Budget Insight 2010

7/29/2019 Budget Insight 2010

1/58

2010-2011

Avais Hyder Liaquat Naum anChartered Accountants

A Correspond ent f i rm of RSM Intern ational

[BUDGET INSIGHT - 2010]


2/58

Fina n ce Bi ll 20 10

Avais Hyder Liaquat NaumanChartered AccountantsA Correspondent firm of RSM International

Avais Hyder Liaquat Nau man

Char ter ed Accoun tan ts

Pakistan

Nation wide presence with largest network of offices in 6 major cities.

International presence with office in Kabul, Afghanistan.

Personnel strength of around 300.

Wide range of commerce/industry related services.

Correspondent firm of RSM International.

o RSM International is the sixth largest network of independent accounting and

consulting firm in the world.

o RSM International has 93 affiliate member and correspondent firms in 76 countries.

o 736 offices worldwide.

o 32,492 staff including 3,150 partners

o Combined fee income of US$ 3.87 bn.


3/58



With Complimen t

To our Valued Clien ts an d Associates

We are pleased to present the 2010 Budget Insight as part of our continued services to

provide all our clients and associates with up-to-date information affecting them and their

business.

This memorandum has been prepared as a general guide for the benefits of our clients and

is available upon request. This is not an exhaustive commentary and only lays down

interpretations of the amendments proposed in Finance Bill 2010 and takes into

consideration important aspects of the changes made.

It is recommended that the text of the Bill and the relevant notifications/provisions,

where applicable, be referred to in considering the interpretation of any provision. These

comments are correct to the best of our knowledge and belief at the time of printing.

If you require any information or have enquiries with regard to the budget

announcements, please do not hesitate to contact our Partners, Syed Naveed Abbas or Mr.

Adnan Tirmizi.

We trust that you will find this guidebook useful.

Avais Hyder Liaqu at Nau ma n

Chartered Accountants


4/58



TABLE OF CONTENTS

SENIOR PARTNERS MESSAGE........................................................................................................... 1

STATE OF THE PAKISTAN ECONOMY.............................................................................................. 2

SUMMARY OF BUDGET 2010-11 ...................................................................................................... 6

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

SALES TAX & FEDERAL EXCISE DUTY...................................................................................... 9

CUSTOMS DUTY.............................................................................................................................10

PROPOSED AMENDMENTS IN THE INCOME TAX ORDINANCE, 20 01.................................14

PROPOSED AMENDMENTS IN SALES TAX ACT, 1990 ..............................................................39

PROPOSED AMENDMENTS IN FEDERAL EXCISE ACT, 2005 ..................................................43

PROPOSED AMENDMENTS IN THE CHAIRMAN AND SPEAKER (SALARIES,

ALLOWANCES AND PRIVILEGES) ACT, 1975 (LXXXII OF 1975) ..........................................48

PROPOSED AMENDMENTS IN CUSTOMS ACT, 1969 (IV OF 1969) ......................................4 9

PROPOSED AMENDMENTS IN THE PETROLEUM PRODUCTS (SURCHARGE)ORDINANCE, 1961 (XXV OF 1961) .................................................................................................52


5/58


Avais Hyder Liaquat Nauman 1Chartered AccountantsA Correspondent firm of RSM International

SENIOR PARTNERS MESSAGE

There is a dire need for revamping the taxation system on modern and progressive

lines which is an essential pre-requisite for the containment of public debt and to

control inflation on a sustained basis. The introduction of VAT, if properly managed

would go a long way in achieving these goals. There is also an urgent need to

heavily reduce government borrowings which have substantially increased over

the past two years.

Reduction in government borrowings together with rationalization of the tax

structure would encourage savings and release larger financial resources to the

private sector and would also help bring down further the mark-up rates.

Modernization / rationalization of the tax system should include extension of

direct taxation to agriculture and services sectors and expansion in the income tax

base by bringing new companies / individuals in the tax net, by plugging loopholes,

by removing concession and exemptions and by improving the tax administration.

An ideal fiscal policy ensures economic growth by reducing deficit financing,

putting no new or additional taxes on common man, encouragement for industrial

investment and personal savings and a sizeable increase in the developmentoutlay. No doubt fiscal space is terribly constrained due to debt servicing and

defense, both of which appear to be irreducible rather in fact have continued to

increase.

In my message for Finance Bill 2008 I had talked of reducing the fiscal deficit to

less than 5% of GDP which was in excess of 7% in the earlier fiscal year, the

budgeted fiscal deficit is 4% of the GDP, which should be strictly followed as

otherwise it is a cause of great concern as it negates all what is required to put the

economy on the right track. I believe that only well tuned management of theeconomy will make it possible to achieve that while adopting practical austerity

measures and curtailing lavish spending.


6/58



STATE OF THE PAKISTAN ECONOMY

Due to inflation and economic crisis worldwide, Pakistan's economy reached a state of

Balance of Payment crisis. "The International Monetary Fund bailed out Pakistan in

November 2008 to avert this crisis and in July last year increased the loan commitment to

$11.3 billion from an initial $7.6 billion."

Economic Comp ar ison of Pakista n 19 99-200 8

Indicator 1999 2007 2008

GDP $ 75 billion $ 160 billion $ 170 billion

GDP Purchasing Power

Parity (PPP)$ 270 billion $ 475.5 billion $ 504 billion

GDP per Capita Income $ 450 $ 925 $1085

Revenue collection Rs. 305 billion Rs. 708 billion Rs. 990 billion

Foreign reserves $ 1.96 billion $ 16.4 billion $ 8.89 billion

Exports $ 7.5 billion $ 18.5 billion $ 19.22 billion

Textile Exports $ 5.5 billion $ 11.2 billion -

KHI stock exchange (100-

Index)

$ 5 billion at 700

points

$ 75 billion at 14,000

points

$ 46 billion at 9,300

points

Foreign Direct Investment $ 1 billion $ 8.4 billion $ 5.19 billion

External Debt & Liabilities $ 39 billion $ 40.17 billion $ 45.9 billion

Poverty level 34% 24% -

Literacy rate 45% 53% -

Development programs Rs. 80 billion Rs. 520 billion Rs. 549.7 billion


7/58



Since the beginning of 2008, Pakistan's economy has been in a state of stagnation. Security

concerns stemming from the nation's role in the War on Terror have created great

instability which is the main cause of a decline in FDI from a height of approximately $3.2

bn to $1.8 bn for the fiscal year 2009-10. Concurrently, the insurgency has forced massive

capital flight from Pakistan to the Gulf. Combined with high global commodity prices, the

dual impact has badly rattled Pakistans economy, with gaping trade deficits, high inflation

and a crash in the value of the Rupee, which fell from 60-1 USD to over 80-1 USD over a

period of a few months.

Despite a modest recovery and stabilization the economy is still very fragile as the

durability of the economic turnaround is far from assured given the significant challenges

the economy faces. Secondly, not all sectors of the economy or regions of the countryappear to have participated so far in the modest upturn. In order to meet the employment

aspirations of the large number of entrants to the labour force, a higher sustained growth

rate will need to be achieved in the medium term.

A combination of limited fiscal space and rising spending, debt, and inflationary pressures,

significantly reduce the governments ability to spend in order to stimulate the economy.

Under the circumstances, the prudent course for the policy makers to follow in the near

term remains the pursuit of greater fiscal consolidation through domestic resource

mobilization, in conjunction with reducing the size of government, and improving the

efficiency of public sector spending.

The situation of public debt is worsening day by day. Pakistans total public debt stood at

an estimated Rs. 8,160 billion as of end March 2010. At this level, public debt is equivalent

to 56% of GDP, and 379% of total budgeted revenue for the year. Of the total, Rupee

denominated debt amounted to 31% of GDP, while foreign currency denominated debt was

the equivalent of 25% of GDP.

The macroeconomic context remains difficult in the near term with continuing challenges.The global economy remains in turmoil, with uncertain prospects for demand for

Pakistans exports. In addition, the energy and water shortage, and the internal security

situation, may continue to constrain growth in 2010-11.


