Changes Proposed in the Income Tax Ordinance, 2001 through Finance Bill 2014

PROPOSED AMENDMENTS IN INCOME TAX ORDINANCE, 2001

HIGHLIGHTS

 Income Tax

• Separate withholding tax rates introduced for filers and non-filers, a filer being a person whose name appears on the active taxpayers’ list of FBR or who holds a taxpayer’s card.
• Bonus shares received by a shareholder to be treated as income subject to deduction of tax at the rate of 5%.

• Stock fund defined to mean a collective investment scheme or a REIT where more than 75% of the investment out of investible funds are invested in equity shares of companies.

• Tax exemption for non-profit organizations replaced with a hundred per cent tax credit admissible on filing of return, compliance withholding tax obligations and filing of withholding statements.

• Alternative corporate tax introduced with effect from Tax Year 2014 as minimum tax payable @ 17% of accounting profits subject to certain adjustments.

• Tax collected at 4.5% on import of ships is to be considered final discharge of tax liability on income from ship-breaking.

• Withholding tax at 20% introduced on directors’ fee or fee for attending board meetings, such tax will be adjustable against final tax liability of the directors.

• Withholding tax rates enhanced on supply of goods, rendering of services, execution of contracts, commission, and imports.

• National tax number made mandatory for obtaining industrial or commercial connection of electricity or natural gas.

• Tax on steel-melters, steel re-rollers, and composite steel units registered for purposes of Chapter XI of Sales Tax Special Procedure Rules, 2007 proposed at the rate of one rupee per electricity unit consumed.

• Advance tax on purchase or transfer of immoveable property is proposed to be collected from the purchaser or transferee at 1% in case of filers and at 2% in case of non-filers, if value of property is more than Rs. 3 million.

• Advance tax on purchase of international air tickets is proposed on first class and business class travel at varying rates for filers and non-filers.

• Tax rate on capital gains on sale of listed securities is proposed to be reduced at varying rates corresponding to holding period of security. Incentives have been provided for the capital market. If holding period of securities is less than months the final tax liability on capital gains will be 12.5% for fiscal year 2015.

• Income of Collective Investment Scheme or REIT would qualify for exemption on 90% distribution of its accounting income to unit holders in form of cash dividend only.

• Tax exemption for 5 years proposed for fruit processing units set up in Baluchistan, Gilgit- Baltistan, Malakand Division and FATA. Profits and gains derived by coal mining projects in Sindh, supplying coal exclusively to power generation projects are to be tax exempt. Further, dividend income of these projects is to be taxed at 7.5%.

• Rate of tax reduced to 20% for a period of 5 years for companies setting up industrial undertakings between 01 July 2014 to 30 June 2017 subject to 50% cost of the project including working capital financed by owner’s equity as direct foreign investment.

• Option given to taxpayers under final tax regime to opt for normal tax liability subject to certain conditions.

• Apportionment of expenses proposed for computing net income from dividends and from capital gains in case of banking companies. Further, it is also proposed that the rate of tax on net capital gains be enhanced to 12.5%.

• The rate of initial allowance on buildings is proposed to be reduced from 25% to 10%.

• Flying allowance received by Pakistani Airlines pilots exceeding their basic salary to be taxed at 7.5%.

• 7.5% adjustable withholding tax proposed on domestic electricity monthly bill exceeding Rs. 100,000.

• Tax rate on dividend from a stock fund is to be increased to 12.5% in case the fund’s dividend receipts are less than its capital gains.

• Tax rate on dividend is proposed to be enhanced to 25% in case dividend is paid by a mutual fund or by an income fund to a company.

• Provision for advance tax collection on private motor vehicles rationalized.

• Under the Minimum Tax Regime sports persons are proposed to be taxed at 10% in line with the other non-corporate tax payers.

• Share of income of a company in an Association of Persons [AOP] is not to be taxed from the income of AOP. Such share of income of the company is proposed to be taxed at applicable corporate tax rate.

• Income from the sale of spectrum license by Pakistan Telecommunication Authority shall be treated as income of the Federal Government and thus not liable to taxation.

• Withholding tax by NCCPL made applicable in case of Foreign Financial Institutions.

• Capital gain on debt securities including corporate and government bonds proposed to be taxed in line with listed equity investments.

• According to the Budget speech corporate tax is reduced to 33% for the tax year 2015.

• The rates of withholding tax under section 153 on account of sale of goods, rendering services and execution of contracts are proposed to be enhanced, depending upon the status of tax payers receiving the amount.

