Budget Briefing 2011

BUDGET BRIEFING 2011
This Memorandum is correct to the best of our knowledge and belief at the time of going to the press. It is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. The Firm and Ernst & Young do not accept any responsibility for any loss arising from any action taken or not taken by anyone using this publication.
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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 This should not be published in any manner without the Firms consent. This is not an exhaustive treatise as it sets out interpretation of only the significant amendments proposed by the Finance Bill, 2011 (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), the Federal Excise Act, 2005 (the FE Act) and Capital Value Tax (CVT) in a concise form sufficient enough to amplify the important aspects of the changes proposed to be made. The Repealed Ordinance means the Income Tax Ordinance, 1979 since repealed. The Board 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, 2011, shall, with or without modification, become effective from the tax year 2012, 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 Highlights Income Tax Sales Tax Customs Federal Excise Capital Value Tax
Page i - ii 1 - 15 17 - 22 23 - 28 29 - 34 35
KARACHI: 04 June 2011
Highlights
i
Income Tax
Life Insurance Premium eligible for claiming tax credit by a salaried person or a person engaged in business. Monitory threshold of tax credit for investment in shares and life insurance enhanced to 15% of the persons taxable income for the year or Rs.500,000 whichever is the less. Retention period of investment in shares for claiming tax credit enhanced from 12 months to 36 months. Monitory threshold of tax credit for contribution to an approved pension fund removed. However, income related threshold of 20% remain unchanged. 100% tax credit against tax payable introduced for establishing a new industrial undertaking for manufacturing in Pakistan or equity investment for BMR purposes through equity investment. Concealment of income enhanced. Minimum tax permissible adjustment period enhanced to 5 years. Tax deducted from payment for services rendered treated as minimum tax for all taxpayers (including corporate sector). Penalty for late filing of return made oppressive. Non-resident having PE in Pakistan not eligible to seek advance ruling. Provisional assessment can be carried out in case of all taxpayers including companies. Benefit of a waiver of profit on debt or debt itself to be taxable as business income. Tax credit allowed to a company which enlist itself on a stock exchange in Pakistan enhanced from 5% to 15%. Holder of a commercial or a industrial electricity connection generating electricity bill exceeding Rs.1 million per annum required to file Return of Income. Persons having income below minimum threshold but in excess of Rs.300,000 required to file a return. Minimum threshold for filing of wealth statement raised from income of Rs.500,000 to Rs.1,000,000. Powers of Appellate Tribunal to dismiss appeal in default of non appearance withdrawn. Due date for payment of advance tax on capital gains taxable under Section 37A extended to 21 days from 7 days after end of each quarter.
Tax deducted on profit on debt earned from government securities to be treated as full and final tax for non corporate taxpayers Tax withheld from profit on debt earned by nonresident persons not having a PE in Pakistan at 10% to be regarded as full and final tax. Statement of taxes deducted at source to be filed on a monthly basis. Annual statement only required in respect of tax deducted from salaries. Disclosure of CNIC/ National Tax Number to be mandatory in all statements of withholding. Certain persons exempted from collection of tax on purchase of air tickets. Carryover of provision in excess of 5% of total advances of consumer and SMEs portfolio allowed to be carried over to subsequent years by bank. Dividend received by bank from its assets management company to attract tax at 20%. Auction by tender to also attract collection of tax under Section 236A. Minimum threshold of taxable income enhanced to Rs.350,000. Exemption granted to income derived by Islamic Development Bank from its operation in Pakistan. Sales Tax Reduction in the rate of sales tax from 17% to 16%. Increase in minimum value addition sales tax rate for commercial importers from 2% to 3%. Zero rating withdrawn on certain goods. Exemptions withdrawn on certain goods. Immediate claim of input tax on fixed assets or capital goods without any limitation. Automatic revision of sales tax return no longer permissible. No refund of sales tax whereby incidence of tax has been passed on to the consumer. Condonation of time limit apart from registered person now also available to tax authorities. White crystalline sugar subject to FED in sales tax mode @ 8 % whilst all other types of sugar taxable at the rate of 16%.
Highlights
ii
Customs
Repayment of duties levied on import of goods used for supplies against international tenders. Enhancement in time limit from three years to five years for issuance of notice in case of any duty or charge not levied or short levied or erroneously refunded due to inadvertence, error or misconstruction. Time limitation of one year for claim of refund in consequence of any decision or judgment shall be calculated from the date of issuance of such decision or judgment. Section 129A introduced empowering the Board to levy a transit fee on goods or class of goods in transit to other foreign countries across Pakistan. Federal Excise Scope of the definition of manufacture enhanced. Levy of special excise duty abolished. Default surcharge to be applied on annual basis. Period of issue of notice for recovery of duty enhanced. Beverages brought within the ambit of goods liable to seizure and confiscation. Period for passing of order by the Board under. alternative dispute resolution specified. Rates of federal excise duty on cigarettes enhanced. 10% federal excise duty on motor vehicles, air conditioners, deep freezers and other specified goods withdrawn. 8% ad val. federal excise duty on white crystalline sugar introduced. Duty on aerated water and other sweetening matter reduced. Duty on services by property developers and promoters withdrawn.
Table of Contents
INCOME TAX Section 1. 2. 3. 4. 5. 6. 7. 8. 9. Tax credit for investment in shares and life insurance Contribution to an Approved Pension Fund Tax credit for equity investment Concealed income Minimum tax Tax deducted from payment for services rendered to be treated as minimum tax Penalties with regard to certain offences made oppressive Advance ruling inapplicable to non-resident taxpayer having permanent establishment in Pakistan Provisional assessment 62 63 65D 111 113 153(3)& 115(4) 182 206A 122C & 116(2A) & 2(5) 18(1)(d) 65C 114 116 132 14 7(5B) 151, 115(4), 168, 169 & Clause (5A) 165 168 209 236A 236B Page 3 3 3 4 4 4 5 5
6 6 6 6 7 7 7 7 8 8 8 8 8
10. Power to tax a benefit or perquisite 11. Tax credit for enlistment 12. Filing of return 13. Wealth statement 14. Appellate Tribunal 15. Advance tax on capital gain on sale of securities 16. Profit on debt 17. Filing of statements 18. Credit of tax collected/ deducted 19. Jurisdiction of Income Tax Authorities 20. Advance tax on sale by auction 21. Advance tax on purchase of air ticket
Table of Contents
THE FIRST SCHEDULE Clause 22. Rates of tax for individuals 23. Marginal relief 24. Tax year 25. Salaried taxpayer 26. Reduction in tax liability 27. Rates of tax on retailers 28. Rates of tax for companies 29. Rate of tax on dividend income 30. Rate of tax on capital gains on securities 31. Income from property 32. Advance income tax on private motor vehicles 33. Advance tax on registration of private motor vehicles 34. Advance tax on goods transport vehicle 35. Advance tax on electricity consumption 36. Advance tax on purchase of air ticket 37. Advance tax at the time of sale by auction or auction by a tender 38. Withholding tax rates 39. Rates of tax for non-resident taxpayers THE SECOND SCHEDULE PART-I 40. Exemption to Islamic Development Bank 41. Clauses proposed to be deleted by the Bill PART-II 42. Tax deducted from profit on debt paid to non-residents Proviso to Clause (5A) 14 107A 14 14 Page 9 9 9 9 9 10 10 10 10 10 10 11 11 11 11 11 11 13
PART-III 43. Tax at import stage on old and used automotive vehicles PART-IV 44. Exclusion from levy of minimum tax under Section 113 45. Islamic Development Bank THE SEVENTH SCHEDULE Rule 46. Carryover of provision in excess of 5% of total advances of consumer and SMEs Page 15 (11A) (38C) 14 15 (4) 14
Income Tax
1.
Tax credit for investment in shares and life insurance Section 62 This Section provides for tax credit to encourage investment in shares and life insurance by a resident person other than a company. The Bill seeks to substitute the existing Section which was introduced in the Ordinance since its promulgation. While the scheme of tax credit substantially remains the same as before, the following new features have been sought to be introduced: (i) the maximum ceiling for determining tax credit has been proposed to be raised from 10% of the taxable income for the year or the monetary threshold of Rs.300,000/- to 15% of the persons taxable income for the year or Rs.500,000/-, whichever is less; apart from investment in new shares of a quoted company in Pakistan, life insurance premium paid on a policy to a life insurance company duly approved by the Securities and Exchange Commission of Pakistan shall also qualify for tax credit provided the resident person is deriving income chargeable to tax under the head salary or income from business; and the mandatory retention period of shares in respect of which tax credit may be availed is presently 12 months from the date of acquisition; this has now been sought to be raised to 36 months. In the event of disposal earlier than the mandatory period, the tax credit already availed shall be clawed back in the year of disposal.
the corporate sector, the Bill seeks to introduce this new Section. It has been proposed that a company shall be entitled to a tax credit if it establishes a new industrial undertaking for manufacturing in Pakistan or if it makes an investment in purchase and installation of plant and machinery for the purposes of what historically has been referred to as balancing, modernization and replacement (BMR) of the plant and machinery already installed in an industrial undertaking setup in Pakistan and owned by it. The principal condition to qualify for the tax credit on account of investment in the industrial undertaking or BMR, as the case may be, has been proposed to be 100% equity funds. It seems that the intention is to not have any part of the investment in the industrial undertaking or BMR to be debt financed. The legal construction of the new Section being proposed leaves a lot to be desired to remove various ambiguities. According to the proposed provision, the amount of tax credit to be allowed to a company shall be equal to 100% of the tax payable by such company. It also appears from the construction of new Section, that such tax credit shall be allowed on or after 01 July 2011 or commencement of commercial production, whichever is later, for a period of five years. What is conspicuously lacking in the provision is the linkage to the amount of investment which shall qualify for the tax credit against the tax payable by a qualifying company. While the proposed provision suggests that tax credit shall equal the entire amount of tax payable by a company for a tax year, what is however, not clear is what should be the amount of investment with reference to which the amount of tax credit should be determined. The proposed introduction of this clause purportedly is an intent to grant tax holiday for new investment. However, since it also aims to apply to a company for BMR in an existing business, there needs to be, in our view, some threshold of minimum investment and related aspects to justify granting full credit for the tax payable on the existing profits. As is usual with any scheme of tax credit, Sub-section (2) of the proposed Section provides safeguard against any abuse of tax credit concession. Accordingly, if subsequent to having claimed the tax credit, if the Commissioner Inland Revenue discovers, based on any document or otherwise, that any of the qualifying condition was not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and in consequence, the correct amount of tax shall be recomputed for the relevant year(s).
