Final Tax HandBook 12-13

Tax Handbook
2012
Tax Handbook 2012

An Information Guide
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Tax Handbook
2012
Preface
This handbook attempts to cater the needs of the various post budget queries forthcoming by our clients. We have attempted to apprise them with a comprehensive explanation of the implications and effect that this Finance Bill has brought about. The handbook encompasses the amendments in the Income Tax Ordinance, Sales Tax Act, Federal Excise Act, Customs Act and Miscellaneous Laws. The applicable amendments in the laws after enactment are effective from July 1, 2012 unless otherwise specified. The commentary should be read in conjunction with the applicable sections of respective Ordinances, Acts and Rules along with the text of the Finance Bill 2012. This commentary attempts to provide a general guideline and thus should not be considered as a conclusive and enforceable document. Professional advice should be sought before acting on any amendment in the Finance Bill or on our comments. We hope that this handbook enhances your perception of Budget 2012-13. For better understanding and convenience, we have also drafted a Tax Planning Guide appended to this handbook. This handbook is the property of Horwath Hussain Chaudhury & Co. and is compiled for the exclusive use of its clients and employees. No part of this handbook may be reproduced except with prior permission of Horwath Hussain Chaudhury & Co. Although best efforts have been made to ensure accuracy of the information in this handbook, any errors and omissions are regretted.
Lahore June 02, 2012 www.crowehorwath.pk
Tax Handbook
2012
Contents Chapter Page

1-4
General
Budget 12-13 Highlights
Commentary on the Finance Bill 2012

5-7
Income Tax
Ordinance, 2001 Schedules First Second Third Fourth Fifth Seventh Eighth 9-16 16-19 20-21 21 21 21 22 22
Sales Tax
Act, 1990 Schedules Sixth Schedule Notable Notifications 23 23 24-26
Federal Excise
Act, 2005 Schedules First Notable Notifications 27-29 30
Customs
Act, 1969 Notable Notifications 31-32 33-34 35-36
Miscellaneous Laws Tax Planning Guide 2012

Income Tax Sales Tax Capital Value Tax
37-47 48-49 50
Tax Handbook
2012
Budget, 2012-2013
Budget, 2012-2013 Salient Features of the Budget 2012-2013
The salient features of the budget 2012-13 are as follows: The total outlay of budget 2012-13 is Rs. 3,203 billion (Rs. 3,110 billion: 2011) showing an increment of 3%. The resource availability during 2012-13 has been estimated at Rs. 2,719 billion (Rs. 2,171 billion: 2011) showing an increment of 25%. The net revenue receipts for 2012-13 have been estimated at Rs. 1,775 billion (Rs. 1,328 billion: 2011) indicating an increment of 34%. The provincial share in federal revenue receipts is estimated at Rs. 1,459 billion (Rs. 1,209 billion: 2011) during 2012-13 showing an increment of 21%. The net capital receipts for 2012-13 have been estimated at Rs. 478 billion (Rs. 525 billion: 2011) showing a decrease of 9%. The external receipts in 2012-13 are estimated at Rs. 387 billion (Rs. 226 billion: 2011) showing an increment of 71%. The overall expenditure during 2012-13 has been estimated at Rs. 3,203 billion (Rs. 3,110 billion: 2011) of which the current expenditure is Rs. 2,612 billion (Rs. 2,632 billion: 2011) and development expenditure is Rs. 591 billion (Rs. 478 billion: 2011). The share of current expenditure Rs. 2,612 billion (Rs. 2,632 billion: 2011) is 82%, (85% : 2011) of the total budgetary outlay for 2012-13. The expenditure on General Public Services is estimated at Rs. 1,877 billion, (Rs 1,898 billion: 2011) which is 72% (72% : 2011) of the current expenditures. The size of Public Sector Development Programme (PSDP) for 2012-13 is Rs. 873 billion (Rs 734 billion: 2011), while for other Development expenditures an amount of Rs. 154 billion (Rs. 122 billion: 2011) has been allocated. This shows an increment of 19% and 26%, respectively. The provinces have been allocated an amount of Rs. 513 billion (Rs. 430 billion: 2011) from Public Sector Development Programme (PSDP) showing an increment of 19%. An amount of Rs. 10 billion (Rs.10 billion: 2011) has been allocated to Earthquake Reconstruction and Rehabilitation Authority (ERRA) in the PSDP 2012-13.
01
Budget, 2012-2013
Comparative Budgetary Position 2012-2013 & 2011-2012 Receipts

2012-2013 (Rs. in Billion)
Tax Revenue (FBR) Non Tax Revenue Gross Revenue Receipts Less: Provincial Share in Taxes 2,503.58 730.33 3,233.91 (1,458.92) 1,774.99 477.78 386.87 79.55 483.81

2,024.57 512.19 2,536.76 (1,208.62) 1,328.14 525.50 226.15 90.74 939.20
Net Federal Revenue Receipts (A) Net Capital Receipts (B) External Resources (C) Estimated Provincial Surplus (D) Bank Borrowings (E)
Total Resources (A+B+C+D+E)
3,203.00
3,109.73
02
Tax Handbook
2012
Budget, 2012-2013
Expenditures
General Public Services Defence Affairs and Services Public Order and Safety Affairs Economic Affairs Environment Protection Housing and Community Amenities Health Affairs and Services Recreation, Culture and Religion Education Affairs and Services Social Protection 1,876.84 545.39 70.16 53.64 0.74 1.86 7.85 6.25 47.87 1.34 2,611.94

1,898.03 510.18 61.85 72.24 0.60 1.65 6.65 5.37 45.21 30.13 2,631.91
Current Expenditures (A) Development Expenditure (B)

Federal Government Provincial Government
360.00 76.77 436.77
303.66 52.40 356.06 121.76 3,109.73
Other Development Expenditure (C)

Total Expenditures (A+B+C)
154.29 3203.00
03
Budget, 2012-2013 Breakup of Receipts

14.92%
12.08%
2.48%
55.42% 15.10%
Revenue Receipts (Net)
Capital Receipts (Net)
External Resources
Estimated Provincial Surplus
Bank Borrowings
Breakup of Expenditures
0.24% 1.49% 0.20% 0.04% 11.24%
2.40% 4.82% 58.60%
17.03%
0.06%
0.02% 1.67%
2.19%
Defence Affairs and Services Housing and Community Amenities Education Affairs and Services Other Development Expenditures
Public Order and Safety Affairs General Public Services Social Protection
Economic Affairs Health Affairs and Services Development Expenditures (PSDP)
Environment Protection Recreation, Culture & Religon Dev. Loans and Grants to Province
04
Tax Handbook
2012
Commentary
The Finance Bill, 2012
Tax Handbook
2012
Finance Bill Highlights

Income Tax Ordinance, 2001
Finance Bill Highlights
The Finance Bill, 2012 seeks to define National Clearing Company Limited and assigns it the role of withholding agent. Concept of 'Total Income' income rationalized. Notional benefit on concessional loan by employers to employees to the extent of Rs. 500,000 shall be exempt from tax. Tax on capital gains from short selling of immovable property has been imposed. Additional amount received on delayed refunds to be treated as 'Income from Other Sources'. Provisions relating to setting off of losses in case of AOPs have been rationalized. Limits for determination of tax credit on investment in listed shares and life insurance have been relaxed. Tax credits have been extended to industrial undertakings as a relief to combat industrial crises. The Commissioner (Appeals) empowered to grant stay against tax demand for 30 days. Commissioner (Appeals) is no more bound to dispose of an appeal within 4 month time limit. Appellate Tribunal empowered to grant stay against recovery of tax demand for 180 days. Commercial Importers, Traders and Exporters have been provided an alternative option to be taxed under Normal Tax Regime. The Bill seeks to make manufacturer a withholding agent in respect of supplies made to distributors, dealers and wholesalers. Taxpayer Honor Card Scheme has been introduced providing privilege to active taxpayers. Flat rate of default surcharge at 18% p.a. prescribed. Tax free threshold of daily cash withdrawals from banks has been increased from Rs. 25,000 to Rs. 50,000. NCCPL has been empowered to collect advance tax from members of stock exchanges. Exemption threshold for salary income and business income has been increased to Rs. 400,000. Slabs of total income have been reduced and uniform and progressive rates for computing tax liability have been introduced for both individuals and AOPs. Rates of tax on disposal of securities frozen for two years. Relief has been provided to both individual and AOP retailers by reducing rate of turnover tax applicable to them from 1% to 0.5%. Tax on goods transport vehicles has been increased from Re. 1 to Rs. 5 per Kg of the laden weight. Tax for passengers transport vehicles plying for hire has been increased from Rs. 100 per seat per annum to Rs. 500 per seat per annum. Advance tax to be paid on registration of motor vehicles (1,301cc to 1,600cc) has been increased from Rs. 16,875 to Rs. 25,000. Exemption, subject to certain conditions, has been provided on amount received from income payment plan out of accumulated balance of Pension Accounts. Reduced rate of 3% shall be sanctioned to importers only at the production of exemption certificate. Intra group profit on debt and dividends shall be exempt from tax if group companies opt to be taxed under group taxation. Exemption from applicability of capital gains tax extended. Initial Allowance on building reduced from 50% to 25%. An alternative option for payment of tax at the rate of 40% of profits and gains net of royalty has been provided to Petroleum Exploration and Production Companies. Dividends received by banks from money market funds and income funds are to be taxed at the rate 25% in Tax Year 2013 and at the rate of 35% in Tax Year 2014 and onwards.
05
Finance Bill Highlights Sales Tax Act, 1990

The Finance Bill harmonized the procedure for tax assessment and recovery of tax not levied or short levied or erroneously refunded. Uniform rate of sales tax @16% made applicable and higher sales tax rates from standard rate of 16% eliminated. Supplies against international tenders exempted that are currently treated as zero rated. Nomenclature of certain existing HS Codes revised to align coding with World Customs Organization (WCO). Exemption on locally produced cotton seeds oil withdrawn. Sales Tax rate on import and supplies of black tea reduced from 16% to 5%. Certain zero-rated items included in exempt items list.
Federal Excise Act, 2005

Rate of duty enhanced on locally produced cigarettes. Rate of duty reduced by Rs. 100 per metric ton on cement. Duty on lubricant oil, certain cosmetic items and perfumes withdrawn. Duty in respect of air travel rationalized. Services provided by asset management company and companies providing insurance cover for livestock have been exempted from duty. Exemption on viscose staple fiber withdrawn.
Customs Act, 1969

En route pilferage of transit goods has regarded as smuggle. Additional functionary directorates have been introduced for effective functional enforcement. Punishment of whipping eliminated and punishment on computer related offences introduced. Powers of adjudicating authorities Collectors, Superintendent and Principal Appraiser extended and jurisdiction of monetary limit of each level of authority redefined. Departmental appeals allowed for officers before Collector (Appeals) and Appellate Tribunal. Concept of e-auction of goods introduced. Custom duty in respect of shredded tyre scrap for cement manufacturers and raw materials of printing and stationery items has been reduced. The maximum tariff rate has been reduced from 35% to 30%.
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Tax Handbook
2012
Finance Bill Highlights Miscellaneous Laws

Capital value of shares of a public listed company acquired by a person has been exempted from CVT. Cantonment Board not to be included in the definition of urban area. For residential flats and commercial immovable area, the rate of CVT has been decreased to 2% of the recorded value if the value of the immovable property is recorded. Maximum rate of cess for gas infrastructure development companies has been increased. Certain provisions of the Finance Bill, 2012 are to be immediately applicable with effect from June 2, 2012.
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08
Tax Handbook
2012

