Budget Brief 2015 - KPMG

KPMG Taseer Hadi & Co. Chartered Accountants

Budget Brief 2015 An Economic and Tax Commentary

The Budget Brief 2015 contains a review of economic scenario and highlights of Finance Bill 2015 as they relate to direct and indirect taxes and certain other laws.

The provisions of the Finance Bill 2015 are generally applicable from 01 July 2015, unless otherwise specified.

The Budget Brief contains the comments, which represent 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.

5 June 2015

Contents

Budget at a Glance 1

Economic Analysis 3

Economic Scenario 11

Highlights - Income Tax 17

- Sales Tax 19

- Sales Tax on Services (Islamabad) 20

- Federal Excise 20

- Customs 21

Significant Amendments - Income Tax 23

- Sales Tax 63

- Sales Tax on Services (Islamabad) 71

- Federal Excise 75

- Customs 77

Contents

© 2015 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 Brief 2015 1

Budget Estimate 2014-15

% Revised Estimate 2014-15

% Budget Estimate 2015-16

%

Revenue

Tax Revenue 3,129 74.2 2,910 68.6 3,418 74.8

Non Tax Revenue 816 19.4 1,042 24.6 895 19.6

3,945 93.6 3,952 93.2 4,313 94.4

Public Accounts Receipts - Net 271 6.4 288 6.8 254 5.6

4,216 100.0 4,240 100.0 4,567.0 100.0

Less: Provincial Share 1,720 40.8 1,575 37.1 1,849 40.5

Net Revenue 2,496 59.2 2,665 62.9 2,718 59.5

Expenditure

Development 839 19.9 754 17.8 969 21.2

Current 3,527 83.7 3,558 83.9 3,615 79.2

4,366 103.6 4,312 101.7 4,584 100.4

Deficit 1,870 44.4 1,647 38.8 1,866 40.9

Funded by

Capital Receipts 484 25.9 393 23.9 485 26.0

Domestic Debt - Banks 228 12.2 402 24.4 283 15.2

External Debt 671 35.9 692 42.0 751 40.2

Privatization Proceeds 198 10.6 18 1.1 50 2.7

Surplus from Provinces 289 15.4 142 8.6 297 15.9

1,870 100.0 1,647 100.0 1,866 100.0

------------------(Rupees in billion) ----------------

Budget at a Glance

2 Budget Brief 2015


.

Budget Brief 2015 3


GDP Growth

Economic Analysis

14-15

(P) 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

Nominal GDP US$ billion 269 253 225 224 214 177.0 168 170 143.0 127.4

Nominal GDP Rs. billion 27,384 25,068 22,379 20,047 18,276 14,867 13,200 10,638 8,673 7,623

Real GDP Growth % 4.24* 4.03* 3.65* 3.84* 3.62* 2.58* 0.36* 4.99* 5.54* 5.8

Sectoral GDP Growth %

Agriculture 2.9* 2.7* 2.7* 3.6* 2.0* 0.2* 3.5* 1.8* 3.4* 6.3

Manufacturing 3.2* 4.5* 4.6* 2.1* 2.5* 1.4* -4.2* 6.1* 9.0* 8.7

Services 5.0* 4.4* 5.1* 4.4* 3.9* 3.2* 1.3* 4.9* 5.6* 6.5

Sectoral Share in GDP %

Agriculture 20.9 21.1 21.4 21.6 21.7 22 22.5 21.9 22.5 23

Manufacturing 13.3 13.4 13.4 13.2 13.4 13.6 13.8 14.4 14.3 13.8

Services 58.9 58.4 58.2 57.4 57.1 56.9 56.6 56 56.1 56

4.24%

4.03%3.65%

3.84% 3.62%

2.58%

0.36%

4.99%

5.54%

5.80%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

0

5,000

10,000

15,000

20,000

25,000

30,000

14-15 (P) 13-14 (P) 12-13 (P) 11-12 (P) 10-11 09-10 08-09 07-08 06-07 05-06

GDP Growth (% Points)

GDP GDP Growth

Source: Pakistan Economic Survey 2014-15

*Base year 2005-06 Source: Pakistan Economic Survey 2014-15

4 Budget Brief 2015


GDP Growth

0

10

20

30

40

50

60

70

80

90

100

14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

Sectoral Share in GDP (% Points)

Agriculture Manufacturing Services Others

2.9 2.7 2.7

3.6

2.0

0.2

3.5

1.8

3.4

6.3

3.2

4.5 4.6

2.1 2.5

1.4

(4.2)

6.1

9.0 8.7

5.0

4.4

5.1

4.4 3.9

3.2

1.3

4.9 5.6

6.3

(6.0)

(4.0)

(2.0)

-

2.0

4.0

6.0

8.0

10.0

14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

Sectoral GDP Growth (% Points)

Agriculture Manufacturing Services



Budget Brief 2015 5


Public Debt

14-15 (Mar)

13-14 12-13 11-12 10-11 09-10 08-09 07-08 04-05

Public Debt (Rs. billion) 16,936 15,996 14,293 12,695 10,767 9,006 7,731 6,126 4,802

Domestic 11,932 10,920 9,522 7,638 6,017 4,654 3,860 3,275 2,601

Foreign currency 5,004 5,076 4,771 5,057 4,750 4,352 3,871 2,852 2,201

Public Debt (% of GDP) 61.8 63.8 63.9 63.3 58.9 60.6 57.8 56.8 62.9

Domestic 43.6 43.6 42.5 38.1 32.9 31.3 29.2 30.7 33.5

Foreign currency 18.3 20.3 21.3 25.2 26.0 29.3 28.6 26.1 29.4

61.8

63.863.9

63.3

58.960.6

57.8

56.8

62.9

43.6 43.642.5

38.1

32.931.3

29.2 30.7

33.5

18.320.5

21.3

25.226

29.3

28.6

26.1

29.4

0

10

20

30

40

50

60

70

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 04-05

Public Debt (in Rs. billion)

Public Debt Public Debt (% of GDP) Domestic % of GDP Foreign currency - % of GDP



6 Budget Brief 2015


Overall Deficit

14-15P

(Jul-Mar) 13-14

(Jul-Mar) 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

(US $ million)

Exports 18,122 18,746 25,078 24,802 24,718 25,356 19,673 19,121 20,427 17,278 16,553

Imports 30,875 31,226 41,668 40,157 40,370 35,872 31,209 31,747 35,397 26,989 25,017

Trade Balance -12,753 -12,480 -16,590 -15,355 -15,652 -10,516 -11,536 -12,627 -14,970 -9,711 -8,464

Services – net -1,381 -2,129 -2,657 -1,564 -3,305 -1,940 -1,690 -3,381 -6,457 -4,170 -7,304

Current Transfer – net

15,974 14,852 20,222 18,183 17,686 15,687 12,562 11,163 11,476 10,585 10,548

(Workers’ remittances)

13,328 11,586 15,837 13,922 13,186 11,201 8,906 7,811 6,451 5,494 4,600

Income Account Balance – net

-3,121 -2,865 -3,948 -3,669 -3,245 -3,017 -3,281 -4,407 -3,923 -3,582 -2,667

Current Account -1,456 -2,692 -3,130 -2,496 -4,658 214 -3,946 -9,252 -13,874 -6,878 -5,015

Overall deficit (% of GDP)

5.0 6.3 5.5 8.2 6.8 6.5 6.2 5.2 7.3 4.1 4.0

5.0%

5.5%

8.2%

6.8% 6.5%

6.2%

5.2%

7.3%

4.1%4.3%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0

5,000

10,000

15,000

20,000

25,000

30,000

14-15 13-14(E)

12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

Rs.

Bill

ion

Overall Deficit

GDP(mp) Overall Deficit



Budget Brief 2015 7


Social Indicators

14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

Population (millions) 191.71 188.02 184.35 178.9 175.3 171.7 168.2 164.7 158.2 155.4

Unemployment rate (%) *6.0 6.0 6.2 6.0 6.0 5.5 5.2 5.2 6.2 7.6

GNP per capita – US$ 1,512.4 1,383.5 1,333.3 1,320.5 1,274.1 1,072.4 1,026.1 1,053.2 979.9 897.4

Total investment - % of GDP 15.1 15 15 15 14.1 15.8 17.5 19.2 18.8 19.3

National Savings - % of GDP 14.5 13.7 13.9 13 14.2 13.6 12.0 11.0 14.0 15.2

66.2 6.2 6 6

5.5 5.25.2

6.2 7.6

0

1

2

3

4

5

6

7

8

0

50

100

150

200

250

14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

Rs.

Bill

ion

Social Indicators - 1

Population Unemployment Rate (%)

15.1%15.0%

15.0% 15.0%14.1%

15.8%17.5%

19.2% 18.8%

19.3%

14.5% 13.7%13.9%

13.0%14.2%

13.6%

12.0%11.0%

14.0%

15.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0

200

400

600

800

1,000

1,200

1,400

1,600

14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

Rs.

Bill

ion

Social Indicators - 2

GNP Per Capital - US$ Total investment - % of GDP National Savings - % of GDP

* 2014-15 unemployment figures not provided. Therefore 2013-14 level used. Source: Pakistan Economic Survey 2014-15



8 Budget Brief 2015


Exchange Reserves

14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

Exchange reserves (US$ billion) 17.5 14.1 11.5 16.5 17.1 12.2 11.5 16.4 12.8 11.2

Imports Cover (months) 4.0 3.8 3.5 5 5.7 4.6 4.3 5.6 5.7 5.4

Rupee to USD parity 101.9 98.77 99.66 89.2 85.5 83.8 78.5 62.5 60.6 59.9

4

3.43.5

55.7

4.6

4.3

5.6 5.75.4

0

1

2

3

4

5

6

0

2

4

6

8

10

12

14

16

18

20

14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

Exchange Reserves (in USD million)

Exchange Reserves Imports Cover (months)



Budget Brief 2015 9


Inflation

14-15 (Jul-Apr)

13-14 (Jul-Apr)

13-14 12-13

11-12 10-11 09-10 08-09 07-08 06-07 05-06

CPI 4.8 8.7 8.6 7.4 11.0 13.7 10.1 17.0 12.0 7.8 7.9

Food * 3.6 9.3 9.0 7.1 11.0 18.0 12.9 23.1 17.6 10.3 6.9

Non Food * 5.7 8.2 8.4 7.5 11.0 10.7 8.3 13.4 7.9 6.0 8.6

Core 6.9 8.3 8.3 9.6 10.5 9.4 7.6 11.4 8.4 5.9 7.5

0

5

10

15

20

25

14-15 13-14 12-13 11-12 10-11 09-10 08-09 07-08 06-07 05-06

Inflation

CPI Food * Non Food *



10 Budget Brief 2015


Budget Brief 2015 11


The crowning accomplishment of the government, since the previous commentary a year ago, on the economic front, is the fortuitous and momentous accord on the China Pakistan Economic Corridor (CPEC). During the Chinese President’s celebrated recent visit in April 2015, Memorandum of Understandings (MOUs) worth US$ 46 billion were signed. According to the State Bank of Pakistan (SBP), direct investment in Pakistan, since independence, currently stands at USD 30.8 billion; this perhaps is a valid benchmark to gauge the quantum of the expected Chinese investment in Pakistan.

As of very late, the exact details of the MOUs have been kept quite close to the chest by the government, for whatever compulsions, with summarized disclosures only forthcoming at the All Parties Conference (APC) a few days ago. Fortunately for the nation, a consensus was achieved during the APC thereby addressing the blighting opposition from the provinces over perceived biases in the planned investment.

Nonetheless, from the information currently available, a big chunk of this investment is earmarked for power generation, approximately 15000 MW, of which half are Coal fired, with a derisory amount set aside for Hydel generation. Load shedding and circular debt have been the nemesis of at least the last two governments and is also the key irritant for the incumbents; especially considering the ambitious promises made during the election campaign and in the party manifesto; which perhaps was the blueprint behind the disparate allocation towards power generation and specifically from coal.

Undoubtedly, power is the biggest hurdle Pakistan faces in achieving economic stability, albeit the solution is not electricity at any cost, the elusive “Fountain of youth” in this case is cheap electricity.

According to Power System Statistics issued by National Transmission & Dispatch Company (NTDC), as of 2014 Pakistan’s electricity generation stood at 24,953MW, of which 16,963MW, was thermal and

only 6902MW was hydel, the rest were alternate forms of energy. Why and how is this capacity insufficient to meet an undiversified demand of 23505MW is left for the technocrats to argue about, however, what is noticeable is that almost 34% of the 95148GWh generated in 2014 was from furnace oil. To get a flavour of how this impacts the economy, the cost of generation from Tarbela is 0.96 kWh and from Mangla is 0.64 kWh, compared to which the cost of fuel alone, for GenCos stands at Rs. 15.60 kWh. On top of this, transmission and dispatch losses alone stood at 19.6% in 2014.

Considering that the government is currently able to recover around Rs. 11 per unit only, it would appear prudent to estimate the cost of generation from coal and solar projects and their future impact upon the quantum of circular debt, prior to taking such initiatives. It is providential that international fuel prices have collapsed, however, something as fickle as oil prices cannot be relied upon to balance the electricity budget indefinitely. Approximately 46% of the generation is utilized by the Domestic consumer, which cannot be deemed productive and who hardly have surplus disposable income to finance inexorable rise in electricity cost. The problem for any sitting government is that this segment of consumers is their electoral polity and cannot be ignored. Already the subsidies, primarily to this segment, have resulted in an increase in circular debt, once again, to around Rs. 250 billion; although certain quarters dispute the government’s claim about the size of this debt.

Another, perhaps as formidable, hurdle with generating electricity from imported fuel is the pressure on the foreign exchange reserves and the associated investment required in related logistics to transport the fuel. The cost of environmental protection is also a prohibitive consideration. Notwithstanding the development and installation phase, which can possibly extend beyond 3 years, the key question when all this generation comes on line is: will the cost of generation be sufficiently reasonable to enable the domestic manufacturer to compete in international markets? The economic benefits of this investment will only accrue to

Economic Scenario



Pakistan through expansion of exports; electricity is only an enabler, manufacturing is the revenue earner.

Considering the Government’s success with APCs, perhaps it is advisable to hold one on development of Big Dams, which as technocrats keep pointing out are critical, not only for cheap electricity, but for water security in the very near future. Already water riots have started in the largest metropolitan of the country. Perhaps the APC could also discuss cooperation between the Federal and KPK government to develop on fast track hydel projects up north.

The famed corridor, the route to Gwadar from Kashgar, deemed to be absolutely imperative for China, is envisaged to cost, road and rail, around USD 10 billion. There are a multitude of estimates, which is indeed bewildering, on how much distance the Chinese save through this investment, but if all this hype is true, China will surely build this particular infrastructure in the shortest time possible. As mentioned earlier, the conditions precedent for individual investments remain unclear at this point, and accordingly it is impractical to comment on the ability of the Government to cater to that wish list, but to venture a guess the corridor itself, by default, is not expected to have any inherent deal breakers.

Depending upon the conditions attached to the Gwadar route, the BOOT period in particular, or for that matter if it is on BOOT at all, the only way Pakistan can in substance gain from this investment is through access to Chinese markets for the domestic industry. Contrarily Pakistan’s only gain will be windfalls, perhaps similar to those which accrued when NATO supplies crossed over to Afghanistan; assuming Pakistan owns the trucks and railways. And there is an associated risk that Pakistan markets get flooded with Chinese products; consumer preference for cheaper products cannot be curtailed by patriotic slogans alone. It would therefore be advisable for Pakistan to negotiate setting up of downstream industry in and around the route for Chinese manufacture, at the minimum, concomitant with this investment.

Finally a Lilliputian portion, as a percentage of the overall amount but not in isolation, of USD 1.6 billion

from the CPEC has been earmarked for a Mass Transit Project in Lahore. Maintenance and up-gradation of revenue earning regions is an adroit strategy and needs also to be extended to Karachi, the biggest, by far, contributor to the nation’s economy; Karachi is arguably, amongst other things, on a downward trajectory as far as infrastructure is concerned.

Fundamentally, irrespective of the debate on how much of this USD 46 billion will actually be spent in Pakistan, primary gains from these multitude projects will materialize after their respective commercial operations date. Keynesian economics might increase economic activity during the spending phase, but whether or not it kicks starts the economy thereafter is entirely dependent upon future positive economic benefits flowing from the underlying projects. In the interim, China’s economy will get a boost from supplying, perhaps, all the factors of production, assuming that the Government can find a solution to bypass Pakistan Procurement Regulatory Authority (PPRA) rules, if at all applicable.

The debate around debt or investment, which did get noisome now and then, was ab initio irrelevant. In essence equity is generally more expensive than debt, and if the former is secured by sovereign guarantees, which is unclear at this point, risk free as well. No one invests to make a loss, debt or equity; the money will need to be paid back over time, with interest or dividends. In the worst scenario Pakistan might be looking at a even more humongous circular debt issue a few years down the road.

There is no denying that the investment under CPEC is a Knight in shining armour for Pakistan, and kudos to the government for pursuing its fruition, however henceforth, and even more assiduous supervision and monitoring is necessary to ensure it does not become a Trojan horse.

