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A.F. Ferguson & Co.

A member firm of the Pwc network

Strictly for circulation to clients


and staff of AFF & Co. - PwC

A.F.FERGUSON & CO.

TAX MEMORANDUM
FINANCE BILL 2010

This memorandum summarises the important changes proposed in the Finance Bill 2010
relating to Income Tax, Sales Tax, Federal Excise Duty, Customs Duty and Petroleum
Levy. For considering the precise effect of a particular change, reference should be made
to the specific wordings in the relevant statute.

All changes through the Finance Bill 2010 are effective July 1, 2010. The amendments to
re-enact changes brought through Finance (Amendment) Ordinance, 2009 and
First Schedule to the Federal Excise Act (except otherwise mentioned) are effective from
June 5, 2010. The amendments in the First Schedule to the Customs Act, 1969 are
effective June 6, 2010.

The proposals introduced in the Bill have to be approved by the National Assembly
before they become effective. They should, therefore, not generally be acted upon
without obtaining appropriate advice.

The memorandum can also be accessed on our web site www.pwc.com/pk

June 6, 2010

© 2010 A. F. Ferguson & Co., Chartered Accountants, a member firm of the PricewaterhouseCoopers network. All rights reserved.
PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and
independent legal entity.

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

CONTENTS

Page Number

Income Tax 1

Sales Tax 25

Federal Excise Duty 29

Customs Duty 33

Petroleum Levy 38

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

INCOME TAX

LOAN GIVEN BY EMPLOYER


[Section 13(7)]

The difference between the profit paid, if any, by an employee on a loan from the employer and
profit which would have been paid, if such loan had been made at the benchmark rate for that
year, is considered as “Perquisite” and thereby taxable in the hands of such employee. However,
the aforesaid perquisite will not be subject to tax provided the interest is waived off.

CAPITAL GAINS ON SALE OF SECURITIES


[Sections 37, 37A, 147 & 233A, Division VII of Part I
of the First Schedule and Clause 110 of Part I
of the Second Schedule]

Presently, capital gains arising from sale of shares of a “public company” (as defined in the Income
Tax Ordinance, 2001), vouchers of Pakistan Telecommunication Corporation, Modaraba Certificates
or any instrument of redeemable capital as defined in the Companies Ordinance, 1984 listed on
any stock exchange in Pakistan are exempt from tax.

The capital gains from the aforesaid securities including unlisted instruments of redeemable capital
held for a period of more than twelve months will continue to be exempt whereas those held for a
period less than twelve months by persons, other than a banking company, are proposed to be
taxed at progressive tax rates as follows:

S. No. Holding period Tax year * Rate

1. Where holding period of the 2010 10.00%


security is less than six months 2011 10.00%
2012 12.50%
2013 15.00%
2014 17.50%

2. Where holding period of the 2010 7.50%


security is more than six months 2011 8.00%
but less than twelve months 2012 8.50%
2013 9.00%
2014 9.50%
2015 10.00%

* It appears tax years referred to in the above table require reconsideration.

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A.F. Ferguson & Co.
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It is proposed that advance tax on capital gains from sale of all such securities be payable quarterly
as follows:
S. No. Holding period Rate

1. Where holding period of the security is less 2.0%


than six months

2. Where holding period of the security is more 1.5%


than six months but less than twelve months

Such income will be taxed under the above head as a separate block of income.

The tax collected by a Stock Exchange registered in Pakistan from its members, in the following
cases was minimum tax:

(a) on purchase of shares in lieu of tax on the commission earned by such Members;
(b) on sale of shares in lieu of tax on the commission earned by such Members; and
(c) in respect of trading of shares by the Members.

This tax is now proposed to be made adjustable advance tax.

TAX CREDIT FOR INVESTMENT


[Section 65B]

A tax credit at the rate of 10 per cent of “tax payable” is being re-introduced for companies
investing in the purchase of plant and machinery for the purpose of Balancing, Modernization and
Replacement in an industrial undertaking set up in Pakistan by such companies. Under the
proposed amendment, tax credit is admissible on the aforesaid plant and machinery purchased and
installed between July 1, 2010 to June 30, 2015 will be allowed against the tax payable for the
year in which the investment is made.

Any tax credit allowed erroneously will be subject to recoupment.

TAX CREDIT FOR ENLISTMENT


[Section 65C]

A one time tax credit, equal to 5 per cent of tax payable, is being introduced for companies opting
to get listed on any registered stock exchange in Pakistan.

UNEXPLAINED INCOME OR ASSETS


[Section 111(2) & (4)]

Presently, unexplained assets or expenditure etc. (other than foreign exchange remitted from
outside Pakistan through normal banking channel and encashed in Rupees by a Scheduled Bank)
are treated as ‘Income from other sources’ for the year immediately preceding the financial year in
which it is discovered by the Commissioner.

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

Such unexplained items would now be treated as income for the year to which it relates. Although
the provision placing a restriction on the tax authorities to invoke this section beyond the preceding
five tax years is being proposed to be deleted, the provision of section 114 shall continue to restrict
tax authorities from proceeding beyond five years.

MINIMUM TAX
[Section 113(1)(2)]

Presently, minimum tax is payable by resident companies only.

The minimum tax rate is being increased from 0.5 per cent to 1 per cent of the turnover.

The scope of the section is now being extended to Individuals having turnover of Rs 50 million or
above in the tax year 2009 or in any subsequent tax year and to Association of Persons having
turnover of Rs 50 million or above in the tax year 2007 or in any subsequent tax year.

The aforesaid individuals and association of persons would remain liable to minimum tax with
effect from Tax Year 2010 even if their actual turnover for the year subsequent to tax years 2009
and 2007 respectively is below Rs 50 million.

WEALTH STATEMENT
[Sections 115(4B), 116(2A) & (4)]

Persons (other than a company) filing the statement of final taxation, falling under Final Tax
Retime (FTR) and having paid tax amounting to Rs 35,000 or more for the tax year will now be
required to file a wealth statement alongwith a reconciliation of wealth statement, as against the
previous threshold of Rs 20,000.

A new sub-section (2A) has been introduced which provides that where a person who files a return
in response to a provisional assessment under section 122C, shall be required to furnish a wealth
statement for that year alongwith that return, accompanied by a wealth reconciliation statement
and an explanation of sources of acquisition of assets specified therein.

METHOD OF FURNISHING RETURN


[Section 118(3)]

A return of income of any person (other than a company), an annual statement of deduction of
income tax from salary filed by the employer of an individual or a statement required under
sub-section (4) of section 115 shall be furnished as per the following schedule, namely:

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

S. No. Situation Due date

(a) In the case of an annual statement of On or before the 31st day of August
deduction of income tax from salary, next following the end of the tax year
filed by the employer of an individual, to which these relate.
return of income through e-portal in the
case of a salaried person or a statement
required under sub-section (4) of
section 115.

(b) In the case of a return of income for On or before the 30th day of September
any person (other than a company), as next following the end of the tax year
described under clause (a). to which the return relates.

Previously, a return of income for any person (other than a company), an employer certificate of
an individual or a statement required under sub-section (4) of section 115 was to be furnished on
or before the 30th day of September next following the end of the tax year to which the return,
certificate or statement relates.

