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KPMG Taseer Hadi & Co.
Chartered Accountants
Budget Brief 2011An Economic and Tax Commentary
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Budget Brief 2011 i
The Budget Brief 2011 contains a review of economic
scenario and highlights of Finance Bill 2011 as they
relate to direct and indirect taxes and certain other
laws.
The provisions of the Finance Bill 2011 are
generally applicable from 01 July 2011, unless
otherwise specified.
The Budget Brief contains the comments, whichrepresent our interpretation of the legislation, and
we recommend that while considering their
application to any particular case, reference be
made to the specific wordings of the relevant
statutes.
4 June 2011
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ii Budget Brief 2011
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Budget Brief 2011 iii
Contents Page
Budget at a Glance 1
Economic Analysis 3
Economic Scenario 9
Highlights (Income Tax, Sales Tax, Federal Excise, Customsand Capital Value Tax 15
Significant Amendments
Income Tax 19
Sales Tax 31
Federal Excise Duty 37
Customs 41
Federal Consolidated Fund 45
Withholding Tax Rates Table Existing and Proposed 47
This brief is being issued as part of our client service programme exclusively for the information of clients and
staff of KPMG Taseer Hadi & Co. and other KPMG member firms.
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iv Budget Brief 2011
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Budget Brief 2011 1
2011 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Budget at a glance
Budget
Estimate
2010-11
% Revised
Estimate
2010-11
% Budget
Estimate
2011-12
%
Tax Revenue
Direct Taxes
Income tax 633.0 26.1 602.5 23.5 718.6 26.0
Others 24.7 1.0 24.4 1.0 25.0 0.9
657.7 27.1 626.9 24.5 743.6 26.9
Indirect Taxes
Customs 180.8 7.5 173.3 6.8 206.4 7.5
Sales tax 674.9 27.9 654.6 25.6 836.7 30.2
Federal excise 153.6 6.3 132.9 5.2 165.6 6.0
Carbon surcharge on POL and CNG 110.0 4.5 90.0 3.5 120.0 4.3
Others 1.7 0.1 1.7 0.1 1.9 0.1
1,121.0 46.3 1,052.5 41.2 1,330.6 48.1
Total Tax Revenue 1,778.7 73.4 1,679.4 65.7 2,074.2 75.0
Non Tax Revenue 632.3 26.1 556.5 21.7 658.0 23.8
2,411.0 99.5 2,235.9 87.4 2,732.2 98.8
Less: Provincial Share 1,033.6 42.7 997.7 39.0 1,203.3 43.5
1,377.4 56.8 1,238.2 48.4 1,528.9 55.3
Net Capital Receipts 325.4 13.4 459.4 17.9 395.7 14.3
External Receipts 386.6 16.0 289.8 11.3 413.9 14.9
Change in Provincial cash balance 166.9 6.9 119.8 4.7 124.9 4.5
Bank Borrowings 166.5 6.9 452.2 17.7 303.5 11.0
2,422.8 100.0 2,559.4 100.0 2,766.9 100.0
Expenditure
Current Expenditure
General Public Services
Debt servicing 873.0 36.0 855.5 33.4 1,034.2 37.4
Grants and transfers 227.2 9.4 300.0 11.7 295.0 10.7
Superannuation and pensions 90.7 3.7 92.9 3.6 96.1 3.4
Subsidies 126.6 5.2 395.8 15.5 166.4 6.0
Others 70.2 2.9 11.4 0.4 68.3 2.5
1,387.7 57.2 1,655.6 64.6 1,660.0 60.0
Defence Affairs & Services 442.2 18.3 444.6 17.4 495.2 17.9
Economic Affairs 66.9 2.8 80.0 3.1 50.3 1.8
Public Order and Safety Affairs 51.3 2.1 58.7 2.3 59.6 2.2
Education Affairs and Services 34.5 1.4 40.3 1.6 39.5 1.4
Others 15.3 0.6 16.8 0.7 10.3 0.4
1,997.9 82.4 2,296.0 89.7 2,314.9 83.7
Development Expenditure
PSDP 321.4 13.3 217.9 8.5 355.0 12.8
Others 103.5 4.3 45.5 1.8 97.0 3.5
424.9 17.6 263.4 10.3 452.0 16.3Total Expenditure 2,422.8 100.0 2,559.4 100.0 2,766.9 100.0
------------------(Rupees in billions ) ----------------
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2 Budget Brief 2011
2011 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent
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Budget Brief 2011 3
2011 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
-4
-2
0
2
4
6
8
10
12
14
16
06-07 07-08 08-09 09-10 10-11
Overall GDP (fc) 6.8 3.7 1.7 3.8 2.4
Agriculture 0.9 0.2 0.9 0.1 0.3
Industry 2.3 0.4 -0.03 2.1 -0.02
Services 3.6 3.1 0.9 1.5 2.2
Sectoral Contribution to GDP Growth (% Points)
-4
1
6
11
16
06-07 07-08 08-09 09-10 10-11
Agriculture 4.1 1.0 4.0 0.6 1.2
Manufacturing 8.3 4.8 -3.6 5.5 3.0
Services 7.0 6.0 1.7 2.9 4.1
Sectoral GDP Growth (% Points)
Economic Analysis
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0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
06-07 07-08 08-09 09-10 10-11
Others 7.3 6.6 7.1 7.8 7.1
Services 51.8 52.9 52.9 52.4 53.3
Manufacturing 19.0 19.2 18.2 18.6 18.7
Agriculture 21.9 21.3 21.8 21.2 20.9
Sectoral Share in GDP (% Points)
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
-
1,000
2,000
3,000
4,000
5,000
6,000
06-07 07-08 08-09 09-10 10-11
Domestic 2,610 3,267 3,852 4,651 5,461
Foreign currency 2,140 2,780 3,736 4,284 4,559
In percent of GDP 54.8 59.0 59.6 60.2 55.5
Domestic % of GDP 30.1 31.9 30.3 31.3 30.2
Foreign % of GDP 24.7 27.1 29.4 28.9 25.5
Public Debt (in billions of Rupees)
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Budget Brief 2011 5
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-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
06-07 07-08 08-09 09-10 10-11
Foreign exchange 11,542 15,070 9,539 10,255 13,953
Gold 1,268 1,344 1,926 1,935 2,575
Rupees to USD 59.86 60.63 62.55 78.50 83.80
Exchange Reserves (in USD millions)
Total exchange reserves at end of April 2011 reached USD 17.1 billion with Rupee US Dollar parity reaching 85.50
-
200
400
600
800
1,000
1,200
1,400
06-07 07-08 08-09 09-10 10-11
020406080
100
120140160180200
06-07 07-08 08-09 09-10 10-11
Population (millions) 162.9 166.4 169.9 173.5 177.1
Unemployment rate (% per annum) 5.2 5.5 5.5 5.6 5.6
Per Capita Income (mp - USD) 904 1,015 990 1,073 1,254
Total Investment - % of GDP 22.5 22.1 18.2 15.4 13.4
National Savings - % of GDP 17.4 13.6 12.5 13.2 13.8
Social Indicators
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8,673
10,243
12,724
14,836
18,063
4.3%
7.6%
5.3%
6.3%
5.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
06-07 07-08 08-09 09-10 10-11
Rs.