Another milestone, definitely a first, deserving unfettered encomiums and unbridled accolades, achieved by the Government during the year, was the successful conclusion of the IMF seventh review.

“Regarding the program, all end of March performance criteria have been met, including on



the budget deficit and accumulation of net international reserves. The indicative target on social spending under the Benazir Income Support Program was also met. While the indicative target for federal tax revenue was missed by a small margin, due to legal challenges to some measures and the adverse impact of declining commodity prices, the authorities are taking measures to meet the end-June budget deficit target (4.9 percent of GDP). The mission welcomed the authorities’ plans to further reduce the fiscal deficit in 2015/16, while accommodating extraordinary expenditures related to flood rehabilitation, security enhancements to fight terrorism, and resettlement of internally displaced persons”. IMF Press Release No. 15/206, May 11, 2015. (Highlighted and underlined for emphasis)

This perhaps is an appropriate assessment of the financial managers’ performance during the year. The worrisome part is what comes next, as set out in the same press release, “Key priorities for the second half of the program include improving the energy sector; widening the tax net to create space for infrastructure investment and social assistance; improving the business climate; and further strengthening external reserve buffers”. The agenda is not just challenging, achieving it seems improbable if not impossible.

The SBP State of Pakistan Economy, second quarterly report 2014-15, which was issued around the same time, provides an insight on the factors leading to this roaring appreciation by IMF. The convenient fall in international oil prices, Pakistan being one of the big beneficiaries, and the continued magnanimity of overseas Pakistani were the key contributors to the rising foreign exchange reserves. As at 15 May 2015, total liquid foreign exchange reserves stood at USD 17.75 billion of which net reserves with SBP stood at USD 12.51 billion, possibly highest ever since 2011.

The SBP estimates that savings due to falling oil prices could be around USD 3 billion for the year 2014-15; the fall in prices having an inverse impact on consumption, restricting further savings. Whether or not this bonanza will be long term remains unpredictable, forecasting oil prices is a much more malignant task, compared with predicting the

economy. It might perhaps be prescient for the government to set up a cell of experts who have the capacity, in time, to at least follow the movement of oil prices and attempt to hedge adverse movements. Oil is the single most critical factor for Pakistan’s economy and a “wait and see” policy might even be suicidal.

Workers remittance for the period July 2014 to April 2015 stood as USD 14.9 billion compared with USD 12.9 billion for the same period last year, a whopping increase of 15.5% compared with an increase of 11.2% last year. The country-wise break up of workers remittance is however extremely worrying for the future, 65% of all receipts originate from Saudi Arabia, UAE and other GCC countries. Whether or not Pakistan’s principled stand on Yemen has any adverse fallout, falling oil prices in the medium term can in any case impact this treasure trove. While the SBP believes that Middle East countries have sufficient sovereign funds to continue with their prodigious spending on infrastructure, falling oil prices will eventually puncture the euphoria. If that happens not only will there be a significant fall in remittances, there will be a consequent increase in unemployment, which for some inexplicable reason remains firm at around 6% in spite of an increasing and ageing population.

The foreign exchange reserves were further supplemented by issuance of Sukuk amounting to USD 1 billion, privatization proceeds from UBL and HBL, CSF receipts of USD 1.5 billion and tranches from IMF totalling USD 1.1 billion; although there was a net retirement of external debt during the first half of the year. The concern is that even after selling two tranches of valuable assets, gross external debt remains largely unchanged. As of 15 March 2015,according to SBP total debt and liabilities stood at Rs. 19.3 trillion compared with Rs. 18.3 trillion on June 2014; with external debt continuing to hover around USD 63 billion. The total debt and liabilities as a percentage of GDP reached the dangerous level of 66.4%. The strategy of filling coffers with borrowed money will adversely affect future debt servicing; already the SBP notes that there was a 25.6% increase in external interest payments during the six months period ended 31 December 2014.



Between July 2014 to March 2015, total public debt increased by Rs. 1 trillion approximately, however the government managed to meet IMF’s condition of reducing borrowings from SBP for budgetary support. This was accomplished by resorting to borrowing from Private Banks thereby squeezing private credit, with the Banks supplementing their liquidity through Open Market Operations of the SBP. All this resulted in the Banks making super profits through arbitrage in PIBs when the interest rates were on a decline. Consequentially, while the Government’s debt profile tilted in favour of medium to long term maturities, there will likely be an increase in future interest payments by the Government.

Overall, the increased inflows of dollars due to workers remittance, with lower outflow due to declining oil import bill, resulted in the Rupee Dollar parity lingering within a band of Rs. 102.70 and Rs. 98.60 for USD 1. Irrespective of the mystery around the rupee continuing to maintain its position, this did result in a loss of competitiveness from the Real Effective Exchange Rate (REER); an indicator derived, broadly, from quantum of trade with, and respective currency exchange rates of trading partners. Admittedly REER is imperfect; however empirical data has proven that it does to an extent establish overvalued currencies and a ballpark assessment of by how much. According to SBP, REER stood at Rs. 118.54 as at March 2015.

While a strong rupee is a positive for translating external public debt, it is apocalyptical for exports. According to the SBP National Data Summary Page on 29 May 2015, the trade deficit from goods alone stood at USD 13.9 billion compared with USD 16.5 billion for the full year 2013-14; even after a reduction of USD 2 billion till April 2015 in imports under the petroleum group; benefits, if any, from the GSP Plus status hardly evident. The overall balance on goods, services and primary income had a deficit of USD 19.3 billion for the same period compared with a deficit of USD 23.2 billion for the complete last year. But for workers’ remittances of USD 14.9 billion, even IMF’s program would have come short on all counts.

On a commodity basis, for the period July-April 2015, increase in export of fruits and vegetables outshone the increase in the entire textile group; manufacture

remained at broadly the same level. Unfortunately, and strangely considering Pakistan claims to be self sustaining in food, import of all other food items stood at USD 1,269 billion; we as a nation imported cars and their spare parts worth approximately USD 1 billion, which call into question the deletion programmes of the automobile sector; telecom equipment of USD 1 billion, the nation seems to be obsessed with talking; and finally spent USD 1.1 billion on travel, which was probably paid to the Emirates, Etihad and Qatar Air. Pakistan International Airline could be on its feet with half this amount; perhaps something to think about.

This high level of trade deficit is the primary reason that the government has to keep borrowing dollars all the time. Perhaps it is time that imports were monitored and kept in check.

A net deficit in trade obviously has an adverse impact on the size of a national GDP, for Pakistan negative net exports result in a reduction of 6% from the domestic components of the GDP; which is a lot considering that with an expected annual growth of less than 4.5 %, GDP for 2014-15 might be above around USD 250 billion. What is worrying is that an estimated 80% of GDP is composed of household consumption with investment in fixed capital around 15% only. The Government had set a target for under the 3 year Medium Term Economic Framework to increase investment to 20% of GDP; this seems extremely challenging after 2 years together with the GDP target of 7.1%. Even more worrying is the sector wise composition of real GDP; manufacturing as a percentage of real GDP is cemented around 13% and is in fact down from 14% from a few years ago. The increase in real GDP has been brought about primarily by the services sector amongst which Wholesale and Retail trade and Transport Storage and Communication were the heroes. Serendipitously, if the entire nation chatted 24 hours for 365 days on their cell phones, then theoretically the GDP could go through the roof; but what good will that be?

On the other hand, more good news for the year; the appreciable fall of around 390 basis points in annual inflation, attributable once again to the fall in international oil prices, and other commodities in



general; where would the economy be without declining oil prices, is a question best ignored. Low inflation allowed the SBP to successively bring the interest rate down by 300 basis points during the year, which now stands at 7%. While shrinking interest rates has already done wonders to curtail government expenditure, it is envisaged that lower spreads will also push Banks out of their comfort zone, of taking deposits and lending it to the government, and spur growth. The monetary policy otherwise remained prudent, with due credit to the SBP.

Considering the state of the economy, the political instability all through their tenure and the time and resources employed, which all have a cost, in Zarb-e-Azb, the governments achievements thus far are laudable. CPEC and a focus on financial reforms, most boxes ticked, have positioned the country at an advantage for the future. However, as pointed out above, there are some extremely critical steps which need to be initiated, without which there is a credible risk that all these initiatives will turn to naught. A lot more needs to be done.

As pointed out last year, the age old formula of export oriented and import substituting manufacture needs to be the prime directive going forward. Even SBP suggests this strategy in their half year report on the economy. On the taxation front the policy of increasing tax collection through existing share holders and/or indirect taxation is likely to have further adverse affects on the formal economy.

The Fraser Institute annually publishes Economic Freedom of The World Index. They claim that the index measures the degree to which the policies and institutions of countries are supportive of economic freedom. Countries are assessed on the following 5 criteria:

Size of Government: Expenditures, Taxes, and Enterprises;

Legal Structure and Security of Property Rights;

Access to Sound Money;

Freedom to Trade Internationally;

Regulation of Credit, Labour, and Business.

Their 2014 report which contained rankings for the year 2012, overall ranked Pakistan 124th out of 152 countries, worse off than 2011 when the ranking was 111 out of the same sample countries. The worst sub rankings for Pakistan are in the area of legal structure and security of property rights, and access to sound money. It is extremely doubtful that things have improved in the former or even the later for that matter. Dewani courts keep essential capital, a critical factor of production and economic growth, strangulated in a strait jacket for decades. If Banks will decline to lend on the basis of projects, and continue to lend only to the government and those who don’t need to borrow in the first place, broad based growth and employment will remain a fantasy. If budding entrepreneurs are forced to borrow from the informal sector, their businesses will remain in the informal sector indefinitely, and tax to GDP ratio will keep lagging.

The Global Competitiveness Report is a yearly report published by the World Economic Forum, since 2004. This report ranks countries on 12 pillars of competitiveness. Pakistan in 2014-15 has been ranked 129th out of 144 countries, compared with 133rd out of 148 last year; in substance status quo. India, Bangladesh, SriLanka, Nepal and Bhutan are all ranked above Pakistan. A synopsis of Pakistan’s ranking is reproduced below:

Risk Score

Basic requirements (40.0%) 112 3.8

Institutions 133 2.9

Infrastructure 117 2.7

Macroeconomic environment 54 5.0

Health and primary education 111 4.8

Efficiency enhancers (50.0%) 112 3.5

Higher education and training 112 3.3



Risk Score

Goods market efficiency 92 4.2

Labour market efficiency 115 3.8

Financial market development

93 3.7

Technological readiness 110 2.9

Market size 92 3.3

Innovation and sophistication factors (10.0%)

132 2.9

Business sophistication 121 3.4

Innovation 134 2.4

A careful analysis of these results identifies education as the core problem. Institutions, efficiency enhancers, labour efficiency, technological readiness, innovation and business sophistication all have to do with education, obviously in addition to primary and higher education and vocational training.

Finally the most regularly quoted but never taken seriously index in Pakistan, the Corruption Perception Index of Transparency International. As perhaps everybody is aware, Pakistan was ranked 126th out of 174 countries in 2014, with Bangladesh being ranked below us, the only saving grace, if at all. Surprisingly, eradication of corruption was, after load shedding, the key slogan during the last election. The absolute apathy towards a fundamental building block of the economy is inexplicable. Attracting investment, foreign or domestic, is well neigh impossible in an environment where contracts are not enforced and property rights remain nebulous.

Admittedly, it is impossible for any government to address all of the above 17 criteria or pillars simultaneously. A bit of ratiocination identifies the following four priorities for policy formulation:

Export oriented/ import substituting industrialization.

Reducing corruption on a war footing, on the lines being done by the current Chinese President.

Spending the development budget on education, with a focus on higher education and vocational training.

Increasing the number of courts and judges, sufficiently, to settle Dewani cases, the entire plethora, within the next 3 years.

Should the current government achieve results on these priorities in its remaining term that will indeed by history in the making.

Preamble

The Pakistan Economy (PE) walks to the tee, it’s a great day and the environment is conducive for PE; equipped with the latest equipment, curtsey, a Chinese friend; checks the wind, the tee is positioned and the ball is placed on it, gets into the stance very carefully, takes a practise swing and looks at the coach, IMF; the coach gives a thumbs up; except the caddy (independent well wishers) points out that the laces are untied; tie the laces, and all systems go!

There is definitely anxiety, PE has already used the mulligan, and the margin for error is zero. As the back swing starts, the Pakistani audience hopes and desperately prays that the ball goes over 300 yards, whizzing down the fairway.....



Income Tax

Super tax proposed to be imposed for Tax Year 2015 for rehabilitation of displaced persons. This tax is to be paid by banking companies at the rate of 4% of income and by all other taxpayers at 3% of income; the latter being required to pay only if income is equal to or in excess of Rs. 500 million.

Tax at the rate of 10% on undistributed reserves of companies is proposed to be levied where a profit making company doesn’t pay cash dividend or its reserves after distribution of dividend exceed 100 percent of its paid-up capital. This provision shall not apply to companies where fifty percent or more shares are held by the Government.

Graduated tax slabs introduced for taxation of profit on debt earned by taxpayers other than banking companies and insurance companies at the rate of 12.5% and 15% in addition to the existing rate of 10%. The enhanced rates will apply where profit exceeds Rs. 25 million and Rs. 50 million respectively. The withholding tax rate is also proposed to be increased to 17.5% for non-filers where their annual profit is in excess of Rs. 500,000.

Tax rate on dividend received from a REIT scheme enhanced to 25%; however where a development REIT is set up by 30 June 2018, dividend received from such REIT will be reduced by 50% for three years from 30 June 2018.

Preparation of estimate of income for the year proposed to be made mandatory before payment of second installment of advance tax. 50% of the estimated liability is to be paid by second installment.

CNIC made NTN with effect from Tax Year 2015.

Federal Government power to notify exemption through an order has been made subject to

approval of Economic Coordination Committee of Cabinet. All notifications issued after 01 July 2015 shall stand rescinded at the end of the financial year in which issued, unless rescinded earlier. FBR’s power to change withholding tax rates also withdrawn.

The investment limit for shares / insurance premium proposed to be enhanced to Rs. 1.5 million from earlier Rs. 1 million for purposes of tax credit.

Tax credit for profit on house loan proposed to be substituted by straight deduction from income for up to Rs. 1 million or 50% of taxable income; whichever is less.

Shipping income of resident persons proposed to be subjected to final tax to 30 June 2020.

New manufacturing units set up between 01 July 2015 to 30 June 2018 proposed to be given tax credit for 10 years; the credit being 1% of tax payable for every 50 employees registered under labor laws during the year; subject to a maximum of 10% of tax payable. The credit apparently would not apply to expansion plans of existing manufacturers.

Tax credit for enlistment proposed to be enhanced from 15% to 20% in the year of enlistment.

The condition to seek Commissioner’s approval for revision of return waived off in case the revised return is filed within 60 days of filing of original return.

The Commissioner Inland Revenue (Appeals) empowered to grant further stay of 30 days, subject to deciding the appeal within such extended time.

The period for payment of tax demand under an amended assessment order to be enhanced to 30 days as against 15 days at present, whereas

Highlights



period for payment of tax under provisional assessment to be reduced from 60 days to 45 days.

The anomaly removed for issuance of exemption or reduced rate certificate by the Commissioner to Permanent Establishments of non-resident persons on sale of goods, rendering of services and execution of contract where such tax is adjustable.

Withholding tax on services rendered by companies made adjustable with effect from Tax Year 2009.

Tax withheld on payment under contract with a sportsperson made final with effect from Tax Year 2013.

Tax withheld on exports proposed to be treated minimum tax provided the taxpayer files an irrevocable option for taxation on net income basis.

FBR given powers to seek information from financial institutions about non-resident persons, as required to be provided to another country under a tax treaty.

The rate of compensation payable by FBR on delayed payment of refund changed from 15% to KIBOR plus 0.5%.

FBR empowered to constitute special audit panels comprising of its own officers and Chartered Accountants, Cost and Management Accountant firms or any other person directed by FBR to jointly carry out tax audits.

Penalty for non-furnishing of wealth statement changed from Rs. 100 for each day of default to 0.1% of taxable income per week or Rs. 20,000 whichever is higher.

Rate of additional tax reduced from 18% to 12%.

Special rules for tax audit selection of a person registered as retailer under the Sales Tax Special Procedure Rules, 2007 introduced.

14% withholding income tax levied on bill for internet services and on sale of internet pre-paid cards.

Withholding income tax of 5% on domestic air tickets withdrawn on routes of AJ&K, Gligit-Baltistan, Baluchistan Coastal Belt, and FATA.

Non-residents exempted from collection of advance tax on school fee, chargeable otherwise at 5% of fee where fee exceeds Rs. 200,000 per annum.

Withholding income tax at 0.6% of the value of transaction proposed to be imposed on non-filers on transactions in a bank; where the value of transaction exceeds Rs. 50,000 in a day.

