Contents

INTRODUCTION TO BUDGET 2015-2016 ................................................................................................ 2

SPECIAL RELIEF PACKAGES ...................................................................................................................... 3

CONSTRUCTION/HOUSING SECTORS PACKAGE ..................................................................................... 4

INCOME TAX ................................................................................................................................................ 6

INCOME TAX .............................................................................................................................................. 10

SALES TAX .................................................................................................................................................. 19

CUSTOMS ................................................................................................................................................... 22

FEDERAL EXCISE ......................................................................................................................................... 23

INTRODUCTION TO BUDGET 2015-2016

This tax memorandum gives an overview of the country’s economy for the financial year 2015-2016.

BROAD PRINCIPLES OF TAXATION PROPOSALS The proposals for the budget 2015-16 are mainly based on the following principles:-

i. Least burden on poor and middle class ii. Second phase of withdrawal of exemptions to further eliminate discriminatory tax exemptions

and concessions.

iii. Expand the scheme of differential taxation for filers and non‐filers for penalizing

non‐compliance without adding any further burden on the compliant.

iv. Customs tariff be rationalized to reduce both the number of slabs and the maximum duty rate. v. Reviewing tax laws and procedures to cut down on discretion. vi. Removal of sector distortions in domestic taxes. vii. Measures for broadening of the tax base and documentation of economy. viii. Increasing the share of the direct taxes.

TAX MEMORANDUM FINANCE BILL 2015-16, Fazal Mahmood & Company (Chartered Accountants) is pleased to present this tax memorandum, which is primarily aimed to help in understanding the impact of the Budget changes that are brought by the Finance Bill 2015-16 relating to Income Tax, Sales Tax Laws, Federal Excise Duty and Customs Duty. It is suggested that in order to understand the precise effect of a particular amendment, reference should preferably be made to the relevant wordings of the Act when passed. The bill was presented in the Parliament of Pakistan on June 05, 2015. Amendments and reshufflings are possible before its approval from National Assembly. It is suggested that changes should not generally be acted upon without first obtaining appropriate professional advice. This has always been a pleasure to be of service to our clients. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. The Firm and JHI do not accept any responsibility for any loss arising from any action taken or not taken by anyone using this publication. Regards, Fazal Mahmood & Company Chartered Accountants

SPECIAL RELIEF PACKAGES

Special incentives are being provided by the Government to promote growth in certain sectors and ultimately to act as a catalyst for higher growth in the economy. AGRICULTURE PACKAGE a. Tax Holiday for Agricultural Delivery Chain: Income Tax Holiday for 3 years is being introduced for new industrial undertakings engaged in

i. Setting up and operating cold chain facilities, and ii. Setting up and operating warehousing facilities for storage of agriculture produce.

b. The exemption for 4 year for Halal’ Meat Production Companies which set up ‘halal’ meat production plant and obtain ‘halal’ certification by31st December 2016. c. Relief to Rice Mills: In order to provide relief to Rice Mills suffering from low global demand, exemption from minimum tax for the Tax Year 2015 is being granted. d. Exemption on Supply of Fish: Exemption from withholding tax on supply of agricultural produce is to be extended to supply of fish. e. Import and Local Supply of Agricultural Machinery and Equipment: In order to promote farm mechanization and enhance productivity non-adjustable sales tax at reduced rate of 7%, instead of existing rate of 17% is being imposed.

f. Import of Agricultural Machinery: At present Customs duty, Sales Tax and withholding tax on import of agricultural machinery in aggregate ranges from 28% to 43%. Customs Duty, Sales Tax and Withholding Income Tax are being cumulatively reduced to 9% as under:

i. Customs duty from existing rate of 5-20% to 2%; ii. Sales Tax from 17% to non-adjustable Sales Tax at 7%; and iii. WHT from 6% to 0%

g. Interest Free Loans for Solar Tube Wells: In order to facilitate the small growers and to reduce heavy expenditure incurred on diesel/electricity tube wells interest free loans of up to Rs.1 Million for setting up new solar tube wells or replacing the existing tube wells with solar tube wells shall be provided.

CONSTRUCTION/HOUSING SECTORS PACKAGE

a. Housing Credit: Mark-up on housing loans obtained by individuals from banks and other institutional lenders for construction or buying a house to be allowed as a deduction against income up to 50% of taxable income or Rs. 1 million.

b. Suspension of Minimum Tax on Builders: The minimum tax on builders livable for the business of construction and sale of residential and other buildings is being suspended for a period of three years.

c. Real Estate Investment Trust (REIT) Development Schemes:

i. Capital Gains of any person who sells a property to a REIT development scheme formed for the development of housing sector will be exempt from Income Tax up to 30.6.2018.

ii. If a development REIT Scheme for the development of housing sector is set up by 30.6.2018, for the first three years the rate of Income tax chargeable on dividend income of such REIT shall be reduced by 50%.

d. Bricks and crushed stone: Supply of bricks and crushed stone will be exempted from Sales Tax for three years up to 30.6.2018.

e. Reduction in customs duty on import of Construction Machinery: On import of construction machinery in used condition by the Construction Companies registered with Pakistan Engineering Council and SECP, the Customs Duty is reduced to 10%.

