Budget Commentary

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants
BUDGET BRIEF 2011
TABLE OF CONTENTS
S. No.
1. 2. 3. 4. 5. 6. Preamble Budget at a Glance
Description
Page No.
1 2 3 49 10 14 15 31
Salient features of Budget 2011-12
Economic Performance of Pakistan 2010-11 Budget Highlights Amendments proposed through Finance Bill, 2011 to the Income Tax Ordinance, 2001 Amendments proposed through Finance Bill, 2011 to the Sales Tax Act, 1990 Amendments proposed through Finance Bill, 2011 to the Federal Excise Act, 2005 Amendments proposed through Finance Bill, 2011 to the Customs Act, 1969
7.
32 39
8.
40 44
9.
45 50
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Budget Brief 2011
PREAMBLE
This Budget Brief 2011 highlights the overview of Pakistans economy and the budgetary proposals contained in the Finance Bill 2011, tabled in the Parliament by the Minister of Finance and Economic Affairs on June 03, 2011. The purpose of this Budget Brief 2011 is to provide a general guidance to the readers about the important changes proposed in the relevant statute, through the Bill, and fiscal implications thereof. The provisions of the Finance Bill, 2011 are subject to the passage of the bill by the parliament and are generally effective from July 01, 2011 or with immediate effect where notified. This Brief focuses mainly on the fiscal measures and illustrative depiction of significant amendments proposed in the Income Tax, Sales Tax, Federal Excise, and other related laws proposed through Finance Bill 2011. The main objective of this Brief is to provide a synopsis of significant changes in the fiscal and other laws, and with a view to keep our clients and staff up to date. Therefore users of this brief are advised to seek professional consultancy before exercising and applying any legal provision or adopting any other provision contained in the Brief. It is clarified that the firm owns no responsibility for the consequences of any action taken by any one on the basis of this brief.
Karachi. Dated: June 05, 2011
Budget Brief 2011
Page 1
BUDGET AT A GLANCE 2011-12

R e ve nue B ank borrowings E x ternal res ourc es E s timated provinc ial s urplus Net c apital rec eipts Net revenue rec eipts R s in billion 303.52 413.93 124.88 395.65 1528.83 % E x pe nditure s R s in billion %
11% De ve lopm e nt e x pe nditure s 15% O ther development ex penditures 5% Development loans and grants to provinc es 14% Development ex penditures 55% C urre nt E x pe nditure s G eneral public s ervic es Defenc e affairs and s ervic es P ublic order s afety affairs E c onomic affairs E duc ation affairs s ervic es O thers 1,660.09 495.26 59.49 50.36 39.57 10.24 60% 18% 2% 2% 1% 97.12 54.78 299.92 4% 2% 11%
2766.81 100%
2,766.81 100%
R e ve nue R e sourc e s
E x penditures
% 2% 2% 1
4%
2% 1% 1
1% 1
1 8%
1 5%
55%
5%
1 4%
60%
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SALIENT FEATURES OF BUDGET 2011-12

The total outlay budget 2011-12 is Rs. 2,767 billion. This size is 14.2 percent higher than the size of budget estimates 2010-11. The resource availability during 2011-12 has been estimated at Rs.2,463 billion against Rs.2,256 billion in the budget estimates of 2010-11. Net revenue receipts for 2011-12 have been estimated at Rs.1,529 billion, indicating an increase of 11 percent over the budget estimates of 2010-11 . The provincial share in federal revenue receipts is estimated at Rs.1,203 billion during 2011-12 which is 16.4 percent higher over the budget estimates of 2010-11 The capital receipts (net) for 2011-12 have been estimated at Rs.396 billion against the budget estimates of Rs.325 billion in 2010-11 indicating an increase of 11 percent. The external receipts in 2011-12 are estimated at Rs.414 billion. This shows a increase of 7.1 percent over the budget estimates for year 2010-11. The overall expenditure during 2011-12 has been estimated at Rs.2,767 billion of which the current expenditure is Rs.2,315 billion and development expenditure at Rs.452 billion. Current expenditures show an increase of less than 1% over the revised estimates of 2010-11, while development expenditure will increase by 64.4 percent in 2011-12 over the revised estimates of 2010-11. The share of current expenditure in total budgetary outlay for 2011-12 is 83.7 percent as compared to 89.7 percent in revised estimates for 2010-11. The expenditure on General Public Service (inclusive of debt servicing transfer payments and superannuation allowance) is estimated at Rs.1,660 billion, which is 71.1 percent of the current expenditure. The size of Public Sector Development Programme (PSDP) for 2011-12 is Rs.730 billion while for other development expenditure an amount of Rs.97 billion has been allocated. The PSDP shows an increase of 58 percent over the revised estimates of 2010-11. The provinces have been allocated an amount of Rs.430 billion for budget estimates 2011-12 in their PSDP as against Rs.373 billion in 2010-11. An amount of Rs. 10 billion has been allocated to Earthquake Reconstruction and Rehabilitation Authority (ERRA) in the PSDP 2011-12.
Budget Brief 2011
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ECONOMIC PERFORMANCE OF PAKISTAN 2010-11

Introduction Pakistan's economy during the year affected not just by the global economic crisis but also by the declining security situation, energy crisis, floods and intensification of conflict linked to terrorism. Major macroeconomic indicators; Gross domestic product, fiscal balance, investments and savings, inflation and employment, have shown poor performance of our economy. An alarming factor that pulled down economic growth to 2.4 percent during the current fiscal year had been the persisting energy crises and flood. On the macroeconomic front the Consumer Price Index (CPI) increased by13.2 percent on year on year basis (Y-o-Y) in May 2011. The cumulative increase in July-May 2010-2011 is 14 percent as against 11.6 percent in comparative period of last year. Fiscal deficit is likely to reach 5.7 percent against a 4 percent target fiscal year 2010-11. Overall investment declined by 4.5 percent from 17.9 percent last year to 13.4 percent in 201011 due to high cost of borrowings as State Bank of Pakistan maintain a high rate of interest in an effort to control inflation. Domestic saving declined from 14.5 percent last year to 9.5 percent this year. Foreign direct investment declined to US$ 1,232 million during July-April 2010-11 as against US$ 1,725 million last year, thereby showing a decline of 29 percent. Pakistans greatest asset is its human resources on which progress and prosperity of the country largely depends. The unemployment however recorded increase from 5.5 percent to 5.6 percent in 2010-11. One bright feature of the first ten months (July-April) is the strength of the external sector. Phenomenal increase in remittances and robust growth in exports owing to sharp increase in the prices of cotton overshadowed the strong growth in imports, thereby generating the current account surplus of US$ 748 million or 0.3 percent of GDP. Overall external account has also shown improvement even when capital and current account receipts have continued to fall in this period. Exports growth of 28 percent in first ten months of the year compare to same period last year. Exports crossing the US$ 20 billion for the first time, exports are set to exceed US$ 24 billion mainly due to export of raw cotton and yarn owing to favorable world market prices. Remittances have also recorded a strong performance by crossing the double digit mark and are set to reach the historical level of more than US$ 11.2 billion. The factors that threatened our economy are both domestic and global, contributing to uncertainty and inadequate focus on structural weakness in key sectors such as energy, agriculture and exports, high food and core inflation and increasing sense of deprivation in lower income groups. The sustainability of Pakistans economy in future and realization of its real growth potential would largely depend on proper long term planning and making required investments in key sectors like water and power over the next decade to bring it at par with the economies of neighboring states. Budget Brief 2011 Page 4
GNP and GDP growth (percentage)

18 16 14 12 10 8 6 4 2 0
7.5
8.6 6.6 8.3 6.8 5.8 6.1 2007-08 2 2.6 2008-09 GDP GNP 4.1 2009-10
7.3
6.4 2005-06
6.7 2006-07
2.4 2010-11
2003-04
2004-05
Gross Domestic Product The gross domestic product was restricted to 2.4 percent as against 4.5 percent due to mainly devastating floods and an ongoing energy crises. Agriculture sector was projected to grow by 1.2 percent against the target of 3.8 percent while the manufacturing growth was negligible 1.7 percent due to severe power and gas shortages. The service sector rose by 4.1 percent, with the wholesale and retail trade activities clearly the leader. The target for next year is for 4.2%. Fiscal Developments Pakistans economy mainly remained immune to global financial crisis because of its lesser exposure to international finance. Loss of growth momentum in the wake of high commodity prices, coupled with the peculiar law and security situation, and power outages has aggravated threats to macroeconomic stability. Intensification of war on terror put additional burden on public finances at a time when weaker domestic economic activity is taking its toll on revenue mobilization efforts. Fiscal balance deteriorated in 2009-10, and some adjustment is expected in fiscal deficit but it is far off than target. The FBR revenue collection for the fiscal year 2010-11 was targeted at Rs.1,667 billion. Consequently the target was downward revised to Rs. 1,588 billion. Despite unfavorable economic conditions, FBR exhibited reasonable performance during first nine months for current fiscal year. Revenue collection of FBR stood at Rs. 1,156 billion during July-April 2010-11, thereby reflecting 12.6 percent growth over Rs 1,026.5 billion collected during the corresponding period of last year. The FBR tax collection to GDP ratio is likely to be around 9.2 percent of GDP. This is compose of indirect tax to GDP ratio at around 5.6 percent and direct tax to GDP at around 3.6 percent during 2010-11. An impressive growth was achieved in direct taxes in the first ten months as its collection stood at Rs. 460.30 billion in July-April period of 2010-11 compared with Rs. 430.4 billion in the same period of the previous year, registering a growth by 6.9 percent.
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The collection of sales tax was Rs. 482.50 billion in the first ten months of the current fiscal year compared with Rs. 417.30 billion in the same period of the previous year, showing a growth of 15.6 per cent. The collection of federal excise duty achieved only a three percent growth as its collection was Rs.101.90 billion in the first ten months of the current fiscal compared with Rs.95.20 billion in the same period of the previous fiscal year, showing a growth of 7 percent. The tax collection under the head of customs duty was Rs.141.60 billion in the first ten months of 2010-11 against Rs.125.70 billion in the same period of the previous financial year, registering a growth of 12.6 percent. For the FY 2011-12 and onwards, government is intended for adoption of a R-GST/VAT for long run increase in the overall tax-to-GDP ratio of about 3-5 percent. For Pakistan, R-GST/VAT is envisaged to be a key structural reform in documenting the economy, broadening of the tax base and improving the overall efficiency of the tax system. The proposed Federal Reformed GST (RGST) Bill was tabled in the National Assembly and provincial R-GST bills were also tabled in the provincial assemblies. It has been recommended by the Senate and National Assemblies Standing Committees. Extensive negotiations are underway to develop a consensus with the political parties, the provinces as well as the major stakeholders to ensure smooth implementation of R-GST.
2009-10 Jul-Apr
2010-11 Jul-Apr
Direct taxes 38%
Sales tax 41%
Direct taxes 37%
Sales tax 42%
Federal excise duty 9%
Custom duty 12%
Federal excise duty 9%
Custom duty 12%
Inflation During the current fiscal year 2010-11 and upward trend persisted in all indices used to measure various kind of inflation. Consumer price index (CPI) inflation average at 14.1 percent, Wholesale price index (WPI) 23.3 percent and Sensitive Price indicator (SPI) inflation increase at 18.2 percent for Jul-Apr 2010-11 which is higher than the corresponding period of last year. The reasons for the increasing inflation during the current fiscal year are;

