FAISAL LATIF FCA

FAISAL LATIF & CO

CHARTERED ACCOUNTANT
AND
FAZAL MAHMOOD & CO
CHARTERED ACCOUNTANTS

PROPOSED TAX AMENDMENTS VIDE FINANCE BILL 2020-21

HIGHLIGHTS

DATED: 12TH JUNE, 2020

Suit 202, First Floor, Kashif Blair Plaza, G-8 Markaz, Islamabad.
 PREFACE

The comments are provided on important provisions of Income tax

Finance Bill, 2020 however readers are requested to rely upon law

and take appropriate professional advise instead of these comments.

The comments relate to following Laws.

1. Luxury Tax

2. Income Tax Ordinance, 2001

3. Sales Tax Act 1990

4. Federal Excise Act 2005

It a contains executive summary of Budget as well.

FAISAL LATIF FCA

FAISAL LATIF & CO; CHARTERED ACCOUNTANTS

FAZAL MAHMOOD & CO; CHARTERED ACCOUNTANTS

G-8 MARKAZ, ISLAMABAD

051-2280226, 051-2340234
 EXECUTIVE SUMMARY OF THE BUDGET 2020-2021

It’s a Covid 19 budget. No relief is given for industrialization,

promotion of stock exchange and small and medium sized
enterprises. Only luxury tax is introduced in Islamabad. Alternate
Dispute Resolution committee is strengthen. Capital Gain Tax
period is reduced to four years for a plot and few minor adjustment
are made in Income Tax Law.
 LUXURY TAX ON FARM HOUSES IN ISLAMABAD
It is levied as follow:

1. RESIDENTIAL HOUSES
2 Kanals to 4 Kanals covered

area of more than 6000 sq ft Rs. 100,000 per kanal

5 Kanals or above with covered

area of more than 8000 sq ft Rs. 200,000 per kanal

2. FARM HOUSES

1. 4 Kanals including area under forming

Covered area 5000 to 7000 sq ft Rs. 25 per sq ft

Covered area 7001 to 10,000 sq ft Rs. 40 per sq ft

Covered area more than 10,000 sq ft Rs. 50 per sq ft

2. More than 4 Kanals including area under forming

Covered area 5000 to 7000 sq ft Rs. 60 per sq ft

Covered area 7001 to 10,000 sq ft Rs. 70 per sq ft

Covered area more than 10,000 sq ft Rs. 80 per sq ft

This tax will not be applicable for self occupied house of widows.
Ministry of Interior will collect this tax through its attached
departments.
 INCOME TAX
1. CAPITAL GAIN
Capital Gain Tax under section 37 of the Income Tax Ordinance,
2001 on open plots and constructed properly is proposed to be
restricted to 4 years.

Withholding of Capital Gain Tax under section 236 C is proposed to

be restricted to 4 years. Rate of tax given in division VIII of Part I to
First Schedule of Capital Gain Tax are proposed to be slashed by
50% on every category.

2. INCOME FROM PROPERTY

Individuals and AOP’s can now opt for normal tax regime.
Previously this option was available only to threshold of rental
income of Rs. 4 million. The bill also proposes to reduce the limit of
6% expenditure to 2% in case of separate block of income.

3. PROVISIONS FOR BUILDERS AND DEVELOPERS

The special incentives provided to Builders and Developers vide.
The Tax Laws (Amendment) Ordinance 1 of 2020 dated 19th April,
2020 is now proposed to be part of law through parliament as
previously its Ordinance was issued as parliament was not in
session at that time.
4. WITHHOLDING STATEMENT
These statements are made quarterly instead of annually.

5. PAYMENTS TO NON RESIDENTS BY HAJJ

COMPANIES
It is proposed to allow exemption of tax deduction on payments to
non residents by Hajj Companies.

6. THRESHOLD OF CASH EXPENSES SECTION 21 (L)

AND 21 (M).
The threshold of cash expenses is increased from Rs. 10,000 to Rs.
25,000 and total head of account is enhanced from Rs. 50,000 to
Rs. 250,000/-.

Enhancement of expenses is also pertain to salaries whose previous

limit was Rs. 15,000/-.

7. ADVANCE TAX ON AUCTION

Tax under section 236A on Auctions can be collected in
installments where payments are being received in installments.

8. TAX CREDIT FOR CHARITABLE DONATIONS

SECTION 61
Section 61 provides tax credit on donations to non profit
organizations. Tax credit on donation is proposed to reduce to 10%
and 15% for company and others respectively of taxable income.
Currently it is 20% and 30% for companies and others respectively.
9. LIMIT OF RECEIPTS FOR WITHHOLDING TAXES
SECTION 153
For individuals and AOP’s limit of turnover is enhanced from Rs. 50
million to Rs. 100 million to become a withholding agent.

