Tax in Budget - A Salam Jan & Co.€¦ · Tax credit for investment in shares and insurance ... expansion or BMR etc. upto June 30, 2021. 5. Tax credit for newly established industrial

Tax in Budget

Changes in Income Tax Law

through Finance Bill 2018

ASC Tax Supplement

[For the sole use of Our Staff & Clients.]

ASC

TABLE OF CONTENTS

Foreword

Summary of significant changes in

Income tax law

Comparison of Proposed & Existing

Tax Rates for Individuals & AoPs

Tax Rate Card for Individuals

Tax Rate Card for AoPs

Tax Rate Card for small Companies,

& other Companies.

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‘6

‘5

‘6

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Tax in Budget 2018

2018 © A. Salam Jan & Co. Chartered Accountants – Member of AFFILICA International-UK.

1

FOREWORD

Every year federal budget is presented in national assembly for

the forthcoming fiscal year. Besides setting expected receipts

and payments, budget also includes various fiscal measures to

set direction for various fiscal targets which government wants to

achieve.

Various amendments are made in fiscal laws including income

tax law every year in furtherance of such objectives.

This document “Tax in Budget” aims to cover the proposed

amendments in income tax law and its implications on our

clients which are limited liability companies (LLCs), non-

governmental organizations (NGOs), association of persons

(AOPs) and individuals both salaried and non-salaried (INDs).

We hope that the “Tax in Budget” will assist our clients and staff

to understand the changes in income tax law i.e. Income Tax

Ordinance 2001 & Income Tax Rules 2002 and implications of

such changes on their businesses and work.

The information presented in this document has been taken

from the Federal Budget and Finance Bill, 2018, as presented in

the National Assembly on April 27, 2018. It contains proposed

amendments, which will become operative once the Finance Bill

is formally passed in National Assembly and become Finance

Act, 2018. A separate document will be issued once the Finance

Bill is passed in the National Assembly.

“Views expressed herein should not be acted upon without

obtaining professional advice, as the interpretation may differ in

different circumstances."

In the end we want to thank our tax team for their contribution

to compile this document.

Abdus Salam Jan - FCA, FPFA Ayesha Ahmad Murtaza – FCA, FPFA

Peshawar-Pakistan

April 30, 2018

Tax in Budget 2018


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Changes in Income Tax Law –

ASC Clients’ Perspective only.

1. Super tax for rehabilitation of temporarily displaced persons.

[Section 4B]

It is proposed through slight amendment in section 4B to

extend the scope of super tax to be paid by certain

companies for rehabilitation of temporarily displaced

persons for three more years i.e. Tax Year 2018 to 2020,

which was initially for three years TY 2015 to 2017.

The bill further proposed to reduce the rate of super tax by

1% for each subsequent year until Tax Year 2020.

2. Tax on undistributed profit. [Section 5A]

It is proposed through amendment in section 5A, the rate of

tax is reduced from 7.5% to 5% and limit from 40% to 20%.

Now Public companies have to declare at least 20% of the

after tax profit as dividend otherwise, their undistributed

profits will be taxed @ 5%.

3. Tax credit for investment in shares and insurance [Section 62]

Sub section 2 of section 62 is proposed to be amended, to

change the limit of C in formula for tax credit for investment

in shares and insurance from Rs. 1.5 million to Rs. 2 million.

Now resident person other than companies is allowed tax

credit for investment in shares and insurance by applying

average tax rate on the lower of following:

( A/B ) x C

A=Tax assessed

B=Taxable income

C= lower of;

Cost of shares or amount of premium;

20% of taxable income; or

Rs. 2 Million;

4. Tax credit for investment [Section 65B]

Sub section 2 of section 65B is proposed to be amended, to

extend the relief from year 2019 to 2021. Now company can

avail tax credit of 10% of the invested amount on further

investment in purchase of plant and machinery for extension,

expansion or BMR etc. upto June 30, 2021.

5. Tax credit for newly established industrial undertakings. [Section 65D]

Sub section 2 of section 65D is proposed to be amended, to

extend the relief from year 2019 to 2021. Now company can

avail tax credit of 100% of the tax payable on investment for

establishing new industrial undertakings upto June 30, 2021.

6. Tax credit for industrial undertakings established before the first day of July, 2011. [Section 65E]

Sub section 4 of section 65E is proposed to be amended, to

extend the relief from year 2019 to 2021. Now such company

can avail tax credit of 100% of the tax payable for purchase

and installation of plant and machinery for existing industrial

undertakings upto June 30, 2021.