8/58



The following table shows a comparison of macroeconomic indicators for the last two

years:

S.No. Indicator 2009-10 2008-09 Remar ks

1 Gross Domestic Product

(GDP)

4.1% 1.1% Favourable

2 Manufacturing sector

Growth

5.2% 5.4% Unfavaourable

3 Inflation Rate 11.5% 22% Favourable

4 Literacy Rate 57% 56% Favourable

5 Per capita income US $ 1,051 US $ 1,071 Unfavourable

6 External Current Account

Deficit

5.6% of GDP

(US $9.3

Billion)

8.3% of GDP

(US $ 13.9

Billion)

Favourable

7 Fiscal Deficit 5.2% of GDP 7.6% of GDP Favourable

8 Foreign Exchange

Reserves

US $ 16

Billion

US $ 11.6

Billion

Favourable

9 International Credit Rating

(Moody)

B Minus CCC Favourable

10 FDI US$ 1.8

billion

US$ 3.2 billion Unfavourable

11 Unemployment Rate 5.5% 5.2% Unfavourable

The medium term prospects for the economy however are promising, provided the current

path of reform is not abandoned. Pakistan has achieved fairly impressive early success in

its efforts to stabilize the economy from a perilous state of affairs in the aftermath of themacroeconomic crisis of 2008. Protecting the recovery is of paramount importance, and the

government needs to keep a strong check on public spending. Greater realism about the

prospects and accurate forecasts about resources and available funds for the development

plans at each level of government is needed. A number of interlinked actions are needed in

the coming year:


9/58



- Checking inflationthis involves limiting borrowing by the government and the

public sector.

- Bringing people to the centre stage, by appropriately designed employment and

training programs to protect those in strifeaffected areas, and new entrants to the

labour force.

But there are major risks to the growth and stabilization prospects if there is

- Non-implementation of the reform of the GST, leading to a VAT, or other significant

tax broadening measures

- This might affect the phased nature of fiscal devolution envisaged under the

Eighteenth Constitutional amendment (to be effective from 2011-12), in the context

of the frontloaded transfers to the provinces under the Seventh NFC Award

(effective from July 1, 2010);- Larger than budgeted security related expenditures;

- Inadequate targeting of subsidies,

- Failing to reform public sector enterprises, including the power sector, with no

resolution of the energy circular debt issue;

- Continued overhang of commodity financing debt stock, if unchecked, threatens to

constrict access to bank credit by the private sector, while simultaneously

increasing the interest rates in the economy;

- A deterioration of the internal security situation.

The tipping of the world economy into a severe recession in the wake of the Euro zone debtcrisis, could hurt Pakistans exports as well as remittances on the one hand, but could

reduce international prices of key commodities such as oil, on the other.

With relatively low levels of capacity utilization in the economy, a turnaround in investor

confidence can unleash large productivity gains even with low levels of fixed investment.

Nonetheless, overall, a combination of rising fiscal pressures, a developing debt overhang,

and an uncertain path of inflation in the near term, significantly reduces policy space to

stimulate the economy.

For the longer term, efforts to meaningfully address Pakistans perennial structuralchallenges, such as the abysmally low tax/GDP ratio and low overall productivity in the

economy, are more than likely to unlock Pakistans substantial economic potential.


10/58



SUMMARY OF BUDGET 2010-11

INCOME TAX

i. For taxpayers deriving their incomes from Salary and business, the limit of Basic

Exemption is proposed to be enhanced from Rs.200,000/- to Rs.300,000/- in

respect of Salaried taxpayers, while in the respect of Non-Salaried taxpayers it has

been proposed to be enhanced from Rs.100,000/- to Rs.300,000/-.

ii. The maximum rate of advance tax deductible under section 235 on monthly

electricity bills is proposed to be reduced from 10% to 5%, on the amount of the

bills payable.

iii. Senior Citizens of the age of 60 years or more, are to be eligible for relief of 50% of

tax on their income, if their income does not exceed Rs.1,000,000/- as compared to

previous maximum limit of Rs.750,000/-. However this relief shall not be available

on income subject to Presumptive Tax Regime.

iv. To rehabilitate the economy of Khyber Paktunkhwa, FATA and PATA, some

amendments are proposed to be introduced in the Income Tax Law. These measures

provide following reliefs to industrial and commercial taxpayers hailing from

severely and moderately affected areas, as prescribed:

a. Waiver of entire amount of default surcharge & penalty till 30th June 2010;b. Exemption from advance tax on electricity for tax years 2010 and 2011;

c. Exemption from withholding tax on exports;

d. Enhancement of income tax exemption limit from Rs.0.1 million to Rs.0.3

million;

e. Exemption from advance tax on import of plant and machinery upto 30th

June 2011;

However these concessions shall not be available to manufacturers and suppliers of

cement, sugar, beverages and cigarettes.

v. For the wellbeing of disabled persons, 100% depreciation expense can be claimed

on Ramp built to provide access to disabled persons, is proposed through a new

provision to be inserted in the law.

vi. Exemption from taxation of perquisites on waiver of employees obligation to pay or

repay, an amount owed to employer, is proposed.


11/58



vii. In order to facilitate the withholding agents, instead of e-filing monthly, quarterly

and annual withholding tax statements, the e-filing of only quarterly withholding tax

statements is proposed;

viii. A Tax credit for BMR (Balancing, Modernization & Replacement) costs incurred by

such a company is proposed to be provided @ 10% for the tax year of its incurrence.

This concession has been proposed to be admissible for the tax years 2011 to 2015;

ix. To encourage enlistment of corporate sector, a 5% tax credit is proposed to be

allowed to a company in the tax year of its enlistment.

x. In order to align with rest of the scheme, 10% withholding tax deductible on

Government Securities is proposed to be a FINAL tax.

xi. Withholding tax deductible on debt instruments is proposed to be a FINAL tax, in

order to relieve the non-resident taxpayers of statutory requirement for filing

income tax return.

xii. For providing incentive to foreign lenders for tax-free repatriation of profits earned

on foreign industrial loans, Clause 72(iii) of Part-IV of Second Schedule to the

Income Tax Ordinance 2001 is proposed to be re-instated. The maximum rate of

withholding tax deductible on payments made to non-resident taxpayers who are

not subject to Avoidance of Double Taxation Treaties

xiii. (other than payments made on account of royalty and fee for technical services) is

proposed to be @ 20% instead of 30%;

xiv. The rate of withholding tax deductible @ 20% on cross-word puzzles is proposed to

be reduced to a rate of 10%;

xv. A uniform tax rate for small companies as well as AOPs is proposed @ 25% of their

taxable income.

xvi. Advance tax deductible on imports made by commercial importers is proposed to be

enhanced to @5% which would continue to be FINAL tax.

xvii. Tax on capital gains accruing on account of holdings of stocks/shares/securities for

six-months or less is proposed @ 10%, while holdings of stocks/shares/securities

exceeding six-months is proposed @ 7.5%. However no tax has been proposed on

such capital gains where holding period exceeds 12 months.

xviii. Advance tax deductible on goods transport vehicles under Item (1) of Division-III ofPart-IV of Second Schedule to the Income Tax Ordinance 2001 are proposed to be

abolished, and tax is proposed @ Re.1 per kilogram of the laden weight capacity of

goods transport vehicle. No change has been proposed in the rate of tax on goods

forwarding contracts, which remain taxable at the existing rate of 2%.