Increase in the International oil prices. Spikes in textile products prices. Shortage of key consumer items in the market. ITEM A B C PRICE INDEX CPI WPI SPI July April 2009-10 11.5% 11.3% 12.4%
2010-11 14.1% 23.3% 18.2%
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Monetary Policy The State bank of Pakistan (SBP) kept its tight monetary policy stance for sometime. The SBP has raised the policy rate 150 basis points (bps), staggered in three stages of 50 bps each, since July-2010. During July 01, 2010-May 21, 2011, money supply (M2) expanded by 11.7 percent against last years expansion of 8.9 percent in comparable period of last year. The reserve money expanded at much faster pace 17.1 percent against the expansion of 13.6 percent in the comparable period of last year. The government borrowing for budgetary support has recorded an increase of Rs.614.2 billion as compare to Rs.397.6 billion in the comparable period of last year. The SBP financing has shown net increase of Rs.146.8 billion and financing from schedule banks witnessed a net increase of Rs.467.4 billion during July 01, 2010-May 21, 2011. Credit to private sector witnessed a net increase of Rs.112.9 billion during July 01, 2010-May 21, 2011 as compare to Rs.115.5 billion in the comparable period of last year. Industry-wise economic performance The economic data indicates GDP growth of 2.4%, the Government has expected 4.5% economic growth for the current fiscal year, the large-scale manufacturing has contributed in the overall growth in the GDP, with a 1.7% growth during the current fiscal year. The services sector has grew by 4.1% during the current fiscal year. However, agriculture sector recorded modest growth of 1.2 percent in 2010-11 but provided much needed support to boost exports, revival of manufacturing sector and responsible for upbeat in the consumption. Given the enormous price inducement, the agriculture sector is likely to spearhead economic growth in the next fiscal year as well.
Sector wise Growth Performance (%)

