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Budget 2017-18

Highlights & Comments

Deloitte Yousuf Adil Chartered Accountants Member of Deloitte Touche Tohmatsu Limited

1 | © Budget 2017 - 18 | Highlights & Comments

Foreword

This memorandum contains an economic review, highlights of fiscal proposals and explanatory

description of the significant changes in the Income Tax, Sales Tax, Federal Excise and Customs Duty laws proposed through Finance Bill, 2017. It also includes withholding tax guide which summarizes withholding tax provisions for quick reference and comments on Benami Transactions (Prohibition) Act, 2017 that was promulgated early

this year. Amendments proposed in the Finance Bill, 2017 will take effect from July 01, 2017, unless stated otherwise, once it is approved by the parliament. The memorandum is aimed at providing general

guidance with the objective of keeping our clients and staff abreast of the changes in the aforementioned law. Deloitte Pakistan accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication. The users

are therefore advised to seek professional advice before exercising any judgment, interpretation of any legal provision and acting thereupon. The memorandum can also be accessed on our website www.deloitte.com/view/en_PK/pk/index

Karachi May 27, 2017

http://www.deloitte.com/view/en_PK/pk/index


Contents

Budget at a Glance 03

Economic Review and Budget 2017-18 04

Highlights of Important Fiscal Proposals 13

Significant Amendments Proposed In

Income Tax Ordinance, 2001 21

Tax Collection and Withholding Guide 48

Sales Tax Act, 1990 63

Federal Excise Act, 2005 73

Customs Act, 1969 76

Benami Transactions (Prohibition) Act, 2017 80


Budget at a Glance

(Budget)

(Revised)

Rupees

Rupees

in billion %

in billion %

2017-18

2016-17

Tax revenue

4,330

3,825

Non-tax revenue 980

912

Gross revenue receipts

5,310

4,737

Public account receipt – net

213

165

Total receipts

5,523 100

4,902 100

Less: Provincial share in Federal taxes

(2,384) (43)

(2,121) (43)

Net revenue receipts

3,139 57

2,781 57

Expenditure

Current expenditure

3,852 70

4,050 83

Development expenditure 1,340 24

936 19

5,192 94

4,986 102

Deficit (2,053) (37)

(2,205) (45)

Domestic debts non-bank (428)

(160)

Domestic debts banks (390)

(741)

Foreign debts / grants (838)

(996) Privatization proceeds (50)

(18) Surplus from provinces (347)

(290)

(2,053)

(2,205)


Economic Review and

Budget 2017-18

Economic Review and Budget 2017-18

The fifth budget of PML (N) government for FY17-18 was presented on 26th May, 2017 by the Finance Minister, Mr. Ishaq Dar with aggregate total outlay of PKR 5.31 trillion, that envisages a large public sector development program of PKR One trillion, clearly indicating the elections is main focus of this budget.

Economic Overview Current fiscal year marked the continued improvement in economic growth, as the GDP is estimated to have grown by 5.28%, which is highest in the last ten years. While this is short

of the planned GDP growth of 5.7%, there has been steady upward trend from around 4% growth achieved in 2013-2014, which was the first year of PML (N) government. Another important milestone reached during the year is that Pakistan’s GDP in absolute terms is now estimated to be higher than USD 300 billion, owing mainly to the fast pace of the economic activity, particularly in the backdrop of investments being financed through China Pakistan Economic Corridor (CPEC).

As discussed in the ensuing paragraphs, major constituent of this growth, however, remains the services sector which grew at the rate of 6%, while the growth of industrial and agricultural sectors remained subdued at 5.02% and 3.46%, respectively. Over the years, the contribution of services sector has also increased significantly, thus it has greater impact on

overall GDP growth.

The improvement in the GDP growth is primarily driven by higher level of investment, which increased to PKR 5,027 billion as compared to PKR 4,527 billion last year, showing increase of 11.04% in FY17. Investment to GDP ratio reached 15.78% in FY17 compared to 15.6% in the previous year, indicating a nominal growth as percentage to GDP. Also, the component which is mainly contributing to increase in the investment is the public investment, which grew during the year by 9.5%, which is contradictory to the government’s stated policy of relying on private investment as an engine of growth.

While improvement in investment which propelled growth is a positive development, a key concern is that national savings rate decreased to 13.1% of GDP in FY17 against 14.3% last year. This should be of major concern for the economic managers, as the rate of saving in the emerging economies is at least 30% of the GDP. The gap between rate of savings and investment indicate that we continue to depend on borrowings to finance the investment

required to achieve a reasonable rate of growth, which is clearly not sustainable in the

medium to long term. It is pertinent to note here that the credit to non-government sector significantly increased to PKR 775 Billion during the last 10 months, as compared to last year which remained at PKR 335 Billion in the corresponding period, which also contributed to improvement in economic growth. Overall steady growth in the last four years, successful completion of IMF program,

improvement in law & order situation, significant built up in foreign exchange reserves, together with low inflation appear to have significantly improved Pakistan’s perception, as key international agencies like Moody’s and Standard and Poor have improved Pakistan’s ratings,


and Pakistan was recently upgraded from the frontier market to an emerging market in the MSCI Index, that is expected to attract high investment in the equity market.. However, this success story is overshadowed by the trade deficit that has widened to a record

high of USD 23.38 Billion during the first nine months of FY17 despite the advantage of low oil prices, and owing to declining exports and remittances, the current account deficit during the nine month period has reached USD 6.1 billion. Consequently, there has been pressure on the foreign exchange reserves that have declined by approximately 9% to USD 21 billion by April 2017. Consequently, there are clear signs of PKR weakening against USD and other currencies in the coming months. Further, if this trend of escalating current account deficit and declining

reserves continues in the next six months or so, it may significantly enhance country risk,

enhance difficulties in borrowing from international market that is necessary for repayment of maturing debt thereby creating a situation of inevitability to return to IMF for balance of payment support in not so distant a future.

GDP Growth Constituents While significant economic and social developments were experienced in Pakistan, the economy was unable to meet the budgeted GDP growth rate of 5.7% for FY 17, though a

reasonable GDP growth rate of 5.28% has been achieved. Despite implementation of CPEC, continued improvement in security situation and significant reduction in energy shortfalls which had hampered Pakistan’s economic growth in previous years, the economy was unable to match economic growth rates experienced by regional economies as India recorded GDP growth rate of 7.2% while Bangladesh recorded 6.9%. The Government has set a GDP growth rate of 6% for the budget year which is also lower than regional economies. It should prioritize

promotion of policies geared towards promotion of exports and increasing competitiveness, if the economy has to achieve reasonable sustainable growth in the ensuing years.

Source: Economic Survey 2016-17, Ministry of Finance

As a developing economy, Pakistan depends highly upon agriculture and low value industrial production. Agriculture sector recorded a growth of 3.46% in FY 2017 which was a significant improvement from 0.27% during last fiscal year. This development was attributed to Kissan

package which focused on providing support prices of crops, increase in credit facilities to the farmer, facilitation in provision of inputs at lower cost and favorable weather conditions.


Industrial sector recorded a growth of 5% during FY 17 against growth 5.8% in the previous year. This is obviously much below the target of 7%. The services sector witnessed a growth rate of 5.98% as compared to 5.55% during previous

year. The growth was also attributed to some improvement in services export, which has witnessed an increasing trend.


Trade Deficit Trade Deficit increased by 33.1% (USD 17.8 billion) mainly due to increase in imports which shot up to USD 38.5 billion while exports (USD 15.1 billion) declined by USD 221 million during the first nine months of FY17. A major cause for concern for Pakistan is that its export is continuously declining with agricultural products taking a major hit due to increased

competition while imports continue to rise in form of machinery and petroleum products which continue to put pressure on current account. In order to improve the Trade balance and enhance position, the Government has initiated several steps, which include Export establishment of EXIM Bank, promotion of E-Commerce and IT exports, incentives for textile sector, and reduction of markup rate on Export

Refinancing Facility to 3% from July 2016.



Energy Energy sector has been considered Pakistan’s Achilles heel and it appears that energy crisis had eroded approximately 2 – 2.5% of annual GDP. The Government has taken major initiatives to improve generation capacity from Thar Coal, Solar and Hydro sources in order

expand generation capacity which has improved availability of electricity, but it is envisaged

that it will take another year to fully eliminate load shedding, as nearly 10,000 MW of more efficient power is expected to be added in FY 18. Major investments in Energy Sector, especially under CPEC are to be appreciated. However, there are significant inherent issues of governance in the power sector that include high level

of losses in transmission and distribution, inefficient regulatory mechanism, stalled privatization and resurgence of large circular debt of over PKR 450 billion, which will continue to haunt the power sector. Also, as the cost of power is continuing to decline at a fast pace, especially the renewable energy, there are apprehensions that the cost of power in Pakistan is likely to be much higher than other competing economies making Pakistan less competitive.

Foreign Exchange Reserves and pressure on the exchange rate The Foreign Exchange reserves have declined by 9% to USD 21 billion by April 2017 which had witnessed significant improvement during last year reaching an all-time high level of USD 24 billion owing mainly to significant savings in the cost of imports caused by steep decline in oil

prices in international markets. State Bank of Pakistan attributed this decline to external debt servicing. With further loan repayments expected in ensuing months together with continued pressure on balance of payments, the investments in CPEC will need to be efficiently managed to maintain foreign exchange reserves to avoid pressure on exchange rate.


Source: Economic data, SBP

Public Debt

Government has made amendments to Fiscal Responsibility and Debt Limitation Act by defining the ceiling for Federal Government budget deficit at 4% of GDP up to FY17-FY20, and

a limitation of 3.5% of GDP in periods beyond FY20. Despite several steps which included

adherence to Medium Term Debt Management Strategy, reduction of interest rate on domestic debt, issue of Sukuk and prize bonds to reduce reliance on debt the net public debt to GDP ratio was recorded at 61.2% as at June, 2016 which is slightly higher than 60.2% as at June, 2013. However additional financing under CPEC and continued deterioration in trade and current account deficit may further escalate public debt to GDP ratio, and it appears the target of debt to GDP ratio of 50% may be unrealistic, at least in the medium term.



Tax Collections and Budget Deficit

FBR tax collections witnessed a significant growth of 60% which had a noticeable impact on tax to GDP ratio which increased from 10.1% of GDP in FY13 to 13.2% of GDP in the current year. Government has proposed several initiatives which could potentially improve this ratio and allow the Government to finance development initiatives through higher tax revenues rather than foreign financing. These steps which include broadening tax base, strengthening tax audit, reduction in number of multiple tax agencies and taxpayer facilitation through

electronic processing of tax returns could improve tax to GDP ratio. However actual impact and implementation of such steps have remained unsatisfactory, due to which the

improvement in tax collections and tax to GDP ratio during the year is expected to be significantly lower than the targets. Unfortunately, the government has not implemented any structural reforms, including effective implementation of universal general sales tax, effective audit and enforcement of laws, due to which gap between the revenues and expenditure remains much higher than the targets. While the fiscal deficit is being reported at 3.9% in the

current nine month period, compared to the target of 3.8%, actual deficit is likely to be much higher if we include over PKR 450 billion of circular debt, large government guaranteed loans of public sector entities to finance their losses and unpaid refunds, as all such payments are deferred to reflect a lower budget deficit.


Monetary Policy & Inflation

Due to stable macroeconomic conditions, credit expansion plans, investment plans

associated with CPEC and low inflation the Government of Pakistan maintained the

policy rate of 5.75%. The State Bank of Pakistan has initiated several measures to

broaden financial inclusion and promote Islamic Banking.


Source: Economic Survey, Ministry of Finance

Social Indicators

Social indicators of Pakistan have progressed at a very slow pace in the last decade,

as focus of the government has been largely on macroeconomic stability, investment

in physical infrastructure rather than social wellbeing of the population which

currently portrays a grim outlook. Unemployment rate marginally decreased to 5.9%

in current fiscal year as compared to 6% during last year. This slight improvement

fails to highlight a major concern as Pakistan is still unable to utilize full potential of

its demographic advantage due to lack of skills. The services sector has limited

capacity for employment and it cannot be expected that significant portion of

population can be deployed in this sector due to its limited employment potential.

The education system in Pakistan is highly discriminatory against the poor as private

schools are too expensive for a good portion of the population while the quality of

education at public schools is substandard. The Government needs to focus on

improving quality of education in public schools and especial focus needs to be given

for skill development programs through vocational training in the areas of high

demand to assist the masses in breaking out of poverty cycle and reduce inequality.

In the announced budget the Government has opted for populist measures targeted

towards less affluent population as it has announced major increase in public sector

spending, significant improvements in Benazir Income Support Program and

introducing several schemes in agriculture, which will provide short term relief to the

poor, but the focus on creating employable skills is significantly lower.

Budget and Economic outlook for FY 2017-18

The budget presented by the Finance Minister targets an economic growth of 6% by

2017-18 to be attained by raising revenue net revenue receipts to PKR 2.9 Trillion

and attracting higher investment both from public and private sectors. The budget

aims to reduce the fiscal deficit to 4.1 percent, increase revenue and investment to

GDP ratios, address the energy deficit and promote exports. Given the right

economic policies and their effective implementation, the targeted growth appears

challenging but achievable. In fact, considering the performance being achieved by

other countries in the region, especially India and Bangladesh that are growing in the

range of 6.6% to 7.5%, Pakistan should be aiming at a GDP growth of plus 7%,


especially considering the huge opportunity created by CPEC investments and

continuing improvements in law & order and energy sectors.

The below list summarizes the salient features of the FY18 Budget and three year

medium term targets for FY20:

Real GDP is targeted to be 6% for FY18, to be raised to over 7% by FY20

Budget deficit is targeted to be 4.1% for FY18 and 4% in FY20

Inflation is targeted to stay below 6% in FY18

Investment to GDP ratio to be 17% by the end of FY18

Government plans to enhance Tax to GDP ratio up to 13.7% and over 14% by

FY20

FBR revenues to be increased by 14%, and increase federal expenditures by 11%

Non-tax receipts to be increased by 7%

Forex reserves are targeted to be increased to a level that can cover minimum of

4 months of imports

Net Public Debt to GDP ratio to be brought down below 55% by FY20

Federal development expenditure is enhanced to PKR 1,001 billion, including

allocation of PKR 180 billion for CPEC.

Key Challenges for reviving and sustaining the economic growth

With some stabilization of exchange rate, foreign exchange reserves and some

improvement in overall resources, there are prospects for further improvement,

given the right policies, governance and effective monitoring framework. Clearly, the

country’s potential for GDP growth is much larger than it is currently being achieved,

as is reflected by what other countries in the region are achieving. However, given

the serious resource constraints owing to one of the lowest tax to GDP ratio, and one

of the lowest savings rate in the world, there are serious concerns of sustainability of

high economic growth. Further, there are serious concerns, as our exports largely

comprising of commodities and minimal value addition, have very limited upside

potential, unless there is major transformation in our investment climate,

improvement in ease of doing business (including significant reduction in direct and

indirect tax rates), improving the quality of our human resources, reduction in cost

of doing business etc., which require significant improvements in governance,

innovation and structural changes to our economy.

While there are several good and not so good steps in the form of fiscal changes,

there is clearly nothing structural or transformational that can significantly impact

key impediments mentioned in the previous paragraph to improve our

competitiveness. Therefore, while Pakistan’s economy has steadily improved over the

last few years, the sustainability of growth as well as stability of the economy remain

at serious risk, including the possibility of balance of payment crisis, steep

devaluation and returning to IMF.

The government has been repeatedly been criticized for the lack of structural

reforms required across multiple forums and even though the benchmark KSE-100


index is up almost 40% since start of the fiscal year, making it Asia Pacific’s best

performing equity market (being included as an emerging market in the MSCI

Index), the equity market has not been able to attract enough new companies for

listing. According to the economic survey 2017, since the start of FY13 only 28 new

companies have been listed and about PKR 290 billion funds were mobilized,

majority of which were attributable to government’s stake sale of HBL, UBL and PPL.

In FY17 there have only been a mere five new listings.

The Government’s claims to make Pakistan a load shedding free country in near

future seems to be in jeopardy as several flaws have been identified in plans

proposed for developing the energy sector. The Government has been able to initiate

several mega projects to improve power generation capacity but it has been unable

to implement plans to improve distribution and transmission network to support this

capacity expansion. Privatization of public power companies has been abandoned in

the near term, and plans to improve efficiency of these companies did not

materialize as intended.

Policy makers should further consider the risk of over expansion in power generation

capacity and should consider the demand and supply projections to avoid excess

supply as the current Government already anticipates excess supply by year 2018.

The risk of over expansion should be appropriately addressed to avoid the adverse

consequences of financing capacity payments for unused electricity, as the economy

will then be forced to endure the burden of financing these projects without much

benefit.

Above all, the targets for growth set by government are ambitious without any

matching innovative and significant structural reforms to transform the economy, in

the form of fundamental improvements in the administration and governance

framework to make it more competitive. Thus, as in the past, much of the expansion

and expenditure may have to be financed through domestic and external loans,

current account and fiscal deficit may go beyond reasonable limits leading the

country to the door of IMF sooner than expected, and consistent with past, it will not

be surprising that the planned targets are missed in the next year as well.


Income tax

Corporate tax rate for companies other than banking companies is further reduced from 31% to 30%, for Tax Year 2018 and onwards.

Withholding tax rate for mobile

phone subscribers under section 236

to be reduced from 14% to 12.5%. Concept of “start-up” is being

introduced to promote Information technology industry. Definition of “start-up” is also introduced. Tax exemption is proposed in respect of

profits earned by start-up for a period of 3 years. Moreover, exemption from levy of minimum tax under section 113 as well as withholding tax under section 153

(as recipient) is also proposed.

Asaan Mobile Account Scheme is to

be introduced for providing withholding tax exemption on cash withdrawal of amount exceeding Rs.50,000 per day under section 231A, made through “Branchless

Banking Agent Account”. The quantitative limit for import of

raw material by an industrial undertaking for its own use, without collection of tax at import stage on the basis of exemption certificate, is

enhanced from 110% to 125% of the

quantity imported and consumed in previous tax year.

Threshold under section 147 of latest

assessed taxable income for payment

of advance tax by an individual is enhanced from Rs. 500,000 to Rs.1,000,000.

