201506.09

Budgetary Changes in the Income Tax Ordinance, 2001

by admin in Income Tax

The Changes proposed through Finance Bill, 2015 are as under:

PROPOSED CHANGES IN INCOME TAX ORDINANCE 2001

THROUGH FINANCE BILL 2015

Definition Section 2

The following new clauses have been proposed to be inserted in section 2:-

Clause (13AA)

“Consumer goods” have been defined as goods that are consumed by end consumer. The goods used in production of other goods shall not be treated as consumer goods.

Clause (22A)

“Fast moving consumer goods” have been defined as goods which are supplied in retail marketing as per daily demand of consumer.

Clause (28A)

Definition of “Imputable Income” in relation to final tax has been proposed to be inserted. It shall be the income which would have resulted in the same tax.

Clause (59A)

Limit of paid up capital of small company has been proposed to be enhanced from 25 Million to 50 Million.

Super Tax Section 4B

A new section 4B has been proposed for the charge of super tax for the tax year 2015. This tax shall be imposed for the purpose of rehabilitation of temporarily displaced persons.
Super tax shall be charged @ 4% of income from every banking company and @ 3% of income from person, other than banking company, having income equal to or exceeding Rs.500 million.

Super tax shall be payable on the due date of furnishing the return. In case of non-payment of super tax, Commissioner shall pass order in writing and serve demand notice. Where super tax is not paid, all proceedings of recovery, penalty, prosecution, default surcharge shall be applicable.

Tax on undistributed reserves Section- 5A

Finance bill 2015 has proposed insertion of a new section to protect the rights of share holders where a public company does not distribute dividends within six month of the end of tax year or distributes profits to such extent that its reserves are in excess of hundred percent of paid up capital. In such situation, tax shall be charged at rate of 10 percent of the amount of reserves as exceed 100% of the paid-up capital. The excess of reserves shall be treated as income of the public company for tax year 2015. Cash dividends may be distributed before due date of filing of return. The provisions of this section shall not apply to a company in which not less than 50% shares are held by Government.

Reserve includes amount set-aside out of revenue but excludes capital reserves, share premium reserves or any reserves required to be created under any law.

Tax on shipping of resident person Section-7A

New Section 7A has been proposed to be inserted, by virtue of which, presumptive Income tax shall be charged from resident person engaged in shipping business.

Tax on profit on debt Section-7B

New section 7B proposes to charge tax on income from profit on debt in respect of profit paid by the persons mentioned in subsection (1) of section 151.

Deductions for property income Section 15A

Clause (h) allowed 6% of a property income as deduction against property income. Finance bill 2015 has redrafted this clause, by virtue of which six percent of rent, including administration and collection charges,spent for the purpose of deriving rent chargeable to tax, shall be allowed as deduction against property income.

Allowance for Profit on debt Section 64A

Section 64 is proposed to be omitted and replaced by section 64A. By virtue of the newly introduced section 64A, an individual shall be entitled to allowance for the share in rent or any profit given to the scheduled bank, Finance Institution, Public company listed in stock exchange, federal Government or Provincial Government, where the loan has been utilized for the purpose of construction or acquisition of house. The allowance shall not exceed fifty percent of taxable income or one million rupees, whichever is less. The allowance which is not capable of being deducted during the year shall not be carried forward to a subsequent tax year.

Credit for Employment Generation Section 64B

Finance bill 2015 has proposed insertion of a new section by virtue of which tax credit of 1% of tax payable shall be given for every 50 employees registered with EOBI and social security schemes. The maximum credit shall not exceed 10% of tax payable.

This credit shall be available to the manufacturing units managed by the company which have not been established by the splitting up of an undertaking already in existence, or by transfer of plant and machinery from an undertaking established in Pakistan at any time before 01.07.2015.

The credit under this section shall be allowed for a period of 10 years to the manufacturing unit setup between 1^st day of July 2015 and 30^th June 2018.

As per subsection (4), where a Commissioner discovers that credit has been wrongly claimed, he may re-compute the tax payable by the taxpayer for the relevant year.

Provisions regarding tax credits Section 65

Sub-section (6)

Finance Bill has proposed the insertion of a new sub-section (6), according to which provisions of clause (d) of sub-section (2) of section 169 and clause (d) of sub-section (1) of section 113 shall not apply to tax credits u/s 65B (Investment for BMR), 65D (Newly established undertakings) and 65E (Expansions or undertaking a new project).

