Final Tax HandBook 12-13

8/13/2019 Final Tax HandBook 12-13

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Tax Handbook 2012

An Informati on Guide

Tax Handbook2012


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This handbook attempts to cater the needs of the various post budget queries forthcoming by our clients. We have attempted to apprise them

with a comprehensive explanation of the implications and effect that this Finance Bill has brought about. The handbook encompasses the

amendments in the Income Tax Ordinance, Sales Tax Act, Federal Excise Act, Customs Act and Miscellaneous Laws. The applicable amendments

in the laws after enactment are effective fromJuly 1, 2012 unless otherwise specified.

The commentary should be read in conjunction with the applicable sections of respective Ordinances, Acts and Rules along with the text of

the Finance Bill 2012. This commentary attempts to provide a general guideline and thus should not be considered as a conclusive and

enforceable document. Professional advice should be sought before acting on any amendment in the Finance Bill or on our comments.

We hope that this handbook enhances your perception of Budget 2012-13. For better understanding and convenience, we have also drafted

a Tax Planning Guide appended to this handbook.

This handbook is the property of Horwath Hussain Chaudhury &Co. and is compiled for the exclusive use of its clients and employees.

No part of this handbook may be reproduced except with prior permission of Horwath Hussain Chaudhury &Co.

Although best efforts have been made to ensure accuracy of the information in this handbook, any errors and omissions are regretted.

Lahore

June 02, 2012

www.crowehorwath.pk

Preface

Tax Handbook2012


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Tax Handbook2012

Tax Planning Guide 2012Income TaxSales Tax

Capital Value Tax

37-47

48-49

50

Contents

Chapter Page

GeneralBudget 12-13 1-4

Contents

Commentary on the Finance Bill 2012Highlights

Income TaxOrdinance, 2001

Schedules

First

Second

Third

FourthFifth

Seventh

Eighth

5-7

9-16

16-19

20-21

21

2121

22

22

Miscellaneous Laws 35-36

Sales TaxAct, 1990

Schedules

Sixth Schedule

Notable Notifications

23

23

24-26

Federal Excise

Act, 2005

Schedules

First


-

27-29

30

CustomsAct, 1969


31-32

33-34


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Tax Handbook2012

Budget, 2012-2013Budget, 2012-2013

Sali ent Featu res of the Budget 2012-2013

The salient features of the budget 2012-13 are as follows:

The total outlay of budget 2012-13 is Rs. 3,203 billion (Rs. 3,110 billion: 2011) showing an increment of 3%.

The resource availability during 2012-13 has been estimated at Rs. 2,719 billion (Rs. 2,171 billion: 2011) showing an incrementof 25%.

The net revenue receipts for 2012-13 have been estimated at Rs. 1,775 billion (Rs. 1,328 billion: 2011) indicating an incrementof 34%.

The provincial share in federal revenue receipts is estimated at Rs. 1,459 billion (Rs. 1,209 billion: 2011) during 2012-13 showingan increment of 21%.

The net capital receipts for 2012-13 have been estimated at Rs. 478 billion (Rs. 525 billion: 2011) showing a decrease of 9%.

The external receipts in 2012-13 are estimated at Rs. 387 billion (Rs. 226 billion: 2011) showing an increment of 71%.

The overall expenditure during 2012-13 has been estimated at Rs. 3,203 billion (Rs. 3,110 billion: 2011) of which the currentexpenditure is Rs. 2,612 billion (Rs. 2,632 billion: 2011) and development expenditure is Rs. 591 billion (Rs. 478 billion: 2011).

The share of current expenditure Rs. 2,612 billion (Rs. 2,632 billion: 2011) is 82%, (85% : 2011) of the total budgetary outlayfor 2012-13.

The expenditure on General Public Services is estimated at Rs. 1,877 billion, (Rs 1,898 billion: 2011) which is 72% (72% : 2011)of the current expenditures.

The size of Public Sector Development Programme (PSDP) for 2012-13 is Rs. 873 billion (Rs 734 billion: 2011), while for otherDevelopment expenditures an amount of Rs. 154 billion (Rs. 122 billion: 2011) has been allocated. This shows an increment of 19%and 26%, respectively.

The provinces have been allocated an amount of Rs. 513 billion (Rs. 430 billion: 2011) fromPublic Sector Development Programme(PSDP) showing an increment of 19%.

An amount of Rs. 10 billion (Rs.10 billion: 2011) has been allocated to Earthquake Reconstruction and Rehabilitation Authority(ERRA) in the PSDP 2012-13.

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Budget, 2012-2013

Comparative Budgetary Position 2012-2013 & 2011-2012

Receipts

Tax Revenue (FBR)

Non Tax Revenue

Gross Revenue Receipts

Less: Provincial Share in Taxes

Net Federal Revenue Receipts (A)

Net Capi tal Receipts (B)

External Resources (C)

Estimated Provincial Surplus (D )

Bank Borr owings (E)

Total Resources (A+B+C+D+E)

2,503.58

730.33

3,233.91

(1,458.92)

1,774.99

477.78

386.87

79.55

483.81

3,203.00

(Rs. i n Bi ll i on)

2,024.57

512.19

2,536.76

(1,208.62)

1,328.14

525.50

226.15

90.74

939.20

3,109.73


2012-2013 2011-2012

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Tax Handbook2012

Budget, 2012-2013

Expenditures

General Public Services

Defence Affairs and Services

Public Order and Safety Affairs

Economic Affairs

Environment Protection

Housing and Community Amenities

Health Affairs and Services

Recreation, Culture and Religion

Education Affairs and Services

Social Protection

Current Expendi tures (A)

Development Expendi ture (B)

Federal Government

Provincial Government

Other Development Expendi ture (C)

Total Expenditures (A+B+C)

1,876.84

545.39

70.16

53.64

0.74

1.86

7.85

6.25

47.87

1.34

2,611.94

360.00

76.77

436.77

154.29

3203.00


2012-2013 2011-2012

1,898.03

510.18

61.85

72.24

0.60

1.65

6.65

5.37

45.21

30.13

2,631.91

303.66

52.40

356.06

121.76

3,109.73


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Budget, 2012-2013

Breakup of Receipts

Breakup of Expendi tures

04

55.42%

14.92%

12.08%

2.48%

15.10%

Revenue Receipts (Net) Capital Receipts (Net) External Resources Estimated Provincial Surplus Bank Borrowings

Public Order and SafetyAffairs

General Public Services

Social Protection

Economic Affairs

Health Affairs and Services

Development Expenditures (PSDP)

Environment Protection

Recreation, Culture &Religon

Dev. Loans and Grants to Province

Housing and CommunityAmenities

Defence Affairs and Services

Education Affairs and Services

Other Development Expenditures

58.60%

4.82%

2.40%

11.24%

0.04%

1.49%0.20%

0.24%

0.06% 0.02%

1.67%

2.19%

17.03%


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Tax Handbook2012

Commentary

The Finance Bi ll , 2012


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Tax Handbook2012

Income Tax Ordinance, 2001

The Finance Bill, 2012 seeks to define National Clearing Company Limited and assigns it the role of withholding agent.

Concept of 'Total Income' income rationalized.

Notional benefit on concessional loan by employers to employees to the extent of Rs. 500,000 shall be exempt fromtax.

Tax on capital gains fromshort selling of immovable property has been imposed.

Additional amount received on delayed refunds to be treated as 'Income fromOther Sources'.

Provisions relating to setting off of losses in case of AOPs have been rationalized.

Limits for determination of tax credit on investment in listed shares and life insurance have been relaxed.

Tax credits have been extended to industrial undertakings as a relief to combat industrial crises.

The Commissioner (Appeals) empowered to grant stay against tax demand for 30 days.

Commissioner (Appeals) is no more bound to dispose of an appeal within 4 month time limit.Appellate Tribunal empowered to grant stay against recovery of tax demand for 180 days.

Commercial Importers, Traders and Exporters have been provided an alternative option to be taxed under Normal Tax Regime.

The Bill seeks to make manufacturer a withholding agent in respect of supplies made to distributors, dealers and wholesalers.

Taxpayer Honor Card Scheme has been introduced providing privilege to active taxpayers.

Flat rate of default surcharge at 18% p.a. prescribed.

Tax free threshold of daily cash withdrawals frombanks has been increased fromRs. 25,000 to Rs. 50,000.

NCCPL has been empowered to collect advance tax frommembers of stock exchanges.

Exemption threshold for salary income and business income has been increased to Rs. 400,000.

Slabs of total income have been reduced and uniformand progressive rates for computing taxliability have been introduced for both

individuals and AOPs.

Rates of tax on disposal of securities frozen for two years.

Relief has been provided to both individual and AOP retailers by reducing rate of turnover tax applicable to themfrom1% to 0.5%.

Tax on goods transport vehicles has been increased fromRe. 1 to Rs. 5 per Kg of the laden weight.

Tax for passengers transport vehicles plying for hire has been increased fromRs. 100 per seat per annumto Rs. 500 per seat per

annum.