AMENDMENT OF ASSESSMENT
[Section 122(4)]

Two amendments are being introduced with retrospective effect:

(i) An assessment order that has been amended under section 122(5A) for
being erroneous in so far it is prejudicial to the interest of revenue, can
be further amended, as many times as may be necessary within the
prescribed time limit. This amendment is being proposed to have effect
from July 4, 2003.

(ii) Where an appeal has been filed or decided against the Commissioner, he
will be deemed to have and always had powers to amend an assessment
order under sub-section (5A) on any point which was not subject matter
of appeal. This amendment is aimed at nullifying the decision of the
courts where it was held that once an amendment is made under
section 122(5A) and an appeal was filed, no further amendment could
be made.

PROVISIONAL ASSESSMENT
[Sections 121, 122C & 137(2)]

The Finance (Amendment) Ordinance, 2009 made certain changes which have now been ratified.
The amendment was where in response to a notice under sections 114(3) or 114(4) a person failed
to furnish a return of income for any tax year, the Commissioner may, based on any available
information or material and to the best of his judgement, make a provisional assessment of the

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

taxable income or income of the person and issue a provisional assessment order specifying the
taxable income or income assessed and the tax due thereon. Tax payable as a result of provisional
assessment shall be payable after a period of sixty days from the date of the service of the notice.

Provisions relating to provisional assessment shall not be applicable if a return of income is filed
within the said sixty days.

ADVANCE TAX
[Section 147(4B)]

The basis for payment of quarterly advance tax is being modified as under:

(i) An individual would pay advance tax where his latest assessed income is
Rs 500,000 or more (presently the threshold is Rs 200,000 or more);

(ii) An Association of Persons will henceforth pay advance tax as per the principles
and procedures applicable to companies; and

(iii) The dates for payments of advance tax by Association of Persons and Companies
are proposed as follows:

Quarter Payment date

September September 25
December December 25
March March 25
June June 15

PROFIT ON DEBT
[Section 151(4)]

The tax deducted from profit on debt on debt instruments, Government securities including
Treasury Bills and Pakistan Investment Bonds, shall be final tax. The salient features issued by FBR
provide that this proposal is inter alia to provide relief to non-resident taxpayers; however, the
existing provisions of section 151 are not applicable to non-residents. This aspect needs to be
examined.

PAYMENTS FOR GOODS AND SERVICES


[Section 153(9)]

An Individual having Turnover of Rs 50 million or more in tax year 2009 or in any subsequent tax
year is now also a ‘prescribed person’ required to withhold tax under section 153.

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

INCOME FROM PROPERTY


[Sections 15, 155 & 169]

It appears that income from property has been excluded from the FTR. However, the rate of tax
and withholding tax continue to remain the same.

Accordingly, where the entire income derived by a person represents income from property and
payments on account thereof have been subjected to tax withholding under section 155, such
person shall file statement under section 115 instead of return of income under section 114.

STATEMENTS
[Section 165(1)]

Every person collecting or deducting tax is now required to file quarterly statements instead of
monthly / annual statements. Such quarterly statements are also to be filed where no withholding
tax is collected or deducted during the period.

The quarterly statements are to be filed by the following dates:

Quarter Filing date

September October 20
December January 20
March April 20
June July 20

Amendments are also required to be made in the Income Tax Rules.

FINAL TAXATION
[Section 169]

An Explanation has been proposed to clarify the scope of the expression “An assessment shall be
treated to have been made under section 120” to mean:

(a) the Commissioner is taken to have made an assessment of income for that tax
year, and the tax due thereon equal to those respective amounts specified in
the return or statement under section 115(4).

(b) the return or the statement under section 115(4) will be taken for all purposes
of the Ordinance to be an assessment order.

It is understood that the consequential amendments will be made in the Income Tax Rules, 2002
to give full effect to the above amendments.

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

RECORDS
[Section 174]

The Finance (amendment) Ordinance, 2009 made certain amendments in section 174, which are
now ratified. Under the amended provisions, the accounts and documents required to be
maintained under this section are required to be maintained for six years after the end of the tax
year to which these relate. Earlier, the said period was specified as five years.

It has also been provided that where any proceeding is pending before any authority or Court the
taxpayer will have to maintain the record till final decision of the proceedings. It has been
explained that pending proceedings include proceedings for assessment or amendment of
assessment, appeal, revision, reference, petition or prosecution and any proceedings before an
alternative dispute resolution committee.

AUDIT
[Sections 177 & 214C]

Further powers are being given to the FBR for selecting persons or class of persons for audit
through computer ballot, which could be random or parametric as FBR deems appropriate. These
amendments are aimed at countering the effect of recent judgements of the courts whereby
selection of cases on the basis of random ballot conducted by the FBR after October 28, 2009 were
held to be ab-initio void and without sanction of law. This amendment is proposed to be given
retrospective effect.

OFFENCES AND PENALTIES


[Section 182]

As against the present structure, the penalties are proposed to be consolidated (in line with Sales
Tax, Federal Excise and Customs laws) which are as under:

S. No. Offences Penalties Sections of the


Ordinance to which
offence has reference

1. Where any person fails to furnish a 0.1% of the tax payable for 114, 115, 116 and 165
return of income or a statement as each day of default subject to
required under section 115 or a minimum Penalty of
wealth statement or wealth Rs 5,000 and a maximum
reconciliation statement or Penalty of 25% of the tax
statement under section 165 within payable in respect of that tax
the due date. year.

2. Any person who fails to issue cash Rs 5,000 or 3% of the 174 and Chapter VII of the
memo or invoice or receipt when amount of the tax involved, Income Tax Rules
required under this Ordinance or whichever is higher.
the Rules made thereunder.

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3. Any person who is required to Rs 5,000 181


apply for registration under this
Ordinance but fails to make an
application for registration.

4. Any person who fails to notify the Rs 5,000 181


changes of material nature in the
particulars of registration.

5. Any person who fails to deposit the (i) First default - 5% of the 137
amount of tax due or any part amount of the tax in
thereof in the time or manner laid default.
down under this Ordinance or rules
made thereunder. (ii) Second default - An
additional penalty of
25% of the amount of
tax in default.

(iii) Third and subsequent


defaults - An additional
penalty of 50% of the
amount of tax in
default.

6. Any person who repeats erroneous Rs 5,000 or 3% of the 137


calculation in the return for more amount of the tax involved,
than one year whereby amount of whichever is higher.
tax less than the actual tax
payable under this Ordinance is
paid.

7. Any person who fails to maintain Rs 10,000 or 5% of the 174


records required under this amount of tax on income,
Ordinance or the Rules made whichever is higher.
thereunder.

8. Where a taxpayer who, without 177


any reasonable cause, in non
compliance with the provisions of
section 177 fails to produce the
record or documents on receipt of:
– First notice Rs 5,000
– Second notice Rs 10,000
– Third notice Rs 50,000

9. Any person who fails to furnish the Rs 5,000 for first default and 176
information required or to comply Rs 10,000 for each
with any other term of the notice subsequent default.
served under section 176.