Income Tax Ordinance, 2001 'National Clearing Company Limited' Defined Section 2(35A)
National Clearing Company Limited (NCCPL) was incorporated in 2001 to manage and operate the National Clearing & Settlement System (NCSS). The capital market of Pakistan has a triangular foundation comprising of the stock exchanges, Central Depository Company and NCCPL. NCCPL is playing a significant role in the capital market of Pakistan. The Operations of NCCPL are governed by the following: NCCPL Regulations, 2003 NCSS Procedures, 2003 Clearing House (Registration and Regulations) Rules, 2005 By virtue of the Finance Bill, 2012 the definition of NCCPL has been sought to be inserted as a company incorporated under the Companies Ordinance, 1984 and licensed as 'Clearing House' by the Securities and Exchange Commission of Pakistan.
Concept of 'Total Income' Rationalized

The Bill seeks to rationalize an inclusive concept of 'total income' that includes: Person's income under all heads of income for the year, and Person's income exempt from tax under any of the provisions of the Income Tax Ordinance, 2001
Section 10, 53(IA), 9
By virtue of proposed amendment in the definition of total income, whereby the exempt income has been included in the scope of total income and, therefore, the superfluous provision envisaged under subsection (1A) of Section 53 captioned as Exemptions and tax concessions under the Second Schedule is sought to be omitted. Pursuant to amendment in the definition of 'total income', Section 9 captioned as 'Taxable income' is sought to be amended. It would result in including the person's income under all heads of income for the year except exempt income.
Concessional Loans by Employers to Employees
Section 13(7), (14)
Presently the loan advanced by an employer to an employee on soft terms is considered as perquisite for the employee and it is added to the taxable income of the employee based on benchmark interest rate policy given under the provisions of the law. By virtue of the Finance Bill, 2012, the employer may disburse a loan of upto Rs. 500,000 to an employee free of interest or at a rate lower than the benchmark rate. Thus, notional benefit on loan amount of upto Rs. 500,000 would not be treated as taxable perquisite for an employee. This is a good move to incentivize employees whereby small loans are advanced by employers to employees for their financial assistance. In an another move the Bill seeks to cap the benchmark rate of interest for concessional loans as 10% instead of aligning it with benchmark rate that has pitched upto 13%.
Taxability of Capital Gain on Sale of Immovable Property
Section 37(1A)
The Finance Bill, 2012 seeks to introduce the policy of taxing gains on disposal of real estate. Taxing the real estate sector is very much confusing in the Country and according to research reports a huge foreign direct investment (FDI), flow of foreign remittances and a phenomenal rise in banking growth in the past years helped significant investment in the real estate sector but the revenue contribution from this sector was negligible due to legal issues. The Bill proposes a new tax policy for the property sector with an aim to broaden the tax base and impose tax on those earning huge profits in this sector.
09

The Bill seeks to tax the gains arising on sale of immovable property held for a period less than two years under the head capital gains at the following rates:
Period for which Immovable Property is Held

Up to 1 year More than 1 year but not more than 2 years
Rate of Tax
10% 5%
Additional Amount Received on Delayed Refunds
Section 39,171
In the wake of activating the dormant provisions of law to compensate the taxpayer receiving additional amount on account of delayed refunds, the Bill seeks to tax such amount under the income head of Income from other sources so as to charge tax on such compensation. The Bill seeks to replace the fluctuating rate linked with KIBOR for determining the compensation on delayed refunds with the flate rate of 15% per anum.
Redundancy in Setting off of Losses in AOP Cases Removed
Section 59A
By virtue of the Finance Act, 2003, a new section 59A was inserted to provide procedure for set-off of losses in the case of AOPs. Consequent to changes in principles of taxation of AOPs, the redundant references made to the provisions of loss adjustment are sought to be removed so as to bring harmony in the principles of taxation of AOPs.
Tax Credit on Investment in Listed Shares and Life Insurance

Tax credit for investment in shares and insurance is worked out using the following formula: (A/B) X C
Section 62(2),(3)
Where A is the amount of tax assessed to the person for the tax year before allowance of any tax credit under Part-X of Chapter III B is the person's taxable income for the tax year and C is the lesser of: a) b) c) Total cost of acquiring the shares or the total contribution or the premium paid by the person 15% of the person's taxable income for the year Rs. 500,000
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Tax Handbook
2012

The Bill seeks to enhance the eligible investment amount for tax credit on investment in shares and insurance by the resident persons other than companies in the following manner:
Current
15% of the person's taxable income for the year Rs. 500,000
Proposed
20% of the person's taxable income for the year Rs. 1,000,000
The Bill seeks to curtail the limit of holding period of shares for reversing the tax credit already availed thereof under the following timeline:
Current
Disposal of shares within 36 months of the date of acquisition
Proposed
Disposal of shares within 24 months of the date of acquisition
'Tax Payable' Clarified for Availing of Tax Credit for Investment in BMR
Section 65B(1)
The Bill seeks to clarify the phraseology of tax payable in consonance to availing tax credit on the amount invested for balancing, modernization and replacement (BMR) of plant and machinery shall be allowed as tax credit. The tax payable shall constitue the tax paid under the following regimes: Normal Tax Regime Minimum Tax Regime Final Tax Regime
Terminative Date for Availing of Tax Credit for Investment in BMR Extended
Section 65B(4)
By virtue of Finance Act, 2010 some relief measures for recession stricken industry and a tax credit for BMR costs incurred by corporate sector was provided @ 10% in the tax year of its incurrence. This concession had been made available in-between the Tax Years 2011 to 2015. The Finance Bill, 2012 seeks to extend the terminative date of availing the tax credit upto the Tax Year 2016 and the credit amount is also sought to be doubled i.e. at 20% of the tax payable.
Tax Credit for Newly Established Industrial Undertakings
Section 65D
In the wake of dampening industrial crisis in the country the Federal Government, as a relief measure for new investment, introduced tax credit for new industrial undertakings vide Finance Act, 2011 on fulfilling the following pre-requisites: A new corporate taxpayer establishes a new industrial undertaking for manufacturing in Pakistan between the first day of July, 2011 and 30th day of June, 2016 Industrial undertaking is managed by a company registered under the Companies Ordinance, 1984 The industrial undertaking is not formed by the splitting up or reconstruction or reconstitution The industrial undertaking is set up with 100% equity owned by the company The Finance Bill, 2012 seeks to include and clarify the following in order to avail the tax credit: Corporate dairy farming is proposed to be treated as an industrial undertaking 100% equity raised through issuance of new shares for cash consideration Short term financing obtained from banking companies for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section Industrial undertaking is proposed to be treated to have been setup on the date on which the industrial undertaking is ready to go into production, whether trial-run production or commercial production
11
Income Tax Ordinance, 2001 Tax Credit for Equity Investment in Existing Established Industrial Undertakings Section 65E
By virtue of Finance Act, 2011 the Federal Government, as a relief measure for an investment, introduced a tax credit for equity investment in existing established industrial undertakings. The amount of the tax credit is equal to 100% of the tax payable and is allowed to such company for new investment made on or after first day of July, 2011, for a period of five years or commencement of commercial production, whichever is later. The Finance Bill, 2012 seeks to include and clarify the following in order to avail the tax credit: Corporate dairy farming to be treated as an industrial undertaking 100% equity raised through issuance of new shares Equity investment for expansion project and for a new project 100% tax credit whereby separate books of accounts are maintained for an expansion project or a new project otherwise the tax credit shall be such proportion of the tax payable as is the proportion between the new equity and the total equity including new equity The plant and machinery is installed at any time between July 1st, 2011 and the 30th June, 2016 New equity means the fresh issue of shares and shall not include loans obtained from shareholders or directors Short term financing obtained from banking companies for the purposes of meeting working capital requirements shall not disqualify the taxpayer from claiming tax credit under this section In case of tax credit for equity investment for expansion in Industrial unit, the newly introduced section 65E is meant to provide tax credit on investment by a company with 100% equity investment in BMR, or for expansion of the plant and machinery already installed, in an industrial undertaking set up in Pakistan before July 1, 2011 subject to the fulfillment of laid down conditions. Tax credit shall be allowed on the basis of proportion that such equity investment bears to the total investment in the company. The tax credit shall be allowed if the plant and machinery is purchased and installed at any time between July 1, 2011 and June 30, 2016 and amount of tax credit shall be allowed against the tax payable by the taxpayer in respect of the tax year in which the plant or machinery is purchased and installed and for the subsequent four years.
FBR Empowered to Make Rules for Determination of Cost of an Asset and Consideration Received
Section 76, 77
The Bill seeks to empower FBR to make rules for determination of cost of any asset and determination of consideration received for any asset.
Special Provision Relating to Capital Gain Tax on Disposal of Listed Securities
Section 100B
The Finance Bill, 2012 seeks to insert a special provision relating to Capital Gain Tax, which states that tax on Capital Gains on disposal of listed securities shall be computed, determined, collected and deposited in accordance with the rules laid down in Eighth Schedule. This section shall not apply to the following persons or class of persons, namely: a) b) c) d) e) A mutual fund A banking company, a non-banking finance company, an insurance company A modaraba A foreign institutional investor being a person registered with NCCPL as a foreign institutional investor Any other person or class of persons notified by the Board
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Tax Handbook
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Income Tax Ordinance, 2001 Anomaly in Pakistan-Source Dividend Income Removed Section 101B
The proposed insertion seeks to include remittance of after tax profit of a branch of a foreign company operating in Pakistan as a Pakistan-source income. The Finance Act, 2008 amended the inclusive definition of dividend income to include remittance of after tax profit of a branch of a foreign company operating in Pakistan; however, reference to Pakistan source income was overlooked under the scope of geographical source of income. This anomaly is sought to be removed by elaborating the Pakistan-source dividend as: Dividend paid by a resident company Remittance of after tax profit of a branch of a foreign company operating in Pakistan
Phraseology of 'Tax Payable or Paid' for Minimum Tax Applicability Clarified
Section 113
The Bill seeks to clarify that tax payable or paid does not include tax already paid or payable in respect of deemed income which comes under the Final Tax Regime in ascertaining the minimum tax liability . In Budget speech, the Finance Minister announced the incentive of reduction in minimum tax rate from 1% to 0.5% but relevant amendments are missing under the provisions of the Finance Bill, 2012 and to that extent needs to be clarified.
Profit/Loss for Revised Return
Section 114(6)(c)
The Bill proposes that the revised return ought to reflect the profit amount or loss amount as determined or ascertained under best judgment assessment, amended order, revision order, provisional assessment, appellate order or rectified order.
Limitation Period for Examination of Return Extended
Section 120(6)
The Finance Bill, 2012 proposes to extend the limitation of examination of return by further 180 days. Presently in case the return of income is not complete, the Commissioner has the powers to serve a notice for furnishing of certain documents uptill the close of the financial year in which the return is furnished.
Ex-parte Assessment Effectuated
Section 121(1)
By virtue of proposed insertion the Bill seeks to elaborate that the ex-parte assessment would have an overriding effect on the deemed assessment on the basis of original return or revised return filed thereof.
Amendment of Provisional Assessment