INCENTIVE PACKAGE FOR MANUFACTURING:

a. Employment Credit to Manufacturers: If a company, being a manufacturer, set up during next three years and employs more than 50 employees duly registered with Social Security and Employees Old Age Benefit Institution an employment tax credit equal to 1% of the income tax payable for every 50 employees shall be provided to the company, subject to a maximum of 10% for a period of 10 Years.

b. Exemption to Greenfield Projects: On demand of various investors and business community, this exemption is being extended up to 30th June, 2017. c. Domestic Production of Solar and Wind Energy Equipment Manufacturing: Exemption from income tax for 5 years is being granted to industrial undertaking engaged in the manufacturing of equipment, plant and items required to produce solar and wind energy. INCENTIVES FOR AVIATION SECTOR

a. Exemption from Customs Duty and Sales Tax: It is proposed that Customs Duty, sales tax and withholding tax in respect of various items used in Aviation Sector may be reduced to zero subject to certain conditions:

b. Remote Area Routes: Infrastructure connectivity with major economic hubs is key to economic development of a region. Some areas of the country having great economic potential are however

located far from existing major economic routes. In order to open up remote areas through aviation links it is proposed that air routes in Gilgit baltistan, Makran Coastal belt, Azad Jammu and Kashmir, Chitral and FATA be exempted from payment of FED and withholding tax.

RELIEF MEASURES FOR KHYBER PAKHTUNKHWA

In order to revive the economy of Khyber Pakhtunkhwa and to provide relief to the people, the following measures are being taken:

a. Five years Income Tax holiday on all new manufacturing units set up in KP between 1-7-2015 and 30-6-2018.

b. Exports of perishable goods namely fruits, vegetables, dairy products and meat shall be allowed against Pak currency instead of dollars with effect from 1-7-2015.

c. Quota for ghee and vegetable oil under DTRE for export to Afghanistan and Central Asia is being

enhanced from 1000 Metric Ton per 90 days to 1000 Metric Ton per month.

d. The legacy issues regarding minimum tax payable on turnover under the previous KP package available for tax years 2010to 2012 shall be resolved.

REVIEW OF CONCESSIONARY REGIME (SROS):

Concessionary regime under various SROs and Schedules are being reviewed. Minimally utilized concessions are being withdrawn. Socially sensitive concessions retained. Remaining concessions either withdrawn or continued on enhanced rates. Total impact of these measures is Rs. 132 Billion.

CUSTOMS TARIFF REFORMS:

Maximum general tariff rate of 25% reduced to 20%.

Substitution of 1% duty slab with 2% customs duty. LEGISLATIVE CHANGES:

To curb the menace of under invoicing, specific penal provision introduced for ensuring compliance of mandatory condition of invoice and packing list.

INCOME TAX

Synopsis:

A. RELIEF MEASURES

- Reduction

1. Reduction of Corporate Tax Rate for companies (33% to 32%). 2. In Withholding Tax (on token tax and transfer of vehicle). 3. In tax rate for salaried and non salaried (5% to 2 % and 10% to 7 % respectively). 4. In default surcharge (18 % to 12 %)

- Exemption

5. To electricity transmission projects (set up by June, 2018). 6. Advance tax 0.5% exempted for Fertilizer Retailer. 7. For NONRESIDENT EDUCATIONIST – (was 5% A. Tax on the fee paid to them)*.

- Tax credit

8. Tax credit for employment generation (1% on 50 employees max 10%) by manufacturers (

unit establish from 01.07.15 to 30.06.18)

o For Listed Companies:

9. In case investment in quoted companies (From 1 M to 1.5 M). 10. In case of enlistment in stock exchange by co. (from 15% to 20% credit).

- Deductions and Other reliefs

11. Donation to INDUS HOSPITAL KARACHI (deduction from income). 12. Withdrawn of A. Tax on purchasing of Air Tickets for BALUCHISTAN COASTAL BELT, AJK,

FATA, G.BALTISTAN and CHITRAL.

o Export and Exporter:

13. Option to exporter to opt out of the FTR.

14. Tax deducted from EXPORT proceeds, an option to treat as Final Tax (previously) or as a Normal Tax, but that will be a Min Tax from either irrevocable choice (Revenue

Measure)

15. Scope of small co. (RS. 50 M from 25 M). 16. Relief in time allowed from (15 days to 30 days in case of Pay of tax demand). 17. Profit on obtained loan (for construction or acquisition of house) is deductible allowance

rather than tax credit to an INDIVIDUAL only (50% of taxable income by max).

o Minimum Tax:

18. Min Tax on BUILDERS relief (till 30.06.18) (previously 1% on turnover). 19. Min tax on land developers (2% fixed).

o Commissioner

20. No need to ask to commissioner in case of Revision of Return (within 60 days of return). 21. STAY ORDER (further 30 days provided CIR will decide the appeal within 30 days). 22. Due date for payment of tax payable under an order (previously 15 days of CIR order,

extension till 30 days).

