Finance Bill 2010 - Grant Thornton Pakistan · 2014-01-27 · Finance Bill 2010 This Memorandum summarizes an overview of economy for the year 2009-2010 and the important changes

Finance Bill 2010

This Memorandum summarizes an overview of economy for the year 2009-2010 and the important

changes proposed through the Finance Bill, 2010. It contain comments on the budget and on the

Finance Bill 2010, including Highlights, on the changes brought through the Income Tax Ordinance,

2001, the Sales Tax Act, 1990, the Federal Excise Act, 2005, the Custom Act, 1969, the Finance Act,

1989 and the Petroleum Products (surcharge) Ordinance, 1961. The amendments proposed through

the Income Tax Ordinance, 2001 and through other laws are intended to be effective once the

parliament has accorded it’s assent and thereafter, would be effective from July 01, 2010 i.e. tax

year 2011 unless otherwise indicated. Whereas certain provisions relating to income tax, custom duty,

excise duty and sales tax have been made applicable from June 05, 2010.

This Memorandum is intended to provide general guidance to the readers on the important changes

brought through the Bill and should not be considered as a substitute for specific advice relating to a

particular enactment. For considering the precise effect of a proposed change, reference should be

made to the appropriate wordings in the relevant statute and the notifications issued where relevant.

The Memorandum has been prepared exclusively for the use of our clients and staff , based

on information available with us till the time giving it for printing. Printing of this Memorandum, in any

manner, is strictly prohibited without seeking a written permission from the firm.

Anjum Asim Shahid Rahman

Chartered Accountants

June 06, 2010

Table of Contents

Budget at a glance 1

Overview of Economy 2009-2010 2

The Finance Bill 2010 – Highlights 7

Summary of changes in:

The Income Tax Ordinance, 2001 11

The Sales Tax Act, 1990 36

The Federal Excise Act, 2005 40

The Custom Act, 1969 43

The Petroleum Products (surcharge) Ordinance, 1961 46

Other laws 48

The Provisional collection of Taxes Act, 1931 49

Budget at a Glance

1

(Rupees in billion) 2010-2011 2009-2010 2010-2011 2009-2010 % % RECEIPTS Revenue Tax 1,779 1,513 64% 61% Non tax 632 514 23% 21% Gross 2,411 2,027 87% 82% Less: Provincial share 1,034 655 37% 26% Net revenue receipts 1,377 1,372 50% 56% Other Net capital receipts 325 190 12% 7% External receipts 387 510 14% 20% Self financing of PSDP by provinces 342 173 12% 7% Changes in provincial cash balance 167 73 6% 3% Privatization proceeds - 19 - 1% Bank borrowings 167 145 6% 6%

1,338 1,110 50% 44% TOTAL RECEIPTS 2,765 2,482 100% 100% EXPENDITURES

Current General public service 1,388 1,189 50% 48% Defence affairs and services 442 343 16% 14% Public order safety affair 51 35 2% 1% Economic affairs 67 85 2% 3% Environment protection - - - - Housing and community 2 1 0% 0% Health affairs and services 7 7 0% 0% Recreational and culture services 4 4 0% 0% Education affairs services 35 31 1% 1% Social protection 2 4 0% 0% Total current expenditures 1,998 1,699 71% 68% Development PSDP Federal government 290 446 11% 18% Provincial government 373 200 14% 8% Estimated operational shortfall (20) (20) (1)% (1%) Other development expenditures 124 157 5% 6% Total development expenditures 767 783 29% 32% TOTAL EXPENDITURES 2,765 2,482 100% 100%

Overview of Economy 2009-2010

2

Economic Review

GDP Growth Rate – growth despite downturn

• Pakistan’s economic growth experienced a significant slowdown in previous years however

marked improvement witnessed in 2009-10 with significant increase in growth rate on the back of effective economic measures

• Major challenges to sustain growth trends continue to be :

Cumulative policy-induced macro-economic imbalances Deterioration in Pakistan’s net external terms of trade

Continuation of global financial crisis more particularly Europe resulting in reduced external

demand for exports

Non-availability of external capital to finance its current account and fiscal deficits • The Government continues to proactively seek external assistance to support Pakistan’s economy

with both military and economic aid as well as seeking better terms with multilateral financial institutions

• Per capita income trends reflecting similar patterns of growth and improvement on the back of

improved economic growth rates


3

• Agriculture sector exhibited considerable improvement in growth in FY 2008-09 however

turnaround in manufacturing sector resulting in decreased reliance for growth • Services sector continued to be the largest contributor to GDP with an overall contribution of 59%

during 2009-10. Finance and insurance, wholesale and trade, and telecommunication are the main components propelling growth for the sector

• In FY 2009, manufacturing sector presented a dismal performance with a negative growth rate

(-3.3%) and contraction in contribution to GDP. Effective policy initiatives during this year resulted in turnaround in the sector however continued inflation, rising input costs and energy crisis will continue to hamper growth within this sector.

• No specific measures focused towards increase and growth for the manufacturing sector are proposed and thereby considering the slowdown in the global markets, the sector growth will continue to remain under pressure

• Inflation figures had remained high, however

it reached peak levels in FY 08 -09, with rising commodity prices in global markets and continued devaluation of Pak Rupee against the US dollar

• In spite of tight monetary policy, growth of

Consumer Price Index (CPI) hit a high of 25.3% in August 2008, however has since been following a downward trend.

• Proposed measures in the Budget pertaining to increase in withholding tax on imports as well as well as increase in sales tax rates by one percent are bound to further increase inflation.

• Other measures pertaining to additional levies and increase in prices of gas will impact the overall

cost of production and thereby the increase will be factored in pricing thereby increasing inflation.

Sector contribution to GDP growth Sector Contribution (%) to GDP

CPI ‐ Annual Average


4

• The current account after having shown

continuous expansion in previous years, contracted considerably in FY 09 and FY 10. Improvement in trade balance supported by strong growth in remittances allowed contraction in current account deficit.

• With economic activity showing gradual

recovery, imports are expected to rise with a pick up in domestic demand, revival of large scale manufacturing sector and resolution of circular debt problem would support production activities in energy sector.

• Current Account balance is expected to

remain negative in near future with exports being expected to grow at an anemic rate however improvements in global markets may help ease pressure of the current account balance .

• Continued increase in external debt in past two years implies an increase in the current account and fiscal deficit.

• Proactive seeking of external funding by the

government for the stabilization program, both from the IMF, other IFIs and bilateral sources, has also raised the external debt.

• Moreover, reliance on external funding is

furthered by lack of privatization initiatives by the government. The futile attempts of privatization of strategic assets by the previous government at unfavorable terms, was being used for funding the current account balance by the previous government.

Current Account Balance

Total External Debt


5

• Pakistan has been an attractive market for

foreign investment and has seen considerable increase in previous years however FDI Inflows have declined considerably in the previous years

• Reasons behind continued fall in FDI inflows in FY09 and F10 are worsening of global economic climate and deteriorating security environment.

• No specific measures in the current budget have been announced or are focused towards increase in FDI and therefore considering the global economic situation and the regional security environment FDI inflows will continue to remain subdued

• Workers remittances are a major source of foreign exchange earnings and keeping current account balance at a manageable level.

• Workers remittances had shown continued improvement however overall effect of the slowdown in global markets can now be witnessed with a reduction of 16% of remittances through normal banking channels.

• Reduction in remittances will put further pressure on the current account balance and exchange reserves.

• FY 10 witnessed on an overall contraction in both exports and imports on the back of overall global economic slowdown, lower oil prices and imposition of taxes on certain imports.

• Overall export base continues to be extremely limited thereby rendering the economy vulnerable to global slowdown in demand for specific commodities.

• Current measures with withholding tax on imports will keep further check on imports although will impact rising domestic prices.

• Improvement in current account deficit may continue although vulnerability of exports and crisis in Europe may significantly impact major export commodities thereby keeping balance of trade under pressure.

Balance of Trade

Foreign Direct Investment

Remittances

2006 2007 2008 2009 2010


6

• FOREX reserves have shown marked

improvement during the year FY 10 on the back of financial assistance from IMF, other IFIs and bilateral sources including USA and EU.

• The government is also proactively seeking aid and financial assistance from external sources and overall aid inflows for both military and economic assistance should continue to maintain and improve existing reserves.

FOREX Reserves

• Karachi Stock Exchange (KSE) had been outperforming other regional markets and KSE-100 index showed consistent progress since 2002 as it registered a healthy CAGR of 136% during 2002-2007.

• A number of factors like tight monetary

policy, liquidity crunch in the banking system, regulators decision to impose a floor for about three and half months on KSE 100 index and weakness in corporate earnings adversely affected the stock market performance in FY 09 and FY 10.

KSE 100 Index

• FDI to Pakistan has been particularly impacted by the prevalent security concerns and law and order

• Current measures of imposition of Capital Gains Tax on trading for shares held less than six

months and less than one year may impact liquidity in the market which may result in reduction in trading volumes

• Other measures such as lower rates of taxes on newly listed companies and tax relief on BMR will

encourage listing and investment thereby providing long term positive impact • Overall measures are focused toward providing more stability to the stock market, promoting long

term investment and reducing speculation

Finance Bill 2010 - Highlights

7

Income Tax • The basic threshold of total income not liable to tax is proposed to be enhanced from the present

limit of Rs.200,000 to Rs.300,000 in respect of salaried taxpayers whereas in respect of non-salaried taxpayers, such limit is proposed to be increased from Rs.100,000 to Rs.300,000

• The rate of advance tax deductible from monthly electricity bills of commercial or industrial

consumers is proposed to be reduced from 10% to 5%

• The income of senior citizens of the age of 60 years or more are currently enjoying reduction in tax liability by 50% provided their total income does not exceed Rs.750,000. This threshold is proposed to be increased to Rs.1,000,000. However, this relief shall not be available on income which is subject to final tax regime

• In pursuance of Prime Minister’s Relief Package to rehabilitate the economy of Khyber

Paktunkhwa, FATA and PATA, some amendments are proposed to be introduced in the Income Tax Ordinance. These measures provide following reliefs to industrial and commercial taxpayers hailing from most and moderately affected areas, which are summarized as under:

waiver of entire amount of default surcharge & penalties till June 30, 2010 subject to payment

of the principal dues;

exemption from withholding tax on electricity bills for the tax years 2010 and 2011; exemption from withholding tax on exports; and

exemption from advance tax on import of plant and machinery up to June 30, 2011;

However these concessions shall not be available to the manufacturers and suppliers of cement, sugar, beverages and cigarettes industries

• It is proposed not to tax perquisites on account of loan availed at concessional rates where the

employee does not take interest on deposit with the employer. • A tax credit @ 10% of the tax payable is proposed to be allowed to a listed company in the

purchase of a plant and machinery for installation or for the purposes of BMR in an industrial undertaking upto the year June 30, 2015;

• A tax credit equal to 5% of the tax payable is proposed to be allowed to a company in the tax

year of its enlistment in any registered stock exchange in Pakistan as a measure of encouragement.

