Budget Brief 2017

KPMG Taseer Hadi & Co.
Chartered Accountants
Budget Brief
2017
An Economic and Tax Commentary
The Budget Brief 2017 contains
a review of economic scenario
and highlights of Finance Bill
2017 as they relate to direct and
indirect taxes and certain other
laws.
The provisions of the Finance

Bill 2017 are generally applicable
from 01 July 2017, unless
otherwise specified.
The Budget Brief contains the

comments, which 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 statutes.
This publication will be updated,

after enactment of the Bill, to
provide comments on enacted
provisions, including changes in
the proposals contained in the
Bill. The update will be posted on
our website www.kpmg.com.pk
subsequent to the enactment of
Finance Act 2017.
26 May 2017
Contents
Contents
Budget at a Glance 1
Economic Analysis 3
Economic Scenario 7
Highlights
- Income Tax 15
- Sales Tax 17
- Federal Excise 18
- Customs 19
Significant Amendments
- Income Tax 21
- Sales Tax 41
- Federal Excise 53
- Customs 57
- The Common Reporting Standard 61
Budget at a Glance
Budget % Revised % Budget %
Estimate Estimate Estimate
2016-17 2016-17 2017-18
------------------(Rupees in billion) ----------------

Revenue
Tax Revenue 3,956 77.8 3,825 78.0 4,330 78.4
Non Tax Revenue 959 18.9 912 18.6 980 17.7
4,915 96.7 4,737 96.6 5,310 96.1
Public Accounts Receipts - Net 171 3.3 165 3.4 213 3.9
5,086 100.0 4,902 100.0 5,523 100.0
Less: Provincial Share 2,136 43.5 2,121 44.8 2,384 44.9
Net Revenue 2,950 56.5 2,781.0 55.2 3,139.0 55.1
Expenditure
Development 1,051 20.7 936 18.8 1,340 25.8
Current 4,031 79.3 4,049 81.2 3,852 74.2
5,082 100.0 4,985 100.0 5,192 100.0
Deficit 2,132 43.5 2,204 44.8 2,053 44.9
Funded by
Capital Receipts 470 22.0 160 7.3 428 20.9
Domestic Debt - Banks 453 21.2 741 33.6 390 19.0
External Debt 820 38.5 996 45.2 838 40.8
Privatization Proceeds 50 2.4 18 0.8 50 2.4
Surplus from Provinces 339 15.9 289 13.1 347 16.9
2,132 100.0 2,204 100.0 2,053 100.0
Source: Budget in Brief 2017-18 - the deficit figure does not match with budget documents.
2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a Budget Brief 2017 1
member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (KPMG International), a Swiss entity. All rights reserved.
2 Budget Brief 2017 2017 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.
Economic Analysis
Macroeconomic Indicators
Budget Revised Budget Forecast Forecast

16-17 16-17 17-18 18-19 19-20
Real GDP Growth (%) 5.7 5.3 6.0 6.5 7.0
Inflation (%) 6.0 4.5 6.0 6.0 6.0
(as percentage of GDP)
Total Revenue 16.0 16.2 17.2 17.3 17.5
Tax Revenue 12.9 13.1 13.7 14.2 14.6
FBR Tax Revenue 10.8 11.1 11.2 11.8 12.2
Non Tax Revenue 3.1 3.1 3.5 3.2 2.9
Total Expenditure 19.8 20.4 21.3 21.3 21.4
Current 14.9 15.9 15.0 14.6 14.6
Development 4.7 4.5 6.3 6.7 6.8
Fiscal Balance -3.8 -4.2 -4.1 -4.0 -3.9
Revenue Balance 0.9 0.2 2.2 2.7 2.9
Total Public Debt 61,4 64.8 61.4 57.8 54.3
GDP at market prices (Rs. In billions) 33,509 31,862 35,919 48,876 46,597
Source: Budget Brief 2016-17
GDP Growth
16-17
15-16 14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08
(P)
Nominal GDP US$ billion 304 279 271 244 231 224 214 177.0 168 170
Nominal GDP Rs. billion 31,862 29,102 27,443 25,168 22,385 20,047 18,276 14,867 13,200 10,638
Real GDP Growth % 5.28 4,71 4.04 4.05 3.7 3.8 3.6 2.6 0.4 5.0
Sectoral GDP Growth %
Agriculture 3.5 0.3 2.1 2.5 2.7 3.6 2.0 0.2 3.5 1.8
Industry 5.0 5.8 5.2 4.53 0.7 2.6 4.5 3.4 -5.2 8.5
Services 6.0 5.6 4.4 4.46 5.1 4.4 3.9 3.2 1.3 4.9
Sectoral Share in GDP %
Agriculture 19.5 19.9 20.7 21.1 21.4 21.6 21.7 22 22.5 21.9
Industry 20.9 20.9 20.7 20.5 20.3 21.0 21.2 21.0 20.9 22.1
Services 59.6 59.2 58.6 58.4 58.2 57.4 57.1 56.9 56.6 56
Source: Pakistan Economic Survey 2016-17
Public Debt
16-17 13-14
15-16 14-15 (P) 12-13 11-12 10-11 09-10 08-09
(Mar) (P)
Public Debt (Rs. billion) 20,873 19,678 17,381 15,991 14,318 12,695 10,767 9,006 7,731
Domestic 14,748 13,627 12,199 10,920 9,522 7,638 6,017 4,654 3,860
Foreign currency 6,124 6,051 5,182 5,071 4,797 5,057 4,750 4,352 3,871
Public Debt (% of GDP) 65.5 67.6 63.3 63.5 64.0 63.3 58.9 60.6 57.8
Domestic 46.3 46.8 44.5 43.4 42.5 38.1 32.9 31.3 29.2
Foreign currency 19.1 20.8 18.8 20.1 21.4 25.2 26.0 29.3 28.6
Overall Deficit
35,000 4.2% 8.2% 9.0%

4.6% 7.3% 8.0%
30,000 5.3% 6.8%
5.5% 6.5% 7.0%
6.2%
25,000
5.2% 6.0%
20,000 5.0%
15,000 4.0%
3.0%
Rs. Billion
10,000
2.0%
5,000 1.0%
0 0.0%
16-17 15-16 14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08
GDP(mp) Overall Deficit

