BUDGET BRIEFING

2019

This Memorandum is correct to the best of our knowledge

and belief at the time of going to the press. It is intended
to provide only a general outline of the subjects covered.
It should neither be regarded as comprehensive nor
sufficient for making decisions, nor should it be used in
place of professional advice. The Firm and Ernst & Young
do not accept any responsibility for any loss arising from
any action taken or not taken by anyone using this
publication.

This Memorandum may be accessed on our website

http://www.ey.com/pk

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Budget Briefing

This Memorandum has been prepared as a general guide for the benefit of our clients and is available to other interested
persons upon request. This should not be published in any manner without the Firm’s consent. This is not an exhaustive
treatise as it sets out interpretation of only the significant amendments proposed by the Finance Bill, 2019 (the Bill) in the
Income Tax Ordinance, 2001 (the Ordinance), the Sales Tax Act, 1990 (the ST Act), the Customs Act, 1969 (the Customs
Act) and the Federal Excise Act, 2005 (the FE Act) in a concise form sufficient enough to amplify the important aspects of the
changes proposed to be made. FBR means the Federal Board of Revenue, Government of Pakistan.

Changes of consequential, administrative, procedural or editorial in nature have either been excluded from these comments
or otherwise dealt with briefly.

The amendments proposed by the Bill after having been enacted as the Finance Act, 2019, shall, with or without
modification, become effective from the tax year 2020, unless otherwise indicated.

It is suggested that the text of the Bill and the relevant laws and notifications, where applicable, be referred to in considering
the interpretation of any provision. Since these are only general comments, no decision on any issue be taken without further
consideration and specific professional advice should be sought before any action is taken.

Contents Page

Highlights i - ix

Income Tax 1 – 44

Sales Tax 45 – 58

Islamabad Capital Territory 59 & 60

Federal Excise 61 – 66

Customs 67 - 73

KARACHI: 11 June 2019

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Highlights

Income Tax

 Tax paid at import stage for commercial importers and ship-breakers to be treated as ‘minimum tax’

 Tax paid / deducted on profit on debt (other than a company), tax deductible from a non-resident person on account
of certain contracts and services, tax deductible from payments on account of supply of goods, rendering of services
and execution of contracts to be treated as ‘minimum tax’.

 Tax deducted / collected from payment of commission and on gas consumption bills of CNG Stations to be treated as
‘minimum tax’.

 Clause (94), Part IV of the Second Schedule to the Ordinance providing for rate of 2% minimum tax for certain
specified service providers has been omitted. Rate for such service sectors including transport services is now
prescribed at 4%.

 Brought forward depreciation losses and brought forward business losses not to be accounted for the purpose of
working out super tax for banking, insurance, E&P companies and income covered under Eighth Schedule.

 Taxation of capital gain from disposal of immovable property revamped. Such capital gain is now taxable at normal
rates of tax.

 Tax credit for investment in plant and machinery under Section 65B restricted to investments made upto 30 June
2019; rate reduced from 10% to 5% retrospectively for tax year 2019.

 Purchase of assets should be made through banking channel; otherwise adverse consequences proposed.

 Limit on non-questionable remittance of foreign exchange from abroad reduced to PKR 5 Million in a tax year.

 Rates of penalties revised on various offences; failure to file return of income by the due date attracts minimum
penalty of PKR 5,000.

 Due date of filing of return of income for salaries individual and for filing of statement for FTR income changed to 30
September.

 A person filing return of income after the due date would be included in the ATL after payment of prescribed
surcharge.

 Allowability of commission expense paid to a dealer not registered for sales tax or a person whose name is not
appearing in the Active Taxpayers List (ATL) restricted to 0.2% of the gross amount of supply of products as listed in
Third Schedule to the Sales Tax Act, 1990

 Dealer’s margin to be added to the income of a person supplying products listed in Third Schedule of the Sales Tax
Act, 1990 and or any other products prescribed by FBR, to a person under dealership arrangement who is not
registered under the Sales Tax Act, 1990 or is not appearing in the active taxpayers list

 Bad debts classified as “doubtful” to be excluded for the purpose of computing allowable provision under Rule 1(c)
of the Seventh Schedule

 Effective from the tax year 2020, tax rate of 37.5% would be applicable on additional taxable income earned from
additional investment in Federal Government securities.

 Board may introduce scheme for taxing certain persons and businesses in particular cities or territories.

 If a tax payable by an association of persons in respect of any tax year cannot be recovered from the association of
persons, the same can be recovered from the member of the association of persons

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Highlights

 Monitoring proceedings can be reinitiated and tax can be recovered from the assessee in default if the Commissioner
believes that the earlier assessment passed under Section 161 was erroneous in so far as it was prejudicial to the
interest of revenue.

 Apart from cheque or bank debit advice, refunds may also be settled through issuance of bonds issued by the FBR
Refund Settlement Company Limited.

 Commissioner is now additionally empowered to raid and confiscate undeclared gold, bearer security or foreign
currency.

 Conclusion of tax audit by the Commissioner now requires issuance of audit report which will then form the basis for
making amendment of assessment under Section 122.

 Failure to comply with notice for filing statement of foreign income and assets may lead to prosecution.

 Offshore tax evasion will now be severely penalized and prosecuted.

 Where a taxpayer, other than a company, earns profit on debt exceeding PKR 36 million, the entire profit on debt
will be taxable as part of its normal taxable income. For profit on debt up to PKR 36 million, the rate of tax under
Section 7B has been revised upwards.

 Self-generated goodwill and notional amounts do not represent intangibles, even if permitted under prescribed
accounting treatments. Furthermore, intangibles may now be amortized over their actual useful life, or where the
useful life is not ascertainable, over a period of 25 years.

 The receipt of a gift shall be taxable, unless received from immediate family members.

 A tax credit shall be allowed to a person for hiring fresh qualified graduates in the tax year in which they are
employed.

 Definition of resident individual expanded to include an individual who is present in Pakistan for 90 days or more in
the tax year, and who in the four preceding tax years was present in Pakistan for 365 days in aggregate.

 Every trust and welfare institution, with effect from 1 st July, 2020 must now mandatorily obtain approval of the
Commissioner in order to claim a tax credit under Section 100C. Furthermore, trusts and welfare institutions may
not confer any private benefits to relatives of the donor or author.

 Where the Commissioner is of the opinion that a transaction has not been declared at arm's length, the
Commissioner may obtain a report from an independent chartered accountant or cost and management accountant.

 Payment to non-residents on account of offshore supplies forming part of an overall EPCC arrangement can be made
after deducting 6% tax, subject to obtaining approval from the Commissioner.

 A withholding tax of 15% shall apply on payment of royalty to resident persons.

 Every person engaged in any business, profession or vocation shall be required to obtain and display a business
licence.

 Failure to furnish details, or furnishing incorrect details, in the withholding tax statements is punishable by fine or
imprisonment, or both.

 In order to facilitate low risk and compliant taxpayers, FBR will design an alternate impersonal taxation regime
whereby personal interaction will be minimized.

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Highlights

 Tenth Schedule to govern collection and deduction of advance income tax, computation of income and tax payable
of persons not appearing in the Active Taxpayers List.

The First Schedule

Part I

 It is proposed that every person engaged in any business, profession or vocation shall obtain and display a business
license as prescribed by the Federal Board of Revenue.

 Minimum threshold for non-chargeability of salaried individual is proposed to be enhanced to PKR 600,000. Further,
the highest tax rate applicable on salaried individuals is proposed to be enhanced to 35%.

 The corporate tax rate for the tax year 2019 is 29% which was to be reduced by 1% on yearly basis upto 25%. It is
now proposed to restrict such rate at 29% for tax year 2019 and onwards.

 Reduced rate of 7.5% applicable on dividend received from power companies is proposed to be enhanced to 15%.

 Rates of tax of profit on debt proposed to be enhanced by 5% for each slab.

 The slabs for rates of tax on income from property in the case of individual and AOPs are proposed to be increased
with additional tax levied thereupon.

 The applicability of the rate of tax on capital gains has been proposed to be extended till tax year 2020.

 Exemption on capital gain proposed to vary on the basis of holding period of open plots or constructed property.
Whereas normal tax rates have been proposed to be applicable instead of reduced tax rates presently applicable.

 The general rate of minimum tax on turnover under Section 113 of the Ordinance is proposed to be increased to
1.5%.

Part III

 The advance tax rate on profit on debt is proposed to be increased from 10% to 15%.

 The rate of withholding tax on transport services for resident persons is proposed to be enhanced to 4% from 2%,
wherein several other services are also to be included in the category.

 The rate of adjustable withholding tax on royalty payable to a resident person is proposed at 15% of the gross
amount.

Part IV

 Advance tax on dealers, commission agents and arhatis proposed to be enhanced significantly.

 A flat rate of 1% has been proposed as the advance tax on purchase of immovable property.

The Second Schedule

Part I

 Amendment in the list of exemptions for armed forces personnel.

 Donation to certain institutions has been proposed to be included in the list of institutions to whom donation is
exempt from tax.

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Highlights

 Certain charitable institutions have been proposed to be included in the list of institutions whose income is exempt
from tax.

 The Bill proposes to seek a new proviso whereby profit and gains on sale of immoveable property to a rental REIT
Scheme shall be exempt from tax upto 30 June 2021.

 Exemption for dividend income derived by a company, proposed to be extended to companies who are eligible for
Group Relief under Section 59B.

 Exemption proposed for the income of persons resident of the Tribal areas of Khyber Pakhtunkhwa & Baluchistan

Part III

 Reduction in rate of rebate from 40% to 25% has been proposed, along with withdrawal of this rebate to teachers of
medical profession who derive income from private medical practice or who receive share of consideration from
patients.

 Exemption from provisions to resident goods transport contractors, subject to payment of tax at the rate of 2.5% on
payments received on account of rendering of carriage services has been proposed to be increased to 3%.

 Proposal of exemption from the specific provisions of withholding of tax to the persons resident of the Tribal areas
of Khyber Pakhtunkhwa & Baluchistan

 Exemption from selection of audit under Section 177 and 214C to persons who have been audited in the preceding
three tax years has been proposed to be withdrawn.

Third Schedule

Part II

 allowance on building available at the rate of 15%.

Fourth Schedule

 Bill has proposed to empower the Commissioner to examine and amend the amount of income as disclosed in the
financial statements presented to the Securities and Exchange Commission of Pakistan with respect to commission
paid and claim for losses.

First Schedule

Part I

 It is proposed that every person engaged in any business, profession or vocation shall obtain and display a business
license as prescribed by the Federal Board of Revenue.

 Minimum threshold for non-chargeability of salaried individual is proposed to be enhanced to PKR 600,000. Further,
the highest tax rate applicable on salaried individuals is proposed to be enhanced to 35%.

 The corporate tax rate for the tax year 2019 is 29% which was to be reduced by 1% on yearly basis upto 25%. It is
now proposed to restrict such rate at 29% for tax year 2019 and onwards.

 Reduced rate of 7.5% applicable on dividend received from power companies is proposed to be enhanced to 15%.

 Rates of tax of profit on debt proposed to be enhanced by 5% for each slab.

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Highlights

 The slabs for rates of tax on income from property in the case of individual and AOPs are proposed to be increased
with additional tax levied thereupon.

 The applicability of the rate of tax on capital gains has been proposed to be extended till tax year 2020.

 Exemption on capital gain proposed to vary on the basis of holding period of open plots or constructed property.
Whereas normal tax rates have been proposed to be applicable instead of reduced tax rates presently applicable.

 The general rate of minimum tax on turnover under Section 113 of the Ordinance is proposed to be increased to
1.5%.

Part III

 The advance tax rate on profit on debt is proposed to be increased from 10% to 15%.

 The rate of withholding tax on transport services for resident persons is proposed to be enhanced to 4% from 2%,
wherein several other services are also to be included in the category.

 The rate of adjustable withholding tax on royalty payable to a resident person is proposed at 15% of the gross
amount.

Part IV

 Advance tax on dealers, commission agents and arhatis proposed to be enhanced significantly.

 A flat rate of 1% has been proposed as the advance tax on purchase of immovable property.

Second Schedule
Part I

 Amendment in the list of exemptions for armed forces personnel.

 Donation to certain institutions has been proposed to be included in the list of institutions to whom donation is
exempt from tax.

 Certain charitable institutions have been proposed to be included in the list of institutions whose income is exempt
from tax.

 The Bill proposes to seek a new proviso whereby profit and gains on sale of immoveable property to a rental REIT
Scheme shall be exempt from tax upto 30 June 2021.

 Exemption for dividend income derived by a company, proposed to be extended to companies who are eligible for
Group Relief under Section 59B.

 Exemption proposed for the income of persons resident of the Tribal areas of Khyber Pakhtunkhwa & Baluchistan

Part III

 Reduction in rate of rebate from 40% to 25% has been proposed, along with withdrawal of this rebate to teachers of
medical profession who derive income from private medical practice or who receive share of consideration from
patients.

 Exemption from provisions to resident goods transport contractors, subject to payment of tax at the rate of 2.5% on
payments received on account of rendering of carriage services has been proposed to be increased to 3%.

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Highlights

 Proposal of exemption from the specific provisions of withholding of tax to the persons resident of the Tribal areas
of Khyber Pakhtunkhwa & Baluchistan

 Exemption from selection of audit under Section 177 and 214C to persons who have been audited in the preceding
three tax years has been proposed to be withdrawn.

Third Schedule

Part II

Fourth Schedule

 Bill has proposed to empower the Commissioner to examine and amend the amount of income as disclosed in the
financial statements presented to the Securities and Exchange Commission of Pakistan with respect to commission
paid and claim for losses.

Sales Tax

 The term ‘Cottage industry’ is sought to be re-defined as a manufacturer located in a residential area with less than
ten workers and annual turnover upto two million rupees without having industrial gas and electricity connection.

 The term “retail price” is proposed to include the price fixed by an importer.

 The value of supply in case of toll manufacturing is defined as actual consideration received by the toll manufacturer
for its value addition.

 The sales tax on bricks is proposed to be levied under fixed sales tax regime Act.

 The rates for withholding/deduction of sales tax by withholding agents are proposed to be introduced under the
newly inserted Eleventh Schedule to the ST Act.

 Tier-1 retailer inter-alia includes a retailer whose shop measures 1,000 sq.ft. or more.

 The Tier-1 retailers shall pay sales tax at the applicable rates and option to pay sales tax on turnover basis or at the
rates specified in SRO 1125 shall not be available anymore.

 Customers of Tier-1 retailers may receive cash back up to 5% of the sales tax paid on their purchases from such date
or manner and to the extent as may be prescribed by FBR.

 The regime of value addition tax on imports inserted with some modifications by introducing the Twelfth Schedule to
the ST Act.

 NIC number of un-registered buyers required to be mentioned on the sales tax invoice; otherwise, related input tax
adjustment shall not be available to the suppliers on pro-rata basis.

 FBR may relax the limit of input tax adjustment to 95%.

 Audit of the records of a registered person may be conducted in each year.

 The sales tax return may be revised without permission of the Commissioner subject to the condition that the
revised return is filed within sixty days and tax payable is higher than the already tax paid or refund claim is less than
originally claimed.

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Highlights

 FBR may prescribe rules to initiate criminal proceedings against the Officials of Sales Tax.

 The penalty for non-filing of sales tax return is enhanced from PKR 5,000 to PKR 10,000. Where return filing is not
delayed more than 10 days, the penalty is increased from PKR 100 to PKR 200 for each day of default.

 Parameters for selection of sales tax audit by FBR to be kept confidential.

 The extra sales tax regime withdrawn and certain goods to be inserted into the Third Schedule subject to sales tax at
retail price.

 The sales tax exemption on certain items including silver and gold, electricity and gas supplied to hospitals, frozen
meat and sausages sold in retail packing, fat filled milk sold in retail packing is proposed to be withdrawn.

 New exemptions introduced in the Sixth Schedule on supply of electricity and other goods including import of plant
and machinery to Tribal areas, import or supply of steel products by the manufacturers on which FED is levied under
sales tax mode and local supplies of Cottonseed oil and Wheat Bran.

 Reduced rate of sales tax proposed to be withdrawn from Eight Schedule on reclaimed lead, rapeseed, sunflower,
canola, soya been seed and white crystalline sugar.

 Reduced rate of sales tax to be levied on various goods under the Eighth Schedule to the Act.

 The rate of sales tax on handsets proposed to be reduced.

 The list of sales tax on services levied under Islamabad Capital Territory (Tax on Services) Ordinance, 2001
expanded in lines with the provincial sales tax laws.

Federal Excise Duty

 Duty on supply of steel products is proposed to be charged at 17% ad valorem in sales tax mode which shall not be
less than the duty on production of steel products on an annual basis.

 FBR may prescribe rules to initiate criminal proceedings against the Officials of Federal Excise or taxpayers or both.

 The rate of duty on edible and vegetable ghee and cooking oil is proposed to be increased from 16% to 17% and fixed
duty on import of oil and oil seeds is proposed to be withdrawn.

 The rate of duty on certain kinds of aerated water is proposed to be increased from 11.5% to 14%.

 The duty on un-manufactured tobacco proposed to be borne by the manufacturer and not to be passed on to
grower.

 The rate of duty on locally produced cigarettes is proposed to be increased.

 The rate of duty on cement is proposed to be increased from PKR 1.50/ kg to PKR 2/ kg.

 The rate of duty on LNG is proposed to be levied at PKR 10/MMBTU instead of PKR 17.8/100 cubic meter.

 The rate of duty on locally manufactured/assembled motor vehicles is proposed to be levied at the rate of 2.5% with
the engine capacity of upto 1000cc, 5% from 1001cc to 2000cc and 7.5% on 2001cc and above. Currently, only
vehicles of engine capacity of 1700cc and above are subject to duty.

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Highlights

 The duty is proposed to be levied on fruit juices, syrups and squashes at the rate of 5% of the retail price.

 The rate of duty on domestic air travel is proposed to be reduced from PKR 2,000 to PKR 1,500 for long routes and
PKR 1,250 to PKR 900 for short routes.

 The exemption of duty on internet services, DCNS and value added data services is proposed to be withdrawn while
the exemption on broadband services is proposed to be r .

Customs

 Duties on more than 1,600 tariff lines are proposed to be exempted or reduced which includes raw material and
intermediary goods for textile and paper sector, wooden furniture, home appliances industry, solar penal
assemblers, chemical industry, pharma industry etc.

 -essential and luxury items is proposed to be enhanced.

 tyres is proposed to be reduced.

 -declared for illegal transfer of

funds abroad.

 -audit.

 goods by the owner for home consumption, warehousing and transshipment is proposed
to be reduced from 15 to 10 days.

 The clearance period of imported or exported goods is proposed to be reduced from 20 to 15 days. The power to
extend the period for further 10 days is also proposed to be reduced to 05 days.

 e power of the Collector of Customs to determine the value is proposed to be withdrawn and restricted to the
Director of Customs valuation.

 -levied or short-levied duty is proposed to be extended to

exporters.

 FBR may prescribe rules to initiate criminal proceedings against the Customs Officials or taxpayer or both.

 -defined.

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Highlights

 goods on import and export of prohibited or restricted goods to be

extended to violation of other provisions of the Act.

 nstitution of the Appellate Tribunal is proposed to be modified.

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Table of Contents

Income Tax

Section Page

1. Persons not appearing in the Active Taxpayers’ List (ATL) Section 100BA 6
2. Capital gains Section 37 7
3. Purchase of assets through banking channel Section 75A 8
4. Tax credit for investment Section 65B 8
5. Payment of refund through income tax refund bonds Section 171A 8
Section 177 Sub-section
6. Audit 9
(6) and (6A)
7. Prosecution for Non-submission of Foreign Income and Asset Statement Section 195A 9
Sections 2(38AB),
2(38AC), 2(38AD),
8. Offshore Tax Evasion 10
145(5), 182, 192B,
195B, 216
9. Tax paid at import stage to be treated as “minimum tax” Sections 148(7) and (8A) 11
10. Profit on debt Section 151 11
11. Income earned by non-resident persons Section 152 12
12. Income from sale of goods or rendering of services Section 153 12
13. Brokerage and commission income subject to minimum tax Section 233 14
14. Tax on CNG stations be treated as minimum tax Section 234A 14
15. Credit of tax collected or deducted Section 168 14
16. Tax collected / deducted or paid by a person not appearing on the ATL Section 169 14
Disallowance of commission expense / addition of dealer’s margin in
Section 21(ca) and
17. income of person making supplies to an unregistered person or a person 14
Section 108AB
not appearing in the active taxpayers list
18. Gift Section 39 15
19. Intangibles Section 24 15
20. Profit on Debt Section 7B 15
21. Tax Credit for Persons Employing Fresh Graduates Section 64C 15
22. Resident Individuals Section 82 15
23. Tax Credits for Non-Profit Organizations Section 100C 16
24. Payment to Non-Resident Section 152 16
25. Payment of Royalty to Resident Persons Section 153B 16
Report from Independent Chartered Accountant or Cost and Management
26. Section 108A 17
Accountant
27. Business License Scheme Section 181D 17
28. Prosecution for Failure to Furnish Details in Withholding Statements Section 191 17
29. Proceedings Against Tax Officials Section 216A 17
30. Offences and Penalties Section 182 18

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Table of Contents

Section Page

31. Alternative Dispute Resolution Section 134A 19

32. Return of income Section 114(1)(b) 19
33. Method of furnishing returns and other documents Section 118(3)(a) 20
34. Return not filed within due date Section 182A 20
35. Super tax for rehabilitation of temporarily displaced Section 4B 20
36. Restriction of proceedings Section 120B 20
37. Automated impersonal tax regime Section 227D 21
38. Exemptions and tax concessions in the Second Schedule Section 53 21
Unexplained income or assets - remittance of foreign exchange from
39. Section 111 21
abroad
40. Special Procedure for Certain Persons Section 99C 21
Section 139 Sub-section
41. Collection of Tax from a Member of an Associations of Persons 21
(6)
Section 161 Sub-section
42. Failure to pay tax collected or deducted 21
(3)
Section 175 Sub-section
43. Power to Enter and Search Premises 22
6A
44. Directorate General of Immovable Property Section 230F 22
45. Directorate General of Special Initiative Section 230G 22
46. Directorate General of Valuation Section 230H 22
47. Advance Tax on sale or transfer of immovable Property Section 236C 23
48. Tax on purchase or transfer of immovable property. Section 236W 23
Disclosure of information obtained under a tax treaty and other similar
49. Section 107(1B) 23
agreements

THE FIRST SCHEDULE

Page

50. Rates of tax for Individuals and Association of Persons 23

51. Rates of tax for companies 27

52. Rate of Super tax for rehabilitation of temporarily displaced persons 27

53. Rate of withholding and charge of tax on dividend income 27

54. Rate of tax on profit on debt 28

Rate of Tax on Return on investments in Sukuks received from a special

55. 28
purpose vehicle.