Royalty paid to a resident person against right to use industrial, commercial or scientific equipment or rent of machinery proposed to be subjected to withholding tax at 10% which will also be final discharge of tax liability

Remittance of education expenses abroad proposed to be subjected to adjustable withholding tax of 5%.

Tax rate reduced by 3% for persons earning between Rs. 400,000 to Rs. 500,000 annually.

Corporate tax rate for non-banking companies reduced to 32% from existing rate of 33% for Tax Year 2016.

The rate of tax on dividend proposed to be enhanced to 12.5% from existing 10% with increase in withholding tax rate to 17.5% for non-filers. The tax rate on dividend received from a stock fund also proposed to be enhanced from 12.5% at present to 15% effective Tax Year 2015, in case dividend receipts of such stock fund are less than its capital gains.

Tax rates on capital gain arising on sale of listed securities held for up to 12 months proposed to be enhanced to 15% from 12.5% and for the listed securities held up to 24 months proposed to be enhanced to 12.5%, whereas a separate



rate of 7.5% is proposed on capital gain on listed securities held for more than 24 months but for less than 4 years.

Separate withholding tax rate introduced for filers and non-filers with respect to capital gains tax.

Withholding tax rates on goods and services brought at par for residents and non-residents filers and non-filers.

Tax rate on commission enhanced to 15% from 12% in case of non-filers.

Withholding tax rate of international air tickets changed to Rs. 16,000 for first class travel from existing 4% of ticket price.

Profits and gains of following industrial undertakings proposed to be exempted from tax including minimum tax:

‒ Those set up by 31 Dec 2016 to manufacture plant, machinery and equipment with dedicated use for generation of renewable energy; for 05 years from 01 July 2015.

‒ Set up between 01 July 2015 to 30 June 2016 to operate warehouse or cold chain facilities; for 03 years from the date of setup or commencement commercial operation whichever is later.

‒ Set up between 01 July 2015 to 31 Dec 2016 and engaged in operating halal meat production; for 4 years from the date of setup or commencement of commercial production whichever is later.

‒ Manufacturing unit set up in KPK between July 1 July 2015 and 30 June 2018; for 5 years from the date of setup or commencement of commercial production whichever is later.

‒ Transmission line project set up in Pakistan after 01 July 2015 and before 30 June 2018.

‒ LNG terminal operators and terminal owners; for 05 years from commencement commercial operations.

Minimum tax exemption given for Tax Years 2010 to 2012 to taxpayers located in most and moderately affected areas of KPK.

Dividend and capital gains income of banks made subject to tax at 35% with effect from Tax Year 2015.

Sales Tax

Definition of active taxpayer is proposed to be inserted under section 2(1) of the Act.

The limit of annual utility bills is proposed to be enhanced from Rs.700,000 to Rs.800,000 in order to treat an industry as ‘cottage industry’ under provisions of the Act.

Condition of annual turnover of a retailer engaged in making taxable supplies is proposed to be withdrawn for determining his eligibility for registration under the Act.

The scope of definition of supply is proposed to be broadened by including transfer or delivery of goods to the owner or person nominated by him by a person manufacturing the goods belonging to the owner.

The concept and definition of whistleblower is proposed to be added under the Act to mean a person who reports concealment or evasion of sales tax and tax fraud leading to detection or collection of taxes, fraud, corruption or misconduct.

It is proposed to sanction rewards to whistleblowers; related procedure to be prescribed by the Board.

The rate of further tax on taxable supplies made by a sales tax registered person to an unregistered person is proposed to be enhanced from 1% to 2%.



Input tax paid against goods used in pre-fabricated buildings is proposed to be allowed as an input tax adjustment.

Restriction on claim of input tax on services in respect of which input tax adjustment is barred under the provincial sales tax laws, import of agricultural machinery and equipment at reduced rate or any others goods which the Board may notify are proposed to be enhanced.

The burden of proof is being proposed to be shifted to the department for not depositing of input tax claimed by registered persons in a supply chain.

The powers of FBR exempting imports or supply of goods have been withdrawn , whereas, Federal Government may continue to issue exemptions in exigencies, , however, Bill proposes that such exemption may only be issued subject to approval of ECC and National Assembly. Furthermore, the foregoing exemption notifications will nonetheless stand rescinded on expiry of the financial year in which it is issued.

The concept of tax audit by Special Audit Panels is being proposed to be introduced with Chartered Accountants and Cost and Management Accounts to be on these panels.

Electronic monitoring system is proposed to be introduced to monitor production of specified sectors such as cigarettes, beverages, cement, fertilizer, and sugar.

Federal Government to enter into bilateral or multilateral agreements with provincial governments and governments of foreign countries for sharing of information on sales tax and FED matters.

To strengthen compliance with provisions of the Act, penalty provisions are to be made more stringent by reducing the time period from 15 days to 10 days in order to impose minimum penalty.

The facility of zero-rating presently available on local supply of plant and machinery to Export Processing Zone is proposed to be made available on meeting of certain conditions and restrictions.

It is proposed to introduce a prize scheme to encourage general public to make purchases from registered persons, in order to promote tax culture.

To encourage construction industry growth it is proposed to exempt sales tax on supply of bricks and crushed stones for three years up to 30 June 2018.

It is proposed to exempt the aviation sector from sales tax.

Reduced rate of sales tax in respect of taxable supplies of soyabean meal, oil seeds meant for sowing and plant and machinery not manufactured locally is proposed to be enhanced from 5% to 10%.

Exemption on certain items is proposed to be withdrawn and brought into the tax net at reduced rates under the Eighth Schedule to the Act.

Rate of sales tax on import of cell phones and activation of sim cards is proposed to be enhanced from Rs. 150, Rs. 250, Rs. 500 to Rs. 300, Rs. 500 and Rs. 1,000 depending upon the value and specification.

Sales tax on services (Islamabad)

Certain services rendered in the Islamabad Capital Territory are proposed to be brought into the sales tax net in order to align it with the services taxation regime followed by other provinces.

Federal Excise

FED is proposed to be increased from 9% to 12% on aerated waters, concentrates for aerated beverages and aerated waters containing sugar or other sweetening matters.



Average rate of FED is increased from 58% to 63%.

FED is proposed to be levied on local supply and import of filter rods of cigarettes at the rate of Rs. 0.75 per filter rod.

Amendments on similar lines with sales tax have been proposed in the FE Act regarding special audit panels, electronic monitoring, powers to enter into bilateral or multilateral agreements and rewards to whistleblowers and empowering Economic Coordination Committee to issue exemptions in special set of circumstances.

Customs

Various provisions are introduced to regularize the trans-shipment of goods.

Maximum general tariff rate of customs duty is proposed to be reduced from 25% to 20% except vehicles and their certain parts.

It is proposed to increase customs duty to 2% from 1% under various tariff headings of the First Schedule.

Zero customs duty on import of aircrafts and their parts proposed.

2% customs duty on certain agricultural machineries proposed.

Reduced rate of 15% on items imported by call centers, etc., is proposed to be withdrawn and now 20% customs duty is applicable.

Reduced rate of 10% on complete plants for relocated industries is proposed to be withdrawn and now various rates upto maximum rate of 20% are applicable.

The Finance Minister in his speech of budget 2014-15, declared the policy of Government to gradually phase out SRO culture. On the contrary, the changes in Fifth Schedule are proposed to be made without notifying any withdrawal of any existing SRO.





Super tax for rehabilitation of temporarily displaced persons Section 4B

A one-time levy for tax year 2015 is proposed at the following rates:

Banking companies 4% of income

Other tax payers having income equal to or exceeding Rs. 500 million 3 percent of income

For this purpose, the term “income” shall constitute the following:

(i) Profit on debt, dividend, capital gain, brokerage and commission;

(ii) Taxable income of a person for a tax year under all heads of income determined under section 9;

(iii) Imputable income defined in section 2(28A); and

(iv) Income computed under:

a. Fourth Schedule - Insurance business;

b. Fifth Schedule - Production of oil and natural gas and extraction and exploration of other mineral deposits;

c. Seventh Schedule – Banking business; and

d. Eighth Schedule - Capital gain on listed securities.

The Bill also defines the term “imputable income” in relation to an amount subject to final tax means the income which would have resulted in the same tax had this amount not been subjected to final tax.

The super tax shall be paid, collected and deposited alongwith return of income as specified in section 137 of the Ordinance and the provisions pertaining to

filing of return, assessments, appeals, collection and recovery of tax etc. contained in chapter X shall apply.

The Commissioner has been empowered for assessment and recovery of super tax.

Tax on undistributed reserves Section 5A

In order to encourage payment of cash dividend, the Bill proposes tax at 10 percent on the excess reserves of public company that derives profits for a tax year but does not distribute cash dividend within six months of the end of the tax year or distributes dividend to such an extent that its reserves after such distribution are in excess of its paid up capital. In such cases, the reserves exceeding 100 percent of the paid up capital shall be treated as income of the company.

However, this tax shall not apply to a scheduled bank, a modaraba or a company in which not less than fifty percent shares are held by the Government.

It has further been proposed that cash dividend for tax year 2015 may be distributed before the due date of filing of return as per section 118(2) of the Ordinance.

For the purpose of this section the term “reserves” include any amounts set-aside out of revenue or other surpluses, excluding:

capital reserves;

share premium reserves; and

reserves required to be created under any law, rules or regulations.

In view of the definition of the public company given in section 2(47) and the exclusions provided in the proposed section 5A, in summary, this tax shall apply to:

Income tax Significant Amendments



(i) companies listed on stock exchange including mutual funds and

(ii) a company in which not less than fifty percent shares are held by a foreign Government or a foreign Government owned companies.

Tax on profit on debt Section 7B, 151(3), Division IIIA of Part I of the First Schedule

Profit on debt made liable to tax as a separate block of income. The Bill proposes to change the scheme of taxation in respect of profit on debt for all taxpayers and for this purpose a new section 7B is proposed to be inserted. Further, sub-section (3) of section 151 is proposed to be substituted and division IIIA is proposed to be inserted in Part I of the First Schedule.

An accumulated effect of the existing provisions contained in section 151 and the proposed changes would be that henceforth taxable profit on debt received by any taxpayer, including a company (other than a banking company and insurance company), shall be subjected to withholding tax at the rate of 10 percent if the recipient is a filer and at the rate of 17.5 percent (as against current rate of 15 percent) if the recipient of such profit on debt is a non-filer.

Whereas, profit on debt received by any taxpayer (an individual, AOP or a company) shall be subjected to tax as a separate block of income at the following rates:

Where profit on debt does not exceed Rs. 25,000,000

10 percent

Where profit on debt exceeds Rs. 25,000,000 but does not exceed Rs. 50,000,000

2,500,000 plus 12.5 percent of the amount exceeding Rs. 25,000,000

Where profit on debt exceeds Rs. 50,000,000

Rs. 5,625,000 plus 15 percent of the amount exceeding Rs. 50,000,000

In case of a filer, the tax withheld under section 151 will be adjusted against the final tax payable at the above stated rates and the recipient of the profit on debt will be liable to pay the differential amount of tax.

Whereas, in case of a non-filer, tax withheld at the rate of 17.5 percent will be adjusted against the final tax liability at the above rates and any excess deduction can be claimed refundable by filing a tax return.

It is pertinent to mention that substituted sub-section (3) of section 151 and Division IIIA of Part of First Schedule contain reference to section 5A instead of section 7B which may be a typographical error.

Real Estate Investment Trust Regulations 2015 Sections 2(47A), 2(47B), 2(47C), Division III of Part I First Schedule and clause (99A) of Part I of the Second Schedule

The Bill seeks to define the term Real Estate Investment Trust “REIT”, Real Estate Investment Trust Management Company “RMC” to bring these definitions in line with the Real Estate Investment Trust Regulations, 2015.

The Bill also proposes to insert definition of terms “Development REIT Scheme” and “Rental REIT Scheme” as defined under Real Estate Investment Trust Regulations, 2015.

Further profits and gains accruing on sale of immovable property to a REIT Scheme are exempt upto 30 June 2015. A proviso is proposed to be inserted for exemption of gains on such sale to Development REIT Scheme for development and construction of residential buildings upto 30 June 2020.

The Bill also proposes revision in rate of tax on capital gain on disposal of specified securities in the hands of REIT in line with capital gain on disposal of securities under section 37A.



The Bill also seeks to provide the reduction of 50 percent on taxation of dividend income for the period of three years from the Development REIT scheme established with the object of development and construction of residential buildings set up by 30 June 2018.

CNIC to be deemed NTN

Section 181

The Bill seeks to propose Computerized National Identity Card be used as NTN with effect from tax year 2015.

Basis for payment of advance tax by companies and AOPs revised

Section 147

Hitherto companies and AOPs are required to pay advance tax for the first three quarters on the basis of tax to turnover ratio assessed for the latest tax year multiplied by current quarter’s turnover after adjusting tax deducted at source etc.

The taxpayers, being companies and AOPs, are however, required to estimate the tax payable for the relevant tax year before the last installment is due and pay the tax based on such estimate.

The Bill now seeks to provide that companies and AOPs will estimate the tax payable for the relevant year before the second installment is due and pay fifty percent of the estimated amount of tax by the due date for the second quarter and remaining fifty percent of the estimated tax payable shall be paid in two equal installments payable by due dates for third and fourth quarters.

Option to exporters for taxation under normal tax regime

Section 154

Hitherto tax deducted from proceeds realization on account of export of goods is treated as final tax in respect of income from such exports.

The Bill seeks to allow an option to exporter for taxation under normal tax regime by filing an irrevocable option at the time of filing of return subject to the condition that tax deducted under this section shall be treated as minimum tax. However, due to minimum tax liability, the possibility of exporters opting under this provision seems unlikely.

Taxation of resident shipping company

Section 7A Clause (21) Part II of Second Schedule

The Bill seeks to transpose the existing clause (21) provided under Part II of Second Schedule pertaining to the reduced rate of final taxation of resident person engaged in the shipping business with the proposed newly inserted section.

Similar provision is placed under the newly inserted section 7A where by the income of the resident shipping company is subject to Final taxation and the said reduction shall not available after 30 June 2020

Powers of FBR to grant exemptions and amendments in withholding tax provisions withdrawn

Section 159

Consequent to amendments proposed in section 53 withdrawing the powers of the Federal Government to grant exemptions or issue concessionary notifications, the powers given to FBR under section 159 are proposed to be withdrawn.

Default surcharge reduced

Sections 161 and 205

The Bill proposes to reduce the rate of default surcharge from 18 percent to 12 percent.



Furnishing of information by Financial Institutions including Banks in respect of non-resident persons

Section 165B

The Bill proposes to insert new section 165B to empower FBR to call for information from Banks and Financial Institutions regarding non-resident persons for the purpose of automatic exchange of information under bilateral agreement or multilateral conventions subject to the condition that information received shall be used only for tax purposes and kept confidential.

Rate of compensation on refunds

Section 171

The Bill proposes to revise the rate of compensation on delayed refunds from 15 percent to KIBOR plus 5 percent per annum.

Special audit panel

Sections 121, 176, 177 and 210(1B)

The Bill seeks to empower FBR to appoint audit panels to conduct an audit under section 177 including a forensic audit of the income tax affairs of taxpayers. Such panel is proposed to be headed by a Chairman, being an Officer of Inland Revenue, and to comprise two or more members from the following:

(i) An Officer or Officers of Inland Revenue

(ii) A firm of Chartered Accountants

(iii) A firm of Cost and Management Accountants; or

(iv) Any other person as directed by FBR

The scope of such audit shall be as determined by the Board or the Commissioner on case to case basis.

The special audit panel may, with delegation of powers in writing and prior approval of the Commissioner, enter the business premises of a

taxpayer to obtain any information or record etc. and examine such information within business premises. Further, if specifically delegated by the Commissioner, special audit panel may exercise the powers as are vested in a Court under the Code of Civil Procedures, 1908.

Further, the powers to enter into business premises and to obtain information or evidence for the purpose of conducting an audit shall only be exercised by Officers of Inland Revenue, being members of special audit panel.

On failure to produce information or records before the Commissioner or the special audit panel, the Commissioner and special audit panel may proceed to make best judgment assessment and the assessment treated to have been made on the basis of return or revised return shall have no legal effect.

FBR has been empowered to prescribe the mode and manner constitution, procedure and working of the special audit panel.

Penalties revised

Section 182

The Bill propose to revise following penalties:

Penalty for Existing Revised

Non-filing of withholding tax statement, statement of final taxation and non-furnishing of information by banks

Rs. 2,500 for each day of default subject to a minimum penalty of Rs. 50,000

Rs. 2,500 for each day of default subject to a minimum penalty of Rs. 10,000

Failure to furnish wealth statement or wealth reconciliation

Rs. 100 for each day of default

0.1 percent of taxable income per week or Rs. 20,000 whichever is higher



Consumer goods and fast moving consumer goods defined Section 2(13AA) and 2(22A)

The Bill seeks to define the two terms as follows:

(i) “consumer goods” means goods that are consumed by the end consumer rather than used in the production of another goods

(ii) “fast moving consumer goods” means consumer goods which are supplied in retail marketing as per daily demand of a consumer

Further, the reference of consumer goods for the purpose of minimum tax rate of 0.2 percent is proposed to be deleted consequently making them liable to minimum tax at the standard rate of 1 percent.

