Budget 2011-2012

Deloitte
M. Yousuf Adil Saleem & Co. Chartered Accountants

Member of Deloitte Touch Tohmatsu Limited
Budget 2011-12
Highlights & Comments
Audit.Tax.Consulting.Financial Advisory.
Foreword
We prepare this memorandum each year which contains highlights and our comments on Finance Bill. This commentary is for general guidance as such before considering the precise effect of a particular change, reference should be made to the provisions of the relevant statute. This memorandum contains an economic review, highlights of fiscal measures and explanatory description of the significant changes in the Income Tax, Capital Value Tax, Sales Tax, Federal Excise and Custom Duty laws proposed through Finance Bill, 2011 and introduced through notifications. Certain other relevant information on Corporate Laws and IFRSs are also included in this memorandum. Amendments proposed in the Finance Bill 2011 will take effect from July 01, 2011, unless otherwise stated, once it is approved by the parliament. The memorandum is prepared with a view to keep the clients and staff abreast of the changes in fiscal laws. The users are therefore advised to seek professional advice before exercising and applying any legal provision and acting thereupon. The Firm accepts no responsibility for any action taken (or not taken) as a result of the information contained in this document. The memorandum can also be accessed on our website www.deloitte.com/pk
Karachi June 4, 2011
Budget 2011-12 | Highlights & Comments | All rights reserved.
Contents
Budget at a Glance Economic Review Highlights of Important Fiscal Proposals Significant Amendments Proposed In Income Tax Ordinance, 2001 Capital Value Tex (Finance Act 1989) Sales Tax Act, 1990 Federal Excise Act, 2005 Customs Act, 1969 Summary of Important Circular / Notifications Issued by SECP Significant Amendments Made in IFRSs and IFRIC
3 4 13
17 35 36 41 46
50
57
Budget at a Glance
Sources of Funds Rupees in billion 2011-12 Rupees in billion 2010-11 Revised *Net Revenue Receipts Net Capital Receipts External Receipts Estimated Provincial Surplus Bank Borrowing Total Sources of Funds 1,529 395 414 125 304 2,767 55.2 14.3 15.0 4.5 11.0 100 1,238 459 290 120 452 2,559 48.4 17.9 11.3 4.7 17.7 100
Application of Funds
General Public Services (including Debt Servicing) Development Expenditure Defence Affairs and Services Public Order & Safety Affairs Economic Affairs Others Total Application of Funds
1,660 452 495 60 50 50 2,767
60.0 16.3 17.9 2.2 1.8 1.8 100
1,656 263 445 59 80 56 2,559
64.7 10.3 17.4 2.3 3.1 2.2 100
*Net Revenue Receipts Direct and Indirect Taxes Non-Tax Revenue Gross Revenue Receipts Less: Provincial Share in Taxes 2,074 658 2,732 1,203 1,529 135.6 43.0 178.6 78.6 100 1,679 557 2,236 998 1,238 135.6 45.0 180.6 80.6 100.0
Economic Review
Fourth budget of the current coalition government lead by PPP for FY 2011-12, with aggregate outlay of Rs. 2.77 trillion is largely continuation of status quo. Except for the attempt to restrict the fiscal deficit to 4 percent through an ambitious tax collection target of Rs. 1.95 trillion, in line with IMF conditionalities, there are obviously no major surprises. Clearly, the budget lacks any serious effort to broaden the tax net through a broad based VAT / RGST regime, on which there has been so much debate with little or no effort. In the absence of RGST, one can only see that Pakistans fiscal imbalances will continue to deepen, with adverse consequences. The budget also proposes a Federal development program of Rs. 300 billion, and an aggregate development program of Rs. 730 billion, including provincial development program of Rs. 430 billion, which looks optimistic in view of serious resource constrains. But even if this program is implemented, it will hardly be 3.4 percent of GDP that is unlikely to revive growth. Economic review of FY11 and Expectations for FY12 FY11 started with an upheaval for the economy of Pakistan as the nation suffered the worst natural disaster (floods) in its entire history which resulted in relentless short and long-term consequences for our economy. The devastating July 2010 floods swept across the length and breadth of the country, killing more than 1,400 people and rendering 20 million people homeless. Around 2 million of agricultural land went under water destroying around 20 percent of the standing Kharif crop. This situation created direct threat to the nations food security as the food inflation escalated to 21.2 percent in September, 2010 and tapering off to 15.9 percent by the end of May, 2011. Other problems for the economy included rising international oil prices (50 percent increase from June, 2010 to April, 2011), rising fiscal imbalances due to less-than-expected increase in electricity tariffs, delays in carrying out revenue-increasing measures, tax exemptions for residents of flood affected areas, and continued heavy fiscal support to state-owned enterprises. As a result, fiscal deficit for the 9M/FY11 stood at a profound 4.5 percent of GDP with expectations of above Rs. 1 trillion for the full year. On the flip side, the external account of the country stayed positive with impressive numbers for exports and foreign remittances during the ten months of FY11. While the current account balance has improved, capital and financial inflows continued to decline. Owing to devastation caused by floods, continuing energy shortages and ongoing security issues, the economy continues to be in stress, with overall GDP growth declining to 2.4 percent, compared to the target of 4.5 percent estimated initially.
GDP & GNP Growth (Percentage)
10.0 9.0 8.7 6.8 5.8 5.0 5.6 4.8 3.7 3.7 1.7 0.0 2004-05 2005-06 2006-07 2007-08 GDP GNP 2008-09 2009-10 2010-11 P 2.2 3.8 2.4 2.9 6.7
The growth in the agriculture is estimated at 1.2 percent on the back of 3.7 percent growth in the livestock sector (highest share in the agricultural sector). Major Crops, which accounts for 31 percent of agricultural sector, went down further during FY11 and registered a negative growth of 4 percent compared to a negative growth of 2.4 percent during the last year and a target of 3.7 percent. On the contrary, minor crops registered an impressive growth of 4.8 percent compared to the target of 3 percent and massive negative growth of 7.8 percent in the preceding year. As discussed above, the performance of the manufacturing sector during FY11 has been a boombust phenomenon. In particular, the Large Scale Manufacturing sector, which comprises of 65 percent of the overall manufacturing sector, clocked a subtle 1 percent growth in FY11 against a considerable 5 percent in FY11 while the construction sector dragged the overall performance of the manufacturing sector by virtue of a 21 percent fall in its activity compared to the last year. Beside range of factors, three regular features persistently affected the performance of the manufacturing sector are energy crisis, ever rising input cost and lack of demand. The services sector was the saving grace for the economy this year as it grew by 4.1 percent in FY11 against the target of 4.7 percent in comparison with actual outcome of 2.9 percent in FY10. Within services sector, wholesale and retail trade sector grew at 3.9 percent as compared to 4.6 percent last year and the target for the year of 5.1 percent. Finance and insurance sector recorded negative growth of 6.3 percent in 2010-11 as against contraction of 11.3 percent last year. Public administration and defence posted a stellar growth of 13.2 percent as compared to 2.5 percent in last year. Social Services Sector grew by 7.1 percent which is slightly higher than the target of 5.0 percent but lower than last years actual growth of 7.8 percent. Below charts and graphs reflect the trend of sectoral growths in the past seven years.
Sector Growth Performance (Percentage)
2004-05 GDP Agriculture Manufacturing LSM Services
P R
2005-06 5.8 6.3 8.7 8.3 6.5
2006-07 6.8 4.1 8.3 8.7 7.0
2007-08 3.7 1.0 4.8 4.0 6.0
2008-09 1.7 4.0 -3.6 -8.1 1.7
2009-10 R 3.8 0.6 5.5 4.9 2.9
2010-11 P 2.4 1.2 3.0 1.0 4.1
9.0 6.5 15.5 19.9 8.5
Provisional Revised
Sector Growth Performance (%)

25.0 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 2004-05 2005-06
Agriculture
9.0 5.8
6.8 3.7 1.7 3.8 2.4
2006-07
Manufacturing
2007-08
LSM
2008-09
Services
2009-10 R
GDP
2010-11 P
Investment and Savings The total investment has declined from 15.4 percent of GDP in FY10 to 13.4 percent of GDP in FY11 while gross fixed investments has decreased to 11.8 percent of GDP from 13.8 percent last year. On the other hand, national savings notched up above total investments for the first time in the last five years. Moreover, national savings (as a percent of GDP) continued the healthy pattern and increased to 13.8 percent of GDP in FY11 as against 13.1 percent of GDP in the last year. Structure of Saving & Investment as percentage of GDP
2004-05 Total Investment Gross Fixed Investments Public Investments Private Investments National Savings Domestic Savings
P R
2005-06 22.1 20.5 4.8 15.7 18.2 16.3
2006-07 22.5 20.9 5.6 15.4 17.4 15.6
2007-08 22.1 20.5 5.4 15.0 13.6 11.5
2008-09 18.2 16.6 4.3 12.3 12.5 9.8
2009-10 R 15.4 13.8 3.6 10.2 13.1 9.3
2010-11 P 13.4 11.8 3.3 8.5 13.8 9.5
19.1 17.5 4.3 13.1 17.5 15.4
Provisional Revised
Foreign Direct Investment Consistent with the declining trend of overall investment, the Foreign Direct Investment (FDI) also declined by 28.7 percent during July April 2011. The decline in FDI in Pakistan is mainly led by the domestic factors such as deteriorated law and order situation, energy crises, circular debt issues and weak economic activity. FDI stood at $ 1.23 billion during the first ten months (JulyApril) of the current fiscal year as against $ 1.73 billion in the same period last year.
F o r e ig n D ir ec t In ve stm e n t
6 .0 0 5 .0 0 4 .0 0 $ n o i l 3 .0 0 l i B 2 .0 0 1 .0 0 0 .0 0 2 0 0 4 -0 5 2 0 0 5 -0 6 2 0 0 6 -0 7 2 0 0 7 -0 8 2 0 0 8 -0 9 2 0 0 9 -1 0 R 2 0 1 0-1 1 P
F o r e ign D ir e c t In v e stm e n t
Inflation The inflation rate as measured by the changes in Consumer Price Index (CPI) is estimated to stand at 14 percent in FY11, as against 11.7 percent in FY10. The food inflation is estimated at 18.4 percent and non-food 10.4 percent, against 12.0 percent and 11.0 percent in the corresponding period of last year. In contrast, the core inflation which represents non-food and non-energy prices decreased from 11 percent to 9.6 percent. While the growth rate has fallen to less than 3 percent, the overall inflation has remained in the high range of 14 to 15 percent in the past few years, indication that the economy is in vicious circle of stagflation. This is obviously a serious cause for concern, as every year, the number of people below poverty line continues to increase.
Inflation (Percentage)
25 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 R 2010-11 P
Inflation
Interest Rates Taking into account the post flood challenges and fiscal imbalances i.e. monetization, and high rate of inflation; State Bank of Pakistan (SBP) increased the policy discount rate cumulatively by 150bps to 14 percent since July 2010. With large fiscal deficit nearing Rs. 1 trillion coupled with huge losses of public sector enterprises that creates huge demand for credit in the public sector, the credit off-take for private sector remained low. As a result, the interest rates remain high, which also diminishes the demand for credit in the private sector. External Account While the economic growth remained depressed with high inflation and low investment and savings, the positive factors in the economy are improvements in external accounts, with rising exports and remittances. Overall exports recorded a positive growth of 27.8 percent during the first ten months (July-April) of the current fiscal year against an increase of 8 percent in the same period of last year. In absolute terms, exports have increased from $ 15.8 billion to $ 20.1 billion in the ten months of the current year. Imports during the first ten months (July-April) of the current fiscal year (2010-11) increased by 14.7 percent compared to the same period of last year, reaching to $ 32.3 billion. The overall import bill is higher by $ 4.1 billion, reflecting the impact of higher global crude oil and other commodity prices. Owing to the surge in exports, trade deficit of the country declined slightly from $ 12.3 billion in 10MFY10 to $ 12.1 billion in 10MFY11.
Remittances for the first time in the history of Pakistan crossed the $ 1 billion mark in a single month during March 2011 and remained over $ 1 billion for the second consecutive month in April 2011. Workers Remittances totaled $ 9.1 billion in July-April 2010-11 as against $ 7.3 billion in the comparable period of last year, depicting an increase of 23.8 percent.
Foreign Remittances by Workers (in million $)
1200.0 1000.0
Million $
800.0 600.0 400.0 200.0 0.0