The proposed insertion seeks to include the provisional assessment in the scope of amendment of assessment.
Section 122(1)(5A)
The Bill further seeks to omit the redundant references for amending assessments made under the Repealed Income Tax Ordinance. The Bill also seeks to empower the Commissioner to undertake such enquiries as he deems fit for amending an order.
Compliance Requirement for Invalidating of Provisional Assessment for Corporate Taxpayers Explained
Section 122C (2) Proviso
The Bill proposes to insert a new proviso to envisage the compliance requirement for invalidating the provisional assessment made in the case of corporate taxpayers whereby the return of total income along with audited accounts or final accounts are filed electronically during the time limitation of sixty days.
Time Limitation for Tax Demand Stay by Commissioner (Appeals) Prescribed
Section 128(1A)
The proposed insertion seeks to envisage the powers of the Commissioner (Appeals) against the recovery of tax levied under the Ordinance and period of stay has been provided for 30 days.
13
Income Tax Ordinance, 2001 Time Limitation for Disposal of the Appeal by Commissioner (Appeals) Withdrawn Section 129(5)(6)(7)
The Bill proposes to withdraw the provisions of time limitation of four months for disposal of an appeal by the Commissioner (Appeals) as well as to withdraw the relating conditions laid down for implementation of such time limitation.
Appointment of An Accountant Member of ATIR
Section 130(4)(ii)
The proposed amendment seeks to curtail the minimum experience requirement for appointment of an Accountant Member of Appellate Tribunal Inland Revenue from five years to three years.
Eligibility Criterion for Appointment of Chairperson of Inland Revenue Appellate Tribunal
Section 130(5)
The Bill seeks to remove the compulsive condition of appointment of a judicial member as a chairperson of Inland Revenue Appellate Tribunal. The proposed omission empowers the Government to appoint a chairperson either from accountant members or judicial members.
Tax Demand Stay by Appellate Tribunal
Section 131(5)
The proposed substitution seeks to remove the ambiguous multiple time limitation periods against stay of recovery of tax with a single provision of stay against tax recovery for 180 days in aggregate and in case stay by high court is already granted then the availed time thereof would be excluded from the given time period of 180 days.
Option to Commercial Importers, Traders & Exporters For Assessment under Normal Tax Regime
Sections 148(7), 153(1)(a), 154(4) and 169 Clauses (41A), (41AA) and (41AAA) of Part IV of the Second Schedule
At present, different sectors are operating under the Final Tax Regime (FTR) and finally discharge their tax liabilities under that regime. For example, commercial importers are paying 5% withholding tax; exporters 1%; suppliers 3.5%. Under that system taxes collected or deducted at source are treated as a final tax liability in respect of such amounts. The proposed changes would result in maintenance of books of account to record each and every business transaction which would ultimately promote documentation. In this way, taxpayer will either have to pay higher rate of withholding tax for not maintaining books of accounts or pay lower rate under normal tax regime and file income tax returns. To bring them at par with the taxpayers operating under normal tax regime the right of carry forward of losses and other related provisions will remain applicable if such option is availed. However, in order to opt in the newly introduced scheme the minimum tax liability in respect of such income shall not be less than: 60% of tax collected at the import stage 70% of tax deducted at source on such supplies 50% of the tax collected at the time of realization of export proceeds and indenting commission
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Tax Handbook
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Income Tax Ordinance, 2001 Payments to Non-residents & to PE of Non-residents Sections 152, 153
In an effort to remove the anomalous placement of withholding taxes provisions applicable to nonresidents and to Permanent Establishment (PE) of a nonresident have been rearranged to make the implications of the provisions more clear and unambiguous. The Bill proposes the insertion of a new subsection to rearrange the withholding tax provisions whereby a person making a payment for advertisement services to a nonresident media person relaying from outside Pakistan shall deduct tax from the gross amount paid at the rate of 10%. This was previously covered under section 153A which is now being replaced. The Bill further seeks that deduction of tax from payment of insurance premium or re-insurance premium to a nonresident shall not apply in case of written approval of the Commissioner to the effect that such amount is taxable to a PE of the nonresident in Pakistan. The proposed omission of references in Section 153 regarding payments to a PE of a non-resident on account of sale of goods, rendering of or providing of services or execution of a contract are intended to be placed in Section 152; however, no such corresponding reference has been made to Section 152.
Manufacturers Liable to Collect Tax at Source from Traders and Distributors
Section 153A
Withholding tax on payments for goods, services and contracts is one of the major contributors to the Government Exchequer and over the period of time frequent amendments have been brought in under the relevant provisions of law. Right from the promulgation of the Ordinance numerous amendments have been made to the withholding provisions and in eventuality has resulted into some ambiguities in its application. In an attempt to broaden tax base manufacturers have been given the role of withholding tax agent to collect the required amount of withholding tax at the time of sale to distributors, dealers and wholesalers at the proposed tax rate of 1% of the gross amount of their sales.
Taxpayer Card Scheme Introduced
Section 181B
In an attempt to boost the morale of active taxpayers the proposed insertion of a new section seeks to introduce a 'Taxpayer Honour Card Scheme' to privilege active taxpayers.
Voluntarily Penalty Payment Prescribed
Section 182(2)
The Finance Bill, 2012 proposes to insert a proviso to prescribe that where the taxpayer admits his default he may voluntarily pay the amount of penalty due thereon.
Default Surcharge to be Determined on Flat Rate Basis
Section 205
The Finance Bill, 2012 proposes to introduce a flat rate of default surcharge at the rate of 18% per annum contrary to the prevailing varying rate that is linked with the KIBOR. The Bill further seeks to provide relief in the amount of default in consequent to appeal orders.
Hierarchical Arrangement of Tax Authorities
Section 207(3)(3A)
The Bill seeks to make all the tax authorities subordinate to FBR. The Bill proposes to arrange hierarchical order of income tax authorities to name the subordinates of Chief Commissioner of Inland Revenue.
Condonation of Time Limit
Section 214A
The Bill seeks to insert an explanation to the provision of condonation of time limit to elaborate the jurisdictional powers of authorities to condone the time limit with respect to powers vested with them.
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Income Tax Ordinance, 2001 Functionary of Directorate General (Intelligence and investigation), Inland Revenue Established Section 230
In line with similar functionaries working under the auspices of 'Inland Revenue' under Sales Tax and FED the proposed insertion seeks to induct the DG Intelligence and Investigation authority under hierarchical arrangement as to be notified by the Government.
Limit of Cash Withdrawal from a Bank
Section 231A
Finance Bill 2012 seeks to enhance the daily cash withdrawal limit attracting the deduction of withholding tax from Rs. 25,000 to Rs. 50,000. However, the rate of withholding tax has not been changed.
Collection of Tax by a Stock Exchange
Section 233A(1)(d)
The Bill seeks to restrict the Stock Exchanges registered in Pakistan to act as a withholding agent from collecting advance tax from its members in respect of trading of shares and financing of carryover trades in share business. The restriction to collect advance tax from members on trade of shares has been reinforced in the Finance Bill, 2012 as it was also provided in the Finance (Amendment) Ordinance, 2012.
Collection of Tax by NCCPL
Section 233AA
The Bill seeks to introduce a new section whereby it proposes NCCPL to collect advance tax from the members of stock exchanges registered in Pakistan in respect of margin financing in share business at the rate of 0.01% of value of shares.
First Schedule
Uniform Rates of Tax for Business Individuals and Association of Persons Part 1 Division 1 Clause 1
The Finance Bill, 2012 seeks to revive the older pattern whereby the individuals, other than the salaried class, and AOPs were taxed at the same slab rates. The Finance Bill, 2010 introduced a flat rate of 25% applicable on all AOPs. The Finance Bill, 2012 seeks to restore the common slab rates used by both the individuals, other than the salaried class, and the AOPs and revised the rates and slabs as under:
Current Rates of Tax for Individuals Applicable on Taxable income

Taxable income not exceeding Rs. 350,000 Taxable income exceeding Rs. 350,000 but not exceeding Rs. 500,000 Taxable income exceeding Rs. 500,000 but not exceeding Rs. 750,000 Taxable income exceeding Rs. 750,000 but not exceeding Rs. 1,000,000 Taxable income exceeding Rs. 1,000,000 but not exceeding Rs. 1,500,000 Taxable income exceeding Rs. 1,500,000 0% 7.5% 10% 15% 20% 25%
Proposed Rates of Tax for Individuals and AOPs Applicable on Taxable income
Taxable income not exceeding Rs. 400,000 Taxable income exceeding Rs. 400,000 but not exceeding Rs. 750,000 Taxable income exceeding Rs. 750,000 but not exceeding Rs. 1,500,000 Taxable income exceeding Rs. 1,500,000 but not exceeding Rs. 2,500,000 Taxable income exceeding Rs. 2,500,000 0% 10% of the amount exceeding Rs. 400,000 Rs. 35,000 + 15% of the amount exceeding Rs. 750,000 Rs. 147,500 + 20% of the amount exceeding Rs. 1,500,000 Rs. 347,500 + 25% of the amount exceeding Rs. 2,500,000
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Income Tax Ordinance, 2001 Rates of Tax for Salaried Taxpayers Part 1 Division 1 Clause 1A
The Finance Bill, 2012 seeks to reduce the slab rates applicable on salaried individuals. Existing 17 slabs are proposed to be reduced to 5 as under:
Current Rates of Tax for Salaried Taxpayers Proposed Rates of Tax for Salaried Taxpayers Applicable on Taxable income Applicable on Taxable income
Taxable income not exceeding Rs. 350,000 Taxable income exceeding Rs. 350,000 but not exceeding Rs. 400,000 Taxable income exceeding Rs. 400,000 but not exceeding Rs. 450,000 Taxable income exceeding Rs. 450,000 but not exceeding Rs. 550,000 Taxable income exceeding Rs. 550,000 but not exceeding Rs. 650,000 Taxable income exceeding Rs. 650,000 but not exceeding Rs. 750,000 Taxable income exceeding Rs. 750,000 but not exceeding Rs. 900,000 Taxable income exceeding Rs. 900,000 but not exceeding Rs. 1,050,000 Taxable income exceeding Rs. 1,050,000 but not exceeding Rs. 1,200,000 Taxable income exceeding Rs. 1,200,000 but not exceeding Rs. 1,450,000 Taxable income exceeding Rs. 1,450,000 but not exceeding Rs. 1,700,000 Taxable income exceeding Rs. 1,700,000 but not exceeding Rs. 1,950,000 Taxable income exceeding Rs. 1,950,000 but not exceeding Rs. 2,250,000 Taxable income exceeding Rs. 2,250,000 but not exceeding Rs. 2,850,000 Taxable income exceeding Rs. 2,850,000 but not exceeding Rs. 3,550,000 Taxable income exceeding Rs. 3,550,000 but not exceeding Rs. 4,550,000 Taxable income exceeding Rs. 4,550,000 0% 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%
17
Taxable income not exceeding Rs. 400,000 Taxable income exceeding Rs. 400,000 but not exceeding Rs. 750,000 Taxable income exceeding Rs. 750,000 but not exceeding Rs. 1,500,000 Taxable income exceeding Rs. 1,500,000 but not exceeding Rs. 2,500,000 Taxable income exceeding Rs. 2,500,000
0% 5% of the amount exceeding Rs. 400,000 Rs. 17,500 + 10% of the amount exceeding Rs. 750,000 Rs. 92,500 + 15% of the amount exceeding Rs. 1,500,000 Rs. 242,500 + 20% of the amount exceeding Rs. 2,500,000
Income Tax Ordinance, 2001 Taxability of Salary Income
Sr. No
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Tax Liability for the Tax Year 2012
Average Tax Rate Increase / (Decrease)

Rs. 0 (6,000) (8,750) (11,750) (16,750) (27,500) (35,000) (47,000) (57,500) (72,000) (90,000) (113,000) (132,500) (143,500) (168,750) (189,250) (257,500)
Taxable Salary
Rs. 350,000 400,000 450,000 550,000 650,000 750,000 900,000 1,050,000 1,200,000 1,450,000 1,700,000 1,950,000 2,250,000 2,850,000 3,550,000 4,550,000 5,551,000
Pre-Budget
Rs. 0 6,000 11,250 19,250 29,250 45,000 67,500 94,500 120,000 159,500 212,500 273,000 337,500 456,000 621,250 841,750 1,110,200
Post-Budget
Rs. 0 0 2,500 7,500 12,500 17,500 32,500 47,500 62,500 87,500 122,500 160,000 205,000 312,500 452,500 652,500 852,700
Pre-Budget
% 0% 1.5000% 2.5000% 3.5000% 4.5000% 6.0000% 7.5000% 9.0000% 10.0000% 11.0000% 12.5000% 14.0000% 15.0000% 16.0000% 17.5000% 18.5000% 20.0000%
Post-Budget
% 0% 0% 0.5556% 1.3636% 1.9231% 2.3333% 3.6111% 4.5238% 5.2083% 6.0345% 7.2059% 8.2051% 9.1111% 10.9649% 12.7465% 14.3407% 15.3612%
Tax liability has been worked out without taking into account the marginal tax relief.
Graphical Representaion
1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
18
Tax Handbook
2012
Income Tax Ordinance, 2001 Rate of Tax on Retailers Part 1 Division 1A
The Finance Bill, 2012 seeks to reduce tax rate applicable on retailers, both individuals and AOPs, having turnover of upto Rs. 5 million in a tax year from 1% to 0.50%.
Rate of Tax Applicable on Capital Gains on Disposal of Securities
Part 1 Division VII
The Finance Bill, 2012 seeks to make editorial changes to enhance clarity and seeks to freeze the tax rates for Tax Years 2011 to 2014 that have already been introduced by the Finance (Amendment) Ordinance, 2012. Tax rates proposed by the Finance Bill are as under:
Period for which Securities are Held