2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11*
GDP Agriculture Large scale Manufacturing Services *Provisional
9.0 6.5 19.9 8.5
5.8 6.3 8.3 6.5
6.8 4.1 8.7 7.0
4.1 1.1 4.0 6.6
2.0 4.7 -3.7 3.6
4.1 3.9 4.4 4.6
2.4 1.2 1.7 4.1
Public Debt Pakistans domestic debt stood at Rs 5462.2 billion at end-March 2011 which employs net addition of Rs.803.9 billion in the nine months of the current fiscal year. In relation to GDP the domestic debt stood at 30.2 percent of GDP which is lower than end of June 2010 level at 31.4 percent. The domestic debt grew by 17.3 percent which is lower than the last years growth of 20.7 percent.
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Trade Deficit The trade deficit has improved and declined from US$ 12.3 billion to US$ 12.1 billion in Jul-Apr 2010-11. Substantial increase of 27.8 percent in exports otherwise buoyant 14.7 percent in import, which cause the trade deficit to improve by 2.2 percent Current account balance shrank by 121.6 percent in the first ten months of Jul-Apr 2010-11. The current account balance turned to surplus US$748 million from deficit of US$3,456 million in the comparable period of last year. Pak Rupee Value Exchange Rate remained more or less stable as rupee depreciated by just 2.2 percent in Jul-Apr 2010-11, however Real Effective Exchange Rate (REER) appreciated by 0.8 percent in the period. Workers Remittances Workers remittances reach record US$ 9.1 billion mark in first ten months Jul-Apr 2010-11 as against US$ 7.3 billion in the comparable period of last year, depicting an increase of 23.8 percent. Foreign Exchange Reserves Pakistan was able to rebuild foreign exchange reserves, which amounted to US$17.1 billion by the end of April 2011. Of this amount reserves held by the SBP stood at US$ 13.7 billion and by banks stood at US$ 3.4 billion. Conclusion The economic performance of 2.4 percent growth in GDP in the year 2010-11 was marred by energy crisis and floods that erased 2.1 percent from the gross domestic product. Our GDP growth recorded at 2.4 percent due to poor performance of agriculture and manufacturing sectors and required measures are yet to be taken to improve energy sectors like Thar coal, nuclear power plant, to generate energy. Despite the deficit budget to grow economy, fiscal deficit exceeded 1.7 percent by target of 4 percent which increased the aggregate demand and put inflationary pressures on our economy and the SBP increased discount rate by 150 basis points in three stages in the current fiscal year to control inflation, that affected the investment activities and business activities. The tax to GDP ration is 9.2 percent of which is 5.6 percent related to indirect tax and 3.6 percent related to direct tax. This shows that government had taken the easy measures to increase tax revenue rather than to broaden the tax base, this adversely affects on consumer prices index. Although government announced 1 percent reduction in sales tax but 16 percent sales tax is still very high. The economic stabilization of program includes measures like : Broadening of tax base through reformed GST and other tax measures; Elimination of subsidies especially the power sector subsidies;
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Amendment in SBP Act to place limit on government borrowing from SBP; Direct cash grants to poorest of the poor through Benazir Income Support Program (BISP) and Watan card scheme for flood affected people; Restructuring of public sector enterprises; Power sector reforms; Debt management strategy; Tight monetary policy to check inflation; Building the foreign exchange reserves; Promoting export; Incentivising the home remittance. The ailing economy deserves a concerted effort to address all the issues that have contributed to a dismal growth rate of 2.4% which is the third time it has dipped to such low level in last 12 years. While it is important to broaden tax base and control budget deficit and inflationary pressure, these could remain unachievable unless long term goals of sustainable growths are not envisaged and each sector of the economy in particular the agriculture and large scale manufacturing are boosted towards growth most important obstacle is the energy crises and the war on terror and the law and order situation in the country that have together bedridden the economy and taken the wind out of its sails. A visionary and farsighted approach is at least needed to identify the irritants so as to plan accordingly for the recovery of the economy and putting it back on track.
It is hoped that the Government will do its utmost to address the problems faced by the economy and is able to provide the people of Pakistan employment, security of life and property and basic amenities.
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BUDGET HIGHLIGHTS 2011-2012 HIGHLIGHTS OF AMENDMENTS PROPOSED THROUGH FINANCE BILL 2011 TO THE INCOME TAX ORDINANCE, 2001
Basic exemption limit for salaried and individual taxpayers is proposed to be enhanced from Rs.300,000/- to Rs.350,000/-. Limit for filing Wealth Statement with Reconciliation increased from Rs. 500,000/- to Rs. 1,000,000/A member of AOP shall furnish Wealth Statement with Reconciliation if his share (before tax) for the year is Rs. 1,000,000/- or more. Advance tax on capital gain on sale of securities to be payable on 21st day of following month after closure of quarter. No Appeal shall lie against provisional assessment order u/s 122(C). Single bench of Tribunal shall dispose-off all cases involving tax and penalty not exceeding Rs.1,000,000/The Tribunal instead of dismissing has to decide appeal on the basis of available record in the event of failure to attend hearing on the due date by any party Waiver of profit on debt pursuant to circulars or any scheme of SBP or waiver of debt to be treated as income from business as benefit derived by a taxpayer. A tax credit equal to 100% of tax payable is proposed on or after 1st July 2011, with 100% equity financing to give incentive to new industrial undertakings established under corporate sector, the existing companies may also take benefit under this arrangement if investment in BMR is financed through their own 100% equity on or after 1st July 2011. The rate of withholding tax on cash withdrawals from Banks reduced from 0.3% to 0.2%. Tax credit is allowed on premium paid to Insurance Company. Tax credit enhanced from 5% to 15% to a public company enlisted on stock exchanges. Withholding agent required mandatory to furnish NTN and CNIC of recipient by filing withholding tax statement. Commercial and Industrial consumers of electricity with annual billing above one million rupees proposed to file Return of Income. In order to discourage the practice of arbitrage by banks for receiving dividends from Asset Management Companies, the rate of tax on such return enhanced from 10% to 20%. Page 10
Budget Brief 2011
Withholding tax of 10% on profit on debts on Government Securities is treated as full and final tax in the hands of individual and AOP. CVT @ 0.01% on quoted Modaraba certificates and instruments of redeemable capital withdrawn since these securities brought under the tax regime of capital gain. The scope of unexplained income enlarged to include suppression of any production, sales or any amount chargeable to tax or any item or receipt liable to tax. Payment of minimum tax over and above normal tax liability to be carried forward from three to five tax years. Withholding tax on sale of goods is treated final tax except, manufacturer being a company and public company listed on a Registered Stock Exchange. Withholding tax on rendering or providing of services irrespective of any status is treated as minimum tax. Withholding tax on providing of specified service to exporters treated as final tax. Withholding tax on contract treated as final tax except payment received by a public company listed on registered Stock Exchange in Pakistan. Collection of advance tax on purchase of domestic air ticket would not apply to Federal or a Provincial Government and persons producing certificate from Commissioner that whose income of such person is exempt from tax during that tax year.
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HIGHLIGHTS OF AMENDMENTS PROPOSED THROUGH FINANCE BILL 2011 TO THE SALES TAX ACT, 1990
Standard rate of Sales Tax slashed by 1 percent and reduced from 17 percent to 16 percent of the value of taxable supplies and services. Fifteen new items brought under the sales tax act which include the following: computer software; surgical tapes; ultra sound gel; diapers for adult patients; bricks, building blocks of cement including ready mix concrete blocks; ambulances; fire fighting vehicles, waste disposal trucks, break down lorries; special purpose vehicles for the maintenance of street lights; and overhead cables.
Sales tax exemption withdrawn on the following items: air craft; ships of gross tonnage exceeding 15 LDTs, excluding those for recreational or pleasure purpose; spare parts and equipments for aircraft and ships; equipment and machinery for pilotage, salvage or towage for use in ports or airports; equipment and machinery for air navigation; equipment and machinery used for services provided for handling of ships or aircrafts in a customs port or airport; and import and supply of fully dedicated CNG Euro-2 buses whether in CBU or CKD condition.
Increase in rate of value addition tax to 3 percent from 2 percent of the value of goods on commercial imports at import stage White crystallized sugar continue to be subject to indirect tax at the rate of 8 percent of value of supplies by way of excise to be collected and paid as a sales tax. Full adjustment of sales tax paid on import or local purchase of capital goods restored in the tax period in which addition is made. Previously it was permitted to be claimed over twelve months in installment.
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HIGHLIGHTS OF AMENDMENTS PROPOSED THROUGH FINANCE BILL 2011 TO THE FEDERAL EXCISE ACT, 2005
Fifteen items exempted from federal excise duty (FED) in the range of 5 to 16 percent. Such items include: solvent oil (noncomposite); other fuel oils; mineral greases; transformer oil; other mineral oil excluding sewing machine oil; waste oil; carbon black oil (carbon black feedstock) including residue carbon oil; methyl tertiary butyl ether (MBTE); greases; and viscose staple fiber
FED on aerated beverages reduced from 12 percent to 6 percent advalarem. Services provided by property developers or promoters exempted from FED. Local supply of reclaimed lead to recognized manufacturers of lead batteries exempted from FED.
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HIGHLIGHTS OF AMENDMENTS PROPOSED THROUGH FINANCE BILL 2011 TO THE CUSTOMS ACT, 1969
Regulatory duty imposed at varying rates between 10 to 25 percent advalorem in June 2009 to indirectly tax 397 imported edible and luxury items consumed by affluent class now withdrawn. Now only 60 items subjected to regulatory duty at the rate 15 percent that includes beetle nuts, cigarettes, luxury tiles, bathrooms items etc and at the rate 50 percent on luxury vehicles of 1800 CC and above, arms and ammunitions etc. Regulatory duty concession for establishing wholesale or retail chain stores on a number of items importable under various PCT codes in terms of SRO 482 (1) 2009 dated 13-062009 subject to fulfillment of certain conditions have been withdrawn. Import of these items by existing or new wholesale and retail chain stores would be subject to regulatory duty of 15 percent at import stage (4-06-2011) Custom duty reduced to 5 percent advalorem on 47 active pharmaceutical ingredients to assist in reducing raw materials cost for manufacturing commonly used pharmaceutical products so as to provide relief to common man. Cut duty to zero per cent from 5 and 15 per cent on import of 15 components used in CNG compressors Reduction of duty to 5 per cent from 20 per cent on sabutol used in butyl acetate industry Reduction of duty to 10 percent from 20 percent on mirror baking paint Reduction of duty from 10 per cent to 5 per cent on waste scrap of glass Customs duty concession announced for oil exploration companies raw material of audio cassettes Duty incentive for high tech car audio manufacturing Tariff rationalization on bars, rods and profiles of refined copper and copper alloys.
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AMENDMENTS PROPOSED THROUGH FINANCE BILL 2011 TO THE INCOME TAX ORDINANCE, 2001
Section 2(5) Definition of assessment: The existing provision assessment includes re-assessment and amended assessment and the cognate expression shall be construed accordingly. The Bill proposes to include provisional reassessment in the definition of assessment.
Section 2(11C) Definition of collective investment scheme: The Bill proposes to introduce new definition. It is provided that definition of collective investment scheme shall have the same meaning as are assigned under the Non Banking Finance Companies (Establishment and Regulation) Rules, 2003. Section 18C(1)(d) Income from business: Section 18(1)(d) briefly provides that the fair value of any benefit or perquisite whether convertible into money or not derived by a person in the course of past, present or prospective business relationship to be income from business. The Bill proposes to insert explanation to clause (d) of sub section (1) of section 18 to make it contingent that the word benefit would include 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 the State Bank of Pakistan.
Section 62 Tax credit for investment in shares and insurance: Existing provision provides an incentive of tax credit for every person except company for making investment in new public offering shares on Stock Exchange or acquisition of shares from Privatization Commission of Pakistan as original allottee. Finance Bill proposes to re-draft and also to allow tax credit on insurance premium; (1) A resident person other than a company shall be entitled to a tax credit for a tax year either: (i) in respect of the cost of acquiring in the year new shares offered to the public by a public company listed on a stock exchange in Pakistan provided the resident person is the original allottee of the shares or the shares are acquired from the Privatization Commission of Pakistan; or in respect of any life insurance premium paid on a policy to a life insurance company registered by the Securities and Exchange Commission of Pakistan under the Insurance Ordinance, 2000 (XXXIX of 2000), provided the resident person is deriving income chargeable to tax under the head salary or income from business..
(ii)
(2)
The amount of a persons tax credit allowed under Sub-section (1) for a tax year shall be computed according to the following formula, namely: Page 15
Budget Brief 2011
(A/B) x C where A B is the amount of tax assessed to the person for the tax year before allowance of any tax credit under this Part; is the persons taxable income for the tax year; and C is the lesser of (a) the total cost of acquiring the shares, or the total contribution or premium paid by the person referred to in sub-section (1) in the year; fifteen per cent of the persons taxable income for the year; or five hundred thousand rupees.
(b) (c) (3) Where (a) (b)
a person has been allowed a tax credit under sub-section (1) in a tax year in respect of the purchase of a share; and the person has made a disposal of the share within thirty six months of the date of acquisition, the amount of tax payable by the person for the tax year in which the shares were disposed of shall be increased by the amount of the credit allowed.
Section 63 Tax credit for contribution to an approved Pension Fund: Tax credit on contribution to an approved Pension Fund was introduced through Finance Act, 2005. Briefly it provides that an individual Pakistani holds a valid NTN or CNIC or CNIC for overseas Pakistani being eligible persons for the purpose of Voluntary Pension System Rules 2005 shall be entitled to take tax credit against income deriving from salary or business for a tax year for any contribution or premium paid in approved pension fund. The tax credit is allowable on the basis of following formula:
Tax assessed X Lesser of actual contribution or 20% of the taxable income or Rs.500,000 Taxable income
The Bill proposes to delete barrier limit of Rs.500,000.
Section 65C Tax credit for Enlistment: The existing provision briefly envisages where a company opt for enlistment in any registered Stock Exchange in Pakistan, it will be allowed a tax credit of 5% out of tax payable in that tax year in which company is enlisted. The Bill proposes to enhance limit of tax credit from 5% to 15% in Tax Year of enlistment.
Section 65D Tax credit for Equity investment: The Bill proposes to allow tax credit for 100% equity investment for a company:
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(1)
Where a taxpayer being a company: (a) (b) establishes a new industrial undertaking for manufacturing in Pakistan; or invests any amount in the purchase and installation of plant and machinery, for the purposes 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, with hundred percent equity owned by it, a tax credit equal to hundred per cent of the tax payable shall be allowed to such company on or after first day of July,2011, for a period of five years or commencement of commercial production, whichever is later.
(2)
Where any credit is allowed under this section and subsequently it is discovered, on the basis of documents or otherwise, by the Commissioner Inland Revenue that any of the condition specified in this section was not fulfilled, the credit originally allowed shall be deemed to have been wrongly allowed and the Commissioner Inland Revenue may, notwithstanding anything contained in this Ordinance, re-compute the tax payable by the taxpayer for the relevant year and the provisions of this Ordinance shall, so far as may be, apply accordingly.
Section 111 Unexplained income or assets: Briefly this provision states that where a person (i) could not offer satisfactory explanation and (ii) the offered explanation is found unsatisfactory by the Commissioner, regarding (a) any credit entry is found unexplained in the Books of Account; (b) any investment is found to have been made from unexplained sources; and (c) any expenditure found to have been incurred out of undisclosed sources, the Revenue Authority is empowered to bring them into tax net. The Bill proposes to enlarge the scope of unexplained income or assets to include concealed income or furnished inaccurate particulars of income including: (i) (ii) suppression of any production, sales or any amount chargeable to tax; or suppression of any item of receipt liable to tax in whole or in part.