2016-17 Deficit as per budget speech by Finance Minister.
Social Indicators
16-17 15-16 14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08
Population (millions) 199.1 195.4 191.71 188.02 184.35 178.9 175.3 171.7 168.2 164.7
Unemployment rate (%) 5.9 5.9 5.9 6.0 6.2 6.0 6.0 5.5 5.2 5.2
GNP per capita US$ 1,629 1,531 1,514 1,389 1,334 1,320 1,274 1,072 1,026 1,053
Total investment - % of GDP 15.78 15.55 15.71 14.65 14.96 15.08 14.1 15.8 17.5 19.2
National Savings - % of GDP 13.1 14.3 14.7 13.4 13.9 13 14.2 13.6 12.0 11.0
Exchange Reserves
16-17 15-16 14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08
Exchange reserves (US$ billion) 20.8 21.4 18.7 14.1 11.0 16.5 17.1 12.2 11.5 16.4
Imports Cover (months) 4 7.9 4.9 3.7 2.9 4.4 5.0 4.2 3.9 4.9
Rupee to USD parity 104.8 104.8 101.8 98.8 99.7 94.5 86.0 83.8 78.5 62.5
* 2016-17 and 2015-16 unemployment figures not provided, therefore taken as same as for 2014-15.
Inflation
Inflation
25
23.1
20
18 17.6
15
10.5 13.4
10.7 12.9
8.4 7.1
10
11 8.3 7.9
3.5 9 8.4
4.3 3.9
5
3.4 5.3
4.1
2.9 2.1 4.5 8.6 7.4 11 13.7 10.1 17 12
0
16-17 15-16 14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08
CPI Food * Non Food *
Economic Scenario
The incumbents have been in the driving seat for Even back then, however, and more off late, these
the last four years and now preparing to go in to the laurels often came with a pinch of salt, generally
final stretch, and while on the face of it the economy advising on the need to build upon these macro
appears to be broadly stable, there are concerns gains and simply to do more; which suggestions
that the earlier exceptional macro level gains may were perhaps prescient considering the numerous
not have been sufficiently robust enough to micro level steps needed to arrest the decline at the
stimulate the micro economy. Undoubtedly, the grass root level of the economy. Stagnant, rather
economy was, if not a complete mess, in dire straits falling real wage, growing unemployment,
when the current government came into power, and insufficient savings and next to none level of
the finance teams efforts to safely navigate near to investment have resulted in a deteriorating quality
insurmountable hurdles, consequently reversing the of life for the middle classes, which perhaps has
economic decline, and simultaneously boosting key fostered corruption at every level of, actual or
macroeconomic indicators, has received perceived power, across the society. While the
international and domestic acclaim over the last need to generate political mileage from
couple of years. macroeconomic gains achieved through sheer hard
work is quite understandable, it is simultaneously
Bloomberg, Forbes, Wall Street Journal and The necessary not to procrastinate, or get complacent in
Economist have all, over the years, been praising the feel good environment; those at the helm of
Pakistans successes on the economic front with affairs perhaps need to focus more on the criticism
more than exciting headlines: Pakistan: The Next then on the compliments
Colombia Success Story, Pakistan is Potential
Global Turnaround Story, Pak Economy doing To be sure, the problems remain staggering. The
better than US, Canada economies, Pakistan education system is poor, exports are not making
most underrated economy, Pakistans economy is progress and rely too heavily on textiles, investment
a pleasant surprise, Pakistan Economy has is insufficient, and much of the country has a series
improved in recent years. Perhaps, the crowning of interlocking problems with weather, water and
achievement was in June last year when MSCI drought. The political situation is improved but still
upgraded Pakistans status to Emerging Market; of far from ideal, and Pakistan is not situated in a calm
course not forgetting the improvements in countrys part of the world. There is plenty of talk of the
rating by Moodys and S&P. On a lighter note, such country benefiting from Chinas One Belt, One
positivism flowing from economic write ups on Road initiative, but for now I consider that
Pakistan in international markets was sufficiently speculative, extracts from the article Pakistan's
uplifting enough for one professional to remark, Economy Is a Pleasant Surprise by Tyler Cowen,
Are we living in the same Pakistan that these guys Bloomberg February 2017.
are reporting on! On a more serious note, optimism
permeated the country as well and the Feel Good The country is also held back by inefficient and
mood remains ubiquitous across Pakistan; ignoring often cartelised industries, which have fallen behind
the political conflicts. In fact, in our last four rivals in India and Bangladesh. Exports, 60% of
commentaries we have continuously praised the which are textiles, have been shrinking for years.
Government for its discipline and efforts to revive Much more needs to be done to create an educated
the economy sufficiently for the world to sit up and workforce. Almost half of all those aged five to 16
notice. are out of school25m children. Health, like
education, is woefully underfunded, in part because
successive governments shy away from taxing the swelling populations. Second, Pakistans export
wealthy. Only 0.6% of the population pays income performance is poor. In the first eight months of the
tax. As the World Bank puts it, Pakistans long-term current fiscal year, exports fell by 12% when
development depends on better nutrition, health compared to the same period the year before.
and education, The Economist 19th January 2017. Pakistani government assessments attribute the
slide to economic slowdowns in China and the EU -
Greater exchange rate flexibility and efforts to both key export markets for Pakistan - and low
improve export sector productivity are needed to levels of investment in export sectors. However, the
address the widening trade deficit as well as chief explanation for Pakistans sluggish exports is
strengthen the economys ability to absorb medium- the same it has been the same for decades: the
term CPEC-related and other capital outflows. country's export mix lacks diversity. While many
Bringing the power distribution sector to full cost developing economies in Asia have gradually
recovery will be critical to ensure long-term success embraced the services sector and gravitated away
of new energy initiatives and minimize fiscal costs. from traditional manufacturing, Pakistan has stuck
Alongside, monetary policy needs to remain to low-value-add textiles, Michael Kugelman, The
prudent. Discussions also focused on the reforms Interpreter, Lowy Institute for International Policy,
needed to enhance Pakistans social safety nets, 11th May 2017.
restructuring and seeking private sector
participation in loss-making public enterprises, The Pakistani state, apart from the military, is weak
promoting financial inclusion and deepening, and and its economic performance disastrous...There
improving the business climate. Maintaining the are drawbacks for Pakistan in becoming too
reform momentum will be critical for Pakistan to dependent. Its trade deficit with China has doubled
achieve its broader economic objectives, IMF Staff in recent years, exacerbating declines in its foreign
press release on end of Article IV Mission to currency reserves. This has forced the country to
Pakistan April 5, 2017. seek emergency loans from outside sources
including China to maintain payments on older
Persistent, steady progress on the structural loans made in foreign currencies....Chinas
reform agenda will be necessary if Pakistan is to investments, rather than prioritising Pakistans
accelerate its growth recovery and lift millions more development interests, favours its own strategic
out of poverty.... However, significant risks remain ones. But it will be Pakistan that has to pay back
and the country should guard against global the loans that fund the projects. ...Pakistan has also
slowdown by continuing to make key reforms, become the biggest importer of Chinese military
including expanding the electricity supply, boosting hardware and has eight submarines on order. ..Nor
tax revenues, strengthening the business is there any guarantee that the projects will be
environment and encouraging private sector to commercially viable. You do not have to look far to
invest, The World Bank Press release, 28 April find Chinese-backed white elephants. The
2016. Hambantota port in Sri Lanka, which struggles to
pay staff salaries, is one. The most obvious risk for
First, Pakistan has crippling energy and water China is that Pakistan ultimately proves unable to
shortages. ...water shortages pose big problems for honour its debts, and that it becomes as
agriculture, which consumes more than 90% of undependable a client as it has for the US, The
Pakistans water and employs more workers than Financial Times, 25th April 2017. While the extracts
any other sector in the country. Water woes have from FT editorial are completely unpalatable and
prompted many farmers to seek new livelihoods in unequivocally incomprehensible, they have been
cities already struggling to provide jobs for their included to provide a complete flavour of how the
World perceives Pakistans economy under their percentage of GDP is only 2.3% in FY2016
own agendas; still even purely negative critique compared with 2.2% in FY2015. The present
needs to be scanned for legitimate analysis, if any. government focuses strongly on primary education
and endeavor to resume the compendium on
Notwithstanding, summarising all of the above education from 2.0 percent of its GDP to 4.0
comments, they boil down to falling exports, percent by 2018 on education sector, Extract from
insufficient investment in education and lack of Pakistan Economic Survey 2013-14.
domestic investment. We chose to ignore the
comment on water and draught, since it would And what are the results of all of these factors
require related technical input. Irrespective, the according to SBP, This surge in imports was partly
government must obviously be aware of the spate a result of rising commodity prices, especially crude
of news items and reports terming Pakistan water oil and palm. This combined with decline in exports
stressed with the risk of turning into a water scarce and remittances resulted in the almost doubling of
country by 2040. Water management is a zero sum the current account deficit to US$ 3.5 billion during
game with zero margins for error; if this research is first half of the year. Three months later, the
right, and going forward Pakistan is unable to current account deficit for nine months has swelled
manage its water issues, the economy will not to US$ 6.13 billion, again as per SBP. According to
matter in any case. Pakistan needs big dams. the Pakistan Economic Survey 2016-17, the current
account deficit had increased to US$ 7.25 billion for
Moving on, while State Bank of Pakistan (SBP) has the period ended July-April 2017.
visibly become less critical in its recent economic
write ups, the issues highlighted earlier are the very According to the data available at the SBP Website,
ones SBP implicitly or explicitly points out in its The workers remittance for the period July-April 2017
State of Pakistan- Second Quarterly report for the stood at US$ 15.6 billion dollars as against US$
year 2016-17: In particular there is a need to 16.04 billion for the same period last year; a decline
further reduce cost of doing business, enhance of 2.8%. The government however, remains
productivity, and remove structural impediments in optimistic, according to the Pakistan Economic
the export sector. Productivity enhancement Survey 2016-17, of achieving the target of US$ 20.2
requires investment in technology and human billion for FY 2017. Irrespective, considering the
resource, and high cost of doing business and situation in Middle East, going forward workers
structural impediments in the export sector, choke remittance most likely will remain muted.
and frustrate the much needed investment. With
less than needed spending on education for The net deficit for the period July-April 2017 on
decades coupled with reduced demand for unskilled account of trading in goods and services and on
labour globally, remittance growth, if at all, will primary income was US$ 25.9 billion dollars
remain muted. And while Pakistan struggles with compared with US$ 21.1 billion for the same period
educating its children and transiting into an last year. According to estimates, last years deficit
industrial nation, the world has moved on to the was after an estimated gain of US$ 3 to US$ 4
Fourth Industrial Revolution; the advent of Artificial billion, on account of collapsing international oil
Intelligence will continue to displace humans from prices; and while the prices have slightly moved up
the workforce globally, all of which is definitely not recently, it was because of cheap oil continuing in
good news for Pakistan. The need to invest in 2017, that Pakistan imported and consumed more
education perhaps should be the top priority of the energy; undoubtedly a key factor in Pakistans
Government. According to the Pakistan Economic economic turnaround. Falling global oil and
Survey 2016-17, education spending as a commodity prices were also the reason for low
inflation in the country; which after decades has Pakistans external debt and liabilities stood at US $
been under 4% for two years now. However, 75.5 billion as at 31st March 2017; the comparable
international oil and commodity prices, hence figure at 30th June 2013 was US$ 60.1 billion.
domestic inflation, are uncontrollable variables, and Moodys has predicted that Pakistans external debt
some global analysts have already issued warnings and liabilities will stand at US$ 79 billion by end of
that oil prices may go up by 30% in the next 12 June 2017. Considering that the net trade and
months. Albeit predicting oil prices are a Mugs remittance deficit is US$ 10 billion for the first 10
game, hence no point dwelling on next years exact months of the fiscal year 2017, the strategy to bring
trade deficit or expected inflation; except that on a down this mountainous debt through trade (Workers
ball park basis, an increasing trade deficit and remittance being considered as export of human
higher inflation appear inevitable. resources) is perhaps a nonstarter; ignoring CPEC
for the moment, and any other miraculous positive
On the inflation front, according to the Pakistan development on the economic front, such as early
Economic Survey 2016-17, CPI inflation stood at cheap power generation from Thar coal fields, the
4.09% during July-April 2017 compared with 2.79% nation might be looking at austerity and highly
percent for the same period last year. The reduced consumption in the near to foreseeable
increasing trend is visible already. future.
In essence trade deficit is excessive consumption FDI, sale of intangible assets, mostly in the form of
by a nation in the present which in substance allowing market access, can also balance the
suggest that our future generations will have to foreign exchange requirements. According to SBP,
curtail their consumption to pay for our largesse. total foreign investment in Pakistan for the period
Temporarily, excessive consumption can be July to April 2017 stood at US$ 2.3 billion of which
financed by foreign debt; however the only way to direct investment was US$ 1.7 billion; for the
pay for foreign debt is by earning foreign exchange comparable period last year direct investment was
either through export surpluses or workers US$ 1.5 billion. Direct investment from China stood
remittances. Another methodology to pay off at around US$ 713 billion for the period July-April
excessive consumption is to sell assets, referred to 2017 as against around US$ 590 billion for a
in normal economic parlance as Privatization; the comparable period in 2016; again these are SBP
reason why it has been compared with selling the numbers and are assumed to be inclusive of CPEC.
family silver. The Governments efforts to privatize What is even more surprising, in fact inexplicable
key institutions have not succeeded in the past four even, is that foreign equity investment shows an out
years, and election year is probably not a good time flow in this period of US$ 387 million compared to
to even discuss privatization. As is, to privatise or an outflow of US$ 385 million last year. This
not to privatise is becoming a complicated decision suggests that the record breaking index climb,
in a world once again moving towards surpassing 50,000, had nothing to do with
protectionism. Hence, the probability of funding the foreigners interest in PSX. This knowledge is
trade deficit through sale of assets remains remote perhaps even more incredible considering that
at least in the near future. Market Capitalization currently stands at Rs 9.7
trillion compared to Rs 6 trillion in December 2013.
Arguably the net foreign debt outstanding today is The Government perhaps needs to design policies
broadly equivalent to the nations past excessive to nudge this domestic speculative investment
consumption and it is this amount that will need to towards the real economy. Notwithstanding, and in
be paid off through future net trade and workers light of this FDI position, FT reporting that Pakistan
remittance surplus. As per the SBP website, had to arrange emergency borrowing from China to
the tune of US$ 1.2 billion for meeting its debt transactions with third parties constitute the true
obligations appears to have some basis. profit of a nation. Unfortunately, Pakistan has
fared badly in this category. For the period July
High level of debt has a bearing on fiscal deficit; 2012 to April 2013, the countrys trade deficit,
debt has to be paid off, and not eventually, every including goods, services and income, stood at
year. According to the Budget Statement for 2016- USD16.25 billion. The quantum of deficits over the
17, debt servicing is estimated at Rs. 1.8 trillion years, raise questions about the rationale of such
against estimated net Federal Revenue receipts of trading.
Rs. 2.8 trillion; after defence spending (including
pension) the revenue account is projected to end up Realizing the importance of the external accounts,
in a net deficit of Rs. 100 billion; which obviously we had further suggested in that years Brief as
means more borrowing to meet current government follows:
expenditure and development expenditure.
..... However, given political will to disentangle
According to SBP, the nations total debt and lobbies & cartels and a commitment of purpose, the
liabilities (Including foreign debt discussed above) situation is retrievable. Uncertain times demand
stood at Rs 23.9 trillion at 31st March 2017; the uncertain actions. For decades domestic economic
comparable figure at 30th June 2013 was Rs 16.3 managers and pundits have always adhered to the
trillion. Critically, the above estimates of debt dictates of conventional economic thought, with less
servicing are in a stable Rupee environment, with than desirable results, in fact the situation has
almost no movement since last year in the dollar worsened over time. Perhaps it is time to unlearn
rupee parity which currently stands at around the mistakes of the recent past! The following
US$1= Rs 104.7; further the discount rate was kept suggestion, while not all inclusive, provide a flavour
stable at low levels. Unfortunately, with a higher of the steps needed: A detailed analysis and
ever increasing trade deficit, defending the Rupee proactive monitoring of trade activities and directly
will be rather challenging for the Central Bank, and or indirectly discouraging luxury imports and
with a consequent rising inflation, SBP will struggle services through duties or taxes. Significant
to maintain the discount rate. The twin crisis can increase in indirect taxation on luxuries.
have a crippling effect on the fiscal deficit. However, Elimination of across the board subsidies with a
the Pakistan Economic Survey 2016-17 while focus on targeted subsidies for the deserving poor
avoiding specifics asserts that, During the current only. Conversion of all aid activities, domestic or
year, the deficit is expected to remain on the international primarily towards employment creation
downward trajectory observed over the recent rather than social development. Determined
years. government intervention in setting up power
generation even at the cost of deficit financing and
As a consequence of the above discussion, the increased debt. Revision of power tariff to ensure
importance of generating a trade surplus cannot be that the rich subsidize the poor. Defining limits
underscored; continuing trade deficits may well be through prudential regulations on the maximum
fatal for Pakistan. amount banks can lend to the government, other
than for power sector, directly or indirectly.
In the Economic Scenario included in our Budget Provisions of debt at discounted rates, and other
Brief 2013, we had commented as follows, This incentives, to the private sector for projects which
brings the analysis to the very crux of what exactly, create employment, are export oriented or are
under accounting norms, qualifies to be the primary geared towards import substitution, primarily a
determinant of a countrys state of affairs. All focus on manufacturing. Restructuring and
improved governance of Public Sector Enterprises net exports of 3.52%, perhaps requires immediate
including management by public sector to avoid government ratiocination. Interestingly according to
continuous drain on the national resources. the Pakistan Economic Survey 2016-17, per capita
income increased to US$ 1,629 in FY 2017 from
GDP is a combination of consumption, investment, US$ 1,531 in FY 2016, a growth of 6.4%; broadly,
government spending and net trade balance. Since this could only have been possible because of low
nothing much can be done about consumption and population growth.
government spending, the above suggestions focus
upon investment and improvement in net trade Notwithstanding, apparently, the Governments
balance. believes that the current GDP is understated by at
least 25%, and consequently, according to the print
Serendipitously, net trade balance remains the key, media, has authorized a World Bank study to
or perhaps the only relevant component of GDP; an determine the actual size of the countrys GDP.
indicator which over time has become more a Considering that the current census might result in
fashion rather than a substantive determinant of an increase in population, there was a real risk that
growth. Accordingly, in our subsequent Budget it would have had an extremely adverse impact on
Briefs for 2014 to 2016, we continued to the per capita income for Pakistan. Another
recommend monitoring of trade, maintaining a advantage of a higher GDP is the additional space
mercantilist approach, and a focus on export to borrow more. On the flip side however this calls
oriented and import substitution manufacturing. into question the analysis contained in the previous
Perhaps it is time to consider a flat tariff, say around many Economic Surveys of Pakistan, and all
30%, on all imports to address the trade imbalance. related ratios and indicators such as tax to GDP,
unemployment, growth and poverty to say the least.
As regards GDP, in Pakistans case, whether or not A 25% increase in GDP will have a negative
we achieved or exceeded last years GDP growth bearing on most all other indicators including
rate of 4.7% has become largely irrelevant; literacy and spending on education. Unemployment
according to the Pakistan Economic Survey 2016- is another ratio which may now become alarming.
17 GDP growth was 5.3% for the current year. But perhaps the biggest concern might be national
While the service sector surpassed its targeted savings which according to the Economic Survey of
growth, worryingly the industrial sector grew by Pakistan, Reached to 13.1% of GDP in FY 2017
5.02% against 5.8% last year. It can however be against 14.3% last year. A situation which,
safely concluded that the growth in GDP was on the irrespective, needs to be addressed by policies
back of the agricultural sector which grew by 3.46% which nudge the populace towards reducing
compared with 0.27% last year, primarily because consumption and saving more.
of growth in important crops of 4.12% compared to -
5.47% last year. Noticeably, this years growth fails A higher GDP might also further expose the
to recover last years decline which perhaps can be countrys low industrial base and deficit in savings
linked to water scarcity discussed earlier. and investments, since any increase in GDP of 25%
can only come for the services sector.
As stated in the Pakistan Economic Survey 2016- Notwithstanding that the policy makers need to
17, consumption, investment and exports are the nudge the nation towards reducing consumption,
main drivers of economic growth under the the bigger challenge will be to simultaneously
expenditure approach. The fact that current years encourage savings on top of that; an incredibly tall
economic growth is driven by increase in order. Unfortunately, the situation is further
consumption of 7.92% coupled with a decrease in complicated by the fact that this is an election year
budget. With load shedding still not under control, cigarettes have already fallen this year, suggesting
albeit huge generation capacity expected to come customer preference for cheaper options, resulting
on the grid by end of 2017, the Government is in a thriving informal market. All this appears to
expected to open the treasury coffers in the coming have stifled growth or facilitated the informal
year to maintain the Feel Good environment. economy to grow more. Further, the provincial sales
Already the government has indicated its intent to tax regime has the potential of shoving businesses
increase the Federal development budget by Rs towards provincial nepotism simply to avoid the
300 billion; the provinces are expected to follow this hassle of inter-provincial long drawn litigations;
lead. pretty soon provinces might start competing to
attract businesses with reduced taxes which might
Keynesian economics was definitely the solution to not be conducive for the country as a whole.
stimulate a stagnant economy, especially after an Growth is inversely proportional to taxation, and the
excellent effort to radically improve Macro Government needs to revisit its taxation policies
Economic Indicator and successfully managing the dramatically to achieve the perfect balance.
IMF program. However, with debt reaching
unmanageable levels, continuously borrowing to In this background, CPEC is rightly termed a game
build infrastructure may become a liability sooner changer. We may have put all our eggs in one
than later; and the problem with construction is that basket, but that is fine; except that there is a need
jobs created are not sustainable once the work is to carefully watch and protect the basket. Debt or
discontinued. In the interim however, public equity, Pakistan will have invested heavily in its
spending has had the desired multiplier effect. infrastructure, thereby perhaps resolving the
According to Pakistan Statistical Bulletin, vehicle chicken or egg question; does investment in
production has increased to 1.36 million in 2015-16 manufacturing precedes investment in infrastructure
starting from 819 in 2012-13. In addition Pakistanis or vice versa. However, there is now a need for
during the same period started drinking an domestic investment to come forward and invest in
additional 47, 000 tonnes of blended tea and an Pakistans future.
additional million litres of beverages. On the
telecommunication side, mobile subscribers in CPEC is definitely a huge opportunity for Pakistan
Pakistan increased by 5.9 million subscribers during and after the Macro Level achievements of signing
the period July-March 2017 and 3G&4G LTE MOUs and facilitating Chinese teams, there is an
subscribers increased by 10.3 million during the obvious need to proactively monitor and evaluate all
same period. activity under this window. The devil is always in
details.
Worryingly perhaps, the Governments efforts to
incentivise agriculture and manufacturing over the Informal feedback from domestic entrepreneurs
past four years, while kick starting the economy resulted in the following set of suggestions:
through Keynesian policies, have not generated the
desired results. The on ground situation was Land availability for Chinese owned projects to be
perhaps complicated by the need to reduce the limited to short term lease;
fiscal deficit , thereby resulting in an aggressive tax
collector trying to meet his budget targets through Pakistani businesses should be given preference
harsh actions, including freezing bank accounts; a and protected;
them against us environment. Estimates of tax theft
aside, the government seems to be getting on the All projects should require domestic minimum
wrong side of the Laffer curve; apparently taxes on holding.
These suggestions are not entirely unrealistic and
are practiced in one form or the other by China and
most of the Middle East.
On a holistic level, perhaps a bit early in the day,

there is a need to carefully monitor the impacts on
trade balance in the interim and after the corridor
achieves fruition. There are estimates that CPEC
may increase foreign national debt to US$ 110
billion over the next 4 years. Even that level of debt
may not be problematic, if at the end of the day
domestic manufacturing takes off, and Pakistan
achieves full employment.
While we remain strong advocates of CPEC,

debate remains the hallmark of informed decision
making process. The informal suggestions
mentioned earlier about short term leasing of land
and ensuring participation of Pakistani investors on
an equal footing perhaps require reasonable
consideration. Modern infrastructure, while a
necessity, is only the enabler as is the internet;
what matter is the content that flows through the
infrastructure. In substance, the nation may
consider proper checks and balances to avoid
economic, and perhaps eventual political,
dependency; borrowed growth should be at a
reasonable cost and mutually beneficial.
The devil is in the details.
Highlights
Income Tax wholly owned by the taxpayer for depreciation
purposes.
Super tax introduced as one time levy for tax
year 2015, was extended to tax year 2016, and All notifications issued by Federal Govt. in
now proposed to be further extended for tax respect of exemptions after 1 July 2015 shall
year 2017. continue to remain in force till 30 June 2018,
unless rescinded earlier.
Durable goods are proposed to be excluded
from the definition of consumer goods. The limit of taxable income for claiming
Consequently, the reduced rate of minimum tax deductible allowance in respect of education
will no more be available on durable goods. expenses, is proposed to be increased from Rs.
1 million to Rs. 1.5 million.
Start-ups i.e. businesses offering technology
driven products or services, as certified by the The limit for health insurance premium is
Pakistan Software Export Board and having proposed to be enhanced from Rs. 100,000 to
turnover of less than Rs. 100 million in each of Rs. 150,000 for the purpose of tax credit.
the last 5 tax years are proposed to be exempt
from tax, including minimum tax, for 3 years Tax credit of 3% of tax payable available to
manufacturers making 90% of sales to persons
A public company not distributing 40% or more registered under the Sales Tax Act, 1990 is
of its after tax profit either through cash proposed to be withdrawn.
dividend or bonus shares shall be subject to tax
on undistributed profits at 10%. Tax credit period for companies opted to get
listed on the stock exchange is proposed to be
Fixed tax regime for Developers of plots and extended from 2 years to 4 years. In first two
Builders of residential, commercial and other years, tax credit will be allowed at 20% of tax
buildings, other than for projects initiated and payable, and subsequent two tax years at the
approved during tax year 2017, is proposed to rate of 10%.
be withdrawn.
Profit and gains derived from Sui Gas field and
Threshold for non taxability of interest free or tax payable thereon are proposed to be
concessional loan from employer is proposed to computed under Fifth Schedule.
be enhanced from Rs. 500,000 to Rs. 1 million.
The Finance Bill proposes a new condition that
Limit for sales promotion, advertisement and if administration and management expenses of
publicity expenses by pharmaceutical a non-profit organization exceeds 15% of total
manufacturers is proposed to be enhanced from receipts, the tax credit will not be available.
5 % to 10 % of turnover.
Surplus funds of non-profit organizations are
The asset co-owned by taxpayer and Islamic proposed to be taxed at 10%. Surplus funds are
financial institution, under Musharika defined for the purpose of levy of tax.
arrangement, is proposed to be considered as
The Finance Bill proposes to enhance the Revision of withholding tax statement is
general rate of minimum tax on turnover from proposed to be allowed within 60 days from
present 1% to 1.25% of the turnover. filing of statement where any omission or wrong
statement is discovered.
Finance bill proposes that widows, orphans and
disabled persons will not be required to file Transfer pricing audit is proposed, independent
income tax return, even if they own immoveable of audit of income tax affairs of a person.
property or flat located in rating area or a motor Separate directorate is being established.
vehicle.
Penalties for non-compliance to maintenance of
The Bill proposes to empower Chief records requirement in respect of transactions
Commissioner to grant extension of time for with associates and related other compliances
filing of return where the Commissioner refuses are proposed. Further, penalty is also proposed
to grant an extension. for non furnishing of information by reporting
financial institution or reporting entity.
Best judgement assessment is proposed where
the taxpayers does not file return of income Advance income tax to be collected by
despite notice for return filing from the Financial Institutions whether shariah compliant
Commissioner concerned. or under conventional mode from non-filer
lessees at 3% of value of vehicle.
Provisional assessment due to non-filing of
return is proposed to be withdrawn. The income of stock brokers is presently
taxable under normal tax regime. The Bill
Individuals having latest assessed taxable proposes that tax collected by stock exchange
income of Rs. 1,000,000 (presently Rs. on purchase and sale of shares shall be final
500,000) or more will be required to discharge tax.
quarterly advance tax.
In case of acquisition and disposal of
The nature of tax collected from manufacturer of immoveable property within the same tax year,
fertilizer on import of fertilizer is proposed to be tax collected on sale of such property is
changed from adjustable to final tax. proposed to be minimum tax of the transferor.
The Bill proposes to allow permanent In addition to tax collected from CNG stations
establishment of non-resident engaged in on amount of gas bill, tax collection on
construction or related contract or contract for electricity bill is also proposed to be final tax.
advertisement services rendered by T.V.
satellite channel to seek exemption / reduction A new section is proposed to be inserted
in withholding tax by making an application to whereby adjustable advance tax at 5% of
the Commissioner, where tax is adjustable purchase value of tobacco is to be collected
from tobacco purchaser.
Withhold tax proposed on service income even
where the agent remit net payment to the The Bill proposes to validate all notifications
principal after retaining service fee. and orders issued and notified by the federal
Govt. before the commencement of Finance
16 Budget Brief 2017 2017 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.
Act, 2017 despite any judgement of High Court are not liable for sales tax registration, yet this
or Supreme Court. particular aspect is not clarified.
Tax on dividend is proposed to be increased To harmonize procedural matters with Income