July August September October November December January February March April
2008-09
2009-10
2010-11
Current account balance improved significantly during the last two years. Current account recorded a broad-based surplus of $ 748 million in July-April 2010-11 as against a deficit of $ 3.46 billion in the comparable period of last year. The improvement came from all components of current account balance like trade balance of goods and services, and current transfers. The continued buildup in foreign exchange reserves, a surplus in current account balance and a sufficient inflow of remittances through official banking channels have caused Pak rupee to remain stable despite high inflation and depressed economy. Exchange rate averaged Rs. 83.7 in FY10 and Rs. 85.3 to a dollar in June 2010. Foreign exchange reserves amounted to $ 17.1 billion by the end of April, 2011 of which, reserves held by SBP stood at $ 13.7 billion and by banks stood at $ 3.4 billion. During July April 2011, the improvement in the reserve position was due to inflows of $ 451 million from IMF under Emergency Natural Disaster Assistance and $ 743 million received under coalition support fund. SBP reserves position was also helped by lower outflows due to shifting of oil payments to interbank market. Inflows in the scheduled bank also improved on account of healthy remittances and export growth. Revenue scenario and fiscal deficit Tax collection by the FBR was targeted at Rs. 1.67 trillion for fiscal year 2010-11. However, the target was downward revised to Rs. 1.59 trillion, as a result of devastation caused by floods during July and August 2011. Revenue collections of FBR stood at Rs. 1.16 trillion during July-April 201011, thereby reflecting 12.6 percent growth over Rs 1.03 trillion collected during the corresponding period last year. Among the four federal taxes, the highest growth 15.6 percent has been recorded
in sales tax receipts, followed by customs (12.6 percent), direct tax (10.7 percent) and federal excise (7 percent). While there are doubts whether even the revised revenue collection of Rs. 1.588 billion will be collected, the overall fiscal deficit during FY11 is expected to be higher than Rs. 1 trillion, or nearly 5.5 percent of the GDP.
External Debt During the first nine months of the current fiscal year 2010-11, Pakistans total external debt increased from $ 55.9 billion at end-June 2010 to $ 59.5 billion by end-March 2011 an increase of $ 3.6 billion or 6.4 percent which is lowest growth in external debt liability in the last five years. This added fiscal woes created by heavy spending on the war-on-terror, flood-related expenses and financial bleeding in state-owned enterprises. Public Debt increased by Rs 1.16 trillion in the first nine months of 2010-11, reaching a total outstanding amount of Rs. 1 trillion; an increase of 13.1 percent in nominal terms. The primary source of increase in public debt during July-March, 2011 has been a sharp rise in local currency component that accounted for 69.7 percent of the increase in total public debt. Domestic Debt stood at Rs. 5.46 trillion at end-March 2011 which implies net addition of Rs. 803.9 billion in the nine months of the current fiscal year. The rapid growth in population is one of the major concerns for Pakistan. According to the latest estimates population of Pakistan stood at 177 million in 2011 and is sixth most populous country of the world having growth rate of 2.05 percent. If the existing trend remained unchanged, it will reach 191.7 million by the year 2015 and 242.1 million by 2030 (Estimates and projection by Sub-Group II for the 10th five year Peoples Plan 2010-15).
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Stress on Public Sector Development Program For the first half of FY2011, only Rs. 66 billion was made available for Public Sector Development Program (PSDP) activities, less than 25 percent of the Rs. 280 billion earmarked in the FY2011 federal budget, with spending limited to key projects and priority development programs. The federal PSDP for FY2011 faced a further cut of Rs. 100 billion in the second half due to lack of resources.
Budget and Economic Outlook for FY 2011-12

The main objectives of the budget as presented by the Finance Minister are: o o o o Strengthening of stabilization efforts. Reduction of the fiscal deficit. Reduction of the rate of inflation to single digit level through continued fiscal consolidation. Development of a broad, equitable and stable revenue mobilization system to meet medium term and long term development needs. Maintenance and further development of social safety nets for the vulnerable while moving rapidly towards the elimination of untargeted subsidies. Restructuring of the loss making public sector enterprises where possible. Investment through public sector development program in vital infrastructure and much needed human resource development. Reduction of debt to sustainable levels, well below the required 60 percent of the Fiscal Responsibility and Debt Limitation Act (FRDL).
o o
In the backdrop of the above-mentioned factors, the federal government has endeavored to present a budget that has ambitious features of revenue generation and development spending on one hand together with some relief measures like reduction in the rate of sales tax and increase in salaries of government employees by 15 percent. Following are the key targets for FY 2011-12: o o Overall GDP growth target is pitched at 4.2 percent in FY 2011-12. Inflation target for next year is set at 12 percent compared to over 15 percent in the outgoing year.
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The total budgetary outlay (expenditure) is projected at Rs. 2.77 trillion, up 14.2 percent from the original budget estimate of current year. Gross revenues are projected at Rs. 2.73 trillion out of which the share of provinces is RS. 1.20 trillion. This translates into a projected consolidated fiscal deficit of Rs. 850 billion (4 percent of GDP). The budget sets a tax revenue target of Rs 1.95 trillion compared to outgoing years revised estimates of Rs. 1.59 trillion. (an increase of about 23 percent). In line with IMF program conditions, allocation of subsidies have been reduced to Rs. 166 billion as opposed to the revised figure of Rs 395 billion in 2010-11. Allocation for the PSDP has been increased by 10 percent to Rs. 730 billion as compared to the current years original allocation of Rs. 663 billion. The rate of GST has been proposed to be reduced to 16 percent from 17 percent. Special Excise Duty has been proposed to be withdrawn on all items
o o
Key risks and challenges for achieving sustained growth and poverty alleviation
Pakistan has achieved some gains in restoring macroeconomic stability after the balance of payments crisis in 2008. However, the economy remains extremely vulnerable due to deep seated macro-economic imbalances such as large fiscal deficits owing very low tax to GDP ratio. Also, with no end to energy and law and order crisis, apparently there are no signs that the recent trend of low investment and savings, and consequently low economic growth and high inflation, will change significantly for better. While Pakistan has huge economic resources, including but not limited to large deposits of coal and hydal resources to meet our energy shortages, and huge natural resources such as copper and gold deposits in Balochistan, it appears that owing to continuing tendency of short-term thinking based on political expediency coupled with lack of effective governance, our ability to utilize such large resources remains limited. The budget also lacks any serious steps to enhance revenue to address the issue of resource shortages and escalating fiscal deficits, the issues of perennial problem of circular debt and any tangible steps to reduce ongoing losses of public sector enterprises. Consequently, despite some positive measures, on the whole, the proposed steps in the budget do not contain any major initiatives that have the potential to revive economic growth, contain inflation and address most of its deep rooted economic problems.
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Highlights of Important Fiscal Proposals

Income Tax
Tax credit for investment in shares is enhanced, tax credit is also allowed in respect of life insurance premium. The credit is now allowable at 15% of the taxable income, with maximum upper limit for investment is enhanced from Rs.300,000 to Rs.500,000. Holding of shares is now required for 36 months from the date of their acquisition as compared to existing 12 months, for the claim of tax credit on investment in shares. Only resident individuals and association of persons are eligible for the claim of tax credit. Full tax reduction is given to companies making 100% equity investment in an industrial undertaking manufacturing in Pakistan or for investment in the balancing, modernization and replacement of the plant and machinery already installed therein. Corporate enlisting to get 15% tax credit in the tax year of its listing. Tax withholding rate on cash withdrawal from bank reduced from 0.3% to 0.2%. Carry forward period of minimum tax extended from three to five years. Profits on debt derived from Government Securities, etc by non-resident person not having a permanent establishment in Pakistan shall be liable to tax withholding at 10%, which will be final discharge of tax under FTR. Tax deducted on payments made to a permanent establishment of a non-resident person in respect of sale of goods, execution of contract and specified services is to be treated as a final tax, subject to certain exceptions. Tax deducted on the payment made to a company and a permanent establishment of a nonresident person on account of rendering of or providing of services to be treated as a minimum tax. Non-resident tax payer having a permanent establishment in Pakistan is not eligible to obtain Advance Ruling. Filing of return of income is made mandatory for commercial and industrial consumers with annual electricity billing of Rs.1 million or more. Tax exemption threshold for salaried and business class individuals to increase to Rs.350,000. Return filing is still based on taxable income of Rs.300,000.
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Mandatory requirement of filing wealth statement and wealth reconciliation statement by Individuals and members of association of persons deriving taxable income of Rs.1 million or more. Tax withholding statements in respect of payments to be filed on monthly basis on 15th of the month subsequent to the month to which the tax withholding relates. Tax withholding statements to provide particulars of CNIC and NTN. Tax deduction at 10% on income from Government Securities received by non corporate taxpayer is now subject to a final discharge of tax liability under FTR. Tax incentive is given by way of removing upper limit for contribution in an Approved Pension Fund. Rate of tax on dividends to the banks from Asset Management Companies is increased from 10% to 20%. Provisional assessment order issued under section 122C is not appealable before the Commissioner (Appeals). For the purpose of levying penalty, the expression tax payable means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under sections 120, 121, 122 or 122C. Powers of Single Bench of Appellate Tribunal to dispose of appeals are restricted to those appeals having amount of tax and penalties upto Rs.1 million only.
Capital Value Tax

As a result of imposition of capital gain tax on Modaraba certificates, shares and instruments of redeemable capital traded at stock exchange, 0.01% CVT on such instruments is proposed to be withdrawn.
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Sales Tax and Federal Excise Duty

General rate of Sales Tax is brought back to 16% Special Excise Duty of 2.5% is to be abolished. FED incidence on cigarettes is to be increased Value addition tax levied on commercial importers enhanced from 2% to 3%. Straight adjustment of sales tax paid on import or local purchase of fixed assets and capital goods to be allowed Withdrawal of exemption of sales tax on defence stores at import and local supply Exemption of sales tax on cement/concrete blocks and bricks is withdrawn along with reduction in the quantum of excise duty on cement and withdrawal of excise duty on white cement Sales tax leviable on sugar at import and local supply stage is withdrawn. On the other hand, federal excise duty at 8% is to be levied under sales tax mode. Zero-rating regime is rationalized to limit its application only to selected sectors. FED leviable on filter rods for cigarettes is rationalized from Re.1/- per filter rod to 20% ad val. FED on unmanufactured tobacco is enhanced from Rs. 5 per kg to Rs.10 per kg. Reduction in scope of FED by excluding the number of goods from levy of FED like solvent oil, transformer oil, viscose staple fiber, air conditioner, etc. Reduction in the rate of federal excise duty leviable on aerated beverages from 12% to 6%. Bill proposes to seize/confiscate the beverages in certain circumstances. Proposal to empower officers inland revenue to reject refunds filed under section 66 of the Sales Tax Act, 1990 where incidence has been passed on to the consumers.
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Customs
Reductions and Removals
Removal of regulatory duty on various items. List of around 397 items is reduced to 60 items. 5% concessionary rate allowed on additional pharmaceutical raw materials.
Concessions Concessionary duty is allowed on: Raw materials of butyl acetate industry; Raw materials of glass industry; Components of CNG manufacturing industry; Machinery and equipment of oil exploration companies; Raw materials of audio cassettes; and Import of hi-tech car audio systems for hi-tech car audio manufacturing industry
Tariff Rationalization
Tariff rationalization on bars, rods and profiles of refined copper and copper alloy. Creation of separate PCT codes for brass scrap and armored cash carrying vehicle.
Others
Section 21(c) is amended to treat domestic goods against international tenders as exports. This would entitle supplies against international tenders to customs duty draw back (rebate). Transit fee is levied on goods or class of goods in transit across Pakistan to a foreign territory.
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Significant amendments proposed in