Section 113 Minimum tax on income of certain persons: The provision of minimum tax briefly enlightens that where, no tax is payable or paid for a tax year for any reason including sustaining of losses, setting-off of losses of earlier years, exemption from tax in a year or due to claiming tax credits, rebates, allowances or deductions a minimum tax @ 1% shall be imposed to a resident company, an individual (having turnover of Rs.50 million or above) and an AOP (having turnover of Rs.50 million or above) on their turnover (exclusive of Sales Tax and Federal Excise Duty or any trade discounts shown on invoices or bills), derived from the sale of goods of the turnover from all sources for that year. In case of a taxpayer earns profit and pays minimum tax @ 1% which appears more than normal tax liability due with the rates prescribed under First Schedule for individual, AOP or company as the case may be, in such circumstances such taxpayer is entitled to carry forward excess payment of tax for succeeding 3 tax years to get it set off such residual excess tax against future tax liability that would be payable under normal.
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The Bill proposes to enhance the period of carry forward of period from three to five tax years and also the scope of turnover by inserting gross sale togetherwith gross receipts meaning thereby that minimum tax proposes to work out on accrued sales.
Section 113B Taxation of income of certain retailers: Section 113B briefly provides regarding taxation on retailers in the capacity of individual and AOP whose turnover ranging between Rs.5 million to Rs.10 million. Such persons are subject to payment of sales tax under special procedure as laid down under ChapterIII of the Sales Tax Special Procedure Rules, 2006. On Rs.5 million tax is payable at Rs.25,000. Where turnover exceeds Rs.5 million but does not exceed Rs.10 million the tax is payable Rs.25,000 on first Rs.5 million and 0.5% of turnover exceeding Rs.5 million. In case turnover exceeds Rs.10 million the tax payable is Rs.50,000 and 0.75% of turnover exceeding Rs.10 million. The Bill proposes to substitute applicable procedural law i.e. Chapter-II of the Sales Tax Special Procedures Rules, 2007 in place of redundant Chapter-III of the Sales Tax Special Procedure Rules, 2006.
Section 114 Return of Income: Section 114 provides about scope and criteria of filing of Return of Income. The Bill proposes to enlarge the scope for filing Return of Income for a tax year to include the holder of commercial or industrial connection of electricity where the amount of annual bill exceeds rupees one million. The Bill also proposes to insert sub section (1A) to make an individual to file Return mandatory for every individual whose income under the head Income from business exceeds rupees three hundred thousand but does not exceed rupees three hundred and fifty thousand in a tax year is required to furnish return of income for the tax year. Moreover, the Bill also proposes to enclose evidence of payment of tax due with Return and also Wealth Statement.
Section 115 Filing of statement in lieu of Return of Income: Section 151 Profit on debts: Section 169 Tax collected or deducted as final tax: Briefly section 151 regarding withholding tax on profit on any security by the Federal Government, a Provincial Government or a Local Government other than withholding tax on deposit or certificate under National Saving Schemes or Post Officer Saving Account was adjustable advance tax in the hands of every taxpayer other than a company. The Finance Bill proposes to enlarge the scope of the regime of final taxation. Now withholding tax on treasury bills by an individual and an AOP to be taxed under final tax regime (except a company). Corresponding changes regarding filing of statement of final taxation and tax treatment of advance tax on such transaction is also made in respective sections.
Section 116 Wealth Statement: Briefly this section provides for filing of Wealth Statement and Reconciliation where income of a resident taxpayer for the last assessed or declared or for the year is Rs. 500,000/- or more. It is mandatory in case of provisional assessment u/s 122C. In case of
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FTR filing statement u/s 115(4) the taxpayer is required to furnish Wealth Statement and Reconciliation where tax paid is amounted to Rs. 35,000/- or more for the year. Finance Bill proposes to enhance limit for filing Wealth statement and Reconciliation from Rs. 500,000/- to Rs.1,000,000/-. Every member of AOP shall furnish Wealth Statement with Reconciliation if his share ( before tax ) for the year is Rs. 1,000,000/- or more. Moreover in case of response of provisional assessment order u/s 122, every individual and member of AOP has to mandatory furnish Wealth Statement and Reconciliation along with source of acquisition of assets.
Section 127 Appeal before Commissioner (Appeals): Bill proposes that no Appeal shall lie against provisional assessment order u/s 122(C) Section 132 Disposal of Appeals by the Appellate Tribunal: Bill proposes that instead of dismissing appeal the Appellate Tribunal has to decide the appeal on the basis of available record in the event of failure to attend hearing on the due date by any party. Section 147(5B) Advance Tax Briefly this section provides that adjustable advance tax of 2% and 1.5% depending on the holding period of securities for less than 6 months and more than 6 months but less than 12 months is applicable as a result of amendment made in the Finance Act, 2010 and is payable within the period of 7 days after the close of each quarter. The proposed amendment seeks to extend the period of 7 days to 21 days.
Section 153 Payments for goods, services and contracts: Section 168 Credit for tax collected or deducted: The interpretation of existing provision of section 153 was difficult to understand due to numerous changes made from year to year through Finance Ordinances and Acts which created confusion for proper intent and application of the law. The Finance Bill although proposes to redraft entire provision in simplify and easiest manner yet in pith and substance the entire criteria of the existing provision of section 153 remains the same. The corresponding amendments regarding status of tax credit also made in relevant provision. Due to the importance and frequency of its use, the substituted provisions are reproduced below for the reason of avoidance of any probability of hardship while reading and referring correct law. (1) Every prescribed person making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person: (a) (b) for the sale of goods; for the rendering of or providing of services;
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(c)
on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing of services, shall, at the time of making the payment, deduct tax from the gross amount payable (including sales tax, if any) at the rate specified in Division III of Part III of the First Schedule.
(2) Every exporter or an export house making a payment in full or part including a payment by way of advance to a resident person or permanent establishment in Pakistan of a non-resident person for rendering of or providing of services of stitching, dying, printing, embroidery, washing, sizing and weaving, shall at the time of making the payment, deduct tax from the gross amount payable at the rate specified in Division IV of Part III of the First Schedule. (3) The tax deducted under this section on the income of a resident person or permanent establishment of a non-resident person, shall be: (a) a final tax on transactions referred to in clause (a) of sub-section (1), except on, (i) (ii) (b) (c) payments received on account of supply of goods in respect of a company being a manufacturer of such goods; or payments received on account of sale of goods by a public company listed on a registered stock exchange in Pakistan;
a minimum tax on transactions referred to in clause (b) of sub-section (1); a final tax on transactions referred to in clause (c) of sub-section (1), except on payments received by a public company listed on a registered stock exchange in Pakistan on account of execution of contracts; and a final tax on transactions referred to in sub-section (2).
(d)
(4) The Commissioner may, on application made by the recipient of a payment referred to in sub-section (1) and after making such inquiry as the Commissioner thinks fit, may allow in cases where tax deductible under sub-section (1) is adjustable, by an order in writing, any person to make the payment, (a) (b) (5) without deduction of tax; or deduction of tax at a reduced rate.
Sub-section (1) shall not apply to (a) a sale of goods where the sale is made by the importer of the goods and tax under section 148 in respect of such goods has been paid and the goods are sold in the same condition as they were when imported; payments made to traders of yarn by the taxpayers specified in the zerorated regime of sales tax (as provided under clause (45A) of Part-IV of the Second Schedule ); Page 20
(b)
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(c) (d)
a refund of any security deposit; a payment made by the Federal Government, a Provincial Government or a Local Government to a contractor for construction materials supplied to the contractor by the said Government or the authority; a cotton ginner who deposits in the Government Treasury, an amount equal to the amount of tax deductible on the payment being made to him, and evidence to this effect is provided to the prescribed person; the purchase of an asset under a lease and buy back agreement by a modaraba, leasing company, banking company or financial institution; or any payment for securitization of receivables by a Special Purpose Vehicle to the Originator.
(e)
(f)
(g)
(6) Where any tax is deducted by a person making a payment for a Special Purpose Vehicle, on behalf of the Originator, the tax is credited to the Originator. (7) In this section, (i) prescribed person means,(a) (b) (c) (d) (e) (f) (g) (h) (i) (ii) the Federal Government; a company ; an association of persons constituted by, or under, law; a non-profit organization; a foreign contractor or consultant; a consortium or joint venture; an exporter or an export house for the purpose of sub-section (2); an association of persons, having turnover of fifty million rupees or above in tax year 2007 or in any subsequent tax year; or an individual, having turnover of fifty million rupees or above in the tax year 2009 or in any subsequent year;
services includes the services of accountants, architects, dentists, doctors, engineers, interior decorators and lawyers, otherwise than as an employee; sale of goods includes a sale of goods for cash or on credit, whether under written contract or not; manufacturer means a person who is engaged in production or manufacturing of goods, which includes(a) any process in which an article singly or in combination with other articles, material, components, is either converted into another distinct article or product is so changed, transferred, or reshaped that it becomes capable of being put to use differently or distinctly; or
(iii) (iv)
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(b) (v)
a process of assembling, mixing, cutting or preparation of goods in any other manner; and
turnover means,(a) the gross sales or gross receipts, inclusive of sales tax and federal excise duty or any trade discounts shown on invoices, or bills, derived from the sale of goods; the gross fees for the rendering of services for giving benefits including commissions; the gross receipts from the execution of contracts; and the companys share of the amounts stated above of any association of persons of which the company is a member.
(b) (c) (d)
Impact of Final and Minimum Tax of withholding tax. Final tax: On sale of goods other than; Manufacturer being a company. Public company listed on a Registered Stock Exchange.
Minimum tax: On rendering or providing of services irrespective of status:
Final tax: On specified service providers to every exporter.
Final tax: On account of contract: Except payment received by a listed company.
Section 156B Withdrawal of balance under Pension Fund: The existing provision describes about criteria for the withdrawal of balance and deduction of tax under pension fund. The pension fund manager has to deduct tax while making payment to the beneficiary from any amount (a) withdrawn before the retirement age; and (b) withdrawn, if in excess of 25% of his accumulated balance at or after the retirement age. Provided that the tax shall not be deducted in case of the eligible person suffering from any specified disability which renders him unable to continue with any employment at the age which he may so elect to be treated as the retirement age or the age as on the date of such disability if not so elected by him.
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Provided further no tax shall be deducted on the share of the nominated survivor of the deceased eligible person and would be treated as if the eligible person had reached the age of retirement. Further provided that no tax shall be deducted in case the balance in the beneficiarys pension account is invested in an approved income payment plan of a pension fund manager or paid to a life insurance company for the purchase of an approved annuity plan or is transferred to another individual pension account or survivors pension account in case of debt of eligible person maintained with any other Pension Fund Manager as specified in the Voluntary Pension System Rules, 2005. The Bill proposes to increase limit for withdrawal under Pension Fund from 25% to 50%.
Section 165 Filing of statement of withholding tax: Through Finance Act, 2010 filing of monthly statement was abolished and introduced filing of quarterly statement. The Bill proposes to restore former position stating that withholding agent shall submit monthly statement by 15th day of the following month. It is now mandatory for the agent to furnish computerized National Identity Card Number and National Tax Number of the recipient. In respect of salary person the withholding agent shall continue to file Annual Statement provided that the agent shall also have to furnish statement in respect of persons receiving salary in between Rs.300,000 and Rs.350,000 in a tax year.
Section 168 Credit for tax collected or deducted: The Finance Bill proposes to simplify that in case of final tax regime no tax credit shall be allowed in following transaction:
Section 148(7) 151(3) 152(1B) Nature of transactions Collection of withholding tax in the hands of commercial importer Deduction of withholding tax on profit on debts other than company Deduction of withholding tax while making payments to non resident against a contract for construction, assembly or installation of project in Pakistan including contract for supervisory services, other contract for construction or rendering of services relating to such contracts. Deduction of withholding tax while making payments to non resident against insurance premium or re-insurance premium. Withholding tax treated as final tax against sale of goods (Other than manufacturer and listed companies). Withholding tax treated as final tax of service providers to every exporter. Withholding tax treated as final tax against contracts except a listed company. Withholding tax treated as final tax on export realization. Withholding tax treated as final tax on prizes and winnings. Withholding tax treated as final tax on commission Collection of tax alongwith motor vehicle registration treated as final tax. Collection of tax on gas bill of CNG station.
152(1BB) 153(3)(a) 153(3)(c) 153(3)(d) 154(4) 156(3) 233(3) 234(5) 234A
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Section 182(1) Offences and penalties: The Finance Bill proposes to insert explanation whereby clarifying that tax payable would mean a tax chargeable on taxable income on the basis of assessment u/s.120 (deemed assessment), 121 (ex-part assessment), 122 (amended assessment) or 122C (provisional assessment). Section 206A Advance ruling: To build confidence amongst non-resident persons regarding any future ambiguity in tax implication in respect of business transaction in Pakistan the provision of advance ruling was introduced for the first time through Finance Act, 2003 whereby the Federal Board of Revenue has to issue advance ruling against an application in writing filed by the non-resident taxpayer regarding their reservations disclosing full and true facts of nature and all aspects relevant to the ruling. After ruling the same is binding on the Commissioner to give priority to terms of advance ruling, where any inconsistency is found between a circular and advance ruling. The Finance Bill proposes that criteria of advance ruling shall not apply to any tax implication relating to such non-resident taxpayer having a permanent establishment in Pakistan.
Section 209 Jurisdiction of Income Tax Authorities: The Finance Bill proposes to insert proviso whereby Federal Board of Revenue or Chief Commissioner empowered to transfer jurisdiction of cases of persons from the jurisdiction of one to another Commissioner. Section 236A Advance tax at the time of sale by auction: The collection of advance tax at the time of sale or auction was introduced through Finance Act, 2009, whereby any person making sale by public auction of any property or goods (including property or goods confiscated or attached) either belonging to or not belonging to the Government, local Government, any authority, a company, a foreign association declared to be a company under sub-clause (vi) of clause (b) of sub-section (2) of section 80, or a foreign contractor or a consultant or a consortium or Collector of Customs or Commissioner of Income Tax or any other authority, shall collect advance tax, computed on the basis of sale price of such property at the rate of 5% from the person to whom such property or goods are being sold. The credit for the tax collected to be allowed against advance tax liability u/s.147 while computing tax payable by the person purchasing such property in the relevant tax year or in the case of a taxpayer to whom section 98B (discontinuance of business or dissolution of an AOP) or section 145 (assessment of persons about to leave Pakistan) applies, the tax year, in which the said date as referred to in that section, falls or whichever is later. Explanation.- For the purposes of this section, sale of any property includes the awarding of any lease to any person, including a lease of the right to collect tolls, fees or other levies, by whatever name called. The Finance Bill proposes to enlarge the scope to include auction by a tender.
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Section 236B Advance tax on purchase of domestic air ticket: Provision of section 236B regarding advance tax on domestic air tickets was introduced through Finance Act, 2009. Briefly it is provided that the person shall collect advance tax @ 5% on the purchase of gross amount of domestic air ticket and the person preparing air ticket shall charge advance tax in the manner air ticket charges are charged. The Finance Bill proposes that the advance tax shall be adjustable and further that no advance tax shall be collected firstly from Federal or a Provincial Government and secondly from a person who produces a certificate from the Commissioner to the effect that income of such person during the tax year is exempt.
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THE FIRST SCHEDULE