This will help in solving the problem of exporters where tax credit is to be obtained against tax paid under final tax regime, and section 169 (2) (d) sets out that tax deducted shall not be reduced by any tax credit allowed under this Ordinance.

Tax credit for enlistment Section 65(c)

The Finance Bill 2015 has proposed the enhancement of tax credit from 15% to 20%.

Agreements for avoidance of double taxation treaty Section 107

Provisions have been introduced to allow Government of Pakistan to enter into Agreements for Exchange of Information and such allied matters in addition to the existing powers to enter into Agreements for Avoidance of Double Taxation and Prevention of Fiscal Evasion with other countries.

This amendment will empower the government to obtain or render information in respect of transactions or activities undertaken in Pakistan or other countries.

Minimum tax on builders Section 113A

It has been proposed that this section shall not have effect till 30.06.2018.

Minimum tax on land developers Section 113B

It has been proposed that minimum tax on land developers shall be two percent of value of land notified by any authority for the purpose of stamp duty.

Return of income Section 114

By virtue of insertion of the newly proposed proviso, the condition of approval of Commissioner for the revision of return will not be required if the revised return is filed within 60 days of filing of return.

Procedure of appeal Section 128

Previously, Commissioner (Appeal) could only grant stay for 30 days. It has been proposed that Commissioner Appeals may grant stay for a further 30 days provided that an order is passed in the period of the first thirty days.

Due date of payment Section 137

Tax payable was required to be paid within 15 days from the date of service of notice. Finance Bill 2015 has proposed that tax payable be paid within thirty days from the date of service of notice.

In the case of provisional assessment u/s 122(C), tax was required to be paid after period of sixty days from the date of service of notice. Now this period has been reduced to forty five days.

Advance tax Section 147

Previously, it was required that an estimate of advance tax be given at any time before last installment and payment made accordingly. Finance Bill has proposed that estimate be given at any time before second installment is due, and advance tax to the extent of fifty percent of such amount be paid by the due date of second quarter.

Tax on local purchase of cooking oil or vegetable ghee Section 148A

The newly added section 148A proposes that manufacturers of cooking oil and ghee shall be charged tax @ 2% on purchase of locally produced edible oil.

Payments to non-residents Section 152

A new sub-section (4A) is proposed to be added, according to which Commissioner, on receipt of application from a permanent establishment of non-resident whose tax is deductible u/s (2A) and also adjustable, grant exemption certificate or deduction of tax at a reduced rate.

Payments for goods, services & contracts Section 153

The following has been proposed:-

i) Tax deducted on payments from services rendered shall be adjustable w.e.f. tax year 2009 if payments have been received by company or a person other than company.

ii) Tax deducted in respect of sports person shall be final tax with effect from tax year 2013.

Exports Section 154

A new sub-section (5) has been proposed by virtue of which an exporter can opt out of final tax regime. This option shall be exercised at the time of filing of return and the tax deducted shall be the minimum tax.

Failure to deduct or collect tax Section 161

It has been proposed that rate of default surcharge u/s 161 shall be 12% instead of 18%.

Furnishing of Information by Financial Institution Section 165B

New section has been proposed by virtue of which financial institutions shall provide information regarding non-resident person to the Board and such information shall be used only for tax purposes and kept confidential.

Compensation for delayed refunds Section 171

It has been proposed that compensation for delayed refunds shall be paid at rate of KIBOR plus 0.5% per annum.

Notice for Information Section 176

A new sub-section (1A) has been proposed by virtue of which special audit panel, with the prior approval of Commissioner, can enter the business premises of a tax payer and obtain any information and examine it within premises.

Audit Section 177

Finance Bill 2015 proposes insertion of seven new sub-sections i.e., subsection (11) to subsection (17) in section 177. As per new sub-sections, Board may appoint special audit panels comprising of two or more members from

a) An officer or Officers of Inland Revenue

b) Firm of Chartered Accountants

c) Firm of Cost and Management Accountants

d) Any other person

This panel headed by an officer of Inland Revenue shall conduct audit of the affairs of tax payer u/s 175 and 176. As per sub-section (14), where a person fails to produce documents or records, the Commissioner may proceed to make best judgment assessment u/s 121 of the Ordinance.

Tax payer Registration Section 181

A new sub-section (4) is proposed to be added, according to which, from tax year 2015, in the case of individuals, CNIC shall be used as National Tax Number.