Threshold of capital revised for small company Section 2(59A)

The Bill proposes to enhance the threshold of maximum amount of paid up capital and undistributed reserves from Rs. 25 million to Rs. 50 million.

Holding period of specified securities extended Section 37A

Currently, capital gain on specified securities is taxable at zero percent if the holding period of such securities is more than two years.

The Bill proposes to extend this period to four years so that capital gain on such securities shall be taxable at zero percent if held for four years or more.

Holding period

Tax year 2015 Tax year

2016

Existing Proposed Proposed

Less than

twelve months

12.5

No

change

15

Twelve months

or more but less

than twenty four

months

10 12.5

Twenty four

months or more

but less than

four years

0 7.5

Powers of Federal Government for grant of exemptions / tax concession curtailed Section 53

Section 53(2) empowered the Federal Government to amend the provisions of the Second Schedule to the Income Tax Ordinance, 2001 by notification in the official gazette and all such amendments were effective in respect of any tax year beginning at a date before or after the commencement of the financial year in which the notification is issued.

Pursuant to the stated policy of the Government that all amendments in fiscal statutes should be made by the parliament, the President of Pakistan issued an Ordinance No. IX of 2015 dated 30 April 2015 which provided that the Federal Government may make amendment in the Second Schedule to the Ordinance with the approval of the Economic Coordination Committee of Cabinet wherever circumstances exist to take immediate action for the purpose of:

national security,

natural disaster,

national food security in emergency situations,



protection of national economic interest in situations arising out of abnormal fluctuation in the international commodity prices,

removal of anomalies in taxes,

development of backward areas and implementation of bilateral and multilateral agreements

The Bill now seeks to incorporate the provisions of the aforesaid Ordinance in sub-section (2) of section 53.

Further, the Bill seeks to insert sub-section (4) in section 53 to provide that any notification issued after promulgation of Finance Act, 2015 shall stand rescinded on expiry of the financial year in which it is issued except where it has been rescinded earlier.

Threshold on investment in shares and insurance for the purpose of tax credit enhanced

Section 62

The Bill proposes to increase the limit of investment in shares and insurance for the purpose of tax credit from Rs. 1,000,000 to Rs. 1,500,000

Tax credit for profit on debt substituted with deductible allowance

Section 64

Section 64 entitles a person for a tax credit in respect of profit on debt paid on a loan by a scheduled bank or NBFI for the purpose of construction of a new house or acquisition of a house.

The Bill seeks to substitute tax credit with a deductible allowance to the individual taxpayers.

The deductible allowance shall not exceed fifty percent of taxable income of such individual or Rs. 1,000,000 whichever is lower. The Bill further provides that any allowance or part thereof that is not able to be deducted for the year shall not be carried forward to a subsequent tax year.

Tax credit for employment generation

Section 64B

With the objective of employment generation, the Bill seeks to introduce tax credit for companies formed for establishing and operating a new manufacturing unit set up between 01 July 2015 till 30 June 2018. The salient features of the scheme are as follows:

(i) tax credit will be allowed for a period of ten years

(ii) tax credit shall be equal to one percent of the tax payable by every fifty employees registered with EOBI and Employee Social Security Institution of provincial Governments during a tax year subject to maximum of 10 percent of the tax payable by the company.

(iii) manufacturing unit is not established by setting up or reconstruction or reconstitution of an existing undertaking or by the transfer of machinery or plant from an existing undertaking established in Pakistan on or before 01 July 2015.

The Commissioner is empowered to withdraw the tax credit and re-compute the tax payable for the relevant tax year on discovery that conditions specified in this section were not fulfilled.

For the purpose of this section, a manufacturing unit shall be treated to have been set up when it is ready to go into trial or commercial production.

Tax credits for BMR, new and existing undertaking to be available against minimum tax and final tax

Section 65B, 65D and 65E

The Ordinance currently provides for following tax credits:

Section 65B – 10 percent tax credit for investment in plant and machinery for the purposes of extension, expansion, balancing, modernization and replacement



Section 65D – 100 percent tax credit for investment in newly established industrial undertaking

Section 65E - 100 percent tax credit for investment in existing established industrial undertaking

The above tax credits are allowed against minimum tax and final tax as well. Whereas section 169 dealing with principles of final taxation and section 113 dealing with minimum tax provide that no credit shall be allowed against final tax and minimum tax. Thus this created anomalies.

The Bill seeks to remove the anomalies by inserting new sub-section (6) in section 65 to provide that tax credit under sections 65B, 65D and 65E shall be available against final tax as well as minimum tax.

Tax credit for listing on stock exchange

Section 65C

The Bill seeks to enhance the limit of tax credit from 15% to 20% of tax payable for a tax year in which the company is enlisted on a stock exchange in Pakistan

Time limit for tax credit for industrial undertaking to start with commencement of commercial production

Section 65E

The existing provisions allow tax credit in respect of the tax year in which plant and machinery is installed and for subsequent four years. The Bill seeks to provide that time limit of five years will begin from the date of setting up or commencement of commercial production from the new plant or expansion project, whichever is later.

Powers of Federal Government for exchange of information enhanced

Sections 107 and 176

The Bill seeks to empower the Federal Government to enter into bilateral or multilateral agreements with Governments of foreign countries or tax jurisdictions for avoidance of double taxation and prevention of fiscal evasion and exchange of information including automatic exchange of information with respect to taxes imposed under this Ordinance or under corresponding law enforced in other country.

The Bill also seeks to empower the Federal Board of Revenue to obtain and collect information when solicited by another country under a tax treaty, information exchange agreement, multilateral convention, inter-governmental agreement or similar arrangement or mechanism.

Similarly corresponding amendments have also been proposed in section 176(1)(a) empowering the Commissioner to require any person whether or not liable under the Ordinance to furnish to the Commissioner or an authorized officer any information relevant to tax leviable under this Ordinance or to fulfill any obligation under an agreement with a foreign government or tax jurisdiction.

The amendments appear to have been proposed in the wake of recent legislations like FATCA.

Minimum tax on builders deferred until 2018

Section 113A

The Finance Act, 2013 imposed minimum tax on income from business of construction, sale of residential, commercial or other buildings at the rates to be notified by the Federal Government. However, the Federal Government had not notified any rates for the purpose of this section.

The Bill now proposes to defer application of this section till 30 June 2018.



Minimum tax on land developers specified

Section 113B

The Finance Act, 2013 inserted section 113B to provide for minimum tax on income from business of development and sale of residential, commercial or other plots at the rates to be notified by the Federal Government. However, no such rates not been prescribed to date.

The Bill now proposes a rate of 2 percent of the value of land notified by the Authority for the purpose of stamp duty as minimum tax rate.

Revision of return of income

Section 114

A taxpayer is entitled to revise the return of income on discovery of any omission or wrong statement subject to certain specified conditions. The Finance Act, 2013 prescribed another condition that a return can only be revised if it is accompanied by approval of the Commissioner in writing for revision of such return. One of the conditions for revision of return is that taxable income should not be less than or loss should not be more than income or loss, as the case may be, declared in the return. There was a demand that this condition and the condition of the Commissioner’s approval are not fair and just, therefore, both need to be removed.

The Bill now proposes partial acceptance of the demand by proposing that Commissioner’s approval shall not be required if the revised return is filed within sixty days of the filing of the return sought to be revised.

Powers of the Commissioner (Appeals) to grant stay against recovery extended

Section 128

Section 128(1A) empowers the Commissioner (Appeals) to stay recovery of tax demand for aggregate period of thirty days.

The Bill seeks to insert sub-section (1AA) empowering the Commissioner (Appeals) for stay of recovery for a further period of thirty days subject to the condition that appeal is decided within the extended period of thirty days.

Due dates for payment of tax revised

Section 137

Under the existing provisions, tax payable under an assessment order or amended assessment order is payable within fifteen days from the date of service of notice of demand. The Bill seeks to extend the aforesaid time limit to thirty days.

Further, the Bill proposes to reduce the time limit of payment of tax demand under provisional assessment from sixty days to forty five days from the date of service of the notice of demand.

Powers of FBR to grant exemptions on imports withdrawn

Section 148(2)

Consequent to amendments proposed in section 53 withdrawing the powers of the Federal Government to grant exemptions or issue concessionary notifications, the powers given to FBR under sub-section (2) of section 148 are proposed to be withdrawn. Resultantly, FBR cannot specify goods or classes of goods or persons or classes of persons importing goods to whom withholding tax provisions shall not apply.

Manufacturers of cooking oil or vegetable ghee made liable to final tax

Section 148A Clause 13(c ) of Part II of Second Schedule

The Bill proposes to transpose the reduced rate of taxation for manufacturers of cooking oil or vegetable ghee or both from clause (13C) of Part II of the Second Schedule to a newly inserted section 148A whereby such manufacturers are chargeable to tax at the rate of 2 percent on purchase of locally produced



edible oil. Such tax is final tax in respect of income accruing from locally produced edible oil.

Permanent establishments of non-residents entitled to seek exemption/reduction in withholding tax rates

Section 152(4A)

Until 2012, a PE of a non-resident person was liable to withholding tax at par with a resident person under section 153 and was accordingly entitled to make an application for exemption from withholding tax. However, the Finance Act, 2012 moved the provisions relating to withholding tax from PE of a non-resident to section 152(2A). Yet such PE of a non-resident was not entitled to seek exemption or reduction from withholding tax on its own.

The Bill now proposes to allow PE of a non-resident to seek exemption / reduction in withholding tax rate by making an application to the Commissioner.

Withholding tax on payment on account of services made adjustable for companies

Section 153(3)

Consequent to the amendments made vide Finance Act, 2009 a dispute arose as to whether tax deducted from payment on account of services was to be treated as minimum tax or adjustable in case of companies. The FTO in its order held the provisions as discriminatory and invalid.

The Bill now proposes to clarify that tax deducted at source from payment on account of services to companies shall be minimum tax with effect from tax year 2009.

Withholding tax on payment to sportsperson made final tax

Section 153(3)(d)

The Bill proposes to make tax deduction from payment to sportsperson as final tax liability in respect of income of such sportsperson with effect from tax year 2013.

Automatic selection of audit

Section 214D

The Bill proposes to introduce automatic selection of audit of retailers falling under Sales Tax Special Rules, 2007 other than persons meeting following conditions:

(i) Name of such registered person appears in the sales tax active payers list;

(ii) Complete return of total income has been filed within the due date including the date extended by FBR;

(iii) The tax payable based on the return of total income has been paid;

(iv) 2 percent tax on turnover under section 113 has been paid by such registered person who files the return below taxable limit and in the preceding tax year has either not filed the return or had declared income below taxable limit; and

(v) 25 percent higher tax than the previous tax year has been paid by such registered person and had declared taxable income in the return for immediately preceding tax year.

Such registered persons shall also not be subject to selection of their cases for audit by the Commissioner under section 177 or FBR under section 214C.

Audit of the income tax affairs of such persons shall be conducted as per the procedures given in section 177 and all the provisions of the Ordinance shall apply except the powers of the Commissioner to call for record or documents.



This section shall have effect from the date appointed by the Board through notification in official gazette.

Whistleblower

Sections 2(75) and 227B

The Bill proposes to define the term “whistleblower” as person who reports concealment or evasion of income tax leading to detection or collection of taxes fraud, corruption or misconduct to the competent authority having power to take action against the person or an income tax authority committing fraud, corruption, misconduct or involved in concealment or evasion of taxes.

The Bill proposes to introduce the concept of whistleblower whereby FBR may sanction reward to whistleblowers in providing credible information leading detection of taxes.

The entitlement of whistleblower for reward shall be rejected if:

(i) the information provided is of no value

(ii) the Board already had the information

(iii) the information was available in public records

(iv) no collection of taxes is made from the information provided from which the Board can pay the reward

FBR may prescribe the procedures and also specify the apportionment of reward for whistleblower.

Advance tax on private motor vehicles

Sections 231B and 234

The Bill proposes to define the term “motor vehicle” for the purpose of withholding tax on private motor vehicles under sections 231B and withholding tax on subsequent payment of tax on motor vehicles under 234 as including car, jeep, van, sports utility vehicle, pick-up trucks for private use, caravan automobile, limousine, wagon and any other automobile used for private purpose.

The Bill also proposes to explain “date of first registration” for the purpose of withholding tax under section 231B as:

(i) the date of issuance of broad arrow number in case a vehicle is acquired from the Armed Forces of Pakistan;

(ii) the date of registration by the Ministry of Foreign Affairs in case the vehicle is acquired from a foreign diplomat or a diplomatic mission in Pakistan;

(iii) the last day of the year of manufacture in case of acquisition of an unregistered vehicle from the Federal or a Provincial Government; and

(iv) in all other cases the date of first registration by the Excise and Taxation Department.

Withholding tax on internet usage

Section 236

The Bill proposes to introduce adjustable withholding tax on the internet bill and prepaid internet cards at the rate of 14 percent of the amount of bill or sale price of the internet prepaid cards.

Withholding tax on purchase of air tickets

Section 236B

The Bill proposes to exempt air routes of Baluchistan coastal belt, Azad Jammu and Kashmir, FATA, Gilgit-Baltistan and Chitral from withholding tax under section 236B.

Withholding tax on sales to retailers and wholesalers

Section 236H

The Bill proposes to exclude sale of fertilizer to retailers from the ambit of withholding tax.



The Bill also proposes to impose withholding tax on sale of specified goods excluding fertilizer to wholesalers at the time of sale.

Collection of withholding tax by educational institutions

Section 236I

The Bill proposes to exclude non-residents from withholding tax under this section who:

(i) furnishes copy of passport as an evidence to the educational institution that during previous tax year, his stay in Pakistan was less than one hundred eighty three days;

(ii) furnishes a certificate that he has no Pakistan-source income; and

(iii) the fee is remitted directly from abroad through normal banking channels to the bank account of the educational institution.

Exemption from withholding tax under chapter XII

Section 236O

The Bill proposes to provide exemption to following person from withholding tax under chapter XII including withholding tax on cash withdrawals, purchase of air tickets, telephone bills, electricity bills, registration of motor vehicles, registration of immovable property etc.:

(i) The Federal Government or a Provincial Government;

(ii) A foreign diplomat or a diplomatic mission in Pakistan; and

(iii) A person who produces a certificate from the Commissioner that his income during the tax year is exempt.

Withholding tax on banking transactions other than through cash

Section 236P

The Bill proposes to require every banking company to withhold tax at the rate of 0.6 percent of the value of following transactions from a non-filer where the sum of total payments exceeds Rs. 50,000 in a day:

(i) at the time of sale of any instrument including demand draft, pay order, special deposit receipt, cash deposit receipt, short term deposit receipt, call deposit receipt, rupee traveler’s cheque or any other instrument of such nature

(ii) at the time of transfer of any sum through cheque or clearing, interbank or intra bank transfers through cheques, online transfer, telegraphic transfer, mail transfer, direct debit, payments through internet, payments through mobile phones, account to account funds transfer, third party account to account funds transfers, real time account to account funds transfer, real time third party account to account fund transfer

The aforesaid withholding tax is proposed to be adjustable. Further, this section is proposed to be not applicable on Pakistan real time inter-bank settlement mechanism (PRISM) or payments made for Federal, Provincial or Local Government taxes.

Withholding tax from payment to residents for use of machinery and equipment

Section 236Q

The Bill proposes to introduce withholding tax at the rate of 10 percent from payment in full or part by prescribed persons (as defined under section 153(7)) to resident persons on account of:

(i) use or right to use industrial, commercial and scientific equipment; and

(ii) rent of machinery.



The said withholding tax is proposed to be final tax on income of resident persons deriving income from aforementioned payments.

Withholding tax on education related expenses remitted abroad

Section 236R

The Bill proposes that every banking company, financial institutions, foreign exchange companies or any other person to withhold tax at the rate of 5 percent of total education related expenses remitted outside Pakistan.

For the purpose of this section, the term “education related expenses” is proposed to be defined as including tuition fee, boarding and lodging expenses, any payment for distant learning to any institution or university in a foreign country and any other expense related or attributable to foreign education.

This withholding tax is proposed to be adjustable in the hands of the person remitting the aforesaid expenses.

Withholding tax on dividend in specie

Section 236S

The Bill proposes withholding tax on dividend in specie at the rate of 10% of gross amount of dividend in specie for filers and 17.5% for non-filers.

Withholding tax by Pakistan Mercantile Exchange Limited – Section 236T

The Bill proposes that Pakistan Mercantile Exchange Limited (PMEX) shall collect advance tax from its members at the rate of 0.1 percent of the amounts of the following transactions:

(i) on purchase of futures commodity contracts;

(ii) on sale of future commodity contracts;

(iii) on purchase of futures commodity contracts in lieu of tax on the commission earned by such members; and

(iv) on sale of futures commodity contracts in lieu of tax on the commission earned by such members.

The tax so collected shall be minimum tax on the income of members.

