and winnings is now enhanced from 10% to 15% on prize bonds and cross word puzzle. Part IV Division IIA The provision of withholding tax @ 10% applicable on financing of carry over trade (badla) deducted by Stock Exchange, is now withdrawn. Part IV Division IIB Rates for collection of tax by NCCPL The rate of deduction u/s 233AA proposed to be 10% of profit or mark-up or interest earned by the member, margin financier or securities lender. Part IV Division III(4) The new tax rates is proposed to be added where motor vehicle tax is collected in lump sum 22 | P a g e www.arkhanco.com

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DIVISION V PART IV The rate of advance tax to be collected from the bills of telephone users is now enhanced from 10% to 15%. Part IV Division VI Cash withdrawl from bank The rate of tax to be deducted u/s 231A is proposed to be enhanced from 0.2 to 0.3% Part IV Division VII Purchase of Motor cars and jeeps

Part IV Division VIII Advance tax at the time of sale by auction The rate of collection of tax u/s 236A is proposed to be enhanced from 5 to 10% of the gross sale price of any property or goods sold by auction. Part IV Division XI-addition Advance tax on functions and gathering The rate of tax to be collected under each sub-section (1) and (2) of section 236D shall be 10% 23 | P a g e www.arkhanco.com

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______________________________________________________________ Part IV Division XII-addition Advance tax on foreign produced films and TV plays. Rate of collection of tax u/s 236E shall be as follows:

Part IV Division XII-addition Advance tax on foreign produced films and TV plays. Rate of collection of tax u/s 236E shall be as follows:
1 2 Foreign produced TV Drama Serial Foreign produced TV play (single episode) Rs. 100,000 episode Rs. 100,000 per

Part IV Division XIII-addition Advance tax on foreign produced films and TV plays. Rate of collection of tax u/s 236F shall be as follows:

Part IV Division XIII-addition Advance tax on foreign produced films and TV plays. Rate of collection of tax u/s 236F in case of cable TV operators shall be as follows 24 | P a g e www.arkhanco.com

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Licence Category as provided in PEMRA Rules H H1 H-II R B B-1 B-2 B-3 B-4 B-5 B-6 B-7 B-8 B-9 B-10 Tax on Licence fee Tax on Renewal

7500 10000 25000 5000 5000 30000 40000 50000 75000 87500 175000 262500 437500 700000 875500

10000 15000 30000 30000 40000 50000 60000 75000 100000 150000 200000 300000 500000 800000 900000

The rate of tax collected by PEMRA u/s 236F in the case of IPTV, FM Radio, MMDS, Mobile TV, Mobile Audio, Satellite TV Channel and landing rights shall be 20% of the permission fee or renewal fee, as the case may be.

Part IV Division XIV-addition Advance tax on sale to distributor, dealer or wholesaler: The rate of collection of tax u/s 236G is proposed to be 0.1% of the gross amount of sales. Part IV Division XV-addition Advance tax on sale to retailers The rate of collection of tax u/s 236H is proposed to be 0.5% of the gross amount of sales. Part IV Division XVI-addition Collection of advance tax by educational institutions The rate of collection of tax u/s 236I is proposed to be 5% of the gross amount of fee. Part IV Division XVII-addition Advance tax on dealers, commission agents and arhatis etc. The proposed rates of collection of tax u/s 236J are as follows:

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SECOND SCHEDULE Exemptions The following amendments have been proposed in the second schedule: Part I The following clauses are proposed to be omitted / amended:
Clause # 53A Omission / Effect Amendment Omitted The perquisites related to free or concessional passage provided by airlines to its employees and family is proposed to be withdrawn, hence no free passage to employees and their family is available. Omitted The Income of university or other educational institution, which was established not for purpose of profit, is now taxable. Amendment The income derived by a zone enterprise is exempt for a period of 10 years starting from the date the developer certifies that the zone enterprise has commenced commercial operation.

92

126E

SECOND SCHEDULE Exemptions The following amendments have been proposed in the second schedule: Part I The following clauses are proposed to be omitted / amended:

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Clause # 53A Omission / Effect Amendment Omitted The perquisites related to free or concessional passage provided by airlines to its employees and family is proposed to be withdrawn, hence no free passage to employees and their family is available. Addition The Income of University or other educational institution being run by non-profit organization existing solely for educational purposes and not for purpose of profit is now exempt. Omitted The Income of university or other educational institution, which was established not for purpose of profit, is now taxable. Amendment The income derived by a zone enterprise is exempt for a period of 10 years starting from the date the developer certifies that the zone enterprise has commenced commercial operation.