• Minimum tax at the rate of 1% of turnover payable under section 113 has been revamped and different rates introduced for various categories of taxpayers.

• Exemption is proposed for any income derived by Public Sector Universities.

• Exemption for income derived by China Overseas Ports Holding from Gwadar Port operations proposed for a period of twenty years with effect from February 06, 2007.

• Reduced rate of withholding tax under section 153 on sale value of rice sold by Rice Exporters Association of Pakistan to Utility Store Corporation have been withdrawn.

• Reduced rate of 5% withholding tax in case of payments of commission to Advertising Agents is proposed to be increased to 7.5%.

• Exemption from withholding tax against payment for purchase of scrap and ships proposed.

• Exemption from withholding tax under section 152(2) in respect of payments to foreign news agencies, syndicate services and nonresident contributors having no permanent establishment in Pakistan is proposed to be withdrawn.

Income Support Levy

• Through Finance Bill 2014, the Income Support Levy Act, 2013 is proposed to be repealed.

PROPOSED CHANGES IN THE ORDINANCE

Section 2       Definitions  

Clause (23A)

• Clause (23A) has been inserted. By virtue of this insertion, definition of “filer” has been introduced for the first time.

Clause (29)

• 236(M) has been added in clause (29) by virtue of which bonus shares will be chargeable to tax.

• Another amendment has been made in clause 2(29). In the past bonus or bonus shares issued, paid or declared with a view to increase the share capital were outside the purview of “income”. By deleting the said provision, bonus or bonus shares issued, paid or declared to increase the paid up share capital will fall within the ambit of income.

Clause (59B)

• Appointment of “Special Judge” has been brought in by inserting new clause (59B) in section 2 of the Ordinance.

Clause (61A)

• Clause (61A) has been inserted by introducing “stock fund” for the first time. Introduction of this definition is not clear. If the threshold mentioned in the said clause is to override then what action is warranted needs to be explained through circular by the FBR.

Section 4A    Deletion of Surcharge

• Under Income Tax (Amendment) Ordinance, 2011, 15% surcharge was introduced from the promulgation of Income Tax Ordinance, 2001 till 30.06.2011, to be paid by every taxpayer. The said position is constitutional and retrospective. Proposal of its deletion will be highly appreciated. However, it is proposed that the following narration may also be added “that the said provision never existed in the statute”. Without such clarification, levy & surcharge will be a hanging sword.

Section 37     Capital Gain on Sale of Immovable Property

• As per provisions of section 37, gain arising on the disposal of immovable property which has been held for a period up to two years is chargeable to tax. Now Finance Act 2014 has proposed to omit the words “held for a period up to two years”. This will not bear any effect because in First Schedule gain arising out of sale of immovable property held for period more than two years is to be taxed @ 0%.

Section 37A Taxation of Securities      

• Sub-section (4) has been proposed to be replaced by new sub-section (4) elaborating the term “debt securities”. Finance Bill 2014 proposes to delete the proviso relating to non tax liability of capital gain arising from sale of securities held for more than one year. Reason is that in First Schedule gain arising out of sale of securities having holding period up to 24 months shall also be taxable from Tax year 2015.

Section 39     Income from Other Sources        

• Finance Bill 2014 proposes to treat income arising from the issuance of bonus shares as income from other sources. However, the new clause be serially numbered as “m”.

Section 49     Exemption to Sale Proceeds of Licenses of 3G and 4G            

• Recently the Government has sold the licenses of 3G & 4G to the telecommunication companies. By introducing proviso to section 49, Finance Bill 2014, proposes to make it clear that the income on account of sale of licenses to the telecommunication companies will be of the Federal Government and not of PTCL. As such income on this account will not be chargeable to tax.

Section 88A & 92    Proposed Deletion of Share of Profit    

• Section 88A provided the taxation of share of profit received by the company from an AOP in the hands of the company. Finance Bill 2014 seeks deletion of the said sections. This would have been beneficial to the corporate sector having business sharing with AOPs. But amendment in section 92 has taken away the said benefit.

• A proviso is proposed to be added to section 92 whereby the share of profit of a company being member of AOP will be excluded from the income of the AOP and will be charged to tax in the hands of the company at the rate applicable to the company or the companies. This amendment will enhance the tax burden on the companies. It is felt that the words “according to their share” is superfluous and be deleted.

Section 100B           Non Taxation of “Debt Securities”        

• Finance Bill 2014 seeks amendment in section 100B by inserting a new clause (d). Previously income of “foreign institutional investor” was not chargeable to tax. By substituting the said clause income of the foreign institutional investor will become chargeable to tax. However, income of a company on “debt securities” will not be chargeable to tax.