Advance tax to be paid on registration of motor vehicles (1,301cc to 1,600cc) has been increased fromRs. 16,875 to Rs. 25,000.

Exemption, subject to certain conditions, has been provided on amount received fromincome payment plan out of accumulated

balance of Pension Accounts.

Reduced rate of 3% shall be sanctioned to importers only at the production of exemption certificate.Intra group profit on debt and dividends shall be exempt fromtax if group companies opt to be taxed under group taxation.

Exemption fromapplicability of capital gains tax extended.

Initial Allowance on building reduced from50% to 25%.

An alternative option for payment of tax at the rate of 40% of profits and gains net of royalty has been provided to Petroleum

Exploration and Production Companies.

Dividends received by banks frommoney market funds and income funds are to be taxed at the rate 25% in Tax Year 2013 and at

the rate of 35% in Tax Year 2014 and onwards.

Finance Bil l H ighli ghtsFinance Bill Highlights

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Finance Bil l H ighli ghts

Sales Tax Act, 1990

The Finance Bill harmonized the procedure for taxassessment and recovery of taxnot levied or short levied or erroneously refunded.

Uniformrate of sales tax @16% made applicable and higher sales tax rates fromstandard rate of 16% eliminated.

Supplies against international tenders exempted that are currently treated as zero rated.

Nomenclature of certain existing HS Codes revised to align coding with World Customs Organization (WCO).

Exemption on locally produced cotton seeds oil withdrawn.

Sales Tax rate on import and supplies of black tea reduced from16% to 5%.

Certain zero-rated items included in exempt items list.

Federal Excise Act, 2005

Rate of duty enhanced on locally produced cigarettes.

Rate of duty reduced by Rs. 100 per metric ton on cement.

Duty on lubricant oil, certain cosmetic items and perfumes withdrawn.

Duty in respect of air travel rationalized.

Services provided by asset management company and companies providing insurance cover for livestock have been exempted from

duty.

Exemption on viscose staple fiber withdrawn.

Customs Act, 1969

En route pilferage of transit goods has regarded as smuggle.

Additional functionary directorates have been introduced for effective functional enforcement.

Punishment of whipping eliminated and punishment on computer related offences introduced.

Powers of adjudicating authorities Collectors, Superintendent and Principal Appraiser extended and jurisdiction of monetary limit of

each level of authority redefined.

Departmental appeals allowed for officers before Collector (Appeals) and Appellate Tribunal.

Concept of e-auction of goods introduced.Customduty in respect of shredded tyre scrap for cement manufacturers and rawmaterials of printing and stationery items has been

reduced.

The maximumtariff rate has been reduced from35% to 30%.

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Tax Handbook2012

Finance Bil l H ighli ghts

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Miscellaneous Laws

Capital value of shares of a public listed company acquired by a person has been exempted fromCVT.

Cantonment Board not to be included in the definition of urban area.

For residential flats and commercial immovable area, the rate of CVT has been decreased to 2% of the recorded value if the value

of the immovable property is recorded.

Maximumrate of cess for gas infrastructure development companies has been increased.

Certain provisions of the Finance Bill, 2012 are to be immediately applicable with effect fromJune 2, 2012.


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Tax Handbook2012

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Income Tax Ordinance, 2001Income Tax Ordinance, 2001

Income Tax Ordinance, 2001Income Tax Ordinance, 2001

'National Clearing Company Limi ted' Defined Section 2(35A)

National Clearing Company Limited (NCCPL) was incorporated in 2001 to manage and operate the National Clearing &Settlement System(NCSS).The capital market of Pakistan has a triangular foundation comprising of the stock exchanges, Central Depository Company and NCCPL. NCCPL isplaying a significant role in the capital market of Pakistan.

The Operations of NCCPL are governed by the following:

NCCPL Regulations, 2003NCSS Procedures, 2003Clearing House (Registration and Regulations) Rules, 2005

By virtue of the Finance Bill, 2012 the definition of NCCPL has been sought to be inserted as a company incorporated under the Companies Ordinance,1984 and licensed as 'Clearing House' by the Securities and Exchange Commission of Pakistan.

Concept of 'Total Income' Rationalized Section 10, 53(IA), 9

The Bill seeks to rationalize an inclusive concept of 'total income' that includes:

Person's income under all heads of income for the year, andPerson's income exempt fromtax under any of the provisions of the Income Tax Ordinance, 2001

By virtue of proposed amendment in the definition of total income, whereby the exempt income has been included in the scope of total incomeand, therefore, the superfluous provision envisaged under subsection (1A) of Section 53 captioned as Exemptions and tax concessions under theSecond Schedule is sought to be omitted.

Pursuant to amendment in the definition of 'total income', Section 9 captioned as 'Taxable income' is sought to be amended. It would result inincluding the person's income under all heads of income for the year except exempt income.

Concessional Loans by Employers to Employees Section 13(7), (14)

Presently the loan advanced by an employer to an employee on soft terms is considered as perquisite for the employee and it is added to the taxableincome of the employee based on benchmark interest rate policy given under the provisions of the law.

By virtue of the Finance Bill, 2012, the employer may disburse a loan of upto Rs. 500,000 to an employee free of interest or at a rate lower thanthe benchmark rate. Thus, notional benefit on loan amount of upto Rs. 500,000 would not be treated as taxable perquisite for an employee. This isa good move to incentivize employees whereby small loans are advanced by employers to employees for their financial assistance.

In an another move the Bill seeks to cap the benchmark rate of interest for concessional loans as 10% instead of aligning it with benchmark ratethat has pitched upto 13%.

Taxabili ty of Capital Gain on Sale of Immovable Property Section 37(1A)

The Finance Bill, 2012 seeks to introduce the policy of taxing gains on disposal of real estate. Taxing the real estate sector is very much confusingin the Country and according to research reports a huge foreign direct investment (FDI), flowof foreign remittances and a phenomenal rise in bankinggrowth in the past years helped significant investment in the real estate sector but the revenue contribution fromthis sector was negligible due tolegal issues. The Bill proposes a newtax policy for the property sector with an aimto broaden the tax base and impose tax on those earning hugeprofits in this sector.


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Addi tional Amount Received on Delayed Refunds Section 39,171

In the wake of activating the dormant provisions of lawto compensate the taxpayer receiving additional amount on account of delayed refunds, theBill seeks to tax such amount under the income head of Income fromother sources so as to charge tax on such compensation.

The Bill seeks to replace the fluctuating rate linked with KIBOR for determining the compensation on delayed refunds with the flate rate of 15% per anum.

Redundancy in Setting off of Losses in AOP Cases Removed Section 59A

By virtue of the Finance Act, 2003, a newsection 59A was inserted to provide procedure for set-off of losses in the case of AOPs. Consequent tochanges in principles of taxation of AOPs, the redundant references made to the provisions of loss adjustment are sought to be removed so as tobring harmony in the principles of taxation of AOPs.

Tax Credit on Investment in Listed Shares and Life Insurance Section 62(2),(3)

Tax credit for investment in shares and insurance is worked out using the following formula:

(A/B) X C

Where A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under Part-X of Chapter IIIB is the person's taxable income for the tax year andCis the lesser of:

a) Total cost of acquiring the shares or the total contribution or the premiumpaid by the personb) 15% of the person's taxable income for the yearc) Rs. 500,000


10

The Bill seeks to taxthe gains arising on sale of immovable property held for a period less than two years under the head capital gains at the following

rates:

Period for which Immovable Property is Held Rate of Tax

Up to 1 year 10%

More than 1 year but not more than 2 years 5%


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The Bill seeks to enhance the eligible investment amount for tax credit on investment in shares and insurance by the resident persons other than

companies in the following manner:

Current Proposed

15% of the person's taxable income for the year 20% of the person's taxable income for the yearRs. 500,000 Rs. 1,000,000

The Bill seeks to curtail the limit of holding period of shares for reversing the tax credit already availed thereof under the following timeline:

Current Proposed

Disposal of shares within 36 months Disposal of shares within 24 monthsof the date of acquisition of the date of acquisition

'Tax Payable' Clar ifi ed for Avai li ng of Tax Credi t for Investment in BMR Secti on 65B(1)

The Bill seeks to clarify the phraseology of tax payable in consonance to availing tax credit on the amount invested for balancing, modernizationand replacement (BMR) of plant and machinery shall be allowed as tax credit.

The tax payable shall constitue the tax paid under the following regimes:

Normal Tax RegimeMinimumTax RegimeFinal Tax Regime

Terminat ive Date for Avai l ing of Tax Credi t for Investment in BMR Extended Sect ion 65B(4)

By virtue of Finance Act, 2010 some relief measures for recession stricken industry and a tax credit for BMR costs incurred by corporate sectorwas provided @ 10% in the taxyear of its incurrence. This concession had been made available in-between the TaxYears 2011 to 2015. The FinanceBill, 2012 seeks to extend the terminative date of availing the tax credit upto the Tax Year 2016 and the credit amount is also sought to be doubledi.e. at 20% of the tax payable.