Income Tax Ordinance, 2001
1. Definition Section 2 Clause (5)
The Bill proposes to include provisional assessment in the definition of assessment.
Clause (11C) Collective Investment Scheme

The Bill seeks to define the term Collective Investment Scheme as having the same meanings as are assigned under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.
2. Income from business Section 18

Current provision of section 18(1)(d) provides that the fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person in the course of, or by virtue of, a past, present, or prospective business relationship is to be treated as business income of the tax payer. Now the Bill seeks to insert an explanation to define the term benefit to include any benefit derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan (SBP) Banking Company Policy Department Circular 29 of 2002 or other schemes of SBP. This is an important change and would apply if profit on debt or debt itself has been allowed as deductable claim. Circular 29 of SBP under reference, is known to be subject to litigation and as a result thereof it is apprehended that the application of changed law will open doors of further litigation. As the term benefit is proposed to be defined through an explanation; as per decisions of the court, this definition shall be deemed as effective from the date of enactment of section 18(1)(d) .
3. Tax credit for investment in shares and insurance Section 62

Currently an individual or an association of persons (AOP) is allowed a tax credit in respect of investment in shares. This provision was introduced to encourage investment in shares and to provide boost to stock
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market. An individual or an AOP, without having any restriction with respect to their residential status, who purchase the shares of public listed company as an original allottee or acquire the shares through privatization commission is allowed a tax credit which is calculated by applying the average rate of tax to the lower of: (a) the total cost of acquiring the shares (b) ten percent of taxable income; or (c) rupees three hundred thousand The substituted section seeks to limit this relief only to resident individuals and AOP. Further, the limit of 10% of the taxable income is proposed to be enhanced to 15% and the limit of Rs.300,000 is proposed to be increased to Rs.500,000.. Currently the law provides that the investor must hold the shares for not less than 12 months of the date of their acquisition in order to claim the tax credit, otherwise the amount of tax payable for the tax year in which the shares were disposed off shall be increased by the amount of credit allowed. Now, the Bill proposes to enhance the holding period of the shares to 36 months of the date of acquisition in order to claim and maintain the eligibility of tax credit in the manner provided under the section. Tax credit is also proposed to be allowed in respect of life insurance premium paid by a resident individual or an AOP, deriving income chargeable to tax under the head salary or income from business, to a life insurance company registered by the SECP. The proposed amendment is likely to stimulate business in life insurance sector which was demanding such incentive for a long time. It may also result in stimulating saving habits. Tax credit in respect of life insurance premium is to be calculated by applying the average rate of tax to the lower of: (a) the total contribution or premium paid; (b) fifteen percent of taxable income; or (c) rupees five hundred thousand. From the plain reading of the proposed law, it appears that the tax credit for a tax year is to be allowed on a mutually exclusive basis and the taxpayer is to make a choice in each tax year to opt for any one of the investments for making claim of the tax credit.
4. Contribution to an approved pension fund Section 63

This section allows tax credit for a tax year in respect of contribution or premium paid by an individual Pakistani deriving income from salary or income from business in approved pension fund under the voluntary Pension System Rules, 2005. Tax credit is to be allowed by applying the average rate of tax
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to the lower of; The mount of total contribution or premium paid during the year; 20% of taxable income of the tax year; or Five hundred thousand rupees.
The Bill seeks to delete the limit of five hundred thousand rupees, thus providing more incentive to contribute to an approved pension fund.
5. Tax credit for enlistment Section 65C

Through Finance Act, 2010, this section was introduced to provide tax credit of 5% of tax payable for enlistment of company in any registered stock exchange in Pakistan for that particular tax year. It was primarily included to encourage companies to list shares which would entail better corporate governance and increased volumes in the stock market. However, government was unable to derive the desired results because available benefits were quite minimal in relation to the perceived cost of going public. It is interesting to note that during the last year, only 18 companies got listed out of which 11 were mutual Funds. Now legislature proposes to enhance tax credit for enlistment from 5% to 15%. However, it is to be seen whether this fresh incentive would help achieve the desired objective. SECP and stock exchanges of Pakistan have been suggesting since long to provide reduced tax rate for listed companies as compared to unlisted companies.
6. Tax credit for equity investment Section 65D

As part of measures taken by the government to revitalize the industrial activity in the country, a tax credit equal to 100%of the tax payable is proposed to be allowed to a company for a period of five years. The tax credit is to be allowed to a company, with 100% equity owned by it, on or after July 1, 2011 or commencement of commercial production, whichever is later, where the company: (a) (b) establishes a new industrial undertaking for manufacturing in Pakistan; or invests any amount in the purchase and installation of plant and machinery, for the purposes of balancing, modernization and replacement of the plant and machinery, already installed therein, in an industrial undertaking set up in Pakistan and owned by it, with 100% equity owned by it.
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The Commissioner Inland Revenue is empowered to re-compute the tax payable by the tax payer for the relevant year and disallow the credit originally allowed, where it is subsequently discovered that any required condition was not fulfilled. From the plain reading of newly inserted section, it transpires that the company would be allowed a tax credit equal to hundred percent even where it establishes a new industrial undertaking within the same company or make BMR investments in the existing industrial undertaking . It is very difficult to understand as to how the amount of tax payable for the newly established industrial undertaking within the company will be calculated, separately from the tax liability of the company of which it is the sub-division or of the industrial undertaking itself where it has made BMR investments.
7. Unexplained income or assets Section 111

This section provides for the taxability of unexplained tax credits, investments, un-accounted for assets, and expenditures. It provides that any such unexplained tax credits, investments, unaccounted for assets and expenditure are to be included in the persons income chargeable to tax, in the tax year immediately preceding the financial year in which it was discovered by the Commissioner, under the head Income from Other Sources to the extent it is not adequately explained. An amendment is proposed by virtue of which any person has concealed income or furnished inaccurate particulars of income including; (i) the suppression of any production, sales or any amount chargeable to tax; or (ii) the suppression of any item of receipt liable to tax in whole or in part, and the person is unable to offer any explanation of the same the amount suppressed by the person shall be included in the persons income chargeable to tax under the head Income from Other Sources, in the tax year to which such amount relates.
8. Minimum tax on the income of certain persons Section 113

Through Finance Act 2004, the facility of carrying forward the minimum tax on turnover paid by a tax payer was allowed for next five years. Later through Finance Act 2009 it was reduced to three years. Appreciating the increase in minimum tax rate from 0.5% to 1%, through Finance Act 2010, the legislature has proposed to enhance the facility of carrying forward the minimum tax up to next five years. Any amount not adjusted against normal tax liability in the aforesaid period would automatically lapse. This amendment is likely to reward the profit yielding companies for their contribution during the years of losses and lower income, for paying tax more than minimum tax.
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The term Turnover has already been defined in the subsection. Now the Bill proposes to amend the definition to also mean gross sales. This amendment appears to provide more clarity as in practice gross sales are being taken as turnover for the purpose of calculating minimum tax.
9. Return of Income Section 114

This section provides a list of persons that are required to furnish a return of income for a tax year. An addition is proposed in that list by virtue of which the holder of commercial or industrial connection of electricity, where the amount of annual bill exceeds Rs.1 million, will be required to furnish a return of Income. This particular amendment is quite unique and shows that FBR is taking arbitrary measures and is not working in the real spirit of enhancing the tax base. The lower limit of annual bill of Rs. 1 million does not serve the real purpose since those paying a 1 rupee less than the proposed Rs.1 million are not accountable in this context. Rather than introducing such discriminatory legislation, the FBR should have taken administrative measures by collecting information of the holders of commercial and industrial connections from WAPDA and other electricity supply entities. In the First Schedule to the Ordinance, the Bill proposes an increase in exemption for a business individual deriving income up to Rs 350,000 as compared to the current limit of Rs. 300,000. In order to increase the documentation of the economy, the Bill proposes an amendment by virtue of which every individual whose income under the head Income from business exceeds Rs.300,000 but does not exceed Rs. 350,000 is required to furnish the return of income for the tax year. The proposed amendment is in the right direction but it would be interesting how FBR is going to implement this provision especially considering the current level of tax compliance and enforcement capability of field authorities. Another amendment is proposed to make it mandatory for the tax payer to make due payment of tax as per return of income while filing such return of income. Similarly, the Bill proposes filing of wealth statement by an individual or a member of an AOP, wherever applicable, as mandatory for valid filing of income tax return.
10. Persons not required to furnish return of Income Section 115

Consequent to the amendment proposed in section 151 by virtue of which the amount of tax withheld on profit on any security received from the Federal government, a Provincial Government or a Local Government to be treated as discharge of full and final tax liability, an addition is proposed in section 115 which provides that the persons discharging their tax liability in the aforesaid manner are now not required to furnish return of income.
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Similarly, consequent to the amendment proposed under section 153, a resident person or permanent establishment in Pakistan of a non resident person is not required to file return of income: For the sale of goods, except on payment received on account of supply of goods in respect of a company being a manufacturer of such good or payments received on account of sale of goods by a public company listed on a registered stock exchange in Pakistan; On the execution of a contract, other than a contract for the sale of goods or rendering of or providing of services except on payments received by a public company listed stock exchange in Pakistan on account of execution of contracts; and Every exporter or an export house making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a nonresident person for rendering of or providing of services of stitching, dying, printing, embroidery, washing, sizing and weaving, shall at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division IV of Part III of the First Schedule.
The reference of sub-sections (a) and (c) of section 233A are proposed to be deleted to align the section with the amendment made in the section 233 A through Finance Act, 2010.
11. Wealth statement Section 116

Every resident tax payer whose last declared or assessed income or the declared income for the year is Rs.500,000 or more during a tax year is required to furnish a wealth statement and wealth reconciliation statement for that year along with return of income. The Bill proposes to require the filing of wealth statements and wealth reconciliation statement by: an individual whose last declared or assessed income or the declared income for the year is Rs.1 million every member of AOP whose share from income of such AOP, before tax, for the year is Rs.1 million or more.
By virtue of amendments proposed in this section, in order to harmonize the provisions of law, it is being clarified that a company is not under any obligation to file wealth statement and wealth reconciliation statement.
12.
Appeal to the Commissioner (Appeals)
Section 127
As per the proposed amendment, the provisional assessment order issued under section 122C is no more appealable before the Commissioner of Appeals. The proposed amendment is quite harsh,
22
against the principles of justice and contrary to the right given under the Constitution of Pakistan. The proposed amendment implies that until now from the time section 122C was inserted in statute the order passed under section 122C was appealable.
13. Appointment of the Appellate Tribunal Section 130