from 12.5% to 15% in the case of filers. Tax on Tax laws, the Bill proposes to allow stay against
dividend from mutual funds is proposed to be recovery of tax dues, provided that taxpayer
increased from 10% to 12.5%. Withholding tax deposits 25% of the tax demand, and his
on dividend is also proposed to be increased appeal is pending for decision before the
accordingly. Commissioner (Appeals).
Progressive tax rates on profit on debt are Provisions relating to taxation of Tier-1 retailers,
proposed to be substituted with flat tax rates. previously governed through the Sales Tax
Special Procedure Rules, 2007 are now
Tax rate on capital gain arising on disposal of proposed to be regulated through the main
listed securities acquired on or after 1 July 2013 statute.
is proposed to be 15% for filer and 20% for non-
filer irrespective of the holding period of such Sales tax rates on various grades of fertilizers
securities. except urea fertilizers rationalized at fixed rates
under Eighth Schedule, with simultaneous
Benefit of taxation under normal tax regime exclusion of fertilizers from retail price regime
granted to specified service sectors for tax under Third Schedule.
years 2016 & 2017 is proposed to be extended
to tax year 2018. Further, services of Pakistan The bill proposes to increase the amount of
Stock Exchange is proposed to be included in sales tax on supply of low priced cellular mobile
the specified services. phones from Rs. 300 to Rs. 650. At the same
time, sales tax on supply of medium sized
The Finance Bill proposes to enhance mobile phones is proposed to be reduced from
withholding tax rates by 0.5% to 5% for non- Rs. 1,000 to Rs. 650.
filers under different categories.
The Bill proposes to introduce strict penalties
Threshold of life insurance premium for on manufacturers and transporters of
collection of advance tax from non-filer is counterfeited cigarettes, including confiscation
proposed to be increased from Rs. 200,000 per of stocks as well as vehicles used for such
annum to Rs. 300,000. cigarettes.
Exemption from tax collection on cash The Bill proposes to reduce sales tax on all
withdrawal made from Branchless Banking poultry related machinery and equipments to
Agent account is proposed. 7% from 17%.
Sales Tax The Bill seeks to extend the zero-rating facility

on food preparations for young children in
The Bill proposes to extend the applicability of addition to infants, as put up for retail sale.
further tax @ 2% to the zero rated supplies.
Conceptually, further tax should not apply on The Bill proposes exemption from sales tax on
export of goods, considering that non-residents import of vehicles by China Overseas Ports
2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the Budget Brief 2017 17
Holding Company Limited and its operating Exemptions proposed to be withdrawn under
companies for a period of 23 years for Sixth Schedule on certain ingredients for
construction, development and operation of pesticides.
Gwader Port and Free Zone Area subject to
certain conditions. Machinery for poultry sector is proposed to be
subject to reduced rate of sales tax at 7%.
Exemption from sales tax is also proposed to
be extended for certain specified items used in Sales tax reduced rate at 10% is proposed on
projects including wind turbines, solar energy, multimedia projectors if imported by any
renewable energy, etc. educational institution.
The bill proposes to exempt sunflower and Sales tax rate on locally produced coal is
canola hybrid seeds, combined harvesters upto proposed at reduced rate at Rs. 425 per metric
five years old and agriculture diesels engines tonne or 17% ad valorem, whichever is higher.
from Sales tax.
Federal Excise
It is proposed to increase sales tax on steel
from existing rate of Rs. 9 per unit of electricity The Bill proposes to transfer the power of
to Rs. 10.5 per unit of electricity. However, the Federal Government to the Federal Board of
notification to this effect is yet to be issued. Revenue with the approval of the Minister
Incharge of the Federal Government in relation
The budgetary measures reflect that extra tax to issuance of Notification.
@ 2% will be withdrawn on lubricating oils as
applicable under Rule 58S of the Chapter XIII of The Bill proposes to appoint District Taxation
Sales Tax Special Procedure Rules, 2007. Officer and Assistant Director Audit as Inland
However, the notification to this effect is yet to Revenue Authorities.
be issued.
The Bill proposes to assign the function to be
Sales tax withholding is proposed to be performed by the Chief Commissioner Inland
withdrawn on purchases of taxable goods by a Revenue and Commissioner Inland Revenue as
registered buyer from any registered supplier directed by the Board and Chief Commissioner
with the exception of advertisement services. respectively.
However, the notification to this effect is yet to
be issued. The Bill proposes the stay of demand, if 25% of
the tax liability is paid at the time of filing appeal
Reduced rate of 5% on retail sales of finished which shall be continued till the decision of
goods of five export sectors is proposed to be Commissioner (Appeals).
enhanced to 6%. Further, commercial imports of
fabrics is proposed to attract sales tax at 6% In order to override the effect of any judgment
instead of 0% as applicable under five sector of superior courts, the Bill proposes to insert the
export regime as per SRO.1125(I)/2011, dated provision to validate the notifications and orders
31 December 2011 (i.e. textiles, leather, issued by the Federal Government.
carpets, sports and surgical goods). However,
the notification to this effect is yet to be issued. The Bill proposes the way of serving notice via
email or e-folder maintained for the purposes of
e-filing Sales Tax-cum-Federal Excise return by Revenue with the approval of the Minister
the limited companies. Incharge of the Federal Government under
various provision of Customs Act.
FED is proposed to be enhanced on locally
manufactured cigarettes. The Bill proposes that the value of invoice
retrieved from the consignment shall be taken
FED on cement is proposed to be enhanced for assessment purpose, if the invoice value is
from Rs.1 per kilogram to Rs. 1.25 per higher than the value declared at the time of
kilogram. import or export.
FED is proposed to be reduced from 18.5% to Order passed under section 195 is proposed to
17% on Telecommunication services. be appealable.
Customs In order to override the effect of any judgment

of superior courts, the Bill proposes to insert the
Import of solar panels and related components provision to validate the notifications and orders
have been exempted from the condition of local issued by the Federal Government.
manufacturing till 30th June 2017 which is
extended till 30th June, 2018. 5% regulatory duty proposed to be levied on
import of synthetic filament yarn (of polyesters).
Broadening the scope of exemption on
import/donation by allowing imports and The Bill additionally empowers Chief Collector
donation of Federal, Provincial, AJ&K, Gilgit- of Customs to extend the time period of
Baltistan Governments, NDMA, PDMA and warehousing for perishable and non-perishable
Govt. emergency/ rescue services. goods.
Reduction of Customs Duty from 16% to 5%

on fabrics (non-woven) used by the
pharmaceutical industry.
Customs Duty rate on Bituminous coal and

other coals equalized @ 5%. However, for the
Power Projects in IPPs Mode, Customs Duty on
import of both types of coals reduced to 3%.
Regulatory Duty levied/increased on 565

number of non-essential items by varied rates
ranging from 5% to 15%.
The Bill empowers the Board to appoint

separate Directorate General of CPEC for
facilitation.
The Bill proposes to transfer the power of

Federal Government to the Federal Board of
Income Tax
Significant amendments
Fast moving Consumer Goods A business falling within the definition of start-ups
will be entitled to following exemptions and
Redefined concessions:
Sections 2(22A), 113, 153(1) (a), Division IX of Part

Exemption of income from tax for the tax year in
I and Division III of Part III of First Schedule which the start-up is certified by the PESB and
the following two tax years [Clause (144) of Part
The distributors of fast moving consumer goods are
I of Second Schedule]
subject to minimum tax at a reduced rate of 0.2%.
Exemption from withholding of taxes under
The Finance Bill proposes to exclude durable goods
section 153 as recipient [Clause (43F) of Part IV
from the scope of fast moving consumer goods and of Second Schedule]
thus making distributor of such durable goods
disentitled to minimum tax at the reduced rate of
Exemption from minimum tax under section 113
0.2%. [Clause (11A)(xxix) of Part IV of Second
Schedule]
Further, withholding tax rate on fast moving
consumer goods, other than durable goods, is also
proposed to be reduced from 3% to 2% for Super tax for rehabilitation of TDPs
companies and from 3.5% to 2.5% in cases other extended to tax year 2017
than companies.
Section 4B
Start-ups
The Finance Act 2015 imposed one time levy of
Section 2 (62A), Clause 144 of Part I, Clauses super tax for rehabilitation for temporarily displaced
(11A) and (43F) of the Part IV of Second Schedule persons [TDPs] on banking companies at the rate
of 4% of income and other taxpayers having income
The Bill proposes to introduce a new concept of equal to or exceeding Rs. 500 million at the rate of
Start-up in respect of technology driven 3% of income. The Finance Act, 2016 extended
businesses for which various exemptions have also super tax to tax year 2016.
been proposed.
The Finance Bill now proposes to further extend
The Start-up is proposed to be defined as a super tax for tax year 2017.
business of resident individual, AOP or a company
incorporated or registered in Pakistan on or after 01 For this purpose, the term income (other than
July 2012 and the person: depreciation and business losses) shall constitute
the following:
is engaged in or intends to offer technology
driven products or services; i. Profit on debt, dividend, capital gain, brokerage
and commission;
is registered with and duly certified by the
Pakistan Software Export Board [PESB]; and ii. Taxable income of a person for a tax year
under all heads of income determined under
has a turnover of less than Rs. 100 million in section 9;
each of the last five tax years.
iii. Imputable income defined in section 2(28A); Category Current Proposed
and Rate Rate
Dividend received 25% No
iv. Income computed under:
by a company from change
a collective
a) Fourth Schedule - Insurance business;
investment
scheme, REIT
b) Fifth Schedule - Production of oil and
Scheme, or a
natural gas and extraction and exploration
mutual fund, other
of other mineral deposits;
than a stock fund
c) Seventh Schedule Banking business; and Other cases 12.5% 15%
Dividend from a 50% of No
d) Eighth Schedule - Capital gain on listed
Developmental the change
securities.
REIT Scheme set applicab
up by 30 June 2018 le rate
Tax rate on dividend enhanced
Sections 5 and 150, Division III of Part I and Corresponding amendment has also been
Division I of Part III of First Schedule proposed in withholding tax rates on dividends
under section 150 of the Ordinance.
The Finance Bill proposes to enhance the general
rate of tax on dividends from 12.5% to 15%, and in Scope of tax on undistributed profits
the case of dividends received from a mutual fund Revised
from 10% to 12.5%. A comparison of current rates
and proposed rates is given below: Section 5A
Category Current Proposed This section provided for levy of tax at 10% on
Rate Rate undistributed reserves of a public company other
Dividend distributed 7.5% No than scheduled bank and modaraba, on specified
by purchaser of change conditions. This tax was not applicable if public
power project, or company distributes 40% of its after tax profit or
power generation 50% of its paid up capital, whichever is less.
company
The Finance Bill proposes to substitute this section
Dividend received 10% 12.5% to levy tax on undistributed profits at 10% with
from a mutual fund effect from tax year 2017 on every public company
Dividend received 12.5% No other than a schedule bank and modaraba that
from a stock fund (if change does not distribute atleast 40% of its after tax profits
funds dividend within six months after the end of tax year through
receipts are less cash dividend or bonus shares.
than capital gains)
Tax shall not apply to:
- a company qualifying for exemption under S. Profit on debt Rate of
clause 132 of Part I of Second Schedule; No. tax
and
1. Where profit on debt does not 10%
exceed Rs. 5,000,000
- a company in which not less than 50%
shares are held by the Government 2. Where profit on debt exceeds Rs. 12.5%
5,000,000 but does not exceed
Consequent to the substitution, provision with Rs. 25,000,000
respect to distribution equivalent to or more than
3. Where profit on debt exceeds Rs. 15%
50% of paid up capital will no longer apply.
25,000,000
It is also proposed that bonus shares or cash
dividends distributed before filing of tax return shall
be taken as distribution of profits for the tax year Tax on Builders and Developers
2017.
Section 7C, 7D and 8
Tax on profit on debts enhanced The Finance Act 2013 introduced minimum tax on
the following:
Section 7B, Division IIIA of Part I of First Schedule
Income of builders from business of
Presently, a person other than a company is subject construction, sale of residential, commercial or
to tax on profit on debt as per below table: other buildings.
S. Profit on debt Rate of tax Income of developers from the business of sale
No. of residential, commercial and other plots.
1. Where profit on debt 10%
However, the Finance Act 2016 abolished minimum
does not exceed Rs.
tax regime and introduced fixed tax regime for
25,000,000
builders and developers.
2. Where profit on debt Rs. 2,500,000 +
exceeds Rs. 12.5% of the The Finance Bill now proposes to withdraw the
25,000,000 but does amount exceeding fixed tax regime and charge tax on income of
not exceed Rs. Rs. 25,000,000 builders and developers under normal tax regime.
50,000,000 However, where the projects were undertaken for
the development and sale of residential commercial
3. Where profit on debt Rs 5,625,000 + 15%
or other plots initiated and approved during tax year
exceeds Rs. of the amount
2017, the same shall remain under fixed tax regime,
50,000,000 exceeding Rs.
provided:
50,000,000
The Finance Bill now proposes to provide flat rates payment has been made during tax year 2017;
as per below table: and
the Chief Commissioner has issued online

schedule for advance tax installments to be
paid by the developers under the rules 13U and
13ZB of the Income Tax Rules, 2002 Depreciation on co-owned assets
respectively.
under musharika financing
This exception is provided on project of
development of plots and not on buildings which Section 22
appears a mistake.
There has been dispute on entitlement of
Consequent to proposed abolishment of fixed tax depreciation on a depreciable asset jointly owned
by a taxpayer and Islamic Financial institution
regime, corresponding amendments have been
licensed by State Bank of Pakistan / SECP under
proposed in section 8 of the Ordinance.
musharika financing or diminishing musharika
financing arrangements.
Loan to Employees- Threshold for
tax purposes enhanced In order to address this anomaly, the Finance Bill
now proposes that depreciation on such jointly
Section 13 owned depreciable asset shall be available to the
taxpayer i.e. the person who acquired the asset
Under this section the differential of profit charged under musharika arrangement.
by an employer from an employee on a loan less
than the benchmark rate is chargeable to tax as Tax on capital gains enhanced
salary income of an employee. However, provision
of this section does not apply to a loan not Section 37A, Division VII of Part I of First Schedule
exceeding Rs 500,000.
Currently, capital gains on share of a public
The Finance Bill proposes to enhance this threshold company, voucher of Pakistan Telecommunication
of Rs 500,000 to Rs 1,000,000. Corporation, Modaraba Certificate, instrument of
redeemable capital, and debt securities are subject
Threshold of sales promotion, to tax depending on holding period of such
advertisement and publicity securities, at rates ranging from 7.5% to 15% in the
case of filer, and 11% to 18% in the case of non-
expenditure for pharmaceutical filer. Whereas, gain on securities acquired before
manufacturer enhanced 01 July 2012 are subject to tax at 0%.
Section 21(0) The Finance Bill now proposes flat rate of 15% in
the case of filer and 20% in the case of non-filer,
The Finance Act 2016 restricted deductible where the security was acquired on or after 01 July
expenditure incurred by pharmaceutical 2013. Gain on securities acquired before 01 July
manufacturer on account of sales promotion, 2013 shall be subject to tax at 0%.
advertisement and publicity upto 5% of turnover.
Further, derivate products i.e. future commodity
The Finance Bill proposes to enhance the limit from contracts are presently subject to tax at 5% in the
5% to 10% of the turnover. case of filer and non-filer which will remain intact.
A comparison of existing and proposed rates is as