Limit of taxable income for

individuals for entitlement to

deductible allowance in respect of tuition fee paid by them under section 64AB (now 60D) is increased

from Rs.1,000,000 to Rs. 1,500,000. Threshold for collection of advance

tax by insurance companies on

premium paid by non-filers in respect of life insurance under section 236U is being enhanced from Rs. 200,000

to Rs. 300,000 per annum. Limit for tax credit in respect of

payment of health insurance premium or contribution paid by a resident person (filer) other than a company deriving income from salary

or business, is enhanced from Rs.100,000 to 150,000.

Income tax rates for collection of

advance tax by registering authority

on registration of motor vehicles

under section 231B are reduced, whilst rates for non-filers are to remain the same.

Threshold for treating interest free or

concessional loan by an employer to an employee as salary / perquisite

under section 13(7) is enhanced from Rs. 500,000 to Rs. 1,000,000.

Tax credit for the year of enlistment

is extended to three years subsequent to the year of enlistment. However the tax credit for last two

years is proposed to be restricted to

10% as against 20% for the first two years.

Minimum tax on services rendered by

Pakistan Stock Exchange Limited

under section 153(1)(b) is reduced from 8% to 2%.

Limit of allowable expenditure in respect of sales promotion, advertisement and publicity by a pharmaceutical company under

Highlights of Important Fiscal Proposals


section 21(o) is being enhanced from 5% of turnover to 10% of turnover.

Depreciation claim is allowed under

section 22 on assets jointly owned by a taxpayer and an Islamic financial institution, pursuant to an arrangement of Musharika financing. Thus effectively as consequence of proposed amendment, financing

availed by the customer of Islamic

financial institution under a Musharika Financing or diminishing Musharika financing shall now be treated at par with the financing obtained from conventional financial institution for the purpose of

computation of income tax liability.

Fixed tax of Rs. 5,000 per haji for Hajj group operators introduced through the Finance Act, 2016 is extended for Tax Year 2017 as well.

Income tax exemption is proposed in respect of income generated by all

political parties which are registered

with the Election Commission of Pakistan under the Political Parties Order, 2002.

Income of following non-profit/charitable organizations is exempted:

1. Gulab Devi Chest Hospital 2. Pakistan Poverty Alleviation Fund 3. National Academy of Performing

Arts 4. Asian Infrastructure Investment

Bank.

The condition of distribution of

dividend of 50% of paid up capital for availing benefit of tax exemption on undistributed reserves is abolished.

Concept of provisional assessment under section 122C in case a person

fails to furnish return of income for any tax year after receiving notice under section 114(4) is abolished.

A new provision is proposed to be introduced under section 165, to enable taxpayers to revise their withholding tax statements within 60

days of filing of the same.

Chief Commissioner is empowered to grant extension in filing of income tax or wealth tax statements, if the same is rejected by the

Commissioner.

Rates of withholding tax on sale / supply of fast moving consumer

goods are reduced from 3% and 3.5% to 2% and 2.5% for companies and non-companies, respectively.

Tax rate on dividend income is increased from 12.5% to 15%.

Tax rate on dividend received from mutual funds is increased from 10% to 12.5%. No change in tax rate is

being made in respect of dividend declared or distributed by purchaser of power projects privatized by

WAPDA, shares of a company set up for power generation and the company supplying coal to power generation projects.

The Bill proposes to substitute tax rates in respect of profit on debt received by an individual or an association of persons as given below:

Existing Proposed

Existing slabs

Existing tax rate

Proposed slabs

Proposed tax rates

Upto Rs. 25 million

10% Upto Rs. 5

million 10%

More than Rs. 25 million and upto Rs. 50 million

Rs. 2,500,000 + 12.5% of the amount exceeding Rs. 25 million

More than Rs. 5 million

and upto Rs. 25 million

12.5%

Exceeding Rs. 50 million

Rs. 5,625,000 + 15% of the amount exceeding Rs. 50 million

Exceeding Rs. 25 million

15%


Applicable tax rates, based on holding period, on capital gains arising on disposal of securities are proposed to be simplified and flat

rates of tax of 15% and 20% are being introduced for filers and non-filers, respectively. Gain on securities acquired before July 01, 2013 will be taxable at 0%. No change is proposed in case of future

commodity contracts entered into by

members of Pakistan Mercantile Exchange.

Tax credit, as given in section 65A of 3% of tax payable as is available to manufacturers who make 90% of the sales to sales tax registered persons is withdrawn.

Rate of minimum tax as envisaged

under the provisions of section 113 is proposed to be enhanced from 1% to 1.25% of turnover.

Applicable fixed tax regime for Builders and Land Developers on the

basis of unit area is replaced with normal tax regime.

Tax collected at import stage on

import of fertilizer by manufacturer of fertilizer is brought into final tax regime.

Super tax is proposed to be extended to Tax Year 2017.

Applicable advance tax of 0.02% on purchase and sale of shares by stock exchange broker is brought into final

tax regime.

Pakistan Tobacco Board is being entrusted with collection of withholding tax on purchase of tobacco by manufacturers of cigarettes at the rate of 5% of the purchase value of tobacco, at the

time of collecting cess.

Advance tax for the sale of electronics is enhanced and also higher tax withholding rate for non-filers is introduced, as per below:

Category of sale

Existing Rate

Revised Rate

Filer Non-filer

Electronics 0.5% 1% 1%

Others 0.5% 0.5% 1%

Scope of withholding tax on sale of electronic goods, cigarettes etc. to

dealers, distributors and wholesalers by manufacturers or commercial importers is extended to batteries.

In case of non-filer rate of collection of tax under section 236A of the Ordinance on gross sale price of any

property or goods sold by auction is increased to 15% from existing 10% rate.

Payment to non-residents:

Withholding tax rate enhanced for following payments to non-filer non-residents under section 152:

Description

Non-filer

Existing Rate

Proposed Rate

Payment for execution of contracts as given in section 152(1A) of the Ordinance

12% 13%

Sale of goods as

given in section 152(2A) of the Ordinance:

- In case of company

- Other than a company

6%

6.5%

7%

7.75%

Rendering of services

other than transport services:



12%

15%

14%

17.5%

Execution of contract

other than sportspersons

12% 13%


Commissioner is now empowered to issue exemption or reduced rate certificates to non-resident persons having Permanent Establishment in

Pakistan, in case where the payment is being made for execution of following contracts:

A contract or sub contract under construction, assembly or installation project.

Any other contract for the

construction services or services

rendered relating thereto.

A contract for advertisement services rendered by TV Satellite Channels.

Provided the non-resident has not

opted for final tax regime. Withholding tax rates as given in

section 153 of the Ordinance on payments to non-filers are increased

as under:

Nature of payment

Rates for non-filers

Existing Proposed

Sales of

goods:

- In case of a company


6%

6.5%

7%

7.75%

Rendering of services other than transport

services, advertising services by

print and electronic media:


- Other than

a company

12%

15%

14.5%

17.5%

Nature of payment


Existing Proposed

Execution of contract other than contract signed by a sportsperson:



10%

10%

12%

12.5%

Increase in rates of tax for non-filers

under various sections:

Nature of payment


Existing Proposed

Income from property:

Withholding tax

rate under section 155 of the Ordinance on income from property in case

of non-filer company.

15% 17.5%

Prizes and winnings:

The rate of tax to be deducted

under section 156 of the Ordinance on a prize on prize

bond or cross-word puzzle from

non-filers.

20% 25%


Nature of payment


Existing Proposed

Payment to petrol pump operators:

The rate of tax

collection under section 156A of

the Ordinance from the amount of discount or commission allowed / given to

the non-filer petrol pump operators.

15% 17.5%

Advance tax on

gas sales of CNG stations:

Tax collection rate from non-filer CNG stations under section

234A of the Ordinance.

4% 6%

Sales tax Zero-rated supplies would be

charged with further tax of 2% on supplies to persons other than the registered persons.

Payment of sales tax by Tier-1

retailers which is presently provided in the special procedures, is proposed to be part of the Act.

Sales tax is also chargeable on

imports destined for non-tariff areas. The Bill proposes to impose penalties

on persons manufacturing, transporting and distributing non-duty paid/counterfeit cigarettes including confiscation of vehicles and

seizure of the premises.

Automatic stay against recovery of sales tax demand will be available till decision by the Commissioner Inland Revenue (Appeals) on payment of

25% of the sales tax demand. Notices sent to the companies

through electronic medium are proposed to be treated as proper service along with other prescribed

modes.

According to Salient Features issued

along with the Budget documents, extra tax on lubricating oil is exempted enabling the industrial consumers to claim input tax

adjustment thereon. As per Salient Features, requirement of withholding tax is being withdrawn on supplies from registered persons to other registered persons with the exception of advertisement services.

Sales tax on import of six types of

poultry machinery is proposed to be reduced to 7%.

Combined harvesters up to five years

old are proposed to be exempt from Sales tax.

Agricultural diesel engines (from 3 to 36 HP) are proposed to be exempt from Sales Tax.

Sales tax on import of sunflower and

canola hybrid seeds meant for

sowing is proposed to be exempted from sales tax

As per Salient Features, subsidy on

fertilizer is proposed to be

substituted with specific reduced rates. Sales tax on urea fertilizer

shall remain unchanged at 5% ad valorem.

Exemption from sales tax is proposed

on import of multimedia projectors by educational institutions.

Sales tax on gifts and donations received from foreign governments


and organizations to the Federal and Provincial Governments and public sector organizations is proposed to be exempted.

Existing reduction in sales tax at

25% on import of hybrid electric vehicles will now be available to vehicles having engine capacity from 1801cc to 2500cc, no reduction in

sales tax is applicable to vehicles

over 2500cc capacity. The proposed revised reduction of sales tax at 50% to hybrid vehicles having engine capacity upto 1800cc and 25% reduction to hybrid vehicle ranging from 1801cc to 2500cc will also be

available on local supply besides imports.

Premixes to fight growth stunting are

proposed to be exempt from sales tax.

The Bill proposes to exempt sales tax on vehicles for construction and

development of Gwadar Port and Gwadar Free Zone. Scope of exemption already provided to materials and equipment is being clarified by extending the exemption

to plant, machinery, equipment, appliances and accessories.

Exemption from sales tax is proposed

to be aligned with exemption under s Act, 1969 on items for renewable

sources of energy. Similarly, exemption from sales tax to items for conservation of energy is proposed to be provided.

Exemption on parts and components for manufacturing LED lights is to be

aligned on the pattern of exemption available under the s Act, 1969.

Sales tax rates of Rs.300 and

Rs.1,000 chargeable on mobile phones, depending upon category of mobile phone set, are proposed to be

merged at Rs.650 per set.

Rate of sales tax for steel sector is proposed to be increased from Rs.9 to Rs.10.5 per unit of electricity and corresponding increase shall be

made in ship breaking and other allied industry.

Sales tax rate on retail sales of five

export oriented sectors is proposed to be increased from 5% to 6%.

Sales tax is proposed to be levied on commercial import of fabrics at 6% thus excluding it from category of zero-rated supplies under SRO 1125(I)/2011.

Minimum Sales tax at Rs.425 per metric ton is proposed to be levied on locally produced coal.

As per the salient features issued, exemption from sales tax is proposed on export of IT services under the

Islamabad Capital Territory (Tax on Services) Ordinance, 2001.

Similarly, it is mentioned that certain services will have similar reduced tax rate and chargeability on turnover without allowing adjustment of input tax, as is applied on identical

services under the provincial sales tax laws.

Federal excise duty

The Bill proposes to allow stay on balance FED recovery till the decision by the Commissioner Appeals, if 25% of demand of duty is paid.

Notice sent to companies through electronic medium via email or placing it

on e-folder would be treated as proper service of notice.

FED on telecommunication services in the

Federal Capital Territory is proposed to be reduced from 18.5% to 17%.


Duty on cement is proposed to be increased from Rs.1 per kg to Rs.1.25 kg.

Previously FED was charged on cigarettes on the basis of specific rates in two tiers. Now the Bill has proposed to introduce the new tier to control the declining revenue and control of threat of illegal low priced cigarettes of inferior quality.

Stringent penalties are proposed to be imposed on manufacturer of counterfeit cigarettes, including the manufacture or production of counterfeited tax stamps, banderoles, stickers, labels or barcodes, or is engaged in the manufacturing or

production of cigarettes packs without affixing, or affixing counterfeited, tax stamps, banderoles, stickers, labels or barcodes

Plant, machinery, equipment, appliances

and accessories is proposed to be

included in scope of material and equipment on which exemption is

granted, if imported by or supplied to China Overseas Ports Holding Company Limited (COPHCL) and its operating companies for construction and operation of Gwadar Port and development of Free

Zone for Gwadar Port. Exemption from sales tax and Federal

Excise Duty is proposed on vehicles imported by China Overseas Ports Holding Company Limited and its

operating companies for a period of 23 years for construction, development and operations of Gwadar Port and Free Zone Area subject to certain limitations and conditions.

Customs duty

The Bill also proposes to levy/ increase of Regulatory Duty on 565 non-essential items by various rates ranging from 5% to 15%.

The Bill proposes a reduction of customs duty from 11% to 3% and

removal of regulatory duty of 5% on grandparent and parent stock of chicken.

Reduction from 11% to 3% has been proposed in duty on import of

hatching eggs.

Reduction from 10% to 5% has been

proposed in Regulatory Duty chargeable on aluminum waste or

scrap.

Reduction is proposed on regulatory duty from 10% to 5% on aluminum waste or aluminum scrap.

The Bill proposes to provide exemption from Customs Duty of 3% on raw skins and hides.

The Bill proposes relief from Customs Duty of 16% on stamping foils.

A reduction from 16% to 11% has been proposed in Customs Duty chargeable on sheets of veneering rom.

A reduction from 20% to 3% has been proposed in Customs Duty chargeable

on pre-fabricated modular clean rooms panels.

The Bill proposes to provide for relief from Customs Duty of 3% on import of ostriches.

A reduction from 16% to 5% has been proposed in Customs Duty chargeable

on fabric (nonwoven) for pharmaceutical industry.

The Bill proposes to levy Regulatory Duty of 5% on import of synthetic

filament yarn of polyester.

The Bill proposes increase in Customs Duty on aluminum beverage cans

from 11% to 20%.

Reduction of Customs Duty from 20% to 11% on uncoated polyester film and aluminum wire for the manufacturers of metalized yarn.


A reduction is proposed in Customs Duty from 20% to 16% and from 16% to 11% on raw materials for manufacturers of baby diapers.

Customs Duty on Bituminous coal with

other coal to equalize at the rate of 5%. Imports by power projects in IPPs Mode to pay Customs Duty at 3% on Bituminous coal and other coal.

Separate PCT codes are created for compressors of vehicles at 35% Customs Duty and for electric cigarettes at 20% Customs Duty.

Regulatory Duty of 10% on animal

protein meals is proposed to be levied.

The Bill proposes to charge Regulatory Duty at the rate of Rs. 250 per set on mobile phones instead of charging Customs Duty at same rate.

Customs Duty at the rate of 11% and 16% on the telecom equipment to be

exempted in place of levy Regulatory Duty at the uniform rate of 9%.

Regulatory Duty on betel nuts is

proposed to be increased from 10% to 25% whereas betel leaves to bear levy of Regulatory Duty at the rate of Rs.200 per Kg. Hybrid Electric Vehicles having engine

capacity of over 2500cc will not be allowed any exemption from Customs Duty. The Bill proposes to adopt HS version 2017 in Customs law to revamp

coding in Pakistan Customs Tariff,

Fifth Schedule to the s Act and SROs /Notifications.

The Bill proposes to allow exemption from Customs Duty on import of combined harvester-threshers up to 5 years old. Further Bill also propose to

levy Regulatory Duty at the rate of 10% and 20% on combined

harvester-threshers five to ten years and more than ten years respectively.

Additional duty is proposed on

cylinder head for motorcycles.

The Bill also proposes to extend the relief of concessionary rate of 11% on Set top boxes, TV broadcast transmitter and Reception apparatus

etc. till June 30, 2018.

The Bill proposes the extension of

concession on 11 more components of trailers.

The Bill proposes to expand the scope of exemption on import/ donation by allowing imports and donation of Federal, Provincial, AJ&K, Gilgit-Baltistan Governments, NDMA, PDMA and Govt. emergency/rescue services.

The Bill proposes to extend the relief available on import of solar panel and

related components with the condition of ‘local manufacturing’, till June 30,

2018.

The Bill proposes to exempt surcharge in excess of 0.25% for cargo in-bonded at Karachi for upcountry Bonds.


Income Tax Ordinance, 2001

1. Fast moving consumer goods [Section 2(22A)]

Presently, the term “fast moving consumer goods” is defined to mean consumer goods which are supplied in retail marketing as per daily demand of a consumer.

The Bill proposes to specify that durable goods are excluded from the above definition. The proposed amendment is of clarificatory

nature in our view.

2. Officer of Inland Revenue [Section 2(38A)]

The definition of “Officer of Inland Revenue” is proposed to be enlarged, so as to include the following within its ambit:

District Taxation Officer; and

Assistant Director Audit.

3. Startup [Section 2(62A)] The Bill proposes to introduce the following definition for the term “startup”: “a business of resident individual, AOP or a company incorporated or registered in

Pakistan on or after first day of July, 2012 and the person is engaged in or intends to offer technology driven products or services to any sector of the economy provided that the person is registered with and duly certified by the Pakistan Software Export Board (PESB) and having turnover

of less than one hundred million in each of the last five tax years.” It is further proposed that the provisions of section 113 relating to minimum tax, as well as withholding tax provisions (as recipient) under section 153 of the

Ordinance are inapplicable for start-ups.

4. Super tax for rehabilitation of temporarily displaced

persons [Section 4B]

Super tax is levied at the rate of 4% on the income of banking companies and at the rate of 3% for other persons. Super tax was initially introduced for tax year 2015

only. Through the Finance Act, 2016, it was later also made applicable for tax year 2016.

The Bill now proposes to make it applicable for tax year 2017 as well.

5. Tax on undistributed

reserves (Section 5A) Presently, 10% tax is leviable on every

public company other than a scheduled bank or a modaraba that derives profits for a tax year but does not distribute cash dividends within 6 months of the end of

the said tax year or distributes dividends such that, after distribution, its reserves are more than 100% of its paid up capital.