(ii)
(iii)
2.
Contribution to an Approved Pension Fund Section 63 The Ordinance contains the provision enacted several years ago whereby an eligible person deriving income chargeable to tax as salary or income from business is entitled to a tax credit in respect of contribution to an approved pension fund. The Bill now seeks to amend this Section with an intent to remove the monetary threshold of Rs.500,000/- for determination of tax credit. It may be noted that the income related threshold of 20% remains unchanged.
3.
Tax credit for equity investment Section 65D With the avowed objective of promoting and encouraging industrial investment in the country by
Income Tax
4.
Concealed income Section 111 This Section has been in force for several years to curb unexplained income, assets or expenditures. In the event of any income, assets or expenditure remaining unexplained or unsubstantiated, the tax authorities invoke this provision to tax such amount as remains unexplained. In the context of income from business, while it has not been uncommon for the tax authorities to reject the account or declared version of a taxpayer and in consequence determine its own estimate of sales, receipt or any amount chargeable to tax. Such addition to the returned version, although being subjected to tax, is nevertheless not usually treated or deemed to be a concealment of income. It may, however, be pertinent to add that under Section 182 of the Ordinance, a penalty may be imposed inter-alia for any act of omission or commission referred to in subsection (1) of Section 111 to the Ordinance. The Bill now seeks to insert a new Clause (d) as a consequence of which a person having concealed income or furnished inaccurate particulars of income shall include suppression of production, sales or any amount chargeable to tax or any item of receipt liable to tax, in whole or in part. The effect of insertion of this new Clause in subsection (1) of this Section brings within its ambit concealed income or the effect of furnishing of inaccurate particulars of income which in conjunction with Section 182 of the Ordinance, may lead to imposition of penalties. In our opinion, the proposed amendment, if allowed to go through enactment, would have a far reaching adverse effect of giving unfettered power to the tax authorities for alleging something as concealment which can be triggered by a mere rejection of trading results or disregard of the returned version. We strongly apprehend that the injudicious manner and unfettered exercise of powers by the tax authorities in the process of tax assessment which is invariably experienced would gravely aggravate the agonies and harassment of the taxpayer if the proposed amendment is aimed to provide further encouragement to the reckless exercise of powers by the tax authorities. This would neither augur well for the on-going process of tax reform nor do any justice to enhance the much needed and awfully lacking confidence in the tax system.
5.
Minimum tax Section 113 Every resident company, (regardless of the amount of turnover) an individual and an association of persons (having turnover of Rs.50 million or more) is obliged to pay a minimum tax of 1% of its turnover, regardless of whether any tax is otherwise payable or not. The substantive provisions of this Section remain unchanged with one proposed amendment sought to be introduced by the Bill. The existing provisions of this Section permit the effect of minimum tax to be equalized by allowing it to be carried over for a period of 3 years immediately succeeding the tax year for which such amount of minimum tax is paid. This period of 3 years has been proposed by the Bill to be raised to 5 years. By another amendment proposed in Clause (a) of subsection (3), the definition of turnover has been sought to be amended to include the word gross sales which shall inter-alia constitute turnover for the purpose of determining minimum tax.
6.
Tax deducted from payment for services rendered to be treated as minimum tax Section 153, sub-section (3) Section 115, sub-section (4) This Section has undergone numerous amendments ever since it was introduced seeking to change the ultimate character of tax deducted from various types of payments stipulated in the said Section. While it is not intended here to trace back the history from year to year of the various amendments made, it needs to be noted that tax deducted for payment for rendering of services by non-corporate taxpayers is presently being treated as minimum tax. The Bill seeks to substitute this entire Section which essentially reformats the provision incorporating amendments made over the years. In essence, there are two changes as follows: New sub-section (3) of this Section provides the nature of tax withheld on account of payment of goods, for the rendering of or providing of services or the execution of a contract, which is either final or minimum or advance tax as stipulated in this subsection. Clause (b) of this new sub-section seeks to treat tax withheld from payments on account of services as a minimum tax not only for non-corporate taxpayers, as at present, but henceforth, also for corporate taxpayers. In April 2011, the FBR had issued a clarification which suggested that even under the
Income Tax
existing law, tax withheld on payment for services rendered by corporate taxpayers was minimum tax. This was in supersession of Circular No.6 of 2009 dated 18 August 2009 which clearly stated that the tax deducted from payments to corporate taxpayers for services rendered would be adjusted rather than considered to be minimum tax. The amendment now proposed has laid this controversy to rest. This amendment will cause a huge obligation in terms of tax incidence on a number of corporate entities engaged in the business of rendering of services such as cellular and telecommunication companies, container terminals and the like. It seems to us that seeking to bring the corporate taxpayers engaged in the service industry into the minimum tax regime is primarily prompted by objectives of revenue generation rather than the dictates of rational taxation. In the existing law, a permanent establishment of a non-resident person (not being a manufacturer) is not liable to be taxed under the final tax regime on supply of goods or contracts executed. Due to the proposed amendment, such PE's will now also be covered under the final tax regime in the same manner as is applicable on resident companies. A consequential amendment is also sought to be made in sub-section (4) of Section 115 in respect of persons required to file Statement in lieu of Return of Income. Accordingly, cross references to the relevant subsections have been proposed to be inserted. 7. Penalties with regard to certain offences made oppressive Section 182 Presently serial 1 of section 182 deals with levy of penalty for not filing the Return of Income / statements within the prescribed due date. The penalty is levied at 0.1% of the tax payable for each day of default subject to a minimum of Rs. 5,000 and a maximum of 25% of the tax payable. The Bills seeks to insert a clarification in serial No.1 of the Table contained in this Section whereby against the said entry, an explanation has been proposed to be added in Column 3 of the said Table. The explanation provides that the expression tax payable shall mean tax chargeable on the taxable income on the basis of assessment made or treated to have been made pursuant to Section 120, 121, 122 or 122C. This seems to be yet another attempt to undo the judgments of various appellate forums including the High court where it has been time and again held that
penalty for late filing of return has to be linked with the tax payable along with the return, which obviously would be the tax chargeable on taxable income less any taxes paid/ deducted at source during the tax year. It is the balance tax liability, if any, that is payable with the tax return which is normally paid at the time of submission of Return of Income. Further, insertion of reference to section 122 in the proposed amendment in the series of assessments also seems to be very unjust as that would perhaps mean that the penalty will be reworked each time income is enhanced as a result of an amended assessment although the penalty is applicable for late filing of return. This is therefore a very unjustified proposal and needs to be judiciously looked at and expunged from the proposed amendment. Penalties primarily are deterrent tools to enforce the law. However, the amendment unfortunately suggests that it is being viewed by tax authorities as a revenue generating measure. 8. Advance ruling inapplicable to non-resident taxpayer having permanent establishment in Pakistan Section 206A After persistent demand from various quarters, this Section for advance ruling was introduced by the Finance Act, 2003. The Section has a limited application whereby the Board is empowered to entertain an application from a non-resident taxpayer seeking an advance ruling from the Board. Since then, professional and other bodies have been urging to expand the scope of this Section so as to enable resident taxpayers as well to enable them to seek facilitation through advance ruling from the Board. Instead of responding to the demand of resident taxpayers to be treated at par with non-resident taxpayer, in the matter of advance ruling, the Bill has sought to further restrict the facilitation of advance ruling and it is now proposed that even non-resident taxpayers who have a permanent establishment in Pakistan shall be excluded from the purview of this Section and like resident taxpayers, the Board shall not entertain any application for advance ruling from such non-residents. We are of the view that the facilitation of advance ruling should be made available to all classes of taxpayers and that the restrictions proposed to be provided seem to lack rational justification.
9.
Provisional assessment
Income Tax
Sections 122C and 116 sub-section (2A) and 2 subsection (5) The Finance Act 2010 inserted Section 122C in the Ordinance. This Section authorizes the Commissioner to frame a provisional assessment in case where the person fails to furnish the Return of Income in response to his notice calling for the Return of Income. The provisional assessment stands final after the expiry of 60 days of the receipt of the provisional assessment order if the person fails to file the Return alongwith wealth statement and wealth reconciliation statement. A new sub-section (2A)was also inserted in Section 116 according to which filing of wealth statement together with wealth reconciliation statement is mandatory where a provisional assessment has been made under Section 122C and the person after receipt of the provisional assessment order intends to file the Return of Income. At the time of insertion of the section, it appeared that the provisions of Section 122C of the Ordinance only applied to individuals and AOPs due to mandatory requirement of filing of wealth statement and wealth reconciliation statement with Return of Income which is not meant for corporate taxpayers. Sub-section (2A) of Section 116 is now proposed to be substituted in a manner that the mandatory requirement of filing of wealth statement and wealth reconciliation statement with Return of Income has been restricted to individuals and members of AOP only. Therefore, the ambiguity about applicability of provisional assessments to a company now stands resolved. Corresponding amendments have been proposed to insert the term provisional assessment within the definition of assessment as stated in sub section (5) in Section 2. Amendment is also proposed in Section 127 which deals with appeal to the Commissioner (Appeals). It is proposed to disallow filing of an appeal against a provisional assessment order since the taxpayer has been provided a 60 days period for filing his Return of Income upon which the Commissioner then may examine the Return and either accept the Return or amend the assessment under Section 122 of the Ordinance. In the latter case, the taxpayer can duly file an appeal to the Commissioner (Appeals) against the amended assessment order. It is also proposed that the tax payable as per the provisional assessment order shall be paid immediately after the expiry of 60 days from the date of service of order. 10. Power to tax a benefit or perquisite Section 18(1)(d)