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

10. Any person who- Rs 25,000 or 100% of the 114, 115, 116, 174, 176,
- makes a false or misleading amount of tax shortfall, 177 and General
statement to an Inland whichever is higher:
Revenue Authority either in
writing or orally or Provided that in case of an
electronically including a assessment order deemed
statement in an application, under section 120, no penalty
certificate, declaration, shall be imposed to the
notification, return, objection extent of the tax shortfall
or other document including occurring as a result of the
books of accounts made, taxpayer taking a reasonably
prepared, given, filed or arguable position on the
furnished under this application of this Ordinance
Ordinance. to the taxpayer‘s position.
- furnishes or files a false or
misleading information or
document or statement to an
Income Tax Authority either in
writing or orally or
electronically.
- omits from a statement made
or information furnished to an
Income Tax authority any
matter or thing without which
the statement or the
information is false or
misleading in a material
particular.
11. Any person who denies or Rs 25,000 or 100% of the 175 and 177
obstructs the access of the amount of tax involved,
Commissioner or any officer whichever is higher.
authorized by the Commissioner to
the premises, place, accounts,
documents, computers or stocks.
12. Where a person has concealed Rs 25,000 or an amount 20, 111 and General
income or furnished inaccurate equal to the tax which the
particulars of such income, person sought to evade,
including but not limited to the whichever is higher.
suppression of any income or However, no penalty shall be
amount chargeable to tax, the payable on mere
claiming of any deduction for any disallowance of a claim of
expenditure not actually incurred exemption from tax of any
or any act referred to in sub- income or amount declared
section (1) of section 111, in the by a person or mere
course of any proceeding under disallowance of any
this Ordinance before any Income expenditure declared by a
tax authority or the Appellate person to be deductible,
Tribunal. unless it is proved that the
person made the claim
knowing it to be wrong.

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A.F. Ferguson & Co.
A member firm of the Pwc network

10

13. Any person who obstructs any Rs 25,000 209, 210 and General
Income Tax authority in the
performance of his official duties.

14. Any person who contravenes any Rs 5,000 or 3% of the General


of the provision of this Ordinance amount of tax involved,
for which no penalty has whichever is higher.
specifically been provided in this
section.

15. Any person who fails to collect or Rs 25,000 or the 10% of the 148, 149, 150, 151, 152,
deduct tax as required under any amount of tax whichever is 153, 153A, 154, 155, 156,
provision of this Ordinance or fails higher. 156A, 156B, 158, 160,
to pay the tax collected or 231A, 231B, 233, 233A,
deducted as required under 234, 234A, 235, 236 and
section 160. 236A

The penalties specified hereinabove shall be applied in a consistent manner and shall not be
payable, unless an order in writing is passed by the Commissioner, Commissioner (Appeals) or the
Appellate Tribunal after providing an opportunity of being heard. Where an order for imposition of
penalty is passed by the Commissioner (Appeals) or the Appellate Tribunal, a copy of the same will
be served immediately on the Commissioner and thereupon all the provisions of the Ordinance
relating to recovery of penalty shall apply as if the order was made by the Commissioner.

The provisions of section 127 have been consequently amended to remove the reference to
omitted provisions relating to the penalty; whereas any order passed under section 182 with
regard to the offences mentioned in the above table will remain appealable.

The Federal Government has been vested with powers to issue amnesty from payment of default
surcharge and penalties in line with the provisions of Sales Tax law.

SELECTION FOR AUDIT BY THE BOARD


[Section 214C]

The FBR has been empowered to select persons or classes of persons for audit through computer
ballot which may be random or parametric, as the FBR may deem fit. The audit of persons so
selected shall, however, be conducted as per procedures given in section 177. It has also been
clarified that the FBR shall be deemed always to have had the power to select any persons or
classes of persons for audit.

FORMS, NOTICES AND AUTHENTICATION OF DOCUMENTS


[Section 217(3)]

If a notice or other document issued, served or given by the Commissioner under the Ordinance is
computer generated, the same shall be sufficiently authenticated, if it is computer generated and
bears the authentication in the manner prescribed by the FBR.

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

11

COMPUTATION OF LIMITATION PERIOD


[Section 226(b)]

In computing the period of limitation in the case of an assessment or other proceedings under the
Ordinance, the period, if any, for which such proceedings were stayed by any Court, Appellate
Tribunal or any other authority is excluded.

It is now proposed that the period, if any, for which any proceeding for the tax year remained
pending before any Court, Appellate Tribunal or any other authority, shall also be excluded in
computing the period of limitation.

ADVANCE TAX ON BANK TRANSACTIONS


[Section 231AA & Division VIA of Part IV of the First Schedule]

Through Finance Act, 2006, section 231A was inserted, whereby Banking Companies are required
to collect tax at the rate of 0.3 per cent from cash withdrawals exceeding Rs 25,000 in a day.
A new section is proposed to be inserted whereby banking companies will now be required to
collect tax at the rate of 0.3 per cent from withdrawals exceeding Rs 25,000 per day made through
any mode of banking transactions, including Demand Draft, Payment Order, Online Transfer,
Telegraphic Transfer, CDR, STDR, RTC. However, the provisions of this new section shall not apply
to the following:-

(a) the Federal Government or a Provincial Government;


(b) a foreign diplomat or a diplomatic mission in Pakistan; or
(c) a person who produces a certificate from the Commissioner that his income during
the tax year is exempt.

The issue of applicability of this section on withdrawals through cheques needs to be clarified.

TELEPHONE USERS
[Section 236 and Division V of Part IV of the First Schedule]

Through Finance Act, 2009, the provisions of withholding tax on telephone users were extended to
sale of units through CD or whatever form. It is now proposed that the person issuing or selling
units through any electronic medium or whatever form shall collect advance tax from the purchaser
at the time of issuance or sale of units at the rate of 10 per cent.

ADVANCE TAX AT THE TIME OF SALE BY AUCTION


[Section 236A]

Section 236A was introduced by the Finance Act, 2009 requiring that any person making sale by
public auction, of any property or goods confiscated or attached either belonging to or not to the
specified persons, has to collect advance tax from the person to whom such property or goods are
being sold. The provisions were being interpreted as applicable only on sale by public auction of
such property or goods which were confiscated or attached.

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12

The provisions are now expanded to also cover sale by public auction, of any property or goods
irrespective of whether or not the same were earlier confiscated or attached.

ADVANCE TAX ON PURCHASE OF AIR TICKET


[Section 236B & Division IX of Part IV of the First Schedule]

The person preparing a domestic air ticket has now been made responsible to charge and collect
advance tax on the purchase of gross amount of such air ticket in the manner air ticket charges are
charged. The rate of such tax will be 5 per cent of the gross amount of air ticket.

REMOVAL OF DIFFICULTIES
[Section 240(2)]

If any difficulty arises in giving effect to any of the provisions of the Ordinance, the Federal
Government may, by notification in the Official Gazette, make such order, not inconsistent with the
provisions of the Ordinance, as may appear to it to be necessary for the purpose of removing the
difficulty. Earlier, such powers could not have been exercised after June 30, 2004.

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

13

FIRST SCHEDULE

NON-SALARIED INDIVIDUALS
[Part I- Division I- Clause 1]

The minimum threshold of taxable income for non salaried individuals has been increased from
Rs 100,000 to Rs 300,000 per annum.

