Budget 1011-12

BUDGET MEMORANDUM 2011-12

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AAA FIN SOL (PVT) LIMITED

TAX, CORPORATE AND FINANCIAL CONSULTANTS
This budget commentary is a try to meet the demand of the various queries forthcoming by our clients. We have tried our best to apprise them with comprehensive explanation of the implications and effect that the Financial Bill 2011 has brought about. Besides other various Laws the budget commentary covers the amendments in the Income Tax Ordinance 2001, Sales Tax Act 1990, Customs Act 1969, Federal Excises Act 2005, Companies Ordinance 1984, Banking Companies Ordinance 1962 and Capital Value Tax. The applicable amendments are effective from July 1, 2011, unless otherwise specified. The commentary should be read in conjunction with the relevant sections of the respective Ordinances, Acts, Rules and finance bill 2011. This commentary tries to provide with a general guideline and should not be considered as an enforceable document. Professional advice should be sought before acting on any part of the Finance Bill. We hope that this booklet enhances perception of our client about Budget 2011-12. For better understanding and convenience, we have also drafted a Tax Planning Guide appended to this booklet. This booklet is the property of AAA FIN SOL (PVT) LIMITED (AFZAL ARQAM ASSOCIATES) and is compiled for the exclusive use of its clients and employees. No part of this booklet may be reproduced except with prior permission of AAA FIN SOL.
Fasialabad June 04, 2011
info@aaafinsol.co.uk
www.aaafinsol.co.uk 2
BUDGET MEMORANDUM 2011-12 TABLE OF CONTENTS

FINANCE BILL HIGHLIGHTS INCOME TAX ORDINANCE 2001 SCHEDULES SALES TAX ACT 1990 SCHEDULES Significant Changes in SRO's FEDERAL EXCISE ACT 2005 SCHEDULES Significant Changes in SRO's CUSTOM ACT 1969 CAPITAL VALUE TAX NOTES AND COMMENTS

4-9 10-18 19-25 26-28 29-30 31-34 35-36 37-40 41-43 43-48 49 50-52

FINANCE BILL HIGHLIGHTS

Income tax Ordinance 2001
The basic exemption is enhanced from Rs.300,000 to Rs.350,000 for salaried and non-salaried individuals. Withholding tax rate on cash withdrawals reduced from 0.3 % to 0.2 %. The members of AOP also required to furnish wealth statement, wealth reconciliation statement and explanation of source of acquisition of assets along-with return filed in response to provisional assessment order under section 122C. Threshold for compulsory filing of wealth statement and its reconciliation increased from Rs. 500,000 to Rs. 1,000,000. Every member of firm (AOP) required to file wealth statement & reconciliation of wealth if his share from such AOP, before tax, for the year is Rs.1Million or more. For banking companies, provisioning in excess of 5 percent of advances for consumers and SMEs allowed to be carried over to succeeding years. Dividend received by a banking company from its asset management company shall be taxed @ 20 %. Appeal to the Commissioner (Appeals) not permissible against provisional assessment order under section 122C. Tax payable as a result of provisional assessment order under section 122C shall be payable immediately after a period of sixty days from the date of service of notice. Benefit of a waiver of profit on debt or debt itself under specified SBP Circular or in any other scheme issued by SBP to be taxable as business income. Tax credit for investment in shares to be allowed to resident persons only. Retention period for claiming of tax credit on investment in shares enhanced from 12 months to 36 months. Life insurance premium eligible for claiming tax credit by salaried person or a person engaged in business on the same basis as tax credit for investment in shares. Threshold of Rs. 500,000 for contribution to approved pension fund for the purpose of tax credit removed. Tax credit allowed to companies for enlistment on stock exchange enhanced from 5 percent to 15 percent. 100 % Tax credit allowed to companies establishing new industrial undertaking or investment in Pakistan in plant and machinery for BMR.

Unexplained income or assets to include concealed income or furnishing inaccurate particulars of income, suppression of any production, sales, amount chargeable to tax and item of receipt. Carry-forward & adjustment period of minimum tax enhanced from 3 year to 5 years. Turnover for the purposes of minimum tax will be gross sales or gross receipts. Pension fund established under the Voluntary Pension System Rules 2005 exempted from minimum tax under section 113. Holders of commercial or industrial connection of electricity where the amount of annual bill exceeds Rs.1Million compulsorily required to file return. Individuals having income from business between Rs.300,000 and Rs.350,000 to file return of income despite having 0 % tax. Single member bench of the Tribunal to dispose off cases involving tax revenue not exceeding Rs.1,000,000 instead of Rs. 5,000,000. Power of Appellate Tribunal to dismiss the appeal in case of non-attendee of hearing is withdrawn. Advance tax on capital gains on sale of securities shall be payable within a period of 21 days instead of 7 days after the close of each quarter. Withholding tax under section 148 in the case of old and used automotive vehicles shall not exceed the amount specified in Notification No. SRO 577(1)/2005 dated 6 June 2005. Profit on debt on securities issued by Federal Government, Provincial Government or Local Government to be taxed under final tax regime for resident individuals and AOPs. Tax deducted on profit on debt from debt instruments, government securities including treasury bills and PIBs shall be final tax in the case of nonresident persons having no PE in Pakistan. Gross amount for sale of goods, services and contracts shall include sales tax for the purposes of withholding tax under section 153. Tax deducted from payments for services to be treated as minimum tax in the case of all resident persons and Permanent establishment of non-residents. Threshold for withdrawal from pension fund enhanced from 25 percent to 50 percent of accumulated balance in order to attract withholding tax under section 156B. Collection of tax under section 236A also required to be made in the case of auction / sale by tender. Withholding tax on purchase of domestic air tickets shall not be collected in the case

of Federal and Provincial Government and from a person who produces a certificate from the Commissioner (IR) that income of such person is exempt from tax. Statement of Taxes deducted at source to be filed on monthly basis instead of quarterly under section 165. Now it also to include CNIC and NTN of the persons form whom tax was deducted. Annual withholding tax statement to be filed by the employers for tax withheld under section 149 and for taxable salaries between Rs.300,000 and Rs.350,000 despite having 0 % tax. Tax payable defined as tax chargeable on the taxable income for the purposes of levy of penalty. Non-resident person having a permanent establishment in Pakistan not entitled to seek advance ruling. Tax and withholding tax exemptions granted to income derived by Islamic Development Bank in Pakistan.

SALES TAX ACT 1990

General Rate of sales tax reduced to 16 % from 17 %. For commercial importers, minimum value addition of sales tax rate increased from 2% to 3%. Several exemptions under Sixth Schedule of Sales Tax Act and through certain specific notifications stand withdrawn, which inter-alia include: Bricks, building blocks, and ready mix concrete; Adult diapers; Computer software; Aircrafts & ships, machinery for pilotage & towage, air navigation equipments; Bull-dozers, harvesters, CNG Euro-2 buses, trucks for high-ways; Agricultural machinery; CNG kits & cylinders; Rock phosphate & phosphoric acid; Mineral oils; White Crystalline Sugar, etc.
Zero rating facility withdrawn on: CNG buses in CBU or CKD condition, trucks & dumpers, trailers & semitrailers, road tractors, etc.
Restriction of 90% claim of input tax adjustment on fixed assets and capital goods is withdrawn, now full amount of input tax can be claimed at one time. Specific and express legal provision introduced regarding inadmissible claim of input tax credit against invoices issued by suspended / blacklisted registered. Automation revision of Special sales tax returns no longer permissible now it will be after approval from the Commissioner. A Member nominated by the Chairman FBR may also pass an order considered appropriate by him with respect to any decision or recommendation under the mechanism of alternate dispute resolution. No refund of sales tax is admissible under section 66 of the Act, if the incidence of the sales tax has already been directly or indirectly passed on to the consumer. White crystalline sugar subject to FED in sales tax mode @ 8% whilst all other types of sugar taxable @ 16 %.

FEDERAL EXCISE ACT 2005
Special excise duty liviable @ of 2.5 % abolished across the board. Scope of the definition of manufacture enhanced. Rate of FED introduced on aerated waters and fruit juices, etc. reduced to 6 percent of retail price. Rate of duty on various types of cement slashed from Rs. 700 PMT to Rs. 500 PMT. Period of issue of notice for recovery of duty enhanced from 3 year to 5 year. FED abolished from 15 different types of goods including solvent oils, other fuel oils, greases, MBTE, viscose staple fibre, motor cars, air-conditioners, deep freezers, etc. Rate of duty enhanced on locally produced cigarettes, unmanufactured tobacco and filter rods of cigarettes. FED on services rendered or provided by property developers and promoters stands withdrawn. Powers to seize and confiscate goods extended for beverages in addition to cigarettes. Period for passing of order by the Board under alternative dispute resolution specified. White crystalline sugar subject to FED in sales tax mode @ 8% whilst all other types of sugar taxable @ 16 %.