Clause (d) empowers the Commissioner to treat the fair market value of any benefit or perquisite which is either convertible to money or not that is derived due to a past, present or prospective business relationship by a person to be taxed as business income taxable under Section 18. It is now proposed to insert an explanation in the clause to treat a profit on debt or the debt itself that is waived under the State Bank of Pakistan Banking Policy Department Circular No.29 of 2002 or under any other scheme as a benefit taxable under the said clause. Being an explanation now sought to be inserted, by implication, the provision shall have retrospective application. 11. Tax credit for enlistment Section 65C To encourage un-listed companies to get them selves listed on stock exchange(s) in Pakistan, the Finance Act, 2010 introduced a tax credit for enlistment equal to 5% of the tax payable for the tax year in which the company was enlisted. This incentive was however termed a feeble measure as only a tax credit of 5% was allowed for the tax year in which a company seeks enlistment on stock exchange in Pakistan. It may be recalled that the corporate tax rate on listed companies and unlisted companies was brought at par since the tax year 2007 at the rate of 35%. It has since been a matter of debate in concerned quarters as to why listed companies should not be conferred the benefit of a lower tax rate compared to unlisted companies. It is now proposed to enhance the tax credit to 15% from the existing 5% to provide enhanced incentive to companies to go public and broad base corporate ownership. 12. Filing of return Section 114 The present Section inter-alia requires mandatory filing of return from certain persons whose income exceeds a certain threshold or who are in possession of certain types of assets etc. The Bill now seeks to introduce another criteria for this purpose and proposes to require a person who is a holder of a commercial or industrial electricity connection where the annual electricity bill exceeds Rs.1 million to also file a Return of Income.
Income Tax
The Bill also proposes that such individuals who although are not taxable since their income is below the proposed minimum threshold of Rs.350,000 in a tax year would also be required to file a return in case their income exceeds Rs.300,000 in a tax year. It is further proposed that the Return of Income filed shall inter-alia be accompanied with a wealth statement as required under Section 116 of the Ordinance and with due payment of tax, if any, which is payable as per the return. 13. Wealth statement Section 116 This Section presently requires every resident taxpayer to file a wealth statement along with the Return of Income if his declared or assessed income during that tax year or the last tax year is Rs.500,000 or more. The Bill seeks to increase the minimum threshold for filing of wealth statement to Rs.1,000,000. A proviso is further proposed to be inserted that seeks to require every member of an AOP whose share of income from the AOP before tax for the year is Rs.1,000,000 or more to file wealth statement or wealth reconciliation along with the Return. 14. Appellate Tribunal Section 132 The Appellate Tribunal is empowered to afford an opportunity of being heard to the parties in the appeal. The tribunal is also empowered, if it deems fit, to dismiss the appeal in default in case of non attendance of the party on the date of hearing. It has been time and again pointed out by the legal fraternity that cases should not be dismissed by the Tribunal merely due to default of the authorized representative for non appearance and instead, in such cases the Tribunal may decide the case on merit on the basis of information available on record. The Bill now proposes to omit the powers of the Tribunal to dismiss the appeal in default and therefore, the Tribunal would now be left with the choice of either adjourning the case to a future date for fresh hearing or deciding the case on merit based on the available information on record.
Through the Finance Act, 2010, a new sub-section (5B) was inserted whereby a taxpayer is required to pay on a quarterly basis, advance tax on such capital gains as detailed below:
Rate of advance tax (a) where security is sold after a 2%
holding period of six months (b) where security is sold after a holding period of six months but less than twelve months
1.5%
The advance tax is payable within seven days of the close of each quarter. The Bill now seeks to extend the date of payment of advance tax to within 21 days of the close of each quarter. This was a genuine demand of the investors who found it difficult to calculate the capital gains earned during the quarter within a short span of three or four days of the end of each quarter so as to be able to pay the advance tax within 7 days of the end of each quarter. 16. Profit on debt Section 151, 115(4), 168, 169 and Clause (5A) of Part II of Second Schedule This Section requires deduction of tax from payments of profit on debt in the following categories a) Yield on an account, deposit or a certificate under the National Saving Schemes or Post Office Saving Account; On an account or deposit maintained with a banking company or a financial institution; Securities issued by the Federal, Provincial Government or Local Government; Bond, certificate, debenture, security or instrument of any kind issued by a banking company, financial institution, a company or finance society.
b) c) d)
Tax is required to be withheld at the rate of 10% and is treated as full and final tax liability on the profit on debt received by a taxpayer other than a company for sources covered under (a), (b) and (d) above. It is now proposed that the tax withheld from profit paid on security issued by the Federal, Provincial or
15. Advance tax on capital gain on sale of securities Section 147, sub-section (5B)
Income Tax
Local Government received by any person other than a company may also be treated as full and final discharge of tax on the said income. Corresponding changes are also proposed in Section 115 sub-section (4) that requires filing of statement showing particulars relating to the persons income and in Section 168 and 169 that deal with treatment of taxes withheld at source. It is also proposed that the tax deducted from profit on debt from debt instrument, government securities including treasury bills and Pakistan Investment Bonds at the reduced rate of 10% provided under clause 5A of Part II of the Second Schedule to the Ordinance shall also be treated as full and final tax liability in the hands of a non-resident person who does not have a permanent establishment in Pakistan. The investment in such securities would have to be through special convertible rupee account maintained with a bank in Pakistan. 17. Filing of statements Section 165 Presently, withholding agents deducting/collecting taxes are required to file statements on an annual and quarterly basis. The Bill now seeks to require withholding agents to file statement on a monthly basis and omit filing of annual statements other than for taxes withheld on salaries under section 149 of the Ordinance. The Bill further seeks to legislate the requirement of providing the information about the National Tax Number/ Computerized National Identify Card Numbers which is presently being required through Rules that are prescribed by the Federal Board of Revenue. With respect to filing of annual statement by an employer in respect of tax withheld from salary under section 149, it is proposed that information about the income of such employee may also be provided whose income exceeds Rs.300,000 irrespective of the fact whether the income is below or above the minimum threshold of Rs.350,000 in a tax year. 18. Credit of tax collected/ deducted Section 168 Sub-section (3) provides that credit of taxes that have been deducted under various Sections of withholding under the Ordinance which are treated as full and final tax liability would not be available. The Bill seeks to make certain editorial changes to correct cross referencing with the relevant provisions
of various sections of withholding/ collection of tax at source. 19. Jurisdiction of Income Tax Authorities Section 209 Through this Section, the legislature has delegated juridical authority to the Board, the Chief Commissioners, Commissioners and the Commissioner (Appeals) to perform certain functions and exercise certain powers. The Bill further seeks to empower the Board or the Chief Commissioner to transfer jurisdiction in respect of any case or person from one Commissioner to another. 20. Advance tax on sale by auction Section 236A Through Finance Act, 2009 a person making sale by public auction of any property or goods belonging to certain prescribed person was required to collect tax @ 5% from the person to whom such property or goods were sold. It is now proposed to extend the requirement to auction by a tender as well. 21. Advance tax on purchase of air ticket Section 236B Through Finance Act, 2010 a new provision was introduced whereby advance tax @ 5% is required to be collected on gross amount of domestic air ticket charges. The Bill seeks to clarify that the tax so collected is an advance tax adjustable against the tax liability of the person from whom it is collected. It is further proposed to grant exemption from collection of this tax to the Federal Government or a Provincial Government and any person who produces a certificate from the Commissioner Inland Revenue that his income during the tax year is exempt from tax.
Income Tax
THE FIRST SCHEDULE 22. Rates of tax for individuals The basic threshold for charge of income tax for salaried and non-salaried taxpayers is proposed to be raised from the existing Rs.300,000/- to Rs.350,000/- and accordingly, the rates of tax chargeable for the tax year 2012 (corresponding to the income year ending at any time between 01 July 2011 to 30 June 2012) have been rationalized as under. Salaried Taxpayers
Taxable Income Upto Rs. 350,000 Rs. 350,001 400,000 Rs. 400,001 450,000 Rs. 450,001 550,000 Rs. 550,001 650,000 Rs. 650,001 750,000 Rs. 750,001 900,000 Rs. 900,001 1,050,000 Rs. 1,050,001 1,200,000 Rate (%) Nil 1.50 2.50 3.50 4.50 6.00 7.50 9.00 10.00 Taxable Income Rs. 1,200,001 1,450,000 Rs. 1,450,001 1,700,000 Rs. 1,700,001 1,950,000 Rs. 1,950,001 2,250,000 Rs. 2,250,001 2,850,000 Rs. 2,850,001 3,550,000 Rs. 3,550,001 4,550,000 Over Rs.4,550,000 Rate (%) 11.00 12.50 14.00 15.00 16.00 17.50 18.50 20.00
23. Marginal relief For a salaried taxpayer, marginal tax relief continues to be available. The relief works in the following manner.
Total income does not exceed Rs.550,000 Rs.1,050,000 Rs.2,250,000 Rs.4,550,000 Over Rs.4,550,000 Increase in tax not to exceed tax payable on the maximum of the relevant slab Plus 20% 30% 40% 50% 60%
24. Tax year "Tax Year" means a period of twelve months ending on 30 June and corresponds to the period to which the income of the taxpayer relates. 25. Salaried taxpayer Salaried taxpayer is a person having salary income in excess of 50% of his/her taxable income. 26. Reduction in tax liability A senior citizen of Pakistan, being a taxpayer, aged sixty years or more on the first day of the relevant tax year, is allowed a rebate of 50% of the tax payable if his/her taxable income in that tax year is Rs.1,000,000/- or less. The said rebate continues and the rule that in determining the threshold as above, income under final tax regime shall be excluded also remains unchanged. The provision to reduce the income tax liability of a full time teacher or a researcher employed in a nonprofit educational or research institution duly recognized by a Board of Education or a University or the Higher Education Commission and to a teacher and researcher of Government training and research institution also continues to be available. The tax liability in such cases is reduced by an amount equal to 75% of the tax payable on his / her income from salary.
Non Salaried Taxpayers

