finance Bill riaz Chowdreyy.pdf

RIAZ AHMAD & COMPANY Chartered Accountants

I N D E X

FINANCE ACT 2015

DESCRIPTION PAGE NO.

INTRODUCTION 1

EXECUTIVE SUMMARY 2 4

INCOME TAX 5 62

SALES TAX 63 75

FEDERAL EXCISE DUTY 76 77

OTHER LAWS 78

CONTACT PARTNERS 79


INTRODUCTION

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This Memorandum has been prepared to facilitate our clients in better understanding of the changes made in income tax, sales tax, federal excise duty and other laws through the Finance Act, 2015. The changes have been explained in a concise manner and insignificant changes of consequential, administrative, procedural or editorial nature have been ignored for the sake of brevity.

Included under the heading of Income Tax Ordinance, 2001 is a dedicated portion, titled General, which covers complete rates of income tax, schedule of filing of various periodical statements, rates for deduction of income tax at source, filing date of income tax return, computation of advance tax, etc. for convenience and ready reference of our clients.

The Finance Act, 2015, unless otherwise stated, has come into force on 01 July 2015.

This Memorandum may be accessed on our web-site: www.racopk.com

It is recommended that the text of the Finance Act, 2015 as published in the Official Gazette and the relevant laws and notifications, wherever applicable should be referred to in considering the interpretation of any provision. This Memorandum contains only general comments. Final decision on any issue should not be taken without detailed consideration and professional advice.

This Memorandum should not be published in any manner without the consent of the firm. For professional advice, you may contact our following tax experts:

Sarfraz Mahmood

Muhammad Arshad

Inaam Ellahi Sheikh

M. Hamid Jan Liaqat Ali Panwar

Pirzada M. Khurram

Atif Bin Arshad

Muddassar Mehmood

Lahore Office Karachi Office Faisalabad Office Islamabad Office

LAHORE: 10 July 2015


EXECUTIVE SUMMARY

FINANCE ACT 2015

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Income Tax

Threshhold of paid-up capital plus undistributed reserves to fall under the ambit of small company has been enhanced to Rupees 50 million.

One time super tax for rehabilitation of temporarily displaced persons has been imposed @ 3% on every person, other than a banking company, having income of Rupees 500 million or more and for banking company @ 4% without any threshold of income.

Final tax @ 10% on undistributed reserves has been imposed from tax year 2015 and onwards on every public company other than a scheduled bank, a modaraba, an exempt electric power generation company or a company in which 50% or more shares are held by Government. However, this tax will not be applicable to a company which distributes either 40% of its after tax profits or 50% of its paid up capital, whichever is less, within 6 months of the end of the tax year.

Profit on debt received by a person, other than a company, will be charged to tax at slab rates ranging from 10% to 15%.

Tax will now also be charged @ 7.5% on capital gain on disposal of securities held for 2 years or more but less than 4 years.

Exemption from tax or reduced rate of tax will now be allowed only by the Federal Government after approval from Economic Coordination Committee of Cabinet under specified circumstances.

Threshold of Rupees 1 million for claim of tax credit for investment in shares and insurance has been enhanced to Rupees 1.5 million.

A company formed for establishing and operating a new manufacturing unit between 01 July 2015 to 30 June 2018 shall be entitled to a tax credit equal to 1% of the tax payable for every 50 employees registered with EOBI or Employees Social Security Institutions of Provincial Governments, subject to a maximum of 10% of the tax payable.

10% tax credit on investment in purchase of plant and machinery for extension, expansion and BMR, under section 65B has been extended for one year.

Tax credit available to companies for enlistment in stock exchange has been enhanced to 20% of tax payable.

Income from development and sale of residential or commercial plots will now be subjected to minimum tax @ 2% of the value of land notified for the purpose of stamp duty.

Written approval of the Commissioner will not be required if return of income is revised within 60 days of filing of the return.

Now, return of income of every individual or a member of an association of persons (AOP), will be accompanied by wealth statement and reconciliation of wealth statement.

Commissioner (Appeals) has been empowered to extend stay against recovery of demand for a further period of 30 days with the condition that order on appeal will be passed within this extended period.

Tax demand created under an assessment order will be payable within 30 days of receipt of notice instead of 15 days.

Estimates of advance tax will now be furnished on or before the due date of 2nd quarter instead of 4th quarter.


EXECUTIVE SUMMARY

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Exporters may opt out of final taxation subject to the condition that tax deducted on exports will be treated as minimum tax.

Rate of default surcharge in case of failure to deduct tax at source and default in deposit of tax in Government treasury has been reduced to 12% from 18%.

Additional payment for delayed refund will be made at KIBOR + 0.5%.

FBR has been empowered to form special audit panels to conduct audit or forensic audit of income tax affairs.

From tax year 2015 and onwards, all individuals shall use CNIC as NTN.

A person not filing return within due or extended date or if tax payable is not paid with the return, will be automatically selected for audit.

A person registered as retailer under Rule (4) of Sales Tax Special Procedure Rules, 2007 will not be subjected to audit under sections 177 and 214C if the person remained on sales tax active taxpayers list throughout the year. Effective date of this provision will be notified by FBR.

FBR may reward any person providing credible information in respect of concealment, fraud, corruption or evasion of tax etc.

Advance tax @ 14% of the amount of internet bill or price of prepaid internet card shall be collected from internet users.

Advance tax shall not be collected from retailers on sale of fertilizer.

Banking company shall collect advance tax @ 0.6% from non-filer at the time of sale of any instrument or transfer of any amount if the sum total of payments exceed Rupees 50,000 in a day. However, according to the news in print and electronic media, the Federal Government has decided to reduce rate of withholding tax from 0.6% to 0.3% for a period of three months up to 30 September 2015 with the condition that non-filers will file their tax returns for tax year 2015. After the expiry of 3 months period, withholding tax @ 0.6% will be applicable if the person fails to file his return.

Advance tax shall be collected @ 5% on education related expenses remitted abroad.

Pakistan Mercantile Exchange Limited (PMEX) shall collect advance tax @ 0.05% from its members on purchase or sale of futures commodity contracts.

Rate of tax on taxable income of a company, other than a banking company, shall be 32%, 31% and 30% for the tax years 2016, 2017 and 2018 and onwards, respectively.

In case of AOP that is a professional firm prohibited from incorporating by any law or the rules of the body regulating their profession, the 35% slab rate of tax shall be reduced to 32% for the tax year 2016 and onwards.

Minimum tax on a company, rendering or providing services, shall now be 8%, in case of filer and 12%, in case of non-filer.

Advance tax on international air tickets will be collected @ Rupees 16,000 per person travelling in first / executive class and @ Rupees 12,000 per person travelling in other than economy class.

Income from developmental REIT scheme shall be exempt from tax upto tax year 2020.

Profits and gains derived from manufacturing of plant, machinery etc. for generation of renewable energy will be exempt from tax for 5 years beginning from tax year 2015.


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Profits and gains derived from warehousing facility for storage of agriculture produce shall be exempt for 3 years.

Profits and gains derived from operating a halal meat production unit will be exempt from tax for a period of 4 years.

Profits and gains from industrial undertaking set up in Khyber Pukhtunkhwa and Balochistan will be exempt from tax for a period of 5 years.

Profit and gains derived from transmission line project will be exempt from tax for 10 years.

Profits and gains from manufacturing of cellular mobile phones will be exempt from tax for 5 years.

Profits and gains derived by LNG terminal operators and terminal owners will be exempt from tax for 5 years.

SALES TAX

The concept of active taxpayers has also been introduced for the purposes of sales tax.

Rate of further tax has been enhanced from 1% to 2%.

Amendments have been introduced in relation to the admissibility of input tax in certain cases.

Powers enjoyed by FBR to grant exemption from payment of whole or any part of the tax chargeable under the Sales Tax Act, 1990 have been withdrawn.

New sections have been introduced in the Sales Tax Act, 1990 for the purposes of bilateral or multilateral agreements for exchange of information, disclosure of information by a public servant, prize schemes to promote tax culture and reward to whistleblowers.

Sales tax regime in respect of certain items has been revamped. Processed and unprocessed milk, both, shall continue to be zero-rated. However, sales tax regime for other dairy products like flavoured milk, yogurt, cheese etc. has been considerably changed by way of substitution into either exemption or reduced tax rate of 10%.