Less than 6 months
Tax Year
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2016
Existing Rates
10% 10% 12.5% 15% 17.5% 7.5% 8% 8.5% 9% 9.5% 10%
Proposed Rates
10% 10% 10% 10% 17.5% 7.5% 8% 8% 8% 9.5% 10%
More than 6 months but less than 12 months
Rate of Tax on Capital Gains on Disposal of Immovable Property
Part 1 Division VIII
The Finance Bill, 2012 seeks to charge tax on capital gains in respect of disposal of immovable properties on the following rates:
Period for which Immovable Property is Held

Up to 1 year More than 1 year but less than 2 years
Rate of Tax
10% 5%
Collection of Tax from Distributors, Dealers and Wholesalers

The Finance Bill seeks to collect tax from distributors, dealers and wholesalers at 1% of the gross amount of their sales.
Part IIA
Part IV
Tax on Motor Vehicles
The Bill seeks to enhance tax rates on motor vehicles as under: For goods transport vehicle, tax is proposed to be increased from Re. 1 to Rs. 5 per kilogram of the laden weight; For passenger transport vehicles plying for hire with registered seating capacity of 20 persons or more, the tax is proposed to be increased from Rs. 100 per seat per annum to Rs. 500 per seat per annum; and Advance tax levied at the time of registration of a new 1301cc to 1600cc locally manufactured motor vehicle is proposed to be enhanced from Rs. 16,875 to Rs. 25,000.
Division III & Division VII
19
Second Schedule
Exemptions & Tax Concessions
The Second Schedule relates to specific exemptions granted in respect of total income; reduction in tax rates; reduction in tax liability and exemption from specific provisions. The Bill proposes to exempt or extend the scope of exemptions in respect of the following sources of income:
Part I
Exemptions from Total Income Amounts Received from Income Payment Plan out of Accumulated Balance of Pension Accounts Clause 23B & 23C
The Bill seeks to exempt from tax the amounts received as monthly installment from income payment plan invested out of the accumulated balance of an individual pension account with a pension fund manager or an approved annuity plan etc. as specified in Voluntary Pension System Rules, 2005, provided the accumulated balance is invested for 10 years. It also seeks to exempt the withdrawal of accumulated balance from approved pension fund that represents the transfer of balance of approved provident fund to the said approved pension fund under the Voluntary Pension System Rules, 2005.
Donations to Specified Institutions
Clause 61(ia) & Clause 66(xxvii)
The Bill seeks to extend the exemption on donation paid to The Citizen Foundation as a straight deduction from taxable income . Any income derived by The Citizen Foundation shalll also be exempt.
Profits and Gains Derived by a Venture Capital Company & Venture Capital fund
Clause 101
The Bill seeks to extend the exemption to profits and gains derived by a venture capital company and venture capital fund registered under the Venture Capital Companies and Funds Management Rules, 2000 beyond 2014. It proposes to extend this exemption by further 10 years upto June 30, 2024.
Part II
Reduction in Tax Rates Advance Tax from Importers Clause 9A
The Bills seeks to correlate the collection of 3% tax from importers only on production of exemption certificate issued by the Commissioner.
Part IV
Exemptions from Specific Provisions Exemption from Deduction of Tax on Paying Dividends and Profit on Debt Clause 11B & 11C
The Bill seeks to introduce new clauses whereby the payment of inter-corporate dividends and inter-corporate profit on debts would not attract the deduction of tax in the hands of company making such payment provided the group companies are subject to group taxation under Section 59AA and 59B of the Income Tax Ordinance, 2001.
20
Tax Handbook
2012
Capital Gains Tax on Disposal of Certain Securities Withdrawn
Clause 47B
The Finance Bill, 2012 seeks to extend the exemption from application of capital gains tax on disposal of securities to National Investment Unit Trust, Collective Investment Scheme, Modaraba, REIT Scheme, Private Equity and Venture Capital Fund, recognized provident fund, approved superannuation fund or approved gratuity fund.
Applicability of Advance Tax on Electricity Bill of a Commercial / Industrial Consumer
Clause 76
The Bill seeks to withdraw exemption available to manufacturer-cum-exporter industrial undertakings situated in Karachi Export Processing Zone from the collection of advance tax on electricity bills.
Third Schedule
Initial Allowance and First Year Allowance
The Finance Bill seeks to reduce the initial allowance for buildings from 50% to 25%.
Part II
Fourth Schedule
Mutual Insurance Companies Rule 6B
The Bill seeks to reduce the rates of tax applicable on capital gains on disposal of shares of listed companies, vouchers of Pakistan Telecommunication Corporation, Modaraba Certificates or instruments of redeemable capital and derivative products by mutual insurance associations as under:
Period for which Securities are Held

Less than 6 months
Tax Year
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Existing Rates
10.0% 12.5% 15.0% 17.5% 17.5% 8.0% 8.5% 9.0% 9.5% 10.0%
Proposed Rates
10.0% 10.0% 12.5% 15.0% 17.5% 8.0% 8.0% 8.5% 9.0% 9.0%
More than 6 months but less than 12 months
Fifth Schedule
Mechanism for Computation of Tax on Profits and Gains Petroleum Exploration and Production Companies Rule 4A
The Bill seeks to introduce a new rule whereby petroleum exploration and production companies may opt to pay tax at the rate of 40% of their profit and gains net of royalty derived by them. However, they may opt to do so upon withdrawing pending appeals, references and petitions filed by them and paying the entire outstanding tax liability created under the Income Tax Ordinance, 2001 upto the tax year 2011 by June 30, 2012. It is pertinent to mention that the Bill proposes that this option is available for one time only and would be irrevocable.
21
Seventh Schedule
Rules for the Computation of the Profits and Gains of a Banking Company and Tax Payable Thereon Dividends Received from Money Market Funds and Income Funds Rule 6
The Bill seeks to enhance the tax rates on dividends received from money market funds and income funds to 25% for the Tax Year 2013. The tax rate is proposed to be raised further to 35% in the Tax Year 2014 for the ongoing period.
Eighth Schedule
Rules for the Computation of Capital Gains on Listed Securities
The Bill seeks to introduce Eighth Schedule dealing with the rules for the computation of capital gains on listed securities. This Schedule proposes the structural and procedural details that would be followed by NCCPL in calculating capital gains and issuing certificate to taxpayers in respect of their capital gains subject to tax. Manner and basis of computation of capital gains and tax thereon: NCCPL shall issue an annual certificate to the taxpayer on the prescribed form in respect of capital gains subject to tax for a financial year. However, on request of a taxpayer or if required by the Commissioner, NCCPL shall issue a certificate for a shorter period within a financial year. Above mentioned certificate shall be filed along-with the return of income. NCCPL shall furnish to the Board within 30 days of end of each quarter, a statement of capital gains and tax computed thereon in that quarter. Capital Gains computed under this Schedule shall be charged to tax at the rate applicable in Division VII of Part I of First Schedule. Enquiries as to source of Investment shall not be made: If a person has made investment in listed securities prior to introduction of this Ordinance and the amount remains invested for a period of 45 days upto June 30, 2012 and he has filed a statement of investment with the Commissioner along with a Return of Income and wealth Statement for the Tax Year 2012. If a person has made investment in listed securities from the date of coming into force of this Ordinance till 30th June, 2014 and the amount remains invested for a period of 120 days and the tax on capital gains has been duly discharged and he has filed a statement of investment with the Commissioner alongwith a Return of Income and wealth Statement for the Tax Year 2012.
Rates for CGT for the Tax Years 2013 and 2014
Division VII Part I First Schedule
The Finance Bill, 2012 seeks to freeze the rate of tax for two years. Proposed rate of tax shall be as follows: Holding Period Less than six months Tax Year 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2016
22
Present Rate 10% 10% 12.5% 15% 17.5% 7.5% 8% 8.5% 9% 9.5% 10% 0%
Proposed Rate 10% 10% 10% 10% 17.5% 7.5% 8% 8% 8% 9.5% 10% 0%
More than six months but less than twelve months
Twelve months or more
Tax Handbook
2012
Sales Tax Act, 1990

Sales Tax Act, 1990
Assessment of Tax and Recovery of Short Levied or Erroneously Refunded Tax
Section 11 and Section 36
In view of concurrence in procedural application of Section 11 and Section 36, the proposed amendment seeks to merge these provisions under Section 11 and seeks to omit Section 36. The new placement of these provisions of law would harmonize the procedure for assessment of Sales Tax and streamline the provisions of law. The proposed amendment further aims at the following changes: Time limit for issuance of show cause notice, in case of tax not levied or short levied or refunded due to any inadvertence, error or misconstruction, has been enhanced from three years to five years from relevant date. Officer of Inland Revenue is proposed to make his decision in 120 days from the date of issuance of show cause notice; however, this period can be further extended by 90 days and the maximum period which can be excluded from the time period mentioned earlier, due to adjournment or stay, has also been extended by 60 days.
Uniformity in Standard Sales Tax Rate of 16%

S.R.O. 594(1)/2012 seeks to rescind S.R.O. 644 (I)/2007 S.R.O. 644 (I)/2007 whereby items which were charged at 19.5% and 22% would be charged at a uniform rate of 16%.
Sixth Schedule (Table 1)

Implementation of Revised HS Code - 2012
The Bill proposes to implement revised HS code - 2012 of the World Customs Organization (WCO) by substituting 18 PCT headings in column 3 of Table 1 of Sixth Schedule with 23 new PCT headings. HS codes are revised in view of technological and trade developments after every five years. These changes are of technical nature and will have no effect on rates to be applied and procedures to be followed.
Zero Rating Category Substitution with Exemption Category
Fifth Schedule & Sixth Schedule (Table 2)
The Bill proposes to substitute zero rating on supplies made against international tenders with exempt supplies by omitting it from Fifth Schedule and including it in Table 2 of Sixth Schedule.
Withdrawal of Exemption for Cotton Seed Oil

The Bill proposes to withdraw exemption on cotton seed oil.
Sixth Schedule (Table 2)
23
Sales Tax Act, 1990
Notable Notification
S.R.O. 589(I)/2012
This S.R.O. seeks to make amendments, additions or substitution in Sales Tax Rules 2006. A brief summary of significant proposed amendments, additions or substitution is as under:
Rule Ref.
Rule 5, sub rule(1), clause C Rule 7, sub rule(3)
Description of proposed amendments, additions or substitution