The reference of the word Chairman appearing in the section is proposed to be substituted with the word Chairperson. This sections authorizes a member of the Appellate Tribunal sitting singly to dispose of any case where the amount of tax or penalty involved does not exceed Rs. 5 million. The Bill proposes to restrict the authority of single member to dispose off any case where the amount in appeal involved does not exceed Rs 1 million. Currently the Appellate Tribunal is authorised to dismiss in default or to proceed ex-parate to decide the appeal on the basis of available record. By virtue of the amendment proposed the Tribunal is required to decide appeal in any case on the basis of available record and in an ex-parate proceeding, even in case of absence of any of the parties on the date of hearing.
14. Advance tax paid by the tax payer Section 147

Sub-section 5B was inserted via Finance Act, 2010, providing for payment of advance tax on capital gains on sale of securities within a period of 7 days after the close of each quarter. The Bill seeks to advance the payment date till 21 days after the close of each quarter. This amendment has already been introduced by SRO 35(I)/2001 dated January 11, 2011 and hence dispensation given through earlier notification has now become part of the law.
15. Profit on debt Section 151

As per amendment proposed, the amount of tax withheld at the rate of 10% on profit on any security paid by the Federal Government, a Provincial Government or a Local Government is to be treated as discharge of full and final tax liability of the recipient.
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16. Payment for goods and services Section 153

Bill proposes to substitute the current section 153 with a new section, introducing some new concepts, and making some changes in the wording to make the section easier to understand. The changes brought through substituted section are as under: (i) Tax deducted on the income of a permanent establishment of a non-resident person is to be treated as a final tax: For the sale of goods, except on payment received on account of supply of goods in respect of a company being a manufacturer of such good or payments received on account of sale of goods by a public company listed on a registered stock exchange in Pakistan; On the execution of a contract, other than a contract for the sale of goods or rendering of or providing of services except on payments received by a public company listed stock exchange in Pakistan on account of execution of contracts; and Payment made by every exporter or an export house in full or part including a payment by way of advance for rendering of or providing of services of stitching, dying, printing, embroidery, washing, sizing and weaving.
The proposed amendment is bound to have serious implications on the taxation of permanent establishment of non-resident persons. This immediate and abrupt change in the taxation regime of permanent establishment may create serious problems for the non-residents who must have planned their business ventures keeping in view the present taxation regime and therefore, may compel them to contest this amendment in the court of law or to ultimately wind up their businesses from Pakistan. (ii) Tax deducted on the payment made to all tax payers including a company and permanent establishment of a non-resident person on account of rendering of or providing of services is to be treated as a minimum tax. Normal tax liability shall be calculated and where the normal tax liability exceeds the minimum tax then the tax payer shall be required to pay the normal tax and where the minimum tax is higher than the normal tax then the tax payer is required to pay the minimum tax. (Individual and association of persons providing or rendering services are currently being taxed in the same manner.) (iii) The term turnover has been defined to mean (a) the gross sales or gross receipts, inclusive of sales tax and federal excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods;
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(b) (c) (d)
the gross fees for the rendering of services for giving benefits including commissions; the gross receipts from the execution of contracts; and the companys share of the amounts stated above of any association of persons of which the company is a member.
It is important to note that the amount of sales tax and federal excise duty are included in the definition of turnover, thereby automatically reducing the thresholds of Rs.50 million applicable respectively to an individual and association of persons to be treated as withholding agents for the purpose of section 153.
17. Withdrawal of balance under Pension Fund Section 156B

This section requires every pension fund manager to deduct tax while making payment from individual pension fund account maintained under any approved Pension fund from any amount withdrawn in excess of 25% of his accumulated balance at or after the retirement age. The Bill proposes to raise this percentage from 25% to 50%.
18. Statements Section 165

This section provides for e-filing of quarterly tax withholding statements in respect of payments made other than salary, by 20th of the month appearing subsequent to the end of each quarter. The Bill proposes to revert back to the earlier practice of e-filing the statements on monthly basis by the 15th day of the month following the month to which withholding tax pertains. The Bill also proposes to include the information regarding Computerized National Identity Card Number and National Tax Number of the person from whom tax has been collected or deducted. To harmonize the provisions of law, the Bill proposes to file annual tax withholding statements in respect of payments made on account of salary that are subject to tax withholding under section 149 of the Ordinance. Section 118 currently provides for the filing of such statement.
19. Credit for tax collected or deducted Section 168

This section provides a list of sections under which tax withheld is allowed as tax credit in computing the tax due by the person on the taxable income of the person for the tax year. Similarly a list of
25
sections is given under which tax withheld is not allowed as tax credit in computing the tax due by the person on the taxable income of the person for the tax year. The Bill proposes to substitute the current sub-section (3) to provide that no tax credit is to be allowed for any tax collected or deducted that is final tax under: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) sub-section (7) of section 148; sub-section (3) of section 151; sub-section (1B) and (1BB) of section 152; clauses (a),(c)and (d) sub-section (3) of section 153; sub-section (4) of section 154; sub-section (3) of section 156; sub-section (2) of section 156A; sub-section (3) of section 233; sub-section (5) of section 234; and sub-section (3) of section 234A.
20. Tax collected or deducted as a final tax Section 169

Consequential to the amendments proposed in section 115, section 151 and 153, reference of the sections and sub-sections are proposed to be changed.
21. Offences and penalties Section 182

The Bill proposes to insert an Explanation in the section to clarify that the expression tax payable means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under sections 120, 121, 122 or 122C. The interpretation of the term tax payable with reference to the levy of penalty has been a long standing dispute between the tax payers and tax collectors. Though, the proposed insertion of the Explanation is likely to reduce future litigation, but at the same time it may create problems for the tax payers where the tax authorities apply this Explanation to the assessments completed before the introduction of this Explanation.
22.
Advance ruling
Section 206 A
This section allows a non-resident person to seek advance ruling from the tax authorities in respect of the application of the Ordinance to a transaction proposed or entered into by the tax payer.
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Although, the ratio of advance ruling in favour of the tax payer is relatively lower; nevertheless the concept of advance ruling has always been welcomed by the non-residents. Now the Bill proposes to deny this facility to the non-resident tax payer having a permanent establishment in Pakistan. This is against the much publicized policy of the government to encourage foreign investment in Pakistan. There appears to be no valid and logical reason for proposing this amendment, especially when amendment has been proposed in section 153 having drastic implications on the taxation of permanent establishments of non-resident persons.
23. Jurisdiction of income tax authorities Section 209

The Bill proposes to insert a proviso to subsection (1) by virtue of which the Board or the Chief Commissioner, as the case may be, are empowered to transfer jurisdiction in respect of cases or persons from one Commissioner to another.
24. Advance Tax at the time of sale by auction Section 236A

The Bill proposes to enhance the scope of this section to provide for collection of advance tax in respect of auction by a tender.
25. Advance tax on purchase of air ticket Section 236B

The Bill proposes following amendments under this section: Advance tax collected under this section on purchase of air tickets is adjustable. The advance tax under this section shall not be collected in the case of: (a) (b) the Federal Government or a Provincial Government; a person who produces a certificate from the Commissioner Inland Revenue that income of such person during the tax year is exempt.
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The First Schedule
Part I Division I (Clause I)

The Bill proposes to omit the reference of Association of Persons (AOP), thus making the rates of taxation applicable to individuals having normal income other than salary. The editorial change was required for the reason that through the Finance Act, 2010 prescribed flat taxation rate for AOP were specified separately under Division IB of Part I of the First Schedule.
Part I Division I (Clause 1) & (Clause 1A)

Basic exemption thresholds for individual taxpayer deriving income from salary and other than salary are proposed to be enhanced from Rs. 300,000 to Rs. 350,000. However, individual taxpayer whose normal income is between Rs. 300,000 to Rs. 350,000 is required to file return of income and statement for the purposes of documentation. The Bill also seeks to omit the first proviso dispensing with the special basic exemption threshold of Rs. 125,000 to woman taxpayer which had already become redundant due to increase in the basic exemption threshold to Rs. 300,000, through the Finance Act, 2010. I. Revised tax rates for individuals drawing income other than salary are proposed to be as follows. Income Slabs Where taxable income does not exceed Rs. 350,000 Where taxable income exceeds Rs. 350,000 but does not exceed Rs. 500,000 Where taxable income exceeds Rs. 500,000 but does not exceed Rs. 750,000 Where taxable income exceeds Rs. 750,000 but does not exceed Rs. 1,000,000 Where taxable income exceeds Rs. 1,000,000 but does not exceed Rs. 1,500,000 Where taxable income exceeds Rs. 1,500,000 % 0 7.5 10 15 20 25
S. No. 1. 2. 3. 4. 5. 6.
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II.
The rates of tax for salaried individuals are proposed to be realigned as follows: Income Slabs Where taxable income does not exceed Rs. 350,000 Where taxable income exceeds Rs. 350,000 but does not exceed Rs. 400,000 Where taxable income exceeds Rs. 400,000 but does not exceed Rs. 450,000 Where taxable income exceeds Rs. 450,000 but does not exceed Rs. 550,000 Where taxable income exceeds Rs. 550,000 but does not exceed Rs. 650,000 Where taxable income exceeds Rs. 650,000 but does not exceed Rs. 750,000 Where taxable income exceeds Rs. 750,000 but does not exceed Rs. 900,000 Where taxable income exceeds Rs. 900,000 but does not exceed Rs. 1,050,000 Where taxable income exceeds Rs. 1,050,000 but does not exceed Rs. 1,200,000 Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 1,450,000 Where taxable income exceeds Rs. 1,450,000 but does not exceed Rs. 1,700,000 Where taxable income exceeds Rs. 1,700,000 but does not exceed Rs. 1,950,000 Where taxable income exceeds Rs. 1,950,000 but does not exceed Rs. 2,250,000 Where taxable income exceeds Rs. 2,250,000 but does not exceed Rs. 2,850,000 Where taxable income exceeds Rs. 2,850,000 but does not exceed Rs. 3,550,000 Where taxable income exceeds Rs. 3,550,000 but does not exceed Rs. 4,550,000 Where taxable income exceeds Rs. 4,550,000 % 0 1.5 2.5 3.5 4.5 6 7.5 9 10 11 12.5 14 15 16 17.5 18.5 20
S. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.
Marginal tax relief allowable at variable slabs to salaried income will continue to be available on the same basis as presently applicable.
Part I Division VII (Capital Gains on disposal of Securities)

The Bill seeks to correct the description of holding period of security for the purposes of chargeability of tax on capital gain on disposal. There is no change in the tax rates for the belowmentioned tax years. Corrected table is as under: S. No. 1. Period Where holding period of a security is less than six months Tax Year 2011 2012 2013 Rate of Tax (%) 10 10 12.5
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S. No.
Period
Tax Year 2014 2015
Rate of Tax (%) 15 17.5
2.
Where holding period of a security is six months or more but less than twelve months
2011 2012 2013 2014 2015 2016
7.5 8 8.5 9. 9.5 10.
3.
Where holding period of a security is one year or more.
0%
Part III Division IV (Exports)

The proposed amendment seeks to provide correct reference of section 153. This amendment is in consequence of the proposed revamped section 153 by virtue of which, the new sub-section (2) of Section 153 is proposed to replace the existing sub-section (1A) of section 153 of the Ordinance.
Part IV Division VI (Cash Withdrawal from Bank)

The Bill seeks to reduce withholding tax rate on cash withdrawal from banks from 0.3% to 0.2%. This change is likely to improve the liquidity position of eligible taxpayers. It is important to mention that the working group on banking sector reforms of the Economic Advisory Council (EAC) had recommended abolition of 0.3 percent withholding tax on cash withdrawal from banks. The basic theme behind this tax was to encourage documentation of economy and broadening the tax base and also discouraging the menace of cash transactions. The measure was introduced in the tax year 2005 with the initial token tax collection rate of 0.1% on daily cash withdrawal from banks, over and above the prescribed limits. However, the rate has since been increasing over the years which had reached to 0.3% through the Finance Act 2008 thus making it a prominent revenue generation source without achieving the basic objectives for which it was brought in the tax statute.
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The Second Schedule

