INCOME TAX ORDINANCE, 2001 – BUDGET PROPOSALS – 2013-14

SALIENT FEATURES

 INCOME TAX

  • Basic exemption limit is neither enhanced for salaried taxpayers nor for non salaried taxpayers.
  • Two further slabs are added which results in increase in rates charged to high earners.
  • Six further slabs are added which results in increase in rates charged to high earners.
  • Marginal relief is withdrawn.
  • Existing five slabs for business individuals and AOPs are proposed to be increased to seven slabs.
  • The rate of tax for non banking companies is being reduced from 35% to 34%.
  • The existing three slabs for property income to be increased to six.
  • Withholding tax on import of Hybrid cars with engine capacity up to 1200CC has been exempted. Similarly withholding tax up to 1800CC has been reduced by 50% and 25% for vehicle up to 2500CC.
  • Corporate Income Tax Holiday for projects in Special Economic Zones for a period of 5 years is to be extended to 10 years.
  • The exemption limit of withholding tax for investment in National Saving Centers to be withdrawn.
  • Withdrawal of 75% reduction in the tax payable by a full time teacher or a researcher.
  • Exemption from tax available to a university or other educational institution established solely for educational purposes and not for purposes of profit is proposed to be withdrawn.
  • Rate of initial depreciation to be reduced from 50% to 25% for Plant and Machinery.
  • Minimum Tax @ 0.5% of turnover is to be enhanced to 1%.
  • Facility  of  carry  forward  of  unadjusted  minimum  tax  is proposed  to  be extended to Individuals and AOPs.
  • Minimum tax at a rate of Rs.25 per sq ft of the constructed area sold/booked and Rs. 50 per square yard of the area sold/booked of the developed land are being levied on builders and developers.
  • Facility of exemption certificate on import of raw material is being reintroduced subject to the payment of tax liability determined for any of the preceding two years.
  • Rate of deduction of withholding tax, which is final tax on payment of prize on prize bond, to be enhanced from 10% to 15%.
  • Tax on dividend received by banks from Money Market Funds and Income Funds is proposed to be taxed at 25%.
  • The rate of Withholding Tax @ 0.2% on cash withdrawals from banks is to be enhanced to 0.3%.
  • Transactions of margin financing, trading financing and lending shall be subject to withholding tax @ 10% of the profit/markup/interest earned.
  • Withholding tax for 10 years to be collected in lump sum at the rates specified in the first schedule where the provincial motor vehicle tax is paid in lump sum.
  • Rates  of  tax  on  registration  of  motor  vehicles  to  be enhanced.
  • An adjustable advance tax @ 5% of fee of all educational institutions where annual fee is above Rs.200,000 to be collected by educational institutions at the time of receipt of fee from the person paying the fee.
  • An adjustable withholding tax is being introduced which shall be collected by the Hotels/Clubs/Marriage Halls/Restaurants etc. from persons arranging functions.
  •  All manufacturers were made liable to collect adjustable   withholding   tax   from   distributors, dealers and wholesalers through the Finance Act 2012. This requirement is being restricted to certain sectors e.g. Electronics, Sugar, Cement, Fertilizers, Pesticides, Cigarettes, etc. and the rate is being reduced to 0.1%. Withholding tax @ 0.5 % by the distributors, manufacturers or commercial importers from the retailers is proposed.

Amendments in Income Tax Ordinance, 2001

 

First Schedule

Part I- Rates of Taxes                         

Rate of Tax for Individuals and Association of Persons -Division I

Clause I

  • As per clause (I) of division I to First Schedule, following new rates of tax for individuals (other than salaried) & association of persons have been proposed by the Finance Bill 2013:

Table

S. No

Taxable Income

Rate of tax

1. Where the taxable income does not exceed Rs.400,000 0 %
2. Where the taxable income  exceeds Rs.400,000 but does not exceed Rs.750,000 10% of the amount  exceeding Rs.400,000
3. Where the taxable income  exceeds Rs.750,000 but does not exceed Rs.1,500,000 Rs.35,000 + 15% of the amount  exceedingRs.750,000
4. Where the taxable income  exceeds Rs.1,500,000 but does not exceed Rs.2,500,000 Rs.147,500 + 20% of the amount  exceeding Rs.1,500,000
5. Where the taxable income  exceeds Rs.2,500,000 but does not exceed Rs.4,000,000 Rs.347,500 + 25% of the amount exceedingRs. 2,500,000
6. Where the taxable income  exceeds Rs.4,000,000 but does not exceed Rs.6,000,000 Rs. 722,500 + 30% of the amount exceeding Rs.4,000,000
7. Where the taxable income  exceeds Rs.6,000,000 Rs. 1,322,500 + 35% of the amount exceeding Rs.6,000,000.

Clause IA

  • As per clause (IA) of division I to First Schedule, following new rates of tax for salaried individuals have been proposed by the Finance Bill 2013:

Table

S. No

Taxable Income

Rate of tax

1.

Where the taxable income does not exceed Rs.400,000 0 %

2.

Where the taxable income  exceeds Rs.400,000 but does not exceed Rs.500,000 5% of the amount  exceeding Rs.400,000

3.

Where the taxable income  exceeds Rs.500,000 but does not exceed Rs.800,000 Rs.5,000 + 7.5% of the amount  exceedingRs.500,000

4.

Where the taxable income  exceeds Rs.800,000 but does not exceed Rs.1,300,000 Rs.27,500 + 10% of the amount  exceeding Rs.800,000

5.

Where the taxable income  exceeds Rs.1,300,000 but does not exceed Rs.1,800,000 Rs.77,500 + 12.5% of the amount exceedingRs. 1,300,000

6.

Where the taxable income  exceeds Rs.1,800,000 but does not exceed Rs.2,200,000 Rs. 140,000 + 15% of the amount exceeding Rs.1,800,000

7.