INCOME TAX RATES FOR TAX YEAR 2012
A) FOR INDIVIDUALS (EXCEPT SALARIED TAXPAYERS AND CASES FALLING UNDER PRESUMPTIVE TAX REGIME)
Total Income Up to Rs.350,000 From Rs. 350,001 to From Rs. 500,001 to From Rs. 750,001 to Above Rs. 1,500,000 Rs. 500,000 Rs. 750,000 Rs. 1,000,000
Proposed Rates of Income Tax 0% 7.50% 10% 15% 20% 25%
From Rs. 1,000,001 to Rs. 1,500,000
B) FOR SALARIED TAXPAYERS Tax rate for salaried taxpayers is given below:
Proposed Rates of Income Tax 0% Rs. 400,000 Rs. 450,000 Rs. 550,000 Rs. 650,000 Rs. 750,000 Rs. 900,000 Rs. 1,050,000 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%
Total Income Up to Rs. 350,000 From Rs. 350,001 to From Rs. 400,001 to From Rs. 450,001 to From Rs. 550,001 to From Rs. 650,001 to From Rs. 750,001 to From Rs. 900,001 to
From Rs. 1,050,001 to Rs. 1,200,000 From Rs. 1,200,001 to Rs. 1,450,000 From Rs. 1,450,001 to Rs. 1,700,000 From Rs. 1,700,001 to Rs. 1,950,000 From Rs. 1,950,001 to Rs. 2,250,000 From Rs. 2,250,001 to Rs. 2,850,000 From Rs. 2,850,001 to Rs. 3,550,000 From Rs. 3,550,001 to Rs. 4,550,000
Above Rs. 4,550,000
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MARGINAL RELIEF TO SALARIED TAXPAYER Where the total income of a taxpayer marginally exceeds the maximum limit of a slab in the Table, the income tax payable shall be the tax payable on the maximum of that slab plus an amount equal to (i) 20% of the amount by which the total income exceeds the said limit where the total income does not exceed Rs. 550,000. 30% of the amount by which the total income exceeds in each slab but total income does not exceed Rs. 1,050,000. 40% of the amount by which the total income exceeds in each slab but total income does not exceed Rs. 2,250,000. 50% of the amount by which the total income exceeds in each slab but total income does not exceed Rs. 4,550,000. 60% of the amount by which the total income exceeds in each slab but the total income exceeds Rs. 4,550,000. 25%
(ii)
(iii)
(iv)
(v)
RATES OF TAX FOR ASSOCIATION OF PERSONS (AOP) (For the tax year 2010 and onward) RATES OF TAX FOR COMPANIES (For the tax year 2007 and onward) For public, private and banking companies RATE OF TAX FOR SMALL COMPANY RATE OF TAX ON DIVIDEND a) b) For all tax payer In case of dividend received by a baking company from its asset management company
35%
25% 10%
20% 01%
RATE OF TAX ON RETAILER Where declared turnover is Rs.5 million or less
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INCOME TAX RATE ON INCOME FROM PROPERTY FOR INDIVIDUAL AND ASSOCIATION OF PERSONS S.No. (1) (2) Gross amount of rent Where the gross amount of rent does not exceed Rs.150,000. Where the gross amount of rent exceedsRs.150,000 but does not exceed Rs.400,000. Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000. Where the gross amount of rent exceeds Rs.1,000,000. Rate of tax Nil 5 per cent of the gross amount exceeding Rs.150,000. Rs.12,500 plus 7.5 per cent of the gross amount exceeding Rs.400,000. Rs.57,500 plus 10 per cent of the gross amount exceeding Rs.1,000,000.
(3)
(4)
IN THE CASE OF COMPANY S.No. (1) Gross amount of rent Where the gross amount of rent does not exceed Rs.400,000. Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000. Where the gross amount of rent exceeds Rs.1,000,000. Rate of tax 5 per cent of the gross amount of rent. Rs.20,000 plus 7.5 per cent of the gross amount of rent exceeding Rs.400,000. Rs.65,000 plus 10 per cent of the gross amount of rent exceeding Rs.1,000,000.
(2)
(3)
RATE OF TAX - CAPITAL GAIN ON SALE OF SECURITIES S.No. 1 1. Period 2 Where holding period of a security is less than six months. Tax Year 3 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2016 Rate of Tax 4 10% 10% 12.5% 15% 17.5% 7.5% 8% 8.5% 9% 9.5% 10% 0%
2.
Where holding period of a security is six months or more but less than twelve months.
3.
Where holding period of a security is one year or more
CASH WITHDRAWAL FROM A BANK The rate of tax has been reduced from 0.3% to 0.2% Budget Brief 2011 Page 28
THE SECOND SCHEDULE PART I EXEMPTION FROM TOTAL INCOME