Second Schedule Part I

The Finance Bill proposes to insert, withdraw and modify certain exemptions in Part I of the Second Schedule as listed below:

New Exemptions

The Indus Hospital – Clause (61)(xlv)

Donation to ‘The Indus Hospital, Karachi’ is proposed to be allowable tax deduction for the donors.

The Indus Hospital – Clause (66)(xxxiii)

Income of The Indus Hospital shall be exempt from tax.

Various industrial undertakings – Clauses (126I) to (126L)

The Finance Bill proposes to exempt profits and gains derived by an industrial undertaking:

Generation of renewable energy - Clause (126I)

Engaged in the manufacture of plant, machinery, equipment and items exclusively used in generation of renewable energy from sources like solar and wind, for 5 years from 1 July 2015 provided that the said undertaking is set up by 31 December 2016. The provisions of section 113 (minimum tax) are proposed not to be applicable on an undertaking manufacturing plant, machinery and equipment used in generation of renewable energy.

Warehousing or cold chain facilities - Clause (126J)



Engaged in operating warehousing or cold chain facilities for storage of agriculture produce, for 3 years from setting up of undertaking or commencement of commercial operations, whichever is later, provided that such undertaking is set-up during 01 July 2015 to 30 June 2016. Minimum tax provisions are proposed not to be applicable on such undertaking.

Production of halal meat - Clause (126K)

Engaged in production of halal meat upon obtaining of halal certification, for 4 years from setting up of undertaking or commencement of commercial production, whichever is later, if the undertaking is set up during 1 July 2015 to 31 December 2016. The provisions of sections 113 (minimum tax) and 154 (export) are also proposed not to be applicable on undertaking producing halal meat.

Manufacturing unit in Khyber Pakhtunkhwa - Clause (126L)

A manufacturing unit in the province of Khyber Pakhtunkhwa, for 5 years beginning from setting up of said undertaking or commencement of commercial production, whichever is later, subject to the conditions that:

(i) The unit is set up during 1 July 2015 to 30 June 2018; and

(ii) It is not established by splitting up or reconstruction or reconstitution of an existing undertaking or by transfer of plant or machinery from a Pakistani undertaking established prior to 1 July 2015.

Transmission line project – Clause (126M)

Profits and gains from a transmission line project set up in Pakistan on or after 1 July 2015, are also proposed to be exempt subject to the following conditions:

i) The project is owned and managed by a company formed for this purpose and

registered under the Companies Ordinance, 1984 having registered office in Pakistan;

ii) The company has not been formed by splitting up or reconstruction or reconstitution of an already existing business or by transfer to a new business of any plant or machinery used in a business which was carried on in Pakistan at any time before the commencement of the new business.

iii) Fifty percent shares of the company (owning the project) are neither owned by nor it is controlled by the Federal / Provincial / Local governments.

iv) Project is not set up on or after 30 June 2018.

LNG Terminal Operators and Terminal Owners – Clause (141)

The Bill proposes to exempt profits and gains of LNG Terminal Operators and Terminal Owners for a period of 5 years beginning from the date of commencement of commercial operations. The provisions relating to minimum tax are also proposed not to be applicable on such undertaking.

Employee’s Social Security Institutions – Clause (142)

The Bill proposes to exempt income from social security contributions as derived by Employee’s Social Security Institutions of Baluchistan, Khyber Pakhtunkhwa, Punjab and Sindh.

Exemptions Withdrawn

Pakistan Postal Annuity Certificate Scheme - Clause (20)

Income from an annuity issued under the Pakistan Postal Annuity Certificate Scheme.



Capital gains on sale of shares of entities in the notified Special Industrial Zone - Clause (113)

Capital gains on sale of shares of public company set up in any Special Industrial Zone notified by the Federal Government.

Effected areas of KPK, FATA and PATA - Clause (126F)

Profit and gains derived by a taxpayer of most / moderately effected areas of Khyber Pakhtunkhwa, FATA and PATA.

Exemptions Modified

Developmental REIT Scheme - Clause (99A)

Profits and gains accruing on sale of immoveable property to a REIT Scheme are exempt upto 30 June 2015. A proviso is proposed to be inserted for exemption of gains on such sale to Developmental REIT Scheme for development and construction of residential buildings upto 30 June 2020.

Exemption to group - Clause (103A)

Income derived from inter-corporate dividend within the group companies entitled to group taxation under section 59AA or group relief under section 59B is exempt without any other condition. Now, an amendment is proposed to make this exemption conditional upon filing of return for that tax year by the group.

China Overseas Ports Holding Company Limited - Clause (126A)

Income derived by China Overseas Ports Holding Company Limited from Gwadar Port operations are currently exempt for 20 years from 6 February 2007. This limitation of 20 years is proposed to be extended to 23 years.

Part II

The Finance Bill proposes to insert and withdraw certain clauses in Part II of the Second Schedule for reduction in tax rates:

New clauses for reduced rate

Exchange companies - Clause (28B)

Currently withholding tax provisions of section 231A are not applicable in the case of exchange companies in view of clause (61A) of Part IV of Second Schedule.

Now withholding of tax under this section on cash withdrawals exclusively for own business of Exchange Company is proposed to be introduced with reduced rate of 0.15% but subject to the condition that certificate is issued by the Commissioner mentioning particulars of the bank account(s) used for its own business transactions.

Exemptions Transposed / Withdrawn

Manufacturer of cooking oil and ghee - Clause (13C)

Reduced tax rate of 2 percent of the purchase price of locally produced edible oil for manufacturer of cooking oil and / or ghee is now proposed to be omitted from Part I [Clause (13C)] so as to introduce new section 148A in the main statute.

Shipping income of resident - Clause (21)

Scheme of reduced taxation of shipping income of a resident person is currently provided under Clause (21) which is now proposed to be omitted so as to introduce section 7A in the main statue.

Goods transport vehicles - Clause (14)

Reduced rate of tax of Rs. 2 per kilogram of the laden weight for owner of goods transport vehicles as given in Clause (14) is proposed to be omitted so as to propose related reduced rate of Rs 2.50 within the First Schedule.

Passenger transport vehicles - Clause (14A)

Reduced rate of Rs 250 per seat per annum in case of passenger transport vehicles is also proposed to be omitted.



Goods transport vehicles - Clause (14B)

Being redundant, the reduced tax rate of Rs 2 per kilogram of the laden weight during a specified time limit is proposed to be omitted.

Part III

Reduction in penalty transposed - Clause (16)

The Finance Bill seeks to withdraw Clause (16) in Part III of the Second Schedule so as to introduce such reduced penalty from Rs. 50,000 to Rs. 10,000 within legal provision of serial No. 1A of sub-section (1) of section 182.

Part IV

The Finance Bill seeks to insert, withdraw and modify certain clauses in Part IV of the Second Schedule providing for exemption from specific provisions as listed below:

New clauses for exemptions from specific provisions

Exemption from minimum tax under section 113

The Finance Bill proposes to exempt certain entities from application of section 113 regarding minimum tax under clause (11A) to:

i) LNG Terminal Operators and LNG Terminal Owners. [sub-clause (xix)];

ii) Taxpayers in most / moderately effected areas of Khyber Pakhtunkhwa, FATA and PATA for tax years 2010, 2011 and 2012 other than manufacturers and suppliers of cement, sugar, beverages and cigarettes. [sub-clause (xx)];

iii) Rice mills for the tax year 2015. [sub-clause (xxi)];

iv) Taxpayers qualifying for exemption under proposed clauses in Part I of Second Schedule:

a. under clause (126I) engaged in manufacture of equipment to be used for renewable energy generation. [sub-clause (xxii)];

b. under clause (126J) engaged in deriving income from operating warehousing or cold chain facilities for storage of agriculture produce. [sub-clause (xxiv)];

c. under clause (126K) engaged in deriving income from operating halal meat production. [sub-clause (xxiv)]; and

d. under clause (126L) engaged in deriving income from operating manufacturing unit set-up in Khyber Pakhtunkhwa province during 1 July 2015 and 30 June 2018. [sub-clause (xxv)];

LNG Terminal Operators and LNG Terminal Owners - Clause (11D)

The Bill proposes to exempt LNG Terminal Operators and LNG Terminal Owners from application of Alternative Corporate Tax under section 113C.

Oil Marketing Companies and Refineries - Clause (56)(ia)

The Bill proposes to exempt collection of tax under section 148 from import of bituminous mineral crude (PCT code 2709.000), Furnace Oil (PCT code 2710.1941), High Speed Diesel Oil (PCT code 2710.1931), Motor Spirit (PCT code 2710.1210), J.P.1 (PCT code 2710.1912) and Base Oil for lubricating oil (PCT code 2710.1993) imported by Pakistan State Oil Company Limited, Shell Pakistan Limited, Attock Petroleum Limited, Byco Petroleum Pakistan Limited, Admore Gas (Private) Limited, Chevron Pakistan Limited, Total-PARCO Pakistan (Private) Limited, Hascol Petroleum Limited and oil refineries.



Agricultural equipments - Clause (91)

Exemption is proposed from collection of tax at import stage under section 148 in respect of the following relating to agriculture under specified PCT codes under each of below categories:

i) Tillage and seed bed preparation equipment;

ii) Seeding or planting equipment;

iii) Irrigation, drainage and agro-chemical application equipment;

iv) Harvesting, threshing and storage equipment; and

v) Post-harvest handling and processing & miscellaneous machinery.

Aircrafts and aviation equipments - Clause (92)

The Bill proposes to exempt the specified aircrafts, equipment relating to aircrafts and aviation under prescribed PCT codes and headings from collection of tax at import stage under section 148.

Export of halal meat production - [Clause (93)]

The Bill proposes to exempt units producing halal meat and qualifying for exemption under the newly proposed clause (126K) from application of withholding tax under section 154(1) for taxpayers operating for 4 years.

Clauses for exemption from specific provisions withdrawn

Electronic and print media - Clause (16A)

Exemption from withholding tax on services under section 153(1)(b) as available to electronic and print media in respect of advertising services is proposed to be withdrawn.

Import of potatoes - Clauses (56B) & (56H)

The Finance Bill seeks to omit clauses regarding exemption from application of section 148 in respect of import of potatoes as these have become redundant.

Hajj Group Operators - Clause (72A)

The Finance Bill seeks to withdraw exemption from applicability of clause (l) of section 21 (expenditure for a transaction under single account head which in aggregate exceed Rs. 50,000), section 113 (minimum tax), section 152 (payment to non-resident) as available to Hajj Group Operators upon payment of specified amount per hajji.

Clauses for exemption from specific provision modified

In clause (11A), following amendments are proposed:

i) REIT Regulations 2015 - sub-clause (i)

Reference to old “REIT Rules 2006” is to be replaced with recently introduced “REIT Regulations 2015”.

ii) Kot Addu Power Company Limited - sub-clause (iv)

Being redundant, exemption from minimum tax under section 113 to Kot Addu Power Company Limited (KAPCO) is to be omitted.

iii) Coal mining project in Sindh - sub-clause (xviii)

Current sub-clause (v) exempts minimum tax under section 113 to taxpayers deriving income from a coal mining project in Sindh, supplying coal exclusively to power generation project, however, this clause wrongly refers such exemption on receipts from sale of electricity. This is now proposed to be rectified by inserting separate sub-clause (xviii) for these taxpayers.



Permanent Establishment of non-resident - Clause (46)

Provisions with respect to income tax withholding from payment to permanent establishment [PE] of non-resident were shifted from section 153 to section 152 vide Finance Act, 2012 but related reference in clause (46) was not updated. In order to clarify this position, reference is now proposed to be made to section 152(2A) for PE of Petroleum Exploration and Production (E&P) Companies.

Goods classified in Chapters 27, 86 and 99 - Clause (56)(i)

Exemption from collection of tax at import stage under section 148 was available in respect of goods classified in Chapters 27, 86 and 99 of Pakistan Customs Tariff. The bill proposes to withdraw the exemption in respect goods under Chapter 27 and under PCT heading 9918 (in Chapter 99).

Trading Houses - Clause (57)

The scope of clause (57) is proposed to be extended by clarifying that in-house preparation and processing of food and allied items for sale to customers shall not disqualify a company from being treated as a Trading House, provided that all the conditions are fulfilled and sales of such items does not exceed 2 percent of the total sales.

Renewable energy resources - Clause (77)

Exemption from collection of tax under section 148 and deduction of tax under section 153 is available on specified items of renewable energy resources. Its scope is proposed to be extended to “tubular daylighting devices such as solatube”.

Investments in industrial undertakings - Clause (86)

Provisions of section 111 (Unexplained income or assets) are not applicable in case investment in industrial undertakings is made on or after 1 January 2014 and commercial production

commences on or before 30 June 2016. This date is now proposed to be extended from 2016 to 2017.

Taxation regime of Insurance entities- Fourth Schedule Mutual Insurance Association Rule 6

The Finance Bill 2015 seeks to omit the Rule (6A) i.e. “Exemption of capital gain from sale of shares”.

Rule (6B):- The bill seeks to amend the rates of taxation of capital gain as follows:

Holding period Existing Tax year

2015 %

ProposedTax year

2015 %

ProposedTax year 2016 %

Less than six

months

17.5 12.5

15 More than six

months but less

than twelve months

9 12.5

Twelve months or

more but less than

twenty four months

_ 10 12.5

Twenty four months

or more but less

than four years

_ 0 7.5

Rule 6D - Super Tax [Section 4B]

The Bill proposes to insert Rule 6D to levy super tax under section 4B for rehabilitation of temporarily displaced persons and tax at the rate of 3% in case income equate or exceed Rs. 500 million.



Taxation regime of Exploration and Production of Petroleum entities- Fifth Schedule Rule 4AA in Part I and 2A in Part II - Super Tax [Section 4B]

The Bill proposes to insert new Rule 4AA in Part I and 2A in Part II in order to levy super tax under section 4B for rehabilitation of temporarily displaced persons and tax at the rate of 3% in case income equate or exceed Rs. 500 million.

Taxation regime of Banking companies - Seventh Schedule Rule 6, 6A, 6B, 7A and 7B - Taxation on income computed

Currently different streams of incomes banking companies are subject to different rates of taxation as follows:

Business income 35%

Dividend (after allocation of expenses)

10%

Capital gains on listed securities (after allocation of expenses)

As per schedule

Dividend from its asset management company

20%

Dividend from money market and income funds

25%

Finance bill proposes amendment in Rule 6 and to omit Rules 6A & 6B in order to delete separate taxation of dividend and capital gain.

It is also proposed to include new rule 7B to tax dividend income and capital gain at corporate tax rate of 35%.

Rule 7C - Super Tax [Section 4B]

The Bill proposes to insert new Rule 7C in order to levy super tax under section 4B for rehabilitation of temporarily displaced persons and tax at the rate of 4% on banking companies.

Eighth Schedule – Rule 1, Sub-rule 7 Manner and basis of computation of capital gains tax on listed securities

The Bill proposes to insert new sub-rule 7 in rule 1 to levy super tax on the taxpayers under section 4B for rehabilitation of temporary displaced person and tax at the rate given in Division IIA of Part I of First Schedule as applicable on the taxpayer i.e. on banking companies at the rate 4%; persons other than a banking company (having income equal to or exceed Rs. 500 million) at the rate 3%.

Tax Rate Card

1. Salary Individuals

Clause (1A), Div I, Part I, First Schedule

The tax rate on salary income from Rs 400,000 to Rs 500,000 is proposed to be reduced from existing five percent to two percent. This will result in annual tax saving of Rs. 2,400 for individuals earning salary from Rs 400,000 to Rs 500,000 and an annual tax saving of Rs. 3,000 for all salary income above this range.

The comparative table is given below:

S.No.

Taxable income (Rs.)

Existing Rate

Proposed Rate

1 Upto 400,000 0 0

2 400,001 to 500,000

5% 2%



S. No.


Existing Rate

Proposed Rate

3 500,001 to 750,000

Rs. 5,000 + 5% Rs. 2,000 + 5%

4 750,001 to 1,400,000

Rs. 17,500 + 10%

Rs.14,500 + 10%

5 1,400,001 to 1,500,000

Rs. 82,500 + 12.5%

Rs.79,500 + 12.5%

6 1,500,001 to 1,800,000

Rs. 95,000 + 15%

Rs. 92,000 + 15%

7 1,800,001 to 2,500,000

Rs. 140,000 + 17.5%

Rs. 137,000 + 17.5%

8 2,500,001 to 3,000,000

Rs. 262,500 + 20%

Rs. 259,500 + 20%

9 3,000,001 to 3,500,000

Rs. 362,500 + 22.5%

Rs. 359,500 + 22.5%

10 3,500,001 to 4,000,000

Rs. 475,000 + 25%

Rs. 472,000 + 25%

11 4,000,001 to 7,000,000

Rs. 600,000 + 27.5%

Rs. 597,000 + 27.5%

12 7,000,001 and above

Rs. 1,425,000 + 30%

Rs. 1,422,000 + 30%

2. Individuals (other than salaried individuals) and Association of Persons (AOP)

Clause 1, Div I, Part I, First Schedule

The rate of tax on income from Rs 400,000 to Rs 500,000 is proposed to be reduced from existing ten percent to seven percent. This will result in annual tax saving of Rs. 3,000 across all income slabs.

