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2019
EY Ford Rhodes
Budget Briefing
This Memorandum has been prepared as a general guide for the benefit of our clients and is available to other interested
persons upon request. This should not be published in any manner without the Firm’s consent. This is not an exhaustive
treatise as it sets out interpretation of only the significant amendments proposed by the Finance Bill, 2019 (the Bill) in the
Income Tax Ordinance, 2001 (the Ordinance), the Sales Tax Act, 1990 (the ST Act), the Customs Act, 1969 (the Customs
Act) and the Federal Excise Act, 2005 (the FE Act) in a concise form sufficient enough to amplify the important aspects of the
changes proposed to be made. FBR means the Federal Board of Revenue, Government of Pakistan.
Changes of consequential, administrative, procedural or editorial in nature have either been excluded from these comments
or otherwise dealt with briefly.
The amendments proposed by the Bill after having been enacted as the Finance Act, 2019, shall, with or without
modification, become effective from the tax year 2020, unless otherwise indicated.
It is suggested that the text of the Bill and the relevant laws and notifications, where applicable, be referred to in considering
the interpretation of any provision. Since these are only general comments, no decision on any issue be taken without further
consideration and specific professional advice should be sought before any action is taken.
Contents Page
Highlights i - ix
Income Tax 1 – 44
Sales Tax 45 – 58
Federal Excise 61 – 66
Customs 67 - 73
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Highlights
Income Tax
Tax paid at import stage for commercial importers and ship-breakers to be treated as ‘minimum tax’
Tax paid / deducted on profit on debt (other than a company), tax deductible from a non-resident person on account
of certain contracts and services, tax deductible from payments on account of supply of goods, rendering of services
and execution of contracts to be treated as ‘minimum tax’.
Tax deducted / collected from payment of commission and on gas consumption bills of CNG Stations to be treated as
‘minimum tax’.
Clause (94), Part IV of the Second Schedule to the Ordinance providing for rate of 2% minimum tax for certain
specified service providers has been omitted. Rate for such service sectors including transport services is now
prescribed at 4%.
Brought forward depreciation losses and brought forward business losses not to be accounted for the purpose of
working out super tax for banking, insurance, E&P companies and income covered under Eighth Schedule.
Taxation of capital gain from disposal of immovable property revamped. Such capital gain is now taxable at normal
rates of tax.
Tax credit for investment in plant and machinery under Section 65B restricted to investments made upto 30 June
2019; rate reduced from 10% to 5% retrospectively for tax year 2019.
Purchase of assets should be made through banking channel; otherwise adverse consequences proposed.
Limit on non-questionable remittance of foreign exchange from abroad reduced to PKR 5 Million in a tax year.
Rates of penalties revised on various offences; failure to file return of income by the due date attracts minimum
penalty of PKR 5,000.
Due date of filing of return of income for salaries individual and for filing of statement for FTR income changed to 30
September.
A person filing return of income after the due date would be included in the ATL after payment of prescribed
surcharge.
Allowability of commission expense paid to a dealer not registered for sales tax or a person whose name is not
appearing in the Active Taxpayers List (ATL) restricted to 0.2% of the gross amount of supply of products as listed in
Third Schedule to the Sales Tax Act, 1990
Dealer’s margin to be added to the income of a person supplying products listed in Third Schedule of the Sales Tax
Act, 1990 and or any other products prescribed by FBR, to a person under dealership arrangement who is not
registered under the Sales Tax Act, 1990 or is not appearing in the active taxpayers list
Bad debts classified as “doubtful” to be excluded for the purpose of computing allowable provision under Rule 1(c)
of the Seventh Schedule
Effective from the tax year 2020, tax rate of 37.5% would be applicable on additional taxable income earned from
additional investment in Federal Government securities.
Board may introduce scheme for taxing certain persons and businesses in particular cities or territories.
If a tax payable by an association of persons in respect of any tax year cannot be recovered from the association of
persons, the same can be recovered from the member of the association of persons
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Highlights
Monitoring proceedings can be reinitiated and tax can be recovered from the assessee in default if the Commissioner
believes that the earlier assessment passed under Section 161 was erroneous in so far as it was prejudicial to the
interest of revenue.
Apart from cheque or bank debit advice, refunds may also be settled through issuance of bonds issued by the FBR
Refund Settlement Company Limited.
Commissioner is now additionally empowered to raid and confiscate undeclared gold, bearer security or foreign
currency.
Conclusion of tax audit by the Commissioner now requires issuance of audit report which will then form the basis for
making amendment of assessment under Section 122.
Failure to comply with notice for filing statement of foreign income and assets may lead to prosecution.
Where a taxpayer, other than a company, earns profit on debt exceeding PKR 36 million, the entire profit on debt
will be taxable as part of its normal taxable income. For profit on debt up to PKR 36 million, the rate of tax under
Section 7B has been revised upwards.
Self-generated goodwill and notional amounts do not represent intangibles, even if permitted under prescribed
accounting treatments. Furthermore, intangibles may now be amortized over their actual useful life, or where the
useful life is not ascertainable, over a period of 25 years.
The receipt of a gift shall be taxable, unless received from immediate family members.
A tax credit shall be allowed to a person for hiring fresh qualified graduates in the tax year in which they are
employed.
Definition of resident individual expanded to include an individual who is present in Pakistan for 90 days or more in
the tax year, and who in the four preceding tax years was present in Pakistan for 365 days in aggregate.
Every trust and welfare institution, with effect from 1 st July, 2020 must now mandatorily obtain approval of the
Commissioner in order to claim a tax credit under Section 100C. Furthermore, trusts and welfare institutions may
not confer any private benefits to relatives of the donor or author.
Where the Commissioner is of the opinion that a transaction has not been declared at arm's length, the
Commissioner may obtain a report from an independent chartered accountant or cost and management accountant.
Payment to non-residents on account of offshore supplies forming part of an overall EPCC arrangement can be made
after deducting 6% tax, subject to obtaining approval from the Commissioner.
Every person engaged in any business, profession or vocation shall be required to obtain and display a business
licence.
Failure to furnish details, or furnishing incorrect details, in the withholding tax statements is punishable by fine or
imprisonment, or both.
In order to facilitate low risk and compliant taxpayers, FBR will design an alternate impersonal taxation regime
whereby personal interaction will be minimized.
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Highlights
Tenth Schedule to govern collection and deduction of advance income tax, computation of income and tax payable
of persons not appearing in the Active Taxpayers List.
It is proposed that every person engaged in any business, profession or vocation shall obtain and display a business
license as prescribed by the Federal Board of Revenue.
Minimum threshold for non-chargeability of salaried individual is proposed to be enhanced to PKR 600,000. Further,
the highest tax rate applicable on salaried individuals is proposed to be enhanced to 35%.
The corporate tax rate for the tax year 2019 is 29% which was to be reduced by 1% on yearly basis upto 25%. It is
now proposed to restrict such rate at 29% for tax year 2019 and onwards.
Reduced rate of 7.5% applicable on dividend received from power companies is proposed to be enhanced to 15%.
The slabs for rates of tax on income from property in the case of individual and AOPs are proposed to be increased
with additional tax levied thereupon.
The applicability of the rate of tax on capital gains has been proposed to be extended till tax year 2020.
Exemption on capital gain proposed to vary on the basis of holding period of open plots or constructed property.
Whereas normal tax rates have been proposed to be applicable instead of reduced tax rates presently applicable.
The general rate of minimum tax on turnover under Section 113 of the Ordinance is proposed to be increased to
1.5%.
Part III
The advance tax rate on profit on debt is proposed to be increased from 10% to 15%.
The rate of withholding tax on transport services for resident persons is proposed to be enhanced to 4% from 2%,
wherein several other services are also to be included in the category.
The rate of adjustable withholding tax on royalty payable to a resident person is proposed at 15% of the gross
amount.
Part IV
Advance tax on dealers, commission agents and arhatis proposed to be enhanced significantly.
A flat rate of 1% has been proposed as the advance tax on purchase of immovable property.
Donation to certain institutions has been proposed to be included in the list of institutions to whom donation is
exempt from tax.
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Highlights
Certain charitable institutions have been proposed to be included in the list of institutions whose income is exempt
from tax.
The Bill proposes to seek a new proviso whereby profit and gains on sale of immoveable property to a rental REIT
Scheme shall be exempt from tax upto 30 June 2021.
Exemption for dividend income derived by a company, proposed to be extended to companies who are eligible for
Group Relief under Section 59B.
Exemption proposed for the income of persons resident of the Tribal areas of Khyber Pakhtunkhwa & Baluchistan
Part III
Reduction in rate of rebate from 40% to 25% has been proposed, along with withdrawal of this rebate to teachers of
medical profession who derive income from private medical practice or who receive share of consideration from
patients.
Exemption from provisions to resident goods transport contractors, subject to payment of tax at the rate of 2.5% on
payments received on account of rendering of carriage services has been proposed to be increased to 3%.
Proposal of exemption from the specific provisions of withholding of tax to the persons resident of the Tribal areas
of Khyber Pakhtunkhwa & Baluchistan
Exemption from selection of audit under Section 177 and 214C to persons who have been audited in the preceding
three tax years has been proposed to be withdrawn.
Third Schedule
Part II
Fourth Schedule
Bill has proposed to empower the Commissioner to examine and amend the amount of income as disclosed in the
financial statements presented to the Securities and Exchange Commission of Pakistan with respect to commission
paid and claim for losses.
First Schedule
Part I
It is proposed that every person engaged in any business, profession or vocation shall obtain and display a business
license as prescribed by the Federal Board of Revenue.
Minimum threshold for non-chargeability of salaried individual is proposed to be enhanced to PKR 600,000. Further,
the highest tax rate applicable on salaried individuals is proposed to be enhanced to 35%.
The corporate tax rate for the tax year 2019 is 29% which was to be reduced by 1% on yearly basis upto 25%. It is
now proposed to restrict such rate at 29% for tax year 2019 and onwards.
Reduced rate of 7.5% applicable on dividend received from power companies is proposed to be enhanced to 15%.
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Highlights
The slabs for rates of tax on income from property in the case of individual and AOPs are proposed to be increased
with additional tax levied thereupon.
The applicability of the rate of tax on capital gains has been proposed to be extended till tax year 2020.
Exemption on capital gain proposed to vary on the basis of holding period of open plots or constructed property.
Whereas normal tax rates have been proposed to be applicable instead of reduced tax rates presently applicable.
The general rate of minimum tax on turnover under Section 113 of the Ordinance is proposed to be increased to
1.5%.
Part III
The advance tax rate on profit on debt is proposed to be increased from 10% to 15%.
The rate of withholding tax on transport services for resident persons is proposed to be enhanced to 4% from 2%,
wherein several other services are also to be included in the category.
The rate of adjustable withholding tax on royalty payable to a resident person is proposed at 15% of the gross
amount.
Part IV
Advance tax on dealers, commission agents and arhatis proposed to be enhanced significantly.
A flat rate of 1% has been proposed as the advance tax on purchase of immovable property.
Second Schedule
Part I
Donation to certain institutions has been proposed to be included in the list of institutions to whom donation is
exempt from tax.
Certain charitable institutions have been proposed to be included in the list of institutions whose income is exempt
from tax.
The Bill proposes to seek a new proviso whereby profit and gains on sale of immoveable property to a rental REIT
Scheme shall be exempt from tax upto 30 June 2021.
Exemption for dividend income derived by a company, proposed to be extended to companies who are eligible for
Group Relief under Section 59B.
Exemption proposed for the income of persons resident of the Tribal areas of Khyber Pakhtunkhwa & Baluchistan
Part III
Reduction in rate of rebate from 40% to 25% has been proposed, along with withdrawal of this rebate to teachers of
medical profession who derive income from private medical practice or who receive share of consideration from
patients.
Exemption from provisions to resident goods transport contractors, subject to payment of tax at the rate of 2.5% on
payments received on account of rendering of carriage services has been proposed to be increased to 3%.
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Highlights
Proposal of exemption from the specific provisions of withholding of tax to the persons resident of the Tribal areas
of Khyber Pakhtunkhwa & Baluchistan
Exemption from selection of audit under Section 177 and 214C to persons who have been audited in the preceding
three tax years has been proposed to be withdrawn.
Third Schedule
Part II
Fourth Schedule
Bill has proposed to empower the Commissioner to examine and amend the amount of income as disclosed in the
financial statements presented to the Securities and Exchange Commission of Pakistan with respect to commission
paid and claim for losses.
Sales Tax
The term ‘Cottage industry’ is sought to be re-defined as a manufacturer located in a residential area with less than
ten workers and annual turnover upto two million rupees without having industrial gas and electricity connection.
The term “retail price” is proposed to include the price fixed by an importer.
The value of supply in case of toll manufacturing is defined as actual consideration received by the toll manufacturer
for its value addition.
The sales tax on bricks is proposed to be levied under fixed sales tax regime Act.
The rates for withholding/deduction of sales tax by withholding agents are proposed to be introduced under the
newly inserted Eleventh Schedule to the ST Act.
Tier-1 retailer inter-alia includes a retailer whose shop measures 1,000 sq.ft. or more.
The Tier-1 retailers shall pay sales tax at the applicable rates and option to pay sales tax on turnover basis or at the
rates specified in SRO 1125 shall not be available anymore.
Customers of Tier-1 retailers may receive cash back up to 5% of the sales tax paid on their purchases from such date
or manner and to the extent as may be prescribed by FBR.
The regime of value addition tax on imports inserted with some modifications by introducing the Twelfth Schedule to
the ST Act.
NIC number of un-registered buyers required to be mentioned on the sales tax invoice; otherwise, related input tax
adjustment shall not be available to the suppliers on pro-rata basis.
The sales tax return may be revised without permission of the Commissioner subject to the condition that the
revised return is filed within sixty days and tax payable is higher than the already tax paid or refund claim is less than
originally claimed.
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Highlights
FBR may prescribe rules to initiate criminal proceedings against the Officials of Sales Tax.
The penalty for non-filing of sales tax return is enhanced from PKR 5,000 to PKR 10,000. Where return filing is not
delayed more than 10 days, the penalty is increased from PKR 100 to PKR 200 for each day of default.
The extra sales tax regime withdrawn and certain goods to be inserted into the Third Schedule subject to sales tax at
retail price.
The sales tax exemption on certain items including silver and gold, electricity and gas supplied to hospitals, frozen
meat and sausages sold in retail packing, fat filled milk sold in retail packing is proposed to be withdrawn.
New exemptions introduced in the Sixth Schedule on supply of electricity and other goods including import of plant
and machinery to Tribal areas, import or supply of steel products by the manufacturers on which FED is levied under
sales tax mode and local supplies of Cottonseed oil and Wheat Bran.
Reduced rate of sales tax proposed to be withdrawn from Eight Schedule on reclaimed lead, rapeseed, sunflower,
canola, soya been seed and white crystalline sugar.
Reduced rate of sales tax to be levied on various goods under the Eighth Schedule to the Act.
The list of sales tax on services levied under Islamabad Capital Territory (Tax on Services) Ordinance, 2001
expanded in lines with the provincial sales tax laws.
Duty on supply of steel products is proposed to be charged at 17% ad valorem in sales tax mode which shall not be
less than the duty on production of steel products on an annual basis.
FBR may prescribe rules to initiate criminal proceedings against the Officials of Federal Excise or taxpayers or both.
The rate of duty on edible and vegetable ghee and cooking oil is proposed to be increased from 16% to 17% and fixed
duty on import of oil and oil seeds is proposed to be withdrawn.