under:
Holding Existing for 2017 Proposed for 2018 that all such notifications issued with effect from 1
months July 2016 shall remain in force till 30 June 2018
Filers Non Filers Filers Non Filers
except where rescinded earlier.
12 15% 18%
12 to 24 12.5% 16% **15% **20% Limit of deductible education
24 to 48 *7.5% *11%
allowance enhanced
More than 48 ***0% ***0% ****0% ****0% Sections 64AB and 60D
*Securities acquired on or after 1 July 2012
In case of individual tax payer the limit of deductible
**Securities acquired on or after 1 July 2013
allowance for educational expenses is proposed to
***Securities acquired before 1 July 2012
be enhanced from Rs. 1 million to Rs. 1.5 million.
****Securities acquired before 1 July 2013
It is noted that the Bill proposes to substitute Lower limit for tax credit on health
Division VII in toto, and no proviso are part of insurance premium enhanced
proposed Division VII. Earlier, vide the Finance Act,
2016, Division VII was also substituted as a whole. Section 62A
However, from explanatory Circular No. 7 of 2016
dated 27 July 2016, it appeared that FBR considers It is proposed to enhance the lower limit for claiming
that only rates table in Division VII is substituted by tax credit in respect of health insurance premium or
the Finance Act, whereas, provisos are still part of contribution paid to an insurance company from Rs
the statute, as such, instead of NCCPL, the mutual 100,000 to Rs 150,000.
funds are liable to deduct capital gains tax, despite
of the fact that the language of the Finance Act,
Tax credit to person registered under
2016 was very clear in so far as substitution of
Division VII is concerned. Therefore, the intendment Sales Tax Act, 1990 withdrawn
drawn by the FBR through the aforestated
explanatory circular is not in conformity to the Section 65A
provisions of the Finance Act, 2016.
Currently manufacturers with 90% of sales to
persons registered under Sales tax Act 1990 are
Powers to grant exemptions and tax
entitled to tax credit at the rate of 3% of tax
concession given to Board payable.
Section 53 The Finance Bill proposes to withdraw this tax

credit.
Currently, the Federal Government with the
approval of Economic Coordination Committee
Tax credit for enlistment extended
[ECC] is empowered to grant exemptions and tax
concessions under this Ordinance under specified
Section 65C
situations like national security etc.
In order to promote listing of companies on
It is now proposed that FBR, with the approval of
registered stock exchanges in Pakistan, the
Minister Incharge and ECC, can exercise the
Finance Act, 2010 introduced tax credit at 20% of
powers to grant exemptions. Further, it is proposed
tax payable in the year of enlistment and the I of Fifth Schedule except the profits and gains
following tax year. attributable to production of petroleum and natural
gas discovered before 20 September 1954.
The period for claiming tax credit is now proposed
to be extended from two to four tax years. Such It is now proposed that tax on profits and gains
companies would now be entitled to tax credit equal derived from Sui Gas field for tax year 2017 and
to 20% of tax payable during the first two years onward shall also be computed under Part I of Fifth
(including the year of enlistment) and at the rate of Schedule.
10% of tax payable in the third and fourth year.
Taxation of NPOs etc.
Taxation of dividend paid by non-
resident company - anomaly Section 100C
removed Tax credit to NPO (Non Profit

Organizations), Trust and Welfare
Section 94(3) Institutions
Section 94(3) provides that dividend paid by a non-
Currently NPOs, Trust or Welfare institution are
resident company to a resident person shall be entitled to tax credit equal to 100% tax payable
chargeable to tax under the head Income from
including minimum tax and final tax, subject to the
Business or Income from Other Sources, as the
following conditions:
case may be, unless the dividend is exempt from
tax.
Return has been filed,
Section 5 of the Ordinance however provides Withholding tax obligations including filing of
taxation of dividends, irrespective of receipt from
statements are met.
resident or non-resident company, under final tax
regime. It is now proposed to add another condition for
entitlement of tax credit that administrative and
Provisions of section 94(3) are thus seen as
management expenditure of such NPO and trust
contradictory to provisions of section 5. To remove etc. should not exceed 15% of total receipts.
this anomaly, the Finance Bill proposes to omit sub-
section (3) of section 94.
The proposed amendment though aims to introduce
more stringent controls, however, the restriction of
Taxation of profits and gains from expenditure may not necessarily be seen as
Sui Gas Fields conducive for NPOs, especially, the fixed
administrative and management expenditure such
Section 100 as salaries, depreciation etc. are to be incurred
irrespective of quantum of receipts. Proposed
Section 100 contains provisions relating to taxation restriction on expenditure can help in curbing use of
of profits and gains from production of oil and this venture for personal or commercial gains, it
natural gas and exploration. may affect the genuine welfare activities.
Currently tax payable on such profits and gains is

computed in accordance with rules provided in Part
Taxation of NPO income. Now, a person shall not be required to file
a return solely for the reason that he:
It is proposed to levy tax at the rate of 10% on
surplus funds of a non profit organization. For this owns immovable property with a land area of
surplus funds have been defined to mean; 500 sq yards or more located in rating area; or
Funds or monies not spent on charitable or owns a flat having a covered area of 2000 sq
welfare activities during the tax year. feet or more located in a rating area; or
Funds or monies received during the tax year owns a motor vehicle having engine capacity
as donations, voluntary contributions, above 1000 CC.
subscriptions and other income.
Extension of time for furnishing
Funds or monies are more than 25% of the total returns or other documents
receipts of non profit organization received
during the tax year. Section 119
Funds or monies are not part of restricted funds Currently an application can be made by the
i.e. the un-spent funds treated as revenue due taxpayer for seeking extension in time for furnishing
to obligation placed by the donor. of return or other documents due to the following
reasons:
Rate of Minimum tax enhanced
Absence from Pakistan
Section 113
Sickness or other misadventure, or
Minimum tax under section 113 of the Ordinance is
applicable in the case of a resident company, and Any other reasonable cause.
an individual or association of persons having
turnover of Rs. 10 million or above in tax year 2017 The Commissioner may, by an order in writing,
or in any subsequent tax year, where no tax is grant the applicant an extension of time for
payable or paid for a tax year or the tax payable or furnishing the return total income.
paid is less than 1% of the turnover from all
sources. The general rate of minimum tax is 1% of The Finance Bill proposes that where
turnover. Commissioner has not granted extension in time for
furnishing return, taxpayer can make a request to
The Finance Bill proposes to enhance the general the Chief Commissioner for grant of extension or
rate of minimum tax from 1% to 1.25%. further extension for a period not exceeding fifteen
days unless there are exceptional circumstances
Person not required to file the return requiring a longer time period for the same.
of total income
Section 115
The Finance Bill proposes to extend the categories

of persons not required to file the return of total
Provisional Assessment A person who has exercised the powers of a
District Judge and is qualified to be a Judge of
Sections 122C, 114(6), 116(2A), 122, 127 and 137 the High Court
It is proposed to withdraw the powers of the A person who is or has been an advocate of a
Commissioner to make a provisional assessment High Court and is qualified to be a Judge of the
by omitting section 122C of the Ordinance and by High Court
amending corresponding relevant provisions of the
Ordinance. A person who is an officer of Inland Revenue
Service in BS-20 or above and is a law
graduate.
Best Judgement Assessment
The Finance Bill now proposes to bar appointment
Section 121 of an officer of Inland Revenue Service as judicial
member. Earlier, this qualification was introduced in
The Finance Bill proposes to enhance the scope of
2013 and was not welcomed by and large
best judgement assessment by adding a person apprehending that it may affect independence of
who, in the opinion of the Commissioner, is required
judiciary. The proposed amendment is therefore an
to file the return of total income for a tax year but
attempt to enhance confidence of taxpayers over
has failed to do so, or who fails to file the the appellate forums.
information required by the Commissioner for the
period of less than twelve months in cases where:
Tax assessed in Gilgit-Baltistan can
the person has died, be recovered in Pakistan
the person has become bankrupt or gone into Section 146
liquidation,
Section 146 empowers the Commissioner to
the person is about to leave Pakistan recover from a person who has been assessed to
permanently, or tax in Azad Jammu and Kashmir upon receipt of a
certificate from the Deputy Commissioner of Azad
the Commissioner requires otherwise Jammu and Kashmir.
Officers of Inland Revenue Services Gilgit-Baltistan has also adopted the Income Tax
Ordinance, 2001 and consequently the powers of
barred from appointment as Judicial the Commissioner have been extended to recover
Member of the Appellate Tribunal from a person tax assessed in Gilgit-Baltistan.
Section 130 Threshold for advance tax payment

The second appellate forum i.e. Appellate Tribunal by individuals enhanced
comprises of judicial and accountant members.
Section 130 provides qualification for appointment Section 147
of judicial members as under:
Presently, an individual who has latest assessed
taxable income of Rs. 500,000 or less, other than
income subject to final tax and salary income, is an international organization
not required to pay advance tax.
a central bank
The Finance Bill now proposes to enhance the
threshold from Rs. 500,000 to Rs. 1,000,000. a financial institution
Corporate Reporting Standard - Further, section 165B does not provide definition of
financial institution, thus definition contained in
Furnishing of information by financial section 2(24) is applicable. This definition is
institutions including banks restricted to such institution defined as financial
institution under the Companies Ordinance, 1984.
Section 165B and 182 On the other hand, CRSs definition of financial
institution means a Custodial Institution, a
Section 165B was introduced in 2015 requiring the Depository Institution, an Investment Entity or a
banks and financial institutions to provide Specified Insurance Company.
information regarding non-resident persons in
prescribed manner for the purpose of automatic To avoid any dispute and align the provisions of
exchange of information under bilateral agreement section 165B with CRS, the Bill proposes that the
or multilateral conventions. Subsequently, in term reportable person and the financial
September 2016, Pakistan signed OECDs institution shall have the meaning as provided in
Convention on Mutual Administrative Assistance in CRS.
Tax Matters.
The Bill also proposes penalty of Rs. 2,000 for each
For the purpose of section 165B, and being day of default subject to minimum penalty of Rs.
signatory to the Convention, the FBR introduced 25,000 where a financial institution or reporting
Common Reporting Standard [CRS] by inserting entity fails to furnish the information within due date
Chapter XII in the Income Tax Rules, 2002. A as required under section 165B of the Ordinance.
summary of CRS is given separately in this
publication. Firm of Cost & Management
Since section 165B was applicable to the extent of Accountants eligible to conduct tax
information relating to non-resident persons only, audit
whereas, the CRS covered reportable persons
which include resident person as well, the Finance Section 176
Bill proposes to align the enabling provisions of
section 165B by including reportable person The Bill proposes appointment of firm of Cost &
besides non-resident persons. The reportable Management Accountants to conduct audit of
person is defined in CRS as a person other than: income tax affairs of a person. Earlier, only firm of
Chartered Accountants were entitled for such
a corporation the stock of which is regularly appointment.
traded on one or more established securities
markets, including any corporation that is a
related entity of such corporation
a Governmental entity
Transfer pricing audit and penalties The Bill now proposes establishment of
Directorate-General of Transfer Pricing to conduct
Sections 108, 182, and 230E transfer pricing audit by insertion of section 230E.
For the purpose, transfer pricing audit is meant as
Under section 108 of the Ordinance, in respect of audit for determination of transfer price at arms
any transaction between persons who are length in transactions between associates,
associates, the Commissioner is empowered to independent of audit of income tax affairs under
distribute, apportion or allocate income, deductions sections 177, 214C or 214D of the Ordinance. The
or tax credits between the persons as is necessary Bill also proposes that the Board may specify the
to reflect the income that the persons would have criteria for selection of the taxpayer for transfer
realised in an arms length transaction. For the pricing audit and also specify the functions,
purpose, Rules 20 to 27 of the Income Tax Rules, jurisdiction and powers of the Directorate.
2002 have been prescribed.
The Finance Bill also proposes to introduce
The Finance Act, 2016 introduced reporting penalties in relation to transfer pricing provisions
requirement in section 108 of the Ordinance contained in section 108 of the Ordinance in
providing that every taxpayer entering into a following manner:
transaction with its associates shall:
Offence Penalty
maintain a master file and local file containing Failure to maintain Rs. 10,000 or 5% of the
documents and information as may be records required under amount of tax on
prescribed; the Ordinance or the income, whichever is
rules made thereunder higher
keep and maintain prescribed country-by-
country report, where applicable; Failure to furnish the Rs. 25,000 for the first
information required or to default and Rs. 50,000
keep and maintain any other information and comply with any other for each subsequent
document in respect of transaction with its term of the notice served default
associate as may be prescribed; and under section 176
keep the files, documents, information and Failure to furnish Rs. 2,000 for each day
reports specified above for the period as may Information or country-by- of default subject to a
be prescribed. country report within the minimum penalty of Rs.
due date 25,000
Upon requisition by the Commissioner, the above
documents are required to be furnished within 30 Failure to keep and 1% of the value of
days or such time as may be extended by the maintain document and transactions, the record
Commissioner upto 45 days or beyond in information required of which is required to
exceptional circumstances. It was expected that under section 108 or the be maintained
FBR will prescribe the extent of and manner in Rules
which the documents will be maintained and the
information to be furnished, but so far no rules have
been made in this regard.
While the Bill proposes penalties, in relation to
reporting requirements, which are there, but the
related rules prescribing forms and manner have
not yet been prescribed. In absence of such rules, Applicability of advance ruling for
the penalties would not be effective.
permanent establishment of non-
Prosecution for non-compliance with resident restored
notice requiring filing of return of Section 206A
income
Advance ruling provisions were introduced vide the
Sections 114(4) and 191 Finance Act, 2002, applicable in the case of non-
resident persons, irrespective that such person has
Section 114(4) empowers the Commissioner to permanent establishment in Pakistan or not. The
require any person to file return of income, within Finance Act, 2011 however restricted applicability
thirty days of service of notice in writing, or any of advance ruling provisions to such non-resident
longer or shorter period. Failure to comply with such persons who do not have permanent establishment
notice entails penalty under section 182 equal to in Pakistan.
0.1% of tax payable for the tax year for each day of
default subject to maximum penalty of 50% of such The Bill now proposes to lift the restriction placed
tax payable, with minimum penalty of Rs. 20,000. on permanent establishment of non-resident person
on seeking advance ruling.
The Bill now proposes non-compliance to such
notice as an offence punishable on conviction with Disclosure of information by EOBI
a fine or imprisonment for a term not exceeding one
year, or both. Section 216(3)
Default surcharge rationalized Section 216(3) of the Ordinance places restriction

on disclosure of information by a public servant,
Section 205(1B) except in specified cases / circumstances.
Where a taxpayer is required to pay advance tax, The Finance Bill proposes that such restriction on
and such liability is discharged less than 90% of its disclosure of information shall not be applicable on
final tax liability, then default surcharge at 12% per disclosure of information to Employees Old Age
annum is chargeable from the 01 April in that year Benefit Insituttion in respect of salaries in
to the date on which assessment is made or the 30 statements furnished under section 165.
June of the financial year next following, whichever
is earlier. This provision has adverse impact on No reward to whistleblowers without
person following special tax year as compared to
person following normal tax year.
evidence
Section 227B
To rationalize the period of default in the case of
person following special tax year, the Finance Bill
proposes the default surcharge shall be calculated The Finance Act, 2015 introduced rewards to
whistleblowers in cases of concealment or evasion
on and from the first day of the fourth quarter of the
of income tax, fraud, corruption or misconduct
special tax year till the date on which assessment is
made or the last day of special tax year, whichever providing credible information leading to detection
of tax. The reward is not applicable if:
is earlier.
the information provided is of no value Withholding tax
the Board already had the information Significant changes proposed in
withholding tax provisions
the information was available in public records,
or (i) Tax collected on fertilizers is final
no collection of taxes is made from the Tax collected at import stage on fertilizers
information provided from which the Board can imported by manufacturer of fertilizer is
pay the reward. currently adjustable. The Bill proposes to
exclude such imports from adjustable regime.
The Finance Bill now proposes that the claim of The consequential effect of the proposed
reward by the whistleblower shall be rejected, in change will be that imports of fertilizer by
addition to above reasons, if the information is not manufacturer of fertilizer shall be treated as
supported by any evidence. final tax. [Section 148(7) (b)]
Broadening of tax base (ii) Non-resident contractors to file option for

