KPMG Taseer Hadi & Co.

Chartered Accountants

Amendments through Finance Act 2013

Amendments through Finance Act, 2013

The amendments proposed through Finance Bill, 2013 in the Federal statues have now been enacted through Finance Act, 2013. The amendments proposed through the Bill, by and large, have been retained with some changes. Further, few new changes have also been made. This document explains significant changes made through Finance Act, 2013. The provisions of the Finance Act, 2013 are generally applicable from 01 July 2013, unless otherwise specified. These comments represent our interpretation of the legislation, and we recommend that while considering their application to any particular case, reference be made to the specific wordings of the relevant statue. 01 July 2013

2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Income Tax Ordinance, 2001

Income from property
Section 15

Income from property until tax year 2006 was liable to tax on net income basis, at applicable tax rates, after reducing specified allowances / deductions. Subsequently, this income was made liable to tax as a separate block of income at fixed rates. The Finance Bill, 2013 did not propose any amendment for taxation of property income. However, the Finance Act has now changed the regime for taxation of property income from final tax regime to net income basis. The salient features of taxation of property income , as enacted by the Finance Act are summarized below. In order to compute net income under the head Income from Property section 15A has been inserted, specifying deductions which interalia include the following. Repair allowance equal to 1/5th of the rent. Insurance premium paid for damage and destructions. Local rate, tax, charge or cess Collection charges upto 6 % of the rent chargeable to tax Ground rent Borrowing cost Legal cost Income under this head shall not be available for set off against a loss sustained by the person in any other head of income [ S. 56].

2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Income Tax Ordinance, 2001

The Finance Act further provides following withholding tax rates for the purpose of deduction from income from property. Recipient Company Individuals and association of persons Non-resident Withholding tax rate 15% of gross amount of rent 10% to 15%, on gross amount of rent 20% of gross amount of rent

Owner of the property has been made liable to pay advance tax in four installments, after adjusting the withholding tax deducted from the rent

2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Income Tax Ordinance, 2001

Minimum tax on builders and Land developers
Section 113A, 113B

The Finance Bill has proposed minimum taxation on the income of builders and land developer from business of construction and sale, and development and sale, of residential, commercial or other buildings or other plots at the rate of rupees 25 per square foot as per the construction or site plan and rupees 50 per square yards as per the lay out or site plan respectively. The Finance Act, has now provided that the tax would be collected at the rate and in the manner to be notified by the Federal government in the official Gazette.

Requirement for filing of Wealth Statement

Section 116

The Finance Bill has proposed to withdraw the threshold of income of Rs. 1,000,000 for filing of wealth statement. The Finance Act has now made it mandatory for every resident individual and member of AoP to file wealth statement with effect from tax year 2013. Further, it was proposed that every person (other than a company) whose income falls under FTR would be required to file wealth statement without any threshold of tax paid under FTR. The Finance Act, has now provided that the said amendment will be effective from tax year 2013.

2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Income Tax Ordinance, 2001

Appointment of Member of Appellate Tribunal
Section 130

The Finance Bill has proposed to extend the eligibility criteria for appointment of Judicial Member of Appellate Tribunal to an Officer of Inland Revenue Service and a law graduate having at least 15 years of service in BS-17 and above. The Finance Act has now changed the above criteria to an officer of Inland Revenue Services in BS-20 or above and who is a law graduate. It has been further provided that a person who has practiced professionally as a Chartered Accountant for a period of 10 years or more would be eligible to be appointed as Accountant Member of the Tribunal. Currently, an Accountant Member of the Tribunal is eligible to be appointed as the Chairperson of the Tribunal. The Finance Act has now provided that Accountant Member can be appointed as Chairperson of the Tribunal only in special circumstances.

Salary Taxation
Section 149

The Finance Bill has proposed that for the purpose of withholding tax from salaries on monthly basis, the employer shall not adjust tax withheld under other sections of the Ordinance and tax credits admissible on donations, investment in shares, contribution to approved pension fund and profit on debt. [S 61, 62, 63 and 64]. The Finance Act has now withdrawn the proposed amendments and has retained the eligibility of adjustments / tax credits while deducting tax on payment of salaries.

2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Income Tax Ordinance, 2001

Salary Taxation Tax Rates First Schedule Clause 1A The Finance Bill has proposed 12 slabs containing tax rates for taxation of salary income. The proposed tax rates have created anomalies in the income of different salary levels which resulted in lot of unrest amongst employees. The Finance Act prescribed following revised slab rates for salary taxation. S. No 1 2 3 4 5 6 7 8 9 10 11 Taxable income (Rs) Upto 400,000 400,001 to 750,000 750,001 to 1,400,000 1,400,001 to 1,500,000 1,500,001 to 1,800,000 1,800,001 to 2,500,000 2,500,001 to 3,000,000 3,000,001 to 3,500,000 3,500,001 to 4,000,000 4,000,001 to 7,000,000 Exceeding 7,000,000 Rate of tax 0% 5% Rs. 17,500 + 10% Rs. 82,500 + 12.5% Rs. 95,000 + 15% Rs. 140,000 + 17.5% Rs. 262,500 + 20% Rs. 362,500 + 22.5% Rs. 475,000 + 25% Rs. 600,000 + 27.5% Rs. 1,425,000 + 30%