Billion
Overall Deficit
GDP(mp) Overall Deficit
Trade Deficit / Current Account Deficit
06-07 07-08 08-09 09-10 10-11
(Jul-Mar)
Exports 17,278 20,427 19,121 19,673 17,945
Imports 26,989 35,397 31,747 31,209 25,956
Trade balance -9,711 -14,970 -12,626 -11,536 -8,011
Services net -4,170 -6,457 -3,381 -1,690 -1,232
Current Transfer (Net) 10,585 11,476 11,154 12,562 11,511
(Workers remittances) 5,494 6,449 7,811 8,906 8,016
Income Account Balance (Net) -3,582 -3,923 -4,407 -3,282 -2,169
Current Account -6,878 -13,874 -9,260 -3,946 99
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Budget Brief 2011 7
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0
5
10
15
20
25
06-07 07-08 08-09 09-10 10-11 (Jul-Apr)
CPI 7.77 12 20.77 11.73 14.08
SPI 10.82 16.81 23.41 12.63 23.29
WPI 6.94 16.64 18.19 13.32 18.47
Inflation
10
15
20
25
30
06-07 07-08 08-09 09-10 (Jul-Apr) 10-11 (Jul-Apr)
Overall 7.77 12 20.77 11.49 14.08
Food 10.28 17.65 23.7 12.03 18.41
Non Food 6.02 7.9 18.45 11.04 10.43
Core 5.9 8.4 17.6 11.2 9.5
Core Inflation
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Average retail prices of essential items
Kerosene
(per ltr)
Gas
(100 cf)
Petrol
Super (per
ltr)
Electricity
charges
(upto 50
units)
Tele local
call charges
(per call)
Wheat
Flour (Avg
Quality per
Kg)
Basmati
Rice
(Broken per
Kg)
Beef (Cow /
Buffalo with
bone per Kg)
06-07 39.09 99.79* 56.00 2.49 2.31 13.64 23.11 117.87
07-08 43.44 97.17* 57.83 2.76 2.31 18.07 37.77 123.30
08-09 66.79 96.91* 67.68 3.18 2.38 25.64 47.12 143.8209-10 (Jul-Apr) 71.45 105.10* 66.49 3.58 2.42 29.05 43.75 170.93
10-11 (Jul-Apr) 82.12 115.40 73.16 4.29 3.59 29.73 49.44 212.90
% Inc 10-11 14.9 9.8 10.0 19.8 48.3 2.3 13.0 24.5
* The units were changed from 100 cm to 100 cf.
Chicken
(Farm per
Kg)
Mutton (Goat
Avg Quality
per Kg)
Eggs (Hen
Farm per
Dozen)
Sugar (open
market - per
Kg)
Milk (Fresh
per ltr)
Tea (in packet
Super Qlty
per 250 gm)
Cooking oil
(Dalda per
2.5 ltr)
06-07 74.16 224.07 38.31 31.85 26.72 68.39 224.48
07-08 83.39 236.49 49.45 27.92 30.45 68.28 316.32
08-09 103.12 262.03 58.80 38.72 36.62 97.94 371.38
09-10 (Jul-Apr) 126.22 307.19 67.19 56.25 41.70 118.87 356.43
10-11 (Jul-Apr) 130.89 405.36 74.67 73.82 49.02 136.74 424.05
% Inc 10-11 3.7 32.0 11.1 31.2 17.6 15.0 19.0
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Budget Brief 2011 9
2011 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
The fiscal year 2010-11 started with an expectation to
build on the modest recovery shown in 2009-10 and by
projecting the growth in real GDP to 4.5 percent from 3.8
percent of last year. However, the target set out in the
Annual Plan turned out to be unrealistic shortly after the
approval of the Federal Budget for 2010-11, mainly due to
omission of consideration of cost increases on
government employees salaries, etc. The overall
objective of restoration of macro-economic stability was
put off-track by both exogenous shocks and
unprecedented disaster by floods. The impact was further
compounded by the continuing structural imbalance in our
economy.
The economy which over the years has shown resilience
against crisis after crisis came to a breaking point where
the continuing weaknesses and perennial challenges
were further exposed. The structural weaknesses, such
as low domestic resource mobilization, lower productivity,
lower growth, high inflation, unprecedented fall in total
investments, increasing reliance on external and
domestic borrowings to finance fiscal deficit and reduction
in FDI have been and continue to be the factors indicating
volatility and fragility of the Reform process in the medium
to long term.
Pakistan is unique in this context, even as compared to
other economies in Asia, where most of the countries
have shown growth of 8-9 percent with inflation of 4-5
percent, as against the growth of 2.4 percent and inflation
of 15.5 percent in Pakistan.
The salient features of the Economy are as follows:
The GDP growth, Investment to GDP rate and overallinflation for Pakistan have remained over the last few
years as follows:
(Percentages)
Year Growth Investment Inflation
2007-08 3.7 22.1 12.0
2008-09 1.7 18.2 20.8
2009-10 3.8 15.4 11.7
2010-11 (BE) 2.4 13.4 14.1 (Jul-Apr)
The fall in the GDP for 2010-11 was mainly caused byslower growth in Agriculture and Manufacturing sector.
Services sector contributed to 90 percent of GDPgrowth, whereas the commodity producing sector
(CPC) only contributed to 10 percent of such growth.
The energy shortfall, high interest rates and crowdingout of the private sector credit were the factors
responsible for major drag on growth in manufacturing
sector.
The Reform measures undertaken by Governmenthave failed to achieve the desired results and the
Government had to announce certain tax policy
measures to raise additional revenue of Rs. 53 billion in
the last quarter.
The following tax measures were taken through theamendments (Presidential order and withdrawal of
SRO based exemptions):
- Withdrawal of sales tax exemption on agriculture
inputs like tractors, pesticides, and fertilizer, both at
domestic and import stages.
- A one-time surcharge of 15 percent was imposed on
withholding and advance taxes payable during
financial year 2011 (15 March to 30 June 2011); and
- Special excise duty rate was increased from 1
percent to 2.5 percent on non-essential items for theremaining period of tax year 2010-11.
The overall deficit for 2010-11 is expected to be Rs.961 billion, around 5.3 percent of GDP against target of
Rs. 683 billion i.e. 4.0 percent of GDP. The GDP at
market price is expected to be Rs. 18,063 billion.
Overall total revenue is expected to be Rs. 2,236 billionagainst target of Rs. 2,411 billion.
The tax revenue of FBR is expected to be Rs. 1,679billion as against the target of Rs. 1,779 billion.
Economic Scenario
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The overall expenditure is projected to be Rs. 2,559billion as against target of Rs. 2,423 billion.
The slippage in expenditure was caused by FloodRelief activities, security related expenditure and delay
in implementation of tax reforms.
The overall brunt of increase in current expenditure andshortfall in revenue fell on Development expenditure,
which was either reallocated or substantially reduced.
External sector is projected to depict a surplus incurrent account of Rs. 748 billion, as against deficit of
Rs. 3.456 billion in the corresponding period last year
due to the following factors:
- Exports up to April 2011 have been US$20.2 billion
as against US$15.8 billion last year, showing a
growth of 27.8 percent.
- Imports up to April 2011 have been US$32.3 billion
as against US$28.1 billion last year, showing a
growth of 14.7 percent.
- The 14.7 percent growth in imports has been
neutralized by 27.8 percent growth in exports
resulting in decline of trade deficit in 10 months to
Rs. 12.1 billion from Rs. 12.3 billion
- Workers remittances in ten months amounted to
US$9.1 billion and are expected to be over US$11.0
billion by 30 June 2011.
- Improvement in current account has been in all sub
components as follows:
(US Dollars in Millions)
2009-10
Jul to Apr
2010-11
Jul to Apr
Trade Balance (9,292) (8,285)
Services Balance (1,937) (1,392)
Income Account Balance (2,594) (2,421)
Current Transfers
- Workers Remittances 7,307 9,046
- Others 3,060 3,800
10,367 12,846
2009-10
Jul to Apr
2010-11
Jul to Apr
Current Account Balance (3,456) 748
- External Account has been a surplus of US$1,210
million during July-April 2010-11 due to improvement
in current account balance and the surplus in Capital
and Finance Account.
Exchange rate has generally remained stable as Rupeedepreciated by 2.2 percent in ten months, but Real
Effective Exchange Rate (REER) appreciated by 0.8
percent during the period.
FDI up to April 2011 has been US$1.232 billion againstUS$1.725 in the corresponding period last year,
resulting in a decline of 29 percent.
Per capita income in dollar terms increased from
US$1,073 to US$1,254 in 2010-11, showing an
increase of 16.9 percent.
Foreign exchange reserves as at 30 April 2011 wereUS$17.1 billion, out of which US$13.7 billion were held
by SBP.
The overall inflation based on CPI has been acumulative increase of 14.1 percent during July-April
2010-11, against 11.5 percent last year.
Food inflation was 18.4 percent and non food inflationwas 10 .4 percent.