7. Tax credit for certain persons. [Section 100C]

It is proposed through amendment in section 100C, to

enabling Non-Profit Organization, trusts and welfare

institutions for availing 100% tax credit against income from

investment in micro finance banks. Previously it was not

covered under section 100C.

8. Gain on disposal of assets outside Pakistan.

[Section 101A]

It is proposed through insertion of a new section 101A, that

gain arising to a non-resident person from disposal made

outside Pakistan of an asset located in Pakistan, will be

treated as Pakistan source income and chargeable to tax as

per certain conditions.

Tax in Budget 2018


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9. Controlled foreign company. [Section 109A]

It is proposed through insertion of a new section 109A, to

give the taxation provisions for controlled foreign company.

Now income attributable to a controlled foreign company is

to be included in the taxable income of a resident person for

a tax year: if

capital or voting rights of the resident person is

10% or more and;

income of the controlled foreign company exceeds

Rs 10 Million.

10. Unexplained income or assets. [Section 111]

It is proposed through an amendment in the section 111, to

restrict the immunity of non-probing source of income

hence requiring resident persons to provide the details for

remittances in excess of Rs. 10 million in any tax year. Now

the source of income for foreign remittance of more than Rs.

10 million will to be enquired.

It is also proposed through changes in section 111, to change

provision pertaining to unexplained income and assets are

being amended as follows;

Addition to income of a person on account of

unexplained Pakistani assets or income will be made in

the year to which the same relates.

Addition to income of a person on account of

unexplained offshore assets or income will be made in

the immediately preceding tax year in which the same

is discovered by Commissioner.

11. Foreign income and assets statement. [Section 116A]

It is proposed through insertion of a new section 116A, to

require the resident persons to file of foreign income and

assets statement. Now resident individual taxpayers are

required to file foreign income and assets statement in case

where foreign income is USD 10,000 or more, or foreign

assets are USD 100,000 or more.

12. Best judgement assessment. [Section 121]

It is proposed through amendment in section 121, to make

certain changes in the provisions related to best judgement

assessment. Where the Commissioner requires any person to

file returns upto 10 years then the time limit for passing a

best judgement order would be within two years from the

end of the tax year in which such notice was issued.

13. Alternative Dispute Resolution. [Section 134A]

It is proposed through various amendment in section 134A,

to make the following changes in the mechanism of ADRC;

ADRC will now give decision on the issue rather

than recommendations

ADRC decision will be binding on both the taxpayer

and department

Mechanism will progress only after withdrawal of

appeals from appellate forum by taxpayer and

department.

Retired judge of High Court and professionals are

also eligible for membership of ADRC.

ADRC will be dissolved if taxpayer or department

fails to withdraw appeals and communication is not

made within 75 days.

14. Recovery of tax from persons holding money on behalf of a taxpayer. [Section 140]

It is proposed through an amendment in section 140, to

reduce the percentage of tax to be paid to get automatic

stay against the recovery from person holding money on

behalf of a taxpayer of the tax due from 25% of the demand

to 10% of the demand.

15. Advance tax paid by the taxpayer. [Section 147]


change the calculation of advance tax with the following

changes:

If turnover cannot be estimated or known for the quarter then

1/4th of 110% of last year turnover will be taken;

In case estimate advance tax is lower than previous then

reason for decline, estimated documentary evidence of

expenses and computation of estimated taxable income for

relevant year should also be furnished.

16. Payments for goods, services and contracts. [Section 153] & [Div III Part III of First Schedule]


bring the limit for tax deduction under payment for supplies

and services in to Income Tax Ordinance, 2001 and also

enhance the limit for tax deduction from Rs. 25,000 to Rs.

75,000 for supplies and Rs. 10,000 to Rs. 30,000 for services.

Presently these limits were prescribed through SRO 586(I)

1991.

Tax in Budget 2018


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Withholding tax rates for non-filers increased from 7% to 8%

in case of companies and from 7.75% to 9% for others in

respect of sale of goods. For contracts the rates have been

increased from 12% to 14% for companies and from 12.5% to

15% in other cases.

17. Furnishing of information by banks. [Section 165A]

It is proposed through an amendment in section 165A, to

make changes in certain limits for banks to furnish

information. The monetary limit for reporting particulars of

deposit is increased from Rs. 1 million to Rs. 10 million and

monetary limit for reporting of credit card payments

particulars from Rs. 1 lac to Rs. 2 lac and cash withdrawal by

filers and non-filers in excess of Rs. 1 million.

18. Credit for tax collected or deducted. [Section 168]

It is proposed through the insertion of subsection 2A to the

section 168, to allow credit to a company which is a member

of an AOP of taxes collected or deposited in the hands of

AOP to the company proportionate to its share of income.