The rate of duty on certain kinds of aerated water is proposed to be increased from 11.5% to 14%.
The duty on un-manufactured tobacco proposed to be borne by the manufacturer and not to be passed on to
grower.
The rate of duty on cement is proposed to be increased from PKR 1.50/ kg to PKR 2/ kg.
The rate of duty on LNG is proposed to be levied at PKR 10/MMBTU instead of PKR 17.8/100 cubic meter.
The rate of duty on locally manufactured/assembled motor vehicles is proposed to be levied at the rate of 2.5% with
the engine capacity of upto 1000cc, 5% from 1001cc to 2000cc and 7.5% on 2001cc and above. Currently, only
vehicles of engine capacity of 1700cc and above are subject to duty.
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Highlights
The duty is proposed to be levied on fruit juices, syrups and squashes at the rate of 5% of the retail price.
The rate of duty on domestic air travel is proposed to be reduced from PKR 2,000 to PKR 1,500 for long routes and
PKR 1,250 to PKR 900 for short routes.
The exemption of duty on internet services, DCNS and value added data services is proposed to be withdrawn while
the exemption on broadband services is proposed to be r .
Customs
Duties on more than 1,600 tariff lines are proposed to be exempted or reduced which includes raw material and
intermediary goods for textile and paper sector, wooden furniture, home appliances industry, solar penal
assemblers, chemical industry, pharma industry etc.
-audit.
goods by the owner for home consumption, warehousing and transshipment is proposed
to be reduced from 15 to 10 days.
The clearance period of imported or exported goods is proposed to be reduced from 20 to 15 days. The power to
extend the period for further 10 days is also proposed to be reduced to 05 days.
e power of the Collector of Customs to determine the value is proposed to be withdrawn and restricted to the
Director of Customs valuation.
FBR may prescribe rules to initiate criminal proceedings against the Customs Officials or taxpayer or both.
-defined.
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Highlights
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Table of Contents
Income Tax
Section Page
1. Persons not appearing in the Active Taxpayers’ List (ATL) Section 100BA 6
2. Capital gains Section 37 7
3. Purchase of assets through banking channel Section 75A 8
4. Tax credit for investment Section 65B 8
5. Payment of refund through income tax refund bonds Section 171A 8
Section 177 Sub-section
6. Audit 9
(6) and (6A)
7. Prosecution for Non-submission of Foreign Income and Asset Statement Section 195A 9
Sections 2(38AB),
2(38AC), 2(38AD),
8. Offshore Tax Evasion 10
145(5), 182, 192B,
195B, 216
9. Tax paid at import stage to be treated as “minimum tax” Sections 148(7) and (8A) 11
10. Profit on debt Section 151 11
11. Income earned by non-resident persons Section 152 12
12. Income from sale of goods or rendering of services Section 153 12
13. Brokerage and commission income subject to minimum tax Section 233 14
14. Tax on CNG stations be treated as minimum tax Section 234A 14
15. Credit of tax collected or deducted Section 168 14
16. Tax collected / deducted or paid by a person not appearing on the ATL Section 169 14
Disallowance of commission expense / addition of dealer’s margin in
Section 21(ca) and
17. income of person making supplies to an unregistered person or a person 14
Section 108AB
not appearing in the active taxpayers list
18. Gift Section 39 15
19. Intangibles Section 24 15
20. Profit on Debt Section 7B 15
21. Tax Credit for Persons Employing Fresh Graduates Section 64C 15
22. Resident Individuals Section 82 15
23. Tax Credits for Non-Profit Organizations Section 100C 16
24. Payment to Non-Resident Section 152 16
25. Payment of Royalty to Resident Persons Section 153B 16
Report from Independent Chartered Accountant or Cost and Management
26. Section 108A 17
Accountant
27. Business License Scheme Section 181D 17
28. Prosecution for Failure to Furnish Details in Withholding Statements Section 191 17
29. Proceedings Against Tax Officials Section 216A 17
30. Offences and Penalties Section 182 18
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Table of Contents
Section Page
Page
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Table of Contents
Page
69. Exports 34
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Table of Contents
Page
95. Payment to a resident person for right to use machinery and equipment 40
Clause Page
102. Exemption to income of certain charitable and other institutions Clause (66) 41
103. Profit and gains on sale of immoveable property to REIT Scheme (Clause 100) 41
106. Reduction in a tax liability of a full time teacher or a researcher Clause (2) 42
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Table of Contents
Clause Page
110. Exemption from selection of case for tax audit -Clause (105) 42
113. Application of general provision of the Ordinance on a banking company Explanation to Rule 1 43
115. Computation of income for levy of super tax on a banking company Rule 7C 44
Reduced rate of tax on additional advances for micro, small and medium
116. Rule 7D 44
enterprises
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Income Tax
The concept of filers and non-filers was introduced in the Ordinance through the Finance Act, 2014. Through this
concept a distinction was created between person who duly filed their tax returns and the remaining persons who were
considered non-filers. The basic intention of the legislature was to obtain documentation and compel the non-filers to
become registered tax filers. Over the years, major distinction was introduced in the rates of tax withholding under
various sections of the Ordinance to make the non-filers suffer heavy withholding of tax so that they may be compelled
to ultimately come within the tax net and file proper declaration of their tax returns with FBR.
However, over the last five years, it has been observed that the percentage of increase in tax filers has not been
significant and the numbers of tax filers is still quite low as compared to other comparable economies. The present
government has been talking about broadening of the tax base more strongly and the Prime Minister himself has on
many occasions indicated his strong desire to significantly broaden the tax base.
It is now proposed to enact a separate schedule in the Ordinance to deal with persons who are not on the ATL i.e. who
are not in the tax net and are not filing their declaration so far. In this connection, Section 100BA has been proposed
which governs the collection or deduction of advance income tax, computation of income and tax payable by such
persons.
The Tenth Schedule generally provides that where ever tax is required to be deducted or collected under any provisions
of the Ordinance from a person whose name is not appearing in the ATL, the rate of withholding will be doubled in case
of deduction or collection from such persons. However, the schedule provides exception in case of the following
payments –
(1) Salary;
(2) Payment to non-residents other than on account of royalty, fees for technical service, insurance premium
(3) Payment to a Permanent Establishment in Pakistan of a non-resident person other than on account of providing
services or contract or any general payment to a non-resident.
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Income Tax
(22) Tobacco
The Schedule seeks to provide a mechanism where a withholding agent is satisfied that the person not appearing in the
ATL is not required to be a tax filer and hence the deduction of tax should not be attracted from payments to such
persons. In such a situation, the payer would be required to furnish an application to the Commissioner in writing
electronically providing the details of the person from whom he intends not to collect tax, giving details about the payee
and the nature of payment and the basis on which he is not liable to be a tax filer. The Commissioner on such
application would decide the matter within 30 days and direct the payer accordingly.
The Schedule requires the Commissioner to undertake a provisional assessment of the person from whom tax has
been withheld under the Schedule but he has failed to file the return of income within the prescribed time or
extended time.
The provisional assessment is proposed to be carried out within 60 days of the due date of filing of return. The
income of such person in such a case shall be imputed on the basis of tax that has been withheld at source and shall
be treated as un-explained income.
Once the provisional assessment has been finalized and served on such person, he can file a return of income within
45 days of the service of the provisional order. In which case the provisional assessment shall stands abated.
If a return of income is not filed within 45 days of service of order of provisional assessment, then such assessment
is to be treated as final assessment order. In such a case the Commissioner is also proposed to be empowered to
pass an order within 30 days of finalization of assessment for imposition of penalty on account of non-furnishing of
return and concealment of income.
The Schedule also seeks to empower the Commissioner to amend an assessment on the basis of definite
information from an audit or otherwise.
Consequent to the proposed enactment of the Schedule, to withdraw concept of filers and non-filers from various
provisions of the Ordinance, several amendments have been proposed in various withholding provisions to remove
reference to Filer and non-Filer. Similarly the restrictions introduced on purchase of immovable property and moveable
property on Non-filers in Section 227C are also proposed to be abolished.
2. Capital gains
Section 37; Division VIII, Part I of the First Schedule; Clause (9A), Part III of the Second Schedule
The taxation of capital gains arising from disposal of capital assets is governed by Section 37 of the Ordinance. After
the introduction of Eighteenth Amendment in the Constitution of Pakistan, 1973, the Finance Act, 2012 introduced a
significant amendment inserting Sub-section (1A) in Section 37 of the Ordinance providing for taxation of capital gains
arising from disposal of immovable properties. The rates of tax on such capital gains were applicable depending on the
holding period of immovable properties ranging from 5% to 10%. However, if the immovable property was disposed of
after holding period of three years, the rate of tax is prescribed at zero percent.
The Bill proposes to revamp the taxation of capital gains from disposal of immovable properties. Accordingly, it is
proposed to omit Sub-section (1A) from Section 37 along with Division VIII of Part I of the First Schedule which contains
rates of tax on such capital gains. In its place, a new Sub-section (3A) is proposed to be inserted which contains
separate mechanisms for computation of capital gain on disposal of (i) open plot, and (ii) constructed property. The
effect of the proposed amendment is that such capital gain (worked out by subtracting cost of the asset from the
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Income Tax
consideration received) will not be considered as a separate block of income liable to tax at reduced rates of 5%, 7.5% or
10%. It will instead forms part of total income of the person and therefore, be taxed at the normal rates of tax applicable
as per the First Schedule. The capital gain will, however, be reduced by 25% depending on the holding period of the
immovable property disposed of. The reduction of 25% will apply if the holding period of open plot exceeds one year but
does not exceed ten years and for constructed property from one year to five years. Where the immovable property is
disposed of after holding period of ten years and five years respectively, the capital gain will be taken to be zero. An
interesting outcome of this mode of taxation is that where the capital gain becomes zero depending upon the holding
period as discussed above, super tax under Section 4B of the Ordinance will not apply for, there would not be any
income recognizable for the purpose of computation of super tax.
The reduction of 50% of tax payable in respect of capital gains on disposal of immovable property on the first sale of
immovable property acquired or allotted to ex-servicemen and serving personnel of Armed Forces or ex-employees or
serving personnel of Federal and Provincial Governments, being original allottees of the immovable property, duly
certified by the allotment authority remains intact as for this purpose Clause (9A) is also proposed to be inserted in Part
III of the Second Schedule to the Ordinance.
The Bill proposes to insert a new section in the Ordinance which provides that purchase of assets set as out below shall
now only be made through a crossed cheque drawn on a bank or through a crossed demand draft or crossed pay order
or any other crossed banking instrument –
(a) Immovable property having fair market value greater than PKR 05 million;
(b) Any other asset having fair market value of more than PKR 01 million
For the purpose of this section, the fair market value means the value notified by FBR under Section 68(4) of the
Ordinance or the value fixed by the provincial authority for the purposes of stamp duty, whichever is higher.
In the event, the transaction of purchase of the asset is not carried out in the manner prescribed above, such asset shall
not be entitled for allowance of depreciation or amortization, as specified under the Ordinance. It is further proposed
that the amount paid other than in the specified manner shall not be regarded as cost under Section 76 of the
Ordinance for the purpose of computing gain on disposal of such asset. In addition a penalty of five percent of the fair
market value of the asset so purchased shall also be levied.
The tax credit currently available under Section 65B in respect of investment in the purchase of plant and machinery for
the purposes of extension, expansion, balancing, modernization and replacement thereof, already installed in an
industrial undertaking is proposed to be restricted in the following manner –
the period of investment for availing tax credit is proposed to be reduced from 30 June 2021 to 30 June 2019
the existing rate of tax credit would be reduced from 10% to 5% for the tax year 2019
unadjusted tax credit if any, for the tax year 2019 can be carried forward and set off against the tax liability for the
tax years 2020 and 2021
Sections 170 and 171 lays down the procedure for payment of refund due to a taxpayer along with additional payment
for delayed refunds. However, due to liquidity crunch faced by the Government, taxpayer are unable to obtain the
refunds which creates accumulation of refund in billions of rupees. This causes severe cash flow issues to the taxpayers.
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Income Tax
In order to provide relief to taxpayers, the Bill seeks to introduce a new Section 171A whereby income tax refunds may
be paid through income tax refund bonds to be issued by FBR Refund Settlement Company Limited (the Company)
instead of paying through cheques or bank debit advice, in case the claimant opts for such payment.
Refund bonds to be issued by the Company, in book-entry form through an establishment licensed by the Securities
and Exchange Commission of Pakistan as a central depository under the Securities Act, 2015 (III of 2015), in lieu of
payment to be made through issuance of cheques of bank
FBR shall issue a promissory note to the Company, incorporating the details of refund claimants and the amount of
refund determined as payable to each for issuance of income tax refund bonds of the same amount.
The bonds shall be issued in values in multiples of one hundred thousand rupees.
The bonds so issued shall have a maturity period of three years and shall bear annual simple profit at ten percent.
The bonds shall be approved security for calculating the statutory liquidity reserve.
There shall be no compulsory deduction of Zakat against the bonds and Sahib-e-Nisab may pay Zakat voluntarily
according to Shariah.
After period of maturity, the Company shall return the promissory note to FBR and FBR shall make the payment of
amount due under the bonds, along with profit due, to the bond holders.
The bonds shall be redeemable in the manner as in Sub-section (9) before maturity only at the option of FBR along
with simple profit payable at the time of redemption in the light of general or specific policy to be formulated by
FBR.
The refund under Sub-section (1) shall be paid in the aforesaid manner to the claimants who opt for payment in
such manner.
The Federal Government may notify procedure to regulate the issuance, redemption and other matters relating to
the bonds, as may be required.
6. Audit
Section 177 Sub-section (6) and (6A)
In order to conclude the tax audit in the most efficient and logical manner, the Bill seeks to replace Sub-section (6) and
introduce Sub-section (6A), whereby, on completion of tax audit, the Commissioner will now be required to issue an
audit report containing audit observations and findings. The audit report should contain all the issues that were raised
during the course of audit proceedings and the findings of the Commissioner in respect of each of such issues. The Bill
further requires the Commissioner to pass an amendment assessment if considered necessary by taking recourse to the
provision of Section 122(4) and 122(9) of the Ordinance. The amendment order under Section 122 will be issued after
the issuance of audit report.
It would be recalled that Finance Act, 2018 introduced Section 116A which requires every resident taxpayer being an
individual having foreign income of not less than US $10,000 or having foreign assets with a value of not less than US
$100,000 to duly furnish foreign income and assets statement in the prescribed manner. Further, the Commissioner is
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empowered to issue a notice to a person (being an individual) who was required to furnish the ‘Foreign Income and
Assets Statement’ but failed to do so, to furnish such a statement on the date specified in the notice.
The Bill now proposes to insert a new Section 195A in terms of which any person who fails to comply with the
requirements of notice issued under Section 116A shall be punishable on conviction with imprisonment up to 2 years or
with a fine up to a penalty of 2% of the offshore assets not declared or both.
The country in the recent past has witnessed a lot of hue and cry in respect of undeclared assets / wealth accumulated
and held abroad by resident of Pakistan. Such non-declaration was exposed to severe criticism both on print and
electronic media, ultimately resulting in media trial of persons involved. While the existing penalty and prosecution
provision may generally cater such tax evasions, the Bill now proposes to severely punish taxpayers involved in offshore
tax evasions. Although, the term offshore tax evasion has not been particularly defined either by the Bill or the
Ordinance, internationally the concept refers to a situation where a taxpayer avoids paying taxes in the home
jurisdiction in respect of foreign / offshore assets and income. Hence, if a Pakistan resident evades paying taxes on its
foreign source assets and income, it may be regarded as indulging in offshore tax evasion.