• A 10% withholding tax deducted on government securities, PIBs and other debt instrument is

proposed to be a final tax on such income including in the hands of companies.

• For providing incentive to foreign lenders for tax-free repatriation of profits earned on foreign industrial loans, Clause 72(iii) of Part-IV of Second Schedule to the Income Tax Ordinance 2001 is proposed to be re-introduced.


8

• The maximum rate of withholding tax on payments made to the non-resident taxpayers which are not subject to Avoidance of Double Taxation Treaties (other than payments made on account of royalty, fee for technical services and payment subject to withholding of tax u/s 152 of the Ordinance is proposed to be reduced to @ 20% as against@ 30% currently applicable.

• The rate of withholding tax @ 20% currently applicable on cross-word puzzles, prizes, raffle and

winnings on quiz is proposed to be reduced to 10%; • A flat rate of tax for AOPs is proposed to be @ 25% of their taxable income. AOPs were earlier

taxed at progressive rates with a maximum rate of tax @ 25% of total income.

• Advance tax deductible on imports made by commercial importers is proposed to be increased to @5% as against 4% earlier being final tax liability.

• Capital gains on the sale of shares of listed companies held for less than one year are proposed

to be brought under the tax regime at varied rates. • Advance tax deductible on goods transport vehicles is proposed to be charged to tax @ Re.1 per

kilogram of the laden weight capacity of goods transport vehicle instead of subject to tax at slab rates.

• In addition to cash withdrawals from banks, various banking transactions including modes like

withdrawals through Demand Draft, Pay Order, Online Transfer, Telegraphic Transfer, TDR, CDR, STDR and RTC, are proposed to be subject to withholding of tax with an enhanced rate of withholding @ 0.3%.

• Turnover tax on loss making companies is proposed to be enhanced to @ 1% as against @0.5%

earlier. Individuals and AOP having turnover of Rs. 50,000,000 or more are also proposed to be subject to levy of minimum tax @1% of the turnover.

• Withholding tax on gross value of inland air ricket is proposed @ 5% adjustable in nature. • The mandatory requirement of filing of wealth statement along with its reconciliation thereof is

proposed by the taxpayers being assessed under the fixed tax regime with yearly tax increasing to Rs.35, 000 as against a threshold of Rs. 20,000 earlier

• In order to enhance the categories of withholding tax agents, persons made responsible to

withhold tax at source being ‘Prescribed Persons’. Individuals with turnover of Rs.50 millions or above is also proposed to be included in the category of prescribed person responsible to withhold tax at source.

• Income from rental income is proposed to be outside the ambit of final tax regime. The tax rates

on rental income, however, remained unchanged

• Advance tax on capital gains is proposed to be payable on the transactions of listed securities on a quarterly basis.

• Monthly withholding tax reporting are proposed to be substituted with e-filing of quarterly

statements.


9

On merger of Investment Corporation of Pakistan with Industrial Development Bank, the exemption available to ICP on dividend income is proposed to be withdrawn.

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

2001 available to Vanaspati Ghee or Oil is proposed to be withdrawn, in view of demise of SRO. 593(I) 1991 Dated 30th June 1991.

Sales Tax Act, 1990 • Enhancement in the general rate of sales tax from 16% to 17% • Increase in tax rate on import of soyabean seed by solvent extraction industries from 6% to 7% • Enhancement in rate of tax on import of rapeseed by solvent extraction industries from 14% to

15% • Automatic enhancement of rate of tax on supply of natural gas by gas companies from existing

25% to 26% • Withdrawal of powers of Commissioner to delegate his authority to subordinate officers • Commissioner, in addition to Board, is authorized to appoint a chartered accountant, a cost

accountant to conduct audit. Similarly, Commissioner can also authorize any officer to have free access to business premises

Federal Excise Act, 2005 • Increase in rate of Federal Excise Duty on Natural Gas from Rs. 5.09 per MMBTu to Rs. 10 per

MMBTu • Upward revision of Federal Excise Duty on cigarettes • Levy of Federal Excise Duty @ Rs. 1 per filter rod of cigarettes • Levy of 10% Federal Excise Duty on electricity intensive home appliances • Withdrawal of restriction on adjustment of Federal Excise Duty paid on beverage concentrate

enforced through notification Customs Act, 1969 • Reduction of customs duty on crude palm oil from Rs.9,000 MT to Rs.8,000 MT • Exemption of customs duty on import of photographic plates and film for X-ray to reduce the cost

of medical diagnoses for general public • Reduction of duty to 5% on pharmaceutical raw materials and drugs • Reduction of duty on equipment for dedicated use of renewable energy to encourage use of

renewable energy resources


10

• Reduction of duty on raw materials for laundry soap and detergent • Concession of customs duty on import of Road Sweeping Lorries to increase efficiency of

municipal and local governments • Exemption of customs duty on import of fully dedicated LPG buses and dispensing equipment to

encourage use of cheaper environment friendly fuel • Exemption of customs duty on import of raw materials/components for energy saving lamps to

support local manufacturers • Exemption of customs duty and sales tax on rice processing machinery to boost value addition

and export of rice • Reduction of duty on raw materials of leather and glass industries • Reduction of duty on secondary quality tin mill black plate for manufacturers of tin plate to reduce

their manufacturing cost • Exemption of duty on milk filters to support dairy industry • Rationalization of duty on glucose and glucose syrup, adhesives and. prepared industrial colours, • Inclusion of LED T.V. in industry specific concessionary regime to encourage local manufacturing • Levy of 5% concessionary duty on copper & aluminum tubes and electro galvanized steel sheets • Valuation formula for export simplified by including regulatory duty instead of export duty in

section 25 • The value determined by custom officer to be applicable until and unless the same is revised,

superseded or rescinded by the competent authority • Concept of review application before Director General Valuation introduced against values

determined by Director Valuation or Collector of Customs. Application is required to be filed within time period of 30 days from the date of determination of customs value. Such review order is subject to appeal before Appellate Tribunal

• To curb the tendency of misdeclaration in self assessment, appropriate measures introduced • Facility of filing of goods declaration after examining the goods is now restricted to used goods

only • Time limit imposed to finalize the cases of provisional assessment within three months • General penalty rate enhanced to Rs.50,000 • Enhancement of penalty to the extent of twice the value of the offending goods besides the

confiscation of goods for violation of Section 128 and 129 of Customs Act, 1969

Summary of changes in the Income Tax Ordinance, 2001

11

Section Tax Administration Through Presidential Ordinance, Internal Revenue Services (IRS) has been created. The Federal Board of Revenue (FBR) is undergoing a comprehensive program of tax administration reforms. The tax reforms program envisaged a functionally integrated tax administration of Sales Tax, Federal Excise and Direct Tax.

2, 205, 207, 208, 209, 210, 211, 215, 217, 239, 239B

With this background, the Finance Amendment Ordinance, 2009 was Promulgated on October 28, 2009 by the President of Pakistan. As the same could not be approved by the National Assembly, it expired after four months. After its expiry, the Federal Government has intended to re-promulgate the Finance Ordinance, 2010 but failed. Instead of presenting this Ordinance separately for approval and adoption by the National Assembly, the changes stipulated thereon, are now proposed to be made as part of this bill. The changes relate to, wherever considered necessary, renaming institutions as well as re-designating the tax authorities given in the Income Tax Ordinance, 2001. These are now proposed to be modified with a view to harmonize functions whereby an Officer of Inland Revenue is able to exercise powers under the aforementioned laws.

Existing Proposed (i) Bodies Income Tax Appellate Tribunal (ii) Tax Authorities

Appellate Tribunal Inland Revenue

Central Board of Revenue Board Regional Commissioner of Income Tax

Chief Commissioner Inland Revenue

Commissioner of Income Tax Commissioner Inland Revenue Commissioner of Income Tax (Appeals)

Commissioner Inland Revenue (Appeals)

Additional Commissioner Inland

Revenue Deputy Commissioner Inland

Revenue


12

Section

Existing Proposed Assistant Commissioner Inland

Revenue Taxation Officer Officer Inland Revenue Special Officer Inland Revenue.

Inspector Inland Revenue (iii) Terminology Additional tax Default surcharge A new clause is proposed to be inserted in section 2 which provides for the definition of ‘Officer of Inland Revenue’. This is to mean any Additional Commissioner Inland Revenue, Deputy Commissioner Inland Revenue, Assistant Commissioner Inland Revenue, Officer Inland Revenue, Special Officer Inland Revenue or any other officer, however designated, or appointed by the Board.

2(38 A)

To give effect to the above substitutions and insertions, consequential amendments are also proposed in the various relevant sections of the Income Tax Ordinance, 2001 to effect the change in the existing nomenclature of the taxation authorities. Further through section 239B, it is proposed to insert modifications which provides for making reference to the tax authorities as appearing in the notifications, orders, circulars or clarifications or any other instruments to be construed as reference to the tax authorities as appearing after the proposed substitutions. Definition of “industrial undertaking” The bill seeks to fine tune the definition of ‘industrial undertaking’ in a more clear and descriptive manner.