Sales tax withholding has now been linked with the purchase / purchase period, irrespective of payment in any subsequent month.

New rules for registration, de-registration, suspension and blacklisting etc. have been issued. Now, the applicant for sales tax registration being the owner, authorized member or partner or authorized director, as the case may be, will visit the concerned Regional Tax Office for biometric verification along with all those documents specified under the Sales Tax Rules, 2006 for sales tax registration which have not been submitted through computerized system.

A concept of temporary registration has been introduced for persons importing machinery for installation at their premises. The temporary registration is meant for intending manufacturers importing machinery. The registration will be valid for a period of 60 days.

In case the sales tax return is not filed within a period of six months after the due date, the same shall be filed only after approval of the Commissioner Inland Revenue having jurisdiction.

FEDERAL EXCISE DUTY (FED)

FED on aerated beverages and locally produced cigarettes has been enhanced.

FED has been exempted on services provided or rendered in respect of travel by air of passengers on socio economic routes.


INCOME TAX ORDINANCE, 2001

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Definitions Section 2 Following new definitions have been inserted in this section: Consumer goods Section 2(13AA) "Consumer goods means goods that are consumed by the end consumer rather than used in the production of another good. Developmental REIT Scheme Section 2(17A) "Developmental REIT Scheme means Developmental REIT Scheme as defined under the Real Estate Investment Trust Regulations, 2015. Fast moving consumer goods Section 2(22A) "Fast moving consumer goods means consumer goods which are supplied in retail marketing as per daily demand of a consumer. Imputable income Section 2(28A) "Imputable income in relation to an amount subject to final tax means the income which would have resulted in the same tax, had this amount not been subject to final tax. PMEX Section 2(42A) "PMEX means Pakistan Mercantile Exchange Limited a futures commodity exchange company incorporated under the Companies Ordinance, 1984 (XLVII of 1984) and is licensed and regulated by the Securities and Exchange Commission of Pakistan. Rental REIT Scheme Section 2(47C) "Rental REIT Scheme means a Rental REIT Scheme as defined under the Real Estate Investment Trust Regulations, 2015. Small company Section 2(59A)(i) By amendment in this clause, threshold of paid up capital plus undistributed reserves to fall under the ambit of small company has been enhanced to Rupees 50 million from Rupees 25 million. Super tax for rehabilitation of temporarily displaced persons New section 4B New section 4B has been inserted to impose one time super tax for rehabilitation of temporarily displaced persons @ 3% on income equal to or exceeding Rupees 500 million of every person other than a banking company. In case of banking company, such tax will be imposed @ 4% of its income without any threshold of income. The tax will be charged on income for the tax year 2015 only. For this purpose, income shall be sum of taxable income under all heads of income including profit on debt, dividend, capital gains, brokerage and commission and imputable income (income which would have resulted in the same tax, had this amount not been subject to final tax). Profits and gains of insurance



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business, exploration and production of petroleum, a banking company and capital gains on listed securities computed under Forth, Fifth, Seventh and Eighth Schedule respectively shall also be charged to super tax. The newly inserted section states as under:

4B. Super tax for rehabilitation of temporarily displaced persons.(1) A super tax shall be imposed for rehabilitation of temporarily displaced persons, for tax year 2015, at the rates specified in Division IIA of Part I of the First Schedule, on income of every person specified in the said Division. (2) For the purposes of this section, "income shall be the sum of the following:-

(i) profit on debt, dividend, capital gains, brokerage and commission; (ii) taxable income under section (9) of this Ordinance if not included in clause (i); (iii) imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i); and (iv) income computed under Fourth, Fifth, Seventh and Eighth Schedule.

(3) The super tax payable under sub-section (1) shall be paid, collected and deposited on the date and in the manner as specified in sub-section (1) of section 137 and all provisions of Chapter X of the Ordinance shall apply.

(4) Where the super tax is not paid by a person liable to pay it, the Commissioner shall by an order in writing, determine the Super tax payable, and shall serve upon the person, a notice of demand specifying the super tax payable and within the time specified under section 137 of the Ordinance.

(5) Where the super tax is not paid by a person liable to pay it, the Commissioner shall recover the super tax payable under sub-section (1) and the provisions of Part IV,X, XI and XII of Chapter X and Part I of Chapter XI of the Ordinance shall, so far as may be, apply to the collection of super tax as these apply to the collection of tax under the Ordinance.

(6) The Board may, by notification in the official Gazette, make rules for carrying out the purposes of this section.

Tax on undistributed reserves New section 5A Final tax on undistributed reserves has been imposed @ 10%, from tax year 2015 and onwards, on every public company other than a scheduled bank or a modaraba or company deriving profits and gains from electric power generation or company in which 50% or more shares are held by Government or a company which distributes profit equal to either 40% of its after tax profits or 50% of its paid up capital whichever is less within six months of the end of the tax year. This tax shall be charged if a company derives profits for the year but does not distribute cash dividends within six months from the end of the said tax year or after such distribution its reserves are in excess of 100% of its paid up capital. So much of its reserves as exceed 100% of its paid-up capital shall be treated as income of the company for computation of tax @ 10%. Reserve includes amount set aside out of revenue or surpluses excluding capital reserves, share premium reserves and reserves required to be created under any law, rules or regulations. It is also provided that for tax year 2015, cash dividends may be distributed before the due date of filing of return of the said tax year. This proviso is for company cases where six months dividend distribution period has already expired or near to expire at the time of implementation of this Finance Act. The section prescribes as under:

5A. Tax on undistributed reserves.- (1) Subject to this Ordinance, a tax shall be imposed at the rate of ten percent, on every public company other than a scheduled bank or a modaraba, that derives



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profits for a tax year but does not distribute cash dividends within six months of the end of the said tax year or distributes dividends to such an extent that its reserves, after such distribution, are in excess of hundred percent of its paid up capital, so much of its reserves as exceed hundred per cent of its paid up capital shall be treated as income of the said company:

Provided that for tax year 2015, cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of return for tax year 2015.

(2) The provisions of sub-section (1) shall not apply to

(a) a public company which distributes profit equal to either forty per cent of its after tax profits or fifty per cent of its paid up capital, whichever is less, within six months of the end of the tax year.

(b) a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and

(c) a company in which not less than fifty percent shares are held by the Government.

(3) For the purpose of this section, reserve includes amounts set-aside out of revenue or other surpluses excluding capital reserves, share premium reserves and reserves required to be created under any law, rules or regulations.

Tax on shipping income of a resident person New section 7A & Clause 21 of Part II of Second Schedule

Taxation of shipping business of a resident person was already governed by clause (21) of Part II of Second Schedule. Now section 7A has been introduced in the Ordinance for this purpose and thereby the said clause (21) has been omitted.

Tax on profit on debt New section 7B

Tax on profit on debt shall now be imposed on every person other than a company at the slab rates ranging from 10% to 15% of the gross amount of profit. The section states as under:

"7B. Tax on profit on debt. (1) Subject to this Ordinance, a tax shall be imposed, at the rate specified in Division IIIA of Part I of the First Schedule, on every person other than a company who receives a profit on debt from any person mentioned in clause (a) to (d) of sub-section (1) of section 151.

(2) The tax imposed under sub-section (1) on a person other than a company who receives a profit on debt shall be computed by applying the relevant rate of tax to the gross amount of the profit on debt.

(3) This section shall not apply to a profit on debt that is exempt from tax under this Ordinance.

General provisions relating to taxes imposed under sections 5, 5A, 6, 7, 7A or 7B Section 8

By virtue of amendment in this section, tax imposed on undistributed reserves under section 5A, tax on shipping income of a resident person under section 7A and tax imposed on profit on debt under section 7B shall also be a final tax on the amount in respect of which the tax is imposed. Moreover, such tax payable shall not be reduced by any tax credits allowed under this Ordinance.