12/58



xix. Advance tax deductible on Cash Withdrawals from Banks, various banking

transactions including modes like withdrawals through Demand Draft, Pay Order,

Online Transfer, Telegraphic Transfer, TDR, CDR, STDR and RTC, are proposed to be

subject to 0.3% deduction of the advance tax, if such transactions exceed threshold

of Rs.25,000/- in a single day. The advance tax is adjustable.

xx. Turnover Tax on Loss Making Companies is proposed to be enhanced to @ 1%.

xxi. Withholding tax on gross value of Inland Air Ticket has been proposed @ 5%. Under

the scheme the Inland Air-Ticketing persons shall withholding the tax, which will be

adjustable against the tax liability of the purchaser of such ticket;

xxii. Section 4 of the Income Tax Ordinance 2001 is proposed to be amended to include a

reference regarding tax credit on account of share of profits received by a company

from an AOP.

xxiii. In order to bring clarity, expression CD appearing in Division-V of Part-IV of First

Schedule to the Income Tax Ordinance 2001 is proposed to be replaced by any

electronic medium.

xxiv. The mandatory requirement of Filing of Wealth Statement by the Taxpayers in FTR

cases with yearly tax amounting to Rs.35, 000/- is proposed to be included in

section 116 of the Income Tax Ordinance 2001.

xxv. For enforcing checks on non-compliant taxpayers, and to encourage compliant-

taxpayers, a new section 181A is proposed to be inserted in the Ordinance.

xxvi. In order to streamline accounting of Advance Tax payments, certain amendments

are proposed in section 147 of the Ordinance, so that quarterly advance taxpayments are paid by 25th of last month, as compared to earlier requirement of

such payments by 15th of every month after the end of a quarter.

xxvii. Through an editorial amendment, the reference of minimum tax on importer of

edible oil and packing materials under section 148, is proposed to be incorporated

in provisions referring to final tax on the income of an importer.

xxviii. For the purposes of clarity, through an editorial amendment the reference of sub-

section (1AA) of section 152 is proposed to be inserted in sub-section (2) of section

152.

xxix. In order to rationalize the definition of Prescribed Persons as given in sub-section(9) of section 153, an individual with turnover of Rs.50 millions or above is

proposed to be added.

xxx. In order to perceive better audit of withholding taxes, the withholding agents shall

be required to e-file quarterly statements even in the cases where no-tax was

deducted. For the purpose of alignment and uniformity, the words a person


13/58



collecting tax are proposed to be replaced with the words a withholding agent in

sub-section (2) of section 165.

xxxi. Editorial amendments in Section 236A of the Ordinance are proposed in order to

bring clarity and remove confusion about the charge of advance tax on public

auction of all kind of property including confiscated or attached goods.

xxxii. On merger of Investment Corporation of Pakistan with Industrial Development

Bank, the exemption available to ICP on dividend received from any other company

is proposed to be withdrawn.

xxxiii. Exemption under clause (52) of Part-IV of the Second Schedule to the Income Tax

Ordinance 2001 available to Vanaspati Ghee or Oil is proposed to be withdrawn, in

view of demise of SRO. 593(I) 1991 Dated 30th June 1991.

SALES TAX & FEDERAL EXCISE DUTY

MEASURES (FY 2010-11)

The budgetary measures pertaining to Sales Tax & Federal Excise are primarily aimed at:

i. Enhancing the federal excise and sales tax revenues without inducing any additional

burden on the common man and poor segments of society.

ii. Distributing the burden of extra taxation measures on all sectors of the economy.

iii. Enhancing tax incidence on cigarettes which are injurious to health.

BRIEF POINTS ON MAJOR FISCAL MEASURES:

RELIEF MEASURES

i. Withdrawal of restriction on adjustment of Federal Excise Duty paid on beverage

concentrate.

ii. Withdrawal of restriction on adjustment of FED paid on beverage concentrate is

aimed at attracting new investment in beverage industry and reducing the prices of

aerated waters in the country.

REVENUE MEASURES

i. Increase in the rate of sales tax from 16% to 17%.


14/58



ii. Increase in the rate of sales tax from 16% to 17% is aimed at distributing the

burden of extra tax measures on all sectors of the economy.

Enforced through amendment in Section 3 of the Sales Tax Act, 1990, effective from the 1st

July, 2010 and Notifications Nos. SRO 395 to 398(I)/2010, dated 05.06.2010.

i. Increase in rate of Federal Excise Duty on Natural Gas from Rs. 5.09 per MMBTu to

Rs. 10/- per MMBTu.

ii. Enhancement of rate of Federal Excise Duty on Natural Gas is aimed at

implementation of the NFC recommendations.

Enforced through amendment in Table I of First Schedule to the Federal Excise Act, 2005,

effective from the 1st July, 2010.

i. Upward revision of Federal Excise duty structure on cigarettes.

ii. Enhancement of rate of Federal Excise Duty on locally produced Cigarettes in

different slabs is aimed at bringing tax incidence on cigarettes up to the

international standards and discouraging smoking.


effective from the 6th June, 2010.

i. Levy of Federal Excise Duty @ Rs. 1/- per filter rod of cigarettes.

ii. Levy of Federal Excise Duty @ Rs. 1/- per filter rod for cigarettes is aimed at

realization of revenue on sale of filter rods to unregistered and illicit manufacturers

of cigarettes. Enforced through amendment in Table I of First Schedule to the

Federal Excise Act, 2005, effective from the 6th June, 2010.

iii. Levy of 10% Federal Excise Duty on electricity intensive home appliances

iv. Levy of Federal Excise Duty on electricity intensive home appliances is aimed at

reducing the consumption of electricity and generation of some extra revenue.


effective from the 6th June, 2010.

CUSTOMS DUTY


15/58



Policy Objectives :

i. Relief to general public

ii. Minimizing the cost of doing business.iii. Industrial incentives for growth and expansion.

iv. Boosting the export oriented sectors.

v. Amendments in legal provisions to make them more transparent and simple.

1) Relief Measures:

i. Reduction of customs duty on crude palm oil from Rs.9,000/MT to Rs.8,000/MT to

decrease cost of vegetable ghee and oil.

ii. Exemption of customs duty on import of photographic plates and film for X-ray to

lower cost of medical diagnoses for general public.

iii. Reduction of duty to 5% on pharmaceutical raw materials and drugs to provide

relief to common man.

iv. Reduction of duty on equipment for dedicated use of renewable energy to

encourage use of renewable energy resources.

v. Reduction of duty on raw materials for laundry soap and detergent to provide relief

to general public.

vi. Concession of customs duty on import of Road Sweeping Lorries to increase

efficiency of municipal and local governments.

vii. Exemption of customs duty on import of fully dedicated LPG buses and dispensing

equipment to encourage use of cheaper environment friendly fuel.

2) Incentive to Local Industr y:

i. Exemption of customs duty on import of raw materials/components for energy

saving lamps to support its local manufacturers.

ii. Exemption of customs duty and sales tax on rice processing machinery to boost

value addition and export of rice.

iii. Reduction of duty on raw materials of leather industry to encourage leather exports.

iv. Reduction of duty on raw materials of glass industry to make them more

competitive.


16/58



v. Reduction of duty on secondary quality tin mill black plate for manufacturers of tin

plate to reduce their manufacturing cost.

vi. Exemption of duty on milk filters to support dairy industry.

3) Tariff rat ionalization:

i. Exemption of duty on other than pure bred breeding animals to bring their duty at

par with pure bred breeding animals.

ii. Rationalization of duty on glucose and glucose syrup to avoid misdeclaration.

iii. Rationalization of duty on prepared industrial colours to rationalize their duty

structure.

iv. Inclusion of LED T.V. in industry specific concessionary regime to encourage their

local manufacturing.

v. Levy of 5% concessionary duty on copper & aluminum tubes and electro galvanized

steel sheets if imported by manufacturers of evaporators and washing machines.

vi. Exemption of duty on silk yarn spun from other than silk waste to rationalize tariff.

vii. Rationalization of duty on two PCTs of adhesives.

4) Miscellaneous:

i. Creation of separate PCT code for auto parts scrap in pressed bundles to streamlineits clearance process.

ii. Correction of PCT code for asphalt paver.

iii. Correction in description of PCT codes 6813.2010 & 6813.8110.

iv. Rationalization of PCT code 3920.6300 with Pak-China FTA.

5) Legal Chan ges in Cust oms Act, 196 9

i. Keeping in view the change in rate of exchange of US $ vis--vis Pak rupees and

increase in prices of gold and other items the limit for taking cognizance under thesmuggling related provisions is being enhanced from Rs.50,000/- to Rs.150,000/-.

ii. The valuation formula for the goods to be exported is being simplified by including

regulatory duty instead of export duty in section 25 in sub-section (15)(b).

iii. The customs value determined under section 25A shall be applicable until and

unless revised or superseded or rescinded by the competent authority.