- Offences and Penalties

23. Default surcharge on failure of Govt. dues (12% from 18%). 24. More than 3 months delayed (after due date) in refund due to a taxpayer, will be

compensated by KIBOR + 0.5% (previously 15%). 25. Failure to furnish a statement, 10,000 min penalty (from 50,000), failure in case of wealth

statement or WRS is 0.1% of taxable income or 20,000 whichever is higher (from Rs.

100/day) (Revenue Measure)

B. Revenue Measures

- New Tax / New Rate /additions

1. Tax rate on securities (rate vary due to holding period variation). 2. Increase in rate of tax on DIVIDEND

i. In case of non fillers (15% to 17.5%). ii. 5% shall continue to be adjustable iii. For mutual fund existing rate of 10% shall continue.

3. Tax on shipping income of RESIDENT PERSON (previously nonresident), under PTR reference to GROSS TONNAGE/annum.

4. Tax demand u/s 122 C to be payable within 45 days (instead of 60 days). 5. 2% tax on purchase of locally produced edible oil to the producer of COOKING OIL

OR VEGETABLE GHEE. (Final tax in respect to income of edible oil). 6. Payment to nonresident by resident (now nonresident ALSO require to intimate and apply to

the CIR – to deduct or not is discretion of CIR).

7. Reduced W/H Tax rate for cash withdrawals by exchange companies instead of exemption (0.15%).

- Telecommunication

8. Telephone/internet bills will be charged advance tax (> 1000 bill 10%. In case of prepaid

sub. 14% of total amount).

- Banking Sector

9. .6% A. tax on all banking instruments and other modes of funds transfer (for persons

who do not files income tax return). 10. All income, profits and gains of a banking company will be charged on uniform rate of

35% (unlikely to reduced rate on CG, Dividend, investment fund and asset management

company rate). 11. To furnish info about NONRESIDENT by all FINANCIAL INSTITUTES n BANKS (New

Tax Net).

- Advance Tax

12. Tax (advance) rate on internet charges (advance 14%). 13. S. 147 ‘Own Estimate’ of advance tax by all in 3rd and 4th quarter also rather than in

last quarter (like banking companies). 14. Advance Tax in case of payment of renting out machinery and certain equipments,

and will be treated as ‘income from other source’. (10% W/H and Final Tax).

o Education specific

15. Advance tax on remittances to abroad for educational purposes (5%). 16. Exemptions For NONRESIDENT EDUCATIONIST – (was 5% A. Tax on the fee paid to

them)*. 17. Advance tax also on dividend on species (likewise normal dividend). 18. Sale or purchase of future commodity contracts and on commission thereon (0.1% will

be a min tax).

- Retailer

19. Any retailer registered under ST Special Procedure Rules 2007, can be selected for AUDIT automatically in case of non compliance to given parameters.

20. Exemption of fertilizer sector retailer from 0.5% advance tax on sales (relief).

- Tax deducted at source

21. SERVICES related payment received by co. would be adjustable against PREVIOUS MIN TAX in terms of payment in respect of services (ef. T/Y 2009).

i. Person other than co. will be treated as Min tax. ii. Tax deducted against payment made to SPORTSPERSON will be Final Tax

(ef. T/Y 2013).

22. Profit on debt - As per S. 7B (new) 10 % - 15 % on the basis of amount of profit (10%

(Fillers) – 15% (Non Fillers) previously). 23. Increase in withholding tax in case of electricity consumption because of reduction in

deduction threshold (75,000 from 100,000).

o Advertisement:

24. Exemptions from W/H Tax on the payment to print/electronic media may be withdrawn. 25. Increase in rate of W/H tax on commission to advertising agencies (10% from 7.5%).

- NEW (Broaden)TAX NET

26. Tax on undistributed reserves (10 %) in case reserves are 100% excess of paid up capital and listed co didn’t distribute same as cash dividend within 6 months.

27. SPECIAL AUDIT PANEL (in tax audit) comprising CA & CMA.

28. To use CNIC of individual as NTN for T/Y 2015 onwards.

29. SUPER TAX for rehabilitation of temporarily displaced persons. (On excessive ‘INCOME’ than 500 M @ 4% (banking co.) and 3% (for others).

30. Reward to whistle blowers against provision of credible info. (In case of concealment or

evasion of income tax, fraud, corruption or misconduct).