The spike in inflation was caused by:
- Rising international oil prices
- Commodity price increases textile products
- Supply shock and supply disruption resulting in
increase in food prices
- Deficit financing
Monetary policy was frequently reviewed by State Bankof Pakistan during 2010-11. The continued heavy
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reliance by government on SBP borrowings to finance
the fiscal deficit has increased the demand pressure
and SBP has resorted to policy rate change to target
inflation. This policy rate was raised thrice in August,
September and November 2010 to increase the rate to
14 percent from 12.5 percent
The focus of monetary and fiscal policy was changed toaddress structural weakness, reduction of inflation,
revival of economic growth. However, the desired
objectives could not be achieved and even policy rate
increases did not have any significant impact on
inflation.
Budget 2011-2012
Challenges
The Finance Minister has recognized, in his speech, the
need to move towards a growth framework which could
lead to 7 percent plus growth for a continuous period of
ten years and more. The following challenges have been
identified to put the economy on a stable and desirable
long term growth trajectory.
Chronic fiscal difficulties for the last 25 years leading toIMF several times.
Low growth rates.
Lack of long-term focus and consistency in economicpolicies to give investors and entrepreneurs a stable
enabling environment.
Ailing public sector enterprises continue to drain thebudget and create black market opportunities.
Inadequate regulatory and governance structures thatdoes not encourage investment and the development
of competitive markets.
Budget Estimates for 2011-12
The total outlay of budget 2011-12 is Rs. 2,767 billion.This size is 14.2 percent higher than the size of budget
estimates of 2010-11.
The resource availability during 2011-12 has beenestimated at Rs. 2,463 billion, against Rs. 2,256 billion
in the budget estimates of 2010-11.
Net revenue receipts for 2011-12 have been estimatedat Rs. 1,529 billion, indicating an increase of 11 percent
over the budget estimates of 2010-11.
The provincial share in Federal revenue receipts isestimated at Rs. 1,203 billion during 2011-12 which is
16.4 percent higher than the budget estimates for
2010-11.
The capital receipts (net) for 2011-12 have been
estimated at Rs. 396 billion, against the budgetestimates of Rs. 325 billion in 2010-11 i.e. increase of
11 percent.
The external receipts in 2011-12 are estimated at Rs.414 billion. This shows an increase of 7.1 percent over
the budget estimates of 2010-11.
The overall expenditure during 2011-12 has beenestimated at Rs. 2,767 billion, of which the current
expenditure is Rs. 2,315 billion and development
expenditure is Rs. 452 billion (net).
Current expenditure shows increase of less than 1percent over the revised estimates of 2010-11, while
development expenditure will increase by 64.4 percent
in 2011-12, over the revised estimates for 2010-11.
The expenditure on General Public Services (inclusiveof debt servicing, transfer payments and
superannuation allowance) is estimated at Rs. 1,660
billion, which is 71.1 percent of the current expenditure.
The size of Public Sector Development Programme for2011-12 is Rs. 730 billion, while for Other Development
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Expenditure an amount of Rs. 97 billion has been
allocated. The PSDP shows an increase of 58 percent
over the revised estimates for 2010-11.
An amount of Rs. 430 billion has been allocated inbudget estimates 2011-12 to provinces for their
development expenditure, against Rs. 373 billion for
2010-11.
An amount of Rs. 10 billion has been allocated toEarthquake Rehabilitation Authority (ERRA) in 2011-
12.
The size of current expenditure in total budget outlaysfor 2011-12 is 83.7 percent, as compared to 89 percent
in revised estimates for 2010-11.
Budget Strategy for 2011-12
The budget strategy as outlined by the Finance Minister
in his budget speech is summarized as follows:
Further reduction of fiscal deficit.
Reduction of rate of inflation to single digit level.
Development of a broad, equitable and stable revenuemobilization system to cater to development needs.
Maintaining and further developing social safety netsfor the vulnerable.
Progressive elimination of untargeted subsidies.
Strengthen restructuring of loss making public sectorenterprises including opting for privatization or closure,
where required.
Investment as part of PSDP in vital infrastructure andhuman resource development.
Reduction of debts to sustainable level well below therequired 60 percent of Fiscal Responsibility and Debt
Limitation Act (FRDC).
Macro-Economic Targets for 2011-12
In order to achieve objectives set-out in the budget
strategy following macro-economic targets are being set
up for 2011-12.
Real GDP is expected to grow by 4.2 percent againstrevised estimates of 2.4 percent for 2010-11.
The average inflation target is 12 percent as against15.5 percent for 2010-11.
Selective intervention in commodity markets to ensurestable supplies at affordable prices.
Reduction of borrowing from SBP through strict controlon expenditure.
Improvement of regulatory oversight by empoweringNEPRA to regulate the power sector.
Creating additional capacity for power generation.
FBR revenue to grow by about Rs. 400 billion i.e. 9.3percent of GDP.
Revenue as a percentage of GDP is projected at 13.6percent in 2011-12.
Fiscal deficit to be brought to 4 percent of GDP.
GDP at market prices is projected at Rs. 21,041 billionin 2011-12.
Conclusions
The performance of economy in 2010-11 has exposedits vulnerability and structural weaknesses when
confronted with challenges during the year.
The interim budgetary measures announced during theyear have facilitated the GDP growth of 2.4 percent.
The growth or decline in Agriculture sector which is ourniche continues to be dependent on weather conditions
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or natural disasters. The productivity gains in terms of
efficiency, improved yields and value addition are still
lacking.
In order to achieve the specified objectives outlined inthe budget strategy and to align the economic
development with the common mans perception of
such development, a much more focused economic
management is required.
The growth framework and the basic parameters ofeconomic agenda, need to be agreed across the
political parties as the main imperatives, irrespective of
political bias and priorities.
The most important component of such strategy has tobe revival of investment and savings to a level aligned
with other developing economies in Asia.
The long term structural issues like documentation of
economy and equity in tax incidence are a must toaddress distributional crisis.
The expenditure on education and health and safetynets has to be increased from the current level of 3
percent of GDP to around 8-9 percent in 3 years.
The basic concept of tax all income beyond athreshold has to be implemented with a clear plan to
plug all leakages, including elimination of all untargeted
subsidies.
The budget estimate for 2011-12 in this contextappears to be ambitious and would require concerted
efforts to target non tax-payers, disciplined monitoring
of expenditure and ensuring provincial surplus. Any
deviation could easily impact overall fiscal deficit and
development budget.
The provinces would have to focus on revenuegeneration as their overall contribution is minimal. The
tax on agriculture income, Sales Tax on services and
reform of property taxation could increase revenues
substantially.
The way forward is to ensure economic consolidationalong with macro-economic strategy which would
require a prudent fiscal policy with improvement in
governance and vigilant implementation and
accountability.
Inflation has to be addressed by both supply anddemand measures, rather than by demand
suppression.
Pakistan is a factor driven economy and does requirea different economic strategy.
8 percent of total labour force is unemployed and thecountry is suffering from a severe distributional crisis.
The overall unemployment rate is 5.6 percent.
Pakistan need an inclusive growth strategy with asustained balanced approach between supply led and
demand led economic strategy.
Fiscal deficit has to be addressed due to resourceconstraint but not at the cost of growth and higher
expenditure on social sectors.
The medium to long term framework of sustainablehigh growth over a decade with restructured fiscal
deficit are the pre-requisites to catch up to the
economies around Pakistan.
Desired frame work could reduce inflation, bring debt
burden within sustainable limits, provide opportunity toexplore our potential of demographic advantage and
above all target poverty on war footings.
The economic well being coupled with goodgovernance, transparency and unbiased accountability
would have its own impact on the security situation.
We are a great nation, endowed with all sorts of
resources including natural resources and a great capital
of young human resources. What we need is dedicated
leadership to direct us to the heights which people of this
country deserve and would require a strong political will
and cohesion to achieve the target.
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Income Tax
Minimum threshold for levy of tax on salaried andnon-salaried individuals enhanced from Rs. 300,000
to Rs. 350,000.
For banking companies, provisioning in excess of 5
percent of advances for consumers and SMEsallowed to be carried over to succeeding years.