56. Rates of tax for non-resident taxpayers for certain transactions 28

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Table of Contents

Page

57. Income from property 28

58. Rates of tax on capital gains on securities 29

59. Rate of tax on capital gain on immovable property 29

60. Advance tax on builders 29

61. Advance tax on developers 30

62. Minimum Tax 30

63. Advance tax on imports 31

64. Advance tax on profit on debt 32

Advance tax on return on investments in Sukuks received from a special

65. 32
purpose vehicle.

66. Payments to non-residents 32

Advance income tax on payment to resident on payments for goods,

67. 33
services and execution of contract

68. Royalty paid to resident persons 34

69. Exports 34

70. Tax on prize and winnings 34

71. Tax on Petroleum Products 34

72. Tax on CNG Station 34

73. Collection of advance income tax on Brokerage and Commission 35

74. Collection of tax by NCCPL 35

75. Collection of tax on motor vehicles 35

76. Collection of tax on electricity consumption 36

77. Collection of Advance Tax on Telephone Users 36

78. Collection of tax on cash withdrawal from bank 36

79. Collection of advance tax on transactions through banking channels 36

80. Advance tax on purchase, registration and transfer of Motor Vehicles 37

81. Advance tax at the time of sale by auction 37

82. Advance tax on purchase of air tickets 37

83. Advance tax on sale/transfer of immovable property 37

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Table of Contents

Page

84. Collection of advance tax on functions and gatherings 38

85. Advance tax on cable operator and other electronic media 38

86. Advance tax on sale to distributors, dealers or wholesalers 38

87. Advance tax on sale of retailers 39

88. Advance tax on sale of certain petroleum products 39

89. Collection of advance tax by educational institutions 39

90. Advance tax on dealers, commission agents and arhatis, etc. 39

91. Advance tax on purchase of immovable property 39

92. Advance tax on domestic electricity consumption 39

93. Advance tax on international air ticket 39

94. Advance tax on bank transactions 40

95. Payment to a resident person for right to use machinery and equipment 40

96. Collection of advance tax on education related expenses remitted abroad 40

97. Advance tax on insurance premium 40

98. Advance tax on extraction of minerals 40

Advance tax on amount remitted abroad through credit, debit or prepaid

99. 40
cards

THE SECOND SCHEDULE

Clause Page

100. Exemption to armed forces personnel Clause (39A) 40

101. Exemption on donations Clause (61) 40

102. Exemption to income of certain charitable and other institutions Clause (66) 41

103. Profit and gains on sale of immoveable property to REIT Scheme (Clause 100) 41

Clause (103C) of Part I of

104. Reduction in tax liability on inter-corporate dividends 41
the Second Schedule

Exemption to the income of persons resident of the Tribal areas of Khyber

105. (Clause 146) 41
Pakhtunkhwa & Baluchistan

106. Reduction in a tax liability of a full time teacher or a researcher Clause (2) 42

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Table of Contents

Clause Page

107. Exemption from provisions of section 153 Clause (43E) 42

Deletion of Clause (81)

108. Exemption from disclosure of certain information 42
and (81A)

Exemption from the specific provisions of withholding of tax to the

109. (Clause 110) 42
persons resident of the Tribal areas of Khyber Pakhtunkhwa & Baluchistan

110. Exemption from selection of case for tax audit -Clause (105) 42

THE THIRD SCHEDULE

111. Initial Allowance Clause (1) 43

THE FOURTH SCHEDULE

Rule 6 - Mutual Insurance Association 43

THE FOURTH SCHEDULE

Rule 1(c) of the Seventh

112. Provision for bad debts of advances and off-balance sheet items 43
Schedule

113. Application of general provision of the Ordinance on a banking company Explanation to Rule 1 43

Enhanced rate of tax on taxable income from Federal Government

114. Rule 6C 43
Securities by a Banking Company

115. Computation of income for levy of super tax on a banking company Rule 7C 44

Reduced rate of tax on additional advances for micro, small and medium
116. Rule 7D 44
enterprises

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Income Tax

1. Persons not appearing in the Active Taxpayers’ List (ATL)

Section 100BA

The concept of filers and non-filers was introduced in the Ordinance through the Finance Act, 2014. Through this
concept a distinction was created between person who duly filed their tax returns and the remaining persons who were
considered non-filers. The basic intention of the legislature was to obtain documentation and compel the non-filers to
become registered tax filers. Over the years, major distinction was introduced in the rates of tax withholding under
various sections of the Ordinance to make the non-filers suffer heavy withholding of tax so that they may be compelled
to ultimately come within the tax net and file proper declaration of their tax returns with FBR.

However, over the last five years, it has been observed that the percentage of increase in tax filers has not been
significant and the numbers of tax filers is still quite low as compared to other comparable economies. The present
government has been talking about broadening of the tax base more strongly and the Prime Minister himself has on
many occasions indicated his strong desire to significantly broaden the tax base.

It is now proposed to enact a separate schedule in the Ordinance to deal with persons who are not on the ATL i.e. who
are not in the tax net and are not filing their declaration so far. In this connection, Section 100BA has been proposed
which governs the collection or deduction of advance income tax, computation of income and tax payable by such
persons.

The Tenth Schedule generally provides that where ever tax is required to be deducted or collected under any provisions
of the Ordinance from a person whose name is not appearing in the ATL, the rate of withholding will be doubled in case
of deduction or collection from such persons. However, the schedule provides exception in case of the following
payments –

(1) Salary;

(2) Payment to non-residents other than on account of royalty, fees for technical service, insurance premium

(3) Payment to a Permanent Establishment in Pakistan of a non-resident person other than on account of providing
services or contract or any general payment to a non-resident.

(4) Payment on account of exports

(5) Tax deductions from payment of rent

(6) Tax deductions from withdrawal of balance from pension funds

(7) Tax collection from cash withdrawal from a bank

(8) Tax collection on banking transactions

(9) Collection of tax by NCCPL

(10) Collection of tax on domestic or commercial electricity consumption

(11) Tax collection from steel melters

(12) Purchase of air tickets

(13) Functions and gatherings

(14) Cable operators

(15) Educational institutions

(16) Dealers and commission agents

(17) Purchase of international air tickets

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Income Tax

(18) Non-cash banking transactions

(19) Payment for use of machinery and equipment

(20) Remittance of education related expenses

(21) Extractions of minerals

(22) Tobacco

The Schedule seeks to provide a mechanism where a withholding agent is satisfied that the person not appearing in the
ATL is not required to be a tax filer and hence the deduction of tax should not be attracted from payments to such
persons. In such a situation, the payer would be required to furnish an application to the Commissioner in writing
electronically providing the details of the person from whom he intends not to collect tax, giving details about the payee
and the nature of payment and the basis on which he is not liable to be a tax filer. The Commissioner on such
application would decide the matter within 30 days and direct the payer accordingly.

Assessment of such person

 The Schedule requires the Commissioner to undertake a provisional assessment of the person from whom tax has
been withheld under the Schedule but he has failed to file the return of income within the prescribed time or
extended time.

 The provisional assessment is proposed to be carried out within 60 days of the due date of filing of return. The
income of such person in such a case shall be imputed on the basis of tax that has been withheld at source and shall
be treated as un-explained income.

 Once the provisional assessment has been finalized and served on such person, he can file a return of income within
45 days of the service of the provisional order. In which case the provisional assessment shall stands abated.

 If a return of income is not filed within 45 days of service of order of provisional assessment, then such assessment
is to be treated as final assessment order. In such a case the Commissioner is also proposed to be empowered to
pass an order within 30 days of finalization of assessment for imposition of penalty on account of non-furnishing of
return and concealment of income.

 The Schedule also seeks to empower the Commissioner to amend an assessment on the basis of definite
information from an audit or otherwise.

Consequent to the proposed enactment of the Schedule, to withdraw concept of filers and non-filers from various
provisions of the Ordinance, several amendments have been proposed in various withholding provisions to remove
reference to Filer and non-Filer. Similarly the restrictions introduced on purchase of immovable property and moveable
property on Non-filers in Section 227C are also proposed to be abolished.

2. Capital gains
Section 37; Division VIII, Part I of the First Schedule; Clause (9A), Part III of the Second Schedule

The taxation of capital gains arising from disposal of capital assets is governed by Section 37 of the Ordinance. After
the introduction of Eighteenth Amendment in the Constitution of Pakistan, 1973, the Finance Act, 2012 introduced a
significant amendment inserting Sub-section (1A) in Section 37 of the Ordinance providing for taxation of capital gains
arising from disposal of immovable properties. The rates of tax on such capital gains were applicable depending on the
holding period of immovable properties ranging from 5% to 10%. However, if the immovable property was disposed of
after holding period of three years, the rate of tax is prescribed at zero percent.

The Bill proposes to revamp the taxation of capital gains from disposal of immovable properties. Accordingly, it is
proposed to omit Sub-section (1A) from Section 37 along with Division VIII of Part I of the First Schedule which contains
rates of tax on such capital gains. In its place, a new Sub-section (3A) is proposed to be inserted which contains
separate mechanisms for computation of capital gain on disposal of (i) open plot, and (ii) constructed property. The
effect of the proposed amendment is that such capital gain (worked out by subtracting cost of the asset from the

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consideration received) will not be considered as a separate block of income liable to tax at reduced rates of 5%, 7.5% or
10%. It will instead forms part of total income of the person and therefore, be taxed at the normal rates of tax applicable
as per the First Schedule. The capital gain will, however, be reduced by 25% depending on the holding period of the
immovable property disposed of. The reduction of 25% will apply if the holding period of open plot exceeds one year but
does not exceed ten years and for constructed property from one year to five years. Where the immovable property is
disposed of after holding period of ten years and five years respectively, the capital gain will be taken to be zero. An
interesting outcome of this mode of taxation is that where the capital gain becomes zero depending upon the holding
period as discussed above, super tax under Section 4B of the Ordinance will not apply for, there would not be any
income recognizable for the purpose of computation of super tax.

The reduction of 50% of tax payable in respect of capital gains on disposal of immovable property on the first sale of
immovable property acquired or allotted to ex-servicemen and serving personnel of Armed Forces or ex-employees or
serving personnel of Federal and Provincial Governments, being original allottees of the immovable property, duly
certified by the allotment authority remains intact as for this purpose Clause (9A) is also proposed to be inserted in Part
III of the Second Schedule to the Ordinance.

3. Purchase of assets through banking channel

Section 75A

The Bill proposes to insert a new section in the Ordinance which provides that purchase of assets set as out below shall
now only be made through a crossed cheque drawn on a bank or through a crossed demand draft or crossed pay order
or any other crossed banking instrument –

(a) Immovable property having fair market value greater than PKR 05 million;

(b) Any other asset having fair market value of more than PKR 01 million

For the purpose of this section, the fair market value means the value notified by FBR under Section 68(4) of the
Ordinance or the value fixed by the provincial authority for the purposes of stamp duty, whichever is higher.

In the event, the transaction of purchase of the asset is not carried out in the manner prescribed above, such asset shall
not be entitled for allowance of depreciation or amortization, as specified under the Ordinance. It is further proposed
that the amount paid other than in the specified manner shall not be regarded as cost under Section 76 of the
Ordinance for the purpose of computing gain on disposal of such asset. In addition a penalty of five percent of the fair
market value of the asset so purchased shall also be levied.

4. Tax credit for investment

Section 65B

The tax credit currently available under Section 65B in respect of investment in the purchase of plant and machinery for
the purposes of extension, expansion, balancing, modernization and replacement thereof, already installed in an
industrial undertaking is proposed to be restricted in the following manner –

 the period of investment for availing tax credit is proposed to be reduced from 30 June 2021 to 30 June 2019

 the existing rate of tax credit would be reduced from 10% to 5% for the tax year 2019

 unadjusted tax credit if any, for the tax year 2019 can be carried forward and set off against the tax liability for the
tax years 2020 and 2021

5. Payment of refund through income tax refund bonds

Section 171A

Sections 170 and 171 lays down the procedure for payment of refund due to a taxpayer along with additional payment
for delayed refunds. However, due to liquidity crunch faced by the Government, taxpayer are unable to obtain the
refunds which creates accumulation of refund in billions of rupees. This causes severe cash flow issues to the taxpayers.

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In order to provide relief to taxpayers, the Bill seeks to introduce a new Section 171A whereby income tax refunds may
be paid through income tax refund bonds to be issued by FBR Refund Settlement Company Limited (the Company)
instead of paying through cheques or bank debit advice, in case the claimant opts for such payment.

The salient features of the above scheme may be summarized as under –

 Refund bonds to be issued by the Company, in book-entry form through an establishment licensed by the Securities
and Exchange Commission of Pakistan as a central depository under the Securities Act, 2015 (III of 2015), in lieu of
payment to be made through issuance of cheques of bank

 FBR shall issue a promissory note to the Company, incorporating the details of refund claimants and the amount of
refund determined as payable to each for issuance of income tax refund bonds of the same amount.

 The bonds shall be issued in values in multiples of one hundred thousand rupees.

 The bonds so issued shall have a maturity period of three years and shall bear annual simple profit at ten percent.

 The bonds shall be traded freely in the country’s secondary markets.

 The bonds shall be approved security for calculating the statutory liquidity reserve.

 The bonds shall be accepted by the banks as collateral.

 There shall be no compulsory deduction of Zakat against the bonds and Sahib-e-Nisab may pay Zakat voluntarily
according to Shariah.

 After period of maturity, the Company shall return the promissory note to FBR and FBR shall make the payment of
amount due under the bonds, along with profit due, to the bond holders.

 The bonds shall be redeemable in the manner as in Sub-section (9) before maturity only at the option of FBR along
with simple profit payable at the time of redemption in the light of general or specific policy to be formulated by
FBR.

 The refund under Sub-section (1) shall be paid in the aforesaid manner to the claimants who opt for payment in
such manner.

 The Federal Government may notify procedure to regulate the issuance, redemption and other matters relating to
the bonds, as may be required.

6. Audit
Section 177 Sub-section (6) and (6A)

In order to conclude the tax audit in the most efficient and logical manner, the Bill seeks to replace Sub-section (6) and
introduce Sub-section (6A), whereby, on completion of tax audit, the Commissioner will now be required to issue an
audit report containing audit observations and findings. The audit report should contain all the issues that were raised
during the course of audit proceedings and the findings of the Commissioner in respect of each of such issues. The Bill
further requires the Commissioner to pass an amendment assessment if considered necessary by taking recourse to the
provision of Section 122(4) and 122(9) of the Ordinance. The amendment order under Section 122 will be issued after
the issuance of audit report.

7. Prosecution for Non-submission of Foreign Income and Asset Statement

Section 195A

It would be recalled that Finance Act, 2018 introduced Section 116A which requires every resident taxpayer being an
individual having foreign income of not less than US $10,000 or having foreign assets with a value of not less than US
$100,000 to duly furnish foreign income and assets statement in the prescribed manner. Further, the Commissioner is

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empowered to issue a notice to a person (being an individual) who was required to furnish the ‘Foreign Income and
Assets Statement’ but failed to do so, to furnish such a statement on the date specified in the notice.

The Bill now proposes to insert a new Section 195A in terms of which any person who fails to comply with the
requirements of notice issued under Section 116A shall be punishable on conviction with imprisonment up to 2 years or
with a fine up to a penalty of 2% of the offshore assets not declared or both.

8. Offshore Tax Evasion

Sections 2(38AB), 2(38AC), 2(38AD), 145(5), 182, 192B, 195B, 216

The country in the recent past has witnessed a lot of hue and cry in respect of undeclared assets / wealth accumulated
and held abroad by resident of Pakistan. Such non-declaration was exposed to severe criticism both on print and
electronic media, ultimately resulting in media trial of persons involved. While the existing penalty and prosecution
provision may generally cater such tax evasions, the Bill now proposes to severely punish taxpayers involved in offshore
tax evasions. Although, the term offshore tax evasion has not been particularly defined either by the Bill or the
Ordinance, internationally the concept refers to a situation where a taxpayer avoids paying taxes in the home
jurisdiction in respect of foreign / offshore assets and income. Hence, if a Pakistan resident evades paying taxes on its
foreign source assets and income, it may be regarded as indulging in offshore tax evasion.

In this back drop following definitions are proposed to be inserted in Section 2 of the Ordinance –

 “Offshore asset” in relation to a person, incudes any movable or immovable asset held, any gain, profit, or income
derived, or any expenditure incurred outside Pakistan;

 “Offshore enabler” includes any person who, enables, assists, or advises any person to plan, design, arrange or
manage a transaction or declaration relating to an offshore asset, which has resulted or may result in tax evasion;

 “Offshore evader” means a person who owns, possesses, controls, or is the beneficial owner of an offshore asset
and does not declare, or under declares or provides inaccurate particulars of such asset to the Commissioner;

 “specified jurisdiction” means any jurisdiction which has committed to automatically exchange information under
the Common Reporting Standard with Pakistan;

 “unspecified jurisdiction” means a jurisdiction which is not a specified jurisdictions.

 “asset move” means the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who
owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion;

Corresponding penalties, in respect of offshore tax evasion have also been proposed as under:

 Where an offshore tax evader is involved in offshore tax evasion, a penalty of PKR 100,000 or an amount equal to
200% of the tax which the person sought to evade, whichever is higher, would be applicable.

 Where, in the course of any transaction or declaration made by a person, an enabler has enabled, guided, advised
or managed any person to design, arrange or manage that transaction or declaration in such a manner which has
resulted or may result in offshore tax evasion, a penalty of PKR 300,000 or an amount equal to 200% of the tax
which was sought to be evaded, whichever is higher, would be applicable.

 Any person, who is involved in the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a
person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax
evasion, from one specified territory to an un-specified territory, shall pay a penalty of PKR 100,000 or an amount
equal to 100% of the tax whichever is higher.

In addition to the above penal exposures, in order to deter the concealment of offshore assets and to maintain effective
monitoring of offshore tax evasion, the Bill also proposes to prosecute the tax evader, as provided for under the newly
proposed Sections 192B and 195B.

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In terms of Section 192B, any person who fails to declare an offshore asset or furnishes inaccurate particulars of an
offshore asset where the financial impact of such concealment or furnishing of inaccurate particulars is PKR 100,000 or
more, the same shall be treated as an offence, punishable on conviction with imprisonment up to 7 years or a fine up to
200% of the amount of tax evaded, or both.

Similarly, through Section 195B, the Bill seeks to hold any enabler who enables, guides or advises any person to design,
arrange or manage a transaction or declaration in such a manner which results in an offshore tax evasion, the same will
be treated as an offence punishable on conviction with imprisonment for a term not exceeding 7 years or with a fine up
to PKR 5 million or both.

The Bill further proposes to insert a new Sub-section in Section 145 of the Ordinance in terms of which the
Commissioner is empowered to freeze any domestic asset of a person including any asset beneficially owned by him,
where he has reason to believe that such person who is likely to leave Pakistan may be involved in offshore tax evasion
or such person is about to dispose of any such asset.

The asset frozen can be held by the Commissioner for a period of one hundred and twenty days or till the finalization of
proceedings including but not limited to recovery proceedings under the Ordinance whichever is earlier.

Finally, the Bill proposes to insert Sub-sections (6B) and (6C) in Section 216 of the Ordinance whereby FBR is
empowered to publish the names of offshore evaders and offshore enablers in the electronic and print media.

9. Tax paid at import stage to be treated as “minimum tax”

Sections 148(7) and (8A)

Before the Finance Act, 2018, tax required to be collected under Section 148 on import of plastic raw material
imported by an industrial undertaking, falling under PCT headings 39.01 to 39.12, edible oils and packing material is
treated as minimum tax. Furthermore, tax required to be collected on import of goods that are sold in the same
condition as they were when imported was treated as final tax. The Finance Act, 2018 brought a substantive conceptual
shift with respect to taxation of commercial importers whereby such tax collection was deemed to be “minimum tax” in
respect of such importers.

Due to the aforesaid change in taxability of commercial importers, there were grave concerns shown by the above
sector, as this change would have required the commercial importers to declare the financial results for comparison of
tax on profits to the minimum tax on imports. As a result of strong lobbying by commercial importers, amendments
were made in Section 148 through the Finance Supplementary (Second Amendment) Act, 2019 whereby tax collected
at import stage from commercial importers was again treated as final discharge of tax liability of such importers.

The Bill now proposes to restore the position as stood after the amendments made through the Finance Act, 2018 to
change the character of such tax collection from “final tax” to “minimum tax”. Such commercial importers, pursuant to
the proposed amendments will now be required to file a return of income instead of filing a statement in terms of
Section 115 of the Ordinance.

The Bill also proposes amendments in Sub-section (8A) of Section 148 whereby tax collected at the time of import of
ships by ship-breakers is also to be treated as ‘minimum tax’.

10. Profit on debt

Section 151

The Bill proposes to treat the tax deducted under Section 151 of the Ordinance on account of payment of profit on debt
as minimum tax instead of final tax.

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11. Income earned by non-resident persons

Section 152

In line with the amendments brought in Section 153 of the Ordinance making tax deducted from services rendered as
minimum tax, the Bill has proposed amendments in Section 152 of the Ordinance whereby tax deducted from payments
made to non-resident persons in respect of the following contracts and services is to be treated as ‘minimum tax’ –

(i) Execution of contract or a sub-contract under a construction, assembly or installation project in Pakistan,
including a contract for the supply of supervisory activities in relation to such project

(ii) Any other contract for construction or services rendered relating thereto

(iii) A contract for advertisement services rendered by T.V. Satellite Channels

(iv) Insurance premium or re-insurance premium to a non-resident person

The non-resident persons earning income from the aforementioned contracts or services, pursuant to the proposed
amendments will be required to file a return of income. Consequently, proviso of Sub-section (1B) of Section 152
providing an option to non-resident person to opt out of final taxation in respect of income arising from execution of
contracts has been proposed to be omitted.