CUSTOMS ACT 1969
The time limit enhancement from 3 to 5 years for issuance of notice in case of any
duty or charge not levied or short levied or erroneously refunded due to inadvertence, error or misconstruction. Power to prohibit import or export of goods on believing that the importer has submitted false statements withdrawn. Time limitation of 1 year for claim of refund in consequence of any decision or judgment shall be calculated from the date of issuance of such decision or judgment. Duty drawback facility allowed for supplies against international tenders. New section 129A Introduced, FBR empowered to collect transit fee on goods or class of goods in transit to other foreign countries across Pakistan. Tariff rationalization through introduction description and the rate of customs duty. Regulatory duty abolished on number of items. Incentives to local industry through reduction of duty in the concessionary notification. Withdrawal of sales tax exemption on plant, machinery, equipment, etc. relating to the specified sectors / industries / capital goods. of sub-PCT codes along-with their
Capital Value Tax

CVT on purchase of modaraba certificates instruments of redeemable capital and shares of listed companies withdrawn.

INCOME TAX ORDINANCE 2001

Assessment Section 2 (5) Assessment includes provisional assessment, re-assessment and amended assessment and the cognate expressions shall be construed accordingly It is proposed to include the words Provisional Assessment in the definition of Assessment. Collective Investment Scheme Section 2(11C) A new definition added as Collective Investment Scheme shall have the same meanings as are assigned under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 Income From Business SECTION 18(1) (d) Profit on Debt/Debt Brought into the Ambit of Definition of Benefits: Section 18 deals with the taxation relating to income from business and it define the various modes of income which will be taxed under this head of income, such as; Profits and gains of any business; Income derived from sale of goods or provision of services; Income from the hire or lease of tangible moveable property; The fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person in the course of, or by virtue of, a past, present or prospective business relationship; and Any management fee derived by a management company (including a modarba management company
In the Clause (d) above it is proposed to add an explanation by virtue of which any benefit, derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan, Banking Policy Department, Circular No. 29 of 2002 or in any other scheme issued by State Bank of Pakistan would be covered under this clause and would be taxed accordingly. In this section of the proposed explanation brings into the tax ambit, all the benefits which are derived by the borrowers through the waiver of the profit on debts or the profit on debt itself, through various schemes of SBP. This amendment is geared towards the hot issue of debts waived in the prior years, especially through Circular No. 29 of 2002. Being an explanation now sought to be inserted, by implication, the provision shall have retrospective application. Tax credit for investment in shares and life insurance Section 62 This Section provides for tax credit to encourage investment in shares and life insurance by a person other than a company.

The Bill seeks to substitute the existing Section which was introduced in the Ordinance since its promulgation. While the scheme of tax credit substantially remains the same as before, the following new features have been sought to be introduced: total cost of either acquiring such shares or insurance premium paid; 15 % of taxpayers taxable income as against existing 10 per cent; or Five hundred thousand rupees as against existing three hundred thousand rupees.
The mandatory retention period of shares in respect of which tax credit may be availed is presently 12 months from the date of acquisition; this has now been sought to be raised to 36 months. In the event of disposal earlier than the mandatory period, the tax credit already availed shall be clawed back in the of disposal. Contribution to an Approved Pension Sections 63 The Ordinance contains the provision enacted several years ago whereby an eligible person deriving income chargeable to tax as salary or income from business is entitled to a tax credit in respect of contribution to an approved pension fund. The Bill now seeks to amend this Section with an intent to remove the monetary threshold of Rs.500,000/- for determination of tax credit. It may be noted that the income related threshold of 20% remains unchanged. Tax credit for enlistment on stock exchange in Pakistan enhanced to 15 % Section 65C The Finance Act 2010 introduced tax credit at 5 % of tax payable for the tax year in which a company is listed on a stock exchange in Pakistan; it is now proposed to enhance the rate to 15 % to provide incentive to companies to go into public subscription. Tax credit for equity investment Section 65D With the aim of promoting industrialization, the Finance Bill seeks to introduce a tax credit for equity investment at 100 percent of tax payable by a company. The salient features of this scheme are as follows: Tax credit shall be available to a taxpayer being company, with 100 percent equity owned by it, on or after 01 July 2011, subject to the following conditions: o o Establish a new industrial undertaking for manufacturing in Pakistan; or
Invest any amount in the purchase and installation of plant and machinery, for the purpose of balancing, modernization and replacement of the plant and machinery, already installed therein in an industrial undertaking set up in Pakistan and owned by it. Tax credit shall be allowed equal to 100 percent of tax payable by such company. Tax credit shall be allowed for a period of five years or commencement of commercial production, whichever is later.
Where a tax credit is allowed and subsequently it is discovered that any of the condition

specified was not fulfilled, the credit shall be deemed to have been wrongly allowed, and the tax payable shall be recomputed for the relevant tax year. It appears that the incentive has been proposed without linking it to the quantum of investment. Further, the proposed language of section 65D may lead to different interpretations defeating the envisaged objective. For example, dispute may arise on availability of tax credit to an existing company, which is not 100 percent owned through equity, investing in BMR on or after 01 July 2011. It is therefore suggested that the provisions of section 65D be rationalized. Scope of unexplained income or assets extended Section 111 This Section empowers the Commissioner to include the following amounts under the head Income from Other Sources if the taxpayer didnt give explanation or explanation is found un-satisfactory: Where any amount credited in books of account Where a person has made investment or is owner of any money or valuable article; or Where a person has incurred any expenditure. The Finance Bill now seeks to extend the scope of section 111. As proposed, if any person has concealed income or furnishes inaccurate particulars of income including the suppression of any production, sales or any amount chargeable to tax; or the suppression of any item of receipt liable to tax in whole or in part, and no explanation is offered or explanation offered is not found satisfactory, the Commissioner shall include such amount under the head Income from Other Sources Period for carry forward extended upto 5 years Section 113 Existing provision allows carry forward of minimum tax paid by a resident taxpayer for adjustment against tax payable on profits of three immediately succeeding tax years. The Finance Bill now seeks to extend the period for carry forward of minimum tax from 3 years to 5 years. By another amendment proposed in Clause (a) of sub-section (3), the definition of turnover has been sought to be amended to include the word gross sales which shall inter-alia constitute turnover for now seeks to insert a new Clause (d) as a consequence the purpose of determining minimum tax. Scope for filing of return of income extended Section 114 The Finance Bill seeks to further extend the requirements for filing of return, as follows: a) Persons having commercial and industrial electricity connection for amount exceeding Rs.1 million annually are required to file return of total income.

b) Individuals having income below 350,000/- who although are not taxable income from business in a tax year would also be required to file a return in case of their income exceeds Rs.300,000/- in a tax year. This amendment has various implications. The individual would be discouraged to declare business income ranging from Rs.300,000 to Rs.350,000 , for the purpose of taking credit for non-filing of return of total income in the future years, provided he has not filed his return of total income. On the other hand, in case of individual earning business income files his return having income, within this range, there is a strong probability that his return may be selected for further audit/investigation resulting in enhancement of his income above taxable limits. Further proposed that return of income has been accompanied by tax payment challan for the amount due as well as wealth statement to be required under section 116. Wealth Statement Section 116 Individual is now required to file a wealth statement and wealth reconciliation statement for the year, if: the last declared or assessed income for the year is Rs 1 million or more as against Rs 500,000 previously; and a member of an association of persons (AOP) whose share of income from such AOP, before tax, for the year is Rs 1 million or more.
A proviso is further proposed to be inserted that seeks to require every member of an AOP whose share of income from the AOP before tax for the year is Rs.1,000,000 or more to file wealth statement or wealth reconciliation along with the Return. Appeal To Commissioner (Appeal) Section 127 The proposed amendment refutes the right to appeal of a taxpayer against a provisional assessment made under section 122C. However, the taxpayer can still file a return of income within 60 days of service of such assessment order under section 122C(2). Appellate Tribunal Threshold for single member bench reduced Sections 130(8AA) Presently, a single member bench is empowered to dispose any case where the amount of tax or penalty involved does not exceed Rs. 5 million. The Finance bill proposes to reduce the threshold upto Rs. 1 million. Appellate Tribunal powers to dismiss appeal in default withdrawn Section 132 Section 132 empowers the Appellate Tribunal to dismiss the appeal, if it deems fit, in case of non-attendance of the party on the date of hearing. The Bill now proposes to omit the powers of the Tribunal to dismiss the appeal in default and

therefore, the Tribunal would now be left with the choice of either adjourning the case to a future date for fresh hearing or deciding the case on merit based on the available information on record. Period for payment of advance tax on capital gains enhanced to 21 days Section 147(5B) Advance tax on capital gains from sale of securities shall now be payable within a period of 21 days after the close of each quarter as previously it was payable within 7 days under the Ordinance. Consequently, such advance tax shall have to be paid out by the following dates: Quarter September December March June Payment date October 21 January 21 April 21 July 21
Withholding tax on import of old and used motor vehicles Section 148 and clause 4, Part III, Second Schedule Clause 4 of Part III of Second Schedule provides collection of tax at import stage on old and used motor vehicles under SRO 932(I)/2004 at prescribed rates. The said SRO was subsequently superseded through SRO 577(I)/2005, but consequential amendment in clause 4 was not made. The Finance Bill now seeks to substitute this clause to provide that tax under section 148 shall not exceed the amount specified in SRO 577(I)/2005. Tax on Profit on debt on Government Securities to be final Section 151 Under existing provisions, tax deducted on profit on debt from a resident individual and association of persons is final tax except tax deducted by the Federal Government, a Provincial Government or a Local Government paying profit on debt on any security issued by such authorities. The Finance Bill now proposes to extend the final tax regime to profit on debt on government securities by amending provisions of section 151(3). After this amendment, in the case of a resident individual and association of persons, tax deducted on any kind of profit on debt shall be final tax. Tax on profit on debt to be final in the case of non-resident taxpayer having no permanent establishment in Pakistan Section 152(2) and clause 5A, Part II, Second Schedule Clause 5A provides that payment of profit on debt to a non-resident person not having permanent establishment in Pakistan shall be subject to withholding tax under section 152(2) at 10 percent of gross amount of profit. Such deduction is adjustable against final tax liability determined either at tax rates provided in a double tax treaty, if applicable, or at tax rate applicable under the Ordinance, as the case may be.