Taxable Income Upto Rs. 350,000 Rs. 350,001 500,000 Rate (%) Nil 7.50 10.00 15.00 20.00 25.00
Rs. 500,001 7 50,000 Rs. 750,001 1,000,000 Rs.1,000,001 1,500,000 Over Rs.1,500,000
Association of Persons For association of persons, the rate of tax remains unchanged at 25 percent for tax year 2012.
Income Tax
10
27. Rate of tax on retailers The rate of tax applicable for the tax year 2012 on a retailer continues to be 1.00% of the turnover in case his declared turnover is Rs.5 million or less. 28. Rates of tax for companies a) For public, private and banking companies, the rate of tax remains unchanged at 35% for tax year 2012. b) A Co-operative and finance society is taxed at the income tax rate applicable to a company. c) The rate of tax for a small company remains at 25% for the tax year 2012. 29. Rate of tax on dividend income
i) Individuals and Association of Persons

Gross amount of rent Upto Rs.150,000 Rs.150,001 Rs.400,000 Rs.400,001 Rs.1,000,000 Rate of Tax Nil 5% of the amount exceeding Rs.150,000 Rs.12,500 + 7.5% of the amount exceeding Rs.400,000 Rs.57,500 + 10% of the amount exceeding Rs.1,000,000
Over Rs.1,000,000
ii) Company
Gross amount of rent Rate of Tax 5% Rs.20,000 + 7.5% of the amount exceeding Rs.400,000 Rs.65,000 + 10% of the amount exceeding Rs.1,000,000
The rate of tax on dividend received by all taxpayers continues at 10% except dividend received by a banking company from its asset management company, which has now been proposed to be taxed at the rate of 20%. 30. Rates of tax on capital gains on securities The rates of tax on capital gains arising on sale of securities as referred to in Section 37A of the Ordinance are as under:
Holding period of a Security Tax Year Less than six months (%) 10 10 12.5 15 17.5 Six months or more but less than 12 months (%) 7.5 8 8.5 9 9.5 10
Upto Rs.400,000 Rs.400,001 Rs.1,000,000
Over Rs.1,000,000
32. Advance income tax on private motor vehicles Advance income tax payable at the time of paying annual motor vehicle tax, in the case of private motor vehicles continues as under:
Engine capacity Upto 1000 cc 1001 cc 1199 cc 1200 cc 1299 cc 1300 cc 1599 cc 1600 cc 1999 cc Over 1999 cc Amount of Tax Rs.750 Rs.1,250 Rs.1,750 Rs.3,000 Rs.4,000 Rs.8,000
2011 2012 2013 2014 2015 2016
If the holding period of a security is more than one year the rate applicable shall be 0%. 31. Income from property The rates of tax to be paid in respect of income from property for the tax year 2012 (corresponding to the income year ending at any time between 01 July 2011 to 30 June 2012) have remained unchanged and are as under:
Income Tax
11
33. Advance tax on registration of private motor vehicles The collection of advance tax by manufacturers or authorized dealers of motor vehicles continues and the applicable rates are as follows:
Engine capacity Upto 850 cc 851 cc 1000 cc 1001 cc 1300 cc 1301 cc 1600 cc 1601 cc 1800 cc 1801 cc 2000 cc Over 2000 cc Amount of Tax (Rs.) Rs. 7,500 Rs.10,500 Rs.16,875 Rs.16,875 Rs.22,500 Rs.16,875 Rs.50,000
38. Withholding tax rates

Type of Payment Rate %
Existing Proposed
Whether under final tax regime
Collection of tax at imports Value of goods inclusive of customs duty and sales tax 5 Yes, subject to certain exclusions Other than a company 10 No change Yes
Profit on debt a) Yield on a National Savings Deposit Certificate including a Defence Savings Certificate under the National Savings Scheme; b) Profit on a debt, being an account or deposit maintained with a banking company or a financial institution; c) Profit on any bond, certificate, debenture, security or instrument of any kind (excluding loan agreement between a borrower and a banking company or a development finance institution) issued by a banking company, a financial institution, company as defined in the Companies Ordinance, 1984 and a body corporate formed by or under any law for the time being in force, to any person other than a financial institution. d) Profit on any security issued by the Federal Government, a Provincial government or a local authority to any person other than a financial institution
34. Advance tax on goods transport vehicle The slab rate card of collection of advance tax at one rupee per kilo gram of the laden weight continues unchanged for tax year 2012. For goods transport vehicle with laden weight of 8120 kilo gram or more, advance tax after a period of 10 years from the date of first registration in Pakistan would continue to be collected at Rs. 1,200/- per annum. 35. Advance tax on electricity consumption The rate of collection of advance tax on electricity consumption continues at 5% for industrial consumers and at 10% for commercial consumers on electricity bill exceeding Rs.20,000/-. 36. Advance tax on purchase of air ticket The rate of collection of tax at the rate of 5% of the gross amount of domestic air ticket continues to be leviable. 37. Advance tax at the time of sale by auction or auction by a tender The rate of collection of tax by a person making sale by public auction of any property or goods to which Section 236A applies continues to be 5% of the gross sale price of such property or goods.
10
No change
Yes
10
No change
Yes
10
No change
Yes*
* Changed to final tax from July 01, 2011.
Income Tax
12
Type of Payment
Rate %
Existing Proposed
Type of Payment
Rate %
Existing Proposed
Goods and services a) Sale of rice, cotton seed or edible oils b) Sale of cigarettes and pharmaceutical products by distributors of such goods c) Sale of any other goods d) For passenger transport services e) For other services f) Execution of a contract
1.5 1
No change No change
Yes* Yes*
Income from property Annual rent of immovable property including rent of furniture and fixtures and amounts for services relating to such property.
At varying slab rates of 5 to 10 for individual , AOPs and company
No change
No
3.5 2 6 6
No change No change No change No change
Yes*
Prizes and winnings

Mnimum Mnimum Yes**
a) Amount of prize bond or crossword puzzle.

b) Amount of raffle/ lottery winning or prize on winning a quiz, prize offered by companies for promotion of sales Telephone users Telephone subscriber (other than mobile phone) Amount of bill of mobile telephone, sale price of prepaid telephone card or sale of units through any electric medium (for CD) or whatever form Banking Transactions
10
No change
No change
Yes
20
Yes
g) For news print media services CNG Station Refer to Section 234A Exports Export proceeds Proceeds from sale of goods to an exporter under an inland backto-back letter of credit or any other arrangement Export of goods by an industrial undertaking located in an Export Processing Zone Collection by collector of customs at the time of clearing of goods exported Indenting commission
0 4
No change No change
No Yes
10 of amount exceeding Rs.1,000
No change
No
No 1 of change export proceeds
Yes
10
No change
No
Yes
No change
Yes Amount exceeding Rs.25,000 Yes Commission or discount allowed on sale of petroleum products by a petrol pump operator
0.3 of the amount withdrawn
0.2 OF THE AMOUNT WITHDRAWN
No
No change
* Except for a company engaged in manufacturing and a public company listed on a registered stock exchange(s) in Pakistan engaged in supply of such goods. ** Except for a public company listed on a registered stock exchange(s) in Pakistan.
Amount of commission or discount
10
No change
Yes
Income Tax
13
Type of Payment
Rate %
Existing Proposed
Type of payment Royalty Shipping income
Rate (%) Existing 15 08 03 20 10 Proposed No change No change No change No change *
Commission income of advertising agents
Amount of payment Commission income of others
No change
Yes
Air transport income Profit on debt Profit on debt where nonresident does not have a PE in Pakistan Others (excluding those specifically mentioned herein) Execution of a contract
Amount of payment
10
No change
Yes
Collection of tax by stock exchange