2(29C)

Association of persons (AOP’s) are to be taxed differently The proposed amendment seeks to tax an Association of Persons at a flat rate of 25% instead of progressive slabs as earlier. These slab rates are now applicable to the’ individual taxpayers only:

4, Division 1B, Part 1 of First

Schedule


13

Section

Taxable Income Rate of tax. %

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

0

2. Where the taxable income exceeds Rs.300,000 but does not exceed Rs.400,000

7.50

3. Where the taxable income exceeds Rs.400,000 but does not exceed Rs.500,000.

10

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

12.50

5. Where the taxable income exceeds Rs.600,000 but does not exceed Rs.800,000

15.00

6. Where the taxable income exceeds Rs.800,000 but does not exceed Rs.1,000,000/-

17.50

7. Where the taxable income exceeds Rs. 1,000,000 but does not exceed Rs.1,300,000

21.00

8. Where the taxable income exceeds Rs.1,300,000.

25.00

The proposed change has the effect of enhancing the tax liability of an AOP. The rate applicable to AOPs falling under the “normal tax regime” will be the same as is proposed for a small company. AOP’s having lower income threshold i.e. below Rs.1.3 million will be adversely affected with the proposed change. Notwithstanding the proposed change, if AOP’s income was earlier falling under the final tax regime, it will continued to be taxed accordingly. Waiver of notional interest

13(7)

Since the promulgation of the Income Tax Ordinance, 2001, the benefit of loans to employees at zero rates or at a rate below the benchmark rate was subject to tax at the difference of actual and the benchmark rates. The bill proposes to provide for exemption to this deemed income arising to an employee where he/she opts not to earn any interest on any balance held with the employer. In other words, such an employee may not to be taxed on the notional basis on the amount of loan availed from his employer at nil interest or at the rate lower than the benchmark rate. The proposed amendment appears to be fair and equitable.


14

Section Capital gains on trading of listed securities brought under tax Presently capital gains of unlisted companies are subject to tax at three/fourth of the amount of the gains, if held for more than one year. The proposed amendment seeks to restrict this concession in respect capital gains of unlisted shares by inserting words “other than shares of public companies including vouchers of Pakistan Telecommunication Corporation, Modaraba certificates or instruments of redeemable capital”, The shares of listed securities are now proposed to be taxed as a separate block of income taxable at varied rates subject to period of holding. It is for the first time tax on capital gains on the sale of shares of public companies, vouchers of Pakistan Telecommunication Corporation, Modaraba certificates or instruments of redeemable capital is proposed to be introduced. The proposed rates of tax are as under:-

37(3)&37A & Division VII of Part I of First

Schedule

Tax Year. Proposed Rate of tax.

% 1. Where holding period of a security is

less than six months. 2010 10

2011 10 2012 12.5 2013 15 2014 17.5

2. Where holding period of a security is more than six months but less than twelve months.

2010 7.5

2011 8 2012 8.5 2013 9 2014 9.5 2015 10

Capital gains arising to the long term investors, holding securities for over one year, shall continue to be exempt from tax. The gains net of all capital losses and expenditure incurred in earning such gains, in particular the financial charges, brokerage and commission paid or any other expenditure wholly and exclusively incurred in earning such gains, shall be allowed in arriving at the capital gains as a separate block of income. The capital losses shall also be available for set-off against the capital gains.


15

Section Tax credit for investment

65B

A new section is proposed to be inserted in the Ordinance to provide for an incentive to an industrial undertaking as a tax credit @ 10% of the tax payable in the year of incurring expenditure on investment in respect of purchase of plant and machinery for installation for the purpose of balancing, modernization and replacement in an industrial undertaking. This incentive will be available to the taxpayer on such expenditure incurred between July 1, 2010 and ending on June 30, 2015.

The Commissioner Inland Revenue is empowered to revoke the tax credit incorrectly availed by way of re-computation of tax payable for the relevant tax year, if it is discovered that any one or more of the conditions specified in this section were not fulfilled while availing tax benefit and that the tax credit was wrongly claimed or allowed. It appears that such powers shall be invoked by the Commissioner under the provisions of section 122 of the Ordinance.

Tax credit on listing on Stock Exchange 65C

A new section is proposed to be added in the Ordinance whereby the existing un-listed companies, if listed on any of the Stock Exchanges in Pakistan shall be allowed, a tax credit of 5% of the tax payable in the tax year in which the company is listed. This incentive is proposed as an encouragement to promote invitation for public subscriptions by the unlisted entities.

Income tax – first charge on estate of deceased 87(2A)

A new sub-section is proposed to be added whereby the state has a first charge on the unpaid taxes of the deceased individual on his/her estate. The proposed amendment appears to be more clarificatory in nature as income tax, being a government levy, was always considered as a first charge on the estate of deceased even when an immovable property or asset is subject to mortgage in favor of the lender.

Addition of unexplained income or assets 111

Presently unexplained income or assets are subject to tax in the immediately preceding financial year in which such an asset or expenditure is discovered by the Commissioner. The proposed amendment seeks to tax such income or assets in the tax year to which such amount relates.

The bill seeks to remove existing limitations of five years for taxing unexplained income or assets. However, as the period of limitation provided under section 122 remains in field, no such additions beyond the period of five years can be considered valid or legally maintainable relevant for making an amendment of assessment. The taxation officer, is most likely to interpret this in his favor on the plea that after the proposed withdrawal of clause (b), there does not exist any time frame to make addition under the aforesaid provisions.


16

Section Minimum tax 113(1)(e) & (2) The rate of minimum tax is proposed to be enhanced from the current one-half percent of turnover to one percent of turnover. The following taxpayers are proposed to be included in the list of persons for the purpose of levy of minimum tax:

a) an individual who has turnover up to Rs. 50 million or above for the tax year 2009 or in any subsequent tax year; and

b) an Association of Person having turnover of Rs. 50 million or above in the tax year 2007 or in any subsequent tax year.

The aforementioned tax years of 2009 and 2007 for individuals and AOPs respectively is for the purpose of levy of minimum tax from the tax year 2011. Revision of return 114(6)(6A) Under the provisions of the Income Tax Ordinance, 2001, a taxpayer had the right to revise the return without any condition. However, through the Finance Act, 2009, three conditions for revision of the return were stipulated whereby (i) tax payer had to furnish alongwith the revised return revised audited accounts; (ii) reason of revision of return and (iii) revision of return could only be made before issuance of the show-notice for making amendment of an assessment. The bill proposes further amendment in section 114(6) by retaining two conditions for revising, the return of income i.e. furnishing of revised accounts or audited accounts with the revised return and the reason for revision. However, the condition of revising return after issuance of show-cause notice has been removed with certain penalties such as:

a) where tax payer revises his / her return of income, after receipt of show-cause notice under section 177 but before issuance of notice for amendment of an assessment under Section 122(9) he shall be required to make payment of difference of tax, default surcharge and 25% of applicable penalties under the Ordinance; or

b) where a tax payer revises his / her return of income after receipt of show notice for making amendment of assessment under section 122(9) but before passing of an amendment order, he shall make payment of difference of tax, default surcharge and 50% of leviable penalties under the Ordinance.


17

Section With the aforesaid changes, an anomaly has been created as the word “leviable penalties” has not been explained as to which particular penalty is voluntarily required to be paid by the tax payer. With the proposed change in section 182, several provisions for imposition of penalty have been provided. It is not clear whether all the aforesaid penalties are voluntarily required to be paid or only any one or two of the above would suffice. This requires clarity in the Finance Act 2010 by way of an explanation otherwise unnecessary tax litigation will trigger as the taxation officers, in the interest of raising revenue, will not accept the revised returns on the basis that such revised returns do not qualify for acceptance as deemed order under section 120 of the Ordinance. Provisional assessment A new Section 122C is proposed to be added which empowers the Commissioner to make a provisional assessment on the basis of available information or partial information according to the best of his judgment. In the Repealed Ordinance, 1979 similar provision existed where a person who failed to furnish the return of income, in response to issuance of a notice, may receive a provisional assessment. This provision was however, not included in the Income Tax Ordinance, 2001. This proposed insertion empowers the tax authority to raise the tax demand on a person, who in the opinion of the Commissioner, is liable to tax but has not complied with the provisions of law. However, where a person, within sixty days of passing of the provisional assessment, files the tax return along with wealth assessment and wealth reconciliation statement, then in such a case provisional assessment shall not be treated as final assessment and return filed by the person would constitute deemed assessment order under section 120 of the Income Tax Ordinance, 2001. Therefore the tax demand raised as a result of provisional assessment will not be pressed by the tax department under the proposed proviso in section 137 of the Income Tax Ordinance, 2001. Consequently 121(1) (a) is also proposed to be omitted which provides for finalization of assessment where a person fails to furnish a return of income in compliance to notice under sub-section (3) or (4) of Section 114. However, after proposed insertion of section 122(c), this sub-section would become redundant.

116(2A),121A, 122C, 122(3) &

137(6)

Power to amend assessments which were subjected to appeals 122(5AA) The proposed insertion of new sub-section seeks to provide retrospective powers effective July 01, 2003 to the Commissioner to amend or further amend an assessment order under the provision of section 122(5A) where appeals have been filed or decided against the amended order of the Commissioner in respect of any point or issue which was not the subject matter of the appeal.