12. Income from sale of goods or rendering of services

Section 153

Currently, tax deductible under clauses (a) and (c) of Sub-section (1) of Section 153 on account of supply of goods and
execution of contracts is treated as final tax. Similarly, tax deducted by an exporter / export house on payment to a
resident person or permanent establishment of a non-resident person for rendering of or providing services of stitching,
dying, printing, embroidery, washing, sizing and weaving, is a final tax.

s to bring a substantial shift with respect to taxation

of following streams of income whereby tax deducted on such receipts is to be treated as minimum tax instead of final
tax-

(i) Income arising from supply of goods except where the company is a manufacturer of such goods or is a public
listed company

(ii) Income arising from rendering of services

(iii) Income from execution of contracts

Clause (94) and Sub-section (4A) of Section 153

Through the Finance Act, 2009, an amendment was made to make the tax withheld on payment against services
rendered as a minimum tax. However, there an ambiguity on the interpretation of this provision whereby applicability of
such minimum tax on the corporate sector was unclear. It was however clarified by the FBR that tax withheld from
payments relating to services rendered would only be considered minimum tax in case of non-corporate taxpayers.
Subsequently, Clause (79) was inserted in Part IV of the Second Schedule via SRO 1003 (I)/2011 dated 31 October
2010 for the purpose. The matter however, remained in dispute at various forums.
f
To remove the uncertainty created by conflicting rulings on the issue, in the Finance Bill 2015, the FBR proposed to
amend Section 153 to provide that effective from the tax year 2009, the tax deductible under section 153(1) (b) shall
not be treated as minimum tax in the case of companies. This amendment was in line with Clause (79) which had similar
gist. Accordingly, it was also proposed to omit Clause (79) to align the related provisions. However, certain quarters
opposed the proposed amendment in Section 153 referred above. Resultantly, while Clause (79) was omitted through
the Finance Act, 2015, the provisions of Section 153(3) (b) remained unchanged. Consequently, in all cases (i.e.
companies, individuals or AOPs), the tax deductible from payments against services rendered under Section 153(1) (b)
was treated as minimum tax in respect of such receipts.

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The above position of law created anomaly and also caused confusion and panic amongst the concerned service sector
companies. In this background, through the Income Tax (Second Amendment) Ordinance, 2015 (“Amendment
Ordinance, 2015”) Clause (94) in Part IV of the Second Schedule to the Ordinance was inserted [and subsequently
substituted through the Income Tax (2nd Amendment) Act, 2016] whereby a reduced rate of 2% was prescribed in
respect of following service providers in the corporate sector:

(i) Freight forwarding services

(ii) Air cargo services

(iii) Courier services

(iv) Manpower outsourcing services

(v) Hotel services

(vi) Security guard services

(vii) Software development services

(viii) IT services and IT enabled services as defined in clause (133) of Part I of the Second Schedule

(ix) Tracking services

(x) Advertising services (other than by print or electronic media)

(xi) Share registrar services

(xii) Engineering services

(xiii) Car rental services

(xiv) Building maintenance services

(xv) Services rendered by Pakistan Stock Exchange Limited and Pakistan Mercantile Exchange Limited

(xvi) Inspection, certification, testing and training services

In line with the proposed amendments in Section 153 of the Ordinance, the Bill now proposes to omit Clause (94) ibid.
The Bill also proposes to omit Sub-section (4A) of Section 153 relating to issuance of exemption certificate by the
Commissioner to the abovementioned service providers.

It is also proposed to introduce rate of tax deduction of 4% for specified services as were mentioned in Clause (94).
Further, rate of tax on transport services is proposed to be enhanced from 2% to 4%.

The above amendments have created an anomaly for non-resident persons having permanent establishment in
Pakistan. The Finance Act, 2018 through an amendment in Section 152 of the Ordinance provided a similar option to
such non-residents which have permanent establishment in Pakistan and were covered under Clause (94) referred
above to file an option for offering their accounts for tax audit under Section 177 of the Ordinance. It was further
provided that after paying tax @2% of their turnover they may obtain an exemption certificate in terms of Section
153(4A) of the Ordinance. Now since Sub-section (4A) of Section 153 and Clause (94) are being proposed to be
omitted, the above non-resident persons would not be in a position to obtain the above exemption certificate. However,
a similar amendment has not been proposed for such non-resident persons to provide for reduced rate of tax
withholding of 4% (as is proposed for resident service providers). As a result the tax withheld @ 8% remains a minimum
tax for those non-resident service providers. In our view, suitable amendments would be required to resolve this issue.

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13. Brokerage and commission income subject to minimum tax

Section 233

Under Section 233 of the Ordinance, any payment on account of brokerage or commission paid to an agent by the
Federal Government, a Provincial Government, a Local Government, a company or an association of persons or any
payment on account of commission to an advertising agent, directly or through electronic or print media is subject to
deduction / collection of tax at the rates specified in Division II of Part IV of the First Schedule. Currently, the tax so
deducted constitute a final discharge of tax liability by the recipient of the commission. The Bill proposes that the tax
deducted on the above commission be treated as minimum tax instead of final tax.

14. Tax on CNG stations be treated as minimum tax

Section 234A

Currently, advance tax is collected from CNG stations on the amount of bill issued in respect of gas consumed by such
CNG stations. The advance tax so collected is considered as a final discharge of tax liability on the income arising to
such CNG stations. The Bill proposes that the tax so collected be treated as minimum tax. Pursuant to the proposed
amendment, CNG stations will be required to file a return of income in place of a statement under Section 115(4) of the
Ordinance.

15. Credit of tax collected or deducted

Section 168

Sub-section (3) provides that credit of taxes that have been deducted under various withholding sections of the
Ordinance which are treated as full and final tax liability would not be available.

Since, taxes deducted / collected under various sections as mentioned in the aforesaid Sub-section are now proposed to
be treated as minimum tax instead of final tax, the Bill consequently proposes to delete the above Sub-section.
Accordingly, taxes deducted and collected under these sections will be available for adjustment against the ultimate tax
liability of the taxpayer.

16. Tax collected / deducted or paid by a person not appearing on the ATL
Section 169

Consequent to the proposed amendments whereby the concept of ‘filer’ and non-filer’ is proposed to be completely
abolished and be replaced with ‘person not appearing in the Active Taxpayers’ List’, relevant amendments have also
been proposed under Sub-section (4) of Section 169 of the Ordinance dealing with adjustment of excess tax deducted /
collected from such persons.

17. Disallowance of commission expense / addition of dealer’s margin in income of person making
supplies to an unregistered person or a person not appearing in the active taxpayers list
Section 21(ca) and Section 108AB

The Bill proposes to insert a new Sub-section namely (ca) in Section 21 of the Ordinance which provides for deductions
which would not allowed while computing business income of a person. The newly introduced Sub-section aims to
restrict the claim of commission expense up to a maximum of 0.2% of gross amount of supplies made by a person of
products listed in Third Schedule of the Sales Tax Act, 1990 to a person who is not registered under the Sales Tax Act,
1990 or is not appearing in the active taxpayers list.

In addition to the above, the Bill has also proposed to insert a new section namely 108AB which seeks to make an
addition of 75% of dealer’s margin in income of a person supplying products listed in Third Schedule of the Sales Tax
Act, 1990 and or any other products prescribed by FBR, to a person under dealership arrangement who is not
registered under the Sales Tax Act, 1990 or is not appearing in the active taxpayers list. The amount of dealer’s margin
in such case is prescribed at 10% of the sale price of the manufacturer.

The above change is being brought to compel the business to engage in transaction with registered persons and active
taxpayers in order to promote a culture of tax compliance which would broaden the tax base in the country.

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18. Gift
Section 39

The Bill proposes that any amount or fair market value of any property received without consideration or received as
gift, other than gift received from grandparents, parents, spouse, real brother, real sister, son or a daughter, shall be
taxable in the hands of the recipient under the head “Income from Other Sources”.

19. Intangibles
Section 24

Currently, in terms of Sub-section (4) of Section 24, an intangible with a normal useful life of more than 10 years or an
intangible that does not have an ascertainable useful life is treated as if it has a normal useful life of 10 years and
amortized accordingly. The Bill now proposes that the limit of 10 years be removed with the result that an intangible
with an ascertainable useful life would now be amortized over its actual useful life. However, if an intangible’s useful life
is not ascertainable, it is proposed to be amortized over 25 years.

Furthermore, the definition of an intangible is proposed to be amended to specifically exclude self-generated goodwill or
any adjustment arising from prescribed accounting treatments. The proposed amendment appears to be in line with the
general principles of taxation, whereby a deduction may only be claimed on account of actual expenditure incurred, as
opposed to notional amounts recognized as expenses based on prescribed accounting treatments.

20. Profit on Debt

Section 7B

It would be recalled that Section 7B was introduced by the Finance Act, 2015 whereby slab rates were introduced for
taxing profit on debt, for taxpayers other than a company, as a final discharge of tax liability. The rate of tax ranges
from 10% to 15%; the highest being applicable where profit on debt exceeds PKR 25 million.

The Bill now proposes to enhance such rates with the lowest slab being 15% and the highest slab being 20%, which would
apply to profit on debt exceeding PKR 25 million but not exceeding PKR 36 million. Furthermore, the Bill also proposes
that Section 7B would not apply to any profit on debt that exceeds PKR 36 million. In effect, this would mean that if a
taxpayer earns profit on debt in excess to PKR 36 million, the entire profit on debt would be taxable as part of the
taxable income of the taxpayer for the year.

21. Tax Credit for Persons Employing Fresh Graduates

Section 64C

The Bill proposes to introduce a new Section 64C, whereby a person shall be allowed a tax credit in respect of the
amount of annual salary paid to freshly qualified graduates employed by the person, in the tax year in which they are
employed. The tax credit is proposed to be allowed for salary paid to the number of such graduates not exceeding 15
percent of the total employees of the company in the tax year. Freshly qualified graduates have been defined as any
person who have graduated after the first day of July, 2017 from any institution or university recognized by the Higher
Education Commission.

The amount of tax credit allowed is computed at the effective tax rate of the person to the extent of the lessor of —

(a) the annual salary paid to the freshly qualified graduates; and

(b) five percent of the person's taxable income for the year.

22. Resident Individuals

Section 82

Currently an individual is a resident individual for a tax year if he is present in Pakistan for a period of 183 days or more
in the tax year or if he is an employee or official of the Federal or Provincial Government and posted abroad.

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The Bill now proposes to expand the definition to include an individual who is present in Pakistan for 90 days or more in
the tax year, and who in the four preceding tax years was present in Pakistan for 365 days in aggregate. It may be
noted that up until tax year 2003, the definition of a resident individual included the clause proposed by the Bill. The
clause was omitted by Finance Act, 2003 and is now proposed to be reinstated.

23. Tax Credits for Non-Profit Organizations

Section 100C

Section 100C provides a 100% tax credit to certain non-profit organizations, trusts, and welfare institutions subject to
fulfillment of certain conditions. The Bill now seeks to introduce two additional pre-conditions to obtaining the tax
credit:

 With effect from 1st day of July, 2020, each of such non-profit organizations, trusts, and welfare institutions must
mandatorily obtain approval of the Commissioner with regards to its status as a non-profit organization.

 None of the assets of the trust or welfare institutions may confer a private benefit to the relatives of the donors or
authors.

Furthermore, since the requirement to seek approval from the Commissioner is now a pre-condition to obtain the tax
credit, the powers of the Chief Commissioner to approved institutions for the purpose this credit have now been
omitted.

24. Payment to Non-Resident

Section 152

The Finance Act, 2018 brought about amendments in Sections 2(41), 101(3) and 152(7) to tax supply of goods by a
non-resident in case of overall arrangements for Engineering, Procurement, Construction and Commissioning (EPCC)
even if the supply is made outside of Pakistan and the importer on record is the purchaser. This created significant
hurdles for existing and potential projects, particularly with regards to remittance of payments due to non-residents on
account of off-shore supplies.

In order to address the issue of making contractually obliged payments, the Bill proposes to empower the Commissioner
to allow by order in writing, under a written application, the person to make payment after deduction of tax equal to 6%
of the gross amount. The credit of the tax so deducted shall be available to the permanent establishment of the non-
resident.

It must be appreciated that these amendments proposed by the Bill are merely a stop-gate solution to address the issue
of remittances pertaining to offshore supplies, and the underlying grievances of project owners and their contractors,
vis-à-vis increasing costs of doing business due to the taxation of such supplies in Pakistan, remains unresolved.
Furthermore, since most of these supplies are made from Treaty countries and under the Treaty, they would be exempt,
the proposed amendments only serve in creating a pile up of refunds without addressing the core issue.

25. Payment of Royalty to Resident Persons

Section 153B

At present there is no withholding tax on payment of royalty to resident persons, except on account of use or right to
use industrial, commercial, or scientific equipment, for which a rate of 10% has been prescribed under Section 236Q.
The Bill now proposes to insert a new Section 153B, whereby every person paying an amount of royalty to a resident
person shall deduct tax at the rate of 15% from the gross amount payable (including federal excise duty and provincial
sales tax, if any). The tax so deducted shall be adjustable.

In order to ensure a level playing field, it is recommended that a similar withholding tax is also introduced for a
permanent establishment of a non-resident person.

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26. Report from Independent Chartered Accountant or Cost and Management Accountant
Section 108A

The Bill proposes to introduce a new Section 108A, whereby if the Commissioner is of the opinion that a transaction has
not been declared at arm's length, the Commissioner may, after approval from FBR, obtain a report, in the prescribed
manner, from an independent chartered accountant or cost and management accountant to determine the fair market
value of an asset, product, expenditure or service at the time of transaction.

Where the Commissioner is satisfied with the report, the fair market value of the asset, product, expenditure or service
determined in the report shall be treated as definite information for the purpose of Sub-section (8) of Section 122.
Accordingly, the Commissioner may initiate proceedings for amendment of assessment of the taxpayer pursuant to
Section 122 on the basis of such a report.

Where the Commissioner is not satisfied with the report, he may record reasons for not being satisfied with the report
and seek another report from another independent chartered accountant or cost and management accountant.

27. Business License Scheme

Section 181D

As part of the taxpayer documentation drive of the Government, the Bill proposes to introduce a new Section 181D
whereby every person engaged in any business, profession or vocation shall be required to obtain and display a business
licence as prescribed by FBR.

28. Prosecution for Failure to Furnish Details in Withholding Statements

Section 191

In relation to certain statutory non compliances, without reasonable excuse, Section 191 prescribes a punishment of a
fine for imprisonment for a term not exceeding one year, or both. The Bill now proposes to include the failure to furnish
particulars or the furnishing of incomplete or inaccurate details in withholding tax statements, of persons from whom
tax has been deducted, as part of the list provided in Section 191.

29. Proceedings Against Tax Officials

Section 216A

Section 227 provides immunity to tax officials from prosecution by any Governmental agency for anything done in his
official capacity, without the prior approval of FBR. This immunity was, at times, exploited by the tax officials for their
own personal benefits.

To address the above issue, the Bill proposes to introduce a new Section 216A, under which FBR shall prescribe rules
for initiating proceedings, including criminal proceedings against any tax official who willfully and deliberately commits
or omits an act which results in personal benefits and undue advantage to himself or a taxpayer or both. Furthermore,
in addition to this FBR shall simultaneously intimate the relevant Governmental agency to initiate criminal proceedings
against the taxpayer.

Through the above proposed amendments, whilst FBR’s powers for taking action against any mal-practices of the tax
officials have been extended, the consequential punishment for such mal-practice on being proved guilty, has not been
prescribed. Further, while the case may be referred to any agency vis-à-vis the taxpayer, it seems that FBR will self-
investigate the case of its officers and will not pass it on for investigation by the independent Governmental agency.

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30. Offences and Penalties
Section 182
The Bill proposes to revise the existing rates of penalties as provided for under Section 182 of the Ordinance in respect
of offences discussed below –
S. No. Offences
1. Failure to furnish a return of income
as required under Section 114
within the due date
1AA. Failure to furnish wealth statement
or wealth reconciliation statement
under Section 116
3. Failure to obtain tax registration
under the Ordinance
6. Erroneous calculation in the return
of income for more than one year
whereby amount of tax less than the
actual tax payable under the
Ordinance is paid
11. Denial or obstruction of the
Commissioner’s access or any
officer authorized by him to the
premises, place, accounts,
documents, computers or stocks
12. Concealment of income or
furnishing inaccurate particulars of
income, including but not limited to
the suppression of any income or
amount chargeable to tax; claiming
of any deduction for any
expenditure not actually incurred or
any act referred to in Sub-section
(1) of Section 111, in the course of
any proceeding under the Ordinance
before any Income Tax authority or
the Appellate Tribunal
15. Failure to collect or deduct tax or
failure to pay the tax collected or
deducted as required under the
Ordinance
Existing Penalty
0.1% of the gross tax payable for
that tax year for each day of
default subject to a maximum
penalty of 50% of the tax
payable provided that if the
penalty worked out is less than
PKR 20,000 or no tax is payable
for that tax year, a penalty of
PKR 20,000 shall be payable
0.1% of the taxable income per
week or PKR 20,000 whichever
is higher
PKR 5,000
PKR 5,000 or three per cent of
the amount of the tax involved,
whichever is higher
PKR 25,000 or one hundred per
cent of the amount of tax
involved, whichever is higher
PKR 25,000 or an amount equal
to the tax sought to be evaded,
whichever is higher
PKR 25,000 or 10% of the
amount of tax involved,
whichever is higher
18
Proposed Penalty
0.1% of the gross tax payable for
that tax year for each day of
default subject to a maximum
penalty of 50% of the tax payable
provided that if the penalty
worked out is less than PKR
40,000 or no tax is payable for
that tax year, a penalty of PKR
40,000 shall be payable
It is also proposed that if 75% of
the income is from salary and
such salary is less than PKR 05
million, the minimum amount of
penalty shall be PKR 5,000
0.1% of the taxable income per
week or PKR 100,000 whichever
is higher
PKR 10,000
PKR 30,000 or three per cent of
the amount of the tax involved,
whichever is higher
PKR 50,000 or one hundred per
cent of the amount of tax
involved, whichever is higher
PKR 100,000 or an amount
equal to the tax sought to be
evaded, whichever is higher
PKR 40,000 or 10% of the
amount of tax involved,
whichever is higher
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In addition to the various other penalties captured in the paragraphs of our commentary, the Bill proposes to introduce
the following new penalties.

Offences Penalties

Any person who purchases immovable property having
fair market value greater than rupees five million through
cash or bearer cheque
Where a Reporting Financial Institution fails to comply
with any provisions of Section 165B of the Ordinance or
Common Reporting Standard Rules in Chapter XIIA of
Income Tax Rules, 2002.
Where a Reporting Financial Institution files an
incomplete or inaccurate report under provisions of
Section 165B of the Ordinance and Common Reporting
Standard Rules in Chapter XIIA of Income Tax Rules,
2002.
Where a Reporting Financial Institution fails to obtain
valid self-certification for new accounts or furnishes false
self-certification made by the Reportable Jurisdiction
Person under Common Reporting Standard Rules in
Chapter XIIA of Income Tax Rules, 2002.
Where a Reportable Jurisdiction Person fails to furnish
valid self-certification or furnishes false self-certification
under Common Reporting Standard Rules in Chapter XIIA
of Income Tax Rules,
Such person shall pay a penalty of five percent of the
value of property determined by FBR under Sub-section
(4) of Section 68 or by the provincial authority for the
purposes of stamp duty, whichever is higher
Such Reporting Financial Institution shall pay a penalty
of PKR 10, 000 for each default and an additional PKR
10,000 each month until the default is redressed.
Such Reporting Financial Institution shall pay a penalty
of PKR 10,000 for each default and an additional PKR
10,000 each month until the default is redressed.
Such Reporting Financial Institution shall pay a penalty
of PKR 10,000 for each default and an additional PKR
10,000 each month until the default is redressed.
Such Reportable Jurisdiction Person shall pay a penalty
of PKR 5,000 for each default and an additional PKR
5,000 each month until the default is redressed.

31. Alternative Dispute Resolution

Section 134A

The provisions of this section were completely revamped through Finance Act, 2018 and basically the forum Alternative
Dispute Resolution (ADR) was converted into an another appellate forum which would be final for both the taxpayers
and the tax authorities rather than being an option for the taxpayers to seek alternate remedy with the ADR and
continue contesting the matter at other legal forums. These amendments were generally criticized by business as well
as professional forums and it was emphasized that the alternate mechanism under ADR before the amendments
introduced by Finance Act, 2018 may be restored. The matter was also brought to the attention to the policy makers at
the time of discussion of budget proposal by various bodies, however, it seems that the government has not agreed to
these suggestions and has not proposed any such significant amendments which was so desired.

The only amendment introduced through the Bill is the inclusion of a Cost and Management Accountant within the list of
eligible person for appointment on the panel of FBR for formation of ADR committee.

32. Return of income

Section 114(1)(b)

Section 114(1) of the Ordinance enlists and specifies persons that are under obligation to furnish return of income for a
tax year. The list includes a person being owner of immoveable property of two hundred and fifty square yards or more
or any flat located in areas falling within the municipal limits existing immediately before the commencement of Local
Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory, to file a return of
income. The Bill seeks to enhance the land area of the immovable property from two hundred and fifty to five hundred
square yards.

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33. Method of furnishing returns and other documents

Section 118(3)(a)

The due date of filing a statement under Section 115(4) for income falling under FTR and for returns of income by
salaried individuals is prescribed to be 31 August next following the end of the relevant tax year.

The Bill proposes to substitute the due date of filing of the above documents from 31 August to 30 September next
following the end of the relevant tax year.

34. Return not filed within due date

Section 182A

As per the current provisions of Section 182A of the Ordinance, where a person fails to file a return of income by the
due date or within the time extended by the Commissioner or by FBR, such person shall neither be included in the active
taxpayers list nor allowed to carry forward any loss for that tax year.

The Bill proposes that such a person shall be included in the active taxpayers’ list after he files the return of income
subject to payment of surcharge as under –

 PKR 20,000 in case of a company;

 PKR 10,000 in case of an association of persons; and
 PKR 1,000 in case of an individual.

The Bill also seeks to provide certain additional impediments for the above person which are as follows –

 No refund would be issued during the period when the name of the person was not included in the active taxpayers’
list;

 He will not be entitled to additional payment for delayed refund and the period during which he was not in the
active taxpayers’ list will not be accounted for the purpose of computation of additional payment for delayed
refund.

35. Super tax for rehabilitation of temporarily displaced

Section 4B

The Finance Act, 2015 introduced a onetime super tax on all persons on all types of income whether taxable under NTR
or under FTR for the tax year 2015. This tax was later extended to the tax year 2021 by the Finance Act, 2018. The
super is levied at 4% on banking companies and at 3% on all other persons having taxable income of PKR 500 million or
more. The above rates of super tax are to be gradually reduced in each subsequent year till the tax year 2021, where
for a banking company the rate of super tax is prescribed at 2% while for other companies it is prescribe at zero percent.

The Finance Act, 2016 brought about a significant amendment whereby for the purpose of computation of income in
order to work out the levy of super tax, brought forward depreciation and brought forward business losses were not to
be taken into account. However, in the case of companies for which separate schedules of taxation (i.e. Fourth, Fifth,
Seventh and Eight Schedules) are available like banking companies, insurance companies and petroleum exploration and
production companies, such amendment was not effective. The Bill now proposes to amend Section 4B in a manner that
such companies which are governed by the provisions of separate schedules referred above will also be liable to pay
super tax without taking into account the effect of brought forward depreciation and brought forward business losses.