INCOME TAX

Detail:

A. RELIEF MEASURES

- Reduction

1. Reduction of Corporate Tax Rate for companies (33% to 32%).

o The rate of tax on companies other than banking companies shall be 32% for tax year 2016. This positive policy of reduction of the corporate tax rate is in line with the announcement made by the Finance Minister in 2013 whereby the rate of tax for companies is to be brought to 30% in a phased manner over five years (from tax years 2014 to 2018). This step will enhance the confidence amongst the taxpayers for consistent application of policy statements.

2. In Withholding Tax (on token tax and transfer of vehicle). 3. In tax rate for salaried and non salaried (5% to 2 % and 10% to 7 % respectively).

o Salaried taxpayers earning taxable income from Rs 400,000 to Rs 500,000 are chargeable to

tax at a rate of 5%. To provide relief to this class the rate of tax is proposed to be reduced to 2%. Non-Salaried individual taxpayers and Association of Persons earning taxable income from Rs 400,000 to Rs 500,000 are chargeable to tax at a rate of 10 %. To provide relief to these taxpayers the rate of tax is proposed to be reduced to 7%.

4. In default surcharge (18 % to 12 %)

- Exemption

5. To electricity transmission projects (set up by June, 2018).

6. Advance tax 0.5% exempted for Fertilizer Retailer.

7. For NONRESIDENT EDUCATIONIST – (was 5% A. Tax on the fee paid to them)*.

8. Other TAX EXEMPTIONS Tax (including minimum tax) exemptions have been introduced for the following sectors

and activities: Manufacture of plant and machinery for renewable energy resources; Operation of warehousing and cold chain facilities for agricultural produce; Operating Halal meat production; Any manufacturing unit set up in the Province of Khyber Pakhtunkhwa; Transmission line project;

- Tax credit

9. Tax credit for employment generation (1% on 50 employees max 10%) by manufacturers (

unit establish from 01.07.15 to 30.06.18)

o A tax credit has been introduced for companies to encourage employment generation. Under this provision, any company engaged in manufacturing formed between July 1, 2015 to June 30, 2018 shall be allowed a tax credit of 1% of tax payable for every 50 employees registered with EOBI and social security schemes. The maximum tax credit shall, however, not exceed 10% of the tax payable.

o For Listed Companies: 10. In case investment in quoted companies (From 1 M to 1.5 M).

o The monetary threshold for claiming tax credit on investment in shares of public company and

life insurance premium is enhanced from Rs 1 million to Rs 1.5 million.

11. In case of enlistment in stock exchange by co. (from 15% to 20% credit).

o At present, a 15% tax credit is available to a company, if it opts for enlistment in any

registered stock exchange in Pakistan. To encourage enlisting of companies on stock exchange, the credit is being be enhanced to 20%.

- Deductions and Other reliefs

12. Donation to INDUS HOSPITAL KARACHI (deduction from income). 13. Withdrawn of A. Tax on purchasing of Air Tickets for BALUCHISTAN COASTAL BELT, AJK,

FATA, G.BALTISTAN and CHITRAL.

o Advance tax on purchase of air ticket of routes of BALUCHISTAN COASTAL BELT, Azad

Jamu Kashmir, FATA, Gilgit BALTISTAN and CHITRAL are proposed to be withdrawn.

o Export and Exporter: 14. Tax deducted from EXPORT proceeds, an option to treat as Final Tax (previously) or

as a Normal Tax, but that will be a Min Tax from either irrevocable choice (Revenue

Measure)

o The exporters are subject to tax at the rate of 1% of export proceeds. This collection of tax is also the discharge of final tax liability in respect of income from such exports. Under clause 41AA (inserted by Finance Act, 2012 and omitted by Finance Act, 2014) the exporters were entitled to opt out on a year to year basis from the presumptive tax regime subject to minimum payment of tax.

15. Scope of small co. (RS. 50 M from 25 M).

16. Relief in time allowed from (15 days to 30 days in case of Pay of tax demand).

17. Profit on obtained loan (for construction or acquisition of house) is deductible

allowance rather than tax credit to an INDIVIDUAL only (50% of taxable income by

max).

o A special provision has been introduced to allow deduction for profit on debt or share in appreciation of house by an individual on loan from a bank or other such institutions, obtained for the construction of a new house or acquisition of a house. At present, a tax credit is allowed on this account which is now proposed to be removed. The maximum amount of deduction allowed under this provision shall be restricted to 50% of taxable income or Rs 1 million, whichever is lower.