Section 100C            Tax Credit to Certain Persons

• As per present law, income of the NPO, trusts, or welfare institution is exempt from tax. However, by amending Income Tax Rules, 2001, some conditions were laid down for claiming exemption from tax. Now, the Finance Bill 2014 seeks to make it part of the Income Tax Ordinance by introducing section 100C. This section lays down the conditions for claiming 100% tax credit. Sub-section (1) of section 100C specify these conditions which are:

a)                 Return has been filed.

b)                 Tax required to be deducted or collected has been deducted or collected and paid; and withholding tax statement for the immediately preceding tax year has been filed.

• It is felt that the word “return” is not sufficient. It should be “return of income”. In clause (b) of sub-section (1) of section 100C the word “paid” be replaced by the words “deposited in the exchequer”.

• This section also specify the person eligible to claim tax credit thereunder. Second proviso to clause (c) takes away the time limit laid by section 122 of the Ordinance in case of certain isolations. It shows that the action can be taken against a trust beyond five years also.
• Proviso to clause (f) of section 100C(1) lays down that the income of a private trust will not be exempt if it does not ensure for the benefit of the public.

Section 113   Minimum Tax         

• Rates of minimum tax have been proposed to be changed in the following manner.

THE FIRST SCHEDULE

 Part I – Rates of Tax        Division IX

 Minimum Tax Under Section 113

S. No	Person(s)	Minimum Tax as percentage of the person’s turnover for the year
(1)	(2)	(3)
1.	(a)     Oil marketing companies, Oil refineries, Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited( for the cases where annual turnover exceeds Rupees one billion.);(b)     Pakistan International Airlines Corporation ;and(c)     Poultry industry including poultry breeding ,broiler production, egg production and poultry feed production.	0.5%
2.	(a)     Distributors of pharmaceutical products, fertilizers and cigarettes;(b)     Petroleum agents and distributors who are registered under the Sales TaxAct,1990;(c)     Rice mills and dealers ;and (d)     Flour mills.	0.2%
3.	Motorcycle dealers registered under the Sales Tax Act, 1990.	0.25%
4.	In all other cases.	1.0%

 Section 113C            Alternative Corporate Tax         

• A new section 113C has been proposed to be introduced through Finance Bill 2014. This new legislature is meant to charge the accounting income of a company after excluding the share of profit from an associate under equity recognized. Apparently this amendment will take away the benefit of tax depreciation which is always higher than the “accounting depreciation”. In first year of application of section 113C higher tax is expected to be paid by the corporate sector. This section will be operative w.e.f tax year 2014. It is felt that the corporate sector may agitate the amendment as higher tax liability is anticipated for the tax year 2014. However, if the alternative corporate tax is higher than the “corporate tax”, then the difference will be carried forward to the immediately succeeding ten tax years. The said carry forward of tax credit will not be beneficial to the companies whose “accounting income” will remain higher than the income computed in accordance with the provisions of Income Tax Ordinance which is affected by the claim of depreciation.

Section 130   Appointment of the Appellate Tribunal     

• In sub-section (4) of the section 130, a new clause (d) has been proposed to be added by virtue of which a person who has practiced professionally at least for ten years as Cost and Management Accountant may be appointed as Judicial Member of Appellate Tribunal.

Section 148   Advance Tax at Imports  

• Section 148 deals with the collection of tax at the time of imports. A new sub section (8A) has been proposed to be inserted by virtue of which tax collected at the time of import of ships by ship-breakers shall be the final tax. Rates of collection of tax under section 148 are as under:

First Schedule Part II – Reduction in Tax Rates           

Section 149   Deduction at Source – Salary     

• Section 149 deals with the deduction of tax on salary paid by the employer. A new sub-section (3) has been proposed to be added according to which tax at the rate of 20% shall be deducted from any payment made for directorship fee or fee for attending board meeting or fee paid by any other name. The tax so deducted shall be adjustable.

Section 151   Profit on Debt         

• As per sub-section (3) tax deductible on profit is the final tax (other than company). Now a proviso has been proposed to be introduced by virtue of which in case of non-filer other than company, the final tax shall be equal to tax deductible in the case of filer tax deducted in excess shall be adjustable against tax liability. Rates of deduction have been proposed as under:

First Schedule Part III – Deduction of Tax at source Division IA Profit on Debt

Category	Rate of Tax on Profit
Filer	10% of profit
Non-filer	10% – Where payment of profits is upto five hundred thousand.
	15% – Where profit exceeds rupees five hundred thousand.