Consequent to the aforesaid amendment, the revised rates of tax for various slabs of income are
as under:

S. No. Taxable Income Rate


of tax
1. Where the taxable income does not exceed Rs 300,000 0%

2. Where the taxable income exceeds Rs 300,000 but does 7.50%


not exceed Rs 400,000
3. Where the taxable income exceeds Rs 400,000 but does 10.00%
not exceed Rs 500,000
4. Where the taxable income exceeds Rs 500,000 but does 12.50%
not exceed Rs 600,000
5. Where the taxable income exceeds Rs 600,000 but does 15.00%
not exceed Rs 800,000
6. Where the taxable income exceeds Rs 800,000 but does 17.50%
not exceed Rs 1,000,000
7. Where the taxable income exceeds Rs 1,000,000 but does 21.00%
not exceed Rs 1,300,000
8. Where the taxable income exceeds Rs 1,300,000 25.00%

Tax Memorandum 2010


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A member firm of the Pwc network

14

SALARIED INDIVIDUALS
[Part I - Division I - Clause 1A]

The minimum threshold of taxable income for salaried individuals has been increased from
Rs 200,000 to Rs 300,000 per annum.

The number of slabs has been reduced from 20 to 18 and the maximum rate of tax of 20 per cent
is now applicable on salary exceeding Rs 4,550,000 (previously applicable on Rs 8,650,000). The
revised slab rates for salaried individuals are as under:

S. No. Taxable Income Rate


of tax
1. Where the taxable income does not exceed Rs 300,000 0%
2. Where the taxable income exceeds Rs 300,000 but does 0.75%
not exceed Rs 350,000
3. Where the taxable income exceeds Rs 350,000 but does 1.50%
not exceed Rs 400,000
4. Where the taxable income exceeds Rs 400,000 but does 2.50%
not exceed Rs 450,000
5. Where the taxable income exceeds Rs 450,000 but does 3.50%
not exceed Rs 550,000
6. Where the taxable income exceeds Rs 550,000 but does 4.50%
not exceed Rs 650,000
7. Where the taxable income exceeds Rs 650,000 but does 6.00%
not exceed Rs 750,000
8. Where the taxable income exceeds Rs 750,000 but does 7.50%
not exceed Rs 900,000
9. Where the taxable income exceeds Rs 900,000 but does 9.00%
not exceed Rs 1,050,000
10. Where the taxable income exceeds Rs 1,050,000 but does 10.00%
not exceed Rs 1,200,000
11. Where the taxable income exceeds Rs 1,200,000 but does 11.00%
not exceed Rs 1,450,000
12. Where the taxable income exceeds Rs 1,450,000 but does 12.50%
not exceed Rs 1,700,000
13. Where the taxable income exceeds Rs 1,700,000 but does 14.00%
not exceed Rs 1,950,000
14. Where the taxable income exceeds Rs 1,950,000 but does 15.00%
not exceed Rs 2,250,000
15. Where the taxable income exceeds Rs 2,250,000 but does 16.00%
not exceed Rs 2,850,000
16. Where the taxable income exceeds Rs 2,850,000 but does 17.50%
not exceed Rs 3,550,000
17. Where the taxable income exceeds Rs 3,550,000 but does 18.50%
not exceed Rs 4,550,000
18. Where the taxable income exceeds Rs 4,550,000 20.00%

Tax Memorandum 2010


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A member firm of the Pwc network

15

RATE OF TAX FOR ASSOCIATION OF PERSONS


[Division IB of Part I]

The rate of tax imposed on the taxable income of Association of Persons for the tax year 2010 and
onwards shall be 25 per cent. Previously, their income was taxable at the same slab rates as were
applicable to non-salaried individuals.

SMALL COMPANY
[Part I - Division II - Clause (iii)]

The rate of tax for Companies is 35 per cent, whilst the rate for companies qualifying as ‘small
company’ was fixed at 20 per cent through the Finance Act, 2005, which has now been enhanced
to 25 per cent.

ADVANCE TAX ON IMPORTS


[Part II]

The rate of advance tax to be collected by the Collector of Customs under section 148 has been
enhanced from 4 per cent to 5 per cent of the value of imported goods. Earlier, the rate of tax was
enhanced from 2 per cent to 4 per cent through Finance Act, 2009.

PAYMENTS TO NON-RESIDENTS
[Division II of Part III]

The standard rate of tax to be deducted under section 152(2) on payments to non-residents
(subject to treaty provisions) has been reduced from 30 per cent to 20 per cent of the gross
amount paid, except inter alia with regard to profit on debt, royalties, etc.

PRIZES AND WINNINGS


[Division VI of Part III]

The rate of tax to be deducted under section 156 on a cross-word puzzle has been reduced from
20 per cent to 10 per cent of the gross amount paid.

TAX ON MOTOR VEHICLES


[Division III of Part IV]

At present, the rate of collection of tax under section 234 in the case of good transport vehicles is
fixed according to various slabs, ranging from Rs 1,200 to Rs 36,000. The slab rates are now being
replaced by a uniform rate of Re 1 per kilogram of the laden weight.

ELECTRICITY CONSUMPTION
[Division IV of Part IV]

Where the amount of electricity bill exceeds Rs 20,000, the rate of collection of advance tax under
section 235 has been reduced from 10 per cent to 5 per cent.

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16

SECOND SCHEDULE

PART I – EXEMPTIONS FROM TOTAL INCOME

PROFIT ON DEBT TO A NON-RESIDENT PERSON


[Clause 72(iii)]

The exemption has been reinstated with regard to the profit on debt payable to a non-resident
person, being a foreign individual, company, firm or association of persons in respect of a foreign
loan as is utilised for industrial investment in Pakistan provided that the agreement for such loan is
concluded on or after the first day of February, 1991 and is duly registered with the State Bank of
Pakistan.

Earlier, this exemption was withdrawn through Finance Act, 2008.

INCOME OF EDUCATIONAL INSTITUTIONS IN AFFECTED AREAS


[Clause 92A]

Any income of any university or any other educational institution established in the most affected
and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA, for a period of two years
ending on the June 30, 2011 will be exempt.

EXEMPTIONS WITHDRAWN

Following exemptions have been withdrawn:

Clause No. Description

102 Any dividend received by the Investment Corporation of Pakistan from any other
company which has paid or will pay tax in respect of the profits out of which such
dividends are paid.

110A Any gain on transfer of a capital asset of the existing stock exchanges to new
corporatized stock exchange, in the course of corporatization of an existing stock
exchange.

TAXPAYERS IN AFFECTED AREAS


[Clause 126F]

Profits and gains derived by a taxpayer located in the most affected and moderately affected areas
of Khyber Pakhtunkhwa, FATA and PATA for a period of three years starting from the tax
year 2010 will be exempt. The exemption will, however, not be available to the manufacturers and
suppliers of cement, sugar, beverages and cigarettes.

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PART II – REDUCTION IN TAX RATES

WITHHOLDING TAX ON LARGE DISTRIBUTION HOUSES


[Clause 24A]

The rate of tax under section 153(1)(a) from large distribution houses who fulfill all the conditions
for a large import house as laid down in section 148(7)(d) will be reduced to 1 per cent of the
gross amount of payments.

The conditions laid down in section 148(7)(d) are as under.

(a) paid up capital exceeding Rs 250 million;


(b) imports exceeding Rs 500 million in a tax year;
(c) owns total assets exceeding Rs 350 million at the close of the tax year;
(d) single object company;
(e) maintenance of computerised records of imports and sale of goods;
(f) maintenance of system for issuance of 100 per cent cash receipts on sales;
(g) presentation of accounts for audit every year;
(h) registration with sales tax department; and
(i) making sales of industrial raw material to manufacturer registered for sales
tax purposes.