17/58



iv. Section 25D is being elaborated by inserting the words under section 25A in order

to clarify that review application before Director General Valuation shall lie in cases

of the values determined by Director Valuation or Collector of Customs under

section 25A. For filing a review application under section 25D, the time period of 30

days from the date of determination of customs value is being fixed.

v. Section 32 is being amended so that cognizance could be taken in cases where

revenue is paid through self assessment in order to curb the tendency of mis-

declaration and less payment of revenue through computerized clearance system.

vi. Section 32A is being amended by inserting words and comma payment of revenue

through self-assessment, to curb the tendency of deliberate wrong self-assessments

on the part of the importers.

vii. Proviso to sub-section (1) of section 79 is being amended in order to restrict the

facility of filing of goods declaration after examining the goods by the importer toonly in case of used goods. Besides, the permission for filing of goods declaration

after examination of goods can now only be granted by the Additional Collector.

viii. Section 81, sub-section (2) is being amended in order to finalize the cases of

provisional assessment within three months.

ix. Section 81, sub-section (4) is being amended in order to streamline procedure for

passing an order after final determination of provisional assessment.

x. Section 156, sub-section (1), is being amended to enhance the general penalty to the

extent of Rs.50,000/-.

xi. Section 156, sub-section (1), clause (64) is being amended to enhance the penalty tothe extent of not less than twice the value of the offending goods besides the

confiscation of goods for violation of section 128 and 129 of Customs Act, 1969. This

penalty will create a deterrence vis--vis the smuggling of transit trade goods.

xii. In section 194A, sub-section (1), a new clause (e) is being added which would

enable any person or an officer of Customs to file an appeal before the Appellate

Tribunal in cases of review order passed by the Director General Customs Valuation

under section 25D provided the appeal is heard by the double bench of the

Appellate Tribunal.


18/58



PROPOSED AMENDMENTS IN THE

INCOME TAX ORDINANCE, 2001Section 2 (2)

(Definition

substituted)

Appellate Tribunal

This amendment seeks to provide unified Appellate Tribunal for

domestic taxes. Many such changes have been proposed to brought in

line the change already made by unifying domestic taxes. These changes

had been made vide Finance (Amendment) Ordinance, 2009. However,

these are now being proposed in the Finance Bill to obtain the approval

of the National Assembly.

App r opr iate officer a nd Associate (associated pe rs ons)

As already discussed above, the amendment seeks to change the names

of the authorities mentioned in these definitions to represent the

change already introduced by unifying three domestic taxes under one

authority. i.e. Inland Revenue. These changes had been made vide

Finance (Amendment) Ordinance, 2009. There are many such changes

in the Income Tax Ordinance, 2001 the detail of which is as under:

Section 2(11A), Section 2(13), Section 2(13A), Section 2(38A) & Section122A(1)

Section 13

(Amendment

in section)

Value of per qu isites

At the end of sub section 7 of section 13, following proviso shall be

inserted:

Provided that this sub section shall not apply to such benefit arising to

an employee due to waiver of interest by such employee on his account

with the employer.

The said proviso seeks to provide exemption in such benefit to

employee due to waiver of his right of interest on any account balance

of employee with the employer.

Section 37 Capital Gains


19/58



(Amendment

in section)

The proposed amendment shall exclude shares of public companies

including the vouchers of Pakistan Telecommunication Corporation,

modaraba certificates or any instrument of redeemable capital as

defined in the Companies Ordinance, 1984 (XLVII of 1984) from the

purview of section 37 as these are now dealt with u/s 37A specifically.

Further it is proposed to exclude stocks and shares from the definition

of capital assets.

Section 3 7A

(Newly

inserted

section)

Cap ita l Gain s on sale of Secur ities

The purpose of the proposed amendment is to tax the capital gains

arising on sale of securities as under:

i. Securities sold within 6 months of their purchase shall betaxable @ 10%.

ii. Securities sold within 6 to 12 months of their purchase shall betaxable @ 7.5%.

iii. Securities sold after 12 months of their purchase shall not betaxable.

Provided further that the provisions shall not apply to a banking

company.

Securities means shares of a public company, vouchers of Pakistan

Telecommunication Corporation, Modaraba Certificates or instruments

of redeemable capital.

The amount of capital gain under this section shall be treated as a

separate block of income.

Section 6 5B

(Newly

inserted

section)

Tax Cr edit for Invest me nt

1) where a taxpayer being a company invests any amount in the

purchase of a plant and machinery for installation, for the purposes

of balancing, modernization and replacement in an industrialundertaking set up in Pakistan and owned by it, credit equal to ten

per cent of the tax payable shall be allowed for the tax year in which

the said costs are incurred against the tax payable by the company.

2) The provisions of sub-section (1) shall apply if the plant and


20/58



machinery is purchased and installed at any time between the first

day of July, 2010, and the 30th day of June, 2015.

3) Where any credit is allowed under this section and subsequently itis discovered by the Commissioner Inland Revenue that any one or

more of the conditions specified in this section was, or were, not

fulfilled, as the case may be, the credit originally allowed shall be

deemed to have been wrongly allowed and the Commissioner

Inland Revenue may, notwithstanding anything contained in this

Ordinance, re-compute the tax payable by the taxpayer for the

relevant year and the provisions of this Ordinance shall, so far as

may be, apply accordingly.

The proposed tax credit shall be in addition to tax credits available to ataxpayer.

Section 6 5C

(Newly

inserted

section)

Tax Cr edit for Enlistme nt

Where a taxpayer being a company opts for enlistment in any

registered stock exchange in Pakistan, a tax credit equal to five per cent

of the tax payable shall be allowed for the tax year in which the said

company is enlisted.

The proposed tax credit shall be in addition to tax credits available to a

taxpayer and it will promote companies to be listed on stock exchange.

Section 87

(Newly

inserted sub-

section)

Deceased Individuals

The proposed change shall create 1st charge of tax recovery on

deceaseds estate against his liability.

Section 1 11

(Amendment

in section)

Unexplained income or assets

The proposed amendment seeks to tax the unexplained income or asset

in the tax year to which it relates, currently it was taxable in the year

preceding to tax year in which it was discovered.

The effect of proposed omission is that the unexplained income or asset

relating to a period beyond preceding five tax years or assessment

years can now be probed into by the Commissioner and included in the


21/58



taxpayers income.

Section

113(1)

(Amendment

in section)

Minimum ta x on the income of certain pe rson s

The proposed amendment seeks to levy minimum tax on individuals

having turnover of fifty million rupees or above in the tax year 2009 or

in any subsequent tax year and association of persons having turnover

of fifty million rupees or above in the tax year 2007 or in any

subsequent tax year.

The rate of minimum tax is proposed to be 1% instead of 0.5%.

Section 114,

119, 121 &

122

(Section

substituted)

Amen dme nt t hr ough Finance (Amen dme nt) Ordinance, 2009

Section 114(6), 114(6A), Section 119(6), Section 121(1)(a) & Section122(3) proposed to be substituted have already been incorporated

through Finance (Amendment) Ordinance, 2009 which are now added

in the Finance Bill, 2010 for approval by National Assembly.

Section

115(4B)

(sub-section

omitted)

116(4)

(Newly

inserted sub-

section)

Persons not r equired to furnish a r eturn of income

The mandatory requirement of Filing of Wealth Statement by the

Taxpayers in FTR cases with yearly tax amounting to Rs.35,000/- is

proposed to be included in section 116 of the Income Tax Ordinance

2001.

Section

116(2A)

(Amendment

in section)

Wealth statemen t

According to the proposed amendment, Where a person files a return

in response to a provisional assessment under section 122C, he shall

furnish a wealth statement for that year along with that return and suchwealth statement shall be accompanied by a wealth reconciliation

statement and an explanation of sources of acquisition of assets

specified therein.