Exemptions and tax concessions
Part I Exemptions from Total Income Clause 107(A)

For providing incentive to social and economic development in Pakistan, the Bill proposes to allow tax exemption in respect of any income derived by the Islamic Development Bank from its operations in Pakistan in connection with its social and economic development activities.
The following exemption clauses are proposed to be omitted for being either barred by time or becoming redundant due to the expiry of the time period mentioned therein. Clause 61
Donation to BCCI Foundation for Advancement of Science and Technology and BCCI Foundation.
Clause 74 (A)
Profit on debt payable to National Bank of Pakistan on foreign currency loan of US $ 100 million, given to Pakistan State Oil Company Limited (PSO) under agreement executed at Bahrain on the 29th May, 2001, approved by the Federal Government vide Finance Divisions letter No.F.3(3)EF(BIII)/2001, dated the May 29, 2001.
Clause 93
Profits and gains derived from running of computer training institution or computer training scheme which was set up between the first day of July 1997 and the thirtieth day of June, 2005 recognized by the respective education authorities for a period of five years.
Clause 114 (A)

Income from capital gains, derived by a person from sale of ships and all floating crafts including tugs, dredgers, survey vessels and other specialized craft available up to tax year ending on the thirtieth day of June, 2011.
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Part II Reduction in Tax Rates Clause (5A)

For profit on debt derived by a non-resident person not having a permanent establishment in Pakistan, reduced rate of 10% is allowed as tax deduction rate in place of general tax withholding rate of 20% applicable to such category of non-resident persons. The tax deduction is not a final discharge putting non-resident in a disadvantageous position when compared with a resident individual taxpayer who is subjected to a final tax discharge at 10%. Through the proposed amendment in the Bill, in order to encourage foreign investment as well as inflow of foreign remittance in Pakistan, similar dispensation is proposed for a non-resident person not having a permanent establishment in Pakistan. Now, tax deduction at source on profit on debt payable to a non-resident person from debt instruments, Government Securities including treasury bills and Pakistan Investment Bonds is proposed to be a final tax discharge. The dispensation will be available subject to the condition that the investment is exclusively made through a Special Rupee Convertible Account maintained with a Bank in Pakistan. The proposed amendment is of general nature and non-residents having further advantage of their tax treaties will remain eligible to take respective treaty protection.
Part III Reduction in Tax Liabilities Clause 4

The Bill proposes to replace the tax collection under section 148 of the Ordinance, based on different engine capacity of the vehicles on import of old and used automotive vehicles and has proposed to link it with the notification SRO 577(I)/2005 dated June 6, 2005 in place of superseded notification S.R.O. 932(I)/2004 dated November 20, 2004. The existing notification provides combined rates in US$ for custom duty, sales tax and income tax which are required to be converted in rupee term with quantification of income tax withholding amount.
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Part IV Exemption from Specific Provisions Clause (11A) (i)

The proposed amendment seeks to allow exemption to pension funds registered under the Voluntary Pension System Rules, 2005, from the applicability of minimum tax under Section 113 of the Ordinance.
Clause (38C)
Consequent to the proposed exemption to Islamic Development Bank under Clause (107A) of Part I of the Second Schedule to the Ordinance, the Bill proposes to insert a new Clause (38C), providing for the non-applicability of tax withholding under sections 151, 152, 153 and 233.
Clause (42), (46A) and (47D)

The proposed amendments in above clauses seek to provide correct reference of section 153, as a consequence to the proposed amendments in section 153.
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The Seventh Schedule

Rules for the computation of profits and gains of a Banking Company and tax payable thereon. The following amendments have been proposed in Seventh Schedule:
Clause 1
The proposed amendment seeks to carry out some editorial amendments in sub-clause (c) where it was not mentioned as to how accounting provisions relating to total advances for consumers and small and medium enterprises (SMEs) defined under the State Bank Prudential Regulations shall be carried over to succeeding years if such provisions are in excess of allowable benchmark rate of 5% of total advances of SMEs. Further, the law is also silent about the basis of allow ability of the claim if accounting provisions are made at an amount lower than 5% of the total advances of SMEs. The anomalies are proposed to be removed by making reference of carryover of the balance provisions if these are in excess of the allowed rate of 5%. Further, amendment is proposed in a retroactive manner and it is proposed that if provisioning is less than 5% of the total advances of SMEs, then actual provisioning for the year shall be allowed from first day of July 2010.
Clause 6
The proposed amendment in Clause 6 seeks to enhance the rate of tax from 10% to 20% on dividend to banks received their Asset Management Companies (AMCs) This fiscal measure has apparently been proposed in order to discourage the practice of arbitrage by banks for receiving dividends from its AMCs.
34
Capital Value Tax

The Bill proposes to withdraw capital value tax on purchase of modaraba certificates, registered instruments of redeemable capital and shares of a public company listed on registered stock exchange in Pakistan. Such exemption from CVT is provided to encourage the trading in such instrument/shares and to boost the stock market. Further the change is proposed in view of the fact that capital gain on disposal of listed securities is now chargeable to tax.
35
Sales Tax Act, 1990

1. Scope of tax Section 3
Presently the general rate of sales tax is 17% which was increased last year from 16% to 17%. Through Finance Bill, such rate is proposed to be reduced to again to16%.
2. Adjustable input tax Section 8B

Presently, input tax on purchase of fixed assets/capital expenditure is allowed to be adjusted against output tax in twelve monthly installments. By this deferment of input tax over twelve months, the funds of the registered persons remain block in input tax, especially in the cases where the heavy investment is made in the capital expenditure. The Bill proposes to withdraw such restriction as a result of which the input tax on acquisition of fixed assets may be claimed in the month of acquisition. This amendment would support to a certain extent the registered persons in managing their cash flows.
3. De-registration, blacklisting and suspension of registration Section 21

Where the Commissioner has reasons to believe that a registered person has issued fake invoices or otherwise committed a tax fraud, he may suspend the registration of such registered person till completion of inquiry in this regard. Sub rule (5) of Rule 12 of the Sales Tax Rules, 2006 provides that during the period of suspension of registration, the invoices issued by such person shall not be entertained for the purposes of sales tax refund or input tax credit, and once such person is blacklisted, the refund or 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 after affording an opportunity of being heard to such person. Now this sub-rule has been made part of main section 21 through insertion of sub-section 3.
4. Return Section 26
Section 27 requires the filing of special return in specified cases. At present the law does not provide possibility of revising such return in case of any error or omission therein. Bill now proposes to make an amendment in section 26 to facilitate the taxpayer to revise such return with the approval of Commissioner within 120 days of filing of such return.
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5. Appointment of authorities Section 30

This section provides the different titles/position of tax authorities that are appointed by the Board. The Bill proposes to add the title Inspector Inland Revenue in this section. This position is already in place in the tax functionaries by virtue of section 207 of the Income Tax Ordinance, 2001, however, it was missing in the Sales Tax Act, 1990, therefore, it is now proposed to be added in section 30.
6. Director General (Intelligence and Investigation) CBR Section 30A

The Bill proposes to replace the word CBR with the words Inland Revenue in this section. This amendment is proposed to rectify the editorial error.
7. Obligation to produce documents and provide information Section 38B

This section authorizes the Deputy Commissioner Inland Revenue or any authority higher than him to call the records, documents, etc. for the purpose of audit, inquiry or investigation. Now, the Bill proposes to assign such authority to Assistant Commissioner as well.
8. Alternate Dispute Resolution Section 47A

Sub-section (4A) of this section empowers the Chairman to pass an appropriate order on the application of the aggrieved person if there is an error in the decision passed by the Board under sub section 4 on the recommendation of the ADR Committee. By virtue of proposed amendment, such order on the application of aggrieved person may now also be passed by the Member nominated by the Chairman for this purpose.
9. Refund to be claimed within one year Section 66

This section facilitates the registered person to claim the refund paid or overpaid through inadvertence, error or misconception within a year. The Bill proposes to add that no such refund shall be admissible if incidence of tax has been passed directly or indirectly to the consumer.
10. Condonation of time limit Section 74

This section empowers the Board to extend the time period given in the provisions of this Act for any act or thing that is to be done under such provisions. The Bill proposes to add the explanation by virtue of which the time period specified for any act or thing to be done by the tax authorities may also be extended by the Board. This amendment is of a clarificatory nature since presently the tax authorities have the practice of seeking approval from the Board for extension in time for their any act to be done under the Act.
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Sixth Schedule
Sales tax exemption given in Sixth Schedule is proposed to be withdrawn on the various items as listed below:
Sixth Schedule- Table 1 Description of goods Surgical tapes. Ultrasound gel. Diapers for adults (patients). Bricks. Building blocks of cement (including ready mix concrete blocks). Computer software. Ambulances, firefighting vehicles, waste disposal trucks, brake down lorries, special purposes vehicles for the maintenance of streetlights and overhead cables. Aircrafts. Ships of gross tonnage exceeding 15 LDTs 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 Custom Act, 1969 (IV of 1969), specially modified for mounting Defence equipments, their parts and accessories for supply to Armed Forces. 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. Bulldozers and combined harvesters, and components (which include sub-components, components, sub-assemblies and assemblies) imported in any kit form and direct materials or assembly or manufacture thereof Import and supply of fully dedicated CNG Euro-2 buses whether in CBU or CKD condition. Relevant S. No. of Table 1 29A 29B 30 34 35 41 42 43 44 62
64 65 66 67 68 69
70
Sixth Schedule Table-2 Description of goods (local supplies) Supply of such agricultural implements as may be specified in a notification to be issued by the Federal Government in the official Gazette.
S. No. in Table 2 5
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Sales Tax Notifications SRO 480(I)/2011 dated June 03, 2011

Through this notification, Federal Government has rescinded its earlier issued SRO 1240(I)/2005 dated December 16, 2005, SRO 542(I)/2006 dated June 05, 2006, SRO 275(I)/2008 dated March 12, 2008 and Notification No. 1(3)STM/2004(Pt-II) dated August 23, 2009 as a result of which following items are now become chargeable to sales tax with effect from June 04, 2011: import and supply of CKD kits of single cylinder agriculture diesel engines of 3 to 36 HP Imports/supplies of dump trucks Imports/supplies of transit concrete mixers Imports of all agricultural machineries, equipment and implements Supplies of all locally manufactured agricultural machineries, equipment and implements
Moreover, through above SRO sales tax at the rate of 8% on the supply of sugar has been withdrawn and in place of such sales tax, FED at 8% under sales tax mode has been levied.
SRO 481(I)/2011
Under SRO 551(I)/2008 various items are exempted from sales tax. Through, SRO 481(I)/2011, certain amendments have been made in this exempted SRO as under: Following items have been removed from the exemption list:
i) ii) iii) iv) v)
CNG kits, cylinders and valves for CNG kits Commercial catalogues, falling under PCT Heading 4911.1000. Phosphoric Acid falling under PCT Heading 2809.2010 Rock phosphate PCT Headings 2510.1000 and 2510.2000 Mineral oil 97% (W/V) 110% (W/V) falling under PCT Heading 2710.0000
Further, the following items have been added for exemption:
i) ii)
White crystalline sugar (FED at 8% has been imposed in place of sales tax) Reclaimed lead if supplied to recognized manufacturers of lead batteries.
The notification is effective immediately from June 04, 2011.
SRO 482(I)/2011 dated June 03, 2011

