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Tax Handbook 2013

An Information Guide

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This handbook aempts to come back with the various post budget queries forthcoming by our clients. We have

aempted to apprise them with a comprehensive explanaon of the implicaons and an upshot that this Finance Bill has

brought about. The handbook encompasses the amendments in the Income Tax Ordinance, Sales Tax Act, Federal Excise

Act, Customs Act and Income Support Levy Act. The applicable amendments in the laws aer enactment are effecve

from July 1, 2013 unless otherwise specified.

The commentary should be read in conjuncon with the applicable secons of respecve Ordinances, Acts and Rules

along with the text of the Finance Bill, 2013. This commentary aempts to provide a general guideline and thus should

not be considered as a conclusive and enforceable document. Professional advice should be sought before acng on any

newly introduced amendment in the Finance Bill or on our comments.

We hope that this handbook enhances your percepon of Budget 2013-2014. For beer understanding and convenience,

we have also draed a Tax Planning Guide appended to this handbook.

This handbook is the property of Horwath Hussain Chaudhury & Co. and is compiled for the exclusive use of its clients and

employees. No part of this handbook may be reproduced except with prior permission of Horwath Hussain Chaudhury

& Co.

Although best efforts have been made to ensure accuracy of the informaon in this handbook, any errors and omissions

are regreed.

Lahore

June 14, 2013

www.crowehorwath.pk

Preface

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Budget 2013-14

Salient Features of the Budget 2013-14

The salient features of the budget 2013-14 are as follows:

The total outlay of the budget 2013-14 is Rs. 3,592 billion (2012-13: Rs. 3,203 billion) showing an increase of 12%.

The resource availability during 2013-14 has been esmated at Rs. 3,010 billion (2012-13: Rs. 2,719 billion) showing

an increase of 11%.

The net revenue receipts for 2013-14 have been esmated at Rs. 1,918 billion (2012-13: Rs. 1,775 billion) indicang

an increase of 8%.

The provincial share in Federal revenue receipts during 2013-14 is esmated at Rs. 1,502 billion (2012-13: Rs. 1,459

billion) showing an increase of 3%.

The net capital receipts for 2013-14 have been esmated at Rs. 507 billion (2012-13: Rs. 478 billion) showing an

increase of 6%.

The external receipts during 2013-14 are esmated at Rs. 169 billion (2012-13: Rs. 387 billion) showing a decrease

of 56%.

The overall expenditures during 2013-14 have been esmated at Rs. 3,592 billion (2012-13: Rs. 3,203 billion) of

which the current expenditure is Rs. 2,829 billion (2012-13: Rs. 2,612 billion) and development expenditure is

Rs. 762 billion (2012-13: Rs. 591 billion) showing an increase of 8% and 29% respecvely.

The share of current expenditure is Rs. 2,830.08 billion (2012-13: Rs. 2,612 billion) which is 79% (2012-13: 82%) of

the total budgetary outlay for 2013-14.

The expenditure on General Public Services is esmated at Rs. 2,357 billion (2012-13: Rs 1,877 billion) which is 83%

(2012-13: 71%) of the current expenditures.

The size of Public Sector Development Programme (PSDP) for 2013-14 is Rs. 762 billion (2012-13: Rs. 591), while

for other development expenditures an amount of Rs. 172 billion (2012-13: Rs. 154.29 billion) has been allocated.

This shows an increase of 32% and 11% respecvely.

Provinces have been allocated an amount of Rs. 615 billion (2012-13: Rs. 513 billion) from Public Sector Development

Programme (PSDP) showing an increase of 20%.

An amount of Rs. 10 billion (2012-13: Rs.10 billion) has been allocated to Earthquake Reconstrucon and

Rehabilitaon Authority (ERRA) in the PSDP 2013-14.

Budget, 2013-14

1

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Comparave Budgetary Posion 2013-2014& 2012-2013

Receipts2013-2014 2012-2013

(Rs. In Billion) (Rs. In Billion)

Tax Revenue (FBR) 2,598.00 2,503.58

Non Tax Revenue 822.00 730.33

Gross Revenue Receipts 3,420.00 3,233.91

Less: Provincial Share in Taxes (1,502.00) (1,458.92)

Net Federal Revenue Receipts (A) 1,918.00 1,774.99

Net Capital Receipts (B) 507.00 477.78

External Resources (C) 169.00 386.87

Esmated Provincial Surplus (D) 23.00 79.55

Bank Borrowings (E) 975.00 483.81

Total Resources (A+B+C+D+E) 3,592.00 3,203.00

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Budget, 2013-14

Expenditures2013-2014 2012-2013

(Rs. In Billion) (Rs. In Billion)

General Public Services 2,357.41 1,876.84

Defence Affairs and Services 627.23 545.39

Public Order and Safety Affairs 78.60 70.16

Economic Affairs 52.26 53.64

Environment Protecon 0.92 0.74

Housing and Community Amenies 1.91 1.86

Health Affairs and Services 9.90 7.85

Recreaon, Culture and Religion 6.95 6.25

Educaon Affairs and Services 60.00 47.87

Social Protecon 1.81 1.34

Current Expenditures 3,197.00 2,611.94

Less: Foreign Loan Repayment (366.00) -

Net Current Expenditures (A) 2,831.00 2,611.94

Development Expenditure (B)

Federal Government 540.00 360.00

Provincial Government/ Net Lending 50.00 76.77

590.00 436.77

Other Development Expenditure (C) 171.00 154.29

Total Expenditures (A+B+C) 3592.00 3,203.00

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Breakup of Receipts

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Commentary

Te Finance Bill, 2013

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5

Finance Bill Highlights

Income Tax Ordinance, 2001

Dividend received by companies proposed to be taxed under FTR.Prerequisites for group taxaon and group relief enhanced.

Measures to expand tax base adopted.

Revision of income tax return has been subject to the prior approval of Commissioner.

Wealth Statement mandated for every individual return filer.

Rate of minimum tax increased from 0.5% to 1 %.

Minimum tax imposed on builders and developers.

Advance Tax to be collected by manufacturers and commercial importers on sales to Distributors, Dealers,

Wholesalers and Retailers only on businesses dealing with specified items.

A new provision requiring banking companies to furnish certain informaon to the FBR introduced.

The Directorate-General of Internal Audit and Directorate-General of Withholding Taxes renamed.

Tax rates on incomes of salaried and business individuals, and AOPs progressively increased.

The tax benefit of carry forward of unadjusted minimum tax extended to Individuals and AOPs.

Terminave Tax Holiday in Special Economic Zone extended to 10 years.

Withholding tax on payment of provincial motor vehicle tax in case of goods transport vehicles made adjustable.

Withholding tax on import of hybrid cars with engine capacity upto 1200cc exempted.

Withholding tax on import of hybrid cars with engine capacity above 1200cc reduced.

Rate of tax for non-banking companies reduced.

Scope of withholding agents on account of withholdings on rental income enlarged.

Concept of reckoning of days of default on account of delayed refunds clarified.

Definion of Business Connecon in respect of representave of a non-resident person broadened.

Powers of Commissioner for calling for record for audit purposes clarified.

Tax rates on income from property progressively increased.

An adjustable advance tax on hotels, clubs, marriage halls and restaurants introduced.

An adjustable advance tax on renewal of license and license fee of cable operators applied.

Withholding tax applied on margin financing, trading financing and lending.

Rate of withholding tax on cash withdrawals increased.

Rates of tax on motor vehicle registraon enhanced.

Withholding tax on account of supply of goods for non-corporate taxpayers increased.

A mechanism of collecon of advance tax by market commiees introduced.

An adjustable withholding tax on foreign-produced films, TV serials and plays introduced.

Rate of collecon of advance tax on aucon sale enhanced.

Collecon of advance tax by educaonal instuons to be collected along with annual fee.

Rate of withholding tax on payment of prize on prize bonds increased.

Exempon limit of withholding tax for investment in Naonal Saving Centers withdrawn.

Exempon on dividend in specie withdrawn.Reducon in tax liability available to full me teachers and researchers withdrawn.

Senior cizens tax rebate abolished.

Specific exempons granted to a Hajj Group Operators.

Rate of inial depreciaon allowance reduced.

Finance Bill Highlights

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Sales Tax Act, 1990

The rate of GST increased from 16% to 17%.Unregistered persons to be charged further GST @ 2% on taxable supplies.

Commissioner (Appeals) empowered to grant stay of maximum 30 days on hardship basis.

FBR empowered to nofy Fixed Sale Tax Schemes.

Offi cers of Inland Revenue authorized to access records, documents.