PART III – REDUCTION IN TAX LIABILITY

TAX PAYABLE BY SENIOR CITIZENS


[Clause 1A]

Where the taxable income, in a tax year, of a taxpayer aged 60 years or more on the first day of
tax year does not exceed Rs 750,000, his tax liability on such income is to be reduced by
50 per cent. For eligibility of such reduction, the taxable income will not include income on which
the deduction of tax is final and the income limit is enhanced to Rs one million.

PART IV – EXEMPTION FROM SPECIFIC PROVISIONS

EXEMPTIONS TO BUSINESSES LOCATED IN THE MOST AFFECTED AND MODERATELY


AFFECTED AREAS
[Clause 10A]

Following provisions will not apply to business located in the most affected and moderately
affected areas of Khyber Pakhtoonkhwa, FATA and PATA:-

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Section No. Description

182(1) Imposition of penalty on a person who fails to deposit the amount of tax due or
any part thereof in the time or manner laid down under the Ordinance or rules
made thereunder.

205(1) Default surcharge on failure of a person to pay-

(a) any tax, excluding the advance tax under section 147 and default
surcharge under section 205;
(b) any penalty; or
(c) any amount referred to in section 140 or 141.

235 Advance tax on electricity not applicable to commercial and industrial


consumers of electricity located in the most affected and moderately affected
areas of Khyber Pakhtoonkhwa, FATA and PATA.

154 Withholding tax on exports shall not be applicable to the export of goods
originating from the most affected and moderately affected areas of Khyber
Pakhtoonkhwa, FATA and PATA, till the June 30, 2011. This exemption is,
however, restricted to the exporters located in the above areas.

148 Withholding tax on imports will not be applicable on the import of plant and
machinery for establishment of businesses in the most affected and moderately
affected areas of Khyber Pakhtoonkhwa, FATA and PATA till the June 30, 2011.
The said concession is, however, only available to the manufacturers and
suppliers of cement, sugar, beverages and cigarettes.

DEFINITION OF MOST AFFECTED AND MODERATELY AFFECTED AREAS

For the purposes of Second Schedule:

(a) most affected areas means district Peshawar, Malakand Agency and districts of Swat,
Buner, Shangla, Upper Dir, Lower Dir, Hangu, Bannu, Tank, Kohat and Chitral; and

(b) moderately affected areas means districts of Charsadda, Nowshera, D I Khan,


Batagram, Lakki Marwat, Swabi and Mardan.

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INDUSTRIAL IMPORTERS OF EDIBLE OIL


[Clause 52]

Consequent to the cancellation of SRO 593(I)/91 dated June 30, 1991, this clause has become
redundant and, therefore, deleted.

TAX PAYABLE BY FOREIGN EXPERTS


[Clause 73]

To mitigate part of the cost of obtaining foreign support to fill productivity gap, income tax payable
by a foreign expert shall be exempted provided that such expert is acquired with the prior approval
of the Ministry of Textile Industry.

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THIRD SCHEDULE

DEPRECIATION

DEPRECIATION ON RAMP
[Part I – Clause V]

A ramp built to provide access to persons with disabilities not exceeding Rs 250,000 each will be
eligible for 100 per cent depreciation allowance.

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FIFTH SCHEDULE

PART I

RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS FROM THE
EXPLORATION AND PRODUCTION OF PETROLEUM

DECOMMISSIONING COST
[Rule 4A]

With effect from the Tax Year 2010, “Decommissioning Cost” as certified by a Chartered
Accountant or a Cost Accountant, in the manner prescribed, shall be allowed over a period of ten
years or the life of the development and production or mining lease whichever is less, starting from
the year of commencement of commercial production or commenced prior to the July 1, 2010,
deduction for decommissioning cost as referred earlier shall be allowed from the Tax Year 2010
over the period of ten years or the remaining life of the development and production of mining
lease, whichever is less.

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SEVENTH SCHEDULE

BANKING COMPANIES

PROVISIONS FOR CLASSIFIED ADVANCES AND OFF BALANCE SHEET ITEMS


[Rule 1(c)]

The Seventh Schedule was introduced by the Finance Act, 2007 for the taxation of Banking
Companies, which was made applicable from tax year 2009. The legislative history with regard to
admissibility of provisions for classified advances and off balance sheet items is as under.

(a) Originally, it was proposed that the provisions for classified advances and off balance
sheet items (excluding provisions for substandard advances) would be allowed as claimed
in the accounts of the Banking Companies, provided a certificate from the external
auditors is furnished by the Banking Company to the effect that such provisions were in
line with the requirements of the Prudential Regulations.

(b) Through Finance Act, 2008, the aforesaid provisions were replaced and the Banking
Companies were once again allowed to claim the provisions for classified advances and off
balance sheet items in accordance with sections 29 and 29A. Whilst section 29 provided
that the amount of the deduction allowed to a person for a tax year was not to exceed
the amount of the debt written off in the accounts of the person for the tax year,
section 29A allowed a deduction not exceeding 3 per cent of the income of the said year,
arising out of consumer loans for creation of a reserve to offset bad debts arising out of
such loans.

(c) The Finance Act, 2009 again amended the law by providing that the aforesaid provisions
would be allowed upto a maximum of 1 per cent of all classified advances, subject to
submission of an auditors’ certificate to the effect that such provisions were in line with
the Prudential Regulations. Also, the provision on account of substandard advances was
not admissible.

It is now proposed that Banking Company shall be allowed provisions for advances and off balance
sheet items in the following manner, provided a certificate from the external auditor is furnished by
the Banking Company to the effect that such provisions are based upon and are in line with the
Prudential Regulations:-

(1) Provisions for Consumer and Small & Medium Enterprises’ (SME) advances

The provisions for advances and off-balance sheet items will be allowed at 5 per cent of total
advances for Consumers and SMEs (as defined under the State Bank Prudential Regulations). The
SME is defined in the Prudential Regulations as an entity, ideally not a public limited company,
which does not employ more than 250 persons (if it is manufacturing / service concern) and
50 persons (if it is trading concern) and also fulfils the any of the following criteria:

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i) A trading or service concern with total assets at cost excluding land and building upto
Rs 50 million.

ii) A manufacturing concern with total assts at cost excluding land and building upto
Rs 100 million.

iii) Any concern (trading, service or manufacturing) with net sales not exceeding
Rs 300 million as per latest financial statements.

Even an individual can be categorised as SME, if he or she meets the above criteria.

(2) Provisions for advances other than consumer and SMEs

Provisions for advances and off balance sheet items other than those falling within the above
definition of SME will continue to be allowed upto a maximum of 1 per cent whereas the
provisioning in excess of 1 per cent would be allowed to be carried over to the succeeding year. If,
however, the actual provision is less than 1 per cent of the advances, the actual provisioning for
the year will be allowed.

(3) Treatment of substandard debts

The amount of bad debts classified as substandard under the Prudential Regulations will not be
allowed as expense, however, if the same is reclassified by the Banking Company under the
Prudential Regulations as “doubtful” or “loss”, the same will be allowed in the above manner.