This notification has amended the Rule 58B(1) of Sales Tax Special Procedure Rules, 2007 by virtue of which rate of value addition tax on imports of taxable goods has been increased from 2% to 3% of value of such goods. The notification is effective immediately from June 04, 2011.
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SRO 483(I)/2011 dated June 03, 2011

Under SRO 880(I)/2007, certain diagnostic kits or equipment are exempt from sales tax. Through notification 483(I)/2011, Federal Government has added following further items in exempted listed Calibrated; and Eclia The notification is effective immediately from June 04, 2011.
SRO 485(I)/2011 dated June 03, 2011

Through the aforementioned notification the Federal Government has rescinded its SRO 1161(I)/2007 dated November 30, 2007 by virtue of which special tax rate of zero percent on import of raw materials for manufacturing of Diapers of HS Code 56.01.1040 has now been withdrawn with effect from June 04, 2011
SRO 486(I)/2011 dated June 03, 2011

By virtue of amendment in zero rating SRO 549(I)/2008, following items are chargeable to sales tax with effect from June 4, 2011: 1. 2. 3. 4. Dedicated CNG buses and all other buses meant for transportation of forty or more passengers whether in CBU or CKD condition Trucks and dumpers with g.v.w. exceeding 5 tonnes Trailers and semi-trailers for the transport of goods having specifications duly approved by the Engineering Development Board Road tractors for semi-trailers, prime movers and road tractors for trailers whether in CBU condition or in kit form
SRO 487(I)/2011 dated June 03, 2011

ADRC is required to submit its report to FBR within 60 days of its formation. Now by virtue of amendment in Rule (65) of Sales Tax Rules, 2006, the time limit for submission of report has been extended to 90 days. Moreover, Rule 14A was inserted in Sales Tax Rules, 2006 through SRO 278(I)/2010 by virtue of which when under the revised return the additional tax liability is due by the registered person, such person may file the revised return without the approval of the Commissioner and pay the additional amount along with default surcharge but without penalty. Such Rule has now been abolished as a result of which the approval of Commissioner is mandatory under section 26(3) for revision of return in all cases.
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Federal Excise Act, 2005

1. Definitions Section 2
2. Manufacture Clause 16
The above-mentioned definition is proposed to be modified to include preparation of unmanufactured tobacco by drying, cutting and thrashing of raw tobacco in the definition of manufacture.
3. Special Excise Duty Section 3A Notification SRO 489(I)/2011 dated June 3, 2011
Presently, special excise duty is leviable at 2.5% on the import and supply of manufactured goods with certain exemptions given in SRO No.655(I)/2007. Such duty was enhanced through the Federal Excise (Amendment) Ordinance, 2011 from 1% to 2.5% effective from March 15, 2011. Now this SED is totally abolished by the deletion of this section and relevant SRO No 655(I)/2007.through the aforementioned notification SRO 489. The change in law will be applicable from July 1, 2011.
4. Default Surcharge Section 8

The proposed amendment in this section is of a rectificatory nature. The words per annum have been added after the words KIBOR plus three percent thus making the charge to be calculated with reference to a year.
5. Recovery of unpaid duty or of erroneously refunded duty or arrears of duty Section 14

Sub section (1) of this section requires the tax authorities to issue show cause notice to the person for recovery of short paid or unpaid duty or refund erroneously issued. Presently, the time limit for issuance of such show cause notice is three years. Bill proposes to extend this period of issuance of notice from three years to five years.
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A new proviso is also proposed to be added by virtue of which order shall be made within one hundred and twenty days of issuance of show cause notice or within such extended period as the Commissioner may, for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed sixty days. However, any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding thirty days shall be excluded from the computation of the periods specified in the first proviso. This time period of passing the order is in harmony with the Sales Tax Act, 1990.
6. Power to seize Section 26

This section requires the seizure of unlawfully manufactured cigarettes or on which duty has not been paid along with the conveyance which has been used for the carriage of such cigarettes. The Bill proposes to bring beverages in the ambit of this section as well.
7. Confiscation of cigarettes Section 27

This section requires the confiscation of cigarettes in certain circumstances. The Bill proposes to extend the scope of this section to beverages as well.
8. Appointment of Federal Excise Officers and delegation of power Section 29

The Bill proposes to replace the words Directorate General (Intelligence & Investigation) CBR with the words Directorate General (Intelligence & Investigation) Inland Revenue in sub section (2) of this section. This amendment appears to be of a rectification of editorial error.
9. Appeals to the Appellate Tribunal and Reference to High Court Section 34

The Bill proposes to remove the words Reference to High Court in the marginal note of this section. The proposed amendment is of a rectificatory nature.
10. Alternate Dispute Resolution Section 38

Sub-section (4) of this section requires the Board to pass the appropriate order on the recommendation of the ADRC. However, time limit to pass such order was not specified whereas in sales tax and income tax law the time period of 45 days has been given to pass the said order. The Bill proposes to add such time limit of 45 days in this section also.
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Schedules Excisable Goods First Schedule (Table 1)

Rate of duty on certain goods have been changed as follows: S. No. 1. 2. Description of goods Aerated water. Sweetened aerated water manufactured wholly from juices, pulp, etc. Unmanufactured tobacco. Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not colored or in the form of clinkers Filter rods for cigarettes Existing duty 12% 10% Proposed duty 6% 6%
3. 4.
5% Rs.700 per MT
10% Rs.500 per Mt
5.
Re 1/-per filter rod
20% ad val
The structure of FED on locally produced cigarettes is proposed as follows: S. No. 1. 2. Description of goods Locally produced cigarettes if their retail price exceeds Rs 21 per ten cigarettes. Locally produced cigarettes if their retail price exceeds Rs 11.50 per ten cigarettes but does not exceed Rs 21 per ten cigarettes. Locally produced cigarettes if their retail price does not exceed Rs 11.50 per ten cigarettes. Proposed duty 65 % of retail price. Rs 6.04 per ten cigarettes plus 70% per incremental rupee or part thereof.
3.
Rs 6.04 per ten cigarettes.
Note: As per restriction clause given in First Schedule for levy, collection and payment of duty for locally produced cigarettes, the prices cannot be reduced from the level adopted on the day of the announcement of the Budget 2011-12. Following goods has been added in the ambit of Federal Excise Duty, which would be chargeable on such goods in sales tax mode: S. No. 1. Description of goods White Crystalline Sugar Proposed duty 8 % ad val at import and local supply stage.
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Federal Excise Duty has been withdrawn on the following goods and services: Description of goods Solvent oil (non-composite). Other. Other fuel oils. Mineral greases. Transformer oil. Other mineral oils excluding sewing machine oil. Waste oil. 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: (i) Solvent oil (composite) (ii) Other (excluding thinners). Viscose staple fibre. Motor cars and other motor vehicles principally designed for the transport of persons, including station wagons and racing cars of cylinder capacity exceeding 850 cc. Air Conditioners. Deep Freezers. Description of services Services provided by property developers or promoters for: (a) Development of purchased or leased land for conversion into residential or commercial plots (b) Construction of residential or commercial units. S. No. in Table 1 of First Schedule 17 18 21 26 28 29 30 39 40 46 47
48 49
51 52 S. No. in Table 2 of First Schedule 12
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Significant notifications
1. SRO 484(I)/2011
The issuance of above SRO has resulted in a withdrawal of SRO 364(I)/2007 under which excise duty was leviable on the services provided by Cable TV operators. The notification will be effective from June 4, 2011.
2. SRO 488(I)/2011 of 03-06-2011

Rate of FED on franchise services is 10% since July 01, 2008, however, in rule 43A of the Federal Excise Rules, 2005 the old rate of 5% was given. Accordingly, above SRO has been issued to correct such rate in Rule 43A of the Federal Excise Rules, 2005 from 5% to 10%.
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Custom Act, 1969

1. Prohibitions and restrictions of importation and exportation Section 15
This section places restriction on import and export of certain goods. Through proposed amendment the goods imported or exported in contravention of provisions of section 32 are to be excluded from the ambit of this section.
2. Power to deliver certain goods without payment of duty and to repay duty on certain goods Section 21
This section allows the delivery of goods imported temporarily for subsequent export without payment of duty, and repayment of duty on the goods which are used in production of goods meant for export. The scope of this section is now proposed to be extended to imported goods used in the production, manufacture, processing, repair or refitting in Pakistan of goods meant for supplies against international tenders.
3. Re-importation of goods produced or manufactured in Pakistan Section 22

The Bill proposes to exclude the words of Deputy Commissioner from this section to remove the existing superfluity.
4. Untrue statement, error, etc Section 32 (3A)

In the said section, the time limit of 3 years is proposed to be extended to 5 years for serving a show-cause notice to an importer where any duty or surcharge has not been levied or has been short levied or has been erroneously refunded and this is discovered as a result of an auditor examination of an importers accounts or by any means other than an examination of the documents provided by the importer at the time the goods were imported.
5. Refund to be claimed within one year Section 33

A sub-section 3 is proposed to be added which clarifies that where the refund has become due in consequence of any decision or judgment by any appropriate officer of customs or the Board or the Appellate Tribunal or the Court, the said period of one year shall be reckoned from the date of such decision or judgment, as the case may be. This proposed sub-section is line with the sales tax law.
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6. Power to give credit for and keep account-current of duties and charges Section 34
7. Power of rent and warehouse dues Section 96

8. Levy of transit fee Section 129A

A new section is proposed to be inserted according to which a transit fee may be levied on any goods or class of goods in transit across Pakistan to a foreign territory at rates prescribed in the official Gazette.
First Schedule
Certain reclassifications have been made in the First Schedule. Moreover, on the following items, CD has been imposed: PCT Code 74.04 7407.1010 7407.2100 Description Copper waste and scrap ------Bars -------of copper zinc base alloys (brass) Proposed Custom Duty rate 5% 5%
Notifications SRO 475(I)/2011 of 03-06-2011 making amendments in SRO 565(I)/2006 of 05-06-2006

SRO 565(I)/2006 provide the concessionary duty rates on import of raw materials/components used in the manufacturing of specified products. By SRO 475(I)/2010, certain amendments have been made in this concessionary duty SRO, which will be effective from June 04, 2011. Some of the significant changes are given as under: To avail the benefit of concessionary duty on raw materials used in air conditioners, following machines have been added that should be part of the in-house manufacturing facility of air conditioner:
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1. 2. 3. 4. 5. -
Shearing machines; Tapping machines; Riveting machines; Spot welding machines; and Evaporator bending machine
Hot rolled steel sheets has been excluded from the concessionary duty raw material of washing machines For CNG Compressors, the existing raw materials have been replaced with the following Bearings Geared pump Valves Forced feed lubricator 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
For glass manufacturing, following new concessionary duty raw materials have been added: Mirror backing paint (10% ad val) Cullet and other waste / scrap of glass (5% ad val)
SRO 476(I)/2011 of 03-06-2011

Through this SRO, concessionary duty rate of 5% on import of certain raw materials for pharma industries have been included under SRO 567(I) /2006. This notification will be effective from June 4, 2011.
SRO 477(I)/2011 of 03-06-2011

SRO 575(I)/2006 provide concessionary duty rates on certain plant/machinery, equipments and capital goods and allow exemption from sales tax thereon. Through SRO 477(I)/2011 the following items have been removed from the exemption of sales tax:
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1. 2. 3. 4. 5. 6. 7. 8.
Agricultural Machinery Items imported by the local assemblers of vehicles and companies having CNG licenses. Off-highway dump trucks of 320 hp and above On Highway Dump Trucks of 320 HP and above Goods imported by municipal authorities/local bodies/cantonment boards Fire fighting vehicles and equipment imported by town and municipal authorities Aircraft spares, parts, tyres, navigational equipment and accessories Items imported by Civil Aviation Authority (CAA) for air traffic services and training
SRO 478(I)/2011 of 03-06-2011