- Minimum Tax:

18. Min Tax on BUILDERS relief (till 30.06.18) (previously 1% on turnover).

o Large trading houses as defined under clause 57 of Part IV of the Second Schedule are exempt

from payment of minimum tax for a period of ten years. Disputes emanated in certain cases when the field forces denied exemption of minimum tax on the alleged contention that the minimal activity of preparation and sale of bakery items alters the character of entity from trading house to a manufacturer. This action has now been undone by a clarificatory amendment. Now, the activity of preparation and sale of bakery items to the extent of 2% of total turnover shall not disqualify such companies from the aforesaid exemption subject to fulfilment of other conditions. 19. Min tax on land developers (2% fixed).

o Enabling provisions to collect minimum tax on land developers were introduced through the

Finance Act, 2013. Federal Government was supposed to prescribe the rate of tax. Since no rate has so far been prescribed, therefore, land developers were not subject to minimum tax. Now, a minimum tax is proposed @ 2% of value of land notified by the authorities for stamp duty.

- Commissioner

20. No need to ask to commissioner in case of Revision of Return (within 60 days of return).

o The condition of obtaining prior approval from the Commissioner for filing a revised return is

proposed to be dispensed with if the revised return is filed within 60 days of filing of the original return.

21. STAY ORDER (further 30 days provided CIR will decide the appeal within 30 days).

o Currently, the Commissioner (Appeals) is empowered to grant a stay of tax demand in an appeal before him for a period of 30 days only. Practical and legal difficulties are being faced under the present regime as in many cases; appeals are not decided within the said 30 days. In order to address this difficulty, a positive action has been undertaken whereby Commissioner (Appeals) has been empowered to grant a stay for a further period of 30 days and is required to decide the appeal within such extended period.

22. Due date for payment of tax payable under an order (previously 15 days of CIR order,

extension till 30 days).

- Offences and Penalties

23. Default surcharge on failure of Govt. dues (12% from 18%). 24. More than 3 months delayed (after due date) in refund due to a taxpayer, will be

compensated by KIBOR + 0.5% (previously 15%).

o The rate of default surcharge in case of failure to pay tax deducted or collected has been reduced from 18% to 12%. Similarly, the rate of statutory compensation on delayed refund is proposed to be reduced from 15% to KIBOR plus 0.5%.

25. Failure to furnish a statement, 10,000 min penalty (from 50,000), failure in case of wealth

statement or WRS is 0.1% of taxable income or 20,000 whichever is higher (from Rs.

100/day) (Revenue Measure)

B. Revenue Measures

- New Tax / New Rate /additions

1. Tax rate on securities (rate vary due to holding period variation). 2. Increase in rate of tax on DIVIDEND

i. In case of non fillers (15% to 17.5%). ii. 5% shall continue to be adjustable iii. For mutual fund existing rate of 10% shall continue.

o The present rate of tax of 10% on dividend income is on the lower side as compared to

most other countries. It is proposed that the rate be increased to 12.5%. Consequently, in case of non-filers the rate of tax is proposed to be increased from 15% to 17.5% of which 5% shall continue to be adjustable. For Mutual Funds the existing rate of 10% shall continue. 3. Tax on shipping income of RESIDENT PERSON (previously nonresident), under

PTR reference to GROSS TONNAGE/annum.

o The presumptive tax regime for resident shipping companies has been revamped. At present, in case of a loss, the presumptive regime of tax was effectively not applicable. Now, such cases will also be subject to presumptive tax regime applicable to shipping companies.

4. Tax demand u/s 122 C to be payable within 45 days (instead of 60 days).

5. 2% tax on purchase of locally produced edible oil to the producer of COOKING OIL OR VEGETABLE GHEE. (Final tax in respect to income of edible oil).

6. Payment to nonresident by resident (now nonresident ALSO require to intimate and

apply to the CIR – to deduct or not is discretion of CIR).

7. Reduced W/H Tax rate for cash withdrawals by exchange companies instead of exemption (0.15%).

o Telecommunication 8. Telephone/internet bills will be charged advance tax (> 1000 bill 10%. In case of

prepaid sub. 14% of total amount).

o Banking Sector

9. .6% A. tax on all banking instruments and other modes of funds transfer (for

persons who do not files income tax return). o A unique regime for collection of tax on banking transactions has been introduced for persons

who are non-filers for tax purposes. Under this regime almost all banking transactions inter alia including sale of instrument like demand draft, pay order, etc. and transfer of any sum through cheque and other similar manners or clearing interbank transfer through cheques shall be subject to collection of tax at the rate of 0.6% of the transaction amount. This provision will only be applicable where the sum total of payments for all transactions exceeds Rs 50,000 in a day.

10. All income, profits and gains of a banking company will be charged on uniform rate of 35% (unlikely to reduced rate on CG, Dividend, investment fund and asset management

company rate).

o Dividend income and capital gains for banking companies are subject to tax under Seventh Schedule at the rate of 10% and 12.5% respectively. All other income of banking companies are taxable at the rate of 35%. It is important to note that special regime of rates of tax are applicable in such cases and banking companies were not extended the benefit of the reduction of tax rate from 35% to 30% over the period of 5 years (2014 to 2018) which is otherwise available to all other companies. It is now proposed that the tax regime for the banking companies will be revised and all incomes including dividend and capital gains shall also be taxable at the rate of 35%. In addition to this, as described earlier, one-time super tax at the rate of 4% shall also be payable by banking companies for tax year 2015. The provisions relating to attribution of expenses have been omitted as now the whole income is taxable at a gross rate of 35%.