The comparative table is given below:

S. No.


Existing Rate

Proposed Rate

1 Upto 400,000 0 0

2 400,001 to 500,000

10% 7%

3 500,001 to 750,000

Rs. 10,000 + 10%

Rs. 7,000 + 10%

4 750,001 to 1,500,000

Rs. 35,000 + 15%

Rs.32,000 + 15%

S. No.


Existing Rate

Proposed Rate

5 1,500,001 to 2,500,000

Rs. 147,500 + 20%

Rs. 144,500 + 20%

6 2,500,001 to 4,000,000

Rs. 347,500 + 25%

Rs. 344,500 + 25%

7 4,000,001 to 6,000,000

Rs. 722,500 + 30%

Rs. 719,500 + 30%

8 6,000,001 and above

Rs. 1,322,500 + 35%

Rs. 1,319,500 + 35%

In case of disabled persons holding CNIC issued

by NADRA or taxpayer with age of not less than sixty years on first day of tax year, the tax liability is to be reduced by 50 percent in case the taxable income does not exceed Rs. 1,000,000.

3. Companies

Div II, Part I, First Schedule

The Finance Bill proposes to reduce corporate rate of tax for tax year 2016 to 32 percent. The tax rates after this proposed change for various categories of corporate taxpayers are tabulated below:

%

Small company 25

Modaraba 25

Banking company 35

Other companies (TY 2015) 33

Other companies (TY 2016) 32

4. Super tax as per newly introduced section 4B

Div IIA, Part I, First Schedule

The Finance Bill proposes to insert new section 4B to levy super tax. The proposed tax rates are tabulated below:



Person Rates of super tax

Banking Company 4% of the

income

Other person having income of

Rs. 500 million or more

3% of the

income

5. Tax rate on Dividend Income

Div III, Part I, First Schedule

The Finance bill proposes to make following changes in the taxation of dividend income:

i) Rate of tax on dividend received in cases [other than power projects] is proposed to be increased from 10 percent to 12.5 percent;

ii) Rate of tax on dividend from a stock fund [when dividend receipts are less than capital gains] is proposed to be increased from 12.5 percent to 15 percent;

iii) The Finance Bill proposes to amend the scheme of taxation of Banking Companies whereby all income including dividend income, be subjected to corporate rate of tax at 35%.

Rate card after proposed changes is as under:

Source of Dividend Receipts Existing %

Proposed %

From purchaser of power project privatized by WAPDA

7.5

No Change

From a company set up for power generation

7.5

From a company supplying coal exclusively to power generation projects

7.5

Other cases 10 12.5

Source of Dividend Receipts Existing %

Proposed %

From a stock fund, if dividend receipts are less than capital gains (for tax year 2015 and onwards)

12.5 15

From a Collective Investment Scheme, REIT Scheme* or a Mutual Fund (for tax year 2015 and onwards)

25

No Change

Received by banking company 10

35

Received by a banking company from its asset management company

20

Received by a banking company from a money market funds and income funds

25

* “REIT Scheme” has been proposed to insert

section 2(17)(D) to define REIT scheme.

Further the proviso has been inserted that dividend received by a person from Developmental REIT Scheme shall be reduced by fifty percent for three years from thirtieth day of June, 2018 in the case of REIT that is set-up by thirtieth day of June 2018 with the object of development and construction of residential buildings.

6. Rate of Tax on Profit on Debt- Proposed Section 7B

Div IIIA, Part I, First Schedule

The Finance Bill proposes to insert new section 7B specifying taxation of profit on debt. The proposed tax rates are tabulated below:

S. No.

(1)

Profit on Debt

(2)

Rate of tax

(3)

1 Upto Rs. 25,000,000

10%



S. No.

(1)

Profit on Debt

(2)

Rate of tax

(3)

2 Rs.25,000,001 to Rs. 50,000,000

Rs. 2,500,000 + 12.5% of the amount exceeding Rs. 25,000,000

3 Rs. 50,000,001 and above

Rs. 5,625,000 + 15% of the amount exceeding Rs. 50,000,000

7. Capital gains on disposal of securities

Div VII, Part I, First Schedule

The Finance bill proposes to make following changes in the taxation of capital gains on securities:

i) Enhanced rates of taxes are specified for tax year 2016;

ii) Exempt holding period is proposed

to be increased from above 24 months to more than 4 years; and

iii) Separate slabs are proposed for

redemption of securities of mutual fund collective investment schemes and REIT.

The proposed applicable position is as follows:

Holding period

Tax year 2015 Tax year

2016

Existing

Proposed

Proposed

Less than twelve months

12.5

No change

15

Twelve months or more but less than twenty four months

10 12.5

Twenty four months or more but less than four years

0 7.5

Capital gains tax on redemption of securities is required to be deducted by mutual fund collective investment schemes and REIT as follows:

Category Individual & AOPs

Companies

Filer Non-Filer

Filer Non-Filer

% % % %

Stock fund 10 17.5 10 25

Others 10 17.5* 25 25*

* There appear some mistake in the table

proposed by Finance Bill whereby no rate appear under the category ‘Others’ against Non-Filer.

In case of a stock fund if dividend receipts of the fund are less than capital gains, the rate of tax deduction shall be 12.5% in which case uniform rate is applicable across filer and non-filer categories.

8. Minimum Tax

Div IX, Part I, First Schedule

Following changes are proposed in the minimum tax regime:

Minimum tax for dealers or distributors of fertilizers has been proposed to be enhanced from 0.2% to 0.5%.

Reduce rate of minimum tax of 0.2% was applicable on both ‘Consumer goods’ as well as “Fasts moving consumer goods”. Bill proposes to restrict reduced rate only for “Fasts moving consumer goods”, while ‘Consumer goods’ are proposed to be subject to normal rate of one percent. Consumer goods and fast moving consumer goods has been defined in clause (13AA) and (22A) respectively of Section 2 of the Ordinance respectively.



The proposed applicable rates for minimum tax are tabulated below:

Person(s) Rate

(a) Oil marketing companies, Oil refineries, Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited ( for the cases where annual turnover exceeds rupees one billion.)

(b) Pakistani Airlines

(c) Poultry industry including poultry breeding, broiler production, egg production and poultry feed production.

(d) Dealers or distributors of fertilizers

0.5%

(a) Distributors of pharmaceutical products, fast moving consumer goods and cigarettes

(b) Petroleum agents and distributors who are registered under the Sales Tax Act, 1990

(c) Rice mills and dealers

(d) Flour mills

0.2%

Motorcycle dealers registered under the Sales Tax Act, 1990

0.25%

In all other cases 1%



Withholding tax rates table – existing and proposed

The following table summarizes existing and proposed withholding tax rates for all classes of person and treatment of withholding tax as adjustable or final tax liability.

Sec. Type of Payment Rate % STATUS OF TAX COLLECTED / DEDUCTED

Existing Proposed

Existing Proposed Ind & AOP

Company Ind & AOP

Company

148 Collection of tax at Imports

(a) Value of goods inclusive of customs duty and sales tax imported by;

- Industrial undertaking (Filer / Non filer)

5.5 / 8 No Change

Adjustable / Minimum in case of edible oil & packing materials



Adjustable / Minimum in case of

edible oil & packing

materials

- Industrial undertaking importing remeltable steel (PCT Heading 72.04) & directly reduced iron for own use. (Filer / Non filer)

1 / 1.5 No Change

Adjustable Adjustable Adjustable Adjustable

- Person importing potassic fertilizers in pursuance of Economic Committee of the Cabinet decision No. ECC – 155/12/2004 dated 9 December 2004. (Filer / Non filer)

1 / 1.5 No Change

Final / adjustable subject to conditions




- Person importing urea (Filer / Non filer)

1 / 1.5

No Change








Existing Proposed


Company Ind & AOP

Company

- Person importing pulses (Filer / Non filer)

2 / 3 No Change





- Other companies (Filer / Non filer)

5.5 / 8 No Change

- Final - Final

- Other taxpayers (Filer / Non filer)

6 / 9 No Change

Final - Final -

(b)

Import by persons covered under SRO. 1125(I)2011 dated 31 December 2011

- Manufacturer (Filer / Non filer)

1 / 1.5

No Change


- Commercial importers (Filer / Non filer)

3 / 4.5 No Change





(c) Import of ships by ship breakers (Filer / Non filer)

4.5 / 6.5 No Change


(d) Persons importing gold and cotton

- Company (Filer / Non filer)

5.5 / 8 1 / 1.5 - Final / adjustable subject to conditions

- Final / adjustable subject to conditions

- Other taxpayers (Filer / Non filer)

6 / 9 1 / 1.5



-

149 Salary Progressive rates

Progressive rates

Adjustable N/A Adjustable N/A

Director fee 20 No change

Adjustable N/A Adjustable N/A




Existing Proposed


Company Ind & AOP

Company

150 Dividend

(a) Dividend distributed by purchaser of a power project privatized by WAPDA and company set up for power generation.

7.5

No change

Final Final Final Final

(b) Dividend payment by other companies (Filer / non-filer) * 12.5% rate specified for taxability.

10 / 15 *10 / 17.5 Final / Adjustable

Final / Adjustable

Final / Adjustable

Final / Adjustable

(c) Remittance of after tax profit by a branch other than branch of a E&P companies (subject to treaty provisions, if applicable) (Filer / non-filer)

10 / 15 10 / 17.5 Final / Adjustable

Final / Adjustable

Final / Adjustable

Final / Adjustable

(d) Dividend payment by Collective Investment Scheme, REIT Scheme or mutual fund

- Stock fund 10 / 12.5 (subject to condition)

10 / 15 (subject to condition)

Final

Final

Final

Final

- Money market fund, income fund or any other fund (Ind & AOP/ company)

10 / 25 No Change


151 Profit on debt

(a) Yield on an account, deposit or a certificate under the National Savings Scheme or Post office saving


10 / 17.5 (subject to condition)

Final Adjustable Adjustable Adjustable




Existing Proposed


Company Ind & AOP

Company

account (Filer / non-filer)

(b) Profit on a debt, being an account or deposit maintained with a banking company or a financial institution (Filer / non-filer)


10 / 17.5 (subject to condition0


(c) Profit on any security by Federal Government issued, a Provincial Government or a local Government other than profit on National Saving Scheme or Post Office Saving account to any person (Filer / non-filer)




(d) Profit on any bond, certificate, debenture, security or instrument of any kind (excluding loan agreement between a borrower and a banking company or a development finance institution) issued by a banking company, a financial institution, company as defined in the Companies Ordinance, 1984 and a body corporate formed by or under any law for the time being in force, to any person other than a







Existing Proposed


Company Ind & AOP

Company

financial institution (Filer / non-filer)

152 Payments to non-residents

(a) Royalty and technical fee

15 No change


(b) Execution of a contract or sub-contract under the construction, assembly or installation project in Pakistan including a contract for the supply of supervisory activities in relation to such projects or any other contract for construction or services rendered relating thereto

6 No change

Final subject to

option

Final subject to option



(c) Contract for advertisement services rendered by TV Satellite channel

6 No change


(d) Insurance premium or re-insurance premium

5 No change


(e) Advertisement services relaying from outside Pakistan

10 No change


(e) Profit on debt to non-resident person not having a PE in Pakistan

10

No change

Adjustable / Final in specified situations




(f) Other payments 20 No change





Existing Proposed


Company Ind & AOP

Company

152(2A)

Payments to PE of a non-resident

(a) Sale of goods

- Company 3.5 4 / 6


- Other than company

(Filer / Non filer)

3.5 4.5 / 6.5 Adjustable Adjustable Adjustable Adjustable

(b) Transport services 2 No change


(c) Other services

- Company 6 8 / 12



(Filer / Non filer)

6 10 / 15 Adjustable Adjustable Adjustable Adjustable

(d) Execution of a contract

- Company 6 7 / 10



(Filer / Non filer)

6 7.5 / 10 Adjustable Adjustable Adjustable Adjustable

(e) Sports Person 6 10 Adjustable - Adjustable -

153 Goods, services and execution of a contract

(a) Sales of rice, cotton seed or edible oils

1.5 No change


Final / (Adjustabl

e for manufacturer / listed company / subject to conditions)


Final / (Adjustable

for manufacturer / listed

company) / subject to conditions




Existing Proposed


Company Ind & AOP

Company

(d) Sale of any other goods in the case of;

- Company

(Filer / Non filer)

4

4 / 6

-

Final / (Adjustabl

e for manufacturer / listed company)/ subject to conditions

-

Final / (Adjustable

for manufacturer / listed

company)/ subject to conditions

- Other tax payers

(Filer / Non filer)

4.5 4.5 / 6.5 Final / adjustable subject to conditions


-

(e) Passenger transport services

2 No change

Minimum Adjustable Minimum Adjustable

(f) Other services in the case of;

- Company

(Filer / Non filer)

8 / 12

No

change

-

Adjustable

-

Adjustable

- Other tax payers

(Filer / Non filer)

10 / 15 No change

Minimum - Minimum -

(g) Execution of a contract in the case of;

- Company

(Filer / Non filer)

7

7 / 10

-

Final / Adjustable for listed

company / subject to conditions

-

Final / Adjustable for listed

company / subject to conditions

- Sports person 10 No change

Final / Adjustable subject to conditions

- Final / Adjustable subject to conditions

-

- Other tax payer

(Filer / Non filer)

7.5 7.5 / 10 Final / Adjustable subject to conditions

- Final / Adjustable subject to conditions

-




Existing Proposed


Company Ind & AOP

Company

(h) Deduction by exporter or an export house on rendering of certain services

1

1

Final /

Adjustable subject to conditions

Final /


Final /


Final /


154 Exports

(a) Export proceeds, proceeds from sales of goods to an exporter under an inland back-to-back letter of credit or any other arrangement, export of goods by an industrial undertaking located in an Export Processing Zone, Collection by a collector of customs at the time of clearing of goods exported

1

No change

Final Final Final / Adjustable (minimum) subject to

option

Final / Adjustable (minimum) subject to

option

(b) Indenting commission

5 No change

Final Final Final / Adjustable (minimum) subject to

option

Final / Adjustable (minimum) subject to

option

155 Income from Property

Annual rent of immovable property including rent of furniture and fixtures and amounts for services relating to such property

Progressive rates

Progressive rates


156 Prizes and winnings

(a) Amount of prize bond winning

15 No change


(b) Prize on cross-word puzzle

15 No change





Existing Proposed


Company Ind & AOP

Company

(c) Amount of raffle/lottery winning, prize on winning a quiz, prize offered by a company for promotion of sales

20 No change


156A Petroleum products

Commission and discount to petrol pump operators

(Filer / Non filer)

12 12 / 15 Final / Adjustable subject to conditions




156B Withdrawal of balance under pension fund

Withdrawal of amount before the retirement age or it is in excess of 50% of the accumulated balance at or after the retirement age

Slab rates

Slab rates

Adjustable

N/A

Adjustable

N/A

231A Cash withdrawal

Cash withdrawal exceeding Rs 50,000 (Filer / Non filer)

0.3 / 0.5 of the

amount withdrawn

0.3 / 0.6 of the

amount withdrawn

Adjustable

Adjustable Adjustable

Adjustable

231AA

Transactions in banks

Withdrawal made through any mode of banking transactions including Demand Draft, Payment Order, Online Transfer, Telegraphic Transfer, CDR, STDR, RTC

0.3 of the transactio

n

0.3 / 0.6 of the

transaction





Existing Proposed


Company Ind & AOP

Company

exceeding Rs 25,000 in a day (Filer / Non filer)

231B Advance tax on private motor vehicle

Varying slabs for filers and

non - filers

Varying slabs for filers and

non - filers


- On registration of motor vehicle

- On transfer of registration or ownership of a private motor vehicle.

- On sale of motor vehicle

233 Brokerage & Commission

(a) Payment of brokerage and commission (Filer / Non filer)

12 12 / 15 Final / Adjustable subject to conditions



Final / / Adjustable subject to conditions

(b) Commission to advertisement agent (Filer / Non filer)

7.5 10 / 15 Final / Adjustable subject to conditions




233A Collection of tax by stock exchange

(a) On purchase of shares, in lieu of commission of the Member

0.01 of purchase

value

No change


(b) On Sale of shares, in lieu of

0.01 of sale value

No change





Existing Proposed


Company Ind & AOP

Company

commission of the Member

233AA

Collection of tax by NCCPL On margin financing, trading financiers and lenders

10

No change

Adjustable

Adjustable

Adjustable

Adjustable

234 Tax on motor vehicle

Registered laden weight/ Seating capacity/ Engine capacity

Varying rates for filer and non-filer

Varying rates for filer and non-filer


234A CNG stations -On amount of gas bill

4 No change


235 Electricity bill of industrial / commercial consumers

(a) Electricity bill upto Rs 20,000.

