PROFESSIONAL ACCOUNTANTS FORUM

MEMON PROFESSIONAL FORUM

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Prestigious body of Memon Professionals from various disciplines including
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PRESS RELEASE
More than 32% amendments turn down by the Parliament
No proper work done by the Finance Ministry
KARACHI –A successful Seminar on Finance Act vis-à-vis Finance Bill was jointly organised by the
Professional Accountants Forum (PAFO) and Memon Professionals Forum at the ICMAP City Campus
where Abdul Qadir Memon - President Pakistan Tax Bar Association, Asif Kasbati – FCA, FCMA & LLb,
Director Tax Services of A. F. Ferguson & Co, and Mr Mahmood A Razzaq, Partner, Baker Tilly Mehmood
Idress Qamar gave a very informative and lively presentations before several professionals including
FCMA, FCA, FCCA, MBA, Finance Directors and CFOs.

During the course of the seminar it was emphasised by the learned speakers that whilst presenting the
budget, proper preparation was not done which lead to more than 32 % amendment whilst converting
the Bill into the Act. Even the important amendments relating to tax on capital gains and tax collection
by banks on transactions against cash & vice versa still require clarifications.

Memon identified several issues which require clarifications from the FBR or amendment in the Second
Schedule to the Income Tax Ordinance including those relating to Capital gains, transfer of shares to
legal heirs, transfer of shares from subsidiary to holding company, tax on Mutual funds - being a pass
through entity, Profit on debt earned by non-resident Pakistanis, Audit reasoning in the Standard
Operating Procedures.

Kasbati enlightened the participants that Tax credit @ 10% of the amount invested on purchase of Plant
& Machinery (P&M) for Balancing, Modernization & Replacement in an industrial undertaking set up in
Pakistan. The Tax credit is admissible (on the aforesaid P&M purchased and installed between July 1,
2010 to June 30, 2015) against tax payable for the year in which the investment is made. Any unadjusted
tax credit can be carried forward for adjustment in the next two tax years, following the tax year in
which such plant and machinery were installed. Any tax credit erroneously allowed will be subject to
recoupment.

He explained the through the Bill, tax deducted from Profit on debt on Debt Instruments, Government
securities including Treasury Bills and Pakistan Investment Bonds was proposed to be final tax for
Companies. The proposal has not been enacted in the Act.

Clarifying the newly introduced withholding tax provisions of section 231AA read with 2 nd Revised
Circular 7 dated June 30, 2010, he stated that it will be actually applied by Banks as well as NBFI,
exchange companies and the authorised dealers of foreign exchange on certain cash transactions above
Rs 25,000. It will be applied at the time of sale of above or any other instrument of bearer nature (a)
against cash or (b) on receipt of cash on cancellation of any of these instruments. It will also apply on all
modes of electronic transfer against cash. It will not apply for (a) inter-bank transfer (b) intra-bank
transfer (c) where payment is made through a crossed cheque for purchase of a financial instrument.

Kasbati stated whilst presenting the budget the govt gives a rosy picture and whilst Act comes the
situation is different. In this regard he cited that example of collection of income tax with Electricity bills,
where the amount of electricity bill exceeds Rs 20,000, the rate of collection of advance tax was
announced for all consumers to be reduced from 10% to 5 %. However, as per the Act, this reduction is
applicable for industrial consumer only. Commercial consumer will continue to pay tax at 10%.

Elaborating the newly introduced tax on Capital gains on disposal of Securities, he stated that Capital
gains from sale of listed shares, PTC vouchers, Modaraba Certificates or any instrument of redeemable
capital were exempt from tax upto June 30, 2010, however, now only Capital gains from the said
securities and Derivate products, held for > 12 months, are exempt. If held for < 12 months by persons
(other than a banking company and Insurance company) are taxable at progressive tax rates on disposal
of all the above securities from July 1, 2010 ranging from 7.5% to 17.5%

This Capital gain will be taxed as a separate block of income. Advance tax on capital gains from sale of all
such securities be payable, except for individual investors. Holding period of security shall be reckoned
from acquisition date (whether before, on or after June 30, 2010) to disposal date after June 30.
2010. Any loss incurred by on disposal of securities in a tax year, shall be set off only against the gain
from disposal of other securities chargeable to tax. No loss can be carried forward. Mutual funds or
Collective Investment Scheme are required to deduct tax on redemption of securities.

Highlighting the level of compliance, he shared that out of 2.75M NTN holders, 2M have filed their
returns. Out of over 50,000 companies, only 20,000 have been filing their returns. Against the
Commercial users of Gas and Electricity of 2.7M, only 600K have been filing their returns. Regarding the
Cancer of Corruption he quoted that “Pakistan can save at least 30% Rs 360 billion (over $4 billion),
which is the direct cost in Pakistan of corruption in procurement only” as per Transparency
International‘ Pakistan Chapter Chairman - Adil Gilani. He further added that the Auditor General of
Pakistan's reported corruption in the fiscal year 2008 of Rs 323 billion.

Speakers emphasized that instead of introducing new taxes, Goods Governance and Broadening the
base through Rule of Law and Proper Enforcement are important, and Control on Cancer of Corruption is
very important for our beloved country Pakistan.

Mahmood highlighted the introduction of new sections through Finance Act, whereby the Federal
Government has been empowered to appoint Special Judges to take cognizance of any offence
punishable under this Act. Consequently, sections with regard to jurisdiction of Special Judge, Code of
Criminal Procedure, Transfer of cases and appeal to the High Court against his order have also been
added. He clarified that tax on services falling within the ambit of 4 provinces and Federal Capital Sales
tax Ordinances remained unchanged at 16% though the GST rate has been enhanced to 17%.

The Presidents of PAFO and MPF, Iqbal Surmawala and Pervaiz Abubakar also spoke on the occasion.