Dividend received by a banking company from itsasset management company shall be taxed at the
rate of 20 percent.
The members of AOP also required to furnish wealthstatement, wealth reconciliation statement and
explanation of source of acquisition of assets
alongwith return filed in response to provisional
assessment order under section 122C.
Appeal to the Commissioner (Appeals) notpermissible against provisional assessment order
under section 122C.
Tax payable as a result of provisional assessmentorder under section 122C shall be payable
immediately after a period of sixty days from the date
of service of notice.
Waiver of profit on debt or debt itself under specified
SBP Circular or in any other scheme issued by SBPto be treated as benefit / income chargeable to tax
under the head Income from Business.
Tax credit for investment in shares to be allowed toresident persons only.
Threshold for allowability of tax credit on investmentin shares enhanced. However, the shares must be
held for at least thirty six months instead of twelve
months.
Tax credit also allowed for life insurance premiumpaid by resident persons on the same basis as tax
credit for investment in shares.
Threshold of Rs. 500,000 for contribution to approvedpension fund for the purpose of tax credit removed.
Rate of tax credit to companies for enlistment onstock exchange enhanced from 5 percent to 15
percent.
Tax credit equal to tax payable allowed to companiesestablishing new industrial undertaking or investment
in plant and machinery for BMR.
Unexplained income or assets to include concealedincome or furnishing inaccurate particulars of income,
suppression of any production, sales, amount
chargeable to tax and item of receipt.
Period for carry forward and adjustment of minimumtax enhanced to five years from three years.
Turnover for the purposes of minimum tax will begross sales or gross receipts.
Pension fund established under the VoluntaryPension System Rules 2005 exempted from
minimum tax under section 113.
Holders of commercial or industrial connection ofelectricity where the amount of annual bill exceeds
rupees one million compulsorily required to file return
of income.
Individuals having income from business betweenRs. 300,000 and Rs. 350,000 to file return of income
despite having zero percent tax.
Threshold for compulsory filing of wealth statementand its reconciliation increased from Rs. 500,000 to
Rs. 1,000,000.
Highlights
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Every member of an AOP required to furnish wealthstatement and reconciliation of wealth if share of
income from such AOP, before tax, for the year is Rs.
1,000,000 or more.
Single member bench of the Tribunal to dispose ofcases involving tax or penalty not exceeding Rs.
1,000,000 instead of Rs. 5,000,000.
Appellate Tribunal to decide the appeal on the basisof available record and cannot dismiss the appeal in
case of default by any party on the date of hearing.
Advance tax on capital gains on sale of securitiesshall be payable within a period of twenty one days
after the close of each quarter.
Withholding tax under section 148 in the case of oldand used automotive vehicles shall not exceed the
amount specified in Notification No. SRO
577(1)/2005 dated 6 June 2005.
Profit on debt on securities issued by FederalGovernment, Provincial Government or Local
Government to be taxed under final tax regime for
resident individuals and AoPs.
Tax deducted on profit on debt from debtinstruments, government securities including treasury
bills and PIBs shall be final tax in the case of non-
resident persons having no PE in Pakistan.
Gross amount for sale of goods, services andcontracts shall include sales tax for the purposes of
withholding tax under section 153.
Tax deducted from payments for services to betreated as minimum tax in the case of all resident
persons and PE of non-residents.
Threshold for withdrawal from pension fundenhanced from 25 percent to 50 percent of
accumulated balance in order to attract withholding
tax under section 156B.
Withholding tax rate on cash withdrawals reducedfrom 0.3 percent to 0.2 percent.
Collection of tax under section 236A also required tobe made in the case of auction / sale by tender.
Withholding tax on purchase of domestic air ticketsshall not be collected in the case of Federal and
Provincial Government and from a person who
produces a certificate from the Commissioner that
income of such person is exempt from tax.
Monthly instead of quarterly statements ofwithholding tax to be filed under section 165. The
statements to include CNIC and NTN of the persons
form whom tax was deducted.
Annual withholding tax statement to be filed by theemployers for tax withheld under section 149 and for
taxable salaries between Rs 300,000 and Rs.
350,000 despite having zero percent tax.
Tax payable defined as tax chargeable on the taxableincome for the purposes of levy of penalty.
Non-resident person having a permanentestablishment in Pakistan not entitled to seek
Advance Ruling.
Board and Chief Commissioner empowered totransfer jurisdiction in respect of cases or persons
from one Commissioner to another.
Tax and withholding tax exemptions provided toIslamic Development Bank.
Sales Tax
Rate of sales tax reduced to 16 percent from 17percent
Several exemptions under Sixth Schedule of SalesTax Act and through certain specific notifications
stand withdrawn, which inter-alia include:
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- Bricks, building blocks, and ready mix concrete;
- Adult diapers;
- Computer software;
- Aircrafts & ships, machinery for pilotage &
towage, air navigation equipments;
- Bull-dozers, harvesters, CNG Euro-2 buses,
trucks for high-ways;
- Agricultural machinery;
- CNG kits & cylinders;
- Rock phosphate & phosphoric acid;
- Mineral oils;
- White Crystalline Sugar, etc.
Zero rating facility withdrawn on CNG buses in CBUor CKD condition, trucks & dumpers, trailers & semi-
trailers, road tractors, etc.
Restriction of 90 percent claim of input taxadjustment on fixed assets and capital goods is
withdrawn.
Specific and express legal provision introducedregarding inadmissible claim of input tax credit
against invoices issued by suspended / blacklisted
registered.
Special returns can also be revised after approval
from the Commissioner.
A Member nominated by the Chairman FBR may alsopass an order considered appropriate by him with
respect to any decision or recommendation under the
mechanism of alternate dispute resolution.
No refund of sales tax is admissible under section 66of the Act, if the incidence of the sales tax has
already been directly or indirectly passed on to the
consumer.
Federal Excise
Special excise duty leviable at the rate of 2.5 percenton imported and manufactured goods abolished
across the board.
Rate of FED introduced on aerated waters and fruitjuices, etc. reduced to 6 percent of retail price.
Rate of duty on various types of cement slashed fromRs. 700 PMT to Rs. 500 PMT.
FED abolished from 15 different type of goodsincluding solvent oils, other fuel oils, greases, MBTE,
viscose staple fibre, motor cars, air-conditioners,
deep freezers, etc.
Rate of duty enhanced on locally producedcigarettes, unmanufactured tobacco and filter rods of
cigarettes.
FED in sales tax mode imposed at the rate of 8percent ad val. on white crystalline sugar to substitute
sales tax.
FED on services rendered or provided by propertydevelopers and promoters stands withdrawn.
Recovery proceedings can be initiated during theperiod of 5 years instead of 3 years.
Powers to seize and confiscate goods extended for
beverages in addition to cigarettes.
Customs
Power to prohibit import or export of goods onbelieving that the importer has submitted false
statements withdrawn.
Duty drawback facility allowed for supplies againstinternational tenders.
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Enhancement of time limit from three years to fiveyears for issuance of show cause notice on account
of audit.
One year time period for refund to be reckoned fromthe date of the decision of the appropriate authorities.
FBR empowered to collect transit fee.
Tariff rationalization through introduction of sub-PCTcodes alongwith their description and the rate of
customs duty.
Regulatory duty abolished on number of items.
Incentives to local industry through reduction of dutyin the concessionary notification.
Withdrawal of sales tax exemption on plant,machinery, equipment, etc. relating to the specified
sectors / industries / capital goods.
Capital Value Tax
CVT on purchase of modaraba certificates,instruments of redeemable capital and shares of
listed public companies withdrawn.
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Exemption threshold enhancedto Rs. 350,000 for individualsand Association of Persons
Clauses (I) & (IA), Div I, Part I, First Schedule
The Finance Bill proposes to enhance the threshold of
exempt income from Rs. 300,000 to Rs. 350,000 in case
of individuals and association of persons. No change in
tax rates has been proposed.
The comparison of existing and proposed tax rates tables
applicable to individuals, other than salaried individuals,
and association of persons is summarised below:
S.No
Taxable income(Rs.)