0.01 of purchase value
20
Purchase of shares
No change
No
Sale of shares
0.01 of sale value 0.01 of traded value 10 of the carry over charge
No change No change No change
No
Trading of shares
No
- 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 - contract for construction or services rendered relating thereto - a contract for advertisement services rendered by TV satellite channels
No change
Financing of COT
No
No change
No change
39. Rates of tax for non-resident taxpayers The applicable withholding tax for Tax Year 2012 on certain payments to non-residents is as under:
Type of payment Dividends from: - a company engaged in power generation project - others Branch profit remittance tax (other than branch offices of E&P companies) Technical services fee Insurance premium / reinsurance premium Advertisement services to a media person relaying from outside Pakistan 7.5 10 10 No change No change No change Rate (%) Existing Proposed
The taxes withheld in all of the above cases except Others and profit on debt would generally constitute full and final settlement of the non-residents tax liability in Pakistan in respect of such income. * Tax deducted at 10 percent from profit on debt from debt instruments, government securities including treasury bills and Pakistan Investment Bonds where the investments are exclusively made through a special Rupee Convertible Bank Account maintained with a bank in Pakistan by a non-resident having no PE in Pakistan shall be a final tax. A non-resident contractor earning income from execution of contract can opt to be taxed under the final tax regime, which means that the taxes withheld would be construed as its full and final settlement of tax liability. The option must be exercised within three months of the commencement of the tax year and shall
15 5 10
No change No change No change
Income Tax
14
remain irrevocable for three years. In case the option has not been exercised by the non-resident person, the taxable income shall be assessed on the basis of his net business profits and the taxes withheld would be treated as advance tax adjustable against his eventual tax liability. THE SECOND SCHEDULE PART-I 40. Exemption to Islamic Development Bank Clause 107A The Bill proposes to grant exemption from tax to any income derived by the Islamic Development Bank from its operations in Pakistan in connection with its social and economic development activities. 41. Clauses proposed to be deleted by the Bill The following clauses are proposed to be deleted: Clause No. 61(xi) Description and reason for deletion Amount paid as donation to Bank of Commerce and Credit International Foundation for Advancement of Science and Technology deleted since exemption withdrawn. Amount paid as donation to BCCI Foundation deleted since exemption withdrawn. Profit on debt payable to National Bank of Pakistan on foreign currency loan of US $ 100 million, given to Pakistan State Oil Company Limited under agreement executed at Bahrain on the 29 May, 2001, approved by the Federal Government deleted due to efflux of period. Profit and gains derived by a taxpayer from the running of any recognized computer training institution or computer training scheme, set up between the first day of July, 1997 and the thirtieth day of June, 2005, both days inclusive, for a period of five years deleted due to efflux of time. Capital gains derived by a person from sale of ships and all floating crafts including tugs, dredgers, survey vessels and other specialized craft upto tax year ending on thirtieth day of June, 2011 deleted due to efflux of time.
PART-II 42. Tax deducted from profit on debt paid to nonresidents Proviso to Clause (5A) Profit on debt paid to non-resident is generally subject to withholding tax at 20% of the gross amount of payment. However, Clause (5A) of Part II of the Second Schedule reduced the said rate to 10% if the payment was being made to a non-resident not having a permanent establishment in Pakistan. The tax withheld, either at 10% or 20% continued to remain an advance tax for the non-resident adjustable against its eventual tax liability for the year. The Bill seeks to introduce a proviso to Clause (5A) whereby tax withheld at 10% on profit on debt paid on debt instruments, Government securities including treasury bills and Pakistan Investment Bonds is regarded as a final tax provided that the investment is exclusively made through a Special Rupee Convertible Account maintained with a Bank in Pakistan. PART-III 43. Tax at import stage on old and used automotive vehicles Clause (4) Under the existing clause tax collected at import stage on old and used automotive vehicles specified in the Customs SRO No. 932 dated 20 November 2004 were capped based on the engine capacity of the vehicles. The Customs SRO 932 was rescinded via SRO 577 dated 6 June 2005 while its reference in the clause remained unchanged. To rectify the anomalous situation, the Bill seeks to substitute Clause (4) whereby proper reference to SRO No. 577 of 2005 has been made with the effect that cumulative duties and taxes collected at import stage are now to be capped at the amounts mentioned in the said SRO 577. PART-IV 44. Exclusion from levy of minimum tax under Section 113 Clause (11A) Clause (11A) identifies the persons or class of persons who are not subject to the levy of minimum tax under section 113 of the Ordinance. The Bill seeks to extend the applicability of the Clause to a pension fund registered under the Voluntary Pension System Rules, 2005.
61(xxv)
74A
93
114A
Income Tax
15
45. Islamic Development Bank Clause (38C) The Bill proposes to grant exemption from tax to the income derived by Islamic Development Bank by inserting a new Clause (107A) in Part-I of the Second Schedule. As an extension to the overall exemption being proposed, the Bill also seeks to grant exemption from the collection / deduction of withholding tax on the payment made to Islamic Development Bank under sections 151, 152, 153 and 233. THE SEVENTH SCHEDULE 46. Carryover of provision in excess of 5% of total advances in respect of consumer and SMEs In our comments on the Finance Bill, 2010, while dilating on the issues pertaining to the Banking Industry, we were optimistic that due to the facilitating inclination of the Board toward resolution of significant tax issues faced by it, the issues which remained unresolved would also be settled in right earnestness with due appreciation of the ground realities and business imperatives of the banking companies. The Finance Bill very rightly so has proposed in clear terms that the provision in excess of 5% of total advances in respect of consumer and Small and Medium Enterprises (SMEs) shall be allowed to be carried over to subsequent years for absorption in future years. The Bill further clarifies that in case of the actual provision being less than the respective threshold of 1% and 5% for non consumer and consumer advances respectively, the same would be allowed at actual. It is further proposed that the provisioning Rules for consumer and SMEs would be allowable from July 01 2010 i.e. tax year 2011 (income year ended 31 December 2010). As regards provisions of classified advances, there still remains two issues that need to be dealt with and addressed (i) the demand of the banking industry to enhance the cap of 1% provisioning to 2% of the total advances (other than consumer and SME) and (ii) certain clarifications on the interpretation of clause 8A introduced through Finance Act, 2010. The progress although may be slow, yet we would like to be optimistic about the ultimate resolution of all issues in this regard by the Board.
It is further proposed that dividend received by a bank from its asset management company would be subjected to tax at 20%.
16
Table of Contents
17
SALES TAX Section 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. Sales tax rate Adjustable input tax Blacklisting and suspension of registration Sales tax return Appointment of authorities Obligation to produce documents and provide information Sales tax refund Condonation of time limit Special procedure for payment of sales tax by importers Appointment of Alternative Dispute Resolution Committee Sugar Exemption to reclaimed lead Zero rating withdrawn Exemptions withdrawn 3 8B 21 26 30 38B 66 74 Rule 58B Rule 65 Various SRO 481(I)/2011 Various Various Page 19 19 19 19 19 19 19 19 20 20 20 20 20 21
18
Sales Tax
19
1.
Sales tax rate Section 3 The standard rate of sales tax was enhanced to 17% through the Finance Act, 2010. It is now proposed that the standard rate of sales tax be reduced to 16%. The rate of 16% will be applicable with effect from 01 July 2011. This is a favorable proposal from a taxpayers point of view. 4.
The above provision is already available in Sales Tax Rules 2006, however, it is now proposed to incorporate it into the text of the main law. Sales tax return Section 26 This section deals with filing of sales tax return and permits filing of a revised return within 120 days of the filing of the original return subject to the approval of the Commissioner Inland Revenue. It is now proposed that the facility of filing a revised return be extended to special returns that may be required to be filed under section 27 of the Act. Additionally Rule 14A of the Sales Tax Rules, 2006 provided that a revised return could be filed without the need for prior approval of the Commissioner and without any time limit in the event the revision of the return resulted in payment of tax over and above the tax paid through the original return. Rule 14A has been deleted thereby implying that prior approval of the Commissioner and the time limit of 120 days will apply in all cases. 5. Appointment of authorities Section 30 This section deals with appointment of various officers for sales tax purposes. It is proposed to introduce a new designation by way of Inspector Inland Revenue. 6. Obligation to produce documents and provide information Section 38B The authority to seek information and conduct an audit under this section is confined to an officer not below the rank of Deputy Commissioner Inland Revenue. It is now proposed to delegate such authority to a lower ranking officer i.e. Assistant Commissioner Inland Revenue. 7. Sales tax refund Section 66 This section deals with refund of tax which may be claimed within one year. It is proposed to add a proviso that no refund shall be admissible if the incidence of tax has been passed directly or indirectly to the consumer. 8. Condonation of time limit Section 74 The Board is empowered to condone the time limit under any provisions of the Act or the Rules made
2.
Adjustable input tax Section 8B Under this section a registered person is not allowed to adjust input tax in excess of 90% of the output tax for the tax period. There is also a proviso that the input tax claimed on acquisition of fixed assets shall be adjustable against the output tax in twelve equal monthly installments. The above proviso has been deleted and proposed to be replaced by a proviso whereby the restriction of adjustment of input tax in excess of 90% of the output tax would not be applicable in the case of input tax on fixed assets or capital goods. The above amendment effectively allows the immediate claim of the entire input tax on fixed assets or capital goods without any limitation. In this regard it is relevant to point out that plant, machinery and equipment including parts thereof were zero rated and consequently there was no incidence of input tax which could be claimed against the output tax. The zero rating has recently been removed in March 2011 and consequently, sales tax is now payable on import and supply of the same. The proposed amendment is apparently to facilitate immediate claim of tax on plant machinery and equipment without any restrictions and thereby be eligible for refund of excess input tax.
3.
Blacklisting and suspension of registration Section 21 Under this section the Commissioner has a right to suspend and blacklist the registration of a registered person. It is now proposed to add sub-section 3 whereby the invoices issued during the period of suspension of registration shall not be entertained for the purposes of sales tax refund or input tax credit. It further stipulates that once a suspended person is blacklisted, the refund of input tax credit claimed against the invoices issued by him whether prior or after such blacklisting, shall be rejected through a self speaking appealable order and further affording an opportunity to the blacklisted person of being heard.
Sales Tax
20
thereunder. This facility was understood to be available to a registered person. It is proposed to insert an explanation under this section whereby apart from a registered person, the facility of condonation of time limit is also available to the tax authorities as well. This would mean that the tax authorities can seek condonation of time limit prescribed under law for issuing show cause notices, conducting audits, filing appeals, etc. 9. Special procedure for payment of sales tax by importers Rule 58B Under this Rule sales tax on account of minimum value addition is levied and collected at import stage of goods, other than those imported by a manufacturer for in-house consumption, at the rate of 2%. It is proposed to enhance this rate to 3%. 10. Appointment of Alternative Dispute Resolution Committee Rule 65 This Rule deals with the functioning of the Alternative Dispute Resolution Committee and prescribes a time limit for submission of the Committees report to be within 60 days of its appointment. The time limit for submission of such report has now been enhanced to 90 days. 11. Sugar SRO480/ 481(I)/2011 and 1(3)/STM/2004 (PT-II) Sugar has been taxable at the reduced rate of 8% at local supply stage. This rate has been withdrawn vide SRO 480(I)/2011, however exemption has been granted to white crystalline sugar bearing PCT No. 1701.9910 and 1701.9920 vide SRO 481(I)/2011 by way of inclusion in SRO 551(I)/2008. However, the same has now been subjected to Federal Excise Duty in sales tax mode at the rate of 8%. The impact of the above amendments is that white crystalline sugar will be taxable at the rate of 8% at import and manufacturing stage and all other types of sugar will be taxable at the rate of 16% at import and supply stage. 12. Exemption to reclaimed lead SRO 481(I)/2011 Reclaimed lead if supplied to a recognized manufacturer of lead batteries has now been granted exemption by way of inclusion in SRO 551(I)/2008.
13. Zero rating withdrawn Certain goods were subject to tax at zero rate through various notifications. Zero rating has now been withdrawn with effect from 4 June 2011 on the following goods:
New SRO of 2011 485(I)/2011 dated 03 June 2011 Rescinding/ Amending SRO Rescinding SRO 1161(I)/2007 dated 30 November 2007 Amending SRO 549(I)/2008 dated 11 June 2008 Effect Withdrawal of zero rating on import of raw material for the manufacture of diapers falling under the PCT heading 5601.1040. Withdrawal of zero rating on import and supply of goods falling under various PCT headings of Chapter 87: Dedicated CNG buses including buses for transportation of forty or more passengers whether in CBU or CKD condition. Trucks and dumpers exceeding 5 tons. Trailers and semi trailers for the transport of goods. Road tractors for semi-trailers, prime movers and road tractors for trailers whether in CBU condition or in kit form. Annexure to the SRO listing tariff headings of plants, machinery and equipment; being redundant since zero rating on plant and machinery had already been withdrawn through earlier SRO. 230(I)/2011 dated 15 March 2011.
486(I)/2011 dated 03 June 2011
14. Exemptions withdrawn
Sales Tax
21
Certain sales tax exemptions available through the sixth schedule and various notifications have been withdrawn with effect from 4th June 2011. These are as follows: Sixth Schedule Table 1
Serial No. (1) 29A 29B 30 34 35 Heading Nos. of the First Schedule to the Customs Act, 1969 (3) 30.05 3006.7000 4818.4010 6901.0000 6810.1100
Serial No.
Description equipments, their parts and accessories for supply to Armed Forces.
Heading Nos. of the First Schedule to the Customs Act, 1969
64
Description
Spare parts and equipment for aircraft and ships covered by serial number 43 and 44 above. Equipment and Machinery for pilotage, salvage or towage for use in ports or airports. Equipment and Machinery for air navigation. Equipment and machinery used for services provided for handling of ships or aircrafts in a customs port or customs-airport. Such plant and machinery as is notified by the Federal Government in the official Gazette but if imported, these shall be entitled to exemption from sales tax on importation if these are not manufactured in Pakistan. Bulldozers and combined harvesters; and components (which include subcomponents, components, sub-assemblies an assemblies but exclude consumables) imported in any kit form and direct materials or assembly or manufacture thereof, subject to the same conditions as are envisaged for the purposes of exemption under the Customs Act, 1969 (IV of 1969). Import and supply of fully dedicated CNG Euro-2 buses whether in CBU or CKD condition.
Respective headings
(2) Surgical tapes Ultrasound gel Diapers for adults (patients) Bricks. Building blocks of cement including ready mix concrete blocks. Computer software.
65
Respective headings
66 67
Respective headings Respective headings
41
8523.2990, 8523.4010, 8523.4090, 8523.5990 and 8523.8090 87.02, 87.03, 8704.2200, 8704.2300, 8705.3000 and 8705.9000 8802.2000, 8802.3000 and 8802.4000 8901.2000, 8901.3000 and 8901.9000
68
Respective headings
42
Ambulances, fire fighting vehicles, waste disposal trucks, brake down lorries, special purposes vehicles for the maintenance of streetlights and overhead cables. Aircrafts
69
Respective headings
43
44
Ships, of gross tonnage exceeding 15 LDTs, excluding those for recreational or pleasure purpose.
70 62 Defence stores, whether manufactured locally or imported by the Federal Government against foreign exchange allocation for defence, including trucks, trailers and vehicles falling under PCT heading 87.04 of the First Schedule to the Customs Act, 1969 (IV of 1969), specially modified for mounting defence Respective headings
8702.9010 and 8702.9090
Sixth Schedule Table 2
Sales Tax
22
Serial No. (1) 5
Description (2) Supply of other such agricultural implements as may be specified in a notification to be issued by the Federal Government in the official Gazette.
Heading Nos. (3) Respective headings
Serial No. of SRO 551(I)/ 2008 17
Description Phosphoric Acid falling under PCT Heading 2809.2010.
Conditions and restrictions Imported by or supplied to phosphatic fertilizer industry for the manufacture of phosphatic fertilizer. (a) Subject to a certificate by Plant Protection Department specifying the quantities to be imported by the person registered with them as importer, formulator or manufacturers of pesticides; (b) Plant Protection Department shall ensure that:-(i) total quantity does not exceed 250 tons; and
18
SRO 480(I)/2011 dated 03 June 2011 rescinding various exemption notifications

