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CONTENTSPREFACE…………………………………………………… 2

INCOME TAX……………………………………………….. 3

INCOME TAX SCHEDULES………………………… 8

SALES TAX………………………………………………… 14

FEDERAL EXCISE DUTY………………………………… 18

ISLAMABAD CAPITAL TERRITORY ORDINANCE….. 20

PUNJAB FINANCE ACT 21

KPK FINANCE ACT 24

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PREFACEFinance Acts 2016

July 15, 2016

This document gives a brief insight of significant amendments made through Finance Acts 2016

and SRO’s relating toSales Tax. This document also presents significant changes made in fiscal

laws through respective Provincial Finance Acts except for Sindh and Balochistan. Changes

made in Custom laws are also not included in this document.

In order to understand the impact of a particular change, reference should be made to the specific

wordings in the relevant statutes. Expert opinion on specific change should also be sought before

taking decision having major economic significance.

This document can also be accessed on our website www.pkf.com.pk

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INCOME TAXSection 4B

For the Tax Year 2015, Banking Company, and Other Person having income equal to or exceeding Rs.500 million, were subjected to Super Tax for rehabilitation of Temporarily Displaced Persons; at the rate of 4% and 3% respectively. Final tax related income will be calculated through imputable tax basis for the calculation of Super Tax chargeability. Now this tax has been extended for tax year 2016 also Further it is clarified that the brought forward depreciation and business losses shall not be taken into account while calculating the above referred income.

Section 7C and 7D

Tax on builders and developers has been fixed on the basis of measurement of land and building’s covered area taking into consideration the locality where it is situated and have been included in final tax regime. The Board shall prescribe rules for mode and manner for payment and collection of tax. Further the Board shall also prescribe rules for granting approval of payment plan of taxes and other related matters. However, this fixed tax will be applicable for the projects initiated and approved after 1st July, 2016. Consequently sections 113A and 113B have been omitted.

Section 15 (6) and 15 (7)

Income from property of Individuals and AOP shall now be charged as separate block of income. The slabs of tax rates have been devised to calculate tax on gross rentals ranging from Rs.200,000 to Rs.2,000,000 from 5% to 20%. The rental income of Rs.200,000 shall be exempted, provided the tax payer has no other

source of income. However the property income of a company shall be subjected to normal tax and shall be calculated after deductions allowed u/s 15A.

Section 21

The scope of inadmissibility of expenditureclaimed on account of non-deduction of withholding tax has been enlarged. Now any expenditure claimed which is subject to any withholding tax shall be disallowed incase tax is not withheld and deposited. It covers the whole stream of withholding tax. However, while disallowing the “purchases” maximum 20% of the purchases of raw material and finished goods can be disallowed on the default of non-deduction of withholding tax. An opportunity has been given to tax payer to pay the defaulted amount u/s 161 or 162 and such expenditure shall be allowed after payment of withholding tax.

Another amendment has been made to restrict the allowance of expenditure in respect of sales promotion, advertisement and publicity by pharmaceutical manufacturers up to 5% of their turnover. Normally these companies spendhuge amounts under these heads.

Section 22

An explanation has been added whereby notional charge of depreciation and initial allowance has been made compulsory for the persons whose income is exempted for certain periods. Now the written down value of building, furniture, machinery used for business purpose of such units, after the end of exempted period, shall be reduced by the accumulated depreciation and initial allowance which shall be deemed to have been so allowed.

Section 37A

An explanation has been added to clarify that derivative products include future commodity contracts entered into by the members of

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Pakistan Mercantile Exchange whether or not settled physically.

Section 53(2)

The powers of Federal Government have been enhanced to grant exemption or reduction of tax rates or tax liability or waive off operation of any provision of this Ordinance to any international financial institution operating under any agreement with Government of Pakistan subject to approval of Economic Coordination Committee.

Section 59B(1A)

The Group Relief where loss of a subsidiary company is surrendered to holding company for set off against its profit shall now be computed as percentage of shareholding held by the holding company. Previously total loss available can be surrendered to another group company.

Section 62A

A new tax credit has been introduced for investment in health insurance for individual and AOP being filer deriving income from salary or business; provided the insurance premium is paid to any insurance company registered with SECP. The maximum ceiling of tax credit is 5% of taxable income or Rs.100,000 whichever is less.

Section 63(2)

An amendment has been made in computation of tax credit for investment in pension fundwhereby the additional contribution of 2% for each year of age exceeding 40 years shall be allowed upto 30th June 2019 provided that total contribution shall not exceed 30% of taxable income.

Section 64A(2)

An amendment has been made in computation of deductible allowance for profit on debtfor house acquired through loan from banks, NBFIs and listed companies. Now the maximum

ceiling of profit on debt has been increased from rupees one million to rupees two million.

Section 64AB

Another “deductible allowance” has been introduced for education expenses. Any individual having taxable income less than rupees one million shall be entitled to a deductible allowance subject to maximum ceiling of 5% of the total tuition fee or 25% of taxable income whichever is less. The individual claiming this deduction has to submit NTN or name of the educational institution. However, this allowance shall not be taken into account for computation of tax deducted under Section 149 of Income Tax Ordinance, 2001.

Section 64B and 65A to 65E

Various Tax credits were allowed to the industries under different schemes, the closing dates of such schemes were 30 June 2016.th

All such schemes have been extended upto 30th

June 2019. These includes:

• Tax credit for employment generation by manufacturer;

• Tax credit for investment through equity in purchase of plant and machinery for the purpose of extension or expansion or BMR;

• Tax credit for newly established industrial undertakings; and

• Tax credit for industrial under takings established before 1st July 2011.

Condition of 100% equity investment has also been changed to 70% for claiming tax credit for new project or expansion project.

The manufacturer registered under Sales Tax Act, 1990 selling its 90% goods to a registered person shall now be entitled to tax credit of 3% of tax payable. Earlier it was 2.5%.

In order to attract the companies for listing with Stock Exchange, tax credit of 20% of

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the tax payable shall now be allowed in the year of enlistment and also for the following tax year.