18

Section The proposed insertion is intended to protect the interest of revenue against the theory of merger being agitated by certain appellant taxpayers. Where amended assessments were subject to appeals, it was the contention of appellants that under the provision of the Income Tax Ordinance, 2001, there exist no parallel provisions of section 66A(1A) of the Repealed Income Tax Ordinance, 1979. Therefore once an appeal has been decided, the amended order merges with the appellate order, hence cannot be subject to further change. This amendment has been proposed to offset the argument of the taxpayers. For the purposes of exercising the above powers, the Commissioner would be required to give reasons in writing to call for records or documents including the books of accounts of the taxpayer. Further the Commissioner shall also be required to communicate to the taxpayer while calling for the records or documents including the books of accounts of the taxpayer. As per sub-section (2) of the section and on the basis of record obtained, the Commissioner may call for further information or documents as he may deem appropriate or where necessary record is not maintained, the Commissioner shall conduct an audit covering examination of accounts and records, making enquiry into incurrence of expenditure, reviewing of the assets and liabilities of the taxpayer or any other person. The proposed amendment also puts limitation on the Commissioner to invoke these proceeding within a period of six years from the end of the tax year to which these matters relate. Filing of wealth statement 115(4B), 116(4) The proposed omission of sub-section (4B) of section 115 is proposed to be shifted in section 116(4) with certain changes, whereby every person other than a company, filing the statement under section 115(4) and having tax deduction of Rs.35,000 or more, is also required to file a wealth statement along with wealth reconciliation. Before the proposed change, the limit for filing the wealth statement under the omitted sub-section was Rs.20,000. Filing of return and statement 118 Presently, the requirement for filing a return of income of any person other than a company, an employer’s certificate of an employee or statement required under section 115(4) is required to be furnished on or before September 30 each year. The proposed change seeks to revise the above period as follows:

a) on or before September 30, in the case of a return of income of any person other than a company, to which tax year it relates.


19

Section b) August 31 each year in case of a annual statement of deduction filed by an

individual, return of income through e-portal in case of a salaried person and statement required under Section 115(4).

In other words, a period of one month is shortened for filing particulars of salaried class of tax payers as well as for persons filing statements under section 115(4) of the Ordinance on income falling under the final tax regime. Qualification for appointment of accountant member 130 (4) The proposed amendment seeks to substitute sub-section (4) by stipulating the qualification of an accountant member of an appellate tribunal in addition to a Regional Commissioner, the rank of Commissioner Inland Revenue(Appeals) having experience of at least 5 five years as Commissioner or Collector. It is interesting to note that there is no position of Regional Commissioner in the Income Tax Ordinance 2001 as the bill seeks to change this designation as Chief Commissioner Inland Revenue. Estate in bankruptcy 138B A new sub-section is proposed to be inserted whereby if a taxpayer declares bankruptcy, the tax liability under the Ordinance shall pass on to the estate in bankruptcy. If the tax liability is incurred as estate in bankruptcy the tax shall deemed to be current expenditure in the operation of the estate in bankruptcy and shall be paid before the claims preferred by other creditors. Advance Tax 147 The following changes are proposed for the purposes of payment of advance tax:

a) individuals – the minimum threshold for payment of advance tax by individuals is proposed to be enhanced from Rs 200,000 to Rs. 500,000

b) exemption on payment of advance tax on capital gains is proposed to be

withdrawn c) the basis for payment of advance tax by AOPs are proposed to be same as

applicable for companies d) the dates for payment of advance tax for companies and AOPs are

proposed to be 25th day for September, December and March quarters, of each respective month whereas for the quarter ended June, the date is proposed to be 15th June.


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Section e) advance tax on gain on sale of securities will be paid as follows:

i) where holding period of security is six month, @2% ii) where the holding period of security is more than six months and less

than year, 1.5%. The dates of payment for advance tax will be seven days after the close of each quarter. It appears that there is inadvertent mistake that the bill does not specify on what basis advance tax will be paid by the taxpayer earning the capital gains. Import of edible oil and packing materials outside in final tax regime 148 (7) The above proposed change is a clarificatory amendment to remove an ambiguity that the importers of edible oil and packing material do not fall under the final tax regime rather tax collected at source will be advance tax adjustable against the final tax liability. Profit on debt under FTR 151(4) A new sub-section is proposed whereby final tax regime is stipulated in respect of profit on debt, other debt instruments, government securities and Pakistan Investment Bonds. At present, return on such securities are taxed @ 10% as full and final discharge of tax liability in the hands of a taxpayer other than a company except return on Federal Government, Provincial Government or Local Authority securities. Now this distinction is proposed to be eliminated and all categories of taxpayers are eligible to fall under FTR on such income. Individuals prescribed as withholding tax agents 153(9)(h) The bill seeks to propose individuals having turnover Rs. 50 million or above in tax year 2009 or in any subsequent tax years as withholding tax agents. In previous years, such an attempt was also made for individuals having turnover of Rs.25 million on but were not made part of the Act when bill was enacted.


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Section Income from property The proposed amendment seeks to exclude income from property from final tax regime. The rates of tax on income from property continue to be same as provided in Division VI, Part I of the First Schedule to the Ordinance at the gross value of the rent. Consequential amendment has also been made in section 169. However, no consequential changes have been made in section 15(6) read with Division VI of Part I of the First Schedule. There appears to be an inadvertent error as proposed insertion of reference of section 15 in sub-sections (3) of section 169 whereas property income is proposed to be excluded from sub-section (1) of section 169. With the proposed changes, we are of view that if the person has loss, property income can be set-off against such loss under any other head of income other than capital loss and speculation loss.

155(2), 169(1)(b) & 169(3)

Quarterly withholding tax statement 165

The proposed amendment seeks to withdraw the requirement of filing of monthly and annual statements and in lieu thereof requires the withholding agents to file quarterly statements on:

a) for September quarter on or before, 20th day of October

b) for December quarter on or before 20th day of January

c) for March quarter, on or before 20th day of April; and

d) for June quarter on or before the 20th days o July

The bill further seeks to cast an obligation on withholding agents to file “nil” statements for the period where no withholding tax deduction was made.

Clarification of deemed assessment 169

The proposed insertion of an explanation seeks to clarify the existing expression “an assessment shall be treated to have been made under section 120” means:

a) the Commissioner shall be taken to have made an assessment of income for that tax year, and the tax due thereon equal to those respective amounts specified in the return or statement under sub-section (4) of section 115; and


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Section b) the return or the statement under sub-section (4) of section 115 shall be

taken for all purposes of this Ordinance to be an assessment order. Retention period of record 174 The proposed amendment seeks to enhance the retention period of record from five to six years and a proviso is proposed to be inserted to make it mandatory on the taxpayer to maintain the record till the proceedings pending before any authority or Court are concluded. Pending proceeding have also been stipulated to include proceedings for assessment or amendment of assessment, appeal, revision, reference, petition or prosecution and any proceedings before an alternative dispute resolution committee. Appointment of firm of chartered accountants by the Board or Commissioner 176(1C) The proposed amendment seeks to empower the Commissioner, in addition to the Board, to appoint a firm of chartered accountants to conduct audit under section 177. Such a firm is also empowered, with the prior approval of the Commissioner, to enter the business premises of the auditee taxpayer to obtain any information, require production of any record on which the required information is stated and also to examine the same in the premises of the auditee taxpayer.

Audit 177(1)(2)

(10) Various sections relating to audit of tax affairs of a taxpayer are proposed to be amended. Changes are also proposed in sub-sections (1) and (2) by way of substitution whereas sub-sections (3), (4) and (5) are proposed to be omitted. A new sub-section (10) is also proposed to be inserted in the statute book. Presently sub-section (1) provides that the Board may lay down criteria for selection of any person for audit and the Commissioner is empowered to select the person for the purpose of audit on the basis of criteria laid down by the Board. After proposed substitution concept of “selection of audit” is being done away with and replaced with the concept of “conduct of audit” of the income tax affairs of a person. Unbridled powers are proposed to be given to the Commissioners whereby he may call for any record or documents or books of accounts for the conduct of the audit of the income tax affairs of any person. The Commissioner has express power to have access to the electronic data where such records or documents have been kept on electronic data. The taxpayer shall allow access to Commissioner or the officer authorized by him for use of machine or software. Further the said officials are also authorized to take into possession such machine and duly attested hard copies of such information or data for purposes of investigation and proceedings under the tax laws of any such person or any other person.


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Section However, for the purposes of the above the Commissioner would be required to give reasons in writing to call for records or documents including the books of accounts of the taxpayer. Further the Commissioner shall also be required to communicate to the taxpayer while calling records or documents included in books of accounts of taxpayer. And as per sub-section (2) on the basis of record obtained, the Commissioner may call for further information or documents as he may deem appropriate or where necessary record is not maintained, the Commissioner shall conduct an audit of the income tax affairs covering examination of accounts and records, enquiry into expenditure, assets and liabilities of the taxpayer or any other person. The proposed amendment also puts limitation on Commissioner to invoke these proceedings i.e. expiry of six years from the end of the tax year to which they relate. Therefore, after the proposed amendments, the concept of selection of cases for “audit” has been done away with. It is now at the entire discretion of the Commissioner to select any case. No regard will be made to considerations such as person’s history of compliance or non compliance, amount of tax payable or class of business conducted by the person. In the prevalent environment it is apprehended that this power will be misused in an arbitrary manner keeping in view the contents of section 210 of the Income Tax Ordinance, 2001 whereby Commissioner can delegate his power to the Officers of Inland Revenue, hence, power of section 177 is apprehended to be invoked by the junior officers. Therefore judicious application of this section will become questionable and will adversely affect the concept of deemed assessment under section 120 of the Income Tax Ordinance. The insertion of sub section (10) provides that in case of non-compliance, the Commissioner may also proceed to make best judgment assessment under section 121 of the Ordinance and the assessment treated to have been made under section 120 on the basis of return or revised return filed by the taxpayer shall be of no legal effect. Selection of a Audit through computer ballot 214C With the proposed insertion, the Board is also being empowered to select any person or classes of persons for audit of the income tax affairs through computer ballot which may be random or parametric as the Board may consider deemed fit. Such audits by the income tax officers shall be conducted as per procedure provided for audit in section 177 and all the provisions of the Income Tax Ordinance, 2001 shall apply except the first proviso to section 177(1). These enabling powers are proposed with retrospective effect as sub-section (3) states that:

“The Board shall be deemed always to have had the power to select any person or classes of persons for audit of income tax affairs”.


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Section Active taxpayers’ list 181A The new section is proposed to be inserted whereby the Board is empowered to institute active taxpayers list which shall be regulated as may be prescribed from time to time.

Offences and penalties 182

The proposed amendment seeks to enlist all the penalties under one section which were presently under separate sections. From bare perusal of the proposed amendment, it appears that harsh penalties are being imposed and in certain cases for a single default several penalties are to be attracted simultaneously. Also an attempt is being made by the Board to ensure compliance of laws with the imposition of harsh penalties. These penalties are listed as under: S.No.