11. To furnish info about NONRESIDENT by all FINANCIAL INSTITUTES n BANKS

(New Tax Net).

- Advance Tax

12. Tax (advance) rate on internet charges (advance 14%).

13. S. 147 ‘Own Estimate’ of advance tax by all in 3rd and 4th quarter also rather than

in last quarter (like banking companies). 14. Advance Tax in case of payment of renting out machinery and certain equipments,

and will be treated as ‘income from other source’. (10% W/H and Final Tax).

o Education specific

15. Advance tax on remittances to abroad for educational purposes (5%).

o In line with the tax collection regime for payments of education fees to local institutions in certain cases, a parallel regime is proposed to be introduced for tax collection at 5% on adjustable basis for remittance of education expenses abroad. Under this provision, the banks, financial institutions etc. shall collect tax on payment of educational expenses abroad. This regime has presumably been introduced to collect tax from persons outside the normal tax regime remitting education fees abroad through banking channels. This provision is effectively applicable only where payments are to be made under Foreign Exchange Act 1947.

16. Exemptions For NONRESIDENT EDUCATIONIST – (was 5% A. Tax on the fee paid to

them)*. 17. Advance tax also on dividend on species (likewise normal dividend).

o Dividend in specie was not subject to withholding and the said matter has been decided by the

higher courts in favour of taxpayers. It is now proposed that withholding tax provisions will be applicable on distribution by way of dividend in specie. Withholding under this provision will be on the amount representing the value of asset released from the reserves as per the financial statements.

18. Sale or purchase of future commodity contracts and on commission thereon (0.1%

will be a min tax).

- Retailer

19. Any retailer registered under ST Special Procedure Rules 2007, can be

selected for AUDIT automatically in case of non compliance to given parameters.

o Retailers registered under the sales tax law shall be immune from selection of audit if certain

conditions are fulfilled. Retailers, who are registered under Sales Tax Special Procedure Rules, 2007 shall not be subject to compulsory and automatic selection for audit of their income tax affairs under section 177 of the Ordinance if:

Name of the person appears in the sales tax active taxpayers list; Complete return of income has been filed within the due date; Tax payable as per return has been paid; 2% tax on turnover under section 113 (Minimum Tax) has been paid by a person

registered as retailer who files a return below taxable limit and who, in the preceding tax year, had either not filed the return or had declared income below taxable limit; and

25% higher than last year’s tax liability has been paid.

20. Exemption of fertilizer sector retailer from 0.5% advance tax on sales (relief).

- Tax deducted at source

21. SERVICES related payment received by co. would be adjustable against PREVIOUS MIN TAX in terms of payment in respect of services (ef. T/Y 2009).

i. Person other than co. will be treated as Min tax. ii. Tax deducted against payment made to SPORTSPERSON will be

Final Tax (ef. T/Y 2013).

22. Profit on debt - As per S. 7B (new) 10 % - 15 % on the basis of amount of profit (10% (Fillers) – 15% (Non Fillers) previously).

o The tax regime for profit on debt derived by resident taxpayers has been revamped.

Henceforth, all profits on debt received from persons who are withholding tax agent for section 151 shall be taxed at the slab rates ranging from 10% to 15%. This effectively means that except for banking companies which are taxed under special provisions of Seventh Schedule, the gross amount of profit on debt shall be taxed at the newly prescribed rates. The taxability of profit on debt in the case of companies (other than banking companies) under this regime needs to be reviewed.

23. Increase in withholding tax in case of electricity consumption because of

reduction in deduction threshold (75,000 from 100,000).

o Due to substantial reduction in electricity prices it is proposed that the threshold of deduction of withholding tax on electricity consumption be reduced from Rs 100,000 to Rs. 75,000.

o Advertisement:

24. Exemptions from W/H Tax on the payment to print/electronic media may be

withdrawn. 25. Increase in rate of W/H tax on commission to advertising agencies (10% from

7.5%).

