Budget Briefing 2015 EY PDF

Ernst & Young Ford Rhodes Sidat Hyder
BUDGET BRIEFING
2015
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

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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 This should not be published in any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 Firms consent. This is not an
exhaustive treatise as it sets out interpretation of only the
significant amendments proposed by the Finance Bill, 2015
(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. The Repealed Ordinance means the
Income Tax Ordinance, 1979 since repealed. The Board
means the Federal Board of Revenue, Government of
Pakistan.
The amendments proposed by the Bill after having been

enacted as the Finance Act, 2015, shall, with or without
modification, become effective from the tax year 2016,
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.
Changes of consequential, administrative, procedural or

editorial in nature have either been excluded from these
comments or otherwise dealt with briefly.
Contents
Highlights
Income Tax
Page
i - ii
1 29
Sales Tax
31 43
Customs
45 48
Federal Excise
49 - 54
KARACHI: 06 June 2015
Highlights
Income Tax
A public company deriving profit for the year and

having reserves in excess of hundred percent of its
paid up capital is now further taxable on such
excess reserves at the rate of ten percent.
However, a scheduled bank, a modaraba and a
government owned public company are not
chargeable to such tax.
A one-time super tax @ 4% of income of banking
companies and 3% of income of Rs.500 million or
more has been proposed to be levied on all persons
for the tax year 2015 invariably on all types of
income whether taxable under the normal law or
under the Final Tax Regime (FTR).
Capital gain on securities that are held for a period
less than 4 years are proposed to be taxed based
on the following holding period of securities and
rates
Holding period
Less than 12 months
12 months or more but less
than 24 months
than 48 months
Tax year
2015
2016
12.5%
15%
10%
12.5%
0%
7.5%
Profit on debt derived by all taxpayers is now

taxable as a separate block of income at
progressive slab rates of ten, twelve and half and
fifteen percent applicable on gross amount of
profit on debt.
Tax credit available to a company on its enlistment
on a registered stock exchange is proposed to be
enhanced from 15% to 20% of the tax payable.
Like banking companies, other companies and
AOPs are proposed to estimate the advance tax
before the second instalment is due in cases where
higher income and tax payable is anticipated. 50%
of the estimated advance tax is required to be paid
in the second quarter and balance in remaining
quarters.
A tax credit of 1% of tax payable, for every 50
employees employed by a newly established
industrial undertaking shall be allowed for 10
years. The maximum credit is allowed upto 10% of
tax payable.
The eligible threshold of admissible investment in
shares and premium on life insurance for claim of
tax credit is proposed to be enhanced from Rs.1
million to Rs.1.5 million
Instead of tax credit on profit on debt paid on a
housing loan, the Bill proposes to allow deductible
allowance with reference to profit on debt paid on
a housing loan for the purpose of construction of a
new house or acquisition of a house.
Exporters are to be given an option to opt out of

the final tax regime and pay tax on normal basis
but the tax deducted will be treated as minimum
tax.
CNIC issued by NADRA to be treated as NTN
effective from the tax year 2015.
Non-filers are proposed to subject to collection of
tax @ 0.6% on all banking transactions where the
value of transactions in a day exceeds Rs.50,000.
The Bill proposes to enact provisions enabling
automatic exchange of information by the
Government with other countries.
Rate of tax on dividend increased from 10% to
12.5%
The due date of payment of tax demand is
proposed to be enhanced from 15 days to 30 days.
Moreover, the Commissioner (Appeals) has been
empowered to grant stay from recovery of tax
demand for a period of 60 days instead of 30 days
at present.
Remittance of education and related expenses
abroad is proposed to be subject to collection of
tax @ 5%
Concept of Special Audit Panels comprising
officers of Inland Revenue and professionals
introduced.
Automatic selection for audit of such retailers
proposed who do not file their returns or pay tax
as per the conditions prescribed.
Whistleblower who reports concealment to be
rewarded. Amendments made on the following tax
laws for this purpose:
Income Tax Ordinance, 2001

Sales Tax Act, 1990
Federal Excise Act, 2005
Single rate of tax for banking companies on

dividend income and capital gain of 35% is
proposed
Application of minimum tax on builders has been
deferred until 30 June 2018.
Minimum tax on land developers has been levied at
the rate of two percent of the value of land notified
by any authority for the purpose of stamp duty.
Payments to resident persons for use of machinery
and equipment is proposed to be subject to
withholding tax @ 10%
Board no longer empowered to exempt goods or
person from collection of tax at import stage.
Manufacturers of cooking oil and vegetable ghee
subject to final tax at the rate of two percent on
purchase of locally produced edible oil.
Commissioner empowered to issue reduced/nil
withholding tax certificate to a permanent
establishment of a non-resident person.
ii
Highlights
Scope of collection of advance tax on private

motor vehicles has been expanded. The term
motor vehicle has also been defined.
Collection of advance tax also required in respect
of internet bills and prepaid card for internet.
Wholesalers of specified goods now exposed to
collection of advance tax by manufacturers,
wholesaler, dealers and distributers.
Exemption from collection of tax under Chapter-XII
(transitional advance tax provisions) as available to
various persons have been consolidated under a
single section for ease of reference.
The rate of default surcharge in respect of various
non-compliances has been reduced from eighteen
percent to twelve percent.
Penalties for non-filing of statement in respect of
income governed by the final tax regime,
withholding statements, furnishing of information
by banks and wealth statements have been
amended.
Rate of compensation for delayed refund reduced
from fifteen percent per annum to KIBOR plus zero
point five percent per annum.
-Fifth Schedule
-Sixth Schedule
-Eighth Schedule
-Ninth Schedule
Customs
Sales Tax
Certain amendments made in the definitions of