Where the taxable income  exceeds Rs.2,2000,000 but does not exceed Rs. 2,600,000 Rs. 200,000 + 17.5% of the amount exceeding Rs.2,200,000

8.

Where the taxable income  exceeds Rs.2,600,000but does not exceedRs.3,000,000  Rs.270,000 + 20% of the amount exceeding Rs. 2,600,000 

9.

Where the taxable income  exceeds Rs.3,000,000 but does not exceedRs.3,500,000  Rs.350,000 + 22.5% of the amount exceeding  Rs. 3,000,000 

10.

Where the taxable income  exceeds Rs.35,00,000  but does not exceedRs.4,000,000  Rs. 462,500 + 25% of the amount exceeding Rs.3,500,000 

11.

Where the taxable income  exceedsRs.4,000,000 but does not exceedRs.7,000,000

 

Rs.587,500 + 27.5% of theamount exceeding Rs.4,000,000

 

12.

Where the taxable income  exceeds Rs.7,000,000 Rs.1,412,500 + 30% of the amount exceedingRs.7,000,000”; 
  • The marginal Tax relief available to salaried Tax payers is proposed to be omitted.

Rate of Tax for companies – Division II

  • The rate of Tax imposed on Taxable income of a company other than a banking company is proposed to be 34 % for the tax year 2014.

Income from property – Division VI

  • Rates of Tax on property income have also been changed. Now, property income is proposed to be charged as per following rates:

For individual and association of persons:

S. No

Gross amount of rent

Rate of tax

(1)

Where the gross amount of rent does not exceed Rs.150,000. Nil

(2)

Where the gross amount of rent exceeds Rs.150,000 but does not exceed Rs.400,000. 5 percent of the gross amount exceeding Rs.150,000.

(3)

Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000. Rs.12,500 plus 7.5 percent of the gross amount exceeding Rs.400,000.

(4)

Where the gross amount of rent exceeds Rs.1,000,000 but does not exceed Rs.2,000,000. Rs.57,500 plus 10 percent of the gross amount exceeding Rs.1,000,000.

(5)

Where the gross amount of rent exceeds Rs.2,000,000 but does not exceed Rs.3,000,000.  Rs.157, 500 plus 12.5 per cent of the gross amount of rent exceeding Rs.2, 000,000.

(6)

Where the gross amount of rent exceeds Rs.3,000,000 but does not exceed Rs.4,000,000.  Rs.282, 500 plus 15 per cent of the gross amount of rent exceeding Rs.3, 000,000. 

(7)

Where the gross amount of rent exceeds Rs.4,000,000. Rs.432, 500 plus 17.5 per cent of the gross amount of rent exceeding Rs.4, 000,000.

 

 

 

 

 

 

 

 

 

 

 

 

 

For Companies:

S. No

Gross amount of rent

Rate of tax

(1)

Where the gross amount of rent does not exceed Rs.400,000. 5 percent of the gross amount of rent.

(2)

Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000. Rs.20,000 plus 7.5 percent of the gross amount of rent exceeding Rs.400,000.

(3)

Where the gross amount of rent exceeds Rs.1,000,000 but does not exceed Rs.2,000,000.”

 

Rs.65,000 plus 10 percent of the gross amount of rent exceeding Rs.1,000,000.

(4)

Where the gross amount of rent exceeds Rs.2,000,000 but does not exceed Rs.3, 000,000.  Rs.165,000 plus 12.5 per cent of the gross amount of rent exceeding Rs.2, 000,000 

(5)

Where the gross amount of rent exceeds Rs.3,000,000 but does not exceed Rs.4, 000,000.  Rs.290,000 plus 15 per cent of the gross amount of rent exceeding Rs.3,000,000

(6)

Where the gross amount of rent exceeds Rs.4,000,000.  Rs.440,000 plus 17.5 per cent of the gross amount of rent exceeding Rs.4,000,000

Part II- Rates of Advance Tax

  • The bill seeks to categorize the taxpayers for deduction of Tax at Import stage (u/s 148) in place of straight rate of 5%:
a. Industrial Undertakings 5 % of value of goods
b. In all other cases of companies 5%
c. Taxpayers other than (a) & (b) above 5.5 %

Rate of advance tax for all industrial undertakings, irrespective of status u/s148 is proposed to be fixed at 5% of the value of goods. Companies importing goods as commercial importer shall pay tax @ 5%. All other taxpayers on commercial import of goods shall pay tax @5.5% of value of goods.

Part III- Deduction of Tax at source

  • Payments of Goods and Services – Division III

The rate of Tax (3.5%) to be deducted from a payment in respect of Sale of goods other than sale of rice, cotton seed or edible oils is proposed to be substituted as follows:

(i) 3.5% of the gross amount payable in the case of companies; and
(ii) 4% of the gross amount payable in the case of other taxpayers.

 

The rate of Tax (6%) to be deducted from a payment for rendering of or providing of Services other than transport services is proposed to be substituted as follows:

(i) 6% of the gross amount payable in the case of companies; and
(ii) 7% of the gross amount payable in the case of other taxpayers. 

The rate of Tax (6%) to be deducted from a payment on the execution of a contract, other than a contract for the sale of goods or the rendering of or providing services, is proposed to be substituted as follows:

(i) 6% of the gross amount payable in the case of companies; and
(ii) 6.5% of the gross amount payable in the case of other taxpayers. 

Income from property – Division V

  • The rate of Tax to be deducted from Income from Property is proposed to be substituted as follows:

In case of individual and association of person:

S. No

Gross amount of rent

Rate of tax

(1)

Where the gross amount of rent does not exceed Rs.150,000. Nil

(2)

Where the gross amount of rent exceeds Rs.150,000 but does not exceed Rs.400,000. 5 percent of the gross amount exceeding Rs.150,000.

(3)

Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000. Rs.12,500 plus 7.5 percent of the gross amount exceeding Rs.400,000.