Exemption from above tax is available for the following:

a public company which distributes profit equal to either 40% of its

after tax profits or 50% of its paid up capital, whichever is less, within six months of the end of the tax year,

a company in which not less than

50% shares are held by the

Government, and

a company engaged in power generation which qualifies for exemption under Clause (132) of Part I of Second Schedule.

Section 5A is proposed to be substituted with a new section, whereby the present condition for exemption of distribution of dividend of 50% of paid up capital is


abolished, so as to protect the interest of small investors. It is further proposed that for tax year

2017, bonus shares or cash dividends may be distributed by due date of filing of income tax return, as given under section 118(2).

6. Tax on builders (Section

7C)

Section 7C was introduced through the Finance Act, 2015 in order to tax profits and gains from the business of construction and sales of residential, commercial or other buildings as per tax rates specified under Division VIIIA of Part I of First Schedule. Sub-section (4) of

section 7C further provides that the aforesaid provisions would be applicable to business or projects undertaken for construction and sale of residential, commercial or other buildings initiated and approved after July 1, 2016.

The Bill proposes to replace the aforesaid sub-section (4) with a new sub-section, so as to apply this section to projects undertaken for development and sale of residential, commercial or other plots initiated and approved during tax year

2017 only, for which advance tax payment under rule 13S of the Income Tax Rules, 2002 has been made by developers during tax year 2017 and Chief Commissioner has issued online schedule of advance tax installments payable by the developer in accordance with rule 13ZB of the Rules.

The intention of the Legislature is that the

aforesaid section would not be applicable for tax year 2018 and onwards, and such income would be taxable as per the normal provisions of the Ordinance

7. Tax on developers (Section 7D)

Section 7D was introduced through the Finance Act, 2015 in order to tax profits

and gains from the business of development and sale of residential, commercial or other plots as per tax rates specified under Division VIIIB of Part I of

First Schedule. Sub-section (4) of section 7D further provides that the aforesaid provisions would be applicable to projects undertaken for development and sale of residential, commercial or other plots initiated and approved after July 1, 2016.

The Bill proposes to replace the aforesaid sub-section (4) with a new sub-section, so as to apply this section to projects undertaken for development and sale of residential, commercial or other plots initiated and approved during tax year

2017 only, for which advance tax payment under rule 13S of the Rules has been made by developers during tax year 2017 and Chief Commissioner has issued online schedule of advance tax installments payable by the developer in accordance with rule 13U of the Rules.

It appears that the intention of the

Legislature is that the aforesaid section would not be applicable for tax year 2018 and onwards, and such income would be taxable as per the normal provisions of the Ordinance.

8. General provisions relating to taxes imposed under

sections 5, 5A, 5AA, 6, 7, 7A, 7B, 7C and 7D. (Section

8)

Section 8 provides that inter alia tax on incomes of builders and developers under

sections 7C and 7D respectively are final tax, and such incomes are not entitled to any tax credit under the Ordinance.

The bill proposes to exclude the incomes of builders and developers from section 8, so as to bring these incomes under normal tax regime and allow tax credits under the Ordinance.


9. Value of perquisites

(Section 8) Presently, if an employer is lending to employee interest free or at less than the

benchmark rate, differential of interest rate charged and bench mark rate is treated as salary income of the employee. The aforesaid provisions, however, do not apply to loans not exceeding to

Rs. 500,000.

The bill seeks to increase the aforesaid limit of the loan from Rs. 500,000 to Rs. 1,000,000.

10. Deductions not allowed

[Section 21(o)] Clause (o) was inserted in section 2

through the Finance Act, 2016, whereby any expenditure on account of sales promotion, advertisement and publicity incurred by pharmaceutical manufacturers in excess of 5% of its turnover is

inadmissible for computing taxable income of the taxpayer.

The Bill seeks to enhance the aforesaid limit of expenditure to 10% of turnover.

11. Depreciation (Section 22) Presently, depreciation is allowable only in respect of a depreciable asset owned by a person which is used in his business. The Bill proposes to add proviso to the

definition of “depreciable asset” as given in section 22(15), so as to treat depreciable

asset which is jointly owned by a taxpayer and an Islamic financial institution licensed by the State Bank of Pakistan, or Securities and Exchange Commission of Pakistan as

the case maybe, pursuant to an arrangement of Musharika financing or diminishing Musharika financing, as wholly owned by the taxpayer. Depreciation on assets financed through Musharaka was being disallowed to Islamic

Banking Customers on the ground that the asset is jointly owned by the borrower and the Islamic financial institution. Whereas a borrower of the conventional bank can

avail benefit of deprecation on the fixed assets provided as security to financial institution under long / short terms financing arrangement. Resultantly the customer of Islamic

financial institution would be in a

disadvantages position as compared to conventional banking customer. Thus financing through Islamic modes of financing had become unviable for customers. As a consequence of proposed amendment, financing availed by the

customer of Islamic financial institution under a Musharika Financing or dominating Musharika financing shall now be treated at par with the financing obtained from conventional financial institution for the purpose computation of income tax liability.

Tax professional and banking companies

have been proposing since long for the subject amendment with retrospective effect since a number of taxpayers availing Musharika financing are in dispute with the tax authorities on this matter.

The purpose of this amendment is to incentivize Islamic banking and allow depreciation in respect of assets financed by such modes.

12. Exemptions and tax concessions in the Second

Schedule (Section 53)

Under the existing provision of law, the Federal Government, with the approval of

the Economic Coordination Committee of Cabinet, may take immediate action in case of circumstances mentioned in section 53 and make such amendments in the Second Schedule through a notification by adding, omitting or making any changes in any Clause of the Second Schedule or

condition mentioned in any Clause.


It is now proposed to empower the Board, whereby Board with the approvals of Minister Incharge of the Federal Government and the Economic

Coordination Committee of Cabinet, to make necessary amendments in the Second Schedule through a notification, in case of the circumstances mentioned in the law.

It is further proposed that any notification

issued under the powers of section 53, except already rescinded notifications, shall be deemed to have been in force effective from July 1, 2016 and shall continue to be in force till June 30, 2018, if not earlier rescinded. It is also proposed

that notification issued on July 1, 2016 shall continue to be in force till June 30, 2018, if not already rescinded.

13. Tax credit for investment in

health insurance [Section 62A]

Presently, a filer resident person, other than a company, deriving salary income or business income, is entitled to tax credit in respect of any contribution/ premium pertaining to health insurance paid to

certain insurance companies, subject to certain conditions, according to the following formula:

(A/B) x C Where-

A is the amount of tax

assessed to the person for the tax year before allowance of tax credit under this section;

B is the person’s taxable

income for the tax year; and

C is the lesser of — (a) the total contribution or

premium paid by the person referred to in sub-

section (1) in the year;

(b) five per cent of the person’s taxable income for the year; and

(c) Rs. 100,000

The Bill proposes to enhance the threshold of Rs.100,000 to Rs. 150,000.

14. Deductible allowance for

education expenses [Section 64AB]

Presently, an individual is entitled to deductible allowance in respect of tuition fee paid by him in a tax year, if his taxable

income is less than Rs. 1,000,000. The deductible allowance shall not exceed the lesser of: (a) 5% of the total tuition fee paid by the

individual in the year;

(b) 25% of the person’s taxable income for the year; and

(c) an amount computed by multiplying

Rs. 60,000 with number of children of the individual.

The Bill proposes to enhance the threshold of taxable income from Rs. 1,000,000 to Rs. 1,500,000. The Bill further proposes to renumber the section from 64AB to 60D.

15. Tax credit to a person registered under the Sales

Tax Act, 1990 [Section 65A]

Presently, every manufacturer, registered under Sales Tax Act, 1990 is allowed to claim tax credit equal to 3% of tax payable for a tax year, if 90% of its sales are made

to parties registered under the Sales Tax Act, 1990 during such tax year.


The Bill proposes to withdraw the aforesaid tax credit.

16. Tax credit for enlistment

(Section 65C) Presently, if a company gets itself enlisted on any registered stock exchange in Pakistan, it is entitled to tax credit equal to 20% of its tax payable for the tax year in

which it is enlisted as well as for the subsequent tax year.

The Bill proposes to extend the tax credit for tax year of enlistment and subsequent three tax years. However, the tax credit for last two years is proposed to be restricted to 10%.

17. Principles of taxation of companies (Section 94)

Presently, sub-section (3) of section 94 provides that dividend paid by non-resident company to a resident person is

chargeable to tax under the head “Income from business” or “Income from other

sources”, as the case may be, unless the dividend is exempt from tax. The Bill proposes to delete the aforesaid sub-section (3) of section 94 for the reason that in terms of section 5 whereby all dividends are taxable as per tax rates

specified in Division III of Part 1 of First Schedule.

18. Special provisions relating

to the production of oil and natural gas, and exploration

and extraction of other mineral deposits (Section

100) Presently, profits and gains from the

exploration and production of petroleum including natural gas and from refineries set up at the Dhodak and Bobi fields, or the pipeline operations of exploration and

production companies, or manufacture and sale of liquified petroleum gas or compressed natural gas and tax payable thereon are computed as per Part I of Fifth

Schedule. Further, sub-section (2) of section 100 provides that the aforesaid provisions do not apply to profits and gains attributable to the production of petroleum including natural gas discovered before September 24, 1954.

The Bill proposes to introduce a proviso to sub-section (2) of section 100, so as to exclude the applicability of the said sub-section (2) to profits and gains derived from sui gas field eith effect from tax year 2017.

The purpose of this amendment is to bring profits and gains derived from sui gas field within the purview of Fifth Schedule.

19. Tax credit for certain

persons (Section 100C)

Presently, certain non-profit organizations, trusts or welfare institutions are entitled to tax credit equal to 100% of tax payable, including minimum tax and final taxes payable under any of the provisions of this Ordinance, subject to the following conditions:

(a) return has been filed by aforesaid

non-profit organizations, trusts or welfare institutions;

(b) tax required to be deducted or

collected has been deducted or

collected and paid; and

(c) withholding tax statements for the immediately preceding tax year have been filed.

The Bill proposes to add another condition i.e that the administrative and management expenditure does not exceed 15% of the total receipts. The Bill further proposes to insert sub-section (1A) in this section, so that surplus


funds of non-profit organizations, trusts or welfare institutions be taxed at 10%, The term “surplus funds” for the purpose of sub-section (1A) is proposed to be defined

as follows: “Surplus funds” mean funds or monies:

i) not spent on charitable and welfare activities during the tax year;

ii) received during the tax year as

donations, voluntary contributions, subscriptions and other incomes; or

iii) more than 25% of the total receipts of the non-profit organization received during the

tax year; iv) are not part of restricted funds.

The Bill proposes the definition of “restricted funds” as follows: “restricted funds” mean “any fund received

by the organization but could not be spent and treated as revenue during the year

due to any obligation placed by the donor.”

20. Minimum tax on the income

of certain persons (Section 113)

Presently, resident company and an individual or association of persons having turnover of Rs. 10,000,000 or above in tax year 2017 or any subsequent tax year are

liable to pay minimum tax of 1% of turnover where, for whatever reasons, no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than 1% of the

person‘s turnover from all sources for that year.

The Bill proposes to enhance the rate of minimum tax from “1%” to 1.25%. The reduced rates given under table in Division IX of Part-I of the First Schedule in respect of certain taxpayers would, however, remain intact.

21. Return of income [Section

114] Under the existing provisions of law, a person who after furnishing a return,

discovers any omission or wrong statements in the return may revise return subject to certain conditions including the condition that taxable income is not less than and loss declared is not more than

income or loss determined under sections 121, 122, 122A, 122C, 129, 132, 133 or

221 of the Ordinance. It is proposed to omit reference to section 122C pertaining to provisional assessment from sub clause (c) of section 114(6) of the Ordinance, since the concept of provisional assessment is also proposed to

be omitted.

22. Persons not required to furnish a return of income

[Section 115] Under the existing provisions of section 115(1), a person owning an immovable property of 250 square yards or more or owning any flat located in areas falling within the municipal limits is required to file return of income. However, this

condition is not applicable for certain persons i.e. a window, an orphan below the age of 25 years, a disabled person and a non-resident person. The Bill proposes that the above referred persons will not be required to file return of

income, even if they

own immoveable property with a land area of 500 square yards or more located in a rating area;

own a flat having covered area of 2000 square feet or more located in a rating area; and

owns a motor vehicle having engine capacity above 1000 CC.


23. Revision of wealth

statement [Section 116] Under the existing law, a person who has furnished a wealth statement, discovers

any omission or wrong statement therein, may file revised wealth statement before the passing of the assessment order under section 122(1) and (4) of the Ordinance.

To restrict the revision of wealth statement, it is now proposed that a

person cannot file revised wealth statement after receiving of the notice under section 122(9) of the Ordinance.

24. Extension of time for

furnishing returns and other documents [Section 119]

The Bill proposes to insert new proviso after section 119(4) of the Ordinance, whereby a person may file an application before Chief Commissioner for allowing

extension in time for filing of return of income, final tax statement and wealth statement under sections 114, 115 and 116 of the Ordinance, in case where relevant Commissioner rejects request for extension in time.

The Chief Commissioner may grant extension or further extension for a period not exceeding 15 days. The Chief Commissioner can provide extension for longer period if there are exceptional circumstances justifying a longer extension of time.

25. Best judgment assessment and provisional assessment

[Section 121, 122C, 127]

Under the existing law, the Commissioner is empowered to make provisional assessment based on any available information of a person who has not furnished return of income in response to notice under section 114(3) and (4) of the Ordinance.

The Bill proposes to omit section 122C of the Ordinance. The Bill further proposes to insert new clause under section 121(1) of

the Ordinance, whereby based on any available information, the Commissioner may make a best judgment assessment of the taxable income or income of the person, who has not filed return of income in response to notice issued under section

114(3) and (4) of the Ordinance.

Under existing law, any order passed under section 122C is not appealable before the Commissioner Inland Revenue Appeals under section 127 of the Ordinance. Due to proposed omission of section 122C, it is

proposed to delete reference of section 122C from section 127.

26. Appointment of the

Appellate Tribunal [Section 130]

Under the existing law, the Officer of

Inland Revenue Service in BS-20 or above being a law graduate can be appointed as judicial member of the Appellate Tribunal. The Bill propose to exclude such person for

being appointed as judicial member of the Appellate Tribunal. The proposed amendment is in line with the view of the professionals and tax experts and would help in ensuring transparency in Appellate Tribunal.

27. Recovery of tax from persons assessed in Gilgit-

Baltistan. [Section 146] Under the existing law, a Commissioner is

empowered to collect tax from a person who is assessed to tax for any tax year under the law relating to tax in Azad Jammu and Kashmir and fail to pay tax and the income tax authorities of the Azad Jammu and Kashmir cannot recover the tax because the person‘s residence is in

Pakistan or the person has no movable or


immovable property in the Azad Jammu and Kashmir. The Deputy Commissioner in the Azad

Jammu and Kashmir may forward a certificate of recovery to the Commissioner and, on receipt of such certificate, the Commissioner shall recover the tax referred in the certificate.

The Bill propose to expand the scope of

section 146 in respect of any taxes due with tax authorities of Gilgit- Baltistan.

28. Enhancement of limit for

discharge of advance tax liability by individual

taxpayer [Section 147(4B)] Currently, individual taxpayers having

assessed income of Rs 500,000 or more are required to discharge quarterly advance tax. The limit is proposed to be enhanced to assessed income of Rs 1,000,000 or more. This is in line with

the inflationary trend and needs to be further enhanced.

29. Import of fertilizer brought under final tax regime

[Section 148(7)] Currently tax collected at import stage for

import of fertilizer by manufacturer of fertilizer is adjustable against tax liability of manufacturer, by excluding this sector from final tax regime under section 148(7)(b). It is proposed to omit section 148(7)(b) by virtue of which tax collected

at the time of import of fertilizer by

manufacturer of fertilizer will be considered as final tax. Inclusion of new sectors under final tax regime is against the overall policy of documenting the economy.

30. Payments to non-residents

for advertisement services [Section 152(1AAA)]

A technical correction is proposed in section 152(1AAA) by providing reference to Division II of Part III to the First Schedule, covering tax rates for payments

to non-residents on account of advertisement services. Previously section 152(1AAA) inadvertency referred to Division IIIA of Part III to the First Schedule.

31. Payments to non-residents

for the execution of certain contracts [Section 152(1B)]

Previously, tax deductible from payment to a non-resident person on account of

execution of following contracts was treated as his final tax on such contracts provided such non-resident person had filed an option in this respect under the provisions of Clause (41) of Part IV of the Second Schedule to the Ordinance.

- a contract or sub-contract under a construction, assembly or installation project in Pakistan, including a contract for the supply of supervisory activities in relation to such project; or

- any other contract for the construction or services rendered relating thereto; or

- a contract for advertisement services rendered by T.V. Satellite Channels,

In terms of the provisions of Clause (41), the non-resident person was required to opt for taxation under final tax regime by

filing a declaration in writing before the Commissioner within three months of the commencement of the tax year and such declaration was irrevocable and remained

in force for three years. Clause (41) is proposed to be deleted and the condition for opting for final taxation is now proposed to be provided in a newly inserted proviso to sub-section (1B) of

section 152. However, the above referred


proviso does not specify the timing and validity of the option to be assessed under the final tax regime.

32. Exemption certificates for payments to a permanent

establishment in Pakistan of a non-resident person

[Section 152(4A)] The existing provision of section 152(4A)

empowers the Commissioner to issue an exemption or reduced rate certificate to non-resident persons having a Permanent Establishment in Pakistan for payments on account of following. - sale of goods (excluding certain

imported goods).

- rendering or providing services.

- execution of a contract (other than a contract for sale of good or

rendering/providing of services. It is now proposed to extend the powers of the Commissioner to also issue such certificates to non-resident persons having a Permanent Establishment in Pakistan for payments on account of execution of

following contracts provided such non-resident persons have not opted to be assessed under the final tax regime. - a contract or sub-contract under a

construction, assembly or installation project in Pakistan, including a contract

for the supply of supervisory activities in relation to such project; or

- any other contract for the construction

or services rendered relating thereto; or

- a contract for advertisement services

rendered bu T.V. Satellite Channels, Non-resident persons, not having a Permanent Establishment in Pakistan or non-resident persons having a Permanent

Establishment but opting for final taxation under section 152(1B), will not be entitled to apply for such certificates.