36. Restriction of proceedings

Section 120B

In line with the provisions of Sections 12 and 14 of the Amnesty Ordinance, the Bill proposes to insert Section 120B in
the Ordinance in order to provide for protection to the declarations made by the persons from any proceedings under
the Ordinance as well as confidentiality to the information disclosed in respect of undeclared assets, expenditures and
sales, as the case may be.

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Income Tax

37. Automated impersonal tax regime

Section 227D

In order to minimize personal interaction with taxpayers, the Bill proposes to introduce an alternate impersonal taxation
regime. It is stated that this automated regime shall be applicable for low risk and compliant taxpayers. For this
purpose, FBR will prescribe procedure in the official gazette. This appears to be a confidence building measure among
the taxpayers who remain reluctant to interact with the tax authorities.

38. Exemptions and tax concessions in the Second Schedule

Section 53

The powers of the Federal Government of granting exemptions or concessions under the Second Schedule to the
Ordinance have been restricted for specified purposes via an amendment made through the Finance Act, 2015. The Bill
proposes to further restrict such powers in the circumstances currently dealing with removal of anomalies in taxes and
development of backward areas. This would mean that for this purpose, an amendment in the Second Schedule can only
be made through amendment in a Finance Bill and not through a notification issued in terms of Section 53 of the
Ordinance.

39. Unexplained income or assets - remittance of foreign exchange from abroad

Section 111

Currently, foreign exchange remitted from outside Pakistan through normal banking channels to the extent of PKR 10
million in a tax year is not subject to probe by the tax authorities as regards the source. The Bill proposes to reduce the
above limit to PKR 05 million in a tax year. Moreover, the exclusion from probe by the tax authorities as to the source in
respect of amount invested in acquiring immovable property is proposed to be withdrawn.

40. Special Procedure for Certain Persons

Section 99C

The Bill proposes to insert a new section whereby taxation of certain business are to be governed by way of a special
procedure as may be notified in the official Gazette. The businesses that are to be covered under the aforesaid scheme
would be in the specified cities or territories. This proposed scheme is a new concept aims to provide a simplified
procedure for taxation of such small businesses, construction businesses, medical practitioners, hospitals, educational
institutions and any other sector as specified by the Federal Government. Special procedure would cover scope and
payment of tax, record keeping, filing of return and assessment in respect of the specified businesses.

41. Collection of Tax from a Member of an Associations of Persons

Section 139 Sub-section (6)

Section 139 deals with the collection of tax in the case of private companies and associations of persons.

Under the existing provision, where any tax payable by a member of an association of persons in respect of the
member’s share of income of the association for a tax year cannot be recovered from the member, the association shall
be liable for the tax due by such member.

The Bill now proposes to extend the scope of aforesaid section, whereby where any tax payable by an association of
persons in respect of any tax year cannot be recovered from the association of persons, the same can be recovered
from every person who was, at any time in that tax year, a member of the association of persons.

Further, any member who pays tax, as above, shall be entitled to recover the tax paid from the association of persons or
a share of the tax from any other member.

42. Failure to pay tax collected or deducted

Section 161 Sub-section (3)

In terms of Section 161, a person shall be personally liable to pay the amount of tax which was not collected or
deducted from a payment or the amount of tax which was deducted or collected but not paid to the Commissioner.

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Income Tax

Based on the judgement of Lahore High Court, in the case of Asia Poultry Feeds (Pvt.) Limited vs. the Federal Board of
Revenue (W.P. 8466 of 2015) dated 23 June 2015, the hon’ble judge held that if the proceedings for monitoring of
withholding taxes have been conducted for a particular tax year, the same cannot be reinitiated.

In order to undo the judgement of the Lahore High Court, the bill now seeks to insert a new Sub-section in Section 161
whereby the Commissioner is empowered to amend or further amend an order of recovery already passed under
Section 161, and recover the tax that escaped at the time of passing of the said earlier order, if he considers that the
order passed earlier is erroneous in so far it is prejudicial to the interest of revenue.

The Bill further proposes that no such amended order could be passed unless an opportunity of being heard is provided
to the taxpayer.

43. Power to Enter and Search Premises

Section 175 Sub-section 6A

Currently, in order to enforce the provisions of the Ordinance including for the purpose of making an audit of taxpayer
or survey of persons liable to tax, the Commissioner or any other officer authorized on this behalf shall enter the
premises of taxpayer and have full and free access to extract, copy, or impound any accounts, books, computer or any
other relevant records/documents that are necessary for the purpose of audit or survey, as the case may be.

The Bill now seeks to enhance the power of Commissioner by inserting a new sub section 6A, whereby the
Commissioner, subject to any prescribed conditions, would now also be empowered to raid any premises, and confiscate
undeclared gold, bearer security or foreign currency on the basis of reliable information, in order to enforce the
provisions of the Ordinance.

44. Directorate General of Immovable Property

Section 230F

Through Finance Act, 2018, FBR introduced Directorate General of Immovable Property to control the purchases and
transfers of immovable properties. The Directorate-General is empowered to initiate proceedings for the acquisition of
property based on an independent valuation which confirms that:

(a) Immovable property has been transferred by one person to another for a consideration less than fair market
value;

(b) Such consideration has been understated in the instrument of transfer;

(c) The fair market value of property exceeds the consideration by more than 50% of the consideration

In line with the recent and proposed amendments in respect of collection and payment of tax on transfer of immovable
property, the Bill proposes to omit Sub-section (23) of the said section.

45. Directorate General of Special Initiative

Section 230G

The Bill seeks to introduce a Directorate General of Special Initiative which shall consist of a Director General and as
many directors, additional directors, deputy directors, assistant directors and such other officers as may be notified in
the official gazzette. FBR shall notify the functions, jurisdictions and powers of such directorate.

46. Directorate General of Valuation

Section 230H

The Bill seeks to introduce a Directorate General of Valuation which shall consist of a Director General and as many
directors, additional directors, deputy directors, assistant directors and such other officers as may be notified in the
official gazzette. FBR shall notify the functions, jurisdictions and powers of such directorate.

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47. Advance Tax on sale or transfer of immovable Property

Section 236C

Through the Finance Act, 2012 Section 236C was inserted whereby any person responsible for registering, recording
or attesting transfer of any immovable property was required to collect advance tax at the specified rates. Under the
existing provision of Section 236C, advance tax is not liable to collect where the immovable property is held for a period
exceeding three years.

The Bill now seeks to extend the period of three years to five years.

48. Tax on purchase or transfer of immovable property.

Section 236W

Through the Income Tax (Fourth Amendment) Act, 2016 Section 236W was inserted whereby any person responsible
for registering, recording or attesting transfer of any immovable property was required to collect advance tax at the
rate of three percent of the differential of value determined under Section 68 of the Ordinance and the value recorded
by the authority registering or attesting the transfer.

The Bill now seeks to omit the above section.

49. Disclosure of information obtained under a tax treaty and other similar agreements
Section 107(1B)

The current provisions of Section 107 provides authority to the Federal Government to enter into bilateral and
multilateral agreements with foreign governments for the avoidance of fiscal evasion and exchange of information
including automatic exchange of information concerning taxes on income imposed under the Ordinance or under any
other law for the time being in force.

Initially, this section provided that the information received or supplied or communication or correspondence made
under a tax treaty and other parallel arrangement shall be kept confidential subject to disclosures as provided in Sub-
section (3) of Section 216 which inter-alia included provision of information to any person acting in the execution of the
Ordinance wherever necessary.

Subsequently, the Federal Government through Finance Act 2016, amended this section and withdrew the disclosure of
above information.

The Bill now seeks to permit the disclosure of information only to person acting in the execution of the Ordinance,
wherever necessary.

THE FIRST SCHEDULE

PART I

50. Rates of tax for Individuals and Association of Persons

Through Finance Bill 2019, the rates of tax applicable on every individual (both salaried and non-salaried individuals)
and AOPs have been proposed to enhance to a great extent as compared to the immediately preceding tax year .
However , the proposed tax incidence is lower than the tax incidence , if it is compared with the tax year 2018.The
impact of increase in the amount of tax are tabulated in the below schedules.

The Bill also seeks to propose the increase in threshold for applicability of salary tax rates to total income comprising of
at least 75% salary income instead of present threshold of 50% salary income.

The rates of tax chargeable for individuals and AOPs for the tax year 2020 (corresponding to the income year ending at
any time between 01 July 2019 to 30 June 2020) is proposed to be substituted as under:

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Individuals (except salaried) and Association of persons

Taxable Income Rate of Tax

Up to PKR 400,000
PKR 400,001 – 600,000
PKR 600,001 – 1,200,000
PKR 1,200,001 – 2,400,000
PKR 2,400,001 – 3,000,000
PKR 3,000,001 – 4,000,000
PKR 4,000,001 – 6,000,000
Amount exceeding PKR 6,000,001
0%
5% of amount exceeding PKR 400,000
PKR 10,000 + 10% of amount exceeding 600,000
PKR 70,000 + 15% of amount exceeding 1,200,000
PKR 250,000 + 20% of amount exceeding 2,400,000
PKR 370,000 + 25% of amount exceeding 3,000,000
PKR 620,000 + 30% of amount exceeding 4,000,000
PKR 1,220,000 + 35% of amount exceeding 6,000,000

Individuals (salaried)

Taxable Income Rate of Tax

Up to PKR 600,000
PKR 600,001 – 1,200,000
PKR 1,200,001 – 1,800,000
PKR 1,800,001 – 2,500,000
PKR 2,500,001 – 3,500,000
PKR 3,500,001 – 5,000,000
PKR 5,000,001 – 8,000,000
PKR 8,000,001 – 12,000,000
PKR 12,000,001 – 30,000,000
PKR 30,000,001 – 50,000,000
PKR 50,000,001 – 75,000,000
Amount exceeding PKR 75,000,000
0%
5% of amount exceeding 600,000
PKR 30,000 + 10% of amount exceeding 1,200,000
PKR 90,000 + 15% of amount exceeding 1,800,000
PKR 195,000 + 17.5% of amount exceeding 2,500,000
PKR 370,000 + 20% of amount exceeding 3,500,000
PKR 670,000 + 22.5% of amount exceeding 5,000,000
PKR 1,345,000 + 25% of amount exceeding 8,000,000
PKR 2,345,000 + 27.5% of amount exceeding 12,000,000
PKR 7,295,000 + 30% of amount exceeding 30,000,000
PKR 13,295,000 + 32.5% of amount exceeding 50,000,000
PKR 21,420,000 + 35% of amount exceeding 75,000,000

Non-Salaries Person/AOP

IMPACT OF CHANGE IN RATES OF TAX AS APPLICABLE TO

SALARIED INDIVIDUAL FOR TAX YEAR 2020

TAXABLE INCOME TAX INCIDENCE COMPARISON – (Saving) /

PER Additional Impact for the tax
Tax Year Tax Year Tax Year year 2020 with the tax year
MONTH ANNUM 2018 2019 2020 2019 2018
50,000 600,000 7,000 1,000 - (1,000) (7,000)
60,000 720,000 13,000 1,000 6,000 5,000 (7,000)
75,000 900,000 29,500 2,000 15,000 13,000 (14,500)
100,000 1,200,000 59,500 2,000 30,000 28,000 (29,500)
125,000 1,500,000 92,000 15,000 60,000 45,000 (32,000)
150,000 1,800,000 137,000 30,000 90,000 60,000 (47,000)

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Income Tax

TAXABLE INCOME TAX INCIDENCE COMPARISON – (Saving) /

PER Additional Impact for the tax
Tax Year Tax Year Tax Year year 2020 with the tax year
MONTH ANNUM 2018 2019 2020 2019 2018
200,000 2,400,000 242,000 60,000 180,000 120,000 (62,000)
250,000 3,000,000 359,500 140,000 282,500 142,500 (77,000)
300,000 3,600,000 497,000 230,000 390,000 160,000 (107,000)
350,000 4,200,000 652,000 330,000 510,000 180,000 (142,000)
400,000 4,800,000 817,000 450,000 630,000 180,000 (187,000)
450,000 5,400,000 982,000 570,000 760,000 190,000 (222,000)
500,000 6,000,000 1,147,000 690,000 895,000 205,000 (252,000)
550,000 6,600,000 1,312,000 810,000 1,030,000 220,000 (282,000)
600,000 7,200,000 1,482,000 930,000 1,165,000 235,000 (317,000)
650,000 7,800,000 1,662,000 1,050,000 1,300,000 250,000 (362,000)
700,000 8,400,000 1,842,000 1,190,000 1,445,000 255,000 (397,000)
1,000,000 12,000,000 2,922,000 2,090,000 2,345,000 255,000 (577,000)
1,200,000 14,400,000 3,642,000 2,690,000 3,005,000 315,000 (637,000)
1,500,000 18,000,000 4,722,000 3,590,000 3,995,000 405,000 (727,000)
2,000,000 24,000,000 6,522,000 5,090,000 5,645,000 555,000 (877,000)
2,500,000 30,000,000 8,322,000 6,590,000 7,295,000 705,000 (1,027,000)
3,000,000 36,000,000 10,122,000 8,090,000 9,095,000 1,005,000 (1,027,000)
3,500,000 42,000,000 11,922,000 9,590,000 10,895,000 1,305,000 (1,027,000)
4,000,000 48,000,000 13,722,000 11,090,000 12,695,000 1,605,000 (1,027,000)
4,500,000 54,000,000 15,522,000 12,590,000 14,595,000 2,005,000 (927,000)
5,000,000 60,000,000 17,322,000 14,090,000 16,545,000 2,455,000 (777,000)
5,500,000 66,000,000 19,122,000 15,590,000 18,495,000 2,905,000 (627,000)
6,000,000 72,000,000 20,922,000 17,090,000 20,445,000 3,355,000 (477,000)
6,500,000 78,000,000 22,722,000 18,590,000 22,470,000 3,880,000 (252,000)
7,000,000 84,000,000 24,522,000 20,090,000 24,570,000 4,480,000 48,000
7,500,000 90,000,000 26,322,000 21,590,000 26,670,000 5,080,000 348,000
8,000,000 96,000,000 28,122,000 23,090,000 28,770,000 5,680,000 648,000
9,000,000 108,000,000 31,722,000 26,090,000 32,970,000 6,880,000 1,248,000
10,000,000 120,000,000 35,322,000 29,090,000 37,170,000 8,080,000 1,848,000

*If salary exceeds seventy five percent of the taxable income.

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IMPACT OF CHANGE IN RATES OF TAX AS APPLICABLE TO NON-SALARIED INDIVIDUAL FOR TAX YEAR 2020

TAXABLE INCOME TAX INCIDENCE COMPARISON – (Saving) /

PER Additional Impact for the tax
Tax Year Tax Year Tax Year year 2020 with the tax year
MONTH ANNUM 2018 2019 2020 2019 2018
35,000 420,000 1,400 1,000 1,000 - (400)
50,000 600,000 17,000 1,000 10,000 9,000 (7,000)
60,000 720,000 29,000 1,000 22,000 21,000 (7,000)
65,000 780,000 36,500 1,000 28,000 27,000 (8,500)
75,000 900,000 54,500 2,000 40,000 38,000 (14,500)
100,000 1,200,000 99,500 2,000 70,000 68,000 (29,500)
125,000 1,500,000 144,500 15,000 115,000 100,000 (29,500)
150,000 1,800,000 204,500 30,000 160,000 130,000 (44,500)
200,000 2,400,000 324,500 60,000 250,000 190,000 (74,500)
250,000 3,000,000 469,500 150,000 370,000 220,000 (99,500)
300,000 3,600,000 619,500 270,000 520,000 250,000 (99,500)
350,000 4,200,000 779,500 400,000 680,000 280,000 (99,500)
400,000 4,800,000 959,500 550,000 860,000 310,000 (99,500)
450,000 5,400,000 1,139,500 716,000 1,040,000 324,000 (99,500)
500,000 6,000,000 1,319,500 890,000 1,220,000 330,000 (99,500)
550,000 6,600,000 1,529,500 1,064,000 1,430,000 366,000 (99,500)
600,000 7,200,000 1,739,500 1,238,000 1,640,000 402,000 (99,500)
650,000 7,800,000 1,949,500 1,412,000 1,850,000 438,000 (99,500)
700,000 8,400,000 2,159,500 1,586,000 2,060,000 474,000 (99,500)
1,000,000 12,000,000 3,419,500 2,630,000 3,320,000 690,000 (99,500)
1,200,000 14,400,000 4,259,500 3,326,000 4,160,000 834,000 (99,500)
1,500,000 18,000,000 5,519,500 4,370,000 5,420,000 1,050,000 (99,500)
2,000,000 24,000,000 7,619,500 6,110,000 7,520,000 1,410,000 (99,500)
2,500,000 30,000,000 9,719,500 7,850,000 9,620,000 1,770,000 (99,500)
3,000,000 36,000,000 11,819,500 9,590,000 11,720,000 2,130,000 (99,500)
3,500,000 42,000,000 13,919,500 11,330,000 13,820,000 2,490,000 (99,500)
4,000,000 48,000,000 16,019,500 13,070,000 15,920,000 2,850,000 (99,500)
4,500,000 54,000,000 18,119,500 14,810,000 18,020,000 3,210,000 (99,500)
5,000,000 60,000,000 20,219,500 16,550,000 20,120,000 3,570,000 (99,500)
5,500,000 66,000,000 22,319,500 18,290,000 22,220,000 3,930,000 (99,500)
6,000,000 72,000,000 24,419,500 20,030,000 24,320,000 4,290,000 (99,500)
6,500,000 78,000,000 26,519,500 21,770,000 26,420,000 4,650,000 (99,500)
7,000,000 84,000,000 28,619,500 23,510,000 28,520,000 5,010,000 (99,500)
7,500,000 90,000,000 30,719,500 25,250,000 30,620,000 5,370,000 (99,500)
8,000,000 96,000,000 32,819,500 26,990,000 32,720,000 5,730,000 (99,500)

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51. Rates of tax for companies

Currently, the rate of tax for company is 29% for the tax year 2019 which was to be reduced by 1% per year up till tax
year 2023. The Bill now seeks to keep the rates static at 29% from tax year 2019 and onwards.

However, the rates for Banking Companies and Small Companies have remained unchanged.

52. Rate of Super tax for rehabilitation of temporarily displaced persons

The levy of super tax for rehabilitation of temporarily displaced persons under Section 4B is retained up to tax year 2021
for banking companies and persons other than banking companies having income of PKR 500 Million and above.

The rates, as last amended vide Finance Supplementary (Second Amendment) Act, 2019, from the tax year 2018 till
2021 are as under:

Person Rate of Super Tax

Tax Year Tax Year Tax Year Tax Year
2018 2019 2020 2021
Banking Company 4% 4% 4% 4%

Persons other than a banking company, having

3% 2% 0% 0%
income equal to or exceeding PKR 500 million

53. Rate of withholding and charge of tax on dividend income

The Bill seeks to increase the rate of tax on dividend from power generation companies or companies supplying coal
exclusively to power generation projects from 7.5% to 15%. Whereas the rate of withholding and charge of tax on dividend
received by all taxpayers remains unchanged

The rate of withholding and charge of tax on dividend received from a Mutual Fund (Stock Fund), Money Market Fund,
Income Fund and Rental REIT Scheme have been proposed to be omitted for all taxpayers (i.e. individual, company and
AOP).

Furthermore, the Bill proposes to add a proviso in rate of tax whereby the rate shall be 25% in the case of a person
receiving dividend from a company where no tax is payable by such company due to exemption of income or carry
forward of business losses under Part VIII of Chapter III or claim of tax credits under Part X of Chapter III.

The rate of tax on dividend income for tax year 2020 proposed as under:

Dividend from Rate

Companies owning power project privatized by WAPDA, companies set-up for power
15%
generation and companies supplying coal, exclusively to power generation projects

Others 15%

Company where no tax is payable by such company due to exemption of income or

carry forward of business losses under Part VIII of Chapter III or claim of tax credits 25%
under Part X of Chapter III

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54. Rate of tax on profit on debt

The rates of tax on profit on debt for the tax year 2020 are proposed to be revised as under:

Profit on debt Rate

Where profit on debt does not exceed PKR 5,000,000 15%

Where profit on debt exceeds PKR 5,000,001 but does not exceed PKR 25,000,000 17.5%

Where profit on debt exceeds PKR 25.000,000 but does not exceed PKR 36,000,000 20%

55. Rate of Tax on Return on investments in Sukuks received from a special purpose vehicle.

Rate of tax on return on investments in Sukuks received from a special purpose vehicle have remained unchanged and
are as under:

Sukuks Holder Amount of return on investment Rates

Company Any amount 25%

Individual or AOP More than one million 12.5%

Individual or AOP Less than one million 10%

56. Rates of tax for non-resident taxpayers for certain transactions

The applicable rates of tax on certain income of non-residents remains unchanged as under:

Type of Payment Rate (%)

Fee for offshore digital services 5%

Technical services fee 15%

Royalty 15%
Shipping income 8%

Air transport income 3%

57. Income from property

The rate of tax on income from property in the case of individual and AOPs are proposed to be revised as under:

Gross amount of rent Rate

Up to PKR 200,000 Nil

PKR 200,001 to 600,000
PKR 600,001 to 1,000,000
PKR 1,000,001 to 2,000,000
PKR 2,000,001 to 4,000,000
PKR 4,000,001 to 6,000,000
5% of the amount exceeding PKR 200,000
PKR 20,000 plus 10% of the amount exceeding PKR 600,000
PKR 60,000 plus 15% of the amount exceeding PKR 1,000,000
PKR 210,000 plus 20% of the amount exceeding PKR 2,000,000
PKR 610,000 plus 25% of the amount exceeding PKR 4,000,000

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Gross amount of rent Rate

PKR 6,000,001 to 8,000,000 PKR 1,110,000 plus 30% of the amount exceeding PKR 6,000,000
Over PKR 8,000,000 PKR 1,710,000 plus 35% of the amount exceeding PKR 8,000,000

The above rates also apply for the purpose of withholding of tax from the payment for rent of immovable property paid
to an individual or AOP.

The withholding tax rates in the case of a company remain unchanged at 15%..