(4)

Where the gross amount of rent exceeds Rs.1,000,000 but does not exceed Rs.2,000,000. Rs.57,500 plus 10 percent of the gross amount exceeding Rs.1,000,000.

(5)

Where the gross amount of rent exceeds Rs.2,000,000 but does not exceed Rs.3,000,000.  Rs.157, 500 plus 12.5 per cent of the gross amount of rent exceeding Rs.2, 000,000. 

(6)

Where the gross amount of rent exceeds Rs.3,000,000 but does not exceed Rs.4,000,000.  Rs.282, 500 plus 15 per cent of the gross amount of rent exceeding Rs.3, 000,000. 

(7)

Where the gross amount of rent exceeds Rs.4,000,000. Rs.432, 500 plus 17.5 per cent of the gross amount of rent exceeding Rs.4, 000,000.

 

For Companies

S. No

Gross amount of rent

Rate of tax

(1)

Where the gross amount of rent does not exceed Rs.400,000. 5 percent of the gross amount of rent.

(2)

Where the gross amount of rent exceeds Rs.400,000 but does not exceed Rs.1,000,000. Rs.20,000 plus 7.5 percent of the gross amount of rent exceeding Rs.400,000.

(3)

Where the gross amount of rent exceeds Rs.1,000,000 but does not exceed Rs.2,000,000.”

 

Rs.65,000 plus 10 percent of the gross amount of rent exceeding Rs.1,000,000.

(4)

Where the gross amount of rent exceeds Rs.2,000,000 but does not exceed Rs.3, 000,000.  Rs.165,000 plus 12.5 per cent of the gross amount of rent exceeding Rs.2, 000,000 

(5)

Where the gross amount of rent exceeds Rs.3,000,000 but does not exceed Rs.4, 000,000.  Rs.290,000 plus 15 per cent of the gross amount of rent exceeding Rs.3,000,000 

(6)

Where the gross amount of rent exceeds Rs.4,000,000.  Rs.440,000 plus 17.5 per cent of the gross amount of rent exceeding Rs.4,000,000 

  Prizes and winnings     – Division VI

  • The rate of Tax to be deducted from Prizes and winnings is proposed to be increased from 10% to 15%.

 Part IV- Deduction or collection of Advance Tax

Rate of collection of tax by a stock exchange registered in Pakistan –       Division IIA

 Sr. no. 4 of Division II A of Part IV is proposes to for deletion. This is in fact an amendment proposed to correct the law, because clause (d) of sub section (1) of section 233A was deleted through Finance Act, 2012.

Rates for collection of tax by NCCPL – Division IIB

The rate of tax of withholding on profit or markup earned by the member, margin financiers or securities lender in pursuance of section 233AA is proposed to be 10%.

  • Motor vehicle Tax – Division III

In division III, through insertion of new paragraph following rates have been proposed for lump sum payment of motor vehicle tax:-

S. No

Power

Rate of Tax

(a)

Up to 1000cc

7,500

(b)

1001cc to 1199cc

12,500

(c)

1200cc to 1299cc

17,500

(d)

1300cc to 1599cc

30,000

(e)

1600cc to 1999cc

40,000

(f)

2000cc and above

80,000

 Cash withdrawal from a bank     – Division VI

 The bill seeks to increase the rate of Tax on Cash withdrawals from banks form 0.2% to 0.3.

 Purchase of Motor Cars and jeeps     – Division VII

  • The bill seeks to revise the rate of payment of tax for purchase of motor cars and jeeps which are as follows:–

Engine Capacity

Amount of Tax

Up to 850cc

10,000

851 to 1000cc

20,000

1001 to 1300cc

30,000

1301 to 1600cc

50,000

1601 to 1800cc

75,000

1801 to 2000cc

100,000

Above 2000cc

150,000

Advance Tax at the time of Sale by auction -Division VIII

  • The rate of collection of Tax at the time of sale by auction is proposed to be increased from 5% to 10%.

Advance Tax on functions and gatherings -Division XI

  • The rate of Tax to be collected on functions and gatherings has been proposed to be 10% of payment.

Part IV- Rate of tax on certain payments to non residents

Advance Tax on foreign produced films and TV plays - Division XIII

  •  The rate of Tax to be collected on foreign – produced films and TV plays has been proposed as follows.

S. No

Category

 

Rate of Tax

 

(a)

Foreign-produced film

Rs. 1,000,000/-

(b)

Foreign-produced TV drama serial

Rs.100,000/-per episode

(c)

Foreign-produced TV play (single episode)

Rs. 100,000

Division XIII

  • The rate of tax to be collected under section 236F in the case of Cable Television Operator is proposed as follows:

License Category as provided in PEMRA Rules 2009

Tax on License Fee

Tax on Renewal

H

7,500

10,000

H1

10,000

15,000

HII

25,000

30,000

R

5,000

30,000

B

5,000

40,000

B1

30,000

50,000

B2

40,000

60,000

B3

50,000

75,000

B4

75,000

100,000

B5

87,500

150,000

B6

175,000

200,000

B7

262,500

300,000

B8

437,500

500,000

B9

700,000

800,000

B10

875,500

900,000

  • The rate of tax to be collected under section 236F in the case of other Distribution Services shall is proposed as follows:-

Type of Channel as provided in PEMRA Rules 2009

Tax on Issuance of License

Renewal

IPTV

100,000

1,000,000

FM Radio

100,000

100,000

MMDS

200,000

100,000

Mobile TV

100,000

50,000

Satellite TV

New or current

1,000,000

2,000,000

Sports

1,000,000

1,000,000

Regional Language

700,000

700,000

Health or Agro

300,000

300,000

Education

300,000

300,000

Entertainment

1,000,000

1,000,000

Specialized Subject station

500,000

200,000

Landing Rights per Channel

New/Current affairs

1,000,000

5,000,000

Sports

500,000

2,500,000

Educational

200,000

1,000,000

Entertainment

200,000

2,000,000

Children

350,000

1,500,000

Division XIV

  • Advance tax on sales to distributors, dealers or wholesalers

The bill seeks to propose 0.1% tax on gross amount of sales to distributors, dealers or wholesalers.