Section 67

The scope of apportionment of common expenditure between various heads of income has been widened to include “deductions and allowances”.

Section 68

The fair market value of any property, rent, asset, service, benefit or perquisite shall bedetermined by the Commissioner without regard to any restriction on transfer. Now the department can disregard the value of registered sales deed executed on the basis of value fixed or notified by the provincial authority for stamp duty. The courts have disregarded department’s valuation in the presence of registered deed and this amendment is an attempt to undo such decisions.

Notwithstanding anything above, fair market value of immovable property will be determined on the basis of valuation made by a panel of approved valuers of the State Bank of Pakistan.

Section 107

Federal Government has been empowered to enter into international tax treaty, automatic tax information exchange agreement, multi-lateral convention and inter-governmental agreement for avoidance of double taxation or prevention of fiscal evasion.These provisions have been revamped in the light of recent agreements entered into by the government of Pakistan and other foreign countries.

Section 108

Procedure with respect to information and records for the transaction with associateshas been standardized with the objective to ensure efficient proceedings under this section. 30 days time, with an extendable period of 45 days, has

been allowed for the submission of required information to the Commissioner.

Section 113

Minimum Tax is chargeable in the case where tax payable, calculated on the basis of declared income, is less than 1% of turnover. This minimum tax was applicable to every company and an individual or AOP having turnover of Rs.50 million or above. Now this threshold has been lowered to Rs.10 million. It means now every tax payer individual or AOP whose turnover is Rs.10 million or above in tax year 2017 and onwards shall be subject to minimum tax. Another amendment has been madewhereby the companies suffering gross loss shall now be subjected to Minimum Tax. An explanation has also been added to exclude tax payable or paid under Final Tax Regime and super tax paid u/s 4B for the purpose of calculation of Minimum Tax.

Section 114

Revision of tax return was allowed within 60 days of filing of original return to correct any error or omission without permission from Commissioner. Further the Commissioner’sapproval for revision was deemed to have been granted if no order of approval is issued by the Commissioner within 60 days of filing of request for revision. Now it has further been relaxed to allow a tax payer for upward revision of return without approval of Commissioner.

A new proviso has been added to section 114 empowering the FBR to issue a notice for filing of return of income for one or more of the last ten completed tax years in case of a person who has not filed return for any of the last five completed years. The retrospective impact of this amendment to past and closed years shall create confusion to be settled by the Courts.

Section 122C

Provisional Assessment u/s 122C can be made by the Commissioner against persons who

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do not file tax return voluntarily or fail to file return in response to notice from Commissioner. However, if such person files the return and wealth statement and reconciliation within 45 days of the receipt of order, the assessment is abated. Now a further condition has been imposed that such person should also present their accounts and documents for conducting audit of income tax affairs for that tax year.

Section 134A

With a view to improve the Alternate Dispute Resolution Mechanism, following amendments have been introduced:

Commissioner Inland Revenue is included in committee instead of Additional Commissioner Inland Revenue;

Board is required to pass an order on the recommendation of the Committee within ninety days instead of forty five days; and

In case order is not passed by the Board within ninety days, the recommendation of the committee shall be treated as an order passed by the Board.

Section 140

No action under the section 140 will be taken if the appeal filed by the taxpayer relating to such tax is pending before the Commissioner (Appeals) subject to the condition that 25% of the said tax is paid by the taxpayer. This means that if 25% of demand has been paid, the recovery by way of freezing of bank accountscannot be initiated for balance impugned demand till disposal of appeal.

In cases where the taxpayer would not be willing to pay 25% of the said tax, he can approach the Commissioner (Appeals) / High Court for stay of full demand.

Section 147Advance tax for current year is calculated on

the basis of last assessed tax liability. An explanation has been added to clarify that the tax assessed also includes Minimum Tax and Alternate Corporate Tax.

Section 147A

Persons registered with the Provincial Sales Tax Authorities who were non-filers as on 30th June of the previous tax year shall be liable to pay adjustable advance tax on monthly basis at the rate of three percent (3%) of the turnover declared before the provincial revenue authority.

Section 152(2A)

Exemption available to commercial importers in clause 47A, part IV of Second Schedule for section 153 is extended to section 152. Hence, no advance tax is required to be deducted from payment to permanent establishment of non-resident in respect of goods imported and sold in the same condition if tax under section 148 is duly deducted and paid.

Section 152A

The scope of withholding tax has been widened and now payments to foreign produced commercials to non-resident person shall be subjected to tax @20% which shall be final discharge of tax liability of such non-resident person.

Section 153

An amendment in section 153 is introduced to treat withholding tax on payments to electronic and print media for advertising services shall be final tax with effect from 1st July 2016.

Another amendment is made to add cotton ginners in the ambit of withholding tax.Previously they were excluded if they deposit tax on their own, on payments made to them.

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to

file

Section 169(3)An incentive has been offered to non-filerfile the tax return, where the tax collected or deducted is final tax and higher rate of withholding has been prescribed for non-filer. The excess tax collected from non-filer shall be adjustable and can be claimed as refund by filing of tax return.

Section 170(2)

The period within which refund application u/s 170 can be filed has been extended to threeyears from two years.

Section 182

The banks and financial institutions are obliged to file certain information as prescribed by the Board for non-residents for the purpose of automatic exchange of information under bilateral agreement or multilateral convention. Now any person who does notthe required statement shall be subjected to penalty of Rs.2,500, per day with minimum of Rs.10,000.

Sections 231A& 236P

An explanation has been added in section 231A and 236P whereby the withholding tax on cash withdrawal shall be applicable if aggregate withdrawal from all bank accounts of a person exceeds Rs.50,000 in a single day.

Section 231B

Advance tax on registration of private motor vehicles shall not be applicable to purchase of 5 years old vehicles.

Every leasing company or scheduled bank or investment banks or DFI or modaraba, at the time of leasing a motor vehicle to a non-filer shall collect advance tax @3% of the value of motor vehicle.