Tax Credi t for Newly Established Industrial Undertakings Section 65D

In the wake of dampening industrial crisis in the country the Federal Government, as a relief measure for newinvestment, introduced tax credit fornewindustrial undertakings vide Finance Act, 2011 on fulfilling the following pre-requisites:

A newcorporate taxpayer establishes a newindustrial undertaking for manufacturing in Pakistan between the first day of July, 2011and 30th day of June, 2016Industrial undertaking is managed by a company registered under the Companies Ordinance, 1984

The industrial undertaking is not formed by the splitting up or reconstruction or reconstitution

The industrial undertaking is set up with 100% equity owned by the company

The Finance Bill, 2012 seeks to include and clarify the following in order to avail the tax credit:

Corporate dairy farming is proposed to be treated as an industrial undertaking100% equity raised through issuance of newshares for cash considerationShort termfinancing obtained frombanking companies for the purposes of meeting working capital requirements shall not disqualifythe taxpayer fromclaiming tax credit under this sectionIndustrial undertaking is proposed to be treated to have been setup on the date on which the industrial undertaking is ready to gointo production, whether trial-run production or commercial production


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Tax Credi t for Equi ty Investment in Exist ing Establ ished Industrial Undertakings Sect ion 65E

By virtue of Finance Act, 2011 the Federal Government, as a relief measure for an investment, introduced a taxcredit for equity investment in existingestablished industrial undertakings.

The amount of the tax credit is equal to 100% of the tax payable and is allowed to such company for newinvestment made on or after first day ofJuly, 2011, for a period of five years or commencement of commercial production, whichever is later.

The Finance Bill, 2012 seeks to include and clarify the following in order to avail the tax credit:

Corporate dairy farming to be treated as an industrial undertaking100% equity raised through issuance of newsharesEquity investment for expansion project and for a newproject100% tax credit whereby separate books of accounts are maintained for an expansion project or a newproject otherwise the taxcredit shall be such proportion of the tax payable as is the proportion between the newequity and the total equity including newequity

The plant and machinery is installed at any time between July 1st, 2011 and the 30th June, 2016Newequity means the fresh issue of shares and shall not include loans obtained fromshareholders or directorsShort termfinancing obtained frombanking companies for the purposes of meeting working capital requirements shall not disqualifythe taxpayer fromclaiming tax credit under this section

In case of taxcredit for equity investment for expansion in Industrial unit, the newly introduced section 65E is meant to provide taxcredit on investmentby a company with 100% equity investment in BMR, or for expansion of the plant and machinery already installed, in an industrial undertaking setup in Pakistan before July 1, 2011 subject to the fulfillment of laid down conditions.

Tax credit shall be allowed on the basis of proportion that such equity investment bears to the total investment in the company. The tax credit shallbe allowed if the plant and machinery is purchased and installed at any time between July 1, 2011 and June 30, 2016 and amount of tax credit shallbe allowed against the tax payable by the taxpayer in respect of the tax year in which the plant or machinery is purchased and installed and for thesubsequent four years.

FBR Empowered to Make Rules for

Determination of Cost of an Asset and Consideration Received Section 76, 77

The Bill seeks to empower FBR to make rules for determination of cost of any asset and determination of consideration received for any asset.

Special Provision Relat ing to Capi tal Gain Tax on Disposal of L isted Secur i ties Sect ion 100B

The Finance Bill, 2012 seeks to insert a special provision relating to Capital Gain Tax, which states that tax on Capital Gains on disposal of listedsecurities shall be computed, determined, collected and deposited in accordance with the rules laid down in Eighth Schedule. This section shall notapply to the following persons or class of persons, namely:

a) A mutual fund

b) A banking company, a non-banking finance company, an insurance companyc) A modarabad) A foreign institutional investor being a person registered with NCCPL as a foreign institutional investore) Any other person or class of persons notified by the Board

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Anomaly in Pakistan-Source Dividend Income Removed Section 101B

The proposed insertion seeks to include remittance of after tax profit of a branch of a foreign company operating in Pakistan as a Pakistan-sourceincome. The Finance Act, 2008 amended the inclusive definition of dividend income to include remittance of after tax profit of a branch of a foreigncompany operating in Pakistan; however, reference to Pakistan source income was overlooked under the scope of geographical source of income.

This anomaly is sought to be removed by elaborating the Pakistan-source dividend as:

Dividend paid by a resident companyRemittance of after tax profit of a branch of a foreign company operating in Pakistan

Phraseology of 'Tax Payable or Paid' for Minimum Tax Appl icabi li ty Clar ifi ed Sect ion 113

The Bill seeks to clarify that tax payable or paid does not include tax already paid or payable in respect of deemed income which comes under theFinal Tax Regime in ascertaining the minimumtax liability .

In Budget speech, the Finance Minister announced the incentive of reduction in minimumtax rate from1% to 0.5% but relevant amendments aremissing under the provisions of the Finance Bill, 2012 and to that extent needs to be clarified.

Profi t/Loss for Revised Return Section 114(6)(c)

The Bill proposes that the revised return ought to reflect the profit amount or loss amount as determined or ascertained under best judgmentassessment, amended order, revision order, provisional assessment, appellate order or rectified order.

Limitation Period for Examination of Return Extended Section 120(6)

The Finance Bill, 2012 proposes to extend the limitation of examination of return by further 180 days. Presently in case the return of income is notcomplete, the Commissioner has the powers to serve a notice for furnishing of certain documents uptill the close of the financial year in which thereturn is furnished.

Ex-parte Assessment Effectuated Section 121(1)

By virtue of proposed insertion the Bill seeks to elaborate that the ex-parte assessment would have an overriding effect on the deemed assessmenton the basis of original return or revised return filed thereof.

Amendment of Provisional Assessment Section 122(1)(5A)

The proposed insertion seeks to include the provisional assessment in the scope of amendment of assessment.

The Bill further seeks to omit the redundant references for amending assessments made under the Repealed Income Tax Ordinance. The Bill alsoseeks to empower the Commissioner to undertake such enquiries as he deems fit for amending an order.

Compli ance Requirement for Invalidating of

Provi si onal Assessment for Corporate Taxpayers Explai ned Secti on 122C (2) Provi so

The Bill proposes to insert a newproviso to envisage the compliance requirement for invalidating the provisional assessment made in the case ofcorporate taxpayers whereby the return of total income along with audited accounts or final accounts are filed electronically during the time limitationof sixty days.

Time Limi tat ion for Tax Demand Stay by Commissioner (Appeals) Prescr ibed Sect ion 128(1A)

The proposed insertion seeks to envisage the powers of the Commissioner (Appeals) against the recovery of tax levied under the Ordinance andperiod of stay has been provided for 30 days.


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Time Limitation for D isposal of the Appeal by Commissioner (Appeals) Withdrawn Section 129(5)(6)(7)

The Bill proposes to withdrawthe provisions of time limitation of four months for disposal of an appeal by the Commissioner (Appeals) as well as towithdrawthe relating conditions laid down for implementation of such time limitation.

Appointment of An Accountant Member of ATIR Section 130(4)(i i )

The proposed amendment seeks to curtail the minimumexperience requirement for appointment of an Accountant Member of Appellate TribunalInland Revenue fromfive years to three years.

Eligibil it y Criteri on for Appointment of Chairperson of Inland Revenue Appellate Tribunal Section 130(5)

The Bill seeks to remove the compulsive condition of appointment of a judicial member as a chairperson of Inland Revenue Appellate Tribunal. Theproposed omission empowers the Government to appoint a chairperson either fromaccountant members or judicial members.

Tax Demand Stay by Appellate Tribunal Section 131(5)

The proposed substitution seeks to remove the ambiguous multiple time limitation periods against stay of recovery of tax with a single provision ofstay against taxrecovery for 180 days in aggregate and in case stay by high court is already granted then the availed time thereof would be excludedfromthe given time period of 180 days.

Opt ion to Commercial Importers, Traders & Secti ons 148(7), 153(1)(a), 154(4) and 169 Clauses (41A),

Exporters For Assessment under Normal Tax Regime (41AA) and (41AAA) of Part I V of the Second Schedule

At present, different sectors are operating under the Final TaxRegime (FTR) and finally discharge their taxliabilities under that regime. For example,commercial importers are paying 5% withholding tax; exporters 1%; suppliers 3.5%. Under that systemtaxes collected or deducted at source aretreated as a final tax liability in respect of such amounts.

The proposed changes would result in maintenance of books of account to record each and every business transaction which would ultimately promotedocumentation. In this way, taxpayer will either have to pay higher rate of withholding tax for not maintaining books of accounts or pay lower rateunder normal tax regime and file income tax returns. To bring themat par with the taxpayers operating under normal tax regime the right of carryforward of losses and other related provisions will remain applicable if such option is availed.