Division XV

  • Advance tax on sales to retailers

The bill seeks to propose 0.5% tax on gross amount of sales to retailers.

Division XVI

  • Collection of advance tax by educational institutions

5% tax is proposed to be collected by educational institutions on fee exceeding Rs. 200,000.

Division XVII

  • Advance tax on dealers, commission agents and Arhatis, etc

The bill seeks to propose following amounts of tax on dealers, commission agents and Arhatis:

Group

Amount of Tax

(per annum)

Group or Class A

Rs. 10,000

Group or Class B

Rs. 7,500

Group or Class C

Rs. 5,000

Any other category

Rs. 5,000

Second schedule

Part I- Exemptions from Total Income

Clause 53 A

  • The bill seeks to omit the exemption of free or concessional passage provided by transporters including airlines to its employees (including the members of their household and dependents) received by an employee by virtue of his employment.

Clause 92

  • The bill seeks to omit the exemption of any income of any university or other educational institution established solely for educational purposes and not for purposes of profit.

Clause 98 A

  • The bill seeks to omit the exemption of any income derived by International Cricket Council Development (International) Limited (IDI), International Cricket Council (ICC), employees, officials, agents and representatives of IDI and ICC, officials from ICC members, players, coaches, medical doctors and officials of member countries, IDI partners and media representatives, other than persons who are residents of Pakistan, form ICC Champions Trophy, 2008 hosted in Pakistan.

Clause 103 B

 

  • The bill seeks to omit the exemption of any dividend in specie derived in the form of shares in a company, as defined in the Companies Ordinance, 1984 (XLVII of 1984):

Clause 126E

  • The bill seeks to allow tax holiday for the period of ten years from the date of commencement of commercial operation and signing of the development agreement respectively to Zone Enterprise and Developer of Zone.

Part II- Reduction in Rates

Clause 28

  • The rate of tax under section 148 on import of hybrid cars is proposed to be reduced as below:-
S. No Category Rate of Reduction
1. Up to 1200 cc 100%
2. Up to 1201 to 1800 cc 50%
3. Up to 1801  to 2500 cc 25%

Part III- Reduction in Tax Liability           

Clause I

  • The bill seeks to omit the taxation @ 2.5% as a separate block of income of

Any amount received as

(a) flying allowance by pilots, flight engineers, navigators of Pakistan Armed Forces, Pakistani Airlines or Civil    Aviation Authority, Junior Commissioned Officers or other ranks of Pakistan Armed Forces; and

(b) submarine allowance by the officers of the Pakistan Navy

Clause II

  • The bill seeks to omit the clause II which granted reduction of 75% of tax payable on salary income by a full time teacher or a researcher, employed in a non profit education or research institution duly recognized by Higher Education Commission, a Board of Education or a University recognized by the Higher Education Commission, including government training and research institution.

Clause VII

  • The company engaged in the business of distribution of cigarettes manufactured in Pakistan is required to pay minimum tax on the amount representing its turnover under section 113. The amount of tax payable under the said section is reduced by eighty percent. Now this reduction in tax liability is available to every taxpayer irrespective of status.

Part IV- Exemption from specific provisions

Clause 56 (A)

  • The bill seeks to make advance tax withheld on foreign-produced films, TV plays and serials on import stage under section 148 to be adjustable rather than being assessed under final tax regime.

Clause 59

  • The bill seeks to withdraw the exemption of deduction of Tax at source available to resident individuals from income or profits paid on:-

(a)Defence Savings Certificates, Special Savings Certificates,Savings Accounts or Post Office Savings Accounts, or Term Finance Certificates (TFCs), where such deposit does not exceed one hundred and fifty thousand rupees; and

(b)Investment in monthly income Savings Accounts Scheme of Directorate of National Savings, where monthly installment in an account does not exceed one thousand rupees.

Clause 72 A

  • The bill seeks to charge fixed tax of Rs. 3,500 per Hajji for tax year 2013 and Rs. 5,000 per Hajji for the tax year 2014 in respect of income from Hajj operations instead of routine taxation.

Clause 72 B

  • The bill seeks to exempt Industrial Undertaking from the provisions of section 148, if the tax liability for the current tax year, on the basis of determined tax liability for any of the preceding two tax years, whichever is the higher, has been paid and a certificate to this effect is issued by the concerned Commissioner.

Third Schedule

Part- II – Initial Allowance and First year allowance

Clause I

  • The bill seeks to reduce rate of initial allowance from 50% to 25%.
  • Set off of Losses – Section 56

By virtue of the proposed amendment, an individual shall not be entitled to set off of his loss under any other head of income against the income derived under the head salary.

  • Person – Section 80

Finance Bill 2013, by virtue of the purposed amendment has expended the scope of definition of company. It has been proposed that a Non Profit Organization, an entity or body of persons established or constituted by or under any law for the time being enforce, shall be treated as company

  • Unexplained Income or assets – Section 111

As per section 111, where source of any amount credited in books of account, investment towards asset, or expenditure has not been explained, such amount shall be included in person’s income.

Now a proviso is proposed to be added in sub-section(1) according to which, if source of such credit, or investment or expenditure is explained by way of agricultural income, this source shall be accepted only to the extent of agricultural income on which agricultural income tax has been paid under the relevant provincial law.

It’s mean, agricultural income declared for the income tax purposes shall be accepted only if provincial agricultural income tax has been paid. This step will enhance the collection of agricultural income tax by the provinces.