TRANSITIONAL PROVISIONS
[Rule 8A]

As earlier announced by the FBR in December 2009, following transitional provisions have been
introduced:-

(1) Prior years’ provisions

Amounts provided for in the tax year 2008 and prior to the said tax year for or against
irrecoverable or doubtful advances, which were neither claimed nor allowed as a tax deductible in
any tax year, shall be allowed in the tax year in which such advances are actually written off
against such provisions, in accordance with the provisions of sections 29 and 29A.

The aforesaid provision is not happily worded and provides room for misinterpretation, already
faced by certain banks in their recent tax assessments when the tax authorities have tried to
interpret the terms “neither claimed nor allowed” in a very restrictive and impracticable manner.
Also, the reference to section 29A is misplaced as the same is no more applicable to
Banking Companies.

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(2) Write back of past provisions

Amounts provided for in the tax year 2008 and prior to the said tax year for or against
irrecoverable or doubtful advances, which were neither claimed nor allowed as a tax deductible in
any tax year, which are written back in the tax year 2009 and thereafter in any tax year and
credited to the Profit and Loss Account, shall be excluded in computing the total income of that tax
year.

(3) Finance lease of prior years

The provisions of the Seventh Schedule have made inapplicable to any asset given or acquired on
finance lease by a banking company upto the tax year 2008, and recognition of income and
deductions in respect of such asset will continue to be dealt in accordance with the provisions of
the Ordinance, as if the Seventh Schedule has not come into force. The unabsorbed
tax depreciation in respect of such assets will be allowed to be set off against the lease
rental’s income only.

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SALES TAX

Certain amendments were introduced through Finance (Amendment) Ordinance, 2009 on


October 28, 2009 and re-promulgated on February 6, 2010. The Ordinance was not placed before
the Parliament for approval.

Majority of the amendments proposed in Sales Tax Act, 1990 were part of the aforesaid Ordinance,
which were introduced to substitute “Sales Tax Department” with “Inland Revenue” in the statue.
All such amendments are effective from June 5, 2010.

RATE OF TAX ENHANCED


[Sections 3(1)]
[SRO 395 to 398(I)/2010 all dated June 5, 2010]

Effective July 1, 2010

General rate of sales tax has been enhanced from 16 to 17 per cent.

Sales tax on import of Soyabean Seed by solvent extraction industries has been increased from
6 to 7 per cent. Refunds of input tax continue to be inadmissible.

Sales tax on import of Rape Seed, Sunflower Seed and Canola Seed by solvent extraction industries
has been increased from 14 to 15 per cent.
Sales tax on goods specified in ‘Table I’ of SRO 644(I)/2007 dated June 27, 2007 has been
enhanced from 21 to 22 per cent and on Flat-rolled products of iron or non-ally steel
from 18.5 to 19.5 per cent.

Rate of sales tax has been enhanced from 25 to 26 per cent on natural gas supplied to CNG
stations by the gas transmission and distribution companies.

RECORD AND DOCUMENTS


[Section 24]

Effective June 5, 2010

Records and documents are now required to be retained for six years or till the final decision in any
proceedings including the proceedings for assessment, appeal, revision, reference, petition and
Alternative Dispute Resolution Committee, instead of five years.

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ACCESS TO RECORD, DOCUMENTS


[Section 25]

Effective June 5, 2010

An Officer of Inland Revenue shall now be required to obtain authorisation from the Commissioner
before commencement of sales tax audit. Previously, no such authorisation was required.

Commissioner can also authorise an officer not below the rank of Assistant Commissioner to
conduct inquiry or investigation.

TRANSACTIONS BETWEEN ASSOCIATES


[Section 25AA]

Effective June 5, 2010

The Commissioner and an Officer of Inland Revenue have been empowered in respect of any
transaction between associates, to determine the fair market price of taxable supplies between
such associates.

Existing section 2(46)(a) proviso (ii) read with section 2(19) provide similar provisions.

DELEGATION OF POWERS / SPECIAL AUDIT / ACCESS TO BUSINESS PREMISES


[Sections 32(1) & (2), 32A & 38]

Effective June 5, 2010 except section 38 which is effective from July 1, 2010

In addition to the Board, the Chief Commissioner, with the approval of the Board, can also
delegate powers between different offices sub-ordinate to him, appoint a Chartered Accountant or
a Cost and Management Accountant for conducting Special Audit and authorise any officer to have
free access to business, manufacturing premises or registered office or any other place where any
stocks, business records are kept or maintained.

POWER OF ADJUDICATION / APPEALS


[Sections 45, 45B & 46]

Effective June 5, 2010

Powers of adjudication to different officers of sales tax have been deleted.

Any person aggrieved with decision or order passed under sections 10, 11, 25, 36 or 66 may within
thirty days file an appeal before the Commissioner Inland Revenue (Appeals).

All appeals pending before Customs, Excise and Sales Tax Tribunal stand transferred to Appellate
Tribunal Inland Revenue.

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SERVICE OF ORDER, DECISION


[Section 56]

Effective June 5, 2010

The order, decision, etc can also be served by the Tax Department personally or in a manner
prescribed for service under the Code of Civil Procedure, 1908.

SELECTION FOR AUDIT BY THE BOARD


[Section 72B]

Effective July 1, 2010

The Board shall be deemed always to have had the powers to select persons or classes of persons
for audit of tax affairs through computer ballot which may be random or parametric as the Board
may deem fit.

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VALUE ADDED TAX

A draft of Value Added Tax Act has been placed before the Parliament to replace the Sales Tax
Act, 1990. Provinces are also expected to place before their assemblies similar Acts. These laws are
expected to provide an integrated consumption tax on value added mode for all goods and
services, except those exempted or zero rated. The procedure for collection of tax on services
(being a Provincial subject under the Constitution) is yet to be finalised between the Federal and
Provincial Governments. Federal Minister for Finance has indicated in his budget speech that these
laws would be in place from October 1, 2010.

Salient features of the proposed law are as follows:

 Uniform tax rate of 15 per cent.


 Annual exemption threshold enhanced from Rs 5 million to Rs 7.5 million.
 Federal VAT covers goods and Federal list services. Other services are covered
under Provincial VAT.
 Local supply, import of goods and services to attract VAT.
 Exemption to food, education and health.
 Integrated (unified) tax regime with mutual cross-crediting (national system).
 Zero-rating to exports only in place of present system of zero rating for export
oriented sector.
 Abolition of Federal Excise Duty on services which are to be part of VAT.
 Tax adjustment for direct and indirect constituents.
 Credit for capital goods, fixed assets, business logistics except entertainment.
 Import of services taxed on ‘reverse charge’ basis.
 Special procedures no more available.
 Principles of self-assessment and voluntary compliance.
 Transparent / effective audit system with enhanced use of modern information
technology.
 VAT also proposed to be implemented in FATA / PATA, Gilgit-Baltistan and Azad
Jammu & Kashmir.

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FEDERAL EXCISE DUTY

Certain amendments were introduced through Finance (Amendment) Ordinance, 2009 on


October 28, 2009 and re-promulgated on February 6, 2010. The Ordinance was not placed before
the Parliament for approval.

Majority of the amendments proposed in Federal Excise Act, 2005 were part of the aforesaid
Ordinance, which were introduced to substitute “Federal Excise Department” with “Inland
Revenue” in the statue. All amendments proposed in the Federal Excise Act, 2005 are effective
from June 5, 2010 except for section 34A which is effective from July 1, 2010.