 

Section 153   Payments for Contracts       

• Clause (c) of sub-section (1) of section 153 deals with the deduction of tax payments made towards contracts. Now the contract signed by a sports person has been proposed to be included towards contracts.

Section 181AA         Compulsory Registration

• A new section 181AA has been proposed to be introduced, according to which no new application for the commercial or industrial connection of electricity or natural gas shall be processed unless the person applying for connection is registered under section 181 of the Income Tax Ordinance, 2001.

Section 231B            Advance Tax on Private Motor Vehicles         

• Finance Bill 2014 has proposed to substitute old section 231B so as to charge tax on registration of motor vehicles as per rates given below:

Part IV – Deduction or Collection of Advance Tax    Division VII

Purchase of Motor Cars & Jeeps

S. No.	Engine Capacity	Tax for Filer	Tax for Non-Filer
(1)	(2)	(3)	(4)
1.	Upto 850 cc	Rs. 10,000	Rs. 10,000
2.	851 cc to 1000 cc	Rs. 20,000	Rs. 25,000
3.	1001 cc to1300 cc	Rs. 30,000	Rs. 40,000
4.	1301 cc to 1600 cc	Rs. 50,000	Rs. 100,000
5.	1601 cc to 1800 cc	Rs. 75,000	Rs. 150,000
6.	1801 cc to 2000 cc	Rs. 100,000	Rs. 200,000
7.	2001 cc to 2500 cc	Rs. 150,000	Rs. 300,000
8.	2501 cc to 3000 cc	Rs. 200,000	Rs. 400,000
9.	Above 3000 cc	Rs. 250,000	Rs. 450,000

• The tax so charged shall be adjustable. It shall not be charged for Federal or Provincial or Local Government or Foreign Diplomat or Diplomatic Mission in Pakistan.

Section 235A            Domestic Electricity Consumption        

• A new section 235A has been proposed to be introduced by virtue of which person preparing electricity bills shall collect advance tax at rate of 7.5% if monthly bills of electricity is Rs.1,00,000/- or more, the tax so collected shall be adjustable.

Section 235B            Tax on Steel Melters, Re-rollers

• Finance Bill has proposed insertion of new section 235B which states:
  • Tax shall be collected from every steel-melter, steel re-roller, composite steel units, registered for the purpose of Chapter XI of the Sales Tax Special Procedure Rules, 2007.
  • Rate shall be one rupee per unit of electricity consumed for production of steel billets, ingots and mild steel excluding stainless steel.
  • Person preparing electricity bills shall collect the tax.
  • Tax collected shall be deemed to be deducted under section 153(I) on payment for local purchase of scrap.

• Tax shall be non-adjustable.

Section 236K            Advance Tax on Purchase or Transfer of Immovable Property

• Finance Bill 2014 proposes for the insertion of new section 236K according to which a person responsible for registering or transfer of immovable property shall collect tax at following rates:

Part IV – Deduction or Collection of Advance Tax                Division XVIII

                Advance Tax on Purchase of Immovable Property

S. No	Period	Rate of Tax
(1)	(2)	(3)
1.	Where value of Immovable property is upto 3 million.	0%
2.	Where the value of Immovable property is more than 3 million	Filer              1%
		Non-Filer      2%

• Provided that the rate of tax for Non-Filer shall be 1% up to the date appointed by the Board through notification in official gazette.

• The tax so collected shall be adjustable. Tax shall not be collected in case of Federal or Provincial or Local Government or Foreign Diplomat Mission. This section shall not be applied on Government schemes or on schemes introduced by authority established under Federal or Provincial law for expatriate Pakistanis.

Section 236L                        Advance Tax on Purchase of International Air Ticket

A new section 236 L has been proposed by the Finance Bill 2014. This section makes it obligatory for the airline to collect advance tax on the gross amount of international tickets issued one-way or return from Pakistan at the following rates:

Part IV – Deduction or Collection of Advance Tax    Division XX

Advance Tax on International Air Ticket

S. No.	Type of Ticket	Rate
(1)	(2)	(3)	(4)
		Filer	Non-Filer
1.	Economy	0%	0%
2.	First / Business / Club class	3%	6%

The tax so collected shall be adjustable.

Section 236M           Bonus Shares

• Finance Bill 2014 proposes to introduce new section 236M according to which every person issuing bonus shares to share holders shall collect tax @ 5% on the value of bonus shares determined on the basis of day-end price on the first day of closure of books. In case of default, the said tax shall be collected from the company.