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Deductions in computing income chargeable under the head Income from Property

Sections 15A(h)

Clause (h) of sub-section (1) of this section has been substituted and thereby rent collection charges admissible @ 6% of rent will be inclusive of any administration expenses, incurred wholly and exclusively for the purpose of deriving rent. The substituted clause is as under:

"(h) any expenditure, not exceeding six per cent of the rent chargeable to tax in respect of the property for the year computed before any deduction allowed under this section, paid or payable by the person in the year wholly and exclusively for the purpose of deriving rent chargeable to tax under the head, "Income from Property including administration and collection charges;

First year allowance Section 23A According to amendments in this section, plant, machinery and equipment installed by any industrial undertaking engaged in the manufacturing of cellular mobile phones and owned and managed by a company shall be allowed first year allowance @ 90% against the cost of the eligible depreciable assets in lieu of initial allowance under section 23. However, it is provided that industrial undertaking engaged in manufacturing of cellular mobile phones should be duly certified by Pakistan Telecommunication Authority and has been set up and commercial production has been commenced between the first day of July 2015 and 30th day of June 2017. Capital gain on sale of securities Section 37A(1) Capital gain arising from disposal of securities was charged to tax for the tax year 2015 at 0% if holding period of security was twenty four months or more. Now, for tax year 2016, tax will also be charged @ 7.5% where holding period of a security is twenty four months or more but less than four years. Exemptions and tax concessions in Second Schedule Section 53(2) Powers of Federal Government, exercised by FBR under delegated authority of the Federal Government, in respect of amendments in Second Schedule to the Ordinance have been withdrawn. Now, such powers will be exercised by Federal Government, subject to approval of Economic Coordination Committee of Cabinet (ECC) whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations, protection of national economic interests in situations arising out of abnormal fluctuation in international commodity prices, removal of anomalies in taxes, development of backward areas and implementation of bilateral and multilateral agreements, by notification in the official Gazette. It has also been provided that any such notification issued after promulgation of Finance Act 2015 shall stand rescinded on expiry of the financial year in which it was issued, if not rescinded earlier. Tax credit for investment in shares and insurance Section 62(2)(c) Tax credit for investment in shares and insurance premium shall now be allowed on lesser of: (a) cost of shares or premium paid on insurance; (b) 20% of taxable income; or (c) Rupees 1.5 million. Earlier this amount was Rupees 1 million.



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Profit on debt and deductable allowance for profit on debt Section 64 and Section 64A

Tax credit allowed in respect of any profit or share in rent and share in appreciation for value of house paid by the individual on loan from bank or non-banking finance institutions, etc., obtained for construction or acquisition of house has been withdrawn by omitting section 64. However, benefit in this regard has been provided by inserting new section 64A whereby under the same circumstances, deductible allowance not exceeding 50% of taxable income or Rupees 1 million, whichever is lower, shall be allowed to the individual. New section 64A states as under:

64A. Deductible allowance for profit on debt. (1) Every individual shall be entitled to a deductible allowance for the amount of any profit or share in rent and share in appreciation for value of house paid by the individual in a tax year on a loan by a scheduled bank or non-banking finance institution regulated by the Securities and Exchange Commission of Pakistan or advanced by Government or the Local Government, Provincial Government or a statutory body or a public company listed on a registered stock exchange in Pakistan where the individual utilizes the loan for the construction of a new house or the acquisition of a house.

(2) The amount of an individuals deductible allowance allowed under sub-section (1) for a tax year shall not exceed fifty percent of taxable income or one million rupees, whichever is lower.

(3) Any allowance or part of an allowance under this section for a tax year that is not able to be deducted for the year shall not be carried forward to a subsequent tax year.

Tax credit for employment generation by manufacturers New section 64B

New tax credit has been introduced for a company if it is incorporated and its manufacturing unit is setup between 01 July 2015 to 30 June 2018. Such tax credit will be allowed equal to one percent of tax payable for every fifty employees registered with the Employees Old Age Benefits Institutions (EOBI) or the Employees Social Security Institution (ESSI) of Provincial Governments during the tax year. Maximum tax credit under this section will be allowed upto 10% of the tax payable. The tax credit will be admissible for a period of 10 years if, inter alia, the company employs more than fifty employees in a tax year registered with EOBI or ESSI. Text of the section is as under:

64B. Tax credit for employment generation by manufacturers. (1) Where a taxpayer being a company formed for establishing and operating a new manufacturing unit sets up a new manufacturing unit between 1st day of July, 2015 and 30th of June, 2018, it shall be given a tax credit for a period of ten years.

(2) The tax credit under sub-section (1) for a tax year shall be equal to one percent of the tax payable for every fifty employees registered with The Employees Old Age Benefits Institution or the Employees Social Security Institutions of Provincial Governments during the tax year, subject to a maximum of ten percent of the tax payable.

(3) Tax credit under this section shall be admissible where

(a) the company is incorporated and manufacturing unit is setup between the first day of July, 2015 and 30th day of June, 2018, both days inclusive;

(b) employs more than fifty employees in a tax year registered with The Employees Old Age Benefits Institution and the Employees Social Security Institutions of Provincial Governments;

(c) manufacturing unit is managed by a company formed for operating the said manufacturing unit and registered under the Companies Ordinance, 1984 (XLVII of 1984) and having its registered office in Pakistan; and



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(d) 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 1st July 2015.

(4) Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner that any of the conditions specified in this section were not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.

(5) For the purposes of this section a manufacturing unit shall be treated to have been setup on the date on which the manufacturing unit is ready to go into production, whether trial production or commercial production.

Miscellaneous provisions relating to tax credits Section 65(6)

By inserting new sub-section (6) in this section, the anomaly of disallowance of tax credit against tax deducted under final tax regime and minimum tax has been removed. Sections 65B Tax credit for investment, 65D Tax credit for newly established industrial undertakings and 65E Tax credit for industrial undertakings established before the first day of July 2011 were already amended by Finance Act, 2012 and such credits were made admissible against tax payable on account of minimum tax and final tax under any provisions of the Ordinance. This sub-section has also provided that condition for charge of minimum tax under clause (d) of sub-section (1) of section 113 shall not apply to persons entitled to tax credit under the aforementioned sections 65B, 65D and 65E.

Tax credit for investment Section 65B(2)

Tax credit equal to 10% of investment in purchase of plant and machinery, made for the purposes of BMR, extension and expansion at any time between the first day of July 2010 and 30th day of June 2015, was allowed by Finance Act, 2010. Now, by amendment in sub-section (2) of this section, such tax credit will be allowed for a further period of one year if such investment is made up to 30th day of June 2016.

Tax credit for enlistment Section 65C(1)

Tax credit admissible to companies opting for enlistment in any registered stock exchange in Pakistan has been enhanced from 15% to 20% of tax payable for the tax year of enlistment.

Tax credit for industrial undertakings established before the first day of July 2011 Section 65E(5)

By amending sub-section (5) of this section, it has been clarified that tax credit under this section will be admissible for a period of five years beginning from the date of setting up or commencement of commercial production from the new plant or expansion project, whichever is latter.

Principles of taxation of companies Section 94

Under the provisions of section 5, tax on dividend is imposed on every person who receives dividend from a company. The word resident, appearing before company in section 5 was omitted by Finance Act, 2003, but the corresponding amendment was not incorporated in sub-section (2) of section 94. Now the anomaly has been removed and thereby provisions of sub-section (2) of section 94 have been brought in line with section 5, after 12 years. However, similar amendment is still needed in sub-section (3) of this section to remove conflict between both sections 5 and 94.



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Agreements for avoidance of double taxation and prevention of fiscal evasion

Sections 107(1), (1A) and (1B)

Sub-section (1) of this section has been substituted and new sub-sections (1A) and (1B) have been inserted in this section for the purposes of exchanging financial information including automatic exchange of information with respect to taxes imposed under the Ordinance or any other law for the time being in force and under corresponding law in force in foreign country. Substituted sub-section (1) and new sub-sections (1A) and (1B) are as under:

(1) The Federal Government may enter into an agreement, bilateral or multilateral with the government or governments of foreign countries or tax jurisdictions for the avoidance of double taxation and the prevention of fiscal evasion and exchange of information including automatic exchange of information with respect to taxes on income imposed under this Ordinance or any other law for the time being in force and under the corresponding laws in force in that country, and may, by notification in the official Gazette make such provisions as may be necessary for implementing the agreement.