Offences

Penalties

1 Where any person fails to furnish a return of income or a statement u/s 115 or wealth statement or reconciliation thereof or statement u/s 165 within the due date.

A penalty equal to 0.1% of the tax payable for each day of default subject to a minimum penalty of Rs.5,000 and a maximum penalty of 25% of the tax payable in respect of that tax year.

114, 115,116 and 165

2 Any person who fails to issue

cash memo or invoice or receipt A penalty of Rs.5,000 or 3% of the amount of the tax involved, whichever is higher.

174 and Chapter VII of the Income Tax

Rules 3 Required to apply for registration

but fails to make an application. A penalty of Rs.5,000 181

4 Fails to notify the changes of

material nature in the particulars of registration.

A penalty of Rs.5,000 181

5 Fails to deposit the amount of tax

due or any part thereof in the time or manner laid down under this Ordinance or rules made thereunder.

A penalty of Rs.5,000 of the amount of the tax in default. For the 2nd default an additional penalty of 25% of the amount of tax in default. For the third and subsequent defaults an additional penalty of 50% of the amount of tax in default.

137


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S.No. Offences Penalties Section

6 Any person who repeats

erroneous calculation in the return for more than one year whereby amount of tax less than the actual tax payable under this Ordinance is paid.

Such person shall pay a penalty of Rs.5000 or 3% of the amount of the tax involved, whichever is higher.

137

7 Any person who fails to maintain records required under this Ordinance or the rules made hereunder.

Such person shall pay a penalty of Rs.10,000 or 5% of the amount of tax on income whichever is higher

174

8 Where a taxpayer who, without any reasonable cause, in non compliance with the provisions of section 177

177

(a) fails to produce the record or documents on receipt of first notice;

(b) fails to produce the record or documents on receipt of second notice; and

(c) Fails to produce the record or documents on receipt of third notice.

Such person shall pay a penalty of Rs. 5,000 such person shall pay a penalty of Rs.10,000; and such person shall pay a penalty of Rs. 50,000

9 Any person who fails to furnish the information required or to comply with any other term of the notice served under section 176

Such person shall pay a penalty of Rs. 5,000 for the first default and Rs. 10,000 for each subsequent default.

176

10 Any person who- (a) makes a false or misleading

statement to an Inland Revenue Authority either in writing or orally or electronically including a statement in an application, certificate, declaration, notification, return, objection or other document including books of accounts made, prepared, given, filed or furnished under this ordinance;

Such person shall pay a penalty of Rs.25,000 or 100% of the amount of tax shortfall whichever is higher: Provided that in case of an assessment order deemed under section 120, no penalty shall be imposed to the extent of the tax shortfall occurring as a result of the taxpayer taking a reasonably arguable position on the application of this Ordinance to the taxpayer‘s position.

114,115,116,174,176,

177 and general.


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(b) furnishes or files a false or

misleading information or document or statement to an Income tax Authority either in writing or orally or electronically;

(c) omits from a statement made or information furnished to an Income tax Authority any matter or thing without which the statement or the information is false or misleading in a material particular.

11 Any person who denies or obstructs the access of the Commissioner or any officer authorized by the Commissioner to the premises, place, accounts, documents, computers or stocks.

Such person shall pay a penalty of Rs. 25,000 or Rs. 100% of the amount of tax involved, whichever is higher.

175 &177

12 Where a person has concealed income or furnished inaccurate particulars of such income, including but not limited to the suppression of any income or amount chargeable to tax, the claiming of any deduction for any expenditure not actually incurred or any act referred to in sub-section (1) of section 111, in the course of any proceeding under this Ordinance before any Income tax authority or the appellate tribunal.

Such person shall pay a penalty of Rs. 25,000 or an amount equal to the tax which the person sought to evade whichever is higher. However, no penalty shall be payable on mere disallowance of a claim of exemption from tax of any income or amount declared by a person or mere disallowance of any expenditure declared by a person to be deductible, unless it is proved that the person made the claim knowing it to be wrong.

20, 111 and General.

13 Any person who obstructs any Income Tax Authority in the performance of his official duties.

Such person shall pay a penalty of Rs. 25,000.

209, 210 and General.

14 Any person who contravenes any of the provision of this Ordinance for which no penalty has, specifically, been provided in this section.

Such person shall pay a penalty of Rs. 5,000 or 3% of the amount of tax involved, whichever is higher.

General.


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15 Any person who fails to collect or deduct tax as required under any provision of this Ordinance or fails to pay the tax collected or deducted as required under section 160.

Such person shall pay a penalty of Rs. 25,000 or the 10% of the amount of tax whichever is higher.

148,149,150,151,152, 153, 153A, 154, 155, 156,

156A, 156B, 158, 160, 231A, 231B, 233, 233A, 234, 234A, 235, 236,

236A. It is incumbent upon the Commissioner, Commissioner (Appeals) or the Appellate Tribunal to pass an order in writing before the penalty is levied on the taxpayer. The principle of natural justice of providing an opportunity of being heard is also provided for in the proposed amendment. It would be better if the Board should have initiated educative program for the taxpayers before proposing harsh and severe penal provisions. It should be recognized that the state of documentation in the country has still not attained maturity for which in a way the Board is also responsible as in the past, lack of documentation got promoted with the introduction of PRT or FTR schemes. The Commissioner Appeals or the Appellate Tribunal shall immediately forward the copy of the order to the Commissioner in respect of imposing any penalty on the taxpayer and such order shall be considered as having been made by the Commissioner. Exemption from penalty and default surcharge 183 It is proposed that power to exempt any person or class of person from payment of penalty and default surcharge shall rest with the Federal Government or the Board. In such an order, the reasons are to be recorded in writing for granting of the exemption and the same are to be published in the official gazette. Special Judges 203(1) The sub-section (1) is proposed to be substituted whereby the Federal Government may appoint special judges to be notified in the official gazette, if may be considered necessary, and where more than one special judge is appointed, the same shall be specified in notification with their territorial limits within which each of them can exercise their jurisdiction. The new sub-sections (1A) and (1B) are proposed to be inserted which specify the qualification of special judge and their qualifications, terms and conditions and territorial jurisdiction.


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Section Computation of limitation period 226B The proposed amendment seeks to provide for that no limitation shall apply even for a period for which any proceedings remain pending before any court, appellate tribunal or any other authority. Presently such limitations period was relevant only where such proceedings were stayed by any court, appellate tribunal or any other authority.

Bar of investigation against employees of the Board 227

A new sub-section is proposed to be inserted to provide for protection to the employees of the Board against the possible investigation or inquiry initiated by any government agency for anything done in official capacity under the provisions of the Ordinance rules, instructions or directions. However, in order to initiate such inquiry, prior approval of the Board is necessary.

Directorate General of Training and Research 229

The new section is proposed to be inserted consisting of a Director General, Additional Director General and as many Directors and Additional Directors, Deputy Directors, Assistant Directors and such officers Board may appoint to be notified in the official gazette. The Board has obtained powers to specify functions, and powers of the Director General of Training and Research and its officers which is to be notified in the official gazette.

Advance tax on transactions in a bank A new sub-section is proposed to be inserted making it obligatory on every banking company to deduct 0.3% if the payment or withdrawal is made through any mode of banking transaction through draft , payment order, online transfer, Telegraphic Transfer, CDR, STDR, RTC or some total of the payment for the transactions in a day exceeding Rs 25,000.

231AA, Division VIA of part 4 of first schedule

The following are the persons who are exempt from the applicability of above provisions:

a) Federal or Provincial Government

c) Foreign diplomat or diplomatic mission of Pakistan

d) A person who produces a certificate from Commissioner that his income during the year is exempt for tax

The intention behind the proposed amendment is to bring all transactions to withholding tax net to raise revenue and further to document the economy. In this manner, transactions being undertaken through the banking system, if remained unrecorded in the books of the person undertaking such transaction, the same can be crossed checked from the statement of withholding tax submitted by the banking companies. It will help the Board to track tax evasion.


29

Section Government may seek another benefit to identify purchase and sale transaction of properties will also be subjected to scrutiny with the introduction of this mechanism. This tax has a nature of advance tax and adjustable against advance tax liability of the person on whose behalf the tax has been deducted. Collection of tax by Stock Exchanges 233A (2) The proposed amendment seeks to make withholding tax adjustable against final tax liability. Presently such tax was collected from members of the Stock Exchanges on purchase and sales of shares in lieu of commission earned by such members and also in respect of trading of shares which was minimum tax. Telephone users 236(1) (C)

& (3)(A) The proposed insertion of clause (C) seeks to enlarge tax net by bringing sale of units through an electronic medium or whatever form along with telephone bills for subscribers and prepaid telephone cards already subject to withholding tax under clauses (a) and (b) of section 236 (1). Such tax shall be collected by the person issuing or selling units through electronic mode from the purchaser at time of sale of units. The rate of advance tax shall continue to be 10 %. Advance tax on sale by auction 236(A) The proposed insertion in sub-section (1) seeks to levy tax on property or goods confiscated or attached into the withholding tax net at the time of auction. Such confiscated or attached goods, when auctioned, shall be subject to 5% tax at source. Advance tax on purchase of air tickets 236(B) A new section is proposed to be inserted to bring domestic air tickets into the withholding tax net @ 5%. This is a revenue measure intended to enhance tax collection at the cost of passengers who are already feeling brunt of higher cost of domestic travelling. This tax is adjustable against the final tax liability of the person. The existing taxpayer may not feel the burden, but non-taxpayer passenger would definitely feel the heat. Removal of difficulties 240 The proposed amendment seeks to remove the sub-section (2) from the statue which has already become redundant as has restricted the Board’s powers to issue notifications after June 30, 2004.


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First Schedule

Clause

Minimum taxable threshold and tax benefit The bill proposes to increase the minimum threshold for the purposes of levy of tax on the taxable income to Rs.300,000 for all individuals without any gender discrimination. The separate preferential threshold for women has been done away with.