FTR
Section 230D
Section 152(1A) read with section 152(1B)
With the aim of broadening tax base, the Finance treats tax deduction from non-resident person
Bill proposes establishment of a Directorate- on specified contracts as final tax. However,
General of Broadening of Tax Base. The FBR shall clause (41) of Part IV to the Second Schedule
however be specifying the functions, jurisdiction provides that such final tax shall apply only
and powers of the Directorate by notification in the when such non-resident opts for FTR within
official Gazette. three months of commencement of tax year.
Validation of notifications and orders Due to incorrect placement of the clause, the
Bill proposes to delete it, and insert a proviso
Section 241 in section 152(1B) for filing of option to treat
tax deduction as final tax. However, no time
The Finance Bill proposes section 241 to be has been specified. Therefore, a non-resident
inserted for the purpose of validation of notifications person appears to elect for FTR at any time
and orders issued and notified by the Federal on or before filing of return of income for
Government, before 01 July 2017. Such relevant tax year. [Section 152(1B)]
notifications or orders shall now be deemed to have
validly issued and notified, notwithstanding anything (iii) Exemption certificate to non-resident
contained in any judgment of a High Court or the persons
Supreme Court.
Permanent establishment of non-resident
It appears to be an attempt to sanctify such company can obtain an exemption certificate
notifications or orders issued without legal sanctity. from withholding tax from payments received
from sale of goods, rendering of services and
execution of contract under section 152(2A).
It has been proposed that non-resident person amendment requires collection of tax,
can also obtain exemption certificate from whereas, minimum tax under section 153(3)
deduction of tax under section 152(1A) in (b) applies on tax deductible. [Section 153(1)
respect of specified contracts, provided the (b)]
tax deduction is adjustable. [Section 152(1A)]
(vi) Revision of withholding tax statements
(iv) Cotton seed or cotton seed oils
Every withholding tax agent is required to file
Currently sale of cotton seed or edible oils prescribed withholding tax statement in
are subject to withholding tax under section respect of taxes deducted or collected.
153(1) (a) at 1.5% of the gross amount
payable. The language apparently creates an Currently there is no specific provision to
anomaly as to whether cotton seeds oil is allow revision of a statement filed in case any
meant or only cotton seeds is subject matter. error, omission or wrong statement is
discovered subsequent to filing.
To remove this anomaly, the Bill proposes to
clarify that cotton seeds and edible oils The Bill now proposes an option to revise
means cotton seeds oil and edible oils. withholding tax statement within sixty days of
However, existing provision contains or, filing of the statement if any omission or
whereas, the Bill used and in between cotton wrong statement is discovered. [Section 165]
seeds and edible oils.
(vii) Reduction in tax rate on purchase,
(v) Retention of service charges to be treated registration and transfer of motor vehicles
as paid for the purpose of deduction of tax
The Bill proposes to reduce the amount of tax
Payment made to resident person for to be collected from filers on purchase,
rendering or providing of services is liable to registration and transfer of motor vehicles
deduction of tax under section 153(1) (b). having engine capacity upto 850cc, from Rs.
10,000 to Rs. 7,500; 851cc to 1000cc, from
Recently, the Honorable Supreme Court of Rs. 20,000 to Rs. 15,000; and 1001cc to
Pakistan held that tax is not deductible on 1300cc, from Rs. 30,000 to Rs. 25,000.
retention of service charges, as such, [Section 231B]
minimum tax under section 153(3)(b) does not
apply. (viii) Collection of tax on leasing of vehicles to
non-filers
The Bill now proposes to clarify that where the
service charges are retained by the agent or Presently, collection of tax is required on
any other third person, the said person shall lease of vehicles to a non-filer by a leasing
be treated to have been paid service charges company or a scheduled bank or an
and the recipient shall collect tax along with investment bank or a modaraba or a
payment from the agent or other third person. development financial institution. There has
been confusion about applicability of this
The proposed amendment appears to nullify collection of tax on shariah compliant lease of
the effect of Apex courts judgment, vehicles.
prospectively. However, still the proposed
The Bill now seeks to modify the provisions to The Bill also proposes to clarify that the
clarify that lease of vehicles to non-filers, amount of gas and electricity consumption
whether shariah compliant or conventional bills subject to collection of tax under section
mode, either through ijara or otherwise, shall 234A / 235 shall be inclusive of sales tax and
be subject to collection of tax. all incidental charges. [Sections 234A and
235]
Further, the Bill seeks to extend the tax
collection obligations to Non-Banking (xi) Tax on electricity bills to be treated as
Financial Institutions as well. [Section 231B minimum tax on annual basis
(1A)]
Currently the law provides that tax collected
(ix) Collection of tax by stock exchange from from commercial or industrial consumer on
members to be final tax electricity bills upto Rs. 30,000 per month
shall be treated as minimum tax [non-
The Bill proposes that the tax to be collected refundable]. Consequently, if in any particular
by stock exchange from its members on month if electricity bill exceeds this limit, then
purchase/ sale of shares in lieu of their tax becomes adjustable.
commission income shall now be final tax as
against adjustability thereof per current The Bill proposes to substitute this threshold
provision. [Section 233A] to Rs. 360,000 per annum. Now, irrespective
of monthly bills, if aggregate amount of
(x) Final tax regime for CNG stations extended electricity bills exceed Rs. 360,000 per
annum, then tax collected will be adjustable,
Currently, tax collected on gas consumption otherwise it will be minimum tax.
bills of CNG stations under section 234A is
treated as final tax in respect of income of The Bill has also proposed collection of tax on
CNG stations arising from consumption of electricity bill, inclusive of sales tax and all
gas. incidental charges. Accordingly, the above
threshold of Rs. 360,000 shall also be
The Bill proposes that taxes collected on considered inclusive of sales tax and all
electricity bills of CNG stations under section incidental charges. [Section 235A]
235 shall also be taken as final tax in respect
of income of CNG stations arising from (xii) Reduction in tax rate for internet, mobile
consumption of gas, by making amendment in telephone and prepaid internet or
section 234A. Accordingly, now taxes telephone cards
collected under section 234A and 235 on gas
and electricity consumption bills shall be Currently, tax is required to be collected at
combined final tax in respect of income of 14% of the amount of bill or sale price of
CNG stations. internet, mobile telephone and prepared
internet or telephone cards. The Bill proposes
The proposed finality of tax collected on to reduce this rate to 12.5%. [Section 236]
electricity bills creates an anomaly, as the
enabling provisions of section 235 treats such (xiii) Collection of tax on transfer of immovable
tax as advance tax. property
Person responsible for registering or attesting amount of sales. The tax so collected is
transfer of immovable property is required to adjustable. [Section 236G and 236H]
collect tax at the time of registering or
attesting the transfer at the time of sales / (xv) Advance tax on insurance premium
purchase of property.
Currently, advance tax collection is required
The Bill proposes to include the person by insurance companies on life insurance
recording the transfer of immovable property premium if exceeding Rs. 200,000 per annum
as also responsible to collect this advance at 1%. The Bill proposes to enhance this
tax. amount to Rs. 300,000.
The Bill further propose that the person (xvi) Advance tax on tobacco
responsible for registering, recording or
attesting transfer shall include the person Tax collection has been proposed on
responsible or registering, recording or purchase value of tobacco from every person
attesting transfer for local authority, housing purchasing tobacco including manufacturer of
authority, co-operative society and registrar of cigarettes. The proposed tax shall be
properties. This amendment is proposed in collected by Pakistan Tobacco Board at the
section 236C, 236K and 236W. rate of 5 percent of the purchase value of
tobacco, which shall be adjustable [Section
It is further proposed that where acquisition 236X].
and disposal of immovable property takes
place within the same tax year, the tax Rate for non-filers enhanced
collected shall be the minimum tax for the
transferor on sale of property. The Finance Bill proposes to enhance rates of
withholding tax from non-filers as under:
[Section 236C 236K and 236W]
Section Nature of Rates for non-filer
(xiv) Collection of tax on sale of batteries to transaction
introduced Existing Proposed
152(1A) Payment for 12% 13%
Tax is required to be collected from sales to specified
distributor, dealers, wholeseller and retailers contracts to
of various sectors under section 236G and non-residents
236H.
152(2A) Payment to a 6% in the 7% in the
The Bill proposes to introduce collection of tax permanent case of case of
on sales of batteries by a manufacturer or establishment company company
commercial importer to distributor, dealers, of non-resident
6.5% in 7.75% in
wholeseller, at 0.1% in the case of filer and person for sale
the case the case of
0.2% in the case of non-filer. Further, the Bill of goods
of others others
proposes collection of tax on sale of batteries
to a retailer or to another wholesaler, by 152(2A) Payment to a 12% in the 14% in the
manufacturer, distributor, dealer, wholesaler, permanent case of case of
or commercial importer, at 0.5% of gross establishment company company
Section Nature of Rates for non-filer Section Nature of Rates for non-filer
transaction transaction
Existing Proposed Existing Proposed
of non-resident 15% in the 17.5% in petrol pump
person for case of the case of operator
services others others
234A Gas bill of a 4% 6%
152(2A) Payment to a 12% 13% CNG station
permanent
236A Advance tax 10% 15%
establishment
on auction of
of non-resident
property
for execution of
contract 236H Advance tax 0.5% 1%
on sale to
153(1) Payment to a 6% in the 7% in the
retailers
resident case of case of
person for sale company company
of goods
6.5% in 7.75% in
the case the case of Second Schedule
of others others
Part I - Exemptions
153(1) Payment to a 12% in the 14.5% in
resident case of the case of The Bill proposes to insert and modify certain
person for company company exemptions in Part I of the Second Schedule, as
services listed below:
15% in the 17.5% in
case of the case of
others others New Exemptions
153(1) Payment to a 10% in the 12% in the Exemption of income to specific entities
resident case of case of Clause (66)
person for company company
execution of Asian Infrastructure Investment Bank [AIIB]
10% in the 12.5% in
contract
case of the case of
others others Directors, Alternate Directors, the President,
Vice-Presidents, and other officers or
155 Payment of 15% 17.5% employees of AIIB
rent of
immovable Gulab Devi Chest Hospital
property to a
company Pakistan Poverty Alleviation Fund
156 Prizes and 20% 25%
winnings National Academy of Performing Arts
156A Commission or 15% 17.5%

discount to
Profit on debt of Japan International Cooperation Limit on raw material exempt from collection of tax
Agency [JICA] enhanced
Clause (140A) Clause (72B)
Any profit on debt received by JICA, from loan This clause provides exemption from collection of
agreement for Islamabad-Burhan Transmission tax on imports of raw material by industrial
Reinforcement Project (Phase-I) undertakings on fulfillment of specified conditions.
One of such conditions is that the quantity of raw
Income of political parties material to be imported, being sought to be
Clause (143) exempted from collection of advance tax, shall not
exceed 110 percent of the quantity imported or
Any income derived by a political party registered consumed during the previous tax year. The
under the Political Parties Order, 2002 with the Finance Bill proposes to enhance this limit from 110
Election Commission of Pakistan. percent to 125 percent.
Part IV- Exemptions from application of Concessionary Minimum Tax Regime for specified
specific provisions services sectors extended
Clause (94) and section 153
Cash withdrawals by branchless banking agents
Clause (101)
Through amendment vide the Finance Act 2015,
the tax deducted from payment on account of
The Bill proposes to exempt Branchless Banking
services to companies has been treated as
(BB) Agent Account from deduction of tax under
minimum tax. For services sectors, where the
section 231A at the time of cash withdrawal utilized
margin are narrow, the rate of tax deduction to be
to render branchless banking services to
treated as minimum tax was quite high, even
customers.
exceeding their margins.
Vehicle leased under Prime Ministers Youth

In order to address the grievances of such service
Business Loan Scheme
sectors, Clause (94) was introduced by the Income
Clause (102)
Tax (Second Amendment) Ordinance, 2015 and
ratified by Income Tax (Second Amendment) Act,
The Bill proposes to exempt light commercial
2016 to provide exemption from applicability of
vehicles leased under the Prime Ministers Youth
minimum tax on specified sectors from 1 July 2015
Business Loan Scheme from collection of advance
to 30 June 2016 and later extended to 30 June
tax by leasing company and others as per section
2017 by Finance Act 2016.
231B(1A).
Under this concessionary regime, the specified
Exemption to Hajj operators extended
sectors are required to pay minimum tax at 2
Clause (72A)
percent of gross turnover from all sources. Further,
it is required to file undertaking to the
The Bill proposes to extend the concession to Hajj
Commissioner for audit of income tax affairs for tax
operators in relation to section 21(l) and 152
years 2016 or 2017, as the case may be.
applicable until tax year 2016, for tax year 2017
Upon filing such undertaking, the Commissioner investment under any regulation or instruction
was empowered to issue exemption certificate from unless all the events that determine such gain or
withholding tax under section 153 by paying 2 % tax loss have occurred and gain or loss can be
on turnover. determined with reasonable accuracy.
The Bill seeks to extend the benefit of reduced rate Clause 1 (g) refers to adjustments relating to IAS 39
of 2% minimum tax upto 30 June 2018. Further, for and 40. Although IAS 39 and 40 have not been
tax year 2018, a company falling under specified adopted for Banks in Pakistan, treatment of certain
sectors will be required to file undertaking till transactions e.g. trading securities, forward
November 2017. contracts and derivatives is in accordance with IAS
39. In the past different treatment has been
Further, the benefit of this clause is proposed to be accorded by the department in assessing
extended to Services rendered by Pakistan Stock unrealized losses and gains arising from these
Exchange Limited. transactions. Unrealized losses are being
disallowed and unrealized gain is included in
Exemption from collection of tax on foreign taxable profits. Perhaps the addition of these
produced films etc. withdrawn wordings would remove this anomaly and now both
Clause (56A) unrealized losses and gains would be excluded
from taxable income until the transaction is
The Finance Act, 2013 introduced section 236E concluded.
regarding advance tax on foreign-produced TV
plays and serials, and simultaneously, an Computation of Capital Gains on
exemption was introduced from applicability of
collection of advance tax on import under section
listed securities
148(7) for persons covered under section 236E.
Statement filing date extended for NCCPL
The Finance Act 2016 omitted section 236E
Rule 1(6) of Eighth Schedule
however, clause 56A was not omitted. The Bill
proposes to omit this redundant clause now.
NCCPL is required to furnish to the Board a
statement of capital gains and tax computed
Seventh Schedule thereon within 30 days of the end of each quarter in
the prescribed manner and format.
Taxation of banking companies
Adjustments for notional gain or loss The Bill proposes to extend the time for filing of the
Rule (1) (g) of Seventh Schedule statement to 45 days.
Rule 1(g) requires to exclude adjustment made in Extended date for payment of tax collected
the annual accounts, on account of application of by NCCPL
International Accounting Standards 39 and 40 for
the purpose of computing taxable income. Rule 4 of Eighth Schedule
The Bill proposes to add an explanation clarifying The NCCPL is liable to collect capital gain tax on
that no notional loss shall be allowed as deduction behalf of the Board, which is required to be
or notional gain shall be charged to tax on any deposited in the separate bank account with
National Bank of Pakistan alongwith the interest
accrued thereon, on yearly basis by 31 July, next
following the financial year in which the amount was
collected.
The Bill now proposes to extend the time for deposit

of such amount to 15 August, next following the
financial year in which the amount was collected.
Sales Tax
Tier-1 Retailers regime to govern supplies made to a person who has not obtained
registration number. The rate of further tax was
through Sales Tax Act enhanced from 1% to 2% vide Finance Act, 2015.
Section 2(43A) & Section 3(9A)

The Bill proposes to extend the applicability of
further tax on zero-rated supplies through Section
Retailers sales tax regime is presently mainly
3(1A) and Section 4 of the Act viz-a-viz:
governed through the Sales Tax Special Procedure
Rules, 2007 as amended vide notification SRO.608 Good exported or Goods specified under Fifth
(I)/2014, dated 02 July 2014, whereby, the tier-1
Schedule to the Act;
retailers, as specified under Rule-4 thereof, are
required to pay sales tax at standard rate or Supply of stores and provisions for
alternatively at the rate of 2% of their total turnover
consumption aboard a conveyance proceeding
in view of the provisions of Rule 5(1) of the Special
to a destination outside Pakistan as specified in
Procedure Rules. Section 24 of the Customs Act, 1969;
The vires of foregoing retailers sales tax regime