RECORDS
[Section 17]

A registered person is now required to maintain and keep the records of dutiable goods purchased,
manufactured and cleared (including those cleared without duty) for a period of six years or till
such further period the decision in any proceedings including proceedings for assessment, appeal,
revision, reference, petition and any proceedings before an alternative Dispute Resolution
Committee is finalized. Previously such period for maintaining the records was five years.

POWER OF ADJUDICATION
[Section 31]

Provisions of law with respect to the powers of adjudication to different officers of Federal
Excise have been deleted.

The above amendment was earlier made through the Finance (Amendment) Ordinance, 2009
dated October 28, 2009.

REFERENCE TO HIGH COURT


[Section 34A]

The provisions relating to filing of reference to the High Court in respect of any question of law
arising out of the order of the Appellate Tribunal have been reinstated. These provisions were
previously omitted through the Finance Act, 2009.

The provisions reinstated are in line with those stated in the Income Tax and Sales Tax law.

REFERENCE TO AUTHORITIES
[Section 42A]

A new section 42A has been inserted whereby the officer references have been changed as follows
for the purposes of the Act, Rules, Notifications, General orders, etc in order to harmonise all laws
falling within the ambit of the Inland Revenue.

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Previous Proposed

Collector Commissioner Inland Revenue


Additional Collector Additional Commissioner Inland Revenue
Deputy Collector Deputy Commissioner Inland Revenue
Assistant Collector Assistant Commissioner Inland Revenue
Superintendent Superintendent Inland Revenue
Officer of Federal Excise Officer of Inland Revenue

SELECTION FOR AUDIT BY THE BOARD


[Section 42B]

A new section 42B has been inserted, whereby the FBR can select persons or classes of persons for
audit of tax affairs through computer ballot which may be random or parametric as the FBR may
deem fit. It is further declared that the FBR shall be deemed always to have had the power for
such section.

DEPARTMENTAL AUDIT
[Section 46]

The Commissioner has now been empowered to authorise an officer of Inland Revenue to conduct
audit of the records and documents of any registered person. Previously, Commissioner was only
empowered to order conduct of the audit of the registered person where there is information or
evidence available that such person is involved in fraud or evasion of duty.

After completion of the audit under this section or any other provision of law, the officer of Inland
Revenue who conducted the audit may, if considered necessary, after obtaining the registered
person‘s explanation on all the issues raised in the audit shall pass an order under section 14,
imposing the amount of duty as per law, charging default surcharge, imposing penalty and
recovery of any amount erroneously refunded.

SERVICE OF NOTICE, ORDER OR REQUISITION


[Section 47]

The notice, order, decision, etc can also be served by the Tax Department personally or in a
manner prescribed for service under the Code of Civil Procedure, 1908.

The above amendment was earlier made through the Finance (Amendment) Ordinance, 2009
dated October 28, 2009.

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FIRST SCHEDULE

DUTY ON GOODS

The duty on the following goods has been revised:

Description of goods Revised rates

a) Cigarettes
[effective June 5, 2010]

Cigars, cheroots, cigarillos and cigarettes, of tobacco or 65 per cent of the retail price
of tobacco substitutes

Locally produced cigarettes if their retail price exceeds 65 per cent of the retail price
Rs 19.50 per ten cigarettes

Locally produced cigarettes if their retail price exceeds Rs 5.25 per ten cigarettes plus
Rs 10 per ten cigarettes but does not exceed Rs 19.50 70 per cent per incremental rupee
per ten cigarettes or part thereof

Locally produced cigarettes if their retail price does not Rs 5.25 per ten cigarettes
exceed Rs 10 per ten cigarettes

Cigarettes manufactured by a manufacturer who remains 65 per cent of the retail price
engaged on and after 10th June, 1994, either directly or
through any other arrangement, if the manufacture of
any brand of cigarette in non-tariff areas

Note:
For the purposes of levy, collection and payment of duty
as stated above, cigarette manufacturers are restricted
from reducing price from the level adopted on the day of
announcement of the Budget

(b) Natural gas in gaseous state Rs 10 per Million British Thermal


[effective July 1, 2010] Unit (MMBTu) [previously Rs 5.09
per MMBTu]

(c) Other petroleum Gases in gaseous state Rs 10 per Million British Thermal
[effective July 1, 2010] Unit (MMBTu) [previously Rs 5.09
per MMBTu)

Duty on the following goods has been imposed with effect from June 5, 2010:

Description of goods Heading / sub- Rate of duty


heading No.

Filter rods for cigarettes 5502.0090 Re. 1 per filter rod


Air Conditioners Respective Headings 10 per cent ad valorem
Deep Freezers Respective Headings 10 per cent ad valorem

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NOTIFICATION

ADJUSTMENT OF DUTY ALLOWED ON BEVERAGE CONCENTRATE


[SRO 399(I)/2010]
(Effective from July 1, 2010)

The full adjustment of duty paid on following raw material / semi finished goods has been allowed
if used in the manufacture and production of aerated waters by the beverage industry. Previously
extent of such adjustment was restricted to 25 per cent through a notification.

Raw material / semi finished goods Heading No.

Concentrate in all forms including syrup form 2106.9010

Flavours and concentrates 3302.1010

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CUSTOMS DUTY

VALUE OF EXPORTED GOODS


[Section 25(15)]

The customs value of exported goods will now include regulatory duty if any chargeable under
the Act.

POWER TO DETERMINE THE CUSTOMS VALUE


[Section 25A]

The customs value of any goods or category of goods imported into or exported out of Pakistan,
determined by the Collector of Customs, the Director of Customs Valuation or the Director-General
of Customs Valuation as the case may be, shall be applicable until and unless revised or rescinded
by the competent authority.

REVIEW OF VALUE DETERMINED


[Sections 25D & 194A]

Where the customs value has been determined by the Collector of Customs or Director of Valuation
under section 25A a review application shall now lie within a period of thirty days before the
Director General of Valuation. Presently, no time limit was prescribed in this regard.

An appeal can now be filed before the Appellate Tribunal against a review order passed by the
Director General of Valuation under section 25D. The appeal shall be heard by a Special Bench
consisting of one technical member and one judicial member.

MUTILATION OR SCRAPPING OF CERTAIN GOODS


[Section 27A]

The mutilation or scrapping of goods has now been restricted to goods notified by the Board.

FALSE STATEMENTS, ERRORS AND FISCAL FRAUD


[Sections 32 & 32A]

Amendments have been made in the above punitive provisions to also include situations where
payments of revenue through self-assessment are misdeclared.

DECLARATION AND ASSESSMENT FOR HOME CONSUMPTION OR WAREHOUSING


[Section 79]

The facility of filing of goods declaration after examination of goods by the importer has been
restricted to the import of only ‘used goods’ for which permission of an officer not below the rank
of an Additional Collector has to be obtained. Previously, such declaration could be filed for ‘any
goods’ imported for home consumption or warehousing.

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PROVISIONAL DETERMINATION OF LIABILITY


[Section 81]

An officer of Customs may determine the duty and other charges payable provisionally and clear
the goods where it is not possible to satisfy himself of the correctness of the goods declaration.
The correct amount of duty and other charges payable on goods now needs to be finalised within
three months of the date of provisional determination instead of the previous requirement of
six months. The Collector of Customs or the Director of Valuation has powers to extend the period
for final determination by not more than ninety days.