  •  Minimum tax on the income of certain persons– Section 113

Minimum tax had been charged @ 0.5% of gross turnover, it has now been enhanced to 1%. Facility of unadjusted minimum tax has also been extended to the individuals and AOPs.

  •  Minimum Tax on Builders – Section 113A

Old section 113A through which retailers having turnover up to 5 million could opt for final tax after paying tax @ 1% of turnover is proposed to be deleted. New section 113A proposes to charge minimum tax at the rate of Rs. 25 per square foot from the persons deriving income from the business of construction and sale of residential, commercial or other buildings. The tax so paid shall be the minimum tax on the income of builders from the sale of such building. The minimum tax shall be computed on the basis of total number of square feet sold or booked for sale during the year.

  •  Minimum Tax on Land Developers – Section 113B

Old section 113B charging tax from certain retailers is proposed to be substituted by new section 113B through which persons deriving income from business of development and sale of residential or commercial plots shall pay minimum tax at the rate of rupees fifty per square yard. Tax shall be computed on the basis of total number of square yards sold or booked for sale during the year.

  •  Return of income – Section 114

Section 114 deals with the persons who are required to furnish return of income. Previously, holder of commercial or industrial connection of electricity with annual bill exceeding one million rupees was obliged to file the income tax return. Now, through Finance Bill 2013 this limit is proposed to be reduced to rupees five hundred thousand. It means, a person having industrial or commercial connection and paying annual electricity bill more than rupees five hundred thousand shall be required to file income tax return.

Through introduction of a new sub-clause (ix), persons registered with the followings are also required to file the income tax return:

i-         Any chamber of commerce and industry;

ii-        Any trade or business association;

iii-        Any market committee; and

iv-        Any professional body including Pakistan Engineering Council, Pakistan Medical and Dental Council, Pakistan Bar Council, Provincial Bar Council, Institute of Chartered Accountants, Institute of Cost and Management Accountants.

As per sub-section (1A) of section 114, a person having income from rupees three hundred thousand to rupees three hundred and fifty thousand was required to file the return. Now the person having income from rupees three hundred thousand to rupees four hundred thousand is also required to file the return of income.

For the filing of revised income tax return, approval of commissioner in writing has been made mandatory.

  • Persons not required to furnish a return of income – Section 115

Sub-section (1)

Under sub-section (1) of section 115, salaried persons earning income up to five hundred thousand rupees were not required to file income tax return. Annual statement of deduction of income tax filed by their employer, in the prescribed format was treated as return of such employees. However, as per proviso to this sub-section, in case, income was more than five hundred thousand rupees of such employee; he was required to file return online along with prescribed documents. This section is proposed to be deleted through Finance Bill 2013 along with its proviso. Resultantly, all salaried taxpayers earning taxable income will be required to file income tax returns.

Sub-section (4)

Taxpayers falling in the purview of presumptive tax regime were under obligation to file prescribed statements in place of return of income. Persons/retailers coming within the ambit of section 113A & 113B were also required to file said statements in lieu of return. Bill proposes to substitute both the sections with new sections. Therefore, said sections appearing in the sub-section (4) are proposed to be deleted.

  • Wealth statement -Section 116

Every resident taxpayer, who’s last declared or assessed income, was one million rupees or more was required to file wealth statement along with the return. The bill proposes for filing of wealth statement by all return filers, being individuals, irrespective of quantum of income, by deleting the words one million or more appearing in the relevant sub- section.

Similarly, persons (other than companies) filing statements under section 115(4) were required to file wealth statements along with reconciliation statement if tax paid was Rs. 35,000/- or more. This limit of Rs. 35,000/- or more is proposed to be removed. Resultantly, all statement filers under section 115(4) will be under obligation to file wealth statement along with reconciliation statement irrespective of quantum of tax paid.

Under the existing law, a taxpayer can revise the wealth statement at his own incase any omission is discovered after its filing. Bill proposes the revision of wealth statement with the approval of commissioner only.

  • Method of furnishing returns and other documents – Section 118

This section is proposed to be changed as a result of consequential change proposed in section 115. A salaried taxpayer earning income of rupees five hundred thousand or more was required to file return electronically in the light of provisions of section 115(1). Section 115 (1) is proposed to be deleted; therefore, a new sub-section (2A) is proposed to be added to section 118 to keep the said condition of filing return electronically intact.

Moreover, returns required to be filed by salaried taxpayers through e-portal or statements under section 115(4) will be filed on or before 31st day of August next following the end of tax year to which the statement or return of income relates.

  • Extension of time for furnishing returns and other documents – Section 119

Changes proposed in this section are all consequential changes as a result of changes proposed in section 115.

  • Investment Tax on income – Section 120A

This section in fact was related to tax amnesty schemes likely to be announced by the government in respect of undisclosed movable and immovable assets containing detail of such schemes and relevant rules. This section is proposed to be deleted.

  • Provisional assessment – Section 122C

This section empowers the commissioner to make provisional assessment incase of default of notices issued u/s 114(3) & 114(4). However, in case of filing of income tax return and wealth statement along with reconciliation and other requisite documents within 60 days of receipt of demand notice, assessment so made was no more effective. Period of filing of return and other documents is proposed to be reduced to 45 days from 60 days.

  • Appointment of the Appellate Tribunal – Section 130

Under the existing law, an officer of Inland Revenue Service, with certain conditions, can be appointed as Accountant Member only. Through proposed amendment an officer of Inland Revenue Service will be eligible for appointment as Judicial Member as well, if he is law graduate and has 15 years of service at his credit in B.S 17 and above.

  • Salary – Section 149

This section deals with deduction of tax from salary. Under the existing law an employer is responsible to ensure deduction of tax at source. The bill proposes to replace the word “employer” with “person responsible” paying salary. It will make the responsibility more specific. The employer was also authorized under the law to deduct tax after allowing tax credits u/s 61, 62, 63, 64 and tax withheld from the employee under any section of the ordinance. This authority of making adjustment by the employer is proposed to be withdrawn. Now, making all these adjustments will be the responsibility of the department.

