Presented by: Abdul Qadir Memon 12 June 2006

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A Qadir & Co. – Tax Consultants

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Presented by: Abdul Qadir Memon

12 June 2006

Income Tax Bar Association Karachi

POST BUDGET SEMINAR – 2006

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• Broadening of tax base;• Rationalization of taxes;• Reducing cost of doing business;• Plugging the avenues generating informal

economy and leakages of tax revenues (under invoicing, no question to foreign remittances and issuance of exemption certificates to the alleged manufacturers);

Pre Budget Proposals

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• Incentives to the Research & Development and export of services;

• Simplification of salary taxation;• Removal of anomalies and irritants;

• Taxpayers facilitation; • Judicial Reforms;• Encouragement and sustainability of holding

companies;• Incentives for the corporatization and investment;• Strengthening the concept of ADR; and • Additional revenue measures.

Pre Budget Proposals

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Broadening of Tax Base

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As we all know that the challenge the government and the entire nation is not how to increase current tax revenues; but how to widen the tax base to prevent tax revenue erosion as well as to bring those untaped avenues in order to create fairer society. The following budgetary proposals are in this regard..

Broadening of tax base

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The Finance Bill proposes, where the value of immovable property is recorded the rate of tax would be @ 2% of the recorded value; however, where the value of immovable property is not recorded, the CVT would be recovered @ Rs.50/- per square yard of the land area. The said tax is leviable on immovable property other than commercial situated in Urban area measuring at least 1 kanal or 500 square yards, whichever is less; however in case of commercial immovable property it is leviable irrespective of its size.

Capital Value Tax on Immoveable Property

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It is important to note that Finance Act 1999 deleted CVT on Immovable Properties that was leviable pursuant to Paragraph (A) and (B) of Sub section (2) of Section 7 of the Finance Act, 1989 and once again, this levy has been proposed.

The Bill also proposes to bring those properties into the tax net which are acquired by way of Power of Attorney. The Bill further proposes to increase the rate of CVT on purchase of shares from 0.01% to 0.02% of the purchase value.

Capital Value Tax on Immoveable Property

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Section 155 requires every prescribed person to deduct advance tax @ 5% on the gross amount while making payment of rent if the annual rental value exceeds Rs.300,000/- and the tax so deducted is adjustable against the normal tax liability for that year.

Sections 15, 115, 155 and Division V of Part

III of First ScheduleIncome from Property

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The Finance Bill proposes to • bring rental income into final tax regime at the

rate of 5% of the gross amount of rent received; and

• to abolish the monetary limit of Rs.300,000/-.

The Finance Bill has also proposed corresponding amendments in respect of filing of statement in Section 115 and deductions against Income from Property in section 17.



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In my humble view the proposed amendment will benefit who are earning higher rental income and will increase the tax liability of lower class.

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Gross Annual Rent

Deduction

Taxable Income

Tax Liability Inc/(Dec)

Old New Rs %

1/5th Statutory

Repair Allowance

Other Estimated Admissible Expenses @

20% Total

100,000 20,000 20,000 40,000 60,000 - 5,000 5,000 -

200,000 40,000 40,000 80,000 120,000 1,500 10,000 8,500 566.67%

300,000 60,000 60,000 120,000 180,000 7,500 15,000 7,500 100.00%

350,000 70,000 70,000 140,000 210,000 11,250 17,500 6,250 55.55%

400,000 80,000 80,000 160,000 240,000 15,000 20,000 5,000 33.33%

500,000 100,000 100,000 200,000 300,000 22,500 25,000 2,500 11.11%

600,000 120,000 120,000 240,000 360,000 34,500 30,000 (4,500) -13.04%

1,000,000 200,000 200,000 400,000 600,000 92,500 50,000 (42,500) -45.95%

Figures assumed - Tax liability may vary depending upon the admissible deductions available prior to proposed amendment

Qadir Memon

Prescribed Person is specified in Section 155(3) and has been defined in the Bill as follows:a.The Federal Government,b.A Provincial Government,c.Local Authority,d.A company,e.A non-profit Organization,f.A diplomatic Mission of Foreign State org.Any other person notified by the Central Board of Revenue for the purpose of this section.