Part I, Division-I

Clause(1) & (1A)

Non salaried persons The taxable income threshold for non-salaried persons is also proposed to be enhanced to Rs.300,000 thus proposing relief of tax liability on income falling between Rs. 110,000 to Rs. 300,000. The substituted tax tariff will provide relief to the extent indicated below. Taxable income up to Proposed

slab Previous

slabs

Tax saving Rupees Rate Rate Rupees

% % 110,000 0 0.50 550 125,000 0 1.00 1,250 150,000 0 2.00 3,000 175,000 0 3.00 5,250 200,000 0 4.00 8,000 300,000 0 5.00 15,000

Salaried persons The substituted tax tariff while providing relief to income earners up to Rs.300,000 seeks to apply the maximum rate of tax @ 20% for persons earning income exceeding Rs.4,550, 000. Previously this rate was applicable to income exceeding Rs.8,650, 000. The impact of the proposed changes is as under:

Gross income upto

Proposed slab

Previous slab

Tax Impact

Rupees Rate Rate Rupees % %

300,000 0 0.75 (2,250) 325,000 0.75 0.75 -

4,800,000 20 19 48,000 8,650,000 20 19 86,500


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Rate of small companies The bill proposes to enhance the tax rate for small companies from 20% to 25%.

Part-I Division-II Clause (iii)

Tax at import stage The Finance Act, 2008 reduced the rate of collection of tax to 2% and withdrew the power of the Commissioner to issue an exemption certificate. The Finance Act, 2009 increased the rate of collection to 4% which is now proposed to be increased to 5%. The power of the Commissioner to issue exemption certificate needs to be restored to facilitate liquidity position of manufacturers importing material for own consumption.

Part-II

Payment to non-residents The rate of withholding tax applicable on payments other than those specified under section 152 to non-residents is proposed to be reduced to 20% instead of existing rate of 30%.

Part-III Division-II Clause (2)

Prizes and winnings The bill proposes to reduce the rate of tax on winners of cross word puzzles to 10% as against the existing rate of 20%.

Part-III Division-VI

Tax on motor vehicles The bill proposes to decrease the existing slab rate to Re.1 per kilogram laden weight of goods transport vehicles.

Part-IV Division-III Clause (i)

Electricity consumption The bill proposes to reduce the rate of collection of tax to 5% instead of the existing rate of 10% providing relief to industrial and commercial consumer whose billing exceeded Rs.20,000.

Part-IV Division-IV

Second Schedule – Part I Exemption from total income Interest to non-residents for approved projects The bill proposes to extend the scope of exemption to the profit on debts payable to foreign individuals, company, firm or association of persons in respect of foreign loan utilized for industrial investments in Pakistan where the loan agreement was concluded on or before first day of February, 1991 and duly registered with the State Bank of Pakistan. This exemption was earlier withdrawn by the Finance Act, 2008.

Clause (72) sub-clause

(iii)


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Pursuant to the Prime Minister’s relief package to rehabilitate to economy of Khyber Pakhtunkhwa, FATA and PATA, the bill proposes to grant exemption to educational institutions for a period of two years ending on June 30, 2011 and income of taxpayers other than manufacturers and suppliers of cement, sugar, beverages and cigarettes for a period of three years starting from tax year 2010 established / located in the most affected and moderately affected areas. Most affected areas mean district Peshawar, Malakand Division, district of Swat, Buner, Shangla, Upper Dir, Lower Dir, Hangu, Bannu, Tank, Kohat and Chitral while moderately affected areas are districts of Charsadda, Nowshera, DI Khan, Batagram, Lakki Marwat, Swabi and Mardan.

Clauses (92A), (126F)

& Part IV Clause (10A)

Dividend received by ICP Exemption granted to ICP on account of dividend from any company is proposed to be withdrawn by omission of the said clause.

Clause (102)

Second Schedule – Part II Reduction in tax rates

Clause (24A)

The clause provides for reduction in the rate of withholding tax provided in section 153 on account of supplies of goods by distributors of cigarettes and pharmaceuticals products to 1%. The bill proposes to extend the facility to large distribution houses fulfilling the conditions prescribed in sub-section (7) of section 148 for large import houses.

Second Schedule – Part III Reduction in tax liability

Clause (1A)

Taxpayers aged 60 years or more whose income does not exceed Rs.750,000 are entitled to the benefit of reduction in their tax liability by 50%. This benefit was also being availed in respect of income subject to final taxation thereby claiming refund of tax withheld to the extent of 50%. The bill proposes to restrict the benefit to income other than that subject to final taxation while increasing the limit of income to Rs.1,000,000.

Second Schedule – Part IV Exemption from specific provisions

Clause (10A

In line with the Prime Minister’s relief package to rehabilitate the economy of Khyber Pakhtunkhwa, FATA and PATA following additional benefits are being provided to persons in most affected and moderately affected areas. • exemption from penal provisions and default surcharge in terms of sections

182 and 205 respectively provided the principal amount of tax due is paid by June 30, 2010.


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• exemption from application of section 235 that is collection of advance tax

on electricity bills to commercial and industrial consumers till June 30, 2011 • exemption from application of withholding tax provisions on export of goods

by exporters based in the above mentioned areas • exemption from application of provision of section 148 on import of plant

and machinery till June 30, 2011 for business other than manufacturers and suppliers of cement, sugar, beverages and cigarettes.

Clause

The bill proposes to exempt income of foreign experts if acquired with prior approval of Ministry of Textile Industry.

(73)

Third Schedule – Part I Depreciation

Sub-clause (V)

By this insertion bill seeks to allow 100% depreciation on cost of construction f a ramp with cost not exceeding Rs.250,000 built to provide access to disabled persons.

Fifth Schedule – Part I Rules for the computation of the profit and gains from the exploration and production of petroleum

Rule (4A)

Petroleum exploration and production companies consider provision for decommissioning cost to be an allowable expense while the revenue authorities disputed the claim on the basis that the expenditure have not been actually incurred and provisions are not allowable under the Ordinance. The long outstanding dispute and consequential litigation was resolved with the concurrence of the Ministry of Petroleum and Natural Resources by signing of a Memorandum of Understanding between FBR and representatives of Pakistan Petroleum Exploration and Production Companies Association in March this year. To formalize the agreed principle, facilitate tax compliance and flow of revenues, necessary amendments in law were agreed to be incorporated through the Finance Bill, 2010. The bill by insertion of the new rule proposes to allow de-commissioning cost duly certified by a Chartered Accountant or a Cost Accountant in the manner prescribed over a period of ten years or the life of the development and production or mining lease whichever is earlier, starting from the year of commencement of commercial production or commenced prior to the first day of July 2010. Such deduction shall be allowed from the tax year 2010 and onwards.


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Seventh Schedule – Part I Rules for the computation of the profit and gains of banking company and tax payable thereon

A proposed amendment in Rule 1(c) is intended to provide relief to the banking companies whereby the provision for bad and doubtful advances and off balance sheet items are proposed to be allowed @ 5% of the total advances for consumers and Small and Medium Enterprise (SME) (as defined under the State Bank Prudential Regulation). In other words, banking companies would be allowed the provision for bad and doubtful debts under the two types of advances which are as follows:

a) consumer loans and SME advances which shall be allowed @5% of such advances; and

b) other than consumer loans and SME advances, which will be allowed @ 1%

of the total advances’ portfolio except (a) above. The proposed change would provide some relief to the banking companies as 1% of total advances for bad and doubtful debts as well as off balance sheet obligation was not considered appropriate considering the fact that in practice actual bad debts far exceed the 1% threshold. The existing limit of 1% is considered meager and is suggested to be enhanced to make the provision more reasonable and pragmatic for the banking companies. 8A Transactional provision The bill seeks to insert transactional provisions in respect of bad and doubtful debts as under:

a) a banking company will be entitled to claim, over and above the provision for bad and doubtful debts and off balance sheet obligation for the tax year 2009, on the basis of actual write-off amounts which were provided for in the tax year 2008 and prior thereto but were not claimed nor allowed as tax deductible in any tax year. In that event, the relevant provisions of section 29 and 29A would apply to claim to actual bad debts written off.

b) amounts written back which were provided for in tax year 2008 or before

against the reversal of doubtful advances which were neither claimed nor allowed as tax deductible in any tax year would not constitute income in the year of write back.

c) the provision of the Seventh Schedule shall not apply to any assets given or

acquired on finance lease by a banking company up to the tax year 2008 and recognition of income and deductions in respect of such assets shall be


35

dealt in accordance with the provision of the Income Tax Ordinance, 2001 notwithstanding the insertion of the Seventh Schedule into the tax statute. Further the un-absorbed tax depreciation in respect of such assets shall be allowed to be set-off against the said lease rental income only.

The above provision were earlier inserted in the Seventh Schedule through letter F. No. 4(1) ITP/2008-09 dated December 23, 2009 which were made applicable from the tax year 2009 and onwards now these are brought as a proposed amendment in the bill.

Summary of changes in Sales Tax Act, 1990

36

Section The proposed law with respect to the Sales Tax Act, 1990 mainly contains the provisions which were already inserted in the law through the Presidential Ordinance; to seek the assent of the Parliament. These provisions principally covered following areas: • renaming of tax authorities • extension of record retention period by one year and till the completion of

appellate or other proceedings. • empowerment of Commissioner to determine price for supplies between

associated persons • provisions relating to filing appeals • transfer of pending appeals from Customs Excise and Sale Tax Appellate Tribunal

to Appellate Tribunal constituted under the Income Tax Ordinance, 2001 • serving of orders, decisions and notices However, other significant amendments proposed to be brought through the Finance Bill, 2010 are elaborated in following paragraphs. It is also worth considering that the bill seeks to propose amendments to be effective from June 5, 2010 except for those related to enhancement of rate, empowerment of Commissioner to authorize access of premises and selection of cases by computer balloting Scope of Tax - enhancement of tax rate 3 The proposed bill seeks to enhance the rate of sales tax from 16% to 17%. This enhancement is also proposed to be applicable with respect to goods mentioned in the Third Schedule to the Act. Considering the resources constraints of the Federal government; this enhancement was not un-expected, especially in the absence of VAT implementation. However, such an enhancement will not only add to inflation but is also against the suggestion from various forums whereby it was recommended that to increase the compliance; tax rate should be lowered. This enhancement will also have indirect consequential effect on the amount of withholding tax required to be made under the provisions of the Income Tax Ordinance, 2001 Access to record, documents 25 The proposed law seeks to specify that only Officer of Inland Revenue who is authorized by the Commissioner can conduct audit once in a year. The bill also proposes to do away with the requirement of issuing audit observations containing contraventions and seeking registered person’s reply thereto. The Officer of Inland Revenue will be authorised to pass an order based on the audit and seeking explanation of the registered person only, if he considers necessary.