Provisions of recficaon of errors harmonized.

Mechanism of monitoring or tracking of producon, sales, stocks, etc. by electronic or other means introduced.

Federal Excise Act, 2005

Further FED at the rate of 2% on supply of excisable goods and services to be charged from unregistered persons.

Record of gate inward and outward passes and transport receipt to be maintained by the registered

person.

Commissioner (Appeals) empowered to grant stay against tax recovery.

Whistleblower reward scheme introduced.

FED on aerated beverages has increased from 6% to 9%.

Ad-valorem FED to be charged on motor vehicles at the rate of 10%.

FED on financial services expanded to all kind of financial services.

Customs Act, 1969

Transshipment of Goods Declaraon included in the Definion of Goods Declaraon.

Postdated cheque not acceptable for the purpose of payment of provisional assessment liability.

Director of Valuaon empowered to file reference before High Court.Duty on Hybrid Electric Vehicles substanally slashed.

Income Support Levy Act, 2013

Income Support Levy has been levied on persons whose net movable wealth exceeds Rs. 1 million.

Liabilies relang to moveable assets will be allowed as deducon while compung net movable wealth.

The levy is chargeable at the rate of 0.5%.

Default surcharge to be charged at the rate of 16% .

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Dividend to be Taxed under FTR for Companies Secon 8(e) (ii), 169

By virtue of proposed omission of proviso the Finance Bill, 2013 seeks to bring the dividend taxaon for corporate

taxpayers at par with non-corporate taxpayers under FTR regime. Secon 5 is the charging Secon of dividend income,

which states that dividend received by a person shall be taxed at the rate of 10% whether it is received from a resident

company, or a non-resident company. The proposed omied proviso to sub-clause (ii) of Clause (e) of Secon 8 reads as

under:

Provided that the provision of this secon shall not apply to dividend received by a company

The proviso stated hereinabove transpires that the tax deducted u/s 5 shall be final tax however it shall not apply to

dividend received by a company. Prior to Tax Year 2008, dividend income was treated as a separate block income. The

paying company had an obligaon to deduct tax @ 10% of the gross amount, and the amount so deducted was full

and final discharge of tax liability in respect of dividend income. Presently, at-source deducon is not a full and final

discharge of liability for the companies to provide cushion to investment companies; however, the normal tax rate forthat parcular source of dividend income is 10% that equalizes the tax impact in case of both regimes i.e. FTR and NTR

except investment companies.

Se ng off of Losses Anomaly Removed Secon 56(1)

The Finance Bill, 2013 seeks to remove the anomaly that has crept in under the provisions relang to se ng off of losses

and clarificaon has been proposed to be inserted that the losses can be set off under any head of income except income

under the head salary. The current provision of law generalizes that the losses arising under any head of income can be

set off in contrary to the fact that there is no concept of losses in respect of income under the head salary.

Prerequisites for Group Taxaon and Group Relief Enhanced Secon 59 AA, 59B

The Finance Bill, 2013 seeks to enhance the prerequisites for availing the schemes of group taxaon and group relief and

it has been sought that conglomerates shall have to meet the requirements prescribed under group designaon rules or

regulaons as may be specified by the Securies and Exchange Commission of Pakistan.

Scope of Definion of Company Broadened Secon 80

The Finance Bill, 2013 seeks to expand the inclusive definion of Company and the following enes have been sought

to be treated as company under the tax laws:

A non-profit organizaon

An enty or a body of persons established or constuted by or under any law for the me being in force

This move aimed to encourage the documentaon through corporazaon of certain segments of non-corporate sectors.

Assets Created out of Agricultural Income to be Explained in

Relaon to Agriculture Income vis--vis Agriculture Income Tax Secon 111

The Finance Bill, 2013 seeks to insert a proviso that spulates whereby a taxpayer explains the source of investment on

account of agricultural income; such explanaon shall be accepted to the extent of agricultural income worked back on

the basis of agricultural income tax paid under the relevant provincial law.

This is a posive iniave to tax agricultural income at least under deemed provisions of law to carve out an avenue for

taxing agricultural income by the Federal Government.


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Rate of Minimum Tax Enhanced Secon 113

The Finance Bill, 2013 seeks to enhance the tax rate of minimum tax on the turnover in the following manner:

Current Tax Rate Proposed Tax Rate

Minimum Tax 0.5% 1%

By virtue of Finance Act, 2012 the tax rate of minimum tax was reduced from 1% to 0.5%. In the wake of a recent

judgment of Sindh High Court, the FBR has recently clarified, that the reduced rate of 0.5 percent turnover tax under

Secon 113 would only be applicable for Tax Year 2013 and not for Tax Year 2012. The frequent change in the tax rate of

minimum tax is a point of grave concern for the businesses for strategizing opmal planning.

Carry Forward of Excess of Minimum Tax Over

Actual Tax Extended to Individuals and AOPs Secon 113(2)

Previously, the facility of carry forward of excess of minimum tax over actual tax was available only to companies. The

proposed amendment seeks to extend the tax benefit to individuals and AOPs also.

Fixed Tax Schemes Withdrawn Secon 113A, 113B

By virtue of the Finance Bill, 2013 the proposed substuon seeks to abolish the fixed tax schemes tabulated hereunder:

Secon 113 A Secon 113 B

Income Tax

Amount of Turn over Rate Amount of turn over Rate

Where turnover is1% of the turnover

Where turnover is upto Nil

upto Rs.5,000,000 Rs.5,000,000

Where the turnover Rs. 25000 plus 0.5%

exceeds Rs. 5,000,000 of the turnover

but does not Exceed

Rs. 10,000,000

Where the turnover Rs. 50,000 plus 0.75 %

exceeds Rs. 10,000,000 of the turnover

Sales Tax

Amount of Turn over Nil Up to Rs. 1.25 million Nil

Where turnover is More than Rs. 1.25 0.5% of turnover which is

upto Rs.5,000,000 million and up to in excess of Rs. 1.25 million

Rs. 2.50 million

More Than Rs. 2.5 million Rs. 6,250 plus 0.75% of

turnover which is in excess

of Rs. 2.5 million

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Minimum Tax on Builders Secon 113A

By virtue of proposed substuon the Finance Bill, 2013 seeks to charge minimum tax at the rate of Rs. 25 per square footas per the construcon or site plan approved by the regulatory authority.

The minimum tax to be paid under this category shall be computed on the basis of total number of square feet sold or

booked for sale during the year.

The tax paid under such category shall be minimum tax on the income of the builder from the sale of such residenal,

commercial or other building.

Minimum Tax on Land Developers Secon 113B

By virtue of proposed substuon the Finance Bill, 2013 seeks to charge minimum tax at the rate of Rs. 50 per square yard

as per the lay out or site plan approved by the relevant regulatory authority.

The tax computed under this category shall be paid on the basis of total number of square yards sold or booked for sale

during the year and the tax paid under this category shall be minimum tax on the income of the developer.

Iniaves for Tax Base Expansion Secon 114(1)(b)(viii),(ix)

Holder of commercial or industrial connecon of electricity

Presently, any person who is the holder of commercial or industrial connecon of electricity where the amount of annual

bill exceeds Rupees one million is required to file a return of total income. The proposed amendment seeks to reduce the

criteria as under:

Present Proposed

Amount of Annual Bill Amount of Annual Bill

Holder of commercial/industrial connecon of electricity Exceeding Rs. 1,000,000 Exceeding Rs. 500,000

Members of Business and Professional Bodies

Any person who is registered with the following bodies/associaons shall be required to file a return of total income:

Chamber of commerce and industry

Trade or business associaon or any market commiee

Professional body including Pakistan Engineering Council

Pakistan Medical and Dental Council

Pakistan Bar Council orProvincial Bar Council

Instute of Chartered Accountants of Pakistan

Instute of Cost and Management Accountants of Pakistan.

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In recent years there has been growing interest in abandoning the system of taxing income altogether and replacing

it with a system that taxes consumpon in the form of withholdings. To a larger extent it has opened new horizons for

the FBR and substanal amounts are being collected in this way. By now the tax policy is mainly emphasizing on thewithholding way of tax collecon and it is a major shi from the voluntary payment of taxes on incomes that is assumed

an uphill task for our tax machinery.

This shrunken tax base necessitates higher rates, therefore, the main concern of the day is higher tax rates; presently tax

rates are more than twice as high as could be that results into increasingly extra tax burdens of evaders on the exisng

taxpayers. An ideal tax system is one that taxes a wide base at lower rates. Thus the only soluon that we find in order to

reduce the tax rates lies in the broadening of tax base.