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Sections 165Filing of Statements

It was proposed by the stakeholders that various registration authorities, banks, clubs should be asked to provide necessary information for the day to day registration/transfer of immovable properties and transactions conducted by bank, clubs in order to broaden the tax base. As such the Finance Bill now proposes to authorize CBR to prescribe a statement requiring any person to furnish information periodically in respect of any transaction in the prescribed form and verify in the prescribed manner.

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Sections 165Filing of Statements

The Finance Bill also proposes to authorize CBR to require any person to furnish statement on monthly basis in addition to annual, quarterly or six monthly statements as withholding agent. I feel this proposal has been made to ensure close monitoring of withholding taxes.

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The Finance Act, 2005 introduced minimum tax for individuals and Association of Persons (AOP); who are Retailers of textile fabrics and articles of apparel including ready made garments or fashion wear, articles of leather including foot-wear, carpets, surgical goods and sports goods and having annual turnover exceeding Rs 5 Million in a tax year.

Section 113 BMinimum Tax on Retailers

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The tax so levied is 1% of turnover, being full & final discharge of income tax liability and was part of the single stage sales tax collected @ 3% of the declared turnover.

The Bill now proposes to extend the application of Section 113B to all the retailers irrespective of the nature of business. However, this scheme will continue to apply to only Individual & AOP retailers, having annual turnover exceeding Rs.5 Million.

Section 113 BMinimum Tax on Retailers

Qadir Memon

It may be noted that Section 113A also provides taxation of retailers, being individual or AOP and having annual turnover upto Rs.5 million to opt for paying final tax @ 0.75% of their declared turnover.

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Section 114 provides that every company and every person whose taxable income for the year exceeds the maximum amount that is not chargeable to tax or has been charged to tax in respect of any of two preceding tax years or claims a loss carried forward under the Ordinance or owns immovable property of specified size and any flat in the specified areas, are required to furnish Return of Income for a tax year.

Section 114Filing of Return of Income by Non-Profit Organizations and Welfare Institutions

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It was observed that number of NGOs do not file return of income and even do not obtain National Tax Number considering themselves as exempt entities. It was felt that there is no explicit provision in the Ordinance to make them file their return of income tax annually.


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Therefore, the Finance Bill proposes to extend the provision of Section 114; whereby Non-Profit Organization defined in Section 2(36) and Welfare Institution approved under Clause 58 of Part I of the Second Schedule are now required to file mandatory return of their income on due date stated in the Ordinance.


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Disclosure of NTN or CNIC

The Finance Bill proposes to levy and collect extra tax @ 2% over and above the applicable withholding tax rates specified in Division III of Part III of the First Schedule to the Ordinance from the persons who fail to disclose their National Tax Number (NTN) or Computerized National Identity Card (CNIC) to the Withholding Tax Agent (WTA) making payments for goods or services rendered.

Sections 153(8A) Payments for goods and services

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Rationalization of Tax

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The Finance Bill proposes to revise income tax rates for individual or AOP excluding person having salary income exceeding 50% of his taxable income. The rates ranging b/w 0.5% to 25%. This reduction has been resulted in benefit to the above taxpayers to the extent of 3.5% to 33%. The Bill also proposes that where income of a woman is covered by this clause no tax shall be charged if the taxable income does not exceed Rs.125,000/-

Clause (1) of Division ITax Rates for Non-Salaried Person

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Presently any income derived by a mutual fund or an investment company registered under the Non-banking Finance Companies (establishment and Regulation) Rules, 2003, or ….

Clause (99)Income of mutual fund or an investment company or a Unit Trust Scheme

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... a unit trust scheme constituted by an assets management company registered under the Assets Management Companies Rules 1995, if not less than ninety percent of its accounting income of that year as reduced by capital gains whether realized or …


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… unrealized is distributed amongst the unit or certificate holders or the shareholders as the case may be. The Finance Bill proposes to withdraw the exemption on mark-up earned on investment in Carry Over Trade (COT) by such mutual fund, investment company or a unit trust scheme.