• The tax required to be collected shall the final tax on income of shareholder of company arising from issue of bonus shares.

First Schedule Part I – Division I — Reduction in Tax Liability

• A new paragraph (1B) is proposed to be added after paragraph (1A) by virtue of which disabled persons registered so with NADRA or persons having age of sixty years on the first day of tax year 2015 shall be entitled for reduction in tax liability by 50%, if income does not exceed rupees one million. Purpose of the proposed change is to give relief to disabled persons irrespective of age. However, this facility was already available to taxpayers having age of sixty years and above.

Taxation of Dividend

• Existing Division-III of Part I prescribing rate of 10% under section 5 of the Income Tax Ordinance, 2001 is proposed to be replaced with new rates as under:-

a)   Tax @ 7.5% on dividend declared or distributed by

i)               Purchaser of power projects privatized by WAPDA.

ii)                Shares of a company set up for power generation.

iii)              Shares of a company supplying coal exclusively to power generation projects.

iv)              In all other cases ……. 10%.

b)       By virtue of two provisos rate of 12.5% has been proposed in respect of dividend received by a person from a stock fund, if the same is less than capital gain. Similarly, rate of 25% is proposed on dividend received by a company from collective investment scheme or a mutual fund other than a stock fund.

Part I – Rates of Tax         Division VII

Capital Gain on Disposal of Securities

• Following rates for charge of tax on capital gain on disposal of securities have been proposed through Finance Act 2014.

S. No.	Period	Tax Year	Rate of Tax
1	Where holding period of	2011	10%
	a security is less than six	2012	10%
	months.	2013	10%
		2014	10%
2.	Where holding period of	2011	7.5%
	a security is more than	2012	8%
	six months but less than	2013	8%
	twelve months.	2014	8%
3.	Where holding period of	2015	12.5%
	a  security  is  less  than
	twelve months
4.	Where holding period of	2015	10%
	a security is twelve
	months or more but less
	than twenty-four months
5.	Where holding period of	2015	0%
	a security is twenty-four
	months or more

Part I – Rates of Tax         Division VIII

Capital Gain on Disposal of Immovable Property

• A new entry has been proposed to be introduced according to which, where holding period of immovable property is more than two years, the rate of tax on capital gain shall be 0%.

Part III – Deduction of Tax at Source   Division I

Advance Tax on Dividend

• Finance Bill 2014 has proposed to substitute Division I in the following manner:
• Advance Tax on Dividend
• The rate of tax to be deducted under section 150 shall be:-

(a)       7.5% in the case of dividends declared or distributed by purchaser of a power project privatized by WAPDA or on shares of a company set up for power generation or on shares of a company, supplying coal exclusively to power generation projects;

(b)       10% for filers other than mentioned in  (a) above;

(c)       15% for non-filers other than mentioned in (a) above:

• Provided that the rate of tax required to be deducted by a collective investment scheme or a mutual fund shall be-

• Provided further that in case of a stock fund if dividend receipts of the fund are less than capital gains, the rate of tax deduction shall be 12.5%

Part III – Deduction of Tax at Source      Division III

Payments for Goods and Services

• Finance Bill 2014 has proposed to enhance the rate of tax to be deducted from payment referred to in Section 153 in the following manner:

Category	Company		Individual/AOP
	Old Rate	New Rate	Old Rate	New Rate
Supply of Goods	3.5%	4.0%	4.0%	4.5%
Services	6.0%	8.0%	7.0%	10.0%
Contracts	6.0%	7.0%	6.5%	7.5%

• A new sub-paragraph (iii) has been proposed to be introduced according to which, deduction @ 10% shall be made on the gross amount payable in case of sports person.

Part IV – Deduction or Collection of Advance Tax    Division II

Brokerage & Commission

• Finance Bill 2014 has proposed following rates for deduction of tax under section 233.

(a)                 7.5% of the amount of the payment in case of advertising agents.

(b)                 12% of the amount of the payment in all other cases.