(1A) Notwithstanding anything contained in any other law to the contrary, the Board shall have the powers to obtain and collect information when solicited by another country under a tax treaty, a tax information exchange agreement, a multilateral convention, an inter-governmental agreement, a similar arrangement or mechanism. (1B) Notwithstanding the provisions of the Freedom of Information Ordinance, 2002 (XCVI of 2002), any information received or supplied, and any concomitant communication or correspondence made, under a tax treaty, a tax information exchange agreement, a multilateral convention, a similar arrangement or mechanism, shall be confidential subject to subsection (3) of section 216.

Minimum tax on builders Section 113A(3) Application of minimum tax on income of builders from sale of residential, commercial or other building has been deferred till 30 June 2018. This section was introduced through Finance Act, 2013, with minimum tax rates to be notified by Federal Government in the official Gazette. However, no such notification was issued so far and now by inserting new sub-section (3), this section shall have not effect till 30 June 2018. Minimum tax on land developers Section 113B Minimum tax on persons deriving income from the business of development and sale of residential, commercial or other plots has been imposed @ 2% of the value of land notified by any authority for the purpose of stamp duty. This section was introduced through Finance Act, 2013, but rate of minimum tax was not notified by the Federal Government in official Gazette so far. Alternative corporate tax Section 113C Provisions of section 113C relating to Alternative Corporate Tax (ACT) have been clarified. ACT is now applicable on company in respect of income subject to tax at corporate rate as provided in Division II of Part I of the First Schedule, if such tax or minimum tax payable under any provisions of the Ordinance is less than 17% of accounting income. Income subject to tax under final tax regime or separate block of income are not subject to ACT.



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Return of income Section 114 After sub-section (6) of this section, new proviso has been added whereby written approval of Commissioner shall not be required if the return of income is revised within 60 days of furnishing of return. However, other conditions mentioned in sub-section (6) shall remain applicable. It has further been provided that if the Commissioner fails to grant approval in writing within 60 days from the date when revision of return was sought, the approval shall be deemed to have been granted by the Commissioner. Mode and manner of seeking the revision shall be prescribed by FBR. Method of furnishing returns and other documents Section 118(2A) According to provisions of sub-section (2A) of this section, the taxpayer having salary income of Rupees 500,000 or more in a tax year is obliged to file his return of income electronically accompanied by proof of deduction / payment of tax and wealth statement. Now, the FBR has been empowered to amend the aforementioned condition or direct that the said condition shall not apply for a tax year. Best judgment assessment Section 121(1)(d) Where a person fails to produce the information required for audit under section 177 before inter alia, a special audit panel appointed under sub-section (11) of section 177, the Commissioner may make best judgment assessment of the taxable income on the basis of available information and material. Procedure in appeal Section 128(1AA) The Commissioner (Appeals) has now been empowered to stay the recovery of tax demand for further period of thirty days with the condition to pass order on appeal within the said period of 30 days. Under the prevailing sub-section (1A), stay against recovery of tax demand was granted for a period not exceeding 30 days in aggregate without any condition of passing the appellate order. Now by inserting new sub-section (1AA) in this section, the Commissioner (Appeals) may extend stay for further period of 30 days and will pass appellate order within the extended period of 30 days. Due date for payment of tax Section 137(2) Now, tax demand created under an assessment order or an amended assessment order, if payable, shall be paid within thirty days from the date of service of notice. Earlier such tax demand was required to be paid within fifteen days from receipt of notice under this section. However, practically such tax demand, in some cases is recovered through banks of the taxpayer even before expiry of 15 days and without serving notice under section 138(1). On the other hand, period of tax payable as a result of provisional assessment order under section 122C has been curtailed from 60 days to 45 days from the date of service of notice.

Advance tax paid by the tax payer Section 147(4A) Estimate of advance tax in case of company or association of persons, shall now be furnished at any time before the second installment of advance tax is due if the tax payable is likely to be more than the amount required to pay on turnover basis. By virtue of substitution in sub-section (4A), 50% of such estimated advance tax will be paid by the due date of second quarter and the remaining 50% will be paid in two equal installments by the due date of third and fourth quarter of the tax year.



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Imports Section 148(2) and (2A) By omitting sub-section (2) of this section, power of FBR to grant exemption through SROs in respect of collection of tax on import of any goods or class of goods or persons or class of persons importing such goods or class of goods, has been withdrawn. However, new sub-section (2A) has been inserted and thereby notifications / SROs already issued under the omitted sub-section (2) shall continue to remain in force unless rescinded by FBR. Tax on local purchases of cooking oil or vegetable ghee by certain persons

New section 148A & Clause 13C of Part II of Second Schedule

Manufacturers of cooking oil or vegetable ghee or both are chargeable to tax at reduced rate of 2% on purchase price of locally produced edible oil under clause (13C) of Part II of Second Schedule. The same provisions will now be governed under newly inserted section 148A and such tax payable will be final tax in respect of income accruing from locally produced edible oil. Accordingly the said clause (13C) has been omitted. Profit on debt Section 151(3)

According to substituted sub-section (3) of section 151, tax deductable under this section shall be final tax on the profit on debt arising to a taxpayer except where:

(a) taxpayer is a company; or (b) profit on debt is taxable under section 7B.

Payments to non residents Section 152(4A)

New sub-section (4A) has been inserted in this section which empowers the Commissioner to issue order in writing on application made by permanent establishment in Pakistan of a non-resident person for payment without deduction of tax or deduction of tax at reduced rate, in cases where the tax so deductable is adjustable against tax liability.

Payments for goods, services and contracts Section 153(3) Proviso

By inserting new proviso (d) in sub-section (3) of this section, tax deducted on payments in respect of contract signed by a sportsperson has been included in final tax regime retrospectively effective from tax year 2013.

Exports Section 154(5)

New option has been introduced for exporters to opt out of final taxation subject to the condition that tax so deducted will be treated as minimum tax instead of final tax and option will be exercised at the time of filing of return of income under normal tax regime. For this purpose, new sub-section (5) has been inserted in this section as under:

"(5) The provisions of sub-section (4) shall not apply to a person who opts not to be subject to final taxation:

Provided that this sub-section shall be applicable from tax year 2015 and the option shall be exercised every year at the time of filing of return under section 114:

Provided further that the tax deducted under this sub-section shall be minimum tax.



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Time of deduction of tax Section 158(c) Clause (b) of this section states that a person is required to deduct tax from an amount at the time the amount is actually paid. Now, by inserting new clause (c) after this clause, amount actually paid shall have the meaning as may be prescribed. However, it is not mentioned that who is authorized to so prescribe. Exemption or lower rate certificate Section 159(6) Notifications / SROs issued under the omitted sub-sections (3), (4) and (5) and for the time being in force shall continue to remain in force unless rescinded by the FBR through notification in the official Gazette. Failure to pay tax collected or deducted and default surcharge Section 161(1B) and Section 205 Rate of default surcharge has been reduced from 18% to 12% in case of failure to collect or deduct tax at source or default in payment of tax collected or deducted into the Government treasury by the withholding agent. Furnishing of information by financial institutions including banks New section 165B

Every financial institution shall now be liable to make arrangements to provide information regarding non-resident persons to the FBR for the purpose of automatic exchange of information under bilateral agreement or multilateral convention. For this purpose following new section 165B has been inserted in the statute:

165B. Furnishing of information by financial institutions including banks. (1) Notwithstanding anything contained in any law for the time being in force including but not limited to the Banking Companies Ordinance, 1962 (LVII of 1962), the Protection of Economic Reforms Act, 1992 (XII of 1992), the Foreign Exchange Regulation Act, 1947 (VII of 1947) and any regulations made under the State Bank of Pakistan Act, 1956 (XXXIII of 1956), on the subject every financial institution shall make arrangements to provide information regarding non-resident Persons to the Board in the prescribed form and manner for the purpose of automatic exchange of information under bilateral agreement or multilateral convention.

(2) Subject to section 216, all information received under this section shall be used only for tax and related purposes and kept confidential.

Additional payment for delayed refund Section 171(1)

Additional payment for delayed refund will now be made at the rate of KIBOR + 0.5% instead of 15% per annum.