  • Payments to non-residents – Section 152

Prescribed persons were not defined with respect to section 152. A new sub-section(8) is proposed to be added in section 152 by which prescribed persons defined under  section 153(7) will be applicable to this section also.

  • Prescribed persons- Payments for goods, services and contracts – Section 153

Sub-clause (a) to (i) of clause (i) of sub section (7) of section 153 provide a list of persons declared to the prescribed persons for the purpose of section 153. A new clause (j) is proposed to be added in this section, by which a person registered under Sales Tax Act, 1990 will also be a prescribed person for the purpose of withholding tax under this section.

  • Payments to traders and distributors – Section 153A.

This section was introduced through Finance Act 2013. It relates to withholding of tax by manufacturer from its dealers, distributors and wholesalers. However, its application was suspended in the mid of the financial year. Now, this section is proposed to be deleted in view of new withholding tax provisions being introduced in respect of retailers through new section 236H.

  • Income from property – Section 155

Sub-section (3) of section 155 defines prescribed persons for the purpose of deduction of tax from rental income. Through this bill it is proposed that the following entities may also be included in the list of prescribed persons.

i-          Charitable institutions;

ii-        A private educational institution, a boutique, a beauty parlor, a hospital, a clinic or a maternity home; and

iii-      Individuals or association of persons paying gross rent of rupees one and a half million and above in a year.

  • Certificate of collection or deduction of tax – Section 164

A certificate regarding deduction of tax issued by the withholding agent was sufficient evidence of payment for taking credit of such tax u/s 168. Although, withholding agent was legally bound to issue such certificate on the basis of challan of payment but it was not necessary to attach challan with the return. The possibility of issuing certificate without payment of tax was always there. To check issuance of bogus certificates, this legal coverage given to certificate, is proposed to be withdrawn.

  • Statements – Section 165

In the light of provisions of this section every person collecting or deducting tax under Division II of Part V of Chapter X or Chapter XII or Division III of Part V or Chapter XII was legally bound to file monthly statements to commissioner in the prescribed form giving requisite details of recipients. Certain organizations like banks etc were either not filing prescribed statements  or statements filed were not giving requisite details of the recipients on the ground that the following laws do not allow them to disclose said details:

i-           Protection of Economic Reforms Act, 1992;

ii-         The Banking Companies Ordinance, 1962;

iii-        The Foreign Exchange Regulation Act, 1947; and

iv-         Regulations made under State Bank of Pakistan Act, 1956.

An explanation is proposed to be added in section 165 to remove the above limitations. All organizations will law be bound under the law to file prescribed statements disclosing requisite detail.

  • Furnishing of information by banks – Section 165A

A new section 165A is proposed to be added through this bill.

This section provides details to be provided by banks to Board. Under the existing law an officer can obtain information from bank u/s 176 in respect of taxpayer giving title of account and account number to the bank, after obtaining prior permission from the commissioner.

Under the proposed amendment the bank will be under legal obligation, notwithstanding anything contained in any law for the time being in force, to provide following information to the Board in prescribed form and manner;-

i-           Online access to its central data base containing details of its account holders and all transactions made in their accounts;

ii-         A list containing particulars of deposits aggregating rupees one million or more made during the preceding calendar month;

iii-        A list of payments made by any person against bills raised in respect of a credit card issued to that person, aggregating to rupees one hundred thousand or more during the preceding calendar month;

iv-         A consolidated list of loans written off exceeding rupees one million during a calendar year; and

v-           A copy of each Currency Transactions Report and suspicious transactions Report generated and submitted by it to the Financial Monitoring Unit under the Anti-Money Laundering Act, 2010(VII of 2010).

Information so obtained is to be utilized for the purpose of levy of tax only and will be confidential otherwise. Purpose of this proposed change is to broaden the tax base through reliable data base. However, preventing misuse of this information by tax officials will be herculean job for the Board alongwith describing modus operendi for the use of this information by tax functionaries for increasing the revenues.

  • Tax collected or deducted as a final tax – Section 169

Tax deducted on dividend is covered under Final tax regime in all cases except dividend received by a company. Dividend received by a company is chargeable to tax under the normal tax rate applicable to company. This discrimination is proposed to be eliminated through this Bill. If approved, the companies will be at par with other taxpayers and dividend income will be chargeable to tax at 10% and will be covered under the final tax regime.

  • Additional payment for delayed refunds – Section 171

This section deals with compensation to taxpayer for delayed refund. The department’s point of view in this regard was that additional payment for delayed refund is to be calculated from the date of refund order. Whereas, courts had held that the compensation will become due from the date on which deemed order is treated to be issued to the taxpayers. To nullify the impact of the judgment of the court, explanation is proposed to be added to this section according to which compensation will become due from the date on which refund order is made and not from the date the assessment of income has been treated to be made by the Commissioner under section 120.

  • Representatives of non-resident – Section 172

Sub section (3) of section 172 prescribed condition/circumstances under which a person in Pakistan can be treated as representative of non-resident. A person having any business connection with non-resident can be treated as representative of non-resident under above mentioned sub-section. An explanation is proposed to be added with clause (b) defining the term business connection which includes transfer of the assets or business in Pakistan by a non-resident.

  • Audit – Section 177

FBR may select a case of a person for audit under section 214-C. whereas, commissioners were also selecting the cases for audit u/s 177 in the light of provisions of section 177(1). There was no dispute as far as selection of cases for audit by the Board was concerned. However, selection of cases for audit by the commissioner u/s 177 (1) was disputed and challenged in the courts. Courts held that commission can only call for records u/s 177 (1) in such cases which are selected for audit by the Board u/s 214-C. He himself cannot select cases for audit under this section. To nullify the effects of above judgment of the courts, explanation is proposed  to be added with this section to clarify that powers of commissioner to select a case for audit u/s 177(1)` are independent than that of powers of the Board to select a person for audit u/s 214-C.