CLAUSES DELETED BY THE BILL
Clause 61(xi) Donation to Bank of Commerce and Credit International Foundation for Advancement of Science and Technology (Deleted due to the withdrawn of exemption) Donation to BCCI Foundation (Deleted due to the withdrawn of exemption) Any profit on debt, payable to National Bank of Pakistan, on foreign currency loan of US $ 100 million, given to Pakistan State Oil Company Limited (PSO) under agreement executed at Bahrain on the 29th May, 2001, approved by the Federal Government vide Finance Divisions letter No.F.3(3)EF(B-III)/2001,dated the May 29, 2001. (Deleted due to the time limitation) Profits and gains derived by a taxpayer from the running of any computer training institution or computer training scheme, recognized by a Board of Education or a University or the University Grant Commission set up between 1st day of July and the 30th day of June 2005 both days inclusive for a period of 5 years. (Deleted due to the time limitation) Any income chargeable under the head capital gains, derived by a person from sale of ships and all floating crafts including tugs, dredgers, survey vessels and other specialized craft upto tax year ending on the thirtieth day of June, 2011. (Deleted due to the time limitation)
61(xxv)
74A
93
114A
CLAUSE INSERTED BY THE BILL

Clause 107A Any income derived by the Islamic Development Bank from its operation in Pakistan in connection with its social and economic development activities.
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PART II
REDUCTION IN TAX RATES Clause 5A The rate of tax to be deducted under sub-section (2) of section 152, in respect of payments from profit on debt payable to a non-resident person having no permanent establishment in Pakistan, shall be 10% of the gross amount paid. Provided that tax deducted on profit on debt from debt instruments, 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.; Provision has been inserted to provide the tax deducted as final taxation provided the investment meet the above criteria
PART III
REDUCTION IN TAX LIABILITY Clause 4 In respect of old and used automotive vehicles, tax under section 148 shall not exceed the amount specified in Notification No. S.R.O. 577(I)/2005, dated the 6th June, 2005. Changes made for proper referencing of S.R.O. Old Custom S.R.O. 932 rescinded
PART IV
EXEMPTION FROM SPECIFIC PROVISIONS Clause 11A Non applicability of turnover tax to a pension fund registered under the Voluntary Pension System Rules, 2005 Exemption from collection/deduction of withholding tax to Islamic Development Bank under the provisions of section 151, 152, 153 and 233.
38C
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THE SEVENTH SCHEDULE

RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS OF A BANKING COMPANY AND TAX PAYABLE THEREON Rule
1(c) Provisions for advances and off balance sheet items shall be allowed upto a maximum of 1% of total advances; and provisions for advances and off-balance sheet items shall be allowed at 5% of total advances for consumers and small and medium enterprises (SMEs) (as defined under the State Bank Prudential Regulations)] provided a certificate from the external auditor is furnished by the banking company to the effect that such provisions are based upon and are in line with the Prudential Regulations. Provisioning in excess of 1% of total advances for a banking company and 5% of total advances for consumers and small and medium enterprises (SMEs) would be allowed to be carried over to succeeding years Provided that if provisioning is less than 1% of advances, for a banking company then actual provisioning for the year shall be allowed; Provided further that if provisioning is less than 5% of advances for consumers and small and medium enterprises (SMEs) then actual provisioning for the year shall be allowed and this provisioning shall be allowable from the first day of July, 2010.; By virtue of above proposed amendment provisioning in excess of 5% of total advances for consumers and small and medium enterprises (SMEs) would be allowed to be carried over to succeeding years for absorption in future years and is applicable from the first day of July 2010. 6. It is proposed that Dividend received by a banking company from its asset management company shall be taxed at the rate of 20%.
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AMENDMENTS PROPOSED THROUGH FINANCE BILL 2011 TO THE SALES TAX ACT, 1990
The budgetary measures pertaining to Sales Tax are primarily aimed at: o Enhancing the sales tax revenues by rationalizing exemption regime with the objective to minimize additional burden on the lower segments of the society. Distributing the burden of extra taxation measures on exempt sectors of the economy.
Effective July 1, 2011 Rate of tax reduced [Section 3 (1)] General rate of sales tax is proposed to be reduced to 16 percent from 17 percent effective from July 1, 2011. Adjustment of Input tax on fixed assets and capital goods [Section 8B] The proposed amendment in section 8B of the Sales Tax Act, 1990 aims to allow full adjustment of input tax paid on purchase of fixed assets or capital goods in place of previous provision that permitted such input tax to be claimed over a period of 12 months. This proposed adjustment seeks to aim at relieving the pressures on the cash flows of the industrial sector and ensure timely and quick adjustment of input tax. Deregistration, Blacklisting and Suspension of Registration [Section 21(3)] The proposed insertion of subsection (3) in section 21 of the Sales Tax Act, 1990 aims to disallow refund or input tax credit on invoices issued by blacklisted person during the period of suspension of registration or after blacklisting thereof, through a self-speaking appealable order and after affording an opportunity of being heard to such person. Previously such matter was laid down in Sales Tax Rules 2006. The proposed amendment seeks to amend section 21 to provide for specific and express legal provisions to effectively enforce the blacklisting regime by denying input tax credit on invoices issued by fake units. Revised returns [Section 26(3)] The proposed amendment in sub-section 3 of section 26 of the Sales Tax Act, 1990 aims to allow revision of special return filed under section 27 of the Act, within the time limit and fulfillment of other conditions given under section 26 of the Act. The facility to file a revised return by a registered person where tax was payable over and above the tax already paid alongwith the original return without seeking prior approval of the Commissioner Inland Revenue has been withdrawn.
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Alternate Dispute Resolution Committee (ADRC) [Section 47A] Previously the Chairman FBR had power to pass order on the application of an aggrieved person, for reasons to be recorded in writing, and on being satisfied that there is an error in order or decision, in connection with dispute referred to a committee under section 47 of the Act for alternate dispute resolution. Now, the proposed amendment in subsection 4A of section 47A of the Act aims to introduce requirement of an additional Member of the Board along-with the Chairman FBR, to pass order under section 47A of the Act in connection with Alternate Dispute Resolution. The proposed amendment seeks to bring the provisions of the Sales Tax Act, 1990 in conformity with section 38 of the Federal Excise Act, 2005. Refund to be claimed within one year [Section 66] The proposed amendment in section 66 of the Sales Tax Act, 1990 aims to prohibit refunds where incidence of tax has been passed on to the consumer. Amendments in Sixth Schedule to the Sales Tax Act, 1990 The proposed amendments in Sixth Schedule of the Sales Tax Act, 1990 aim to withdraw exemption from sales tax in respect of 15 items. Such items are as follows:
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EXEMPTIONS WITHDRAWN SIXTH SCHEDULE TABLE - I (Imports or supplies)

S. No. 29A 29B 30 34 35 41 Description Surgical tapes Ultrasound gel Diapers for adults (patients) Bricks Building blocks of cement including ready mix concrete blocks Computer software PCT Heading 30.05 3006.7000 4818.4010 6901.0000 6810.1100 8523.2990, 8523.4010, 8523.4090, 8523.5990, and 8523.8090 87.02, 87.03, 8704.2200, 8704.2300, 8705.3000 and 8705.9000 8802.2000, 8802.3000 and 8802.4000 8901.2000, 8901.3000 and 8901.9000 Respective headings
42
43 44
Ambulances, firefighting vehicles, waste disposal trucks, brake down lorries, special purposes vehicles for the maintenance of streetlights and overhead cables. Aircrafts Ships, of gross tonnage exceeding 15 LDTs, excluding those for recreational or pleasure purpose. Defence stores, whether manufactured locally or imported by the 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 Customs Act, 1969 (IV of 1969), specially modified for mounting defence equipments, their parts and accessories for supply to Armed Forces. Spare parts and equipment for aircraft and ships covered by serial number 43 and 44 above. Equipment and Machinery for pilotage, salvage or towage for use in ports or airports. Equipment and machinery used for services provided for handling of ships or aircrafts in a customs-port or customs-airport. 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. Bulldozers and combined harvesters; and components (which include sub-components, components, sub-assemblies and assemblies but exclude consumables) imported in any kit form and direct materials or assembly or manufacture thereof, subject to the same conditions as are envisaged for the purpose of exemption under the Customs Act, 1969 (IV of 1969). Import and supply of fully dedicated CNG Euro-2 buses whether in CBU or CKD condition.
62
64 65 67
Respective headings Respective headings Respective headings
68
Respective headings
69
Respective headings
70
8702.9010 and 8702.9090
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TABLE - II (Local supplies only)

S. No. 5 Description Supply of other such agricultural implements as may be specified in a notification to be issued by the Federal Government in the official Gazette. PCT Heading Respective headings
Effective June 04, 2011 Sales Tax Special Procedure Rules, 2007{Minimum Value Addition [Rules 58B]} The rate of minimum value addition for sales tax payable a commercial importer at import stage has been enhanced to three percent from two percent of the value of imports.
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EXEMPTIONS WITHDRAWN THROUGH NOTIFICATIONS SRO 477(I)/2011 Amendments in SRO 575(I)/2006 dated June 5, 2006 IMPORTS
S. No. 1. Description Agricultural machinery (e.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 licences (1) Compressors (2) Mass Flow CNG Dispensers (3) Storage cylinders (4) CNG vehicles cylinders (5) CNG vehicle conversion kits (5A) LPG dispensers imported by a company having LPG licence Off-highway dump trucks of 320 hp and above On-highway dump trucks 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 / cantonment board Fire fighting vehicles and equipment imported by town and municipal authorities. Aircraft spares, parts, tyres, navigational equipment, accessories for maintenance and operations of aircrafts, chemicals, lubricants and paints, air tickets, aircraft carpet, aircraft fabric, skydrol (brake fluid),laminated sheet, aluminum alloy sheets, aluminum alloy extrusions, aircrafts seats, tools, test equipment, life jackets, spares of TGS vehicle, meals trolley, ball hand seal, standard 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 PCT Heading Various
5.
8414.8030 8413.1100 7311.0000 7311.0000 8409.9191 8409.9991 8413.1100 8704.1090 8704.2299 8704.2390 8716.3190 Various 8705.3000 and respective headings Respective headings
22(i) 22(ii) 22(iii) 28. 28A.
29.
36.
Respective headings
Budget Brief 2011
Page 36
SRO 480(I)/2011 RESCINDING NOTIFICATIONS

SRO No. 1240(I)/2005 dated December 16, 2005 Description Dump trucks for off-highway use, on-highway dump trucks of 320 HP and above (PCT heading 8704.2290 and 8704.2390) and transit concrete mixer a) Supply of locally manufactured agricultural machinery, equipment and implements. b) Import of agricultural machinery, equipment and implements Import and supply of CKD Kits of single cylinder agriculture diesel engines of 3 to 36 HP. Local supplies of sugar (chargeable at the rate of eight per cent).
542(I)/2006 dated June 5, 2006
275(I)/2008 dated March 12, 2008. 1(3) STM/2004 (Pt-II) dated August 23 2009.
SRO 481(I)/2011 Amendments in SRO 551(I)/2008 dated June 11, 2008