Notice to obtain information or evidence Section 176(1) & (1A)

Clause (a) of sub-section (1) of this section has been substituted whereby any person will be required to furnish to the Commissioner or an authorized officer, any information relevant to any tax leviable under this Ordinance or to fulfill any obligation under any agreement with the foreign governments or tax jurisdiction as specified in the notice.

Moreover, by inserting new sub-section (1A) in this section, the special audit panel appointed for any tax year may be allowed by the concerned Commissioner to enter into the business premises of a taxpayer to obtain / examine any information / record. Such panel, if specifically delegated by the Commissioner may also exercise the powers as are vested in a Court under the Code of Civil Procedure, 1908 in respect of some specified matters.



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Audit Section 177 FBR has been empowered to appoint as many special audit panels as may be necessary for conducting audit including a forensic audit of income tax affairs of any person or classes of persons. Formation and scope of such audit panels will be governed by following new sub-sections inserted in this section:

(11) The Board may appoint as many special audit panels as may be necessary, comprising two or more members from the following:-

(a) an officer or officers of Inland Revenue;

(b) a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961);

(c) a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966); or

(d) any other person as directed by the Board, to conduct an audit, including a forensic audit, of the income tax affairs of any person or classes of persons and the scope of such audit shall be as determined by the Board or the Commissioner on case to case basis.

(12) Special audit panel shall be headed by a Chairman who shall be an officer of Inland Revenue.

(13) Powers under sections 175 and 176 for the purposes of conducting an audit under sub-section (11), shall only be exercised by an officer or officers of Inland Revenue, who are member or members of the special audit panel, and authorized by the Commissioner.

(14) Notwithstanding anything contained in sub-sections (2) and (6), where a person fails to produce before the Commissioner or a special audit panel under sub-section (11) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the panel, the Commissioner may proceed to make best judgment assessment under section 121 of this Ordinance and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.

(15) If any one member of the special audit panel, other than the Chairman, is absent from conducting an audit, the proceedings of the audit may continue, and the audit conducted by the special audit panel shall not be invalid or be called in question merely on the ground of such absence.

(16) Functions performed by an officer or officers of Inland Revenue as members of the special audit Panel, for conducting audit, shall be treated to have been performed by special audit panel.

(17) The Board may prescribe the mode and manner of constitution, procedure and working of the special audit panel.

Taxpayers registration Section 181(4)

National Tax Number (NTN) has been replaced with Computerized National Identity Card (CNIC) issued by National Database and Registration Authority (NADRA). From tax year 2015 and onwards, all individuals shall use CNIC as NTN.



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The amendment needs further clarification / rules in respect of its implementation and application of existing provisions of law regarding NTN. Offences and penalties Section 182 Minimum penalty of Rupees 50,000 in case any person fails to furnish a statement under section 115, final taxation, section 165, periodical withholding tax statements or section 165A, furnishing of information by banks, within the due date has been reduced to Rupees 10,000. Moreover, penalty @ 0.1% of taxable income per week or Rupees 20,000 whichever is higher shall be paid by any person who fails to furnish wealth statement or wealth reconciliation statement. Prosecution for making false or misleading statements Section 195(3) Penalty of Rupees 25,000 or 100% of the amount of tax shortfall whichever is higher, shall be paid by any person who makes a false or misleading statement to an Inland Revenue Officer either in writing or orally or electronically in respect of furnishing of return of income u/s 114, statement of final taxation u/s 115, wealth statement u/s 116, maintaining of record u/s 174, information in respect audit of the tax affairs or general information u/s 176 or 177 of the Ordinance. Power or function exercised and delegation Section 210(1B) and Section 211 Sub-section (1B) of this section has been reworded to include special audit panel for the purpose of delegation of powers or functions by the Commissioner to conduct audit. Substituted sub-section (1B) is as under:

"(1B) The Commissioner may, by an order in writing, delegate to a special audit panel appointed under sub-section (11) of section 177, or to a firm of chartered accountants or a firm of Cost and Management Accountants appointed by the Board or the Commissioner to conduct an audit of person under section 177, all or any of the powers or functions to conduct an audit under this Ordinance.

Moreover, such powers or functions delegated by the Commissioner to special audit panel shall be treated as having been exercised or performed by the Commissioner. Automatic selection of audit New section 214D A person shall automatically be selected for audit of income tax affairs for a tax year if he fails to fulfill certain parameters as provided in the following new section 214D:

214D. Automatic selection for audit.(1) A person shall be automatically selected for audit of its income tax affairs for a tax year, if

(a) the return is not filed within the date it is required to be filed as specified in section 118, or, as the case may be, not filed within the time extended by the Board under section 214A or further extended for a period not exceeding thirty days by the Commissioner under section 119; or

(b) the tax payable under sub-section (1) of section 137 has not been paid.



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(2) Audit of income tax affairs of persons automatically selected under sub-section (1) shall be conducted as per procedure given in section 177 and all the provisions of this Ordinance shall apply accordingly:

Provided that audit proceedings shall only be initiated after the expiry of ninety days from the date as mentioned in sub-section (1).

(3) Subject to section 182, 205 and 214C, sub-section (1) shall not apply if the person files the return within ninety days from the date as mentioned in sub-section (1) and

(a) Twenty-five percent higher tax, than the tax paid during immediately preceding tax year, has been

paid by a person on the basis of taxable income and had declared taxable income in the return for immediately preceding tax year; or

(b) tax at the rate of two percent of the turnover or the tax payable under Part I of the First Schedule, whichever is higher, has been paid by a person alongwith the return and in the immediately preceding tax year has either not filed a return or had declared income below taxable limit:

Provided that where return has been filed for the immediately preceding tax year, turnover declared for the tax year is not less than the turnover declared for the immediately preceding tax year.

(4) The provisions of sub-section (1) and sections 177 and 214C shall not apply, for a tax year, to a person registered as retailer under rule (4) of the Sales Tax Special Procedure Rules, 2007 subject to the condition that name of the person registered under rule (4) of the Sales Tax Special Procedure Rules, 2007 remained on the sales tax active taxpayers list throughout the tax year.

(5) Sub-section (4) shall have effect from the date as the Board may, by notification in the official Gazette, appoint.

Reward to whistleblowers New section 227B Concept of reward to whistleblowers has been introduced whereby the FBR has been empowered to allow reward to any person providing credible information leading to detection of tax in cases of concealment, fraud, corruptions or evasion of tax etc. For this purpose, following new section 227B has been introduced:

227B. Reward to whistleblowers. (1) The Board may sanction reward to whistleblowers in cases of concealment or evasion of income tax, fraud, corruption or misconduct providing credible information leading to such detection of tax.

(2) The Board may, by notification in the official Gazette, prescribe the procedure in this behalf and also specify the apportionment of reward sanctioned under this section for whistleblowers.

(3) The claim for reward by the whistleblower shall be rejected if

(a) the information provided is of no value; (b) the Board already had the information; (c) the information was available in public records; or (d) no collection of taxes is made from the information provided from which the Board can pay

the reward.



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(4) For the purpose of this section, "whistleblower means a person who reports concealment or evasion of income tax leading to detection or collection of taxes, fraud, corruption or misconduct, to the competent authority having power to take action against the person or an income tax authority committing fraud, corruption, misconduct, or involved in concealment or evasion of taxes.

Advance tax on private motor vehicles Section 231B(6) & (7)

Following new sub-section (6) has been inserted to provide definition of date of first registration for the purpose of collection of advance tax under this section:

"(6) For the purposes of this section the expression "date of first registration means-

(a) the date of issuance of broad arrow number in case a vehicle is acquired from the Armed Forces of Pakistan;

(b) the date of registration by the Ministry of Foreign Affairs in case the vehicle is acquired from a foreign diplomat or a diplomatic mission in Pakistan;

(c) the last day of the year of manufacture in case of acquisition of an unregistered vehicle from the Federal or a Provincial Government; and

(d) in all other cases the date of first registration by the Excise and Taxation Department.

Moreover, new sub-section (7) of this section also clarifies that for the purpose of this section and section 234, motor vehicle includes car, jeep, van, sports utility vehicle, pick-up trucks for private use, carvan automobile, limousine, wagon and any other automobile used for private purpose.

Telephone and internet users Section 236

Advance tax @ 14% of the amount of internet bill of a subscriber or sale price of internet prepaid card shall also be collected from internet users.