Anomaly in Basic Exempon Threshold Removed Secon 114(1A)

The Finance Bill, 2013 seeks to remove the anomaly in basic exempon threshold provided for business income by

enhancing the basic threshold for filing of tax return to Rs. 400,000.

Commissioners Approval Mandated for Revision of Tax Return Secon 114 (4) (6)

The Finance Bill, 2013 proposes to make it mandatory to seek approval of the Commissioner for revision of a tax return.

The proposed condionality has been aligned with the Sales Tax Act wherein prior approval is required from the concerned

authority for revision of sales tax return.

Salaried Individuals Having Income Less Than Rs. 500,000 Required to File Return Secon 115

The proposed omission seeks that the salaried individuals having income from salary of less than Rs. 500,000 are also

required to file return of total income.

Wealth Statement Made Mandatory For Every Individual Return Filer Secon 116(2)

In the wake of introducon of new tax under Income Support Levy Act, 2013 the proposed amendment seeks mandatory

filing of wealth statement for every individual taxpayer irrespecve of income threshold.

Investment Tax on Income Abolished Secon 120A

The proposed amendment seeks to withdraw the empowerment of the FBR to introduce investment whitening schemes

in due course of me in respect of undisclosed income represenng any amount or investment made in movable or

immovable assets.

Timeframe for Validity of Provisional Assessment Reduced Secon 122C

Presently, whereby a taxpayer files the return within the meframe of 60 days, from the date of service of provisionalassessment order, such order is treated as cancelled forthwith automacally and the return filed henceforth is deemed

as an order for that parcular tax year.

By virtue of the Finance Bill, 2013 the proposed substuon seeks to curtail the meframe for validity of provisional

assessment order from 60 days to 45 days.

Appointment Criteria of Appellate Judicial Member Enhanced Secon 130

The proposed inseron seeks that an offi cer of Inland Revenue Service and a law graduate having at least fieen years of

service in BS-17 and above can also be appointed as a Judicial Member of Appellate Tribunal.

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Deducon of Tax from Salary Secon 149

Under the exisng provisions of secon 149, every employer is required to deduct tax from payment of taxable salary toemployees. The Finance Bill, 2013 now seeks to substute the word employer with the word person responsible for

making payment of taxable salary.

The Finance Bill, 2013 now seeks to withdraw adjustment of tax withheld under other secons and tax credits on

charitable donaon, on investment in shares and insurance, on contribuon to an approved pension fund and on profit

on debt on house finance. .

Scope of Withholding Agent in respect of Payments for Goods, Services and Contracts Enlarged Secon 153(7)

By virtue of proposed inseron the Finance Bill, 2013 seeks to enhance the scope of withholding tax agent and a person

registered under the Sales Tax Act, 1990 has been added in the list of withholding tax agents.

Keeping in view Exchequers major focus on withholdings the role of withholding agents has connually been enhancedover the years and the proposed inseron would come in a larger way as every registered person under the Sales Tax Act

irrespecve of legal status and turnover basis would be required to deduct tax at source whilst making payments against

goods, services and contracts.

Advance Tax on Sales to Distributors, Dealers, Wholesalers and Retailers Secon 153A, 236G, 236H

By virtue of Finance Act, 2012 a new Secon 153A was inserted whereby every manufacturer had to collect withholding

tax @ 0.5% at the me of sale, of the gross sales to all distributors, dealers and wholesalers. FBR vide Circular 01, 2012

clarified that this adjustable withholding tax was chargeable on the gross sales to all dealers, distributors and wholesalers

irrespecve of whether they were registered or unregistered taxpayers under Income Tax or Sales Tax and also the gross

sales were inclusive of Sales Tax and Federal Excise Duty and any trade discount shown on the invoices or bills.

FBR issued SRO1487 (I)/2012 to suspend the applicability of Secon 153A ll June 30, 2013. Under the noficaon, in

exercise of powers conferred under secon 53(2) a new clause 80 has been added to Part IV of the Second Schedule to

the Income Tax Ordinance, 2001. The provisions of Secon 153A of the Income Tax Ordinance, 2001 shall not apply to

any manufacturer ll June 30, 2013, the noficaon added.

The Finance Bill, 2013 seeks to omit the Secon 153A altogether provide relief to traders and distributors in general.

By virtue of the Finance Bill, 2013 the proposed Secon 236G and Secon 236H raonalizes advance tax on sales to

distributors, dealers, wholesalers and retailers dealing in specific lines of businesses. The Finance Bill, 2013 seeks to

collect advance tax by every manufacturer or commercial importer of:

Electronics

SugarCement

Iron and steel products

Ferlizer

Motorcycles

Pescides

Cigarees

Glass

Texle

Beverages

Paint

Foam sector

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The above-said advance tax shall be collected from distributors, dealers, wholesalers at the rate of 0.1% of the gross

amount of sales and from retailers at the rate of 0.5% of the gross amount of sales at the me of making sales to themand shall be adjustable against tax liability of these persons.

Scope of Withholding Agents in respect of Rental Income Enlarged Secon 155(3)

The Finance Bill, 2013 seeks to specify the following persons as withholding agents, in addion to persons alreadyspecified in secon 155(3), for collecon of tax at the me of making payment in respect of rent.

a charitable instuon,a private educaonal instuon, a bouque, a beauty parlour, a hospital, a clinic or a maternity home,individuals or associaon of persons paying gross rent of Rupees 1.5 million or above.

Divulgence of Informaon regarding Filing of Withholding Tax Statements Secon 165

The Finance Bill, 2013 seeks to amend the scope of secon 165 conferring powers therein to override laws restricngfor divulgence of informaon. In the wake of proposed amendments the Banking Companies shall be required to file

withholding tax statements furnishing informaon required thereof despite of the fact the Banking Companies Ordinance,1962 requires otherwise.

FBR Empowered to Call for Specific Informaon from Banks Secon 165 A

The Finance Bill, 2013 seeks to insert a new secon in Income Tax Ordinance, 2001, which embark upon banking companieswith certain responsibilies and the banking companies are required to provide the following informaon to the FBR:

online access to its central database containing details of its account holders and all transacons made in theiraccounts.a list containing parculars of deposits aggregang Rupees one million or more made during the preceding calendarmonth.a list of payments made by any person against bills raised in respect of a credit card issued to that person aggregangto Rupees one hundred thousand or more made during the preceding calendar month.A consolidated list of loans wrien off exceeding Rupees one million or more made during the preceding calendar

month.A copy of each Currency Transacons Report and Suspicious Transacons Report generated and submied by it tothe Finance Monitoring Unit under the An-Money Laundering Act, 2010.

Banking Companies are also required to nominate a senior offi cer at head offi ce to coordinate with the FBR. BankingCompanies and their offi cers shall not be liable to any civil, criminal or disciplinary proceedings against them for furnishinginformaon required under this Ordinance. All informaon received under this secon shall be kept confidenal and shallbe used only for tax purposes.

Timelines regarding Claim of Compensaon on Delayed Refund Clarified Secon 171

The Finance Bill, 2013 seeks to explain the reckoning of days of default on account of delayed refunds for compensaonclaim with effect from the date of order of refund by the Commissioner rather than from the date the deemed assessmentis treated as made by the Commissioner as envisaged under the provisions of Secon 120.

Definion of Business Connecon Broadened Secon 172

By virtue of Finance Bill, 2013 the proposed inseron seeks to broaden the definion of business connecon in relaonto a non-resident person vis--vis a representave and the inclusive definion of business connecon includes transferof an asset or business in Pakistan by a non-resident.

Commissioner Empowered to Call for Informaon and Record for Audit Purposes Independently Secon 177

The Finance Bill, 2013 seeks to insert an explanaon wherein the Commissioner is empowered to select a person for audit

irrespecve of the fact that the Board is also empowered to do so under secon 214C.

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Permission to Use CNIC in place of NTN Allowed Secon 181

Secon 181 requires a person to apply to Commissioner for registraon as a taxpayer. The Commissioner on receiving anapplicaon shall register the person and issue Naonal Tax Number. The Finance Bill, 2013 seeks to add a proviso wherebyan individual would be allowed to use his CNIC in place of his Naonal Tax Number for taxpayer registraon purposes.

Displaying of Naonal Tax Number Secon 181C

The Finance Bill, 2013 seeks to bind a person, deriving income taxable under the Income Tax Ordinance, 2001, to displayhis NTN conspicuously at every place of his business.

Offences and Penales Raonalized Secon 182

The Finance Bill, 2013 seeks to make certain changes in the exisng offences and penales chargeable to a taxable personand also seeks to introduce certain new penales as under:

Sr. No.

