Project FMp Name: Ushair Fareed

Reg: 20988

Class: Financial Management Policy

Instructor: Athar Iqbal

Class Timing: Tuesday & Thursday

6:30-9:00

PROJECT FMP 2015

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Table of Contents Question 1 ............................................................................................ 5

What are the changes you observed in this budget which are

relevant to company taxes? .............................................................. 5

Question 2 ............................................................................................ 6

What are the changes you observed relevant to stock market which

will positively/negatively impact on investor decisions? .................. 6

Question 3 ............................................................................................ 7

What is the concept of filler and non- filler of tax in Pakistan? Is

there any change in tax rate for both? .............................................. 7

Question 4 ............................................................................................ 9

What would be the role of CNIC from current year in Income Tax

return? ............................................................................................... 9

Question 5 .......................................................................................... 10

Budget 2015-2016 is aimed to spur growth in Pakistan, what specific

steps where proposed in budget 2015-2016 that will led to faster

economic growth. ............................................................................ 10

Question 6 .......................................................................................... 12

Historically, 42 to 44 percent of our budget aimed at debt servicing,

do you think this budget is any different for previous and how?.... 12

Question 7 .......................................................................................... 13

What particular initiatives have been taken to address power issues in year ahead. .................................................................................. 13

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Question 1 What are the changes you observed in this budget which are

relevant to company taxes? Answer:

After having a brief look on budget, I got to know the following changes

that are found relevant to company taxes:

50% of Full years Tax liability is required to estimated and paid in

second Quarter for Advance tax.

Federal Government Powers to grant exemptions is no more

without approval by ECC except in the case of emergency etc.

1% Tax credit for every 50 employees applicable to New

manufacturing units set up between 1 Jul 15 to 30 Jun 18. Subject to

10% max.

Tax Credit for enlistment is now 20% of tax payable in the year of

enlistment.

Withholding tax on services rendered by companies is minimum tax

with effects from Tax year 2009.

Rate of compensation payable by FBR on delayed refund is now

reduced from 15% to KIBOR+0.5%.

FBR is empowered to constitute Special Audit panel comprising its

own officers and CA firms or CMA firms or any other person directed

by FBR to carryout tax audits.

Penalty for non-filing of wealth statement is Rs. 20,000 minimum.

Royalty paid to resident person against right to use industrial,

commercial or scientific equipment or rent of machinery is subject

to 10% withholding tax.

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Remittance of education expenses abroad is not subject to Income

tax @ 5%.

Tax Rate reduced for Income range Rs. 400,000 to 500,000.

Corporate tax rate for non-banking companies is now 32%

Withholding tax on first class international air tickets is enhanced

from 4% of price to Rs. 16,000/- fixed

Profits and gains of certain Industries are exempt from tax

No minimum Tax to taxpayers located in most and moderately

affected areas of KPK

Definition of ACTIVE TAXPAYERS included in Sales Act, 1990.

Limit of Utility bills is now Rs.800,000 per year to qualify for

COTTAGE industry

Question 2 What are the changes you observed relevant to stock market which

will positively/negatively impact on investor decisions?

I have identified following changes which are relevant to Stock Market:

Dividend from REIT is taxable @25% however it may be reduced by

50% with having a negative impact on companies whereas new

shares issuing may fall a just a bit as compared with the trend.

Dividends and Capital Gains of Bank are now taxable @ 35% thus

implies negative impact for less risk averse individuals.

Tax rate on dividend is now 12.5% (Fillers) and 17.5% (non-fillers)

providing negative impact on a fast moving index KSE yet positive for

Government to bring more people into the tax net.

Tax on capital gains is now increased, although certain tax

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advantages might come into play but yet falls under negative effect.

Limit on Investment in shares/Life Insurance premiums is enhanced

to Rs. 1.5 million for tax credit purpose reflecting positive increase

under investment.

Paid up capital + Reserves to qualify as small company is enhanced

to Rs. 50 m from Rs.25 m puts negative impact on these emerging

companies.

Tax @ 10% of undistributed profits by listed company could be

positive for stock market as an effect of which companies might

increase their dividend payout ratios.

Question 3 What is the concept of filler and non- filler of tax in Pakistan? Is

there any change in tax rate for both?

I have identified the following changes in tax rates for fillers and non fillers of tax:

0.6% of the value of Banking transactions exceeds Rs.50,000 per day.