ExistingRate %
ProposedRate %
1 Upto 300,000 0 0
2 300,001 to 350,000 7.50 0
3 350,001 to 500,000 7.50 7.50
4 500,001 to 750,000 10 10
5 750,001 to 1,000,000 15 15
6 1,000,001 to 1,500,000 20 20
7 1,500,001 and above 25 25
The comparison of existing and proposed tax rates tables
applicable to salaried individuals is summarised below:
S.No
Taxable income (Rs.) ExistingRate %
ProposedRate %
1 Upto 300,000 0 0
2 300,001 to 350,000 0.75 0
3 350,001 to 400,000 1.50 1.50
4 400,001 to 450,000 2.50 2.50
5 450,001 to 550,000 3.50 3.50
6 550,001 to Rs.650,000 4.50 4.50
7 650,001 to 750,000 6.00 6.00
S.No
Taxable income (Rs.) ExistingRate %
ProposedRate %
8 750,001 to 900,000 7.50 7.50
9 900,001 to 1,050,000 9.00 9.00
10 1,050,001 to 1,200,000 10.00 10.00
11 1,200,001 to 1,450,000 11.00 11.00
12 1,450,001 to 1,700,000 12.50 12.50
13 1,700,001 to 1,950,000 14.00 14.00
14 1,950,001 to 2,250,000 15.00 15.00
15 2,250,001 to 2,850,000 16.00 16.00
16 2,850,001 to 3,550,000 17.50 17.50
17 3,550,001 to 4,550,000 18.50 18.50
18 4,550,001 and above. 20.00 20.00
The marginal relief introduced would continue to be
applicable in the case of salaried individuals, as follows:
S.No.
Total Income Threshold Percentage of incrementalincome taxable at nextapplicable tax rate %
1 Upto 550,000 20
2 550,001 to 1,050,000 30
3 1,050,001 to 2,250,000 40
4 2,250,001 to 4,550,000 50
5 4,550,001 and above 60
Income Tax
Significant amendments
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Taxation of Banking Companies
Carry forward of excess provision of advances
for consumers and SMEs clarified; lower of
actual provisions or at prescribed limit to be
deductible
Rule 1(c), Seventh Schedule
Existing Rule 1(c) of Seventh Schedule, substituted vide
the Finance Act, 2010 created anomalies regarding
deductibility and carry forward of provisions of advances
for consumers and Small and Medium Enterprises.
The Finance Bill now seeks to amend Rule 1(c) to clarify
the position in the following manner:
Provisioning upto 1 percent of total advances oractual provisioning whichever is lower, shall be
deductible. The provisioning in excess of 1 percent
shall be carried forward to succeeding years.
Provisioning at 5 percent of total advances forconsumers and SMEs or actual, whichever is lower,
shall be deductible, whereas, provisioning in excess
of 5 percent shall be carried forward to succeeding
years.
Tax rate on dividends received by banking
company from its Asset Management Company
enhanced
Rule 6, Seventh Schedule
Presently, dividend income received by a banking
company is subject to tax at 10 percent. The Finance Bill
proposes to provide separate rate of 20 percent on
dividend received by a banking company from its Asset
Management Company.
Provisions relating toProvisional assessmentrationalised
The Finance Act, 2010 inserted section 122C to provide
mechanism for provisional assessment in case a person
fails to furnish return of income. However, certain relevant
amendments were not made in other provisions of the
Ordinance to align them with objective of section 122C.
The Finance Bill now seeks to make such amendments
as explained below.
Assessment
Section 2(5)
The Finance Bill seeks to include provisional
assessment with the expression assessment.
Wealth statement and reconciliation
Section 116
Sub-section (2A) of section 116 provides that where a
person files a return of income in response to a
provisional assessment under section 122C, such return
shall be accompanied by wealth statement along with
wealth reconciliation and an explanation of sources of
acquisition of assets specified therein.
The Finance Bill now seeks to provide that in case of
association of persons, such return shall be accompanied
by wealth statement of all members along with theirwealth reconciliations and explanation of source of
acquisition of assets specified therein.
No appeal shall lie against provisional
assessment
Section 127
Section 122C provides that a provisional assessment
shall be treated as final after expiry of 60 days from the
date of service of order. However, if a person files return
of income within sixty days with wealth statement, wealth
reconciliation and other documents required under
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section 116(2A), then the provisional assessment is not
considered as final, and proceedings may continue on the
basis of return of income and other documents filed.
The Finance Bill seeks to provide that an appeal shall not
lie against a provisional assessment order. The
underlying objective of proposed amendment appears to
rationalise the scheme of provisional assessment so as to
require the person to file a return of income and other
required documents in response to provisional
assessment order. In case of failure to file return, no
appeal should lie against a provisional assessment order
which has attained the finality on expiry of 60 days.
Due date for payment of tax
Section 137(2)
Proviso to section 137(2) provides that the tax payable as
a result of provisional assessment shall be payable after
a period of 60 days from the date of service of the notice.
However, there is no time limit prescribed for payment of
tax after expiry of 60 days, which created anomalies with
regard to recovery and levy of penalties etc.
The Finance Bill seeks to clarify that tax would become
payable immediately after expiry of 60 days from the date
of service of notice i.e. the first day after completion of 60
days. Consequently, all recovery measures including
levy of default surcharge / penalties would also be based
upon such due date.
Collective Investment Schemedefined
Section 2(11C)
The Finance Bill seeks to insert sub-section (11C) in
section 2 to provide definition of Collective Investment
Scheme to have the same meaning as are assigned
under the Non-Banking Finance Companies
(Establishment and Regulation) Rules, 2003. The Rules
define the term as a closed-end fund and an open-end
scheme.
The term Collective Investment Scheme [CIS] has been
used in various provisions of the Ordinance. Absence of
definition has been causing disputes regarding
applicability of such provisions. Such provisions interalia
include:
Division VII of Part I of the First Schedule obligatingCIS to withhold capital gains tax on redemption
Clauses 57(2), 99 and 103 of Part I of SecondSchedule providing exemptions from income to CIS
Clauses 11A and 47B of Part IV of Second Scheduleto the Ordinance providing exemptions to CIS from
minimum tax and certain withholding tax provisions
After proposed insertion of the definition, such anomalies
are expected to be clarified.
Waiver of profit on debt ordebt by a bank to be treated asbusiness income of theborrower
Section 18(1)(d)
Section 18(1)(d) provides that fair market value of any
benefit or perquisite, whether convertible into money or
not, derived by a person in the course of, or by virtue of, a
past, present, or prospective business relationship is to
be treated as Income from Business.
There have been disputes on taxability of amounts written
back by a taxpayer on account of profit on debt or debt
which were waived by the lender causing litigation.
The Finance Bill now seeks to insert an explanation in
section 18(1)(d) to provide that the word benefit shall
include any benefit derived by way of waiver of profit on
debt or debt itself under Circular No. 29 of 2002 issued by
the Banking Policy Department, State Bank of Pakistan or
any other scheme issued by the SBP.
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Tax credits
Tax credit for investment in shares and
insurance scope and limit enhanced
Section 62
Section 62 contains provisions relating to tax credit to
individuals and association of persons on investment in
shares of a public company listed on stock exchange inPakistan. The Finance Bill seeks to amend the provisions
of section 62 to make following changes:
Tax credit shall now be available to residentindividuals and association of persons only as
against current applicability to resident and non-
resident individuals.
The Bill proposes to allow tax credit on payment ofpremium for life insurance, besides investment in
public companys shares.
Threshold of investment has been proposed to beenhanced from 10 percent to 15 percent of taxable
income.
The threshold of Rs. 300,000 has been proposed tobe enhanced to Rs. 500,000.
Time limit for holding of shares is proposed toenhance to 36 months from existing 12 months.
Consequent to the proposed amendments, the amounteligible for credit shall be lower of the following:
Actual cost of acquiring shares or the totalcontribution or premium paid;
15 percent of taxable income; or
Rs. 500,000
The proposed holding period of 36 months shall apply to
such investments which will be made on or after 01 July
2011. Any investment made on or before 30 June 2011
shall continue to be subject to holding period of 12
months.