However, in order to opt in the newly introduced scheme the minimumtax liability in respect of such income shall not be less than:

60% of tax collected at the import stage70% of tax deducted at source on such supplies50% of the tax collected at the time of realization of export proceeds and indenting commission


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Payments to Non-residents & to PE of Non-residents Sections 152, 153

In an effort to remove the anomalous placement of withholding taxes provisions applicable to nonresidents and to Permanent Establishment (PE)of a nonresident have been rearranged to make the implications of the provisions more clear and unambiguous.

The Bill proposes the insertion of a newsubsection to rearrange the withholding taxprovisions whereby a person making a payment for advertisementservices to a nonresident media person relaying fromoutside Pakistan shall deduct tax fromthe gross amount paid at the rate of 10%. This waspreviously covered under section 153A which is nowbeing replaced.

The Bill further seeks that deduction of tax frompayment of insurance premiumor re-insurance premiumto a nonresident shall not apply in case ofwritten approval of the Commissioner to the effect that such amount is taxable to a PE of the nonresident in Pakistan.

The proposed omission of references in Section 153 regarding payments to a PE of a non-resident on account of sale of goods, rendering of orproviding of services or execution of a contract are intended to be placed in Section 152; however, no such corresponding reference has been madeto Section 152.

Manufacturers Liable to Col lect Tax at Source from Traders and D ist ri butors Sect i on 153A

Withholding tax on payments for goods, services and contracts is one of the major contributors to the Government Exchequer and over the periodof time frequent amendments have been brought in under the relevant provisions of law. Right fromthe promulgation of the Ordinance numerousamendments have been made to the withholding provisions and in eventuality has resulted into some ambiguities in its application.

In an attempt to broaden tax base manufacturers have been given the role of withholding tax agent to collect the required amount of withholdingtax at the time of sale to distributors, dealers and wholesalers at the proposed tax rate of 1% of the gross amount of their sales.

Taxpayer Card Scheme Introduced Section 181B

In an attempt to boost the morale of active taxpayers the proposed insertion of a newsection seeks to introduce a 'Taxpayer Honour Card Scheme'

to privilege active taxpayers.

Voluntari ly Penalty Payment Prescribed Section 182(2)

The Finance Bill, 2012 proposes to insert a proviso to prescribe that where the taxpayer admits his default he may voluntarily pay the amount ofpenalty due thereon.

Default Surcharge to be Determined on Flat Rate Basis Section 205

The Finance Bill, 2012 proposes to introduce a flat rate of default surcharge at the rate of 18% per annumcontrary to the prevailing varyingrate that is linked with the KIBOR. The Bill further seeks to provide relief in the amount of default in consequent to appeal orders.

Hierarchical Arrangement of Tax Authori ti es Section 207(3)(3A)

The Bill seeks to make all the tax authorities subordinate to FBR. The Bill proposes to arrange hierarchical order of income tax authorities to namethe subordinates of Chief Commissioner of Inland Revenue.

Condonation of Time Limi t Section 214A

The Bill seeks to insert an explanation to the provision of condonation of time limit to elaborate the jurisdictional powers of authorities to condonethe time limit with respect to powers vested with them.


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Functi onary of Directorate General (Intell igence and investi gation), Inland Revenue Established Secti on 230

In line with similar functionaries working under the auspices of 'Inland Revenue' under Sales Tax and FEDthe proposed insertion seeks to inductthe DGIntelligence and Investigation authority under hierarchical arrangement as to be notified by the Government.

Limit of Cash Withdrawal from a Bank Section 231A

Finance Bill 2012 seeks to enhance the daily cash withdrawal limit attracting the deduction of withholding taxfromRs. 25,000 to Rs. 50,000. However,the rate of withholding tax has not been changed.

Collection of Tax by a Stock Exchange Section 233A(1)(d)

The Bill seeks to restrict the Stock Exchanges registered in Pakistan to act as a withholding agent fromcollecting advance tax fromits members inrespect of trading of shares and financing of carryover trades in share business. The restriction to collect advance tax frommembers on trade of

shares has been reinforced in the Finance Bill, 2012 as it was also provided in the Finance (Amendment) Ordinance, 2012.

Collection of Tax by NCCPL Section 233AA

The Bill seeks to introduce a newsection whereby it proposes NCCPL to collect advance tax fromthe members of stock exchanges registered inPakistan in respect of margin financing in share business at the rate of 0.01% of value of shares.

First Schedule

Uni form Rates of Tax for Busi ness Indi vi dual s and Associ at i on of Persons Par t 1 D i vi si on 1 C lause 1

The Finance Bill, 2012 seeks to revive the older pattern whereby the individuals, other than the salaried class, and AOPs were taxed at the sameslab rates. The Finance Bill, 2010 introduced a flat rate of 25% applicable on all AOPs.

The Finance Bill, 2012 seeks to restore the common slab rates used by both the individuals, other than the salaried class, and the AOPs and revisedthe rates and slabs as under:


16

Current Rates of Tax for Individuals

Applicable on Taxable income

Proposed Rates of Tax for I ndi viduals and

AOPs Applicable on Taxable income

Taxable income not exceeding Rs. 350,000

Taxable income exceeding Rs. 350,000but not exceeding Rs. 500,000


Taxable income exceeding Rs. 750,000but not exceeding Rs. 1,000,000

Taxable income exceeding Rs. 1,000,000but not exceeding Rs. 1,500,000

Taxable income exceeding Rs. 1,500,000

0%

7.5%

10%

15%

20%

25%






0%

10% of the amount exceedingRs. 400,000

Rs. 35,000 + 15%of the amountexceeding Rs. 750,000

Rs. 147,500 + 20% of theamount exceeding Rs. 1,500,000



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Tax Handbook2012

17


Rates of Tax for Salaried Taxpayers Part 1 Division 1 Clause 1A

The Finance Bill, 2012 seeks to reduce the slab rates applicable on salaried individuals. Existing 17 slabs are proposed to be reduced to 5 as under:

Cur rent Rates of Tax for Salar ied Taxpayers

Applicable on Taxable incomeProposed Rates of Tax for Salaried Taxpayers

Applicable on Taxable income














but not exceeding Rs. 2,250,000





0%

1.50%

2.50%

3.50%

4.50%

6.00%

7.50%

9.00%

10.00%

11.00%

12.50%

14.00%

15.00%

16.00%

17.50%

18.50%

20%






0%



Rs. 92,500 + 15%of the amountexceeding Rs. 1,500,000



28/64


18

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

Graphical Representaion

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Sr.

No

Tax Li abil i ty for the Tax Year 2012 Average Tax Rate

Rs. Rs. Rs. % %

Pre-Budget Post-BudgetPre-Budget Post-BudgetIncrease /(Decrease)

TaxableSalary

Taxabi li ty of Salary Income

Rs.

1

2

3

4

5

6

78

9

10

11

12

13

14

15

16

17

350,000

400,000

450,000

550,000

650,000

750,000

900,0001,050,000

1,200,000

1,450,000

1,700,000

1,950,000

2,250,000

2,850,000

3,550,000

4,550,000

5,551,000

0

6,000

11,250

19,250

29,250

45,000

67,50094,500

120,000

159,500

212,500

273,000

337,500

456,000

621,250

841,750

1,110,200

0

0

2,500

7,500

12,500

17,500

32,50047,500

62,500

87,500

122,500

160,000

205,000

312,500

452,500

652,500

852,700

0

(6,000)

(8,750)

(11,750)

(16,750)

(27,500)

(35,000)(47,000)

(57,500)

(72,000)

(90,000)

(113,000)

(132,500)

(143,500)

(168,750)

(189,250)

(257,500)

0%

1.5000%

2.5000%

3.5000%

4.5000%

6.0000%

7.5000%9.0000%

10.0000%

11.0000%

12.5000%

14.0000%

15.0000%

16.0000%

17.5000%

18.5000%

20.0000%

0%

0%

0.5556%

1.3636%

1.9231%

2.3333%

3.6111%4.5238%

5.2083%

6.0345%

7.2059%

8.2051%

9.1111%

10.9649%

12.7465%

14.3407%

15.3612%

Tax liability has been worked out without taking into account the marginal tax relief.


29/64

Rate of Tax on Retai lers Part 1 Division 1A

The Finance Bill, 2012 seeks to reduce tax rate applicable on retailers, both individuals and AOPs, having turnover of upto Rs. 5 million in a taxyear from1% to 0.50%.

Rate of Tax Appli cable on Capital Gai ns on D isposal of Securi ties Part 1 D ivisi on VI I

The Finance Bill, 2012 seeks to make editorial changes to enhance clarity and seeks to freeze the tax rates for Tax Years 2011 to 2014 that havealready been introduced by the Finance (Amendment) Ordinance, 2012. Tax rates proposed by the Finance Bill are as under:

Less than 6 months

More than 6 months but less than 12 months

20112012

201320142015

201120122013201420152016

10%10%

12.5%15%

17.5%

7.5%8%

8.5%9%

9.5%10%

10%10%

10%10%

17.5%

7.5%8%8%8%

9.5%10%

Per iod for which Secur it ies are Held Tax Year Exi st ing Rates Proposed Rates

Period for which Immovable Property is Held Rate of Tax

10%5%

Up to 1 yearMore than 1 year but less than 2 years

Rate of Tax on Capi tal Gai ns on D isposal of Immovable Property Part 1 D ivi si on VI II

The Finance Bill, 2012 seeks to charge tax on capital gains in respect of disposal of immovable properties on the following rates:

Collection of Tax from Distr ibutors, Dealers and Wholesalers Part I IA

The Finance Bill seeks to collect tax fromdistributors, dealers and wholesalers at 1% of the gross amount of their sales.