In this back drop following definitions are proposed to be inserted in Section 2 of the Ordinance –
“Offshore asset” in relation to a person, incudes any movable or immovable asset held, any gain, profit, or income
derived, or any expenditure incurred outside Pakistan;
“Offshore enabler” includes any person who, enables, assists, or advises any person to plan, design, arrange or
manage a transaction or declaration relating to an offshore asset, which has resulted or may result in tax evasion;
“Offshore evader” means a person who owns, possesses, controls, or is the beneficial owner of an offshore asset
and does not declare, or under declares or provides inaccurate particulars of such asset to the Commissioner;
“specified jurisdiction” means any jurisdiction which has committed to automatically exchange information under
the Common Reporting Standard with Pakistan;
“asset move” means the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who
owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion;
Corresponding penalties, in respect of offshore tax evasion have also been proposed as under:
Where an offshore tax evader is involved in offshore tax evasion, a penalty of PKR 100,000 or an amount equal to
200% of the tax which the person sought to evade, whichever is higher, would be applicable.
Where, in the course of any transaction or declaration made by a person, an enabler has enabled, guided, advised
or managed any person to design, arrange or manage that transaction or declaration in such a manner which has
resulted or may result in offshore tax evasion, a penalty of PKR 300,000 or an amount equal to 200% of the tax
which was sought to be evaded, whichever is higher, would be applicable.
Any person, who is involved in the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a
person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax
evasion, from one specified territory to an un-specified territory, shall pay a penalty of PKR 100,000 or an amount
equal to 100% of the tax whichever is higher.
In addition to the above penal exposures, in order to deter the concealment of offshore assets and to maintain effective
monitoring of offshore tax evasion, the Bill also proposes to prosecute the tax evader, as provided for under the newly
proposed Sections 192B and 195B.
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In terms of Section 192B, any person who fails to declare an offshore asset or furnishes inaccurate particulars of an
offshore asset where the financial impact of such concealment or furnishing of inaccurate particulars is PKR 100,000 or
more, the same shall be treated as an offence, punishable on conviction with imprisonment up to 7 years or a fine up to
200% of the amount of tax evaded, or both.
Similarly, through Section 195B, the Bill seeks to hold any enabler who enables, guides or advises any person to design,
arrange or manage a transaction or declaration in such a manner which results in an offshore tax evasion, the same will
be treated as an offence punishable on conviction with imprisonment for a term not exceeding 7 years or with a fine up
to PKR 5 million or both.
The Bill further proposes to insert a new Sub-section in Section 145 of the Ordinance in terms of which the
Commissioner is empowered to freeze any domestic asset of a person including any asset beneficially owned by him,
where he has reason to believe that such person who is likely to leave Pakistan may be involved in offshore tax evasion
or such person is about to dispose of any such asset.
The asset frozen can be held by the Commissioner for a period of one hundred and twenty days or till the finalization of
proceedings including but not limited to recovery proceedings under the Ordinance whichever is earlier.
Finally, the Bill proposes to insert Sub-sections (6B) and (6C) in Section 216 of the Ordinance whereby FBR is
empowered to publish the names of offshore evaders and offshore enablers in the electronic and print media.
Before the Finance Act, 2018, tax required to be collected under Section 148 on import of plastic raw material
imported by an industrial undertaking, falling under PCT headings 39.01 to 39.12, edible oils and packing material is
treated as minimum tax. Furthermore, tax required to be collected on import of goods that are sold in the same
condition as they were when imported was treated as final tax. The Finance Act, 2018 brought a substantive conceptual
shift with respect to taxation of commercial importers whereby such tax collection was deemed to be “minimum tax” in
respect of such importers.
Due to the aforesaid change in taxability of commercial importers, there were grave concerns shown by the above
sector, as this change would have required the commercial importers to declare the financial results for comparison of
tax on profits to the minimum tax on imports. As a result of strong lobbying by commercial importers, amendments
were made in Section 148 through the Finance Supplementary (Second Amendment) Act, 2019 whereby tax collected
at import stage from commercial importers was again treated as final discharge of tax liability of such importers.
The Bill now proposes to restore the position as stood after the amendments made through the Finance Act, 2018 to
change the character of such tax collection from “final tax” to “minimum tax”. Such commercial importers, pursuant to
the proposed amendments will now be required to file a return of income instead of filing a statement in terms of
Section 115 of the Ordinance.
The Bill also proposes amendments in Sub-section (8A) of Section 148 whereby tax collected at the time of import of
ships by ship-breakers is also to be treated as ‘minimum tax’.
The Bill proposes to treat the tax deducted under Section 151 of the Ordinance on account of payment of profit on debt
as minimum tax instead of final tax.
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In line with the amendments brought in Section 153 of the Ordinance making tax deducted from services rendered as
minimum tax, the Bill has proposed amendments in Section 152 of the Ordinance whereby tax deducted from payments
made to non-resident persons in respect of the following contracts and services is to be treated as ‘minimum tax’ –
(i) Execution of contract or a sub-contract under a construction, assembly or installation project in Pakistan,
including a contract for the supply of supervisory activities in relation to such project
(ii) Any other contract for construction or services rendered relating thereto
The non-resident persons earning income from the aforementioned contracts or services, pursuant to the proposed
amendments will be required to file a return of income. Consequently, proviso of Sub-section (1B) of Section 152
providing an option to non-resident person to opt out of final taxation in respect of income arising from execution of
contracts has been proposed to be omitted.
Currently, tax deductible under clauses (a) and (c) of Sub-section (1) of Section 153 on account of supply of goods and
execution of contracts is treated as final tax. Similarly, tax deducted by an exporter / export house on payment to a
resident person or permanent establishment of a non-resident person for rendering of or providing services of stitching,
dying, printing, embroidery, washing, sizing and weaving, is a final tax.
(i) Income arising from supply of goods except where the company is a manufacturer of such goods or is a public
listed company
Through the Finance Act, 2009, an amendment was made to make the tax withheld on payment against services
rendered as a minimum tax. However, there an ambiguity on the interpretation of this provision whereby applicability of
such minimum tax on the corporate sector was unclear. It was however clarified by the FBR that tax withheld from
payments relating to services rendered would only be considered minimum tax in case of non-corporate taxpayers.
Subsequently, Clause (79) was inserted in Part IV of the Second Schedule via SRO 1003 (I)/2011 dated 31 October
2010 for the purpose. The matter however, remained in dispute at various forums.
f
To remove the uncertainty created by conflicting rulings on the issue, in the Finance Bill 2015, the FBR proposed to
amend Section 153 to provide that effective from the tax year 2009, the tax deductible under section 153(1) (b) shall
not be treated as minimum tax in the case of companies. This amendment was in line with Clause (79) which had similar
gist. Accordingly, it was also proposed to omit Clause (79) to align the related provisions. However, certain quarters
opposed the proposed amendment in Section 153 referred above. Resultantly, while Clause (79) was omitted through
the Finance Act, 2015, the provisions of Section 153(3) (b) remained unchanged. Consequently, in all cases (i.e.
companies, individuals or AOPs), the tax deductible from payments against services rendered under Section 153(1) (b)
was treated as minimum tax in respect of such receipts.
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The above position of law created anomaly and also caused confusion and panic amongst the concerned service sector
companies. In this background, through the Income Tax (Second Amendment) Ordinance, 2015 (“Amendment
Ordinance, 2015”) Clause (94) in Part IV of the Second Schedule to the Ordinance was inserted [and subsequently
substituted through the Income Tax (2nd Amendment) Act, 2016] whereby a reduced rate of 2% was prescribed in
respect of following service providers in the corporate sector:
(viii) IT services and IT enabled services as defined in clause (133) of Part I of the Second Schedule
(xv) Services rendered by Pakistan Stock Exchange Limited and Pakistan Mercantile Exchange Limited
In line with the proposed amendments in Section 153 of the Ordinance, the Bill now proposes to omit Clause (94) ibid.
The Bill also proposes to omit Sub-section (4A) of Section 153 relating to issuance of exemption certificate by the
Commissioner to the abovementioned service providers.
It is also proposed to introduce rate of tax deduction of 4% for specified services as were mentioned in Clause (94).
Further, rate of tax on transport services is proposed to be enhanced from 2% to 4%.
The above amendments have created an anomaly for non-resident persons having permanent establishment in
Pakistan. The Finance Act, 2018 through an amendment in Section 152 of the Ordinance provided a similar option to
such non-residents which have permanent establishment in Pakistan and were covered under Clause (94) referred
above to file an option for offering their accounts for tax audit under Section 177 of the Ordinance. It was further
provided that after paying tax @2% of their turnover they may obtain an exemption certificate in terms of Section
153(4A) of the Ordinance. Now since Sub-section (4A) of Section 153 and Clause (94) are being proposed to be
omitted, the above non-resident persons would not be in a position to obtain the above exemption certificate. However,
a similar amendment has not been proposed for such non-resident persons to provide for reduced rate of tax
withholding of 4% (as is proposed for resident service providers). As a result the tax withheld @ 8% remains a minimum
tax for those non-resident service providers. In our view, suitable amendments would be required to resolve this issue.
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Under Section 233 of the Ordinance, any payment on account of brokerage or commission paid to an agent by the
Federal Government, a Provincial Government, a Local Government, a company or an association of persons or any
payment on account of commission to an advertising agent, directly or through electronic or print media is subject to
deduction / collection of tax at the rates specified in Division II of Part IV of the First Schedule. Currently, the tax so
deducted constitute a final discharge of tax liability by the recipient of the commission. The Bill proposes that the tax
deducted on the above commission be treated as minimum tax instead of final tax.
Currently, advance tax is collected from CNG stations on the amount of bill issued in respect of gas consumed by such
CNG stations. The advance tax so collected is considered as a final discharge of tax liability on the income arising to
such CNG stations. The Bill proposes that the tax so collected be treated as minimum tax. Pursuant to the proposed
amendment, CNG stations will be required to file a return of income in place of a statement under Section 115(4) of the
Ordinance.
Sub-section (3) provides that credit of taxes that have been deducted under various withholding sections of the
Ordinance which are treated as full and final tax liability would not be available.
Since, taxes deducted / collected under various sections as mentioned in the aforesaid Sub-section are now proposed to
be treated as minimum tax instead of final tax, the Bill consequently proposes to delete the above Sub-section.
Accordingly, taxes deducted and collected under these sections will be available for adjustment against the ultimate tax
liability of the taxpayer.
16. Tax collected / deducted or paid by a person not appearing on the ATL
Section 169
Consequent to the proposed amendments whereby the concept of ‘filer’ and non-filer’ is proposed to be completely
abolished and be replaced with ‘person not appearing in the Active Taxpayers’ List’, relevant amendments have also
been proposed under Sub-section (4) of Section 169 of the Ordinance dealing with adjustment of excess tax deducted /
collected from such persons.
17. Disallowance of commission expense / addition of dealer’s margin in income of person making
supplies to an unregistered person or a person not appearing in the active taxpayers list
Section 21(ca) and Section 108AB
The Bill proposes to insert a new Sub-section namely (ca) in Section 21 of the Ordinance which provides for deductions
which would not allowed while computing business income of a person. The newly introduced Sub-section aims to
restrict the claim of commission expense up to a maximum of 0.2% of gross amount of supplies made by a person of
products listed in Third Schedule of the Sales Tax Act, 1990 to a person who is not registered under the Sales Tax Act,
1990 or is not appearing in the active taxpayers list.
In addition to the above, the Bill has also proposed to insert a new section namely 108AB which seeks to make an
addition of 75% of dealer’s margin in income of a person supplying products listed in Third Schedule of the Sales Tax
Act, 1990 and or any other products prescribed by FBR, to a person under dealership arrangement who is not
registered under the Sales Tax Act, 1990 or is not appearing in the active taxpayers list. The amount of dealer’s margin
in such case is prescribed at 10% of the sale price of the manufacturer.
The above change is being brought to compel the business to engage in transaction with registered persons and active
taxpayers in order to promote a culture of tax compliance which would broaden the tax base in the country.
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18. Gift
Section 39
The Bill proposes that any amount or fair market value of any property received without consideration or received as
gift, other than gift received from grandparents, parents, spouse, real brother, real sister, son or a daughter, shall be
taxable in the hands of the recipient under the head “Income from Other Sources”.
19. Intangibles
Section 24
Currently, in terms of Sub-section (4) of Section 24, an intangible with a normal useful life of more than 10 years or an
intangible that does not have an ascertainable useful life is treated as if it has a normal useful life of 10 years and
amortized accordingly. The Bill now proposes that the limit of 10 years be removed with the result that an intangible
with an ascertainable useful life would now be amortized over its actual useful life. However, if an intangible’s useful life
is not ascertainable, it is proposed to be amortized over 25 years.
Furthermore, the definition of an intangible is proposed to be amended to specifically exclude self-generated goodwill or
any adjustment arising from prescribed accounting treatments. The proposed amendment appears to be in line with the
general principles of taxation, whereby a deduction may only be claimed on account of actual expenditure incurred, as
opposed to notional amounts recognized as expenses based on prescribed accounting treatments.
It would be recalled that Section 7B was introduced by the Finance Act, 2015 whereby slab rates were introduced for
taxing profit on debt, for taxpayers other than a company, as a final discharge of tax liability. The rate of tax ranges
from 10% to 15%; the highest being applicable where profit on debt exceeds PKR 25 million.
The Bill now proposes to enhance such rates with the lowest slab being 15% and the highest slab being 20%, which would
apply to profit on debt exceeding PKR 25 million but not exceeding PKR 36 million. Furthermore, the Bill also proposes
that Section 7B would not apply to any profit on debt that exceeds PKR 36 million. In effect, this would mean that if a
taxpayer earns profit on debt in excess to PKR 36 million, the entire profit on debt would be taxable as part of the
taxable income of the taxpayer for the year.
The Bill proposes to introduce a new Section 64C, whereby a person shall be allowed a tax credit in respect of the
amount of annual salary paid to freshly qualified graduates employed by the person, in the tax year in which they are
employed. The tax credit is proposed to be allowed for salary paid to the number of such graduates not exceeding 15
percent of the total employees of the company in the tax year. Freshly qualified graduates have been defined as any
person who have graduated after the first day of July, 2017 from any institution or university recognized by the Higher
Education Commission.
The amount of tax credit allowed is computed at the effective tax rate of the person to the extent of the lessor of —
(a) the annual salary paid to the freshly qualified graduates; and
(b) five percent of the person's taxable income for the year.
Currently an individual is a resident individual for a tax year if he is present in Pakistan for a period of 183 days or more
in the tax year or if he is an employee or official of the Federal or Provincial Government and posted abroad.
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The Bill now proposes to expand the definition to include an individual who is present in Pakistan for 90 days or more in
the tax year, and who in the four preceding tax years was present in Pakistan for 365 days in aggregate. It may be
noted that up until tax year 2003, the definition of a resident individual included the clause proposed by the Bill. The
clause was omitted by Finance Act, 2003 and is now proposed to be reinstated.
Section 100C provides a 100% tax credit to certain non-profit organizations, trusts, and welfare institutions subject to
fulfillment of certain conditions. The Bill now seeks to introduce two additional pre-conditions to obtaining the tax
credit:
With effect from 1st day of July, 2020, each of such non-profit organizations, trusts, and welfare institutions must
mandatorily obtain approval of the Commissioner with regards to its status as a non-profit organization.
None of the assets of the trust or welfare institutions may confer a private benefit to the relatives of the donors or
authors.