Penalty Section 182

Minimum penalty for non-filing of statement u/s 115, 165 or 165A has been proposed to be reduced from fifty thousand rupees to ten thousand rupees.

Penalty for non-filing of wealth statement along with return has been proposed at 0.1% of the taxable income per weak or Rs 20,000/-, whichever is higher. Originally penalty was Rs100/- for each day of default.

Automatic Selections for Audit Section 214D

A new section has been proposed by virtue of which a retailer registered under rule (4) or rule (6) of Sales Tax Special Procedure Rules 2007 shall automatically be selected for audit if following conditions given in clauses (a) to (e) are not fulfilled:-

a) The name of person registered under rule (4) of sales Tax Special Procedure Rules 2007 appears in the sales tax active tax payers list.

b) Complete return of income within the meaning of sub-section (2) of section 114 has been filed, within the date it was required to be furnished, as mentioned in section 118, including the date extended by the Board from time to time;

c) The tax payable under sub-section (1) of section 137 has been paid;

d) Two percent tax on turnover under section 113 has been paid by a person registered under rule (6) of the Sales Tax Special Procedure Rules, 2007, who files a return below taxable limit and who, in the preceding tax year had either not filed return or had declared income below taxable limit; and

e) Twenty five percent higher tax than the previous tax year has been paid by a person, registered under rule (6) of the Sales Tax Special Procedure Rules, 2007, who has declared taxable income in the return for immediately preceding tax year.

Such cases of retailers registered under rule (4) or rule (6) of the Sales Tax Special Procedure Rules, 2007 shall not be selected for audit u/s 177 and 214C.

This section shall have effect from the date appointed by the Board through notification.

Reward to whistleblowers Section 227B

A new section has been proposed to grant reward to whistleblowers (informers) for providing information leading to detection of concealment, or evasion of income tax, fraud, corruption, or misconduct.

Collection of advance tax by Educational Institutions Section 236I

It has been proposed that advance tax from fee shall not be collected from non-residents, subject to the following conditions:-

i) Non-resident must establish his residential status by furnishing copy of passport.

ii) Non-resident must furnish a certificate that he has no Pakistan-source income.

iii) Fee must be remitted from abroad through normal banking channels into bank accounts of the educational Institution.

NEW WITHHOLDING TAX SECTIONS

Advance tax under this chapter Section 236 O

It has been proposed that advance tax shall not be collected in the case of withdrawals made by:-

i) Federal Government or Provincial Government.

ii) Foreign diplomats.

iii) Person who produces exemption certificate that his income is exempt.

Advance tax on banking transactions otherwise than through cash

Section 236P

It has been proposed that all banking companies shall collect tax @ 0.65 from non-filers. This adjustable tax shall be collected at the time of transfer of any sum through cheque or clearing or interbank or intra-bank transfers, on line transfers, telegraphic transfer, mail transfer, payments through internet, payment through mobile phones, ATM transfer or any other mode of transfer. The provisions of this proposed section shall only be applicable where sum total of payments of all transactions exceed Rs.50,000/- in a day.

Collection of Advance tax on educational expenses remitted abroad

Section 236R.

It has been proposed that banks, financial institutions or any other person responsible for remitting foreign currency abroad for education related expense shall collect advance tax @ 5%. The tax so collected shall be adjustable.
Education related expenses include tuition fee, boarding and lodging expense to any institution or university in a foreign country, and any other expense related to foreign education.

Real Estate Investment Trusts

The gain on disposal of immovable property to REIT Scheme is exempt from tax up to 30.06.2015. Finance Bill has proposed that period of exemption be extended to 30.06.2020 for the sale of immovable property to Developmental REIT Scheme with the objective of development and construction of residential buildings.

Dividend income from Developmental REIT Scheme setup by 30.06.2018 shall be allowed a rebate of 50% for 3 years from June 30, 2018. This concession shall also be available to the dividend income on REITs which are established or setup before the said date.

Meaning of Developmental REIT, REIT Scheme and Rental REIT Scheme shall be the same as defined in Real Estate Investment Trust Regulations, 2015.

FIRST SCHEDULE

Part I – Division I.

Paragraph (1).