10. APPEAL TO COMMISSIONER U/S 127

Fee for appeal against assessment is enhanced to Rs. 5,000/- for a
company and Rs. 2,500/- for other cases.

Further appeal for other cases is enhanced to Rs. 5,000/- for a

company and Rs. 1,500/- for others.

Currently it is Rs. 1,000/- for all type of assesses and appeals.

11. APPEAL TO APPELLATE TRIBUNAL SECTION 129,

131
Deposit of 10% of tax is mandatory for filing of appeal to Appellate
Tribunal.

Further fee of appeal is enhanced to Rs. 5,000/- for a company and

Rs. 2,500/- for others. Currently it is Rs. 2,000/- for all types of
assesses. It is very harsh proposed and will create hardship for
assesses.

12. ADVANCE TAX BY EDUCATIONAL INSTITUTIONS

Now advance tax on educational institutions is not applicable on
persons being active tax payers.

13. TURNOVER TAX ON SECTION 113

This bill proposes to include minimum tax on permanent
establishment of a non resident company.
14. RETURN OF INCOME SECTION 114
Now Every Person whose income for the year is subject to final
taxation is proposed to file return of income u/s 114 instead of a
statement

15. TAX PAYERS PROFITS SECTION 114A

This bill proposes to introduce requirement of filing a profile by
following tax payers electronically.

(a) every person applying for registration under section 181;

(b) every person deriving income chargeable to tax under the head,
“income from business”;

(c) every person whose income is subject to final taxation;

(d) any non-profit organization as defined in clause (36) of section 2;

(e) any trust or welfare institution; or

(f) any other person prescribed by the Board.

(2) A taxpayer’s profile—

(a) shall be in the prescribed form and shall be accompanied by

such annexures, statements or documents as may be
prescribed;

(b) shall fully state, in the specified form and manner, the relevant
particulars of—

(i) bank accounts;

(ii) utility connections;

(iii) business premises including all manufacturing, storage or retail

outlets operated or leased by the taxpayer;
 (iv) types of businesses; and

(v) such other information as may be prescribed;

(c) shall be signed by the person being an individual, or the

person’s representative where section 172 applies; and (d) shall
be filed electronically on the web as prescribed by the Board.

(3) A taxpayer’s profile shall be furnished,—

(a) on or before the 31st day of December, 2020 in case of a person

registered under section 181 before the 30th day of September,
2020; and

(b) within ninety days registration in case of a person not registered

under section 181 before the 30th day of September, 2020. (4) A
taxpayer’s profile shall be updated within ninety days of change
in any of the relevant particulars of information

16. REVISION OF WEALTH STATEMENT SECTION 116

It is proposed to get approval from commission before revision of
wealth statement and no revision will be allowed after expiry of 5
years from the due date of filing of return.

17. AMENDMENT OF ASSESSMENT SECTION 122(5)

Now the commissioner is empowered to amend assessment on basis
of audit or definite information.

18. AGREED ASSMENT SECTION 122 D

Now it is proposed for a assessee to get his case settled from
Assessment Oversight Committee in response to a notice for
amendment of assessment.

This settlement will not apply for concealment of income or where

interpretation of question of law is involved.
19. ALTERNAT DISPUTE RESOLUTION SECTION 134A
Amendments are proposed to be made to strengthen this
mechanism.

20. WITHHOLDING TAXES DELETED

Following withholding taxes are deleted.

Section Short Description

236R Collection of advance tax on education

related expenses remitted abroad

235B Tax on steel melters and composite

units

156B Withdrawal of balance under pension

fund

148A Tax on local purchase of cooking oil or

vegetable ghee by certain persons

236D Advance tax on functions and

gatherings

236F Advance tax on cable operators and

other electronic media

236J Advance tax on dealers, commission

agents and arhatis etc.

236U Advance tax on insurance premium

236X Advance tax on tobacco
21. DISALLOWANCE OF EXPENDITURE 21(P), 21 (Q)
This bill proposes to set limits and conditions of utility expenditures
and supplies made to sales tax unregistered persons.

22. REDUCED DEPRECIATION AND LEASE RENTALS

SECTION 22, SECTION 28
This bill proposes depreciation allowance of a new asset for only
half year in year of first use and half year in year of disposal.

23. STATEMENT OF DONATIONS FOR NPO’S SECTION

100 C
Now a new statement of voluntary contributions and donations
received during the year will be required to file.

24. ADJUSTED ASSEEMENT SECTION 120

Returns will be processed within 6 months if filing by system and
adjusted after giving opportunity of being heard.