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The above clause provides exemption to an electric power generation projects setup in Pakistan on or after the 1st day of July, 1988.

By virtue of SRO 940(1)/2002 dated December 19, 2002, the exemption to oil fired power plants setup on or after 22nd October, 2002 was withdrawn.

Clause (132)Income of an Electric Power Generation Project

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However, by virtue of SRO 1009(1)/2005 dated September 26, 2005 the exemption was granted to Dual Fuel (Oil / Gas) power projects setup on or after 1st September, 2005.


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Now the Finance Bill proposes to restrict the withdrawal of exemption only up to June, 2006 to the oil fired power plants which apparently means that the exemption will be available to such oil fired power plants which are setup on or after 1st July 2006. I am of the view that those projects which were setup b/w the period from 22nd October 2002 and 30th June 2006 would be deprived of benefit of exemption even for the future period as well.


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Section 151 provides that the payer of the profit at the time of payment of profit to the recipient shall deduct tax at the prescribed rates.

Section 151(3) & Division Part III of First Schedule Profit on Debt

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The Finance Bill now proposes to insert sub-section (3) in this section to bring the Income on National Saving Schemes & Post Office Saving Account, Profit received on a deposit or on an account under the Presumptive Tax Regime and Profit on bond, certificate, debenture, security or instrument of any kind. The tax deducted thereon at the rate of 10% of the yield or profit paid shall constitute full and final discharge of tax liability.


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The Finance Bill also proposes to reduce the rate of tax on the profit on any securities other than that referred to in clause (a) issued by the Federal Government, a Provincial Government or a local authority from 20% to 10%.


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The proposed amendment will benefit the tax payers earning substantial amount from above sources while effecting small investor. The net impact could be seen in

the following chart:


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Profit on Debt

Tax Liability Inc/(Dec)

Old New @

10% Rs. %

100,000 - 10,000 10,000 -

200,000 10,000 20,000 10,000 100.00%

300,000 22,500 30,000 7,500 33.33%

400,000 42,500 40,000 (2,500) -5.88%

500,000 67,500 50,000 (17,500) -25.93%

600,000 92,500 60,000 (32,500) -35.14%

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Pakistan is one of the pioneer countries in the Islamic world to successfully introduce Islamic Banking phenomenon. Based on a concept which was in existence during the medieval period and providing to that a technical and legal framework in the twentieth century is truly a momentous task which required vast amount of mental and physical input from many luminaries both in and outside Pakistan.

Clause 11(xvii)Taxability of Morabaha Transactions

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Since early 1980’s and more specifically in the past couple of years the Government of Pakistan and State Bank of Pakistan have strived vigorously to establish Islamic Banks/Financial Institutions.


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In past a number of provisions in the Income and Sales Tax Laws have been introduced in respect of Modarba and Leasing transactions to provide level playing field to the Islamic Bank/Financial Institutions with Conventional Banks/ Financial Institutions.


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Recently another mode of Islamic Banking Instruments Morabaha has been introduced.

It was therefore proposed that appropriate amendments in section 113,148, 153, 169 and Part-IV of the Second Schedule to the Income Tax Ordinance be made to provide level playing field to the Morabaha transactions as well.


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The Government in order to ensure that Islamic Banking is not at a disadvantage viz-a-viz normal banking the Finance Bill proposes to exempt minimum tax u/s.113 on Morabaha Transactions.

In my view, this half hearted relief would not resolve the problem of Islamic Banks in respect of Morabaha Transactions and I feel that Government would require to provide more appropriate incentives.


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Plugging of Tax Revenue Leakages

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Section 148(3) empowers the Commissioner to issue Reduce Rate Certificate from collection of tax at import stage up to 100% of the amount of tax to the manufacturers importing raw materials (other than edible oils) exclusively for their own use provided the manufacturer has paid tax equals to the amount of tax paid in the immediately preceding year.

Section 148Collection of Tax at Import Stage

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It was argued by number of trade associations that due to misuse of exemption certificate issued to the alleged manufacturers for import of goods, has put the commercial importers and others at a disadvantage and they were unable to compete. It was also propagated that the high rate of 6% on Import of Goods is having adverse effects on the economic condition of citizens of Pakistan.


