EXISTING TAX REGIME IS FACILITATING INVESTMENTS IN

PAKISTAN

SHAHID HUSSAIN ASAD SENIOR MEMBER(Inland Revenue Policy),FEDERAL BOARD OF REVENUE

Pakistan’s Existing Tax Regime and Investment Policy

Tax Regime or Tax Policy is being used to attract Investments.

The tools used for this purpose include: Tax Concessions Tax Credits Special allowances for depreciation and

capital Expenditure Tax Treaties for FDI Reduction in customs duties

Tax Concessions

Reduction in corporate and other tax rates

Tax Holidays to promote specific industry to promote specific area to promote specific projects to promote foreign direct investment

Group Relief and Group Taxation

Reduction in Corporate Tax Rate

Corporate Income Tax reduced from as high as 65% to 32% at present and will be further reduced to 30% for tax year 2017.

Rate of small company reduced to 25%. This year paid-up capital limit for small company enhanced to 50m from 25m

Promoting Specific Industry

Power Generation Transmission Line Projects Software Exports LNG Terminal Operators and Terminal

Owners Halal Meat Production units Cellular Mobile Phones manufacturing Coal Mining Projects in Thar Housing sector

Power Generation

Income power generation projects exempt from tax-no sunset clause

Tax on Dividend to shareholders is 7.5% against 15% standard rate.

Exempt from Minimum tax on turnover.

Coal Mining Projects

Income of coal mining projects exempt from tax

Exempt from Minimum tax on turnover. Exemption from withholding tax from

dividend received by shareholders for 30 years

Input tax adjustment allowed to power producing units using Thar coal

Import of coal-mining machinery & equipment for Thar coal free of sales tax

Other Energy related Projects LNG Terminal Operators and Terminal

Owners are exempt from income tax for five years. They are also exempted from minimum tax on turnover and Alternative Corporate Tax.

• Exemption from income tax for 10 years in respect of profits and gains derived from a transmission line project set up between 1-7-2015 to 30-6-18

HOUSING SECTOR

Deduction allowed for interest paid on loan

Supply of bricks and crushed stone exempt from Sales Tax up to 30.6.2018.

Other Exemptions

Software Exports

Halal Meat for 4 years if they get Certification

Cellular Mobile Phones manufacturing for 5 years if certified by PTA

Promoting Specific Area/Zones

Enterprises/industrial undertakings in the Special Economic Zones Gawadar Zone Baluchistan/Malakand/Gilgit-Baltistan for

local fruit processing KPK /Baluchistan(new industrial

undertakings) Larkana Industrial Estate

Promoting Specific Projects

CPEC Pioneer Industry Projects China Overseas Ports Holding

Company Limited from Gawadar Port operations

China Pakistan Economic Corridor(CPEC)

CPEC, an important economic initiative, having planned 28 energy projects.

Tax exemption on interest paid to Chinese financial institutions providing funding to these projects is under active consideration for which negotiations are underway between Federal Board of Revenue and State Administration of Taxation(SAT), China.

Pioneer Industry Projects

Five years income tax exemption to projects that have been declared as ‘Pioneer Industry’ by Economic Coordination Committee of the Cabinet, such as Biaxially Oriented Polyethylene Terephthalate (BOPET) Project and Biaxially Oriented Polyethylene Terephthalate Project.

Gawador Port Project

Income from Gawadar Port operations derived by China Overseas Ports Holding Company Limited for a period of twenty three years

Promoting Foreign Direct Investment

Reduced corporate tax rate of 20% if invested by at least 50% foreign equity.

Exemption from withholding tax on purchase of immovable property if invested in a scheme by Federal or Provincial Government in the foreign exchange remitted from outside Pakistan through normal banking channels.

If invested through remittances, no questions asked.

Group Relief

In line with the International tax law, Pakistan provides relief if within a group of companies. The major advantage is absorbing or setting off losses of associates against their own income.

Inter-corporate dividend and inter-corporate interest is also exempt for companies qualifying for group taxation.

Tax Credits

Tax credits for investment in new industrial undertakings-100% in existing industrial undertakings-

10/20% Expansion projects involving 100% new

equity-by existing companies 100% Tax Credits for Employment

Generation Tax credit equal to 1% (subject to a

maximum of 10%) for every 50 new employees

Tax Incentives under Tax Treaties

Through a wide Treaty Network (around 70 tax treaties in force) Pakistan offers following incentives to Foreign Investors: Avoidance of double taxation Despite changes in domestic tax law,

certainty of tax rates on passive income Preferential tax rates for income from

dividend, interest, royalty and fee for technical services

Certainty of non-discrimination and mutual agreement procedure in case of conflict

Special allowances for Capital Expenditure

In addition to normal and initial depreciation, if an industrial undertaking is set up in specified rural and underdeveloped area, a First Year Allowance equal to 90% is allowed instead of 25% initial allowance.