Tax Handbook2012

19


Part IV

Tax on Motor Vehicles Division I I I & Division VI I

The Bill seeks to enhance tax rates on motor vehicles as under:

For goods transport vehicle, tax is proposed to be increased fromRe. 1 to Rs. 5 per kilogramof the laden weight;For passenger transport vehicles plying for hire with registered seating capacity of 20 persons or more, the tax is proposed to beincreased fromRs. 100 per seat per annumto Rs. 500 per seat per annum; andAdvance tax levied at the time of registration of a new1301cc to 1600cc locally manufactured motor vehicle is proposed to beenhanced fromRs. 16,875 to Rs. 25,000.


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Part IV

Exemptions from Specif ic Provisions

Exempt ion from Deduct ion of Tax on Paying Dividends and Profi t on Debt Clause 11B & 11C

The Bill seeks to introduce newclauses whereby the payment of inter-corporate dividends and inter-corporate profit on debts would not attract thededuction of tax in the hands of company making such payment provided the group companies are subject to group taxation under Section 59AAand 59B of the Income Tax Ordinance, 2001.


20

Second Schedule

Exempt ions & Tax Concessions

The Second Schedule relates to specific exemptions granted in respect of total income; reduction in tax rates; reduction in tax liability and exemptionfromspecific provisions. The Bill proposes to exempt or extend the scope of exemptions in respect of the following sources of income:

Part I

Exempti ons from Total Income

Amounts Received from Income Payment Plan out of

Accumulated Balance of Pension Accounts Clause 23B & 23C

The Bill seeks to exempt fromtax the amounts received as monthly installment fromincome payment plan invested out of the accumulated balanceof an individual pension account with a pension fund manager or an approved annuity plan etc. as specified in Voluntary Pension SystemRules, 2005,provided the accumulated balance is invested for 10 years.

It also seeks to exempt the withdrawal of accumulated balance fromapproved pension fund that represents the transfer of balance of approvedprovident fund to the said approved pension fund under the Voluntary Pension SystemRules, 2005.

Donations to Speci fied Insti tutions Clause 61(ia) & Clause 66(xxvi i )

The Bill seeks to extend the exemption on donation paid to The Citizen Foundation as a straight deduction fromtaxable income . Any income derivedby The Citizen Foundation shalll also be exempt.

Profi ts and Gains Der ived by a Venture Capi tal Company & Venture Capi tal fund Clause 101

The Bill seeks to extend the exemption to profits and gains derived by a venture capital company and venture capital fund registered under theVenture Capital Companies and Funds Management Rules, 2000 beyond 2014. It proposes to extend this exemption by further 10 years upto

June 30, 2024.

Part II

Reduction in Tax Rates

Advance Tax from Importers Clause 9A

The Bills seeks to correlate the collection of 3% tax fromimporters only on production of exemption certificate issued by the Commissioner.


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Tax Handbook2012

21


Capi tal Gains Tax on Disposal of Certain Securi ties Withdrawn Clause 47B

The Finance Bill, 2012 seeks to extend the exemption fromapplication of capital gains taxon disposal of securities to National Investment Unit Trust,Collective Investment Scheme, Modaraba, REIT Scheme, Private Equity and Venture Capital Fund, recognized provident fund, approved superannuationfund or approved gratuity fund.

Applicabi l i ty of Advance Tax on Electr ici ty Bil l of a Commercial / Industr ial Consumer Clause 76

The Bill seeks to withdrawexemption available to manufacturer-cum-exporter industrial undertakings situated in Karachi Export Processing Zonefromthe collection of advance tax on electricity bills.

Third Schedule

Ini tial Allowance and First Year Allowance Par t I I

The Finance Bill seeks to reduce the initial allowance for buildings from50% to 25%.

Fourth Schedule

Mutual Insurance Companies Rule 6B

The Bill seeks to reduce the rates of taxapplicable on capital gains on disposal of shares of listed companies, vouchers of Pakistan TelecommunicationCorporation, Modaraba Certificates or instruments of redeemable capital and derivative products by mutual insurance associations as under:

Less than 6 months

More than 6 months but less than 12 months

20112012201320142015

20112012201320142015

10.0%12.5%15.0%17.5%17.5%

8.0%8.5%9.0%9.5%

10.0%

10.0%10.0%12.5%15.0%17.5%

8.0%8.0%8.5%9.0%9.0%

Per iod for whi ch Secur iti es are Held Tax Year Exi sti ng Rates Proposed Rates

Fifth Schedule

Mechanism for Computation of Tax on Profits and

Gains Petroleum Exploration and Production Companies Rule 4A

The Bill seeks to introduce a newrule whereby petroleumexploration and production companies may opt to pay taxat the rate of 40% of their profitand gains net of royalty derived by them.

However, they may opt to do so upon withdrawing pending appeals, references and petitions filed by themand paying the entire outstanding taxliability created under the Income Tax Ordinance, 2001 upto the tax year 2011 by June 30, 2012. It is pertinent to mention that the Bill proposesthat this option is available for one time only and would be irrevocable.


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Seventh Schedule

Rules for the Computation of the Profi ts and Gains of a Banking Company and Tax Payable Thereon

D ividends Received from Money Market Funds and Income Funds Rule 6

The Bill seeks to enhance the tax rates on dividends received frommoney market funds and income funds to 25% for the Tax Year 2013. The taxrate is proposed to be raised further to 35% in the Tax Year 2014 for the ongoing period.

Eighth Schedule

Rules for the Computation of Capital Gains on Listed Secur ities

The Bill seeks to introduce Eighth Schedule dealing with the rules for the computation of capital gains on listed securities. This Schedule proposesthe structural and procedural details that would be followed by NCCPL in calculating capital gains and issuing certificate to taxpayers in respect of

their capital gains subject to tax.

Manner and basis of computation of capital gains and tax thereon:

NCCPL shall issue an annual certificate to the taxpayer on the prescribed formin respect of capital gains subject to taxfor a financialyear. However, on request of a taxpayer or if required by the Commissioner, NCCPL shall issue a certificate for a shorter period withina financial year.Above mentioned certificate shall be filed along-with the return of income.NCCPL shall furnish to the Board within 30 days of end of each quarter, a statement of capital gains and tax computed thereon inthat quarter.Capital Gains computed under this Schedule shall be charged to tax at the rate applicable in Division VII of Part I of First Schedule.

Enquiries as to source of Investment shall not be made:

If a person has made investment in listed securities prior to introduction of this Ordinance and the amount remains invested for aperiod of 45 days upto June 30, 2012 and he has filed a statement of investment with the Commissioner along with a Return ofIncome and wealth Statement for the Tax Year 2012.

If a person has made investment in listed securities fromthe date of coming into force of this Ordinance till 30th June, 2014 andthe amount remains invested for a period of 120 days and the tax on capital gains has been duly discharged and he has filed astatement of investment with the Commissioner alongwith a Return of Income and wealth Statement for the Tax Year 2012.

Rates for CGT for the Tax Years 2013 and 2014 Division VI I Part I First Schedule

The Finance Bill, 2012 seeks to freeze the rate of tax for two years. Proposed rate of tax shall be as follows:


22

Less than six months

More than six months but less than twelve months

Twelve months or more

20112012201320142015

201120122013201420152016

10%10%12.5%

15%17.5%

7.5%8%

8.5%9%

9.5%10%0%

10%10%10%10%

17.5%

7.5%8%8%8%

9.5%10%0%

Holding Period Tax Year Present Rate Proposed Rate


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Tax Handbook2012

23

Sales Tax Act, 1990Sales Tax Act, 1990

Assessment of Tax and Recovery of Short Levied or Erroneously Refunded Tax Secti on 11 and Secti on 36

In viewof concurrence in procedural application of Section 11 and Section 36, the proposed amendment seeks to merge these provisions underSection 11 and seeks to omit Section 36. The newplacement of these provisions of lawwould harmonize the procedure for assessment of Sales

Tax and streamline the provisions of law. The proposed amendment further aims at the following changes:

Time limit for issuance of showcause notice, in case of tax not levied or short levied or refunded due to any inadvertence, error ormisconstruction, has been enhanced fromthree years to five years fromrelevant date.

Officer of Inland Revenue is proposed to make his decision in 120 days fromthe date of issuance of showcause notice; however,this period can be further extended by 90 days and the maximumperiod which can be excluded fromthe time period mentionedearlier, due to adjournment or stay, has also been extended by 60 days.