1

1A.

1AA.

Offences

Where any person

fails to furnish a

return of income

as required under

secon 114 within

the due date

Where any person

fails to furnish astatement as required

under secon 115,

165 or 165A within

the due date

Where any person

fails to furnish

wealth statement or

wealth reconciliaon

statement

Change Proposed by the Finance Bill, 2013

Penales

Such person shall pay a

penalty equal to 0.1% of the

tax payable in respect of that

tax year for each day of default

subject to a maximum penalty

of 50% of the tax payable

provided that if the penaltyworked out as aforesaid is less

than Rs. 20,000 or no tax is

payable for that tax year such

person shall pay a penalty of

Rs. 20,000


penalty of Rs. 2,500 for eachday of default subject to

a minimum penalty of Rs.

50,000


penalty of Rs. 100 for each

day of default

Secon of theOrdinance to

which the offence

has reference

114 and 118

115, 165 and

165A

114, 115 and 116

Synopsis of Change Proposed

by the Finance Bill, 2013

Reference to secon 115, wealth

statement, wealth statement

reconciliaon, secon 120,

secon 121, secon 122, secon

122C and secon 165 is abolished.

Penales of offences pertaining

to requirements of secon 115and 165 taken to serial numbers

1A and 1AA. Minimum penalty

is raised from Rs. 5,000 to Rs.

20,000. Maximum penalty is

raised from 25% of the tax

payable to 50% of the tax payable.

For those persons having no tax

payable in the year but violang

this secon, a penalty of Rs.

20,000 is introduced.

New serial number introduced by

the Finance Bill, 2013

New serial number introduced by

the Finance Bill, 2013

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Sr. No.

8

9

16

Offences

Where a taxpayer

who, without any

reasonable cause,

in non- compliance

with the provisions of

secon 177

fails to produce the

record or documents

on receipt of first

noceFails to produce the

record or documents

on receipt of second

noce

Fails to produce the

record or documents

on receipt of third

noce

Any person who

fails to furnish the

informaon required

or to comply withany other term of the

noce served under

secon 176

Any person who

fails to display NTN

cerficate at the

place of business

as required under

this Ordinance or

the rules made

thereunder

Penales


penalty of Rs. 25,000






penalty of Rs. 25,000 for the

first default and Rs. 50,000 for

each subsequent default



Secon of the

Ordinance to

which the offence

has reference

177

176

181C

Synopsis of Change Proposed


The Finance Bill, 2013 does not

seek to make any amendment in

the exisng regulaons; it only

seeks to enhance the penales

as under:

For first failure from Rs. 5,000

to Rs. 25,000

For second failure from Rs.

10,000 to Rs. 50,000

For third failure from Rs.50,000 to Rs. 100,000

The Finance Bill, 2013 does not

seek to make any amendment in

the exisng regulaons; it only

seeks to enhance the penalesas under:

For first default the penalty is

enhanced from Rs. 5,000 to Rs.

25,000

For second default the penalty is

enhanced from Rs. 10,000 to Rs.

50,000

New serial number introduced


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Hierarchical Arrangement for Delegaon of Powers Secon 210

The Finance Bill, 2013 seeks to clarify the term offi cer to whom the Commissioner can delegate authority. It seeksto specify Addional Commissioner, Deputy Commissioner and Assistant Commissioner as authories to whom the

Commissioner would be allowed to delegate his powers.

Audit Selecon Criteria to be Kept Confidenal Secon 214C

The Finance Bill, 2013 seeks to enhance the powers of the FBR regarding the cases selected for tax audits. It proposes

the FBR to keep the parameters of selecng cases for tax audit secret. It proposes to empower the Commissioner under

secon 177 by making his powers independent of the powers of the FBR and by enabling him to call records or documents

or books of accounts of a taxpayer for audit without any restricon.

Whistleblower Rewards Introduced Secon 227A

The Finance Bill, 2013 seeks to introduce a new secon whereby informers and offi cers and offi cials of the Inland Revenueproviding credible informaon regarding the cases involving concealment or evasion of income tax and other taxes shall

be sanconed cash rewards. It seeks to sancon this reward only aer the realizaon of taxes involved in these cases,

wholly or partly. The Finance Bill, 2013 proposes to prescribe the procedure of reward sancon through noficaon in

the offi cial Gazee.

Nomenclature of Directorates Changed Chapter XI Part II & Part III

The Finance Bill, 2013 seeks to rename the Directorate-General of Internal Audit and Directorate-General of

Withholding Taxes as Directorates-General.

Inducon of New Directorates Secon 230B & Secon 230C

The Finance Bill, 2013 seeks to introduce two new directorates i.e. Directorate-General of Law and Directorate-General of

Research and Development. It also proposes that these directorates shall consist of their respecve director generals and

may have as many addional directors, deputy directors, assistant directors and other offi cers as the Board may appoint

by noficaon in the offi cial Gazee.

Margin Financiers, Trading Financiers and Lenders Included in the Tax Net Secon 233AA

The Finance Bill, 2013 seeks to include margin financiers, trading financiers and lenders in the tax net by proposing

NCCPL to collect advance tax from such persons on providing margin financing, margin trading or securies lending

under Securies (Leveraged Markets and Pledging) Rules, 2011 in share business. The Finance Bill, 2013 also proposes

that such tax shall be deducted at the rate of 10% of profit, mark-up or interest earned by the member, margin financier

or securies lender.

Tax on Motor Vehicles Secon 234

The Finance Bill, 2013 proposes to collect the motor vehicle tax in lump sum as well; previously this is being charged

on annual basis. In concurrence with this proposal, the rates of collecon of motor vehicle tax in lump sum have been

proposed to be as under:

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Cylindrical capacity Amount of Tax (in Rupees)

Upto 1,000cc 7,5001,001cc to 1,199cc 12,500

1,200cc to 1,299cc 17,500

1,300cc to 1,599cc 30,000

1,600cc to 1,999cc 40,000

2,000cc and above 80,000

It also proposes that advance tax collected under this secon to be adjustable

Advance Tax on Funcons and Gatherings Secon 236D, First Schedule Part IV Division XII

The Finance Bill, 2013 proposes to collect advance tax from a person arranging or holding a funcon in a marriage hall,marquee, hotel, restaurant, commercial lawn, club, a community place or any other place used for such purpose. It is also

proposed that if food, service or any other facility is provided by any other person, advance tax shall also be collected on

payment against such food, service or facility. This secon proposes to collect advance tax at the rate of 10% of the total

amount of the bill from the person arranging this funcon.

The Finance Bill, 2013 seeks to clarify that owner, lease-holder, operator or manager of such marriage hall, marquee,

hotel, restaurant, commercial lawn, club, the community place or any place used for such purpose shall be the withholding

agent. It also explains that funcons on which this advance tax shall be levied include wedding-related events, seminars,

workshops, sessions, exhibions, concerts, shows, pares or any gatherings held for such purpose.

Advance Tax on Foreign-Produced Films TV Plays and Serials Secon 236E First Schedule Part IV Division XII

The Finance Bill, 2013 seeks to levy advance tax, adjustable in nature, on foreign-produced films, TV plays and serials to be

collected by a person responsible for censoring or cerfying these foreign contents at the me of censoring or cerfying.

The Finance Bill, 2013 seeks to introduce advance tax on foreign-produced films and TV plays, at the following rates:

Parculars Amount of Tax (in Rupees)

Foreign-produced film 1,000,000

Foreign-produced TV drama serial 100,000 per episode

Foreign-produced TV play 100,000 per episode

Advance Tax on Cable Operators and Other Electronic Media Secon 236F, First Schedule Part IV Division XIII Para (1)

The Finance Bill, 2013 purposes to collect advance tax, adjustable in nature, by Pakistan Electronic Media Regulatory

Authority (PEMRA) at the me of issuance of license for distribuon services or renewal of license to a licensee.

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The Finance Bill, 2013 seeks to introduce withholding tax to be collected from Cable Television Operators, at the following

rates:

License Category Tax on License Fee Tax on Renewal

as provided in (Rupees) (Rupees)

PEMRA Rules 2009

H 7,500 10,000

H-1 10,000 15,000

H-2 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 75,000B-4 75,000 100,000

B-5 87,500 150,000

B-6 175,000 200,000

B-7 262,500 300,000

B-8 437,500 500,000

B-9 700,000 800,000

B-10 875,500 900,000

Collecon of Advance Tax by Educaonal Instuons Secon 236I

The Finance Bill, 2013 purposes to collect advance tax at the rate of 5% of the amount of fee paid to an educaonal

instuon, to be collected by the person preparing fee voucher or challan. The above tax shall be collected only where

annual fee exceeds two hundred thousand rupees (Rs. 200,000) and shall be adjustable against the tax liability of parents

or guardians.