- NEW (Broaden)TAX NET

26. Tax on undistributed reserves (10 %) in case reserves are 100% excess of paid up capital and listed co didn’t distribute same as cash dividend within 6 months.

o Undistributed reserves of a public company (other than modaraba, scheduled bank and Government-owned companies) have again been proposed to be taxed with effect

from tax year 2015. This effectively represents re -introduction of similar levy imposed under section 12(9A) of repealed Income Tax Ordinance, 1979 vide Finance Act 1999. Such tax is proposed to be payable at the rate of 10% on the whole amount of undistributed reserves as are in excess of 100% of paid up capital of the company after the distribution of cash dividend within six months of the end of tax year. A special provision has been introduced that any cash distribution before the date of filing the return shall be considered as distribution for tax year 2015. 27. SPECIAL AUDIT PANEL (in tax audit) comprising CA & CMA.

o Conducting special audit has been introduced under these provisions, a panel comprising of

two or more persons will be empowered to conduct an audit including a forensic audit of income tax affairs of a taxpayer. The Panel shall consist of an Officer of Inland Revenue or a Firm of Chartered Accountant or Cost and Management Accountant or any other person as directed by the FBR. The procedure prescribed envisage that member of the Panel other than Officer of the Inland Revenue shall effectively provide the support function only. The legal and procedural aspects for conducting such audit shall be undertaken by the member of the panel

28. To use CNIC of individual as NTN for T/Y 2015 onwards.

o As a policy measure, the Federal Government had shown its intention to replace the National

Tax Number (NTN) with CNIC number which is required to be obtained by every Pakistani citizen. Through this amendment, it is proposed that in the case of an individual, CNIC number shall replace NTN. The amendment appears to be in line with the aforesaid policy, however, it is important to note that CNIC is issued to all Pakistani Citizens irrespective of their tax status whereas all NTN holders are required to file a return of income. The policy measure appears to be in the right direction however substantive provisions need to be aligned in relation to the persons holding CNIC not required to comply with the tax filing and other requirements for NTN holders.

29. SUPER TAX for rehabilitation of temporarily displaced persons. (On

excessive ‘INCOME’ than 500 M @ 4% (banking co.) and 3% (for others).

o A one-time super tax for tax year 2015 has been proposed on (i) banking companies; and (ii) all other taxpayers having income of Rs 500 million or above. The general rate of super tax is 3% while the rate of tax for banking companies shall be 4%. As specifically stated in the relevant provision, this ‘tax’ is for the rehabilitation of temporary displaced persons.

30. Reward to whistle blowers against provision of credible info. (In case of

concealment or evasion of income tax, fraud, corruption or misconduct).

31. RESTRICTION ON POWERS OF FEDERAL GOVERNMENT TO ISSUE SROs

FOR TAX EXEMPTIONS

o As a policy measure, it is proposed that the discretionary powers of the Federal Government and FBR for granting concessions and exemptions will be eliminated. Now, such actions, if required, can only be undertaken in special cases by way of a decision of the Economic Coordination Committee of the Federal Cabinet. Under sections 148(2) and 159(3), (4) and (5) of the Income Tax Ordinance, 2001 various SROs have been issued which provide concessions or exemptions on collection of advance tax on imports and other withholding tax provisions.

32. INCOME FROM PROPERTY

An important amendment has been proposed in respect of income from property. Expenses incurred to the extent of 6% of rent chargeable wholly and exclusively for the purpose of deriving rent are admissible against rental income. Previously, such expenses were limited to collection charges only. This amendment has principally brought the taxability of rental income in line with other heads of income

SALES TAX

Registration As per FB 15 - Person (class of persons) engage in TAXABLE SUPPLIES (including

ZERO RATED SUPPLIES) or any TAXABLE ACTIVITY carried on by him need to be registered as STRP.

a. Manufacturer (other than cottage industry). b. Wholesaler dealer or distributor. c. Retailer (except such retailer who pay ST through E/C Bill). d. Importer e. Exporter (who intends to obtain ST refund against his Zero

Rated Supplies). f. Any person required by Federal or Provincial Laws.

*Presently, TURNOVER Limitation has been defined in STA for the purpose of registration.

- Taxable supplies A supply of TAXABLE GOODS (all goods other than S. 13) by an IMPORTER,

MANUFACTURER, WHOLE SELLER, and DISTRIBUTOR OR RETAILER other than EXEMPTED SUPPLIES u/s 13 and ZERO RATED SUPPLIES u/s 4.

- Zero Rated Supplies A taxable supply which is charged to tax at the rate of zero per cent under

section 4. g. Goods exported or goods specified in 5th schedule. h. Goods produced or manufactured in Pakistan and required as

provisions and stores on any conveyance proceeding to any foreign port, airport or station may be exported free of customs duty u/s 24 CA 1969.

i. Goods specified by Federal Gov. through Order or notification in official gazette.

i. This section will not apply on such supplies: 1. Export the goods with the intention of re-

import into Pakistan. 2. Have been entered for export u/s 131 of

C.A. 1969. 3. Exported to country specified by Federal

Govt.

- Taxable Activity Any economic activity carried on by a person whether or not for profits (i.e.

business, trade, manufacture, supply of goods, services, on-off adventure and anything done during commencement or termination of an economic activity).

DEFINITIONS: Definition of ATL Following persons will not fall into ‘Active Tax Payer List’;

j. Blacklisted k. Fail to file return for two consecutive periods (u/s 26). l. Fail to file return by due date (u/s 114,115). m. Fail to file two consecutive W/H monthly or annual statements.