S. No. 2 12 15 17 18 Description of goods CNG kits, cylinders and valves for CNG kits Commercial catalogues, falling under PCT Heading 4911.1000 Rock phosphate PCT Heading 2510.1000 and 2510.2000 Phosphoric Acid falling under PCT Heading 2809.2010 Mineral oil 97 per cent (W/V) 110 per cent (W/V) falling under PCT Heading 2710.0000
EXEMPTIONS ALLOWED [Effective from June 4, 2011] SRO 481(I)/2011 Amendments in SRO 551(I)/2008 dated June 11, 2008
S. No. 27. Description of goods White crystalline sugar PCT Heading 1701.9910 (cane sugar) and 1701.9920 (beet sugar) Respective headings
28
Reclaimed lead if supplied to recognized manufacturers of lead batteries.
SRO 483(I)/2011 Amendments in SRO 880(I)/2007 dated September 1, 2007 Diagnostic kits or equipment
S. No. 50. 59. Description of goods Calibrated Eclia Kit PCT Heading 3822.0000 3822.0000
Budget Brief 2011
Page 37
ZERO RATING WITHDRAWN [Effective from June 4, 2011] SRO 485(I)/2011 SRO 1161(I)/2007 dated November 30, 2007 rescinded
Description of goods to be manufactured Manufacturing of diapers HS Code 5601.1040 Raw material (imports) Super Absorbent Polymers PCT Heading 3906.9090
Poly Back Sheet Hot Melt Adhesive Non-Woven, whether or not impregnated, coated, covered or laminated of man-made filaments. Toilet or facial tissue stock, towel or napkin paper of a kind used for household or sanitary purpose (nonpours) Frontal Tape Pre-Laminated Tape Fluff Pulp Spandex Bare Yarn
3920.1000 and 3920.9900 3506.9190 5603.1100 and 5603.1200 4803.0000
3919.9090 and 3920.9900 3919.1090 and 3920.9900 4703.2100 5402.4900
SRO 486(I)/2011 Amendments in SRO 549(I)/2008 dated June 11, 2008 IMPORTS AND SUPPLIES MADE TAXABLE
S. No. 4. (xxv) Description of goods 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 condition or in kit form (PCT Headings 8701.2010, 8701.2020, 8701.2030, 8701.2090, 8710.9030, 8701.9040, 8701.9050 and 8701.9060)
4. (xxvi) 4. (xviii)
4. (xxix)
Note: SROs issued till the date of this budget brief and other documents released did not amend the existing provisions relating to certain zero-rated sectors such as export oriented industries including processed food.
Budget Brief 2011
Page 38
Important Pre Budget Changes in Sales Tax 1. Zero rating scheme extended to local sales of five major sectors of exports in the previous year was restructured so that local sales to registered persons is subject to 4 percent and unregistered persons at the rate of 6 percent to be collected and paid to the government. The above reduced rates are applicable only for local sales of five major items of exports i.e. leather goods, textile, carpets, sports goods and surgical goods. Relevant SROs issued that may be referred for details are as under: a) b) c) 2. (i) (ii) FBR letter no. 1(140)C/(RGST)2011/49619-R dated 11 April 2011. SRO 509(1)2007 dated 09 June 2007. SRO 283(1)2011 dated 01 April 2011. Plant machinery and equipment (whether or not manufactured locally) including parts thereof Plant, machinery and equipment, whether locally manufactured or not Previously zero rated on import and supplies now taxable at the rate of 16 percent both at import and local sales stage.
Budget Brief 2011
Page 39
AMENDMENTS PROPOSED THROUGH FINANCE BILL 2011 TO THE FEDERAL EXCISE ACT, 2005
Definition of Manufacture [Section 2 (16b)] The proposed amendment in the definition of manufacture given in subsection 16 of section 2 of the Federal Excise Act, 2005, aims to include preparation of un- manufactured tobacco by drying, cutting and thrashing of raw tobacco within the definition of manufacture. This seems to improve the overall revenue collection in the form of federal excise duty from tobacco manufacturing sector. Proposed omission of Special Excise Duty [Section 3A] The proposed amendment of the Federal Excise Act, 2005 seeks to omit section 3A of the Federal Excise Act, 2005. This would result in withdrawal of special excise duty charged at the rate of 2.5 percent. This proposed amendment seeks to reduce quantum of taxation on all items including those used by the middle and lower class of population. Recovery of Duty not or short levied or erroneously refunded [section 14] Time limit for notice issuance enhanced from three years to five years The proposed amendment in sub-section (1) of section 14 of the Federal Excise Act, 2005, aims to enhance the limit for issuance of notice for short levy of FED, recovery of unpaid FED or erroneously refunded FED or arrears of FED, to five years from the relevant date. Previously, such notice was to be issued within three years from the relevant date. The proposed amendment seeks to bring the provisions of section 14 in uniformity of the provisions of Sales Tax Act, 1990. Recovery of Duty not or short levied or erroneously refunded [section 14] Time limit for order to be issued [section 14] prescribed The proposed amendment in sub-section (2) of section 14 of the Federal Excise Act, 2005, aims to prescribe the time limit of 120 days of the issuance of the show cause notice for issuance of order under section 14. Such time limit may be extended by the Commissioner by further 60 days by Commissioner for reasons to be recorded in writing. Previously, no such time limit was prescribed.
Budget Brief 2011
Page 40
Power to seizure and confiscate [section 26 & 27] Domain of section 26 and section 27 enhanced to include beverages in addition to cigarettes The proposed amendments in section 26 and section 27 of the Federal Excise Act, 2005, aims to widen the powers of authorities to seizure/confiscation of unlawfully manufactured beverages or beverages on which FED has not been paid as required under the Federal Excise Act, 2005. The proposed amendment seems to enhance the powers of the authorities to confiscate, counterfeit non-duty paid beverages in addition to cigarettes. Alternate Dispute Resolution [section 38] Time limit for passing order against an application filed under section 38 of the Federal Excise Act, 1990, prescribed The proposed amendment in section 38 of the Federal Excise Act, 2005, aims to prescribe a time limit of 45 days from the receipt of application filed under section 38 for alternate dispute resolution. Previously, no such time limit was prescribed. Amendments to the First Schedule of the Federal Excise Act, 1990 The proposed amendments to the First Schedule aims to result in the following:
REVISION IN DUTY
A. LOCALLY PRODUCED CIGARETTES
Duty on the locally produced cigarettes (Heading 24.02) has been revised as under, with effect from June 4, 2011:
S.No. 9 10 Description of goods Locally produced cigarettes if their retail price exceeds Rs 21 per ten cigarettes. Locally produced cigarettes if their retail price exceeds Rs 11.50 per ten cigarettes but does not exceed Rs 21 per ten cigarettes. Locally produced cigarettes if their retail price does not exceed Rs 11.50 per ten cigarettes. Revised rate of duty 65 per cent of the retail price. Rs 6.04 per ten cigarettes plus seventy per cent per incremental rupee or part thereof. Rs 6.04 per ten cigarettes
11
Note: For the purpose of levy, collection and payment of duty as stated above, cigarette manufacturers are restricted from reducing price from the level adopted on the day of announcement of the Budget
Budget Brief 2011
Page 41
B.
OTHERS GOODS
The duty rates have been revised in respect of the following, effective July 1, 2011 (unless specified hereunder):
Heading / subheading No. 2201.1020
S.No. Description of goods 4. Aerated waters
Revised rate of duty 6 per cent of retail price (previously 12 per cent) 6 per cent of retail price (previously 12 per cent) 6 per cent of retail price (previously 10 per cent)
5.
Aerated waters, containing added sugar or other sweetening matter or flavored Aerated waters if manufactured wholly from juices or pulp of vegetables, food grains or fruits and which do not contain any other ingredient, indigenous or imported, other than sugar, coloring materials, preservatives or additives in quantities prescribed under the West Pakistan Pure Food Rules, 1965. Un-manufactured tobacco
2202.1010
6.
Respective headings
7.
24.01
Rs10 per kilogram (previously Rs5 per kilogram) [effective June 4, 2011] Rs500 per metric ton(previously Rs 700 per metric ton)
13.
Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers (please refer Note below). Filter rods for cigarettes
25.23
50.
5502.0090
20 per cent ad val (previously Re. 1 per filter rod)
Note: In the salient features issued alongwith the budgetary documents, it is stated that excise duty on white cement is withdrawn with effect from July 1, 2011. However, appropriate amendment has not been made to give effect to that announcement. WITHDRAWAL OF DUTY Duty in respect of following is proposed to be withdrawn with effect from July 1, 2011:
Budget Brief 2011
Page 42
A.
GOODS (Table - I)
Heading / subheading No. 2710.1150 2710.1190 2710.1949 2710.1992 2710.1997
S.No. 17 18 21 26 28
Description of goods Solvent oil (non-composite) Other Other fuel oils Mineral greases Transformer oil
Present Rate of duty Rs 13 per litre Rs 0.88 per litre Rs 185 per metric ton Rs 25 per kilogram 10 per cent of the retail price or Rs7.15 per litre, whichever is higher 15 per cent ad val.
29
Other mineral oils excluding sewing machine oil Waste oil
2710.1999
30
2710.9100 and 2710.9900 2707.9910, 2713.9010 and 2713.9020 2909.1910 3403.1910 3814.0000
10 per cent of the retail price or Rs7.15 per litre, whichever is higher Rs 7.15 per litre
39
Carbon black oil(carbon black feed stock) including residue carbon oil Methyl tertiary butyle ether(MBTE) Greases Organic composite solvents and thinners, not elsewhere specified or included; prepared paint or varnish removers: (i) Solvent oil (composite) (ii) Other (excluding thinners)
40 46 47
Rs 0.88 per lire Rs 25 per kilogram
Rs 30 per litre 10 per cent of retail price Respective heading 87.03 10 per cent ad val 5 per cent ad val
48 49
Viscose staple fibre Motor cars and other motor vehicles principally designed for the transport of persons(other than those of heading 87.02), including station wagons and racing cars of cylinder capacity exceeding 850cc. Air Conditioners Deep Freezers
51 52
Respective headings Respective headings
10 per cent ad val 10 per cent ad val
Budget Brief 2011
Page 43
B.
SERVICES (Table - II)