33. Tax deduction for payments collected on behalf of third

parties (Section 153) A new proviso is proposed to be inserted in

section 153(1) of the Ordinance, whereby

where a person appoints an agent or third party for collection of some charges on its behalf and that agent or third party pays the amount after retaining its charges by whatever name called, the retention of money by the agent or third party will be

treated as payment made by the recipient and recipient will be required to collect the tax alongwith payment received. It is interesting to note that in a recent decision passed by Supreme Court of Pakistan, it was held by the Court that

charges retained by third party for collecting certain charges does not

constitute payment under section 153(1)(b) and therefore, no deduction or collection of tax was required by such party. We understand that this amendment is proposed to counter the implications of

above decision of the apex Court in respect of future payments.

34. Revision of withholding

statement (Section 165) The existing provisions of law, do not allow revision of withholding tax statements. The

withholding agents face difficulties and are exposed to penalties for unintentional and

inadvertent mistakes made in such statements. It is now proposed that if any person who

discovers any omission or wrong statement after filing of the withholding statement, he may file a revised statement within 60 days of filing of such statement.


In order to implement proposed amendment, such facility should be provided on FBR’s web portal.

35. Furnishing of information by financial institutions for

‘reportable persons’ (Section 165B)

Currently, financial institutions are required to make arrangement for furnishing information to FBR for non-resident

persons in the prescribed form and manner. Considering the recently introduced Common Reporting Standard Rules as per Chapter XIIA of the Income Tax Rules, 2002 vide SRO 166(I)/2017 dated March

15, 2017, it is now proposed that financial institutions will also be required to furnish information for ‘other reportable’ persons as defined under Common Reporting Standard Rules.

Under Common Reporting Standard Rules, “Reportable Person” means a Person other than- (i) a corporation, the stock of which is

regularly traded on one or more established securities markets;

(ii) any corporation that is a Related Entity of a corporation described in (i) above;

(iii) a Governmental Entity; (iv) an International Organization; (v) a Central Bank; or (vi) a Financial Institution

36. Notice to obtain information or evidence (Section 176)

The Bill proposes to give powers to a firm of cost of management accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966) to

conduct the audit for any tax year, in addition to the powers given to a firm of chartered accountants under the provisions of sub-section (1)(c) of section 176.

37. Offence and penalties (section 182)

The bill proposes to introduce penalties in respect of any offences related to section 108 in entries 7 and 9 of “TABLE” given in section 182 and the said entries stand amended as follows.

S.No Offences

Penalties

Section of the

Ordinance to which

offences has

reference

7. Any person who fails to maintain

records required under this Ordinance or the rules made thereunder.

Such person shall pay

a penalty of then thousand rupees or five per cent of the amount of tax on income whichever is higher.

174, 108

9. Any person who fails furnish information required or to comply with any other term

of the notice served under section 176 or 108

Such person shall pay a penalty of twenty five thousand rupees for

the first default and fifty thousand for subsequent default.

176


The following new entries in respect of offenses specified therein are also proposed to be inserted in “TABLE” given in section 182

17. Any

reporting financial institution or reporting entity who fails to

furnish information or country – by – country report to the Board as required under section 107, 108 or 165B within the due date.

Such reporting financial institution or reporting entity shall

pay a penalty of two thousand rupees for each day of default subject to a minimum penalty of twenty five thousand

rupees.

107, 108 and 165B

18. Any person who fails to keep and maintain document and information required under

section 108 or Income Tax Rules, 2002.

1% of the value of transaction, the record of which is required to be maintained under

section 108 and Income Tax Rules, 2002

108

38. Prosecution for non –

compliance with certain statutory obligations

(Section 191)

Under section 191, a person who, without reasonable excuse fails to pay advance tax, collect or deduct tax or comply with any notice issued under the provision of the Ordinance, shall commit an offence punishable on conviction with a fine or imprisonment for a term no exceeding 1

year or both.

The Bill now proposes to bring within the ambit of prosecution under section 191 the non-compliance of

- return of income for a tax year required to be filed in response to the related notice issued by the Commissioner; and

- provisions related to default surcharge.

invoke prosecution for non-compliance of the provision of section 114(4) related to filing of return and non-compliance of provisions related to default surcharge.

39. Default surcharge

(Section 205)

A new proviso is proposed to be added in sub-section (1B) of section 205, which provides that in case of person having a special tax year, the default surcharge shall be calculated on and from the first day of the fourth quarter of the special tax

year till the date on which assessment is made or the last day of special tax year, whichever is earlier.

40. Advance ruling

(Section 206A) Under the existing provisions of law, only a non-resident not having a Permanent

Establishment in Pakistan can apply for advance ruling. It is now proposed that a non-resident having a Permanent Establishment in Pakistan can also be apply for advance ruling.

41. Income tax authorities (Section 207)

The Bill proposes that the following are also considered as income tax authorities for the purposes of the Ordinance and Rules made thereunder and they shall be sub-ordinate to the Board.

(ia) District Taxation Officer (ib) Assistant Director Audit


42. Disclosure of information by

a public servant (Section 216)

It is proposed that Employees Old Age Benefit Institution is not to be precluded from the disclosure of information regarding salaries as reported in statements furnished under section 165.

43. Reward to whistleblowers (Section 227B)

This section empowers FBR to sanction reward to whistleblowers in case of concealment or evasion of income tax, fraud, corruption or misconduct providing credible information leading to such

detection of tax. The section further provides certain conditions whereby the claim of reward by the whistleblower shall be rejected. The Bill introduces another condition by

virtue of which the claim for reward by a whistleblower shall be rejected where the information provided by him is not supported by evidence.

44. Directorate-General of

broadening of tax base (Section 230D)

The Bill proposes to create new directorate “Directorate-General of Broadening of Tax Base”, which shall consist of a Director-General and as many Directors, Additional

Directors, Deputy Directors, Assistant Directors and such other officers as the

Board may, by notification in the official Gazette, appoint. Further, the Board may, by notification in

the official Gazette, specify the functions, jurisdiction and powers of the Directorate General of Broadening of Tax Base.

45. Directorate-General of

transfer pricing (Section 230E)

The Bill proposes to create new directorate “Directorate-General of Transfer Pricing” to conduct transfer pricing audit. The directorate shall consist of a Director General and as many Directors, Additional

Directors, Deputy Directors, Assistant

Directors and such other officers as the Board may, by notification in the official Gazette, appoint. An explanation is proposed to be inserted to clarify that transfer pricing audit refers

to the audit for determination of transfer price at arm’s length in transaction between associates and is independent of audit under section 177, 214C or 214D which is audit of income tax affairs of the taxpayer.

46. Advance tax on private motor vehicles

(Section 231B) Under the existing law, every leasing company or a scheduled bank or an

investment bank or a development finance institution or a modaraba shall, at the time of leasing of a motor vehicle to a non-filer, collect advance tax at the rate of 3% of the value of the motor vehicle.

Now the Bill proposes to substitute the existing law. The substituted section provides that every leasing company or a scheduled bank or a non-banking financial institution or an investment bank or a

modaraba or a development finance institution, whether shariah compliant or

under conventional mode, at the time of leasing of a motor vehicle to a non-filer, either through ijara or otherwise, shall collect advance tax at 3% of the value of the motor vehicle.


47. Collection of tax by a stock

exchange registered in Pakistan (section 233A)

Under the existing law, a stock exchange is required to collect tax from its members on purchase and sale of shares in lieu of tax on commission earned by such members. Tax so deducted is adjustable for the

members. Now, the Bill proposes that the

tax so collected shall be treated as final tax.

48. CNG Stations (Section

234A) The Bill proposes an amendment by virtue of which tax collected under section 234A

and 235 (Electricity Consumption), shall be final tax on the income of the CNG station arising from consumption of the Gas. In addition to that, the explanation is proposed, whereby it is clarified that for the purposes of this section tax on income

arising from consumption of gas is inclusive of sales tax and all incidental charges. By inserting an “Explanation” the legislature intends to make this condition applicable from the inception.

Since the tax collected under this section is final tax, the Bill proposes to delete sub-section 4 of section 234A, whereby the taxpayer was not entitled to claim any adjustment of tax collected or deducted under any other head, during the tax year.

49. Electricity consumption (Section 235)

The Bill proposes to add an “Explanation”, whereby it is clarified that for the purposes of section 235 electricity consumption bill means electricity bill inclusive of sales tax

and all incidental charges.

By inserting an “Explanation” the legislature intends to make this condition applicable from the inception.

Under existing law, advance tax is collected on monthly basis. However, as per the proposed amendment under clause (a) of sub-section 4 of Section 235, the advance tax shall now be collected on yearly basis, instead of monthly and

accordingly, the Bill proposes to substitute

the amount of Rs.30,000 per month” with Rs.360,000 per annum”.

50. Domestic electricity

consumption (Section 235A)

The Bill proposes an explanation, whereby it is clarified that for the purposes of this section electricity consumption bill referred to in sub-section (2) means electricity bill inclusive of sales tax and all incidental

charges.


51. Advance Tax on sale or

transfer of immovable

property (Section 236C) The Bill proposes to insert the word “recording” in sub-section (1) of section

236C and an explanation is also proposed to be inserted clarifying that the person responsible for registering, recording or attesting transfer includes person responsible for registering, recording or

attesting transfer for local authority, housing authority, housing society, co-

operative society and registrar of properties. By inserting an “Explanation” the legislature intends to make this condition applicable form the inception.

A new proviso is proposed to be added in sub-section (2) of section 236C, whereby


in case if the immoveable property is acquired and disposed of within the same tax year, the tax collected on sale/transfer thereof shall be minimum tax. Presently,

such tax deduction is adjustable.

52. Advance tax on sales to distributors, dealers and

wholesalers (Section 236G)

Presently, advance tax from distributors, dealers and wholesalers on sale of fertilizers is to be collected at the rate of 0.7% for filers and 1.4% for non-filers whereas advance tax on sale of other products is to be collected at the rate of

0.1% for filers and 0.2% on non-filers. The Bill now proposes to also bring within the ambit of section 236G, the sale of batteries to distributors, dealers and wholesalers.

53. Advance tax on sales to retailers (Section 236H)

Presently, advance tax on sale of specified products (including electronics) to retailers is required to be collected at the rate of 0.5% of the gross amount of sales.

The Bill proposes that advance tax at the rate of 1% is to be collected on sale of electronic products from filers as well as

non-filers whereas in case of other products advance tax is to be collected at the rate of 0.5 % for filers and 1% for non-filers.

The Bill also proposes to bring sale of batteries to retailers within the ambit of

section 236H.

54. Advance tax on purchase or transfer of immovable

property (Section 236K) Under the existing provision of law, any person responsible for registering or

attesting transfer of any immovable property shall at the time of registering or

attesting the transfer shall collect from the purchaser or transferee advance tax at the prescribed rates.

The Bill proposes to insert the word “recording” in sub-section 1 of section 236K and explanation is also proposed to

be inserted clarifying that the person responsible for registering, recording or attesting transfer includes person responsible for registering, recording or

attesting transfer for local authority, housing authority, housing society, co-operative society and registrar of

properties.


55. Tax on purchase or transfer

of immovable property (Section 236W)

Under the existing provision of law, every person responsible for registering or

attesting transfer of any immovable property shall at the time of registering or attesting the transfer shall collect from the

purchaser or transferee advance tax at prescribed rates.

The Bill proposes to insert the word “recording” in sub-section 1 of section 236W and explanation is also proposed to be inserted clarifying that the person responsible for registering, recording or attesting transfer includes person

responsible for registering, recording or attesting transfer for local authority, housing authority, housing society, co-operative society and registrar of

properties.


56. Advance Tax on Tobacco

(Section 236X)

A new section is proposed to be inserted, whereby Pakistan Tobacco Board, at the


time of collecting cess on tobacco, directly or indirectly, shall collect advance tax at the rate of 5% of the purchase value of tobacco from every person purchasing

tobacco including manufacturers of cigarettes. The aforesaid tax collected shall be adjustable against the tax liability of the purchaser.

57. Validation (Section 241)

A new section 241 is proposed to be inserted, whereby all notifications and orders issued and notified, in exercise of the powers conferred upon the Federal Government, before July 1, 2017 shall be deemed to have been validly issued and

notified in exercise of those powers, notwithstanding anything contained in any judgment of a High Court or the Supreme Court.

Insertions similar to above are also proposed to be made in Sales Tax Act, 1990, Federal Excise Duty Act, 2005 and Customs Act, 1969.

It appears that this insertion is being made to counter the recent judgment of the

Supreme Court reported as 2016 PTD 2269, whereby it was held that no Prime Minister can move any legislation, finance or fiscal bill or approve any budgetary or discretionary expenditures on his own without taking the cabinet into confidence first. Thus it was held that no bill could be

moved in Parliament on behalf of the Federal Government without having been approved in advance by the Cabinet. It was held that neither the constitutional provisions, nor the Rules of Business, 1973 conferred power on a Secretary or head of

Division, to be treated as the Federal

Government.

Considering the hassle and time involved to get approval of Cabinet for all the fiscal matters, which causes pendency of various important matters, the proposed amendment has been made to validate all the notification and orders issued and notified before July 1, 2017.


The First Schedule

Rates of Tax Part I Division III (Dividend Income)

Rate of tax on dividend income is proposed as under:

Description Existing

Rate Revised

Rate

In case of dividend received from power projects. 7.5% 7.5%

In case of dividend received by a person from a mutual fund. 10% 12.5%

In case of dividend received by a person from other than mutual fund and purchaser of a power project.

12.5% 15%

Division IIIA (Profit on Debt - Other than a company) The Bill proposes to substitute tax rates in respect of profit on debt received by an individual

or an AOP as under: Existing:

S.No. Profit on Debt Rate of tax

1. Where profit on debt does not exceed

Rs 25,000,000 10%

2. Where profit on debt exceeds Rs.25,000,000 but does not exceed Rs.50,000,000

2,500,000 + 12.5% of the amount exceeding

Rs.25,000,000

3. Where profit on debt exceeds Rs.50,000,000

Rs.5,625,000 + 15% of the amount

exceeding Rs.50,000,000


Proposed:

S.No. Profit on Debt Rate of tax

1. Where profit on debt does not exceed Rs.5,000,000 10%

2. Where profit on debt exceeds Rs.5,000,000 but does not exceed Rs.25,000,000

12.5%

3. Where profit on debt exceeds Rs.25,000,000 15%

Currently, profit on debt is being taxed on fixed slab rate basis. As a consequence of proposed amendment, the higher rate of tax shall be charged on whole amount of income instead of incremental amount falling under the slab. This would significantly increase the tax cost and would reduce the return on investment/saving in the hands of an individual and AOP. Division VII (Capital gains on disposal of securities)

The Bill seeks to introduce the rate of capital gains tax on listed securities for tax year 2018 as under:

S.No. Period Tax Year 2015

Tax Year 2016

Tax Year 2017 Tax Year

2018

Filer Non-Filer Filer Non-Filer

1. Where holding period of a security is less than twelve months

12.5% 15% 15% 18%

15% 20% 2.

Where holding period of a security is twelve months or more but less than twenty-four months

10% 12.5% 12.5% 16%

3.

Where holding period of a security is twenty-four months or more but the security was acquired on or after 1st July, 2013

0% 7.5% 7.5% 11%

4. Where the security was acquired before 1st July, 2013

0% 0% 0% 0% 0% 0%

5.

Future commodity contracts entered into by the members of Pakistan Mercantile

Exchange

0% 0% 5% 5% 5% 5%


Again, this Finance Bill is silent, however, it seems that tax rates for non-filers will only be applicable at collection stage and taxpayers will be entitled to claim the excess tax collected as refund while filing the return of income.

Further, as a consequence of substitution of Division VII, capital gains on disposal of debt securities by the companies, which is currently taxed at corporate tax rate, is proposed to be taxed as per the above table. Further, a mutual fund or collective investment scheme or REIT are no more required to deduct capital gain tax on redemption of securities. Gain on investment in such securities will

be computed and determined under Eight Schedule and tax thereon shall be collected and

deposited by NCCPL. Through the Finance Act 2016, Division VII was also substituted in same way as it has been substituted through the Finance Bill; however, it was clarified through circular explaining Finance Act, 2016 that no change had been made to the provisos to the Division VII. Considering last year’s pattern of the amendments, we expect that this anomaly may be

corrected later either through the Finance Act or through notification. Division IX (Minimum Tax) The Finance Bill seeks to increase the rate of minimum tax under section 113 of the Ordinance from 1% to 1.25%.

Part III

Division I (Advance Tax on Dividends) The Bill seeks to enhance the advance tax withholding rate, in line with proposed chargeability of tax on dividend income, as per below:

Description Existing Rate Revised Rate

Filer Non-filer Filer Non-filer

In case of dividend paid by power projects 7.5% 7.5% 7.5% 7.5%

In case of dividend paid by other than power projects

12.5% 20% 15% 20%

Further, in case of collective investment scheme, REIT Scheme or a mutual fund, the Bill proposes to increase the rate of withholding tax to 12.5% where it was being withheld at the rate of 10% previously:

Person

Stock Fund Money Market Fund, Income Fund, REIT

Scheme or any other Fund

Existing Rate

Revised Rate

Existing Rates Revised Rates

Filer Non-filer Filer Non-filer

Individual 10% 12.5% 10% 15% 12.5% 15%

Company 10% 12.5% 25% 25% 25% 25%

AOP 10% 12.5% 10% 15% 12.5% 15%


Division II (Payments to non-residents) The Bill seeks to increase rate of withholding tax for following payments to non-filer non-residents for under section 152 of the Ordinance:

Description

Non-filer

Existing Rate

Proposed Rate

Payment for execution of contracts as given in section 152(1A) of

the Ordinance 12% 13%

Sale of goods as given in section 152(2A) of the Ordinance:



6%

6.5%

7%

7.75%

Rendering of services other than transport services:



12%

15%

14%

17.5%

Execution of contract other than sportspersons 12% 13%

Division III (Payments for goods, services and contracts to resident persons under section 153 of the Ordinance)

1. Income tax at the rate of 1.5% on sale of rice, cotton seed or edible oils is required to be deducted as per section 153(1)(a) of the Ordinance. An explanation is proposed to be

inserted to clarify that “cotton seed and edible oils” means cotton seed oil and edible oils.