Section 236A

Tax collected on auction of lease right to collect tolls shall be final tax.

Section 236C

Advance tax on sale of immovable property shall not be collected if property is held for a period exceeding five years.

Section 236U

A new section is introduced to collect advance tax at the time of collection of insurance premium from non-filer in respect of general insurance @ 4% and life insurance @ 1% if premium exceeds Rs.200,000. The insurance premium collected through agents of insurance company shall also be treated as having been collected by the insurance company. Advance tax collected under this section shall be adjustable.

Section 236V

A new section is introduced to collect advance tax on the value of minerals extracted, produced, dispatched and carried away from the licensed area. The rate for collection of tax from filers is zero percent (0%) while non-filers shall pay 5% adjustable income tax to the Provincial Revenue Authority collecting royalty from the persons engaged in extraction of minerals.

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Income Tax Schedules

1st ScheduleTax Rates for Business Individual andAOPs

Taxable incomeRate

from upto

0 400,000 0%

400,001 500,000 7%of amount exceeding400,000

500,001 750,000 Rs. 7,000 + 10% of amountexceeding 500,000

750,001 1,500,000 Rs. 32,000 + 15% of amountexceeding 750,000

1,500,001 2,500,000 Rs. 144,500 + 20% of amountexceeding 1,500,000



6,000,001 and above Rs. 1,319,500 + *35% ofamount exceeding 6,000,000

* for AOP’s (Professional firms prohibited from incorporating by any law) rate of tax shall be at 32% from tax year 2016 and onwards.

Tax Rates For Salaried Individual

Taxable incomeRate

from upto

0 400,000 0%

400,001 500,000 2%of amount exceeding400,000

500,001 750,000 Rs. 2,000 + 5% of amountexceeding 500,000

750,001 1,400,000 Rs. 14,500 + 10% of amountexceeding 750,000

Taxable incomeRate

from upto

1,400,001 1,500,000 Rs. 79,500 + 12.5% of amountexceeding 1,400,000







7,000,001 and above Rs. 1,422,000 + 30% of amountexceeding 7,000,000

Tax Rates For Companies

Rate

Banking company 35%

Other than banking company- TY- 2016 32%



Super Tax Rates

Description Rate

Banking company 4%

Other person having income equal to or 3%exceeding Rs. 500 Million

Tax Rates For Profit on debt

Taxable incomeRatefrom upto

0 25,000,000 10%

25,000,001 50,000,000 Rs. 2,5000 + 12.5% ofamount exceeding 25 Million

50,000,001 and above Rs. 5,625,000 + 15% of amountexceeding 50 Million

Description

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The same rates shall also be applicable for withholding tax under section 155.

Tax Rates for Property Income In case of Individual & AOPs

Taxable IncomeRate

from upto

0 200,000 0%

200,001 600,000 5% of the gross amount of rent exceeding Rs.200,000

600,001 1,000,000Rs.20,000 + 10 % of the gross amount exceeding Rs.600,000

1,000,001 2,000,000Rs.60,000 + 15 % of the gross amount exceeding Rs.1,000,000

2,000,001 and aboveRs.210,000 + 20% of the gross amount exceeding Rs.2,000,000

37A Capital Gains Tax - Company

Sec. Category Filer NonFiler

- Stock Funds 10%

- Other than Stock Funds 25%

Capital Gains Tax - Individuals & AOPs 10%

Capital Gains Tax on Securities

Holding period less than 12 Months 15% 18%

Holding period 12 to 24 Months 12.5% 16%

Holding period more than 24 Months but purchased after 01-07-2012

7.5% 11%

Security purchased before 01-07-2012 0% 0%

Future Commodity Contracts 5% 5%

148 Industrial undertaking importing

re-meltable steel (PCT Heading

72.04) and directly reduced iron

for its own use.

Manufacturers covered under

Sec. Category Filer NonFiler

SRO 1125( I)/2011, dated 3112- 1% 1.5%2011.

- Import of Potassic Fertilizer- Imports of Urea fertilizer- Import of gold- Import of cotton

- Import of LNG- designated buyers

Import of pulses 2% 3%

Commercial importers covered under 3% 4.5%

SRO 1125 (I) / 2011, dated 31-12-

2011

Ship breaker on import of ship 4.5% 6.5%

Tax to be collected from every

importer of goods on the value of

goods.

a) In the case of Industrial5.5% 8%

undertaking not otherwise

covered

b) all other cases of companies 5.5% 8%

c) In the case of persons other 6% 9%than those covered in a & b

above

150 Dividend income 12.5% 20%

151 Profit on Debit 10 % 17.5%

152 Payments to PermanentEstablishment of Non- Residents

supply of goods - Company 4% 6%

- Others 4.5% 6.5%

supply of services - Company 8% 12%

- Others 10% 15%

transport services 2% 2%execution of contract - Company 7% 12%

- Others 7% 12%

Sport persons 10% 10%

25%

25%

10%

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153 Payments to Residentssupply of goods- Company 4% 6%

Others 4.5% 6.5supply of goods-FMCG distributors Company 3% 3%

Others 3.5% 3.5%supply of services Company 8% 12%

Others 15%10%

transport services 2% 2%execution of contract Company 7% 10%

Others 7.5% 10%

Sport Persons 10% 10%

Electronic and Print MediaServices

Company 1.5% 12%

1.5% 15%Others

156Prize bonds winningOther than prize bond winnings

15%20%

20%20%

156A Commission on Petroleum 12% 15%products

231A Cash withdrawal exceeding Rs. 0.3% 0.6%50,000/- in a day

231AA Other transaction with Bank 0.3% 0.6%

233 Brokerage & Commission

Advertisements 10% 15%

Life insurance where commission is >Rs.500,00

8% 16%

Others 12% 15%

234 Goods Transport Vehicles Rs. 2.5 Rs. 4(per kg)Passenger Transport VehiclesSeating capacity>4<10 50 100>10<20 100 20020 or more 300 500

Token TaxEngine Capacity (cc)