22/58



Section

118(3)

(sectionsubstituted)

Method of fur nishing of ret ur ns and other document s

A return of income for any person (other than a company), an Annual

Statement of deduction of income tax from salary, filed by the employerof an individual or a statement required under sub-section (4) of

section 115 shall be furnished as per the following schedule, namely:-

(a) In the case of an Annual Statement of deduction of income tax from

salary, filed by the employer of an individual, return of income

through e-portal in the case of a salaried person or a statement

required under sub-section (4) of section 115, on or before the 31st

day of August next following the end of the tax year to which the

return, Annual Statement of deduction of income tax from salary,

filed by the employer or statement relates.

(b) in the case of a return of income for any person (other than a

company), as described under clause (a), on or before the 30th day

of September next following the end of the tax year to which the

return relates.

The proposed amendment seeks to provide the dates of filing of return

of income for various persons.

Section 1 22

(Newly

inserted

section)

Amen dme nt of assessmen ts

The following section is proposed to be inserted:

The Commissioner is deemed to have, and always had, the powers to

amend or further amend an assessment order under sub-section (5A),

where appeal has been filed or decided against the order of the

Commissioner, in respect of any point or issue which was not the

subject matter of such appeal.

Section 12 2C

(Newlyinsertedsection)

Provisional assessmen t

According to this new section where a person fails to furnish return of

total income for any tax year in response to a notice u/s 114(3) & (4),

the commissioner may make a provisional assessment of taxable

income and tax liability.

Provisional assessment order shall be considered as final assessment


23/58



order after the expiry of 60 days from the service of order of

provisional assessment, if the return of total income along with wealth

statement is not filed within the said period of 60 days.

Section 1 24

(Amendment

in section)

Assessm en t giving effect to a n or der

Certain editorial changes are proposed by the finance bill to remove

editorial mistakes.

Section 1 27

(Amendment

in section)

App eal to th e Comm issioner (App eals)

According to the proposed amendment appeal fee against an

assessment order shall be Rs. 1,000/- in case of company and Rs. 200/-

for other than company.

Section 1 30

(Amendment

in section)

Appointm ent of the Appellate Tribun al

According to the proposed amendment Collector having at lease 5 years

experience shall also be eligible for the appointment as an accountant

member of Appellate Tribunal.

Section 13 4A

(Amendment

in section)

Alter na tive Disput e Resolution

Editorial changes are proposed for the harmonization of the

nomenclature of tax authorities.

Section 1 37

(Amendment

in section)

Due d ate for pa yment of tax

According to the proposed amendment tax payable as a result of

provisional assessment order made u/s 122C shall be payable after the

period of 60 days from the date of service of the notice.

Section 13 8B

(Newly

inserted

section)

Estate in bankr uptcy

According to the proposed amendment if a taxpayer is declared

bankrupt, the tax liability under this Ordinance shall pass on to the

estate in bankruptcy. It shall be considered as current expenditure and

shall have preference over other creditors.


24/58



Section 14 6B

(Amendment

in section)

Tax ar re ar s settlement incentives schem e

The word additional tax substituted with default surcharge by the

Finance (amendment) Ordinance, 2009.

Section 1 47

(Amendment

in section)

Advan ce tax paid by the t axpayer

According to the proposed amendment Association of Persons are

required to pay advance tax irrespective of their latest assessed taxable

income. Further, individuals are only required to pay advance tax if

their latest taxable income exceeds Rs. 500,000/-. Previously,

Individuals & AOPs are required to pay advance tax if their latest

taxable income exceeds Rs. 200,000/-.

According to the proposed amendment AOPs are required to pay

advance tax according to their quarterly turnover as like companies.

Further individuals and AOPs are required to pay advance tax as

follows:

Quar ter Pr oposed Existing

September 25th of September 15th of October

December 25th of December 15th of January

March 25th of March 15th of April

June 15th of June 15th of June

Advance tax on capital gains is proposed to be as follows which is

payable within 7 days after the close of each quarter:

Per iod Rate

Where holding period of a security is less

than six months

2%

Where holding period of a security is more

than six months but less than twelve months.

1.5%


25/58



Section 1 48

(Amendment

in section)

Imports

Proposed amendment clarifies that tax on import on edible oils shall

not be final but minimum tax.

Section 1 51

(Amendment

in section)

Profit on debt

According to the proposed amendment tax deducted on profit on debt

from Debt instruments, Government securities including Treasury Bills

and Pakistan Investment Bonds shall be final tax on profit on debt.

Section 1 52

(Amendment

in section)

Payments to non-resident s

The maximum rate of withholding tax deductible on payments made to

non-resident taxpayers who are not subject to Avoidance of DoubleTaxation Treaties (other than payments made on account of royalty and

fee for technical services) is proposed to be @ 20% instead of 30%.

Section 1 53

(Amendment

in section)

Payments for goods and se rvices

According to the proposed amendment an individual having turnover of

Rs 50 million or above in the tax year 2009 or in any subsequent tax

year shall withheld tax while making payments of goods and services.

Section 155 &

169

(Amendment

in section)

Income from proper ty

According to the proposed amendment tax deducted under this section

shall not be the final tax on the income from property. However,

according to the proposed amendment in section 169 income derived

by a person under income from property shall be considered as

assessment under section 120 and the person shall not be required to

furnish a return of income under section 114 for the year.

Further, expression an assessment shall be treated to have been made

under section 120 has been explained.

Section 1 65

(Amendment

in section)

Statements

According to the proposed amendment every person collecting tax

under Division II of this Part III of Chapter XII or deducting tax from a

payment under Division III of this Part IV of Chapter XII shall e-file the


26/58



withholding statements quarterly with following due dates:

Quar ter Due date

September Quarter 20th October

December Quarter 20th January

March Quarter 20th April

June Quarter 20th July

Section 1 74

(Amendment

in section)

Records

According to the proposed amendment the accounts and documents

shall be maintained for 5 years after the end of the tax year to whichthey relate. Currently, accounts and documents needs to be maintained

for 6 years.

Further, where any proceeding is pending before any authority or court

taxpayer shall maintain the record till final decision of the proceedings.

Section 176 &

210

(Amendment

in section)

Notice to obta in infor ma tion or eviden ce

According to the proposed amendment the commissioner is also

authorized to appoint firm of chartered accountants to conduct the

audit u/s 177.

U/s 210, a firm of Cost and Management Accountants may also be

appointed to conduct the audit of persons.

Section 1 77

(Amendmentin section)

Audit

The amendment has already been made through Finance (amendment)

Ordinance, 2009. However, this is now being proposed in the Finance

Bill to obtain the approval of the National Assembly.

Section 1 77

(Newlyinsertedsection)

Active t axpa yer s list

The Board shall have the power to institute active taxpayers list. Activetaxpayers list shall be regulated as may be prescribed.


27/58



Section 1 82

(Section

substituted)

Offences a nd p en alties

Offences and penalties which were given in sections 182, 183, 184, 185,

186, 187, 188, 189 & 190 have been consolidated into this newlysubstituted section with revised rates. Further, no penalty shall be

payable unless an order in writing is passed by Commissioner,

Commissioner (Appeals) or Appellate Tribunal. Accordingly, other

sections relating to offences and penalties have been deleted.

Offences Penalties Relevant section

Where any person

fails to furnish a

return of income or astatement as required

under section 115 or

wealth statement or

wealth reconciliation

statement or

statement under

section 165 within the

due date

Such person shall pay

a penalty equal to 0.1

% of the tax payablefor each day of default

subject to a minimum

penalty of five

thousand rupees and a

maximum penalty of

25% of the tax

payable in respect of

that tax year

114, 115,116 and 165

Any person who failsto issue cash memo or

invoice or receipt

when required under

this Ordinance or the

rules made there

under.

Such person shall paya penalty of five

thousand rupees or

three per cent of the

amount of the tax

involved, whichever is

higher.

174 and Chapter VIIof the Income Tax

Rules

Any person who is

required to apply for

registration under thisOrdinance but fails to

make an application

for registration


a penalty of five

thousand rupees.