Advance tax on purchase of air tickets Section 236B

Exemption on collection of advance tax on purchase of domestic air ticket of Baluchistan coastal belt, Azad Jammu and Kashmir, FATA, Gilgit-Baltistan and Chitral routes has been provided by adding a proviso after sub-section (1) of this section.

Advance tax on sales to retailers Section 236H

Collection of advance tax from the retailers at the time of sale of fertilizer to them by manufacturer, distributor, dealer, wholesaler or commercial importer has been exempted. Moreover, every distributor or dealer will now collect advance tax on sales to another wholesaler in respect of the specified sectors at the specified rate.

Collection of advance tax by educational institutions Section 236I(6) & Clause 89, Part IV, 2nd Schedule

Clause 89 of Part IV of Second Schedule providing exemption from collection of advance tax under this section, to certain persons including non-residents has been omitted. Now, by relocating sub-clause (d) of clause 89 as new sub-section (6) in this section, such exemption will remain available inter alia, to the person who is non-resident and:

(i) furnishes copy of passport as an evidence to the educational institution that during previous tax year, his stay in Pakistan was less than one hundred eighty-three days;

(ii) furnishes a certificate that he has no Pakistan-source income; and

(iii) the fee is remitted directly from abroad through normal banking channels to the bank account of the educational institution.



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Advance tax on purchase or transfer of immovable property Section 236K(4) Proviso

According to sub-section (4), provisions in respect of collection of advance tax on purchase or transfer of immovable property are not applicable to a scheme introduced by the Federal or a Provincial Government or an Authority established under Federal or Provincial law for expatriate Pakistanis. Now, it is provided that such exemption will be available if payment by expatriate Pakistanis is made in the foreign exchange remitted from outside Pakistan through normal banking channels.

Advance tax under Chapter XII Section 236O

Exemption from collection of advance tax already available under various sections of Chapter XII Transitional Advance Tax Provisions or under certain clauses of Second Schedule has been consolidated in new section 236O by stating as under:

236O. Advance tax under this chapter.- The advance tax under this chapter shall not be collected in the case of withdrawals made by-

(a) the Federal Government or a Provincial Government;

(b) a foreign diplomat or a diplomatic mission in Pakistan; or

(c) a person who produces a certificate from the Commissioner that his income during the tax year is exempt.

Following new sections have been inserted in Chapter XII for collection of advance tax on banking transactions otherwise than through cash, payments to residents for use of machinery and equipment, education related expenses remitted abroad, payment of dividend in specie and collection of tax by Pakistan Mercantile Exchange Limited (PMEX) from its members on sale / purchase of futures commodity contracts, etc. Provisions contained in each section are as under:

236P. Advance tax on banking transactions otherwise than through cash. (1) Every banking company shall collect advance adjustable tax from a non-filer at the time of sale of any instrument, including demand draft, pay order, special deposit receipt, cash deposit receipt, short term deposit receipt, call deposit receipt, rupee travellers cheque or any other instrument of such nature.

(2) Every banking company shall collect advance adjustable tax from a non-filer at the time of transfer of any sum through cheque or clearing, interbank or intra bank transfers through cheques, online transfer, telegraphic transfer, mail transfer, direct debit, payments through internet, payments through mobile phones, account to account funds transfer, third party account to account funds transfers, real time account to account funds transfer, real time third party account to account fund transfer, automated teller machine (ATM) transfers, or any other mode of electronic or paper based funds transfer.

(3) The advance tax under this section shall be collected at the rate specified in Division XXI of Part IV of the First Schedule, where the sum total of payments for all transactions mentioned in sub-section (1) or subsection (2), as the case may be, exceed fifty thousand rupees in a day.

(4) Advance tax under this section shall not be collected in the case of Pakistan Realtime Interbank Settlement Mechanism (PRISM) transactions or payments made for Federal, Provincial or local Government taxes.

[However, according to the news in print and electronic media, the Federal Government has decided to reduce rate of withholding tax from 0.6% to 0.3% for a period of three months up to 30 September 2015 with the condition that non-filers will file their tax returns for tax year 2015. After the expiry of 3 months period, withholding tax @ 0.6% will be applicable if the person fails to file his return.]



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236Q. Payment to residents for use of machinery and equipment.- (1) Every prescribed person making a payment in full or in part including a payment by way of advance to a resident person for use or right to use industrial, commercial and scientific equipment shall deduct tax from the gross amount at the rate specified in Division XXIII of Part IV of the First Schedule.

(2) Every prescribed person making a payment in full or in part including a payment by way of advance to a resident person on account of rent of machinery shall deduct tax from the gross amount at the rate specified in Division XXIII of Part IV of the First Schedule.

(3) The tax deductible under sub-sections (1) and (2) shall be final tax on the income of such resident person.

(4) In this section "prescribed person means a prescribed person as defined in sub-section (7) of section 153.

(5) The provisions of sub-section (1) and (2) shall not apply to

(a) Agricultural machinery; and (b) machinery leased by a leasing company, an investment bank or a modaraba or a scheduled

bank or a development finance institution in respect of assets owned by the leasing company or an investment bank or a modaraba or a scheduled bank or a development finance institution.

236R. Collection of advance tax on education related expenses remitted abroad. (1) There shall be collected advance tax at the rate specified in Division XXIV of Part-IV of the First Schedule on the amount of education related expenses remitted abroad.

(2) Banks, financial institutions, foreign exchange companies or any other person responsible for remitting foreign currency abroad shall collect advance tax from the payer of education related expenses.

(3) Tax collected under this section shall be adjustable against the income of the person remitting payment of education related expenses.

(4) For the purpose of this section, "education related expenses includes tuition fee, boarding and lodging expenses, any payment for distant learning to any institution or university in a foreign country and any other expense related or attributable to foreign education.

236S. Dividend in specie. - Every person making payment of dividend-in specie shall collect tax from the gross amount of the dividend in specie paid at the rate specified in Division I of Part III of the First Schedule.

236T. Collection of tax by Pakistan Mercantile Exchange Limited (PMEX). (1) Pakistan Mercantile Exchange Limited (PMEX) shall collect advance tax

(a) at the rates specified in Division XXII of Part IV of First Schedule from its members on

purchase of futures commodity contracts; (b) at the rates specified in Division XXII of Part IV of First Schedule from its members on sale of

futures commodity contracts; and

(2) The tax collected under clauses (a) and (b) of sub-section (1) shall be an adjustable tax.


INCOME TAX ORDINANCE, 2001 THE FIRST SCHEDULE

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THE FIRST SCHEDULE

Part I RATES OF TAX

Division I Rates of Tax for Individuals and Association of Persons Clause (1) Rates of tax imposed on taxable income of individuals and association of persons except salaried taxpayers are as under:

S.No. Taxable Income Rate of tax

1. Where the taxable income does not exceed Rs. 400,000

0%

2. Where the taxable income exceeds Rs. 400,000

but does not exceed Rs. 500,000

7% of the amount exceeding Rs.400,000


but does not exceed Rs. 750,000

Rs. 7,000 + 10% of the amount exceeding Rs. 500,000


but does not exceed Rs. 1,500,000


5. 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



7. Where the taxable income exceeds Rs. 4,000,000

but does not exceed Rs.6,000,000


8. Where the taxable income exceeds Rs. 6,000,000

Rs. 1,319,500 + 35% of the amount exceeding Rs. 6,000,000

Provided that in the case of an association of persons that is a professional firm prohibited from incorporating by any law or the rules of the body regulating their profession, the 35% rate of tax mentioned against serial No. 8 of the table shall be 32% for tax year 2016 and onwards. Salaried individuals, where income from salary exceeds 50% of taxable income: Clause (1A)

S. No. Taxable Income Rate of tax

1.