It has now been provided that any period during which the proceedings are adjourned on account
of a stay order or for want of clarification from the Board or the time taken through adjournment
by the importer, shall be excluded for the computation of aforesaid period.

The appropriate officer is now required to issue an order for adjustment, refund or recovery of the
amount secured, as the case may be, on final determination of duty and other charges.

PENALTIES
[Section 156]

The general penalty for contravention of the provisions of the Act has been increased from
Rs 25,000 to Rs 50,000.

Previously, the contravention of any rule or condition relating to transit trade was subject to a
penalty not exceeding Rs 25,000. Such contravention is now subject to a penalty of ‘not less than
twice the value of the goods’. The related goods continue to be liable to confiscation.

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SCHEDULE

EXEMPTION / REDUCTION IN DUTY RATES

Duty in respect of following items has been reduced / exempted:

- Crude palm oil (from Rs 9,000/MT to Rs 8,000/MT)

- Other than pure bred breeding animals (from 5 to 0%)

- Photographic plates and films for X-ray (from 5 to 0%)

- Silk yarn spun from other than silk waste (from 5 to 0%)

- LPG buses (exempted)

TARIFF RATIONALIZATION

Tariff rationalisation has been made in case of following items:

- Glucose and Glucose syrup

- Industrial colours

- Shoe adhesives and others

Improvement has been made in Tariff based system for following:

- Creation of separate PCT code for auto parts scrap in pressed bundles.

- Correction of PCT code for asphalt paver.

- Correction in description of PCT codes for certain materials used in vehicles.

- Rationalization of PCT codes for polyester film and others.

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NOTIFICATIONS

CONCESSIONARY REGIME FOR PHARMACEUTICAL INDUSTRY


[SRO 391(I)/2010 & SRO 567(I)/2006]

The rate of duty for the following raw materials [(a) to (d)] and drug (e) has been reduced from
10 to 5 per cent:

(a) Protacine (Proglumet, Dimaleate);


(b) Celecoxib;
(c) Sodium Casinate;
(d) Activated Glucuronate; and
(e) Tasigna (Nilotinib)

The above concessionary duty rates have been prescribed for pharmaceutical raw materials,
chemicals and finished products approved by the Ministry of Health. Pharmaceutical raw materials,
chemicals and packing materials are only eligible for concessions, if imported for in-house use in
the manufacture of specified pharmaceutical substances.

CHANGES IN THE CONCESSIONARY RATES OF DUTY


[SRO 392(I)/2010 & SRO 565(I)/2006]

SRO 567(I)/2006 has been amended through which following changes have been made:

Increase in Concessionary Duty

- Concessionary duty on import of electro galvanized steel sheets in coils to be used in


the assembling / manufacturing of a washing machine has been increased
from 0 to 5 per cent.

- Concessionary duty on import of electro galvanized steel sheets in coils, copper tubes
in coils and aluminium tube in coils to be used in the assembling / manufacturing of
Evaporators and Condensers for air-conditioners, deep freezers and refrigerators, and
Industrial Evaporators & Condensers for Chilled Water Coils, Steam Heating Coils,
Shell & Tube Type, has been increased from 0 to 5 per cent.

Decrease in Concessionary Duty

- The concessionary duty on Coconut Acid Oil used in the manufacturing of Laundry
Soap has been decreased from 15 to 10 per cent.

- Concessionary duty on import of raw material / components for manufacturing /


assembling of Energy Saver Lamps has been reduced to 0 per cent.

Tax Memorandum 2010


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A member firm of the Pwc network

37

- Concessionary duty on import of Tin Mill Plate (of secondary quality) for the
manufacture of Electrolytic Tin Plate has been reduced from 20 to 15 per cent.

- Certain new categories have been inserted in the list of SRO 565(I)/2006, thereby
reducing the rate of duty applicable on raw materials used by the following
industries:

 Glass manufacturing (from 15 to 10%)


 Detergent (from 15 to 10%)
 Leather and tanning (from 20 to 15%)

- Concessionary duty is applicable on import of raw materials, sub-components,


components required for the manufacturing / assembling of LED Panel sets.

CONCESSIONARY DUTY ON IMPORT OF CRUDE PALM OIL


[SRO 393(I)/2010 & SRO 1261(I)/2007]

Duty on import of Crude Palm Oil from Malaysia has been reduced from Rs 7,650/MT to
Rs 6,800/MT, which will be applicable till January 1, 2014.

REDUCTION IN DUTY ON IMPORT OF PLANT AND MACHIERY


[SRO 394(I)/2010 & SRO 575(I)/2006]

Duty on import of following Plant, Machinery and Equipment has been reduced:

- Equipment dedicated for use of renewable energy


- Road sweeping lorries
- LPG Dispensers
- Rice processing machinery
- Milk Filter

In addition, import of the above stated items would be exempted from the whole of the sales tax
leviable under the Sales Tax Act, 1990 with the condition that such imported goods are not locally
manufactured.

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

38

PETROLEUM LEVY

Amendments are proposed to substitute the nomenclature of ‘surcharge’ or ‘carbon surcharge’ with
‘petroleum levy’.

PROCEDURE FOR COLLECTION AND REFUND OF PETROLEUM LEVY


[Section 3A]

Nomenclature of ‘surcharge’ is substituted with ‘petroleum levy’.

Furthermore, amendments are also proposed to substitute the reference to repealed ‘Central Excise
Act, 1944’ to ‘Federal Excise Act, 2005’.

DEDUCTION OF PETROLEUM LEVY FOR INCOME TAX PURPOSE


[Section 5]

Nomenclature of ‘surcharge’ is substituted with ‘petroleum levy’.

Reference to ‘section 23 of the Income Tax Ordinance, 1979’ is proposed to be substitute with the
‘Income Tax Ordinance, 2001’.

DELEGATION OF POWERS
[Section 8]

Ministry of Petroleum and Nature Resources, Government of Pakistan (GOP), in pursuance of the
Government’s policy of deregulation, had authorised Oil Companies Advisory Committee (OCAC) to
review, fix and announce the prices of petroleum products on fortnightly basis in accordance with
the approved pricing formula. The function of price fixation was later on transferred to Oil and Gas
Regulatory Authority (OGRA).

The role of OCAC had, therefore, ceased to exist after March 2006 in price fixation of petroleum
products; therefore, an amendment is proposed to omit reference to OCAC and explanation related
to composition of OCAC, in section 8 providing delegation of powers.

VALIDATION
[Section 9]

A new section is proposed to be added to give legal cover to the petroleum development levy,
levied and collected recovery during period from March 1, 2010 to June 30, 2010.

If any such petroleum development levy could not be collected, the subsequent recovery thereof is
also given similar legal cover.

Tax Memorandum 2010


A.F. Ferguson & Co.
A member firm of the Pwc network

39

FIFTH SCHEDULE

Petroleum Levy is proposed on various products as under:

Petroleum Levy Rupees Per Litre


S. No. Petroleum Products Revised Rates Present Rates

1. High Speed Diesel Oil (HSDO) 8 8


2. Motor Spirit (MS) - 10
3. Motor Gasoline 87 ROM 10 -
4. SKSO - 6
5. SKO 6 -
6. Light Diesel Oil (LDO) 3 3
7. HOBC 14 14
8. E-10 Gasoline 9 -

Tax Memorandum 2010