800 1,200upto 10001001 to 1199 1,500 4,0001200 to 1299 1,750 5,0001300 to 1499 2,500 7,5001500 to 1599 3,750 12,0001600 to 1999 4,500 15,0002000 and above 10,000 30,000

231B Rates of Advance Tax onRegistration of VehiclesEngine Capacity (cc)Upto 850 10,000 10,000851 to 1000 20,000 25,0001001 to 1300 30,000 40,0001301 to 1600 50,000 100,0001601 to 1800 75,000 150,0001801 to 2000 100,000 200,0002001 to 2500 150,000 300,0002501 to 3000 200,000 400,000above 3000 250,000 450,000

231B Rates of Advance tax ontransfer of VehiclesEngine capacity (cc)up to 850 - 5,000851 to 1000 5,000 15,0001001 to 1300 7,500 25,0001301 to 1600 12.500 65,0001601 to 1800 18,750 100,0001801 to 2000 25,000 135,0002001 to 2500 37,500 200,0002501 to 3000 50,000 270,000above 3000 62,500 300,000

236A Sale by auction 10% 10%236B Purchase of domestic air ticket 5% 5%

236C Sale/transfer of immovable property

1% 2%

236D Functions and gatherings 5% 5%

236G Sales of distributors, dealersor wholesaler

Fertilizer 0.7% 1.4%

Other than Fertilizer 0.1% 0.2%

236K Purchase of immovable propertyValue 0-3million 0% 0%Exceeding 3 million 2% 4%

236P Transaction other than cash Nil 0.6%through Bank (exceeding50,000 in a day)

236Q Tax on Machinery rental 10% 10%

236R Education expenses remitted abroad 5% 5%

236U

Insurance premiumGeneral 4% 4%Life insurance exceeding 0.2 million/annum 1% 1%

Others 0% 0%

236V Extraction of minerals 0% 5%

Sec. Category Filer NonFiler Sec. Category Filer Non

Filer

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Minimum holding period for non-applicability of Capital Gains Tax on disposal of immovable property has been increased to five years from two years. Tax at the rate of 10% is to beapplicable on such gains irrespective of its holding period within five years. Previously, 10% and 5% slab rates were applicable depending on the holding period of less thanone year and more than one year but not more than two years respectively.

Gain arising on the disposal of immovable property by a person in a tax year to the Rental REIT Scheme will be taxed at the rate of 5% upto June 30, 2019 irrespective of holding period. However, gain on sale of immovable property with the object of development and construction of residential building is already exempt from tax upto Tax year 2020 under clause 99A, part I, 2nd

schedule.

Withholding tax deduction by Stock exchange registered in Pakistanfrom itsmembers on sale & purchase of shares has been increased to 0.02% from 0.01%.

Withholding tax on commercial electricity consumers having monthly bill exceeding Rs.20,000 has been increased from 10% to 12%.

Builders

Location

For Commercial

Buildings

For Residential Buildings

Rate/Sq.ft Area in Sq.ft

Rate/ Sq.ft

Karachi, Lahore and Islamabad Rs.210

Upto 750 Rs.20751-1500 Rs.40

1501 & above Rs.70

Hyderabad, Sukkur, Multan, Faisalabad, Rawalpindi, Gujranwala, Sahiwal, Peshawar, Mardan, Abbottabad, Quetta

Rs.210

Upto 750 Rs.15

751-1500 Rs.35

1501 & above Rs.55

Urban areas not specified as above

Rs.210

Upto 750 Rs.10751-1500 Rs.25

1501 & above Rs.35

Land Developers

Location

For Commercial

Plots

For Residential Plots

Rate/Sq.ft Area in Sq.ft

Rate/ Sq.ft

Karachi, Lahore and Islamabad Rs.210

Upto 750 Rs.20751-1500 Rs.40

1501 & above Rs.70

Hyderabad, Sukkur, Multan, Faisalabad, Rawalpindi, Gujranwala, Sahiwal, Peshawar, Mardan, Abbottabad, Quetta

Rs.210

Upto 750 Rs.15

751-1500 Rs.35

1501 & above Rs.55

Urban areas not specified as above

Rs.210

Upto 750 Rs.10751-1500 Rs.25

1501 & above Rs.35

Tax rates for builders and land developers

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2nd Schedule

Exemptions/Concessions Introduced:

• Exemption limit for other employees in case of payment received by way of gratuity or commutation of pension has been increased from Rs.200,000 to Rs.300,000.

• Corporate rate for taxation shall be reduced by 2% as specified in 1st Schedule will be applied in case of manufacturing listed company who has been compliant with Shariah law and also declared income for last 3 years and dividend for last five years.

• Exemption From Collection Of Tax On Import Of Ships And AircraftsCollection of withholding tax at import stage will not be applicable in the following cases:

(a) Import of ships and other floating crafts including tugs, survey vessels and other specialized crafts purchased or bare-boat chartered by a Pakistani entity and flying Pakistani flag upto the year 2020 subject to the condition that ships and crafts are used for the purpose for which they were imported. In case of ships and crafts used for demolition purposes, the import tax will be applicable.

(b) Import or acquisition of aircraft on wet or dry lease by PIA with effect from March 19, 2015.

• Tax exemption including minimum tax provided to China Overseas Ports Holding Company Limited for operating the Gwadar port has been extended to various other Chinese companies, Furthermore, the income of their lenders, contractors and investors

who will be working at the Gwadar Port will also be exempt from tax.

• Minimum tax exemption has been provided to taxpayers establishing transmission line project.

• Subject to withdrawal of appeals/ references/petitions and payment of tax liability outstanding till tax year 2015 by June 30, 2016, income of Pakistan Cricket Board derived from outside Pakistan will be taxed at 4% of the gross amount.

• Exemption of IT Export services is extended till June 30, 2019; provided that 80% of the export proceeds are brought into Pakistan in foreign currency through normal banking channels.

• Fixed Tax Regime of Hajj Group Operators is extended to Tax Year 2016.