Where the taxable income does not exceedRs. 400,000

0%

2. Where the taxable income exceeds Rs. 400,000 but does not exceed Rs. 500,000

2% of the amount exceeding Rs. 400,000

3. Where the taxable income exceeds Rs. 500,000 but does not exceed Rs. 750,000


4. Where the taxable income exceeds Rs.750,000 but does not exceed Rs. 1,400,000




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S. No. Taxable Income Rate of tax

5. Where the taxable income exceeds Rs. 1,400,000 but does not exceed Rs.1,500,000

Rs. 79,500 + 12.5% of the amount exceeding Rs. 1,400,000

6. Where the taxable income exceeds Rs. 1,500,000 but does not exceed Rs.1,800,000




8. Where the taxable income exceeds Rs.

2,500,000 but does not exceed Rs. 3,000,000


9. Where the taxable income exceeds Rs.



10 Where the taxable income exceeds Rs.







7,000,000

Rs. 1,422,000 + 30% of the amount exceeding Rs. 7,000,000

Division II Rates of Tax for Companies

Rate of tax imposed on taxable income of a company, other than banking company, shall be 32% for the tax year 2016, 31% for the tax year 2017 and 30% for the tax year 2018 and onwards.

Division IIA Rates of Super Tax

The rate of super tax imposed for rehabilitation of temporarily displaced persons shall be:

Person Rate of tax

Banking Company

4%

Person, other than a banking company, having income equal to or exceeding Rs. 500 million

3%

Super tax shall be charged on income for the tax year 2015 only.

Division III Rate of Dividend Tax

The rate of tax imposed under section 5 on dividend received from a company 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) 12.5% in cases other than mentioned in clauses (a) and (c).

(c) 10% in case of dividend received by a person from a mutual fund.



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Provided further that the dividend received by a company from a collective investment scheme, Real Estate Investment Trust Scheme or a mutual fund, other than a stock fund, shall be taxed at the rate of 25% for tax year 2015 and onwards.

Provided also that, if a developmental REIT scheme with the object of development and construction of residential buildings is set up by 30th day of June 2018, tax imposed on dividend received by a person from such developmental REIT scheme shall be reduced by 50% for three years from 30th day of June 2018.

Division IIIA Profit on Debt

As per newly inserted Division IIIA, the rates of tax for profit on debt imposed under section 7B shall be as under:

Profit on Debt Rate of tax

Where the profit on debt does not exceed Rs. 25,000,000 10%

Where the profit on debt exceed Rs. 25,000,000 but does not exceed Rs. 50,000,000

Rs. 2,500,000 + 12.5% of the amount exceeding Rs. 25,000,000

Where the profit on debt exceed Rs. 50,000,000 Rs. 5,625,000 + 15% of the amount exceeding Rs. 50,000,000

Division VII Capital Gains on Disposal of Securities

The rates of tax to be paid under section 37A for the tax years 2015 and 2016 are as under:

Holding period Rate of tax

Tax year 2015 Tax year 2016

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%

Where holding period is more than four years 0% 0%

However, mutual fund or a collective investment scheme or a REIT scheme shall deduct capital gains tax, at the rates as specified below, on redemption of securities as prescribed, namely:

Category Rate

Stock Fund Other Fund

Individual & AOP 10% 10% Company 10% 25%



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Provided 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%.

Provided further that no capital gains tax shall be deducted, if the holding period of the security is more than four years.

Division IX Minimum Tax

As per amendments made in Division IX, minimum tax at the rate of 0.5% shall now be charged on distributors of fertilizers instead of 0.2% and minimum tax on dealers of fertilizers shall also be charged @ 0.5%.

Part II Rates of Advance Tax

The rate of advance tax to be collected by the Collector of Customs from every importer of goods on the value of the goods imported, under section 148 shall be as under:

S.No. Persons Filer Non-Filer

1 (i) Industrial undertaking importing remeltable steel (PCT Heading 72.04) and directly reduced iron for its own use;

(ii) Persons importing potassic fertilizers in pursuance of Economic Coordination Committee of the cabinets 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)/2011 dated the 31st December, 2011 and importing items covered under S.R.O. 1125(l)/2011 dated the 31st December, 2011;

(v) Person importing gold; (vi) Person importing cotton; and (vii) Designated buyer of LNG on behalf of Government

of Pakistan, to import LNG.

1% of import value as increased by customs-duty, sales tax and federal excise duty

1.5% of import value as increased by customs-duty, sales tax and federal excise duty

2 Persons importing pulses 2% of import value as increased by customs-duty, sales tax and federal excise duty


3 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(l)/2011 dated the 31st December, 2011.


4.5% of import value as increased by customs-duty, sales tax and federal excise duty

4 Ship breakers on import of ships 4.5% 6.5% 5 Industrial undertakings not covered under S. Nos. 1 to 4 5.5% 8% 6 Companies not covered under S. Nos. 1 to 5 5.5% 8% 7 Persons not covered under S. Nos. 1 to 6 6% 9%



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Part III DEDUCTION OF TAX AT SOURCE

Division I Advance Tax on Dividend

The rate of tax to be deducted on gross amount of dividend or dividend in specie paid under section 150 and 236S respectively, shall be as under:

(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) 12.5% for filers other than mentioned in (a) above;

(c) 17.5% for non-filers other than mentioned in (a) above:

Provided that the rate of tax required to be deducted by a collective investment scheme, REIT scheme or a mutual fund shall be:

Stock Fund Money Market Fund, Income Fund or REIT Scheme or any other fund

Individual 10% 10% Company 10% 25% AOP 10% 10%

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%

Provided further that, if a developmental REIT scheme with the object of development and construction of residential buildings is set up by 30th day of June 2018, rate of tax on dividend received by a person from such developmental REIT scheme shall be reduced by 50% for 3 years from 30th day of June 2018.

Division IA Profit on Debt

The rate of tax to be deducted under section 151 shall be 10% of the yield or profit for filers and 17.5% of the yield or profit paid, for non-filers:

Provided that for a non-filer, if the yield or profit paid is Rupees 500,000 or less, the rate shall be 10%.

Division II Payment to Non-Residents

Amended tax rates in respect of payments to non-resident person under section 152 are as under:

Description Corporate Non-Corporate

Filer Non-filer Filer Non-filer

For supply of goods 4% 6% 4.5% 6.5%

For services other than transport services 8% 12% 10% 15%

For execution of contract 7% 10% 7.5% 10%

However, in case of execution of contract with sportsperson, tax will be deducted @ 10% of the gross amount.

Division III Payments for Goods or Services

Amended tax rates in respect of payments for goods, services and contracts under section 153 are as under:

(1) Sale of goods [Section 153(1)(a)]:

(i) 4% of the gross amount payable, if the company is a filer and 6% if the company is a non-filer.



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(ii) In any other case, 4.5% of the gross amount payable, if the person is a filer and 6.5% if the person is a non-filer.

(2) Rendering or providing services [Section 153(1)(b)]:

(i) 8% of the gross amount payable, if the company is a filer and 12% if the company is a non-filer.

(ii) In any other case, 10% of the gross amount payable, if the person is a filer and 15% if the person is a non-filer.

(iii) In respect of person making payment to electronic and print media for advertising services:

a) In case of filer, 1% of the gross amount payable; and

b) In case of a non-filer, 12% of the gross amount payable, if the non-filer is a company and 15% if the non-filer is other than a company.

(3) Execution of contract [Section 153(1)(c)]:

(i) 10% of the gross amount payable in the case of sportspersons.

(ii) 7% of the gross amount payable, if the company is a filer and 10% if the company is a non-filer.

(iii) In any other case, 7.5% of the gross amount payable if the person is a filer and 10% if the person is a non-filer.

Division VIA Petroleum Products

Rate of collection of tax under section 156A by every person selling petroleum products to petrol pump operators shall be 12% of the amount of payment in case of filers and 15% of the amount of payment in case of non-filers.

Part IV Deduction or Collection of Advance Tax

Division II Brokerage and Commission

The rate of collection of tax on brokerage and commission under section 233(1) shall be as under:

i. In case of filers:-

a) 10% of the amount of the payment, in case of advertising agents. b) 12% of the amount in all other cases.

ii. In case of non-filers, 15% of the amount of payment.

Division III Tax on Motor Vehicles

(1) As per revised rates, tax under section 234, in case of goods transport vehicles, tax of Rupees 2.50 per kilogram of the laden weight shall be charged for filer and Rupees 4 per kilogram of the laden weight for non-filer.