Part IV – Deduction or Collection of Advance Tax    Division III

Tax on Motor Vehicles

• Finance Bill 2014 has proposed following rates in clause (3) in respect of collection of tax u/s 234 from the owners of private motor cars:

S No.	Engine capacity	for filers	for non-filer
(1)	(2)	(3)	(4)
1.	up to 1000 cc	Rs. 1,000	Rs.1,000
2.	1001 cc to 1199 cc	Rs. 1,800	Rs. 3,600
3.	1200 cc to 1299 cc	Rs. 2,000	Rs.4,000
4.	1300 cc to 1499 cc	Rs. 3,000	Rs.6,000
5.	1500 cc to 1599 cc	Rs 4,500	Rs 9,000
6.	1500 cc to 1999 cc	Rs. 6,000	Rs.12,000
7.	2000 cc & above	Rs. 12,000	Rs.24,000”

(ii)        for clause (4), the following shall be substituted, namely:-

“(4) where the motor vehicle tax is collected in lumsump-

S No.	Engine Capacity	for Filer	for Non-Filer
(1)	(2)	(3)	(4)
1.	up to 1000 cc	Rs. 10,000	Rs.10,000
2.	1001 cc to 1199 cc	Rs. 18,000	Rs. 36,000
3.	1200 cc to 1299 cc	Rs. 20,000	Rs.40,000
4.	1300 cc to 1499 cc	Rs. 30,000	Rs.60,000
5.	1500 cc to 1599 cc	Rs. 45,000	Rs 90,000
6.	1600 cc to 1999 cc	Rs. 60,000	Rs.120,000
7.	2000 cc and above	Rs. 120,000	Rs.240,000”

Part IV – Deduction or Collection of Advance Tax    Division V

Telephone Users

• Finance Bill 2014 proposes to reduce the tax from 15% to 14%.

Part IV – Deduction or Collection of Advance Tax    Division VI

Cash Withdrawal from Bank

• The rate of tax to be deducted u/s 231A was 0.3% of the cash amount withdrawn. Finance Bill 2014 has proposed the above rate for filers whereas for non filers rate of tax has been proposed at 0.5% of the cash amount withdrawn.

THE SECOND SCHEDULE 

EXEMPTIONS AND TAX CONCESSIONS

 Part I – Exemptions from Total Income

 Omissions

Clause (35)

• Exemption to compensatory allowance payable to a citizen of Pakistan locally recruited in Pakistan Mission abroad.

Clause (58)

• Income of a Trusts or Welfare Institutions and Non-Profit Organizations.

Clause (58A)

• Income of a University or other Education Institution.

Clause (59)

• Any income which is derived from:

i)                   Investment in Securities of the Federal Government;

ii)                Profit on Debt from Scheduled Banks;

iii)              Grants received from Federal Government or Provincial Governments or District Governments;

iv)              Foreign Grants; and

v)                 House Property held under Trust or other legal obligations wholly or in part only, for Religious or Charitable purposes.

Clause (60)

• Income of Religious or Charitable Institution derived from voluntary contributions.

Clause (66)(v)

• Hamdard Laboratories (Waqf) Pakistan.

Clause (81A) 

• Foreign Currency Bearer Certificate.

Clause (88A)

• Federal Government Securities and Redeemable Capital.

Clause (92A)

• Any University or any other Educational Institutions established in the most affected & moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA.

Clause (93A)

• Profits and gains of Vocational or Technical institutions recognized by a Board of Technical Education or a University.

Clause (135)

• Encashment of Special US Dollar Bonds.

 

Part II – Reduction in Tax Rates

Omissions

Clause (3A)

• Charge of Tax @ 1% of the Gross Receipts in respect of income from construction contracts outside Pakistan.

Clause (9B)

• Tax under section 148 @1% on import value of re-meltable steel.

Clause (9C)

• Tax under section 148 @ 1% and 3% in case of manufactures and commercial importers.

Clause (13E)

• Potassic fertilizers imported in pursuance of Economic Coordination Committee of the Cabinet’s decision dated 09-12-2011.

Clause (13HH)

• Reduced rate under section 153 on sale value of rice to be sold by Rice Exporters Association of Pakistan (REAP) to Utility Store Corporation.

Clause (13HHH)

• Omitted being redundant.

Clause (17)

• Reduced rate on dividend declared or distributed by purchasers of Power Projects privatized by WAPDA.

Clause (19)

• Application of same tax rate in respect of income of Amalgamated Company for its different businesses.

Clause (20)

• Reduced rate of Tax of 7.5% in case of dividend declared or distributed on shares of a company set up for power generation.

Clause (23)

• Reduced rate of 1 % under section 148 in respect of urea fertilizer imported.

Clause (24)

• Reduced rate of 2% under section 148 in respect of imported pulses.

Clause (24B)

• Reduced minimum tax rate in different tax years in respect of steel melters, steel mills etc., who opted under Sales Tax Special Procedures Rules, 2007.