Tax credit for contribution to an Approved
Pension Fund cap of Rs. 500,000 removed
Section 63
The Finance Bill seeks to remove the cap of Rs. 500,000
for tax credit on contribution to an approved pension fund.The amount eligible for credit shall now be lower of the
following:
Actual amount of contribution or premium paid in anapproved pension fund under the Voluntary Pension
System Rules, 2005; or
20 percent of the taxable income (subject to specifiedconditions).
Tax credit for enlistment on stock exchange in
Pakistan enhanced to 15 percent
Section 65C
The Finance Act 2010 introduced tax credit at 5 percent
of tax payable for the tax year in which a company is
listed on a stock exchange in Pakistan. The Finance Bill
proposes to enhance the rate to 15 percent.
The incentive of tax credit for one year is not attractive
enough to encourage companies to get listed on stock
exchanges.
Tax credit at 100 percent of tax payable for
equity investment in new industrial set-up and
for BMR in existing industrial set-up introduced
Section 65D
With the aim of promoting industrialization, the Finance
Bill seeks to introduce a tax credit for equity investment at
100 percent of tax payable by a company. The salient
features of this scheme are as follows:
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Tax credit shall be available to a taxpayer beingcompany, with 100 percent equity owned by it, on or
after 01 July 2011, which shall either:
- establish a new industrial undertaking for
manufacturing in Pakistan; or
- invest any amount in the purchase and
installation of plant and machinery, for the
purpose of balancing, modernization and
replacement of the plant and machinery, already
installed therein in an industrial undertaking set
up in Pakistan and owned by it.
Tax credit shall be allowed equal to 100 percent oftax payable by such company.
Tax credit shall be allowed for a period of five yearsor commencement of commercial production,
whichever is later.
Where a tax credit is allowed and subsequently it isdiscovered that any of the condition specified was not
fulfilled, the credit shall be deemed to have been
wrongly allowed, and the tax payable shall be re-
computed for the relevant tax year.
It appears that the incentive has been proposed without
linking it to the quantum of investment.
Further, the proposed language of section 65D may lead
to different interpretations defeating the envisagedobjective. For example, dispute may arise on availability
of tax credit to an existing company, which is not 100
percent owned through equity, investing in BMR on or
after 01 July 2011.
It is therefore suggested that the provisions of section
65D be rationalised.
Scope of unexplained income orassets extended
Section 111
Section 111 empowers the Commissioner to include the
following amounts under the head Income from Other
Sources if the taxpayer offers no explanation or
explanation is found un-satisfactory:
Where any amount credited in books of account
Where a person has made investment or is owner ofany money or valuable article; or
Where a person has incurred any expenditure.
The Finance Bill now seeks to extend the scope of
section 111. As proposed, if any person has concealed
income or furnishes inaccurate particulars of income
including the suppression of any production, sales or anyamount chargeable to tax; or the suppression of any item
of receipt liable to tax in whole or in part, and no
explanation is offered or explanation offered is not found
satisfactory, the Commissioner shall include such amount
under the head Income from Other Sources.
Minimum tax
Period for carry forward extended upto 5 years
Section 113
Existing provision allows carry forward of minimum tax
paid by a resident taxpayer for adjustment against tax
payable on profits of three immediately succeeding tax
years. The Finance Bill now seeks to extend the period
for carry forward of minimum tax from three years to five
years.
The Finance Bill also proposes to include gross sales,
besides gross receipts within the scope of turnover.
The proposed amendment is aimed to clarify that turnover
in respect of sales of goods to be taken on accrual basis.
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Exemption from minimum tax to approved
pension fund
Clause 11A(i), Part IV, Second Schedule
The Finance Bill proposes to extend exemption from
minimum tax to a pension fund registered under
Voluntary Pension System Rules, 2006.
Scope for filing of return ofincome extended
Section 114
The Finance Bill seeks to further extend the requirements
for filing of return, as follows:
Any person holding commercial or industrialconnection of electricity where the amount of annual
bill exceeds Rupees one million shall now be
required to file return of income.
The Finance Bill proposes to enhance exemptionthreshold to Rs. 350,000. However, the Finance Bill
also proposes that every individual having income
from business between Rs. 300,001 to Rs. 350,000 ,
though may not be liable to tax, shall be required to
file return of income for the tax year.
The Bill also proposes that a return of income shall be
accompanied with due payment of tax as per return of
income as well as a wealth statement as required under
section 116.
Wealth Statement - Thresholdenhanced to Rs. 1 million
Section 116
Presently, every resident taxpayer having taxable income
of Rs. 500,000 or more for the relevant tax year or
immediately preceding tax year is required to file a wealth
statement and wealth reconciliation. Though, by
implications, the requirement for filing of wealth statement
relates to individuals and association of persons, but due
to use of term resident taxpayer an interpretation can be
made that a resident company is also required to file
wealth statement.
The Finance Bill proposes to clarify the scope by
restricting its applicability to a resident individual taxpayer
including a resident individual being member of
association of persons. Further, the Bill seeks to
enhance the threshold for filing of wealth statement from
Rs. 500,000 to Rs. 1,000,000.
The Bill also proposes filing of wealth statement and
reconciliation by all members of association of persons in
case of filing of return in response to provisional
assessment of the association of persons.
Appellate Tribunal - Thresholdfor single member benchreduced; powers to dismiss
appeal in default withdrawnSections 130(8AA), 132
Presently, a single member bench is empowered to
dispose any case where the amount of tax or penalty
involved does not exceed Rs. 5 million. The Finance bill
proposes to reduce the threshold upto Rs. 1 million.
Section 132 empowers the Appellate Tribunal to dismiss
the appeal, if it deems fit, in case of default by any party
on the date of hearing. This position was against the
established principle that in case of an ex-partedecision,
appeal ought to be decided on merits of the case based
on available records instead of dismissal of appeal. The
Finance Bill now seeks to withdraw the powers for
dismissal of appeal in case of default.
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Period for payment of advancetax on capital gains enhanced to21 days
Period for payment extended
Section 147(5B)
Section 147(5B) provides that advance tax payable on
capital gains subject to tax under section 37A shall be
payable within a period of seven days after the close of
each quarter. The Finance Bill seeks to extend this period
upto 21 days after the close of each quarter.
Withholding tax
Collection of tax on import of old and used
motor vehicles not to exceed the amount of
duties and taxes prescribed in SRO 577of 2005
Section 148 and clause 4, Part III, SecondSchedule
Clause 4 of Part III of Second Schedule provides
collection of tax at import stage on old and used motor
vehicles under SRO 932(I)/2004 at prescribed rates. The
said SRO was subsequently superseded through SRO
577(I)/2005, but consequential amendment in clause 4
was not made. The Finance Bill now seeks to substitute
this clause to provide that tax under section 148 shall not
exceed the amount specified in SRO 577(I)/2005.
Profit on debt - tax deducted from profit on debton government securities to be final
Section 151
Under existing provisions, tax deducted on profit on debt
from a resident individual and association of persons is
final tax except tax deducted by the Federal Government,
a Provincial Government or a Local Government paying
profit on debt on any security issued by such authorities.
The Finance Bill now proposes to extend the final tax
regime to profit on debt on government securities by
amending provisions of section 151(3). After this
amendment, in the case of a resident individual and
association of persons, tax deducted on any kind of profit
on debt shall be final tax.
Tax deducted from profit on debt to be final in
the case of non-resident taxpayer having no
permanent establishment in Pakistan
Section 152(2) and clause 5A, Part II, Second
Schedule
Clause 5A provides that payment of profit on debt to a
non-resident person not having permanent establishment
in Pakistan shall be subject to withholding tax under
section 152(2) at 10 percent of gross amount of profit.
Such tax deducted is adjustable against final tax liability
determined either at tax rates provided in a double tax
treaty, if applicable, or at tax rate applicable under the
Ordinance, as the case may be.
The Finance Bill proposes to insert a proviso in clause 5A
providing that the tax deducted on profit on debt from
debt instrument, Government securities including treasury
bills and Pakistan Investment Bonds shall be final tax on
profit on debt payable to a non-resident person having no
permanent establishment in Pakistan and the investments
are exclusively made through a Special Rupee
Convertible Account maintained with a Bank in Pakistan.