2. Existing and proposed income tax withholdings rates on payments to be made to distributors of fast moving consumer goods (FMCG) are tabulated below:

FMCG Distributor Rates

Existing Proposed

Company 3% 2%

Other than a company 3.5% 2.5%

3. Enhancement in income tax withholding rates for non-filers under section 153 of the Ordinance

Withholding tax rates on payments to non-filers are proposed to be increased as under:

Nature of payment Rates for non-filers

Existing Proposed

Sales of goods:



6%

6.5%

7% 7.75%



Existing Proposed

Rendering of services other than transport services, advertising services by print and electronic media:



12% 15%

14.5% 17.5%

Execution of contract other than contract signed by a sportsperson:



10% 10%

12% 12.5%

Increase in rates of tax for non-filers under various sections:


Existing Proposed

Division V, Part III - Income from property:

Withholding tax rate under section 155 of the Ordinance on income from property in case of non-filer company.

15% 17.5%

Division VI, Part III - Prizes and winnings:

The rate of tax to be deducted under section 156 of the Ordinance on a prize on prize bond or cross-word puzzle from non-filers.

20% 25%

Division VIA, Part III - Payment to petrol pump operators:

The rate of tax collection under section 156A of the Ordinance from the amount of discount or commission allowed / given to the non-filer petrol pump operators.

15% 17.5%

Division VIB, Part III - Advance tax on gas sales of CNG

stations:

Tax collection rate from non-filer CNG stations under section 234A of the Ordinance.

4% 6%

Part IV Division IV (Electricity consumption)

Amendment has been proposed to explain that tax on electricity consumption under section 235 of the Ordinance will be applicable on gross amount of electricity bill. Division V (Telephone users)

Tax to be collected from subscriber of internet, mobile telephone and pre-paid internet or telephone card has been proposed to be reduced as under:


Description Rates

Existing Proposed

Amount of bill or sales price of internet prepaid card or prepaid

telephone card or sale of units through any electronic medium or whatever form.

14% 12.5%

Division VII (Advance tax on private motor vehicles reduced for filer upto 1300cc)

Rate of tax collection under sub-sections (1) and (3) of section 231B of the Ordinance has been proposed to be reduced for vehicles upto 1300cc categories in case of filers as given below:

Engine capacity Rates for filers

Existing Proposed

Upto 850cc Rs. 10,000 Rs. 7,500

851cc to 1000cc Rs. 20,000 Rs. 15,000

1001cc to 1300cc Rs. 30,000 Rs. 25,000

Division VIII (Advance tax at the time of sale by auction)


Existing Proposed

Rate of collection of tax under section 236A of the Ordinance on

gross sale price of any property or goods sold by auction. 10% 15%

Division XV (Advance Tax on Sale to retailers) The Bill proposes to increase advance tax, for the sale of electronics and also proposes to introduce higher rate for non-filers, as per below:

Category of sale Existing Rate Revised Rate

Filer Non-filer

Electronic 0.5% 1% 1%

Others 0.5% 0.5% 1%

Division XXI (Advance Tax on Banking Transaction Otherwise than Through Cash) Under the existing proviso to the Division XXI, only Federal Government has power to amend the rate of advance taxes under section 236P. The Bill seeks to empower “the Board with the


approval of Minister Incharge of Federal Government” to amend the advance tax rate specified in the division. Division XXV (Advance tax on insurance premium)

As per current law, every insurance company or its agents shall collect advance tax at the time of collection of insurance premium from non-filers in respect of general insurance premium and life insurance premium. However, in case of life insurance premium, advance tax was only collected where life insurance premium paid during a tax year exceeds Rs.0.2 million.

The Bill proposes to increase the limit of life insurance premium from Rs.0.2 million per annum

to Rs.0.3 million per annum in aggregate for the purpose of collection of advance tax and advance tax will only be collected where life insurance premium paid during a tax year exceeds the limit of Rs.0.3 million.


The Second Schedule

Exemptions and Tax Concessions

Part I Exemption from Total Income

Clause (66) Asian Infrastructure Investment Bank The Bill proposed to insert new sub-clause which provides exemption to any income derived by

“Asian Infrastructure Investment Bank and persons as provided in Article 51 of Chapter IX of the Articles of Agreement signed and ratified by Pakistan and entered into force on December 25, 2015. Clause (66) Non-profit charitable institutions In order to encourage non-profit/charitable institutions, the bill proposes to include the following

organizations within the scope of exemptions:

(i) Gulab Devi Chest Hospital (ii) Pakistan Poverty Alleviation Fund (iii) National Academy of Performing Arts.

Clause (140A) Japan International Cooperation Agency (JICA) The bill seeks to insert a new clause exempting any profit on debt received by Japan International Cooperation Agency (JICA), from Islamabad- Burhan Transmission Reinforcement Project (Phase-I) undertaken in pursuance to the loan agreement for Islamabad-Burhan Transmission Reinforcement Project (Phase-I).

Clause (143) Political parties At present there is no specific exemption in the law in respect of income of political parties. As a relief measure, exemption is now proposed in the bill on income of all political parties by inserting a new Clause exempting any income derived by a political party registered under the Political Parties Order, 2002 with the Election commission of Pakistan.

Clause (144) Start-ups

In order to incentivize the start-ups as defined in newly inserted clause (62A) of section 2, tax exemption is proposed to profits earned by such start-ups certified by the Pakistan Software Export Board for a period of three years.


Part IV Exemption from Specific Provisions Clause (11A) Minimum tax not to apply to Start ups

In order to incentivize the Start-ups, minimum tax under section 113 of the ordinance shall not apply on start up as define in clause (62A) of section 2. Clause (41) Option for Final Tax Regime

The bill seeks to omit the Clause which provides that the provisions of sub-section (1B) of

section 152 shall not apply in respect of a non-resident person unless he opts for the presumptive tax regime. Provided that a declaration of option is furnished in writing within three months of the commencements of the tax year and such declaration shall be irrecoverable and shall remain in force for three years.

Same Clause with modification is proposed to be included in sub-section (1B) of section 152 of

the Ordinance as a proviso read as follows.

“Provided that the provisions of this sub-section shall not apply in respect of a non-resident unless he opts for the final tax regime.”

After the proposed amendment the expression “remain in force for three years” has been omitted which implies after opting for presumptive tax regime the person will remain in the

same tax regime.

Clause (43F) Section 153 not to apply to Start up as recipient The Bill seeks to insert a new Clause whereby the provision of Section 153 relating to tax withholding shall not apply in the case of start-up, being recipient of business, of information technology business registered and certified by Pakistan Software Export Board and having

turnover up to rupees 100 million. Clause (56)(ia) Section 148 not to apply The Bill proposes to provide exemption from tax collection at import stage under section 148 to the following companies in addition to existing companies.

1. Z&M Oils (Pvt.) Ltd. 2. Exceed Petroleum (Pvt.) Ltd. 3. Petrowell (Pvt.) Ltd. 4. Quality-1 Petroleum (Pvt.) Ltd

5. Horizon Oil Company (Pvt.) Ltd. 6. Outreach (Pvt.) Ltd. and

7. Kepler Petroleum (Pvt.) Ltd.


Extension of Concession to Hajj Operators Clause (72A) The Bill seeks to extend concession of section 21(I), 113 and 152 to Hajj Operators for tax

year 2017. Conditions imposed in Respect of Issuance of Withholding Certificate under Section 148 Clause (72B)

The Bill seeks to enhance the quantity of raw material to be imported which is sought to be

exempted from tax collection under section 148 to 125 percent (currently it is 110 percent) of the quantity of raw material imported and consumed during the previous tax year. Exemption from Deduction of Tax at Import Stage. Clause (91)

The Bill seeks to make a technical correction by substituting old HS Codes with new HS Codes. In sub-clause (i)

S. No

Equipment Old HS Code

New HS Code

(iv) Sub soiler 8432.3090 8432.3900

(xviii) Tractor mounted trancher 8701.9020 8701.9200

In sub-clause (ii)

S. No Equipment Old HS Code

New HS Code

(i) Seed-cum fertilizer drill (wheat, rice barly, etc.)

8432.3010 8432.3100

(ii) Cotton maize planter with fertilizer attachment

8432.3090 8432.3900

(iii) Potato planter 8432.3090 8432.3900

(iv) Fertilizer or manure spreader or broad caster

8432.4000 8432.4100

(v) Rice transplanter 8432.3090 8432.3900

(vi) Canola or sunflower drill 8432.3010 8432.3100

(vii) Sugarcane planter 8432.3090 8432.3900


Extension of Exemption in respect of Minimum Tax to Low Profit Service Sector and Inclusion of Pakistan Stock Exchange Limited. Clause (94)

Some corporate service providers with low profit margin were allowed a reduced tax rate of 2% for tax year 2017. It is proposed to extend the applicability of reduced tax rate of 2% allowed to low profit margin corporate service providers upto tax year 2018. Pakistan stock exchange shall now also be eligible for the reduced rate of minimum tax of 2% on its services.

Due to the enhancement of extension in the period to tax year 2018 it is proposed to extend the period to tax year 2018 to furnish an irrevocable undertaking to present its accounts to the Commissioner to avail this concession. Clause (101) Branchless Banking

In order to promote digital payments in the country and to assist in the realization of the long term vision of Universal Financial Inclusion in Pakistan, exemption is being accorded to branchless banking agents operating under the Asaan Mobile Account Scheme from withholding tax on cash withdrawals made for the purposes of making payments to their respective customers by inserting the following Clause. Clause (102) Advance tax on vehicle leased under the Prime Minister’s Youth Loan

Scheme

At present, advance tax @ 3% is collected at the time of leasing motor vehicles to a non-filer. In order to facilitate the generation of employment opportunities among the unemployed youth and to mitigate their hardship, exemption from collection of advance tax is being accorded to vehicles leased under the Prime Minister’s Youth Loan Scheme.


The Seventh Schedule (Rules for the computation of the profits and gains of a banking company and tax payable thereon) As per current Rules, no effect is to be taken while computing income before tax of the

banking company in respect of any adjustment made in the annual accounts, on account of application of IAS 39 and 40. IAS 39 and 40 requires valuation of Investment and Investment property, respectively, at Fair

Market Value at balance sheet date, thus recognizing the notional gain or loss. The proposed “Explanation” clarifies that such notional gain or loss shall not be recognized

while computing the income of the banking company for the purpose of Seventh Schedule unless all events that determines such gain or loss have occurred and the gain or loss can be determined with reasonable accuracy. The proposed “Explanation” would help in providing relief to the banks as there have been number of assessments wherein the Taxation Officer has taxed such notional gain. This clarification has been proposed through an “Explanation” which signifies the intention of the

legislator that this clarification shall apply from the inception when this sub-rule (g) was introduced.

The Eight Schedule (Rules for the computation of capital gains on listed securities) The Eight Schedule prescribes the Rules for the computation of capital gains on listed

securities. 1. Manner and Basis of computation of capital gains and tax

thereon. (Rule 1) NCCPL is required to furnish statement of capital gain and tax computed thereon to the

FBR within 30 days of the end of each quarter. The Bill seeks to extend this period of 30 days to 45 days.

2. Payment of tax collected by NCCPL to the Board. (Rule 4)

The amount of tax collected by NCCPL is required to be deposited with NBP and to be

paid to FBR alongwith interest occurred thereon on yearly basis by July 31 next following

the financial year in which the amount was collected. The Bill proposes to extend the deadline to August 15.


Tax Deduction / Collection Guide

Various taxes are deductible / collectible by withholding agents and other prescribed persons or payable by taxpayer by way of advance tax under the provisions of the Income Tax Ordinance, 2001.These tax deductions, collections and payments are either final tax, fixed tax, minimum tax or adjustable against the normal tax liability of the person paying tax or whose

tax has been collected or deducted. In this guide, we have prepared a section-wise summary of these legal requirements, specifying tax withholding rates, and as to whether or not these are fixed tax, minimum tax,

final tax or adjustable against normal tax liability. It is clarified that withholding tax provisions are not applicable on payments to banking

companies as defined in the Banking Companies Ordinance, 1962 and body corporates which transact banking business in Pakistan.

Withholding Section and Reference

Description

Rate Final Tax,

Minimum Tax or

Adjustable Filer Non-filer

148

Import of goods

Industrial undertaking

importing remeltable steel (PCT Heading

72.04) and directly reduced iron for its own use;

Persons importing potassic fertilizers in

pursuance of Economic Coordination Committee of the cabinet’s decision No. ECC-155/12/2004 dated the 9th December, 2004;

Persons importing urea;

Manufacturers covered under Notification No.

SRO. 1125(I)/2011 dated 31st December 2011 and importing items covered under S.R.O 1125(I)/2011

dated 31st December 2011.

Person importing Gold

Persons importing Cotton Designated buyer of LNG

1% 1.5%

Adjustable

only in case of Industrial Undertakings

Final Tax for all other

cases

Minimum tax in case of edible oil

Tax Collection and Withholding Guide



Description

Rate Final Tax,

Minimum Tax or


on behalf of Government of Pakistan, to import LNG

On import of pulse 2% 3%

Commercial importers

covered under Notification No. SRO 1125(I)/2011 dated 31st December, 2011

3% 4.5%

Ship breakers on import of ships

4.5% 6.5%

Industrial undertakings (other than above cases)

5.5% 8%

By companies (other than above cases).

5.5% 8%

By other persons (other than above cases)

6% 9%

150/236S

Dividend/Dividend in specie

Dividends declared or

distributed by purchaser

of power project privatized by WAPDA or

on shares of a company set up for power generation or on shares of a company supplying coal exclusively to power generation projects.

7.5%

Final Tax

Dividend declared or

distributed by other than above

15% 20%

Stock fund 12.5%

Stock fund (if dividend

receipt are less than capital gains)

12.5%

Received by other than

Company from money market fund, REIT scheme or any other than fund

12.5% 15%

Received by Company

from money market fund, REIT scheme or any other than fund

25%



Description

Rate Final Tax,

Minimum Tax or


Received from

Development REIT Scheme with the object of development and

construction of residential buildings, set up by 30th day of June

30, 2018, for three years from 30th day of June 2018

5% 7.5% For tax year 2018 to 2020

150A Advance tax on Sukuks

Companies 15%

17.5%

Individuals & AOP’s 12.5% if the

return on investme

nt is more than 1 million

10%

if the return on investme

nt is less than 1 million

151 Profit on debt Yield on an account,

deposit or a certificate under National Saving Scheme or Post Office Savings Account.

10% in

all other cases

17.5% for

non-filer, if

amount exceeds Rs.5 lakh

Adjustable in all cases

Additional tax deducted

in case of non-filer shall be adjustable

Profit on any security

issued by Federal,

Provincial or Local Government. (other than above)

Profit on account or

deposit maintained with banking company or financial institution.

Profit on any bond,

certificate, debenture, security or instrument of



Description

Rate Final Tax,

Minimum Tax or


any kind (other than a loan agreement between a borrower and a banking company or a

development finance institution) paid to any person other than financial institution.

152

Payment to non-residents

(other than those subject to tax deduction

under sections 149, 150, 156 or 233)

Royalty and fee for technical services.

15%

Final Tax

Contract for construction, assembly or installation

project; construction contract and related services; advertisement services by TV satellite channels.

7% 13%

Insurance premium or

reinsurance premium. 5%

Advertisement services

by a media person relaying from abroad.

10%

Adjustable

Other payments. 20%

Payment to permanent establishment in

Pakistan of non-residents

Sale of goods

Companies 4% 7%

Individuals & AOPs

4.5% 7.75%

Transport services 2%

Other than

transport services.

Companies 8% 14%

Individuals & AOPs

10% 17.5%

Execution of contract

Sports persons

10%

Company and other than company

7%

13%

152A Payment for foreign

produced commercial


20% Final Tax



Description

Rate Final Tax,

Minimum Tax or


s153

Sale of goods

Rice, cotton seed or edible oils

1.5% Adjustable

only for companies

Final Tax in all other

cases

Sale of

other goods.

Companies 4% 7%

Individuals & AOPs

4.5% 7.75%

Supplies made

by distributor of fasting moving

consumer goods

Company 2%

Final Tax

Adjustable for

companies

registered on stock

exchange in Pakistan)

Other than company 2.5%

Rendering of or

providing of services

Transport services.

Companies 2% Minimum Tax

Individuals & AOPs

2% Minimum Tax

Other services.

Companies 8% 14.5% Minimum Tax

Individuals & AOPs

10% 17.5% Minimum Tax

Rendering of

services by print and electronic media

Company 1.5% 12% Final Tax

Other than company 1.5% 15% Final Tax

Rendering or

providing of services of stitching, dying, printing, embroidery,

washing, sizing and weaving


1% Final Tax

Execution of contracts

Companies 7% 12%

(Final Tax for other)

Adjustable for

companies

registered on stock



Description

Rate Final Tax,

Minimum Tax or


exchange in Pakistan)

Individuals & AOP’s 7.5% 12.5% Final Tax

Sportspersons 10% Final Tax

154 Export On realization of foreign

exchange proceeds on account of export of goods.

1% Final Tax

Option to offer income to tax under minimum tax at the time of return filing

On realization of foreign

exchange proceeds on account of the

commission due to an indenting commission agent.

5%

On realization of the

proceeds against sale of goods to an exporter under letter of credit or

other arrangements prescribed by FBR.

1%

On export of goods by an

industrial undertaking located in the areas declared by the Federal

Government to be a Zone as defined under EPZA Ordinance, 1980.

1%

On payment for a firm

contract to indirect exporter as defined under Duty and Tax Remission for Exports Rules, 2001.

1%

On clearance of goods exported

1%



Description

Rate Final Tax,

Minimum Tax or


155 Advance tax on property rent

Individual and AOP

Rent Tax

upto Rs.200,000

Nil.

Rs.200,001 to Rs.600,000

5% of the gross amount exceeding Rs. 200,000

Rs.600,001 to 1,000,000

Rs. 20,000 plus 10% of rent exceeding Rs.600,000

Rs.1,000,000 to 2,000,000

Rs. 60,000 plus 15% of the

gross amount exceeding Rs.1,000,000

Rs. 2,000,000 and above

Rs. 210,000 plus 20% of

the gross amount exceeding 2,000,000

Fixed Tax

Companies 15% 17.5% Adjustable

156 Prize and winning

Prize bond or cross-word puzzle.