2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Income Tax Ordinance, 2001

The comparative tax incidence at the existing rates, rate proposed by the Finance Bill and rates enacted by the Finance Act are given as under: Annual Gross Salary (Rs) Tax liability on existing tax rates (Rs) Tax liability on tax rates proposed by the Finance Bill (Rs) 12,500 37,500 67,500 140,000 235,000 350,000 487,500 642,500 807,500 1,137,500 1,472,500 1,832,500 2,192,500 2,552,500 2,912,500 6,812,500 Tax liability on tax rates enacted through Finance Act (Rs) 10,000 32,500 62,500 140,000 245,000 362,500 500,000 655,000 820,000 1,150,000 1,485,000 1,845,000 2,205,000 2,565,000 2,925,000 6,825,000
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600,000 900,000 1,200,000 1,800,000 2,400,000 3,000,000 3,600,000 4,200,000 4,800,000 6,000,000 7,200,000 8,400,000 9,600,000 10,800,000 12,000,000 25,000,000

10,000 32,500 62,500 140,000 245,000 512,500 640,000 760,000 880,000 1,120,000 1,360,000 1,600,000 1,840,000 2,080,000 2,320,000 4,920,000

2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Income Tax Ordinance, 2001

Collection of tax by NCCPL Not applicable to Mutual Fund
Section 233AA

Section 233AA deals with collection of tax by NCCPL on margin financing. The Finance Bill proposed to extend the scope of collection of tax on trading financing and lending of securities under Securities (Leveraged Markets and Pledging) Rules, 2011 in share business. The Finance Act has now provided that provisions of section 233AA shall not apply to any mutual funds specified in sub-clause (2) of clause (57) of Part I of the Second Schedule.

Collection of tax from telephone users

Section 236

Section 236 inter-alia provides that in the case of subscriber of mobile telephone and prepaid telephone cards tax shall be collected @ 10% of the amount of bill or sale price of the prepaid telephone card or sale of units through any electronic medium or whatever form. The Finance Act has now enhanced the rate of collection of tax from 10% to 15%.

Advance tax on foreign produced films and TV plays

Section 236E

The Finance Bill proposed advance tax on foreign produced films and TV plays whereby any person responsible for censoring or certifying a foreign produced film, a TV drama serial or play for screening and viewing shall collect advance tax in the following manner.

Foreign produced film Foreign-produced TV drama serial Foreign-produced TV play (single episode)

Rs. 1,000,000 Rs. 100,000 per episode Rs. 100,000

2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Income Tax Ordinance, 2001

The Finance Act has made following further amendments . The licensing authority has been made responsible to withhold tax instead of person responsible for censoring or certifying as recommended by Finance Bill. Tax shall be collected only in cases of foreign TV drama serial or a play dubbed in Urdu or any other regional language. Collection of tax has also been provided on import of foreign produced film at 12% of the value of film which shall be adjustable against final liability [S. 148].

The requirement of collection of advance tax on foreign produced films has not approved.

Advance tax on cable operators and other electronic media

Section 236F

The Finance Bill has proposed that Pakistan Electronic Media Regulatory Authority [PEMRA] shall collect advance tax at the time of issuance of license for distribution services or renewal of the license to a licensee in case of license category provided in PEMRA Rules, 2009 and other distribution services at varying amount. The Finance Act has now provided that the PEMRA shall collect advance tax at a flat rate of 20% on distribution services instead of varying rates. Whereas, the advance tax amount provided by the Finance Bill for license category provided in PEMRA Rules, 2009 has been retained.

Exemption of income of university and other educational institutions

Clause 58A of Part I of the Second Schedule

The Finance Bill has proposed to withdraw the exemption of income available in clause 92 of Part I of the Second Schedule to any university or other educational institution established solely for educational purposes and not for the purpose of profit The Finance Act has retained the above exemption by inserting clause 58A in Part I of the Second Schedule in the following manner. income of a university or other educational institution being run by a non- profit organizations existing solely for educational purposes and not for purpose of profit." The retained exemption shall be restricted to only non- profit organizations as defined in Section 2(36) of the Income Tax Ordinance, 2001.
2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

Income Tax Ordinance, 2001

Flying and submarine allowance
Clause (1) of Part III of the Second Schedule

The Finance Bill has proposed to withdraw the benefit of taxation @ 2.5% of flying and submarine allowance. The Finance Act has retained the above benefit with the condition that the flying and submarine allowance does not exceed the amount of basic salary.

Full time teachers and researchers

Clause (2) of Part III of the Second Schedule

The reduction of 75% in tax liability for full time teachers and researchers was proposed to be withdrawn through the Finance Bill. However, the Finance Act has restricted the above reduction in tax liability from 75% to 40%.

2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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Sales Tax Act, 1990

Retrospective application of sales tax
The Finance Bill has increased sales tax rate of 16 percent to 17 percent and few other rates with effect from 13 June 2013. However, the Honorable Supreme Court held the enhancement of tax rates without approval of Parliament as unconstitutional. The Finance Act has now provided applicability of enhanced tax rate with effect from 13 June 2013.

Taxable supplies to unregistered persons

The Finance Bill has proposed further tax of two percent of value on taxable supplies to a person who has not obtained registration number. The Finance Act, has now reduced the rate of two percent to one percent of the value.

Supplies to CNG Stations

Under Chapter IV of Sales Tax Special Procedures Rules, 2007,Gas Transmission and Distribution Company was required to charge sales tax from CNG stations on supply of natural gas at the rate of 9 percent in addition to sales tax under Section 3 of Sales Tax Act, 1990. The Finance Act has now provided legal coverage to the aforesaid levy by inserting sub-section 8 in Section 3 of the Sales Tax Act, 1990 with effect from 01 July 2007.

Power of officer of Inland Revenue to rectify mistake

The Finance Bill has proposed to substitute section 57 of the Sales Tax Act, 1990 relating to rectification of mistakes empowering Commissioner, Commissioner (Appeals) and Appellate Tribunal Inland Revenue to rectify mistakes apparent from records. The Finance Act has now empowered any Officer of Inland Revenue to rectify any mistake which is apparent from the records.

2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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 2013 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
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