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Therefore, it was suggested that rate of withholding tax for import of raw material under this section be rationalized and the exemption certificate to the manufacturers may be issued after collection of some nominal amount in order to provide level playing field to the other importers.


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The Finance Bill now proposes to restrict the powers of the Commissioner of Income Tax to issue the reduce rate certificate up to 75% of the amount of tax with no change in the existing conditions for the issuance of the certificate stated above.

In my view in the presence of Sub- Section (4) of Section 148, this amendment will have no effect and Government must consider to make appropriate amendment.


Qadir Memon

Effectively the importer will pay upfront 1.5% of the import value.

Qadir Memon

Not withstanding the provisions of Sub-Section (3), a person being manufacturer who is liable to pay advance tax under Section 147, imports raw materials (other than edible oils) exclusively for his or as the case may be, its own use, the commissioner shall upon application in writing by such person, issue an exemption certificate effective from the date on which the certificate is issued to the 30th day of June next following provided that where the person to whom an exemption certificate has been issued fails to pay any instalment due, the commissioner may cancel the certificate.

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The Finance Act, 2005 introduced deduction of advance tax @ 0.1% on cash withdrawal from a bank account on the amount exceeding Rs 25,000/-.

The Bill now proposes to increase the advance tax rate from 0.1% to 0.2%.

Sections 231 (1)Withholding Tax on Cash Withdrawals

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Furthermore, it has also been proposed that advance tax should be deducted if the payment for cash withdrawal or the sum total of the payment for cash withdrawal in a day, exceeds Rs 25,000/-. In other words the limit of Rs.25,000/- per transaction has been proposed to change to a per day basis.

In my view the change of basis has also necessitated that the limit of Rs 25,000/- be increased to a reasonable level.

Sections 231 (1)Withholding Tax on Cash Withdrawals

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Section 21(l) allows any expenditure under a single head of account exceeding Rs.50,000/- if incurred through a crossed bank cheque & crossed bank draft.

Section 21(l)Admissibility of Expenses

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The Finance Bill proposes to also allow those payments which are made through crossed pay order or any other crossed banking instrument, on-line transfer of payments and credit card payments provided that the amounts are paid/ transferred through business bank account of the taxpayer and verifiable from the bank statements of the payer and the payee as the case may be.


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As you all know that the provision of Section 21(l) is similar to the provision of Section 24(ff) of the Repealed Income Tax Ordinance, 1979. The CBR, vide Circulars 6 dated July 15, 1990 and 11 of 1998 dated 20.07.1998 while explaining the application of Section 24(ff) of the Repealed Ordinance, stated that it is applicable to P & L Expenses like rent, salary, repairs, traveling, advertising and entertainment and would not affect purchases and other manufacturing or trading account expenses. Hence, the provision of Section 21(l) may only be attracted in the case of P&L Expenses.


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Now the Finance Bill proposes to substitute above sub-section, whereby the words “any expenditure” have been substituted with the words “any expenditure for a transaction”.

In my humble view such substitution has been made to bring all the transactions/ payments including related to trading and manufacturing account under the preview of this sub-section.


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Removal of Anomalies and Irritants

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The definition of permanent establishment provided in sub-clause (c) of above clause includes a building site, a construction, assembly or installation project or supervisory activities connected with such site or project without any time specification. This means that existence of any of the above elements at any time during the year will be construed as PE.

Section 2(41)Permanent Establishment (PE)

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The Finance bill proposes to modify the definition of PE; whereby the PE in relation to a person, means a fixed place of business through which the business of the person is wholly or partly carried on.

The Bill also proposes to include such sites or projects which are continued for a period or periods aggregating more than ninety (90) days within any twelve months period.

Section 2(41)Permanent Establishment (PE)

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Sub-section (2) of section 154 provides that every authorized dealer in foreign exchange proceeds on account of the commission to the indenting agent shall deduct advance tax @ 5% of the proceeds. However, as provided in Clause 5 of Part II of Second Schedule, indenting commission due to an export indenting agent or an export buying house is subject to tax at the rates applicable to the exporters i.e 0.75% to 1.50% specified in Division IV of Part III of First Schedule to the Ordinance.