It proposes to authorize the FBR to transfer the registration of a registered person or any business of a registered person to an area of jurisdiction where the place of business or registered office or manufacturing unit is located. A new sub rule (4) is introduced which states that change of nature of business from individual to AOP or corporate person shall be allowed when: Transfer of individual business from any person to his spouses or children or change in nature of business from individual to AOP Change of nature of business from AOP to corporate entity provided directors in the corporate entity are the same persons who were members of AOP For both cases mentioned above change shall be allowed by LRO after receiving verified documents from RTO. Whereby transfer of business or change in nature of business is due to any other reason, a new Sales Tax Registration Number shall be issued. Sub rules (1), (2), (3), (4) and (5) are substituted resultantly giving powers to Commissioner or Board, instead of Collector, to suspend the registration or black list a person if they have reasons to do so. Rule 50B has been substituted which describes the procedure to be followed to avail the exemption facility for supply of locally produced goods against international tender. Procedure is same as was for availing zero rated facility, under rescinded rule, with one exception that the facility of exemption has been restricted to goods which become part of project to be completed or goods to be supplied. It is substituted with new rule to replace "zero rated" with "exempt". This change has been made with an aim to hold illegal refunds.
Rule 12
Rule 50B
Rule 50C
S.R.O. 590(I)/2012
The S.R.O. seeks to remove requirement for commercial importers of computer hardware and parts to pay minimum value addition Tax @ 10%.
S.R.O. 591(I)/2012
Through amendments made by this S.R.O. import and supply of polyethylene and polypropylene by registered manufacturer for manufacture of mono filament yarn and who makes exempt supplies of net cloth to green house farming shall be exempt, earlier they were zero rated.
24
Tax Handbook
2012
Sales Tax Act, 1990
S.R.O. 592(I)/2012
This S.R.O. seeks to make following changes in Sales Tax Special Procedure Rules 2007: Sub rule(2) of rule 58E is omitted which would result in importers who do not claim any refund of excess input tax also being subject to audit. Rules of Chapter XI has been substituted with new rules, in new rules Sales Tax rates has been revised with a view to increase revenue, detail of such revision is as below:
Rule Ref.
58 H
Sales Tax Payable By

Every steel-melter, steel re-roller and composite unit of aforesaid (having single electricity meter) Ship breakers Steel melters (generating electricity using gas generators) Re-rolling mills (self generated electricity) Re-roller Registered person Downstream Industry Registered Person Un-registered buyer Registered person Un-registered person
Existing Sales Tax Rate

Rs. 6 per unit of electricity consumed.
Proposed Sales Tax Rate

Rs. 8 per unit of electricity consumed.
58 H (4) 58 Ha (2) 58 Ha (2) 58 I (1) 58 I (2) 58 I (3) 58 I (4) 58 I (5) 58 I (6)
Rs. 848 per metric ton. Rs. 1,972 per hundred cubic meter or HM3 Rs. 38,964 per inch of mill size Rs. 5,526 per metric ton Rs. 5,960 per metric ton Rs. 6,306 per metric ton Rs. 5,628 per metric ton Rs. 780 per metric ton Rs. 7,308 per metric ton (registered person) Rs. 780 per metric ton (other than registered person)
Rs. 6,700 per metric ton. Rs. 1,900 per hundred cubic meter or HM3 Rs. 51,822 per inch of mill size Rs. 7,349 per metric ton Rs. 8,387 per metric ton Rs. 9,651 per metric ton Rs. 7,740 per metric ton Rs. 1040 per metric ton Rs. 9,651 per metric ton (registered person) Rs. 1,040 per metric ton (other than registered person)
A new rule 58MC has been inserted which states that steel melters and re-rollers who also supply stainless steel products other than billets, ingots and re-rolled MS products shall follow standard Sales Tax procedures and fixed taxes under this chapter shall not be applicable to them.
S.R.O. 595(I)/2012
This S.R.O. seeks to make following amendments in S.R.O. 551(1)/2008: Raw material, component and subcomponents imported for using the in manufacture of goods to be supplied against international tenders are removed from list of exempted goods. Waste paper, re-meltable scrap, sprinkler equipment, drip equipment and spray pumps including supplies thereof have been exempted from the ambit of Sales Tax.
25
Sales Tax Act, 1990
Revision in Sales Tax Rates

Following new S.R.Os are introduced which seek to amend the old rates as given below:
S.R.O
604(I)/2012 608(I)/2012 605(I)/2012 597(I)/2012
Description
Import of soya bean as mentioned in S.R.O 313(I)/2006 Import and supplies of black tea Import of rapeseed and sunflower seed Billets and Ingots
Previous Rate/Amount
7% 16% 15% Rs. 55,000 & Rs. 60,000 respectively 0% Exempt
Proposed Rate/Amount
6% 5% 14% Rs. 65,000 & Rs. 60,000 respectively (This has also been set at minimum value) Exempt 0%
602(I)/2012
Re-meltable scrap, sprinkler, drip equipment cotton seed oil
26
Tax Handbook
2012

First Schedule (Table I)

Federal Excise Duty on Excisable Goods Revised
The Finance Bill, 2012 seeks to revise rates of FED for certain excisable goods aligned with given pricing threshold as under:
Relevant Reference in Schedule

9
Description of Goods
Locally produced cigarettes if their retail price exceeds Rs. 22.86 per ten cigarettes. Locally produced cigarettes if their retail price exceeds Rs. 13.36 per ten cigarettes but does not exceeds Rs. 22.86 per ten cigarettes. Locally produced cigarettes if their retail price does not exceed Rs. 13.36 per ten cigarettes. Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers.
Headings/SubPresent Rates headings Number

24.02 65% of retail price (if retail price exceeds Rs. 21 per 10 Cigarettes) Rs. 6.04 per 10 cigarettes + 70% per incremental rupee or part thereof (if retail price exceed Rs. 11.50 but does not exceed Rs. 21 per 10 Cigarettes) Rs. 6.04 per 10 cigarettes (if retail price does not exceed Rs. 11.50 per 10 Cigarettes) Rs. 500 per Metric ton
Proposed Rates
65% of retail price (if retail price exceeds Rs. 22.86 per 10 Cigarettes) Rs. 7.02 per 10 cigarettes + 70% per incremental rupee or part thereof. Rs. 7.02 per 10 cigarettes Rs. 400 per Metric ton
10
24.02
11
24.02
13
25.23
First Schedule (Table I)

Federal Excise Duty on Excisable Goods Withdrawn
The Finance Bill, seeks to withdraw the FED charged on the following items:

22 23 24 25
Lubricating oil in packs not exceeding 10 liters. Lubricating oil in packs exceeding 10 liters. Lubricating oil in bulk (vessels, bouzerslorries etc). Lubricating oil manufactured from reclaimed oils or sludge or sediment, subject to the condition if sold in retail packing or under brand names the words manufactured from reclaimed oil or sludge or sediment should be clearly printed on the pack.
Headings/Subheadings Number
2710.1951 2710.1952 2710.1953 Respective headings
Present Rates
10% per Liter 10% per Litre Rs. 7.15 per Liter Rs. 2 per Liter
Proposed Rates
Nil Nil Nil Nil
27

27 42
Base lube oil Perfumes and toilet waters.
2710.1993 3303.0000
Present Rates
Rs. 7.15 per Liter 10% of retail price if packed in retail packing and 10% ad valorem if in bulk 10% of retail price if packed in retail packing and 10% ad valorem if in bulk
Proposed Rates
Nil Nil
43
Beauty or make-up preparations and preparations for the care of the skin (other than medicaments), including sunscreen or sun tan preparations; manicure or pedicure preparations Preparation for use on the hair excluding herbal hair oil and kali mehndi. Pre-shave, shaving or after shave preparations, personal deodorants, bath preparations, depilatories and other perfumery, cosmetic or toilet preparations, not elsewhere specified or included; prepared room deodorizers, whether or not perfumed or having disinfectant properties (excluding agarbatti and other odoriferous preparations which operate by burning). Filter rods for cigarettes
33.04
Nil
44
33.05
10% of retail price if packed in retail packing and 10% ad valorem if in bulk 10% of retail price if packed in retail packing and 10% ad valorem if in bulk
Nil
45
33.07
Nil
50
5502.0090
20% ad val.
Nil
Pricing Mechanism for Cigarettes Rationalized

The Finance Bill, 2012 seeks to insert new conditions regarding variant of the existing brand of cigarettes, in order to avoid FED evasion. The Bill seeks to restrict the manufacturer or importer of cigarette to introduce or sell new cigarette brand variant of the existing brand family at a price lower than the price of the existing variant cigarettes after the announcement of 2012-13 Budget. The Bill also seeks to introduce a provision by virtue of which, a new brand of cigarette could not be sold at a price which is more than 5% lower, than the price of a Most Popular Price Category (MPPC).
28
Tax Handbook
2012
Federal Excise Act, 2005 FED Increased on Air Tickets
First Schedule (Table II)

The Finance Bill, 2012 seeks to revise the FED on international air travel as enumerated below:

3(a)
Description
Services provided or rendered in respect of travel by air of the passenger within the territorial jurisdiction of Pakistan. Services provided or rendered in respect of travel by air of the passenger embarking on international journey from Pakistan (i) Economy and economy plus
9803.1000
Present Rates
16% of the charges plus rupees twenty per ticket
Proposed Rate of FED

16% of the charges plus rupees sixty per ticket
3(b)
9803.1100
Rs. 3,240 for Economy and economy plus and four thousand two hundred and forty rupees for club, business and first classes, for passengers embarking from SAARC region, UAE (Middle East), Saudi Arabia, Africa, Afghanistan. Rs. 4,240 for economy and economy plus classes and five thousand seven hundred and forty rupees for club, business and first classes.
Rs. 3,840
(ii) Club, business and first class
Rs. 6,840
Exemption Granted on Services Relating to Livestock Insurance and Asset Management Companies
The Finance Bill, 2012 seeks to amend the Table-II in third schedule to grant exemptions on services in respect of livestock insurance and asset management companies

7 8
Description of Services
Livestock insurance Services provided by Asset Management Companies with effect from 1st of July, 2007.
Headings/Sub-headings Number
9813.1600 Respective Headings
29
Notable Notifications:
Withdrawal of FED Exemption S.R.O. 599(I) / 2012
This S.R.O. seeks to amend Table in S.R.O. 474(I) / 2009, dated June 13, 2009 to withdraw exemptions in respect of following:

48
Viscose staple fibre
Headings/Sub-headings Number
Respective Headings
Restored Rate of Duty

10% ad val.
FED on Air Tickets Rationalized
S.R.O. 600(I) / 2012
This S.R.O. proposes to amend Rule 41A of Federal Excise Rules 2005 by withdrawing excise duty on services provided by aircraft operators in respect of travel by air of passengers embarking for Pakistan from anywhere in the world. By virtue of this S.R.O. excise duty chargeable on all international air tickets issued by airlines or through their agents for international journey terminating in Pakistan has been withdrawn. This S.R.O. proposed to substitute existing sub-rule (7) with a new rule as follow:
Existing sub-rule(7)
An air ticket issued for international travel covering more than one destination on flights operated by one or more airlines shall be chargeable to excise duty by the airline issuing the ticket and shall be charged at the rate of excise duty applicable for the farther destination in terms of distance from Pakistan.
Proposed sub-rule(7)
Where an airline operating in Pakistan uplifts passengers from Pakistan for another airline, the liability to charge, collect and pay Federal Excise Duty with respect to such passengers, shall be of the uplifting airline.
As excise duty on international travel to Pakistan has proposed to be withdrawn, so such excise duty will not be called as Air Travel Tax (ATT).
S.R.O. 603(I) / 2012

This S.R.O rescinds 6 notifications already issued by Federal Government of Pakistan. A brief summary of the S.R.Os rescinded, matters discussed in them and the effect of rescission thereof is given hereunder:
Rescinded S.R.O
S.R.O. 807(I)/2005 S.R.O. 671(I)/2006 S.R.O. 777(I)/2006
Subject Matter of the S.R.O

Rebate given of Federal Excise Duty, paid on base oil used in the manufacture of the motor lubricating oil for different automobiles Fixing the minimum price of lubricating oil in packs at US$ 2 per litre for the purpose of assessment of excise duty at import stage (PCT headings 2710.1951 and 2710.1952) Rates of excise duty chargeable on the tickets issued for the services of travel by air on international journey originating from Pakistan to SAARC countries, Middle East, Saudi Arabia, Afghanistan, Europe, Far East, China, USA, Canada, Australia and South America Exempting the import and supply of solvent oil (PCT heading 2710.1150) for manufacture of shoe adhesives subject to certain conditions Exempting special Excise Duty levied on the tractor parts by registered vendors to the manufacturers of agricultural tractors Levying FED on facilities for travel services at specified rates
30
Effect of Rescission
Rebate withdrawn Price determination as per normal procedure Rates withdrawn
S.R.O. 949(I)/2006 S.R.O. 1229(I)/2007 S.R.O 47(I)/2012
Exemption withdrawn Exemption withdrawn Rates withdrawn
Tax Handbook
2012
Customs Act, 1969