The Finance Bill proposes to insert a proviso in clause 5A providing that the tax deducted on profit on debt from debt instrument, Government securities including treasury bills and Pakistan Investment Bonds shall be final tax on profit on debt payable to a non-resident person having no permanent establishment in Pakistan and the investments are exclusively made through a Special Rupee Convertible Account maintained with a Bank in Pakistan. Payments for goods and services Section 153 This section relating to with-holding in respect of sale of goods, rendering of services and execution of contracts tax has been reformates the provision incorporating amendments made over the years. In this is essence, there are two major changes as follows: New sub-section (3) of this section provides the nature of tax withheld on account of payment of goods, for the rendering of or providing of services or the execution of a contract, which is either final or minimum or advance tax as stipulated in this sub-sectin. Clause (b) of this sub-section seeks to treat tax withheld from payments on account of services as a minimum tax not only for non-corporate taxpayers, as at present, but henceforth, also for corporate taxpayers. In April 2011, the FBR issued a clarification which suggested that even under the existing law; tax withheld on payment for services rendered by corporate taxpayers was minimum tax. This was in supersession of Circular No.6 of 2009 dated 18.08.2009 which clearly stated that tax deducted from payment to corporate taxpayers for services rendered would be adjusted rather than considered to be minimum tax. The withdrawal of clarification by the Board was viewed against the provisions of law. The tax deducted on sale of goods and execution of contracts is a final tax in the hands of resident tax payer.
The amended provisions are summarized as under:
i)
Deduction of tax from the following payments made to PE of a non-resident person in Pakistan shall be Final Tax: a) For the sale of goods except in respect of a company being a manufacturer of such goods; b) on the execution of contract; and c) for providing of services of stitching, dying, printing, embroidery, washing, sizing and weaving to an exporter or export house.
Income of a non-resident person from the execution of a contract under a construction, assembly or installation project in Pakistan and any other contract for construction or services rendered relating thereto, are already covered under the Final Tax Regime under section 152(1B) read with clause 41 of Part IV of the Second Schedule. ii) Tax suffered by a resident person or PE of a non-resident person in Pakistan on account of rendering or providing of services, shall be considered as Minimum Tax in all cases. Henceforth, similar to cases of individuals and AOPs, tax deducted on services shall be treated as Minimum Tax in the case of companies and PEs of nonresident persons in Pakistan. However, advertisement services rendered by the news print media are not subject to tax withholding under section 153 and continue to be

taxed on net income basis by virtue of the provisions of clause 16A of Part IV of the Second Schedule. iii) Tax withholding under section 153 shall not be made on payments made to traders of yarn by taxpayers specified in the zero rated tax regime of Sales Tax. iv) AOP, having turnover of Rs 50 million or above in tax year 2007 or in any subsequent tax year fall within the meaning of the term prescribed person required to withhold tax under section 153. Similarly, an individual, having turnover of Rs 50 million or above in the tax year 2009 or in any subsequent tax year fall within the meaning of prescribed person for the purpose of section 153. The definition of the term turnover has now been introduced in section 153 for the purpose of ascertaining the association of persons and individuals liable to withhold tax under section 153. The Bill now proposes that tax deducted from payment for services rendered or provided shall be treated as minimum tax in the case of all resident persons and permanent establishment of nonresident person A comparison between existing and the proposed amendments of section 153 whereas differences are occurred as under:
Head of Provision Sale of Goods Existing Provisions Adjustable tax for PEs Final tax for residents except : - manufacturing companies - listed companies Final tax for residents Adjustable tax for Pes Proposed Provisions Final tax for both residents & PEs except : - manufacturers - listed companies Final tax for both residents and Pes
Provision of Specialised Services to Exporter / Export houses Provision of Other Services Execution of Contracts
Adjustable tax for PEs and resident companies Minimum tax for others Adjustable tax for PEs Final tax for residents except listed companies
Minimum tax for both residents and Pes Final tax for both residents and PEs except listed companies
Withholding tax on withdrawal from pension fund Section 156B The Finance Bill proposes to enhance the limit of withdrawal from any approved pension fund from 25 % to 50 at or after the retirement age for the purpose of withholding tax.

Withholding tax statements Section 165

The Finance Bill seeks to amend section 165 in a manner to file the quarterly statements of withholding tax instead of monthly basis. For the purpose, the Bill also proposes that monthly statement shall be required to be filed by 15th day of the month, following the month to which the statement pertains. The Bill also proposes that, in addition to name and address, CNIC Number and NTN would also be required to be incorporated in the statements. The Bill also proposes to insert a new sub-section (6) in section 165 to provide that every employer shall furnish annual statement of withholding tax from salary, including information for such employees, whose salary though exempt but fall in the range of Rs. 300,001 to Rs.350,000. Credit of Tax deducted/collected Section 168 Sub-section (3) provides that credit of taxes that have been deducted under various sections of whit-holding under the ordinance which are treated as full and final tax liability would not be available. The Bill seeks to make certain editorial changes to correct cross referencing with the relevant provisions of various sections of with-holding of tax at source. Offences and Penalties Section 182 Presently serial No. of section 182, deals with levy of penalty for non-filling of Returns/Statements within the prescribed due date. Penalty, it is leviable equal to 0.1% of the tax payable for each day of default, with a minimum penalty of Rs.5,000 and maximum penalty of 25% of the tax payable, in respect of that year. The section insert a explanation/clarification of term tax payable in the context of this offense as tax chargeable on the taxable income on the basis of assessment made or treated to have been made under sections 120(assessment),121(Best Judgment Assessment), 122(Amendment of Assessment), 122C(Provisional Assessment). Further, insertion of reference to section 122 in the proposed amendment in the assessments also seems to be very unjust as that would perhaps mean that the penalty will be reworked each time income is enhanced as a result of an amendment assessment although the penalty is applicable for late filling of return. Advance Ruling not Applicable Section 206A It has been proposed to introduce this new sub section, whereby the provisions relating to advance ruling shall not apply to a non-resident tax payer, having a permanent establishment in Pakistan. The concept of advance ruling was inserted by Finance Act, 2003, whereby the Board was given powers to issue an advance ruling on an application made by the nonresident taxpayer.

Jurisdiction of Income Tax Authorities Section 209

Under this section, the legislature has delegated juridical authority to the Board, the Chief Commissioner, Commissioners and the Commissioners (Appeals) to perform certain functions and exercise certain powers. The Bill further seeks to empower the Board or the Chief Commissioner to transfer jurisdiction in respect of any case or person from one Commissioner to another. Rate of tax collection on cash withdrawal reduced to 0.2 percent Section 231A and Div VI, Part IV, First Schedule The Finance Bill proposes to reduce the rate of collection of tax on withdrawal of cash from 0.3% to 0.2 %. The Bill however does not proposes any reduction in rate of tax collection on transactions in banks covered in section 231AA (e.g. sale against cash any instrument including Demand Draft, Pay Order, CDR, STDR, SDR, RTC or any other instrument of bearer nature etc.) which shall continue to be at 0.3 %. Tax to be collected on sale under auction by tender Section 236A The Finance Bill seeks to subject sale under auction by tender to collection of tax under section 236A, besides sale by public auction. Tax collected on sale of air tickets made adjustable Section 236B The Finance Act, 2010 introduced collection of tax on sale of air tickets, without specifying that tax collected to be final or adjustable. The Board vide Circular 10 of 2010 clarified that tax collected shall be adjustable. Now, the Finance Bill seeks to insert sub-section (3) to clarify that the tax collected under this section shall be adjustable. The Bill further provides that tax shall not be collected in the case of the Federal Government or a Provincial Government or a person who produces a certificate from the Commissioner that income of such person is exempt.