Sections 154(2)Tax on Indenting Commission

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Due to the reasons best known to the CBR the sub-section (2) was not inserted in section 154(4) in Sub-section (4) of section 154 in the Finance Act, 2004 and 2005 although it was pointed out by the number of stakeholders and the Central Board of Revenue itself vide its Circular No.7 of 2004 dated 01.07.2004 has clarified that deduction on indenting commission would be a final tax in respect of such income.


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The Finance Bill now proposes to bring foreign indenting commission received by the indenting agents into Presumptive Tax Regime; whereby the tax deducted by the authorized dealer in foreign exchange will constitute full and final discharge of tax liability against such income.


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Revenue Measures

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a) Withholding Tax on Certain ServicesSection 153(1A)

Local services against stitching, dying, printing, embroidery and washing rendered to Exporters is treated as ‘Export’ and is subject to tax at the rates applicable to the exporters. The above provision was inserted vide Clause 25 of Part II of Second Schedule to the Ordinance through SRO 946(I)/2005 dated September 12, 2005.

Sections 153 Payments for goods and services

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The Bill proposes to add ‘Sizing’ and ‘Weaving’ services into the above list and to make the above clause as part of law by inserting new section 153(1A).

Exporter & Export House have been included in the list of ‘Prescribed Person’ by making appropriate amendment in Section 153(9) of the Ordinance.


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Henceforth, every exporter or export house making payment against the above services rendered by resident person or permanent establishment in Pakistan of a non-resident person shall deduct tax @ 0.75% to 1.50% in accordance with the Division IV of Part III of First Schedule to the Ordinance. The tax so deducted shall constitute full and final discharge of tax of the resident person against such income.


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It is important to note that Clause 45 of the Part-IV of the 2nd Schedule provides that the provisions of sub-section (I) of section 153 shall not apply to any manufacturers-cum-exporters as the prescribed person.

It is also very interesting to note that clause 45 has used the words Manufacturer – cum – Exporters; whereas in Section 153 (a) such prescribed persons are Exporter and Export House. This has created anomaly and I feel in order to remove this anomaly, the Clause 45 to be substituted.


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b) Services Rendered under PTR Section 153(6) Supply of goods and contract receipts, other than

services fall under the PTR. The amendment has been proposed in Section 153(6) by the Finance Bill; whereby the income of a resident person for services rendered including transportation services has also been brought under the Presumptive Tax Regime. The withholding tax rate for all the services including transportation of goods has also been proposed to be increased to 6%.


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Sections 233Withholding Tax on Brokerage & Commission

S.No Classes of TaxpayersTax

Ratio

(a) Commission earned by Indenting Commission Agents, Advertising Agents and Yarn Dealers

5%

(b) Commission earned of others 10%

The above Section provides that where any payment made on account of brokerage and commission to a resident person, the prescribed person shall deduct the Tax at the following rates:-

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The tax so deducted by their principal @ 5% and 10% of the gross commission earned u/s 233 constituted full and final discharge of tax liability against that income.

The Finance Bill now proposes to increase the rate of taxation for indenting commission agent, advertising agent and yarn dealers from 5% to 10% and such receipts shall still continue to fall under the Presumptive Tax Regime.


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The Bill also proposes to omit word Resident; which means that this Section will now be applicable to both Resident and Non Resident Taxpayers. It is important to note that Section 152 provides that every person paying an amount to a Non Resident shall deduct tax at the prescribed rates, except such amounts which are subject to tax under Section 149, 150, 153, 155 or 156. In my view to make this Section applicable to both the Resident and Non Resident; appropriate amendment would be required to be made in Clause (a) of Sub-Section (3) of Section 152.

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The Bill proposes 100% upward revision of Collection of tax rates by a Registered Stock Exchanges in Pakistan on sale and purchase of shares. The rate of tax in respect of financing and carryover trades (badla) in share business remains the same at the rates of 10%.