181


28/58



Any person who fails

to notify the changes

of material nature in

the particulars of

registration.


a penalty of five

thousand rupees.

181


to deposit the amount

of tax due or any part

thereof in the time or

manner laid down

under this Ordinance

or rules made there

under.


a penalty of five per

cent of the amount of

the tax in default.

For the second default

an additional penalty

of 25% of the amountof tax in default.

For the third and

subsequent defaults

an additional penalty

of 50% of the amount

of tax in default.

137

Any person who

repeats erroneouscalculation in the

return for more than

one year whereby

amount of tax less

than the actual tax

payable under this

Ordinance is paid.


a penalty of fivethousand rupees or


amount of the tax


higher.

137


to maintain recordsrequired under this

Ordinance or the rules

made there under.


a penalty of tenthousand rupees orfive per cent of theamount of tax onincome whichever ishigher

174


29/58



Where a taxpayer

who, without any

reasonable cause, in

non compliance with

the provisions of

section 177:

177

a) fails to produce the

record or

documents on

receipt of first

notice;

b) fails to produce the

record or

documents on

receipt of second

notice; and

c) fails to produce the

record or

documents on

receipt of third

notice.

a) Such person shall

pay a penalty of

five thousand

rupees;

b) such person shall

pay a penalty of

ten thousand

rupees

c) such person shall

pay a penalty of

fifty thousand

rupees


to furnish the

information required

or to comply with any

other term of the

notice served under

section 176


a penalty of five

thousand rupees for

the first default and

ten thousand rupees

for each subsequent

default.

176

Any person who:

a) makes a false or

misleading

statement to an

Inland Revenue

Authority either in


a penalty of twentyfive thousand rupees

or 100% of the

amount of tax shortfall

whichever is higher:

114,115,116,174,176,

177 and general.


30/58



writing or orally or

electronically

including a

statement in an

application,

certificate,

declaration,

notification, return,

objection or other

document

including books of

accounts made

,prepared, given,filed or furnished

under this

ordinance;

b) furnishes or files a

false or misleading

information or

document or

statement to an

Income tax

Authority either in

writing or orally or

electronically;

c) omits from a

statement made or

information

furnished to an

Income tax

Authority any

matter or thingwithout which the

statement or the

information is false

or misleading in a

Provided that in case

of an assessment

order deemed under

section 120, no

penalty shall be

imposed to the extent

of the tax shortfall

occurring as a result of

the taxpayer taking a

reasonably arguable

position on the

application of this

Ordinance to thetaxpayers position.


31/58



material particular.

Any person who

denies or obstructs theaccess of the

Commissioner or any

officer authorized by

the Commissioner to

the premises, place,

accounts, documents,

computers or stocks.



or one hundred per

cent of the amount of

tax involved,

whichever is higher.

175 and177

Where a person has

concealed income orfurnished inaccurate

particulars of such

income, including but

not limited to the

suppression of any

income or amount

chargeable to tax, the

claiming of any

deduction for any

expenditure not

actually incurred or

any act referred to in

sub-section (1) of

section 111, in the

course of any

proceeding under this

Ordinance before any

Income tax authority

or the appellatetribunal.



or an amount equal to

the tax which the

person sought to

evade whichever is

higher. However, no

penalty shall be

payable on mere

disallowance of a

claim of exemption

from tax of any

income or amount

declared by a person

or mere disallowance

of any expenditure

declared by a person

to be deductible,

unless it is proved that

the person made theclaim knowing it to be

wrong.

20, 111 and General.

Any person who

obstructs any Income


a penalty of twenty

209, 210 and General


32/58



tax Authority in the

performance of his

official duties.

five thousand rupees.

Any person who

contravenes any of the

provision of this

Ordinance for which

no penalty has,

specifically, been

provided in this

section.


a penalty of five

thousand rupees or


amount of tax


higher.

General.

Any person who failsto collect or deduct tax

as required under any

provision of this

Ordinance or fails to

pay the tax collected

or deducted as

required under

section 160.

Such person shall paya penalty of twenty

five thousand rupees

or the 10% of the

amount of tax

whichever is higher.

148,149,150,151,152,153, 153A, 154, 155,

156, 156A, 156B,

158, 160, 231A,

231B, 233, 233A,

234, 234A, 235, 236,

236A.

Section 1 83

(Sectionsubstituted)

Exemption from pe nalty and d efault sur charge

The Federal Government may, by notification in the official Gazette, or

the Board by an order published in the official Gazette for reasons to be

recorded in writing, exempt any person or class of persons from

payment of the whole or part of the penalty and default surcharge

payable under this Ordinance subject to such conditions and limitations

as may be specified in such notification or, as the case may be, order.

Section 2 03

(Amendment

in section)

Tria l by Special Jud ge

The Federal Government may, by notification in the official Gazette,appoint as many special judges as it may consider necessary, and whereit appoints more than one Special Judge, it shall specify in thenotification the territorial limits within which each of them shallexercise jurisdiction.


33/58



Section 2 07

(Section

substituted)

Income tax auth orities

The amendment has already been made through Finance (amendment)

Ordinance, 2009. However, this is now being proposed in the FinanceBill to obtain the approval of the National Assembly.

Section 2 08

(Amendment

in section)

Appointm ent of income ta x author ities

The proposed amendment substitutes clause (1) as follows:

The Board may appoint as many Chief Commissioners Inland Revenue,

Commissioners Inland Revenue, Commissioners Inland Revenue

(Appeals), Additional Commissioners Inland Revenue, Deputy

Commissioners Inland Revenue, Assistant Commissioners Inland

Revenue, Inland Revenue Officers, Inland Revenue Audit Officers,

Superintendents Inland Revenue, Inspectors Inland Revenue, Auditors

Inland Revenue and such other executive or ministerial officers and

staff as may be necessary.

Section 21 4C

(Newly

inserted

section)

Selection for aud it by the Boar d

The Board may select persons or classes of persons for audit of Income

Tax affairs through computer ballot which may be random or

parametric as the Board may deem fit.

Audit of Income Tax affairs of persons selected under sub-section (1)

shall be conducted as per procedure given in section 177 and all the

provisions of the Ordinance, except the first proviso to sub-section (1)

of section 177, shall apply accordingly.

For the removal of doubt it is hereby declared that Board shall be

deemed always to have had the power to select any persons or classes

of persons for audit of Income Tax affairs.

Section 2 26

(Amendment

in section)

Comp uta tion of limitation pe r iod

According to the proposed amendment while calculating the limitation

period, the period for which any proceedings for the tax year remained

pending before any Court, Appellate Tribunal or any other Authority

shall also be considered.


34/58



Section 2 27

(Amendment

in section)

Bar of suits in Civil Cour ts

Following new clause is proposed to be inserted:

Notwithstanding anything contained in any other law for the time

being in force, no investigation or inquiry shall be undertaken or

initiated by any governmental agency against any officer or official for

anything done in his official capacity under this Ordinance, rules,

instructions or direction made or issued there-under without the prior

approval of the Board

Section 2 29

(Newly

inserted

section)

Advance tax on tr ansactions in ban k

According to the proposed amendment advance tax deductible on Cash

Withdrawals from Banks, various banking transactions including

modes like withdrawals through Demand Draft, Pay Order, Online

Transfer, Telegraphic Transfer, TDR, CDR, STDR and RTC, are proposed

to be subject to 0.3% deduction of the advance tax, if such transactions

exceed threshold of Rs.25,000/- in a single day. The advance tax is

adjustable.

Further, advance tax shall not be collected where withdrawals are made

by Federal Government, Provincial Government, Foreign Diplomat or

person having certificate from the Commissioner that his income

during the tax year is Exempt.

Section 23 3A

(Amendment

in section)

Collection of tax by a stock excha nge r egister ed in Pa kistan

According to the proposed amendment advance tax collected by the

stock exchanges shall be now adjustable instead of minimum tax.