Slab rates No change

Minimum Adjustable Minimum Adjustable

(b) On electricity bill exceeding Rs 20,000 (Industrial consumer / commercial consumer)

5 /10

No

change

Minimum /Adjustable if the bill

amount exceeds

Rs 30,000

Adjustable

Minimum /Adjustable if the bill

amount exceeds

Rs 30,000

Adjustable

235A Domestic electricity consumption On electricity bill exceeding Rs 75,000 (2014: 100,000)

7.5 No change

Adjustable - Adjustable -

235B Tax on steel melters, re-rollers etc.

Re. 1 per unit of

No change

Non-adjustable

Non-adjustable

Non-adjustable

Non-adjustable




Existing Proposed


Company Ind & AOP

Company

On electricity bill of steel melters, steel re-rollers, composite steel units.

electricity consumed

236 Telephone & internet bill

(a) Telephone bill exceeding Rs 1,000

10 No change


(b) Subscriber of internet and prepaid internet card or sale of units through any electronic medium or whatever form

- 14 Adjustable Adjustable Adjustable Adjustable

(c) Mobile telephone and prepaid card for telephones or sale of units through any electronic medium or whatever form

14 No change


236A Sale by auction / tender

Sale price of the property

10 No change

Adjustable

Adjustable

Adjustable

Adjustable

236B Purchase of air ticket - On gross amount of purchase of domestic air ticket

5 No change

Adjustable

Adjustable


236C Sale or transfer of immovable property – On gross amount of consideration (Filer / non-filer)

0.5 / 1 No change

Adjustable

Adjustable


236D Advance tax on functions and

5 No change

Adjustable

Adjustable





Existing Proposed


Company Ind & AOP

Company

gatherings – On total amount of bill of arranging or holding a function including payment of food, service or facility.

236E Advance tax on foreign produced, TV play and serials.

Varying amount

No change

Adjustable Adjustable Adjustable

Adjustable

236F Advance tax on cable operators and other electronic media. On issuance or renewal of license for distribution services.

Varying amount

No change


Adjustable

236G Advance tax on sales of specified goods to distributors, dealers and wholesalers

- Fertilizer - Other than

fertilizer (Filer / Non filer)

0.2 / 0.4

0.1 / 0.2

0.7 / 1.4

No change



Adjustable

Adjustable

Adjustable

Adjustable

236H Advance tax on sales of specified goods to retailers or wholesaler

0.5 No change

Adjustable

Adjustable

Adjustable

Adjustable

236I Collection of advance tax by educational institutions On amount of fee exceeding Rs 200,000

5

No change

Adjustable N /A Adjustable

N/A




Existing Proposed


Company Ind & AOP

Company

236J Advance tax on issuance or renewal of license to dealers, commission agents and arhatis etc.

Varying amount

No change


Adjustable

236K Advance tax on purchase of immovable property On purchaser or transferee for registering or attesting transfer of any immovable property exceeding value Rs. 3 million (Filer / non-filer)

1 / *2 (*subject

to the date

notified by the

Board)

No change


236L Advance tax on purchase of international air ticket

On sale of international air ticket for first / executive class. (First class / others excluding economy class)

4 Rs. 16,000 /

Rs. 12,000

per person


236M Bonus shares issued by companies quoted on stock exchange

5 No Change


236N Bonus shares issued by companies not quoted on stock exchange

5 No Change


236P Advance tax on banking transactions

- 0.6 - - Adjustable Adjustable




Existing Proposed


Company Ind & AOP

Company

otherwise than through cash

Advance tax from non – filer on specified banking transactions where the sum of these transactions exceed Rs. 50,000 in a day.

236Q Payment to residents for use of machinery and equipment

- Payment to resident person for use or right to use industrial, commercial and scientific equipment

-

10

-

-

Final

Final

- Payment to resident person on account of rent of machinery

- 10 - - Final Final

236R Collection of advance tax on education related expenses remitted abroad

- 5 - - Adjustable

Adjustable

236S Dividend in Specie

(a) Dividend distributed by purchaser of a power project privatized by WAPDA and company set up for power generation.

-

7.5

-l

-

Final

Final




Existing Proposed


Company Ind & AOP

Company

(b) Dividend payment by other companies Filer / non-filer * 12.5% rate specified for taxability.

-

*10 / 17.5

-

-

Final /

Adjustable

Final /

Adjustable

(c) Remittance of after tax profit by a branch other than branch of a E&P companies (subject to treaty provisions, if applicable) (Filer / non-filer)

-

10 / 17.5

-

-

Final / Adjustable

Final / Adjustable

(d) Dividend payment by Collective Investment Scheme, REIT Scheme or mutual fund - Stock fund

-


-

-

Final

Final

- Money market fund, income fund or any other fund (Ind & AOP/ company)

- No Change

- - Final Final

236T Collection of tax by Pakistan Mercantile Exchange Limited

- On purchase / sale of future commodity contracts

- Commission earned on purchase / sale of future commodity contracts

- -

0.1

0.1

- -

- -

Minimum Minimum

Minimum Minimum




Existing Proposed


Company Ind & AOP

Company

37A Capital gain on redemption of securities

a) Stock Fund

- Company

- Other taxpayer

12.5 / 10 / 0

12.5 / 10 / 0

10 / 25

10 / 17.5

Adjustable

Adjustable

Adjustable

Adjustable

b) Other Fund

- Company

- Other taxpayer

12.5 / 10 / 0

12.5 / 10 / 0

25 / 25

10 / 17.5

Adjustable

Adjustable

Adjustable

Adjustable

c) Stock Fund if dividend receipt of the Fund is less than capital gains

(Filer / non-filer)

12.5 / 10 / 0

(subject to period of holding)

12.5 Adjustable Adjustable Adjustable Adjustable




Active Taxpayer

Sections 2(1) and 21A

The Bill seeks to introduce the definition of term ‘active taxpayer’. Active taxpayer will be considered a person who does not fall under any of the following categories:

Blacklisted or whose registration is suspended or blocked;

Non-filer of sales tax return for two consecutive tax periods;

Non-filer of annual income tax return or statement under Section 115 of the Income Tax Ordinance, 2001 within due date and

Non-filer of two consecutive monthly or an annual withholding tax statement under Section 165 of Income Tax Ordinance.

The Bill also seeks to insert Section 21A which will empower the Board to maintain active taxpayers’ list in the manner as prescribed in the Rules. These Rules will also provide the restrictions and limitations for the persons who cease as ‘active taxpayers’.

Exemption threshold for cottage industry enhanced

Section 2(5AB)

For cottage industry the exemption threshold is either based on turnover exceeding Rs.5 million during the last twelve months or utility bills (electricity, gas and telephone) exceeding Rs.700,000 during the last twelve months.

The Bill now proposes to enhance the exemption threshold limit of utility bills from Rs.700,000 to Rs.800,000 per annum providing incentive to the units functioning within the cottage industry.

Threshold for registration of retailers

Section 2(28)

The Bill seeks to align the definition of the term ‘retailer’ with the new 3-tier regime of retailers introduced withdrawing exemption threshold of Rs.5 million vide Finance Act, 2014. Since retailers are subject to sales tax irrespective of exemption threshold, as such the proposed omission of the words ‘and his total turnover per annum shall be taken into account for the purposes of registration under section 14’ seems a consequential amendment.

Toll manufacturing considered as ‘supply’

Section 2(33)

A new clause (d) is proposed to be inserted to bring the toll manufacturing within the ambit of ‘supply’. Accordingly, transfer or delivery of goods manufactured by toll manufacturer, to the owner or to a person nominated by the owner, will now be considered as ‘supply’.

Reward for Whistleblowers

Section 2(46A) and 72D

The Bill proposes to introduce a new concept of whistleblower, who is proposed to be the one who reports cases of concealment, evasion of sales tax leading to detection or collection of duty, corruption or misconduct to the competent authority.

The Bill seeks to propose rewards for whistleblower and the procedures for claim of such reward by the whistleblower are yet to be prescribed.

Sales Tax Significant Amendments



Rate of further tax enhanced to 2%

Section 3(1A)

The further tax of 1% chargeable on supplies by non-registered persons is proposed to be increased to 2%. Considering the Government’s admission on the size of the informal economy, this may have an inflationary effect. But due to depressed international oil prices, inflation may not be a concern for the moment.

Tax credit not allowed

Section 8(1)

Section 8 of Sales Tax Act provides a negative list of various items or class of goods on which input tax is not admissible. Under Clause (h) input tax on purchases of goods used in, or permanently attached to immovable property as also specified is not admissible. The Bill proposes to allow input tax on the pre-fabricated buildings.

This will be an industry friendly incentive, which will certainly help in reducing cost of doing business, as input tax paid on pre-fabricated structures can now be claimed.

The Bill also seeks to disallow input tax claim under following scenarios:

Services in respect of which input tax adjustment is barred under Provincial sales tax laws.

Import or purchase of agricultural machinery or equipment to sales tax at the rate of 7% under eight Schedule.

Goods and services, which at the time of filing of return by the buyer, have not been declared by the supplier in his return.

The restriction on claim on input tax paid on taxable services which are subject to Provincial sales tax at reduced rates seems a harsh step, which will add cost to the businesses.

Joint and several liability

Section 8A

Several notices were issued to registered persons merely on the basis of cross-matching of return declarations of buyers and sellers through CREST. Now, the Bill seeks to bind the department to prove the element of non-payment under the provisions of Section 8B of Sales Tax Act. This will considerably take care of undue hardships faced by registered persons.

Board restricted to allow exemptions

Section 13

The Bill proposes to withdraw Board’s power to allow any exemption.

Pursuant to the stated policy of the Government that all amendments in fiscal statutes should be made by the Parliament, the President of Pakistan issued an Ordinance No. IX of 2015 dated 30 April 2015 which provided that the Federal Government may issue exemption notification with the approval of the Economic Coordination Committee, followed by approval of National Assembly, wherever circumstances exist to take immediate action for the purpose of:

national security,

natural disaster,





Furthermore, the Bill proposes that any such notification, if not earlier rescinded, will stand



rescinded on the expiry of the financial year in which it was issued.

Registration for sales tax

Section 14

The Bill seeks to describe Section 14 to bring the provisions of Rule-4 of Chapter-I of Sales Tax Rules, 2006 into the main statute. This substitution is meant to describe the categories of persons who are required to obtain sales tax registration.

Furthermore, the Bill proposes to introduce concept of “temporary registration” to facilitate the importers-cum-manufacturers, whereby, manufacturers will be able to import machinery etc. without going through the lengthy process of sales tax registration.

Special audit panels

Section 32A

Currently Board is empowered to appoint a Chartered Accountant or Cost and Management Accountant to conduct a special audit. The Bill seeks to empower the Board to appoint special audit panels comprising two or more members from the following:

An officer Inland Revenue;

a firm of the Chartered Accountants;

a firm of Cost and Management Accountants;

Any other person directed by the Board.

It is also proposed that the special audit panel shall be headed by a chairman who will be an officer of Inland Revenue.

Electronic monitoring system revamped

Section 40C

The Board was empowered to devise systems and procedures for monitoring or tracking of operations of registered persons by electronic means vide insertion of Section 40C through Finance Act, 2013. However,

the system has not so far been enforced for any class of registered persons.

The Bill seeks to insert a new sub-section in Section 40C, whereby the stamps, banderoles, stickers, labels, barcodes, etc. required to be affixed on goods manufactured by Registered persons, will be purchased by registered persons from licensee appointed by Board on a price approved by the Board.

According to the salient feature issued by Board, the foregoing electronic monitoring regime will be enforced for specified sectors i.e. cigarettes, beverages, cement, fertilizer, restaurants, etc., however, the notification to that effect is yet to be issued.

Agreement for exchange of information

Section 56A

The Bill proposes to authorize Federal government to enter into agreements with Provincial governments and governments of foreign countries for sharing of information. This is a positive step towards capturing black money trail.

Zero rating facility withdrawn

Fifth Schedule

S. No. Description of goods PCT heading

12(ix) Flavored Milk 0402.9900

12(x) Yogurt 0403.1000

12(xi) Cheese 0406.1010

12(xii) Butter 0405.1000

12(xiii) Cream 04.01 and 04.02

12(xiv) Desi Ghee 0405.9000

12(xv) Whey 04.04




12(xvi) Milk and cream, concentrated and added sugar or other sweetening matter

0402.1000

Sales tax exemptions introduced

Sixth Schedule – Table-I


73A Milk and cream, concentrated or containing added sugar or other sweetening matter excluding that sold in retail packing under a brand name.

04.01 and 04.02

74 Flavored milk excluding that sold in retail packing under a brand name

0402.9900

75 Yogurt excluding that sold in retails packing under a brand name

0403.1000

76 Whey excluding that sold in retails packing under a brand name

04.04

77 Butter excluding that sold in retail packing under a brand name

0405.1000

78 Desi ghee excluding that sold in retails packing under a brand name

0405.9000

79 Cheese excluding that sold in retail packing under a brand name

0406.1010

80 Processed cheese not grated or powdered excluding that sold in retail packing under a brand name

0406.3000

114 Green House Farming and other Green House Equipment (if used for agriculture sector)

(1) Tunnel farming equipment consisting of plastic covering and mulch film, anti-insect net and shade net

3920.1000, 3926.9099, 5608.1900 and 5608.9000


117 Appliance for colostomy 3006.9100

118 Colostomy and urostomy bags 3926.9050

119 Tubular day lighting devices (TDDs)

8539.3930

120 Diagnostic kits or equipment namely:

HIV Kits, 4C Es Trionyx, 5C Cell control Lnormal, Bovine precision multi sera, Pregnancy test, DNA SSP DRB Generic IC, Reticulocyte count (control) retic, C Control, Kit for vitamin B12 estimation, Ferritin kit, HEV (Hepatitis E virus), ID-DA Cell, Urine Analysis Strips, Albumin beg, Cratinin sysi, Ring, Detektiion cups, ISE Standard, Alkaline Phosphatase (Alb), Bilirubin kit, HDL Cholesterol, Ck creatinin kinase (mb), Ck nac, Glulcose kit, Ammonia Modular, Lac, Ldh kit (lactate dehydrogenase kit), Urea uv kit, Ua plus, Tina quant, Crp control, Aslo tin, Proteins, Lipids,

HDL/LDL cholesterol, Protein kit, U, Control Sera,

Pac, Control, HCV, UIBC (Unsaturated iron binding capacity), U/CSF, Inorganic Phosphorus kit, Kit amplicon kit (for PCR), Ige, Lc hsv, Oligo, NA/K/CL, Hcy, Standard [or calibrated], Hla B27,

Liss Coombs, Typhoid kit, HCV amp, Urine test strips, Strips for sugar test, Blood glucose test strips, Kits for automatic cell separator for collection of platelets, Elisa or Eclia kit, PCR kits, Immunoblast (western blot test), I.C.T. (Immunochromatographic kit), CBC Reagent (For hematology analyzer) Complete blood count Reagent.