Furthermore, since the requirement to seek approval from the Commissioner is now a pre-condition to obtain the tax
credit, the powers of the Chief Commissioner to approved institutions for the purpose this credit have now been
omitted.
The Finance Act, 2018 brought about amendments in Sections 2(41), 101(3) and 152(7) to tax supply of goods by a
non-resident in case of overall arrangements for Engineering, Procurement, Construction and Commissioning (EPCC)
even if the supply is made outside of Pakistan and the importer on record is the purchaser. This created significant
hurdles for existing and potential projects, particularly with regards to remittance of payments due to non-residents on
account of off-shore supplies.
In order to address the issue of making contractually obliged payments, the Bill proposes to empower the Commissioner
to allow by order in writing, under a written application, the person to make payment after deduction of tax equal to 6%
of the gross amount. The credit of the tax so deducted shall be available to the permanent establishment of the non-
resident.
It must be appreciated that these amendments proposed by the Bill are merely a stop-gate solution to address the issue
of remittances pertaining to offshore supplies, and the underlying grievances of project owners and their contractors,
vis-à-vis increasing costs of doing business due to the taxation of such supplies in Pakistan, remains unresolved.
Furthermore, since most of these supplies are made from Treaty countries and under the Treaty, they would be exempt,
the proposed amendments only serve in creating a pile up of refunds without addressing the core issue.
At present there is no withholding tax on payment of royalty to resident persons, except on account of use or right to
use industrial, commercial, or scientific equipment, for which a rate of 10% has been prescribed under Section 236Q.
The Bill now proposes to insert a new Section 153B, whereby every person paying an amount of royalty to a resident
person shall deduct tax at the rate of 15% from the gross amount payable (including federal excise duty and provincial
sales tax, if any). The tax so deducted shall be adjustable.
In order to ensure a level playing field, it is recommended that a similar withholding tax is also introduced for a
permanent establishment of a non-resident person.
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26. Report from Independent Chartered Accountant or Cost and Management Accountant
Section 108A
The Bill proposes to introduce a new Section 108A, whereby if the Commissioner is of the opinion that a transaction has
not been declared at arm's length, the Commissioner may, after approval from FBR, obtain a report, in the prescribed
manner, from an independent chartered accountant or cost and management accountant to determine the fair market
value of an asset, product, expenditure or service at the time of transaction.
Where the Commissioner is satisfied with the report, the fair market value of the asset, product, expenditure or service
determined in the report shall be treated as definite information for the purpose of Sub-section (8) of Section 122.
Accordingly, the Commissioner may initiate proceedings for amendment of assessment of the taxpayer pursuant to
Section 122 on the basis of such a report.
Where the Commissioner is not satisfied with the report, he may record reasons for not being satisfied with the report
and seek another report from another independent chartered accountant or cost and management accountant.
As part of the taxpayer documentation drive of the Government, the Bill proposes to introduce a new Section 181D
whereby every person engaged in any business, profession or vocation shall be required to obtain and display a business
licence as prescribed by FBR.
In relation to certain statutory non compliances, without reasonable excuse, Section 191 prescribes a punishment of a
fine for imprisonment for a term not exceeding one year, or both. The Bill now proposes to include the failure to furnish
particulars or the furnishing of incomplete or inaccurate details in withholding tax statements, of persons from whom
tax has been deducted, as part of the list provided in Section 191.
Section 227 provides immunity to tax officials from prosecution by any Governmental agency for anything done in his
official capacity, without the prior approval of FBR. This immunity was, at times, exploited by the tax officials for their
own personal benefits.
To address the above issue, the Bill proposes to introduce a new Section 216A, under which FBR shall prescribe rules
for initiating proceedings, including criminal proceedings against any tax official who willfully and deliberately commits
or omits an act which results in personal benefits and undue advantage to himself or a taxpayer or both. Furthermore,
in addition to this FBR shall simultaneously intimate the relevant Governmental agency to initiate criminal proceedings
against the taxpayer.
Through the above proposed amendments, whilst FBR’s powers for taking action against any mal-practices of the tax
officials have been extended, the consequential punishment for such mal-practice on being proved guilty, has not been
prescribed. Further, while the case may be referred to any agency vis-à-vis the taxpayer, it seems that FBR will self-
investigate the case of its officers and will not pass it on for investigation by the independent Governmental agency.
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The Bill proposes to revise the existing rates of penalties as provided for under Section 182 of the Ordinance in respect
of offences discussed below –
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In addition to the various other penalties captured in the paragraphs of our commentary, the Bill proposes to introduce
the following new penalties.
Offences Penalties
Any person who purchases immovable property having Such person shall pay a penalty of five percent of the
fair market value greater than rupees five million through value of property determined by FBR under Sub-section
cash or bearer cheque (4) of Section 68 or by the provincial authority for the
purposes of stamp duty, whichever is higher
Where a Reporting Financial Institution fails to comply Such Reporting Financial Institution shall pay a penalty
with any provisions of Section 165B of the Ordinance or of PKR 10, 000 for each default and an additional PKR
Common Reporting Standard Rules in Chapter XIIA of 10,000 each month until the default is redressed.
Income Tax Rules, 2002.
Where a Reporting Financial Institution files an Such Reporting Financial Institution shall pay a penalty
incomplete or inaccurate report under provisions of of PKR 10,000 for each default and an additional PKR
Section 165B of the Ordinance and Common Reporting 10,000 each month until the default is redressed.
Standard Rules in Chapter XIIA of Income Tax Rules,
2002.
Where a Reporting Financial Institution fails to obtain Such Reporting Financial Institution shall pay a penalty
valid self-certification for new accounts or furnishes false of PKR 10,000 for each default and an additional PKR
self-certification made by the Reportable Jurisdiction 10,000 each month until the default is redressed.
Person under Common Reporting Standard Rules in
Chapter XIIA of Income Tax Rules, 2002.
Where a Reportable Jurisdiction Person fails to furnish Such Reportable Jurisdiction Person shall pay a penalty
valid self-certification or furnishes false self-certification of PKR 5,000 for each default and an additional PKR
under Common Reporting Standard Rules in Chapter XIIA 5,000 each month until the default is redressed.
of Income Tax Rules,
The provisions of this section were completely revamped through Finance Act, 2018 and basically the forum Alternative
Dispute Resolution (ADR) was converted into an another appellate forum which would be final for both the taxpayers
and the tax authorities rather than being an option for the taxpayers to seek alternate remedy with the ADR and
continue contesting the matter at other legal forums. These amendments were generally criticized by business as well
as professional forums and it was emphasized that the alternate mechanism under ADR before the amendments
introduced by Finance Act, 2018 may be restored. The matter was also brought to the attention to the policy makers at
the time of discussion of budget proposal by various bodies, however, it seems that the government has not agreed to
these suggestions and has not proposed any such significant amendments which was so desired.
The only amendment introduced through the Bill is the inclusion of a Cost and Management Accountant within the list of
eligible person for appointment on the panel of FBR for formation of ADR committee.
Section 114(1) of the Ordinance enlists and specifies persons that are under obligation to furnish return of income for a
tax year. The list includes a person being owner of immoveable property of two hundred and fifty square yards or more
or any flat located in areas falling within the municipal limits existing immediately before the commencement of Local
Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory, to file a return of
income. The Bill seeks to enhance the land area of the immovable property from two hundred and fifty to five hundred
square yards.
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The due date of filing a statement under Section 115(4) for income falling under FTR and for returns of income by
salaried individuals is prescribed to be 31 August next following the end of the relevant tax year.
The Bill proposes to substitute the due date of filing of the above documents from 31 August to 30 September next
following the end of the relevant tax year.
As per the current provisions of Section 182A of the Ordinance, where a person fails to file a return of income by the
due date or within the time extended by the Commissioner or by FBR, such person shall neither be included in the active
taxpayers list nor allowed to carry forward any loss for that tax year.
The Bill proposes that such a person shall be included in the active taxpayers’ list after he files the return of income
subject to payment of surcharge as under –
The Bill also seeks to provide certain additional impediments for the above person which are as follows –
No refund would be issued during the period when the name of the person was not included in the active taxpayers’
list;
He will not be entitled to additional payment for delayed refund and the period during which he was not in the
active taxpayers’ list will not be accounted for the purpose of computation of additional payment for delayed
refund.
The Finance Act, 2015 introduced a onetime super tax on all persons on all types of income whether taxable under NTR
or under FTR for the tax year 2015. This tax was later extended to the tax year 2021 by the Finance Act, 2018. The
super is levied at 4% on banking companies and at 3% on all other persons having taxable income of PKR 500 million or
more. The above rates of super tax are to be gradually reduced in each subsequent year till the tax year 2021, where
for a banking company the rate of super tax is prescribed at 2% while for other companies it is prescribe at zero percent.
The Finance Act, 2016 brought about a significant amendment whereby for the purpose of computation of income in
order to work out the levy of super tax, brought forward depreciation and brought forward business losses were not to
be taken into account. However, in the case of companies for which separate schedules of taxation (i.e. Fourth, Fifth,
Seventh and Eight Schedules) are available like banking companies, insurance companies and petroleum exploration and
production companies, such amendment was not effective. The Bill now proposes to amend Section 4B in a manner that
such companies which are governed by the provisions of separate schedules referred above will also be liable to pay
super tax without taking into account the effect of brought forward depreciation and brought forward business losses.
In line with the provisions of Sections 12 and 14 of the Amnesty Ordinance, the Bill proposes to insert Section 120B in
the Ordinance in order to provide for protection to the declarations made by the persons from any proceedings under
the Ordinance as well as confidentiality to the information disclosed in respect of undeclared assets, expenditures and
sales, as the case may be.
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In order to minimize personal interaction with taxpayers, the Bill proposes to introduce an alternate impersonal taxation
regime. It is stated that this automated regime shall be applicable for low risk and compliant taxpayers. For this
purpose, FBR will prescribe procedure in the official gazette. This appears to be a confidence building measure among
the taxpayers who remain reluctant to interact with the tax authorities.
The powers of the Federal Government of granting exemptions or concessions under the Second Schedule to the
Ordinance have been restricted for specified purposes via an amendment made through the Finance Act, 2015. The Bill
proposes to further restrict such powers in the circumstances currently dealing with removal of anomalies in taxes and
development of backward areas. This would mean that for this purpose, an amendment in the Second Schedule can only
be made through amendment in a Finance Bill and not through a notification issued in terms of Section 53 of the
Ordinance.
Currently, foreign exchange remitted from outside Pakistan through normal banking channels to the extent of PKR 10
million in a tax year is not subject to probe by the tax authorities as regards the source. The Bill proposes to reduce the
above limit to PKR 05 million in a tax year. Moreover, the exclusion from probe by the tax authorities as to the source in
respect of amount invested in acquiring immovable property is proposed to be withdrawn.
The Bill proposes to insert a new section whereby taxation of certain business are to be governed by way of a special
procedure as may be notified in the official Gazette. The businesses that are to be covered under the aforesaid scheme
would be in the specified cities or territories. This proposed scheme is a new concept aims to provide a simplified
procedure for taxation of such small businesses, construction businesses, medical practitioners, hospitals, educational
institutions and any other sector as specified by the Federal Government. Special procedure would cover scope and
payment of tax, record keeping, filing of return and assessment in respect of the specified businesses.
Section 139 deals with the collection of tax in the case of private companies and associations of persons.
Under the existing provision, where any tax payable by a member of an association of persons in respect of the
member’s share of income of the association for a tax year cannot be recovered from the member, the association shall
be liable for the tax due by such member.
The Bill now proposes to extend the scope of aforesaid section, whereby where any tax payable by an association of
persons in respect of any tax year cannot be recovered from the association of persons, the same can be recovered
from every person who was, at any time in that tax year, a member of the association of persons.
Further, any member who pays tax, as above, shall be entitled to recover the tax paid from the association of persons or
a share of the tax from any other member.
In terms of Section 161, a person shall be personally liable to pay the amount of tax which was not collected or
deducted from a payment or the amount of tax which was deducted or collected but not paid to the Commissioner.
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Based on the judgement of Lahore High Court, in the case of Asia Poultry Feeds (Pvt.) Limited vs. the Federal Board of
Revenue (W.P. 8466 of 2015) dated 23 June 2015, the hon’ble judge held that if the proceedings for monitoring of
withholding taxes have been conducted for a particular tax year, the same cannot be reinitiated.
In order to undo the judgement of the Lahore High Court, the bill now seeks to insert a new Sub-section in Section 161
whereby the Commissioner is empowered to amend or further amend an order of recovery already passed under
Section 161, and recover the tax that escaped at the time of passing of the said earlier order, if he considers that the
order passed earlier is erroneous in so far it is prejudicial to the interest of revenue.
The Bill further proposes that no such amended order could be passed unless an opportunity of being heard is provided
to the taxpayer.
Currently, in order to enforce the provisions of the Ordinance including for the purpose of making an audit of taxpayer
or survey of persons liable to tax, the Commissioner or any other officer authorized on this behalf shall enter the
premises of taxpayer and have full and free access to extract, copy, or impound any accounts, books, computer or any
other relevant records/documents that are necessary for the purpose of audit or survey, as the case may be.
The Bill now seeks to enhance the power of Commissioner by inserting a new sub section 6A, whereby the
Commissioner, subject to any prescribed conditions, would now also be empowered to raid any premises, and confiscate
undeclared gold, bearer security or foreign currency on the basis of reliable information, in order to enforce the
provisions of the Ordinance.
Through Finance Act, 2018, FBR introduced Directorate General of Immovable Property to control the purchases and
transfers of immovable properties. The Directorate-General is empowered to initiate proceedings for the acquisition of
property based on an independent valuation which confirms that:
(a) Immovable property has been transferred by one person to another for a consideration less than fair market
value;
(c) The fair market value of property exceeds the consideration by more than 50% of the consideration
In line with the recent and proposed amendments in respect of collection and payment of tax on transfer of immovable
property, the Bill proposes to omit Sub-section (23) of the said section.
The Bill seeks to introduce a Directorate General of Special Initiative which shall consist of a Director General and as
many directors, additional directors, deputy directors, assistant directors and such other officers as may be notified in
the official gazzette. FBR shall notify the functions, jurisdictions and powers of such directorate.
The Bill seeks to introduce a Directorate General of Valuation which shall consist of a Director General and as many
directors, additional directors, deputy directors, assistant directors and such other officers as may be notified in the
official gazzette. FBR shall notify the functions, jurisdictions and powers of such directorate.
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Through the Finance Act, 2012 Section 236C was inserted whereby any person responsible for registering, recording
or attesting transfer of any immovable property was required to collect advance tax at the specified rates. Under the
existing provision of Section 236C, advance tax is not liable to collect where the immovable property is held for a period
exceeding three years.
The Bill now seeks to extend the period of three years to five years.
Through the Income Tax (Fourth Amendment) Act, 2016 Section 236W was inserted whereby any person responsible
for registering, recording or attesting transfer of any immovable property was required to collect advance tax at the
rate of three percent of the differential of value determined under Section 68 of the Ordinance and the value recorded
by the authority registering or attesting the transfer.
49. Disclosure of information obtained under a tax treaty and other similar agreements
Section 107(1B)
The current provisions of Section 107 provides authority to the Federal Government to enter into bilateral and
multilateral agreements with foreign governments for the avoidance of fiscal evasion and exchange of information
including automatic exchange of information concerning taxes on income imposed under the Ordinance or under any
other law for the time being in force.