Advance Tax on Dealers, Commission Agents and Arhas Secon 236J, First Schedule Part IV Division XVII

The Finance Bill, 2013 seeks to collect advance tax from dealers, commission agents or arhas, by every market commiee,

which will be treated as adjustable tax.

The Finance Bill, 2013 also introduces an inclusive definion of market commiee which states market commiee

includes any commiee or body formed under any provision or local law made for the purposes of establishing, regulang

or organizing agricultural, livestock and other commodity markets.

The Finance Bill, 2013 seeks to introduce advance tax on dealers, commission agents and arhas at the following rate:

Group

Amount of Tax

(Rupees)

Group or Class A 10,000

Group or Class B 7,500

Group or Class C 5,000

Any other category 5,000

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First Schedule

Rates of Tax for Individuals, Other than the Salaried Class, and Associaon of Persons Part I Division I Clause 1

The Finance Bill, 2013 seeks to increase slabs applicable on Individuals and AOPs other than salaried individuals. Exisng

5 slabs are proposed to be enhanced to 7 as under:

Current Rates of Tax for Individuals and AOPs

Applicable on Taxable income

Taxable income not exceeding Rs.

400,000

Taxable income exceeding Rs.

400,000 but not exceeding Rs.

750,000



1,500,000


1,500,000 but not exceeding Rs.

2,500,000


2,500,000

-

-


400,000



750,000



1,500,000



2,500,000



4,000,000



6,000,000


6,000,000

0%

10% of the amount

exceeding Rs.

400,000

Rs. 35,000 + 15%

of the amount

exceeding Rs.

750,000

Rs. 147,500 + 20%

of the amount

exceeding Rs.

1,500,000

Rs. 347,500 + 25%

of the amount

exceeding Rs.

2,500,000

-

-

0%

10% of the amount

exceeding Rs.

400,000

Rs. 35,000 + 15%

of the amount

exceeding Rs.

750,000

Rs. 147,500 + 20%

of the amount

exceeding Rs.

1,500,000

Rs. 347,500 + 25%

of the amount

exceeding Rs.

2,500,000

Rs. 722,500 + 30%

of the amount

exceeding Rs.

4,000,000

Rs. 1,322,500 +

35% of the amount

exceeding Rs.

6,000,000

Proposed Rates of Tax for Individuals and AOPs


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Rates of Tax for Salaried Taxpayers Part I Division I Clause 1A

The Finance Bill, 2013 seeks to increase the slab rates applicable on salaried individuals. Exisng 5 slabs are proposed tobe enhanced to 12 as under:

Current Rates of Tax for Salaried Taxpayers



400,000



750,000



1,500,000



2,000,000



2,500,000


2,500,000.

-

-

-


400,000



500,000



800,000



1,300,000



1,800,000



2,200,000



2,600,000

Taxable income exceeding Rs.2,600,000 but not exceeding Rs.

3,000,000



3,500,000

0%

5% of the amount

exceeding Rs.

400,000

Rs. 17,500 + 10%

of the amount

exceeding Rs.

750,000

Rs. 95,000 + 15%

of the amount

exceeding Rs.

1,500,000

Rs. 175,000 + 17.5%

of the amount

exceeding Rs.2,000,000

Rs. 420,000 + 20%

of the amount

exceeding Rs.

2,500,000

-

-

-

Proposed Rates of Tax for Salaried Taxpayers


0%

5% of the amount

exceeding Rs.

400,000

Rs. 5,000 + 7.5%

of the amount

exceeding Rs.

500,000

Rs. 27,500 + 10%

of the amount

exceeding Rs.

800,000

Rs. 77,500 + 12.5%

of the amount

exceeding Rs.1,300,000

Rs. 140,000 + 15%

of the amount

exceeding Rs.

1,800,000

Rs. 200,000 + 17.5%

of the amount

exceeding Rs.

2,200,000

Rs. 270,000 + 20%of the amount

exceeding Rs.

2,600,000

Rs. 350,000 + 22.5%

of the amount

exceeding Rs.

3,000,000

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Current Rates of Tax for Salaried Taxpayers


-

-

-

Taxable income exceeding Rs.3,500,000 but not exceeding Rs.

4,000,000



7,000,000


7,000,000

-

-

-

Rs. 462,500 + 25% ofthe amount exceeding

Rs. 3,500,000

Rs. 587,500 + 27.5% of

the amount exceeding

Rs. 4,000,000

Rs. 1,412,500 + 30% of

the amount exceeding

Rs. 7,000,000

Proposed Rates of Tax for Salaried Taxpayers


Taxability of Salary Income

Tax liability Average Tax Rate

Sr. No. TaxablePre-Budget Post Budget

IncreasePre-Budget Post Budget

Salary /(Decrease)

Rs. Rs. Rs. Rs. % %

1 400,000 0 0 0 0% 0%

2 500,000 5,000 5,000 0 1.00% 1.00%

3 800,000 22,500 27,500 5,000 2.81% 3.44%

4 1,300,000 72,500 77,500 5,000 5.58% 5.96%

5 1,800,000 140,000 140,000 0 7.78% 7.78%

5 2,200,000 210,000 200,000 (10,000) 9.55% 9.09%

7 2,600,000 440,000 270,000 (170,000) 16.92% 10.38%

8 3,000,000 520,000 350,000 (170,000) 17.33% 11.67%9 3,500,000 620,000 462,500 (157,500) 17.71% 13.21%

10 4,000,000 720,000 587,500 (132,500) 18.00% 14.69%

11 7,000,000 1,320,000 1,412,500 92,500 18.86% 20.18%

12 7,000,000 1,360,000 1,472,500 112,500 19.43% 21.04%

Tax liability has been worked out without taking into account marginal relief.

GraphicalRepresentaon

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Rate of Tax for Companies Part I Division II Clause (i)

The Finance Bill, 2013 seeks to reduce tax on the taxable income of companies, other than banking companies, to 34%for the tax year 2014.

Rate of Tax on Income from Property Part I Division VI Paragraph (a)

The Finance Bill, 2013 seeks to increase the tax rate slabs applicable on individuals and AOPs. Exisng 4 slabs are proposed

to be enhanced to 7 as under:

Current Rates of Tax for Individuals and AOP

Applicable on Gross Amount of Rent

Gross amount of rent

not exceeding Rs. 150,000

Gross amount of rent exceeding

Rs. 150,000 but not exceeding Rs.

400,000



1,000,000


Rs. 1,000,000

-

-

-

Gross amount of rent not

exceeding Rs. 150,000



400,000



1,000,000


Rs. 1,000,000 but not exceeding

Rs. 2,000,000



Rs. 3,000,000



Rs. 4,000,000


Rs. 4,000,000

Nil

5% of the gross

amount exceeding

150,000

Rs. 12,500 plus 7.5%

of the gross amount

exceeding 400,000

Rs. 57,500 plus 10%

of the gross amount

exceeding 1,000,000

-

-

-

Nil

5% of the gross

amount exceeding

150,000

Rs. 12,500 plus 7.5%

of the gross amount

exceeding 400,000

Rs. 57,500 plus 10%

of the gross amount

exceeding 1,000,000

Rs. 157,500 plus

12.5% of the gross

amount exceeding

2,000,000

Rs. 282,500 plus 15%

of the gross amount

exceeding 3,000,000

Rs. 432,500 plus

17.5% of the gross

amount exceeding

4,000,000

Proposed Rates of Tax for Individuals and AOP

Applicable on Gross Amount of Rent

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Rates of Tax on Payments for Rendering of Services Part III Division III Para 2

Subpara (ii)

The Finance Bill, 2013 seeks to differenate advance tax on payment for rendering of services, other than transportaon,

in the following case:

(a) 6% of the gross amount payable in the case of companies

(b) 7% of the gross amount payable in the case of other taxpayers

Rates of Tax on Payments for Execuon of Contracts Part III Division III Para 3

The Finance Bill, 2013 seeks to deduct tax at source deducted tax at source on payment for execuon of contracts, other

than contracts for sale of goods or rendering of services at the rate of 6% and the rate of 6.5% for other taxpayers.

Rate of Tax on Prizes and Winnings Part III Division VI Paragraph (1)

The Finance Bill, 2013 seeks to increase the rate of tax to be deducted on prize on a prize bond or cross word puzzle from

10% to 15% of the gross amount paid.