Sections 233 ACollection of Tax by the Stock Exchanges

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The Bill proposes to collect tax at import stage by amending Clause 13G of Part II of the Second Schedule to the Ordinance on 22 items @ 1% of import value as increased by customs duty and sales tax, if any levied thereon.

Clause (13G)(a) Tax at Import Stage @ 1%

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The Bill also proposes to collect tax at import stage by inserting new Clause 13H of Part II of Second Schedule to the Ordinance on the Raw Material for steel industry, manufactured of poultry feed and stationary @ 2% of import value as increased by customs duty and sales tax, if any levied thereon.

Clause (13H)(b) Tax at Import Stage @ 2%

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In my humble view the reduced rate of tax deducted u/s.148, on the import of goods enumerated in clauses 13G and 13H would be considered as full and final discharge of tax liability under section 148(7).

Tax at Import Stage

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Institutionalization of ADR Concept

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Presently under this section; any aggrieved person in connection with any matter of income tax pertaining to liability of income tax, admissibility of refund, waiver or fixation of penalty or fine, relaxation of any time period or procedural and technical condition may apply to the Central Board of Revenue for the appointment ….

Section 134 AAlternative Dispute Resolution

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…. of a committee for the resolution of any hardship or dispute mentioned in detail in the application, irrespective of the fact that the matter in dispute is pending before the appellate forum or not.


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The Finance Bill proposes to substitute sub-section (1) of this section; whereby now an aggrieved person, only in connection with any matter pending before an Appellate Authority, may apply to the Board for the appointment of a committee for the resolution of any hardship or dispute mentioned in detail in the application.


Qadir Memon

Difference of Alternate and Alternative

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Facilitation to the Taxpayers

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Section 148(7) provides that tax collected at import stage constitutes full and final tax liability except where tax has been collected from an industrial undertaking importing raw material, plant, machinery and equipments for its own use.


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The Bill now proposes to exclude from the Presumptive Tax Regime the import of parts by the industrial undertaking for its own use and import of Fertilizer & Cars in CBU condition by the manufacturers of Fertilizer and Cars respectively.


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The Finance Act, 2005 inserted this clause to encourage Foreign Direct Investment; whereby such trading houses are exempt from levy of withholding taxes under section 148 and 153.

Clause (57)Exemption to Companies Operating Trading Houses

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In order to relive such companies from pressure on the cash flow, the Finance Bill proposes to exempt such large trading houses from minimum tax for the first ten years, starting from the tax year in which the business operation commenced.

Clause (57)Exemption to Companies Operating Trading Houses

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Senior Citizens aged 65 years or more enjoy exemption of tax @ 50%, provided their taxable income does not exceed Rs 400,000/- under Clause 1A of Part III of Second Schedule.

Clause (1A)Senior Citizen Allowance

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It has now been proposed to reduce the minimum age requirement from 65 to 60 years. Thus, Senior Citizen aged 60 years or more will now enjoy exemption of tax @ 50% provided the taxable income does not exceed Rs 400,000/-.

Clause (1A)Senior Citizen Allowance

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Simplification of Salary Taxation

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The Government of Pakistan has made another well thought effort to simplify the tax laws in order to rationalize so as to facilitate the employer and make the monitoring easier for the Department, the Finance Bill proposes that all allowances and perquisites be added to the salary income. ….


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…. The value of house may be taken at the amount equal to the allowance which the employee would have received in cash if accommodation was not provided. The valuation of transport facility may be restricted to 10% and 5% of value of car depending upon total personal or partly personal use. After these additions of all allowances and prerequisites, effective rates may be applied ranging from 0.25% to 20% on the gross salary, ……


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… envisaging relief to the salaried taxpayer, with enhancement in basic exemption limit from Rs. 100,000/- to Rs 150,000/-.

The Bill proposes that where salary income of a woman taxpayer is covered by this clause no tax shall be charged if the taxable income does not exceed Rs.200,000/- .

It is important to note that the medical allowance shall remain exempt provided the conditions mentioned in the relevant provisions are fulfilled.