Customs Act, 1969 Definition of 'Smuggle' Broadened Section 2 (s)
The Finance Bill, 2012 proposes to insert en route pilferage of transit goods in definition of 'smuggle' in an effort to curb en route pilferage for evading duties.
Additional Functionary Directorates Established
Section 3AA, 3BB, 3BBB, 3CC
The Finance Bill, 2012 seeks to introduce new additional functionary directorates for the purposes of jurisdictional administrative division evident from the assigned nomenclature. The new proposed directorates are: Directorate General of Transit Trade Directorate General of Reform and Automation Directorate General of Risk Management Directorate General of Intellectual Property Rights Enforcement
Board Empowered to Change Pakistan Customs Tariff Coding
Section 18E
The Finance Bill, 2012 seeks to authorize the Board to make changes in the Pakistan Customs Tariff, specified in the First Schedule to the Customs Act, 1969 merely for the purposes of aligning statistical suffix of the Pakistan Customs Tariff (PCT) codes with World Customs Organization (WCO).
Punishment for Certain Offences Altered

The Finance Bill, 2012 proposes the following amendments in provisions for punishment for following offences:
Section 156(1)
Punishment
The punishment, of whipping under this section, to be totally eliminated. The punishment, for transferring certain classes of goods subject to prescribed conditions and transit of goods across Pakistan to a foreign territory, to be enhanced by including imprisonment for a term of up to 5 years. Prosecution to those instances where attempts are made to make unauthorized access or to interfere with Custom Computerized System or to make unauthorized use of unique user identifier by any person, be enhanced.
Serial No. Serial No. 8(i), 89(i) and 92 of Section 156(1)
Applicable to
General
Serial No. 64 of Section 156(1)
Section 128 & Section 129
Serial No. 101, 102 and 103 of Section 156(1)
Sections 155I, 155J and 155K
31
Customs Act, 1969 Adjudicating Jurisdiction and Powers of the Officers Changed Section 179(1)
The Finance Bill, 2012 proposes revision in the jurisdiction and powers of the officers of Customs in terms of amount of duties and other taxes involved thereby.
S. No.
(i) (ii) (iii) (iv) (v) (vi)
Adjudicating Authority
Collector Additional Collector Deputy Collector Assistant Collector Superintendent Principal Appraiser
Existing Limit
without limit not exceeding Rs. 800,000 not exceeding Rs. 300,000 -
Proposed Limit
without limit not exceeding Rs. 3,000,000 not exceeding Rs. 1,000,000 not exceeding Rs. 500,000 not exceeding Rs. 50,000 not exceeding Rs. 50,000
Departmental Appeals Allowed before Collector (Appeals) & Appellate Tribunal
Section 193(1), 194 A
The Finance Bill, 2012 proposes that officer of Customs aggrieved by any decision or order passed by officer of Customs below the rank of Additional Collector may also prefer an appeal to Collector (Appeals) within thirty days of the date of communication to him of such decision or order. The Finance Bill, 2012 proposes that any person or officer of Customs may prefer to file an appeal to the Appellate Tribunal against any order passed by any officer of Customs not below the rank of Additional Collector under section 179.
Electronic Auction for Sale of Goods Allowed

In the wake of growing trend of e-trading, the Bill proposes to allow the mode of disposal of goods through electronic auctions.
Section 201
Rewards for Meritorious Conduct
Section 202 B
The Finance Bill, 2012 seeks to introduce the system of award for those officers and informers who render meritorious conduct in cases involving evasion of Custom duty and taxes and confiscation of goods after the realization of whole or part of duty and taxes involved. The procedure of such reward is proposed to be introduced by the Board by notification in the Official Gazette.
Condonation of Time Limit
Section 224
The Finance Bill, 2012 proposes to authorize the authorities to condone the time limit in complying with the procedural requirement whereby the delay is beyond the control of the concerned person.
32
Tax Handbook
2012
Customs Act, 1969
Notable Notifications
Rates of Duty Reduced on Certain Items S.R.O. 574(I)/2012
This S.R.O. seeks to amend Table-I of S.R.O. 567(I)/2006, dated June 5, 2006. By virtue of this S.R.O. Custom duty on following items shall be levied at reduced rate specified hereunder against each item.
S. No.
23A 44A
PCT Code
4004.0020 3215.1190 3215.1990 3701.3020 4802.5700
Description
Shredded tyre scrap Black ink Colour ink CTP plates Fully sensitized cheque paper weighing 40 g/m2 or more but not more than 150 g/m2 Red bleed through ribbons for dot matrix printers Anti-forgery security printing ink
Present Rate
20% 20% 20% 10% 20%
Proposed Rate
10% 10% 10% 5% 10%
Condition
If imported by cement manufacturers If imported by Printing Industry
9612.1010 3215.1990
20% 20%
10% 10%
The notification also seeks to restrict the concession of Customs duty at 0% only to ambulances having following features: Rear panel and rear step Stretcher of 8 feet length in case of hiace type vehicles and 6 feet in case of mini-van type vehicles Folding seats for 2-4 persons Oxygen supply system with cylinder Rotary lamp and siren Fire extinguisher Hooks for intravenous infusion giving sets / bottles Small cabinet for medicines Nebulizer, room light, examination light, wiring switch sockets 12Volt Water resistant floor Suction unit Suspension system of base vehicle to be spring and shock absorber type and not exclusively of leaf spring type Permanent markings as ambulance on the front and rear of the vehicle The S.R.O. further seeks to amend Table-III of S.R.O. 567(I) / 2006 dated June 5, 2006 by reducing the rate of Customs duty from 10% to 5% on 87 pharmaceuticals ingredients.
33
Customs Act, 1969 Exemption on Certain Items Withdrawn S.R.O. 577(I)/2012
This S.R.O. seeks to amend S.R.O. 482(I) / 2009, dated June 13, 2009 by substituting certain items in the table for levy of regulatory duty on import of goods.
S. No.
1 6
PCT Code
0802.8000 2403.1100
Existing
Betel Nuts
Description
Proposed
Areca nuts (Betel nuts) Water pipe tobacco specified in Subheading Note 1 of Chapter 24 of the First Schedule to the Customs Act, 1969 Other (Newly Inserted)
Rate of Regulatory Duty

10% ad valorem 15% ad valorem
Smoking tobacco, whether or not containing tobacco substitutes in any proportion
6A
2403.1900
15% ad valorem
Notification under Free Trade Agreements Rearranged S. No.

1
Revising SRO (New)

S.R.O. 582(I)/2012
SRO Revised
S.R.O. 659(I)/2007
Description
Substituted Table-I and Table-II in respect of certain items imported into Pakistan from Peoples Republic of China under Free Trade Agreement (FTA) Substituted Table-I and Table-II in respect of certain items imported into Pakistan from Malaysia under Free Trade Agreement (FTA) Substituted Table-I and Table-II in respect of certain items imported into Pakistan from Peoples Republic of China under Free Trade Agreement (FTA) Substituted Table-I and Table-II in respect of certain items produced in and imported from Islamic Republic of Iran or the Republic of Turkey and SAARC countries imported into Pakistan under Free Trade Agreement (FTA) Substituted Table-I and Table-III and Table-IV in respect of certain items imported into Pakistan from Sri Lanka under Free Trade Agreement (FTA)
2 3
S.R.O. 583(I)/2012 S.R.O. 584(I)/2012
S.R.O. 1261(I)/2007 S.R.O. 1296(I)/2005
S.R.O. 585(I)/2012
S.R.O. 558(I)/2004
S.R.O. 586(I)/2012
S.R.O. 570(I)/2005
DTRE Scheme Rationalized
S.R.O.601(I)/2012
This S.R.O. seeks to amend rule No. 297 and 305 of Custom Rules, 2001 by attaching condition that DTRE facility shall be available to persons who manufacture and export goods in accordance with the prevalent value-addition of the relevant industry, only if the value addition is not less than 15%, and goods imported shall be utilized within twelve months, instead of twenty four months from the date of approval of DTRE application.
34
Tax Handbook
2012
Miscellaneous Laws
Capital Value Tax (CVT)

Exemption of CVT on Shares of Public Listed Company Section 7(1)
The Finance Bill, 2012 seeks to reinforce the amendments introduced in the Finance (Amendment) Ordinance, 2012, by virtue of which a person shall not be liable to pay CVT on the capital value of shares of public listed company acquired by him. Further, Cantonment Board and the rating areas as defined under the Urban Immovable Property Act, 1985 are proposed to be excluded from the definition of 'urban area' under CVT law.
Revision in rates of CVT on Residential Flats of any Size and Commercial Immovable Property Situated in Urban Areas
The Bill proposes to apply CVT on following rates on the above-cited properties.
Section 7(2)
Category
Residential flats
S.No
1 1a
Description of Property
Where the value of immovable property is recorded Where the value of immovable property is not recorded Where the value of immovable property is recorded Where the value of immovable property is not recorded Where the immovable property is a constructed property
Rate of CVT
2% of recorded value or value as per DC rate Rs. 100 per square feet of the covered areas of the immovable property or value as per DC rate 2% of recorded value of the landed area or value as per DC rate Rs. 100 per square feet of the landed area or value as per DC rate Rs. 10 per square feet of the constructed area in addition to the value worked out above Whichever is higher Whichever is higher Whichever is higher Whichever is higher Whichever is higher
Commercial immovable property
2 2a 2b
35
Miscellaneous Laws Gas Infrastructure Development Cess Act, 2011
The Second Schedule

Increase in Rates of Cess
The Finance Bill, 2012 seeks to increase the maximum rate of cess as follows:
Section 3(1)
S.No
1 2
Sector
Fertilizer - Feed Stock (except for fertilizer plants having fixed price contracts) Compressed Natural Gas (CNG) (a) Region - I Khyber Pakhtunkhwa, Baluchistan & Potohar Region (Rawalpindi, Islamabad & Gujarkhan) (b) Region - II Sindh & Punjab (excluding Potohar Region) Industrial (including Captive Power) WAPDA/KESC/GENCOs Independent Power Plants (IPPs)
Existing Cess
(Rs./MMBTU)
Proposed Cess
(Rs./MMBTU)
197 141 79 13 27 70
300 300 200 100 100 100
3 4 5
Declaration under the Provisional Collection of Taxes Act, 1931

The provision of the Finance Bill, 2012 regarding the following matters shall be immediately applicable with effect from 2nd June, 2012: Service of show cause notice on a person for payment of tax or charge not levied, short levied or erroneously refunded, under the Sales Tax Act, 1990, due to inadvertence, error, misconstruction or by reason of collusion or a deliberate act Change in the rate of FED on cigarette and cement and withdrawal of FED on certain items specified in the First Schedule to the Federal Excise Act, 2005 Customs tariff as provided in the First Schedule to the Customs Act, 1969
36
Tax Handbook
2012
Tax Planning Guide

For Corporations & Individuals
Tax Handbook
2012
Income Tax
Income Tax Who is Required to File a Return of Income?
Following persons are required to furnish a return of income for a tax year: every company every AOP individual whose taxable income for the year exceeds Rs. 400,000 any non-profit organization any person who has been charged to tax in respect of any of the two preceding tax years claims a loss carried forward under the Income Tax Ordinance for a tax year owns immovable property with a land area of 250 sq. yards or more, or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces, or area in a Cantonment, or the Islamabad Capital Territory. The following are excluded from this category: widows orphans below the age of 25 years disabled persons non-resident Pakistanis in case of ownership of immovable property
owns immovable property with a land area of 500 square yards or more located in a rating area owns a flat having covered area of 2,000 square feet or more located in a rating area owns a motor vehicle having engine capacity above 1000cc has obtained National Tax Number has industrial and commercial electricity connection and the amount of annual utility bills exceed Rs. 1,000,000
Who is Required to File Wealth Statement?