37

Section Assigning discretionary powers to the Officer of Inland Revenue to seek explanation only when considered necessary appears to be harsh and will be subject to challenge in the courts on the point of violation of principle of natural justice.

Delegation of powers 32 The bill seeks to withdraw powers of the Commissioner to authorize any subordinate officer to exercise powers of the Commissioner Special audit by Chartered Accountants and Cost Accountants

32A

The bill seeks to empower the Commissioner in addition to the Board to appoint Chartered Accountants and Cost Accountants for conduct of audit. It is also suggested that such an appointment will not require notification in official gazette. Selection for audit by Board 72B The bill proposes to empower Board from to select persons or classes of person for audit through computer balloting either randomly or parametric. It is also provided that audit will be conducted in accordance with the provisions of section 25 of the Federal Excise Act, 2005. The proposed amendment specifically provides that the powers of the board to select any persons or classes of persons shall be deemed to have always been there. Accordingly, after empowerment of the Board as discussed above; a registered person can be subject to departmental audit by any of the following mode: • By Board Through computer balloting

• By Officer of Inland Revenue Once in a year

• By Commissioner Where Commissioner has evidence of

involvement of fraud or evasion of duty It is suggested that with the empowerment of the Board for selection of registered persons for audit; the powers of Inland Revenue Officer to conduct yearly mandatory audit as contained in section 25(2) should be withdrawn as it appears to be contradictory to the proposed provision.


38

Notifications Various amendments brought through notifications are summarized below which are immediately effective from the date of pronouncement. SRO 396(I)/2010 This notification has enhanced the rate of duty on import of soyabean seed by solvent extraction industries from 6 per cent to 7 per cent SRO 397(I)/2010 This notification has enhanced the rate of duty on import of rapeseed by solvent extraction industries from 14 per cent to 15 per cent SRO 398(I)/2010 This notification by modifying the ‘Special Procedure for collection and payment of sales tax on natural gas’ has enhanced the rate of tax on supply of natural gas by Gas transmission and distribution companies to CNG stations from 25 per cent to 26 per cent by adopting the change suggested in the general sales tax rate i.e. change in section 3 of the Sales Tax Act, 1990

SRO 395(I)/2010 This notification has increased the rate of tax on goods specified in SRO 644(I)/2007 dated June 27, 2007 in following manner

Table I- Enhancement in rate from 21 per cent to 22 per cent in respect of following goods/ categories

Areca (betel nuts) 0802.9010 Fats of bovine animals 1502.000 Palm stearin 1511.9010 Flavoring powders for preparation of ood 2106.9030 Kaolin 2507.0000 Asbestos 2524.0000 Petroleum jelly 2712.1000 & 2712.9090 Disodium carbonate & Barium carbonate 2836.2000 & 2036.6000 Halogenated derivatives of hydrocarbons. 2903.2100 & 2905.1100 Colouring matters: Pigment and preparations 3206.1100 Palm acid oil 3823.1920 Gum base use for manufacturing of chewing gum 3824.9010 Polymers and others 3901 to 3904, 3905.19,

3905.29,91, 99,3907.2, 3908.1,.9111


39

Cellulose and its chemical derivatives etc 3912.11, 12, 2020, 39, 90 Natural polymers 3913,900, 9090 Ion-exchangers based on polymers 3914.0000 Waste, parings and scrap, of plastics 3915.000 Monofilament 3916.000 Other plates, sheets, film, foil and strip, of plastics 3920.0 & 3921.0 Pulps- mechanical, chemical or of fiber 4701.0000 to 4707.0000 Toilet or facial tissue stock, towel or napkin stock etc. 4803.000 Papers- Vegetable parchment, greaseproof, tracing and glassine etc

4806.0000

Paper and paper board- composite, cellulose wadding 4807 & 4811, 4812, 4813, 4821 & 4823

Glass 7005-2100 Pig iron and, spiegeleisen in pigs, blocks or other primary form.

7201, 7202,7203, 7205

Copper foil 7410.11 and 7411.1090 Unwrought aluminium. 7601.10, 7601.2, Aluminium waste or scrap 7602.0 Aluminium foil 7607.11, 7607.20 Unwrought lead 7801.1000 Unwrought zinc 7901.11, 7901.12 Zinc slugs for dry battery cell 7907.0010

Table II- Enhancement in rate from 18 per cent to 19 per cent Flat-rolled products of: • iron or non-alloy steel, of a width of 600mm or more, hot-rolled

and cold rolled , not clad, plated or coated 7209.7210.7211, 7212,

• Stainless steel 7219 and 7220 • Other alloy steel 7225 and 7226

Summary of changes in Federal Excise Act, 2005

40

Section As stated earlier that through the Presidential Ordinance Internal Revenue Services (IRS) has been created and that Federal Board of Revenue (FBR) has been under going a comprehensive program of tax administration reforms whereby administration of Sales Tax, Federal Excise and Direct Tax are functionally integrated. With this background Finance Amendment Ordinance, 2009 was Promulgated on October 28, 2009 and after its expiry on completion of four months, the Federal Government has re-promulgated the Finance Ordinance, 2010. By virtue of these Ordinances various authorities in the Sales Tax Act, 1990, the Income Tax Ordinance, 2001 and the Federal Excises Act, 2005 have been renamed to harmonize functions thereof whereby an officer of Inland Revenue can exercise powers under all the aforementioned laws. With respect to Federal Excise law; the Federal Budget, 2010 mainly contains the provisions which were already inserted in the Federal Excise Act, 2005 through above stated Ordinances to seek the approval of the parliament. These provisions principally covered renaming of tax authorities and extension of record retention period. However, other significant amendments proposed to be brought through the Finance Bill, 2010 are elaborated in following paragraphs. It is also worthwhile to note here that the bill seeks to propose amendments to be effective from June 5, 2010 except for those related to filing of Reference before the High Court and levy of duty on natural and petroleum gases. Appointment of Federal Excise officers and delegation of powers

29(3)

The bill proposes that in addition to the Board; the Chief Commissioner with the approval of the Board should also be authorize to empower and assign work to subordinate officers by name or designation. Currently these powers only rest with Board to be exercised through notification in official gazette. Reference to the High Court 34 A The proposed law seeks to reinsert provisions relating to reference to the High Court which existed earlier in sub-section (3) to (13) of section 34 of the Federal Excise Act. 2005. These subsections were deleted earlier vide Finance Act, 2009. Significant provisions proposed to be reinserted are summarized as under: • Reference to the High Court is required to be filed within 90 days of the order of the

Appellate Tribunal

• Reference will be heard by Bench of at least two judges of the High Court.


41

Section • Tax will required to be paid as per the order of the Tribunal; irrespective of the filing

of reference; except where demand is stayed by the Court and such stay will not be effective for more than six months from the date of the order.

• Where as a result of High court’s order any tax is found refundable; the Court may

order to postpone refund on application of Commissioner reflecting intention of preferring petition before the Supreme Court of Pakistan.

Selection for audit by Board 42B The bill also proposes to empower Board from back date to select person or classes of person for audit through computer balloting either random or parametric. It is also provided that audit will be conducted in accordance with the provisions of section 46 of the Federal Excise Act, 2005. Accordingly, after empowerment of the Board as discussed above; a registered person can be subject to departmental audit by any of the following mode : • By Board Through computer balloting

• By Officer of Inland Revenue Once in a year

• By Commissioner Where commissioner has evidence of

involvement of fraud or evasion of duty It is suggested that with the empowerment of the Board for selection of registered person for audit; the powers of inland revenue officer to conduct yearly mandatory audit should be withdrawn as it appears to be contradictory to the proposed provision. First Schedule

The declaration under the Provisional Collection of Taxes Act, 1931 annexed to the Finance bill, 2010 specifies that except for the levy on natural and petroleum gases; all changes in the rates will be effective from June 5, 2010

Rate changes The Bill proposes following changes in respect of excise duty on various goods:

S. N Goods Existing Proposed

8 Cigars, cheroots, cigarillos and cigarettes, of tobacco substitutes.

64% of retail price

65% of retail price

9 Locally produced cigarettes if their retail price exceeds [nineteen rupees and fifty paisa] per ten cigarettes

64% of retail price

65% of retail price


42

S. N Goods Existing Proposed

10 Locally produced cigarettes if their retail price exceeds [Ten rupees] per ten cigarettes but does not exceed nineteen rupees and fifty paisa per ten cigarettes

Rs. 4.75 per ten cigarettes plus 75%

Rs. 5.25 per ten cigarettes plus 75%

11 Locally produced cigarettes if their retail price does not exceed [Ten rupees] per ten cigarettes

Rs. 4.75 per ten cigarettes

Rs. 5.25 per ten cigarettes

12 Cigarettes manufactured by a manufacturer who remains engaged on and after the 10th June, 1994, either directly or through any other arrangement, in the manufacture of any brand of cigarette in non-tariff areas

64% of retail price

65% of retail price

36 Natural Gas in gaseous state Rs. 5.09 per MMBTu

Rs. 10 per MMBTu

37 Other petroleum Gases in gaseous state Rs. 5.09 per MMBTu

Rs. 10 per MMBTu

New insertions

S.No Discription Heading Rate of duty

50 Filter rods for cigarettes 5502.0090 Re. 1 per filter rod 51 Air conditioners Respective

headings 10% ad valorem

52 Deep Freezers - do - 10% ad valorem Notifications SRO 399(I)/2010 This notification withdrawn the restriction on adjustment of FED paid concentrated beverages used for production of aerated waters.