Collecon of Tax by a Stock Exchange registered in Pakistan Part IV Division IIA

The Finance Bill, 2013 seeks to omit tax on financing of carry over trades (Badla) @ 10% of the carry over charge tax.

Collecon of Tax by NCCPL Part IV Division IIB

The Finance Bill, 2013 seeks to introduce advance tax to be collected from the members of stock exchange by Naonal

Clearing Company of Pakistan Limited at the rate of 10% of profit, markup or interest earned by the member, margin

financier or securies lender.

Rates of Collecon of Tax on Motor Vehicles in Lump sum Part IV Division III Para (4)

The Finance Bill, 2013 seeks to collect tax on private motor vehicles in lump sum at the following rates:

Engine Capacity Amount of Tax in Rupees

Upto 1,000 cc 7,500

1001 cc to 1199 cc 12,500

1200 cc to 1299 cc 17,500

1300 cc to 1599 cc 30,000

1600 cc to 1999 cc 40,000

2,000 cc and above 80,000

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Rate of Collecon of Tax on Cash Withdrawal from a Bank Part IV Division VI

The Finance Bill, 2013 seeks to increase tax on cash withdrawal from a bank from 0.2% to 0.3% of the amount withdrawn.

Rate of Payment of Tax on Purchase of Motor Vehicles Part IV Division VII

The Finance Bill, 2013 seeks to increase rate of advance tax on purchase of private motor cars and jeeps. Proposed rates

are as follows:

Engine Capacity Amount of tax

Upto 850cc Rs. 10,000

851cc to 1000cc Rs. 20,000

1001cc to 1300cc Rs. 30,000

1301cc to 1600cc Rs. 50,000

1601cc to 1800cc Rs. 75,0001801cc to 2000cc Rs. 100,000

Above 2000cc Rs. 150,000

Rate of Advance Tax at the Time of Sale by Aucon Part IV Division VIII

The Finance Bill, 2013 seeks to increase the rate of collecon of tax, at the me of sale by aucon, from 5% to 10% of the

gross sale price of any property or goods sold by aucon.

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Tax to be collected from Cable Television Operator Part IV Division XIII Para (2)

The Finance Bill, 2013 seeks to introduce withholding tax on provision of other distribuon services, at the followingrates:

Type of Channel as Tax on Issuance Tax on

Provided in PEMRA of License Renewal

Rules 2009 (Rupees) (Rupees)

IPTV 100,000 1,000,000

FM Radio 100,000 100,000

MMDS 200,000 100,000

Mobile TV 100,000 50,000

Satellite TV Staon

News/Current Affairs 1,000,000 2,000,000

Sports 1,000,000 1,000,000

Regional Language 700,000 700,000

Health or Agro 300,000 300,000

Educaon 300,000 300,000

Entertainment 1,000,000 1,000,000

Specialized Subject Staon 500,000 200,000

Landing Rights per Channel

News/Current Affairs 1,000,000 5,000,000

Sports 500,000 2,500,000

Educaonal 200,000 1,000,000

Entertainment 200,000 2,000,000

Children 350,000 1,500,000

Advance Tax on Sale to Distributors, Dealers or Wholesalers Part IV Division XIV

The Finance Bill, 2013 seeks to introduce advance tax on sale to distributors, dealers or wholesalers at the rate of 0.1%

of the gross amount of sales.

Advance Tax on Sale to Retailers Part IV Division XV

The Finance Bill, 2013 seeks to introduce advance tax on sale to retailers at the rate of 0.5% of the gross amount of sales.

Collecon of Advance Tax by Educaonal Instuons Part IV Division XVI

The Finance Bill, 2013 seeks to introduce collecon of advance tax by educaonal instutes at the rate of 5% of the

amount of fee whereby annual fee exceeds Rs. 200,000.

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Second Schedule

Exempons & Tax Concessions

The Second Schedule relates to specific exempons granted in respect of total income; reducon in tax rates; reducon

in tax liability and exempon from specific provisions. The Finance Bill, 2013 proposes to withdraw, exempt or extend the

scope of exempon in respect of following sources of income:

Part I

Exempons from Total Income

Exempon on Free and Concessional Passage Withdrawn Clause (53A (i))

The Finance Bill, 2013 seeks to withdraw exempon on free or concessional passage provided by transporters including

airlines to its employees (including members of their household and dependents)

Exempon on Income of any University or Other Educaonal Instuon Withdrawn Clause (92)

The Finance Bill, 2013 seeks to withdraw exempon on any income of any university or other educaonal instuon

established solely for educaonal purposes and not for purpose of profit.

Exempon on Dividend in Specie Withdrawn Clause (103B)

The Finance Bill, 2013 seeks to withdraw exempon on income from dividend in specie derived in the form of shares in

a company.

Grant of Tax Holiday to a Zone Enterprise and a Developer Clause (126E)

The Finance Bill, 2013 seeks to extend exempon of tax on income derived by a zone enterprise from five years to ten

year starng from the date the developer cerfies that the zone enterprise has commenced commercial operaon and to

a developer for a period of ten year from the date of signing of the development agreement in the special economic zone

as announced by the Federal Government.

Part II

Reducon in Tax Rates

Reduced Rate of Tax on Imports Clause (28)

The Finance Bill, 2013 seeks to reduce the rate of tax under secon 148 on import of hybrid cars as follows:

Engine Capacity Rate of Reducon

Up to 1200 cc 100%

1201 to 1800 cc 50%

1801 to 2500 cc 25%

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The above-cited exempon shall be available if the tax has been paid in respect of income from Hajj operaons:

@ Rs. 3,500 per Hajji for the Tax Year 2013@ Rs. 5,000 per Hajji for the Tax Year 2014

Exempon of Withholding Tax at Import Stage to Industrial Undertakings Clause (72B)

The Finance Bill, 2013 seeks to provide exempon from tax on import of raw material by industrial undertakings

consequent upon the payment of tax liability for the current tax year on the basis of tax liability for any of the preceding

two tax years, whichever is higher, and approval of the Commissioner by way of a cerficate.

Third Schedule

Depreciaon

Part II

Reducon in Inial Depreciaon Allowance Clause (1)

The Finance Bill, 2013 seeks to reduce rate of inial depreciaon from 50% to 25%.

Seventh Schedule

Reducon in Rate of Tax on Dividend from Certain Funds Rule 6

The Finance Bill, 2013 seeks to freeze the rate of tax on dividend received by a banking company from Money Market

Funds and Income Funds @ 25% for the Tax Year 2013 onwards.

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Sales Tax Act, 1990

CREST-Computerized Risk-Based Evaluaon Program Defined Secon 2(5AC), 8

CREST is an acronym of Computerized Risk-based Evaluaon of Sales Tax and this soware has recently been launched

by the FBR for analyzing and cross-matching of sales tax returns. CREST soware checks informaon in monthly returns,

import and export data and cross matches for every registered person. The CREST system has an in-built capacity to

verify the veracity of reply received from the registered person. CREST system is designed for Sales Tax and is based on

declaraons and covers areas as purchases including Input tax adjustment of buyers and suppliers; Zero Rated Sales to

registered person with non-acve ATL or blacklisted or suspended Sales Tax Registraon Numbers.

The proposed inseron seeks to include the definion of CREST to align implementaon of the program under the

provisions of tax laws.

The Finance Bill, 2013, proposes to introduce new clauses in order to disallow adjustment on the basis of discrepancies

indicated by CREST or where input tax is not verifiable in the supply chain.

Provincial Sales Tax for Input Tax Adjustment Redefined Secon 2(22A)

Provincial sales tax redefined as tax levied under provincial laws or laws relang to Islamabad Capital Territory, which are

declared by the Federal Government through noficaon in the offi cial Gazee, to be provincial sales tax for the purpose

of input tax.

Supply Chain Concept Reinforced Secon 2(33A)

By virtue of the proposed amendment the Finance Bill, 2013 seeks to insert the definion of supply chain as the series of

transacon between buyers and sellers from the stage of first purchase or import to the stage of final supply.

The VAT mode taxaon is applied under thorough supply chain. VAT taxes all sales, whether wholesale or retail, but

allows registered traders to deduct the tax charged on their inputs. It is therefore a tax on the value added at each stageof the producon process. The value of the final product is the total of the value added at each stage of producon.

Consequently, the tax is in effect imposed on the value of the final product but is collected in small chunks from each link

in the supply chain.

Concept of Time of Supply Clarified Secon 2(44)

The definion of me of supply is proposed to be amended and the Finance Bill, 2013seeks that me of supply shall be

considered the me of delivery of goods or me when any payment is received by the supplier in respect of that supply,

whichever is earlier. The Bill proposes to insert a proviso that where any part payments is received:

for the supply in a tax period, it shall be accounted for in the return for that tax period; and

in respect of exempt supply, it shall be accounted for in the return for the tax period during which the exempon

is withdrawn from such supply.