58. Rates of tax on capital gains on securities

The rate card for levying tax on capital gains arising on sale of securities as referred to in Section 37A is proposed to be
replaced, whereby the category for non-filers and the respective slab rates have been removed. The rates applicable for
tax year 2019 are proposed to be further extended to tax year 2020 as under:

Tax Year

2018, 2019 and 2020

Holding period
2017 Security Security acquired
acquired before on or after
01 July 2016 01 July 2016
Less than 12 months 15% 15%

More than 12 months but less than 24 months 12.5% 12.5%

15%
More than 24 months but then security was acquired on
7.5% 7.5%
or after 01 July 2013

Where the security was acquired before 01 July 2013 0% 0% 0%

Future commodity contracts entered into by the

5% 5% 5%
members of Pakistan Mercantile Exchange.

59. Rate of tax on capital gain on immovable property

The Bill seeks to omit the slab for capital gain tax rates on immovable property as prescribed under Division VIII of Part I
of First Schedule.

60. Advance tax on builders

The tax on builders remains unchanged as under:

Hyderabad, Sukkur, Multan,

Faisalabad, Rawalpindi, Gujranwala,
Sahiwal, Peshawar, Mardan,
Karachi, Lahore & Islamabad Abbotabad, Quetta Urban Areas not specified
For commercial buildings
PKR 210/Sq.Yd PKR 210/Sq.Yd PKR 210/Sq.Yd
For residential building
Rate/ Sq.Yd Area in Rate/ Sq.Yd Rate/ Sq.Yd
Area in Sq. Yd PKR Sq. Yd PKR Area in Sq. Yd PKR

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Hyderabad, Sukkur, Multan,

Faisalabad, Rawalpindi, Gujranwala,
Sahiwal, Peshawar, Mardan,
Karachi, Lahore & Islamabad Abbotabad, Quetta Urban Areas not specified
Up to 750 20 Up to 750 15 Up to 750 10
751 to 1500 40 751 to 1500 35 751 to 1500 25
1501 & more 70 1501 & more 55 1501 & more 35

61. Advance tax on developers

The tax on developers remains unchanged as under:

Hyderabad, Sukkur, Multan,

Faisalabad, Rawalpindi, Gujranwala,
Sahiwal, Peshawar, Mardan,
Karachi, Lahore & Islamabad Abbotabad, Quetta Urban Areas not specified
For commercial buildings
PKR 210/Sq.Yd PKR 210/Sq.Yd PKR 210/Sq.Yd

For residential building

Rate/ Sq.Yd Area in Rate/ Sq.Yd Rate/ Sq.Yd
Area in Sq. Yd PKR Sq. Yd PKR Area in Sq. Yd PKR
Up to 120 20 Up to 120 15 Up to 120 10
121 to 200 40 121 to 200 35 121 to 200 25
201 & more 70 201 & more 55 201 & more 35

62. Minimum Tax

The rates of minimum tax as a percentage of the taxpayers’ turnover are proposed to be revised as under:

Rate (%)
Taxpayer
Existing Proposed

a) Oil marketing companies, oil refineries, Sui Southern Gas Company Limited and
Sui Northern Gas Pipelines Limited (where annual turnover exceeds PKR 1
billion)

b) Pakistan Airlines; and

0.5% 0.75%
c) Poultry industry including breeding, broiler production, egg production, feed
production

d) Dealers or distributors of fertilizers; and

e) person running an online marketplace as defined in clause (38B) of Section 2
a) Distributors of pharmaceutical products, fast moving consumer goods and
cigarettes
b) Petroleum agents and distributors registered under the Sales Tax Act, 1990 0.2% 0.25%
c) Rice mills and dealers
d) Flour mills

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Rate (%)
Taxpayer
Existing Proposed
Motorcycle dealers registered under the Sales Tax Act 1990 0.25% 0.3%
In all other cases 1.25% 1.5%

PART II

63. Advance tax on imports

The Bill proposes to replace the rate table whereby the category for non-filers and the respective rates have been
removed.

The Bill also seeks to include importers of finished pharmaceutical products that are not manufactured otherwise in
Pakistan in the list of persons from whom advance tax is required to be collected at the time of import under section
148 of the Ordinance.

The updated table specifying the rates of tax at import stage are as under:

Rate % (of import value as

increased by customs duty,
Taxpayer
sales tax and federal excise
duty)
Industrial undertaking importing remeltable steel (PCT Heading 72.04) and directly
reduced iron for its own use
Persons importing potassic fertilizers in pursuance of Economic Coordination
Committee of the cabinet's decision No. ECC-155/12/2004 dated 9 December 2004
Persons importing urea
Manufacturers covered under Notification No. S.R.O. 1125(I)/2011 dated 31 1%
December 2011 and importing items covered under S.R.O 1125(I)/2011 dated the
31 December 2011
Persons importing Gold
Persons importing Cotton; and
Persons Importing LNG
Persons importing pulses 2%
Commercial importers covered under Notification No. S.R.O. 1125(I)/2011 dated 31
December 2011 and importing items covered under S.R.O 1125(I)/2011 dated the 3%
31 December 2011
Persons importing coal 4%
Persons importing finished pharmaceutical products that are not manufactured
4%
otherwise in Pakistan, as certified by the Drug Regulation Authority of Pakistan
Ship breakers on import of ships 4.5%
Industrial undertakings not covered above 5.5%
Companies not covered above 5.5%
Persons not covered above 6%

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PART III

64. Advance tax on profit on debt

The advance tax rate on profit on debt is proposed to be increased from 10% to 15% whereas the separate rate for non-
filer has been omitted.

The Bill also seeks to add a proviso whereby rate of withholding shall be 10% in cases where the yield or profit paid is PKR
500,000 or less.

65. Advance tax on return on investments in Sukuks received from a special purpose vehicle.

Rate of withholding tax to be applied on payments made to investors in relation to return on Sukuks have remained
unchanged whereas the rate for non-filers have been omitted as under:

Sukuks Holder Rates (%)

Company 15%

Individual or AOP (More than one million) 12.5%

Individual or AOP (Less than one million) 10%

The rate for non-filers has been proposed to be omitted.

66. Payments to non-residents

The withholding tax rates on payments to non-residents remains unchanged, whereas the category for non-filers and the
respective rates have been omitted, as under

Types of Payment Rate (%)

Technical services fee 15%

Royalty 15%
Fee for offshore digital services 5%
Shipping income 8%
Air transport income 3%

Execution of a contract
 contract or sub-contract under a construction, assembly or installation project in Pakistan,
including a contract for the supply of supervisory activities in relation to such project.
 any other contract for constructions or services rendered relating thereto or a contract for 7%
advertising services rendered by T.V settle lite channels.

Insurance premium / re-insurance premium 5%

Others (excluding those specifically mentioned herein) 20%

Advertisement services to a media person relaying from outside Pakistan 10%

Receipt on account of sale of goods by a PE of a non-resident in Pakistan

 Company 4%
 Other Taxpayers 4.5%

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Types of Payment Rate (%)

Receipt on account of rendering of services through a PE
 Transport services 2%
 Other than transport (if company) 8%
 Others (excluding those mentioned herein) 10%

Receipt on account of execution of contract through a PE other than a contract for sale of
goods or rendering of services
 Sports person 10%
 Other person 7%

67. Advance income tax on payment to resident on payments for goods, services and execution of contract

The rate of withholding tax on account of sale of rice, cotton seed or edible oils and supplies made by the distributor of
fast moving consumer goods remains unchanged as under:

Types of Payment Rates (%)

Sale of rice, cotton seed or edible oils 1.5%
Supplies made by distributers of fast moving consumer goods
 Company 2%
 Other than company 2.5%

The Bill seeks to enhance the rate of withholding tax on transport services from 2% to 4% wherein several other services
are also to be included in the category. The category for non-filers and the respective rates are also proposed to be
omitted.

The revised rates for making payments on account of goods, services and contracts are proposed to be as under:

Rate (%)
Types of Payment
Existing Proposed

For supply of goods

4% No change
 Company
4.5% No change
 Other than company

Transport services, freight forwarding services, air cargo services, courier services,
manpower outsourcing services, hotel services, security guard services, software
development services, IT services and IT enabled services as defined in clause (133) of
Part I of the Second Schedule, tracking services, advertising services (other than by 2% 4%
print or electronic media), share registrar services, engineering services, car rental
services, building maintenance services, services rendered by Pakistan Stock Exchange
Limited and Pakistan Mercantile Exchange Limited
Rendering of or providing of services
 Company 8% No change
 Other than company 10% No change

Electronic and print media advertising services 1.5% No change

On the execution of contract
 Sportsperson 10% No change

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Rate (%)
Types of Payment
Existing Proposed
 Company 7% No change
 Other than company 7.5% No change

68. Royalty paid to resident persons

The Bill seeks to introduce a tax at the rate of 15% of the gross amount payable to a resident person on account of
Royalty pursuant to the proposed newly added Section 153B.

69. Exports

Rate of collection of advance tax for exports, indenting commission and services to export house remains unchanged as
under:

Types of Payment Rate

Export proceeds
Proceeds from sale of goods to an exporter under an inland back-to-back letter of credit or 1% of export proceeds
any other arrangement
Export of goods by an industrial undertaking located in an Export Processing Zone 1%
Collection by collector of customs at the time of clearing of goods exported 1%
Indenting commission 5%

70. Tax on prize and winnings

The rate of withholding tax on prize bond, cross-word puzzle and prize on winnings remains unchanged, however, the
categorized rates of non-filer are proposed to be abolished.

Description Rate (%)

Prize on prize bond and cross-word puzzle 15%

Winnings from a raffle, lottery, prize on winning a quiz, prize offered by a company for
20%
promotion of sale

71. Tax on Petroleum Products

The rate of withholding tax on Petroleum Products remain unchanged, however, the categorized rate of non-filer is
proposed to be abolished as under:

Description Rate (%)

Petroleum products 12%

72. Tax on CNG Station

The withholding tax rate in the case of a Compressed Natural Gas station remain unchanged at 4%, whereas, the
categorized rate of non-filer is proposed to be abolished.

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PART IV

73. Collection of advance income tax on Brokerage and Commission

The rate for collection of advance tax remains unchanged as under, however, the categorized rates of non-filer are
proposed to be abolished

Description Rate (%)

For advertising agents 10%
Life insurance agent where commission received is less than PKR 500,000 per annum 8%
Persons not covered above 12%

74. Collection of tax by NCCPL

The rate of collection by NCCPL on profit or markup or interest earned by the member, margin financier or securities
lender remains unchanged at 10%.

75. Collection of tax on motor vehicles

The rate of collection of tax remains unchanged as under, however, the categorized rates of non-filer are proposed to
be abolished.

Passenger transport vehicle having Capacity PKR per seat per annum

Four or more persons but less than ten persons. 50

Ten or more persons but less than twenty persons 100
Twenty persons or more 300

Private motor vehicle Engine Capacity Rate

Upto 1000cc PKR 800

1001cc to 1199cc PKR 1,500
1200cc to 1299cc PKR 1,750
1300cc to 1499cc PKR 2,500
1500cc to 1599cc PKR 3,750
1600cc to 1999cc PKR 4,500
2000cc to & above PKR 10,000

Motor vehicle having Engine Capacity (collected in lump sum) Rate

Upto 1000cc PKR 10,000

1001cc to 1199cc PKR 18,000
1200cc to 1299cc PKR 20,000
1300cc to 1499cc PKR 30,000
1500cc to 1599cc PKR 45,000

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1600cc to 1999cc PKR 60,000

2000cc to & above PKR 120,000

76. Collection of tax on electricity consumption

The rate for tax on the gross amount of electricity bill has remained unchanged as under.

Description Tax Amount

does not exceed PKR 400 PKR 0

exceeds PKR 400 but does not exceed PKR 600 PKR 80
exceeds PKR 600 but does not exceed PKR 800 PKR 100
exceeds PKR 800 but does not exceed PKR 1,000 PKR 160
exceeds PKR 1,000 but does not exceed PKR 1,500 PKR 300

exceeds PKR 1,500 but does not exceed PKR 3,000 PKR 350
exceeds PKR 3,000 but does not exceed PKR 4,500 PKR 450
exceeds PKR 4,500 but does not exceed PKR 6,000 PKR 500
exceeds PKR 6,000 but does not exceed PKR 10,000 PKR 650
exceeds PKR 10,000 but does not exceed PKR 15,000 PKR 1,000
exceeds PKR 15,000 but does not exceed PKR 20,000 PKR 1,500
exceeds PKR 20,000 At the rate of 12% for
commercial consumers
At the rate of 5% for
industrial consumers

77. Collection of Advance Tax on Telephone Users

The rate of withholding tax on subscriber of internet, mobile telephone and pre-paid internet or telephone card have
remained unchanged as under.

Description Rate (%)

Telephone subscriber where the amount of monthly bill exceeds PKR 1,000 10% of exceeding
amount
12.5% of the amount of
Subscriber of internet, mobile telephone and pre-paid internet or telephone card. bill or sales price

78. Collection of tax on cash withdrawal from bank

The rate of collection of tax on cash withdrawal from bank is 0.6% for persons whose name is not appearing in the active
taxpayer list.

79. Collection of advance tax on transactions through banking channels

The rate of collection of tax on transaction in bank is 0.6% for persons whose name is not appearing in the active
taxpayer list.

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80. Advance tax on purchase, registration and transfer of Motor Vehicles

The advance tax on purchase and registration of Motor Vehicles remains unchanged as under, however, the categorized
rates of non-filer are proposed to be abolished.

Engine capacity Amount of Tax

Up to 850cc PKR 7,500
851cc – 1000cc PKR 15,000
1001cc – 1300cc PKR 25,000
1301cc – 1600cc PKR 50,000
1601cc – 1800cc PKR 75,000
1801cc – 2000cc PKR 100,000
2001cc - 2500cc PKR 150,000
2501 cc - 3000cc PKR 200,000
Above 3000cc PKR 250,000

Further, the rates of collection of taxes on transfer of motor vehicles have also remained unchanged as under, however,
the categorized rates of non-filer are proposed to be abolished.

Engine capacity Amount of Tax

Up to 850cc -
851cc – 1000cc PKR 5,000
1001cc – 1300cc PKR 7,500
1301cc – 1600cc PKR 12,500
1601 cc – 1800 cc PKR 18,750
1801cc – 2000cc PKR 25,000
2001cc & 2500cc PKR 37,500
2501cc & 3000cc PKR 50,000
Above 3000cc PKR 62,500

81. Advance tax at the time of sale by auction

The rate of collection of tax remains unchanged at the rate of 10% for filer, whereas the rate for non-filers is proposed to
be abolished.

82. Advance tax on purchase of air tickets

The rate of collection of tax remains unchanged at 5% of the gross amount of air ticket.

83. Advance tax on sale/transfer of immovable property

The rate of advance tax to be collected on sale/ transfer of immovable property has remained unchanged whereas the
rate for non-filers is proposed to be abolished.

Description Rates (%)

Filer 1%

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84. Collection of advance tax on functions and gatherings

The advance tax to be collected on functions and gatherings remains unchanged as under:

S. No. Description Rate of tax

For Islamabad, Lahore, Multan, Faisalabad, Rawalpindi,

Gujranwala, Bahawalpur, Sargodha, Sahiwal, Shekhurpura,
Dera Ghazi Khan, Karachi, Hyderabad, Sukkur, Thatta, 5% of the bill ad valorem or PKR 20,000
1
Larkana, Mirpur Khas, Nawabshah, Peshawar, Mardan, per function, whichever is higher
Abbottabad, Kohat, Dera Ismail Khan, Quetta, Sibi, Loralai,
Khuzdar, Dera Murad Jamali and Turbat.

5% of the bill ad valorem or PKR 10,000

2 For cities other than those mentioned above;
per function, whichever is higher

85. Advance tax on cable operator and other electronic media

The rate of collection of advance tax remains unchanged.

License Category Tax on License Fee Tax on Renewal

H PKR 7,500 PKR 10,000

H-1 PKR 10,000 PKR 15,000
H-II PKR 25,000 PKR 30,000
R PKR 5,000 Rs12,000
B PKR 5,000 PKR 40,000
B-1 PKR 30,000 PKR 35,000
B-2 Rs,40,000 PKR 45,000
B-3 PKR 50,000 PKR 75,000
B-4 PKR 75,000 PKR 100,000
B-5 PKR 87,500 PKR 150,000
B-6 PKR 170,000 PKR 200,000
B-7 PKR 262,500 Rs,300,000
B-8 PKR 437,500 PKR 500,000
B-9 PKR 700,000 PKR 800,000
B-10 PKR 875,500 Rs,900,000

86. Advance tax on sale to distributors, dealers or wholesalers

Advance tax on sale to distributors, dealers or wholesalers remain unchanged as under, whereas the rates for non-filers
are proposed to be abolished.

Category of sale Rate of tax (%)

Fertilizers 0.7%
Other than fertilizers 0.1%

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87. Advance tax on sale of retailers

The rate of tax on sale of retailers remains unchanged as under, whereas, the rates for non-filers are proposed to be
abolished.

Category of sale Rate of tax (%)

Electronics 1%
Others 0.5%

88. Advance tax on sale of certain petroleum products

The advance tax to be collected by person selling petroleum products to a petrol pump operator or distributer, where
such operator or distributer is not allowed a commission or discount remains unchanged at the rate of 0.5%, however,
the rate for non-filer is proposed to be abolished.

89. Collection of advance tax by educational institutions

The rate of collection of tax remains unchanged at 5%,

90. Advance tax on dealers, commission agents and arhatis, etc.

The collection of advance tax on dealers, commission agents and arhatis is proposed as under:

Amount of tax (per annum)

Group or Class
Existing Proposed

Group or Class A PKR 10,000 PKR 100,000

Group or Class B PKR 7,500 PKR 75,000
Group or Class C PKR 5,000 PKR 50,000
Any other category PKR 5,000 PKR 50,000

91. Advance tax on purchase of immovable property

The rate of advance tax to be collected on purchase of immovable property under Section 236K is proposed to be 1% of
the Fair Market Value, whereas, the existing slab rates have been abolished.

92. Advance tax on domestic electricity consumption

The rate of advance tax collection remains unchanged at 7.5% if the monthly bill is PKR 75,000 or more.

93. Advance tax on international air ticket

The rate of collection of advance tax remains unchanged as under

Type of Ticket Rate

First/Executive class PKR 16,000 per person

Others excluding economy PKR 12,000 per person
Economy Class PKR 0

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94. Advance tax on bank transactions

The advance tax to be collected on banking transaction otherwise through cash shall be collected at 0.6% for persons who
are not appearing in the Active Taxpayer List.

95. Payment to a resident person for right to use machinery and equipment

The rate of tax remains unchanged at 10%.

96. Collection of advance tax on education related expenses remitted abroad

The rate of tax remains unchanged at 5%.

97. Advance tax on insurance premium

The rate of advance tax to be collected on insurance premium from persons who are not appearing in the Active Taxpayer
List have remained unchanged as under:

Type of premium Rate (%)

General insurance premium 4%

Life insurance premium if exceeding PKR 0.3 million in aggregate per annum 1%

Others 0%

98. Advance tax on extraction of minerals

The rate of tax remains unchanged at 5% for persons not appearing in the Active Taxpayer List.

99. Advance tax on amount remitted abroad through credit, debit or prepaid cards

The tax to be collected on transfer of any sum remitted outside Pakistan, on behalf of any person who has completed a
credit card transaction, a debit card transaction, or a prepaid card transaction with a person outside Pakistan at the rate
of 1% of the gross amount remitted abroad, whereas, the rate for non-filers is proposed to be abolished

THE SECOND SCHEDULE

PART –I

100. Exemption to armed forces personnel

Clause (39A)

A new clause 39A was inserted by the Finance Act, 2018 to exempt certain allowances in the hands of armed
forces personnel. The bill proposed to include the following allowance in the exempt list:

 Internal security allowance

 Compensation in lieu of bearer allowance

101. Exemption on donations

Clause (61)

The Bill proposed to insert the following in Clause (61) which provide exemption on any amount paid as donation to
the charitable institutions specified therein:

 Layton Rahmatullah Benevolent Trust

 Akhuwat

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102. Exemption to income of certain charitable and other institutions

Clause (66)

The Bill proposed to insert the following in Clause (66), which provides exemption from tax to any income of the
institutions:

 Akhuwat
 Audit Oversight Board

103. Profit and gains on sale of immoveable property to REIT Scheme

(Clause 100)

Currently, profit and gains on sale of immovable property to Developmental REIT Scheme with the object of the
development and construction residential building shall be exempt up to 30 June 2020.

The Bill proposes to seek a new proviso in Clause (99A) whereby profit and gain on sale of immoveable property to
a rental REIT Scheme shall also be exempt from tax upto 30 June 2021.

104. Reduction in tax liability on inter-corporate dividends

Clause (103C) of Part I of the Second Schedule

Pursuant to the provisions of Clause (103A) of Part I of the Second Schedule, any income derived from
intercorporate dividends was exempt for group companies entitled to group taxation under Section 59AA or group
relief under Section 59B. The Finance Act, 2015 then added a condition, that such exemption would only be
available if the consolidated return of the group had been filed. Subsequently, the Finance Act, 2016, excluded
entities entitled to group relief under Section 59B from the exemption entirely.

The above amendments created significant difficulties for corporate and industrial groups by adding multiple layers
of taxation on dividends issued by group entities. This resulted in corporate structures becoming inefficient due to
multiple taxation of the same income, on mere distribution within the group, even though no value addition was
taking place. This also led to substantial litigation from various groups.

The Supplementary Act, 2019 addressed this issue by inserting a new clause in Part I of the Second Schedule
which with effect from 01 July 2019 exempts dividend income derived by a company, if the recipient has availed
group relief under Section 59B, computed according to the formula prescribed therein

It is imperative to appreciate that while the original provision of Clause (103A) had provided an outright exemption
from tax on inter-corporate dividends to entities entitled to group relief, the newly inserted Clause only provides a
relief only in the circumstances where the recipient of the dividend has availed group relief, i.e. loss has actually
been surrendered between the two entities and even then, only to the extent of the shareholding that the parent
entity has in its subsidiary.

The Bill seeks to address the hardship of the corporate taxpayers and proposed to extend this facility to a Company
who is eligible for Group Relief under Section 59B of the Ordinance instead of only those who actually availed the
scheme of Group Relief.

105. Exemption to the income of persons resident of the Tribal areas of Khyber Pakhtunkhwa & Baluchistan
(Clause 146)

The Bill proposed to insert a new Clause to provide an exemption from tax to any income of any individual domiciled
or Company and association of persons resident in the Tribal Areas forming part of the Provinces of Khyber
Pakhtunkhwa and Baluchistan which was not chargeable to tax prior to the commencement of the Constitution (25
th Amendment) Act, 2018, (XXXVII of 2018 ) under paragraph (d) of Article 246 of the Constitution with effect
from 01 June, 2018 to 30 June 2023.