Summary of changes in Custom Act, 1969

43

Significant changes proposed in the Customs Act, 1969 through the Finance Bill, 2010 are summarized as under: Power to determine the customs value. 25A The bill proposes that in case of dispute in value of goods determined by custom officer; the disputed value will remain applicable unless amended by competent authority. Section Review of the value determined. 25D The bill proposes to impose time limit for filing of review application before Director General of Valuation within 30 days of determination of customs value where same is determined by the Collector of Customs or Director of Valuation or any other authority. Allowing denaturing or mutilation of goods 27A With respect of scrapping of goods and charging duty as such thereon, the bill proposes to empower Board to notify such goods. The bill also proposes for withdrawal of condition of filing request for scrapping goods before the filing of goods declaration. False statement, error, etc 32A With respect to penal provisions for false statement or other contraventions; the bill proposes that where clearance of goods is made through Computerised System on self or electronic assessment; the date of detection by post clearance audit shall be relevant date for levy and computation of penalty Declaration and assessment for home consumption or warehousing.-

79

The bill also proposes to restrict the facility of ‘filing of goods declaration after examining goods’ in case of used goods only. Such permission is suggested to be given by the Additional Collector. Provisional determination of liability 81 Te bill proposes to reduce time limit from six months to three months for determination of duties, taxes and other charges on value of goods provisionally determined. It is also suggested that maximum extension of time limit upto 90 days by the Collector of Customs or Director of Valuation should not include the time during which proceedings are adjourned due to stay order or for clarification from the Board or adjourned at the request of importer.


44

Section The bill also suggests passing of an order for adjustment, refund or recovery on completion of final determination. Punishment for offences 156 The bill seeks to enhance general penalty from Rs. 25,000 to Rs. 50,000 for contravention of any provision of Act or its rules in cases where no express penalty is provided. The bill also suggests enhancement of maximum limit of penalty from Rs. 25,000 to twice the value of imported goods in case of contravention of provisions relating to transportation from one part of Pakistan to another through any foreign territory or transit of goods across Pakistan to a destination outside Pakistan. Appeals to the Appellate Tribunal 194A The bill also suggests to make the review order passed by DG Custom Valuation subject to appeal before the Appellate Tribunal. It is also proposed that such appeal should be heard by Special bench comprising of one technical and one judicial member. First Schedule to the Customs Act, 1969 Following significant amendments are proposed by the Finance Bill, 2010 to be made in the First Schedule. Notifications Various amendments brought through notifications are summarized below which are immediately effective from the date of pronouncement. SRO 392(I)/2010 This notification brought the following significant changes in rate of customs duty by amending SRO 565(I)/2010 dated June 5, 2010

Description Heading reference

Existing rate Revised rate

Raw material for: • Washing machines - Electro galvanized

steel sheet in coils

7210.3090 0% ad val 5% ad val

• Laundry Soap- Coconut Acid Oil

38236.1990 General rate 10% ad val


45

Description Heading reference

Existing rate Revised rate

• LED panel sets Respective -do - 5% ad val

• PDP, LCD, LED panel

Respective -do - 5% ad val

• Energy Saver lamps

Respective -do - 0% ad val

• Electrolytic Tin Plate- Tin Mill Black plat of secondary quality

7209.1810 -do - 15% ad val

• Glass manufacturing – Sodium sulphate

2833.1100 -do - 10% ad val

• Leather and Tanning industry- Shaving/ fleshing/ splitting blades Stamping Foil

8208.9090 3212.1000

-do -

15% ad val

• Detergent industry – sodium sulphate 2833.1100 -do - 10% ad val SRO 393(I)/2010 This notification has brought reduction in duties in respect of import of goods from Malaysia; by amending SRO 1261(I)/2010 dated June 5, 2010 SRO 394(I)/2010 This notification has brought following significant changes in rate of customs duty by amending SRO 575(I)/2010 dated June 5, 2010 S. No Heading

reference Existing rate

Revised rate

Machinery for: 1 Agriculture

- Rice whitener, polisher, rice flow meter and magnetic separator

8437.8000 General rate

0% ad val

- Milk filters 5A LPG Dispensers- imported by company having

LPG license 8413.1100 -do - 5% ad val

28 Road sweeping lorries 8705.9000 -do - 5% ad val 35 Renewable source energy- 9A - Pyranometers and accessories for solar data 9030.8900 -do 5% ad val 9B - Solar chargers for charging electronic devices 8504.4020 -do 5% ad val 9C - Remote control for solar charge controller. 8543.7010 -do 5% ad val 10A - Wind Water pump 8413.8190 -do 5% ad val

Summary of changes in the Petroleum Products (Surcharge) Ordinance, 1961, (XXV of 1961)

46

Section The following amendments are proposed to be made:

Change of name of the Act and consequential amendments

The bill proposes to change the name of the Ordinance from the Petroleum Products (Surcharge) Ordinance, 1961 to the Petroleum Products (Petroleum Levy) Ordinance, 1961. Further, consequential changes have been proposed by replacing the word ‘surcharge’ in the Ordinance with the words ‘Petroleum Levy’.

1(1), 3, 3A, 5,

6(2)(aaa)

Substitution of charging provision

The bill proposes to substitute existing sub-section (1) of section 3 and also proposed insertion of sub-section (1A) according to which every Company and licensee shall pay the petroleum levy in such manner as prescribed by rules to provide transparency.

Prior to insertion of sub-section (1A) every company and refinery were required to pay the development surcharge.

The Fifth Schedule as proposed to be substituted is also appended below:

Petroleum Products Petroleum levy (Rupees per liter)

High Speed Diesel Oil (HSDO) 8

Motor Gasoline 87 ROM 10

Super Kerosene Oil (SKO) 6

Light Diesel Oil (LDO) 3

HOBC 14

E-10 Gasoline 9

Replacement of Central Excise Act, 1944 with Federal Excise Act, 2005

3(1), (1A) & fifth schedule

The bill proposes to replace the words ‘Central Excises Act, 1944’ with ‘Federal Excise Act, 2005’. This amendment was necessary as the Federal Excise Act, 2005 is the latest Act in place. Accordingly, under this Act petroleum levy on petroleum products produced in Pakistan shall be collected and refunded in the same manner as duty collected and refunded under the Federal Excise Act, 2005.

3A (2-b) & (3)

Replacement of Repealed Income Tax Ordinance • The bill proposed to replace the words Income Tax Ordinance, 1979 with the

Income Tax Ordinance, 2001 as the Income Tax Ordinance, 1979 has been repealed.

5

Summary of changes in the Petroleum Products (Surcharge) Ordinance, 1961, (XXV of 1961)

47

Section Delegation of powers withdrawn

8

Delegation of powers of the Central Government under this Ordinance to the Secretary of the Oil Companies Advisory Committee is proposed to be withdrawn.

Validity of revenue already received

9

The bill proposes insertion of a new section 9 to avoid legal complications and validate revenue already received or to be received by the Government for the period from March 1, 2010 to June 30, 2010. Consequently, the petroleum development levy, levied and collected from a company for the aforesaid period shall not be refunded as deemed to have validly and lawfully been levied and collected. Similarly, any amount unpaid shall be recoverable in accordance with the provisions of this Ordinance and the rules made there-under.

Other laws

48

Summary of changes in the Chairman and Speaker (Salaries, Allowances and Privileges) Act, 1975 (LXXXII of 1975) Section The following amendments are proposed to be made:

Definition

2 (b) & (g)

The bill proposes to amend the definition of Chairman-Senate and Speaker, for the purpose of medical facilities and additional privileges, by including in the definition a person who has held the office of Chairman–Senate or Speaker after election.

Entitlement

17A

The entitlement of discretionary grant for the Chairman-Senate and Speaker of the Assembly is proposed to be increased to Rs.1,000,000 from existing Rs.600,000.

Delegation of powers

18

The bill proposes to give the Finance Committee of the Senate and National Assembly, the power to grant additional privileges to the Chairman-Senate and Speaker of the Assembly.

The Provisional Collection of Taxes Act, 1931

49

Following is the summary of the amendments / insertions of the provisions of respective laws which has become effective from 5th and 6th June, 2010 respectively under the Provisional Collection of Taxes Act, 1931 (XVI OF 1931) whereas rest of the amendments are proposed to be effective from 1st July, 2010 subject to the approval by the Parliament.

Customs Act, 1969 (Effective 6th June, 2010)

Fifth Schedule Sales Tax Act, 1990 (Effective 5th June, 2010)

Sections 2, 10, 11, 21, 23, 24, 25, 25A, 25AA, 26, 27, 28, 30, 31, 32,

32A, 33, 36, 37, 37A, 38A, 38B, 40, 40B, 45, 45A, 45B, 46, 47, 47A, 48,

49A, 52, 55, 56, 58A, 58B, 66, 69, 72, 72A, 73, 74

Income Tax Ordinance, 2001 (Effective 5th June, 2010)

Sections 2(2)(11B)(13)(13A)(29C)(38A) (41)(48A) & (65), 114, 116, 119,

120, 121(1)(a), 122(3), 122A(1), 122C, 130(4), 134A(2)(3), 137(2)(6),

146B(1), 161(1B), 162(2), 174(3), 177, 203(1)(1A)(1B)(3) & (4), Chapter X,

in Part VII, 205, 205A, 207, 208(1), 209, 210(1B), 210(1)(1A)(1B), 211,

215, 217, 237, 239, 239A

Federal Excise Act, 2005 (Effective 5th June, 2010)

First Schedule, Table I, Column (1),

Serial No.8 & 9 Column (4)

Serial No.10 & 11 Column (4)

Serial No.12 Column (4)

Serial No.49 Column (2)(3) & (4)

In the restrictions for 2009-10

Documents

Finance Bill 2010 - Grant Thornton Pakistan · 2014-01-27 · Finance Bill 2010 This Memorandum summarizes an overview of economy for the year 2009-2010 and the important changes