New tax rates proposed for individuals and AOP’s are as under:-

“TABLE

Sr. No.	Taxable Income	Rate of Tax
(1)	(2)	(3)
	Where the taxable income does not exceed Rs 400,000	0%
	Where the taxable income exceeds Rs 400,000 but does not exceed Rs 500,000	7% of the amount exceeding Rs 400,000
	Where the taxable income exceeds Rs 500,000 but does not exceed Rs 750,000	Rs 7,000 + 10% of the amount exceeding Rs 500,000
	Where the taxable income exceeds Rs 750,000 but does not exceed Rs 1,500,000	Rs 32,000 + 15% of the amount exceeding Rs 750,000
	Where the taxable income exceeds Rs 1,500,000 but does not exceed Rs 2,500,000	Rs 144,500 + 20% of the amount exceeding Rs 1,500,000
	Where the taxable income exceeds Rs 2,500,000 but does not exceed Rs 4,000,000	Rs 344,500 + 25% of the amount exceeding Rs 2,500,000
	Where the taxable income exceeds Rs 4,000,000 but does not exceed Rs 6,000,000	Rs 719,500 + 30% of the amount exceeding Rs 4,000,000
	Where the taxable income exceeds Rs 6,000,000	Rs 1,319,500 + 35% of the amount exceeding Rs 6,000,000”

Paragraph (1A)

New tax rates for salaried persons have been proposed as under:-

“TABLE

Sr. No.	Taxable Income	Rate of Tax
(1)	(2)	(3)
	Where the taxable income does not exceed Rs 400,000	0%
	Where the taxable income exceeds Rs 400,000 but does not exceed Rs 500,000	2% of the amount exceeding Rs 400,000
	Where the taxable income exceeds Rs 500,000 but does not exceed Rs 750,000	Rs 2,000 + 5% of the amount exceeding Rs 500,000
	Where the taxable income exceeds Rs 750,000 but does not exceed Rs 1,400,000	Rs14,500 + 10% of the amount exceeding Rs 750,000
	Where the taxable income exceeds Rs 1,400,000 but does not exceed Rs 1500,000	Rs 79,500 + 12.5% of the amount exceeding Rs 1,400,000
	Where the taxable income exceeds Rs 1500,000 but does not exceed Rs 1800,000.	Rs 92,000 + 15% of the amount exceeding Rs 1500,000
	Where the taxable income exceeds Rs 1,800,000 but does not exceed Rs 2,500,000	Rs 137,000 + 17.5% of the amount exceeding Rs 1,800,000
	Where the taxable income exceeds Rs 2,500,000 but does not exceed Rs 3,000,000.	Rs 259,500 + 20% of the amount exceeding Rs 2,500,000
	Where the taxable income exceeds Rs 3,000,000 but does not exceed Rs 3,500,000	Rs 359,500 + 22.5% of the amount exceeding Rs 3,000,000
	Where the taxable income exceeds Rs 3,500,000 but does not exceed Rs 4,000,000	Rs 472,000 + 25% of the amount exceeding Rs 3,500,000
	Where the taxable income exceeds Rs 4,000,000 but does not exceed Rs 7,000,000	Rs 597,000 + 27.5% of the amount exceeding Rs 4,000,000
	Where the taxable income exceeds Rs 7,000,000.	Rs 1,422,000 + 30% of the amount exceeding Rs 7,000,000

Division II

The rate of tax for income of company other than banking company has been proposed at 32% for the tax year 2016.

Part 1– Division IIIA Rate of Profit on debt

TABLE

Sr. No.	Profit on debt	Rate of Tax
(1)	(2)	(3)
	Where profit on debt does not exceed Rs 25,000,000	10%
	Where profit on debt exceeds Rs 25,000,000 but does not exceed Rs 50,000,000	2,500,000 + 12.5% ofthe amount exceeding Rs 25,000,000
	Where profit on debt exceeds Rs. 50,000,000	Rs 5,625,000 + 15% of the amount exceeding Rs.50,000,000

Part I – Division VII Capital Gains on disposal of Securities

New rates of tax on capital gains from sales of securities are as under:-

“TABLE

Sr. No.	Period	Tax Year 2015	Tax Year 2016
(1)	(2)	(3)
	Where holding period of a security is less than twelve months	12.5%	15%
	Where holding period of a security is twelve months or more but less than twenty four months	10%	12.5%
	Where holding period of a security is twenty four months or more but less than four years	0%	7.5%

For companies rate of tax shall be the same i.e. 33%.
Mutual fund or collective investment scheme or REIT scheme shall deduct capital gains tax at the following rates:-

Category

Filer

Non-Filer

Individual and association of personsCompany

10% for stock funds10% for others

10% for stock funds

25% for others

17.5%

25%

In case of stock fund if dividend receipts of the fund are less than capital gains then the rate of deduction shall be 12.5%.