Sales Tax Act, 1990

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Rate of GST Enhanced Secon 3(1)

The Finance Bill, 2013 proposes to increase the rate of sales tax in the following manner:

Present Rate of GST Proposed Rate of GST

For Registered Persons 16% 17%

For unregistered Persons 16% 19%

The Finance Bill, 2013 seeks to insert a new provision by which un-registered person would be charged 2% addional

sales tax.

The Bill proposes that the FBR may levy and collect tax on fixed basis or on the producon capacity of plants, machinery,

undertaking, establishments or installaons producing or manufacturing such goods instead of levying tax at the general

rate of tax.

Comissioner Empowered to Block Refunds

or Input Tax Adjustment Secon 21

The Finance Bill, 2013 proposes to block sales tax refund or Input Tax credit of a registered person who is engaged in the

any of the following pracces:

Issuing fake or flying invoices

Claiming fraudulent input tax or refunds

Does not physically exist

Not conducng actual business

Commi ng any other fraudulent acvity

It further proposes to invesgate the affairs of such person through the concerned Commissioner having jurisdicon for

further invesgaon and iniate appropriate legal acon.

Scope of Maintaining of Record Enlarged Secon 22(1)(ea)

The Finance Bill, 2013 proposes to make it mandatory to maintain the following further record:

Inward and outward gate passes

Transport receipts as legal document

Delegaon of Powers of Authories to Access to Premises and Record Extended Secon 25

The Finance Bill, 2013 seeks to insert explanaon for removal of doubt regarding powers of Board, Commissioner andoffi cer of Inland Revenue. Through the introducon of this explanaon, the powers of the Commissioner and offi cer of

the Inland Revenue shall be independent of the powers of the Board and that the Board, Commissioner or the offi cer of

the Inland Revenue shall be authorized to have access to premises, stocks, accounts and records etc.

Posng of Inland Revenue Offi cer Delegated to Chief Commissioner Secon 40B

The Finance Bill, 2013 seeks to amend this secon to equate powers of the Board and Chief Commissioner regarding

posng of Offi cers or offi cials of Inland Revenue to business premises for monitoring.

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Sales Tax Act, 1990

Monitoring or Tracking by Electronic or Other Means Secon 40C

The Finance Bill, 2013 proposes to empower the Board for monitoring or tracking by electronic or other means the

producon, sales, clearance of stocks or any other related acvity of any registered persons and it further restricts that

no taxable goods shall be removed without affi xing tax stamp, banderole, sckers, labels etc. in any such form, style and

manner as may be prescribed by the Board in this behalf.

Commissioner Appeals Empowered to Grant Stay against Tax Recovery Secon 45B (1A)

The Finance Bill, 2013, seeks to allow Commissioner (Appeals) to grant stay of maximum 30 days from the recovery of tax

levied under the Sales Tax Act, 1990; if such collecon brings undue hardship to the taxpayer.

Procedure of Recficaon of Mistakes Raonalized Secon 57

The Finance Bill, 2013, seeks to amend this secon to harmonize the concept of recficaon of mistake on the lines ofIncome Tax Ordinance, 2001. Now Commissioner, Commissioner (Appeal) or the Appellate Tribunal may by an order in

wring amend any order in order to recfy the mistake apparent from record.

Whistleblower Reward to Inland Revenue Offi cers and Offi cials Secon 72C

The Finance Bill, 2013 seeks to insert new secon to allow provision of reward to offi cers and offi cials of Inland Revenue in

case of detecon of concealment and evasion of sales tax. This provision of law is also in line with the proposed provisions

in the Income Tax Ordinance, 2001.

Change of Bank Accounts for Registered Persons Allowed

only Through Sales Tax Registraon Process Secon 73

In an aempt to reinforce the transparent documentaon process by the registered persons, the Finance Bill, 2013, seeks

to amend explanaon of secon 73 to prescribe change in bank account through sales tax registraon form or through

change in parculars in registraon database.

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32

Third Schedule

Sales tax chargeable on retail price

The Finance Bill, 2013 seeks to add items in the Third Schedule of the Act to charge sales tax on retail price basis on the

Sr.

No

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

Sr. No in

the Table

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

Heading Nos. of the First Schedule to the

Customs Act, 1969 (IV of 1969)

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Respecve headings

Descripon

Finished or made-up arcles of texle andleather, including garments, footwear, and bedware, sold in retail packing

Household electrical goods, including air

condioners, refrigerators, deep freezers,televisions, recorders and players, electricbulbs, tube-lights, fans, electric irons, washingmachines and telephone sets

Household gas appliances, including cookingrange, ovens, geysers and gas heaters

Foam or spring maresses, and other foamproducts for household use

Auto parts and accessories sold in retail packing

Lubricang oils, brake fluid, transmission fluid,and other vehicular fluids and maintenanceproducts in retail packing

Tyres and tubes

Storage baeries

Arms and ammunion

Paints, distempers, enamels, pigments, colours,varnishes, gums, resins, dyes, glazes, thinners,blacks, cellulose lacquers and polishes sold inretail packing

Ferlizers

Cement sold in retail packing

Tiles sold in retail packing

Biscuits, confeconary, chocolates, toffees andcandies

Other goods and products sold in retail packing

following items:

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Sales Tax Act, 1990Sixth Schedule

Table 1(Exempted Goods)

Notable Noficaons

SRO 501(I)/2013

The SRO seeks to exempt the import and supplies of the following goods from sales tax; previously these were charged as

zero rated through SRO 549(I)/2008:

Sr. Descripon PCT Heading

No

1 Uncooked poultry meat 2.072 Milk and cream 04.01 and 04.02

3 Flavored milk 0402.9900 and 22.02

4 Yogurt 403.10005 Whey 4.04

6 Buer 405.1000

7 Desi ghee 405.9000

8 Cheese 406.1010

9 Processed cheese not grated or powdered 406.3000

10 Coon seed 1207.2000

11 Frozen, prepared or preserved sausages and

similar products of poultry meat or meat offal 1601.0000

12 Meat and similar products of prepared frozen or 1602.3200, 1602.3900, 1602.5000,

preserved meat or meat offal of all types including 1604.1100, 1604.1200, 1604.1300,

poultry meat and fish 1604.1400, 1604.1500, 1604.1600,

1604.1900, 1604.2010,1604.2020, 1604.2090,

1604.3000

13 Preparaons for infant use, put up for retail sale 1901.1000

14 Fat filled milk 1901.9090

15 Soyabean meal 2304.0000

16 Oil cake and other solid residues, whether or

not ground or in the form of pellets 2306.1000

17 Colours in sets 3213.1000

18 Wring, drawing and marking inks 3215.9010 and 3215.9090

Sr.

No

1

Sr. No in

the Table

25

Heading Nos. of the First Schedule to the

Customs Act, 1969 (IV of 1969)

Omied

Descripon

Milk preparaons obtained by replacing oneor more of the constuents of milk by anothersubstance, whether or not packed for retail sale.

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Sr. Descripon PCT Heading

No

19 Erasers 4016.9210 and 4016.9290

20 Exercise books 4820.2000

21 Directly reduced iron 72.03

22 Pencil sharpeners 8214.1000

23 Energy saver lamps 8539.3910

24 Sewing machines of the household type 8452.1010 and 8452.1090

25 Purpose built taxis, whether in CBU or CKD 8703.3226 and 8703.3227

condion which are built on girder chassis and

having features, namely:-

Aack resistance central division along with

payment tray;

Wheelchair compartment with folding ramp

Taximeter and two-way radio system

29 Bicycles 87.12

30 Wheelchairs 8713.1000 and 8713.9000

31 Vessels for breaking up 89.08

32 Other drawing, marking out or mathemacal

calculang instruments 9017.2000

33 Pens and ball pens 96.08

34 Pencils including colour pencils 96.09

35 Compost (non-chemical ferlizer) produced and

supplied locally

36 Construcon materials to Gawadar Export

Processing Zones investors and to Export

Processing Zone Gawadar for development

of Zones infrastructure

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Futher Duty to be Charged on Supply of Goods to Unregistered Person Secon 3 (3A)

The Finance Bill, 2013 seeks to charge further duty at the rate of 2% in addion to normal duty in case of supply ofexcisable goods and services to unregistered persons.

Scope of Maintaining of Record Enlarged Secon 17 (1)

The Finance Bill, 2013 proposes that record relang to gate passes, inward or outward and transport receipts be

maintained for a period of 6 years by every registered person.