As provided vide SRO 1240(I)/2005 dated 16 December 2005 Description Exemption from whole of sales tax leviable on Dump Trucks for off-highway use, on-highway Dump Trucks of 320 HP and PCT Heading 8704.2290 and 8704.2390 and transit concrete mixer, subject to certain conditions. Exemption from sales tax on certain locally manufactured / imported agricultural machinery, equipment and implements. Exemption from sales tax on import and supply of CKD kits of single cylinder agriculture diesel engines of 3 to 36 HP
Mineral oil 97% (W/V) 110% (W/V) falling under PCT Heading 2710.0000.
SRO 542(I)/2006 dated 05 June 2006
SRO 275(I)/2008 dated 12 March 2008
SRO 481(I)/2011 dated 03 June 2011 rescinding exemptions on certain goods as specified under SRO 551(I)/2008 dated 11 June 2008
Serial No. of SRO 551(I)/ 2008 (1) 2
(ii) goods are imported on or before 15th October, 2008.
Description (2) CNG kits, cylinders and valves for CNG kits. Commercial catalogues, falling under PCT Heading 4911.1000. Rock Phosphate, PCT Headings 2510.1000 and 2510.2000.
Conditions and restrictions (3) If supplied for automotive vehicles Import and supplies thereof
12
15
Import and supplies thereof
Table of Contents
23
CUSTOMS Section 1 2 3 4 5 6 7 8 Prohibitions Power to deliver certain goods with-out payment of duty and to repay duty on certain goods False statement, error etc. Refund to be claimed within one year Deletion of superfluous word Deputy Collector Levy of transit fee First Schedule Customs Notifications 15 21 32 33 22, 34 & 96 129A Page 25 25 25 25 25 25 25 26
24
Customs
25
1.
Prohibitions Section 15 Section 15 specifies the goods which are prohibited to be imported into or exported from Pakistan. Further Section 32 deals with the offence of false statement or error by a person in any matter of custom and the procedure to recover duty or charge not levied, short levied or erroneously refunded in such case. The Bill seeks to delete the words or goods imported or exported in contravention of the provisions of section 32 from clause (c) of Section 15. The proposed amendment seeks to remove the goods imported or exported in contravention of Section 32 from the list of goods, which are prohibited to be imported into and exported from Pakistan. This amendment intends to eliminate the possibility of any undue advantage and / or misuse of powers vested under Section 15 with the Customs Authorities.
4.
Refund to be claimed within one year Section 33 Section 33 provides a time limit of one year from the date of payment, to claim refund of any duty paid through inadvertence, error or misconstruction. The Bill seeks to add a new sub section (3) in Section 33, which prescribes that the time limit of one year for claim of refund in consequence of any decision or judgment shall be calculated from the date of issuance of such decision or judgment.
5.
Deletion of superfluous word Deputy Collector Section 22, 34 & 96 The Bill seeks to delete the superfluous word Deputy Collector appearing in Section 22, 34 and 96.
6.
Levy of transit fee Section 129A The Bill seeks to add a new Section 129A to empower the Board to levy a transit fee on goods or class of goods, in transit to other foreign countries across Pakistan. The transit activity has increased the operations and related cost of customs department. The proposed levy is expected to provide revenue to mitigate costs related to services at custom stations and for maintenance of other infrastructure used for such activity.
2.
Power to deliver certain goods without payment of duty and to repay duty on certain goods Section 21 Section 21(c) empowers the Board to prescribe Rules or issue special order authorizing repayment of duties, wholly or partly, in case of import of goods used for production, manufacture, processing, repair of goods meant for exportation or for supply to industrial units, projects, institutions, agencies and organizations entitled to concessionary rates. The Bill proposes to add the words or for supplies against international tenders in clause (c) of Section 21. This proposed amendment intends to make repayment of duties levied on import of goods used for supplies against international tenders. 7.
First Schedule The Bill seeks to make certain changes in the First Schedule, aiming to rationalize the tariff on bars, rods, profiles of refined copper, copper alloy, betaine and others. The Bill also seeks to add a new sub PCT heading in Chapter 87.10 to levy customs duty @ 20% on armoured cash carrying vehicles. The Bill also seeks to make correction in the description of PCT heading 9918, by replacing the word goods with machinery wherever appearing. The word goods was used interchangeably with the word machinery but the proposed amendment is aimed to clarify that the customs duty at the rate of 0% is applicable to machinery which has been reimported by an industrial concern after having been exported without undergoing any process outside Pakistan since their exportation.
3.
False statement, error etc. Section 32 Section 32(3) prescribes time limit of three years for issuance of notice in case of any duty or charge not levied or short levied or erroneously refunded due to inadvertence, error or misconstruction. The Bill seeks to enhance the time limit from three years to five years. Section 32(2) provides time limit of five years for issuance of notice in case of any duty or charge not levied or short levied or erroneously refunded due to the purported wrongful submission of documents and false statements by way of collusion. The proposed amendment intends to harmonize the time limit prescribed in both situations of false statements distinguished in subsections (2) and (3).
Customs
26
8.
Customs Notifications Certain amendments have been made in the existing notifications issued in previous years and amended from time to time, the summary of which is as under: SRO 475(I)/2011 This SRO has amended the existing SRO 565(I)/2006 dated 05 June 2006 (SRO 565)and is effective from 04 June 2011. SRO 565 provides exemption from customs duty, to the extent provided in the Table therein, on import of raw materials, sub-components, components, subassemblies and assemblies used for manufacture of specified survey based goods. In some cases exemption is available, subject to the conditions stated therein. By virtue of this notification, the following significant insertions / exclusions / amendments have been made in the Table: New entries a) The following goods have been added in the Table, to avail the exemption of customs duty in excess of 0%: CNG Compressors (Sr. 118)
Bearings 8482.2000 8482.4000 Geared pump Valves 8413.8110 8481.3000 8481.4000 Forced feed lubricator pump Pressure and temperature gauges Water flow switch Electric motor Junction box, Glands Oil filter assembly Flexible pressure hoses Flexible water hoses (SS braided) SS Tubes/ Pipes Aluminum bars 6082, 7075, T-6 Connecting rods forged 8.5 Kg Pistons pins, Rods and Rings 8413.8190 9026.2000 9026.1000 8501.5290 8536.3000 8414.9090 4009.2190 4009.1190 7304.4100 7604.2910 8414.9090 8414.9090
b)
The following goods have been added in the Table, to avail the exemption of customs duty in excess of 5%: Welded Steel Pipes (Sr. 88, Entry 2)-HRC (prime quality) of a thickness of: i. ii. iii. 4.75 mm or more but not exceeding 10 mm. (7208.3790) 3 mm or more but less than 4.75 mm. (7208.3890) less than 3 mm. (7208.3990)
Welded Steel Pipes (Sr. 88, Entry 3)- CRC (prime quality) of a thickness: i. ii. exceeding 1mm but less than 3 mm. (7209.1690) of 0.5 mm or more but not exceeding 1 mm. (7209.1790)
Glass Manufacturing (Sr. 154, Entry 3)Cullet and other waste / scrap of glass (7001.0000) Glass Manufacturing (Sr. 157, Entry 1)-Butyl Sabutol Acetate(3814.0000) c) The following goods have been added in the Table, to avail the exemption of customs duty in excess of 10%: Car audio system (Sr. 83. (2)(h)(i))CD/MP3/MP4 (8529.9090) Glass Manufacturing (Sr. 154, Entry 2)Mirror backing paint (3208.1010) Exclusions The following goods have been omitted from the Table to exclude these items from the purview of SRO 565: Washing machines Sr. 5(Raw material)Hot Rolled Steel Sheets CNG Compressors (Sr. 118)
High Pressure Gas Pipes Cylinder Block Assy. Frame Assy. Skid Assy. Cooler Assy. Separator Assy. Switch Cabinet Assy. Control Cabinet Assy. 4009.4200 8414.9090 8414.9090 8414.9090 8419.8990 8421.3990 8538.1000 8538.1000
Customs
27
Amendments a) In Sr. No. 2, Column 6 of the Table for air conditioner manufacturers, the special conditions given under following serial numbers have been inserted / amended for in-house manufacturing facility: (v) (vii) (viii) (ix) (x) (xi) b) press machines shearing machines tapping machines riveting machines spot welding machines evaporator bending machine
Roxithromycin Clarithromycine Granules Ceftriaxone Cefotaxime D-Cycloserine Acrinol Pad Benzalkonium Chloride Pad (BKC) Losartan Potassium Chondrotin Sulphate Polyethylene Film
2941.5000 2941.5000 2941.9090 2941.9090 2941.9090 3005.9010 3005.9090 3824.9099 3913.9090 3920.9900
Drugs
All vaccines and antisera 3002.2010 3002.2020
The word copper coated steel tube (bundy tube)in coils is substituted by the word copper coated steel tube in coils upto 8.5 mm dia appearing in entry (3) in column 3 against serial No. 9 of the Table. The change will provide benefit of exemption to all types of copper coated steel tubes upto 8.5 mm dia, which was previously restricted to bundy tube only. The new PCT Heading 8523.2990 has been inserted in column (3) against entry no. (4)of Sr. No. 15 of the Table in respect of magnetic tape in jumbo rolls used for the manufacturing of audio / video cassette.
SRO 477(I)/2011 This SRO is effective from 04 June 2011 and has amended the existing SRO 575(I)/2006 dated 05 June 2006, which provides exemption from customs duty, to the extent mentioned therein and from the whole of sales tax on import of specified plant, machinery, equipments and parts thereof. The significant amendments/ additions are as follows: a) by virtue of this SRO, sales tax exemption has been withdrawn on import of the following: agricultural machinery specified in Sr. No. 1 of the Table. ii. items imported by local assemblers of vehicles and companies having CNG licences, specified in Sr. No. 5 of the Table. iii. goods imported by municipal authorities/local bodies/cantonment boards, specified in Sr. No. 28 of the Table. iv. fire fighting vehicles and equipment imported by Town and Municipal Authorities, specified in Sr. No. 28A of the Table. b) The word Ministry of Tourism has been substituted with Tourism Departments of Provincial Governments, Gilgit-Baltistan, FATA and Department of Tourist Services of the Capital Administration and Development Division wherever appearing in Column 5 of Sr. No, No. 8 of the Table. Sr. No. 5 provides conditions for availing the exemption of sales tax and customs duty on import of machinery, equipment and other items required for setting up, upgradation and expansion of hotels (3 stars and above), tourism; sporting and other recreation services related projects in the aforesaid areas, as approved by the Ministry of Tourism. i.
c)
SRO 476(I)/2011 This SRO is effective from 04 June 2011 and has amended the existing SRO 567(I)/2006 dated 05 June 2006 which provides exemption from customs duty, to the extent provided therein, on import of raw materials, sub-components, components, subassemblies and assemblies used for manufacture of specified non survey based goods. In some cases exemption is available, subject to the conditions stated therein. By virtue of this notification, following significant insertions have been made: New entries in Table III Active Pharmaceuticals Ingredients
Fexofenadine Ebastine Isoniazid Omeprazole Pellets Sparfloxacin Amiloride HCL Candesartan Cilextle Pheneramine Maleate Pioglitazone HCL Glibenclamide Thiocolchicoside Hydrochlorothiazide 2933.3990 2933.3990 2933.3990 2933.3990 2933.5990 2933.9990 2933.9990 2933.9990 2934.1090 2935.0090 2935.0090 2935.0090
Customs
28
The aforementioned substitution has been made in order to align with the 18th Amendment in the Constitution of Pakistan, 1973 whereby the Ministry of Tourism has been transferred to the Provinces under the devolution program. Therefore, the aforesaid substitution should have been made in column 2 of the Table as well, where the word Ministry of Tourism is also appearing. SRO 478(I)/2011 This SRO amends existing SRO 678(I)/2004 dated 07 August 2004 (SRO 678) and is effective from 04 June 2011. Before the amendment, the import of goods as mentioned in clauses 1 and 2 of SRO 678 were exempted from customs duty in excess of 15% ad valorem on X-mas trees, well head and integral components and parts thereof. After the amendment the exemption from customs duty is available in excess of 10% ad valorem to the aforesaid goods. SRO 479(I)/2011 This SRO amends existing SRO 482(I)/2009 dated 13 June 2009(SRO 482) and is effective from 04 June 2011. Under SRO 482 , the Government levied regulatory duty on 397 items, which has now been reduced to 60 items. The significant categories of these items subject to regulatory duty are related to the following industries: a. b. c. d. Tobacco Ceramics Automobile Arms & Ammunition