• Exemption from provisions of Section 111for investments in Industrial undertakings in various sectors is extended till June 30, 2019.

• Reduced rate of 2% for a company being a filer engaged in freight forwarding services, courier services, man power outsourcing services, hotel services, security guard services, software and IT related services etc. has been extended to tax year 2017 subject to filing of irrevocable undertaking by November 2016 to present its accounts for audit.

Exemptions/Concessions-Withdrawn/Restricted:

• Time based exemption to Micro Finance Banks, being redundant, has been withdrawn.

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• Inter Group dividend exemption for companies who are not assessed as a group has been withdrawn.

• Rate of tax for services rendered and construction contracts executed outside Pakistan shall now be taxed at 50% of rates applicable to payments made in Pakistan on such activities from existing rate of 1% for the said activities.

• Minimum tax exemption for Companies, operating trading houses, has been withdrawn and will be liable to pay minimum tax @0.5% of turnover till 2019 and 1% afterwards.

• Withholding tax exemption on payment of interest on Term Finance Certificates held by Companies has been withdrawn.

• Industrial undertaking desirous to avail exemption certificate on/for non-payment of advance tax at importstage shall be treated to have been selected for audit under section 214C for verification of consumption, production and sales. If taxpayer defaults in presenting the required accounts/documents,the certificate issued shall stand cancelled and tax previously not paid at import stage shall be recovered.

4th ScheduleThe Income of Insurance companies from Capital Gains on shares of listed companies, PTCL vouchers and other products is to be taxed at the rates applicable for the companies instead of concessional rates.

6th ScheduleThe maximum limit of contribution of employer exempt from tax for employee has been enhanced from Rs.100,000 to Rs.150,000.

7th ScheduleSuper tax chargeability has been extended to banks in Tax Year 2016 although they were imposed for 1 year in Finance Act 2015.

8th ScheduleVarious provisions regarding withholding taxes and submission of information to NCCPL and tax Department have been introduced.

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Sales TaxSection 2(5AB)

Annual turnover limit for Cottage Industry for registration under Sales Tax has been increased from five (5) million to ten (10) million. Now every manufacturer whose annual turnover exceeds Ten million or its annual utility billsexceeds Eight Hundred Thousand Rupeesshall be required to be registered for sales tax.

Sections 2(9), 6 & 7

FBR recently devised system for self-processingof sales tax declarations to avoid subsequent CREST related issues. In this regard certain amendments vis-a-vis different dates for different parts and/or annexures of the return and payment of taxes etc. have been made in the Act. To make it effective the buyer would not be able claim input if the supplier has not declared or paid the amount of tax due in his return from July 2016. A detailed SRO 493(I)/2016 dated July 01, 2016 has been issued by the Board.

Section 2(14)

Provincial Sales tax levied on services has been excluded from the definition of Input Tax.

Section 11(4A)

Provision to recover withholding sales tax from the person who failed to withhold and/or deposit the same in the required manner has now been introduced in law.In a number of cases, the Tribunal has quashed the orders to treat the registered person as ‘assesse in default’ for non-deduction of withholding tax and to recover the same from the registered person liable for withholding on the plea that there is no express provision in Sales Tax Act empowering the tax officer to treat him assesse in default. This lacuna has been rectified.

Section 26(2)

Provision with respect to separate return on account of change in rate is deleted as being redundant.

Section 30DDD

Mechanism for establishment of Directorate General of Input Output Co-efficient Organization has been introduced.

Section 33

Penalty for violation of rules made under the Act which was not available in the section 33 has now been introduced.

Section 47A





Section 49(2)

Transfer of taxable goods or part thereof, in the case of sale or transfer of ownership of taxable activity to other registered person as going concern, shall be made through a zero rated invoice.

Section 56B

Applicability of the Freedom of Information Ordinance, 2002 for any information received or supplied in pursuance of bilateral or multilateral agreements with foreign countries isrestricted as

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provided under section 216 of the Income Tax Ordinance, 2001.

3rd ScheduleSales tax on mineral/bottled water is levied on retail price from the existing normal regime.

5th ScheduleZero Rating on Stationery items is withdrawn.

Zero Rating on Milk and fat filled milk is substituted with exemption. This will increase the cost of milk. This step appears to have beentaken to eliminate accumulation of refund on account of zero rating of these items.

6th ScheduleMechanism for exemptions on local and imported supplies of materials and equipment for construction and operation of Gawadar Port and development of Free Zone by China Overseas Ports Holding Company Limited and its operating companies, their contractors and sub-contractors etc. has been introduced.

Supplies made by business to be established in Gawadar Free Zone has been exempted from sales tax for a period of 23 years on sales and supplies made only within Gawadar Free Zone.

Sales tax on certain items including premixes for growth stunting, laptop computers,personal computers, pesticides along with their active ingredients as mentioned in serial number 130-133 have been exempted. Previously pesticides and their active ingredients were subject to reduced rate of 7% under Eighth Schedule.

Sales tax on dump trucks imported for Thar Coal Field Project has been exempted.

Import and supply of ships with gross tonnage of over 15 LDT have also been extended exemption from sales tax.

Exemption related to items used for Alternative Energy have been revamped to cover tubular day lighting device, energy savers. Invertors etc.

Exemption on import or acquisition of aircrafts on wet or dry lease by PIA has been made effective from March 19, 2015.

8th ScheduleHS Codes of certain ingredients of Poultry and Cattle Field is aligned and applicable rates has been enhanced to 10% from existing 5%.

Sales tax rate on agriculture tractors has been reduced to 5% from existing 10% and on Laser Land Leveler reduced rate of 7% is introduced.

Reduced rate sales tax on white crystalline sugar and urea at the rate of 8% and 5% respectively has been introduced.

Time bound concessionary rate of 5% on Set top boxes for internet, TV broadcast transmitter, reception apparatus for satellite signals etc. is introduced upto June 30, 2017.

Machinery and equipment for development of grain handling and storage facility is subjected to reduced rate of sales tax at 10%. Silos have been added in this category to take benefit of reduced rate at 10%.