Part I- Division IX Minimum Tax

Minimum tax on dealers or distributors of fertilizers shall be 0.5%. Previously it was 0.2%.

Under the proposed amendments, 0.2% minimum tax shall not be available to all distributors of consumer goods. Now this concession will only be available to distributors of fast moving consumer goods.

Part II- Rate of Advance tax under section 148

Rates of advance tax under section 148 (Imports) have been proposed as under:-

Sr. No.	Persons	Rates
		Filer	Non-Filer
(1)	(2)	(3)		(4)
	(i).Industrial undertaking importing remeltable steel (PCT Heading 72.04) and directly reduced iron for its own use;	1% of the importValue as increased by customs-duty, sales tax and federal excise duty.		1.5% of the Import value as Increased by Customs duty, Sales tax and Federal excise duty.
	ii).Persons importing potassic fertilizers in pursuance of Economic coordination Committee of the cabinet’s decision No.ECC-155/12/2004 dated the 9th December, 2004;
	iii) Persons importing urea;
	iv) Manufacturers Covered under Notification No. S.R.O. 1125(I)/2011dated the 31^stDecember, 2011 andimporting items coveredunder S.R.O. 1125(I)/ 2011 dated the 31st December, 2011.
	(v) Persons importing Gold; and
	(vi) Persons importing Cotton
	Persons importing pulses	2% of the import value as increasedby customs-duty,sales tax and federal excise duty		3% of the import value asIncreased by Customs duty, sales tax and federal excise duty
	Commercial importers covered under notification No. S.R.O. 1125(I)/2011 dated the 31st December, 2011 and importing items covered under S.R.O. 1125(I)/2011 dated the 31^stDecember, 2011.	3% of the import value as increased by customs-duty, sales tax and federal excise duty		4.5% of the import value as increased by customs duty, sales tax and federal excise duty
	Ship breakers on import of ships	4.5%		6.5%
	Industrial undertakings not covered under S. Nos. 1 to 4	5.5%		8%
	Companies not covered under S. Nos. 1 to 5	5.5%		8%
	Persons not covered under S. Nos. 1 to 6	6%		9%;

Part III – Division I – Tax on Dividend

Rate of tax on dividend in case of non-filer has been proposed to be enhanced from 15% to 17.5%.

Rates of tax applicable for stock fund or collective investment scheme have also been proposed to be applicable for the REIT Scheme.

By virtue of proviso it has been proposed that where REIT Scheme has been set up by 30.06.2018, the deduction of tax from dividend shall be reduced by fifty percent for three years starting from 30.06.2018.

Rate of tax, in case of stock fund if dividend receipts of fund are less then capital gains, has been proposed to be enhanced from 12.5% to 15%.

Part III – Division IA Profit on Debt

It has been proposed that deduction of tax in case of non-filers be enhanced from 15% to 17.5%.

Part III – Division II Payments to Non-resident

In respect of payments made to permanent establishment of non-resident, following new rates of tax deduction have been proposed:-

Head of payment	Status	Rate
Head of payment	Status	Filer	Non-Filer
Sale of goods	CompanyOthers	4%4.5%	6%6.5%
Rendering of services other then transport	CompanyOthers	8%10%	12%15%
Execution of contract by	Sports personCompanyOthers	10%7.5%7.5%	-10%10%

Part III – Division III Payments for Goods and Services.

Finance bill 2015 has proposed new rates of tax deduction in respect of payments made under section 153.

Head of Account	Status	Rate
Head of Account	Status	Filer	Non-Filer
Supplies	CompanyOthers	4%4.5%	6%6.5%
Services	CompanyOthers	8%10%	12%15%
Contract	CompanyOthers	7%7.5%	10%10%

Rate of tax in respect of sports person shall remain at 10%.

Part III—Division VIA Petroleum products.

The rate of collection of tax from filers is the same i.e. 12%, whereas collection of tax @ 15% has been proposed from non-filer.

Part IV – Division II Brokerage and Commission.