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Incentives for investment and Corporatization

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The concept of holding companies has helped many economies of the world to grow. This concept is available in Pakistan, but has not grown as required because of certain issues and anomalies relating to holding company concept under the existing laws and regulations in Pakistan.

Division III of Part I of 1st Schedule

Encouragement to the Holding Companies

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Presently a concessional tax @ 5% is leviable on dividends received by a public company or an insurance company. Dividends received by other companies are subject to a withholding tax @ 10% which is the final discharge of tax liability. It was proposed that dividend paid to the holding companies by its subsidiaries may be exempted. The Finance Bill in order to encourage more investments, proposes that tax rate on intercorporate dividends received by resident companies may be reduced to 5% as in the case of public companies.

Division III of Part I of 1st Schedule

Encouragement to the Holding Companies

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Exemption to profit and gains derived by the Venture Capital Company (VCC) and Venture Capital Fund (VCF) registered under Venture Capital Companies and Funds Management Rules, 2000, was introduced in the Repealed Income Tax Ordinance, 1979 for a period of seven years effective from July 1, 2000.

Clause (101)Income of a Venture Capital Company and Venture fund

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To develop Venture Capital and to extend exemption for seven years to Venture Capital Companies, which were formed before June 30, 2007, the Finance Bill proposes that exemption to Venture Capital Companies may be extended up to 2014.

Clause (101)Income of a Venture Capital Company and Venture fund

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The Finance Act, 2005 inserted this clause provide exemption to the individual who transferred their membership rights or shares of the stock exchange to a company between 10th July, 2005 to 30th June, 2006 . The same exemption was also available to stock exchange member vide clause 117A of Part-I of the Second Schedule to the Repealed Ordinance.

Clause (133 A)Income from transfer of membership rights or shares of stock exchange

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The one time exemption helped 100 members to corporatize their individual stock exchange membership. However, according to the Task Force 2005; there were still 100 individual members who could not corporatize.


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As such the Finance Bill once again proposes to extend the time up to 30th June, 2007. The Finance Bill also proposes to grant such exemptions on transfer of room in the stock exchange.


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Cost of Doing Business

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At present Workers Welfare Fund is chargeable @2% of total income to every Industrial Establishments defined under section 2(f) of the Workers Welfare Fund Ordinance, 1971(WWF Ordinance), whose total (assessable) income is not less than Rs.100,000/-Presently the Industrial Establishments having income covered under PTR or their normal income is adjusted against brought forward losses are not required to pay the WWF as held by the Honourable High Court, Sindh in a case reported as 2002 PTD 14.

Workers’ Welfare Fund Ordinance, 1971

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It was demanded from all the stakeholders that since this levy is additional burden to the cost of doing business; therefore the same should be abolished. The Government instead of withdrawing this levy, now proposes to amend the definition of total income which reads as under:-

Where Return of Income is required to be filed under this Ordinance, the profit (before taxation or provision for taxation) as per accounts or the declared income as per the return of income, whichever is higher; and


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Where return of income is not required to be filed, the profit (before taxation or provision for taxation) as per accounts or four percent of the receipt as per the statement filed under section 115 of the Ordinance, whichever is higher.

The effect of proposed amendment would be that every Industrial Establishment, whose total income, either covered under PTR or otherwise is not less than Rs.500,000/- has to pay WWF @ 2%.In some cases it will be a double hit.


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However, the Bill proposes to enhance the monitory threshold of Rs. 100,000/- to 500,000/- .

The Bill also proposes that any Industrial Establishment who fails to pay the amount of WWF is also liable to charge additional tax @ 8% per annum as envisaged in section 4(8) of the WWF Ordinance. Now the Finance Bill proposes to charge the additional tax at the rate specified in the Income Tax Ordinance, 2001.


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The Finance Bill also proposes to insert sub-section (10) in section 4 of the WWF Ordinance; whereby every Industrial Establishment may file an appeal against any order passed by the Taxation Officer or the Commissioner as the case may be under this Ordinance before the Commissioner (Appeal).


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Presented by: Abdul Qadir Memon 12 June 2006

Documents

Transcript of Presented by: Abdul Qadir Memon 12 June 2006