Every resident taxpayer filing a return of income whose declared or assessed income is Rs. 1,000,000 or more Every resident taxpayer filing statement under FTR and has paid tax of Rs. 35,000
What Year End Can a Taxpayer Adopt? Class of Person

Companies, Association of persons and Individuals Sugar Banking and Insurance Companies Ginners, Rice huskers, Oil mills Shawl manufacturers
Tax Year Type

Normal Tax Year Special Tax Year Special Tax Year Special Tax Year Special Tax Year
Year End
July 01 to June 30 October 01 to September 30 January 01 to December 31 September 01 to August 31 April 01 to March 31
37
Income Tax When to File the Return of Income? Status

Salaried Individual & Non-corporate Taxpayer (falling under FTR) Other Individual & AOP Company (including falling under FTR) Company Company
Year End
June 30, 2012 June 30, 2012 June 30, 2012 September 30, 2012 December 31, 2012
Date of Filing
August 31, 2012 September 30, 2012 December 31, 2012 September 30, 2013 September 30, 2013
Tax Year
2012 2012 2012 2013 2013
Who is Required to Pay Advance Tax?

Every business individual whose latest assessed taxable income excluding the presumptive tax income is more than Rs. 500,000 Every Association of Person Every Company
When to Pay Advance Tax by an Individual?

Individuals have to pay advance tax within 15 days after the close of each quarter.
When to Pay Advance Tax by an AOP or Company? Period

1st of July to 30th September 1st October to 31st December 1st January to 31st March 1st April to 30th June
Quarter
September quarter December quarter March quarter June quarter
Payment Date
On or before the 25th of September On or before the 25th of December On or before the 25th March On or before the 15th of June
38
Tax Handbook
2012
Income Tax Rate of Tax for Business Individuals and AOPs

The basic exemption limit for business individuals and AOPs is Rs. 400,000 and the varying slab rates range from 10% to 25% as under:
Income Brackets
Rates
Special Rebates
To Senior Citizens
A rebate of 50% of the tax payable is allowed to senior citizen who has attained the age of 60 years or above, provided his total income excluding FTR income does not exceed Rs. 1,000,000.
To Teachers and Researchers

A further rebate of 75% of taxpayable on salary income is allowed to a full time teacher or a researcher, employed in a non profit education or research institution recognized by a Board of Education or Higher Education Commission including Government training and research institution.
Minimum Tax
Minimum tax is applicable to a resident company, AOP (having turnover more than 50 million) and individuals (having turnover more than 50 million) at the rate of 1% (in budget speech 2012, rate is proposed to be reduced to 0.5%) of turnover even if the business sustain losses except a company which has declared gross loss before depreciation and other inadmissible expenses.
39
Income Tax Rate of Tax for Salaried Individuals

The basic exemption limit for salaried individuals is Rs. 400,000 and the varying slab rates range from 5% to 25% as under:
Income Brackets
Rates
Marginal Tax Relief for Salaried Taxpayers

Where the total income of the taxpayer marginally exceeds the maximum slab limit, the income tax payable shall be the tax payable upto the maximum of the slab exceeded plus tax on marginal amount as under:
Income Bracket
Where total income: Does not exceed Rs. 550,000 Does not exceed Rs. 1,050,000 Does not exceed Rs. 2,250,000 Does not exceed Rs. 4,550,000 Exceeds Rs. 4,550,000
Marginal Taxable Amount
20% 30% 40% 50% 60%
40
Tax Handbook
2012
Income Tax
Tax on Rental Income In case of non-corporate taxpayers: Gross Amount of Rent

Where the gross amount of rent: Does not exceed Rs. 150,000 Exceeds Rs. 150,000 but does not exceed Rs. 400,000 Exceeds Rs. 400,000 but does not exceed Rs. 1,000,000 Exceeds Rs. 1,000,000 Nil 5.00% of the gross amount exceeding Rs. 150,000 Rs. 12,500 plus 7.50% of the gross amount exceeding Rs. 400,000 Rs. 57,500 plus 10.00% of the gross amount exceeding Rs. 1,000,000
Rate of Tax
In Case of Corporate Taxpayers Gross Amount of Rent

Where the gross amount of rent: Does not exceed Rs. 400,000 Exceeds Rs. 400,000 but does not exceed Rs. 1,000,000 Exceeds Rs. 1,000,000 5.00% of the gross amount of rent Rs. 20,000 plus 7.50% of the gross amount exceeding Rs. 400,000 Rs. 65,000 plus 10.00% of the gross amount exceeding Rs. 1,000,000
Rate of Tax
41
Income Tax Allowances and Tax Credit Section

60 61
Particulars
Zakat Charitable Donation
Concession
Straight income deduction Straight income deduction / Tax credit Tax credit N/A
Maximum Limit
Lower of amount of donations or: 30% of taxable income in case of individual and AOP 20% of taxable income in case of company Resident person other than company shall be allowed Lower of: total cost of acquiring shares / insurance premiums paid 20% of taxable income Rs. 1,000,000 Lower of: total contribution or premium paid by individual 20% of taxable income Lower of: total profit paid 50% of taxable income Rs. 750,000 2.50% of tax payable
62
Investment in Shares and Insurance
63
Approved Pension Fund
Tax credit
64
Profit on Debt or Share
Tax credit
65A
If 90% of sales by the manufacturer are made to sales tax registered persons Balancing, modernization and replacement of plant & machinery from July 1, 2011 to June 30, 2016 Enlisting a company on stock exchange Equity Investment Equity Investment
Tax credit
65B
Tax credit
20% of tax payable
65C 65D 65E
Tax credit Tax credit Tax credit
15.00 % of tax payable Equal to 100% of tax payable (Conditions apply) Equal to 100% of tax payable attributable to new expansion (Conditions apply)
42
Tax Handbook
2012
Income Tax Tax Rates for Companies Company

Banking Company Public Company (other than a banking company) Private Company (other than a banking company) Small Company having turnover upto Rs. 250 million
Tax Rate
35% 35% 35% 25%
Fixed Tax on Turnover in Case of Individual and AOPs Category

In case of individual or AOP being retailer and having turnover upto Rs. 5,000,000 In case of individual or AOP being retailers having turnover Exceeding Rs. 5,000,000 but does not exceed Rs. 10,000,000 Exceeding Rs. 10,000,000 Rs. 25,000 plus 0.5% of the turnover exceeding Rs. 5,000,000 Rs. 50,000 plus 0.75% of the turnover exceeding Rs. 10,000,000 0.5% of turnover as final tax
Rate
Individual and AOP retailer cannot claim any adjustment of withholding tax collected or deducted under any head during the year
Rate of Tax on Capital Gains on Disposal of Immovable Property Period for which Immovable Property is Held
Up to 1 year More than 1 year but less than 2 years
Rate
10% 5%
43
Income Tax
Third Schedule (Part I)

Tax Depreciation Rates Description
Building (all types) Furniture (including fittings) Machinery and plant (not otherwise specified) Motor vehicles* (all types) Ships, technical or professional books Computer hardware including printer, monitor and allied items Machinery and equipment used in manufacturing of I.T. products Aircraft and aero engines Below ground installations Offshore platform and production installations A ramp built to provide access to person with disabilities, not exceeding Rs. 250,000 each
Rate
10% 15%
30%
100% 20% 100%
Third Schedule (Part II)

Depreciation Allowance Description
Initial allowance First year allowance First year allowance (in case of alternate energy projects)
Section
23 23A 23B
Rate
25% (For buildings) 50% (Other eligible assets) 90% 90%
44
Tax Handbook
2012
Income Tax Penalties Default

Failure to file any return of income Failure to pay any tax (other than a penalty) In case of first default In case of second default additional penalty In case of third and subsequent defaults additional penalty Concealment of income or furnishing of inaccurate particulars of income Failure to maintain records Making of false or misleading statement Penalty for obstructing the access of comissioner Penalty for obstructing any Income Tax authority in performance of his official duties 5% of the amount of tax on default 25% of the amount of tax on default 50% of the amount of tax on default 25,000 or amount equal to tax sought to be evaded by concealment or furnishing of inaccurate particulars which ever is high Rs. 10,000 or 5% of the amount of tax on income whichever is high Rs. 25,000 or 100% of the amount of tax short fall, whichever is higher Rs. 25,000 or 100% of the tax involved, whichever is high Rs. 25,000
Rate of Penalty
0.1% of tax payable per day subject to minimum Rs. 5,000 & maximum 25% of tax payable
Additional Tax
Failure to
pay tax excluding advance tax pay any penalty pay any other amount of tax under the Income Tax Law pay advance tax
collect tax deduct tax deposit tax deducted or collected
18% per annum of amount of default
45
Deduction/Collection of Tax at Source

Standard Tax Rates Adjustable/ Final Discharge Persons Required To Deduct/Collect Tax
Custom Authorities
Section/ Sub-section of I.Tax Ord.
Nature of Payment/Transaction Exemption Limit Statements of Tax Collected/Deducted

Subject to certain exclusion 5% 3% 2% 1% Final except for imports for self use by manufacturers
148
Imports: Commercial imports Raw material imports by an industrial undertaking Pulses Fiber fabrics (other than of cotton), capital goods, cement, coal, mobile phones, sugar, gold, silver, wheat raw, wood, medical surgical & dental equipment, certain medicines & vaccines, broadcasting equipment, urea fertilizer etc.
149 10% Payer of Profit Final Nil Payer
Income from Salary
Average rate of tax
Adjustable
Rs. 400,000
Every Employer
Monthly When Paid
150
Dividends
151
Profit on Debt: National saving deposit including DSC, under national saving scheme Profit on TFCs Profit on banking account or deposit Profit on security Profit on Post Office Saving Account Profit on security issued by Federal Government, Provincial Government or Local Authority Final Interest on investment up to Rs. 150,000 is exempt in case of National Saving Scheme and TFCs and where installment is less than Rs. 1,000 per month
After Deduction of Zakat 10% 10% 10% 10% 10% 10%
Bank / Financial institution Banking Co., Financial Int. Company, Finance Society Federal Government, Provincial Government or Local Authority
When credited or paid which ever is earlier
152 15% 6% 6% 20% Final Nil
Payment to Non-Resident on account of: Royalty, fee for technical services to a non-resident Person Execution of Contract (other than for supply of goods & rendering of services) Contract for construction, assembly, installation projects, supervisory activities and advertisement services Other payments to non-resident except payment to foreign news agencies, syndicate services & non-resident contributing having no permanent establishment in Pakistan Profit on Debt On payment of insurance or re-insurance premium Payments to non-resident media persons 20% 5% 10%
Payer
When actually paid
153
Payment to resident company on account of:
Sale of Goods: Sale of rice, cotton seed or edible oil Sale of any other goods Sale of edible oil to manufacturer of cooking & vegetable ghee mills 1.5% 3.5% 1%
Final except for manufacturercum-supplier & listed companies
Rs. 25,000 When actually paid
Rendering of Services: Passenger transport services & News print media services Other services 2% 6% 6% 1% 1% 5% As per slabs
Rs. 10,000 Minimum Final except for listed companies Final Final Nil Nil
Government Company, a registered AOP, foreign contractor or consultant or a consortium or a joint venture, Individual with turnover exceeding 25 million, AOP with turnover exceeding 50 million and exporter of export house
Execution of Contract (other than supply of goods & rendering of services)
153A
Manufacturers to collect tax at source from traders and distributors
Payer Collector / Authorized dealer in foreign exchange Final Rs. 150,000 (In case of non-corporate taxpayer) Federal Govt., Provincial Govt. Local Authority or a company
When Paid At time of realization
154
Exports Foreign exchange proceeds on account of indenting commission
155
Income from Property
Monthly
156
Prize on prize bonds, winning from raffle, lottery or cross word puzzle Prize on winning of quiz & prize offered by companies for promotion on sales
10% 20% 10% Average rate of tax
Final
Nil
Payer
When actually paid
156A
Payment of commission to petrol pump operators
Final Final
Nil 25% of accumulated balance
Every person selling petroleum products Pension fund manager
Monthly Monthly
Income Tax
46
156B
Payment on account of approved pension fund
Section/ Subsection of I.Tax Ord.
Nature of Payment/Transaction Adjustable/ Final Discharge