Initially, this section provided that the information received or supplied or communication or correspondence made
under a tax treaty and other parallel arrangement shall be kept confidential subject to disclosures as provided in Sub-
section (3) of Section 216 which inter-alia included provision of information to any person acting in the execution of the
Ordinance wherever necessary.
Subsequently, the Federal Government through Finance Act 2016, amended this section and withdrew the disclosure of
above information.
The Bill now seeks to permit the disclosure of information only to person acting in the execution of the Ordinance,
wherever necessary.
PART I
Through Finance Bill 2019, the rates of tax applicable on every individual (both salaried and non-salaried individuals)
and AOPs have been proposed to enhance to a great extent as compared to the immediately preceding tax year .
However , the proposed tax incidence is lower than the tax incidence , if it is compared with the tax year 2018.The
impact of increase in the amount of tax are tabulated in the below schedules.
The Bill also seeks to propose the increase in threshold for applicability of salary tax rates to total income comprising of
at least 75% salary income instead of present threshold of 50% salary income.
The rates of tax chargeable for individuals and AOPs for the tax year 2020 (corresponding to the income year ending at
any time between 01 July 2019 to 30 June 2020) is proposed to be substituted as under:
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Individuals (salaried)
Non-Salaries Person/AOP
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IMPACT OF CHANGE IN RATES OF TAX AS APPLICABLE TO NON-SALARIED INDIVIDUAL FOR TAX YEAR 2020
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Currently, the rate of tax for company is 29% for the tax year 2019 which was to be reduced by 1% per year up till tax
year 2023. The Bill now seeks to keep the rates static at 29% from tax year 2019 and onwards.
However, the rates for Banking Companies and Small Companies have remained unchanged.
The levy of super tax for rehabilitation of temporarily displaced persons under Section 4B is retained up to tax year 2021
for banking companies and persons other than banking companies having income of PKR 500 Million and above.
The rates, as last amended vide Finance Supplementary (Second Amendment) Act, 2019, from the tax year 2018 till
2021 are as under:
The Bill seeks to increase the rate of tax on dividend from power generation companies or companies supplying coal
exclusively to power generation projects from 7.5% to 15%. Whereas the rate of withholding and charge of tax on dividend
received by all taxpayers remains unchanged
The rate of withholding and charge of tax on dividend received from a Mutual Fund (Stock Fund), Money Market Fund,
Income Fund and Rental REIT Scheme have been proposed to be omitted for all taxpayers (i.e. individual, company and
AOP).
Furthermore, the Bill proposes to add a proviso in rate of tax whereby the rate shall be 25% in the case of a person
receiving dividend from a company where no tax is payable by such company due to exemption of income or carry
forward of business losses under Part VIII of Chapter III or claim of tax credits under Part X of Chapter III.
The rate of tax on dividend income for tax year 2020 proposed as under:
Companies owning power project privatized by WAPDA, companies set-up for power
15%
generation and companies supplying coal, exclusively to power generation projects
Others 15%
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The rates of tax on profit on debt for the tax year 2020 are proposed to be revised as under:
Where profit on debt exceeds PKR 5,000,001 but does not exceed PKR 25,000,000 17.5%
Where profit on debt exceeds PKR 25.000,000 but does not exceed PKR 36,000,000 20%
55. Rate of Tax on Return on investments in Sukuks received from a special purpose vehicle.
Rate of tax on return on investments in Sukuks received from a special purpose vehicle have remained unchanged and
are as under:
The applicable rates of tax on certain income of non-residents remains unchanged as under:
Royalty 15%
Shipping income 8%
The rate of tax on income from property in the case of individual and AOPs are proposed to be revised as under:
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The above rates also apply for the purpose of withholding of tax from the payment for rent of immovable property paid
to an individual or AOP.
The withholding tax rates in the case of a company remain unchanged at 15%..
The rate card for levying tax on capital gains arising on sale of securities as referred to in Section 37A is proposed to be
replaced, whereby the category for non-filers and the respective slab rates have been removed. The rates applicable for
tax year 2019 are proposed to be further extended to tax year 2020 as under:
Tax Year
The Bill seeks to omit the slab for capital gain tax rates on immovable property as prescribed under Division VIII of Part I
of First Schedule.
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The rates of minimum tax as a percentage of the taxpayers’ turnover are proposed to be revised as under:
Rate (%)
Taxpayer
Existing Proposed
a) Oil marketing companies, oil refineries, Sui Southern Gas Company Limited and
Sui Northern Gas Pipelines Limited (where annual turnover exceeds PKR 1
billion)
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Rate (%)
Taxpayer
Existing Proposed
Motorcycle dealers registered under the Sales Tax Act 1990 0.25% 0.3%
In all other cases 1.25% 1.5%
PART II
The Bill proposes to replace the rate table whereby the category for non-filers and the respective rates have been
removed.
The Bill also seeks to include importers of finished pharmaceutical products that are not manufactured otherwise in
Pakistan in the list of persons from whom advance tax is required to be collected at the time of import under section
148 of the Ordinance.
The updated table specifying the rates of tax at import stage are as under:
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PART III
The advance tax rate on profit on debt is proposed to be increased from 10% to 15% whereas the separate rate for non-
filer has been omitted.
The Bill also seeks to add a proviso whereby rate of withholding shall be 10% in cases where the yield or profit paid is PKR
500,000 or less.
65. Advance tax on return on investments in Sukuks received from a special purpose vehicle.
Rate of withholding tax to be applied on payments made to investors in relation to return on Sukuks have remained
unchanged whereas the rate for non-filers have been omitted as under:
Company 15%
The withholding tax rates on payments to non-residents remains unchanged, whereas the category for non-filers and the
respective rates have been omitted, as under
Execution of a contract
contract or sub-contract under a construction, assembly or installation project in Pakistan,
including a contract for the supply of supervisory activities in relation to such project.
any other contract for constructions or services rendered relating thereto or a contract for 7%
advertising services rendered by T.V settle lite channels.
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Receipt on account of execution of contract through a PE other than a contract for sale of
goods or rendering of services
Sports person 10%
Other person 7%
67. Advance income tax on payment to resident on payments for goods, services and execution of contract
The rate of withholding tax on account of sale of rice, cotton seed or edible oils and supplies made by the distributor of
fast moving consumer goods remains unchanged as under:
The Bill seeks to enhance the rate of withholding tax on transport services from 2% to 4% wherein several other services
are also to be included in the category. The category for non-filers and the respective rates are also proposed to be
omitted.
The revised rates for making payments on account of goods, services and contracts are proposed to be as under:
Rate (%)
Types of Payment
Existing Proposed
Transport services, freight forwarding services, air cargo services, courier services,
manpower outsourcing services, hotel services, security guard services, software
development services, IT services and IT enabled services as defined in clause (133) of
Part I of the Second Schedule, tracking services, advertising services (other than by 2% 4%
print or electronic media), share registrar services, engineering services, car rental
services, building maintenance services, services rendered by Pakistan Stock Exchange
Limited and Pakistan Mercantile Exchange Limited
Rendering of or providing of services
Company 8% No change
Other than company 10% No change
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Rate (%)
Types of Payment
Existing Proposed
Company 7% No change
Other than company 7.5% No change
The Bill seeks to introduce a tax at the rate of 15% of the gross amount payable to a resident person on account of
Royalty pursuant to the proposed newly added Section 153B.
69. Exports
Rate of collection of advance tax for exports, indenting commission and services to export house remains unchanged as
under:
Export proceeds
Proceeds from sale of goods to an exporter under an inland back-to-back letter of credit or 1% of export proceeds
any other arrangement
Export of goods by an industrial undertaking located in an Export Processing Zone 1%
Collection by collector of customs at the time of clearing of goods exported 1%
Indenting commission 5%
The rate of withholding tax on prize bond, cross-word puzzle and prize on winnings remains unchanged, however, the
categorized rates of non-filer are proposed to be abolished.
Winnings from a raffle, lottery, prize on winning a quiz, prize offered by a company for
20%
promotion of sale
The rate of withholding tax on Petroleum Products remain unchanged, however, the categorized rate of non-filer is
proposed to be abolished as under:
The withholding tax rate in the case of a Compressed Natural Gas station remain unchanged at 4%, whereas, the
categorized rate of non-filer is proposed to be abolished.
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PART IV
The rate for collection of advance tax remains unchanged as under, however, the categorized rates of non-filer are
proposed to be abolished
The rate of collection by NCCPL on profit or markup or interest earned by the member, margin financier or securities
lender remains unchanged at 10%.
The rate of collection of tax remains unchanged as under, however, the categorized rates of non-filer are proposed to
be abolished.
Passenger transport vehicle having Capacity PKR per seat per annum
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The rate for tax on the gross amount of electricity bill has remained unchanged as under.
exceeds PKR 1,500 but does not exceed PKR 3,000 PKR 350
exceeds PKR 3,000 but does not exceed PKR 4,500 PKR 450
exceeds PKR 4,500 but does not exceed PKR 6,000 PKR 500
exceeds PKR 6,000 but does not exceed PKR 10,000 PKR 650
exceeds PKR 10,000 but does not exceed PKR 15,000 PKR 1,000
exceeds PKR 15,000 but does not exceed PKR 20,000 PKR 1,500
exceeds PKR 20,000 At the rate of 12% for
commercial consumers
At the rate of 5% for
industrial consumers
The rate of withholding tax on subscriber of internet, mobile telephone and pre-paid internet or telephone card have
remained unchanged as under.
Telephone subscriber where the amount of monthly bill exceeds PKR 1,000 10% of exceeding
amount
12.5% of the amount of
Subscriber of internet, mobile telephone and pre-paid internet or telephone card. bill or sales price
The rate of collection of tax on cash withdrawal from bank is 0.6% for persons whose name is not appearing in the active
taxpayer list.
The rate of collection of tax on transaction in bank is 0.6% for persons whose name is not appearing in the active
taxpayer list.
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The advance tax on purchase and registration of Motor Vehicles remains unchanged as under, however, the categorized
rates of non-filer are proposed to be abolished.
Further, the rates of collection of taxes on transfer of motor vehicles have also remained unchanged as under, however,
the categorized rates of non-filer are proposed to be abolished.
The rate of collection of tax remains unchanged at the rate of 10% for filer, whereas the rate for non-filers is proposed to
be abolished.
The rate of collection of tax remains unchanged at 5% of the gross amount of air ticket.
The rate of advance tax to be collected on sale/ transfer of immovable property has remained unchanged whereas the
rate for non-filers is proposed to be abolished.
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The advance tax to be collected on functions and gatherings remains unchanged as under:
Advance tax on sale to distributors, dealers or wholesalers remain unchanged as under, whereas the rates for non-filers
are proposed to be abolished.
Fertilizers 0.7%
Other than fertilizers 0.1%
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The rate of tax on sale of retailers remains unchanged as under, whereas, the rates for non-filers are proposed to be
abolished.
The advance tax to be collected by person selling petroleum products to a petrol pump operator or distributer, where
such operator or distributer is not allowed a commission or discount remains unchanged at the rate of 0.5%, however,
the rate for non-filer is proposed to be abolished.
The collection of advance tax on dealers, commission agents and arhatis is proposed as under:
The rate of advance tax to be collected on purchase of immovable property under Section 236K is proposed to be 1% of
the Fair Market Value, whereas, the existing slab rates have been abolished.
The rate of advance tax collection remains unchanged at 7.5% if the monthly bill is PKR 75,000 or more.
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The advance tax to be collected on banking transaction otherwise through cash shall be collected at 0.6% for persons who
are not appearing in the Active Taxpayer List.
95. Payment to a resident person for right to use machinery and equipment
The rate of advance tax to be collected on insurance premium from persons who are not appearing in the Active Taxpayer
List have remained unchanged as under:
Life insurance premium if exceeding PKR 0.3 million in aggregate per annum 1%
Others 0%
The rate of tax remains unchanged at 5% for persons not appearing in the Active Taxpayer List.
99. Advance tax on amount remitted abroad through credit, debit or prepaid cards
The tax to be collected on transfer of any sum remitted outside Pakistan, on behalf of any person who has completed a
credit card transaction, a debit card transaction, or a prepaid card transaction with a person outside Pakistan at the rate
of 1% of the gross amount remitted abroad, whereas, the rate for non-filers is proposed to be abolished
A new clause 39A was inserted by the Finance Act, 2018 to exempt certain allowances in the hands of armed
forces personnel. The bill proposed to include the following allowance in the exempt list:
The Bill proposed to insert the following in Clause (61) which provide exemption on any amount paid as donation to
the charitable institutions specified therein:
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The Bill proposed to insert the following in Clause (66), which provides exemption from tax to any income of the
institutions:
Akhuwat
Audit Oversight Board
Currently, profit and gains on sale of immovable property to Developmental REIT Scheme with the object of the
development and construction residential building shall be exempt up to 30 June 2020.
The Bill proposes to seek a new proviso in Clause (99A) whereby profit and gain on sale of immoveable property to
a rental REIT Scheme shall also be exempt from tax upto 30 June 2021.
Pursuant to the provisions of Clause (103A) of Part I of the Second Schedule, any income derived from
intercorporate dividends was exempt for group companies entitled to group taxation under Section 59AA or group
relief under Section 59B. The Finance Act, 2015 then added a condition, that such exemption would only be
available if the consolidated return of the group had been filed. Subsequently, the Finance Act, 2016, excluded
entities entitled to group relief under Section 59B from the exemption entirely.
The above amendments created significant difficulties for corporate and industrial groups by adding multiple layers
of taxation on dividends issued by group entities. This resulted in corporate structures becoming inefficient due to
multiple taxation of the same income, on mere distribution within the group, even though no value addition was
taking place. This also led to substantial litigation from various groups.
The Supplementary Act, 2019 addressed this issue by inserting a new clause in Part I of the Second Schedule
which with effect from 01 July 2019 exempts dividend income derived by a company, if the recipient has availed
group relief under Section 59B, computed according to the formula prescribed therein
It is imperative to appreciate that while the original provision of Clause (103A) had provided an outright exemption
from tax on inter-corporate dividends to entities entitled to group relief, the newly inserted Clause only provides a
relief only in the circumstances where the recipient of the dividend has availed group relief, i.e. loss has actually
been surrendered between the two entities and even then, only to the extent of the shareholding that the parent
entity has in its subsidiary.
The Bill seeks to address the hardship of the corporate taxpayers and proposed to extend this facility to a Company
who is eligible for Group Relief under Section 59B of the Ordinance instead of only those who actually availed the
scheme of Group Relief.
105. Exemption to the income of persons resident of the Tribal areas of Khyber Pakhtunkhwa & Baluchistan
(Clause 146)
The Bill proposed to insert a new Clause to provide an exemption from tax to any income of any individual domiciled
or Company and association of persons resident in the Tribal Areas forming part of the Provinces of Khyber
Pakhtunkhwa and Baluchistan which was not chargeable to tax prior to the commencement of the Constitution (25
th Amendment) Act, 2018, (XXXVII of 2018 ) under paragraph (d) of Article 246 of the Constitution with effect
from 01 June, 2018 to 30 June 2023.
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Part III
Currently, the tax payable by a full time teacher or researcher employed in a non-profit education or research
institution duly recognized by higher Education Commission, a Board of Education or a University recognized by the
Higher Education Commission including Government training and research institution shall be reduced by an
amount equal to 40% of tax payable on his income from salary . The bill proposed to reduce the amount of tax
reduction from 40% to 25% of tax payable. Further, this benefit would only be available to Government research
institution. Further , the Bill proposed to insert a new proviso which provides that the reduction in tax payable shall
not available to teachers of medical profession who derive income from private medical practice or who receive
share of consideration received from patients.