(2) Revised rates for collection of tax on passenger transport vehicles plying for hire on the basis of registered seating capacity which are as under:

S. No. Seating capacity Rupees per seat per annum

Filer Non-filer

(i) Four or more persons but less than ten persons. 50 100 (ii) Ten or more persons but less than twenty persons. 100 200 (iii) Twenty persons or more. 300 500



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(3) Revised rates of collection of tax under section 234 in case of other private motor vehicles shall be as follows:

S. No. Engine capacity Filer Non-filer

Rupees Rupees

1 upto 1000cc 800 1,200 2 1001cc to 1199cc 1,500 4,000 3 1200cc to 1299cc 1,750 5,000 4 1300cc to 1499cc 2,500 7,500 5 1500cc to 1599cc 3,750 12,000 6 1600cc to 1999cc 4,500 15,000 7 2000cc and above 10,000 30,000

Division V Telephone Users

Advance tax rate under section 236, in case of subscriber of internet, mobile telephone and prepaid internet or telephone card shall be 14% of the amount of bill or sales price of internet prepaid card or prepaid telephone card or sale of units through any electronic medium or whatever form.

Division VI Cash Withdrawal from Banks The rate of tax to be deducted under section 231A on cash withdrawal from banks shall remain 0.3% in case of a filer and for non-filer, it will now be 0.6%, if the payment for cash withdrawal, or the sum total of the payments for cash withdrawal in a day, exceeds Rupees 50,000.

Division VIA Advance Tax on Transactions in Bank The rate of tax to be deducted under section 231AA shall be at the rate of 0.3% of the transaction for filers and 0.6% for non-filers.

Division VII Advance Tax on Purchase, Registration and Transfer of Motor Vehicles The rate of advance tax on registration and tax to be collected by manufacturer on sale of motor vehicles, under sub-sections (1) and (3) respectively, of section 231B shall be as follows:

S. No. Engine Capacity Filer Non-filer

Rupees Rupees

1. Upto 850cc 10,000 10,000 2. 851cc to 1000cc 20,000 25,000 3. 1001cc to 1300cc 30,000 40,000 4. 1301cc to 1600cc 50,000 100,000 5. 1601cc to 1800cc 75,000 150,000 6. 1801cc to 2000cc 100,000 200,000 7. 2001cc to 2500cc 150,000 300,000 8. 2501cc to 3000cc 200,000 400,000 9. Above 3000cc 250,000 450,000



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The rate of advance tax on transfer of registration of motor vehicles, under sub-section (2) of section 231B shall be as follows:

S. No. Engine Capacity Filer Non-filer

Rupees Rupees

1. Upto 850cc - 5,000 2. 851cc to 1000cc 5,000 15,000 3. 1001cc to 1300cc 7,500 25,000 4. 1301cc to 1600cc 12,500 65,000 5. 1601cc to 1800cc 18,750 100,000 6. 1801cc to 2000cc 25,000 135,000 7. 2001cc to 2500cc 37,500 200,000 8. 2501cc to 3000cc 50,000 270,000 9. Above 3000cc 62,500 300,000

Provided that the rate of tax to be collected on transfer of registration of a private motor vehicle shall be reduced by 10% each year from the date of first registration in Pakistan.

Division XIV Advance Tax on Sale to Distributors, Dealers or Wholesalers Advance tax from distributors, dealers or wholesalers under section 236G shall be collected at following rates:

Category of Sale Rate of Tax

Filer Non-filer

Fertilizers 0.7% 1.4% Other than fertilizers 0.1% 0.2%

Division XIX Advance tax on Domestic Electricity Consumption

The rate of tax to be collected on domestic electricity consumption under section 235A shall be:

(i) 7.5% if the amount of monthly bill is Rupees 75,000 or more; and

(ii) 0% if the amount of monthly bill is less than Rupees 100,000. [In this clause, the amount of Rupees 100,000 should have also been reduced to Rupees 75,000]

Division XX Advance tax on International Air Ticket

The rate of tax to be collected under section 236L shall be:

S. No. Type of Ticket Rupees

1 First / Executive Class 16,000 per person 2 Other than economy 12,000 per person 3 Economy -

Division XXI Advance Tax on Banking Transactions Otherwise than Through Cash

The rate of tax to be collected under section 236P shall be 0.6% of the transaction for non-filers, where the sum total of payments for all transactions otherwise than through cash, exceeds Rupees 50,000 in a day.


INCOME TAX ORDINANCE, 2001 THE FIRST AND SECOND SCHEDULE

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Division XXII Rate of Collection of Tax by Pakistan Mercantile Exchange Limited

The rate of tax to be collected under clause (a) and (b) of sub-section (1) of section 236T, in case of sale or purchase of future commodity contract shall be 0.05%.

Division XXIII Payment to a Resident Person for Right to Use Machinery and Equipment

Rate of collection of tax under section 236Q shall be 10% of the amount of payment.

Division XXIV Collection of Advance Tax on Education Related Expenses Remitted Abroad Rate of collection of tax under section 236R shall be 5% of the amount of total education related expenses.

THE SECOND SCHEDULE

Part I Exemptions from Total Income Income from annuity Clause (20) Exemption available in respect of any income received by a person from an annuity issued under the Pakistan Postal Annuity Certificate Scheme on or after the 27 July 1977, not exceeding Rupees 10,000 per annum, has been withdrawn. Exemption to Punjab General Provident Investment Fund Clause (57) Exemption has been provided to Punjab General Provident Investment Fund established under the Punjab General Provident Fund Act, 2009 (V of 2009) and the trust established thereunder. Donations to The Indus Hospital, Karachi Clause (61)(xliv) and (66)(xxxiii) Donations to and any income derived by the The Indus Hospital, Karachi have been exempted from tax by inserting the new sub-clause (xliv) in clause (61) and sub-clause (xxxiii) in clause (66). Sale of immovable property to Developmental REIT Scheme Clause (99A)

Profit and gains accruing to a person on sale of immovable property to a REIT scheme is exempt from tax upto 30 June 2015. However, by adding proviso, the profit and gains on sale of immoveable property to a Developmental REIT Scheme with the objective of development and construction of residential buildings have been exempted up to 30 June 2020.

Exemption to inter-corporate dividend Clause (103A)

By amendment in clause (103A), exemption to any income derived from inter-corporate dividend within the group companies entitled to group taxation under section 59AA or section 59B has been subjected to the condition that return of the group has been filed for the tax year.

Income from sale of certain shares Clause (113)

Exemption provided to capital gain on sale of shares of a public company set up in any Special Industrial Zone, has been withdrawn.


INCOME TAX ORDINANCE, 2001 THE SECOND SCHEDULE

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Income from Gwader Port Clause (126A)

By substitution of this clause, exemption on income derived by China Overseas Ports Holding Company Limited from Gwader Port operations has been extended from twenty years to twenty three years effective from 6 February 2007.

Profit and gain derived by taxpayer located in certain affected areas Clause (126F)

Exemption was provided to the profit and gains derived by a taxpayer located in the most affected and moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA, for a period of three years starting from tax year 2010. Now this clause being redundant has been omitted. Exemptions under certain new clauses: Clauses (126I), (126J), (126K), (126L), (126M) and (126N)

Following new clauses from (126I) to (126N) have been inserted and thereby profits and gains of certain taxpayers shall be exempt from tax, with conditions specified therein:

(126I) Profits and gains derived by a taxpayer, from an industrial undertaking set up by 31st day of December, 2016 and engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of renewable energy from sources like solar and wind, for a period of five years beginning from first day of July, 2015.

(126J) Profits and gains derived by a taxpayer, from an industrial undertaking set up between 1st day of July, 2015 and 30th day of June, 2016 engaged in operating warehousing or cold chain facilities for storage of agriculture produce for a period of three years beginning with the month in which the industrial undertaking is set up or commercial operations are commenced, whichever is later.

(126K) Profits and gains derived by a taxpayer, from an industrial undertaking set up between the 1st day of July, 2015 and the 30th day of June, 2017 for establishing and operating a halal meat production unit, for a period of four years beginning with the month in which the industrial undertaking commences commercial production. The exemption under this clause shall apply if the industrial undertaking is

(a) owned and managed by a company formed for operating the said halal meat production unit and registered under the Companies Ordinance, 1984 (XLVII of 1984), and having its registered office in Pakistan;

(b) not formed by the splitting up, or the re construction or re constitution, of a business already in existence or by transfe

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