The regulatory duty has been withdrawn on the specified items of the following categories/ industries by way of amendment made in SRO 482: a. b. c. d. e. f. g. h. i. Dairy Food and beverages Fruit, meat and vegetables Cooked food Cosmetics Marble and granites Consumer products Electrical and home appliances Furniture
Table of Contents
29
FEDERAL EXCISE Section 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Manufacture Special excise duty Default surcharge Recovery of unpaid duty, erroneously refunded duty or arrears of duty etc. Power to seize Confiscation of cigarettes or beverages Editorial changes Alternative dispute resolution Rates of federal excise duty Withdrawal of federal excise duty Federal Excise Notifications 2(16)(b) 3A 8 14(1)(2) 26 27 (1)(2)(3) 29 & 34 38 (4) Page 31 31 31 31 31 31 31 32 32 33 34
30
Federal Excise
31
1.
Manufacture Section 2, Clause (16)(b) The Bill seeks to enhance the scope of the definition of manufacture by including in its ambit the snuffing or preparation of un-manufactured tobacco by drying, cutting and thrashing of raw tobacco.
The Bill seeks to introduce provisos to Sub-section (2) requiring the Officer of Inland Revenue to issue an order for recovery of duty in the event of aforementioned defaults. This order is to be passed within one hundred and twenty days of issuance of the show cause notice or within such extended period as the Commissioner may provide. However the extended period should not exceed sixty days. It is also proposed that any period during which the proceedings remain adjourned due to the reason of a stay order or Alternative Dispute Resolution proceedings or time allowed (maximum of thirty days) on the application of the petitioner shall be excluded in computing the period for passing of the order as proposed under the first proviso. 5. Power to seize Section 26 Section 26 provides the seizure of counterfeited cigarettes, unlawfully manufactured cigarettes or cigarettes on which the duty as prescribed under the FE Act, has not been paid. The law also requires to seize the conveyance used for the movement, carriage or transportation of such cigarettes. The bill now proposes to extend the power of seizure to beverages as well. 6. Confiscation of cigarettes or beverages Section 27, sub-section (1)(2)(3) Pursuant to the provisions of section 26 of the FE Act, dealing with seizure of cigarettes, the manner of confiscation of the same was provided under section 27 of the FE Act. Due to enhancement of the power of seizure in relation to beverages as proposed under the Bill, the consequential impact relating to its confiscation is also proposed to be included. 7. Editorial changes Section 29 & 34 The reference of CBR is still being mentioned in subsection (2) of Section 29 the same being superfluous with the advent of the concept of Inland Revenue. Accordingly the Bill seeks to rectify the above editorial mistake. Section 34 deals with the procedures of appeals to be filed at the appellate forums which include the High Court. Through the Finance Act, 2010 a new Section 34A was introduced in the FE Act, providing separately the matters relating to filing of reference to the High Court. Accordingly the Bill proposes to delete reference of High Court in Section 34 being superfluous.
2.
Special excise duty Section 3A Section 3A of the FE Act, deals with the levy of special excise duty (SED) which is being charged on specified goods produced or manufactured in Pakistan or goods imported into Pakistan. SED was introduced in the FE Act, through the Finance Act, 2007 as a means of interim mode of revenue collection. SED was charged at the rate of 1% of the value of goods, however, the rate was enhanced to 2.5% through the recently enacted Federal Excise (Amendment) Ordinance, 2011 dated 15 March 2011. The bill now proposes to abolish the SED which is a step in the right direction aiming to reduce the burden of taxes/ duties levied in the past. Exemption of goods from the levy of the SED was provided by the Federal Government through SRO 655(I)/2007 dated 29 June 2007. Consequently with the proposal to abolish SED, the aforesaid SRO is rescinded through S.R.O. 489(I)/2011 dated 3 June 2011. This SRO takes effect from 1 July 2011.
3.
Default surcharge Section 8 Section 8 deals with the levy of default surcharge which is currently payable at the rate of KIBOR plus 3% of the amount of duty due but not paid or a refund of duty or draw back received or an adjustment made which is not admissible under the FE Act. This section did not specify the period for which the KIBOR rate was to be applied and a corrective amendment has been made by inserting the word per annum.
4.
Recovery of unpaid duty, erroneously refunded duty or arrears of duty etc. Section 14 sub-section (1) (2) Section 14 provides the modus operandi in respect of recovery of unpaid duty or of erroneously refunded duty or arrears of duty, in terms of which the Officer of Inland Revenue is empowered to issue notice for recovery of duty within three years from the relevant date. The Bill seeks to enhance the period of issuance of notice from three years to five years.
Federal Excise
32
8.
Section 38 of the FE Act, deals with the modus operandi and other matters relating to Alternative Dispute Resolution. Sub-section (4) thereof empowers the Board to pass an order based on the recommendations of the committee constituted for dispute resolution. The Bill now proposes to provide a time line of forty-five days for passing such order by the Board. 9. Rates of federal excise duty The following is proposed to be brought under the purview of excisable goods by including the same in Table I of the First Schedule to the FE Act:
S. No. 1. Nature of Goods White Crystalline Sugar (Entry No.53) Rate of Duty Eight percent ad val.
Table No.
Relevant entry in Table
Alternative dispute resolution Section 38, sub-section (4)
Existing Provision
Proposed Provision
Description
Rate of duty
Description
Rate of duty
11
nineteen rupees and fifty paisa per ten cigarettes Locally produced cigarettes if their retail price does not exceed ten rupees per ten cigarettes
incremental rupee or part thereof Five rupees and twenty five paisa per ten cigarettes
ental twenty one rupees per rupee ten cigarettes or part thereof Locally produced cigarettes if their retail price does not exceed eleven rupees and fifty paisa per ten cigarettes Six rupees and four paisa per ten cigarettes
The rates of duty in respect of the following goods are proposed to be changed:
Relevant entry in Table 1
The above is also proposed to be included in the Second Schedule of the FE Act by inserting entry No.3 in the said Schedule. The goods on which duty is collected under sales tax mode with entitlement for adjustment with sales tax and vice versa are included in the Second Schedule. The rates of duty in respect of the following goods have been proposed to be changed along-with the description of goods
Existing Provision Relevant entry in Table Proposed Provision
S. No.
Nature of Goods
Existing Rate of Duty
Proposed Rate of Duty
1. 2.
4 5
Aerated waters Aerated waters, containing added sugar or other sweetening matter or flavoured. Aerated waters if manufactured wholly from juices or pulp of vegetables, food grains or fruits. Unmanufactured tobacco Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers Filter rods for cigarettes
12% of retail price 12% of retail price
6% of retail price 6% of retail price
3. Description Rate of duty Description Rate of duty
10% of retail price
6% of retail price
Table No.
10
Locally produced cigarettes if their retail price exceeds nineteen rupees and fifty paisa per ten cigarettes Locally produced cigarettes if their retail price exceeds ten rupees per ten cigarettes but does not exceed
65% of the retail price
Locally produced cigarettes if their retail price exceeds twenty one rupees per ten cigarettes
65% of the retail price
4. 5.
7. 13
Rupee five per KG Seven hundred rupees per metric ton
Rupee ten per KG Five hundred rupees per metric ton
Five rupees and twenty five paisa per ten cigarettes plus 70% per
Locally produced cigarettes if their retail price exceeds eleven rupees and fifty paisa per ten cigarettes but does not exceed
Six rupees and four paisa per ten cigarettes plus 70% per increm-
6.
50
One rupee per filter rod
Twenty percent ad val.
Federal Excise
33
The Finance Act, 2008 brought restriction in the interpretation clause as given in Table I of the First Schedule to the FE Act which provides that for the purpose of levy, collection and payment of duty at the prescribed rate in respect of locally produced cigarettes as mentioned in serial Nos.9, 10 and 11 of Table I of the First Schedule, no cigarette manufacturer shall reduce the price from the level adopted on the day of the announcement of the budget 2008-2009. The Finance Act, 2009 and 2010 substituted year 2008-2009 with 2009-2010 and year 2009-2010 with 2010-2011 respectively. The Bill now seeks to substitute year 2010-2011 with the year 2011-2012. 10. Withdrawal of federal excise duty The Bill seeks to withdraw duty on a number of goods and services which is enumerated below:
Table No.
Description
Rate of duty as presently levied
(i) (ii) I I 48 49
Solvent oil (composite) Other (excluding thinners)
Thirteen rupees per litre. Ten percent of retail price. Ten percent ad val. Five percent ad val.
Viscose staple fiber Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 87.02), including station wagons and racing cars of cylinder capacity exceeding 850cc. Air Conditioners Deep Freezers Services provided by property developers or promoters for: (a) development of purchased or leased land for conversion into residential or commercial plots construction of residential or commercial units
I Description Rate of duty as presently levied I II
51 52 12
Ten percent ad val. Ten percent ad val.
Table No.
I I I I I
17 18 21 26 28
Solvent oil (noncomposite) Other Other fuel oils Mineral greases Transformer oil
I I
29 30
Other mineral oils excluding sewing machine oil Waste oil
Thirteen rupee per litre Eighty eight paisa per litre One hundred eighty five rupees per metric ton Twenty five rupees per KG Ten percent of the retail price or seven rupees and fifteen paisa whichever is higher Fifteen percent ad val. Ten percent of the retail price or seven rupees and fifteen paisa whichever is higher Seven rupees and fifteen paisa Eighty eight paisa per litre Twenty five rupees per KG
Rs.100 per square yard
(b)
Rs.50 per square foot of covered area
39
I I I
40 46 47
Carbon black oil (carbon black feed stock) including residue carbon oil Methyl tertiary butyle ether (MBTE) Greases Organic composite solvents and thinners, not elsewhere specified or included; prepared paint or varnish removers:
Federal Excise
34
11. Federal Excise Notifications In exercise of the power conferred by the FE Act, the Federal Government / the Board have issued certain notifications which are enumerated below:
SRO reference and date SRO 484(I)/2011 03 June 2011 Section/ Schedule/ Rule reference Section 3 First Schedule
Description This notification rescinds the notification No.364(I)/2007 dated 03 May 2007. The said notification was issued by the Federal Government whereby the rate of duty on the services provided by Cable TV operators was fixed at eight rupees per subscriber per month. The notification shall take effect from 04 June 2011. The Finance Act, 2006 brought Franchise services in the ambit of excisable services at the rate of five percent. Simultaneously Rule 43A was inserted in the Federal Excise Rules, 2005 whereby special procedures for payment of duty on Franchise fee was laid down. The Finance Act, 2008 increased the rate of duty to ten percent, however the corresponding amendments were not made in Rule 43A. Now the Board has issued SRO 488(I)/2011 dated 03 June 2011 which has removed this anomaly by substituting rate of duty of five percent to ten percent.
SRO 488(I)/2011 03 June 2011
Section 3 First Schedule Rule 43A
Capital Value Tax
35
The Finance Act, 1989 (the FA) introduced for the first time a tax on the capital value of assets referred to as the CVT. Presently, CVT is leviable on the following : Purchase / import of motor vehicle not previously used in Pakistan; and Purchase of modaraba certificates and instruments of redeemable capital by a resident person. The Bill proposes to withdraw the levy of CVT on purchase of modaraba certificates and instruments of redeemable capital listed on any registered stock exchange(s) in Pakistan. Consequentially, the Bill also seeks to withdraw the powers granted to the registered stock exchange(s) for collecting CVT on such certificates and instruments.
Notes
36