58A

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Part II-reduction in tax rates Clause (28)-addition The rate of tax u/s 148 on import of hybrid cars is proposed as under:

Part III-Reduction in Tax Liability Clause Omission / # Amendment 1 Omitted Effect

1a)Any amount received as flying allowance by pilots, flight engineers, navigators of Pakistan Armed Forces, Pakistani Airlines or Civil Aviation Authority, Junior Commissioned Officers or other ranks of Pakistan

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Armed Forces; and 1b)submarine allowance of officers of Pak Navy (taxed as 2.5%) 1A) Where the taxable income [other than income on which the deduction of tax is final], in a tax year, of a taxpayer aged [60] years or more on the first day of that tax year does not exceed [one million] rupees, his tax liability on such income shall be reduced by 50%. 2) The tax payable by a full time teacher or a researcher, employed in a non profit education or research institution duly recognized by Higher Education Commission, a Board of Education or a University recognized by the Higher Education Commission, including government training and research institution, shall be reduced by an amount equal to 75% of tax payable on his income from salary.] All the above perqs / allownces /reduction are proposed to be withdrawn. The amount of tax payable, in a year in which the rupee is revalued or devalued, by a taxpayer whose profits or gains are computed in accordance with the rules contained in the Fifth Schedule to this Ordinance and who had entered with the Government into an agreement which provides for such reduction, shall be reduced to the amount that would be payable in the absence of the revaluation or devaluation of the rupee. Such reduction in tax liability is no more available.

Omitted

Amendment

Where any taxpayer engaged in the business of distribution of cigarettes manufactured in Pakistan is required to pay minimum tax on the amount representing its turnover under section 113, the amount of tax payable under the said section shall be reduced by eighty percent. For the word company the word taxpayer shall be substituted, which certainly means that the reduction of minimum tax to the tune of 80% is proposed to be available to all taxpayers including company.

Part III-Reduction in Tax Liability

Clause # 1 Omission Amendment Amendment / Effect Proviso: Provided that the reduction under this clause shall be available to so much of the flying allowance or the submarine allowance as doesnt exceed an amount equal to the basic salary. 2) The tax payable by a full time teacher or a researcher, employed in a non-profit education or research institution duly recognized by Higher Education Commission, a Board of Education or a University recognized by the Higher Education Commission, including government training and

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research institution, shall be reduced by an amount equal to 40% of tax payable on his income from salary.] The reduction in tax liability shall be reduced from 75% to 40% for teachers etc. as defined in Clause 2 Part III Second Schedule. 7 Amendment Where any taxpayer engaged in the business of distribution of cigarettes manufactured in Pakistan is required to pay minimum tax on the amount representing its turnover under section 113, the amount of tax payable under the said section shall be reduced by eighty percent. For the word company the word taxpayer shall be substituted, which certainly means that the reduction of minimum tax to the tune of 80% is proposed to be available to all taxpayers including company.

Part IV- Exemption from specific provisions

Clause # 56A Omission Addition Addition / Effect The provisions of sub-section (7) of section 148 and clause (a) of sub-section (1) of section 169 shall not apply to a person who is liable to withholding tax under section 236E. The above provisions relates to PTR which was not applicable to section 236E which relates to withholding of advance tax on foreign produced films, TV plays and serials. (iv) in the case of any resident individual, no tax shall be deducted from income or profits paid on,a)Defence Savings Certificates, Special Savings Certificates, Savings Accounts or Post Office Savings Accounts, or Term Finance Certificates (TFCs), where such deposit does not exceed one hundred and fifty thousand rupees; and As a result, the income on deposits upto 150,000 which was paid on DSC, SSC POSA and TFCs is now subject to withholding tax @ 10%. 72A Addition The provisions of clause (l) of section 21, sections 113 and 152 shall not apply in case of a Hajj Group Operator in respect of Hajj operations provided that the tax has been paid at the rate of Rs.3,500 per Hajji for the tax year 2013 and Rs.5,000 per Hajji for the tax year 2014 in respect of income from Hajj operations. In the year 2011, FBR has agreed in their minutes of meeting with the representatives of HGOs to accept Rs. 2500 per haji as tax on income from hajj operations in the year 2012 and Rs. 3000 for TY 2013. Now in the budget 2013, the agreed rates of Rs. 3,000 are enhanced to 3,500 and fix rate of Rs. 5,000 per haji is now proposed to be paid for TY 2014.

59(iv)(a)

Omitted

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72B Addition the provisions of section 148 shall not apply to an industrial undertaking if the tax liability for the current tax year, on the basis of determined tax liability for any of the preceding two tax years, whichever is the higher, has been paid and a certificate to this effect is issued by the concerned Commissioner. The proposed addition is self-explanatory. The industrial undertaking has to produced exemption certificate issued by the concerned Commissioner, having jurisdiction in order to get exemption from WHT at import stage.