Similarly, 90% accelerated depreciation is allowed instead of 25% initial allowance for alternate energy projects.

SALES TAX

Exemption from Sales Tax & Customs Duty on import of : Plant, machinery & equipment for fruit

processing in Gilgit-Baltistan, Baluchistan and Malakand Division,

Plant, machinery & equipment for Industries in FATA

High efficiency irrigation equipment and greenhouse farming equipment

CUSTOMS

In Finance Act 2015 maximum general slab of 25% reduced to 20%

Number of slabs reduced to 5 from 7

Difference between floor and ceiling MFN rate reduced

Simple & transparent tariff structure with no para tariffs

TARIFF REFORMS

RECENT INITIATIVES:

TARIFF REFORMS

• Enhanced adherence to cascading structure:

• Low slab for raw material, machinery &

equipment

• Medium slab for intermediary goods,

standard inputs

• Higher slab for finished/final goods

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COMPUTERIZED CLEARANCE SYSTEM (WeBOC)

Recent Initiatives

- WeBOC rolled out to more than 90% of the

imports/exports

- Computerized clearance through :

• Green Channel 27% • Yellow Channel 33%• Red Channel 40%

- Reduction in time of clearance - Reduction in cost of imports

Concessions/Exemptions of Customs Duty

• Following Sectors enjoying concessions/exemptions from customs duty under 5th Schedule to the Customs Act:-

S. No. Sectors

1 Agricultural machinery

2 Machinery and equipment for grain handling and storage facilities

3 Cool chain machinery and equipment.

4 Machinery and equipment for initial installation, balancing, modernization, replacement or expansion of desalination plants, coal firing system, gas processing plants and oil and gas field prospecting.

5 Machinery equipment apparatus imported by Hospital and Medical Institutes

6 Machinery, equipment, materials, capital goods, meant for mineral exploration phase.

7 Machinery, equipment, materials, capital goods, meant for mine construction phase or extraction phase.

8 Coal mining machinery, equipment, spares including vehicles imported for Thar Coal Field.

Concessions / Exemptions (Contd..)

S. No. Sectors9 Machinery, equipment and spares meant for initial installation, balancing,

modernization, replacement or expansion of projects for power generation through oil, gas, coal, wind and wave energy including under construction projects, which entered into an implementation agreement with the Government of Pakistan.

10 Machinery, equipment and spares meant for initial installation, balancing, modernization, replacement or expansion of projects for power generation through gas, coal, hydel and oil including under construction projects.

11 Machinery, equipment and spares meant for initial installation, balancing, modernization, replacement or expansion of projects for power generation through nuclear and renewable energy sources like solar, wind, micro-hydel bio-energy, ocean, waste-to-energy and hydrogen cell etc.

12 Machinery and equipment meant for power transmission and grid stations including under construction projects.

13 Machinery, equipment and other education and research related items imported by technical institutes, training institutes, research institutes, schools, colleges and universities.

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

Concessions / Exemptions (Contd..)

S. No. Sectors15 Machinery, equipment and other capital goods meant for initial installation, balancing,

modernization, replacement or expansion of oil refining, petrochemical and petrochemical downstream products including fibers and heavy chemical industry, cryogenic facility for ethylene storage and handling.

16 Machinery and equipment imported by an industrial concern17 Machinery and equipment for marble, granite and gem stone extraction and processing

industries.

18 Machinery, equipment and other project related items for setting up of power generation plants, water treatment plants and other infrastructure related projects located in an area of 30 km around the zero point in Gwadar.

19 Effluent treatment plants20 Items with dedicated use of renewable source of energy like solar, wind, geothermal

etc.21 Items for promotion of renewable energy technologies.22 Plant, machinery, equipment and specific items used in production of bio-diesel

23 Plant, machinery and equipment imported for setting up fruit processing and preservation units in Gilgit-Baltistan, Balochistan and Malakand Division

24 Specialized vehicles imported by the Construction Companies25 Plant, machinery and production line equipment used for the manufacturing of mobile

phones

S. No. Description of goods to be manufactured1 Powder Coatings.2 Chrysotile Cement Pipes, Sheets & Fittings3 Aluminum pre-sensitized printing plates.4 Article of stationary5 Artificial Leather Industry6 Diapers and Sanitary Napkins.7 Disposable/Auto Disable syringes8 Electrical Capacitors9 High Pressure Laminate (Formica) and Low Pressure Laminates.

10 Manufacture or formulation of Agricultural Pesticides 11 Metallic Yarn / Powder12 Stearic Acid/ Distilled Fatty Acid (DFA)13 Printing ink.14 Seamless pipes.