Clause (26)

• Tax @5% in case of advertising agents specified in Division II Part IV of The First Schedule.

Clause (29)

• Reduced tax rate in the case of cigarette manufactures.

Clause (30)

• Concession given to non-filer, new filers, etc. under Prime Minister’s Amnesty Scheme, 2014.

 

Part III – Reduction in Tax Liability

Omissions

Clause (I)(1)

• Tax reduction concession given to pilots withdrawn.

Clause (IA)

• Tax reduction of 50% to Senior Citizens having age of 60 years & above. This concession made available in the main law.

Clause (5)

• Reduction in tax liability under section 113 to corporatized entities of WAPDA (DISCOs) and National Transmission and Dispatch Company (NTDC).

Clause (7)

• 80% reduction in tax liability under section 113 to distributors of cigarettes manufactured in Pakistan.

Clause (8)

• Reduction in tax liability by 80% under section 113 to distributors of pharmaceutical products, fertilizers, consumer goods including fast moving consumer goods.

Clause (9)

• Reduction in tax liability under section 113 in cases of oil distribution companies, oil refineries and Sui Southern Gas Company Ltd.

Clause (10)

• Reduction in tax liability under section 113 in the case flour mills.

Clause (11)

• Amount of surcharge payable on income tax liability for Tax Year 2011.

Clause (12)

• Tax reduction under section 113 in the case of Pakistan International Airlines Corporation.

Clause (13)

• Reduction in tax liability under section 113 of petroleum agents and distributors registered under the Sales Tax Act, 1990.

Clause (14)

• 50% reduction in tax liability under section 113 to poultry industry, etc.

Clause (15)

• Reduction in tax liability U/S 113 to motor cycle dealers registered under Sales Tax Act, 1990.

 

Part IV – Exemption From Specific Provisions

Omissions

Clause (10)

• Non-application of provisions of Section 111 in respect of any amount invested in the purchase of Special US Dollar Bonds.

Clause (10A)

• Non-application of provisions of serial No. 5 of the Table given in sub-section (1) of section 182 and clause (a) of sub-section (1) of section 205 to business located in the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA.

Clause (38B)

• Non-application of provisions of Section 150 to Islamic Development Bank.

Clause (41A)

• Non application of provisions of Sub section (7) of Section 148 and clause (a) of sub-section (1) of section 169 in respect of person, if he opts out of presumptive tax regime subject to the condition that minimum tax liability under normal tax regime shall not be less than 60% of tax already collected under section 148(7).

Clause (41AA)

• Non application of provisions of section 154(4) and section169(1)(b) in respect of person who opts out of presumptive tax regime subject to the condition that tax paid under normal tax regime is not less than 50% of the tax already deducted under section 154(4). 

Clause (41AAA)

• Non application of provisions of section 153(1)(a) and section 169(1)(b) in respect of person who opts out of presumptive tax regime subject to the condition that tax paid under normal tax regime is not less than 70% of tax already deducted u/s 153(1)(a).

Clause (41B)

• Non application of provisions of section 152(2) in respect of payments to foreign news agencies, syndicate services and non resident contributors who does not have permanent establishment in Pakistan.

Clause (84), (85), (87), (88)

These clauses were inserted in Part IV of The Second Schedule to give legal coverage in respect of different defaults to those taxpayers who opted to avail amnesty under Prime Minister’s Tax Amnesty Scheme, 2014. After the expiry of date provided to avail amnesty, these clauses became redundant and have accordingly been omitted.

 

Part I – Exemptions from Total Income

Insertions

Clause (4)(b)

• Income of a Pakistani seafarer was taxable subject to its remission to Pakistan through normal banking channel not later than two months of relevant income year. Income year is proposed to be replaced with tax year.

Clause (57)(3)(XIII)

• Sind Province Pension Fund is proposed to be exempted from tax on the request of Sind Government. A new paragraph (xiii) is proposed to be added in Clause (57)(3).

Clause (66)

• Clause (xxiv), Clause (xxv), Clause (xxvii), Clause (xxviii) and Clause (xxix) have been re-numbered. This is just a corrective measure because certain clauses were appearing twice/thrice.

Clause (66)(XXX)

• Exemption is proposed to be given to Greenstar Social Marketing Pakistan (Guarantee) Ltd. through the introduction of the new sub-clause.

Proviso to Clause (99)        

• Income derived by collective investment scheme or REIT scheme is exempt if not less than 90% of its accounting income of that year as reduced by capital gain whether realized or not is distributed amongst the unit or certificate holder.
• This proviso is proposed to be added explaining that distribution through bonus shares, units or certificates shall not be taken into account while determining 90% of accounting income.