Commissioner Appeals Empowered to Grant Stay against Tax Recovery Secon 33

The Finance Bill, 2013 proposes to empower Commissioner (Appeals) to grant stay against recovery of tax levied under

this Act, for a period not exceeding 30 days in aggregate, in case the taxpayer faces any hardship in making such payment.

This proposal is in line with the changes proposed in the Sales Tax Act, 1990.

Power of FBR Offi cers Clarified Secon 35(3)

In order to remove any ambiguity, the Finance Bill, 2013 seeks to explain that the powers of the FBR offi cers regarding

examinaon, access to the record and departmental audit under different secons are independent from the powers

already vested with the FBR to select any person for audit through random or parametric computer ballot.

Whistleblower Reward to Inland Revenue Offi cers and Offi cials Secon 42(c)

In order to enhance the collecon and stop concealment; the Finance Bill, 2013 proposes to reward offi cials and informers

providing credible informaon relang to cases of concealment and evasion of duty, aer realizaon of part or whole of

such taxes.

Posng of Inland Revenue Offi cer at Registered Persons Premises

Delegated to Chief Commissioner Secon 45(2)

The Finance Bill, 2013 seeks to equate the powers of the FBR with Chief Commissioner regarding posng of offi cials to the

premises of registered person to monitor producon, removal or sale of goods and the stock posion or the maintenance

of records.

Monitoring or Tracking by Electronic or Other Means Secon 45A

The Finance Bill, 2013 proposes that the FBR may monitor or track data regarding producon, sales, clearance, stocks or

any other related acvity either electronically or through other means, by noficaon in the offi cial Gazee specifying

any registered person or goods in this regard. Furthermore, the FBR may restrict sale or removal of such excisable goods

without affi xing tax stamps, sckers etc in such form, style and manner as may be prescribed.

The Federal Excise Act, 2005

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Federal Excise Act, 2005

First Schedule (Table I)

Rate of FED Enhanced on Aerated Waters Sr. No. 4 & 5 of Table I

The Finance Bill, 2013 seeks to amend the rates on following goods:

Relevant Reference Descripon Heading /Sub- Previous Proposed

in Schedule. heading number Rate Rate

4 Aerated Waters 2201.102 6% 9%

5 Aerated Waters containing added sugar

or other sweetening maer or flavoured 2202.101 6% 9%

Rate of FED Enhanced on Cigarees Sr. No. 9 & 10 of Table I

The Finance Bill, 2013 seeks to substute the serial 9 and serial 10 of Table 1 of First Schedule in the following manner:

Relevant Reference Descripon Heading / Sub- Proposed

in Schedule. Heading Number Rate

9 Locally produced cigarees if their on pack printed 24.02 Rupees two thousand

retail price exceeds two thousand two hundred and three hundred and twenty

eighty six per thousand cigarees five per thousand cigarees

10 Locally, produced cigarees if their retail price 24.02 Rupees eight hundred and

does not exceed rupees two thousand two hundred eighty per thousand

and eighty six per thousand cigarees cigarees

FED Levied on Oil Seeds and Motor Cars Sr. No. 54 & 55 of Table I

The Finance Bill, 2013 purposes to remove serial 11 of Table 1 of First Schedule and seeks to add following at serial No.

54 and 55 of Table I in the following manner:



54 Oil seeds Respecve Headings Forty paisa per Kg

55 Motor cars, including staon wagons

of 1800 cc or above 87.03 Ten percent ad.val

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Table II

FED Levied on Services of Banking and Non-banking Corporate Sector Sr. No. 8 of Table II

The Finance Bill, 2013 purposes to delete serial 7 in column (1) of Table II and seeks to substute the following at serial

8 of Table II, as follows:



8 Services provided or rendered by banking companies,

cooperave, financing sociees, modarabas, musharikas, 98.13 16%

leasing companies , NBFCs, Asset management

Companies and other persons dealing in such services.

Third Schedule

The Finance Bill, 2013 purposes to withdraw the exempon on:

Hydraulic cement imported or purchased locally by petroleum or energy sector companies

Lubricang oil supplied to Pakistan Navy for consumpon in its vessels.

Transformer oil if used in the manufacture of transformers supplied against internaonal tenders to a project

financed out of funds provided by the internaonal loan or aid giving agencies.

Exempon of Federal Excise Duty on services provided or rendered by Asset Management Companies is being withdrawn.

Notable Noficaons

Fixed duty on locally produced Oil SRO 507(I)/2013

The SRO seeks to impose fixed duty with immediate effect at one rupee per Kg on locally produced oil purchased by a

manufacturer of vegetable ghee and cooking oil, in lieu of the federal excise duty payable @ 16% on vegetable ghee and

cooking oil produced or manufactured from locally produced oil and that shall be payable along with the monthly return

in which such locally produced oil is purchased.

Fixed Duty on Oil Seeds SRO 508/2013

The SRO seeks to impose fixed duty of forty paisa per kilogram on oilseeds, at the import stage, in lieu of federal excise

duty payable at producon or manufacturing stage of vegetable ghee or cooking oil.

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40

Customs Act, 1969

Notable Noficaons

Rate of Duty on Hybrid Vehicles reduced SRO 499(I)/2013

By virtue of SRO 499(I)/2013 customs duty and sales tax on import of Hybrid Electric Vehicle has been slashed down to

the extent as under:

Sr. No Engine Capacity Extent of Exempon in leviable duty and taxes

1 Upto 1200 cc 100%

2 From 1201 cc to 1800 cc 50%

3 From 1801 cc to 2500 cc 25%

Concessionary Rate of dues withdrawn SRO 497(I)/2013

Vide SRO 497(I)/2013 concessionary rate of custom duty has been withdrawn as under:

Sr. No of SRO 567 Descripon Present concessionary rate

16 Preparaons put up in retail packing for 0%

agriculture

Uncoated Kra paper and paper board in rolls or sheets 5%

24 Virgin cra liner 0%

Virgin white top cra 0%

Semi chemical flung paper 0%

28 Flat rolled products of stainless steel, of a width of

600 mm or more 0%

29 Silicon electrical steel sheet 0%

LCD Panels in CBU form 20%

48 Plasma display panels in CBU form 20%

Grant of Exempons SRO 498(I)/2013

Vide this SRO exempon has been granted on import of solar submersible pumps, Energy saving lights and any other item

in relaon to geo thermal energy by amending SRO 575(me) /2006. This measure has been taken in order to overcome

energy crisis by giving incenve to the importers of above named goods. Further, this SRO restricts that exempon /

concessionary rate (provide in SRO 575(I)/2006) of customs duty and sales tax on import of specified agricultural

machinery will now apply only where such machinery is used for agriculture sector.

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41


The Finance Bill, 2013 seeks to promulgate an Act to be named as the Income Support Levy Act, 2013 (ISL). It shall come

into force at once. Some salient features of the proposed Act are as under:

Net Moveable Wealth Secon 2(b)

It is the excess of aggregate value of movable assets, as declared in the wealth statement for the relevant tax year, over

the aggregate value of liabilies, for the relevant tax year.

Determinaon of Net Wealth

In determining the net wealth value the liabilies against the movable assets should be allowed in the following manner:

Where liability claimed relates wholly and exclusively to movable asset in that case such liability shall be allowed but no

liability will be allowed if it relates wholly and exclusively to immovable assets. However, where nature of asset to which

the liability relates is not determinable then liability shall be allowed on proporonate basis using the following formula:

(A/B) X C

Where:

A is gross value of moveable assets

B is gross value of both movable and immovable assets

C is the gross value of debts owned

Valuaon Date Secon 3

Levy would be charged on the last date of the tax year.

Time of Payment Secon 4

Levy under this Act would be paid along with the filing of wealth statement.

Rate of Levy Secon 9

Levy would be charged at the rate of 0.5% of the value of net moveable assets exceeding Rs. 1,000,000.

Some significant highlights of the proposed Act are as under:

Authorized offi cer of Inland Revenue to access the levy payable by order in wring and may issue a noce ofdemand specifying therein the me and sum payable.

Charge default surcharge at the rate of 16% per annum on a person who fails to pay levy or levy paid is less than

the amount payable on the amount payable / less paid.

Same provisions would be applicable for the recovery of levy imposed under this Act as are applicable for collecon

of tax under the Income Tax Ordinance, 2001.

Same provisions would be applicable regarding the appeals, revision or recficaon of an order under this Act as

are provided under the Income Tax Ordinance, 2001.


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tax handbook 2013-2014

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