Concessionary rate of 5% introduced for import of plant and machinery for manufacture of dairy products including milk chillers, Tabular heat exchanger, Milk processing plant, milk spray drying plant, Milk UHT plant, Milk filters etc. by a registered manufacturer who is member of Pakistan Dairy Association.

9th ScheduleSales tax on medium priced and smart cellular mobile phones or satellite phones has beenenhanced to Rs.1,000 and Rs.1,500 from existing Rs.500 and Rs.1,000 respectively.

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IMPACT OF SALES TAX SROSS.R.O. 487/(I)/2016 -

Amendment in S.R.O. 648(I)/2013 dated July 09, 2013.

Further sales tax at the rate of two percent on unregistered persons shall not be levied on second hand worn clothing and worn articles falling under PCT heading 630900

S.R.O. 488(I)/2016 -

Amendment in Special Procedure for payment of sales tax by retailers

Retailers who are not liable to pay sales tax through electricity have been provided with option to pay sales tax at the rate of two percent of their turnover including exempt supply without adjustment of any input tax. However, such option can only be exercised by submitting an option to concerned Chief Commissioner of LTU/RTO before July 15, 2016 which shall remain effectivetill end of financial year.

Payment of sales tax by Marble Industry

Persons engaged in manufacturing of marble and granite and polishing having valid registration with All Pakistan Marble Industries Association (APMIA) shall pay sales tax at the rate of one rupee and twenty five paisa per unit of electricity consumed as final discharge of their net sales tax liabilities to the extent of aforementioned activities. No input tax adjustment shall be allowed to the manufacturer of marble and granite paying sales tax as above and same shall be collected by electricity distribution companies in addition to collection of other sales tax leviable under Sales Tax Act. Manufacturing units exporting more than fifty percent of marble and granite shall have option to get excluded from the scheme subject to approval of the concerned Commissioner.

S.R.O. 489/(I)2016 -

Rescindment of S.R.O. 115(I)/2008 dated February 06, 2008 as exemption for Gawadar port has now been provided in Sixth Schedule.

Rescindment of S.R.O. 212(I)/2012 dated March 26, 2014. This SRO has become redundant as sales tax on services has now been deleted from definition of input available under the Act.

S.R.O. 490(I)/2016 -

Amendment in S.R.O. 57(I)/2016. Sales tax on import and supply of petroleum products shall again be levied on percentage of value of supply instead of per liter basis.

S.R.O. 491(I)/2016 -

Changes have been made in SRO 1125(I)/2011dated December 31, 2011 whereby zero rating regime have been restored for five export oriented sectors effective from July 1, 2016tabulated as under.

Goods usable as industrial inputs, specified in Table-I including fabric

S. No.Description of goods

andpoint of taxation

Rate ofSales Tax

w.e.f.July 1, 2016

Previousrate

1.

Import for in-houseconsumptionby registeredmanufacturers of the fivesectors

0% 3%

2. Commercial imports0% + 0% valueaddition tax

3%+1% value addition tax

Supplies to registered orunregistered persons ofthe said five sectors

0% 3%

Supplies to personsoutside the said fivesectors

17% 17%

Import by, or supplyto, registeredmanufacturers, whether or

0% 3%

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S. No.Description of goods

andpoint of taxation

Rate ofSales Tax

w.e.f.July 1, 2016

Previousrate

not of the said five sectors,for the manufacture ofgoods specified in Table-I or Table-II of the said SRO 1125

Supplies of finished fabric to and by retailers; supplies of finished fabric to end consumers; other supplies of finished fabric

5% 3%

3.Processing of goods owned by other 0% of the 3% of thepersons, by registered manufacturersof the five sectors mentioned in condition (i).

charges charges

Locally manufactured finished articles of (a) textiles and textile made ups and (b)

4.Supplies to any person, including retail sales

5% 5%

Imported finished goods ready for use by the general public

5. (i) Import 17%, plus 17%, plus

2% value 2% value

addition addition

tax tax

(ii) Supply thereof 17% 17%

Other conditions mentioned in SRO 1125 are same except for following significant amendments

1. Non- availability of credit on input tax paid on packing material of all sorts;

2. Provision for Issuance of certificate to the genuineness of the refund claim have been omitted; and

3. Supply of furnace oil, diesel oil and coal to the registered manufacturers of the five sectors are now falls in the ambit of Zero rated supplies and will be charged at Zero percent subject to the issuance of a general order by the Board.

S.R.O. 492(I)/2016 -

Amendment in S.R.O. 563(I)/2006 dated June 05, 2006 whereby value for sales tax on white crystalline sugar for local and import has been fixed at Rs.56/kg and USD 725/MT.

S.R.O. 493(I)/2016.-

Procedure for automatic processing of sales taxreturns have been specified through this SRO.

Proccessed goods including fabrics

(b) leather and artificial leather.

processing processing

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FEDERAL EXCISE DUTYSection 2(8a) and 4

Certain amendments vis-a-vis different dates for different parts and/or annexures of the return and payment of taxes etc. have been introducedwith the objective to facilitate implementation of self processing of FED return’s data to ensure its authenticity. FBR has been given power to set separate date for different annexures of the FED return.

Section 4

Provision with respect to separate return on account of change in rate is deleted as being redundant.

Section 19

Penalty for violation of rules made under Federal Excise Act, 2005 previously missing has now been introduced at Rs.5,000 or 3% of the duty whichever is higher.

Section 38





Section 47B

Applicability of the Freedom of Information Ordinance, 2002 for any information received or supplied in pursuance of bilateral or multilateral agreements with foreign countries is restricted.

1st ScheduleThe rate of Federal Excise Duty (FED) on Aerated Waters, beverages and juices has been increased to 11.5% from 10.5%.

FED on locally produced cigarettes has beenincreased to Rs.3,436 and Rs.1,534 per thousand cigarettes for the on pack printed retail price greater than and lesser than Rs.4,000 respectively during 1 July to 30 November 2016. From 1st December onwards FED will be Rs.3,705 and Rs.1,649 per thousand cigarettes for the on pack printed retail price greater than and lesser than Rs.4,400 respectively.