Uniformi ty in Standard Sales Tax Rate of 16%

S.R.O. 594(1)/2012 seeks to rescind S.R.O. 644 (I)/2007 S.R.O. 644 (I)/2007 whereby items which were charged at 19.5% and 22% would becharged at a uniformrate of 16%.

Sixth Schedule (Table 1)

Implementation of Revised HS Code - 2012

The Bill proposes to implement revised HS code - 2012 of the World Customs Organization (WCO) by substituting 18 PCT headings in column 3 ofTable 1 of Sixth Schedule with 23 newPCT headings. HS codes are revised in viewof technological and trade developments after every five years.These changes are of technical nature and will have no effect on rates to be applied and procedures to be followed.

Zero Rating Category Substi tution wi th Exemption Category Fifth Schedule & Sixth Schedule (Table 2)

The Bill proposes to substitute zero rating on supplies made against international tenders with exempt supplies by omitting it fromFifth Scheduleand including it in Table 2 of Sixth Schedule.

Withdrawal of Exemption for Cotton Seed Oi l Sixth Schedule (Table 2)

The Bill proposes to withdrawexemption on cotton seed oil.


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S.R.O. 590(I )/2012

The S.R.O. seeks to remove requirement for commercial importers of computer hardware and parts to pay minimumvalue addition Tax @ 10%.

S.R.O. 591(I )/2012

Through amendments made by this S.R.O. import and supply of polyethylene and polypropylene by registered manufacturer for manufacture of monofilament yarn and who makes exempt supplies of net cloth to green house farming shall be exempt, earlier they were zero rated.

Sales Tax Act, 1990

24

Notable Notification

S.R.O. 589(I )/2012

This S.R.O. seeks to make amendments, additions or substitution in Sales Tax Rules 2006. A brief summary of significant proposed amendments,additions or substitution is as under:

Rule Ref. Description of proposed amendments, additions or substitution

Rule 5,sub rule(1), clause C

Rule 7,sub rule(3)

Rule 12

Rule 50B

Rule 50C

It proposes to authorize the FBR to transfer the registration of a registered person or any businessof a registered person to an area of jurisdiction where the place of business or registered office ormanufacturing unit is located.

A newsub rule (4) is introduced which states that change of nature of business fromindividual toAOP or corporate person shall be allowed when:

Transfer of individual business fromany person to his spouses or children or change innature of business fromindividual to AOPChange of nature of business fromAOP to corporate entity provided directors in thecorporate entity are the same persons who were members of AOP

For both cases mentioned above change shall be allowed by LROafter receiving verified documentsfromRTO. Whereby transfer of business or change in nature of business is due to any other reason,a newSales Tax Registration Number shall be issued.

Sub rules (1), (2), (3), (4) and (5) are substituted resultantly giving powers to Commissioner orBoard, instead of Collector, to suspend the registration or black list a person if they have reasonsto do so.

Rule 50B has been substituted which describes the procedure to be followed to avail the exemptionfacility for supply of locally produced goods against international tender. Procedure is same as wasfor availing zero rated facility, under rescinded rule, with one exception that the facility of exemptionhas been restricted to goods which become part of project to be completed or goods to be supplied.

It is substituted with newrule to replace "zero rated" with "exempt". This change has been made withan aimto hold illegal refunds.


35/64

A newrule 58MChas been inserted which states that steel melters and re-rollers who also supply stainless steel products otherthan billets, ingots and re-rolled MS products shall followstandard Sales Tax procedures and fixed taxes under this chapter shallnot be applicable to them.

S.R.O. 595(I )/2012

This S.R.O. seeks to make following amendments in S.R.O. 551(1)/2008:

Rawmaterial, component and subcomponents imported for using the in manufacture of goods to be supplied against internationaltenders are removed fromlist of exempted goods.Waste paper, re-meltable scrap, sprinkler equipment, drip equipment and spray pumps including supplies thereof have been exemptedfromthe ambit of Sales Tax.

Tax Handbook2012

25

Sales Tax Act, 1990

Rule Ref. Sales Tax Payable By

58 H

58 H(4)

58 Ha (2)

58 Ha (2)

58 I (1)

58 I (2)

58 I (3)

58 I (4)

58 I (5)

58 I (6)

Existing Sales Tax Rate Proposed Sales Tax Rate

Rs. 6 per unit of electricity consumed.

Rs. 848 per metric ton.

Rs. 1,972 per hundred cubic meter orHM3

Rs. 38,964 per inch of mill size

Rs. 5,526 per metric ton




Rs. 780 per metric ton

Rs. 7,308 per metric ton (registeredperson)Rs. 780 per metric ton (other thanregistered person)

Rs. 8 per unit of electricity consumed.

Rs. 6,700 per metric ton.

Rs. 1,900 per hundred cubic meter orHM3

Rs. 51,822 per inch of mill size





Rs. 1040 per metric ton

Rs. 9,651 per metric ton (registeredperson)Rs. 1,040 per metric ton (other thanregistered person)

S.R.O. 592(I )/2012

This S.R.O. seeks to make following changes in Sales Tax Special Procedure Rules 2007:

Sub rule(2) of rule 58E is omitted which would result in importers who do not claimany refund of excess input taxalso being subjectto audit.

Rules of Chapter XI has been substituted with newrules, in newrules Sales Taxrates has been revised with a viewto increase revenue,detail of such revision is as below:

Every steel-melter, steel re-roller andcomposite unit of aforesaid (having single

electricity meter)

Ship breakers

Steel melters (generating electricityusinggas generators)

Re-rolling mills (self generated electricity)

Re-roller

Registered person

DownstreamIndustry

Registered Person

Un-registered buyer

Registered person

Un-registered person


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Revision in Sales Tax Rates

Following newS.R.Os are introduced which seek to amend the old rates as given below:

Sales Tax Act, 1990

26

S.R.O

604(I)/2012

608(I)/2012

605(I)/2012

597(I)/2012

602(I)/2012

Import of soya bean as mentioned inS.R.O313(I)/2006

Import and supplies of black tea

Import of rapeseed and sunflowerseed

Billets and Ingots

Re-meltable scrap, sprinkler, dripequipmentcotton seed oil

7%

16%

15%

Rs. 55,000 &Rs. 60,000respectively

0%

Exempt

6%

5%

14%

Rs. 65,000 &Rs. 60,000 respectively(This has also been set at minimumvalue)

Exempt

0%

Description Previous Rate/Amount Proposed Rate/Amount


37/64

Tax Handbook2012

27

Federal Excise Act, 2005Federal Excise Act, 2005

First Schedule (Table I)

Federal Excise Duty on Excisable Goods Revised

The Finance Bill, 2012 seeks to revise rates of FEDfor certain excisable goods aligned with given pricing threshold as under:

Descripti on of Goods

9

10

11

13

Headings/Sub-

headings NumberPresent Rates Proposed Rates

Relevant

Reference

in Schedule

Locally produced cigarettes if theirretail price exceeds Rs. 22.86 per tencigarettes.

Locally produced cigarettes if theirretail price exceeds Rs. 13.36 per ten

cigarettes but does not exceeds Rs.22.86 per ten cigarettes.

Locally produced cigarettes if theirretail price does not exceed Rs. 13.36per ten cigarettes.

Portland cement, aluminous cement,slag cement, super sulphate cementand similar hydraulic cements, whetheror not coloured or in the formofclinkers.

24.02

24.02

24.02

25.23

65% of retail price (if retail priceexceeds Rs. 21 per 10 Cigarettes)

Rs. 6.04 per 10 cigarettes + 70%per incremental rupee or part thereof

(if retail price exceed Rs. 11.50 butdoes not exceed Rs. 21 per 10Cigarettes)

Rs. 6.04 per 10 cigarettes (if retailprice does not exceed Rs. 11.50 per10 Cigarettes)

Rs. 500 per Metric ton

65% of retail price (ifretail price exceeds Rs.22.86 per 10 Cigarettes)

Rs. 7.02 per 10cigarettes + 70% per

incremental rupee orpart thereof.

Rs. 7.02 per 10cigarettes

Rs. 400 per Metric ton

First Schedule (Table I)

Federal Excise Duty on Excisable Goods Withdrawn

The Finance Bill, seeks to withdrawthe FEDcharged on the following items:


22

23

24

25

Headings/Sub-


Relevant

Reference

in Schedule

Lubricating oil in packs not exceeding10 liters.

Lubricating oil in packs exceeding 10liters.

Lubricating oil in bulk (vessels,bouzerslorries etc).

Lubricating oil manufactured fromreclaimed oils or sludge or sediment,subject to the condition if sold in retailpacking or under brand names thewords manufactured fromreclaimedoil or sludge or sediment should beclearly printed on the pack.

2710.1951

2710.1952

2710.1953

Respectiveheadings

10% per Liter

10% per Litre

Rs. 7.15 per Liter

Rs. 2 per Liter

Nil

Nil

Nil

Nil


38/64


27

42

43

44

45

50

Headings/Sub-


Relevant

Reference

in Schedule

Base lube oil

Perfumes and toilet waters.