  • Assistance to Commissioner – Section 178

Changes proposed in this section are just correcting measures. Previously, Federal Excise and Sales Tax used to be a separate department. Therefore, their names were needed to be included in this section. After merger of above departments, including Income Tax department, into Inland Revenue department, there was no need to keep these words in this section. Section is proposed to be corrected accordingly through proposed deletion.

  • Taxpayers registration -Section 181

Presently, NTN is being used as identifier by the Inland Revenue Department. Through proposed amendment in section 181, FBR is being authorized to use CNIC number in place of NTN.

  • Displaying of National Tax Number – Section 181C

A new Sub-section 181C has been proposed which makes it mandatory for every person, deriving income from business, to display his NTN at a concpicuous place of business.

  • Offences and Penalties -Section 182

Finance Bill 2013 proposes following changes in section 182 in respect of penalties.

Sr. # Offence Penalties
1 Fails to furnish return of income as required under section 114 within due date. 0.1% of tax payable in respect of the tax year for each day of default subject to maximum penalty of 50% of tax payable. Minimum penalty shall be Rs. 20,000.
1-A Fails to furnish statement u/s 115, 165 or 165A within the due date. Penalty of Rs 2,500 for each day of default subject to minimum penalty of Rupees 50,000 (in our opinion there should have been maximum penalty of Rs 50,000.
1-AA Fails to furnish wealth statement or wealth reconciliation statement. Penalty of Rupees 100 for each day of default.
8(a) Fails to produce record or documents on receipt of first notice. Penalty of Rs 25,000, previously it was Rs 5,000.
(b) Fails to produce record or documents on receipt of second notice. Penalty of Rs 50,000, previously it was Rs 10,000
(c) Fails to produce record or documents on receipt of third notice. Penalty of Rs 100,000, previously it was Rs 50,000
9 Fails to furnish information as required u/s 176. Penalty of Rs 25,000 on first default and Rs 50,000 on second default. (Previously it was Rs 5,000 and Rs 10,000 respectively.
16 Fails to display NTN certificate at place of business as required u/s 181-C. Penalty of Rs 5,000.

 

  • Selection for audit by the Board – Section  214C

Section 214C authorizes FBR to select the cases for audit through parametric computer ballot. As per pronouncements of superior courts, the board was obliged to disclose parameters to the tax payers. Now a new sub-section (1A) has been proposed which empowers the Board to keep the parameters confidential. This has been done to avoid litigation in respect of parameters.

An explanation has been proposed after sub-section (3) according to which powers of commissioner to call for record/books of account for audit under section 177 are independent and nothing contained in section 214C shall restrict such powers of commissioner.

After the insertion of section 214C through finance act 2010, superior courts pronounced that powers for selection of cases for audit vested with the Board only. This ambiguity has now been removed through introduction of explanation and the commissioner can select the case for audit according to the provisions of section 177.

  • Reward to officers and officials – section 227A:

A new section 227A has been proposed according to which cash reward shall be sanctioned for officers and officials in cases involving concealment or evasion of taxes. Reward shall also be given to informer providing information regarding concealment or evasion of tax.

  • Collection of tax by NCCPL – Section 233AA:

NCCPL was responsible to collect tax from members of stock exchange registered in Pakistan in respect of margin financing in share business. Now the NCCPL is proposed to collect tax from margin financiers, trading financiers and lenders for providing margin financing, margin trading or securities lending under security Rules.

  • Tax on motor vehicles – section 234:

Through section 234, advance income tax is collected in installments where motor vehicle tax is collected in installments. Amendment has been proposed according to which advance income tax may also be collected “Lump sum” where motor vehicle tax is collected “Lump sum”.

As per sub-section (5) tax collected from any person from plying or hiring out of goods transport vehicles was the final tax. This sub-section has now been changed; the tax collected under any sub section of section 234 has been proposed to be adjustable.

  • Advance tax on functions and gatherings – section 236D:

New section 236D has been proposed through which hotels, clubs, marriage halls, restaurants marquee, commercial lawns shall collect tax at 10% on the total amount of bill from the person arranging or holding functions. Where food or service has been provided by any other person, the prescribed person shall collect tax on the payments made for such service.

The advance tax so collected shall be adjustable. Function shall include wedding, seminar, workshop, session, exhibition, concert, show, party or any gathering.

Prescribed person responsible for collecting tax shall include lease holder, operator, or a manager of hall, marquee, hotel, restaurant, commercial lawn, club, community place or any other place.

This change shall enhance burden of tax on persons arranging marriages in marriage halls, hotels, lawns etc.

  • Advance Tax on Foreign produced films – Section 236E

New section 236E has been proposed through which censoring authority, at the time of censor of foreign produced films, a T.V drama serial or play, shall collect advance tax at Rs. 100,000/- in respect of foreign produced films, and Rs. 100,000/- per episode in respect of foreign produced T.V drama serial or foreign produced play. The advance tax so collected shall be adjustable.

  • Advance tax on cable operators and other electronic media– Section 236F

The Finance Bill 2013, through new section 236F proposes that, Pakistan Electronic Media Regulatory Authority at the time of issuance of license or renewal of license to cable operators shall collect advance tax on issuance of license or renewal of license at the rates given in first schedule. These rates are different for different categories.

  • Advance Tax on sales to distributors, dealers and wholesalers – Section 236G

The Finance Bill 2013 proposes that every manufacturer or commercial importer of electronics, sugar, cement, iron and steel products, fertilizers, motor cycles, pesticides, cigarettes, glass, textile, beverages, paint or foam sector, shall collect advance tax from distributors, wholesalers or dealers @ 0.1% of sales. The tax so collected shall be adjustable.