Goods subject to zero-rating under the
were challenged before the Honble Lahore High notifications issued by the Federal Government;
Court in Writ Petition No.26772 of 2016. The
Honble High Court vide its Order dated 11 May
Such other goods as may be specified by FBR
2016, struck down the provisions of Special through a general order.
Procedure Rules, as substituted vide amendment
notification SRO.608(I)/2014.
Although, the Bill does not clarify whether levy of
further tax on zero-rated supplies will apply on
Now, the Finance Bill proposes to provide legal
export of goods from Pakistan, yet it may be
backing to the sales tax regime of Tier-1 Retailers
construed by plain reading of Section 3(1A) that
by inserting sub-section (9A) to Section 3 of the further tax should not apply on supplies exported to
Sales Tax Act, 1990 (the Act), which is pari-materi
non-residents, as they are not liable to sales tax
to the regime as already governed through Special
registration.
Procedure Rules.
Consequently, the Bill also proposes to insert the Imports destined for non-tariff areas
definition of term Tier-1 Retailer under Section of Pakistan
2(43A), which provides threshold limit and
qualification criteria for tier-1 retailers, which is Section 3(1) (b)
same as already described under Rule 4 of the
Special Procedure Rules. The Bill proposes to effect a clarificatory
amendment in Clause (b) of Section 3(1) regarding
Further tax @ 2% applicable on application of sales tax on imports destined for non-
tariff areas. After proposed amendment, Clause (b)
zero-rated supplies should read as follows:
Section 3(1A) & Section 4

(b) goods imported into Pakistan, irrespective of
their final destination of Pakistan as specified in
Levy of further tax was reinforced vide Finance Act,
2013 under Section 3(1A) of the Act for taxable
clause (2) of Articles 1 of the Constitution of District Taxation Officer
Islamic Republic of Pakistan.
Assistant Director Audit
According to the provisions of Clause (2) of Article-
1 of the Constitution, the territories of Pakistan Further, the Bill proposes to insert provisions to
inter-alia include all four Provinces, Federal Capital, empower the Chief Commissioners Inland Revenue
Federally Administered Tribal Areas, and such to assign jurisdiction to their subordinate
States and territories as are or may be included in Commissioners Inland Revenue to perform their
Pakistan, whether by accession or otherwise. functions as directed. Presently, the Federal Board
of Revenue assigns the jurisdiction of sales tax and
By means of the proposed additions to Clause (b) Federal excise cases directly to the Commissioners
of Section 3, it is clarified that the goods imported Inland Revenue.
into Pakistan shall be subject to levy of sales tax
irrespective of their consumption within the tariff or Penalty on counterfeited cigarettes
non-tariff areas of Pakistan.
Sr.No.23 to the Table under Section 33
Legal backing to the existing sales
tax notifications till 30 June 2018 The Bill proposes to impose strict penalties in case
any person who manufactures, possesses,
Sections 13(6) & 13(7) transports, distributes, stores or sells cigarette
packs without or with counterfeited, tax stamps,
The Bills seeks to insert two provisos to Section banderoles, stickers, labels or barcodes, as follows:
13(7) to provide legal cover till 30 June 2018 to all
such sales tax notifications issued earlier, but not Confiscation and destruction of cigarettes stock;
yet rescinded viz-a-viz:
Rs.25,000 or 100% of the amount of tax
Notifications issued prior to 01 July 2016 involved, whichever is higher;
Notifications issued on or after 01 July 2016 Conviction by a Special Judge for a term upto 5
years and/or additional fine which may extend
Further, the Bill proposes to empower the Board to an amount equal to the loss of tax involved.
instead of Federal Government to place before the
National Assembly all exemption notifications The vehicles used for transportation of non-
issued under Section 13 during a financial year. conforming or counterfeited cigarettes packs may
also proposed to be permanently seized. Further,
the premises used for sale of counterfeited
Appointment and jurisdiction of cigarettes can also be sealed under the proposed
Inland Revenue authorities insertion.
Sections 30(1), 30(2), 30(2A), 30(2B), 30(3), &

30(4)
The Bill proposes to appoint the following as Inland

Revenue authorities:
Stay of recovery until decision of Validation of notifications/orders
appeal by Commission (Appeals) issued before Finance Act, 2017
subject to payment of 25% of tax
Section 74A
demand
A new provision is proposed to be inserted to
Section 48(1) (f)
validate the notifications and orders issued by the
Federal Government before the commencement of
The Bill seeks to insert a proviso to Section 48(1) (f) the Finance Act, 2017, so as to override the effect
to provide relief against recovery proceedings to
of any judgements of the honorable superior courts
such taxpayers whose appeal is pending for
of Pakistan.
decision before the Commissioner (Appeals)
subject to the condition that taxpayer deposits 25%
of the amount of tax due. Board to assume broader role with
approval of the Minister Incharge of
The proposed insertion harmonizes the provisions the Federal Government
of Sales Tax Act with Income Tax laws, however
the limit of 25% seems quite high considering the Sections 3(2), 3(3A), 3(5), 4(c), 7(3), 7(4), 7A (1),
quantum of tax demands in sales tax cases. 7A (2), 8, 13(2) (a), 60, 65, and 71(1)
Further, this contradicts with numerous judgments
of the superior courts that tax demands should not Powers to issue notifications under the relevant
be recovered until the matter goes through at least sections is proposed to be transferred from Federal
one judicial scrutiny. Government to the Federal Board of Revenue with
the approval of the Minister Incharge of the Federal
Service of order, decisions, etc. Government in respect of the following:
through electronic means
Exclusion of applicability of further tax under
Section 56(1) (d) & 56(2) (d) section 3(1A).
The Bill seeks to insert new clauses under Section Mode and manner of chargeability, collection
56 to legalize the service of electronically and payment of any taxable goods at any rate
transmitted notices, orders or any other requisition of tax.
to be served to a public or private limited
companies. This transmission may either be Levy of extra tax in addition to sub-section (1),
through departments emails or through e-folder as (2) and (4) of section 3.
maintained for the purpose of e-filing of sales tax-
cum-Federal excise returns. Goods chargeable to tax at the rate of zero
percent.
Special Order/Notification for adjustment of

input tax against output tax.
Chargeability of sales tax on the difference

between the value of supply for which the
goods are acquired and the value of supply for
which the goods, either in the same state or on Whereas, urea fertilizers are subject to reduced rate
further manufacture are supplied. of sales tax at 5% under Eighth Schedule of the
Act.
For minimum value addition required to be
declared for supply of goods and to waive the The Bill now proposes to omit Entry No.32
requirement of audit or scrutiny of records if (fertilizers) from Third Schedule with corresponding
such minimum value addition is declared. change in Eighth Schedule, as a result certain
fertilizers proposed to be chargeable to fixed sales
Non claimability/deduction of input tax. tax regime through proposed insertion in Eighth
Schedule, whereas, fertilizers which are not
Exemption of any taxable supplies. proposed to be mentioned in Eighth Schedule will
be chargeable to sales tax at standard rate of sales
Import of goods/class of goods without payment tax and will be excluded from retail sales tax
of the whole or any part of tax payable to the regime.
registered persons for temporary import with a
view to subsequent exportation and registered Scope of zero-rating extended to
manufacturer-cum-exporters who import raw
material and intermediary products for further
preparations for young children
manufacture of goods meant for export.
Fifth Schedule Sr.No.12 (xvii)
Exemption of tax not levied or short levied as a
Sales tax zero-rating is admissible on preparations
result of general practice.
for infant use put up for retail sale, subject to the
limitations and conditions as laid down under
Special procedure for scope and payment of
Chapter XIV of Sales Tax Special Procedure Rules,
tax, registration, bookkeeping and invoicing
requirements and returns etc. 2007.
According to the description provided under

The proposed broadening of the role of the Board
would probably override the effect of various Pakistan Customs Tariff, it inter-alia covers food
preparations of flour, groats, meal starch or malt
judgements of superior courts, whereupon, the
extract.
orders and/or notifications issued by the Federal
Government were struck down. One of the
The Bill now seeks to extend the zero-rating facility
landmark judgment of the Honble Supreme Court
on food preparations for young children in addition
of Pakistan reported on this matter has been
passed in Civil Appeals No.1428 to 1436 of 2016, to infants, also put up for retail sale.
dated 18 August 2016.
Extra tax on lubricating oils proposed
Exclusion of fertilizers from retail to be withdrawn
price regime
Amendment in Chapter XIII of Sales Tax Special
Procedure Rules, 2007 (notification yet to be
Third Schedule
issued)
Fertilizers other than urea fertilizers are subject to
It is proposed under the Salient Features issued by
sales tax at standard rate on retail price basis under
Section 3 read with Third Schedule to the Act. FBR that levy of extra tax @ 2% will be withdrawn
through an amendment notification, as applicable Enhancement of sales tax rate
under Rule 58S of the Chapter XIII of Sales Tax
Special Procedure Rules, 2007. However, this
applicable for steel sector
notification has not yet been issued.
Chapter XI of Sales Tax Special Procedure Rules,
2007 (notification yet to be issued)
The withdrawal of extra tax would enable the
industrial consumers to avail input tax adjustments
on purchases of lubricating oils, which is presently The existing sales tax rate of Rs.9 per unit of
electricity as applicable for steel sector under Rule
restricted for input tax under Clause (c) of Section
58H of Chapter XI of Sales Tax Special Procedure
8(1) of the Act.
Rules, 2007 is proposed to be enhanced to Rs.10.5
per unit of electricity consumed. However,
Withdrawal of withholding sales tax notification to this effect is not yet issued.
against purchases made from the
registered persons Proposed amendments in five export
sector regime
Amendment in Sales Tax Special Procedure
(Withholding) Rules, 2007 (notification yet to be SRO.1125 (I)/2011, dated 31 December 2011
issued) (notification yet to be issued)
The Salient Features of Federal Budget also Following amendments are also proposed in five
indicate that sales tax withholding will be withdrawn export sectors sales tax regime as applicable under
on purchases of taxable goods by a registered SRO.1125 (I)/2011, however notification to this
buyer from any registered supplier with the effect is yet awaited:
exception of advertisement services.
Reduced rate of 5% on retail sales of finished
Under the provisions of Rules 2(2) and 2(2A) of the goods of five export sectors will be enhanced to
Sales Tax Special Procedure (Withholding) Rules, 6%.
2007, a registered buyer of the taxable goods is
required to withhold and pay sales tax at the rate of Commercial import of fabrics will be subject to
one-fifth or one-tenth of the sales tax amount sales tax at 6%, as such existing zero-rating on
appearing on the sales tax invoice as issued by a imports of fabrics will be withdrawn.
registered supplier.
Thus, when the notification to above effect will be

Exemptions proposed under Sixth
issued, withholding of sales tax will not be required Schedule
against the invoices issued by the registered
suppliers. This seems to lessen considerably the Table-1 (Misc. goods)
burden of unnecessary compliance.
S. No. Description of goods PCT heading
97 Markers and porous tipped pens 96.08
100A Scope of exemption proposed Respective

to be enhanced to cover plant, headings
machinery appliances and
S. No. Description of goods PCT heading S. No. Description of goods PCT heading
accessories in relation with 135 Sunflower and canola hybrid Respective

exemption on goods meant for seeds meant for sowing heading
construction and operation of
Gwadar Port and development 136 Combined harvesters upto five 8433.5100
of Gwadar Free Zone. years old
Equipments
137 Single cylinder agriculture 8408.9000
100C Vehicles imported by China diesel engines (compression-
Overseas Ports Holding ignition internal combustion
Company Limited (COPHCL) piston engines) of 3 to 36
and its operating companies, HP, and CKD kits thereof
namely:-
i. China Overseas Ports Table-3 (Solar energy)

Holding Company Pakistan
(Private) Limited; Followings items used for solar energy systems are
proposed to be exempted:
ii. Gwadar International
Terminal Limited S. No Description of goods PCT heading
iii. Gwadar Marine Services 14. Solar Power Systems. 8501.3110

Limited; and
8501.3210
iv. Gwadar Free Zone
(1) Offgrid/On-grid solar power
Company Limited;
system (with or without provision for
For the period of twenty-three USB / charging port) comprising of :
years for construction,
(i) PV Module
development and operations of
8541.4000
Gwadar Port and Free Zone (ii) Charge controller
Area subject to limitations, 9032.8990
(iii) Batteries for specific utilization
conditions prescribed under
with the system (not exceeding
PCT heading 9917(3)
50 Ah in case of portable
134 Goods received as gift or 9908 system).
8507.2090
donation from a foreign
government or organization by (iv) Essential connecting wires (with
the Federal or Provincial or without switches).
8507.3000
Governments or any public
(v) Inverters (off-grid/ on-grid/
sector organization subject to
hybrid with provision for direct
recommendations of the
connection/ input renewable 8507.6000
Cabinet Division and
energy source and with
concurrence by the Federal 8544.4990
Maximum Power Point Tracking
Board of Revenue.
(MPPT).
(vi) Bulb holder 8504.4090
S. No Description of goods PCT heading S. No Description of goods PCT heading
(2) Water purification plants 8536.6100
operating on solar energy. (xvi) Charge controller/ current 8504.4090
8421.2100
controller.
9032.8990
Table -3 (Renewable Energy technology)

Table-3 (Manufacturing of LED lights)
Exemption proposed to apply for goods useable for
promotion of renewable energy technology also S. No Description of goods PCT Conditions
extended to items used for conservation of energy: heading
S. No Description of goods PCT heading 15A Parts and components If imported by

for LED light
manufacturers
15. SMD/LED/LVD street lights, with or 9405.4090 manufacturing LED
Registered
without ballast, PV module, fitting and lights:
8539.3290 under the
fixtures
(i) Aluminum housing/ Sales Tax Act,
8543.7090
Tubular day lighting device. shell for LED (LED 9405.1090 1990 Subject
light fixture) to annual quota
(viii) LED bulb/tube lights.
9405.5010 determination
(ii) Metal clad printed
(ix) Invertors (off grid/on grid/ hybrid) 8543.0000 by the Input
circuit boards
with provision for direct Output Co-
(MCPCB) for LED
connection/input from renewable efficient
energy source and with (iii) Constant current 8504.4090 Organization
Maximum Power Point Tracking 8543.7090 power supply for of 9001.9000 (IOCO);
(MPPT), charge controllers and LED lights (1-
solar batteries. 300W) 8543.0000
8504.4090
(x) Light emitting diodes (light (iv) Lenses for LED 8504.4090
9032.8990
emitting in different colors). lights 9001.9000
8507.0000
(xi) Water pumps operating on solar
energy along with solar pump 8541.5000
Table-3 (Renewable source of energy e.g.
controllers 8413.7010 solar, wind, geothermal, etc.)
(xii) Energy saver lamps of varying 8413.7090
voltages Serial No. 14 is proposed to be substituted by serial
8504.4090 No. 14A whereby the exemptions provided on items
(xiii) Energy Saving Tube Lights.
for dedicated use with renewable source of energy
(xiv) Sun Tracking Control System 8539.3110 like solar, wind, geothermal etc. are being
8539.3210 rationalized as follows:
(xv) Invertors (off-grid/on grid/hybrid)
with provision for direct 8539.3120
connection / input from S. No Description of goods PCT heading
renewable energy source and 8539.3220
with Maximum Power Point 8543.7090 14A. Following systems and items for
Tracking (MPPT). dedicated use with renewable source
of energy like solar, wind, geothermal (v) Fan coils units. 8415.9099
etc.
(vi) Charging & testing equipment. 9031.8000
1.(a) Solar Parabolic Trough Power
8502.3900 4.(a) Solar Desalination System 8421.2100
Plants.
8503.0010 (b) Parts for Solar Desalination
(b) Parts for Solar Parabolic Power
Plants. System
8503.0090 8541.4000
(i) Parabolic Trough collectors (i) Solar photo voltaic panels.
modules. 8406.8100 (ii) Solar water pumps.
8413.3090
(ii) Absorbers/Receivers tubes. (iii) Deep Cycle Solar Storage
8507.2090
(iii) Steam turbine of an output batteries.
9032.8990
exceeding 40MW. 8406.8200 (iv) Charge controllers.
8504.4090
(iv) Steam turbine of an output not (v) Inverters (off grid/on grid/
exceeding 40MW. hybrid) with provision for direct
8543.7090
(v) Sun tracking control system. connection / input from
renewable energy source and
(vi) Control panel with other 8537.1090 with Maximum Power Point
accessories. Tracking (MPPT)
2. (a) Solar Dish Stirling Engine. 8412.8090 5. Solar Thermal Power Plants with 8502.3900
(b) Parts for Solar Dish Stirling accessories.
Engine.
6. (a) Solar Water Heaters with 8419.1900
8543.7000
(i) Solar concentrating dish. accessories.
8543.7000
(ii) Sterling engine. (b) Parts for Solar Water Heaters
7309.0000
8543.7090
(iii) Sun tracking control system. (i) Insulated tank
7310.0000
8406.8200
(iv) Control panel with accessories. (ii) Vacuum tubes (Glass)
7020.0090
8501.6100
(v) Stirling Engine Generator (iii) Mounting stand
Respective
3.(a)Solar Air Conditioning Plant 8415.1090 (iv) Copper and Aluminum tubes headings
Respective
(b) Parts for Solar Air Conditioning (c) Accessories:
heading
Plant (i) Electronic controller
(i) Absorption chillers. (ii) Assistant/ feeding tank
8418.6990
(ii) Cooling towers. (iii) Circulation Pump
8419.8910
(iii) Pumps. (iv) Electric heater/ immersion rod
8413.3090
(iv) Air handling units. (one piece with one solar water
8415.8200 heater)
(v) Solenoid valve (one piece with (viii) Aluminum and silver paste. 2853.9000
one solar water heater)
Respective
(vi) Selective coating for absorber headings
plates
9. Pyranometers and accessories 9030.8900
7. (a) PV Modules. 8541.4000 for solar data collection.
(b) Parts for PV Modules 8541.4000 10. Solar chargers for charging 8504.4020
(i) Solar cells. 7007.2900 electronic devices.
(ii) Tempered Glass. 7610.9000 11. Remote control for solar charge 8543.7010
controller.
(iii) Aluminum frames. 4016.9990
(iv) O-Ring. 3810.1000 12. Wind Turbines.
(v) Flux. 3919.9090 (a) Wind Turbines for grid 8412.8090