S.No. 12 Description of services Services provided by property developers or promoters for: (a) Development of purchased or leased land for conversion into residential or commercial plots (b) Construction of residential or commercial units Heading / subheading No. 9814.3000 Present Rate of duty
Rs 100 per square yard
Rs 50 per square foot of covered area
The proposed reduction the quantum of excise duty on cement and withdrawal of excise duty on white cement, seeks to aim at encouraging construction activity with increase in employment opportunities. The proposed reduction in the excise duty levied on services by property developers or promoters, seeks to aim at relieving the quantum of taxation on housing sector already subject to capital value tax. 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 per cent ad val. The duty now imposed, effective June 04, 2011, is collectible under the sales tax mode with entitlement for adjustment with sales tax and vice versa.
Budget Brief 2011
Page 44
AMENDMENTS PROPOSED THROUGH FINANCE BILL 2011 TO THE CUSTOMS ACT, 1969
The Finance Bill 2011 proposes to amend the Customs Act, 1969 (iv) of 1969. Our understanding in respect of some of the important amendments proposed to be made in Customs Act through the Finance Bill 2011 is as follows: Amendment to Section 15(c) Section 15 specifies goods that are prohibited and shall not be brought into or taken out of Pakistan. Section 32 provided for determining the amount of Custom Duty payable where it has not been levied or has been sort levied or erroneously refunded by reason of any inadvertancement or misconstruction. The reference of Section 32 in under Section 15 provided room for miscarriage of justice in respect of specifically prohibited goods which is now proposed to be corrected through an amendment in Seciton15(c). Duty draw back facility proposed to be extended to goods manufactured and exported against International Tenders To promote participation and competitive bidding the Custom Duty paid on importation of any goods that are used in the manufacturing of goods supplied against international tenders would be eligible for repayment of such Custom Duty. Time Limit for Taking Cognizance of Cases proposed to be Extended from 3 years to 5 years This amendment is proposed to align the provisions of Custom Act, 1969 with similar provision in Sales Tax and Federal Excise Law where the time limit is already 5 years. Refund to be claim within 1 year (Section 33) An amendment is proposed in Section 33 to include cases of refund arising out of the decision or judgment by any Officer / Board / Appellate Tribunal / Court. A period of one year from the date of decision is proposed to be given in such cases also. This amendment is classificatory in nature aimed at removal of hardship. Board to be empowered to collect transit fee An enabling provision has been proposed to be introduced by insertion of a new Section 129 A in the Customs Act. A transit fee is proposed to be collected on transit goods to meet the requirement for providing self sustaining infrastructure and services at customs stations and enroute to Afghanistan. NOTIFICATIONS CHANGES IN THE CONCESSIONARY RATES OF DUTY [SROs 475(I)/2011 & 565(I)/2006] SRO 565(I)/2006 has been amended through which the following changes have been made: Goods subject to concessionary duty (i) 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: Page 45
Budget Brief 2011
(ii)
Press machines (in place of rear panel bending machine); Shearing machines; Tapping machines Reverting machines Spot welding machines; and Evaporator bending machines.
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 air-conditioners, deep freezers and refrigerator, etc. has been rationalized in lines with the description available in PCT code (7306.3010). Import of discs, tapes and other like devices (Heading 8523.2990) to be used in the manufacturing of audio / video cassettes would now be subject to concessionary duty of 10 per cent. 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). Import of screws, bolts etc (Heading 7318.2900) used in 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). 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. 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. 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 or more but not exceeding 10 mm HRC (prime quality) of a thickness of 3 mm or more but less than 4.75 mm. 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. PCT Heading 7208.3790 7208.3890 7208.3990 7209.1690 7209.1790
(iii)
(iv)
(v)
(vi)
(vii) viii)
(ix) (x)
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. 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:
Budget Brief 2011
Page 46
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 (xi)
PCT Heading 8482.2000 &8482.4000 8413 .8110 8481.3000 & 8481.4000 8413.8190 9026.2000 9026.1000 8501.5290 & 8501.5310 8536.3000 8414.9090 4009.2190 4009.1190 7304.4100 & 7306.9000 7604.2910 8414.9090 8414.9090
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. Import of Sabotul (Heading 3814.000) used in the manufacturing of Butyl Acetate would now be subject to concessionary rate of 5 per cent.
(xii)
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] 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 Budget Brief 2011 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 Page 47
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&P COMPANIES [SROs 478(I)/2011 & SRO 678(I)/2004] Concessionary rate of duty on import of X-mass trees, well-head and integral components and parts thereof by the E&P Companies, their contractors, sub-contractors and service companies, has been reduced from 15 to 10 per cent.
ELIMINATION OF REGULATORY DUTY [SROs 479(I)/2009 & SRO 482(I)/2009]

Regulatory Duty levied on 397 items through SRO 482(I)/2009 dated June13,2009 has now been retained for below-mentioned 60 items only at the rates specified thereagainst:
S.No 1 2 3 4 5 6 7 8 9 10 PCT Code 0802.9010 1005.9000 2402.1000 2402.2000 2402.9000 2403.1000 2403.9100 2403.9910 2403.9990 6907.1000 Description Betel Nuts Maize If imported from India Cigars, cheroots and cigarillos, containing tobacco Cigarettes containing tobacco Other Smoking tobacco, whether or not containing tobacco substitutes in any proportion Homogenised" or "reconstituted" tobacco Tobacco for chewing Other Tiles, cubes and similar articles, whether or not rectangular, the largest surface area of which is capable of being enclosed in a square the side of which is less than 7 cm Other Tiles, cubes and similar articles, whether or not rectangular, the largest surface area of which is capable of being enclosed in a square the side of which is less than 7cm Tiles Other Wash basin Bath tubs ceramic Bidets ceramic Cisterns ceramic Sink ceramic Toilet ceramic Urinals ceramic Rate of regulatory Duty 10% 25% 15% 15% 15% 15% 15% 15% 15% 15%
11 12
6907.9000 6908.1000
15% 15%
13 14 15 16 17 18 19 20 21
6908.9010 6908.9090 6910.1010 6910.1020 6910.1030 6910.1040 6910.1050 6910.1060 6910.1070
15% 15% 15% 15% 15% 15% 15% 15% 15%
Budget Brief 2011
Page 48
S.No 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55
PCT Code 6910.1080 6910.1090 6910.9000 6911.1010 6911.1020 6911.1030 6911.1030 6911.1090 6911.9000 6912.0010 6912.0090 6913.1000 6913.9000 6914.1000 6914.9000 8703.2329 8703.2490 8703.3229 8703.3390 8703.9000 9302.0092 9302.0093 9302.0099 9303.1000 9303.2011 9303.2012 9303.2019 9303.2020 9303.2090 9303.3010 9303.3020 9303.3090 9303.9000 9304.0000
56 57 58 59 60
9306.2100 9306.2900 9306.3010 9306.3090 9306.9000
Description Water loset pans Other Other Dinner sets Dishes Dishes Tea cups and saucers Other Other Tableware and kitchenware Other Of porcelain or china Other Of porcelain or china Other Cars and Jeeps 1801 cc to 3000cc (except electric hybrids) Cars and Jeeps above 3000 cc (except electric hybrids) Cars and Jeeps above 2000 cc (except electric hybrids) Cars and Jeeps above 2500 cc (except electric hybrids) Other (except electric hybrids) Pistols, single barrel, semiautomatic or otherwise Pistols, multiple barrel Other Muzzle loading firearms Pump action Semiautomatic Other Shotguns, multiple barrel, including combination guns Other Single shot Semiautomatic Other Other other arms (for example, spring, air or gas guns and pistols, truncheons), excluding those of heading 93.07 Cartridges Other Cartridges for riveting or similar tools or for captive bolt human killers and parts thereof Other Other
Rate of regulatory Duty 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 50% 50% 50% 50% 50% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 20%
15% 15% 20% 15% 20%
Budget Brief 2011
Page 49
TARIFF RATIONALISATION New PCT Codes have been introduced for the following: PCT Rate of Heading 7404.0010 7404.0090 7407.1010 7407.2100 Customs Duty 0% 0% 5% 5%
Description Copper waste and scrap - Brass scrap Other - Bars - Of copper-zonc base alloys (brass) Tanks and other armoured fighting vehicles, motorised, whether or not fitted with weapons, and parts of such vehicles - Armoured cash carrying vehicles - Other
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
Budget Brief 2011
Page 50
OFFICES
KARACHI OFFICES A-180 Sindhi Muslim Cooperative Housing Society Phones +92-21-34549345 - 49 Fax +92-21-34548210. E-Mail info@rsrir.com 115, Sidco Avenue Centre, 264, Maulana Din Muhammad Wafai Road, Karachi-74200. Phones +92-21-35210526, 92-21-35681134 & 92-21-35681313 Fax +92-21-35688270 E-Mail rs-co@cyber.net.pk LAHORE OFFICES 54-P, Gulberg-II P.O. Box 3054, Lahore-54660. Phones +92-42-35875965 - 68, Fax +92-42-35758621. & 92-42-35873744 Email rsrirlhr@brain.net.pk & alnasr@brain.net.pk # 4, Block-B, 90-Canal Park, Gulberg II, Lahore. Phones +92-42-35756440, & 92-42-35757022, Fax +92-42-35757335. E-Mail wisemen@magic.net.pk ISLAMABAD/RAWALPINDI OFFICE 48, Street 19, Clifton Township, Adyala Road, Rawalpindi, Phone 051-5572667 Cell 0333-5631449 E-Mail rsririsd@hotmail.com Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants A Member of Russell Bedford International A global network of independent firms of accountants, auditors, tax advisors and business consultants. Website www.rsrir.com Budget Brief 2011 Page 51

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Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

BUDGET BRIEF 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Salient features of Budget 2011-12

This Budget Brief may also be accessed on our website www.rsrir.com

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Karachi. Dated: June 05, 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

BUDGET AT A GLANCE 2011-12

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

SALIENT FEATURES OF BUDGET 2011-12

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

ECONOMIC PERFORMANCE OF PAKISTAN 2010-11

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

GNP and GDP growth (percentage)

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Direct taxes 38%

Sales tax 41%

Direct taxes 37%

Sales tax 42%

Federal excise duty 9%

Custom duty 12%

Federal excise duty 9%

Custom duty 12%

2010-11 14.1% 23.3% 18.2%

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Sector wise Growth Performance (%)

GDP Agriculture Large scale Manufacturing Services *Provisional

9.0 6.5 19.9 8.5

5.8 6.3 8.3 6.5

6.8 4.1 8.7 7.0

4.1 1.1 4.0 6.6

2.0 4.7 -3.7 3.6

4.1 3.9 4.4 4.6

2.4 1.2 1.7 4.1

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

Budget Brief 2011

Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

(b) (c) (3) Where (a) (b)

The Bill proposes to delete barrier limit of Rs.500,000.

Budget Brief 2011