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Part III

106. Reduction in a tax liability of a full time teacher or a researcher

Clause (2)

Currently, the tax payable by a full time teacher or researcher employed in a non-profit education or research
institution duly recognized by higher Education Commission, a Board of Education or a University recognized by the
Higher Education Commission including Government training and research institution shall be reduced by an
amount equal to 40% of tax payable on his income from salary . The bill proposed to reduce the amount of tax
reduction from 40% to 25% of tax payable. Further, this benefit would only be available to Government research
institution. Further , the Bill proposed to insert a new proviso which provides that the reduction in tax payable shall
not available to teachers of medical profession who derive income from private medical practice or who receive
share of consideration received from patients.

The proposed amendment is in line with the view adopted by the Appellate Tribunal Inland Revenue Karachi in a
recent decision against the appellants in the case of certain medical practitioners who were availing such tax
reductions against their tax payable which were denied by taxation authorities by amending their deemed
assessments.

Part IV

107. Exemption from provisions of Section 153

Clause (43E)

Clause 43E provides exemption from provisions of Section 153 of the Ordinance to goods transport contractors,
provided that such contractors shall pay tax at the rate of 2.5% on payments received on account of rendering of
carriage services. The Bill proposes to increase the rate of tax from 2.5% to 3%.

108. Exemption from disclosure of certain information

Deletion of Clause (81) and (81A)

Clause (81) provides exemption to manufacturers, distributors, dealers and wholesalers of specified sectors from
disclosure of certain details like name, Computerized National Identity Card Number, National Tax Number and
address of the person from whom tax has been collected under Section 236H, in the statement of withholding tax.
The Bill proposes to delete the said clause. Consequently, manufacturers, distributors, dealers and wholesalers will
be required to disclose such information in the statement of withholding tax.

Likewise, banking companies are also exempt under Clause (81A) from furnishing the said information for tax
deducted on cash withdrawals under Section 231A and on profit on debt under Section 151. The Bill proposes to
delete the said clause as well. Consequently, banking companies will be required to disclose such information in the
statement of withholding tax.

109. Exemption from the specific provisions of withholding of tax to the persons resident of the Tribal areas of
Khyber Pakhtunkhwa & Baluchistan
(Clause 110)

The Bill proposed to insert a new Clause to provide an exemption for the deduction or collection of withholding tax
to any individual domiciled or Company and association of persons resident in the Tribal Areas forming part of the
Provinces of Khyber Pakhtunkhwa and Baluchistan which was not applicable to them prior to the commencement of
the Constitution (25 th Amendment) Act, 2018, (XXXVII of 2018 ) under paragraph (d) of Article 246 of the
Constitution with effect from 01 June, 2018 to 30 June 2023.

110. Exemption from selection of case for tax audit

Clause (105)

Currently, Clause 105 provides exemption from selection for audit under Section 177 and 214C to persons whose
income tax affairs have been audited in any of the preceding three tax years. The Bill proposes to delete the said

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clause. Consequently, the above exemption from selection for audit will no more be available under the above
scenario.

THE THIRD SCHEDULE

PART –II
111. Initial Allowance
Clause (1)

The Bill proposes to omit the initial allowance available in respect of Buildings.

THE FOURTH SCHEDULE

Rule 6E
Mutual Insurance Association

The Bill proposes to insert a new Rule 6E in the Schedule, whereby the Commissioner is empowered to examine and
amend the amount of income as disclosed in the financial statements presented to the Securities and Exchange
Commission of Pakistan with respect to commission paid and claim for losses.

THE SEVENTH SCHEDULE

112. Provision for bad debts of advances and off-balance sheet items
Rule 1(c) of the Seventh Schedule

An explanation has been added to Rule 1(c) to clarify that maximum claim of provisions for advance and off balance
sheet items shall be computed on the basis of gross advances at the respective rates of 1% and 5%. However, no
adjustment may be accounted for in the above claim for reversal of provision, if any.

Reversal of provisions which were previously classified as “doubtful” and “loss” were not offered as income in the
return of income and were adjusted by the banks against their pool of unadjusted carry forward provisions. It is now
proposed that reversals if any, of bad debts previously classified as “doubtful” and “loss” shall be offered for tax.

Rule 1(d) & (e) of the Seventh Schedule

Previously, bad debts classified as “sub-standard” under the Prudential Regulations issued by the State Bank of
Pakistan were not considered for the purpose of computing allowable provision under Rule 1(c). The Bill has
proposed to also exclude bad debts classified as “doubtful” for the purpose of computing allowable provision under
Rule 1(c). Corresponding amendment has also been made in Rule 1(e) to give effect to the above changes.

113. Application of general provision of the Ordinance on a banking company

Explanation to Rule 1

The Bill proposes to insert an explanation after Clause (h) in Rule 1 which clarifies that powers of Commissioner to
conduct audit of tax affairs of a banking company and to call for any information, documents or records is not
effected by the any of the provisions of the Seventh Schedule to the Ordinance and all provisions of the Ordinance
are also applicable on the banking companies. The above explanation is also in line with Rule 9 which substantiates
the application to other provisions of the Ordinance on a banking company which are not specifically dealt in the
Seventh Schedule to the Ordinance.

114. Enhanced rate of tax on taxable income from Federal Government Securities by a Banking Company
Rule 6C

Previously every income of a banking company was subject to tax at a flat rate of 35% in terms of the provisions of
Section 100A read with Seventh Schedule to the Ordinance.

However, keeping in view the Government’s goals to promote economic growth in the country by providing financial
support to small businesses involving low and medium capital structure, measures are being taken to provide
adequate funding to such businesses.

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Income Tax

To inspire banking sector to contribute in accomplishment of the above objective, certain amendments were made
via the Finance Supplementary (second Amendment) Act, 2019 providing reduced rate of tax for banking
companies in respect of interest income earned from funding provided to certain persons.

To further encourage the Banks to engage in the activities of financing and lending to the customers and
discourage investment in securities, the Bill now proposes to insert a new Rule namely 6C which provides that from
the tax year 2020 and onwards the tax rate of 37.5% would be applicable on taxable additional income earned from
additional investment in federal government securities.

The Bill has proposed following formula for calculation of taxable income from additional investment in government
securities

Taxable income subject to enhanced rate of tax = A X B/C

Where –

A= taxable income of the banking company

B= net markup of income earned from additional income earned for the tax year as declared in the annual
accounts

C= total of the net markup and non-markup income of the banking company as per accounts

For this purpose, at the time of filing of return of income, a Banking company is also obliged to obtain a certificate
from their external auditor which would certify the following –

 Investment made in government securities in preceding tax year,

 Additional investment made for the tax year

 Net-markup earned from such additional investment

The tax authorities are also empowered to ask for information in respect of investment in Federal Government
Securities to ascertain applicability of the enhanced rate of tax.

The proposed amendments does not cater to scenarios where a banking company incurs a loss for the year
however it has earned additional income for additional investment in federal government securities.

115. Computation of income for levy of super tax on a banking company

Rule 7C

In line with the changes brought forward by the Finance Act, 2016 in respect of computation of income for the levy
of super tax , the Bill proposes to insert a new proviso in Rule 7C which restricts adjustment of brought forward
depreciation and brought forward business losses in order to work out income for the purpose of levy of super tax
under Section 4B in case of a banking company.

116. Reduced rate of tax on additional advances for micro, small and medium enterprises
Rule 7D

Finance Supplementary (second Amendment) Act, 2019 introduced certain incentives for banking sector to
contribute in accomplishment of the Government’s goals to promote economic growth in the country by providing
financial support to small businesses involving low and medium capital structure. Accordingly, a new Rule 7D was
introduced which provided relief in tax rate in respect of interest income earned from providing additional advances
to micro, small and medium enterprises. The Bill now proposes to remove the words interest income from the
above Clause 1 of Rule 7D thereby providing the benefit of reduced rate of taxation on any type of taxable income
earned from lending / financing to micro, small and medium enterprises.

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Table of Contents

SALES TAX

Section Page

1. Sales Tax on Tier-1 Retailers Section 2(43A) and 3(9A) 46

2. Sales Tax on Retailers other than Tier-1 Section 3(9) 46

3. Cottage Industry Section 2(5AB) 46

Sections 2(27), 2(46) &
4. Definition of Retail Price and Value of Supply 47
3(2)(a)
5. Value of Supply for Toll Manufacturing Sections 2(46) 47

6. Value of Supply for Electricity and Gas Section 2(46)(h) & 2(46)(i) 47

7. Minimum Value Addition Tax Section7A(2) 47

8. Claim of Input Tax on Electricity or Gas Section 7(2)(i) 48

9. Tax Credit Not Allowed and Tax Invoice Section8 and Section 23 48

10. Adjustable input tax Section 8B 48

11. Exemption Section 13(2)(a) 49

12. Audit of a Registered Person Section 25(2) 49

13. Return Section 26 49

14. Penalty for late filing of return Serial No.1 to Section 33 49

15. Proceedings Against Tax Officials Section 33A 49

16. Liability for Tax in case of Private Company or Business Enterprises Section 58 49

17. Selection of Audit by the Board Section 72B 50

18. Third Schedule Section 3(2)(a) 50

19. Sixth Schedule Section 13 50

20. Amendments in Eighth Schedule Section 3(2)(aa)s 53

21. Ninth Schedule Section 3(3B) 55

Section 3(1B) and Tenth
22. Capacity or Fixed Based Taxation 56
Schedule
Sections 3(7) and Eleventh
23. Sales Tax Withholding 56
Schedule
24. Sales Tax Measures Announced in the Budget Documents 57

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1. Sales Tax on Tier-1 Retailers

Section 2(43A) and 3(9A)

Tax on Tier-1 Retailers, was introduced vide the Finance Act, 2017.. “Tier-1 Retailers” was defined to mean:

(a) a retailer operating as a unit of a national or international chain of stores;

(b) a retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks;

(c) a retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months
exceeds rupees six hundred thousand; and

(d) a wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to
the retailers as well as on retail basis to the general body of the consumers.

Tier-1 Retailers are required to charge sales tax at the rate of 17% on the value of supplies and are required to file sales
tax returns on a monthly basis. The local retail supplies of finished goods of the five export oriented sectors specified in
the SRO 1125(I)/2011 by the Tier-1 Retailers are subject to sales tax at the rates specified in the above notification.
Further, they also have option to pay tax under the turnover regime at the rate of 2% (without adjustment of input tax),
including on exempt supplies, subject to the condition that Tier-1 Retailers shall file an option to the Chief
Commissioner Inland Revenue having jurisdiction thereon..

The Bill now seeks to add the retailers within the ambit of Tier-1 Retailers whose shops measure 1,000 sq.ft or more.
Consequently, all the retailers irrespective of the conditions laid down in the existing definition shall be treated as Tier-1
Retailers if their shop size is equal to or more than 1,000 sq.ft.

The Bill seeks to amend the existing regime of Tier-1 Retailers and such retailers shall pay sales tax at the applicable
rates on supply of goods under the ST Act or the notifications issued thereunder. In the light of the proposed
amendments, Tier-1 Retailers shall not be eligible to pay sales tax under the turnover regime.

The Bill further proposed that the customers of Tier-1 Retailers shall be entitled to receive a cash back upto five percent
of the sales tax paid on their purchases in the manner and extent as may be prescribed by FBR.

2. Sales Tax on Retailers other than Tier-1

Section 3(9)

Section 3(9) of the ST Act provides that the sales tax shall be charged from retailers through their monthly electricity
bills at the rate of five percent where the monthly amount of bill does not exceed rupees twenty thousand and at the
rate of seven and a half percent where the monthly bill amount exceeds the aforesaid amount subject to the conditions
and limitations as prescribed in Chapter II of the Sales Tax Special Procedure Rules, 2007. The Bill seeks to amend
Section 3(9) of the ST Act whereby it has been clarified that the electricity supplier shall deposit the amount so
collected from the retailers without adjusting against his input tax although the said condition was already provided in
Chapter II of the Sales Tax Special Procedure Rules, 2007.

3. Cottage Industry
Section 2(5AB)

Presently, a manufacturer whose annual taxable turnover is less than ten million rupees or having annual utility bills
less than eight hundred rupees has been defined as “Cottage Industry”. Supplies made by the Cottage industry are
exempt from tax and the Cottage Industry is also not required to be registered under Section 14 of the ST Act.

The Bill now seeks to re-define the term ‘Cottage industry’ whereby a manufacturer located in a residential area without
having industrial gas and electricity connection, not having workers more than ten and annual turnover from all
supplies not exceeding two million rupees will fall under its domain. This means that numerous manufacturing units
which are currently availing the above concessions, being cottage industry, would be oust from its domain.

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4. Definition of Retail Price and Value of Supply

Sections 2(27), 2(46) & 3(2)(a)

Section 3(2)(a) provides that the goods listed in the Third Schedule to the ST Act shall be subject to applicable sales tax
rate on retail price. The expression of “retail price” has been defined as price fixed and embossed by a manufacturer of
such goods.

Now the Bill seeks to enlarge the scope of “retail price” to bring into its fold goods imported into Pakistan. Hence the
definition of the terms “retail price” and “value of supply” are proposed to be amended accordingly. Resultantly, goods
specified in the Third Schedule are also liable to sales tax at import stage on retail price fixed by the importer.

Similar kind of provisions were available in the ST Act upto 30 June 2005. However, importers of these goods were
facing practical issues to legibly emboss retail price and sales tax on each packet or container at the time of import in
accordance with Section 3(2)(a) of the ST Act. The importers of such goods may have to face the similar issue., .

Import of finished goods are also subject to value added tax (VAT) at the rate of three percent on import stage and
same is available for adjustment as an input tax. However, in case of levy of sales tax on retail price, the importer may,
therefore, not be able to adjust VAT. The proposed amendments may create undue hardship to importers without
providing any practical solution to this hiccup.

5. Value of Supply for Toll Manufacturing

Sections 2(46)

In case of manufacturing or processing of goods belonging to another person, the transfer of such goods shall be
construed as supply of goods. Section 2(46) does not cover value of supply in case of toll manufacturing of taxable
goods. Currently, Section 2(46)(f) covers the situation where non-taxable goods are supplied under toll manufacturing
arrangement only.

The Bill seeks to substitute Section 2(46)(f) and proposes the value of supply would be actual consideration received by
a toll manufacturer for value addition carried on the goods belonging to other person.

6. Value of Supply for Electricity and Gas

Section 2(46)(h) & 2(46)(i)

Presently, Chapter III and IV of the Sales Tax Special Procedure Rules, 2007 prescribes specific rules for collection and
payment of sales tax on electric power and natural gas. Such procedures also define the value of supply of electric
power and natural gas for the purpose of charging sales tax.

The Bill seeks to insert clause (h) and (i) to Section 2(46) whereby value of supply in case of supply of electricity by an
independent power producer and electricity and gas by distribution companies has been defined.

As discussed above, it is stated in the salient feature of the budget documents that the special procedures are being
replaced with the potential schedules to the ST Act or with insertion of the provisions in the relevant sections to the ST
Act. However, it is observed that the aforesaid special procedure rules are not fully transposed under other relevant
provisions of the ST Act. Therefore, it is expected that the aforesaid special procedure rules may not be withdrawn
otherwise it may create unnecessary confusion or anomalies.

7. Minimum Value Addition Tax

Section7A(2)

The Chapter X of the Sales Tax Special Procedure Rules, 2007 provides Special Procedure for payment of sales tax by
importers, whereby sales tax on minimum value addition is levied and collected at import stage on specified goods at
the rate of three percent of the value of goods in addition to the sales tax chargeable under Section 3 of the ST Act or
the notification issued thereunder. The aforesaid rules provide certain exclusions which include goods imported by a

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manufacturer for in-house consumption, POL products imported by Oil Marketing Company and registered service
providers importing goods for their in-house consumption.

The Bills seeks to insert Twelfth Schedule to the ST Act which provides application of minimum value addition tax at the
rate of three percent with the following proposed changes in the exclusion as provided in the existing Special Procedure
for payment of sales tax by importers.

Existing Exclusions Proposed Exclusions

Goods as are imported by a manufacturer for in-house
consumption
POL products, imported by an Oil Marketing Company
for sale in the country, whose prices are regulated
under a special pricing arrangement by the Government
of Pakistan or by a regulatory authority working under
the Government of Pakistan
None
Raw materials and intermediary goods meant for use
in an industrial process which are subject to customs
duty at the rate of 16% or 20% ad valorem under First
Schedule to the Customs Act, 1969
The petroleum products falling in Chapter 27 of
Pakistan Customs Tariff as imported by a licensed Oil
Marketing Company for sale in the Country
Cellular mobile phones or satellite phones

The minimum value addition tax shall remain to be treated as input tax under the ST Act.

8. Claim of Input Tax on Electricity or Gas

Section 7(2)(i)

The Bill seeks to amend Section 7(2)(i) as to allow input tax on electricity or gas if the electricity or gas bill reflects the
consumer’s registration number and address where the connection is installed. The proposed amendments are merely
transposition of similar provisions from the Chapter III and IV of the Sales Tax Special Procedure Rules, 2007.

9. Tax Credit Not Allowed and Tax Invoice

Section 8 and Section 23

Section 8 of ST Act deals with the restrictions of adjustment of input sales tax paid by the supplier. The Bill seeks to
restrict sales tax paid on import of scrap of compressors falling under PCT heading 7204.4940 on pro-rata basis to the
extent of supplies made to the un-registered persons without providing NIC number of the buyer on the sales tax
invoice. It is pertinent to mention that the Bill also seeks to amend Section 23 of the ST Act and impose a condition for
suppliers to insert NIC number on the sales tax invoices issued to un-registered buyers.

From a plain reading of the proposed amendments, it seems that it would be a real challenge for Tier-1 Retailers to
secure their valid input tax by seeking NIC Number from individual customers so as to comply with the proposed
changes in Section 23 of the ST Act.

10. Adjustable Input Tax

Section 8B

Section 8B of ST Act provides that a registered person shall not be allowed to adjust the input tax in excess of ninety
percent of the output tax for that tax period, subject to certain exclusions provided therein. Under the existing
provisions, FBR by notification in the official gazette may exclude any person or class of persons from the purview of
the restriction of claim of input tax to the extent of ninety percent of the output tax.

The Bill seeks to extend the powers of FBR, whereby the limitation for adjustment of input tax to the extent of ninety
percent may be enhanced to ninety five percent.

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11. Exemption
Section 13(2)(a)

Section 13 deals with general powers of the Federal Government to grant exemption from sales tax under certain
circumstances. The Bill seeks to delete such powers in the situation when used for “removal of anomalies in taxes,
development of backward areas”. Resultantly the aforesaid functions may not be carried out by the Federal
Government.

12. Audit of a Registered Person

Section 25(2)

Currently, Section 25 provides that an audit shall only be conducted once in every three years. The Bill proposes to
delete the aforesaid proviso which was introduced in the Finance Act, 2018.

Certain taxpayers challenged the audit proceedings under Section 25 where sales tax audit had already been conducted
during any of the last three years on the premise that the amendment introduced through the Finance Act, 2018 was
procedural change in law and was applicable retrospectively. Recently, the Honorable Lahore High Court has adjudged
the matter in favor of the taxpayer. It appears that the proposed deletion of the third proviso to Section 25 will
neutralize the judgment of the Honorable Lahore High Court.

13. Return
Section 26

Under Sub-section (3) of Section 26 of ST Act, a registered person, subject to approval of the Commissioner Inland
Revenue, may file a revised return within one hundred and twenty days from the date of filing of the return.

The Bills seeks to relax the condition of seeking approval of the Commissioner Inland Revenue in the situation where the
revised return is filed within sixty days of filing of the return and either the tax payable is more than the tax already paid
with the original return or the refund claimed therein is less than the amount as claimed in the original sales tax return.
In the absence of these conditions, a registered person is required to seek prior approval for filing of the revised return
from the Commissioner Inland Revenue within a period of one hundred and twenty days.

14. Penalty for Late Filing of Return

Serial No.1 to Section 33

The Bill proposes that the penalty for non-filing of sales tax return is enhanced from 5,000 to 10,000. Where return
filing is not delayed for more than 10 days, the penalty is increased from PKR 100 to PKR 200 for each date of default.

15. Proceedings Against Tax Officials

Section 33A

Section 51 provides immunity to tax officials from prosecution by any Government agency for anything done in their
official capacity, without the prior approval of FBR. This immunity was, at times, exploited by the tax officials. The Bill
proposes to introduce a new Section 33A, under which FBR shall prescribe rules for initiating proceedings, including
criminal proceedings against any tax official who willfully and deliberately commits or omits an act which results in
personal benefits and undue advantage to himself or a taxpayer or both. Furthermore, FBR shall simultaneously
intimate the relevant Governmental agency to initiate criminal proceedings against the taxpayer.

16. Liability for Tax in case of Private Company or Business Enterprises

Section 58

Section 58 provides that any private company or business enterprise which is wound up and any tax chargeable may
not be recoverable from such company or business enterprise then the owner, partner or director shall be jointly and
severally liable for payment of such tax.

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The Bill now seeks to extend such liability to shareholder owning more than 10% of the paid up capital. It is also
proposed that the said shareholder shall be entitled to recover the share of tax paid from the other owner, partner,
director and shareholder holding more than 10% of the paid up share capital.

17. Selection of Audit by FBR

Section 72B

The Bill seeks to insert Sub-section (1A) to Section 72B which authorizes FBR to keep selection parameters for audit
confidential.

18. Third Schedule

Section 3(2)(a)

The Third Schedule lists down the goods that are subject to sales tax at retail price set by manufacturers. The Bill
proposes to insert the following entries into the Third Schedule which are currently subject to extra amount of sales tax.

S. No Description Tariff Heading

38. Household electrical goods, including air conditioners, refrigerators, deep Respective headings
freezers, televisions, recorders and players, electric bulbs, tube-
lights, electric fans, electric irons, washing machines and telephone sets

39. Household gas appliances, including cooking range, ovens, geysers and Respective headings
gas heaters

40. Foam or spring mattresses and other foam products for household use Respective headings

41. Paints, distempers, enamels, pigments, colours, varnishes, gums, resins, Respective headings
dyes, glazes, thinners, blacks, cellulose lacquers and polishes sold in retail
packing

42. Lubricating oils, brake fluids, transmission fluid, and other vehicular Respective headings
fluids sold in retail packing
43. Storage batteries excluding those sold to automotive manufacturers Respective headings
or assemblers
44. Tyres and tubes excluding those sold to automotive manufacturers Respective headings
or assemblers
45. Motorcycles Respective headings

46. Auto rickshaws Respective headings”;

19. Sixth Schedule

Section 13

The Sixth Schedule deals with exemptions of goods from levy of sales tax.