15% 25%

Final Tax Raffle, lottery, prize on winning a quiz, prize

offered by companies for promotion of sale.

20%

156A

Petroleum products

Commission or discount

allowed to petrol pump operator on sale of petroleum products.

12% 17.5% Final Tax

156B

Withdrawal

from pension fund

Withdrawal before the

retirement age or in excess of fifty percent of accumulated balance.

Average tax rate for

salary for last three tax years

Adjustable

231A

Advance tax on

cash withdrawals from bank

Withdrawal in excess of

Rs. 50,000 in a day. 0.3% 0.6% Adjustable

231AA

Advance tax on

bank transactions

Sale or cancellation

against cash of any instrument including Demand Draft, Pay Order, CDR, STDR, SDR, RTC, or any other

instrument of bearer

0.3% 0.6% Adjustable



Description

Rate Final Tax,

Minimum Tax or


nature

231B Advance tax on

registration of a new locally

manufactured motor vehicles or on the transfer of

registration or ownership

Engine capacity Filer Non-filer

------ Rs ------

850cc or below 7,500 10,000

851cc-1000cc 15,000 25,000

1001cc-1300cc 25,000 40,000

1301cc-1600cc 50,000 100,000

1601cc-1800cc 75,000 150,000

1801cc-2000cc 100,000 200,000

2001cc-2500 cc 150,000 300,000

2501cc- 3000cc 200,000 400,000

Above 3000cc 250,000 450,000

Adjustable

Advance tax on

the transfer of registration or

ownership

Engine capacity Filer Non-filer

------ Rs ------

850cc or below 0 5,000

851cc-1000cc 5,000 15,000

1001cc-1300cc 7,500 25,000

1301cc-1600cc 12,500 65,000

1601cc-1800cc 18,750 100,000

1801cc-2000cc 25,000 135,000

2001cc-2500 cc 37,500 200,000

2501cc- 3000cc 50,000 270,000

Above 3000cc 62,500 300,000

Adjustable

Leasing of motor

vehicle by

Leasing company,

schedule bank, non-banking financial institution, investment bank, development

finance institution and modaraba ,

3% of the value of motor vehicle only in case of non-filer

Adjustable



Description

Rate Final Tax,

Minimum Tax or


233 Brokerage and commission

Advertising agent 10% 15%

Final Tax

Life insurance where amount less than Rs. 0.5 million / annum

8% 16%

Other case not covered above

12% 15%

233A Advance tax

collected by Stock Exchange

Sale or purchase of

shares in lieu of tax on the commission earned by stock exchange members.

0.02% of sale/ purchase value

Final Tax

233AA

Advance tax collected by NCCPL

Profit, markup or interest earned by the member,

margin financiers and lenders of securities.

10% Adjustable

234 Advance tax on motor vehicle

(collected in installment)

Goods transport vehicles. Rs.2.5 per Kg of

the laden weight

Rs.4 per Kg of the

laden weight

Adjustable

Goods transport vehicles

with laden weight of 8120 Kg or more.

(advance tax shall be

collected after a period of ten years from the date of first registration of vehicle in Pakistan)

Rs.1,200 per annum Adjustable

Passenger transport vehicles plying for hire

Seating capacity

(persons)

Rs. per annum per

seat

Filer Non-Filer

4 to 9 50 100

10 to 19 100 200

20 or more. 300 500

Advance tax on motor vehicle

(collected in

Engine capacity Filers Non-Filer

------ Rs. ------

upto 1000 cc 800 1,200

Adjustable



Description

Rate Final Tax,

Minimum Tax or


installments) 1001 cc – 1199 cc 1,500 4,000

1200 cc – 1299 cc 1,750 5,000

1300 cc – 1499 cc 2,500 7,500

1500 cc – 1599 cc 3,750 12,000

1600cc -- 1999 cc 4,500 15,000

2000cc & above 10,000 30,000

Advance tax on motor vehicle

(collected in lump sum)

Engine capacity Filer Non-Filer

------ Rs. ------

upto 1000 cc 10,000 10,000

1001 cc – 1199 cc 18,000 36,000

1200 cc – 1299 cc 20,000 40,000

1300 cc – 1499 cc 30,000 60,000

1500 cc – 1599 cc 45,000 90,000

1600 cc – 1999 cc 60,000 120,000

2000 cc and above 120,000 240,000

234A Advance tax on

amount of gas bill of CNG station

4% 6% Final Tax

235

Advance tax on

the amount of electricity bill of commercial or industrial consumers

Amount of electricity

bill

Tax

(Rs.)

Upto Rs. 400 Nil

Rs. 401 to Rs. 600 80

Rs. 601 to Rs. 800 100

Rs. 801 to Rs. 1000 160

Rs. 1,001 to Rs. 1500 300

Rs. 1,501 to Rs. 3,000 350

Rs. 3,001 to Rs. 4,500 450

Rs. 4,501 to Rs. 6,000 500

Rs. 6,001 to Rs. 10,000 650

Rs. 10,001 to Rs. 15,000

1,000

Rs. 15,001 to Rs. 20,000

1,500

Rs. commercial

Adjustable



Description

Rate Final Tax,

Minimum Tax or


20,001 and above

consumers 12%

industrial consumers

5%

235A

Advance Tax

Domestic electricity consumption

7.5% of the monthly bill where if exceeds Rs.75,000

Adjustable

235B Advance tax on

steel melters, steel rollers etc.

One rupee per unit of electricity consumed for

production of steel billets, ingots and mild steel (MS products) excluding stainless steel.

Non-adjustable

236

Advance tax on

telephone and internet user

Telephone subscriber

other than mobile phone subscriber (where the amount of monthly bill exceeds Rs.1000).

10% of excess amount

Adjustable

Subscriber of internet, mobile telephone and pre-paid internet or

telephone card.

12.5% of amount of bill or sales price

236A Advance tax on sale by auction

Sale by public auction or auction by tender of property or goods.

10% of gross sale

price

15% of gross sale

price

Adjustable

Final tax in case of lease of the right to collect

tolls

236B Advance tax on

purchase of air tickets

Domestic air tickets. 5% of gross amount of

air ticket Adjustable

236C

Advance tax on

sale or transfer of immovable properties

On registering or

attesting the transfer of immoveable property,

where holding period is more than five years advance shall not be collected

1% of

amount of

consideration received for filer

2% of

amount of considerati

on received for filer.

Adjustable /

Minimum tax in case of

property acquired and

disposed within same

year

236D Advance tax on

function and gathering

Arranging or holding a

function in a marriage hall, marquee, hotel, restaurants, commercial lawn, club, a community

place or any other place

5% Adjustable



Description

Rate Final Tax,

Minimum Tax or


used for such purpose.

Providing food, services or other facility.

236F Advance tax on cable operator

and other electronic media

License Category

Tax on

license (Rs.)

Tax on renewal

(Rs.)

H 7,500 10,000

H-1 10,000 15,000

H-II 25,000 30,000

R 5,000 30,000

B 5,000 40,000

B-1 30,000 50,000

B-2 40,000 60,000

B-3 50,000 75,000

B-4 75,000 100,000

B-5 87,500 150,000

B-6 170,000 200,000

B-7 262,500 300,000

B-8 437,500 500,000

B-9 700,000 800,000

B-10 875,500 900,000

Adjustable

20% of the permission fee or renewal fee from

IPTV, FM Radio, MMDS, Mobile TV, Mobile Audio, Satellite TV Channels and Landing Rights

236G Advance tax on sale to

distributors, dealers or wholesalers on Sale of

electronics, sugar, cement,

iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile,

beverages, paint, batteries,

Fertilizer 0.7% 1.4% Adjustable

Other than Fertilizer

0.1% 0.2%



Description

Rate Final Tax,

Minimum Tax or


or foam sector to distributers, dealers and wholesalers by

manufacturers or commercial importers.

236H Advance tax on sale to retailers

Sale of

electronics, sugar, cement, iron and steel products, fertilizer,

motorcycles, pesticides, cigarettes, glass, textile, beverages,

paint, batteries, or

foam sector

to retailers by manufacturers, distributers, dealers and wholesalers

or commercial importers.

Electronics

1% of gross

amount of sales

1%

Adjustable

Others

0.5% of gross

amount of sales

236I Advance tax collected by

educational institutions

Fee paid to educational institutions

5% of gross amount of fee

Adjustable

236J Advance tax on dealer, commission agent, arhati, etc.

Group/Class Tax per annum

(Rs.)

A 10,000 B 7,500

C 5,000 Others 5,000

Adjustable

236K Advance tax on purchase or

On registering or attesting the transfer of

2%

4%

Adjustable



Description

Rate Final Tax,

Minimum Tax or


transfer of immovable properties

immoveable property where property value exceeded Rs.3 million

236L Advance tax on purchase of international air tickets booking one-way or return from

Pakistan

First/Executive Class Rs. 16,000 per person Adjustable

Other excluding Economy Rs.12,000 per person

Economy

Rs.0

236M Bonus share Issuing bonus shares to a shareholder by Company quoted on stock exchange

5% on the value of bonus shares

Final Tax

236N Bonus share Issuing bonus shares to a shareholder by Company not quoted on stock exchange

5% on the value of bonus `shares

Final Tax

236P Banking

transactions otherwise than through cash

Selling any instrument

and transferring any amount where transaction amount exceeds Rs.50,000 per day

0.6% of transaction

(only in case of non-filer)

Adjustable

236Q Advance tax on

payment to resident for use of machinery and equipment

Payment for use or right

to use industrial, commercial and scientific equipment and on account of rent of machinery

10% of amount of

payment

Final Tax

236R Advance tax on education related expense remitted abroad

Remitting abroad the payment of education related expense

5% of the amount of total education related

expense

Adjustable

236U Advance tax on insurance premium

General insurance N/A 4%

Adjustable Life insurance premium if exceeding Rs. 0.3 million / annum

N/A 1%

Others N/A 0%

236V Advance tax on Company and other than Adjustable



Description

Rate Final Tax,

Minimum Tax or


extraction of minerals

company 0% 5%

236W Advance tax

from provincial

sales tax registered person by provincial tax authority


0% 3% of the turnover

Adjustable

236X Advance Tax on tobacco


5% of the purchase value of tobacco

Adjustable


Sales Tax Act, 1990

1. Definition (Section 2)

Retailers (Clause 43A) A new clause has been proposed to be

inserted to define the scope of term ‘Tier-1 Retailers’ as used in the newly inserted sub-section (9A) of Section 3 to the Act.

The proposed definition has covered categories of retailers as mentioned in Chapter II, Rule 4 of the Sales Tax Special Procedure Rules, 2007. This matter has

been discussed in detail in our comments on proposed sub-section (9A).

2. Sales tax on imports

destined for Non-Tariff areas – Clarification - Section 3 (1) A clarification amendment has been proposed to remove ambiguity regarding application of sales tax on imports destined for non-tariff areas of Pakistan. Peshawar

High Court has held that goods imported

for consumption in territories where Sales Tax Act is not applicable for instance FATA/PATA, are not subject to levy of sales tax. By virtue of such amendment, goods imported into Pakistan are subject to sales tax irrespective of the destination of the territory they are to be used in.

3. Further Tax on zero rated supplies to unregistered persons

Section 3 (1A) & Section 4

At present, applicability of further tax at

the rate of 2% on zero rated supplies made to unregistered persons is a matter of legal friction between the tax authorities and the registered persons. It has been contended that the law of section 4 with regard to zero rating is overriding and

hence provisions with regard to further tax cannot be applied on zero rated supplies. The view has support of a recent judgement of Lahore High Court wherein it

has been held it as illegal to charge further tax on zero rated supplies.

By virtue of the proposed insertion of reference of section 4 in the sub section (1A) of the Section 3 with corresponding amendment in section 4, zero rated

supplies to unregistered persons have been brought in the scope of applicability of

further tax resulting that unregistered buyer of zero rated supplies will be charged 2% further tax. It is mentioned in the salient features of the proposed Bill that zero-rated supplies made to diplomats, privileged persons, duty free shops and similar categories have been

proposed to be excluded from the purview of further tax through amendment in the notification SRO 648 of 2013.

4. Federal Government’s

Powers Entrusted to Board Section 3(2)(b) At present, clause (b) of sub section (2) of Section 3 empowers the Federal Government to specify the lower or higher sales tax rate other than standard rate of

sales tax by way of a notification in the official Gazette. The Bill proposes the entrustment of such powers of Federal Government to the Board with the approval of the Minister Incharge of the Federal Government.

5. Power to specify person liable to pay sales tax

Section 3(3A) At present, section 3A of the Act empowers the Federal Government to specify the

goods in respect of which the liability to pay tax shall be of the person receiving the supply. The Bill proposes entrustment of such powers of Federal Government to the Board with the approval of the Minister Incharge of the Federal Government.


6. Power to levy and collect

Extra Tax - Section 3(5) At present, sub section (5) of Section 3 of the Act empowers the Federal Government

to levy and collect extra tax at the rate or amount not exceeding seventeen per cent of the value of such goods or class of goods in addition to the tax levied under sub-section (1) and (2) of Section 3 to the

Act. The Bill proposes entrustment of such powers of Federal Government to the

Board with the approval of the Minister Incharge of the Federal Government.

7. Regularization of Regime of

Tier I Retailers - Section 3(9A) Sales tax on retailers is chargeable under two different tiers as under:

Tier 1 operating as a

unit of a national or

international chain of stores

operating in an air-conditioned shopping mall,

plaza or centre, excluding kiosks

cumulative electricity bill during the immediately preceding 12

consecutive

months exceeds Rs.600,000

a wholesaler-cum-retailer, engaged in bulk import and supply of

consumer goods on wholesale

Supplies are

taxable at normal rate of 17%.

Retailers to observe all provisions of the Act including filling of monthly sales

tax returns in the manner prescribed in Chapter II of the Rules 2006.

Retailer

falling in five zero rated sectors specified in SRO 1125 of 2011 shall charge sales

tax at the rates specified in

basis to the retailers as well as on

retail basis to the general body of the consumers

the said SRO.

Alternatively, retailer has an option to file sales tax under

turnover regime at 2% of the

total turnover including exempt supplies

without adjustment of input tax subject to filing of such option to the concerned

Chief Commissioner by 15th day of July of the Financial

Year. The

option is to be apply for the whole financial year.

Tier 2 Other retailers

to pay sales tax with

Electricity bills:

Monthly Bill

amount up to Rs.20,000

Monthly Bill amount exceeding Rs.20,000

5% of the billed amount

7.5% of the billed amount

Provisions regarding chargeability of sales tax under Tier 2 are already available

under subsection (9) of section 3 to the Act read with Rule 6 of Chapter II of the Sales


Tax Special Procedure Rules, 2007. However, the scheme of sales tax on retailers under Tier 1 was inserted vide Notification No. SRO 608(I)/2014 dated

July 02, 2014 through amendment in Chapter II of the said rules (with no corresponding insertion in to charging Section 3 of the Act) which has later been struck down by the Lahore High Court. Consequently, the Bill has proposed

insertion of same scheme for the Tier 1

retailers into the Act in order to regularize the applicability of such sales tax through charging provisions of the Act.

8. Powers to Specify Goods

subject to Sales Tax at Zero Percent - Section 4 Clause (c) At present, clause (c) of Section 4 of the Act empowers the Federal Government to specify any goods which may be subject to sales tax at the rate of zero percent. The

Bill proposes entrustment of such powers of Federal Government to the Board with

the approval of the Minister Incharge of the Federal Government.

9. Powers to Allow Input Tax

Adjustment Section 7 Subsection (3) Presently, subsection (3) of Section 7 of the Act empowers the Federal Government through a special order to allow a

registered person to deduct input tax paid by him from the output tax determined or to be determined as due from him under this Act. The Bill proposes entrustment of such powers of Federal Government to the


10. Section 7 Subsection (4) At present, subsection (4) of Section 7 of

the Act empowers the Federal Government through a notification to allow a registered person or class of persons to deduct such amount of input tax from the output tax as

may be specified in the said notification. The Bill proposes entrustment of such powers of Federal Government to the Board with the approval of the Minister

Incharge of the Federal Government.

11. Powers to Specify Goods subject to Sales Tax on Value

Addition Section 7A Subsection (1) Presently, by virtue of sub section (1) of section 7A of the Act, the powers to specify goods or class of goods chargeable to sales

tax on value addition, rest with the Federal Government through issuance of notification in the official Gazette. The Bill proposes entrustment of such powers of Federal Government to the Board with the approval of the Minister Incharge of the

Federal Government.

12. Powers to Specify Goods for declaration of Minimum Value

Addition Section 7A Subsection (2) At present, subsection (2) of Section 7A of the Act empowers the Federal Government to specify through a notification, the

minimum value addition required to be declared by certain persons or categories of persons, for supply of goods of such description, or class as may be prescribed, and to waive the requirement of audit or scrutiny of records if such minimum value addition is declared. The Bill proposes

entrustment of such powers of Federal Government to the Board with the approval

of the Minister Incharge of the Federal Government.

13. Powers to specify goods not

eligible of input tax adjustment Section 8(1) Clause (b) Presently, by virtue of clause (b) of sub section (1) of section 8 of the Act, the powers to specify (through issuance of


notification in the official Gazette) such goods or services for which a registered person shall not be entitled to claim input tax rest with the Federal Government. The

Bill proposes entrustment of such powers of Federal Government to the Board with the approval of the Minister Incharge of the Federal Government.

14. Powers to place exemption

notifications before the National Assembly

Section 13 Sub section (2) and (6) Presently, subsection (2) of Section 13 authorizes the Federal Government to issue notification of exemption from

applicability of sales tax on imports or supplies of taxable goods subject to approval of Economic Coordination Committee (ECC) under special circumstances. Such notifications issued in a financial year are to be presented by the

Federal Government before the National Assembly for approval in accordance with subsection (6) of section 13 of the Act. By virtue of amendment proposed in subsection (2), the powers to issue notifications for exemptions pursuant to

the approval of ECC now rest with the Board with the approval of the Minister Incharge of the Federal Government. Moreover, the Bill also proposes to empower the Board in place of the Federal Government to present such notifications before the National Assembly for approval.