Section 23 6A

(Amendment

in section)

Advan ce tax at th e time of sale by au ction

Editorial amendments in Section 236A of the Ordinance are proposed

in order to bring clarity and remove confusion about the charge of

advance tax on public auction of all kind of property including

confiscated or attached goods.

Section 23 6B

(Newly

Advan ce tax on pur chase of air ticket

Withholding tax on gross value of Inland Air Ticket has been proposed


35/58



inserted

section)

@ 5%. Under the scheme the Inland Air-Ticketing persons shall

withhold the tax, which will be adjustable against the tax liability of the

purchaser of such ticket.

Proposed amen dmen ts in The First Schedu le Rate of Tax

1. Taxable income of business and salaried individuals up to Rs. 300,000/- will be

exempt from tax.

2. The rate of tax imposed on the taxable income of association of persons for the tax

year 2010 and onwards shall be @25%.

3. Turnover Tax on Loss Making Companies is proposed to be enhanced to @ 1%.

4. Small company shall pay tax @ 25%.

5. The rate of advance tax to be collected by the collector of customs u/s 148 (tax on

imports) shall be 5% of the value of the goods.

6. The maximum rate of withholding tax deductible on payments made to non-resident

taxpayers who are not subject to Avoidance of Double Taxation Treaties (other than

payments made on account of royalty and fee for technical services) is proposed to

be @ 20% instead of 30%.

7. Advance tax deductible on goods transport vehicles under Item (1) of Division-III of

Part-IV of Second Schedule to the Income Tax Ordinance 2001 are proposed to be

abolished, and tax is proposed @ Re.1 per kilogram of the laden weight capacity of

goods transport vehicle. No change has been proposed in the rate of tax on goods

forwarding contracts, which remain taxable at the existing rate of 2%.

8. The maximum rate of advance tax deductible under section 235 on monthly

electricity bills is proposed to be reduced from 10% to 5%, on the amount of the

bills payable.


36/58



9. According to proposed amendment advance tax deductible on Cash Withdrawals

from Banks, various banking transactions including modes like withdrawals through

Demand Draft, Pay Order, Online Transfer, Telegraphic Transfer, TDR, CDR, STDR

and RTC, are proposed to be subject to 0.3% deduction of the advance tax, if such

transactions exceed threshold of Rs.25,000/- in a single day. The advance tax is

adjustable.

10. Withholding tax on gross value of Inland Air Ticket has been proposed @ 5%. Under

the scheme the Inland Air-Ticketing persons shall withholding the tax, which will be

adjustable against the tax liability of the purchaser of such ticket.

11. The rate of tax on wining of cross word puzzle shall be @ 10% instead of 20%.

12. Income of the business individuals shall be subject to following tax rates:

Sr. # Taxable Income Rate

1. Where taxable income does not exceed Rs.300,000 0%

2. Where the taxable income exceeds Rs.300,000 but does not exceed

Rs.400,000

7.50%


Rs.500,000

10%

4. Where the taxable income exceeds Rs.500,000 but does not exceedRs.600,000

12.50%


Rs.800,000

15%


Rs.10,00,000

17.50%

7. Where the taxable income exceeds Rs.10,00,000 but does not exceed

Rs.13,00,000

21%

8. Where the taxable income exceeds Rs.13,00,000 25%


37/58



13. Income of the salaried individuals shall be subject to following tax rates:

Sr. # Taxable Income Rate

1. Where taxable income does not exceed Rs.300,000


Rs.350,000,

0.75%


Rs.400,000,

1.50%


Rs.450,000

2.50%


Rs.550,000,

3.50%


Rs.650,000,

4.50%


Rs.750,000,

6%


Rs.900,000,

7.50%


Rs.1,050,000,

9%


Rs.1,200,000,

10%


Rs.1,450,000,

11%


Rs.1,700,000,

12.50%


Rs.1,950,000

14%


Rs.2,250,000,

15%


Rs.2,850,000,

16%


Rs.3,550,000

17.50%


Rs.4,550,000,

18.50%


38/58



18. Where the taxable income exceeds Rs.4,550,000. 20%

14. Capital gain tax shall taxed as follows:

Sr. # Taxable Income Year Rate

1. Where holding period of a security is less than six

months.

2010 10%

2011 10%

2012 12.5%

2013 15%

2014 17.5%

2. Where holding period of a security is more than six

months but less than twelve months.

2010 7.5%

2011 8%

2012 8.5%

2013 9%

2014 9.5%

2015 10%

Proposed a men dmen ts in The Second Schedule Exemptions and Tax

Concessions

PART I EXEMPTIONS FROM TOTAL INCOME

Clause (72 )

(Sub-clauseinserted)

For providing incentive to foreign lenders for tax-free repatriation of

profits earned on foreign industrial loans, Clause 72(iii) of Part-IV of

Second Schedule to the Income Tax Ordinance 2001 is proposed to be re-

instated.

Claus e (92A) Any income of any university or any other educational institution

established in the most affected and moderately affected areas of Khyber


39/58



(Newly insertedclause)

Pakhtunkhwa, FATA and PATA, for a period of two years ending on the

30th day of June, 2011.

Clause (10 2)

(Clause

omitted)

On merger of Investment Corporation of Pakistan with IndustrialDevelopment Bank, the exemption available to ICP on dividend received

from any other company is proposed to be withdrawn.

Clause (11 0)

(Clause

omitted)

Capital gains are no more exempt from tax.

Claus e ( 11 0A)

(Clause

omitted)

Any gain on transfer of a capital asset of the existing stock exchanges to

new corporatized stock exchange, in the course of corporatization of anexisting stock exchange is no more exempt.

Claus e (12 6F)

(Newly inserted

clause)

Profits and gains derived by a taxpayer located in the most affected and

moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA for a

period of three years starting from the tax year 2010:

Provided that this concession shall not be available to the manufacturers

and suppliers of cement, sugar, beverages and cigarettes

PART II REDUCTION IN TAX RATES

Claus e (24A)

(Amendment in

clause)

Large distribution houses who fulfill all the conditions for a large import

house as laid down under clause (d) of sub section 7 of section 148, for

large import houses are subject to 1% of gross amount of payments on

account of withholding under section 153.

PART III REDUCTION IN TAX LIABILITY

Clau se (1 A)

(Amendment in

clause)

The Senior Citizens of the age of 60 years or more, are proposed to beeligible for relief of 50% of tax on their income, if their income does not

exceed Rs.1,000,000/- as compared to previous maximum limit of

Rs.750,000/-. However this relief shall not be available on income subject

to Presumptive Tax Regime.


40/58



PART IV EXEMPTION FROM SPECIFIC PROVISIONS

Claus e (10A)

(Newly inserted

clause)

To rehabilitate the economy of Khyber Paktunkhwa, FATA and PATA

following amendments are proposed:

a) Waiver of entire amount of default surcharge & penalty till 30th

June 2010;

b) Exemption from advance tax on electricity for tax years 2010 and

2011;

c) Exemption from withholding tax on exports;

d) Exemption from advance tax on import of plant and machinery up

to 30th June 2011;

However these concessions shall not be available to manufacturers andsuppliers of cement, sugar, beverages and cigarettes.

Clause (73 )

(Newly inserted

clause)

To mitigate part of the cost of obtaining foreign support to fill

productivity gap, income tax payable by a foreign experts shall be

exempted provided that such expert is acquired with the prior approval

of the Ministry of Textile Industry.

Proposed am en dmen ts in The Th ird Sched ule DEPRECIATION

PART I Depr eciation

Depreciation

table

For the wellbeing of disabled persons, 100% depreciation expense can be

claimed on Ramp built to provide access to disabled persons, is proposed.