Table 1 (on import and local supplies)

The Bill seeks to amend the following serials numbers:

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Existing Proposed

S.No. Description Tariff Heading Description Tariff Heading

Meat of bovine animals, Meat of bovine animals,
sheep and goat, sheep and goat, excluding
excluding poultry and 02.01, 02.02 and poultry and offal,
02 02.01, 02.02 and 02.04.
offal, whether or not 02.04. whether or not fresh,
fresh, frozen or frozen or otherwise,
otherwise, preserved preserved or packed.
Fish and crustaceans Fish and crustaceans
excluding live fish excluding live fish
03.02, 03.03, 03.04, 03.02, 03.03, 03.04,
03 whether or not fresh, whether or not fresh,
03.05 and 03.06 03.05 and 03.06
frozen or otherwise frozen or otherwise
preserved. preserved or packed.
1001.1000,1001.9000, 1001.1000,1001.9000,
1002.0000,1003.0000, 1002.0000,1003.0000,
1004.0000,1005.1000, 1004.0000,1005.1000,
1005.9000,1006.1090, 1005.9000,1006.1090,
Cereals and products of
1006.2000,1006.3010, 1006.2000,1006.3010,
milling Industry excluding
1006.3090,1006.4000, 1006.3090,1006.4000,
the products of milling
1007.0000,1008.1000, 1007.0000,1008.1000,
Cereals and products of industry, other than
19 1008.2000,1008.3000, 1008.2000,1008.3000,
milling Industry. wheat and meslin flour,
1008.9000,1101.0010, 1008.9000,1101.0010,
as sold in retail packing
1101.0020,1102.1000, 1101.0020,1102.2000,
bearing brand name or a
1102.2000,1102.9000, 1102.9000,1103.1100,
trademark.
1103.1100,1103.1300, 1103.1300,1103.1900,
1103.1900,1104.2200, 1104.2200,1104.2300,
1104.2300,1104.2900 1104.2900 and
and 1104.3000 1104.3000
Goods, excluding
Goods supplied to
electricity and natural
hospitals run by the
gas, supplied to hospitals
Federal or Provincial
run by the Federal or
Governments or
Provincial Governments
charitable operating
52A Respective headings or charitable operating Respective headings
hospitals of fifty beds
hospitals of fifty beds or
or more or the teaching
more or the teaching
hospitals of statutory
hospitals of statutory
universities of two
universities of two
hundred or more beds.
hundred or more beds.
Uncooked poultry meat
whether or not fresh,
72 Uncooked poultry meat 02.07 02.07
frozen or otherwise,
preserved or packed.
Milk and cream, Milk and cream,
concentrated or concentrated or
containing added sugar containing added sugar or
73A or other sweetening 04.01 and 04.02 other sweetening matter, 04.02
matter, excluding that excluding that sold in
sold in retail packing retail packing under a
under a brand name. brand name.

82 Frozen prepared or 1601.0000 Frozen prepared or 1601.0000

preserved sausages preserved sausages and

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Sales Tax

Existing Proposed

S.No. Description Tariff Heading Description Tariff Heading

and similar products of similar products of
poultry meat or meat poultry meat or meat
offal offal, excluding those
sold in retail packing
under brand name or a
trademark.
Meat and similar products
1602.3200,1602.3900, of prepared, frozen or 1602.3200,1602.3900,
Meat and similar
1602.5000,1604.1100, preserved meat or meat 1602.5000,1604.1100,
products of prepared,
1604.1200,1604.1300, offal of all types including 1604.1200,1604.1300,
frozen or preserved
83 1604.1400,1604.1500, poultry, meat and fish 1604.1400,1604.1500,
meat or meat offal of
1604.1600,1604.1900, excluding those sold in 1604.1600,1604.1900,
all types including
1604.2010.1604.2020, retail packing under a 1604.2010.1604.2020,
poultry, meat and fish.
1604.2090. brand name or a 1604.2090.
trademark.
Fat filled milk excluding
that sold in retail packing
85 Fat filled milk. 1901.9090 1901.9090
under a brand name or a
trademark

The Bill has proposed to omit the following serial numbers from Table 1 of the Sixth Schedule:

S. No. Description Tariff Heading

7106.1000, 7106.9110 and

36 Silver, in unworked condition.
7106.9190
7108.1100, 7108.1210 and
37 Gold, in unworked condition.
7108.1290

The Bill has also proposed to insert the following entries in Table-1 of the Sixth Schedule of the ST Act:

S. No. Description Tariff Heading

(a) Supplies; and

(b) imports of plant, machinery, equipment for installation in

tribal areas and of industrial inputs by the industries located
in the tribal areas, as defined in the Constitution of Islamic
Republic of Pakistan, -

as made till 30th June, 2023, to which the provisions of the Act or
151 the notifications issued thereunder, would have not applied had Respective heading
Article 247 of the Constitution not been omitted under the
Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of
2018):

Provided that, in case of imports, the same shall be allowed

clearance by the Customs authorities on presentation of a post-
dated cheque for the amount of sales tax payable under the Sales
Tax Act, 1990, and the same shall be returned to the importer

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Sales Tax

S. No. Description Tariff Heading

after presentation of a consumption or installation certificate, as
the case may be, in respect of goods imported as issued by the
Commissioner Inland Revenue having jurisdiction:

Provided further that if plant, machinery and equipment, on which

exemption is availed under this serial number, is transferred or
supplied outside the tribal areas, the tax exempted shall be paid at
applicable rate on residual value.
Supplies of electricity, as made from the day of assent to the
Constitution (Twenty-fifth Amendment) Act, 2018, till 30th June,
2023, to all residential and commercial consumers in tribal areas,
153 2716.0000
and to such industries in the tribal areas which were set and
started their industrial production before 31st May, 2018, but
excluding steel and ghee or cooking oil industries.
Steel billets, ingots, ship plates, bars and other long re-rolled
154 profiles, on such imports and supplies by the manufacturer on Respective headings;
which federal excise duty is payable in sales tax mode.

Table-2 (Local Supplies)

Serial number 16 of Table 2 provides exemptions on local supply of raw cotton and ginned cotton. The Bill proposes to
omit the expression “ginned cotton” as mentioned under column (2).

The Bill has also proposed to insert the following entries after Serial number 24 in the Sixth Schedule of the ST Act:

S. No. Description Tariff Heading

25 Cotton seed oil 1512.2100 and 1512.2900

26 Wheat Bran 2302.3000

20. Amendments in Eighth Schedule

Section 3(2)(aa)s

Under Section 3(2)(aa), items listed in the Eight Schedule are chargeable to sales tax at reduced rate subject to certain
conditions and limitations as provided therein.

The Bill seeks to substitute the following entries in Table-1 of the Eight Schedule to the ST Act:

CONCENTRATED MILK

Currently, there is disparity in the rate of sales tax on various forms of milk products like milk and cream. The Bill now
seeks to rationalize the same and both the categories of concentrated milk and cream are proposed to be taxed at the
rate of10%.

SEEDING AND PLANTING EQUIPMENT:

Cotton or maize planter with fertilizer attachment, potato planter and rice trans-planter have been recently reclassified
under tariff heading 8432.3900 in the Pakistan Customs Tariff (PCT). Therefore, the Bill seeks to update the tariff
heading of 8432.3090 with 8432.3900 for the above goods.

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Sales Tax

POTASSIUM CHLORATE

Presently, potassium chlorate is subject to sales tax at the standard rate of 65 rupees per kilogram. The Bill proposes to
enhance the additional fixed amount of sales tax from 65 to 70 rupees per kilogram.

The Bill also seeks to omit the following entries from Table-1 of the Eighth Schedule to the ST Act.

S.No Description Tariff Heading Rate Condition

18 Reclaimed lead Respective 5% If supplied to recognized manufacturers of lead and

headings lead batteries
21 Rapeseed, sunflower 1205.0000, 16% On import by solvent extraction industries
seed and canola seed 1206.0000
22 Soya bean seed 1201.1000 6% On import by solvent extraction industries, subject
to the condition that no refund of input tax shall be
admissible
32 White crystalline 1701.9910 and 8%
sugar 1701.9920

Further, the Bill seeks to insert the following new Entries in Table-1 of the Eighth Schedule to the ST Act.

S.No Description Tariff Heading Rate Condition

59 Products of milling industry 1101.0010, 10% If sold in retail packing

except wheat and meslin flour 1101.0020, under a brand name or
1102.2000, trademark
1102.9000,
1103.1100,
1103.1300,
1103.1900,
1104.2200,
1104.2300,
1104.2900 and
1104.3000
60 Fat filled milk 1901.9090 10% If sold in retail packing
under a brand name or
trademark
61 Silver, in unworked condition 7106.1000, 1% plus 2% value
7106.9110 addition
and
7106.9190
62 Gold, in unworked condition 7108.1100, 1% plus
7108.1210 2% value
and addition
7108.1290
63 Articles of jewellery, or parts 71.13 1.5% of value of No input tax adjustment
thereof, of precious metal or gold, plus 0.5% of to be allowed except of
of metal clad with precious value of diamond, the tax paid on gold
metal.

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Sales Tax

64 Prepared food, foodstuff and
sweetmeats supplied by
restaurants, bakeries,
caterers and sweetmeat
shops
65 Ginned cotton
used therein,
plus 3% of making
charges
Respective headings 7.5% Supplies only, subject to
condition that no input
tax shall be adjusted
Respective headings 10%

66 Supplies of finished articles Respective heading 15% If they are integrated

of textile, textile made-ups,
leather and artificial leather,
as made by retailers
67 LNG imported for servicing
CNG sector and local
supplies thereof
with FBR’s online system
and data is transmitted to
the FBR’s computerized
system in real time in
such mode and manner as
may be prescribed by
FBR
2711.1100, 5%
2711.2100

The Bills also seeks to reduce rate of sales tax on food supplied by restaurants, bakeries and caterers. However, such
businesses have been construed as service provider and have already been covered under the provincial sales tax laws
and are currently paying sales tax with the respective provincial sales tax authorities.

Such proposition would once again lead to a dispute among the businesses and government functionaries and would
result in unnecessary litigation.

In view of the proposed amendment, such goods shall be subject to sales tax at the rate of seventeen percent on the
value of retail price fixed by the manufacturer or importer.

21. Ninth Schedule

Section 3(3B)

Ninth Schedule inter-alia deals with levy of sales tax on import and supply of locally manufactured cellular and satellite
phones. The Bill proposes to reduce the rates of sales tax on import or local supply or registration of IMEI number by
CMOs of cellular and satellite phones. The proposed changes in the rate of sales tax are as follows:

Sales Tax on Sales Tax Chargeable at

Description / Specification of Goods Import or the Time of Registration of
Local Supply IMEI Number by CMOs
Present Proposed Present Proposed
Rate Rate Rate Rate
PKR PKR PKR PKR

Cellular mobile phones or satellite phones to be charged

on the basis of import value per set, or equivalent value
in rupees in case of supply by the manufacturer, at the
rate as indicated against each category:--

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Sales Tax

(a) Not exceeding US$ 30 150 135 150 135

(b) Exceeding US$ 30 but not exceeding US$ 100 1,470 1,320 1,470 1,320
(c) Exceeding US$ 100 but not exceeding US$ 200 1,870 1,680 1,870 1,680
(d) Exceeding US$ 200 but not exceeding US$ 350 1,930 1,740 1,930 1,740
(e) Exceeding US$ 350 but not exceeding US$ 500 6,000 5,400 6,000 5,400
(f) Exceeding US$ 500 10,300 9,270 10,300 9,270

22. Capacity or Fixed Based Taxation

Section 3(1B) and Tenth Schedule

Section 3(1B) of the ST Act empowers FBR to notify the taxable supplies on which sales tax may be levied and collected
on the basis of production capacity or any other fixed basis in lieu of the Normal Sales Tax Regime.

The Bill seeks to substitute Section 3(1B) with the Tenth Schedule wherein goods are specified on which sales tax is
charged or collected on the basis of production capacity or any other fixed basis. It is proposed to levy monthly fixed
sales tax in the following manner on bricks, falling under PCT heading 6901.1000.

Tax Payable
S.No Region or Area
Per Month
1. Lahore, Rawalpindi and Islamabad PKR 12,500

2. North and middle district of Punjab PKR 10,000

3. District of South Punjab, Sindh, Khyber-Pakhtunkhwa and Baluchistan PKR 7,500

23. Sales Tax Withholding

Sections 3(7) and Eleventh Schedule

Section 3(7) authorizes the Federal Government to notify the person as sales tax withholding agents alongwith the
manner and conditions for withholding of sales tax. The Federal Government issued the Sales Tax Special Procedure
(Withholding) Rule, 2007 (the Withholding Rule) vide S.R.O. 660(I) of 2007.

It is stipulated in salient feature issued with the Budget Documents that multi-tiered legislation and subordinate
legislation make it difficult for taxpayer and tax collectors to comprehend and implement the same. Hence, all the
special procedures and redundant SROs are being abolished and same is to be transposed to the ST Act.

The Bill seeks to substitute Section 3(7) with the new Eleventh Schedule to the ST Act wherein the Withholding Rules
are transitioned to the Eleventh Schedule to the ST Act. The proposed Eleventh Schedule has prescribed withholding
agents and the rates of applicable sales tax withholding for specified category of suppliers as under:

Supplier Rate or Extent of

S. No. Withholding Agent
Category Deduction
(1) (2) (3) (4)
1 (a) Federal and provincial government departments; Registered 1/5th of Sales Tax
autonomous bodies; and public sector organizations persons as shown on
(b) Companies as defined in the Income Tax Ordinance, 2001 invoice
(XLIX of 2001)
2 (a) Federal and provincial government departments; Person registered 1/10th of Sales
autonomous bodies; and public sector organizations as a wholesaler, Tax as shown on
invoice

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Sales Tax

(b) Companies as defined in the Income Tax Ordinance, 2001 dealer or

(XLIX of 2001) distributor
3 Federal and provincial government departments; autonomous Unregistered Whole of the tax
bodies; and public sector organizations persons involved or as
applicable to
supplies on the
basis of gross
value of supplies.
4 Companies as defined in the Income Tax Ordinance, 2001 (XLIX Unregistered 5% of gross value
of 2001) persons of supplies
5 Registered persons as recipient of advertisement services Person providing Whole of sales tax
advertisement applicable.
services

The Proposed rates of sales tax withholding are identical with the rates as provided in the Withholding Rules except for
withholding tax rate on supplies made by an unregistered person which has been enhanced from 1% to 5% of gross value
of supplies.

It is noticed that the remaining procedure, time and manner for withholding and deposit of tax thereof remain more or
less the same and moved to the Eleventh Schedule. However, under the existing Withholding Rules certain persons or
transactions like supplies by active taxpayer to another registered person as well as supplies of various type of goods
including electricity, gas, petroleum products, steel melters, telecom, goods specified under the Third Schedules and
goods supplied by commercial importer have been excluded from the purview of sales tax withholding. It may,
therefore, be expected that the proposed amendments would retain the similar position or the Withholding Rules to that
extent remain intact unless the above situation is addressed.

24. Sales Tax Measures Announced in the Budget Documents

In the salient features attached to the Bill, it is indicated that certain measures would be introduced in the ST Act.
However, they are not referred to in the Bill. It appears that as the SROs have not been issued with the Budget
documents, the following measures in sales tax would be taken when the related SROs are issued:

 REMOVAL OF BAR ON EXPORT OF PMC AND PVC TO AFGHANISTAN

It is proposed that the SRO 190(I)/2002 may be amended to delete entries relating to PVC and PMC materials, and
thus allowing zero-rating on export of these items to Afghanistan and Central Asian Republics.

 ZERO-RATING ON SUPPLY OF TOBACCO TO EXPORTERS

It is proposed that the FED shall be charged at zero percent on unmanufactured tobacco as supplied to a registered
person / trader who intends to export the same subject for furnishing of necessary security

 GOVERNMENT BODIES EXCLUDED FROM PURVIEW OF EXTRA TAX AND FURTHER TAX

Further tax at the rate of 3% is chargeable on all taxable supplies made to unregistered persons and 5% extra tax is
chargeable on electricity and gas bills from all unregistered industrial and commercial consumers. it is proposed
that government / semi-government and statutory regulatory authorities may be excluded from purview of both
these taxes.

 FIXED VALUE OF GAS SUPPLIED TO CNG DEALERS

CNG prices have been de-regulated due to which CNG prices have risen as well as gas tariff. In this sector, it is
proposed to re-notify the value for sales tax on supply of gas from distribution company to CNG dealers.

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Sales Tax

 RESTORATION OF NORMAL REGIME FOR STEEL SECTOR

Special procedure rules for steel sectors are proposed to be done away.

 SPECIAL PROCEDURE FOR MARBLE INDUSTRY

Presently, sales tax on marble industry is governed through special procedure and sales tax is chargeable at PKR
1.25 per unit of electricity consumed. Salient feature delineates that special procedure may be done away and
standard regime of 17% be restored.

 ABOLISHMENT OF SALES TAX NOTIFICATION AND TRANSPOSITION TO THE ST ACT

Salient features stipulate that all special procedure rules alongwith redundant notification are to be abolished and
same will be transposed to the ST Act. Certain provisions of special procedure rules are already proposed to be
transposed to the ST Act.

 SIMPLIFICATION OF SALES TAX REGISTRATION

It is intended that issue for sales tax registration would be automated without any physical contact with the tax
officers. Biometric verification shall be done within a month of registration through NADRA e-Sahulat centres.

 STREAMLINING SRO 1125(I)/2011 REGIME

Concessionary rate of sales tax applicable to the five export oriented sector is expected to be withdrawn by
rescinding S.R.O 1125. However, sales tax on ginned cotton, finished article textile and leather are proposed to be
taxed at reduced rate by inserting entry 65 and 66 in Eighth Schedule to the ST Act.

In consequence to above amendment, zero rating of utilities through various general order are also expected to
be withdrawn. However, refund of input tax shall be automated and refund payment order (RPOs) shall be
immediately sent to SBP for payment as soon as these are generated.

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Islamabad Capital Territory

1. Amendments in The Schedule

Section 3(2)

Reduction in the rate of sales tax

The Bill seeks to reduce the rate of sales tax on call centre services from 18.5 percent to 17 percent.

Insertion of new services in the Schedule

The Bill seeks to harmonize the list of taxable services with the Provincial sales tax laws by inserting the following
services in the Schedule to the ICT Ordinance.

Proposed
S.No. Description PCT Heading
Rate of Tax
Advertisement on hoarding boards, pole signs and signboards, and
43 9802.9000 16%
websites or internet
44 Services provided by landscape designers 9814.4000 16%

45 Sponsorship services 9805.9100 16%

Services provided or rendered for purchase or sale or hire of
46 -- 16%
immovable property
47 Services provided or rendered by legal practitioners and consultants 9815.2000 16%

48 Services provided by accountants and auditors 9815.3000 16%

9819.1000,
9819.2000,
Service provided or rendered by Stockbrokers, future brokers and 9819.5000,
commodity brokers, money exchanger, surveyors, outdoor 9819.7000,
49 16%
photographers, event photographers, videographers, art painters, 9819.8000,
auctioneers (excluding value of goods) and registrar to an issue 9819.9100,
9819.9500 and
9819.9090
50 Services provided by race clubs: Entry/ admission and other services 16%

51 Services provided or rendered by corporate law consultants 9815.9000 16%

Visa processing services, including advisory or consultancy services
52 -- 16%
for migration or visa application filing services
53 Debt collection services and other debt recovery services -- 16%

54 Supply chain management or distribution (including delivery) services -- 16%

Services provided or rendered by persons engaged in inter city
55 transportation or carriage of goods by road or through pipeline or -- 16%
conduit
56 Ready mix concrete services -- 16%

57 Public relations services -- 16%

58 Training or coaching services other than education services -- 16%

9822.2000,
Cleaning services including janitorial services, collection of waste
59 9822.3000 and 16%
and processing of domestic waste
9822.9000

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Islamabad Capital Territory

The salient features of the Bill state that the services which have already been subject to federal excise duty shall not be
included in the Schedule to the ICT Ordinance. However, the advertisement services which are listed at proposed Serial
No. 43 of the Schedule, seems a duplication as it is already subject to Federal Excise Duty under Serial No. 2A of Table II
of the Frist Schedule to the Federal Excise Act, 2005.

2. Amendments in Islamabad Capital Territory Act

The Finance Bill, 2019 has also proposed to amend the following Acts, as in force in the Islamabad Capital Territory:

 The Stamp Act, 1899 for making amendments in the rate of Stamp Duty applicable on various types of instruments.

 The West Pakistan Motor Vehicle Taxation Act, 1958 for revising the rate of token tax on motor cycles, scooters,
motor vehicles, motor cabs, public service vehicles, commercial vehicles and loading vehicles

 The West Pakistan Finance Act, 1965 for levying a bed tax at the rate of five percent of invoice value excluding sales
tax and other applicable taxes on hotels having at least twenty five lodging units.

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Table of Contents

FEDERAL EXCISE DUTY

Section Page

1. Definitions Section 2(23a) 62

Section 3(5A), Second
2. Duties specified in the First Schedule to be levied 62
Schedule, Fourth Schedule
3. Application of the provisions of the Sales Tax Act, 1990 Section 7 62

4. Exemptions Section 16 62

5. Offences, penalties, fines and allied matters exemptions Section 19 62

6. Proceeding against persons Section 19A 63

7. Power to arrest and prosecute Section 22(13) 63

Section 3, First Schedule,
8. Amendments in the First Schedule 63
Table I
9. Rate of un-manufactured tobacco First Schedule, Table I 66

10 Rate of duty on domestic air travel First Schedule, Table II 66

11. Conditional Exemption on Telecommunication Services Third Schedule, Table II 66

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Federal Excise Duty

1. Definitions

“Supply”
Section 2(23a)

The definition of “supply” includes sale, lease or other disposition of goods and such transaction as the Federal
Government may notify in the official gazette. The Bill seeks to change the powers to issue notifications by FBR instead
of the Federal Government. However, FBR will issue the notifications for said purpose with the approval of the Minister
in charge.

2. Duties specified in the First Schedule to be levied

Section 3(5A), Second Schedule, Fourth Schedule

Section 3 deals with the levy and collection of duty on goods or services specified in the First Schedule. The Bills seeks
to levy the duty on production and supplies of steel products. Amendments have been introduced in Section 3(5A) of
the Act and the Fourth Schedule for this purpose. The duty on supply of steel products is proposed to be imposed at
17% ad valorem in sales tax mode. The taxpayer is required to declare actual and minimum production in its monthly
returns and to compute and pay its tax liability based upon the comparison of actual and minimum production,
whichever is higher. It is further proposed to carry out the comparison on an annual basis to ensure that the duty
actually paid shall not be less than the liability determined on minimum production basis for the year.