Tax rate on commission is enhanced to 15% from 12%

Withholding Tax rates for Resident / Non Resident are brought at par filer/non-filers

Moreover through following calculations/ tables we can further analyze the difference in both fillers and non fillers tax.

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Question 4 What would be the role of CNIC from current year in Income Tax

return? Answer:

The government has decided to make CNIC holders as NTN holders from

next fiscal year and their CNIC numbers would be considered as the NTN

numbers. The estimates showed that there are around 91.2 million CNIC

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holders as against 3.6 million NTN holders. Another surprising and

astonishing part has been that among 3.6 million NTN holders only

880,000 people have been filing tax returns out of them only 80,000

people are filing tax returns above Rs 10 million.

Question 5 Budget 2015-2016 is aimed to spur growth in Pakistan, what specific

steps where proposed in budget 2015-2016 that will led to faster

economic growth.

Answer:

The following steps represents the pace for economic growth through

budget 2015-16:

Rs.1.5 trillion worth of annual development program has been

approved for the next fiscal year. Meantime, Rs.700 billion has been

specified for federal development projects.

The provinces will be issued Rs.814 billion. Amount of Rs.194 billion

has been put aside for Pak-Sino Economic Corridor.

Rs.780 billion will be set aside for defense; Rs.1.31 trillion for debt-

servicing and Rs.11.1 billion has been fixed to be spent on health.

Higher Education Commission will receive Rs.20 billion. Export target

has been set at $25.5 billion with GDP growth target fixed at 5.5

percent.

The target of growth rate in agriculture has been set at 3.9 percent

with production target in the industrial sector pegged at 6.1 percent.

Taxes on Rice Mills to be removed.

Pension of all Government employees increased by 7.5%

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4 years Income Tax exemption for FIRMS verifying Halal meat

7.5% increment in the salaries of federal employees

Tax on salaried class reduced from 5% to 2%

Custom duty reduced from 30% to 20 % on import of Used Housing Machinery

71.5 billion allocated for higher Education,14 % more than the previous year.

GDP growth target for financial year 2015-16 set at 5.5%. The last time GDP growth was at this level was in financial year 2006-07. Long term sustainable GDP growth is targeted at 7.0% by financial year 2017-18.

Tax revenue budgeted to increase by 17% in financial year 2015-16.

Fiscal deficit for financial year 2015-16 is targeted at 4.3% compared to 5.0% in financial year 2014-15.

Government of Pakistan is also targeting PKR1.5 trillion expenditure under the National Development program (Federal plus Provincial) for financial year 2015-16, with PKR700 billion.

After the lowest inflation in last 11 years in financial year 2014-15, the Government targets inflation to be 6% in financial year 2015-16.

Subsidies budgeted to decline by 43% in financial year 2015-16.

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Question 6 Historically, 42 to 44 percent of our budget aimed at debt servicing,

do you think this budget is any different for previous and how?

Answer:

While the burden of debt servicing is (Rs.1.2 trillion for 2015-16) has

already become unsustainable for an economy such as Pakistan, the

budget 2015-16 continues to follow the same trend as by targeting

Rs.751 billion from external sources and expecting domestic bank

borrowings of Rs.282.9 billion. It simply means we are again heading

towards another trillion rupees plus burden, added to the already huge

total of public debt, as a result higher requirement for expenditure on

servicing, in years ahead.

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Question 7 What particular initiatives have been taken to address power issues

in year ahead.

Answer: Considering the multi dimensional energy sector crisis that the country is faced with, the Budget attempts to tackle the sectors expansion. The budget suggested that the following strategy for energy sector was adopted:

Energy sector taken up as one of the key priorities of government

To bring 7000 MW on stream besides setting up 3600 MW LNG-based projects to fill current

demand-supply gap

Bring 10600 MW in the system by Dec 2017.

Dasu, Diamer-Basha, Karachi Civil Nuclear Energy etc. to be completed

beyond 2017. The total budget outlay for the energy sector comes to the total of Rs.248 billion. The focus on hydro projects and improvement of the transmission lines are certain good steps. However, a clear strategy to deal with the once again burgeoning Circular Debt and from Rs.221 billion in 2014-15 to Rs.118 billion is will lead burden the consumers again. Moreover, in case of energy, the budget deals with the power sector only; and there are neither any developmental allocations for oil and gas sector, nor any incentives to attract local and foreign investors.