New rates for the deduction of tax on brokerage and Commission (Section 233) have been proposed as under:-

Head of Account	Rate
Head of Account	Filer	Non-Filer
Advertising agent	10%	15%
Other cases	12%	15%

Part IV – Division III Tax on Motor vehicles

In case of goods transport vehicles, the following new rates of tax collection have been proposed:-

Two rupees and fifty paisa per kg of laden weight for filer and four rupees per kg of laden weight for non-filer.

Part IV – Division III Tax on Motor vehicles

Finance Bill has proposed the following rates for payment of advance tax in case of vehicles.

Passenger Transport vehicles:-

Sr. No.	Capacity	Rs. Per seat per annum
		Filer	Non-Filer

	Four or more persons but less than ten persons.	50		100
	Ten or more persons but less than twenty persons.	100		200
	Twenty persons or more.	300		500; and

Private Motor cars:-

Sr. No.	Engine Capacity
		Filer	Non-Filer
(1)	(2)	(3)		(4)
	upto 1000cc	Rs. 800		Rs. 1,200
	1001cc to 1199cc	Rs. 1,500		Rs. 4,000
	1200cc to 1299cc	Rs. 1,750		Rs. 5,000
	1300cc to 1499cc	Rs. 2,500		Rs. 7,500
	1500cc to 1599cc	Rs. 3,750		Rs. 12,000
	1600cc to 1999cc	Rs. 4,500		Rs. 15,000
	2000cc & above	Rs.10,000		Rs. 30,000

Part IV – Division V Telephone Users.

Previously, tax @ 14% was charged from subscriber of mobile telephone and prepaid telephone card. The Finance Bill 2015 proposes to also charge tax from subscriber of internet or prepaid internet card.

Part IV Division VI Cash withdrawal

Rate of tax in case of non-filers on cash withdrawal has been proposed to be enhanced from 0.5% to 0.6%.

Part IV – Division VIA Transaction in Bank

It has been proposed that rate of tax on bank transactions shall be 0.3% for filers and 0.6% for non-fliers.

Part IV- Division VII Tax on Purchase, Registration and Transfer of Motor

Vehicles.

Finance Bill has proposed the following rates for the tax on purchase, Registration and Transfer of Motor Vehicles:-

Sr. No.	Engine Capacity	Filer	Tax for Non-Filer
		Filer	Tax for Non-Filer
(1)	(2)	(3)		(4)
	upto 850cc	Rs. 10,000		Rs. 10,000
	851cc to 1000cc	Rs. 20,000		Rs. 25,000
	1001cc to 1300cc	Rs. 30,000		Rs. 40,000
	1301cc to 1600cc	Rs. 50,000		Rs. 100,000
	1601cc to 1800cc	Rs. 75,000		Rs. 150,000
	1801cc to 2000cc	Rs. 100,000		Rs. 200,000
	2001cc to 2500cc	Rs. 150,000		Rs. 300,000
	2501cc to 3000cc	Rs. 200,000		Rs. 400,000
	Above 3000cc	Rs. 250,000		Rs. 450,000

The rate of tax under sub-section (2) of section 213B shall be as follows:-

Sr. No.	Engine Capacity	Filer	Tax for Non-Filer
		Filer	Tax for Non-Filer
(1)	(2)	(3)		(4)
	upto 850cc	–		Rs. 5,000
	851cc to 1000cc	Rs. 5,000		Rs. 15,000
	1001cc to 1300cc	Rs. 7,500		Rs. 25,000
	1301cc to 1600cc	Rs. 12,500		Rs. 65,000
	1601cc to 1800cc	Rs. 18,750		Rs. 100,000
	1801cc to 2000cc	Rs. 25,000		Rs. 135,000
	2001cc to 2500cc	Rs. 37,500		Rs. 200,000
	2501cc to 3000cc	Rs. 50,000		Rs. 270,000
	Above 3000cc	Rs. 62,500		Rs. 300,000

As per proposed proviso, the rate of tax to be collected shall be reduced by 10% each year from the date of first registration.

Part IV – Division XIV Advance tax on sales to Distributors, Dealers or

wholesalers.

In the case sale of fertilizers, tax has been proposed be collected from distributors, dealers, wholesalers @ 0.7% from filers and 1.4% from non-filers.

Part IV – Division XIV Advance tax on electricity consumptions.