Cottage Industry limit of Utility bill is being enhanced from 700,000 to 800,000.

Retailer The definition of “retailer” inter alia states that “the total turnover per annum shall be

taken into account for the purposes of registration of the retailer under section 14”. The concept of annual turnover has become redundant, since the scheme of registration and charging of sales tax by the retailers is no more linked or based on turnover.

Supply – Toll manufacturing The Bill seeks to enlarge the scope of the definition of “supply”. It is proposed that the

transfer or delivery of goods manufactured by the toll manufacturers (who manufacture goods from the raw material not belonging to them, on charges basis) to the owners or

their nominated persons would be considered as supply. IMPORTS: Empowerment of Custom Custom authorities are empowered to recover short payments or non payments of sales

tax at import stage. Reduced Rate Imports Disallowance of reduced rate imports or equipment (at 7% ST under 8th Schedule).

Temporary Registration Temporary registration of ST, this is being introduced to facilitate to importers cum

manufacturers (manufacturers shall be able to import machinery without having to wait for formalities (STR 06).

Allowance of input adjustment would possible now onwards as per proposal (unlikely in previous). in partial clearance of CD. Joint or several liabilities Joint or several liabilities for unpaid sales tax amount in the supply chain.

Supplies to Unregistered Further tax is being enhanced to 2%. Persons

Mobile Phone Increase in rate of ST on mobile phone (300-500-1000 depending upon features of

mobile (double than previous).

Dairy Products Restricting zero rating on dairy products (Reclassification in 8th schedule).

Locally Produced Cigarette Enhancement of rates of Federal Excise Duty (Average tax incidence to increase from

58% to 63%)

Aerated Waters Federal Excise duty is being enhanced from 9% to 12% of retail price.

Supply of Raw Hides Exemption of sales tax under existing provisions of law. and Skins

E. Monitoring System is being proposed to be introduced ‘Labels’ in addition to other tracking modes and also

empowering to board to direct to RP.

ST Exemptions on Appliances Appliances for colostomy/bags and tubular day lights devices.

Pre-Fabricated Buildings Input tax adjustment on Pre-fabricated buildings being allowed.

Monthly Basis Refund is allowed to the persons making reduced rate supplies.

Disallowed Input Adj. Disallowance of Input Adjustments on SERVICES (reduced rates paid in provinces).

FBR Power to Fed. Govt. Presently, power was delegated to Federal Govt. furthermore, it is obligatory on the

Federal Govt. to present such notification (s) before National Assembly. FB15 proposes giving such powers to ECC (Economic Coordination Committee) in the event of mentioned emergent situations.

Audit Panel (2 or More) Appointment of two or more persons (from CA, CMA, OIR, any other person i.e.

engineers etc.) to carry-out audit and/or forensic audit including audit of refund.

G.M. Exchange of Info. (Global Mutual Exchange of information) - FB15 empowers F. Govt. to enter into bilateral

or multilateral agreements for exchange of information and make such laws tom implement them (maintaining confidentiality by P. Servants).

Prize Scheme The proposed new section is aimed to broaden the tax base whereby, the Board is

allowed to introduce prize schemes to encourage the general public to make procurement only from the registered persons who issues tax invoices.

CUSTOMS

- Withdrawal of Board’s power to grant exemption from customs except for emergency situations. Now such exemptions would stand rescinded at the close of the financial year.

- Enhancement of lower limit of recovery of short paid custom duty amount enhanced to Rs.20,000.

- Clarification on transshipment of goods to other destinations.

- Penalty exceeding Rs.50,000/- specified for not sending invoice with the goods

- Rates of custom duty enhanced from 1% to 2% and 25% to 20% to the First Schedule.

- Fifth Schedule to the Customs Act relating to imports of plant and machinery with certain substitution of entries and rates of duty related thereto.

FEDERAL EXCISE

- Powers of the Board granting exemption from the levy of FED are proposed to be withdrawn

- Federal Government is now only empowered to exempt good or services from the levy of FED subject to the approval of Economic Coordination Committee.

- Commissioner to pass orders under section 35 of the FE Act, upon receipt of an application from the aggrieved person in addition to taking suo moto action.

- Board to appoint special audit panels for conducting audit.

- Federal Government to enter into bilateral or multilateral agreements with provincial governments or with governments of foreign countries for exchange of information.

- Confidentiality to be maintained by Public Servants in respect of information received under any provision of the Act or in pursuance to bilateral or multilateral agreements.

- Rate of duty on aerated waters enhanced

- Rate of duty on locally manufactured cigarettes modified

- Duty on filter rod for cigarettes levied

- Withdrawal of duty on socio-economic routes

- Exemptions from levy of duty as available through various notifications / SROs has been rationalized and is now proposed to be included in the Third Schedule

END