THIRD SCHEDULE-Part II Initial Allownce and First Year Allownce

Clause # 1 Omission Addition Amendment / Effect The rate of initial allowance u/s.23 of the Income Tax Ordinance, 2001 has been reduced from 50 to 25% on plant and machinery

SEVENTH SCHEDULE
Rule # 6 Omission Addition Amendment / Effect The rate of tax of 35% is proposed to be withdrawn on the dividend received from money market funds and income funds.

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SALES TAX
SECTION-2 Definitions The Finance Act-2013 introduced / amended the following definitions: (5AC) CREST means the computerized program for analyzing and cross matching of sales tax returns, also referred to as Computerized Risk based Evaluation of Sales Tax. (22A) Provincial Sales Tax means tax levied under provincial laws or laws relating to Islamabad Capital Territory, which are declared by the Federal Government through notification in the official Gazette, to be provincial sales tax for the purpose of input tax;; (33A) supply chain means the series of transactions between buyers and sellers from the stage of first purchase or import to the stage of final supply;; (44)(a) By the amended definition, a time frame is now included in order to determine the time of supply which is the goods delivered or made available or the time when any payment is received by the supplier, whichever is earlier. (44)(c) The proposed amendment related to part payment received by the supplier before delivery of goods. The following points should be accounted for: (i) for the supply in a tax period, it shall be accounted for in the return for that tax period; and (ii) in respect of exempt supply, it shall be accounted for in the return for the tax period during which the exemption is withdrawn from such supply;; In case of payment received before delivery of goods, the same should be reflected in relevant tax period and sales tax shall be paid accordingly in such period. SECTION 3 Scope of tax The rate of sales tax has been increased from 16% to 17% wef from June 13, 2013.

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______________________________________________________________ 3(1A)-New Further tax @ 2% imposed on taxable supplies made to a person who has not obtained registration number. In short, the rate is now 19%. 3(1A)-New Further tax @ 1% imposed on taxable supplies made to a person who has not obtained registration number. In short, the rate is now 18%. The subject further tax was re-introduced in Finance Bill-2013 as 2% but reduced to 1% by Finance Act-2013. 3(1B) By the proposed amendment, the Board planning to charge tax on the production capacity of plants, machinery, undertaking, establishment or installations producing or manufacturing such goods, in lieu of collecting tax on taxable supplies. The SRO is awaited for list of goods subject to this amendment. 3(8)-New Notwithstanding the rate of sales tax as contained in sub-section (1) and not withstanding anything contained in any law or notification made thereunder, in case of supply of natural gas to CNG stations, the gas transmission and distribution company shall charge sales tax from the CNG stations @ 9% in addition to the sales tax chargeable under sub-section (1) on the value of supply, where the value for the purpose of levy of sales tax shall include price of natural gas, charges, rent, commissions and all local, provincial and federal duties and taxes but excluding the amount of sales tax a provided in clause (46) of section (2). This rate shall include the rate of tax chargeable under sub-section (1) and 9% in lieu of value addition made by the CNG stations. The rate of sales tax under this sub-section shall have effect and shall be deemed to have taken effect on and from the Ist day of July, 2007. Explanation: The rate of 9% in lieu of value addition is less than the standard rate of tax chargeable under sub-section (1) as all input tax adjustment have been catered for while determining the figure of 9%. SECTION 8 Tax credit not allowed 8(5)(caa) By the proposed amendment the tax credit shall not be allowed to adjust input tax if discrepancy is indicated by CREST or input tax of which is not verifiable in the supply chain. The amendment is made to give legal cover to CREST. 32 | P a g e www.arkhanco.com

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______________________________________________________________ SECTION 21 De-Registration, blacklisting and suspension of registration. 21(3) By the proposed amendment, during the phase of blacklisting the invoices issued by him shall be rejected through a self-speaking appealable order and refund or input tax credit shall not be claimable. 21(4) New sub section is proposed to be added where if a person is engaged in issuing fake or flying invoices, claiming fraudulent input tax or refunds, does not physically exist or conduct actual business, or is committing any other fraudulent activity, the Board, Commissioner or such officer may after recording reasons in writing, block the refunds or input tax adjustments of such person a nd direct the concerned Commissioner having jurisdiction for further investigation and appropriate legal action. SECTION 22 Records 22(1)(ea)-addition Now gate passes both inwards or outwards and transport receipt have been made part of Record to be maintained by the registered person. Before amendment, there was no legal cover to such Records. This will help to discourage issuance of fake and flying invoices. SECTION 25 Access to records, documents etc. In the tax year 2010 section 72B was introduced being selection of audit by the Board only and powers of commissioners to select the cases for audit was stand withdrawn, but Commissioners continued to select cases for audit and left no option for taxpayers but to approach Honable High Courts for relief. The Honable High Courts given due relief to taxpayers and instruct Commissioners not to select the cases for audit. Now with the proposed amendment it is declared that powers of the Commissioners u/s 25, 38, 38A, 38B and 45A are independent of the powers of the Board u/s 72B. The Commissioners are now empowered to conduct audit and call for the records / documents including books of account, access to premises, call to provide information, independently. SECTION 40C-addition Monitoring or tracking by electronic or other means.