Budget Briefing 2011

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BUDGET BRIEFING 2011

This Memorandum may be accessed on our website http://www.ey.com

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KARACHI: 04 June 2011

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Non Salaried Taxpayers

i) Individuals and Association of Persons

Upto Rs.400,000 Rs.400,001 Rs.1,000,000

2011 2012 2013 2014 2015 2016

38. Withholding tax rates

Whether under final tax regime

* Changed to final tax from July 01, 2011.

Whether under final tax regime

Whether under final tax regime

No change No change No change No change

Prizes and winnings

a) Amount of prize bond or crossword puzzle.

10 of amount exceeding Rs.1,000

No 1 of change export proceeds

0.3 of the amount withdrawn

0.2 OF THE AMOUNT WITHDRAWN

Amount of commission or discount

Whether under final tax regime

Type of payment Royalty Shipping income

Rate (%) Existing 15 08 03 20 10 Proposed No change No change No change No change *

Commission income of advertising agents

Amount of payment Commission income of others

Collection of tax by stock exchange

No change No change No change

No change No change No change

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486(I)/2011 dated 03 June 2011

14. Exemptions withdrawn

Heading Nos. of the First Schedule to the Customs Act, 1969

Respective headings Respective headings

8702.9010 and 8702.9090

Sixth Schedule Table 2

Serial No. (1) 5

Heading Nos. (3) Respective headings

Serial No. of SRO 551(I)/ 2008 17

Description Phosphoric Acid falling under PCT Heading 2809.2010.

SRO 480(I)/2011 dated 03 June 2011 rescinding various exemption notifications

SRO 542(I)/2006 dated 05 June 2006

SRO 275(I)/2008 dated 12 March 2008

(ii) goods are imported on or before 15th October, 2008.

Import and supplies thereof

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Relevant entry in Table

Alternative dispute resolution Section 38, sub-section (4)

Existing Rate of Duty

Proposed Rate of Duty

12% of retail price 12% of retail price

6% of retail price 6% of retail price

3. Description Rate of duty Description Rate of duty

10% of retail price

65% of the retail price

65% of the retail price

Rupee five per KG Seven hundred rupees per metric ton

Rupee ten per KG Five hundred rupees per metric ton

One rupee per filter rod

Twenty percent ad val.