15. Extension in time limit of enforceability of Exemption

Notifications Section 13 Sub section (7) Presently, sub section (7) of Section 13 provides for auto resending of all exemption notifications issued after July 01, 2015 under sub section (2) of section

13 of the Act, on the expiry of the financial

year of their issuance unless rescinded earlier. The Bill proposes to extend the limit of

enforceability of such notifications for a period from July 01, 2016 till June 30, 2018. Similarly notification issued on or after 1st July, 2016 if not earlier rescinded to continue to be in force till 30th June, 2018.

16. Appointment of Authorities Section 30

Subsection (1) & (3) The Bill proposes to empower the Board to

appoint following additional Inland revenue officials namely:

i. District Taxation Officer

ii. Assistant Director audit

The aforesaid officials shall stand subordinate in hierarchy to the Deputy Commissioner and Assistant Commissioner Inland Revenue.

17. Roles and Accountabilities Section 30 Subsection (2) The Bill proposes to determine the role of the Chief Commissioners and Commissioners in performing their functions which shall to follow the

directions of the Board in case of Chief Commissioners, and the directions of the Chief Commissioners in case of Commissioners to whom they are sub ordinate.

18. Offences and Penalties -

Cigarette Stocks without (or with forged) tax stamps

Section 33 Through proposed insertion of serial no. 23 and entry relating thereto in section 33 to the Act, penalty for Cigarette manufacturers, dealers, transporters etc. in case of non-availability or with forged tax stamps, barcodes, stickers and


banderoles etc. has been proposed as under:

Description of Default

Penalty

Any person who manufactures, possesses, transports, distributes, stores or sells cigarette packs without, or with counterfeited, tax stamps, banderoles, stickers, labels or barcodes. Confiscation of stock:

Such cigarette stock shall be liable to

outright confiscation

and destruction.

Monetary Penalty: Rs. 25,000 or 100% of the amount of tax involved, whoever is higher.

Criminal Liability:

imprisonment for a term which may extend to 5 years upon conviction by a Special Judge, or with additional fine which may extend to an

amount equal to the loss of tax involved, or with both.

Specific penalty for Transporters: seizure of the vehicle used for

transportation of non- conforming or counterfeit cigarette packs.

Repeated Offence: the premises used for such sale be sealed for

a period not exceeding 15 days.

19. Recovery of Arrears of Tax Automatic Stay upon deposition

of 25% of the tax demanded Section 48 Presently, section 48 empowers an Inland Revenue Officer to issue notice of recovery for the tax due from a registered person in

the manner prescribed in said sub-section read with Part I of Chapter XI of the Sales Tax Rules, 2006 unless such proceedings have been stayed by the Commissioner

Inland Revenue (Appeals) under sub-section (1A) of Section 45B of the Act. The Bill proposes automatic stay till the decision of Commissioner Appeals against recovery of Sales Tax demand on filing of appeal before the Commissioner Inland

Revenue (Appeals) by the registered

person under section 45B of the Act against the order creating such demand and subject to deposition of 25% of the amount of sales tax demanded.

20. Service of orders;

decision etc. Section 56 subsections (1)&(2) In case of companies both private and public, the Bill proposes the notices and orders served electronically through e-mail

or into the e-folder maintained for the purpose of e-filing of Sales Tax Cum

Federal Excise Returns, to be treated as properly served under the Act.

21. Powers to deliver certain

goods without payment of tax Section 60 Presently, Section 60 of the Act empowers the Federal Government to allow the import of goods or class of goods, without

payment of the whole or any part of the tax payable thereon to the following persons, namely: – (i) registered importers importing such

goods temporarily with a view to subsequent exportation;

(ii) registered manufacturer-cum-

exporters who import raw materials and intermediary products for further manufacture of goods meant for export;.

The Bill proposes entrustment of such powers of Federal Government to the



22. Exemption of tax not levied

or short levied as a result of

general practice Section 65 At present, Section 65 of the Act

empowers the Federal Government to exempt the sales tax not levied or short levied by a registered person as a result of inadvertent practice.

The Bill proposes entrustment of such powers of Federal Government to the Board with the approval of the Minister Incharge of the Federal Government.

23. Special Procedure

Section 71

Presently, Federal Government has powers to prescribe special procedures for scope

and payment of tax, registration, book keeping and invoicing requirements and returns, etc. The Bill proposes to empower the Board to

exercise such powers of the Federal Government with the approval of the Minister Incharge of the Federal Government.

24. Validation

Section 74A

A new section 74A is proposed to be inserted, whereby all notifications and

orders issued and notified, in exercise of the powers conferred upon the Federal Government, before July 1, 2017 shall be deemed to have been validly issued and

notified in exercise of those powers, notwithstanding anything contained in any judgment of a High Court or the Supreme Court.

Similar validation sections have also been proposed to be introduced in Federal Excise Act, 2005 and Customs Act, 1969.

It appears that this section is being introduced to counter the recent judgment of the Supreme Court reported as 2016 PTD 2269, whereby it was held that no prime minister can move any legislation, finance or fiscal bill or approve any

budgetary or discretionary expenditures on

his own without taking the cabinet into confidence first. Thus it was held that no bill could be moved in Parliament on behalf of the Federal Government without having been approved in advance by the Cabinet.

Considering the hassle and time involved to get approval of Cabinet for all the fiscal matters, which causes pendency of various important matters, the proposed amendment has been made to validate all the notification and orders issued and notified before July 1, 2017.


Fifth Schedule (Zero rated goods) The Bill proposes to broaden the zero rating scope of serial number 12 as under:

S. No Existing Description Proposed Description Tariff Heading

(xvii) Preparations for infant use put up for retail sale

Preparations suitable for infants or young children, put up for retail sale

1901.1000

Sixth Schedule Change in scope of existing exemptions

Description of the column no 2 of the following entries to the Table I has been proposed to be replaced as under to extend the scope of exemption to certain items like preparations suitable for your children, markers and porous tipped pens:

S. No Existing Description Proposed Description

84 Preparations for infant use, put up for retail sale

Preparations suitable for infants or

young children, put up for retail sale

97 Pens and ball pens Pens, ball pens, markers and porous tipped pens

Description of the column no 3 entry no 130 of the Table I has been proposed to be replaced as under:

S. No Existing Description Proposed Description

130 Premixes for growth stunting Respective Headings, and subject to conditions imposed for importation under the Customs act, 1969

Sodium Iron (Na Fe EDTA), and other premixes of Vitamins, Minerals and Micro-nutrients (food

grade) and subject to conditions imposed for

importation under the Customs Act, 1969.


New Insertions: Through the Finance Bill, 2017, following entries have been proposed to be added into Sixth Schedule of the Act:

S. No Description Heading Nos. of the

First Schedule to the Customs Act, 1969 (IV of 1969)

Table I

100C Vehicles imported by China Overseas Ports Holding Company Limited (COPHCL) and its operating companies

namely (i) China Overseas Ports Holding Company Pakistan (Private) Limited (ii) Gwadar International Terminal Limited, (iii) Gwadar Marine Services Limited and

(iv) Gwadar Free Zone Company Limited, for a period of twenty three years for construction, development and operations of Gwadar Port and Free Zone Area subject to

limitations conditions prescribed under PCT heading 9917

Respective headings

134 Goods received as gift or donation from a foreign

government or organization by the Federal or Provincial Governments or any public sector organization subject to recommendations of the Cabinet Division and concurrence by the Federal Board of Revenue.

9908

135. Sunflower and meant for sowing canola Respective heading

136. Combined harvesters upto five years old 8433.5100

137. Single cylinder agriculture diesel engines (compression-ignition internal combustion piston engines) of 3 to 36 HP, and CKD kits thereof

8408.9000.”; and

Table III (identifying new entries in the existing list of items)

14 Solar Power Systems 8501.3110, 8501.3210

14 Charge controller 9032.8990

14 Essential connecting wires (with or without switches) 8507.6000

14A Insulated tank 7309.0000, 7310.0000

14A Mounting stand Respective Heading

14A Copper and Aluminum tubes Respective Heading

14A Electronic controller Respective Heading

14A Assistant/ feeding tank Respective Heading

14A Circulation Pump Respective Heading

14A Electric heater/ immersion rod (one piece with one solar water heater)

Respective Heading

14A Selective coating for absorber plates Respective Heading


14A Inverter for use with Wind Turbine. Respective Heading

14A Any other item approved by the Alternative Energy Development Board (AEDB) and concurred to by the FBR.

Respective Heading

15A Constant current power supply for of LED lights (1-300W) 8543.0000

15A Lenses for LED lights 8504.4090

Eighth Schedule (Reduced rate goods) The Bill also proposes to make amendment in the condition of the serial number 34 of Table I which relates to the Set top boxes for gaining access to internet, TV broadcast transmitter, satellite dish receivers and other top boxes, by extending the period of concessionary rate up

to 30th June, 2018. New Insertions Fertilizers have been proposed to be taxed at reduced rate by insertion of the respective headings in Eighth Schedule to the Act. Consequently, the entry No 32 to the Third Schedule

would become redundant and therefore has been proposed to be omitted from the scheme of chargeability of sales tax on retail price basis under Third Schedule to the Act. Following new entries therefore have been inserted in Table I to the Eighth Schedule:

S. No. Description Tariff heading Rates Condition

35 DAP Respective heading Rs. 100 per 50

KG bag Nil

36 NP (22-20) Respective heading Rs. 168 per 50

KG If manufactured from gas other than imported LNG

37. NP (18-18) Respective heading Rs. 165

per 50 kg bag

If manufactured from gas other than imported LNG

38. NPK-I Respective heading Rs.251

per 50 kg bag


39. NPK-II Respective heading Rs. 222

per 50 kg bag


40. NPK-III Respective heading Rs. 341

per 50 kg bag


41. SSP Respective heading Rs. 31 per

50 kg bag


42. CAN Respective heading Rs. 98 per

50 kg bag


43. Natural gas Respective heading 10% If supplied to fertilizer plants for manufacturing of urea

44. Phosphoric acid

2809.2010 5% If imported by fertilizer

company for manufacturing of DAP

45. Following Import and supply


S. No. Description Tariff heading Rates Condition

machinery for poultry sector :

(i) Machinery for preparing

feeding stuff

8436.1000 7% Import and supply

(ii)

Poultry incubators

and brooders

8436.2100

and 8436.2900

7% Import and supply

(iii)

Insulated

sandwich panels


(iv) Poultry shed 9406.0020 7% Import and supply

(v) Evaporative

air cooling system


(vi) Evaporative cooling pad


46. Multimedia projectors

8528.6210 10% If imported by educational institution

47. Locally

produced coal

27.10 10% Rs. 425 per metric tonne or

17% ad valorem, whichever is higher

Ninth Schedule

Mobile phones The Ninth Schedule of the Sales Tax Act, 1990 provides the amount of sales tax liability payable by the importers and Cellular Mobile Operators. The Finance Bill, 2017 proposes to increase sales tax on low priced cellular mobile phones or Satellite phones from Rs. 300 to Rs. 650. Whereas, the sales tax on medium priced cellular

mobile phones or satellite phones has been reduced from Rs. 1000 to Rs.650.


Federal Excise Act, 2005

1. Due Date [Section 2

(Clause 8a)] At present, Federal Government is

empowered to specify different dates for furnishing different parts or annexures of the return. The Bill proposes to transfer such power to the Board.

2. Duties specified in the First

Schedule to be levied (Section 3): At present, the Federal Government is empowered to levy excise duty, by notification in official gazette, on any goods as are produced or manufactured in

the non-tariff areas and are brought to the tariff areas for sale or consumption therein or to levy and collect excise duty at higher or lower rates on any class or classes of goods or services.

The Bill proposes to transfer such power to the Board with the approval of the Minister-in-charge of the Federal Government shall.

3. Exemption (Section 16): The Bill proposes to transfer the power of Federal Government to the Board to exempt sales tax in certain circumstances,

subject to the prior approval of Minister in Charge and pursuant to the approval of the Economic Coordination Committee of Cabinet. Likewise, the Board is proposed to place before the National Assembly all

notifications issued for granting exemption in a financial year.

The Bill, further, proposes to add a proviso whereby all exemption notifications which were stand rescinded on the expiry of the financial year on June 30, 2016, shall be deemed to have been in force with effect from July 1, 2016 and

shall continue to be in force till June 30, 2018, if not rescinded earlier.

The Bill also proposes that all notifications issued on or after July 1, 2016 shall

continue to be in force till June 30, 2018, if not earlier rescinded.

4. Offences, penalties, fines

and allied matters (Section 19): The Bill proposes to substitute the existing sub-section 10, through which penal action has also been proposed on the person engaged in the manufacture or production of cigarettes in a manner

contrary to the FED law or the rules made, evades duty of excise or is engaged in the manufacture or production of counterfeited cigarettes, tax stamps, banderoles, stickers, labels or barcodes, or is engaged in the manufacturing or production of cigarettes packs without

affixing, or affixing counterfeited, tax stamps, banderoles, stickers, labels or

barcodes. The penal action includes confiscation and destruction of machinery, equipment, instruments or devices and other action provided in the law.

5. Appointment of Federal Excise officer and delegation of

powers (Section 29) The Bill proposes to declare the District

Taxation Officer and Assistant Director Audit to be Federal Excise Officer for the purpose of this Act. The Bill also proposes that Chief

Commissioners Inland Revenue shall perform their functions in respect of such

persons or classes of persons of such areas as the Board may direct and who may delegate such function to their subordinate Commissioner.


6. Deposit, pending appeal, of

duty demanded or penalty levied (Section 37) The Bill proposes the insertion of the new proviso, whereby the Commissioner shall not issue recovery notice under the said section or recovery rules made under the Federal Excise Rules, 2005 for recovery of

any duty due from a taxpayer, if the

taxpayer has filed an appeal to Commissioner Inland Revenue (Appeals) in respect of the order under which duty is payable and the appeal has not been yet decided by the Commissioner (Appeals) provided that the taxpayer has paid

twenty five percent of the amount of duty due. At present, an automatic deemed stay is allowed to the taxpayer under first proviso to the section who has paid 15% of duty due at the time of filing of appeal.

However, such stay would be lapsed on expiration of six month, if appeal is not

decided earlier. The proposed amendment seems to provide the stay of tax demand even in case where the period of six months is lapsed and the decision of the Commissioner Appeals is still pending.

7. Validation (Section 43A) A new section 43A is proposed to be

inserted whereby all notifications and orders issued and notified, in exercise of the powers conferred upon the Federal Government before the July 1, 2017, shall be deemed to have been validly issued and notified in exercise of those powers,

notwithstanding anything contained in any

judgement of the High Court or Honorable Supreme Court. It appears that this section is being introduced to counter the recent judgment of the Supreme Court reported

as 2016 PTD 2269, whereby it was held that no prime minister can move any legislation, finance or fiscal bill or approve any budgetary and discretionary

expenditures on its own without taking the cabinet into confidence first. Thus, it was held that no bill could be moved in parliament on behalf of the Federal

Government without having being approved in advanced by Cabinet. Considering the hassle and time involve to get approval of Cabinet for all the fiscal matters, which causes pendency of

various important matters, the proposed

amendments has been made to validate all the notifications and orders issued and notified before July 1, 2017.

8. Service of notices and

other documents (Section 47)

At present, any notice, order or requisition required to be served on a resident individual or non-resident individual shall be treated as properly served if:

i. personally served on to the resident individual or his representative.

ii. sent by registered post or courier services to the specified address.

iii. served on the person in the manner prescribed for service of a summons under the Code of Civil Procedure,

1908. The Bill proposes that any notice shall also be treated as properly served if same is sent electronically through email or to the e-folder maintained for the purpose of e-filing of Sales Tax-cum-Federal Excise

returns, in the case of limited companies, both public and private.

9. Rates of FED enhanced

Table I of the First Schedule 9.1 Cigarettes

The Bill proposes to enhance FED rates for locally produced cigarettes as per below:


1 Locally produced cigarettes if their on- pack printed retail

price exceeds four thousand five hundred rupees per thousand cigarettes. (Serial No. 9 of the Table 1 of the First

Schedule)

Rupees three thousand seven

hundred and forty per thousand cigarettes

2 Locally produced cigarettes if their on-pack printed retail price exceeds two thousand nine

hundred and twenty-five rupees per thousand cigarettes but does not exceed four thousand five hundred rupees per thousand cigarettes.

(Serial No. 10 of the Table 1 of the First Schedule)

Rupees one thousand six hundred and seventy per thousand

cigarettes

3 Locally produced

cigarettes if their on-

pack printed retail price does not exceed two thousand nine hundred and twenty-five rupees per thousand cigarettes. (Serial No. 10a of the

Table 1 of the First Schedule)

Rupees eight

hundred per

thousand cigarettes

Restriction and minimum price of

cigarette The Bill proposes to substitute the existing

restriction, thereby cigarette manufacturer of proposed Serial No. 9 shall not reduce the retail price from the price adopted on the day of announcement of latest budget

that is May 26, 2017. Further, the Bill also proposes to impose restriction that the minimum price of any brand shall not be less than the forty five percent of the retail price (excluding sales tax) as specified in Table I of First

Schedule that is four thousand five hundred rupees per thousand cigarettes.

9.2 Cement

The Bill proposes to enhance FED rate from one rupee per kilogram to one rupee and twenty-five paisa per kilogram on Portland cement, aluminous cement, slag cement, super sulphate cement and similar

hydraulic cements, whether or not coloured

or in the form of clinkers.

10. Reduction in FED Rates Table II of the First Schedule

The Bill proposes to reduce the FED on Telecommunication services from 18.5% to 17%. It should be noted that FED shall not

be levied on telecommunication services in the area of a Province where such Province has imposed Provincial sales tax and has started collecting the same through its own Board or Authority, as the case may be.

11. Exemption from FED Table I of the Third Schedule

(Serial 19) The Bill proposes to allow exemption on plant, machinery, equipment, appliances

and accessories, in addition to material and equipment, for construction and operation of Gwadar Port and development of Free Zone for Gwadar Port as imported by or supplied to China Overseas Ports Holding Company Limited (COPHCL) and its operating companies.

(Serial 20A)

The Bill proposes to exempt Vehicles imported by China Overseas Ports Holding Company Limited (COPHCL) and its

operating companies for a period of twenty-three years for construction, development and operations of Gwadar Port and Free Zone Area subject to limitations, conditions prescribed under PCT heading 9917 (3).


