24/07/2019
Highlights
Income Tax
► For tax year 2018, the due date for filing of original/revised return of income and/or statement of final taxation, for all categories of tax payers extended up to 02 August 2019
► FBR notifies the panel for Constitution of committees for Alternative Dispute Resolution for 8 cities
► Tenth Schedule to govern collection/deduction of income tax, computation of income and assessment of tax of persons not appearing in the Active Taxpayers List.
► Capital gain tax on disposal of immovable property will depend on:
(i) category of immovable property viz open plot versus constructed property;
(ii) period of holding of such property; and
(iii) amount of gain on such disposal.
► Purchase of assets should be made through cross banking instruments; otherwise adverse consequences enacted.
► Tax credit for investment in plant and machinery under Section 65B restricted to investments made up to 30 June 2019; rate reduced from 10% to 5% retrospectively for tax year 2019.
► Apart from cheque or bank debit advice, refunds may also be settled through issuance of bonds issued by the FBR Refund Settlement Company Limited.
► Conclusion of tax audit by the Commissioner now requires issuance of audit report which will then form the basis for making amendment of assessment under Section 122.
► Exemption from selection of cases for tax audit to persons who have been audited in the preceding three tax years has been withdrawn.
► Failure to comply with notice for filing statement of foreign income and assets may lead to prosecution.
► Offshore tax evasion will now be severely penalized and prosecuted.
► Tax paid at import stage for commercial importers and ship-breakers to be treated as ‘minimum tax’
► Tax paid / deducted on profit on debt (other than a company), tax deductible from a non-resident person on account of: certain contracts and services; supply of goods; ex*****on of contracts and payment of commission and on gas consumption bills of CNG Stations to be treated as ‘minimum tax’
► Clause (94), Part IV of the Second Schedule to the Ordinance providing for rate of 2% minimum tax for certain specified service providers has been omitted. Rate for such service sectors including transport services was prescribed at 4% through the Bill. The Act has revised the proposed rate and introduced a rate of 3%.
► Allowability of commission expense paid to a dealer whose name is not appearing in the Active Taxpayers List (ATL) restricted to 0.2% of the gross amount of supply of products as listed in Third Schedule to the Sales Tax Act, 1990
► The receipt of a gift shall be taxable, unless received from immediate family members.
► Where a taxpayer, other than a company, earns profit on debt exceeding PKR 36 million, the entire profit on debt will be taxable as part of its normal taxable income. For profit on debt up to PKR 36 million, the rate of tax under Section 7B has been revised upwards.
► A tax credit shall be allowed to a person for hiring fresh qualified graduates in the tax year in which they are employed.
► Definition of resident individual expanded to include an individual who is present in Pakistan for 120 days (proposed for 90 days by the Finance Bill) or more in the tax year, and who in the four preceding tax years was present in Pakistan for 365 days in aggregate.
► Every trust and welfare institution, with effect from 1st July, 2020 must now mandatorily obtain approval of the Commissioner in order to claim a tax credit under Section 100C. Furthermore, trusts and welfare institutions may not confer any private benefits to relatives of the donor or author.
► Payment to non-residents on account of offshore supplies forming part of an overall EPCC arrangement can be made after deducting 2.1% (proposed at 6% by the Bill) tax, subject to obtaining approval from the Commissioner.
► A withholding tax of 15% shall apply on payment of royalty to resident persons.
► Where the Commissioner is of the opinion that a transaction has not been declared at arm's length, the Commissioner may obtain a report from an independent chartered accountant or cost and management accountant.
► Every person engaged in any business, profession or vocation shall be required to obtain and display a business licence.
► Failure to furnish details, or furnishing incorrect details, in the withholding tax statements is punishable by fine or imprisonment, or both.
► Rates of penalties revised on various offences; failure to file return of income by the due date attracts minimum penalty of PKR 5,000.
► Due date of filing of return of income for salaried individual and for filing of statement for FTR income changed to 30 September.
► Brought forward depreciation losses, brought forward amortization and brought forward business losses not to be accounted for the purpose of working out super tax for banking, insurance, E&P companies and income covered under Eighth Schedule.
► Limit on non-questionable remittance of foreign exchange from abroad reduced to PKR 5 Million in a tax year.
► A person filing return of income after the due date would be included in the ATL after payment of prescribed surcharge.