FIRST SCHEDULE
Rate of Tax of Individuals and Association of Persons.
The basic threshold for charge of income tax is proposed to be raised from the existing Rs.300,000 to Rs.350,000 for salaried taxpayers and accordingly, the rates of tax chargeable for the tax year 2012 (corresponding to the income year ending at any time between 01 July 2011 to 30 June 2012) have been rationalized as under. Rates of tax for non-salaried taxpayers have remained unchanged.
Salaried Taxpayers
Income Brackets Where the taxable incom e D oes not exceed Rs. 350,000 Exceeds Rs. 350,000 but does not exceed Rs. 400,000 Exceeds Rs. 400,000 but does not exceed Rs. 450,000 Exceeds Rs. 450,000 but does not exceed Rs. 550,000 Exceeds Rs. 550,000 but does not exceed Rs. 650,000 Exceeds Rs. 650,000 but does not exceed Rs. 750,000 Exceeds Rs. 750,000 but does not exceed Rs. 900,000 Exceeds Rs. 900,000 but does not exceed Rs. 1050,000 Exceeds Rs. 1,050,000 but does not exceed Rs. 1200,000 Exceeds Rs. 1,200,000 but does not exceed Rs. 1450,000 Exceeds Rs. 1,450,000 but does not exceed Rs. 17,00,000 Exceeds Rs. 1,700,000 but does not exceed Rs. 1,950,000 Exceeds Rs. 1950,000 but does not exceed Rs. 2250,000 Exceeds Rs. 2250,000 but does not exceed Rs. 28500,000 Exceeds Rs. 2,850,000 but does not exceed Rs. 3,550,000 Exceeds Rs. 3,550,000 but does not exceed Rs. 4,550,000 Exceeds Rs. 4,550,000 Rate NIL 1.50% 2.50% 3.50% 4.50% 6.00% 7.50% 9.00% 10.00% 11.00% 12.50% 14.00% 15.00% 16.00% 17.50% 18.50% 20.00%
Marginal Relief
Gross amount of rent (Rs.)
Up to Rs.150,000 150,001 to 400,000 400,001 to 1,000,000 1,000,001 and above
S.No. 1 2 3 4
Rate of Tax
Nil 5 percent of the amount exceeding Rs. 150,000 Rs. 12,500 plus 7.5 percent of the amount exceeding Rs. 400,000 Rs. 57,500 plus 10 percent of the amount exceeding Rs. 1,000,000

Non-Salaried Taxpayers (Individual)

S.No. 1 2 3 4 5 5 TAXABLE INCOME Up to 350,000 350,001 to 500,000 500,001 to 750,000 750,001 to 1,000,000 1,000,000 to 1,500,000 Over 1,500,000 RATE % Nil 7.5 10 15 20 25
ASSOCIATION OF PERSON
The rate of tax remains unchanged @ 25%.
Tax year "Tax Year" means a period of twelve months ending on 30 June and corresponds to the period to which the income of tax payer relates. Salaried Person Tax Payer Salaried Tax Payer means a person whose salary income is in excess of 50% of his/her taxable income. Taxation of Senior Citizen A Senior Citizen of Pakistan, aged sixty year or more, on the first day of relevant tax year, is allowed a rebate of 50% of the tax payable if his/her taxable in that tax year is Rs.1,000,000 or less, and the said rebate remains applicable. Full Time Teacher or Researcher The provision to reduce the income tax liability of a full time teacher or a researcher employed in a non-profit educational or research institution duly recognized by a Board of Education or a University or the Higher Education Commission and to a teacher and researcher of Government training and research institution also continues to be available. The tax liability in such cases is reduced by an amount equal to 75% of the tax payable on his / her income from salary. Rates of tax on retailers The rate of tax applicable for Tax Year 2012 on a retailer is proposed at 1% of the turnover in case his declared turnover is less than Rs.5million. Rates of tax for Companies Division ll Clause (ii) (iii) For public, private and banking companies, the rate of tax remains unchanged at 35% for tax year 2012.

A Co-operative and finance society had the option to be taxed at the income tax rate applicable to a company. The rate of tax for a small company @ 25% for the tax year 2012 remains the same.
Rate of tax on dividend income The rate of tax imposed under section 5, on dividend received by all assesses is continues to 10 percent except dividend received by a banking company from its Assets management Company, which has now been proposed to be taxed @ 20%. Rate of Tax on Capital Gain on securities The rate of tax on capital gains arising on sales of securities as referred in Section 37A are as under: Holding Period of a Sec. Less than Six Six Months or more month but less than 12 months %
10 10 12.5 15 17.5 7.5 8 8.5 9 9.5 10
Tax Year
2011 2012 2013 2014 2015 2016
Income from property The rate of tax to be paid in respect of income from property for tax year 2012 remains unchanged and are as under: i)
S.No. 1 2 3 4
Individuals and Association of Persons

Gross amount of rent
Up to Rs.150,000 150,001 to 400,000 400,001 to 1,000,000 1,000,001 and above
Rate of Tax
Nil 5 percent of the amount exceeding Rs. 150,000 Rs. 12,500 plus 7.5 percent of the amount exceeding Rs. 400,000 Rs. 57,500 plus 10 percent of the amount exceeding Rs. 1,000,000
The schedule which has been inserted in Division-V prescribing rates for withholding of tax from the gross amount of rent payable to an individual or association of person is different from the schedule prescribed for charging tax as above. A clarification would be required to address the anomaly.

ii)
S.No. 1 2 3

Company
Gross amount of rent (Rs.)
Up to Rs.400,000 400,001 to 1,000,000 1,000,001 and above
Rate of Tax
5% of the amount Rs. 20,000 plus 7.5 % of the amount exceeding Rs. 400,000 Rs. 65,000 plus 10 % of the amount exceeding Rs. 1,000,000
Advance income tax on private motor car Part lV Division lll Advance income tax payable at the time of paying annual motor vehicle tax, in the case of private motor cars, is proposed to be increased as under:
Engine Capacity Upto 1000 cc 1001 cc - 1199 cc 1200 cc- 1299 cc 1300 cc- 1599 cc 1600 cc- 1999 cc Over 1999 cc Amount of Tax Rs. 750 1250 1750 3000 4000 8000
Advance tax on electricity bill Division lV The rate of collection of advance tax on electricity bill @ 5 % for industrial consumers and @ 10% on commercial consumer exceeding Rs.20,000. Tax on Cash withdrawal from a Bank Division Vl The bill proposes to decrease the rate of tax from 0.3 % to 0.2 % of the cash withdrawal, while daily withdrawal up to RS.25,000 would remain exempt for tax withholding.

SECOND SCHEDULE
PART I Exemptions Withdrawn
Clauses proposed to be deleted by the Bill Clauses 61(xi) & (xxv), 74A, 93 and 114A Itemized listing of clauses under Part-1 of the Second Schedule which have been proposed to be deleted owing to these becoming in-fructuous due to efflux of time as well as changes brought about by the Bill. These clauses provide exemptions to: i. ii. iii. iv. v. BCCI Foundation for Advancement of Science & Technology; BCCI Foundation; Foreign currency loan granted by National Bank of Pakistan to Pakistan State Oil; Profit and gains of computer training institutions set-up between 01 July 1997 to 30 June 2005 for five years; and Capital gains from sale of ships and floating crafts upto tax year ending 30 June 2011.
The Finance Bill seeks to withdraw all these exemptions. Exemption to Islamic Development Bank Clause 107A, The Finance Bill proposes to provide exemption to any income derived by the Islamic Development Bank from its operations in Pakistan in connection with its social and economic development activities. profit on debt (section 151); foreign payments (section 152); supply of goods, provision of services and execution of contracts (section 153); and commission (section 233);
PART-II Tax deducted from profit on debt paid to non- residents Proviso to Clause (5A) Profit on debt paid to non-resident is generally subject to withholding tax at 20% of the gross amount of payment. However, Clause (5A) of Part II of the Second Schedule reduced the said rate to 10% if the payment was being made to a non-resident not having a permanent establishment in Pakistan. The tax withheld, either at 10% or 20% continued to remain an advance tax for the non-resident adjustable against eventual tax liability for the year The Bill seeks to introduce a proviso to Clause (5A) whereby tax withheld at 10% on profit on debt paid on debt instruments, Government securities including treasury bills and Pakistan Investment Bonds is regarded as a final tax provided that the investment is exclusively made through a Special Rupee Convertible Account maintained with a Bank in Pakistan.

PART III

With-holding Tax on Import of Old and Used Vehicles Substitution of clause 4 Under the existing clause tax collected at import stage on old and used automotive vehicles specified in the Customs SRO No. 932 dated 20 November 2004 were capped based on the engine capacity of the vehicles. The Customs SRO 932 was rescinded via SRO 577 dated 6 June 2005 while its reference in the clause remained unchanged. To rectify the anomalous situation, the Bill seeks to substitute clause (4) whereby proper reference to SRO No. 577 of 2005 has been made with the effect that cumulative duties derived by a and taxes collected at import stage are now to be capped at the amounts mentioned in the said SRO 577. In terms of proposed substitution of the clause, the aggregate incidence of customs duty, sales tax and withholding income tax, collectible at import stage, will not exceed the following amounts in respect of these vehicles as prescribed in such notification: Vehicles Upto 800CC (Asian makes only) Upto 800CC (Other than Asian makes) From 801cc to 1000CC From 1001cc to 1300CC From 1301cc to 1500CC From 1501 cc to 1600 CC From 1601cc to 1800CC PART-IV Exclusion from levy of minimum tax under Section 113 Clause (11A) This identifies the persons or class of persons who are not subject to the levy of minimum tax under section 113 of the Ordinance. The Bill seeks to extend the applicability of the Clause to a pension fund registered under the Voluntary Pension System Rules 2005. Amount Rs. 4,400 6,600 5,500 11,000 15,400 18,700 23,100

SEVENTH SCHEDULE
Banking Companies Carryover of provision in excess of 5% of advances in respect of consumer & SMEs Rule 1(c) The Finance Bill very rightly so has proposed in clear terms that the provision excess of 5% of total advances in respect of consumer and Small and Medium Enterprises (SMEs) shall be allowed to be carried over to subsequent years for absorption in future years. The Bill further clarifies that in case of the actual provision being less than the respective threshold of 1% and 5% for non-consumer and consumer advances respectively, the same would be allowed at actual. It is further proposed that the provisioning Rules for consumer and SMEs would be allowable from July 01 2010 i.e. tax year 2011 (income year ended 31 December 2010). As regards provisions of classified advances, there still remains two issues that need to be dealt with and addressed (i) the demand of the banking industry to enhance the cap of 1% provisioning to 2% of the total advances (other than consumer and SME) and (ii) certain clarifications on the interpretation of clause 8A introduced through Finance Act, 2010. The progress although may be slow, yet we would like to be optimistic about the ultimate resolution of all issues in this regard by the Board. It is further proposed that dividend received by a bank from its asset management company would be subjected to tax at 20%. Dividends Received Fromm Asset Management Company Rule 6 Presently, dividend income of a banking company is taxed at 10 per cent. It is now proposed that tax rate on dividend income that is received by a banking company from its asset management company is increased to 20 per cent.