Beauty or make-up preparations andpreparations for the care of the skin(other than medicaments), includingsunscreen or sun tan preparations;

manicure or pedicure preparations

Preparation for use on the hairexcluding herbal hair oil and kalimehndi.

Pre-shave, shaving or after shavepreparations, personal deodorants,bath preparations, depilatories andother perfumery, cosmetic or toiletpreparations, not elsewhere specifiedor included; prepared roomdeodorizers, whether or not perfumedor having disinfectant properties(excluding agarbatti and otherodoriferous preparations which operateby burning).

Filter rods for cigarettes

2710.1993

3303.0000

33.04

33.05

33.07

5502.0090

Rs. 7.15 per Liter

10%of retail price if packed in retailpacking and 10% ad valoremif inbulk




20% ad val.

Nil

Nil

Nil

Nil

Nil

Nil

28


Pri cing Mechanism for Cigarettes Rationali zed

The Finance Bill, 2012 seeks to insert newconditions regarding variant of the existing brand of cigarettes, in order to avoid FEDevasion. The Billseeks to restrict the manufacturer or importer of cigarette to introduce or sell newcigarette brand variant of the existing brand family at a pricelower than the price of the existing variant cigarettes after the announcement of 2012-13 Budget.

The Bill also seeks to introduce a provision by virtue of which, a newbrand of cigarette could not be sold at a price which is more than 5% lower,than the price of a Most Popular Price Category (MPPC).


39/64


40/64


30

Notable Notifications:Withdrawal of FED Exemption S.R.O. 599(I ) / 2012

This S.R.O. seeks to amend Table in S.R.O. 474(I) / 2009, dated June 13, 2009 to withdrawexemptions in respect of following:


48

Headings/Sub-headings Number Restored Rate of DutyRelevant Reference

in Schedule

Viscose staple fibre Respective Headings 10% ad val.

FED on Air Ti ckets Rati onali zed S.R.O. 600(I ) / 2012

This S.R.O. proposes to amend Rule 41A of Federal Excise Rules 2005 by withdrawing excise duty on services provided by aircraft operators inrespect of travel by air of passengers embarking for Pakistan fromanywhere in the world.

By virtue of this S.R.O. excise duty chargeable on all international air tickets issued by airlines or through their agents for international journeyterminating in Pakistan has been withdrawn.

This S.R.O. proposed to substitute existing sub-rule (7) with a newrule as follow:

Existing sub-rule(7) Proposed sub-rule(7)

Where an airline operating in Pakistan uplifts passengers fromPakistan for another airline, the liability to charge, collect andpay Federal Excise Duty with respect to such passengers,shall be of the uplifting airline.

An air ticket issued for international travel covering more thanone destination on flights operated by one or more airlinesshall be chargeable to excise duty by the airline issuing theticket and shall be charged at the rate of excise dutyapplicablefor the farther destination in terms of distance fromPakistan.

As excise duty on international travel to Pakistan has proposed to be withdrawn, so such excise duty will not be called as Air Travel Tax (ATT).

S.R.O. 603(I) / 2012

This S.R.Orescinds 6 notifications already issued by Federal Government of Pakistan. A brief summary of the S.R.Os rescinded, matters discussedin themand the effect of rescission thereof is given hereunder:

Rescinded S.R.O Effect of Rescission

Rebate given of Federal Excise Duty, paid on base oil used in the manufacture of the motorlubricating oil for different automobiles

Fixing the minimumprice of lubricating oil in packs at US$ 2 per litre for the purpose of

assessment of excise duty at import stage (PCT headings 2710.1951 and 2710.1952)Rates of excise duty chargeable on the tickets issued for the services of travel by air oninternational journey originating fromPakistan to SAARCcountries, Middle East, SaudiArabia, Afghanistan, Europe, Far East, China, USA, Canada, Australia and South America

Exempting the import and supply of solvent oil (PCT heading 2710.1150) for manufactureof shoe adhesives subject to certain conditions

Exempting special Excise Duty levied on the tractor parts by registered vendors to themanufacturers of agricultural tractors

Levying FEDon facilities for travel services at specified rates

S.R.O. 807(I)/2005

S.R.O. 671(I)/2006

S.R.O. 777(I)/2006

S.R.O. 949(I)/2006

S.R.O. 1229(I)/2007

S.R.O47(I)/2012

Subject Matter of the S.R.O

Rebate withdrawn

Price determination as per

normal procedureRates withdrawn

Exemption withdrawn

Exemption withdrawn

Rates withdrawn


41/64


42/64

32

Customs Act, 1969

Adjudicating Jurisdiction and Powers of the Officers Changed Section 179(1)

The Finance Bill, 2012 proposes revision in the jurisdiction and powers of the officers of Customs in terms of amount of duties and other taxesinvolved thereby.

Departmental Appeals Allowed before Collector (Appeals) & Appellate Tribunal Section 193(1), 194 A

The Finance Bill, 2012 proposes that officer of Customs aggrieved by any decision or order passed by officer of Customs belowthe rank of AdditionalCollector may also prefer an appeal to Collector (Appeals) within thirty days of the date of communication to himof such decision or order.

The Finance Bill, 2012 proposes that any person or officer of Customs may prefer to file an appeal to the Appellate Tribunal against any order passedby any officer of Customs not belowthe rank of Additional Collector under section 179.

Electronic Auction for Sale of Goods Allowed Section 201

In the wake of growing trend of e-trading, the Bill proposes to allowthe mode of disposal of goods through electronic auctions.

Rewards for Meritorious Conduct Section 202 B

The Finance Bill, 2012 seeks to introduce the systemof award for those officers and informers who render meritorious conduct in cases involvingevasion of Customduty and taxes and confiscation of goods after the realization of whole or part of duty and taxes involved. The procedure of suchreward is proposed to be introduced by the Board by notification in the Official Gazette.

Condonation of Time Limi t Section 224

The Finance Bill, 2012 proposes to authorize the authorities to condone the time limit in complying with the procedural requirement whereby the

delay is beyond the control of the concerned person.

S. No.

(i)

(ii)

(iii)

(iv)

(v)

(vi)

Collector

Additional Collector

Deputy Collector

Assistant Collector

Superintendent

Principal Appraiser

-

without limit

not exceeding Rs. 800,000


-

-

without limit

not exceeding Rs. 3,000,000





Adjudicating Authori ty Existing Limi t Proposed Limi t


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Rates of Duty Reduced on Certain I tems S.R.O. 574(I )/2012

This S.R.O. seeks to amend Table-I of S.R.O. 567(I)/2006, dated June 5, 2006. By virtue of this S.R.O. Customduty on following items shall be leviedat reduced rate specified hereunder against each item.

Tax Handbook2012

33

Customs Act, 1969

23A

44A

4004.0020

3215.1190

3215.1990

3701.30204802.5700

9612.1010

3215.1990

S. No. PCT Code Descr ipt ion

Shredded tyre scrap

Black ink

Colour ink

CTP platesFully sensitized cheque paper

weighing 40 g/m2or more but

not more than 150 g/m2

Red bleed through ribbons for

dot matrix printers

Anti-forgery security printing ink

20%

20%

20%

10%20%

20%

20%

If imported by cement manufacturers

If imported by Printing Industry

Present Rate Proposed Rate

10%

10%

10%

5%10%

10%

10%

Condition

The notification also seeks to restrict the concession of Customs duty at 0% only to ambulances having following features:

Rear panel and rear step

Stretcher of 8 feet length in case of hiace type vehicles and 6 feet in case of mini-van type vehicles

Folding seats for 2-4 persons

Oxygen supply systemwith cylinder

Rotary lamp and siren

Fire extinguisher

Hooks for intravenous infusion giving sets / bottles

Small cabinet for medicines

Nebulizer, roomlight, examination light, wiring switch sockets 12Volt

Water resistant floor

Suction unit

Suspension systemof base vehicle to be spring and shock absorber type and not exclusively of leaf spring type

Permanent markings as ambulance on the front and rear of the vehicle

The S.R.O. further seeks to amend Table-III of S.R.O. 567(I) / 2006 dated June 5, 2006 by reducing the rate of Customs duty from10% to 5% on

87 pharmaceuticals ingredients.


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34

Customs Act, 1969

Exemption on Certain Items Withdrawn S.R.O. 577(I )/2012

This S.R.O. seeks to amend S.R.O. 482(I) / 2009, dated June 13, 2009 by substituting certain items in the table for levy of regulatory duty on importof goods.

1

6

6A

0802.8000

2403.1100

2403.1900

S. No. PCT Code Proposed

Rate of Regulatory

Duty

Areca nuts (Betel nuts)

Water pipe tobacco specified in

Subheading Note 1 of Chapter 24 of the

First Schedule to the Customs Act, 1969

Other (Newly Inserted)

10% ad valorem

15% ad valorem

15% ad valorem

Noti fi cation under Free Trade Agreements Rearranged

DTRE Scheme Rationalized S.R.O.601(I )/2012

This S.R.O. seeks to amend rule No. 297 and 305 of CustomRules, 2001 by attaching condition that DTRE facility shall be available to persons whomanufacture and export goods in accordance with the prevalent value-addition of the relevant industry, only if the value addition is not less than15%, and goods imported shall be utilized within twelve months, instead of twenty four months fromthe date of approval of DTRE application.