Customs Act, 1969

1. Definition (Section 2)

Goods Declaration (Clause la)

The Bill proposes to broaden the scope of definition of Good Declaration by inserting

‘Bill of Coastal Goods’ filed by consignor under section 147 of Act in the definition of Goods Declaration. The proposed

amendment seeks to create legal provision for regulating controlled delivery operation of coastal goods.

2. Controlled Delivery (Clause z) The Bill proposes to insert the definition of “Controlled Delivery’ in relation to coastal goods. The term “Controlled Delivery” means supervised and coordinated operational activities that allow suspected

consignments of prohibited and restricted goods, including items mentioned in clause (s), to pass out of, through or into

the territory of Pakistan, with a view to identifying persons involved in the commission of an offence cognizable under this Act.

3. Directorate General CPEC (Section 3AAA) The Bill proposes to establish a dedicated Directorate General of Customs for effective control and monitoring of economic activities carried out under

China Pakistan Economic Corridor.

4. Assistance to the Officers of Customs.

(Section 7)

The Bill proposes to empower officers of, National Highways and Pakistan Motorway Police to assist the Customs Officers in performance of their duties under the Act. At present, officer of Inland Revenue, Police and the Civil Armed Forces are empowered to assist Officer of Customs.

5. General power to Exempt

from Custom Duties (Section 19) The Bill proposes to assign the power of Federal Government to the Board to exempt the Custom Duty in certain circumstances, subject to the prior

approval of Minister in Charge and pursuant to the approval of the Economic

Coordination Committee of Cabinet. The Bill, further, proposes to add a proviso to sub-section 5 of section 19 of the Act whereby all exemption notifications which were stand rescinded on the expiry of the

financial year on June 30, 2016, shall be deemed to have been in force with effect from July 1, 2016 and shall continue to be in force till June 30, 2018, if not rescinded earlier. It is also proposed that all notifications

issued on or after July 1, 2016 shall

continue to be in force till June 30, 2018, if not earlier rescinded.

6. Power to Determine the

Customs Value (Section 25A) The Bill proposes to add a proviso to sub-section 2 of section 25A of the Act whereby it is provided that higher of the Customs value determined by the customs officer

under sub-section (1) or the value declared in a goods declaration filed under section 79 or section 131 or mentioned in the invoice retrieved from the consignment, as

the case may be, shall be the customs value. This proposed amendment will allow the officer to finalize the assessment on

the basis of higher value declared by the importer by disregarding the value fixed through Valuation Ruling.


7. Obligation to produce

Documents and provide Information.

(Section 26) The Bill proposes to authorize Board to call for information by the Board or Officer

authorized in this respect from any person information relevant for the purpose of End

Use Verification of goods.

8. Refund to be Claimed within

One Year (Section 33) At present, the proviso to the subsection (1) disallows refund arising out of any circumstance mentioned in this section, if the sanctioning authority is satisfied that

incidence of customs duty and other levies has been passed on to the buyer or consumer. This Bill proposes to shift this proviso to the newly inserted subsection (4).

9. Period for which Goods may

remain warehoused. (Section 98) The Bill proposes to empower the Chief Collector of Customs to extend the period of warehoused goods up to one month in

case of notified perishable goods and up to three months in case of nonperishable goods.

10. Cancellation of Registration

of Registered User (Section 155F) The Bill proposes to allow a person aggrieved by an order of the Collector, cancelling or confirming the suspension of his unique user identifier, to file an appeal

to the Chief Collector, within thirty days of communication of such order and Chief Collector may pass an order annulling,

modifying or confirming the order passed by the Collector.

11. Punishment for offence

(Section 156) The Bill proposes to impose penalty up to Rs. 500,000 on an agency or person or port authority, if such agency or person, including port authorities managing or

owning a customs port, customs airport or a land customs station or a container

freight station, fails to entertain a delay and detention certificate issued by the officer of Customs.

12. Appeals and Adjudication

(Sections 193, 194A and 195) The Bill proposes to empower the Collector

of Customs (Adjudication), in line with current powers of Board or Collector of Customs under section 195, to call for and examine the records of any proceedings under this Act for the purpose of satisfying

itself or, as the case may be, himself as to the legality or propriety of any decision or

order passed by a subordinate officer. The Bill also proposes to empower the Board or Collector of Customs or Collector of Customs (Adjudication) under section 195, instead of passing an order by itself or himself, may assign the case to another

officer, not below the rank of officer who have passed the earlier order, for passing such order as he may think fit. Appeal against an order passed under section 195 by the Board or an officer of

Customs not below the rank of an

Additional Collector shall be filed before Appellate Tribunal. Whereas, appeal against the order passed under section 195 by the officer of Customs below the rank of an Additional Collector shall be field before the Collector (Appeals).


13. Power to enter into Mutual

Legal Assistance Agreements on customs matters

(Section 219A) A new section 219A is proposed to be inserted whereby the Board may, of its

own motion or upon request from an international organization, a foreign

customs administration, or any other foreign competent authority, enter into memorandum of understanding pertaining to mutual legal assistance in customs matters, or in pursuance of any bilateral or

a multilateral agreement, undertake activities, which, inter alia, include: a) coordinated border management; b) information and data sharing; c) bilateral and multilateral international

special operations, including, by the method of controlled delivery;

d) capacity building and technical assistance initiatives; and

e) any other matter to which both or all

parties agree

It is also proposed that the Board may, on behalf of the Federal Government, request an international organization, a foreign customs administration, or any other foreign competent authority for legal assistance on any matter or offence under this Act, or upon request received

therefrom. It is further proposed that the Board may, by notification in the official Gazette, prescribe the rules for any of the matters enumerated in this section

14. Validation

(Section 221-A) A new section 221A is proposed to be inserted whereby all notifications and

orders issued and notified, in exercise of the powers conferred upon the Federal Government before the July 1, 2017, shall be deemed to have been validly issued and

notified in exercise of those powers, notwithstanding anything contained in any judgment of the High Court or Honorable Supreme Court.

It appears that this section is being introduced to counter the recent judgment of the Supreme Court reported as 2016 PTD 2269, whereby it was held that no prime minister can move any legislation,

finance or fiscal bill or approve any

budgetary and discretionary expenditures on its own without taking the cabinet into confidence first. Thus, it was held that no bill could be moved in parliament on behalf of the Federal Government without having being approved in advanced by Cabinet.

Considering the hassle and time involve to get approval of Cabinet for all the fiscal matters, which causes pendency of various important matters, the proposed amendments has been made to validate all the notifications and orders issued and

notified before July 1, 2017.

First Schedule

15. Adoption OF World Customs Organization (WCO) HS Version

2017 The Bill proposes to substitute First Schedule to the Customs Act with the First Schedule to this Act to add, create and delete HS Codes in Pakistan Customs Tariff in order to harmonize it with WCO HS Version 2017.

16. Decrease in Customs Duty The Bill proposes to decrease rates of customs duty on goods related basic necessities of person. Details of some of such goods are given below:


Description Previous

rate Proposed

rate

Live poultry of fowls of the species Gallus domesticus (chicken)

11% 3%

Live poultry of fowls of

the species Gallus domesticus (chicken) 11% 3%

Sheets for veneering

(Coniferous, Dark Red Meranti, Light Red Meranti and Meranti Bakau & Others) 16% 11%

Prefabricated building

of Modular Clean Room Panels 20% 3%

Non-woven Fabric (for pharmaceutical sector) 16% 5%

Coal (other than bituminous Coal) 11% 5%

17. Increase in Customs Duty

The Bill proposes to increase rates of customs duty on certain goods in order to

incentivize local industry. Details of some of such goods are given below:


rate Proposed

rate

Aluminum beverage cans, round cans in diameter exceeding 45 mm 11% 20%

Bituminous Coal 3% 5%

Fifth Schedule

1. Substitution of current Schedule

The Bill proposes to substitute Fifth

Schedule to the Customs Act with the Second Schedule to this Act.

2. Exemption of CD on Combined Harvester (up to five years old)

The Bill proposes to extend exemption on combined harvesters up to five years old. At present, said exemption is allowed only on new / unused combined harvesters.

3. Concession in CD on import

of Coal by IPPs

The Bill proposes to allow reduced rate of 3% of CD on bituminous and other coal if imported by coal based power projects having an implementation agreement with the Government of Pakistan.

4. Exemption from Custom Duty

The Bill proposes to exempt CD on following goods


rate

Raw Skins & Hide 3%

Stamping Foil 16%

Ostriches 3%

5. Hybrid Electric Vehicles

The Bill proposes to withdraw concession in duty on Hybrid Electric Vehicles above 2500 cc.

6. Reduction in Custom Duty

The Bill proposes to reduce CD on following

goods:

6.1 on uncoated polyester film and aluminum wire from 20% to 11% for manufacturers of metalized yarn.

6.2 on raw materials for manufacturers of

Baby Diapers from 20% to 16% and

from 16% to 11%.

6.3 On mobile phone @ Rs. 250 per set. It is proposed to impose RD @ 250 per set instead of CD.

6.4 On Set top boxes, TV broadcast transmitter and reception apparatus etc @ 11% till June 30, 2018 subject to approval of PEMRA.


Benami Transactions (Prohibition) Act, 2017

The objective of this document is to

provide brief introduction, principle understanding and the importance of this Benami Transactions (Prohibition) Act, 2017, in Pakistan. Summary

The Benami Transactions (Prohibition) Act, 2017, defines and regulates the Benami Properties/Transactions and is effective from February 17, 2017. This is the first time such law on the benami transaction/properties has been introduced

in Pakistan. The main objective of this Act is to take action against benami property or transaction obtained from the black money hide in real estate. The aim of this Act is to prohibit the person to enter into any ‘benami’ transaction. It is stated, “Whoever enters into any benami

transaction or holds any benami property on and after the date of the

commencement of this Act, shall be punishable in accordance with the provisions of this Act”. This Act provides the power to Federal Government to confiscate any property, which is subject

matter of benami transaction. Under this Act, no person being benamidar shall transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. Furthermore, where any property is transferred in

contravention of the provisions of this Act, the transaction of such property shall be deemed to be null and void. Consequently, this Act will help the government to take action against the Tax Evaders in benami

transactions, the Fraud on Creditors and scrutinize the social and political risk in

holding properties. Important Definitions: Benami “Benami literally means ‘without name’ and in the context of property, it means use and benefit by a person other

than the person who is shown as the owner”.

Benami Transaction:

(i) A transaction or arrangement where a property is transferred to or held by one person, while the consideration for such property is provided or paid by another person

and the property is held for the immediate or future benefit, direct or

indirect, of the person providing the consideration.

(ii) Transaction or arrangement in

respect of property carried out in fictitious name.

(iii) Transaction or arrangement where

owner of property denies property’s ownership.

(iv) Transaction or arrangement where

the payer of consideration of

property is fictitious or untraceable.

Benami Property “Benami Property means any property which is the subject matter of a benami transaction and also includes the proceeds from such property”. Benamidar, “Benamidar means a person

in whose name the benami property is transferred or held and includes a person who lends his name”. Beneficial owner

“Beneficial Owner means a person, whether his identity is known or not, for whose benefit the benami property is held

by a benamidar.” Important Provisions:

Prohibition of benami transactions (Section 3)

Under Section 3 of this Act, whoever

enters into any benami transaction or holds any benami property on and after the date of commencement of


this Act, shall, be punishable in accordance with the provisions contained in Chapter VIII.

Property held benami liable to confiscation (Section 4)

Under section 4 of this Act, any

property, which is subject matter of benami transaction, shall be liable to

be confiscated by the Federal Government.

Prohibition on retransfer of property by benamidar (Section 5)

Under section 5(1) of this Act, No person being benamidar shall re transfer the benami property held by

him to the beneficial owner or any other person acting on his behalf.

Under section 5(2), where any

property is retransferred in contravention of the provisions of this Act, the transaction of such

property shall be deemed to be null and void.

Attachment, Adjudication and

Confiscation: Notice and attachment of property (Section 22) Under section 22, where the

initiating officer has reason to believe that any person is benamidar in respect of a property, he may issue a show cause notice to such person as well as to the beneficial owner if his identity is known. He may alienate

the property and provisionally attach

with the previous approval of the Approving Authority for a period not exceeding 90 days from the date of issue of notice. Further, if the initiating officer passes an order continuing the provisional attachment of the property shall

within 60 days from the date of the attachment, draw up a statement of

the case and will refer it to the Adjudicating Authority.

Adjudication of benami property (Section 24)

On receipt of a reference under

section 24, the Adjudicating Authority shall issue notice within 30 days by giving the time of 30 days for reply on benamidar, beneficial

owner if identified and any interested

party. The Adjudicating Authority shall, after considering the reply, making inquiries and taking into account all relevant materials, and, thereafter, pass an order.

Confiscation and vesting of benami property (Section 25) Under section 25 of this Act, the

Adjudicating Authority declares any property as benami property, after giving the person concerned, an

opportunity of being heard make an order confiscating the property.

However, if an appeal has been filed against the order of the Adjudicating Authority then the confiscation shall be made subject to the order passed by the Tribunal under section 44.

Any right of any third person created in such property with a view to defeat the purposes of this Act shall be null and void. Where no order of confiscation is made upon the proceedings under this Act attaining

finality, no claim shall lie against the Government.

Possession of property (Section 27)

Under section 27 of this Act, where an order of confiscation of a property

has been made, the Administrator shall proceed to take the possession of the property.

Special courts (Section 48): Under section 48 of this Act, the

Special Courts would be constituted by the Federal Government in


consultation with the Chief Justice of the concerned High Court for trial of an offense punishable under this Act.

Penalty of benami transaction (Section 51) Under section 51 of this Act, where

any person enters into a benami transaction in order to defeat the

provisions of any law or to avoid

payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any other person shall be guilty of the offence of benami transaction and shall be punishable with rigorous

imprisonment for a term which shall not be less than one year, but which may extend to seven (7) years and shall also be liable to fine which may extend to twenty-five percent(25%) of the fair market value of the property.

Penalty for false information

(Section 52) Under section of 52 of the Act, any

person or any officer, who is required to furnish information under this Act

knowingly gives false information to any authority or furnishes any false document in any proceeding under this Act, shall be punishable with rigorous imprisonment for a term which shall not be less than six (6)

months but which may extend to five (5) years and shall also be liable to fine which may extend to ten percent (10%) of the fair market value of the property.

Implication of the Act:

1. The kind of properties that would be

covered under the said Act would be the asset of any kind, moveable or immovable, tangible or intangible, corporeal or incorporeal, and includes rights or interest or legal

document evidencing ownership of property.

2. It can further be argued that this Act

will be applicable to benami properties ‘situated outside’ Pakistan

and there is no exception in the law to the effect that benami arrangement by Pakistani resident or citizens cannot apply on properties situated outside Pakistan.

3. The action of the Adjudicating Officer

can be challenged before the Federal Appellate Tribunal to be formed under the Act. The Tribunal shall, in principle, operate in the manner similar to the Tribunal dealing with the case of Inland Revenue and the

departmental representative shall be termed as ‘presenting officer’. A Chartered Accountant shall inter alia be entitled to appear before the Federal Appellate Tribunal. Order of the Federal Appellate Tribunal can be challenged before the High Court.

4. It is pertinent to mention here that

under the ‘transfer of property’ laws, transfer of property in ‘benami’ is not illegal. Benami transaction Act provisions will not have an implication in the following types of

transactions: i. Property held under the name of

spouse or child, for which the amount is paid through a known source of income.

ii. A joint property with brother, sister of other relatives for which the amount is paid out of known source of income.

iii. Property held by someone in a fiduciary capacity; that is transaction

involving a trustee and a beneficiary. Importance of Benami Law in Pakistan The importance of the Benami law is higher in Pakistan, arguably in most of the cases the benami transaction is taken place by

the tax evaders from the untaxed money. Consequently, in such cases the tax


evaders from untaxed money obtain the immediate and future, direct and indirect benefit of the property purchased from untaxed money and enter into a benami

transaction where the property is held by one person and the amount for it paid by another person from untaxed money. Furthermore, the name of the possible tax evader is not mentioned in the transaction, however he remains the beneficial owner

of benami property. The need of such law

was higher in Pakistan because of the fact that there is inadequate tax compliance and the tax evaders uses such untaxed money in form of benami real estate, bank accounts, stocks and shares and other forms of assets. The implication of this Act

will help the Government to take action against such properties which are purchased in the name of others (benami) from the untaxed money/income. The significance of this Act is higher in the absence of any such law to prevent the

benami transactions and Government had no power under any law to take action

against such tax evaders including charge over these benami properties that has been obtained from untaxed money. In the absence of this Act the Government had no power to take any action under the law

and could not confiscate the properties held as a result of benami transaction. Under the income tax law the ‘onus’ of proof of a benami transaction lies with the tax department. That primary concept in the taxation law cannot be disturbed.

Therefore if benami is highly prevalent its effectiveness of enforcement remains low. As against that under this Act the ‘onus’ shifts to the ‘benamidar’ to proof that property in consideration is ‘not benami’.

That can only be done under a separate benami law. Secondly, under this Act

entering into a benami transaction is a crime subject to imprisonment. That leverage is not directly available under the present income tax law. Thirdly, effective

confiscation is not possible under other laws, now there will be the possibility and this new law can be used as a tool to avoid Tax evasion. Objective of the Benami Transactions

(Prohibition) Act, 2017

This is the right move in the right direction, and in fact the need of the day. This Act will not only plug-in the legal loopholes in the current fiscal and monetary arrangements in the country but also

identifies and address the lacunas of the legal framework adopted in the financial transactions. Consequently, huge amount of monetary transactions (from the amounts generated through the corruption money, or illegal

means and sources) can be checked, monitored and penalized through the

application of this Act. Accordingly, if the person acquires the property in the name of his / her spouse or legal heirs, and could not be able to

declare the proper sources of such acquisition will be questioned through this Act, which in the prevailing legal and tax systems are out of the ambit of such questions.

The need of this Act was desirable as otherwise the huge quantum of properties created out of tax evaded money are held in benami and the Government had no right to confiscate such assets. This

Benami Act will support the Government’s efforts to curb Tax evasion.


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