► Individuals and AoPs deriving income under the head ‘income from Property’ exceeding Rs. 4 Million can now opt to be taxed on net income; after claiming expenses under Section 15A at applicable rates.
► Dealer’s margin to be added to the income of a person supplying products listed in Third Schedule of the Sales Tax Act, 1990 and or any other products prescribed by FBR, to a person under dealership arrangement who is not registered under the Sales Tax Act, 1990 or is not appearing in the active taxpayers list
► Bad debts classified as “doubtful” to be excluded for the purpose of computing allowable provision under Rule 1(c) of the Seventh Schedule
► Effective from the tax year 2020, tax rate of 37.5% would be applicable on additional taxable income earned from additional investment in Federal Government securities.
► Board may introduce scheme for taxing certain persons and businesses in particular cities or territories.
► If a tax payable by an association of persons in respect of any tax year cannot be recovered from the association of persons, the same can be recovered from the member of the association of persons
► Monitoring proceedings can be reinitiated and tax can be recovered from the assessee in default if the Commissioner believes that the earlier assessment passed under Section 161 was erroneous in so far as it was prejudicial to the interest of revenue.
► Self-generated goodwill and notional amounts do not represent intangibles, even if permitted under prescribed accounting treatments. Furthermore, intangibles may now be amortized over their actual useful life, or where the useful life is not ascertainable, over a period of 25 years.
► In order to facilitate low risk and compliant taxpayers, FBR will design an alternate impersonal taxation regime whereby personal interaction will be minimized.
► Rate of 0.25% introduced as the withholding tax rate on payment for goods supplied by dealers and sub-dealers of sugar, cement and edible oil.
► Rate of 0.25% prescribed as minimum tax under section 113 for dealers and sub-dealers of sugar, cement and edible oil.
► Reduction in tax liability of a full time teacher or researcher reduced from 50% to 25% (originally proposed at 40% by the Bill).
Sales Tax
► The term ‘Cottage industry’ is re-defined as a manufacturer located in a residential area with less than ten workers and annual turnover upto three million rupees without having industrial gas and electricity connection.
► The term “retail price” is to include the price fixed by an importer.
► The value of supply in case of toll manufacturing is defined as actual consideration received by the toll manufacturer for its value addition.
► The sales tax on bricks is levied under fixed sales tax regime Act.
► The rates for withholding/deduction of sales tax by withholding agents are introduced under the newly inserted Eleventh Schedule to the ST Act.
► Tier-1 retailer inter-alia includes a retailer whose shop measures 1,000 sq.ft. or more. The Tier-1 retailers shall pay sales tax at the applicable rates and option to pay sales tax on turnover basis or at the rates specified in SRO 1125 shall not be available anymore. A conditional reduced rate of 14% is introduced.
► Customers of Tier-1 retailers may receive cash-back up to 5% of the sales tax paid on their purchases from such date or manner and to the extent as may be prescribed by FBR.
► The regime of value addition tax on imports inserted with some modifications by introducing the Twelfth Schedule to the ST Act.
► NIC number or NTN of un-registered buyers is required to be mentioned on the sales tax invoice; otherwise, related input tax adjustment shall not be available to the suppliers on pro-rata basis.
► Audit of the records of a registered person may be conducted in each year.
► The sales tax return may be revised without permission of the Commissioner subject to the condition that the revised return is filed within sixty days and tax payable is higher than the already paid tax or refund claim is less than originally claimed.
► FBR may prescribe rules to initiate criminal proceedings against the Officials of Sales Tax.
► The penalty for non-filing of sales tax return is enhanced from PKR 5,000 to PKR 10,000. Where return filing is not delayed for more than 10 days, the penalty is increased from PKR 100 to PKR 200 for each day of default.
► Parameters for selection of sales tax audit by FBR to be kept confidential.
► The extra sales tax regime is withdrawn and certain goods are inserted into the Third Schedule subject to sales tax at retail price.
► The sales tax exemption on certain items including silver and gold, electricity and gas supplied to hospitals, , fat filled milk sold in retail packing is proposed to be withdrawn.
► New exemptions introduced in the Sixth Schedule on supply of electricity and other goods including import of plant and machinery to Tribal areas, import or supply of steel products by the manufacturers on which FED is levied under sales tax mode and local supplies of Cottonseed oil..