SALES TAX ACT, 1990

Sales tax rate Section 3 The standard rate of General Sales Tax has been reduced from 17 % to 16 will be applicable with effect from 01 July 2011. This is a favorable proposal from a taxpayers point of view. Adjustable input tax Section 8B Under this section a registered person is not allowed to adjust input tax in excess of 90% of the output tax for the tax period. There is also a proviso that the input tax claimed on acquisition of fixed assets shall be adjustable against the output tax in twelve equal monthly installments. The above proviso has been deleted and proposed to be replaced by a proviso whereby the restriction of adjustment of input tax in excess of 90% of the output tax would not be applicable in the case of input tax on fixed assets or capital goods. The above amendment effectively allows the immediate claim of the entire input tax on fixed assets or capital goods without any limitation. In this regard it is relevant to point out that plant, machinery and equipment including parts thereof were zero rated and consequently there was no incidence of input tax which could be claimed against the output tax. The zero rating has recently been removed in March 2011 and consequently, sales tax is now payable on import and supply of the same. The proposed amendment is apparently to facilitate immediate claim of tax on plant machinery and equipment without any restrictions and thereby be eligible for refund of excess input tax. This amendment is effective from June 4, 2011, whereas the finance Bill specifies this clause as being effective from July 1, 2011. Blacklisting and suspension of registration Section 21 Under this section the Commissioner has a right to suspend and blacklist the registration of a registered person. It is now proposed to add sub-section 3 whereby the invoices issued during the period of suspension of registration shall not be entertained for the purposes of sales tax refund or input tax credit. It further stipulates that once a suspended person is blacklisted, the refund of input tax credit claimed against the invoices issued by him whether prior or after such blacklisting, shall be rejected through a self-speaking appealable order and further affording an opportunity to the blacklisted person of being heard. The above provision is already available in Sales Tax Rules 2006, however, it is now proposed to incorporate it into the text of the main law. Sales tax return Section 26 This section deals with filing of sales tax return and permits filing of a revised return within 120 days of the filing of the original return subject to the approval of the Commissioner Inland Revenue.

In case of special return required to be filed under section 27 of the Sales Act, 1990, under Rule 14A of the Sales Tax Rules, 2006 provided that a revised return could be filed without the need for prior approval of the Commissioner and without any time limit in the event the revision of the return resulted in payment of tax over and above the tax paid through the original return. Rule 14A has been deleted resultantly prior approval of the Commissioner and the time limit of 120 days will be required in all cases. Appointment of Authorities Section 30 This section deals with appointment of various officers for sales tax purposes. It is proposed to introduce a new designation by way of Inspector Inland Revenue Obligation to produce documents and provide information Section 38B The authority to seek information and conduct an audit under this section is confined to an officer not below the rank of Deputy Commissioner Inland Revenue. It is now proposed to delegate such authority to a lower ranking officer i.e. Assistant Commissioner Inland Revenue. Alternate Dispute Resolution committee (ADRC) Section 47A and Rule 65(3) The chairman FBR and a member nominated by him are empowered to pass an order or decision as he deems just and equipment, on the application of an aggrieved person, to rectify the order or decision passed on the recommendations of ADRC. The period of submission of the report by ADRC to FBR has also been extended from 60 to 90 days. Sales tax refund Section 66 This section deals with refund of tax which may be claimed within one year. A new proviso is proposed whereby provisions similar to section 3B have been made applicable to refunds under section 66. Accordingly, no refund shall be admissible if the incidence of tax has been passed directly or indirectly passed to the consumer. Condonation of time limit Section 74 The Board is empowered to condone the time limit under any provisions of the Act or the Rules made there under. This facility was understood to be available to a registered person. It is proposed to insert an explanation under this section whereby apart from a registered person, the facility of condonation of time limit is also available to the tax authorities aswell. This would mean that the tax authorities can seek condonation of time limit prescribed under law for issuing show cause notices, conducting audits, filing appeals, etc.

Special procedure for payment of sales tax by importers Rule 58B Under this Rule sales tax on account of minimum value addition is levied and collected at import stage of goods, other than those imported by a manufacturer for in-house consumption, at the rate of 2%. It is proposed to enhance this rate to 3%. Appointment of Alternative Dispute Resolution Committee Rule 65 This Rule deals with the functioning of the Alternative Dispute Resolution Committee and prescribes a time limit for submission of the Committees report to be within 60 days of its appointment. The time limit for submission of such report has now been enhanced to 90 days. Sugar SRO480/ 481(I)/2011 and 1(3)/STM/2004 (PT-II) Sugar has been taxable at the reduced rate of 8% at local supply stage. This rate has been withdrawn vide SRO 480(I)/2011, however exemption has been SRO 480(I)/2011, however exemption has been 1701.9910 and 1701.9920 vide SRO 481(I)/2011 by way of inclusion in SRO 551(I)/2008. However, the same has now been subjected to Federal Excise Duty in sales tax mode at the rate of 8%. The impact of the above amendments is that white crystalline sugar will be taxable at the rate of 8% at import and manufacturing stage and all other types of sugar will be taxable at the rate of 16% at import and supply stage. Exemption to reclaimed lead SRO 481(I)/2011 Reclaimed lead if supplied to a recognized manufacturer of lead batteries has now been granted exemption by way of inclusion in SRO 551(I)/2008. Exemptions Withdrawn: Certain sales tax exemption available through the sixth schedule and various notifications have been withdrawn with effect from 4th June 2011. These are as follows:

Sixth Schedule - Table 1

Heading Nos. of the First Schedule of the Customs Act, 1969
Serial No. (1) 29A 29B 30 34 35 41
Description
42
43 44 62
(2) (3) Surgical tapes 30.05 Ultrsound gel 3006.7000 Diapers for adults (patients) 4818.4010 Bricks 6901.0000 Building blocks of cement including ready mix concrete blocks 6810.1100 8523.2990, 8523.4090, Computer Software 8523.4010 8523.5990 and 8523.8090 87.02, 87.03, Ambulances, fire fighting vehicles, waste disposal trucks, 8704.2200,8704.2300,87 brake down lorries, special purposes vehicles for the 05.3000 and 8705.9000 maintenance of streetlights and overhead cables. 8802.2000,8802.3000 Aircrafts and 8802.9000 Ships, of gross tonnage exceeding 15 LDTs, excluding those 8901.2000, 8901.3000 and 8901.9000 for recreational of pleasure purpose. Defence stores, whether manufactured locally or imported by Federal Government against foreign exchange allocation for defence, including trucks, trailers and vehicles falling under PCT heading 87.04 of the First Schedule to the Respective headings Customs Act, 1969 (IV of 1969), specially modified for mounting defence equipments, their parts and accessories for supply to Armed Forces. Spare parts and equipments for aircraft and ships coverd by serial number 43 and 44 above. Equipments and Machinery for pilotage, salvage or towage for use in ports or airports. Equipments and Machinery for air navigateion. Equipments and Machinery used for services provided for handling of ships or aircrafts in a customs port or customsairport. Such plant and machinery as is notified by the Federal Government in the official Gazette but if imported, these shall be entitled to exemption from sales tax on importation if these are not manufactured in Pakistan. Respective headings Respective headings Respective headings Respective headings
64 65 66 67
68
Respective headings

Serial No. (1) 69
Description
Heading Nos. of the First Schedule of the Customs Act, 1969
70
(2) (3) Bulldozers and combined harvesters; and components (which include sub-components, components, sub-assemblies an assemblies but exclude consumables) imported in any kit form Respective headings and direct materials or assemly or manufacture thereof, subject to the same conditions as are envisaged for the purposes of exemption under the Customs Act, 1969 (IV of 1969). 8702.9010 and Import and supply of fully dedicated CNG Euro-2 buses 8702.9090 whether in CBU or CKD condition.
Sixth Schedule Table 2

Serial Description No. (1) (2) 5 Supply of other such agriculture as may be specified in a noifications to be issued by the Federal Government in the official Gazette.
Heading Nos.
(3) Respective headings