  • Advance tax on sales to retailers – Section 236H

The Finance Bill 2013 proposes that every manufacturer, distributor, dealer, wholesaler or commercial importer of electronics, sugar cement, iron and steel products, fertilizers, motor cycles, pesticides, cigarettes, glass, textile, beverages, paint or foam sector, shall collect advance tax from retailers @ 0.5% of sales. Tax so collected shall be adjustable.

  • Advance tax by Educational Institutions – Section 236I

The Finance Bill 2013 seeks that educational Institutions shall collect advance tax @ 5% of fee where annual fee is more than Rs. 200,000/-. The tax collected shall be adjustable.

The charge of tax along with tuition fee will further increase the burden of parents who are already pressed by heavy tuition fee of private educational institutes.

  • Advance tax on dealers, commission agents – Section 236J

The Finance Bill 2013 seeks that every market committee at the time of issuance or renewal of licenses shall collect advance tax, from dealers, commission agents, and arhatis at the rates given in first schedule. The tax so collected shall be adjustable.

Income Support Levy Act, 2013

Finance Bill 2013 proposes new Act with the title “Income Support Levy Act 2013” to provide financial assistance to economically distressed persons and their families.

New act has been proposed as under.

Short title, extent and commencement.-

(1) This Act may be called the Income Support Levy Act, 2013.

(2) It extends to the whole of Pakistan.

(3) It shall come into force at once.

2. Definitions.-

(1) In this Act, unless the context otherwise requires –

(a) “Levy” means the Income Support Levy leviable or payable under this Act;

(b) “net moveable wealth” means the amount by which the aggregate value of the moveable assets belonging to a person as declared in the wealth statement for the relevant tax year, is in excess of the aggregate value of all the liabilities owed by that person on the closing date of the tax year.

Explanation:-

For the purpose of this clause,- 62

(i) where liability claimed relates wholly and exclusively to an immovable asset, it shall not be claimed and allowed while computing the net moveable wealth. However, where the liability claimed relates wholly and exclusively to a moveable asset, it shall be claimed and allowed as a straight deduction while computing net moveable wealth; and

(ii) where the gross wealth of a person, declared in the wealth statement includes both moveable and immoveable assets and the nature of assets to which the liability relates is not determinable, the liability to be allowed while determining the net moveable wealth shall be calculated by the following formula:-

(A / B) x C

Where –

A is the gross value of moveable assets;

B is the gross value of both moveable and immoveable assts; and

C is the gross value of debts owed;

(c) “Officer of Inland Revenue” means the Officer of Inland Revenue as defined under clause (38A) of section 2 of the Ordinance;

(d) “Ordinance” means the Income Tax Ordinance, 2001 (XLIX of 2001);

(e) “person” means an individual;

(f) “prescribed” means prescribed by the rules made under this Act;

(g) “tax year” means the tax year as defined in clause (68) of section 2 of the Ordinance; and

(h) “wealth statement” means a wealth statement required to be filed under section 116 of the Income Tax Ordinance, 2001.

(2) All other words and impressions used, but not defined herein, shall have the same meaning as is assigned to them under the Ordinance.

3. Charge of Levy.- Subject to the provisions contained in this Act, there shall be charged for every tax year commencing on and from tax year 2013 a Levy, in respect of value of net moveable assets held by a person on the last date of the tax year at the rate specified in section 9 and in the manner specified hereunder.

4. Time and manner of payment of Levy.- A person who is liable to pay the Levy under this Act shall pay the Levy along with wealth statement.

5. Assessment of Levy.- The Officer of Inland Revenue shall, by an order in writing, determine the Levy payable, and shall serve upon the person a notice of demand specifying the sum payable and the time within which it shall be paid and thereupon such sum shall be paid to such account and in such manner as may be prescribed, within the time specified in the notice.

6. Default surcharge.- Without prejudice to any liability under any other law for the time being in force, where a person fails to pay Levy as

provided under section 4 or the levy so paid is less than the amount payable, he shall be liable to pay default surcharge at the rate of sixteen per cent per annum on the amount not paid or the amount by which the Levy paid falls short of the amount payable, calculated from the date it was payable to the date it is paid or the date of an order under section 5, whichever is earlier.

7. Recovery of Levy.- The provisions of the Ordinance shall, so far as may be practicable, apply to the collection of Levy under this Act as they apply to the collection of tax under the Ordinance.

8. Appeals, revisions and rectifications.- The provisions of the Ordinance shall, so far as may be practicable, apply to an appeal against, or revision or rectification of, an order under this Act as they apply to an appeal, revision or rectification under the Ordinance.

9. Rate of Levy.- The rate of levy payable under this Act shall be 0.5% of the net moveable wealth exceeding one million rupees.

10. Power to make rules.- The Federal Board of Revenue may, by notification in the official Gazette, make rules for carrying out the purposes of this Act.

DECLARATION UNDER THE PROVISONAL COLLECTION OF TAXES ACT, 1931 (XVI OF 1931)

The provisions of sub-clause (10) of clause 2, sub-clause (2), sub-clause (3), sub-clause (7), sub-clause (13) and sub-clause (14) of clause 3 and sub-clause (6), sub-clause (8)(a)(ii), sub-clause (8)(a)(iii), sub-clause (8)(a)(iv), sub-clause (8)(b) and sub-clause (9) of clause 5 of this Bill shall have effect, for the purpose of this declaration and for the purposes of the provisions of the Provisional Collection of Taxes Act, 1931 (XVI of 1931), as if they were provisions for imposition of sales tax or duties of federal excise or duties of customs. It is hereby declared accordingly in terms of section 3 of the said Act that it is expedient in the public interest that the aforesaid provisions shall have effect on the 13th June, 2013.

STATEMENT OF OBJECTS AND REASONS

The purpose of this Bill is to make financial provisions for the year beginning on the first day of July, 2013. Various provisions have been explained in the Notes on Clauses.

 

 

 

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