Adjustable Rs. 50,000 Every banking company When cash is with drawn 0.2%
Standard Tax Rates
Exemption Limit Persons Required To Deduct/Collect Tax Statements of Tax Collected/Deducted
231A
Cash withdrawals from bank
231B
Purchase of motor vehicle manufactured locally with engine capacity: Up to 850CC 851CC to 1000CC 1001CC to 1300CC 1301CC to 1600CC 1601CC to 1800CC 1801CC to 2000CC Above 2000CC Rs. 7,500 Rs. 10,500 Rs. 16,875 Rs. 25,000 Rs. 22,500 Rs. 16,875 Rs. 50,000 Adjustable Nil Registering Authority 10% Final Nil Payer
At time of registration
233
Brokerage and Commission
When actually paid
233A 0.01% 0.01% Final Nil Stock exchange
Collection of tax by stock exchange registered in Pakistan on account of: Purchase of shares Sale of shares
At time of payment
234 Rs. 5 Per Kg of laden weight Rs. 1200 Per Annum After 10 years from 1st registration
Tax on motor vehicle Goods transport vehicle of: Ladden weight till 8119 Kg Ladden weight 8120 Kg or more
Annually Final / Adjustable N/A Excise and Taxation Department
In case of passenger transport vehicle with seating capacity of: 4 or more person but less than 10 person 10 or more person but less than 20 person 20 or more person Other private motor car with engine capacity of: Upto 1000CC 1001CC to 1199CC 1200CC to 1299CC 1300CC to 1599CC 1600CC to 1999CC 2000CC and above Rs. 25 per seat Rs. 60 per seat Rs. 500 per seat Rs. 750 Rs. 1250 Rs. 1750 Rs. 3000 Rs.4,000 Rs. 8000 4% Final Nil
234A
Tax on gas consumption charges of a Compressed Natural Gas (CNG) Station
Person making consumption bill
Monthly
235
Electricity Consumption Does not exceed Rs. 400 Exceeds Rs. 400 but does not exceed Rs. 600 Exceeds Rs. 600 but does not exceed Rs. 800 Exceeds Rs. 800 but does not exceeds Rs. 1,000 Exceeds Rs. 1,000 but does not exceed Rs. 1,500 Exceeds Rs. 1,500 but does not exceed Rs. 3,000 Exceeds Rs. 3,000 but does not exceed Rs. 4,500 Exceeds Rs. 4,500 but does not exceed Rs. 6,000 Exceeds Rs. 6,000 but does not exceed Rs. 10,000 Exceeds Rs. 10,000 but does not exceed Rs. 15,000 Exceeds Rs. 15,000 but does not exceed Rs. 20,000 Exceeds Rs. 20,000
0 Rs. 80 Rs. 100 Rs. 160 Fully adjustable for companies Rs. 300 whereas adjustable upto the extent Rs. 350 of tax liability for individuals and Rs. 450 AOPs Rs. 500 Rs. 650 Rs. 1,000 Rs. 1,500 At 5% (Industrial consumer) At 10% (Commercial consumer)
N/A
Person preparing Electricity bills
Monthly
236
Tax Handbook
Telephone subscriber where the monthly bill exceeds Rs. 1,000 Subscriber of mobile phone and prepaid mobile & telephone cards Sale of units through any electric medium or whatever form
10% 10% 10%
Fully adjustable for companies whereas adjustable upto the extent of tax liability for individuals and AOPs 5% Adjustable
Rs. 1,000
Person preparing mobile and phone bills and person selling prepaid cards
Monthly
236A
Sale of any property or goods by auction / tenders
N/A
Person making sale by auction
At time of realization
236B
Purchase of air tickets
5%
Adjustable
N/A
Person making sale
Income Tax
At time of realization of sale proceeds
2012
47
Sales Tax
Sales Tax Applicability
Sales Tax is applicable at the rate of 16% of the value of: Taxable supplies made by a registered person Goods imported into Pakistan
Sales Tax
Filing of Sales Tax Return

The sales tax return is to be filed within 15 days from the close of month by the registered persons
Sales Tax Registration Threshold
Annual Turnover of Taxable Supply
Manufacturers or Producers
Retailer
Importers and Exporters
Wholesalers (including Dealers) and Distributors
More than Rs. 2.5 million
Up to Rs. 2.5 million
More than 50 million
Making Taxable Supply
Sales Tax
Exempt u/s 13
Sales Sales Tax Tax
GST @ 16% on manufacturer, importers & wholesalers Exporters fall under zero-rated category (@ 0%) Retailers fall under special procedure for payment of sales tax
48
Penalties
If any person
Fails to furnish return within due date

Non production of record
Required to enrol / register himself and fails to do so Fails to maintain records

Rs. 25,000 or 10% of amount of tax involved whichever is higher
Violates any embargo placed on removal of goods in connection with recovery of tax
Failure to submit summary of sale and purchase invoices required under this Act
Fails to notify change in nature of supply Fails to issue invoice Un-authorisely issues invoice Fails to deposit tax *Repeats erroneous calculation
Contravenes any provision of this Act for which no specific penalty is provided and fails to fulfil conditions prescribed in a Notification Fails to make payment in the manner prescribed in Section 73
Rs. 25,000
Penalty of Rs. 5,000
Penalty of Rs. 5,000 Rs. 10,000 or 5% of tax involved whichever is higher

On receipt of 1st notice 2nd notice 3rd notice
Rs. 5,000 or 3% of amount of tax involved whichever is higher Rs. 25,000 or 100% of tax involved whichever is higher
Rs. 5,000 or 3% of tax involved whichever is higher
Makes or files false documents, statements and declaration Destroys or alters the record Denies or obstructs authorised officer to access record and to perform his duties Commits, causes to commit or attempts to commit tax fraud Denies or obstructs Sales Tax Officer posted to business premises to access record and to perform his duties
Rs. 5,000 Rs. 10,000 Rs. 50,000
Repetition of an offence for which a penalty is provided under this Act
If return is filed in 15 days of due date than penalty of Rs. 100 for each day of default
Rs. 10,000 due to failure to furnish the information required by Board
Twice of the amount of penalty for the said offence
Rs. 25,000 or 100 % of amount of tax involved whichever is higher Such person shall, further be liable, upon conviction by the Special Judge, to imprisonment for a term which may extend to one year, or with fine which may extend to an amount equal to the loss of tax involved, or with both.
knowingly and without lawful authority gains access to the computerized system unauthorizedly uses or discloses or publishes information obtained from the computerized system falsifies any record or information stored in the computerized system knowingly or dishonestly damages or impairs the computerized system knowingly or dishonestly damages or impairs any duplicate tape or disc or other storage medium unauthorizedly uses unique user identifier of any other registered fails to comply with or contravenes security of unique user identifier
* No penalty shall be imposed, if miscalculation is made first time during the year. * Certain defaults attract imprisonment along with penalty. Refer to Section 33 of the Sales Tax Act for complete reference of penalties. *Default Surcharge at the rate KIBOR plus 3% per annum of the tax due would be imposed in the case of inadmissible input tax credit or refund and on nonpayment of tax and such tax would be calculated on the basis of period of default.
Tax Handbook
Sales Tax
2012
49
Capital Value Tax (CVT)

Certificates / Instruments of Redeemable Capital
Capital Value Tax is levied on the transactions of certificates or any instrument of redeemable capital as under:
Capital Value Tax
Purchase
Modaraba certificates or any instrument of redeemable capital Purchase of shares of a public company listed on a registered Stock Exchange
Rate of CVT
0.02% of purchase value 0.01% of purchase value
Collected by
Personal responsible for registering or attesting the tranfer of asset. Personal responsible for registering or attesting the tranfer of asset.
CVT on Real Estate Transactions

Capital Value Tax is leviable on the real estate transactions of sale and purchase in the following manner:
Nature of Transaction
Residential immovable property (other than flats) situated in urban area, measuring at least 500 square yards or one kanal whichever is less Where the value of Immovable property is recorded Where the value of immovable property is not recorded Where the immovable property is a constructed property Commercial immovable of any size situated in urban area Where the value of immovable property is recorded Where the value of immovable property is not recorded Where the immovable property is a constructed
Rate of CVT
2 % of the recorded value Rs.100 per square yard of the landed area Rs.10 per square feet of the constructed area in addition to the value worked out above
2 % of the recorded value of land Rs.100 per square feet of the landed area Rs.10 per square feet of the constructed area in property addition to the value worked out above
Residential flats Where the value of immovable property is recorded Where the value of immovable property is not recorded 2 % of the recorded value Rs.100 per square feet of the covered area
50
Tax Handbook
2012
Disclaimer:
Horwath Hussain Chaudhury & Co. is a member of Crowe Horwath International, a Swiss verein (Crowe Horwath). Each member firm of Crowe Horwath is a separate and and independent legal entity. Horwath Hussain Chaudhury & Co. and its affiliates are not responsible or liable for any acts or omisssions of Crowe Horwath or any other member of Crowe Horwath specifically disclaim any and all responsibility or liability for acts or omissions of Crowe Horwath or any Crowe Horwath member. 2012 Horwath Hussain Chaudhury & Co.

Final Tax HandBook 12-13

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Final Tax HandBook 12-13

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Tax Handbook

Tax Handbook 2012

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Lahore June 02, 2012 www.crowehorwath.pk

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Contents Chapter Page

Budget 12-13 Highlights

Commentary on the Finance Bill 2012

Miscellaneous Laws Tax Planning Guide 2012

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Comparative Budgetary Position 2012-2013 & 2011-2012 Receipts

2011-2012 (Rs. in Billion)

Total Resources (A+B+C+D+E)

2011-2012 (Rs. in Billion)

Current Expenditures (A) Development Expenditure (B)

360.00 76.77 436.77

303.66 52.40 356.06 121.76 3,109.73

Other Development Expenditure (C)

Budget, 2012-2013 Breakup of Receipts

Revenue Receipts (Net)

Capital Receipts (Net)

Estimated Provincial Surplus

2.40% 4.82% 58.60%

Economic Affairs Health Affairs and Services Development Expenditures (PSDP)

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Finance Bill Highlights

Finance Bill Highlights

Finance Bill Highlights Sales Tax Act, 1990

Federal Excise Act, 2005

Customs Act, 1969

Finance Bill Highlights Miscellaneous Laws

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Income Tax Ordinance, 2001

Concept of 'Total Income' Rationalized

Section 10, 53(IA), 9

Concessional Loans by Employers to Employees

Section 13(7), (14)

Taxability of Capital Gain on Sale of Immovable Property

Income Tax Ordinance, 2001

Period for which Immovable Property is Held

Additional Amount Received on Delayed Refunds

Redundancy in Setting off of Losses in AOP Cases Removed

Tax Credit on Investment in Listed Shares and Life Insurance

Income Tax Ordinance, 2001

Tax Credit for Newly Established Industrial Undertakings

Special Provision Relating to Capital Gain Tax on Disposal of Listed Securities

Phraseology of 'Tax Payable or Paid' for Minimum Tax Applicability Clarified

Profit/Loss for Revised Return

Limitation Period for Examination of Return Extended

Ex-parte Assessment Effectuated

Amendment of Provisional Assessment

Section 122C (2) Proviso

Time Limitation for Tax Demand Stay by Commissioner (Appeals) Prescribed

Appointment of An Accountant Member of ATIR

Eligibility Criterion for Appointment of Chairperson of Inland Revenue Appellate Tribunal

Tax Demand Stay by Appellate Tribunal

Manufacturers Liable to Collect Tax at Source from Traders and Distributors

Taxpayer Card Scheme Introduced

Voluntarily Penalty Payment Prescribed

Default Surcharge to be Determined on Flat Rate Basis

Hierarchical Arrangement of Tax Authorities

Condonation of Time Limit

Limit of Cash Withdrawal from a Bank

Collection of Tax by a Stock Exchange