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______________________________________________________________ After section 40B the new section proposed to be inserted in order to control / monitor the production, sales, clearance, stocks or any other related activity of the registered person at factory / mill premises. The relevant rules and regulation are not yet issued till date. SECTION 45B Appeals The Commissioner (Appeals) is proposed to be empowered to stay the recovery for 30 days in total. SECTION 57 Rectification of mistakes
The scope of the provision has been widen and brought in the line of Section 221 of the Income Tax Ordinance, 2001.

SECTION 73 Certain transactions not admissible Presently, under the explanation given in section 73 regarding definition of business bank account it was sufficient to declare the same to the Commissioner having jurisdiction. Now it is mandatory to report the business bank account through prescribed form STR1 or change in particular application should be moved to FBR. 3rd SCHEDULE: Retail items Under the proposed amendment, the following new serial numbers and entries shall be added:

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As per Third Schedule, tax shall be charges @ 17% of the retail price printed by the manufacturer. 6th SCHEDULE Exemptions Table-1 Exemption from sales tax is no more available to milk preparations obtained by replacing one or more of the constituents of milk by another substance, whether or not packed for retail sale. The amendment was agitated and noted as a harsh decision. Table-2 The supplies against international tender is now subject to sales tax @ 17% on the value of goods. The following items have been inserted in sixth schedule being exempt supply. (vide SRO 501(1)/2013.

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NOTIFICATIONS The following SROs have been notified dated: June 12, 2013 effective from June 13, 2013; specified otherwise.

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THE FEDERAL EXCISE ACT, 2005

SECTION 3A The scheme of charging further tax @ 2% on the supply made to unregistered persons has been re-introduced by this proposed amendment. No change in rate of further duty has observed as compared to sales tax which was reduced to 1% further tax. SECTION 17 Records 14(da) Now gate passes both inwards or outwards and transport receipt have been made part of Record to be maintained by the registered person. Before amendment, there was no legal cover to such Records. This will help to discourage issuance of fake and flying invoices SECTION 33(1A) Appeals The Commissioner (Appeals) is proposed to be empowered to stay the recovery for 30 days in total. SECTION 35 Explanation In the tax year 2010 section 42B was introduced being selection of audit by the Board only and powers of commissioners to select the cases for audit was stand withdrawn, but Commissioners continued to select cases for audit and left no option for taxpayers but to approach Honable High Courts for relief. The Honable High Courts given due relief to taxpayers and instruct Commissioners not to select the cases for audit. Now with the proposed amendment it is declared that powers of the Commissioners u/s 35, 45 & 46 are independent of the powers of the Board u/s 72B. The Commissioners are now empowered to conduct audit and call for the records / documents including books of account, access to premises, call to provide information, independently. SECTION 45A Monitoring or tracking by electronic or other means. After section 45 the new section proposed to be inserted in order to control / monitor the production, sales, clearance, stocks or any other related activity of the registered person at factory / mill premises. 38 | P a g e www.arkhanco.com

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______________________________________________________________ The relevant rules and regulation are not yet issued till date. FIRST SCHEDULE Table-1 Excisable goods S.No. Effect 4,5,6, Rate of duty on aerated water has been enhanced from 6 to 9% of retail price. 9,10 The amount of duty has been increased from Rs. 1.48 to Rs. 2.325 per cigarette, approx. 54 Rate of FED on Oilseeds is proposed to be 40 paisa per kg. 55 FED @ 10% ad val. Is proposed to be charged on motor cars, SUV having cylinder capacity 1800 cc or above.

Table-II Excisable Services S.No. Effect 7 The FED on insurance services related to goods, fire, theft, marine and other Insurance services was merged with serial # 8 of Table II. 8 In addition to banking companies and nonbanking financials institutions the following companies have proposed to be added to impose duty @ 16%. 1. Insurance Companies 2. Co-operaive financing society. 3. Modarba 4. Musharika 5. Leasing companies 6. Foreign Exchange dealers 7. Asset management companies.

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INCOME SUPPORT LEVY ACT, 2013 Introduction The old concept of wealth tax is now re-introduced by using new name i.e Income Support Levy Act, 2013 The levy is applicable from TY 2013. Charge of levy: The income support levy tax is not chargeable to immovable assets. Only net movable wealth exceeding one million rupees shall be chargeable to tax @ 0.5% of the value declared after deducting liabilities related to movable assets, if any. Time and Manner of Payment A person shall pay the levy alongwith wealth statement. Default Surcharge Where a person fails to pay levy, or the levy so paid is less than the amount payable, he shall be liable to pay default surcharge @ 16% per annum on the amount not paid.

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