SRO 678(I)/2004 provides certain exemption from customs duty and sales tax to Exploration and Production (E&P) companies on import of machinery, equipment , specialized vehicles/vessels and helicopter etc. Duty on X-mass trees, well-head and integral components and parts thereof has been reduced from 15% to 10%. This SRO is effective from June 04, 2011.
479(I)/2011 of 03-06-2011
In SRO 482(I)/2009, a number of397 items were listed on which regulatory duty was imposed at specified rates. Through SRO 479(I)/2011 several items have been removed and now only 60 items are left on which the regulatory duty is levied at the rates specified in the said SRO. The notification is effective from June 04, 2011.
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Corporate Law
Summary of important Circulars issued by the Securities and Exchange Commission of Pakistan (SECP) From June 05, 2010 To June 03, 2011
Circular No. 07 of 2010 dated March 31, 2010 Applicability of Islamic Financial Accounting Standard I Murabaha (IFAS-I)
The Commission has directed all Modaraba Companies to comply with IFAS-I and other standards as notified by the SECP under section 234 of the Companies Ordinance, 1984 while preparing the financial statements of Modarabas.
Circular No.5 of 2010 dated June 22, 2010 Guidelines for Bancassurance - 2010
The revised guidelines have been issued which are applicable on all new Bancassurance Agency Agreements signed on or after 1st August, 2010 and any such agreement existing on the aforementioned date. The Commission requires all insurance companies and takaful operators to strictly comply with these guidelines.
Circular No. 11 of 2010 dated June 10, 2010 Guidelines provided to implement requirements under Section 39 of the Insurance Ordinance, 2000 (Assets of Life Insurers Statutory Funds)
In order to increase transparency and effectiveness, the SECP has notified the guidelines for the implementation of section 39 of the Insurance Ordinance, 2000, according to which all assets owned by the life insurance company should be clearly designated All life insurers are required to: designate in the books of insurer, all assets owned by the company related to either Shareholders Fund, particular Statutory Fund or a sub-fund.
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record the transaction in any one fund, where there are transactions relating to specific policies that relate to more than one statutory fund with the time limitation of recording in the specific fund not later than 15 days following the end of the calendar month in which the first transaction took place. designate the proportion belonging to each fund relating to the assets and liabilities, in case these belong to more than one fund. acquire and dispose of assets at arms length.
The Commission will require an opinion from the statutory auditors as to compliance of aforementioned requirements.
Circular No. 14 of 2010 dated July 05, 2010 United Nation 1267 Committees Consolidated List of Individuals and Entities regarding Freezing of Fund and other Resources
With the objective to prevent criminal misuse of the insurance industry by the money launderers for the purpose of money laundering and terrorist financing all insurance institutions are hereby required to comply with the requirement of freezing of funds and refuse business to individuals, groups, undertakings and entities appearing on the consolidated list maintained by United Nations to prevent the criminal misuse of insurance industry.
Circular No. 15 of 2010 dated July 06, 2010 Related Party Assets
Certain assets in connection with a related party have been declared as admissible for the purpose of solvency requirement. However, all others assets, other than the one specified in the circular, as provided section 32(2)(g) of the Insurance Ordinance, 2000 shall remain inadmissible.
Circular No. 16 of 2010 dated July 07, 2010 Categorization of open end Collective Investment Scheme
In order to enable investors to make a well informed decision, all AMCs have been directed by the Commission to make following disclosures for open-end schemes which hold non-compliant investments :
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Disclosure in the Offering Documents (risk section) Disclosure in Advertisement Disclosure in the Fund Manager Report, quarterly, half yearly and annual financial statements.
AMCs are also required to : i) Make available latest monthly Fund Manager Report (FMR) of the Scheme at its website and its simultaneous submission to the Commission. Disclose credit quality / asset quality of portfolio of the Scheme in monthly FRM.
ii)
iii) Ensure compliance with the requirement of maintaining requisite cash and near cash investment.
Circular No. 18 of 2010 dated July 16, 2010 Additional Condition to the Modaraba Authorization Certificate
To safeguard the interest of certificate holders of modarabas, the Commission has imposed new condition for appointment of a CEO to fill the casual vacancy with the approval of the Registrar (Modarabas) and restricting interim arrangement against a casual vacancy.
Circular No. 19 of 2010 dated July 30, 2010 Sharing of Costs of Insurance Ombudsmans Secretariat by Insurance / Takaful Companies.
The Commission has determined the following formula for sharing the costs of the Insurance Ombudsmans Secretariat for the period from 01st July 2010 to June 30, 2011. greatest of Rs. 250,000 and Rs. 0.09 per mille of 2009s. gross direct premium written or contribution received in Pakistan in case of insurance company or takaful operator, respectively.
Circular No. 21 of 2010 dated August 10, 2010 Clarification on clause 3(ii) of Part II of the 3rd Schedule of the Modaraba Companies and Modaraba Rules, 1981.
Clarification was issued by the Commission that the disclosure requirements under clause 3(ii) of Part II of the 3rd Schedule of the Modaraba Companies and Modraba Rules, 1981 are not applicable on sale or transfer of Ijarah (lease) assets by a Modaraba in normal course of business.
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Circular No. 22 of 2010 dated August 24, 2010 Revised 2nd Schedule of Modaraba Companies and Modaraba Rules, 1981
Scale of Fee of Modaraba Companies related to the registration, renewal and filing has been revised by the Commission.
Circular No. 26 & 28 of 2010 dated November 16, 2010 and December 21, 2010 Refund of Fee received under Sixth Schedule to the Companies Ordinance, 1984
The Commission now permits refund of fee deposited under the Sixth Schedule to the Companies Ordinance, 1984 to the existing Companies and the Companies proposed to be registered whose documents have not been filed with the Company Registration Office by making an application alongwith supporting evidence including original paid challan for refund of fee to the Registrar or Commission.
Circular No. 29 of 2010 dated December 24, 2010 Annual supervision fee for the year 2011
Imposition of conditions on Registered Insurers vide sub-section 11 of the Insurance Ordinance, 2011 by the Commission that every insurer must pay on or before 15th day of January every year, an annual supervision fee of the greatest of Rs. 100,000 or such amount as may be prescribed, and at the expiry of one year, a fee of Rs. 2.00 per thousand of the gross direct premium written in Pakistan during the year 2009, subject to a maximum of Rupees fifty million.
Circular No. 03 of 2011 dated January 20, 2011 Amendment in Circular 36 of 2009 dated December 10, 2009 Investment and Allocation Policies for Pension Funds authorized under the Voluntary Pension System Rules, 2005.
Considering the recomposition of the sectors by the Karachi Stock Exchange and availability of limited investment avenues of Sharia Compliant Pension Funds, certain amendments have been made by the Commission in Voluntary Pension Systems Rules, 2005 relating to the allocation of
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assets amongst the different instruments and sectors in order to facilitate the investors and compliance by the Pension Funds.
Circular No. 04 of 2011 dated March 10, 2011 Categorization of open end Collective Investment Scheme
The Commission, as a result of discontinuation of Continuous Funding System (CFS), has directed to replace the term CFS with Margin Trading (MT). Accordingly, the open-end collective investment schemes which are allowed to take exposure in CFS, may now invest in MT in terms of the Rules.
Circular 06 of 2011 dated March 17, 2011 Withdrawal of clarification regarding the term Paid up Capital for Insurance Brokers Registered in Pakistan
Circular No 20 of 2010 dated July 30, 2010 defining the term Paid up Capital for Insurance Brokers Registered in Pakistan has been withdrawn by the Commission.
Circular No. 07 of 2011 dated March 18, 2011 Maximum Management Expenses Limits for Life Insurers under Section 22(9) & Section 23(9) of Insurance Ordinance, 2000
The following amendments made Circular No. 6 of 2006 dated April 28, 2006 for insurance Companies having more than 10 years of business in Pakistan, in respect of First year premium and renewal years premium for the year 2011 & 2012, other than Single Premium Policies, Group Insurance Policies and Annuities :
Limits as per Circular # 6 of 2006 2011 First Year Premium Renewal Year Premium 98% 17% 2012 90% 15 Amended Maximum Limits 2011 104% 19% 2012 100% 18%
Items
All other terms of Circular No. 6 of 2006 remain the same. However, expenses limits for the years after 2012 will be prescribed by the Commission in due course of time.
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Summary of important Notifications issued by the Securities and Exchange Commission of Pakistan (SECP) from June 05, 2010 to June 03, 2011
S.R.O.271 (I)/2010, April 21, 2010
Various amendments have been made in Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 such as: omitting restriction on sale and transfer of physical shares lodged with the Commission; extension in the validity period of NBFC licence and its renewal to three years respectively;
Undertaking brokerage business by an NBFC having licence of investment advisory services, without forming a separate company.
S.R.O.293 (I)/2010, May 03, 2010

Delegation of various powers and functions by the Commission to its Executive Director (Enforcement Department) and Director (Enforcement Department) in respect of private companies having a paid up capital of not less than Pak Rupees 7.5 million and non listed public companies.
S.R.O.335 (I)/2010, May 17, 2010

Scale of Fee of modaraba companies related to the registration, renewal and filing has been revised by the Commission under the Second Schedule to Modaraba Companies and Modaraba Rules, 1981.
S.R.O.494 (I)/2010, June 07, 2010

The applicability of the Companies Cost Accounting Records (General Order), 2008 on all companies engaged in the fields of fertilizer, thermal energy, petroleum refining, natural gas and polyester fiber deferred by the Commission and to be applicable from the financial year commencing on or after July 01, 2010.
S.R.O.516 (I)/2010, June 16, 2010

Various amendments have been made in the Real Estate Investment Trust Regulations, 2008 by the Commission.
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S.R.O.591 (I)/2010, June 29, 2010

Various amendments have been made in the Non-Banking Finance Companies and Notified Entities Regulations, 2008 pertaining to the exposure of an equity scheme to any single entity and sector limits.
S.R.O.655 (I)/2010, July 13, 2010

All asset management companies are directed to report by June 30, 2011 compliance to the regulation under the Non-Banking Finance Companies and Notified Entities Regulations, 2008 related to prohibition on maintenance of its own equity portfolio by an asset management company.
S.R.O.996 (I)/2010, October 26, 2010

Substitution of Sixth Schedule to the Companies Ordinance, 1984 by revised fees payable by the companies to the Registrar and the Commission.
S.R.O.87 (I)/2011, February 03, 2011

The Commission has granted waiver from the requirements of IAS 21 and IAS 39 to the Independent Power Projects that are not covered under Circular 11 of 2008.
S. R.O.128 (I)/2011, February 18, 2011

Promulgation of the Securities (Leveraged Markets and Pledging) Rules, 2011 by the Commission with the approval of Federal Government.
S. R.O.282 (I)/2011, March 30, 2011

Substitution of Sixth Schedule to the Companies Ordinance, 1984 by revised fees payable by the companies in connection with the issuance of shares otherwise than right and employees stock option scheme.
S. R.O.289 (I)/2011, April 04, 2011