Deduction of tax from payments for goods,
services and contracts
Section 153Section 153 contains provisions relating to deduction of
tax from resident persons or permanent establishment of
non-resident persons in respect of sale of goods,
rendering of services and execution of contracts.
The tax deducted on sale of goods and execution of
contracts is a final tax in the hands of resident tax payer.
However, this tax shall not be final in case of a company
being a manufacturer of goods and the listed company.
The tax deduction on services is adjustable in case of acompany. The position was also clarified by the Board
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vide Circular No.6 dated 18 August 2009. Subsequently,
the Board vide letter dated 26 April 2011 withdrew its
earlier clarification and stated that tax deducted on
payments made for rendering of services is to be treated
as minimum tax. The withdrawal of clarification by the
Board was viewed against the provisions of law.
The Finance Bill proposes to substitute section 153 in the
following manner:
There is no change in the withholding tax rates onsales of goods, services rendered and execution of
contract.
Under existing provisions, gross amount of sales ofgoods includes sales tax under specific provision of
law, whereas, no specific provision requires inclusion
of sales tax in gross amount for the purpose of
withholding tax on payments for services or execution
of contracts.
The proposed section provides that the gross amount
for sale of goods, services and execution of contracts
shall include sales tax, if any.
Tax deducted from payment for sale of goods istreated as final tax in case of a resident person (other
than manufacturer of goods and listed companies).
Similarly, tax deducted on execution of contracts is
treated as final tax in case of a resident person, other
than a listed company.
The Bill proposes that tax deducted shall be final tax
for resident person as well as permanent
establishment of non-resident person in respect of
sale of goods except (in the case of a company being
a manufacturer of goods or a listed company) and in
respect of execution of contract (except in the case of
a listed company and contracts specified in section
152(1A), subject to filing of options by non-resident
persons).
Tax deducted on payment for services rendered or
provided is treated as minimum tax in the case of
resident individuals and association of persons,
whereas, adjustable in the case of a company.
The Bill now proposes that tax deducted from
payment for services rendered or provided shall be
treated as minimum tax in the case of all resident
persons and permanent establishment of non-
resident person.
Threshold for withholding tax on withdrawal
from pension fund enhanced to 50 percent
Section 156B
The Finance Bill proposes to enhance the limit of
withdrawal from any approved pension fund from 25
percent to 50 percent at or after the retirement age for the
purpose of withholding tax.
Rate of tax collection on cash withdrawal
reduced to 0.2 percent
Section 231A and Div VI, Part IV, First Schedule
The Finance Bill proposes to reduce the rate of collection
of tax on withdrawal of cash from 0.3 percent to 0.2
percent.
The Bill however does not proposes any reduction in rate
of tax collection on transactions in banks covered in
section 231AA (e.g. sale against cash any instrument
including Demand Draft, Pay Order, CDR, STDR, SDR,
RTC or any other instrument of bearer nature etc.) which
shall continue to be at 0.3 percent.
Tax to be collected on sale under auction by
tender
Section 236A
The Finance Bill seeks to subject sale under auction by
tender to collection of tax under section 236A, besides
sale by public auction.
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Tax collected on sale of air tickets made
adjustable
Section 236B
The Finance Act, 2010 introduced collection of tax on
sale of air tickets, without specifying that tax collected to
be final or adjustable. The Board vide Circular 10 of 2010
clarified that tax collected shall be adjustable. Now, the
Finance Bill seeks to insert sub-section (3) to clarify thatthe tax collected under this section shall be adjustable.
The Bill further provides that tax shall not be collected in
the case of the Federal Government or a Provincial
Government or a person who produces a certificate from
the Commissioner that income of such person is exempt.
Editorial amendments
Sections, 115, 168 & 169, clause 3 Division IV Part III
First Schedule, clauses 42, 46A & 47D Part IV Second
Schedule
Consequent to the proposed amendments in withholding
tax provisions, editorial changes have also been
proposed in provisions dealing with filing of statement of
final taxation, inadmissibility of tax deducted / collected
which is final, and relevant withholding tax provisions
contained in the First and Second Schedules.
Withholding tax statements to be filed on
monthly basis by 15th
Section 165
day of the following
month
The Finance Bill seeks to amend section 165 in a manner
to replace requirement of quarterly statements of
withholding tax with monthly statements of withholding.
For the purpose, the Bill also proposes that monthly
statement shall be required to be filed by 15th
The Bill also proposes that, in addition to name and
address, CNIC Number and NTN would also be required
to be incorporated in the statements.
day of the
month, following the month to which the statement
pertains.
The Bill also proposes to insert a new sub-section (6) in
section 165 to provide that every employer shall furnish
annual statement of withholding tax from salary, including
information for such employees, whose salary though
exempt but fall in the range of Rs. 300,001 to Rs.
350,000.
Penalty for failure to furnishreturn or statements - Term taxpayable explained
Section 182
Existing provisions provide that where any person fails to
furnish a return of income or a statement required under
section 115 or wealth statement or wealth reconciliation
or withholding tax statement under section 165, such
person shall pay penalty equal to 0.1 percent of tax
payable for each day of default subject to a minimum
penalty of Rs. 500 and a maximum penalty of 25 percent
of the tax payable in respect of relevant tax year.
The Finance Bill proposes to insert an explanation to the
expression tax payable to mean tax chargeable on the
taxable income on the basis of assessment made or
treated to have been made under sections 120, 121, 122
or 122C.
Benefit of Advance rulingrestricted to non-residents nothaving permanentestablishment in Pakistan
Section 206A
Section 206A provides that a non-resident taxpayer may
seek advance ruling from the Board regarding application
of the Ordinance to a transaction proposed or entered
into.
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The Finance Bill seeks to restrict the availability of
advance ruling only to such non-resident taxpayers who
do not have permanent establishment in Pakistan by
proposing new sub-section (4).
Jurisdiction of tax authorities -Board or Chief Commissioner
empowered to transfer casesSection 209
Section 209 empowers the Board to assign persons or
classes of persons or areas to a Commissioner and the
Commissioner (Appeals), whereas, the Board, and the
Chief Commissioner with prior approval of the Board, may
confer upon or assign to any Officer of Inland Revenue all
of any of the powers and functions conferred upon or
assigned to the Commissioner in respect of any person or
persons or classes of persons or areas, as may be
specified in the order.
The Finance Bill now seeks to insert a proviso in sub-
section (1) of section 209 to empower the Board or the
Chief Commissioner to transfer jurisdiction in respect of
cases or persons from one Commissioner to another. The
proposed amendment appears to provide help in tax
administration in view of ongoing restructuring of field
formations.
Taxation of Capital Gains on
securities - Holding periodclarified
Div VII, Part I, First Schedule
The existing tax rate card for capital gains taxation under
section 37A has created an anomaly regarding taxation of
capital gains where holding period is exactly 6 months or
12 months, as tax rates have been provided only where
holding period is either lesser than or more than such
periods. The Finance Bill seeks to clarify this position by
substituting the rates table which is summarised as
under:
Tax Year Where holding
period is less
than 06
months
Where holding
period is 06
months or
more but less
than 12 months
Where holding
period is one
year or more
2011 10% 7.5% 0%
2012 10% 8.0% 0%
2013 12.5% 8.5% 0%
2014 15% 9.0% 0%
2015 17.5% 9.5% 0%
2016 * 10% 0%
*Tax rate not provided currently nor proposed in the Finance Bill
Exemptions and Concessions
Exemptions deleted
Clauses 61(xi) & (xxv), 74A, 93 and 114A, Part I, Second
Schedule
These clauses provide exemptions to BCCI Foundation
for Advancement of Science & Technology, BCCI
Foundation, foreign currency loan granted by National
Bank of Pakistan to Pakistan State Oil, profit and gains of
computer training institutions set-up between 01 July
1997 to 30 June 2005 for five years, and capital gains
from sale of ships and floating crafts upto tax year ending30 June 2011. The Finance Bill seeks to omit all these
exemptions.
Exemption to Islamic Development Bank
Clause 107A, Part , and clause 38C, Part VI,
Second Schedule
The Finance Bill proposes to provide exemption to any
income derived by the Islamic Development Bank from its
operations in Pakistan in connection with its social and
economic development activities.