1

2

3

4

5

S.R.O. 582(I)/2012

S.R.O. 583(I)/2012

S.R.O. 584(I)/2012

S.R.O. 585(I)/2012

S.R.O. 586(I)/2012

S. No. Revising SRO (New) SRO Revised

Substituted Table-I and Table-II in respect of certain items importedinto Pakistan fromPeoples Republic of China under Free TradeAgreement (FTA)

Substituted Table-I and Table-II in respect of certain items importedinto Pakistan fromMalaysia under Free Trade Agreement (FTA)

Substituted Table-I and Table-II in respect of certain items importedinto Pakistan fromPeoples Republic of China under Free TradeAgreement (FTA)

Substituted Table-I and Table-II in respect of certain items producedin and imported fromIslamic Republic of Iran or the Republic of

Turkey and SAARCcountries imported into Pakistan under FreeTrade Agreement (FTA)

Substituted Table-I and Table-III and Table-IV in respect of certain

items imported into Pakistan fromSri Lanka under Free TradeAgreement (FTA)

Description

S.R.O. 659(I)/2007

S.R.O. 1261(I)/2007

S.R.O. 1296(I)/2005

S.R.O. 558(I)/2004

S.R.O. 570(I)/2005

Betel Nuts

Smoking tobacco, whether or not

containing tobacco substitutes in

any proportion

Existi ngDescription


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36

Miscel laneous Laws

Gas Infrastructure Development Cess Act, 2011

The Second Schedule

Increase in Rates of Cess Section 3(1)

The Finance Bill, 2012 seeks to increase the maximumrate of cess as follows:

Declarat ion under the Provisional Collection of Taxes Act, 1931

The provision of the Finance Bill, 2012 regarding the following matters shall be immediately applicable with effect from2nd June, 2012:

Service of showcause notice on a person for payment of tax or charge not levied, short levied or erroneously refunded, under theSales Tax Act, 1990, due to inadvertence, error, misconstruction or by reason of collusion or a deliberate act

Change in the rate of FEDon cigarette and cement and withdrawal of FEDon certain items specified in the First Schedule to theFederal Excise Act, 2005

Customs tariff as provided in the First Schedule to the Customs Act, 1969

1

2

3

4

5

S.No Exi sting Cess(Rs./MMBTU)

Sector Proposed Cess(Rs./MMBTU)

Fertilizer - Feed Stock (except for fertilizer plants having fixed price contracts)

Compressed Natural Gas (CNG)(a) Region - I

Khyber Pakhtunkhwa, Baluchistan &Potohar Region (Rawalpindi, Islamabad&Gujarkhan)

(b) Region - IISindh &Punjab (excluding Potohar Region)

Industrial (including Captive Power)

WAPDA/KESC/GENCOs

Independent Power Plants (IPPs)

197

141

79

13

27

70

300

300

200

100

100

100


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Tax Handbook2012

Tax Planning Guide

For Corporati ons & Indi vi duals


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49/64

Tax Handbook2012

Income TaxIncome Tax

Who is Requi red to Fil e a Return of I ncome?

Following persons are required to furnish a return of income for a tax year:

every companyevery AOPindividual whose taxable income for the year exceeds Rs. 400,000any non-profit organizationany person who

has been charged to tax in respect of any of the two preceding tax yearsclaims a loss carried forward under the Income Tax Ordinance for a tax yearowns immovable property with a land area of 250 sq. yards or more, or owns any flat located in areas falling within the municipallimits existing immediately before the commencement of Local Government laws in the provinces, or area in a Cantonment, orthe Islamabad Capital Territory. The following are excluded fromthis category:

widows orphans belowthe age of 25 years disabled persons non-resident Pakistanis in case of ownership of immovable property

owns immovable property with a land area of 500 square yards or more located in a rating areaowns a flat having covered area of 2,000 square feet or more located in a rating areaowns a motor vehicle having engine capacity above 1000cchas obtained National Tax Numberhas industrial and commercial electricity connection and the amount of annual utility bills exceed Rs. 1,000,000

Who is Requi red to File Wealth Statement?

Every resident taxpayer filing a return of income whose declared or assessed income is Rs. 1,000,000 or moreEvery resident taxpayer filing statement under FTR and has paid tax of Rs. 35,000

What Year End Can a Taxpayer Adopt?

Class of Person Tax Year Type Year End

Companies, Association of persons Normal Tax Year July 01 to June 30and Individuals

Sugar Special Tax Year October 01 to September 30

Banking and Insurance Companies Special Tax Year January 01 to December 31

Ginners, Rice huskers, Oil mills Special Tax Year September 01 to August 31

Shawl manufacturers Special Tax Year April 01 to March 31

37


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When to Fil e the Return of I ncome?

Status Year End Date of Fi ling Tax Year

Salaried Individual & June 30, 2012 August 31, 2012 2012Non-corporate Taxpayer (falling under FTR)

Other Individual &AOP June 30, 2012 September 30, 2012 2012

Company (including falling under FTR) June 30, 2012 December 31, 2012 2012

Company September 30, 2012 September 30, 2013 2013

Company December 31, 2012 September 30, 2013 2013

Who is Requi red to Pay Advance Tax?

Every business individual whose latest assessed taxable income excluding the presumptive tax income is more thanRs. 500,000

Every Association of Person

Every Company

Income Tax

38

When to Pay Advance Tax by an Indi vidual?

Individuals have to pay advance tax within 15 days after the close of each quarter.

When to Pay Advance Tax by an AOP or Company?

Period Quarter Payment Date

1st of July to 30th September September quarter On or before the 25th of September

1st October to 31st December December quarter On or before the 25th of December

1st January to 31st March March quarter On or before the 25th March

1st April to 30th June June quarter On or before the 15th of June


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Tax Handbook2012

Income Tax

39

Special Rebates

To Senior Ci tizens

A rebate of 50% of the tax payable is allowed to senior citizen who has attained the age of 60 years or above, provided his total income excludingFTR income does not exceed Rs. 1,000,000.

To Teachers and Researchers

A further rebate of 75% of taxpayable on salary income is allowed to a full time teacher or a researcher, employed in a non profit education orresearch institution recognized by a Board of Education or Higher Education Commission including Government training and research institution.

Minimum Tax

Minimumtaxis applicable to a resident company, AOP (having turnover more than 50 million) and individuals (having turnover more than 50 million)at the rate of 1% (in budget speech 2012, rate is proposed to be reduced to 0.5%) of turnover even if the business sustain losses except a companywhich has declared gross loss before depreciation and other inadmissible expenses.

Rate of Tax for Business Indi viduals and AOPs

The basic exemption limit for business individuals and AOPs is Rs. 400,000 and the varying slab rates range from10% to 25% as under:

0%


Rs. 35,000 + 15%of the amount

exceeding Rs. 750,000




Taxable income exceeding Rs. 400,000 butnot exceeding Rs. 750,000

Taxable income exceeding Rs. 750,000 but




Income Brackets Rates


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40

Income Tax

Marginal Tax Relief for Salaried Taxpayers

Where the total income of the taxpayer marginally exceeds the maximumslab limit, the income taxpayable shall be the taxpayable upto the maximumof the slab exceeded plus tax on marginal amount as under:

Income Bracket Marginal Taxable Amount

Where total income:

Does not exceed Rs. 550,000 20%

Does not exceed Rs. 1,050,000 30%



Exceeds Rs. 4,550,000 60%

Income Brackets






0%



Rs. 92,500 + 15%of the amountexceeding Rs. 1,500,000


Rates

Rate of Tax for Salari ed Individuals

The basic exemption limit for salaried individuals is Rs. 400,000 and the varying slab rates range from5% to 25% as under:


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42

Income Tax

Allowances and Tax Credi t

Section Particulars Concession M aximum Limit

60 Zakat Straight income deduction N/A

61 Charitable Donation Straight income Lower of amount of donations or:deduction / Tax credit 30% of taxable income in case of individual and AOP

20% of taxable income in case of company

62 Investment in Shares Tax credit Resident person other than company shall be allowedand Insurance Lower of:

total cost of acquiring shares / insurance premiums paid

20% of taxable incomeRs. 1,000,000

63 Approved Pension Fund Tax credit Lower of:total contribution or premiumpaid by individual20% of taxable income

64 Profit on Debt or Share Tax credit Lower of:total profit paid50% of taxable incomeRs. 750,000

65A If 90% of sales by the Tax credit 2.50% of tax payablemanufacturer are made tosales tax registered persons

65B Balancing, modernization Tax credit 20% of tax payableand replacement of plant &machinery fromJuly 1, 2011to June 30, 2016

65C Enlisting a company on Tax credit 15.00 % of tax payablestock exchange

65D Equity Investment Tax credit Equal to 100% of tax payable (Conditions

Documents

Final Tax HandBook 12-13