SIGNIFICANT SROs Exemption withdrawn through notifications SRO 477(I)/2011 Amendments in SRO 575(I)/2006 dated 5 June 2006--Imports
Serial Description No. (1) (2) 1 Agriculture machinery 9e.g Land levelling machinery and equipment. Fertilizers and plant protection equipment, harvesting and threshing machinery, dairy, live stock and poultry machinery, Horticulture and floriculture, Fish and shrimp farming and seafood processing machinery and equipment). Following items imported by the local assemblers of vehicles and companies having CNG livences (1) Compressors (2) Mass Flow CNG Dispensers (3) Storage cylinders 5 (4) CNG vehicles cylinders
PCT Heading
(3)
Various
22(i) 22(ii) 22(iii) 28
28(A)
(5) CNG vehicles conversion kits (5A) LPG dispensers imported by a company having LPG licence Off-highway dump truck of 320 HP and above Off-highway dump truck of 320 HP and above imported with effect from January 17, 2007 Cement Bulk semi-trailers, without prime movers Certain goods imported by municipal authorities / local bodies / Various cantonment boards Fire fighting vehicles and equipent imported by town and 8705.3000 and municipal authorities. respective headings Aircraft spares, parts, types, navigational equipment, accessories for maintenance and operations of aircrafts, chemicals, lubricants and paints, air tickets, aircraft carpet, aircraft fabric, skydrol (brake fluid), laminated sheet, aluminium alloy sheets, aluminium alloy extrusions, aircrafts seats, tools, test equipment, life jackets, spares of TGS vehicle, meals trolley, ball hand seal, standards units, exterior washing liquid, air head set electronics, air head set pneumatic and sealants. Certain items imported by Civil Aviation Authority (CAA) for air traffic services and training
8414.8030 8413.1100 7311.0000 7311.0000 8409.9191 8409.9991 8413.1100 8704.1090 8704.2299 8704.2390 8716.3190
29
Respective Headings
36
Respective Headings

SRO 480(I)/2011 dated 03 June 2011 rescinding various exemption notifications

As provided vide SRO 1240(I)/2005 dated 16 December 2005
Description
Exemption from whole of sales tax leviable on Dump Trucks for off-highway use, on-highway Dump Trucks of 320 Hp and PCT Heading 8704.2290 and 8704.2390 and transit concrete mixer, subject to certain conditions. Exemption from sales tax on certain locally manufacured / imported agricultural machinery, aquipment and implements. Exemption from sales tax on import and supply of CKD kits of single cylinder agriculture diesel engines of 3 to 36 HP. Local supplies of sugar (chargeable at the rete of eight per cent)
SRO 542(I)/2006 dated 05 June 2006
SRO 275(I)/2008 dated 12 March 2008
1(3) STM/2004 (Pt-II) dated August 23 2009.
SRO 481(I)/2011 dated 03 June 2011 rescinding exemptions on certain goods as specified under SRO 551(I)/2008 dated 11 June 2008
Serial Description No. (1) (2) 2 CNG kits, cylinders and valves for CNG kits. 12 15 17 Commercial catalogues, falling under PCT Heading 4911.1000 Rocks Phosphate, PCT Headings 2510.1000 and 2510.2000 Phosphoric Acid, falling under PCT Heading 2809.2010 Mineral oil 97% (W/V) 110% (W/V) falling under PCT Heading 2710.0000
Conditions and restrictions

(3) If supplied for automobiles vehiclies Import and supplies thereof Import and supplies thereof Imported by or supplied to phosphatic fertilizer industry for the manufacture of phosphatic fertilizer. (a) Subject to a certificeate by Plant Protection Department specifying the quantities to be imported by the person registered with them as importer, formulator or manufacturers of pesticides; (b) Plant Protection Department shall ensure that:(i) total quantity does not exceed 250 tons; and goods are imported on or before 15th October,2008
18
(ii)

EXAMPTIONS ALLOWED (THESE EFFECTIVE FROM JUNE 4, 2011) SRO 481(I)/2011 Amendments in SRO 551(I)/2007 dated June 11, 2008
Serial No. (1) 27
Description
(2) White crystalline Suger Reclaimed lead if supplied to recognized manufacturers of lead batteries
PCT Heading
(3) 1701.9910 (cane sugar) and 1701.9920 (beet sugar) Respective Heading
28
SRO 483(I)/2011 Amendments in SRO 880 (I)/2007 dated September 1, 2007

Serial No. (1) 50 59
Description
(2) Calibrated Eclia Kit
PCT Heading
(3) 3822.0000 3822.0000
ZERO RATING WITHDRAWN (THESE EFFECTIVE FROM JUNE 4, 2011) SRO 485(I)/2011 SRO 1161(I)/2007 dated November 30, 2007 rescinded
Description of goods to be Raw Material manufactured (1) (2) Manufacturing of diapers HS Code Super Absorbent Polymers 5601.1040 Poly Back Sheet Hot Melt Adhesive Non-Woven, Whether or not impregnated, coated, coverd or laminated of man-made filaments. Toilet or facial tissue stock, towel or napkin paper of a kind used for household or sanitary purpose (non-pours) Frontal Tape Pre-Laminated Tape Fluff Pulp Spandex Bare Yarn
PCT Heading
(3) 3906.9090 3920.1000 3920.9900 3506.9190 5603,1100 5603.1200 4803.0000 3919.9090 3920.9900 3919.1090 3920.9900 4703.2100 5402.4900

SRO 486(I)/2011 Amendments in SRO 549(I) 2008 dated June 11, 2008 Imports and Supplies
Description of goods to be manufactured (1) 4. (xxv) 4. (xxvi) 4. (xxvii) 4. (xxix)
Description of Goods
(2) Dedicated CNG buses and all other buses meant for transportation of forty or more passengers whether in CBU or CKD condition (PCT Heading 87.02) Trucks and dumpers with g.v.w.exceeding 5 tonnes (PCT Heading 87.04) Trailers and semi-trailers for the transport of goods having specifications duly approved by the Engineering Development Board (PCT Heading 87.16) Road tractors for semi-trailers, prime movers and road tractors for trailers whether in CBU conditions or in kit from (PCT Headings 8701.2010, 8701.2020, 8701.2030, 8701.2090, 8710.9040, 8701.9050 and 8701.9060)

Federal Excise Act, 2005

Definition of Manufacture Section 2(16b) The definition of the term Manufacture is proposed to be emended to include preparation of un-manufactured tobacco by drying, cutting and thrashing of raw tobacco. Special Excise Duty Withdrawn Section 3 Through the Finance Act 2007, Special Excise Duty (SED) was levied on all goods imported or manufactured in Pakistan, except those specified in SRO 655(1)/2007 dated June 29, 2007. The rate of SED originally introduced was 1 percent which was increased to 2.5 per cent through the Federal Excise (Amendment) Ordinance, 2011. SED is proposed to be withdrawn effective July 1, 2011. Consequently, SRO 655(1)/2007 is being rescinded through SRO 489(1)/2011 dated June 3, 2011, effectively July 1, 2011. Default Surcharge Section 8 Section 8 deals with the levy of default surcharge which is currently payable at the rate of KIBOR plus 3% of the amount of duty due but not paid or refund of duty or draw back received or an adjustment made which is not admissible under the FE Act. This section did not specify the period for which the KIBOR rate was to be applied and a corrective amendment has been made by inserting the word per annum. Recovery of duty not or Short levied erroneously Refunded Section 14 The time limit for issuing show-cause notice, in cases where a person has not levied or short levied the duty or where duty has been erroneously refunded is proposed to be increased from 3 to 5 years. Further, an order for determining the duty payable by such person is required to be passed within 120 days of issuance of the show-cause notice or within such extended period, as the Commissioner may, for reasons to be recorded in writing. The extended period is limited to 60 days. It has, however, been provided that any period during which the proceedings are adjourned on account of a stay order of Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding thirty days shall be excluded from the computation of the periods specified above. The proposed amendments are in line with the provisions of the Sales Tax Act for making assessments, except that under the Sales Tax act, in case where tax is evaded or short levied or paid by reason of any inadvertence, error or misconstruction, the time limit for making the assessment is 3 years, whereas in the proposed amendment there is no such distinction.

Power To Seize and Confiscate Extended for Beverages Section 26 & 27 At present, counterfeited cigarettes or those which have been manufactured unlawfully or on which duty has not been paid, can be seized or confiscated. Such powers have been proposed to be extended to include beverages. Section 34 deals with the procedure of appeals to be filed at the appellate forums which include the high Court. Through the Finance Act, 2010 a new section 34A was introduced in the FE Act, providing separately the matters relating to filling of reference to the High Court. Accordingly the Bill proposes to delete reference of High Court in Section 34 being superfluous. Alternative Dispute Resolution Section 38 The committee formed by the FBR in respect of resolution of disputes is required to make recommendations within the stipulated time, and the FBR is empowered to pass such order as it may deem appropriate on the recommendations of the committee. FBR has now been bound to pass the order within 45 days of the receipt of the recommendations of the committee. Previously, there was no such time limit to pass an order. The amendment is in line with similar provisions contained in the Sales Tax Act.