25. INCOME TAX AUDIT THROUGH ELECTRONIC

MEANS SECTION 177
It is proposed to provide facility electronically through video links or
as FBR prescribe.

26. AUDIT ON BASIS OF BENCH MARK RATIOS

SECTION 177
Commissioner is empowered to determine taxable income on basis
of bench mark rates in the absence of other information.
27. TAX CREDIT ON ENLISHMENT SECTION 65-C
This credit period is enhanced to 30th June, 2022.

28. TAX ON PAYMENT TO NON RESIDENTS SECTION

152
Tax deducted is proposed to be minimum for advertisement and PE
of non resident for goods, services and contracts except by a
company being manufacturer.

29. TAX ON IMPORTS SECTION 148

It is shifted from person specific to goods specific subject to
conditions.

30. INCOME TAX REFUND SECTION 176

Centralized processing system is proposed.

31. REAL TIME ACCESS TO DATA BASE OF CERTAIN

ORGANIZATIONS SECTION 175A
A framework is proposed for broadening of tax base.

32. TAX ON ENGINEERING SERVICES

3% tax is proposed to be as per normal rates.
 SALES TAX
1. AUDIT ELECTRONICALLY
Audit may be carried out electronically through video links or any
facility as FBR may prescribe.

2. REAL TIME ACCESS TO DATA BASE OF CERTAIN

ORGANIZATIONS SECTION 56A
A framework is proposed for broadening of tax base.

3. ALTERNATIVE DISPUTE RESOLUTION SECTION 47

A
Amendments are proposed to be made to strengthen this
mechanism.

4. APPEAL TO COMMISSIONER SECTION 45B

Fee for appeal against assessment is enhanced to Rs. 5,000/- for a
company and Rs. 2,500/- for other cases.

Further appeal for other cases is enhanced to Rs. 5,000/- for a

company and Rs. 1,500/- for others.

Currently it is Rs. 1,000/- for all type of assesses and appeals.

5. ACTIVE TAXPAYER SECTION 2(1)

If a assessee in blocked/suspensed he may remain active tax payer.

6. TAX AUTHORITIES TO MODIFY ORDER SECTION

11C
Section is inserted to modify orders in case of orders by Higher
Courts.
7. SALES TAX WITHHOLDING
Sales tax withholding is extended to services.

8. INPUT ON WASTAGE OF MATERIAL SECTION 7

Now FBR is empowered to impose restrictions on input of wastage
of material.

9. CONDITION OF CNIC BY RETAILORS

This limit is enhanced to Rs. 100,000/- from Rs. 50,000/-.

10. AUTHORIZED OFFICERS TO HAVE ELECTRONIC

ACCESS TO PREMISES.
This bill proposes to empower FBR to make rules for electronic real
time access for audit or survey of person liable to tax.

11. ELECTRONIC SERVICES OF ORDERS ETC SECTION

56
This bill proposes to serve notices or orders electronically through
email etc and it shall be treated proper services of notice.

12. EXEMPTIONS FOR GWADER

- Zero rate on supplies of raw materials, components and goods for

further manufacturing and exports thereof is proposed.
- Zero rate on supplies of locally manufactured plants and machinery
to the manufacturer is proposed.
- Exemption on import of goods for re export is proposed.
13. INPUT TAX ON SUPPLY TO UN REGISTERED
PERSONS
Input tax will be disallowed for all registered persons if supplies are
made to unregistered person.

14. RETAIL OUTLET

It is proposed to reduce rates for organized retail sector which are
integrated online with FBR through point of Sale System.

15. NINTH SCHEDULE

Ninth Schedule is proposed to be amended in accordance with
Mobile Manufacturing Policy.
 FEDERAL EXCISE ACT, 2005
1. INPUT ON WASTAGE OF MATERIAL SECTION 6
Now FBR is empowered to impose restrictions on wastage of
material.

2. APPEAL TO APPELLATE TRIBUNAL

This is proposed to be changed as per income tax Ordinance, 2001.

3. AUDIT PARAMETERS
Audit parameters are proposed to remain confidential.

4. INCREASE IN FED
FED is increased on Cigars, Cigarettes, E-Liquids of Electronic
Cigarettes and caffeinated energy drinks.

5. REAL TIME ACCESS TO DATA BASE OF CERTAIN

OREANIEATIONS
A framework is proposed for broading of tax base.

6. AUDIT
Condition that no audit will be carried out in three years once audit
is done proposed to be done away.