The proposed amendment is in line with the view adopted by the Appellate Tribunal Inland Revenue Karachi in a
recent decision against the appellants in the case of certain medical practitioners who were availing such tax
reductions against their tax payable which were denied by taxation authorities by amending their deemed
assessments.
Part IV
Clause 43E provides exemption from provisions of Section 153 of the Ordinance to goods transport contractors,
provided that such contractors shall pay tax at the rate of 2.5% on payments received on account of rendering of
carriage services. The Bill proposes to increase the rate of tax from 2.5% to 3%.
Clause (81) provides exemption to manufacturers, distributors, dealers and wholesalers of specified sectors from
disclosure of certain details like name, Computerized National Identity Card Number, National Tax Number and
address of the person from whom tax has been collected under Section 236H, in the statement of withholding tax.
The Bill proposes to delete the said clause. Consequently, manufacturers, distributors, dealers and wholesalers will
be required to disclose such information in the statement of withholding tax.
Likewise, banking companies are also exempt under Clause (81A) from furnishing the said information for tax
deducted on cash withdrawals under Section 231A and on profit on debt under Section 151. The Bill proposes to
delete the said clause as well. Consequently, banking companies will be required to disclose such information in the
statement of withholding tax.
109. Exemption from the specific provisions of withholding of tax to the persons resident of the Tribal areas of
Khyber Pakhtunkhwa & Baluchistan
(Clause 110)
The Bill proposed to insert a new Clause to provide an exemption for the deduction or collection of withholding tax
to any individual domiciled or Company and association of persons resident in the Tribal Areas forming part of the
Provinces of Khyber Pakhtunkhwa and Baluchistan which was not applicable to them prior to the commencement of
the Constitution (25 th Amendment) Act, 2018, (XXXVII of 2018 ) under paragraph (d) of Article 246 of the
Constitution with effect from 01 June, 2018 to 30 June 2023.
Currently, Clause 105 provides exemption from selection for audit under Section 177 and 214C to persons whose
income tax affairs have been audited in any of the preceding three tax years. The Bill proposes to delete the said
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clause. Consequently, the above exemption from selection for audit will no more be available under the above
scenario.
The Bill proposes to omit the initial allowance available in respect of Buildings.
The Bill proposes to insert a new Rule 6E in the Schedule, whereby the Commissioner is empowered to examine and
amend the amount of income as disclosed in the financial statements presented to the Securities and Exchange
Commission of Pakistan with respect to commission paid and claim for losses.
112. Provision for bad debts of advances and off-balance sheet items
Rule 1(c) of the Seventh Schedule
An explanation has been added to Rule 1(c) to clarify that maximum claim of provisions for advance and off balance
sheet items shall be computed on the basis of gross advances at the respective rates of 1% and 5%. However, no
adjustment may be accounted for in the above claim for reversal of provision, if any.
Reversal of provisions which were previously classified as “doubtful” and “loss” were not offered as income in the
return of income and were adjusted by the banks against their pool of unadjusted carry forward provisions. It is now
proposed that reversals if any, of bad debts previously classified as “doubtful” and “loss” shall be offered for tax.
Previously, bad debts classified as “sub-standard” under the Prudential Regulations issued by the State Bank of
Pakistan were not considered for the purpose of computing allowable provision under Rule 1(c). The Bill has
proposed to also exclude bad debts classified as “doubtful” for the purpose of computing allowable provision under
Rule 1(c). Corresponding amendment has also been made in Rule 1(e) to give effect to the above changes.
The Bill proposes to insert an explanation after Clause (h) in Rule 1 which clarifies that powers of Commissioner to
conduct audit of tax affairs of a banking company and to call for any information, documents or records is not
effected by the any of the provisions of the Seventh Schedule to the Ordinance and all provisions of the Ordinance
are also applicable on the banking companies. The above explanation is also in line with Rule 9 which substantiates
the application to other provisions of the Ordinance on a banking company which are not specifically dealt in the
Seventh Schedule to the Ordinance.
114. Enhanced rate of tax on taxable income from Federal Government Securities by a Banking Company
Rule 6C
Previously every income of a banking company was subject to tax at a flat rate of 35% in terms of the provisions of
Section 100A read with Seventh Schedule to the Ordinance.
However, keeping in view the Government’s goals to promote economic growth in the country by providing financial
support to small businesses involving low and medium capital structure, measures are being taken to provide
adequate funding to such businesses.
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To inspire banking sector to contribute in accomplishment of the above objective, certain amendments were made
via the Finance Supplementary (second Amendment) Act, 2019 providing reduced rate of tax for banking
companies in respect of interest income earned from funding provided to certain persons.
To further encourage the Banks to engage in the activities of financing and lending to the customers and
discourage investment in securities, the Bill now proposes to insert a new Rule namely 6C which provides that from
the tax year 2020 and onwards the tax rate of 37.5% would be applicable on taxable additional income earned from
additional investment in federal government securities.
The Bill has proposed following formula for calculation of taxable income from additional investment in government
securities
Where –
B= net markup of income earned from additional income earned for the tax year as declared in the annual
accounts
C= total of the net markup and non-markup income of the banking company as per accounts
For this purpose, at the time of filing of return of income, a Banking company is also obliged to obtain a certificate
from their external auditor which would certify the following –
The tax authorities are also empowered to ask for information in respect of investment in Federal Government
Securities to ascertain applicability of the enhanced rate of tax.
The proposed amendments does not cater to scenarios where a banking company incurs a loss for the year
however it has earned additional income for additional investment in federal government securities.
In line with the changes brought forward by the Finance Act, 2016 in respect of computation of income for the levy
of super tax , the Bill proposes to insert a new proviso in Rule 7C which restricts adjustment of brought forward
depreciation and brought forward business losses in order to work out income for the purpose of levy of super tax
under Section 4B in case of a banking company.
116. Reduced rate of tax on additional advances for micro, small and medium enterprises
Rule 7D
Finance Supplementary (second Amendment) Act, 2019 introduced certain incentives for banking sector to
contribute in accomplishment of the Government’s goals to promote economic growth in the country by providing
financial support to small businesses involving low and medium capital structure. Accordingly, a new Rule 7D was
introduced which provided relief in tax rate in respect of interest income earned from providing additional advances
to micro, small and medium enterprises. The Bill now proposes to remove the words interest income from the
above Clause 1 of Rule 7D thereby providing the benefit of reduced rate of taxation on any type of taxable income
earned from lending / financing to micro, small and medium enterprises.
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SALES TAX
Section Page
6. Value of Supply for Electricity and Gas Section 2(46)(h) & 2(46)(i) 47
9. Tax Credit Not Allowed and Tax Invoice Section8 and Section 23 48
16. Liability for Tax in case of Private Company or Business Enterprises Section 58 49
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Tax on Tier-1 Retailers, was introduced vide the Finance Act, 2017.. “Tier-1 Retailers” was defined to mean:
(b) a retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks;
(c) a retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months
exceeds rupees six hundred thousand; and
(d) a wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to
the retailers as well as on retail basis to the general body of the consumers.
Tier-1 Retailers are required to charge sales tax at the rate of 17% on the value of supplies and are required to file sales
tax returns on a monthly basis. The local retail supplies of finished goods of the five export oriented sectors specified in
the SRO 1125(I)/2011 by the Tier-1 Retailers are subject to sales tax at the rates specified in the above notification.
Further, they also have option to pay tax under the turnover regime at the rate of 2% (without adjustment of input tax),
including on exempt supplies, subject to the condition that Tier-1 Retailers shall file an option to the Chief
Commissioner Inland Revenue having jurisdiction thereon..
The Bill now seeks to add the retailers within the ambit of Tier-1 Retailers whose shops measure 1,000 sq.ft or more.
Consequently, all the retailers irrespective of the conditions laid down in the existing definition shall be treated as Tier-1
Retailers if their shop size is equal to or more than 1,000 sq.ft.
The Bill seeks to amend the existing regime of Tier-1 Retailers and such retailers shall pay sales tax at the applicable
rates on supply of goods under the ST Act or the notifications issued thereunder. In the light of the proposed
amendments, Tier-1 Retailers shall not be eligible to pay sales tax under the turnover regime.
The Bill further proposed that the customers of Tier-1 Retailers shall be entitled to receive a cash back upto five percent
of the sales tax paid on their purchases in the manner and extent as may be prescribed by FBR.
Section 3(9) of the ST Act provides that the sales tax shall be charged from retailers through their monthly electricity
bills at the rate of five percent where the monthly amount of bill does not exceed rupees twenty thousand and at the
rate of seven and a half percent where the monthly bill amount exceeds the aforesaid amount subject to the conditions
and limitations as prescribed in Chapter II of the Sales Tax Special Procedure Rules, 2007. The Bill seeks to amend
Section 3(9) of the ST Act whereby it has been clarified that the electricity supplier shall deposit the amount so
collected from the retailers without adjusting against his input tax although the said condition was already provided in
Chapter II of the Sales Tax Special Procedure Rules, 2007.
3. Cottage Industry
Section 2(5AB)
Presently, a manufacturer whose annual taxable turnover is less than ten million rupees or having annual utility bills
less than eight hundred rupees has been defined as “Cottage Industry”. Supplies made by the Cottage industry are
exempt from tax and the Cottage Industry is also not required to be registered under Section 14 of the ST Act.
The Bill now seeks to re-define the term ‘Cottage industry’ whereby a manufacturer located in a residential area without
having industrial gas and electricity connection, not having workers more than ten and annual turnover from all
supplies not exceeding two million rupees will fall under its domain. This means that numerous manufacturing units
which are currently availing the above concessions, being cottage industry, would be oust from its domain.
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Section 3(2)(a) provides that the goods listed in the Third Schedule to the ST Act shall be subject to applicable sales tax
rate on retail price. The expression of “retail price” has been defined as price fixed and embossed by a manufacturer of
such goods.
Now the Bill seeks to enlarge the scope of “retail price” to bring into its fold goods imported into Pakistan. Hence the
definition of the terms “retail price” and “value of supply” are proposed to be amended accordingly. Resultantly, goods
specified in the Third Schedule are also liable to sales tax at import stage on retail price fixed by the importer.
Similar kind of provisions were available in the ST Act upto 30 June 2005. However, importers of these goods were
facing practical issues to legibly emboss retail price and sales tax on each packet or container at the time of import in
accordance with Section 3(2)(a) of the ST Act. The importers of such goods may have to face the similar issue., .
Import of finished goods are also subject to value added tax (VAT) at the rate of three percent on import stage and
same is available for adjustment as an input tax. However, in case of levy of sales tax on retail price, the importer may,
therefore, not be able to adjust VAT. The proposed amendments may create undue hardship to importers without
providing any practical solution to this hiccup.
In case of manufacturing or processing of goods belonging to another person, the transfer of such goods shall be
construed as supply of goods. Section 2(46) does not cover value of supply in case of toll manufacturing of taxable
goods. Currently, Section 2(46)(f) covers the situation where non-taxable goods are supplied under toll manufacturing
arrangement only.
The Bill seeks to substitute Section 2(46)(f) and proposes the value of supply would be actual consideration received by
a toll manufacturer for value addition carried on the goods belonging to other person.
Presently, Chapter III and IV of the Sales Tax Special Procedure Rules, 2007 prescribes specific rules for collection and
payment of sales tax on electric power and natural gas. Such procedures also define the value of supply of electric
power and natural gas for the purpose of charging sales tax.
The Bill seeks to insert clause (h) and (i) to Section 2(46) whereby value of supply in case of supply of electricity by an
independent power producer and electricity and gas by distribution companies has been defined.
As discussed above, it is stated in the salient feature of the budget documents that the special procedures are being
replaced with the potential schedules to the ST Act or with insertion of the provisions in the relevant sections to the ST
Act. However, it is observed that the aforesaid special procedure rules are not fully transposed under other relevant
provisions of the ST Act. Therefore, it is expected that the aforesaid special procedure rules may not be withdrawn
otherwise it may create unnecessary confusion or anomalies.
The Chapter X of the Sales Tax Special Procedure Rules, 2007 provides Special Procedure for payment of sales tax by
importers, whereby sales tax on minimum value addition is levied and collected at import stage on specified goods at
the rate of three percent of the value of goods in addition to the sales tax chargeable under Section 3 of the ST Act or
the notification issued thereunder. The aforesaid rules provide certain exclusions which include goods imported by a
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manufacturer for in-house consumption, POL products imported by Oil Marketing Company and registered service
providers importing goods for their in-house consumption.
The Bills seeks to insert Twelfth Schedule to the ST Act which provides application of minimum value addition tax at the
rate of three percent with the following proposed changes in the exclusion as provided in the existing Special Procedure
for payment of sales tax by importers.
Goods as are imported by a manufacturer for in-house Raw materials and intermediary goods meant for use
consumption in an industrial process which are subject to customs
duty at the rate of 16% or 20% ad valorem under First
Schedule to the Customs Act, 1969
POL products, imported by an Oil Marketing Company The petroleum products falling in Chapter 27 of
for sale in the country, whose prices are regulated Pakistan Customs Tariff as imported by a licensed Oil
under a special pricing arrangement by the Government Marketing Company for sale in the Country
of Pakistan or by a regulatory authority working under
the Government of Pakistan
None Cellular mobile phones or satellite phones
The minimum value addition tax shall remain to be treated as input tax under the ST Act.
The Bill seeks to amend Section 7(2)(i) as to allow input tax on electricity or gas if the electricity or gas bill reflects the
consumer’s registration number and address where the connection is installed. The proposed amendments are merely
transposition of similar provisions from the Chapter III and IV of the Sales Tax Special Procedure Rules, 2007.
Section 8 of ST Act deals with the restrictions of adjustment of input sales tax paid by the supplier. The Bill seeks to
restrict sales tax paid on import of scrap of compressors falling under PCT heading 7204.4940 on pro-rata basis to the
extent of supplies made to the un-registered persons without providing NIC number of the buyer on the sales tax
invoice. It is pertinent to mention that the Bill also seeks to amend Section 23 of the ST Act and impose a condition for
suppliers to insert NIC number on the sales tax invoices issued to un-registered buyers.
From a plain reading of the proposed amendments, it seems that it would be a real challenge for Tier-1 Retailers to
secure their valid input tax by seeking NIC Number from individual customers so as to comply with the proposed
changes in Section 23 of the ST Act.
Section 8B of ST Act provides that a registered person shall not be allowed to adjust the input tax in excess of ninety
percent of the output tax for that tax period, subject to certain exclusions provided therein. Under the existing
provisions, FBR by notification in the official gazette may exclude any person or class of persons from the purview of
the restriction of claim of input tax to the extent of ninety percent of the output tax.
The Bill seeks to extend the powers of FBR, whereby the limitation for adjustment of input tax to the extent of ninety
percent may be enhanced to ninety five percent.
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11. Exemption
Section 13(2)(a)
Section 13 deals with general powers of the Federal Government to grant exemption from sales tax under certain
circumstances. The Bill seeks to delete such powers in the situation when used for “removal of anomalies in taxes,
development of backward areas”. Resultantly the aforesaid functions may not be carried out by the Federal
Government.
Currently, Section 25 provides that an audit shall only be conducted once in every three years. The Bill proposes to
delete the aforesaid proviso which was introduced in the Finance Act, 2018.
Certain taxpayers challenged the audit proceedings under Section 25 where sales tax audit had already been conducted
during any of the last three years on the premise that the amendment introduced through the Finance Act, 2018 was
procedural change in law and was applicable retrospectively. Recently, the Honorable Lahore High Court has adjudged
the matter in favor of the taxpayer. It appears that the proposed deletion of the third proviso to Section 25 will
neutralize the judgment of the Honorable Lahore High Court.