Finance bill 2015 has proposed that advance tax @ 7.5% of amount of monthly bill shall be collected if monthly bill is Rs.75000/- or more. Previously, limit of bill for tax collection was Rs.100,000/-.

Part IV- Division XX Advance tax on International Tickets.

The following new rates for tax collection on sale of international air tickets have been proposed:-

Types of tickets	Rate
First/Executive class	Rs.16000 per person
Others excluding economy class	Rs.12000 per person
Economy class	0

It is proposed that the following new Divisions be added:-

Part IV – Division XXI Advance tax on banking transactions other than cash.

It has been proposed that advance tax under section 236P from any banking transaction other than cash shall be collected.

Part IV – Division XXII Collection of tax by Pakistan Mercantile Exchange

Limited.

Sr. No.	Nature	Rate
	Sale or purchase of future commodity contract from members	0.1%
	Commission on sale or purchase of future commodity products.	0.1%

Part IV- Division XXIII Payments to resident for right to use machinery.

Rate of deduction of tax under section 236Q on payment to resident for right to use machinery has been proposed at 10% of the amount of payment.

Part IV – Division XXIV Advance tax on remittance of education related

expenses.

It has been proposed that tax @ 5% of payment remitted for educational purposes be collected under section 236R.

SECOND SCHEDULE

Part I Exemptions from Total Income

Clause (20)

Exemption of income up to 10,000 rupees per annum from Pakistan Postal Annuity Certificate Scheme is proposed to be omitted.

Clause (99 A)

Exemption of profits and gains on sale of immovable property to REIT Scheme is proposed to be extended up to 30.06.2020.

Clause (103A)

Exemption available to income derived from inter-corporate dividend within the group companies entitled to group taxation is proposed to be linked with filing of return of group.

Clause (126A)

Exemption to income derived by China Overseas Parts Holding Company has been proposed to be extended for a period of 23 years w.e.f. 06.02.2007.

NEW CLAUSES

Clause (126I)

It has been proposed that profits and gains derived from an industrial undertaking shall be exempt from tax for five years beginning from 01.07.2015 subject to the conditions:-

i) Undertaking is setup by 31.12.2016.

ii) Undertaking is engaged in the manufacture of plant, machinery, equipment and items with dedicated use for generation of renewable energy from sources like solar and wind.

Clause (126J)

Profit and gains derived from Industrial undertaking have been proposed to be exempt from tax for a period of three years beginning with the month in which the industrial undertaking is setup or commercial operations are commenced, whichever is later. The exemption is subject to the following conditions:-

i) The industrial undertaking is engaged in operating warehouses or cold chain facilities for storage of agriculture produce.

ii) It has been setup between 01.07.2015 and 30.06.2016.

Clause (126 K)

Profits and gains derived from industrial undertaking have been proposed to be exempt from tax for period of four years beginning from the month in which the industrial undertaking is setup or commercial operations are commenced, whichever is later. The exemption is subject to the following conditions:-

i) It is engaged in Halal Meat Production.

ii) It has obtained Halal Meat Certificate.

iii) It has been setup between 01.07.2015 and 31.12.2016.

Clause (126 L)

Profits and gains derived from a manufacturing unit setup in Khyber Pukhtunkhwa have been proposed to be exempt from tax for five years beginning from the month in which the industrial undertaking is setup or commercial production is commenced, whichever is later. The exemption is subject to the following conditions:-

i) Manufacturing unit has been setup between 01.07.2015 and 30.06.2018.

ii) The manufacturing unit is not established by the splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from an undertaking established in Pakistan at any time before 1^st July, 2015.

Clause (126 M)

Profits and gains derived by a taxpayer from a transmission line project setup in Pakistan on or after 01.07.2015 have been proposed to be exempt subject to the following conditions:-

i) Owned and managed by a company formed from operating said project.

ii) Company is registered under Companies Ordinance, 1984.

iii) Company has its registered office in Pakistan.

iv) Company has not been formed by the splitting up or reconstitution of business already in existence.

v) There has been no transfer of machinery or plant already in use in Pakistan at any time before the commencement of the new business.

vi) Fifty percent shares are neither held by the Federal Government nor Provincial and Local Government. The company should also not be controlled by the Federal Government or a Provincial Government or a Local Government.

vii) Project has been setup before 30.06.2018.

Clause (141)

Profit and Gains derived by LNG Terminal Operators and Terminal Owners have been proposed to be exempt for period of five years from the date of commencement of commercial operation.