3822.0000




121 Blood Bag CPDA-I with blood transfusion set pack in aluminum foil with set

Respective headings

122 Urine drainage bags Respective headings

123 Aircraft, whether imported or acquired on wet or dry lease

8802.2000,8802.3000, 8802.4000

124 Maintenance kits for use in trainer aircrafts

8802.2000 and 8802.3000

125 Spare parts for use in aircrafts, trainer aircrafts or simulators

Respective headings

126 Machinery, equipment and tools for setting up maintenance, repair and overhaul (MRO) workshop by MRO company recognized by Aviation Division

Respective headings

127 Operational tools, machinery, equipment and furniture and fixtures on one-time basis for setting up Greenfield airports by a company authorized by Aviation Division

Respective headings

128 Aviation simulators imported by airline company recognized by Aviation Division

Respective headings

Table-II


17 Raw and pickled hides and skins, wet blue hides and skins

41.01, 41.02, 41.03, 4104.1000, 4105.1000, 4106.2100, 4106.3000, 4106.9000

18 Supplies made by manufacturers of marble and granite having annual turnover less than five million rupees even if their annual utility bill is more than eight hundred thousand rupees

Respective headings


19 Bricks (up to 30th June, 2018) 6901.1000

20 Crushed stone (up to 30th June,

2018)

2517.1000

Sales tax exemption withdrawn - Sixth Schedule

Table-1


28 Poultry feed and cattle feed including their all ingredients

Various as specified

39 Incinerators of disposal of waste management, motorized sweepers and snow ploughs


56 Re-importation of foreign origin goods temporarily exported out of Pakistan subject to similar condition as applicable for zero rate of custom duty

99.18

Table-II


13 Reclaimed lead, if supplied to recognized manufacturers of lead batteries

Respective headings

14 Waste paper Respective headings

Table-III


10 Machinery, equipment, raw materials, components and other capital goods for use in buildings, fittings, repairing or refitting of ships, boats or floating structures imported by Karachi Shipyard and Engineering Works Limited

Respective headings




16 Plant, machinery, equipment and specific items used in production of bio-diesel

Respective headings

Goods subjected to reduce rate of sales tax - Eight Schedule

Table-I

S. No. Description of goods Rate of sales tax

7 Flavored milk sold in retail packing under a brand name (PCT heading 0402.9900)

10%

8 Yogurt sold in retail packing under a brand name (PCT heading 0403.1000)

10%

9 Cheese sold in retail packing under a brand name (PCT heading 0406.1010)

10%

10 Butter sold in retail packing under a brand name (PCT heading 0405.1000)

10%

11 Cream sold in retail packing under a brand name (PCT heading 04.01 and 04.02)

10%

12 Desi ghee sold in retails packing under a brand name (PCT heading 0405.9000)

10%

13 Whey sold in retails packing under a brand name (PCT heading 04.04)

10%

14 Milk and cream, concentrated or containing added sugar or other sweetening matter that sold in retail packing under a brand name (PCT heading 0402.1000)

10%

15 Poultry feed and cattle feed including their all ingredients (Various items specified therein)

5%

16 Incinerators of disposal of waste management, motorized sweepers and snow ploughs

5%


(PCT heading 8417.8000, 8430.2000 and 8479.8990)

17 Re-importation of foreign origin goods temporarily exported out of Pakistan (PCT heading 99.18)

5%

18 Reclaimed lead (Respective PCT headings)

5%

19 Waste paper (PCT heading 47.07)

5%

20 Plant, machinery, equipment and specific items used in production of bio-diesel (Respective PCT headings)

5%

21 Rapeseed, sunflower seed and canola seed (PCT heading 1205.0000, 1206.0000)

16%

22 Soya bean seed (PCT heading 1201.1000)

6%

23 Secondhand and worn clothing or footwear (PCT heading 6309.0000)

5%

25 Agricultural tractors (PCT heading 8701.9020)

10%

26 Tillage and seed bed preparation equipment (Items under various PCT headings specified therein)

7%

27 Seeding or planting

Equipment (Various items specified therein)

7%

28 Irrigation, drainage and agro-chemical application equipment (Various items specified therein)

7%

29 Various Machines, equipment and tools used for harvesting, threshing etc.

7%

30 Post-harvest handling and processing & miscellaneous

7%




machinery (Various items specified therein)

Enhancement in rate of sales tax – Eighth Schedule

Table-I

S. No. Description of goods

Rate

Existing Proposed

1 Soyabean meal 5% 10%

4 Oilseeds meant for sowing

5% 10%

6 Plant and machinery not manufactured locally and having no compatable local substitute

5% 10%

Table-II


Rate

Existing Proposed

1 Machinery and equipment for development of grain handling and storage facilities

5% 10%

5 Complete plant for relocation industries

5% 10%

6 Machinery, equipment and other capital goods meant for initial installation, balancing, modernization, replacement or expansion of oil refining (mineral oil, hydro-cracking and

5% 10%


Rate

Existing Proposed

other value added petroleum products), petrochemical and petrochemical downstream products including fibres and heavy chemical industry, cryogenic facility for ethylene storage and handling

Existing reduced rate of 5% of sales tax is proposed to be withdrawn on following items mentioned in Eight Schedule


3 of Table-1

Directly reduced iron 72.03

3 of Table-II

Specified items imported by Call Centers, Business Processing Outsourcing Facilities duly approved by Pakistan Telecommunication Authority


7 of Table-II

Propriatary Framework System for building / structure of specific height and its various items / components as specified therein






The Bill proposes to bring various services under the regime of Islamabad Capital Territory Sales Tax Ordinance, 2001 to bring it in line with sales tax regime on services followed by provinces.

Following are the additional services proposed to be subjected to sales tax, if rendered or provided within the territory of Islamabad, w.e.f. 01 July 2015.

Sales tax at 16%

Description of service Tariff heading

Construction services, excluding:

(i) construction projects (industrial and commercial) of the value (excluding actual and documented cost of land) not exceeding Rs. 50 million per annum.

(ii) the cases where sales tax is otherwise paid as property developers or promoters.

(iii) Government civil works including Cantonment Boards.

(iv) construction of industrial zones, consular buildings and other organizations exempt from income tax.

(v) construction work under international tenders against foreign grants-in-aid.

(vi) Residential construction projects where the covered area does not exceed 10,000 square feet for houses and 20,000 square feet for apartments

9824.0000 and

9814.2000


Contractual execution of work, excluding:

(i) annual total value of the contractual works or supplies does not exceed Rs.50 million;

(ii) the contract involving printing or supplies of books.

9809.0000

Services provided for personal care by beauty parlours, clinics and slimming clinics, body massage centres, pedicure centres; including cosmetic and plastic surgery by such parlours / clinics, but excluding:

(i) annual turnover does not exceed Rs.3.6 million; or

(ii) the facility of air-conditioning is not installed or available in the premises.

9810.0000 9821.4000

and 9821.5000

Management consultancy services 9815.4000 9819.9300

Services provided by software or IT-based system development consultants.

9815.6000

Services provided by technical, scientific and engineering consultants

9815.5000

Services provided by other consultants including but not limited to human resource and personnel development services;

9815.9000 9818.3000

9818.2000

Sales Tax on Services (Islamabad) Significant Amendments




market research services and credit rating services.

Services provided by tour operators and travel agents including all their allied services or facilities (other than Hajj and Umrah)

9805.5100 9805.5000 9803.9000

Manpower recruitment agents including labour and manpower supplies.

9805.6000

Services provided by security agencies.

9818.1000

Services provided by advertising agents

9805.7000

Share transfer or depository agents including services provided through manual or electronic book-entry system used to record and maintain securities and to register the transfer of shares, securities and derivatives.

9805.9000

Business support services. 9805.9200

Services provided by fashion designers, whether relating to textile, leather, jewellery or other product regimes, including allied services, marketing, packing, delivery and display, etc.

9819.6000

Services provided by architects, town planners and interior decorators.

9814.1000 9814.9000

Services provided in respect of rent-a-car. Services provided by specialized

9819.3000


Workshops or undertakings (auto- workshops; workshops for industrial machinery, construction and earth- moving machinery or other special purpose machinery etc.; workshops for electric or electronic equipments or appliances etc. including computer hardware; car washing or similar service stations and other workshops).

98.2000

Services provided for specified purposes including fumigation services, maintenance and repair (including building and equipment maintenance and repair including after sale services) or cleaning services, janitorial services, dredging or de- silting services and other similar services etc.

98.2200

Services provided by underwriters, indenters, commission agents including brokers (other than stock) and auctioneers

9,819.1100 9,819.1200 9819.1300 9819.9100

Services provided by laboratories other than services relating to pathological or diagnostic tests for patients.

98.17

Services provided by health clubs, gyms, physical fitness centres, indoor sports and games centres and body or sauna massage centres.

9821.1000 and

9821.2000 9821.4000

Services provided by laundries and dry cleaners.

9811.0000

Services provided by cable TV operators. Technical analysis and testing services

9819.9000 9819.9400




Services provided by TV or radio program producers or production houses.

--

Transportation through pipeline and conduit services.

--

Fund and asset (including investment) management services.

--

Services provided by inland port operators (including airports and dry ports) and allied services provided at ports and services provided by terminal operators including services in respect of public bonded warehouses, excluding the amounts received by way of fee under any law or by- law.

--

Technical inspection and certification services and quality control (standards’ certification) services

--

Erection, commissioning and installation services.

--

Event management services --

Valuation services (including competency and eligibility testing services),

--

Exhibition or convention services --

Services provided in respect of mining of minerals, oil & gas including related surveys and allied activities

--

Services provided by property dealers and realtors.

--


Services provided by car / automobile dealers.

--

Sales tax at varied rates

Description of service

Tariff heading

Rate

Services provided by freight forwarding agents, and packers and movers.

9805.3000

and

9819.1400

16% or Rs.400 per bill of lading, whichever is higher

Call centers 18.5%

Existing taxable services continued or scope enlarged w.e.f. 01 July 2015


Services provided or rendered by hotels, motels, guest houses, marriage halls and lawns (by whatever name called) including “pandal” and “shamiana” services, clubs including race clubs, and caterers.

9801.1000 9801.3000 9801.4000 9801.5000 9801.6000

Advertisement on television and radio, excluding advertisements:

(a) sponsored by an agency of the Federal or Provincial

(b) Government for health education;

9802.1000 and

9802.2000




(c) sponsored by the Population Welfare Division relating to educational promotion campaign;

(d) financed out of funds provided by a Government under grant-in-aid agreement; and

(e) conveying public service messages, if telecast on television by the World Wide Fund for Nature (WWF) or United Nations Children’s Fund (UNICEF).

Services provided by persons authorized to transact business on behalf of others:-

(a) stevedore;

(b) customs agents; and

(c) ship chandlers.

9805.2000 9805.4000

and 9805.8000

Courier services and cargo services by road provided by courier companies;

9808.0000 9804.9000



Reward for Whistleblowers

Section 2(24A) and 42D

The Bill seeks to introduce a new concept of ‘whistleblower’, who is the one who reports cases of concealment, evasion of duty leading to detection or collection of duty, corruption or misconduct to the competent authority.

The Bill also seeks to propose rewards for whistleblower and the procedures for claim of such reward by the whistleblower are yet to be prescribed.

Board restricted to allow exemptions

Section 16

The Bill proposes to withdraw Board’s power to allow any exemption.

Pursuant to the stated policy of the Government that all amendments in fiscal statutes should be made by the Parliament, the President of Pakistan issued an Ordinance No. IX of 2015 dated 30 April 2015 which provided that the Federal Government may issue exemption notification with the approval of the Economic Coordination Committee, followed by approval of National Assembly, wherever circumstances exist to take immediate action for the purpose of:

national security,

natural disaster,




development of backward areas and implementation of bilateral and multilateral agreements.

Furthermore, the Bill proposes that any such notification, if not earlier rescinded, will stand rescinded on the expiry of the financial year in which it was issued.

Revision of decision by Board or Commissioner

Section 35

Presently, the examination and if needed revision of decision or order of subordinate officer can be made only on suo moto basis by the Board or Commissioner, however, now the bill proposes examination and if needed revision of decision or order of subordinate officer additionally on the basis other than suo moto also.

Electronic monitoring system revamped

Section 45A

The Board was empowered to devise systems and procedures for monitoring or tracking of operations of registered persons by electronic means vide insertion of Section 45A through Finance Act, 2013. However, the system has not so far been enforced for any class of registered persons.

The Bill seeks to insert a new sub-section under Section 45A, whereby the stamps, banderoles, stickers, labels, barcodes, etc., required to be affixed on goods manufactured by registered persons, will be purchased by registered persons from licensee appointed by Board on a price approved by the Board.

According to the salient feature issued by Board, the foregoing electronic monitoring regime will be enforced for specified sectors i.e. cigarettes, beverages, cement, fertilizer, restaurants, etc.,

Federal Excise Significant Amendments



however, the notification to that effect is yet to be issued.

Special audit panels

Section 46

Currently Board is empowered to appoint a Chartered Accountant or Cost and Management Accountant to conduct a special audit. The Bill seeks to empower the Board to appoint special audit panels comprising two or more members from the following:

An officer Inland Revenue;

a firm of the Chartered Accountants;

a firm of Cost and Management; Accountants;

Any other person directed by the Board.

It is also proposed that the special audit panel shall be headed by a chairman who will be an officer of Inland Revenue.

Agreement for exchange of information

Section 47A

The Bill proposes to authorize the Federal Government to enter into agreements with Provincial governments or governments of foreign countries for sharing of information. This is a positive step towards capturing black money trail.

Disclosure of information by a public servant

Section 47B

A new insertion is proposed to ensure confidentiality of the information acquired by the public servant.

Rates of FED enhanced / introduced

The Bill seeks to enhance or introduce FED rates on the following goods under Table-I of the First Schedule to FE Act w.e.f. 01 July 2015:

Entry No.

Description of goods

Tariff heading

Existing FED rate

Revised / New FED Rate

4,5 and 6

Aerated waters (all entries)

Respective Headings

9% of retail price

12% of retail price

9 Locally produced cigarettes if their on-pack printed retail price exceeds Rs.3,350 (existing Rs.2,706) per 1000 cigarettes

24.02 Rs.2,632 per 1000 cigarettes

Rs.3,030 per 1000 cigarettes

10 Locally produced cigarettes if their on-pack printed retail price does not exceed Rs.3,350 (existing Rs.2,706) per 1000 cigarettes

24.02 Rs.1,085 per 1000 cigarettes

Rs.1,320 per 1000 cigarettes

56 (New Entry)

Filter rod for cigarettes

5502. 0090

N/A Rs. 0.75 per filter rod



First Schedule to the Customs Act, 1969

The Bill proposes to increase customs duty to 2% in respect of all goods presently chargeable to customs duty at the rate of 1% under various tariff headings of the First Schedule.

Fifth Schedule to the Customs Act, 1969

The Bill proposes to substitute Fifth Schedule where customs duties on certain imported goods shall be levied at specified rate.

Salient changes in the Fifth Schedule are summarized below:

Introduction of Customs Duty at reduced rate

S. No.

Description PCT Code Rate

Agricultural Machinery

1. A) Tillage and seed bed preparation equipment

Respective Headings

2%

B) Seeding or Planting Equipment

Respective Headings

2%

C) Irrigation, Drainage and Agro-Chemical Application Equipment

4) Tubewells filters or strainers

8421.2100

2%

5) Knapsack sprayers

8424.2010

S. No.


6) Granular applicator

8424.2010

7) Boom or field sprayers

8424.2010

8) Self-propelled sprayers

8424.2010

9) Orchard sprayers 8424.2010

D) Harvesting, Threshing and Storage Equipment except following

Respective Headings

2%

8) Fodder rake 8201.3000 8433.5900

2%

16) Pruner / sheers 8433.5900 2%

G) Post-harvest Handling and Processing and Miscellaneous Machinery

Respective Headings

2%

17. Machinery, equipment and other capital goods meant for initial installation, balancing, modernization, replacement or expansion of oil refining (mineral oil, hydro-cracking and other value added petroleum products), petrochemical and petrochemical downstream products including fibers and heavy chemical industry, cryogenic facility for ethylene

Respective Headings

5%

Customs Significant Amendments



S. No.


storage and handling.

28. Following specialized vehicles imported by the Construction Companies:

1) Dumpers designed for off highway use

8704.1090

20%

2) Super swinger truck conveyors

8705.9000

3) Mobile canal lining equipment

8705.9000

4) Transit mixers 8705.4000

5) Concrete placing trucks

8705.9000

6) Crane lorries 8705.1000

Enhancement in the rate of Customs Duty

S. No.


4. Items imported by Call Centers, Business Processing Outsourcing facilities duly approved by Telecommunication Authority

Respective Headings

20%

14. Complete plants for relocated industries

Respective Headings

Various rates maximum upto 20%

18. Machinery and equipment imported by an industrial concern

Respective Headings

15%

21. Proprietary Formwork system for building/structures of a height of 100ft and

Respective Headings

Various rates maximu

S. No.


above and its various items / components

m upto 20%

Exemption from Customs Duty

S. No.

Description PCT Code

1. Aircraft 8802.2000 8802.3000 8802.4000

2. Spare parts Respective headings

3. Maintenance Kits Respective headings

4. Machinery equipment & tools Respective headings

5. Machinery equipment operational tools, furniture & fixture

Respective headings

6. Aviation simulators Respective headings

General power to exempt from customs duties

Section 19(1) (4) & (5)

The Bill proposes that the Federal Government can now allow exemption only through a gazette notification with the prior approval of the Economic Coordination Committee followed by approval of National Assembly wherever circumstances exist to take immediate action for the purpose of:

national security,

natural disaster,







Furthermore, the Bill proposes that any such notification, if not earlier rescinded, will stand rescinded on the expiry of the financial year in which it was issued.

Board’s power to grant exemption from duty in exceptional circumstances

Section 20

The Bill proposes to withdraw Board’s power to allow any exemption

Declaration and assessment for home consumption or warehousing

Section 79(1)

The Bill proposes to include trans-shipment for making entry by filing a true declaration of goods and submission of prescribed documents. However, assessment and payment of duty, taxes and other charges for trans-shipment shall be collected at the port of destination.

Trans-shipment of goods without payment

Section 121(1)

In order to facilitate the Trans-shipment, the Bill proposes to allow automatically Trans-shipment Permit (TP) to other customs stations where the Customs Computerized System is operational subject to risk criteria.

Entry, etc. of Trans-shipped goods

Section 123

The Bill proposes for the insertion of Explanation to clarify that the first entry for declaration of goods shall be the customs station when the goods are de-consolidated in the case of trans-shipment of LCL goods.

Punishment for offices

Section 156(1)

In order to implement the requirement of placement of invoices and packing list inside the import container or consignment, a penalty not exceeding Rs. 50,000 is proposed for its non-compliance as at Sr. No. 1 (ii) of the Table.

Moreover, under Sr. No. 64 of the Table, a penalty upto twice the value of the goods as well as imprisonment upto 5 years and confiscation of the goods are proposed in case of misdeclaration, illegal removal or concealment of transit goods.


The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International Cooperative (“KPMG International”).

Offices in Pakistan

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An Economic & Budget Commentary

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Documents

Budget Brief 2015 - KPMG