Calculation basis of FED on cement has been changed from 5% of the retail price to Rs.1 per kilogram.

FED on White Crystalline Sugar has been abolished as same is subjected to Sales Taxfrom July 2016.

FED on services of advertisement, shipping agents, banking, franchise and stockbroker on which provincial sales tax is levied has been abolished.

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-

3rd Schedule

Conditional Exemption of FED on White Cement has been withdrawn.

Mechanism of exemptions for local and imported supplies of materials and equipment for construction and operation of Gawadar Port and development of Free Zone by China Overseas Ports Holding Company Limited and its operating companies, their contractors and sub-contractors etc. has been provided.

Supplies made by businesses to be established in Gawadar Free Zone shall be exempt from FED for a period of 23 years on supplies made only within Gwadar Free Zone.

Chartered Flight services used by or for armed forces shall be exempt from levy of duty.

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Islamabad Capital TerritoryTax on Services Ordinance 2001Certain powers of Federal Government are made applicable through ICTO, such as:

Specifying higher and lower ratesof taxes;

Levy and collect sales tax on services;

Allow exemptions; and

Notify withholding agents etc.

Zero Rating facility available to diplomats and exemptions available to grants in aids are also made applicable under ICTO.

Tax levied under ICTO shall not apply to regulatory and licensing servicesrendered or provided by an organization established under a Federal Statute.

Education testing services provided or rendered under a bilateral or multilateral agreement signed with the Government of Pakistan shall not be included in the ambit of valuation, competency and eligibility testing services covered in serial number 37 of the Schedule to the ICTO.

Concessionary rate of five percent on certain services with the limitation that no input adjustment or refund shall be available against output has been introduced through SRO 495(I)/2016 dated July 04, 2016 by the FBR.

Following is the list of services eligible for reduced rate

• Construction services• Beauty parlour, clinics slimming

centres, body massage centres, cosmetic and plastic surgery services etc.

• Freight forwarding and packers and movers services

• Services provided by specialized workshops or undertakings

• Services provided by health, fitness centers/clubs/gyms etc.

• Laundry and dry cleaning services• Services provided by property dealers

and realtors• Services provided by car and

automobile dealers

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PUNJAB FINANCE ACTStamp Act 1889Clarification is given to remove the ambiguity regarding persons responsible for the payment of stamp duties on contracts, beneficiaries of court orders, gifts and interests in immovable property. Now the duty shall be paid by the person in whose favour contract, decree or gift/interest in immovable property is executed.

Calculation basis for stamp duty on “Power of Attorney” to sell any immovable property has been changed to be 3% of the amount calculated according to the value notified by the District Collector instead of the amount of the consideration.

Stamp duty on “Power of Attorney” given without consideration to sell any immovable property shall be Rs.1,200 in case executed between spouses, wives or widows of the same husband or between father, mother, children, grandparents or grandchildren. In other cases, duty shall be paid @2% of the amount calculated according to the value notified by the District Collector.

Punjab Urban Immovable Property Tax Act 1958Buildings and Lands have been defined to include “vacant plots or a parcel or portion having fixed boundaries”. By virtue of this amendment vacant plots have also been taken into the scope of Property Tax. Consequently, exemption already available (clause i

of section 4) for five marla is also extended to include vacant plots of annual value not more than five thousand rupees, situated in a rating area as category-A. Furthermore, exemption is also provided for a vacant plot whose possession is handed over for the first time, even if the plot is transferred to subsequent owner, for a period of maximum 2 years during which it remains vacant/without construction

In order to ensure the payment of tax, the registering authority is required to verify the payment before registration of instrument of sale, gift or exchange of immovable property.

Punjab Sales Tax on Services Act, 2012Section 14

A person or class of persons required to deduct or collect tax or in case of failure to deposit the same is made personally liable for the defaulted amount.

Section 16

This section has been revamped to provide mechanism for deduction and adjustment of tax on input tax in the business. Earlier, such provisions were available in section 10 and deleted section 16 of the Act.

Section 16A

In line with section 73 of the Federal Sales Tax Act, 1990, provisions for payment through banking channel is provided in the Act. Non adherence to this section can result in disallowance of input tax for the service provider.

Section 16B

Certain restrictions on claim of input tax already available in Rules has now been made part of primary legislation. Resultantly, a registered

22

person shall not be entitled to claim input tax adjustment in respect of:

• Capital goods not used in taxable services;

• Goods/services on which tax is not paid or paid before the commencement of this Act including carried forward input tax;

• Utility bills not in the name of the registered person;

• Tax not deposited by the service provider or evidence of payment is not produced;

• Goods/services liable to reduced rate(less than 16%) or specific rate (not based on value);

• Output tax is charged on less general rate i.e. 16%;

• Food, clothing, entertainment, gifts and giveaways etc;

• Goods/services not used for taxable services;

• Tax paid under Federal or other Provincial laws on goods/services for which reciprocal adjustment of tax paid under PRA is not allowed;

• Goods not declared by the supplier in his return;

• Goods used as final consumerexcluding those exclusively used in the economic activity of the registered person;

• Further tax, extra tax and value addition tax levied under Sales Tax Act, 1990

• Other notified goods/services; • Tax paid as final tax or fixed tax.

Section 35

A Statement filed by a person in the prescribed form shall be treated as a return if he is only obliged to withhold/deduct tax.

Section 48

Penalty for default in filing of return within due date has been enhanced to Rs.10,000 from

Rs.5,000 and Rs.200 from Rs.100 per day for continued default.

Section 60

Base value for the cases to be referred to Deputy Commissioner of one million rupees has been omitted.