The Bill proposes the following minimum production of steel products in the Fourth Schedule subject to certain conditions
and procedures as specified therein:

S. No. Product Production Criteria

(1) (2) (3)

1 Steel billets and ingots One metric ton per 700 kwh of electricity consumed
Steel bars and other re-rolled long profiles of
2 One metric ton per 110 kwh of electricity consumed
steel
3 Ship plates 75% of the weight of the vessel imported for breaking

3. Application of the provisions of the Sales Tax Act, 1990

Section 7

The Bill seeks to empower FBR with the approval of the Minister in charge, in place of the Federal Government to issue
notification for the purposes of Section 7 of the Act to levy duty in sales tax mode.

4. Exemptions
Section 16

The Federal Government is empowered to issue notification for exemption of duty. The Bill seeks to modify certain
circumstances under which such powers may be used by the Federal Government.

5. Offences, penalties, fines and allied matters exemptions

Section 19

The Bill seeks to introduce fines and penalties to person who sells cigarettes in retail at a price lower than the retail
price including sales tax printed thereon.

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Federal Excise Duty

6. Proceeding against persons

Section 19A

The Bill seeks to insert a new Section 19A in the Act whereby, FBR may prescribe rules to initiate criminal proceedings
against its officials who willfully and deliberately commit or omit an act which results in personal benefit or undue
advantage to the officials or the taxpayer or both.

7. Power to arrest and prosecute

Section 22(13)

The Bill seeks to empower FBR with the approval of the Minister in charge, in place of the Federal Government to issue
notification and authorize any other officer working under FBR to exercise the powers and perform the functions under
this section.

8. Amendments in the First Schedule

Section 3, First Schedule, Table I

The Bill proposes amendments in the Table I of the First Schedule to the FE Act:

Existing Proposed
S.
No Tariff
Description Duty Description Tariff Heading Duty
Heading
1 Edible oils excluding 15.07, 15.08, 16% Edible oils 15.07, 15.08, 17%
deoxidized soybean 15.09, 15.10, excluding 15.09, 15.10,
15.11, 15.12, deoxidized 15.11, 15.12,
15.13, 15.14, soybean 15.13, 15.14,
15.15, 15.16 15.15, 15.16
15.17, and 15.17, and
15.18, 15.18
2 Vegetable ghee and Respective 16% Vegetable ghee Respective 17% of retail
cooking oil heading and cooking oil heading price
a) In retail 17% ad val
packing
b) Not in retail
packing
4 Aerated Waters 2201.1020 11.5% Aerated Waters 2201.1020 14%
5 Aerated waters, 2202.1010 11.5% of Aerated waters, 2202.1010 14% of retail
containing added retail price containing added price
sugar or other sugar or other
sweetening matter sweetening
or flavored matter or
flavored
6 Aerated waters if Respective 11.5% of Aerated waters if Respective 14% of retail
manufactured headings retail price manufactured headings price
wholly from juices or wholly from
pulp of vegetables, juices or pulp of
food grains or fruits vegetables, food
and which do not grains or fruits
contain any other and which do not
ingredient, contain any other
indigenous or ingredient,
imported, other than indigenous or

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Federal Excise Duty

Existing Proposed
S.
No Tariff
Description Duty Description Tariff Heading Duty
Heading
sugar, coloring imported, other
materials, than sugar,
preservatives or coloring
additives in materials,
quantities preservatives or
prescribed under the additives in
West Pakistan Pure quantities
Food Rules, 1965. prescribed under
the West Pakistan
Pure Food Rules,
1965
9 Locally produced 24.02 Rupees four Locally produced 24.02 Rupees five
cigarettes if their thousand cigarettes if their thousand two
on-pack printed five on-pack printed hundred per
retail price exceeds hundred retail price thousand
four thousand five per exceeds five cigarettes
hundred rupees per thousand thousand nine
thousand cigarettes. cigarettes hundred and sixty
rupees per
thousand
cigarettes
10 Locally produced 24.02 Rupees one Locally produced 24.02 Rupees one
cigarettes if their thousand cigarettes if their thousand six
on-pack printed eight on-pack printed hundred and
retail price exceeds hundred retail price does fifty per
two thousand nine and forty not exceed five thousand
hundred and twenty- per thousand nine cigarettes
five rupees per thousand hundred and sixty
thousand cigarettes cigarettes rupees per
but does not exceed thousand
four thousand five cigarettes
hundred rupees per
thousand cigarettes.
13 Portland cement, 25.23 1 rupee and Portland cement, 25.23 2 rupees per
aluminous cement, 50 paisa aluminous kilogram
slag cement, super per cement, slag
sulphate cement and kilogram cement, super
similar hydraulic sulphate cement
cements, whether or and similar
not coloured or in hydraulic
the form of clinkers cements,
whether or not
coloured or in the
form of clinkers
31 Liquefied Natural 2711.1100 17.8 Liquefied Natural 2711.1100 10 rupees per
Gas rupees per Gas MMBTU
100 cubic
meter

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Federal Excise Duty

Existing Proposed
S.
No Tariff
Description Duty Description Tariff Heading Duty
Heading
55 Locally 87.03 10% ad Locally 87.03
manufactured or valorem manufactured or
assembled motor assembled motor
cars, SUVs and cars, SUVs and
other motor vehicles other motor
of cylinder capacity vehicles
of 1700cc or above, principally
principally designed designed for the
for the transport of transport of
persons (other than persons (other
those of headings than those of
87.02), including headings 87.02),
station wagons and including station
racing cars of wagons and
cylinder capacity of racing cars
1700cc or above a) of cylinder 2.5% ad
capacity up valorem
to 1000cc
b) of cylinder 5% ad valorem
capacity
from 1001cc
to 2000cc
c) of cylinder 7.5% ad
capacity valorem
2001cc and
above

The Bills seeks to insert the following new entries at Serial No. 57 and 58 of Table I of the First Schedule to the FE Act:

S. No. Description Tariff Heading Duty

Fruit juices, syrups and squashes, waters
57 containing added sugar or sweetening matter Respective headings 5% of retail price
etc. excluding mineral and aerated waters
Steel billets, ingots, ship plates, bars and other
58 Respective headings 17% ad val
long re-rolled products

The Bill proposes to omit the Serial No.10a and 54 of Table I of the First Schedule to the FE Act which are as under:

S. No Description Tariff Heading Duty

10a Locally produced cigarettes if their on-pack Rupees one thousand
printed retail price does not exceed two thousand 24.02 two hundred and fifty
nine hundred and twenty-five rupees per per thousand
thousand cigarettes. cigarettes
54 Oilseeds Respective headings Forty Paisa per kg

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Federal Excise Duty

9. Rate of un-manufactured tobacco

First Schedule, Table I

It is proposed to insert an explanation that the duty on un-manufactured tobacco shall be borne by the manufacturer and
not to be passed on to the tobacco grower.

10. Rate of duty on domestic air travel

First Schedule, Table II

The rate of duty on domestic air travel is proposed to be reduced from PKR 2,000 to PKR 1,500 for long routes and
Rs.1,250 to Rs.900 for short routes.

11. Conditional Exemption on Telecommunication Services

Third Schedule, Table II

The exemption of duty on internet services is proposed to be withdrawn while the exemption on broadband is proposed
to be restricted to terrestrial broadband.

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Table of Contents

CUSTOMS

Section Page

1. Definitions Section 2 and 80AA 68

2. Application of Risk Management System Section 80AA 68

3. Powers and functions of the Directorate Section 3E 68

Section 18D, 30, 30A,

4. Power of Board to issue notifications 68
and 31

5. General powers to exempt customs duties Section 19 69

6. Power to determine the customs value Section 25A(1) and (3) 69

7. False statement, error etc. Section 32(3A) 69

8. Compounding of offence Section 32B 69

9. Mis-declaration of value for illegal transfer of funds abroad Section 32C 69

10. Refunds to be claimed within one year Section 33(3A), (5) 69

Declaration and assessment for home consumption or warehousing [or
11. Section 79 69
transshipment]
Procedure in case of goods not cleared or warehoused or transshipped or
12. exported or removed from the port within twenty days after unloading or Section 82 69
filing of declaration
13. Warrants to be given when goods are warehoused Section 90(2) 70

14. Period for which goods may remain warehoused Section 98 70

15. Punishment for offences Section 156 70

16. Proceedings against persons Section 156A 71

17. Power of adjudication Section 179 71

18. Option to pay fine in lieu of confiscated goods Section 181 71

Section 185, Section

19. Special Judges, transfer of cases 71
185D

20. Procedure in Appeal Section 193A 71

21. Appellate Tribunal Section 194 71

22. Alternative dispute resolution (ADR) Section 195C 72

23. Amendments in First and Fifth Schedule 73

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Customs

1. Definitions
Section 2 and 80AA

The Bill seeks to introduce risk management system by inserting a new Section 80AA and in relation thereto define
following terms.

 Customs Controls
Section 2(lc)

It means, measures applied by the officers of customs or through Customs Computerized System to manage risks
and ensure compliance.

 Risk Management System

Section 2(qb)

It means, the systematic application of Customs Controls and Management Procedures on pre arrival, customs
clearance processes and post clearance of goods and passengers, for identifying, analyzing, evaluating,
monitoring, reviewing and treating the risk associated with them.

 Selectivity Criteria
Section 2(rrr)

It means, the risk parameters determined by the Risk Management Committee constituted under the rules for the
application of Risk Management System.

2. Application of Risk Management System

Section 80AA

The Bill seeks to insert a new Section to enforce customs controls to manage risks and ensure compliance through a
Risk Management System for which the related rules may be prescribed later on.

3. Powers and functions of the Directorate

Section 3E

The Bill seeks to substitute the word “Directorates” with the “Directorates General and Directorates” which would
empower FBR to specify the functions, jurisdiction and powers of the Directorates General and their officers by
notification in the Official Gazette.

4. Power of Board to issue notifications

Section 18D, 30, 30A, and 31

The Bill seeks to devolve the powers of the Federal Government to the FBR subject to the approval of the Finance
Minister in charge to issue the notifications under the following provisions of the Act.

Provisions of the Description

Act

18D Levy of fee and service charges

30 Date of determination of rate of import duty
30A Date of determination of rate of duty for clearance through the Customs Computerized
System
31 Date for determination of rate of duty on goods exported

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5. General powers to exempt customs duties

Section 19

Section 19 deals with the general powers of the Federal Government to grant exemption of duties under certain
circumstances and to the institutions. The Bills seeks to delete the words “removal of anomalies in duties, development
of backward areas”. Resultantly, the Federal Government is no more authorized to issue exemption in these
circumstances.

6. Power to determine the customs value

Section 25A(1) and (3)

The Bill seeks to withdraw the powers of the Collector of Customs to determine the value which will now be available
only to the Director of Customs valuation. Sub-section (3) of Section 25A of the Act is also propose to be deleted which
becomes redundant due to the aforesaid proposed amendment.

7. False statement, error etc.

Section 32(3A)

Sub-section (3A) of Section 32 deals with the issuance of show cause notice in the situation where any duty, taxes or
charge has not been levied, short-levied or erroneously refunded, discovered as a result of an audit or examination of an
importer’s accounts or by any other means. The Bill seeks to extend the application of this section to exporters as well.

8. Compounding of offence
Section 32B

The Bill seeks to empower the Director of Customs, in addition to the Collector, to compound the penalties determined,
where any person has committed a duty or tax fraud under the Act.

9. Mis-declaration of value for illegal transfer of funds abroad

Section 32C

The Bill seeks to insert a new Section 32C in the Act; whereby, a show cause notice may be issued to any person who
overstates the value of imported goods or understates the value of exported goods or vice versa, within a period of two
months from the seizure of goods to seek explanation for confiscation of the goods.

10. Refunds to be claimed within one year

Section 33(3A), (5)

The Bill seeks to add a condition of pre-audit for sanctioning refunds. A new Sub-section is also proposed to insert
whereby FBR is empowered to issue a notification and specify the jurisdiction and powers of the officers of Customs to
sanction refunds. The key objective is to regulate the refunds through different sanctioning authorities.

11. Declaration and assessment for home consumption or warehousing [or transshipment]
Section 79

This section deals with the time period of declaration and assessment of goods by the owner for home consumption,
warehousing and transshipment. The Bill seeks to reduce the time limit for such declaration from fifteen days to ten
days.

12. Procedure in case of goods not cleared or warehoused or transshipped or exported or removed from
the port within twenty days after unloading or filing of declaration.
Section 82

Under Section 82 of the Act, if any goods are not cleared for consumption or warehoused or transshipped or removed
from the port within twenty days of their arrival or within such extended period not exceeding ten days, an officer of the
customs, may sell or auction, or take under custody such goods.

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Customs

The Bill seeks to reduce the period of clearance of imported or exported goods from twenty to fifteen days. The power
to extend the period for further ten days is also proposed to be reduced to five days.

13. Warrants to be given when goods are warehoused

Section 90(2)

Presently whenever any goods are lodged in a public warehouse or a licensed private warehouse, the warehouse-keeper
delivers a signed warrant to the person lodging the goods which is transferable by endorsement. The Bill seeks to add a
proviso to Section 90(2), which states that where the Customs Computerized System is operational, the issuance of
warrant and subsequent transfer of warrant shall take place through system generated documents.

14. Period for which goods may remain warehoused

Section 98

Currently, perishable goods notified by FBR, may remain in warehouse for a period of three months following the date
of their admission into the warehouse. The Bill seeks to reduce this period to one month. The Bill further seeks to vest
the power of extending the aforesaid period of one month to only the Collector of Customs and the Chief Collector of
Customs and deleting the clause referring to the Federal Government or the FBR.

15. Punishment for offences

Section 156

This section deals with the penal provisions for offences as defined under the Customs Act, 1969. In this Section, the
following new entries have been added or substituted.

Reference to
Clause Offences Penalties
the Section
14 If any person commits Such person shall be liable to a penalty not exceeding two 32
an offence under: hundred thousand rupees or three times the value of the
goods in respect of which such offence is committed,
(i) Sub-section (1) whichever be greater; and such goods shall also be liable
or Sub-section (2) to confiscation; and upon conviction by a Special Judge
of Section 32; he shall further be liable to imprisonment for a term not
exceeding three years, or to fine, or to both;
(ii) Sub-section (3) or
Sub-section (3A) Such person shall be liable to a penalty not exceeding fifty
of Section 32, thousand rupees or two times the value of the goods in
respect of which such offence is committed, whichever be
greater.
14B If any person commits Such person shall be liable to penalty not exceeding two 32C
an offence under hundred thousand rupees or three times the value of
Section 32C, goods in respect of which such offence is committed
whichever is greater; and such goods shall also be liable to
confiscation; and upon conviction by a special judge he
shall further be liable to imprisonment for a term not
exceeding ten years and to a fine which may extend upto
one million rupees; and shall also be liable to forfeiture of
property involved in money laundering or property of
corresponding value in accordance with the provisions of
the Anti-Money Laundering Act, 2010 (XIV of 2010).
47A If the goods The owner of such goods shall be liable to a penalty at the 79
declaration is not filed rate of rupees five thousand per day for the initial five
within the prescribed days of default and at the rate of rupees ten thousand per
period of ten days, day for each day of default thereafter.

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16. Proceedings against persons

Section 156A

The Bill seeks to insert a new Section 156A in the Act whereby the FBR may prescribe rules to initiate criminal
proceedings against its officials who willfully and deliberately commits or omits an act which results in personal benefit
or undue advantage to the officials or the taxpayer or both.

17. Power of adjudication

Section 179

The monetary threshold of the officers of customs for adjudication are proposed to be re-defined in the following
manner:

Sr. No. Authority Current Threshold Proposed Threshold

(i) Collector No limit No change
(ii) Additional Collector Not exceeding three million rupees No change
(iii) Deputy Collector Not exceeding one million rupees No change
(iv) Assistant Collector Not exceeding five hundred thousand Deleted
rupees
(v) Superintendent Not exceeding fifty thousand rupees Not exceeding One hundred
thousand rupees
(vi) Principal Appraiser Not exceeding fifty thousand rupees Not exceeding One hundred
thousand rupees

The Bill further seeks to reduce the time period to decide the cases within ninety days instead of existing one hundred
and twenty days.

18. Option to pay fine in lieu of confiscated goods

Section 181

The option to pay fine in lieu of confiscation of goods is currently available to import and export of prohibited or
restricted goods. The Bill seeks to extend this option to any other violation made under the provisions of the Act.

19. Special judges, transfer of cases

Section 185, Section 185D

The Federal Government through a notification may appoint special judges and specify their headquarters and the
territorial limits to exercise their jurisdiction under the Act. The Bill seeks to withdraw the powers of the Federal
Government and grant it to the Prime Minister who shall exercise these powers in consultation with the Chief Justice of
the concerned High Court. In the similar manner, the power to transfer the cases from one special judge to another
special judge has also been reassigned from the Federal Government to the Prime Minister.

20. Procedure in Appeal

Section 193A

The Bill seeks to reduce the time period to decide the cases by the Collector (Appeals) within ninety days instead of
existing one hundred and twenty days.

21. Appellate Tribunal

Section 194

The Bill seeks to substitute Section 194 which empowers the Federal Government to form, regulate and conduct the
affairs of the Appellate Tribunal. The Bill seeks to shift these powers to the Prime Minister. The Appellate Tribunal shall

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consist of a Chairman, judicial and accountant members. The terms and conditions of appointment of the chairman and
judicial and technical members (this may be referred to accountant members) are proposed to be determined by the
Prime Minister. Further, the appointment of a technical member shall be for a period of two years. The Bill seeks to
explain the criteria for appointment of judicial members and accountant members as under:

A judicial member of the Appellate Tribunal shall be appointed, unless such person:

(a) has been a judge of a High Court;

(b) has exercised the powers of a District Judge and is qualified to be a judge of the High Court; or

(c) is or has been an advocate of a High Court and is qualified to be appointed as a judge of a High Court:

Further, the person who is or has been an advocate of High Court shall not be appointed as judicial member unless
selected in accordance with the Civil Servants Act, 1973 (LXXI of 1973) and the Federal Public Service Commission
Ordinance, 1977 (XLV of 1977).

An accountant member of the Appellate Tribunal shall be appointed, unless such person:

(a) is an officer of Pakistan Customs Service equivalent in rank to the Member of FBR or Chief Collector of Customs or
Director General; or

(b) is a Collector or Director or Chief of the FBR having at least three years’ experience in that position.

22. Alternative dispute resolution (ADR)

Section 195C

The concept of Alternative Dispute Resolution (ADR) was first introduced by the Finance Act, 2004, whereby a taxpayer
may bring any disputed matter, pending at any appellate forum, before FBR by making an application. The role of ADR
was later updated and redefined in the Income Tax Ordinance, the ST Act and the FE Act via the Finance Act, 2018. The
Bill now seeks to harmonize the concept of ADR in lines with the said laws.

FBR in view of the proposed amendments, is required to constitute a Committee (ADRC) within the period of sixty days
of the filing of an application by the taxpayer, comprising of an officer of Inland Revenue (not below the rank of Chief
Collector) and two persons from the notified panel, comprising of a retired judge not below a District and Sessions
Judge, Senior Chartered Accountants, or Senior Advocates having minimum ten years’ experience in the field of
taxation or reputable taxpayers nominated by Chambers of Commerce and Industry, before which the matter is to be
placed for examination and recommendations to FBR.

The ADRC is required to examine the issue and may make enquiry, obtain expert opinion and cause an audit to be
conducted by any officer of Customs or any other person. Based on the findings, the ADRC shall make recommendations
as may be appropriate in the facts and circumstances of the case. The ADRC is required to make its recommendations
within ninety days of its constitution. If the ADRC fails to make the recommendation within the above period of ninety
days, FBR is empowered to dissolve the ADRC and the matter shall be decided by the appellate authority which issued
the order of withdrawal.

In case, the ADRC makes its recommendations within the statutory period of ninety days, FBR is then required to pass
an order on the recommendations of the ADRC, as may be appropriate, within ninety days of the receipt of ADRC’s
recommendations and if such an order is not passed, the recommendations would be treated to be an order passed by
FBR.

The intended substituted section now proposes substantial changes which are discussed as under:

 The ADRC members would be selected from a panel of Chartered Accountants or Advocates and retired Judges of
High Court, retired District and Session Judges, or reputable taxpayer besides an officer of Inland Revenue not
below the rank of a Collector

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 The taxpayer invoking the powers of ADRC and FBR shall withdraw the appeals pending before the Appellate
Authority

 The ADRC shall not commence the proceedings unless the order of withdrawal by the Appellate Authority is
communicated to FBR . In the event the order of withdrawal is not communicated within seventy five days of the
appointment of the ADRC, the ADRC so appointed shall be dissolved.

 The ADRC shall decide the dispute within one hundred and twenty days of its appointment excluding the period of
communicating the order of withdrawal.

 Instead of making the recommendations by the ADRC for consideration by FBR, the ADRC would be now
empowered to decide the matter and such decision shall be binding on the aggrieved person as well as on FBR.

 If the ADRC fails to decide the matter within the period of ninety days, FBR shall dissolve the ADRC, inform the
Appellate Authority (which passed the order of withdrawal of matter) and the matter would be deemed to be
pending before the Appellate Authority which shall decide the matter as if the appeal was never withdrawn. The
Appellate Authority is required to decide the appeal within six months of the communication of the order of
dissolution of the ADRC.

The proposed provisions however, do not appear to achieve the objectives with which the concept of ADR was
introduced. This is for the reason that the very concept of “Alternate” would fade away with the requirement to give up
the appellate process. Presently, the order passed by FBR on the recommendations of the ADR is not binding on the
aggrieved person but on FBR officials. Such an order is to be presented before the Appellate Authority which is required
to take into consideration while deciding the matter pending before it. This gives the aggrieved person an option to
evaluate the outcome of the ADR proceedings and decide whether to pursue the appeal or not. However, under the
substituted provisions, the appeal is proposed to be withdrawn before the ADRC takes up the matter for decision. The
law makers are therefore, urged to make the order of the ADRC binding on FBR and not on the aggrieved person.

It appears to be a typo error in the time period prescribed for deciding the dispute which may be clarified in the Finance
Act.

23. Amendments in First and Fifth Schedule

 To boost exports and to secure domestic manufacturing sector, duties on more than 1,600 tariff entries are
proposed to be exempted or reduced which includes raw materials and intermediaries goods for textile and paper
sector, wooden furniture, home appliances industry, solar penal assemblers, chemical industry, pharma industry
etc.

 Duty on import of LNG is proposed to be levied at the rate of five percent.

 Additional custom duty on non-essential and luxury items are proposed to be enhanced.

 Regulatory duty on mobile phones and tyres are proposed to be reduced.

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