connected solution above 200
(vi) Adhesive labels. 8538.9090
KW (complete system).
(vii) Junction box & cover. 3920.9900
(b) Wind Turbines upto 200 KW for
8412.8090
(viii) Sheet mixture of paper and off-grid solutions comprising of:
plastic Respective
(i) Turbine with Generator/
headings
(ix) Ribbon for PV Modules (made of Alternator.
Respective
silver &Lead). 8541.1000
(ii) Nacelle with rotor with or without headings
(x) Bypass diodes. 3920.9900 tail.
(xi) EVA (Ethyl Vinyl Acetate) Sheet (iii). Blades.

(Chemical).
(iv). Pole/ Tower.
8. Solar Cell Manufacturing (v). Inverter for use with Wind
Equipment. Turbine.
(i) Crystal (Grower) Puller (if (vi). Deep Cycle Cell/ Battery (for
machine). 8479.8990 use with wind turbine).
8507.2090
(ii) Diffusion furnace.
8514.3000 13. Wind water pump 8413.8100
(iii) Oven.
8514.3000
(iv) Wafering machine.
14. Geothermal energy equipment.
8486.1000
(v) Cutting and shaping machines 8418.6100
(i) Geothermal heat pumps.
for silicon ingot. 8461.9000
8418.6990
(ii) Geothermal Reversible Chillers.
(vi) Solar grade polysilicon material. 3824.9999
(iii) Air handlers for indoor quality
(vii) Phosphene Gas. 8415.8300
control equipment.
S. No Description of goods PCT heading Table-1
(iv) Hydronic heat pumps. 8418.6100 Description of PCT Code

S. No.
goods Existing Proposed
(v). Slim Jim heat exchangers. 8419.5000
(vi). HDPE fusion tools. 8515.8000 Live animals &

1 0101.3100 0101.3000
(vii) Geothermal energy installation poultry
tools and equipment. 8419.8990
15 Kino (fresh) 0805.2010 0805.2910
(viii) Dehumidification equipment. 8479.6000
0805.2100,
(ix) Thermostats and intellizone. 15 Others 0805.2090 0805.2200,
9032.1090 0805.2990
17 Ginger 0910.1000 09.10

Proposed omissions/revisions of certain
tariff headings owing to adoption of WCOs 23 Sugarcane 1212.9990 1212.9300
New HS Codes Version 2017
Currency notes,
S. No Description of goods PCT bank notes,
33 4907.0000 49.07
heading shares, stocks
and bonds
1 Live animals and live poultry 0102.1010
and 38 Monetary gold 7108.2000 7108.1390
0105.1900 81 Cotton seeds 1207.2000 1207.1000
19 Cereals and products of milling 1102.3000 Energy saver
industry 91 8539.3910 8539.3110
lamps
20 Seeds, fruit and spores of a kind 1209.1010 108 Others 3824.9099 3824.8400
used for sowing
8539.5010,
26 Fruits juices, whether fresh, 2009.8000 110 Others 8543.7090
8539.5020
frozen or otherwise preserves
but excluding those bottled, Agricultural or
113 8424.8100 8424.4100
canned or packaged horticultural
31 Holy Quran 8523.5100 9406.1010,

114 Green houses 9406.0010
& 9406.9010
8523.5200
Ingredients for
133 2939.9910 2939.8010
83 Meat and similar products 1604.3000 pesticides
106 Import of halal edible offal of 0206.2000 Ingredients for

133 2939.9910 2939.8010
bovine animals pesticides
133 Others 3824.9099 3824.9999
Rate of
Table-3 sales tax Rs
S. No. Description of goods
per 50 kg
PCT Code bag
Description of
S. No.
goods 35 DAP 100
Existing Proposed
36 NP (22-20) 168
2 Others 3824.9099 3824.9999
37 NP (18-18) 165
38 NPK-I 251
Exemptions proposed to be 39 NPK-II 222
withdrawn under Sixth Schedule 40 NPK-III 341
Table-1 41 SSP 31
42 CAN 98
S. No Description of goods PCT
heading
Fertilizer produced from imported LNG are
15 Bananas including plantains, fresh 0803.0000 however subject to reduced sales tax rate of
or dried 5% as per SRO 398(I)/2015 dated 8 May 2015.
Consequent to above proposed rate revision on
133 Ingredients for pesticides 2903.3040
fertilizers, it is expected that consequential
133 Cadusafos Technical Material 2903.6900 amendments in afore-said SRO will also be
effected.
133 Ingredients for pesticides 2919.0010 Sales tax at the rate of 10% is proposed on
supply of natural gas to fertilizer plants for
133 Other ingredients for pesticides 2921.4390
manufacturing of urea.
133 Tiethanolamine and its salts 2922.1300
Sales tax at 5% is proposed on import of
phosphoric acid under PCT heading 2809.2010
by fertilizer company for manufacturing of DAP
Reduced rates of sales tax Machinery for poultry sector subject to

sales tax at 7% - Table-I of Eighth
Specified fertilizers and certain raw Schedule
materials subject to reduced sales tax
rates - Table-I of Eighth Schedule S. PCT
Description of goods
No. heading
Consequent to exclusion of fertilizers from retail
price regime under Third Schedule, following Machinery for preparing
i) 8436.1000
fixed sales tax rates are proposed, subject to feeding stuff
the condition that such fertilizers (except DAP)
are manufactured from gas other than imported
LNG:
S.
Description of goods
PCT H.S. Codes / Tariff Headings aligned
No. heading
with W.C.O.s HS Version 2017
8436.2100
Poultry incubators and
ii)
brooders
and Eighth Schedule- Table-I
8436.2900
iii) Insulated sandwich panels 9406.0090 Description of PCT Code
S. No.
goods Existing Proposed
iv) Poultry sheds 9406.0020
Evaporative air cooling 26(iv) Sub-soiler 8432.3090 8432.3900
v) 8479.6000
system Fertilizer or
vi) Evaporative cooling pad 8479.9010 manure
27(iv) 8432.4000 8432.4100
spreader or
broadcaster
Other items Table-I of Eighth Schedule
Canola or
27(vi) 8432.3010 8432.3100
Sales tax at the rate of 10% on multimedia sunflower drill
projectors under PCT heading 8528.6210 is Sugarcane
proposed if imported by any educational 27(vii) 8432.3090 8432.3900
Planter
institution.
Further, the time limitation for concessionary sales

Sales tax on locally produced coal under PCT tax rate of 5% on import of set top boxes, TV
heading 27.01 is proposed at Rs.425 per metric broadcast transmitters and reception apparatus etc.
tonne or 17% ad valorem, whichever is higher. is proposed to be extended from 30 June 2017 to
30 June 2018.
Rates on mobile phones proposed to
be rationalized
Ninth Schedule
S. Description of Rate in Rs.

No. goods Existing Proposed
2.A Low Priced 300 650
Cellular Mobile
Phones or Satellite
Phones
2.B Medium Priced 1,000 650
Cellular Mobile
Phones or Satellite
Phones.
Federal Excise
such federal excise notifications issued earlier, but

Board to assume broader role with not yet rescinded viz-a-viz:
approval of the Minister Incharge of
Notifications issued prior to 01 July 2016
the Federal Government
Notifications issued on or after 01 July 2016
Sections 3(1) (c), 3(4) and 16(2)
Further, the Bill proposes to empower the Board
Powers to issue notifications under the relevant instead of Federal Government to place before the
sections are proposed to be transferred from National Assembly all exemption notifications
Federal Government to the Federal Board of issued under Section 16 during a financial year.
Revenue with the approval of the Minister Incharge
of the Federal Government in respect of the
Appointment of Federal Excise
following:
officers and delegation of powers
Notified goods as are produced or
manufactured in the non-tariff areas and are Section 29
brought to the tariff areas for sale or
consumption therein. The Bill proposes appointment of following
additional officers in order to carry out the purposes
Levy and collection of duty on any class or of the Federal Excise Act, 2005
classes of goods or services at such high or
lower rates as specified in the notification. District Taxation Officer
Approval of the Economic Coordination Assistant Director Audit

Committee of Cabinet.
It is further proposed that the Chief Commissioner
The proposed broadening of the role of the Board Inland Revenue shall perform the function of any
would probably override the effect of various person as the Board may direct. Similarly, the
judgements of superior courts, whereupon, the Commissioner Inland Revenue shall perform the
orders and/or notifications issued by the Federal function of any person as the Chief Commissioner
Government were struck down. One of the may direct.
landmark judgment of the Honble Supreme Court
of Pakistan reported on this matter has been Stay of recovery until decision of
passed in Civil Appeals No.1428 to 1436 of 2016, appeal by Commissioner (Appeals)
dated 18 August 2016.
subject to payment of 25% of tax
Legal backing to the existing sales demand
tax notifications till 30 June 2018 Section 37
Section 16(6)
Under the first proviso of the section, a person shall
not be required to seek separate stay, if at the time
The Bills seeks to insert two provisos to Section
of filing the appeal 15% of the tax liability is paid. In
16(6) to provide legal cover till 30 June 2018 to all
this case, the stay shall continue for the period of 6 Rates of FED enhanced
months or till the date of decision of the appeal,
whichever is earlier. The said proviso is apparently Table-I of the First Schedule
be applied on both forums (i.e. Commissioner
Appeals and Appellate Tribunal). Entry Proposed Existing Proposed
No. Description of FED Rate FED Rate
The Bill proposes an automatic stay that shall be goods
granted to the taxpayer, if 25% of the tax liability
shall be paid by him while filing the appeal under 9 Locally produced Period
section 33 of the Federal Excise Act, 2005 and cigarettes if their from 01-
such stay shall be continued till the decision of the on-pack printed 07-2016 to
Commissioner (Appeals). retail price 30-11-
exceeds Rs. 2016
Now, the first proviso is restricted to the Appellate 4,500 per
Rs. 3,436
Tribunal. The proposed amendment create thousand
per 1000 Rs. 3,740
hardship for the taxpayer as currently stay is cigarettes
cigarettes per 1000
allowed by payment of 15% of tax liability. (existing Rs.
4,000 per 1,000 Period cigarettes
cigarettes) from 01-
Validation of notifications/orders
12-2016
issued before Finance Act, 2017 onwards
Section 43A Rs. 3,705

per 1000
A new provision is proposed to be inserted to cigarettes
validate the notifications and orders issued by the 10 Locally produced Period
Federal Government before the commencement of cigarettes if their from 01-
the Finance Act, 2017, so as to override the effect on-pack printed 07-2016 to
of any judgements of the honorable superior courts retail price 30-11-
of Pakistan. exceeds Rs. 2016
2,925 per 1000
Rs. 1,534
Service of order, decisions, etc. cigarettes but
per 1,000
does not exceed Rs. 1,670
through electronic means cigarettes per 1,000
Rs. 4,500 per
1,000 cigarettes Period cigarettes
Section 47
(existing Rs. from 01-
4,000 per 1,000 12-2016
The Bill seeks to insert new clauses under section
cigarettes) onwards
47 to legalize the service of electronically
transmitted notices, orders or any other requisition Rs. 1,649
to be served to a public or private limited per 1,000
companies. This transmission may either be cigarettes
through departmentals email or through e-folder as
10a Locally produced Rs. 800
maintained for the purpose of e-filing of Sales Tax-
cigarettes if their - per 1,000
cum-Federal Excise returns.
on-pack printed cigarettes
Entry Proposed Existing Proposed Entry Description of goods Existing Proposed
No. Description of FED Rate FED Rate No. FED Rate FED Rate
goods
such services in the
retail price does area of a Province
not exceed Rs. where such Province
2,925 per 1,000 has imposed
cigarettes Provincial sales tax
and has started
13 Portland cement,
collecting the same
aluminous
through its own Board
cement, slag
or Authority, as the
cement, super
case may be
sulphate cement
1 Rs per 1.25 Rs
and similar
KG per KG
hydraulic FED Exemption Introduced
cements, whether
or not coloured or Table-I of the Third Schedule
in the form of
clinkers Entry Description of goods
No.
Restriction 20A Vehicles imported by China Overseas Ports
Holding Company Limited (COPHCL) and its
Table-I of the First Schedule operating companies, namely:-
i. China Overseas Ports Holding Company
The Bill proposes that no cigarette manufacturer
Pakistan (Private) Limited;
shall reduce price from the level adopted on the day
of announcement of the latest Budget in relation to ii. Gwadar International Terminal Limited;
serial number 9 of the Table I of the First Schedule.
iii. Gwadar Marine Services Limited; and
The Bill also proposes that the minimum price of the iv. Gwadar Free Zone Company Limited;
new brand of cigarette shall not be lower than 45% For a period of twenty-three years for
of the retail price (excluding sales tax) of the construction, development and operations of
cigratte mentioned at serial number 9 of Table I of Gwadar Port and Free Zone Area subject to
the First Schedule. limitations, conditions prescribed under PCT
heading 9917(3).
Rates of FED reduced
Table-II of the First Schedule
Entry Description of goods Existing Proposed

No. FED Rate FED Rate
6 Telecommunication 18.5% of 17% of the
services excluding the charge charge
Customs
Proposed concessions, exemptions Customs Duty reduced on uncoated polyester

film and aluminum wire from 20% to 11% for
or reduction in Customs Duty / manufacturers of metalized yarn.
Regulatory Duty
Customs Duty reduced from 20% to 16% and
Exemption of 3% Customs Duty on raw skins & from 16% to 11%, on raw materials for
hides. manufacturers of Baby Diapers.
Exemption of 16% Customs Duty on stamping Concessionary rate of 11% available on Set top
foils. boxes, TV broadcast transmitter and Reception
apparatus etc. extended till 30 June 2018.
Exemption of 3% Customs Duty on import of
ostriches. Import of solar panels and related components
were exempted from the condition of local
Exemption from Customs Duty extended on manufacturing till 30 June 2017 which is
import of combined harvesters-threshers up to 5 extended till 30 June, 2018.
years old while 10% and 20% regulatory duty
levied on harvesters-threshers that are old by 5- Surcharge in excess of 0.25% for cargo in-
10 years and those that are older by more than bonded at Karachi for upcountry Bonds
ten years old respectively. exempted.
Customs Duty @ 11% and 16% exempted and Expansion of scope of exemption on
instead Regulatory Duty at uniform rate of 9% import/donation by allowing imports and
levied on the telecom equipment. donation of Federal, Provincial, AJ&K, Gilgit-
Baltistan Governments, NDMA, PDMA and
Reduction of duty from 11% to 3% and Govt. emergency/ rescue services.
removal of 5% Regulatory Duty on
grandparent and parent stock of chicken. Extension of concession on 11 more
components of trailers.
Reduction of duty on import of hatching eggs
from 11% to 3%. Customs Duty @ 11% and 16% exempted and
instead Regulatory Duty at uniform rate of 9%
Reduction of Regulatory Duty on aluminum levied on the telecom equipment.
waste or scrap from 10% to 5%.
Proposed imposition or
Reduction of Customs Duty on sheets for
veneering from 16% to 11%. enhancement in rate of Customs
Duty & Regulatory Duties
Reduction of Customs Duty on pre-fabricated
modular clean rooms panels from 20% to 3%. 5% Regulatory Duty levied on import of
synthetic filament yarn (of polyesters).
Reduction of Customs Duty on fabric (non-
woven) for pharmaceutical industry from 16% Increase of Customs Duty on aluminum
to 5%. beverage cans from 11% to 20%.
Customs Duty rate on Bituminous coal and Directorate General of China
other coal equalized @ 5%. However, for the
Power Projects in IPPs Mode, Customs Duty on
Pakistan Economic Corridor (CPEC)
import of both types of coal reduced to 3%.
Section 3AAA
Separate PCT code for compressors of vehicle
The Bill empowers the Board to appoint separate
@ 35% Customs Duty created.
Directorate General of CPEC consisting of the
following officers for facilitation.
Separate PCT code for classification of electric
cigarettes created at 20% Customs Duty.
Director General
Regulatory Duty @ 10% levied on animal
protein meals.
Additional Directors
Regulatory Duty levied/increased on 565 non-