Second ScheduleScope of following services enhanced as under

a. Hotels, clubs etc. – to include services provided on membership basis.

b. Advertisement on radio/television - to include services showcasing of any product or service in video programs, tv programs, motion pictures or music albums.

c. Advertisement services - to include brand activation in any mode, advertisement on moving vehicles, cell phones, ATMs etc.

d. Construction services- to include services for water/gas supply, roads and bridges, electrical and mechanical works, horticultural works, turnkey projects etc.

e. Business support services- to include business auxiliary services

f. Cleaning services- to include collection and processing of domestic waste and street cleaning services

g. Transportation services- to include transmission lines

Construction Services provided to Government civil works, including those of Cantonment Boards, have now been made taxable at prevailing rate of 16%.

Following services are made taxable with effect from July 01, 2016:

• Cosmetic and plastic surgery and hair transplant excluding for acid/burn victims;

• Warehouses or depots for storage including cold storage;

23

• Packers including handling and packing services.

It is pertinent that the lower rate regime for certain services introduced vide SRO number SO(TAX)1-1/2015-16 (VoI.II) dated January 11, 2016 stands expired on June 30, 2016. Extension to this regime has neither been provided through Finance Act, 2016 nor has any SRO yet been issued. Consequently, rate of tax shall be sixteen percent on the services previously falling under lower regime with effect from July 01, 2016.

Punjab Motor Vehicle Taxation Act, 1958Option is provided to the owners of

• Mechanical power tricycle to pay tax on lump sum basis of Rs.3,000;

• Motor vehicle having engine capacitybetween 1000 cc and 1300 cc to pay lump sum tax for 3 years;

Final date for availing 10% rebate on the amount of tax is extended from end of July to end of August. Also lump sum payment can be made any time during the year.

Punjab Finance Act, 1973Rate of fee for vehicles having engine capacity of 1000 cc to 1500cc and 1500 cc to 2000 cc has been enhanced to 2% and 3% of the value of the vehicle respectively.

Tax on Imported Motor CarsOne time tax on imported motor cars with engine capacity exceeding 1300 cc registered after June 30, 2016 is to be levied at following rates:

ENGINE CAPACITY TAX RATES

1300 cc – 1500 cc Rs.70,000

1500 cc – 2000 cc Rs.150,000

2000 cc – 2500 cc Rs.200,000

Greater than 2500 cc Rs.300,000

24

KPK FINANCE ACTStamp Act, 1899Stamp fee for following has been increased in following manner:

• Affidavits - from Rs.60 to Rs.100• Allotment of residential open plots - from

Rs.200 to Rs.300 per Marla and on allotment of commercial open plots -from Rs.400 to Rs.600 per Marla;

• Arms licenses of non-prohibited borefrom Rs.150 to Rs.300 and in case of prohibited bore from Rs.1,000 to Rs.1,500

• Form X and form XII prescribed under the Arms Rules - from Rs.2,500 to Rs.5,000

• Various types of ‘Power of Attorney’-from Rs.300 to Rs.600 and from Rs.900 to Rs.1,500.

West Pakistan Urban Immovable Property Tax Act, 1958For the computation of property tax a new category “C locality” is introduced and is given a weightage of 5%. West Pakistan Motor Vehicle Taxation Act, 1958Rates for levy of motor vehicle tax has been enhanced through substitution of the existing Second Schedule.

West Pakistan Finance Act, 1964Electricity duty on variable charges or supply charges of electricity consumed for the following has been reduced:

• Domestic from 8% to 1.5%• Commercial from 5% to 1.5%• Industrial from 5% to 1%• Tube wells for irrigation and agriculture

machinery @ 1% and • Premises where the supply of energy by

a licensee is un-metered @ 1.5%.

West Pakistan Motor Vehicles Ordinance, 1965Provincial Government is empowered to introduce system for series of vehicles registration, number plates and other registration documents to be affixed or used with the motor vehicle.

Khyber Pakhtunkhwa Finance Act, 1990Association of persons and individual firms are included under the ambit of professional tax at the specified rates. The intention is to tax ‘Association of Persons’ and ‘Individual Firms’ on similar basis as in case of limited liability companies.

Khyber Pakhtunkhwa Finance Act, 2013Section 41

A resident person receiving taxable services from a non-resident person in terms of section 19(2) of the Act is to be treated as a registered person for the purposes of the tax period in which the resident person receives the services, or the invoice is sent by the non-resident person or consideration is paid, whichever is earlier.

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Section 56

The Finance Act 2016 substituted the requirement for the Authority to frame regulations to define powers and pecuniary &territorial jurisdiction of officers. Officers are to exercise powers and discharge duties in the manner conferred upon them under the Act and regulations made thereunder. According to Section 56 (2), the Authority is empowered to impose limitations, restrictions or conditions to discharge powers and duties by the officers through passing of a general or a special order.

Section 56A

A new section has been inserted, after section 56 (Appointment of Officers) which prescribes that powers of a senior officer could be exercised or performed by a junior officer, subject to specified conditions and limitations imposed by the Authority. Purpose of this amendment is to cater for shortage of officers available with the Authority by providing legal cover for delegation of authority.

Section 84

The Finance Act 2016 has clarified that an order passed by the Collector or Authority under any of the provisions of the Act as an appealable order before the Appellant Tribunal. It means that the taxpayer or the officer (not below the rank of an Additional Collector) can challenge in appeal the order of the Collector or the Authority passed under any provision of the Act directly before the Appellant Tribunal.

Section 114

The Finance Act has removed requirement for the Authority to seek approval from the Council to make regulations or specify procedures, not inconsistent with the rules, to give effect to the purposes of the Act except where the relevantprovisions of the Act specifically provides for such approval to be obtained.

Powers of officers of the KPK Revenue Authority has been elaborated by:

• Empowering an officer to exercise powers and discharge duties of subordinate officers; and

• Empowering the authority to limit, restrict or impose conditions on exercise of powers by the officers.

Following new services have been included in the First Schedule (but are not included in the Second Schedule):

• Facilities for travel by road;• Cargo services by road;• Visa processing services including

advisory or consultancy services for foreign education or for migration; and

• Valuation services including competencyand eligibility testing services.

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