Clause (126)

• Income of a public sector university is proposed to be exempted from tax through this sub section.

Clause (126A)

• Exemption is proposed to be provided to China Overseas Ports Holding Company Ltd. from Gwadar Port operations for a period of twenty years, with effect from 06-02-2007.

Clause (126G)

• Exemption is proposed to be provided to fruit processing or preservation unit set up in Balochistan, Malakand Division, Gilgit-Baltistan and FATA between 01-07-2014 to 30-06-2017. Purpose is to give incentive to local agricultural products.

Clause (132B)

• Exemption is proposed to be given to coal mining project in Sindh, supplying coal exclusively to power generation projects.

Part II – Reduction in Tax Rates

INSERTIONS

Clause (3)

• Services rendered outside Pakistan are taxable @ 1% of gross receipts, provided such receipts are brought into Pakistan through normal banking channel. Construction contracts are proposed to be included in this clause.   

Clause (18A)

• Reduction in tax rate by 20% is proposed for a company setting up an industrial undertaking between 01-07-2014 to 30-06-2017 for a period of 5 years if 50% of the project cost including working capital is through owner’s equity foreign direct investment.

Part III – Reduction in Tax Liability

INSERTIONS

Clause (1AA)

• Total allowances received by the pilots of any Pakistani Airlines exceeding basic salary are proposed to be taxed at 7.5%.

Part IV – Exemption From Specific Provisions

INSERTIONS

Clause (9A)

• Exemption from application of provisions of section 153(1)(a) is proposed for steel-melters, steel re-rollers, composite steel units, as a payer, in respect of purchase of scrap.

Clause (9AA)

• Exemption from application of provisions of section 153(1)(a) is proposed for ship breakers as recipient of payment. This exemption shall be available to ships imported after 01-07-2014.

Clause (132B) in Clause (11A)(V)

• Exemption for payment of minimum tax under section 113 extended to companies covered under Clause (132B) of Part I of the Second Schedule.

Clause (38C)

• Exemption from application of provisions of section 150, extended to Islamic Development Bank. Previously, exemption was limited to Sections 151 to 153 and Section 233 only.

Clause, (56B) to (56G)

• By adding six new clauses (56B), (56C), (56D, (56E), (56F), (56G) in Part IV of The Second Schedule option has been provided to taxpayers covered under presumptive tax regime to file returns under normal law coming within the ambit of following sections provided that minimum tax liability is not less than the amount deducted under the relevant division of The First Schedule.

1. Clause 56(B) – Section 148(7) read with Section 169(1)(a) – Commercial Importer.

1. Clause 56(C) – Section 153(3) read with Section 169(1)(a) – Suppliers.

1. Clause 56(D) – Section 153(3) read with Section 169(1)(a) – Contractors.

1. Clause 56(E) – Section 153(2) read with Section 169(1)(a) – Services rendered.

1. Clause 56(F) – Section 156 A(2) read with Section 169(1)(a) – Commission/Discount Received.

1. Clause 56(G) – Section 233(3) read with Section 169(1)(a) – Brokerage/Commission.

 

                                             Substitution in Sub Clause (VI) of Clause (57)

• By this substitution it is clarified that registration with Sales Tax Department means registration under the Sales Tax Act, 1990.

 

                                                                   Explanation added in Clause (57)

• Exemption from the application of provisions of section 113, 148, 153 is available to companies fulfilling conditions laid down in the clause.
• Explanation is proposed to be added to clarify that exemption U/S 153 will be available as a recipient and not as a withholding agent.

THE THIRD SCHEDULE

 

Part II – Initial Allowance and First Year Allowance

Insertions

• Rate of initial allowance U/S 23 is proposed to be reduced from 25% to 10%. Change has accordingly been proposed in clause (1) of Part II to The Third Schedule.

 

THE SEVENTH SCHEDULE

INSERTIONS:

Taxation of Income of Banking Companies

• Dividend and capital gain were taxable at 10% in the hands of banking companies. Now, net incomes under the head dividend and capital gain are proposed to be taxed at higher rate of 12.5%. Change is accordingly proposed in Rule-6 of the Seventh Schedule.

• Formula of determining net income under the above heads is also proposed to be added through substitution of Rule-6A and 6B in the Seventh Schedule.

• Now, expenditure incurred for earning above income are proposed to be allowed according to prescribed formula to arrive at net income under the above heads.

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