19. Offences and penalties.

[Section 182]

It is proposed through amendment of section 182, to reduce

the amount of penalty for filing of certain statements. By

abolishing the existing very high rate of Rs. 2,500 per day to

Rs. 5,000 lump sum if the tax due has been deposited and

statement has been filed within 90 days of the due date and

Rs, 10,000 lump sum in other cases for filing of:

Withholding statements to be filed under section

165;

Statement of final taxation under section 115(4); or

Information to be furnished by bank under section

165A & 165B.

20. Return not filed within due date. [Section 182A]

It is proposed through an insertion of a new section 182A, to

introduce following restrictions for non-filing of return within

due date as per Law and extended by the Board or

Commissioner in addition to penalties;

Name of person shall not be included in the Active

Taxpayers List – ATL for that year;

Person shall not be allowed to carry forward any

loss for that year.

21. Restriction on purchase of certain assets. [Section 227C]

It is proposed through an insertion of a new section 227C, to

restrict non-filers for registration of vehicle and immovable

property not exceeding the value of Rs. 4 million. This limit of

Rs. 4 million for property however, is not given in Finance Bill

2018 and need to be incorporated in Finance Act, 2018 as it

is announced in the speech of Finance Minister and also

covered in the salient features related to budget.

22. Directorate General of Immovable Property. [Section 230F]

It is proposed through an insertion of a new section 230F, to

constitute a Directorate General of Immovable Property to

ensure that the valuation between transferor and transferee

are less than the fair market value to evade tax, concealed

unexplained income or reduction in capital gain tax etc.

Various powers are given to the Directorate in this regard.

The notification of the Directorate are yet to come following

the Finance Bill, 2018

23. Tax on sale of certain petroleum products [Section 236HA]

It is proposed through an insertion of a new section 236HA,

to collect advance tax on sale of petroleum products to

petrol pumps operators and distributors who are not

allowed any commission or discount. The Proposed rate of

advance tax is 0.5% and 1% of ex-depot price for filer and

non-filer respectively which will be collected by the person

selling the petroleum product to such petrol pump operator

or distributor and it shall be treated as final tax on income

arising from sale of petroleum products.

And the tax deduction on commission or discount from

petrol pump operator or distributor who are allowed

commission or discount shall continue as per law @ 12% and

17.5% for file and non-filer respectively.

24. Rates of Tax for individuals, AOPs and Companies [First Schedule]

Rates of tax for all taxpayers are reduced and we have given

a comparisons of proposed tax liability and existing one with

rate of relief to be available along with the detail of new tax

rates applicable to Tax Year 2019 from page 5 & 6.

Tax in Budget 2018


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COMPARISON OF TAX LIABILITY UNDER EXISTING AND

PROPOSED TAX RATES FOR SALARIED INDIVIDUAL

Following is the comparison chart of the salaried person

tax liability under existing and proposed tax rates to show

the reduction in liability under the proposed rates. The

amount and rate of reduction of salaried individual’s tax

liability is set out in the following table: -

S

N

Taxable

Income

(Rs)

Existing

Tax (Rs)

Proposed

Tax (Rs)

Relief

(Rs)

Relief

%

1

500,000.

2,000

1,000

1,000

50%

2

600,000.

7,000

1,000

6,000

86%

3

700,000.

12,000

1,000

11,000

92%

4

800,000.

19,500

1,000

18,500

95%

5

900,000.

29,500

2,000

27,500

93%

6

1,000,000.

39,500

2,000

37,500

95%

7

1,100,000.

49,500

2,000

47,500

96%

8

1,200,000.

59,500

2,000

57,500

97%

9

1,300,000.

69,500

5,000

64,500

93%

10

1,400,000.

79,500

10,000

69,500

87%

11

1,500,000.

92,000

15,000

77,000

84%

12

2,000,000.

172,000

40,000

132,000

77%

13

2,500,000.

259,500

70,000

189,500

73%

14

3,000,000.

359,500

120,000

239,500

67%

15

3,500,000.

472,000

170,000

302,000

64%

16

4,000,000.

597,000

220,000

377,000

63%

17

4,500,000.

734,500

270,000

464,500

63%

18

5,000,000.

872,000

330,000

542,000

62%

COMPARISON OF TAX LIABILITY UNDER EXISTING AND

PROPOSED TAX RATES FOR BUSINESS & OTHER

INDIVIDUAL

Following is the comparison chart of the business and

other individuals tax liability under existing and proposed

tax rates to show the reduction in liability under the

proposed rates. The amount and rate of reduction of

business and other individual’s tax liability is set out in the

following table: -

S

N

Taxable

Income

(Rs)

Existing

Tax (Rs)

Proposed

Tax (Rs)

Relief

(Rs)

Relief

%

1

500,000.