FIRST SCHEDULE
Rates of Federal Excise Duty
The following is proposed to be brought under the purview of excisable goods by including the same in Table-I:
Serial Nature of Goods No. 1 While Crystalline Sugar (Entry No. 53) Rate of Duty Eight Percent ad val.
The above is also proposed to be included in the Second Schedule of the FE Act by inserting entry No.3 in the said Schedule. The goods on which duty is collected under sales tax mode with entitlement for adjustment with sales tax and vice versa are included in the Second Schedule. The rates of duty in respect of the following goods have been proposed to be changed alongwith the description of goods.
Existing Provision
Relevant Table Entry in No. Table Description Locally produced cigrarettes if their retail price exceeds nineteen rupees and fifty paisa per ten cigarettes Rate of Duty
Proposed Provision
Description Rate of Duty
10
Locally produced cigrarettes if their retail 65% of the 65% of the price exceeds twenty retail price retail price one rupees per ten cigarettes Five rupees Six rupees and twenty Locally produced and four Locally produced five paisa cigrarettes if their retail five paisa cigrarettes if their retail per ten price exceeds eleven per ten price exceeds ten rupees cigarettes rupees and fifty paisa cigarettes per ten cigarettes but plus 70% per ten cigarettes but plus 70% does not exceed per does not exceed twenty per nineteen rupees and fifty incremental one rupees per ten incremental paisa per ten cigarettes rupee or cigarettes rupee or part therof part therof Locally produced cigrarettes if their retail price does not exceeds ten rupees per ten cigarettes Five rupees and twenty five paisa per ten cigarettes Locally produced cigrarettes if their retail price exceeds eleven rupees and fifty paisa per ten cigarettes Six rupees and four five paisa per ten cigarettes
11

The rates of duty in respect of the following goods are proposed to be changed:
Serial No. 1 2 Relevant Entry in Table 1 4 5 Existing Rate of Duty 12% of retail price 12% of retail price 10% of retail price Rupee five per KG Proposed Rate of Duty 6% of retail price 6% of retail price
Nature of Goods Aerated Waters Aerated waters, containing added sugar or other sweeting matter or flavoured. Aerated waters if manufactured wholly from juices or pulp of vegetables, food grains or fruits Unmanufactured tobacco
3 4
6 7
6% of retail price Rupee ten per KG
13
Portland cement aluminous cement, slag cement, super Seven Hundred Five Hundred Rupees per sulphate cement and similar Rupees per metric ton hydraulic cements, whether or not metric ton coloured or in the form of clinkers Filter rods for cigarettes One rupee per filter rod Twenty percent ad val.
50
The Finance Act, 2008 brought restriction in the interpretation clause as given in Table I of the First Schedule to the FE Act which provides that for the purpose of levy, collection and payment of duty at the prescribed rate in respect of locally produced cigarettes as mentioned in serial Nos.9, 10 and 11 of Table I of the First Schedule, no cigarette manufacturer shall reduce the price from the level adopted on the day of the announcement of the budget 2008-2009. The Finance Act, 2009 and 2010 substituted year 2008-2009 with 2009-2010 and year 2009-2010 with 2010-2011 respectively. The Bill now seeks to substitute year 2010-2011 with the year 2011-2012.

Withdrawal of federal excise duty

The Bill seeks to withdraw duty on a number of goods and services which is enumerated below: Relevant Table Rate of Duty as Description Entry in No. presently levied Table 1 I 17 Solvent oil (non-composite) Thirteen rupee per litre Eighty eight paisa per I 18 Other litre
I I 21 26 Other fuel oils mineral greases One hundred eighty five rupees per metric ton Twenty five rupees per KG Ten percent of the retail price or seven rupees and fifteen paisa whichever is higher Fifteen percent ad val. Ten percent of the reetail price or seven rupees and fifteen paisa whichever is higher Seven rupees and fifteen paisa Eight eight paisa per litre Twenty five rupees per KG
28
Transformer Oil
29
Other mineral oils excluding sewing machine oil
30
Waste oil
I I I
39 40 46
Carbon Black oil (carbon black feed stock) including residue carbon oil Methyl tertiary butyle ether (MBTE) Grease
47
48
49
I I
51 52
Organic composite solvents and thinners, not eleswhere specified or included; prepared paint or varnish removers: Thirteen Rupees pe (i) Solvent oil (composite) Litre Ten percent of retail (ii) Other (excluding thinners) price. Viscose staple fiber Ten percent ad val. Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 87.02), including station wagons Five percent ad val. and racing cars of cylinder capacity exceeding 850cc. Air conditioner Ten percent ad val. Deep Freezers Ten percent ad val.

Table No.

Relevant Entry in Table 1
Description
Rate of Duty as presently levied
Services provided by property developers or promoters for: II 12 (a) development of purchased or leased land for conversion into residential or commercial plots (b) construction of residential or commercial units Rs. 100 per square yard Rs. 50 per square foot of covered area

Federal Excise Notifications

In exercise of the power conferred by the FE Act, the Federal Government / the Board have issued certain notifications which are enumerated below:
SRO reference and date
Section/ Schedule/ Rule reference
Description
SRO 484(I)/2011 03 June 2011
This notification rescinds the notification No.364(I)/2007 dated 03 May 2007. The said notification was issued by the Federal Government Section 3 First Schedule whereby the rate of duty on the services provided by Cable TV operators was fixed at eight rupees per subscriber per month. The notification shall take effect from 04 June 2011 The Finance Act, 2006 brought Franchise services in the ambit of excisable services at the rate of five percent. Simultaneously Rule 43A was inserted in the Federal Excise Rules, 2005 whereby special procedures for payment of duty on Franchise fee was laid down Section 3 First Schedule The Finance Act, 2008 increased the rate of duty to Rule 43A ten percent, however the corresponding amendments were not made in Rule 43A Now the Board has issued SRO 488(I)/2011 dated 03 June 2011 which has removed this anomaly by substituting rate of duty of five percent to ten percent.
SRO 488(I)/2011 03 June 2011
Imposition of Duty on Sugar Under Sales Tax Mode First Schedule (S. No 53) and Second Schedule As a result of withdrawal of sales tax on sugar, duty has been imposed on import and local supply of white crystalline sugar (Headings 1701.9910 and 1710.9920) at the rate of 8 percent ad val. The duty now imposed, effective June 4, 2011, is collectible under the sales tax mode with entitlement for adjustment with sales tax and vice versa. In terms of SRO 563(1)/2006 dated June 5, 2006, sales tax assessment at import stage was being made at deemed value of import of US$ 440 per metric ton. Now the duty on import of sugar will be collected at value determined in accordance with section 25 of the Customs Act 1969, including customs duty payable therein. Under SRO 564(1)/2006 dated June 5, 2006, the sales tax on locally produced white crystalline sugar was collected at deemed sales value of Rs. 28.88 per kg. This SRO was withdrawn through SRO 232(1)/2011 dated March 15, 2011. Therefore, the duty on locally produced sugar will continue to be chargeable on Value of Supply, as defined in section 2(46) of the Sales Tax Act, excluding the amount of duty payable thereon.

Duty On Franchise Services SRO 488(1)/2011 dated June 3, 2011 read with Rule 43A of the Federal Excise Rules, 2005 Through the Finance Act 2008, duty on franchise services was increased from 5 % to 10 5, however, corresponding amendment was not made in Rule 43A of the Federal Excise Rules, 2005 which provides special procedures for collection of duty on franchise free. Through SRO 488(1)/2011, a corrective amendment has been made in Rule 43A, and the rate of duty is rectified at 10 %. Duty On Services Of Cable Operator SRO 484(1)/2011 dated June 3, 2011 Through the Finance Act, 2006, duty on services provided by Cable TV operators was levied, which was withdrawn through the Finance Act, 2007 effective from July 1, 2007. Through SRO 364(1)/2007 dated May 03, 2007, the Federal Government had provided a reduced rate of duty of Rs. 8 per subscriber per month, which had become redundant, as a result of withdrawal of duty on cable TV operators. Through SRO 484(1)/2011 dated June 03, 2011, the aforesaid SRO 364(1)/2007 have been withdrawn.

Customs Act, 1969

Prohibition Section 15(c) Section 15 specifies the goods which are prohibited to be imported into or exported from Pakistan. Further Section 32 deals with the offence of false or error by a person in any matter of custom and the procedure to recover duty or charge not levied, short levied or erroneously refunded in such case. The Bill seeks to delete the words or goods imported or exported in contravention of the provisions of section 32 from clause (c) of Section 15. The proposed amendment seeks to remove the goods imported or exported in contravention of Section 32 from the list of goods, which are prohibited to be imported into and exported from Pakistan. This amendment intends to eliminate the possibility of any undue advantage and / or misuse of powers vested Power to deliver certain goods without payment of duty and to repay duty on certain goods Section 21 Section 21(c) allows repayment of duties paid on the importation of goods which have been used in the production, manufacture, processing, repair, or refitting of goods meant for supplies against international tenders. The Bill seeks to enhance the repayment facility to local manufacturers and suppliers of domestic goods against international tenders. Untrue statement, error, etc. Section 32(3A) Customs authorities are empowered to issue show cause notice within three years in case any duty or charge has not been levied as a result of an audit or examination of an importers account. The Bill seeks to enhance the time limit from three years to five years in order to harmonise with the provisions of the section 32(2) of the Act where time limit of five years Time Limit for Refunds Section 33 A proviso has been inserted in section 33 whereby refunds becoming due consequent to any decision or judgment of any officer of customs or the Board or the Appellate Tribunal or the Court, the period of one year within which refund claims were to be made, shall be reckoned from the date of such decision or judgment. Levy of Transit Fee Section 129A A new section has been inserted, which empowers the FBR to levy a Transit Fee on any goods or class of goods in transit across Pakistan to a foreign territory, at such rates, as the Board may, by notification in the official Gazette, prescribe.