Clause (142)

It has been proposed that income derived from social security contribution institutions of Punjab, Sindh, KPK and Balochistan shall be exempt from tax.

Part II Reduction in Tax Rates

Clauses related to reduction in tax rates i.e., clauses 13C (cooking oil), 14, 14A, 14B (transport business) and 21 (presumptive tax of resident persons engaged in shipping business) have been proposed to be omitted. This omission is ceremonial as the reduced rates as well as tax on shipping business have been dealt separately in the Ordinance.

Clause (28B)

A new clause has been proposed to be introduced by virtue of which the rate of tax shall be 0.15% under section 23A on cash withdrawal made by an exchange company duly licensed and authorized by the State Bank of Pakistan. This concession shall be subject to issuance of certificate by concerned Commissioner having details and particulars of bank account used for business.

Part III Reduction in Tax Liability

Clause (16)

The clause related to minimum penalty of Rs.10,000/- for failure to furnish statement u/s 115, 165 or 165A has been omitted. This omission is ceremonial because the rate of minimum penalty has been inserted in section 182.

Part IV Exemption From Specific Provisions

Clause (11A)

Clause (11A) of Part-IV of Second Schedule to Ordinance relates to non-application of provisions of section 113 (minimum tax) for certain persons. Its sphere has been proposed to be extended by virtue of insertion of the following new sub-clauses:-

(xviii)

Companies qualifying for exemption (clause 132B Part-I) in respect of receipts from coal running projects in Sindh and supplying coal to power generation projects.

(xx)

Taxpayers located in most affected and moderately affected areas of KPK, FATA and PATA for tax years 2010, 2011 & 2012. Manufacturers and suppliers of cement, sugar, beverages and cigarettes are excluded.

(xxi)

Rice mills for tax year 2015.

(xxii)

Taxpayers qualifying for exemption under clause (126I) Part-I.

(xxiv)

Taxpayers qualifying for exemption under clause (126K) of Part-I of Second Schedule.

(xxv)

Taxpayers qualifying for exemption under clause (126L) of Part-I of Second Schedule.

Clause (11D)

New clause (11D) has been proposed to be inserted by virtue of which provision of section 113C (Alternative Corporate Tax) shall not be applicable to LNG terminal operators and LNT terminal owners.

Clause (16A)

This clause relates to non-deduction of tax from payments made to electronic and print media in respect of advertising services. It is proposed to be omitted.

Clause (56)

By insertion of new sub-clause (1a), it has been proposed that provision of section 14B (collection of tax at import stage) shall not be applied on import of oils under given PCT codes.

Clause (56B)

Provisions of section 148 were not applicable in respect of import of potatoes between 5^th of May, 2014 and 31^st of July, 2014 provided that imports shall not exceed 200,000 metric tons. It has been proposed that restriction of 200,000 metric tons be omitted.

Clause (57)

A new explanation is proposed to be added according to which in-house processing and preparation of food for sale to customers shall not disqualify the company from being treated as trading house, provided that sale of such items does not exceed two percent of total sales.

Clause (61A)

This clause related to non-application of provision of section 231A in respect of cash withdrawal by exchange companies. It is proposed to be omitted.

Clause (72A)

This clause is proposed to be omitted. It related to non-application of provisions of clause (1) of section 21 (payment through crossed cheque), section 113 (minimum tax) and section 152(deduction of tax from payment made to non-resident).

Clause (79)

This clause is proposed to be omitted. It related to non-application of provisions related to treatment of tax deducted on payments made to companies as minimum tax.

Clause (83)

This clause is proposed to be omitted. It related to mandatory filing of wealth statement by all taxpayers u/s 116(4).

Clause (84) and (90)

These clauses are also proposed to be omitted. They related to non-application of provisions of 2361 (advance tax on educational institutions) and 236D (advance tax on functions and gatherings) on Federal and Provincial Governments, foreign diplomats, and foreign missions etc.

Clause (91) and (92)

These new clauses are proposed to be added so as to disapply the provisions of section 148 (collection of tax at imports) on certain equipment.

Clause (93)

This clause proposes that tax on realization of export proceeds are not to be deducted from taxpayers qualifying for exemption under clause (126K) of Part-I of Second Schedule (Halal Meat Production).

Budgetary Changes in the Income Tax Ordinance, 2001

Budgetary Changes in the Income Tax Ordinance, 2001

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