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The Bank is exempt from withholding tax under section
150 payment of dividend. The Finance Bill proposes to
insert clause 38C to provide exemption from withholding
tax to the Bank under sections 151, 152, 153 and 233 as
well.
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Scope of Tax Rate reduced to16 percent
Section 3
The Finance Bill seeks to reduce the standard rate of
sales tax from 17 percent (17 percent) to 16 percent (16
percent) w.e.f. 01 July 2011.
This is a major relief measure proposed under the Sales
Tax Act. It is however to be noted that the standard sales
tax rate was increased to 17 percent only last year
through the Finance Act 2010 to cater to the revenue
shortfalls due to non-implementation of RGST. As a
number of exemptions & zero-ratings under the Act and
notifications have either been withdrawn or are proposed
to be withdrawn, it seems a just and equitable decision to
reduce the standard rate of sales tax again at 16 percent.
Input tax adjustment on fixedassets and capital goods
Section 8B(1)
Presently, adjustment of input sales tax paid on purchase
of fixed assets / capital goods is allowed in 12 equal
instalments. Furthermore, there is a restriction on
claiming more than ninety percent (90 percent) of input
tax during the tax period and same restriction also applies
to adjustment of input sales tax incurred on purchase of
fixed assets/capital goods.
The Finance Bill seeks to substitute first proviso to sub
section (1) of section 8B to allow full input tax adjustment
against sales tax paid on fixed assets / capital goods
during the tax period in which these are purchased. This
would not only simplify the law, but also improve cash
flows of the taxpayer.
Restriction on claim of refund orinput tax adjustment on invoicesissued by blacklisted persons
Section 21(3)
The Bill seeks to insert sub section (3) to section 21 to
provide for an explicit provision in the Act for restricting
claim of input tax credit or refund on purchases from
registered persons that have been blacklisted by FBR;
including purchases made prior to the date of blacklisting.
Similar provision is already available under sub rule (5) of
rule 12 of the Sales Tax Rules, 2006. This proposed
amendment seeks to make it a part of the Act itself. The
intent appears to enhance the enforcement of the
provision; however not allowing input tax credit on
purchases made from a person prior to his blacklisting
appears to be a harsh measure for the purchaser who
would be penalised for no mistake on his part.
Return
Section 26(3)
The Bill proposes to empower the Commissioner to allow
revision of special sales tax return(s) filed in pursuance to
a direction from the Commissioner or FBR. Presently,
only a monthly sales tax return can be revised within 120
days of its filing.
Obligation to producedocuments and provideinformation
Section 38B (1)
Presently, as per section 38B (1), officers equivalent and
above the rank of the Deputy Commissioner of Inland
Revenue are empowered to call for any information or
documents from any registered person.
Sales Tax Act, 1990
Significant amendments
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The bill now seeks to empower the Assistant
Commissioner (in addition to officers equivalent and
above the rank of the Deputy Commissioner of Inland
Revenue), to call for any information or documents from
any registered person.
Alternate dispute resolution
Section 47A (4)
The Finance Bill seeks to make consequential
amendments in sub section (4) to bring it at par with
section 38 of the Federal Excise Act, 2005 through which
a Member nominated by the Chairman FBR may also
pass an order considered appropriate by him with respect
to any decision or recommendation under the mechanism
of alternate dispute resolution.
Refund to be claimed within oneyear
Section 66
The Bill seeks insertion of a new proviso to section 66
whereby no refund of sales tax would be admissible if the
incidence of the sales tax has already been directly or
indirectly passed on to the consumer. This proposed
amendment is to take care of the loss of revenue to
Government in a scenario where same amount is not only
claimed by refund claimant as refund, but also it (or part
of it) is recovered by him from the consumer.
Sixth ScheduleTable-1 & 2 - Withdrawal of sales tax
exemptions
The Bill proposes to withdraw sales tax exemptions
available on import and supply of the following goods
effective from 04 June 2011:
Sr.No.Product
PCT
Heading
29A of Surgical Tapes 30.05
Sr.No.Product
PCT
Heading
Table-1
29B Ultra Sound Gel 3006.7000
30 Diapers for Adults (patients) 4818.4010
34 Bricks 6901.0000
35 Building blocks of cement
including ready mix concrete
blocks
6810.1100
41 Computer software 8523.2990,
8523.4010,
8523.4090,
8523.5990
and
8523.8090
42 Ambulances, fire fighting
vehicles, waste disposal trucks,brake down lorries, special
purpose vehicles for the
maintenance of streetlights and
overhead cables.
87.02,
87.03,8704.2200,
8704.2300,
8705.3000
and
8705.9000
43 Aircrafts 8802.2000,
8802.3000
and
8802.4000
44 Ships, of gross tonnage
exceeding 15 LDTs, excluding
those for recreational or
pleasure purpose.
8901.2000,
8901.3000
and
8901.9000
62 Defence stores, including
trucks, trailers and vehicles,
their parts and accessories for
supply to Armed Forces
Respective
headings
64 Spare parts and equipments for
aircrafts and ships mentioned
above
Respective
headings
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Sr.No.Product
PCT
Heading
65 Equipments and machinery for
pilotage, salvage or towage for
use in ports or airport.
Respective
headings
66 Equipment and Machinery for
air navigation.
Respective
headings
67 Equipment and machinery used
for services provided for
handling of ships or aircrafts in
customs-port or customs-
airport.
Respective
headings
68 Plant and machinery as is
notified by Federal
Government, exempt from
sales tax on import if not
manufactured in Pakistan
Respective
headings
69 Bulldozers and combinedharvesters and components
(which include sub-
components, components, sub-
assemblies and assemblies
excluding consumables).
Respectiveheadings
70 CNG Euro-2 buses whether in
CBU or CKD condition
8702.9010
and
8702.9090
05 of
Table-2
Supply of other such
agricultural implements as
specified by government in
official Gazette.
Respective
headings
Significant amendments in theSales Tax Rules, 2006
SRO 487(I)/2011 dated 03 June 2011
This SRO amends rule 14A of the Sales Tax Rules, 2006
whereby automatic electronic approval for revision of
sales tax returns will not be available anymore.
An amendment has been made in rule 65 whereby time
limit for submission of report by Alternate Dispute
Resolution Committee has been enhanced to 90 days
from 60 days of its appointment.
These amendments are effective from 04 June 2011.
Significant amendments in the
Special Procedures Rules, 2007SRO 482(I)/2011 dated 03 June 2011
This SRO amends rule 58B of the Sales Tax Special
Procedures Rules, 2007 whereby minimum value addition
for payment of sales tax by commercial importers has
been enhanced to 3 percent (3 percent) from 2 percent (2
percent).
This amendment is effective from 04 June 2011.
Significant sales tax notificationsSRO 480(I)/2011 dated 03 June 2011
This SRO rescinds following notifications:
SRO 1240 (I)/2005 dated 16 December 2005
SRO 542(I)/2006 dated 05 June 2006
SRO 275(I)/2008 dated 12 March 2008
1(3) STM / 2004 (Pt-II) dated 23 August 2009
By rescinding these notifications, following exemptions
stands withdrawn:
Import of dump trucks for off-high way use, on-highway dump trucks of 320 HP and above (PCT
Code 8704.2290 and 8704.2390) and transit concrete
mixer.
Import and supply of agricultural machinery,equipment and implements, whether locally
manufactured or imported.
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Import and supply of CKD kits of single cylinderagriculture diesel engines of 3 to 36 HP.
Furthermore, sales tax exemption is provided on sugar by
rescinding SRO dated 23 August 2009, wherein reduced
rate of eight percent (8 percent) of sales tax was
applicable on local supplies of sugar. This notification is
effective from 04 June 2011.
SRO 481 (I) /2011 dated 03 June 2011
Through this SRO, amendments have been made in SRO
551 (I)/2008 dated 11 June 2008 whereby exemption on
following goods has been withdrawn:
Supply of CNG kits, cylinders and valves for CNGkits, if supplied for automotive vehicles
Import and supplies of Commercial catalogues falling