41/58



Prop osed a me nd men ts in The Fifth Sched ule

PART I RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS FROMTHE EXPLORATION AND PRODUCTION OF PETROLEUM

Rule 4 A

(Newly inserted

rule)

Decomm issioning cost

With effect from the Tax Year 2010, Decommissioning Costas certified

by a Chartered Accountant or a Cost Accountants, in the manner

prescribed, shall be allowed over a period of ten years or the life of the

development and production or mining lease whichever is less, starting

from the year of commencement of commercial production or

commenced prior to the 1st July, 2010, deduction for decommissioningcost as referred earlier shall be allowed from the Tax Year 2010 over the

period of ten years or the remaining life of the development and

production or mining lease, which ever is less

Proposed amendments in The Seventh Schedule Rules for the

computation of the profits and gains of a banking company and tax

payable ther eon

Rule 1(c)

(Amendment in

rule)

According to the proposed amendment provisions for advances and off-

balance sheet items shall be allowed at 5% of total advances for

consumers and small and medium enterprises (SMEs) (as defined under

the State Bank Prudential Regulations) shall be inserted

Rule 8 A

(Newly inserted

rule)

Transactional pr ovisions

Amounts provided for in the tax year 2008 and prior to the said tax year

for or against irrecoverable or doubtful advances, which were neither

claimed nor allowed as a tax deductible in any tax year, shall be allowed

in the tax year in which such advances are actually written off against

such provisions, in accordance with the provision of sections 29 and 29A.

Amounts provided for in the tax year 2008 and prior to the said tax year

for or against irrecoverable or doubtful advances, which were neither


42/58



claimed nor allowed as a tax deductible in any tax year, which are written

back in the tax year 2009 and thereafter in any tax year and credited to

the profit and loss account, shall be excluded in computing the total

income of that tax year under rule 1 of this Schedule.

The provisions of this Schedule shall not apply to any asset given or

acquired on finance lease by a banking company up to the tax year 2008,

and recognition of income and deductions in respect of such asset shall

be dealt in accordance with the provisions of the Ordinance as if this

Schedule has not come into force:

Provided that un-absorbed depreciation in respect of such assets shall be

allowed to be set-off against the said lease rental income only


43/58



PROPOSED AMENDMENTS IN SALES TAX

ACT, 1990

SALES TAX REFORMS IMPLEMENTATION OF VAT

According to budget speech of finance minister

The Government of Pakistan is committed to reform the existing system of General Sales

Tax. The existing General Sales Tax (GST) has degenerated into an unfair tax, with multiple

rates (between 16% and 25 %), exemptions and domestic zero rated facilities for vested

groups and the privileged. It has also contributed greatly to the opportunities forcorruption and rent seeking. The proposed GST reforms, will address both policy and

administrative shortcomings of our current GST to remove all the deficiencies listed above.

The proposed GST reform: - Will eliminate multiple tax rates and replace it with a single

lower rate of 15%. - Will not apply on health, education and food items consumed by the

poor. - Will not apply to turnover less than Rs. 7.5 million per year where as the current

threshold is Rs 5 million per year. - Will be automated thus reducing possibilities of

corruption and refund delay. - Will broaden the tax base instead of burdening the existing

tax payer thus introducing greater equity into the tax system.

We expect the proposed GST reform to be in place by October 1, 2010 in consultation with

all the provinces and other stakeholders.

Meanwhile as an interim measure the GST rates are proposed to be raised by 1 percentage

point. Once the reform GST is in place the proposed single lower rate of 15 % will become

effective. In addition, an accompanying relief measure of the GST reform will be the

abolition of the current 1% Special Excise Duty presently levied on most items of imports

and local manufacture.

However, transitional proposed amendments in Sales Tax Act, 1990 are as follows:

Section 2 (1)

(Amendment

in definition)

Appellate Tribunal

This amendment seeks to provide a unified Appellate Tribunal for

domestic taxes. Many such changes have been proposed in the

Finance Bill for the purpose of unifying domestic taxes. These


44/58



changes were originally made vide Finance (Amendment)

Ordinance, 2009 and Finance (Amendment) Ordinance, 2010.

However, these are now being proposed in the Finance Bill to

obtain the approval of the National Assembly.

Section 2 (2)

and (3)

(Amendment

in definition)

Appr opr iate officer and Associate (associated per sons)

As already discussed above, the amendment seeks to change the

names of the authorities mentioned in these definitions to

represent the change already introduced by unifying three

domestic taxes under one authority. i.e. Inland Revenue. These

changes had been made vide Finance (Amendment) Ordinance,

2009 and Finance (Amendment) Ordinance, 2010. There are many

such changes in the Sales Tax Act, the detail of which is as under:

Section 2 (4A), Section 2 (5), Section 2 (15), Section 2 (18),

Section 2 (46) (e), Section 10 (3), Section 11 (1), Section 11 (2),

Section 11 (4), Section 11 (5), Section 21 (2), Section 23 (3),

Section 25A, Section 26(3), Section 27, Section 28, Section 31,

Section 32(1), Section 32A(2), Section 32A(3), Section 33, Section

36, Section 37, Section 37A, Section 38A, Section 38B, Section 40,

Section 40B, Section 45A, Section 45B, Section 46, Section 47,

Section 47A, Section 48, Section 49A, Section 52, Section 55,

Section 58A, Section 58B, Section 66, Section 69 and Section 72.

Section 3

(section

amended)

Scope of Tax

It proposes to enhance the rate of Sales Tax from Sixteen to

Seventeen percent.

Section 25

(1) and (2)

(section

amended)

Access to r ecord , docum en ts etc.

Three important changes are proposed in this section. First, it is

proposed that only Commissioner, and not an officer of sales tax,

should be authorized to demand records under this section and

access to records should be allowed to officer authorize by the

Commissioner.

Second proposed change is that the officer who has completed the

audit be allowed to pass order under relevant provisions of law,


45/58



even without compulsorily obtaining any explanation from the

registered person. Sub-section (3) makes it obligatory for the

officer to issue audit observations to the registered person before

issuing audit report.

However, now it is proposed that it would be the discretion of the

officer and not his obligation to obtain explanation from

registered persons on the issues raised during the audit. This

amendment takes away the right of registered person to explain

his position to the revenue authorities before the issuance of show

cause notice.

Thirdly, it is proposed to done away with the issuance of audit

report by the officer who had carried out the audit of theregistered person.

Section 25 AA

(Newly

inserted

section )

Transaction between a ssociates

The propose insertion authorize the Commissioner or an officer of

Inland Revenue to determine the transfer price of taxable supplies

between the persons to reflect the fair market value of the

supplies. This section has already been inserted vide Finance

(Amendment) Ordinance, 2009 and Finance (Amendment)

Ordinance, 2010.

Section 26

(4)

(section

amended)

Return

As already proposed to done away with the issuance of audit

report after completion of the audit, any deposit of amount in lieu

audit report become redundant. Therefore, the words in lieu of

audit report are proposed to be deleted from this section.

Section 30

(Sectionsubstituted)

Appointm ent of auth orities

This amendment seeks to harmonize the appointment ofauthorities and empowering the Board to appoint authorities.

This section has already been inserted vide Finance (Amendment)



46/58



Section

32A(1)

(sectionamended)

Special audit by Char ter ed Accoun tan t or cost accounta nt s

This amendment proposed to authorize the Commissioner to

appoint accountants to conduct special audit of records ofregistered persons. It further proposes to done away with the

requirement to notify such appointments in the official Gazette.

Section 38 Authorized officer to have access to pr emises, stocks,

accounts and r ecords

This amendment seeks to include Commissioner in addition to the

Board who can authorize a person under the provisions of this

section to have free access to business and manufacturing

premises.

Section 45

(Section

amended)

Power of Adjud ication

This section has already been deleted vide Finance (Amendment)


Section 56

(Section

substituted)

Ser vice of or der s, decisions, etc.

This section has already been substituted vide Finance

(Amendment) Ordinance, 2009 dated October 28, 2009 and seeks

to elaborate the procedures of service of orders, decisions andnotices by the tax authorities on the resident individual, other

than individuals, AOPs and discontinued businesses.

Section 72A

(New Section

inserted)

Refere nce to Auth or ities

This section is inserted to clarify that the reference to various

authorities with their previous nomen

Date post:	04-Apr-2018
Category:	Documents
Upload:	muhammad-usman-ashraf
View:	213 times
Download:	0 times

Budget Insight 2010

Documents