Concessions / Exemptions (Contd..)• Raw materials /inputs for the manufacturing of following items are

importable at concessionary rate of customs duty under SRO 565(I)/2006:-

S. No. Description of goods to be manufactured

15 Sugar Mill, Cement Plant, Plant for industrial chemical, Thermal, Hydel Power plants, Fertilizer plant etc,

16 CRC or GI sheets/coils

17 Agriculture Diesel Engines (Single Cylinder of 3-36 HP)

18 Fan

19 Liquid Food Packaging Industry for dairy and juices

20 Flexible packaging Laminates Industries excluding Cigarettes Industries

21 Gypsum Board

22 Gum Base

23 Butyl Acetate

24 Transformers

25 Electric motors

Concessions / Exemptions (Contd...)

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EXPORTS FACILITATION Export Facilitation Schemes:

- DTRE (Duty & Tax Remission for Export):- Imports without duty and taxes for export

sector- No hassle of payment of duty and refund- Availing of the scheme on voluntary basis

- Export Processing Zones:- Goods imported into and exported from the Export

Processing Zones exempt from duty/taxes - Boosting industrialization and augmenting country’s

exports- Create facilities for investors to setup export oriented

units- Manufacturing Bonds:

- Manufacturer-cum-exporter may establish a manufacturing bond and import raw material used for the manufacture of goods without payment of duty/taxes

- SME & EOU Schemes:- Small & Medium Enterprises (SME) and Export Oriented

Units(EOU) schemes envisages exemption from customs duties on goods including machinery

- Temporary Importation Scheme:

- The scheme entails suspension/exemption from duties/taxes against securities on import of accessories used for manufacture and export of goods

- Duty Drawback :- Repayment of customs duties on the importation of inputs

used in production of goods exported out of Pakistan

EXPORTS FACILITATION (Contd..)

FACILITATION MEASURES

E-Services

Registration Income Tax Return Filing Withholding Statements Refunds processing WeBOC Tax Exemption Certificates GST Return Filing

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Other Services

Tax facilitation Centers Taxpayers Guidance FBR Helpline Tax Awareness Campaigns Taxpayer Facilitation KIOSKs For

Return Filers Establishment of Helpdesks

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E-SERVICES

e-Registration

Optional- Can also file manually

However, instead of visiting tax office, taxpayer can easily prepare and submit application electronically without leaving his office or home.

Quick and Detailed Guides available on web

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e-filing of Returns

Mandatory for: corporate taxpayers salaried taxpayers association of persons GST registered persons

Optional for remaining tax payers

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Refund Processing

It is compulsory for every taxpayer to claim refund electronically. If a refund is to be claimed the Return is also to filed electronically along with refund application.

The entire process from filing of application to issuance of refund is online.

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Tax Exemption Certificates

From tax year 2013, any taxpayer who intends to remit a payment abroad without tax deduction, for any reason, has to apply for Exemption Certificate on-line and his application is processed electronically.

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Other E-Services

WeBOC Goods Declaration for imports and exports

electronically. Has reduced the time for clearance from

number of days to hours.

Electronic filing of GST Returns Filing of Withholding Statements

including Employers’ Statement electronically.

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OTHER SERVICES

FBR Helpline

FBR Helpline provides assistance to public at large and taxpayers in particular by responding to their queries related to Federal Excise Duty, Customs Duty, Income Tax and Sales Tax. The purpose of FBR Helpline is to resolve the day to day problems, issues, clarifications or information and provide tax education. Complex tax situation and issues are referred to Tax Policy wing. The online service is available on weekdays only.

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Tax Facilitation Centers

There are only 18 RTOs and 3 LTUs in Pakistan. A taxpayer may have to travel a lot of distance to file his declarations, documents etc., in an RTO.

Therefore, to facilitate them around 80 TFCs have been established.

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Tax Awareness Campaigns

To reach out to the taxpayers and their designated representatives in the chambers, associations, trade unions an tax bars etc.

To understand and resolve taxpayers issues

To create awareness of the amendments and changes and related tax issues

To get feedback for improving upon FBR’s systems

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Cont.

Awareness raising media campaign has been launched in collaboration with DFID during current year. Tools include:• Public Service Messages (PSM)• PSM for Radio• Short documentary • Media event• Print campaign • Social media campaign

• Facebook page• Twitter account

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Print Media Campaign

Print Media campaign is launched every year, after the Budget is announced, to explain the new amendments and provisions in tax laws and to apprise taxpayers of their tax obligations

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Help Desks and Kiosks

To facilitate filing of Returns electronically, more than 200 kiosks have been established in different RTOs and LTUs.

A number of help desks have also been established in certain Ministries, Parliament, Press Clubs, etc.

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THANK YOU