7,000

1,000

6,000

86%

2

600,000.

17,000

1,000

16,000

94%

3

700,000.

27,000

1,000

26,000

96%

4

800,000.

39,500

1,000

38,500

97%

5

900,000.

54,500

2,000

52,500

96%

6

1,000,000.

69,500

2,000

67,500

97%

7

1,100,000.

84,500

2,000

82,500

98%

8

1,200,000.

99,500

2,000

97,500

98%

9

1,300,000.

114,500

5,000

109,500

96%

10

1,400,000.

129,500

10,000

119,500

92%

11

1,500,000.

144,500

15,000

129,500

90%

12

2,000,000.

244,500

40,000

204,500

84%

13

2,500,000.

344,500

70,000

274,500

80%

14

3,000,000.

469,500

120,000

349,500

74%

15

3,500,000.

594,500

170,000

424,500

71%

16

4,000,000.

719.500

220,000

499,500

69%

17

4,500,000.

869,500

270,000

599,500

69%

18

5,000,000.

1,019,500

330,000

689,500

68%

Tax in Budget 2018


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PROPOSED TAX RATE CARD FOR EVERY INDIVIDUAL

TAX YEAR 2019

The rates of tax on taxable income of every individual shall

be as set out in the following table: -

S

N

TAXABLE INCOME RATE OF TAX

1

Where the taxable income

does not exceed Rs.400,000.

0%

2


exceeds Rs.400,000 but does

not exceed Rs.800,000.

Rs. 1,000.

3



not exceed Rs.1,200,000.

Rs.2,000.

4


exceeds Rs. 1,200,000 but

does not exceed Rs.2,400,000.

5% of the amount

exceeding Rs. 1,200,000.

5



does not exceed Rs.4,800,000.

Rs.60,000 + 10% of the

amount exceeding Rs.

2,400,000.

6


exceeds Rs. 4,800,000

Rs.300,000 + 15% of the

amount exceeding Rs.

4,800,000.

Note: As a paradigm shift the tax rates for salaried and

other individuals are unified and separate rates are

abolished.

TAX RATE CARD FOR BANKING AND OTHER COMPANIES

TAX YEAR 2019

The Companies other than banking companies has to pay

tax on its taxable income at the rate of 29%, whereas the

banking companies have to pay 35%.

PROPOSED TAX RATE CARD FOR

ASSOCIATION OF PERSONS (AOPs)

TAX YEAR 2019

Association of Persons (AOPs) have to pay taxes on their

income, the rates of tax are follows: -

S

N

TAXABLE INCOME RATE OF TAX

1


does not exceed

Rs.400,000.

0%

2



not exceed Rs.1,200,000.

5% of the amount

exceeding Rs.400,000.

3



does not exceed

Rs.2,400,000.

Rs.40,000 + 10% of

the amount

exceeding

Rs.1,200,000.

4



does not exceed

Rs.3,600,000.

Rs.160,000 + 15% of

the amount

exceeding

Rs.2,400,000.

5



does not exceed

Rs.4,800,000.

Rs.340,000 + 20% of

the amount

exceeding

Rs.3,600,000.

6


exceeds Rs.4,800,000 but

does not exceed

Rs.6,000,000.

Rs.580,000 + 25% of

the amount

exceeding

Rs.4,800,000.

7


exceeds Rs.6,000,000

Rs.880,000 + 30% of

the amount

exceeding

Rs.6,000,000.

TAX RATE CARD FOR SMALL COMPANIES

TAX YEAR 2019

The Small Companies has to pay tax at the rate of 25%.

Views expressed in this document are for assistance of our CLIENTS & STAFF only & should not be acted upon without

obtaining professional advice, as the interpretation may differ in different circumstances.

For further details please contact us at:

A. SALAM JAN & CO. C h a r t e r e d A c c o u n t a n t s.

Member firm of AFFILICA INTERNATIONAL – UK

4th Floor FC Trust Building

Sunehri Masjid Road, Peshawar Cantt.

KP Pakistan Tel : + 92 91 526 06 47-8 Fax : + 92 91 527 17 07

Email: [email protected]

Or log on to our website:

www.asalamjan.com

mailto:[email protected]

Documents

Tax in Budget - A Salam Jan & Co.€¦ · Tax credit for investment in shares and insurance ... expansion or BMR etc. upto June 30, 2021. 5. Tax credit for newly established industrial