► Reduced rate of sales tax proposed to be withdrawn from Eighth Schedule on reclaimed lead, rapeseed, sunflower, canola, and white crystalline sugar.
► Reduced rate of sales tax to be levied on various goods under the Eighth Schedule to the Act.
► The rate of sales tax on handsets have been reduced.
► The list of sales tax on services levied under Islamabad Capital Territory (Tax on Services) Ordinance, 2001 expanded in lines with the provincial sales tax laws.
Federal Excise Duty
► Duty on supply of steel products is to be charged at 17% ad valorem in sales tax mode which shall not be less than the duty on production of steel products on an annual basis.
► FBR may prescribe rules to initiate criminal proceedings against the Officials of Federal Excise or taxpayers or both.
► The rate of duty on edible and vegetable ghee and cooking oil is increased from 16% to 17% and fixed duty on import of oil and oil seeds is proposed to be withdrawn.
► The rate of duty on certain kinds of aerated water is proposed to be increased from 11.5% to 13%.
► The rate of duty on unmanufactured to***co is proposed to be decreased from Rs. 300/kg to Rs. 10/kg.
► The rate of duty on locally produced ci******es is increased.
► The rate of duty on cement is increased from PKR 1.50/ kg to PKR 2/ kg.
► The rate of duty on LNG is to be levied at PKR 10/MMBTU instead of PKR 17.8/100 cubic meter.
► The rate of duty on imported motor vehicles excluding Auto Rickshaws is to be levied at the rate of 2.5% with the engine capacity of upto 1000cc, 5% from 1001cc to 1799cc, 25% from 1800cc to 3000cc and 30% on 3001cc and above. Currently, only vehicles of engine capacity of 1800cc and above are subject to duty.
► The rate of duty on locally manufactured/assembled motor vehicles is to be levied at the rate of 2.5% with the engine capacity of upto 1000cc, 5% from 1001cc to 2000cc and 7.5% on 2001cc and above. Currently, only vehicles of engine capacity of 1700cc and above are subject to duty.
► The duty is to be levied on fruit juices, syrups and squashes at the rate of 5% of the retail price.
► The rate of duty on domestic air travel is reduced from PKR 2,000 to PKR 1,500 for long routes and PKR 1,250 to PKR 900 for short routes.
► The exemption of duty on internet services, DCNS and value added data services is proposed to be withdrawn while the exemption on international leased line or bandwidth services provided by foreign satellite companies is also withdrawn.
Customs Duty
► Duties on more than 1,600 tariff lines are proposed to be exempted or reduced which includes raw material and intermediary goods for textile and paper sector, wooden furniture, home appliances industry, solar panal assemblers, chemical industry, pharma industry etc.
► Duty on import of LNG is proposed to be levied at the rate of 5%.
► Additional customs duty on non-essential and luxury items is enhanced.
► Regulatory duty on mobile phones and tyres is reduced.
► Goods are proposed to be confiscated in case the value of imports or exports are mis-declared for illegal transfer of funds abroad.
► Refund of duties is proposed to be subject to pre-audit.
► The period of declaration of goods by the owner for home consumption, warehousing and transshipment is reduced from 15 to 10 days.
► The clearance period of imported or exported goods is reduced from 20 to 15 days. The power to extend the period for further 10 days is also reduced to 05 days.
► The period of warehousing of perishable goods is reduced from three to one month.
► Risk Management System shall be introduced by the Customs Authority to enforce customs controls.
► The power of the Collector of Customs to determine the value is withdrawn and restricted to the Director of Customs valuation.
► The power to issue show cause notice in respect of non-levied or short-levied duty is extended to exporters.
► Exports are brought within the ambit of provisional determination of liability by the Officer of Customs.
► Certain new penalties are inserted.
► FBR may prescribe rules to initiate criminal proceedings against the Customs Officials or taxpayer or both.
► Monetary threshold limits of the Officers of Customs for adjudication are re-defined.
► Option to pay fine in lieu of confiscation of goods on import and export of prohibited or restricted goods to be extended to violation of other provisions of the Act.
► The time limit for passing an Order by the Collector (Appeals) is proposed to be reduced from 120 days to 90 days.
► Procedure for constitution of the Appellate Tribunal is modified.
► Powers and procedures of ADRC are modified.