Substitution of Part II of Second Schedule to the Companies Ordinance, 1984 pertaining to the Form of Statement in lieu of Prospectus to be delivered to the Registrar by a company
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IFRSs/IFRIC
Significant amendments made in International Financial Reporting Standards (IFRSs) and International Financial Reporting Interpretations Committee (IFRIC) issued between July 01, 2010 to May 25, 2011
(The list is indicative, not exhaustive)
IFRS 7 Financial Instruments: Disclosures Amended on October 07, 2010 Effective from July 01, 2011
The amendments introduce increased disclosures on transfers of financial assets. The new disclosures now include: Information that enables users of its financial statements: o o To understand the relationship between transferred financial assets that are not derecognised in their entirety and the associated liabilities; and To evaluate the nature of, and risks associated with, the entitys continuing involvement in derecognised financial assets.
For transferred financial assets that are not derecognised in their entirety: o o Description of the nature of the transferred assets, Nature of risk and rewards as well as description of the nature and quantitative disclosure depicting relationship between transferred financial assets and the associated liabilities.
For transferred financial assets that are derecognised in their entirety o o o The carrying amount of the assets and liabilities recognised, Fair value of the assets and liabilities that represent continuing involvement, Maximum exposure to loss from the continuing involvement as well as maturity analysis of the undiscounted cash flows to repurchase the derecognised financial assets.
Additional disclosures: o o Any gain or loss recognised at the date of transfer of the assets, Income or expenses recognise from the entitys continuing involvement in the derecognised financial assets as well as details of uneven distribution of proceed from transfer activity throughout the reporting period.
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IFRS 9 Financial Instruments Re-issued on October 28, 2010 Effective from January 01, 2013
Initial measurement of financial instruments o All financial instruments are initially measured at fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs.
Subsequent measurement of financial assets o Financial assets will be subsequently measured at Amortised cost; and Fair value.
Classification is made at the time of initial recognition, namely when the entity becomes a party to the contractual provisions of the instrument. Subsequent measurement of financial liabilities o If a debt instruments meets certain conditions, it can be measured at either: Amortised cost net of impairment write-downs Fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an 'accounting mismatch')
All other debt instruments must be measured at fair value through profit or loss (FVTPL).
Subsequent measurement of equity instruments o All equity investments in scope of IFRS 9 are to be measured at fair value in the statement of financial position, with value changes recognised in profit or loss, except for those equity investments for which the entity has elected to report value changes in other comprehensive income (FVTOCI)
De-recognition of financial instruments o The requirements for de-recognition have been carried over from IAS 39.
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Consequent Changes IFRS 9 Financial Instruments (Issued 2009)

Withdrawn
IAS 39 Financial Instruments: Recognition and Measurement

Classification and measurement provisions of IAS 39 to be replaced by IFRS 9 effective 01 January 2013, with earlier application permitted.
IFRS 7 Financial Instruments: Disclosures

IFRS 9 amends some of the requirements of IFRS 7 including added disclosures about investments in equity instruments designated as at FVTOCI.
IFRS 10 Consolidated Financial Statements Issued on May 12, 2011 Effective from January 01, 2013
Objective o Introduce a single basis for consolidation for all entities, regardless of the nature of the investee, and that basis is control
Definition of control o Includes three elements Power over an investee i.e. existing rights that give it the ability to direct the relevant activities Exposure or rights to variable returns of the investee Ability to use power over the investee to affect the investors return
Application of the control principle o Detailed guidance provided on how to apply the control principle in a number of situations, including agency relationships and holding of potential voting rights
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Accounting Requirements o Line-to-line consolidation of similar items with elimination of: Carrying amount of the parent's investment in each subsidiary and the parent's portion of equity of each subsidiary; and Full intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of the group
Present non-controlling interests in consolidated statement of financial position within equity, separately from the equity of the owners of the parent
Disclosure Requirements o There are no disclosures specified in IFRS 10. Instead, IFRS 12 - Disclosure of Interests in Other Entities outlines the disclosures required
Consequent Changes IAS 27 (Revised) Separate Financial Statements Issued on May 12, 2011 Effective from January 01, 2013
The revised IAS 27 retains the current guidance for separate financial statements only. Those parts of IAS 27 Consolidated and Separate Financial Statements that address when and how an investor should prepare consolidated financial statements have been superseded.
SIC 12 - Consolidation Special Purpose Entities

Superseded
IFRS 11 Joint Arrangements Issued on May 12, 2011 Effective from January 01, 2013
Core principle o A party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and accounts for those rights and obligations in accordance with that type of joint arrangement
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Definitions o Joint Arrangement o An arrangement of which two or more parties have joint control
Joint Control The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control
Kinds of Joint Arrangements o The new Standard establishes two types of joint arrangements: o Joint operations - combining the existing concepts of jointly controlled assets and jointly controlled operations; and Joint ventures - equivalent to the existing concept of a jointly controlled entity
The determination of as to whether a joint arrangement is a joint operation or a joint venture is based on the parties rights and obligations under the arrangement, with the existence of a separate legal vehicle no longer being the key factor.
Accounting Requirements o o A joint operator accounts for the assets, liabilities, revenues and expenses relating to its involvement in a joint operation in accordance with the relevant IFRSs For interests in joint ventures, IFRS 11 requires the use of the equity method of accounting thereby eliminating the proportionate consolidation method.
Disclosure Requirements o There are no disclosures specified in IFRS 11. Instead, IFRS 12 - Disclosure of Interests in Other Entities outlines the disclosures required
Consequent Changes
IAS 28 Investment in Associates and Joint Ventures Issued on May 12, 2011 Effective from January 01, 2013
This version supersedes IAS 28 Investment in Associates. The scope has been widened to include accounting treatment for joint ventures and the disclosure requirements have been moved to IFRS 12
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IAS 31 Interests in Joint Ventures

Superseded. User to refer to IAS 28 for requirements related to equity method of accounting.
SIC 13 - Jointly Controlled Entities - Non- Monetary Contributions by Venturers

Superseded
IFRS 12 - Disclosure of Interests in Other Entities Issued on May 12, 2011 Effective from January 01, 2013
It is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. IFRS 12 establishes disclosure objectives and specifies minimum disclosures that an entity must provide to meet those objectives. An entity should disclose information that helps users of its financial statements evaluate the nature of and risks associated with its interests in other entities and the effects of those interests on its financial statements The disclosure requirements are extensive and significant effort may be required to accumulate the necessary information. Where the disclosures required by IFRS 12, together with the disclosures required by other IFRSs, do not meet the above objective, an entity is required to disclose whatever additional information is necessary to meet the objective
IFRS 13 Fair Value Measurement Issued on May 12, 2011 Effective from January 01, 2013
Applicable to both financial and non-financial items measured at fair value, this Standard achieves the following three objectives: Definition of fair value Guidance on determination of fair value Introduction of consistent requirements for disclosures on fair value measurements.
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IFRS 13 establishes a single framework for measuring fair value where that is required by other Standards. The Standard does not include requirements on when fair value measurement is required; it prescribes how fair value is to be measured if another Standard requires it Definition of Fair Value o The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price)
Determination of Fair Value o An entity must determine the following to arrive at an appropriate measure of fair value: The asset or liability being measured (consistent with its unit of account). The principal (or most advantageous) market in which an orderly transaction would take place for the asset or liability. For a non-financial asset, the highest and best use of the asset and whether the asset is used in combination with other assets or on a stand-alone basis. The appropriate valuation technique(s) for the entity to use when measuring fair value, focusing on inputs a market participant would use when pricing the asset or liability. Those assumptions that market participants would use when pricing the asset or liability
Disclosure Requirements o IFRS 13 requires a number of quantitative and qualitative disclosures about fair value measurements. Many of these are related to the following three-level fair value hierarchy on the basis of the inputs to the valuation technique: Level 1 inputs are fully observable (e.g., unadjusted quoted prices in an active market for identical assets and liabilities that the entity can access at the measurement date); Level 2 inputs are those other than quoted prices within Level 1 that are directly or indirectly observable; and Level 3 inputs are unobservable.
An asset or liability is included in its entirety in one of the three levels on the basis of the lowest-level input that is significant to its valuation.
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Amendments to IAS 12 Income Taxes Issued on December 20, 2010 Effective from January 01, 2012
IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40 Investment Property. The amendment provides a practical solution to the problem by introducing a presumption that recovery of the carrying amount will, normally be , be through sale
Consequent Changes SIC 21 Income Taxes Recovery of Revalued Non-depreciable Assets

Superseded
(Effective date mentioned above means effective from accounting period beginning on or after)
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Budget 2011-2012

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Budget 2011-2012

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Deloitte

M. Yousuf Adil Saleem & Co. Chartered Accountants

Karachi June 4, 2011

Budget 2011-12 | Highlights & Comments | All rights reserved.

Budget 2011-12 | Highlights & Comments | All rights reserved.

1,660 452 495 60 50 50 2,767

60.0 16.3 17.9 2.2 1.8 1.8 100

1,656 263 445 59 80 56 2,559

64.7 10.3 17.4 2.3 3.1 2.2 100

Budget 2011-12 | Highlights & Comments | All rights reserved.

Budget 2011-12 | Highlights & Comments | All rights reserved.

2005-06 5.8 6.3 8.7 8.3 6.5

2006-07 6.8 4.1 8.3 8.7 7.0

2007-08 3.7 1.0 4.8 4.0 6.0

2008-09 1.7 4.0 -3.6 -8.1 1.7

2009-10 R 3.8 0.6 5.5 4.9 2.9

2010-11 P 2.4 1.2 3.0 1.0 4.1

9.0 6.5 15.5 19.9 8.5

Budget 2011-12 | Highlights & Comments | All rights reserved.

Sector Growth Performance (%)

6.8 3.7 1.7 3.8 2.4

2005-06 22.1 20.5 4.8 15.7 18.2 16.3

2006-07 22.5 20.9 5.6 15.4 17.4 15.6

2007-08 22.1 20.5 5.4 15.0 13.6 11.5

2008-09 18.2 16.6 4.3 12.3 12.5 9.8

2009-10 R 15.4 13.8 3.6 10.2 13.1 9.3

2010-11 P 13.4 11.8 3.3 8.5 13.8 9.5

19.1 17.5 4.3 13.1 17.5 15.4

Budget 2011-12 | Highlights & Comments | All rights reserved.

Budget 2011-12 | Highlights & Comments | All rights reserved.

Budget 2011-12 | Highlights & Comments | All rights reserved.

800.0 600.0 400.0 200.0 0.0

Budget 2011-12 | Highlights & Comments | All rights reserved.

Budget 2011-12 | Highlights & Comments | All rights reserved.

Budget and Economic Outlook for FY 2011-12

Budget 2011-12 | Highlights & Comments | All rights reserved.

Budget 2011-12 | Highlights & Comments | All rights reserved.

Highlights of Important Fiscal Proposals

Budget 2011-12 | Highlights & Comments | All rights reserved.

Capital Value Tax

Budget 2011-12 | Highlights & Comments | All rights reserved.

Sales Tax and Federal Excise Duty

Budget 2011-12 | Highlights & Comments | All rights reserved.

Budget 2011-12 | Highlights & Comments | All rights reserved.

Significant amendments proposed in

Clause (11C) Collective Investment Scheme

2. Income from business Section 18

3. Tax credit for investment in shares and insurance Section 62

Budget 2011-12 | Highlights & Comments | All rights reserved.

4. Contribution to an approved pension fund Section 63

Budget 2011-12 | Highlights & Comments | All rights reserved.

5. Tax credit for enlistment Section 65C

6. Tax credit for equity investment Section 65D

Budget 2011-12 | Highlights & Comments | All rights reserved.

7. Unexplained income or assets Section 111

8. Minimum tax on the income of certain persons Section 113

Budget 2011-12 | Highlights & Comments | All rights reserved.

9. Return of Income Section 114

10. Persons not required to furnish return of Income Section 115

Budget 2011-12 | Highlights & Comments | All rights reserved.

11. Wealth statement Section 116

Appeal to the Commissioner (Appeals)

Budget 2011-12 | Highlights & Comments | All rights reserved.