NOTIFICATIONS
Changes In the Concessionary Rates of Duty
SROs 475(I)/2011 & 565(I)/2006] amended SRO 565(I)/2006 The following changes have been made: a) Concessionary duty of 5 per cent on import of raw materials used for the manufacturing of air conditioners has now been subjected to the condition that the manufacturing facility for air conditioner manufacturing shall also include: Press machines (in place of rear panel bending machine); Shearing machines; Tapping machines Reverting machines Spot welding machines; and Evaporator bending machines.
b) Concessionary duty of 0 per cent available to copper coated steel tubes in coils upto 8.5 mm dia used in manufacturing of evaporators and condensers for airconditioners, deep freezers and refrigerator, etc. has been rationalized in lines with the description available in PCT code (7306.3010). c) Import of discs, tapes & other like devices (Heading 8523.2990) to be used in the manufacturing of audio/video cassettes would now be sub to concessionary duty of 10%. d) Import of flat-rolled products of iron or non-alloy steel etc (Heading 7210.1290 and 7210.5090) used in the manufacturing of cables and conductors would now be subject to concessionary rate of 5 per cent, in place of tin coated steel strip etc. (Heading 7210.1200 and 7210.5000). e) The manufacturing of diesel generating unit would now be subject to concessionary rate of 5 per cent, in place of steel keys (Heading 7326.9010). f) Import of certain items used in the manufacturing of microwave oven (Heading 8516.9000) would now be subject to concessionary rate of 10 per cent, in place of items bearing Heading 8516.5000. g) Import of CD, MP3, MP4 (Heading 8529.9090) used in the installations in Car Audio system would now be subject to concessionary rate of 10 per cent. h) Import of following raw materials used in the manufacturing of welded steel pipes would now be subject to concessionary duty of 5 per cent. Description HRC (prime quality) of a thickness of 4.75 mm 0r more but not exceeding 10 mm. HRC (prime quality) of a thickness of 3 mm or more but less than 4.75 mm. PCT Heading 7208.3790
7208.3890

Description

PCT Heading 7208.3990
HRC (prime quality) of a thickness of less than 3 mm. CRC (prime quality) of a thickness exceeding 1mm but less than 3 mm. CRC (prime quality) of a thickness of 0.5 mm or more but not exceeding 1 mm. i)
7209.1690
7209.1790
Import of bars and rods (Heading 7227.9000) used in manufacturing of welded steel pipes would now be subject to concessionary duty of 5 per cent.
j) Import of raw materials used in the manufacturing of CNG compressors subject to concessionary rate of 0 per cent have been substituted and now following items will be subject to concessionary duty of 0 per cent:
Description
Bearings Geared pump Valves Forced feed lubricator pump Pressure and temperature gauges Water flow switch Electric motor Junction box, Glands Oil filter assembly Flexible pressure hoses Flexible water hoses (SS braided) SS Tubes/ Pipes Aluminum bars 6082, 7075, T-6 Connecting rods forged 8.5 Kg Pistons pins, Rods and Rings
PCT Heading
8482.2000 8413.8110 8481.3000 8413.8190 9026.2000 9026.1000 8501.5290 8536.3000 8414.9090 4009.2190 4009.1190 7304.4100 7604.2910 8414.9090 8414.9090 & 8482.4000 & 8481.4000
& 8501.5310
& 7306.9000
k) Import of mirror backing paint (Heading 3208.1010) and cullet and other waste etc used in glass manufacturing would now be subject to concessionary rate of 10 per cent and 5 per cent respectively. l) Import of Sabotul (Heading 3814.000) used in the manufacturing of Butyl Acetate would now be subject to concessionary rate of 5 per cent.
Removal of concessionary duty

Concessionary duty of 5 per cent on import of Hot Rolled Steel Sheets (Heading 7208.3690) used in the manufacturing of washing machine has been removed.

Concessionary Regime For Pharmaceutical Industry
SROs 476(I)/2011 & SRO 567(I)/2006 dated June 5, 2006 This SRO is effective from June 4, 2011 and provides exemptions from Custom Duty, to the extent provided therein, on import of raw materials, sub-components, components, subassemblies and assemblies used for manufacture of specified non-survey based goods. So concessionary rate of duty of 5 per cent will now also be applicable on the following active pharmaceutical ingredients:
Description
Fexofenadine Ebastine Isoniazid Omeprazole Pellets Sparfloxacin Amiloride HCL Candesartan Cilextle Pheneramine Maleate Pioglitazone HCL Glibenclamide Thiocolchicoside Hydrochlorothiazide Roxithromycin Clarithromycine Granules Ceftriaxone Cefotaxime D-Cycloserine Acrinol Pad Benzalkonium chloride pad (BKC) Losartan Potassium Chondrotin Sulphate Polyethylene Film
PCT Heading
2933.3990 2933.3990 2933.3990 2933.3990 2933.5990 2933.9990 2933.9990 2933.9990 2934.1090 2935.0090 2935.0090 2935.0090 2941.5000 2941.5000 2941.9090 2941.9090 2941.9090 3005.9010 3005.9090 3824.9099 3913.9090 3920.9900
The rate of duty on following drugs has been reduced to 0 per cent:
Description
Tetanous toxide Prevention of hepatitis B
PCT Heading
3002.2010 3002.2020
The above concessionary duty rates have been prescribed for pharmaceutical raw materials, chemicals, and finished products approved by the Ministry of Health. Pharmaceutical raw materials, chemicals and packing materials are only eligible for concessions, if imported for in-house use in the manufacture of specified pharmaceutical substances
Concessionary Rate on Import of Capital Goods by E and P Companies
SRO 478(I)/2011 and Amended SRO 678(I)/2004 dated 07 August 2004 Before the amendment, the import of goods as mentioned in clauses 1 and 2 of SRO 678 were exempted from customs duty in excess of 15% ad valorem on X-mas trees, well head and integral components and parts thereof. After the amendment the exemption from customs duty is available in excess of 10% ad valorem to the aforesaid goods.

Elimination of Regulatory Duty

SROs 479(I)/2009 & SRO 482(I)/2009] (I)/2009 dated 13 June 2009(SRO 482) This SRO effective from June 4, 2011. The Government levied regulatory duty on 397 items, which has now been reduced to 60 items. The significant categories of these items subject to regulatory duty are related to the following industries: a) b) c) d) Tobacco Ceramics Automobile Arms & Ammunition
The regulatory duty has been withdrawn on the specified items of the following categories/ industries by way of amendment made in SRO 482: a. b. c. d. e. f. g. h. i. Dairy Food and beverages Fruit, meat and vegetables Cooked food Cosmetics Marble and granites Consumer products Electrical and home appliances Furniture

SCHEDULE
Tariff Rationalization
New PCT Codes have been introduced for the followings: -
Description
Copper waste and scrap - Brass scrap - Other - Bars - Of copper-zonc base alloys (brass) Tanks and other armored fighting vehicles, motorized, whether or not fitted with weapons, and parts of such vehicles - Armored cash carrying vehicles - Other
PCT Heading
Rate of Customs Duty
7404.0010 7404.0090 7407.1010 7407.2100
0% 0% 5% 5%
8710.0010 8710.0090
20% 20%
Tariff correction has also been made to remove ambiguity for the machinery exported outside Pakistan and re-imported into Pakistan.

Capital Value Tax

The Finance Act, 1989 (the FA) introduced for the first time a tax on the capital value of assets referred to as the CVT. Presently, CVT is leviable on the following : Purchase / import of motor vehicle not previously used in Pakistan; and Purchase of modaraba certificates and instruments of redeemable capital by a resident person.
The Bill proposes to withdraw the levy of CVT on purchase of modaraba certificates and instruments of redeemable capital listed on any registered stock exchange(s) in Pakistan. Consequentially, the Bill also seeks to withdraw the powers granted to the registered stock exchange(s) for collecting CVT on such certificates and instruments.

NOTES

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NOTES

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NOTES

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Budget 1011-12

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BUDGET MEMORANDUM 2011-12

BUDGET MEMORANDUM 2011-12

AAA FIN SOL (PVT) LIMITED

Fasialabad June 04, 2011

BUDGET MEMORANDUM 2011-12 TABLE OF CONTENTS

AAA FIN SOL (PVT) LIMITED

BUDGET MEMORANDUM 2011-12

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FINANCE BILL HIGHLIGHTS

BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

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SALES TAX ACT 1990

BUDGET MEMORANDUM 2011-12

AAA FIN SOL (PVT) LIMITED

FEDERAL EXCISE ACT 2005

BUDGET MEMORANDUM 2011-12

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CUSTOMS ACT 1969

Capital Value Tax

BUDGET MEMORANDUM 2011-12

AAA FIN SOL (PVT) LIMITED

INCOME TAX ORDINANCE 2001

BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

AAA FIN SOL (PVT) LIMITED

BUDGET MEMORANDUM 2011-12

AAA FIN SOL (PVT) LIMITED

BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

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Non-Salaried Taxpayers (Individual)

BUDGET MEMORANDUM 2011-12

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2011 2012 2013 2014 2015 2016

Individuals and Association of Persons

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BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

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BUDGET MEMORANDUM 2011-12

AAA FIN SOL (PVT) LIMITED

SALES TAX ACT, 1990