Deputy Directors
essential items by various rates ranging from
5% to 15%. Assistant Director
Customs Duty @ Rs. 250 per set converted into General Power to exempt from
Regulatory Duty @ Rs. 250 per set on mobile customs duties
phones.
Section 19(1) & 19(5)
Regulatory Duty on betel nuts increased from
10% to 25% while Regulatory Duty @ Powers to issue notifications under the relevant
Rs.200/kg levied on betel leaves. sections are proposed to be transferred from
Federal Government to the Federal Board of
Concession in duty/taxes on Hybrid Electric Revenue with the approval of the Minister Incharge
Vehicles above 2500 cc withdrawn. of the Federal Government in respect of exemption
from custom duties in order to provide legal
Additional duty on cylinder head for motorcycles coverage to certain notifications.
levied.
The provision refers the sub section (1) where any
Controlled Delivery circumstances exist to take immediate action for the
purposes of national security, national disaster and
Section 2(z) etc, the Board may issue notification to exempt any
taxable goods or taxable services. However, the
The Bill proposes to insert the definition of term notification shall stand rescinded after expiry of
controlled delivery for supervising the activities that financial year starting from 1 July 2015.
allow suspected consignments of prohibited and
smuggled goods from or into the territory of The Bill proposes to enhance the expiry period from
Pakistan. 1 July 2016 to 30 June 2018, if the notification was
not rescinded earlier.
Value of Customs Collector against the Order issued by the Collector
within thirty days on account of cancellation or
Section 25A confirming the suspension of his unique user
identifier.
The Bill proposes new proviso where the invoice
retrieved from the consignment is higher than the Appeal to Collector (Appeals)
value declared for assessment or warehousing
under section 79 or clearance for exportation under Section 193
section 131, the value of invoice retrieved from the
consignment shall be taken for assessment The Bill seeks to propose the Order passed under
purpose. section 195 by the Board, Collector of Customs,
Collector of Customs (Adjudication) shall be
Obligation to produce documents appealable. Presently, the right of appeal against
the Order passed under section 195 is not allowed
and provide information which creates hardship for the taxpayer.
Section 26(1A)
Power to pass certain Orders
The Bill proposes the insertion of the sub clause
wherein the Board shall empower any officer to Section 195(A)
require any person to provide such information for
the purposes of End Use Verification. The Bill empowers the Board, Collector or Collector
of Customs (Adjudication) to pass a fresh Order on
its own or assign the case to an officer of equal or
Period for which goods may remain higher rank, who may have passed the earlier order
warehoused to pass such Order.
Section 98 Power to enter into mutual legal

The Bill empowers Chief Collector of Customs to assistance agreement on customs
extend the time for the goods to be placed in ware matters
house for a period not exceeding one month in case
of notified perishable goods and a period not Section 219A
exceeding three months in case of non-perishable
goods. Presently, Collector of Customs, Federal The Bill empowers the Board to enter into
Government or the Board are empowered to extend memorandum of understanding pertaining to mutual
the time for warehousing. legal assistance in custom matters or in pursuance
of any bilateral or multilateral agreement with
Cancellation of registration of international organization, foreign customs etc.
registered user Accordingly, the Board may, at its own motion or

upon request from an international organization,
Section 155F
foreign customs etc. shall exercise its powers being
conferred under the proposed Bill.
The Bill proposes to amend section 155F by giving
right to a person for filing of appeal before the Chief
Conversely, the Board is also empowered on behalf
of the Federal Government request an international
organization, foreign customs etc. for legal
assistance on any customs matters.
Validation of notifications/orders
issued before Finance Act, 2017
Section 221A
A new provision is proposed to be inserted to

validate the notifications and orders issued by the
Federal Government before the commencement of
the Finance Act, 2017, so as to override the effect
of any judgements of the honorable superior courts
of Pakistan.
New HS Code Version-2017

Through Budget Speech 2017, the Finance Minister
has briefed that WCO has adopted new HS Version
with effect from 1st January 2017. Therefore,
Pakistan, being signatory of WCO, is obliged to
adopt the new version from the next financial year
i.e. 1st July 2017. The Amendments in HS 2017 will
affect the classification of around 15% of goods
traded in the world. The majority of changes in HS
2017 have been introduced to address
environmental and social issues. Besides, the new
version has also introduced for new product
classifications to reflect changes in manufacturing
processes and technological advancements.
Note
Under clause (18) and clause (19) of section 2 of
the Finance Bill 2017, FBR has neither proposed
the respective changes in tariff through Schedules
of the Customs Act, 1969, nor any concessionary
customs / regulatory duty notification has yet been
issued. Therefore, the proposed changes in rates of
customs / regulatory / additional duty are entirely
based on the salient features document issued by
FBR.
The Common Reporting Standard
(CRS) Entity Classification
Background
Foremost requirement for any FI under CRS is to
CRS is a global transparency initiative to combat ascertain its reporting and non-reporting status as
offshore tax evasion. Cross border business and per prescribed criteria. This is a key stage for any
transactions have become a norm in a global entity as accurate entity classification shall
financial and economic world and it is common for determine the subsequent responsibilities of entity
tax payers to keep money outside their resident under CRS.
country. Owing to this reason, large amount of
wealth held in offshore jurisdictions remain Due Diligence of Pre-existing
undisclosed to the tax authorities and remain
untaxed. Accounts
In 2010, U.S. congress enacted the provisions of As per CRS rules, due diligence requirements are
Foreign Account Tax Compliance Act that required mainly bifurcated into two categories:
Financial Institutions (FIs) across the globe to report
the financial information of U.S persons account Due Diligence for Pre-existing Individual
holders to U.S. Internal Revenue Services (IRS) in Accounts
an attempt to curb offshore tax evasion.
Due Diligence for Pre-existing Entity Accounts
In a similar manner, G20 countries requested
Organization of Economic Cooperation and For the purpose of CRS implementation in
Development (OECD) to develop a common Pakistan, Pre-existing Account means a financial
framework known as CRS for Automatic Exchange account maintained on or before 30 June 2017.
of Information (AEoI). Purpose of the CRS is to
allow partner jurisdictions to obtain information Due Diligence for Pre-existing
about non-resident account holders from financial Individual Accounts
institutions and automatically exchange that
information with other jurisdictions on an annual For the purpose of due diligence, pre-existing
basis under Multilateral Competent Authority accounts having value below USD 1 million are
Agreement (MCAA) or Bilateral Agreement (BA) to classified as Low Value Accounts and accounts
encourage tax transparency and avoid offshore tax having value above USD 1 million are classified as
evasion. High Value Accounts. Due diligence rules are trivial
for Low Value Accounts and extensive for High
Key Requirements for Financial Value Accounts.
Institutions
Due Diligence for Pre-existing Entity
CRS regulations are multi layered and divided into Accounts
various sub sections. Following are key
requirements of CRS for any financial institutions: Due diligence requirements for entity account
holders are complex and require sub-categorization
amongst accounts to determine whether such
accounts are in scope for the purpose of CRS or Mode and method of reporting information for FIs
not. shall be elaborated by local authority (FBR) as per
the government guidelines and regulations.
CRS regulations entail that pre-existing entity
accounts with balance less than USD 250,000 as at CRS Implementation in Pakistan
31 December 2017 are not required to be reviewed
and reported for CRS purposes. FIs are allowed to In September 2016, Pakistan signed Multilateral
rely on existing information maintained in lieu of local Convention (the convention) on Mutual
AML / KYC requirements in order to document entity Administrative Assistance in Tax Matters of
tax resident status as per CRS requirements. Organization of Economic and Cooperation
Further, due diligence is also required to determine Department (OECD) to implement CRS.
whether the entity account holder classifies as a
Passive Non-Financial Foreign Entity (NFFE) or
Active NFFE based on its business activities.
Legal Framework
Lastly, FIs are required to determine and document
Implementing a regulation of this stature which
the tax resident status of Passive NFFEs and their
controlling persons. compels sharing of confidential customer
information with other countries requires legal basis
and thus demands change / modification of existing
On-Boarding of New Individual & legal framework of the country. Keeping in view
Entity Accounts such requirements, Government of Pakistan has
included necessary legal provisions in Income Tax
FIs are required to establish / modify / update their Ordinance 2001 (Section 107 (I) and 165 (B), Sales
policies, procedures, forms and processes to cater Tax Act 1990 (56) (A) and Federal Excise Act 2005
on-boarding of new accounts from 1st July 2017 (47) (A) to provide legal framework for
onwards. This entails FIs to revisit their new implementation of CRS.
account opening documents which capture tax
residency status of customers and ensure that it In relation to CRS, FBR has formulated CRS rules
encapsulates CRS requirements effectively. in the Income Tax Rules 2002 vide SRO 166(I)/
2017 dated March 15 2017 to embed CRS
Reporting Information to Local regulations in local laws.
Authority Following rules are proposed to be added in the

Chapter XIIA of Income Tax Rules 2002 on account
All the requirements of CRS for FIs culminate at this
of the aforementioned SROs:
stage. FIs are required to report financial
information about non-resident accounts holders to
Sections Particular
their local authority (FBR) on prescribed frequency.
Data set required for reporting comprises of basic 78A Application
information such as Account Number, Name,
78B Definitions
Address, Residence Jurisdiction, TINs for each
Reportable Jurisdiction (if any), date of birth and 78C General Reporting Requirements
place of birth (for individual accounts); and account
balance and income. 78D General Due Diligence Requirements
Sections Particular KPMG LLP, elaborates following protocol for
effective implementation of CRS:
Due Diligence Requirements for Pre-
78E
existing individual accounts Perform Impact Assessment - An impact
78F Due Diligence for New Individual Accounts assessment can help identify gaps in compliance
capabilities and competence. By isolating any
Due Diligence for Pre-existing Entity potential shortfalls, FIs can focus on individual
78G
Accounts business units or geographies to determine if
78H Due Diligence for New Entity Accounts additional resourcesmoney, time, or personnel
may be needed
78I Special Due diligence Rules
Outline a basic strategy - FIs should begin the
process of developing a plan to update their
Key Timelines
systems and procedures to perform due diligence of
pre-existing accounts, onboard new customers,
Timeline for Implementation in Date manage data, and report account information.
Pakistan
Keeping track of local CRS requirements FIs
Regime effective from 01 July 2017 should monitor requirements and regulations
imposed by local tax authority and regulator and
New account On-boarding 01 July 2017 ensure their timely implementation
procedures in place
Create Calendar FIs should publish a planning
Complete remediation of individual 31 December
calendar that maps out key dates and milestones to
high value account holders 2017
help ensure a more seamless management of CRS
compliance.
Complete remediation of pre- 31 December
existing entity and individual lower 2018
Establish communications protocol - Establish a
value account holders
timely communications mechanism to alert all parts
of your organization as to the latest CRS
Year of first reporting 2018
disclosures and procedure updates.
CRS Implementation Challenges for Establish automation options - To cater CRS

requirements, FIs must plan in advance, allocate
FIs sufficient time to review the key components of
CRS requirements and create a due diligence
CRS has wider impact and will be much more
checklist of in-house disciplines directly impacted
challenging than FATCA. FIs will be required to
by CRS-related changes including:
identify tax resident status of account holders of
more than 100 jurisdictions and reportable volumes
are expected to increase by many multiples Conclusion
jurisdictions participating in CRS regime.
CRS will have a profound impact on financial
FIs need to proactively plan and ensure readiness institutions and its requirements will result in
to meet compliance and reporting deadlines. significant increase in compliance and monitoring
Common Reporting Standard survey of 2016 by activities of FIs. In Pakistan, FIs have started their
CRS implementation efforts, but there is still a lot of
work to be done by both regulators and FIs. FIs
shall need to proactively plan and ensure that they
have right processes and solutions in place to
meet the compliance and reporting deadlines of
CRS.
a
Offices in Pakistan
Karachi Office
Sheikh Sultan Trust Building No. 2
Beaumont Road
Karachi 75300
Phone +92 (21) 3568 5847
Fax +92 (21) 3568 5095
eMail karachi@kpmg.com
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2nd Floor, Servis House
2-Main Gulberg, Jail Road
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eMail lahore@kpmg.com
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Islamabad
Phone +92 (51) 282 3558
Fax +92 (51) 282 2671
eMail islamabad@kpmg.com
www.kpmg.com.pk
2017 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member
The information contained herein is of a general nature and is not intended to address the
circumstances of any particular individual or entity. Although we endeavour to provide
accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No
one should act on such information without appropriate professional advice after a thorough
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Budget Brief 2017

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Budget Brief 2017

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The provisions of the Finance

The Budget Brief contains the

This publication will be updated,

------------------(Rupees in billion) ----------------

Budget Revised Budget Forecast Forecast

35,000 4.2% 8.2% 9.0%

GDP(mp) Overall Deficit

Source: Pakistan Economic Survey 2016-17

CPI Food * Non Food *

Source: Pakistan Economic Survey 2016-17

On a holistic level, perhaps a bit early in the day,

While we remain strong advocates of CPEC,

The devil is in the details.

Tax on dividend is proposed to be increased To harmonize procedural matters with Income

Sales Tax The Bill seeks to extend the zero-rating facility

Customs In order to override the effect of any judgment

Reduction of Customs Duty from 16% to 5%

Customs Duty rate on Bituminous coal and

Regulatory Duty levied/increased on 565

The Bill empowers the Board to appoint

The Bill proposes to transfer the power of

Sections 2(22A), 113, 153(1) (a), Division IX of Part

the Chief Commissioner has issued online

A comparison of existing and proposed rates is as

Section 53 The Finance Bill proposes to withdraw this tax

removed Tax credit to NPO (Non Profit

Currently tax payable on such profits and gains is

The Finance Bill proposes to extend the categories

Section 130 Threshold for advance tax payment

Default surcharge rationalized Section 216(3) of the Ordinance places restriction

Broadening of tax base (ii) Non-resident contractors to file option for

156A Commission or 15% 17.5%

Vehicle leased under Prime Ministers Youth

The Bill now proposes to extend the time for deposit

Section 2(43A) & Section 3(9A)

The vires of foregoing retailers sales tax regime

Section 3(1A) & Section 4

Sections 30(1), 30(2), 30(2A), 30(2B), 30(3), &

The Bill proposes to appoint the following as Inland

Special Order/Notification for adjustment of

Chargeability of sales tax on the difference

According to the description provided under

Thus, when the notification to above effect will be

97 Markers and porous tipped pens 96.08

100A Scope of exemption proposed Respective

accessories in relation with 135 Sunflower and canola hybrid Respective

i. China Overseas Ports Table-3 (Solar energy)

iii. Gwadar Marine Services 14. Solar Power Systems. 8501.3110

(vi) Bulb holder 8504.4090

Table -3 (Renewable Energy technology)

S. No Description of goods PCT heading 15A Parts and components If imported by

(iv) O-Ring. 3810.1000 12. Wind Turbines.

(v) Flux. 3919.9090 (a) Wind Turbines for grid 8412.8090

(xi) EVA (Ethyl Vinyl Acetate) Sheet (iii). Blades.

(iv) Hydronic heat pumps. 8418.6100 Description of PCT Code

(vi). HDPE fusion tools. 8515.8000 Live animals &

17 Ginger 0910.1000 09.10

31 Holy Quran 8523.5100 9406.1010,

106 Import of halal edible offal of 0206.2000 Ingredients for

133 Others 3824.9099 3824.9999

Reduced rates of sales tax Machinery for poultry sector subject to

Further, the time limitation for concessionary sales

S. Description of Rate in Rs.