13. Return
Section 26
Under Sub-section (3) of Section 26 of ST Act, a registered person, subject to approval of the Commissioner Inland
Revenue, may file a revised return within one hundred and twenty days from the date of filing of the return.
The Bills seeks to relax the condition of seeking approval of the Commissioner Inland Revenue in the situation where the
revised return is filed within sixty days of filing of the return and either the tax payable is more than the tax already paid
with the original return or the refund claimed therein is less than the amount as claimed in the original sales tax return.
In the absence of these conditions, a registered person is required to seek prior approval for filing of the revised return
from the Commissioner Inland Revenue within a period of one hundred and twenty days.
The Bill proposes that the penalty for non-filing of sales tax return is enhanced from 5,000 to 10,000. Where return
filing is not delayed for more than 10 days, the penalty is increased from PKR 100 to PKR 200 for each date of default.
Section 51 provides immunity to tax officials from prosecution by any Government agency for anything done in their
official capacity, without the prior approval of FBR. This immunity was, at times, exploited by the tax officials. The Bill
proposes to introduce a new Section 33A, under which FBR shall prescribe rules for initiating proceedings, including
criminal proceedings against any tax official who willfully and deliberately commits or omits an act which results in
personal benefits and undue advantage to himself or a taxpayer or both. Furthermore, FBR shall simultaneously
intimate the relevant Governmental agency to initiate criminal proceedings against the taxpayer.
Section 58 provides that any private company or business enterprise which is wound up and any tax chargeable may
not be recoverable from such company or business enterprise then the owner, partner or director shall be jointly and
severally liable for payment of such tax.
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The Bill now seeks to extend such liability to shareholder owning more than 10% of the paid up capital. It is also
proposed that the said shareholder shall be entitled to recover the share of tax paid from the other owner, partner,
director and shareholder holding more than 10% of the paid up share capital.
The Bill seeks to insert Sub-section (1A) to Section 72B which authorizes FBR to keep selection parameters for audit
confidential.
The Third Schedule lists down the goods that are subject to sales tax at retail price set by manufacturers. The Bill
proposes to insert the following entries into the Third Schedule which are currently subject to extra amount of sales tax.
38. Household electrical goods, including air conditioners, refrigerators, deep Respective headings
freezers, televisions, recorders and players, electric bulbs, tube-
lights, electric fans, electric irons, washing machines and telephone sets
39. Household gas appliances, including cooking range, ovens, geysers and Respective headings
gas heaters
40. Foam or spring mattresses and other foam products for household use Respective headings
41. Paints, distempers, enamels, pigments, colours, varnishes, gums, resins, Respective headings
dyes, glazes, thinners, blacks, cellulose lacquers and polishes sold in retail
packing
42. Lubricating oils, brake fluids, transmission fluid, and other vehicular Respective headings
fluids sold in retail packing
43. Storage batteries excluding those sold to automotive manufacturers Respective headings
or assemblers
44. Tyres and tubes excluding those sold to automotive manufacturers Respective headings
or assemblers
45. Motorcycles Respective headings
The Sixth Schedule deals with exemptions of goods from levy of sales tax.
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Existing Proposed
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Existing Proposed
The Bill has proposed to omit the following serial numbers from Table 1 of the Sixth Schedule:
The Bill has also proposed to insert the following entries in Table-1 of the Sixth Schedule of the ST Act:
as made till 30th June, 2023, to which the provisions of the Act or
151 the notifications issued thereunder, would have not applied had Respective heading
Article 247 of the Constitution not been omitted under the
Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of
2018):
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Serial number 16 of Table 2 provides exemptions on local supply of raw cotton and ginned cotton. The Bill proposes to
omit the expression “ginned cotton” as mentioned under column (2).
The Bill has also proposed to insert the following entries after Serial number 24 in the Sixth Schedule of the ST Act:
Under Section 3(2)(aa), items listed in the Eight Schedule are chargeable to sales tax at reduced rate subject to certain
conditions and limitations as provided therein.
The Bill seeks to substitute the following entries in Table-1 of the Eight Schedule to the ST Act:
CONCENTRATED MILK
Currently, there is disparity in the rate of sales tax on various forms of milk products like milk and cream. The Bill now
seeks to rationalize the same and both the categories of concentrated milk and cream are proposed to be taxed at the
rate of10%.
Cotton or maize planter with fertilizer attachment, potato planter and rice trans-planter have been recently reclassified
under tariff heading 8432.3900 in the Pakistan Customs Tariff (PCT). Therefore, the Bill seeks to update the tariff
heading of 8432.3090 with 8432.3900 for the above goods.
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POTASSIUM CHLORATE
Presently, potassium chlorate is subject to sales tax at the standard rate of 65 rupees per kilogram. The Bill proposes to
enhance the additional fixed amount of sales tax from 65 to 70 rupees per kilogram.
The Bill also seeks to omit the following entries from Table-1 of the Eighth Schedule to the ST Act.
Further, the Bill seeks to insert the following new Entries in Table-1 of the Eighth Schedule to the ST Act.
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used therein,
plus 3% of making
charges
64 Prepared food, foodstuff and Respective headings 7.5% Supplies only, subject to
sweetmeats supplied by condition that no input
restaurants, bakeries, tax shall be adjusted
caterers and sweetmeat
shops
65 Ginned cotton Respective headings 10%
The Bills also seeks to reduce rate of sales tax on food supplied by restaurants, bakeries and caterers. However, such
businesses have been construed as service provider and have already been covered under the provincial sales tax laws
and are currently paying sales tax with the respective provincial sales tax authorities.
Such proposition would once again lead to a dispute among the businesses and government functionaries and would
result in unnecessary litigation.
In view of the proposed amendment, such goods shall be subject to sales tax at the rate of seventeen percent on the
value of retail price fixed by the manufacturer or importer.
Ninth Schedule inter-alia deals with levy of sales tax on import and supply of locally manufactured cellular and satellite
phones. The Bill proposes to reduce the rates of sales tax on import or local supply or registration of IMEI number by
CMOs of cellular and satellite phones. The proposed changes in the rate of sales tax are as follows:
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Section 3(1B) of the ST Act empowers FBR to notify the taxable supplies on which sales tax may be levied and collected
on the basis of production capacity or any other fixed basis in lieu of the Normal Sales Tax Regime.
The Bill seeks to substitute Section 3(1B) with the Tenth Schedule wherein goods are specified on which sales tax is
charged or collected on the basis of production capacity or any other fixed basis. It is proposed to levy monthly fixed
sales tax in the following manner on bricks, falling under PCT heading 6901.1000.
Tax Payable
S.No Region or Area
Per Month
1. Lahore, Rawalpindi and Islamabad PKR 12,500
Section 3(7) authorizes the Federal Government to notify the person as sales tax withholding agents alongwith the
manner and conditions for withholding of sales tax. The Federal Government issued the Sales Tax Special Procedure
(Withholding) Rule, 2007 (the Withholding Rule) vide S.R.O. 660(I) of 2007.
It is stipulated in salient feature issued with the Budget Documents that multi-tiered legislation and subordinate
legislation make it difficult for taxpayer and tax collectors to comprehend and implement the same. Hence, all the
special procedures and redundant SROs are being abolished and same is to be transposed to the ST Act.
The Bill seeks to substitute Section 3(7) with the new Eleventh Schedule to the ST Act wherein the Withholding Rules
are transitioned to the Eleventh Schedule to the ST Act. The proposed Eleventh Schedule has prescribed withholding
agents and the rates of applicable sales tax withholding for specified category of suppliers as under:
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The Proposed rates of sales tax withholding are identical with the rates as provided in the Withholding Rules except for
withholding tax rate on supplies made by an unregistered person which has been enhanced from 1% to 5% of gross value
of supplies.
It is noticed that the remaining procedure, time and manner for withholding and deposit of tax thereof remain more or
less the same and moved to the Eleventh Schedule. However, under the existing Withholding Rules certain persons or
transactions like supplies by active taxpayer to another registered person as well as supplies of various type of goods
including electricity, gas, petroleum products, steel melters, telecom, goods specified under the Third Schedules and
goods supplied by commercial importer have been excluded from the purview of sales tax withholding. It may,
therefore, be expected that the proposed amendments would retain the similar position or the Withholding Rules to that
extent remain intact unless the above situation is addressed.
In the salient features attached to the Bill, it is indicated that certain measures would be introduced in the ST Act.
However, they are not referred to in the Bill. It appears that as the SROs have not been issued with the Budget
documents, the following measures in sales tax would be taken when the related SROs are issued:
It is proposed that the SRO 190(I)/2002 may be amended to delete entries relating to PVC and PMC materials, and
thus allowing zero-rating on export of these items to Afghanistan and Central Asian Republics.
It is proposed that the FED shall be charged at zero percent on unmanufactured tobacco as supplied to a registered
person / trader who intends to export the same subject for furnishing of necessary security
GOVERNMENT BODIES EXCLUDED FROM PURVIEW OF EXTRA TAX AND FURTHER TAX
Further tax at the rate of 3% is chargeable on all taxable supplies made to unregistered persons and 5% extra tax is
chargeable on electricity and gas bills from all unregistered industrial and commercial consumers. it is proposed
that government / semi-government and statutory regulatory authorities may be excluded from purview of both
these taxes.
CNG prices have been de-regulated due to which CNG prices have risen as well as gas tariff. In this sector, it is
proposed to re-notify the value for sales tax on supply of gas from distribution company to CNG dealers.
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Special procedure rules for steel sectors are proposed to be done away.
Presently, sales tax on marble industry is governed through special procedure and sales tax is chargeable at PKR
1.25 per unit of electricity consumed. Salient feature delineates that special procedure may be done away and
standard regime of 17% be restored.
Salient features stipulate that all special procedure rules alongwith redundant notification are to be abolished and
same will be transposed to the ST Act. Certain provisions of special procedure rules are already proposed to be
transposed to the ST Act.
It is intended that issue for sales tax registration would be automated without any physical contact with the tax
officers. Biometric verification shall be done within a month of registration through NADRA e-Sahulat centres.
Concessionary rate of sales tax applicable to the five export oriented sector is expected to be withdrawn by
rescinding S.R.O 1125. However, sales tax on ginned cotton, finished article textile and leather are proposed to be
taxed at reduced rate by inserting entry 65 and 66 in Eighth Schedule to the ST Act.
In consequence to above amendment, zero rating of utilities through various general order are also expected to
be withdrawn. However, refund of input tax shall be automated and refund payment order (RPOs) shall be
immediately sent to SBP for payment as soon as these are generated.
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Islamabad Capital Territory
The Bill seeks to reduce the rate of sales tax on call centre services from 18.5 percent to 17 percent.
The Bill seeks to harmonize the list of taxable services with the Provincial sales tax laws by inserting the following
services in the Schedule to the ICT Ordinance.
Proposed
S.No. Description PCT Heading
Rate of Tax
Advertisement on hoarding boards, pole signs and signboards, and
43 9802.9000 16%
websites or internet
44 Services provided by landscape designers 9814.4000 16%
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Islamabad Capital Territory
The salient features of the Bill state that the services which have already been subject to federal excise duty shall not be
included in the Schedule to the ICT Ordinance. However, the advertisement services which are listed at proposed Serial
No. 43 of the Schedule, seems a duplication as it is already subject to Federal Excise Duty under Serial No. 2A of Table II
of the Frist Schedule to the Federal Excise Act, 2005.
The Finance Bill, 2019 has also proposed to amend the following Acts, as in force in the Islamabad Capital Territory:
The Stamp Act, 1899 for making amendments in the rate of Stamp Duty applicable on various types of instruments.
The West Pakistan Motor Vehicle Taxation Act, 1958 for revising the rate of token tax on motor cycles, scooters,
motor vehicles, motor cabs, public service vehicles, commercial vehicles and loading vehicles
The West Pakistan Finance Act, 1965 for levying a bed tax at the rate of five percent of invoice value excluding sales
tax and other applicable taxes on hotels having at least twenty five lodging units.
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Table of Contents
Section Page
4. Exemptions Section 16 62
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Federal Excise Duty
1. Definitions
“Supply”
Section 2(23a)
The definition of “supply” includes sale, lease or other disposition of goods and such transaction as the Federal
Government may notify in the official gazette. The Bill seeks to change the powers to issue notifications by FBR instead
of the Federal Government. However, FBR will issue the notifications for said purpose with the approval of the Minister
in charge.
Section 3 deals with the levy and collection of duty on goods or services specified in the First Schedule. The Bills seeks
to levy the duty on production and supplies of steel products. Amendments have been introduced in Section 3(5A) of
the Act and the Fourth Schedule for this purpose. The duty on supply of steel products is proposed to be imposed at
17% ad valorem in sales tax mode. The taxpayer is required to declare actual and minimum production in its monthly
returns and to compute and pay its tax liability based upon the comparison of actual and minimum production,
whichever is higher. It is further proposed to carry out the comparison on an annual basis to ensure that the duty
actually paid shall not be less than the liability determined on minimum production basis for the year.
The Bill proposes the following minimum production of steel products in the Fourth Schedule subject to certain conditions
and procedures as specified therein:
The Bill seeks to empower FBR with the approval of the Minister in charge, in place of the Federal Government to issue
notification for the purposes of Section 7 of the Act to levy duty in sales tax mode.
4. Exemptions
Section 16
The Federal Government is empowered to issue notification for exemption of duty. The Bill seeks to modify certain
circumstances under which such powers may be used by the Federal Government.
The Bill seeks to introduce fines and penalties to person who sells cigarettes in retail at a price lower than the retail
price including sales tax printed thereon.
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Federal Excise Duty
The Bill seeks to insert a new Section 19A in the Act whereby, FBR may prescribe rules to initiate criminal proceedings
against its officials who willfully and deliberately commit or omit an act which results in personal benefit or undue
advantage to the officials or the taxpayer or both.
The Bill seeks to empower FBR with the approval of the Minister in charge, in place of the Federal Government to issue
notification and authorize any other officer working under FBR to exercise the powers and perform the functions under
this section.
The Bill proposes amendments in the Table I of the First Schedule to the FE Act:
Existing Proposed
S.
No Tariff
Description Duty Description Tariff Heading Duty
Heading
1 Edible oils excluding 15.07, 15.08, 16% Edible oils 15.07, 15.08, 17%
deoxidized soybean 15.09, 15.10, excluding 15.09, 15.10,
15.11, 15.12, deoxidized 15.11, 15.12,
15.13, 15.14, soybean 15.13, 15.14,
15.15, 15.16 15.15, 15.16
15.17, and 15.17, and
15.18, 15.18
2 Vegetable ghee and Respective 16% Vegetable ghee Respective 17% of retail
cooking oil heading and cooking oil heading price
a) In retail 17% ad val
packing
b) Not in retail
packing
4 Aerated Waters 2201.1020 11.5% Aerated Waters 2201.1020 14%
5 Aerated waters, 2202.1010 11.5% of Aerated waters, 2202.1010 14% of retail
containing added retail price containing added price
sugar or other sugar or other
sweetening matter sweetening
or flavored matter or
flavored
6 Aerated waters if Respective 11.5% of Aerated waters if Respective 14% of retail
manufactured headings retail price manufactured headings price
wholly from juices or wholly from
pulp of vegetables, juices or pulp of
food grains or fruits vegetables, food
and which do not grains or fruits
contain any other and which do not
ingredient, contain any other
indigenous or ingredient,
imported, other than indigenous or
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Existing Proposed
S.
No Tariff
Description Duty Description Tariff Heading Duty
Heading
sugar, coloring imported, other
materials, than sugar,
preservatives or coloring
additives in materials,
quantities preservatives or
prescribed under the additives in
West Pakistan Pure quantities
Food Rules, 1965. prescribed under
the West Pakistan
Pure Food Rules,
1965
9 Locally produced 24.02 Rupees four Locally produced 24.02 Rupees five
cigarettes if their thousand cigarettes if their thousand two
on-pack printed five on-pack printed hundred per
retail price exceeds hundred retail price thousand
four thousand five per exceeds five cigarettes
hundred rupees per thousand thousand nine
thousand cigarettes. cigarettes hundred and sixty
rupees per
thousand
cigarettes
10 Locally produced 24.02 Rupees one Locally produced 24.02 Rupees one
cigarettes if their thousand cigarettes if their thousand six
on-pack printed eight on-pack printed hundred and
retail price exceeds hundred retail price does fifty per
two thousand nine and forty not exceed five thousand
hundred and twenty- per thousand nine cigarettes
five rupees per thousand hundred and sixty
thousand cigarettes cigarettes rupees per
but does not exceed thousand
four thousand five cigarettes
hundred rupees per
thousand cigarettes.
13 Portland cement, 25.23 1 rupee and Portland cement, 25.23 2 rupees per
aluminous cement, 50 paisa aluminous kilogram
slag cement, super per cement, slag
sulphate cement and kilogram cement, super
similar hydraulic sulphate cement
cements, whether or and similar
not coloured or in hydraulic
the form of clinkers cements,
whether or not
coloured or in the
form of clinkers
31 Liquefied Natural 2711.1100 17.8 Liquefied Natural 2711.1100 10 rupees per
Gas rupees per Gas MMBTU
100 cubic
meter
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Federal Excise Duty
Existing Proposed
S.
No Tariff
Description Duty Description Tariff Heading Duty
Heading
55 Locally 87.03 10% ad Locally 87.03
manufactured or valorem manufactured or
assembled motor assembled motor
cars, SUVs and cars, SUVs and
other motor vehicles other motor
of cylinder capacity vehicles
of 1700cc or above, principally
principally designed designed for the
for the transport of transport of
persons (other than persons (other
those of headings than those of
87.02), including headings 87.02),
station wagons and including station
racing cars of wagons and
cylinder capacity of racing cars
1700cc or above a) of cylinder 2.5% ad
capacity up valorem
to 1000cc
b) of cylinder 5% ad valorem
capacity
from 1001cc
to 2000cc
c) of cylinder 7.5% ad
capacity valorem
2001cc and
above
The Bills seeks to insert the following new entries at Serial No. 57 and 58 of Table I of the First Schedule to the FE Act:
The Bill proposes to omit the Serial No.10a and 54 of Table I of the First Schedule to the FE Act which are as under:
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It is proposed to insert an explanation that the duty on un-manufactured tobacco shall be borne by the manufacturer and
not to be passed on to the tobacco grower.
The rate of duty on domestic air travel is proposed to be reduced from PKR 2,000 to PKR 1,500 for long routes and
Rs.1,250 to Rs.900 for short routes.
The exemption of duty on internet services is proposed to be withdrawn while the exemption on broadband is proposed
to be restricted to terrestrial broadband.
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Table of Contents
CUSTOMS
Section Page
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Customs
1. Definitions
Section 2 and 80AA
The Bill seeks to introduce risk management system by inserting a new Section 80AA and in relation thereto define
following terms.
Customs Controls
Section 2(lc)
It means, measures applied by the officers of customs or through Customs Computerized System to manage risks
and ensure compliance.
It means, the systematic application of Customs Controls and Management Procedures on pre arrival, customs
clearance processes and post clearance of goods and passengers, for identifying, analyzing, evaluating,
monitoring, reviewing and treating the risk associated with them.
Selectivity Criteria
Section 2(rrr)
It means, the risk parameters determined by the Risk Management Committee constituted under the rules for the
application of Risk Management System.
The Bill seeks to insert a new Section to enforce customs controls to manage risks and ensure compliance through a
Risk Management System for which the related rules may be prescribed later on.
The Bill seeks to substitute the word “Directorates” with the “Directorates General and Directorates” which would
empower FBR to specify the functions, jurisdiction and powers of the Directorates General and their officers by
notification in the Official Gazette.
The Bill seeks to devolve the powers of the Federal Government to the FBR subject to the approval of the Finance
Minister in charge to issue the notifications under the following provisions of the Act.
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Customs
Section 19 deals with the general powers of the Federal Government to grant exemption of duties under certain
circumstances and to the institutions. The Bills seeks to delete the words “removal of anomalies in duties, development
of backward areas”. Resultantly, the Federal Government is no more authorized to issue exemption in these
circumstances.
The Bill seeks to withdraw the powers of the Collector of Customs to determine the value which will now be available
only to the Director of Customs valuation. Sub-section (3) of Section 25A of the Act is also propose to be deleted which
becomes redundant due to the aforesaid proposed amendment.
Sub-section (3A) of Section 32 deals with the issuance of show cause notice in the situation where any duty, taxes or
charge has not been levied, short-levied or erroneously refunded, discovered as a result of an audit or examination of an
importer’s accounts or by any other means. The Bill seeks to extend the application of this section to exporters as well.
8. Compounding of offence
Section 32B
The Bill seeks to empower the Director of Customs, in addition to the Collector, to compound the penalties determined,
where any person has committed a duty or tax fraud under the Act.
The Bill seeks to insert a new Section 32C in the Act; whereby, a show cause notice may be issued to any person who
overstates the value of imported goods or understates the value of exported goods or vice versa, within a period of two
months from the seizure of goods to seek explanation for confiscation of the goods.
The Bill seeks to add a condition of pre-audit for sanctioning refunds. A new Sub-section is also proposed to insert
whereby FBR is empowered to issue a notification and specify the jurisdiction and powers of the officers of Customs to
sanction refunds. The key objective is to regulate the refunds through different sanctioning authorities.
11. Declaration and assessment for home consumption or warehousing [or transshipment]
Section 79
This section deals with the time period of declaration and assessment of goods by the owner for home consumption,
warehousing and transshipment. The Bill seeks to reduce the time limit for such declaration from fifteen days to ten
days.
12. Procedure in case of goods not cleared or warehoused or transshipped or exported or removed from
the port within twenty days after unloading or filing of declaration.
Section 82
Under Section 82 of the Act, if any goods are not cleared for consumption or warehoused or transshipped or removed
from the port within twenty days of their arrival or within such extended period not exceeding ten days, an officer of the
customs, may sell or auction, or take under custody such goods.
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The Bill seeks to reduce the period of clearance of imported or exported goods from twenty to fifteen days. The power
to extend the period for further ten days is also proposed to be reduced to five days.
Presently whenever any goods are lodged in a public warehouse or a licensed private warehouse, the warehouse-keeper
delivers a signed warrant to the person lodging the goods which is transferable by endorsement. The Bill seeks to add a
proviso to Section 90(2), which states that where the Customs Computerized System is operational, the issuance of
warrant and subsequent transfer of warrant shall take place through system generated documents.
Currently, perishable goods notified by FBR, may remain in warehouse for a period of three months following the date
of their admission into the warehouse. The Bill seeks to reduce this period to one month. The Bill further seeks to vest
the power of extending the aforesaid period of one month to only the Collector of Customs and the Chief Collector of
Customs and deleting the clause referring to the Federal Government or the FBR.
This section deals with the penal provisions for offences as defined under the Customs Act, 1969. In this Section, the
following new entries have been added or substituted.
Reference to
Clause Offences Penalties
the Section
14 If any person commits Such person shall be liable to a penalty not exceeding two 32
an offence under: hundred thousand rupees or three times the value of the
goods in respect of which such offence is committed,
(i) Sub-section (1) whichever be greater; and such goods shall also be liable
or Sub-section (2) to confiscation; and upon conviction by a Special Judge
of Section 32; he shall further be liable to imprisonment for a term not
exceeding three years, or to fine, or to both;
(ii) Sub-section (3) or
Sub-section (3A) Such person shall be liable to a penalty not exceeding fifty
of Section 32, thousand rupees or two times the value of the goods in
respect of which such offence is committed, whichever be
greater.
14B If any person commits Such person shall be liable to penalty not exceeding two 32C
an offence under hundred thousand rupees or three times the value of
Section 32C, goods in respect of which such offence is committed
whichever is greater; and such goods shall also be liable to
confiscation; and upon conviction by a special judge he
shall further be liable to imprisonment for a term not
exceeding ten years and to a fine which may extend upto
one million rupees; and shall also be liable to forfeiture of
property involved in money laundering or property of
corresponding value in accordance with the provisions of
the Anti-Money Laundering Act, 2010 (XIV of 2010).
47A If the goods The owner of such goods shall be liable to a penalty at the 79
declaration is not filed rate of rupees five thousand per day for the initial five
within the prescribed days of default and at the rate of rupees ten thousand per
period of ten days, day for each day of default thereafter.
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The Bill seeks to insert a new Section 156A in the Act whereby the FBR may prescribe rules to initiate criminal
proceedings against its officials who willfully and deliberately commits or omits an act which results in personal benefit
or undue advantage to the officials or the taxpayer or both.
The monetary threshold of the officers of customs for adjudication are proposed to be re-defined in the following
manner:
The Bill further seeks to reduce the time period to decide the cases within ninety days instead of existing one hundred
and twenty days.
The option to pay fine in lieu of confiscation of goods is currently available to import and export of prohibited or
restricted goods. The Bill seeks to extend this option to any other violation made under the provisions of the Act.
The Federal Government through a notification may appoint special judges and specify their headquarters and the
territorial limits to exercise their jurisdiction under the Act. The Bill seeks to withdraw the powers of the Federal
Government and grant it to the Prime Minister who shall exercise these powers in consultation with the Chief Justice of
the concerned High Court. In the similar manner, the power to transfer the cases from one special judge to another
special judge has also been reassigned from the Federal Government to the Prime Minister.
The Bill seeks to reduce the time period to decide the cases by the Collector (Appeals) within ninety days instead of
existing one hundred and twenty days.
The Bill seeks to substitute Section 194 which empowers the Federal Government to form, regulate and conduct the
affairs of the Appellate Tribunal. The Bill seeks to shift these powers to the Prime Minister. The Appellate Tribunal shall
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consist of a Chairman, judicial and accountant members. The terms and conditions of appointment of the chairman and
judicial and technical members (this may be referred to accountant members) are proposed to be determined by the
Prime Minister. Further, the appointment of a technical member shall be for a period of two years. The Bill seeks to
explain the criteria for appointment of judicial members and accountant members as under:
A judicial member of the Appellate Tribunal shall be appointed, unless such person:
(b) has exercised the powers of a District Judge and is qualified to be a judge of the High Court; or
(c) is or has been an advocate of a High Court and is qualified to be appointed as a judge of a High Court:
Further, the person who is or has been an advocate of High Court shall not be appointed as judicial member unless
selected in accordance with the Civil Servants Act, 1973 (LXXI of 1973) and the Federal Public Service Commission
Ordinance, 1977 (XLV of 1977).
An accountant member of the Appellate Tribunal shall be appointed, unless such person:
(a) is an officer of Pakistan Customs Service equivalent in rank to the Member of FBR or Chief Collector of Customs or
Director General; or
(b) is a Collector or Director or Chief of the FBR having at least three years’ experience in that position.
The concept of Alternative Dispute Resolution (ADR) was first introduced by the Finance Act, 2004, whereby a taxpayer
may bring any disputed matter, pending at any appellate forum, before FBR by making an application. The role of ADR
was later updated and redefined in the Income Tax Ordinance, the ST Act and the FE Act via the Finance Act, 2018. The
Bill now seeks to harmonize the concept of ADR in lines with the said laws.
FBR in view of the proposed amendments, is required to constitute a Committee (ADRC) within the period of sixty days
of the filing of an application by the taxpayer, comprising of an officer of Inland Revenue (not below the rank of Chief
Collector) and two persons from the notified panel, comprising of a retired judge not below a District and Sessions
Judge, Senior Chartered Accountants, or Senior Advocates having minimum ten years’ experience in the field of
taxation or reputable taxpayers nominated by Chambers of Commerce and Industry, before which the matter is to be
placed for examination and recommendations to FBR.
The ADRC is required to examine the issue and may make enquiry, obtain expert opinion and cause an audit to be
conducted by any officer of Customs or any other person. Based on the findings, the ADRC shall make recommendations
as may be appropriate in the facts and circumstances of the case. The ADRC is required to make its recommendations
within ninety days of its constitution. If the ADRC fails to make the recommendation within the above period of ninety
days, FBR is empowered to dissolve the ADRC and the matter shall be decided by the appellate authority which issued
the order of withdrawal.
In case, the ADRC makes its recommendations within the statutory period of ninety days, FBR is then required to pass
an order on the recommendations of the ADRC, as may be appropriate, within ninety days of the receipt of ADRC’s
recommendations and if such an order is not passed, the recommendations would be treated to be an order passed by
FBR.
The intended substituted section now proposes substantial changes which are discussed as under:
The ADRC members would be selected from a panel of Chartered Accountants or Advocates and retired Judges of
High Court, retired District and Session Judges, or reputable taxpayer besides an officer of Inland Revenue not
below the rank of a Collector
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The taxpayer invoking the powers of ADRC and FBR shall withdraw the appeals pending before the Appellate
Authority
The ADRC shall not commence the proceedings unless the order of withdrawal by the Appellate Authority is
communicated to FBR . In the event the order of withdrawal is not communicated within seventy five days of the
appointment of the ADRC, the ADRC so appointed shall be dissolved.
The ADRC shall decide the dispute within one hundred and twenty days of its appointment excluding the period of
communicating the order of withdrawal.
Instead of making the recommendations by the ADRC for consideration by FBR, the ADRC would be now
empowered to decide the matter and such decision shall be binding on the aggrieved person as well as on FBR.
If the ADRC fails to decide the matter within the period of ninety days, FBR shall dissolve the ADRC, inform the
Appellate Authority (which passed the order of withdrawal of matter) and the matter would be deemed to be
pending before the Appellate Authority which shall decide the matter as if the appeal was never withdrawn. The
Appellate Authority is required to decide the appeal within six months of the communication of the order of
dissolution of the ADRC.
The proposed provisions however, do not appear to achieve the objectives with which the concept of ADR was
introduced. This is for the reason that the very concept of “Alternate” would fade away with the requirement to give up
the appellate process. Presently, the order passed by FBR on the recommendations of the ADR is not binding on the
aggrieved person but on FBR officials. Such an order is to be presented before the Appellate Authority which is required
to take into consideration while deciding the matter pending before it. This gives the aggrieved person an option to
evaluate the outcome of the ADR proceedings and decide whether to pursue the appeal or not. However, under the
substituted provisions, the appeal is proposed to be withdrawn before the ADRC takes up the matter for decision. The
law makers are therefore, urged to make the order of the ADRC binding on FBR and not on the aggrieved person.
It appears to be a typo error in the time period prescribed for deciding the dispute which may be clarified in the Finance
Act.
To boost exports and to secure domestic manufacturing sector, duties on more than 1,600 tariff entries are
proposed to be exempted or reduced which includes raw materials and intermediaries goods for textile and paper
sector, wooden furniture, home appliances industry, solar penal assemblers, chemical industry, pharma industry
etc.
Additional custom duty on non-essential and luxury items are proposed to be enhanced.
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