Active taxpayer, Cottage Industry, Retailer and
Supply.
Rate of further tax enhanced from 1% to 2%.
Custom Authorities empowered to recover short
payments or non-payments of sales tax at import
stage
Manner of claiming input tax adjustment on import
rationalized
Disallowance of input tax scope enhanced
Joint or several liability for unpaid sales tax
amount in the supply chain.
Withdrawal of boards power to grant exemption
except for emergency situation Now such
exemptions would stands rescinded at the close of
the financial year.
Extended requirement of registration under the
Act.
Special audit panel to conduct audit
Certain amendments made in offences and
penalties
Monitoring or tracking of production, sales,
clearance, stocks etc. through electronic or other
means.
Agreements for the exchange of information with
provincial or foreign governments.
Prize scheme to promote tax culture

Certain amendments in the following Schedules:
Withdrawal of Boards power to grant exemption

from customs except for emergency situations.
Now such exemptions would stand rescinded at the
close of the financial year.
Enhancement of lower limit of recovery of short
paid custom duty amount enhanced to Rs.20,000.
Clarification on transshipment of goods to other
destinations.
Penalty exceeding Rs.50,000/- specified for not
sending invoice with the goods
Rates of custom duty enhanced from 1% to 2% and
25% to 20% to the First Schedule.
Fifth Schedule to the Customs Act relating to
imports of plant and machinery with certain
substitution of entries and rates of duty related
thereto.
Federal Excise
Powers of the Board granting exemption from the levy

of FED are proposed to be withdrawn
Federal Government is now only empowered to
exempt good or services from the levy of FED subject
to the approval of Economic Coordination Committee
Commissioner to pass orders under section 35 of the
FE Act, upon receipt of an application from the
aggrieved person in addition to taking suo moto action
Board to appoint special audit panels for conducting
audit
Federal Government to enter into bilateral or
multilateral agreements with provincial governments
or with governments of foreign countries for exchange
of information
Confidentiality to be maintained by Public Servants in
respect of information received under any provision of
the Act or in pursuance to a bilateral or multilateral
agreements
Rate of duty on aerated waters enhanced
Rate of duty on locally manufactured cigarettes
modified
Duty on filter rod for cigarettes levied
Withdrawal of duty on socio-economic routes
Exemptions from levy of duty as available through
various notifications / SROs has been rationalized and
is now proposed to be included in the Third Schedule
Table of Contents
INCOME-TAX
1.
2.
3.
4.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Excess reserves of public company to suffer tax

Super tax for rehabilitation of temporary displaced persons
Capital gain on disposal of securities
Exemptions and tax concessions - Second Schedule
Profit on debt now taxable as a separate block for all taxpayers,
including companies
Commissioner empowered to issue reduced/nil withholding tax
certificate to a permanent establishment of a non-resident
Tax credit on industrial investments
Tax credit for enlistment
Tax credit for industrial undertakings
Advance payment of tax
Tax credit for employment generation by manufacturers
Tax credit for investment in shares and life insurance premium paid
Deductible allowance for profit on debt
Exports
Taxpayers registration
Advance tax on banking transaction otherwise than through cash
17.
Collection and exchange of information
18.
19.
20.
21.
Dividend paid by non-resident companies

Revision of return
Grant of stay by Commissioner (Appeals)
Due date for payment of tax demand
22.
Withholding tax on services rendered by companies
23.
24.
Payment to residents for use of machinery and equipment

Collection of tax on remittance of education expenses abroad
25.
Concept of whistleblower
26.
Collection of tax by Pakistan Mercantile Exchange Limited
27.
Audit
28.
29.
30.
Automatic selection for audit or retailers

Single rate of tax for all incomes of banking companies
Deductions against income from property
31.
Tax on shipping business carried on by resident person
32.
33.
34.
Tax credit for non-profit organizations

Minimum tax on builders
Minimum tax on land developers
Power of the Board to exempt goods from collection of income tax at
import stage withdrawn
Tax on local purchase of cooking oil or vegetable ghee
Reduction in the rate of default surcharge in case of failure to pay
tax collected or deducted
5.
6.
35.
36.
37.
Section
Page
5(A)
4B
37A, Fourth Schedule
53 and 159
5
5
6
6
7B and 151
Sub-section (4A) of 152
65
65C
65E
147
64B
62
64A
154
181
236P
107 sub-section (1), (1A)
and (1B) 165B
94 and the First Schedule
114
128
137
153, Clause (79), Part IV,
Second Schedule
236Q
236R
7
7
7
8
8
8
8
9
9
9
10
10
10
10
11
11
11
11
227B
11
236T
121, 176, 177, 210 and
211
214D
Seventh Schedule
15A
7A and Clause (21) of
Part II of the Second
Schedule
100C
113A
113B
12
148
14
148A, 169
14
Sub-section (1B) of 161
14
12
13
13
13
14
14
14
14
Table of Contents
38.
39.
40.
41.
42.
43.
Advance tax on private motor vehicles

Tax on motor vehicles
Advance tax on telephone and internet user
Advance tax on purchase of domestic air tickets
Advance tax on sale or transfer of immovable property
Advance tax on sale to retailers and wholesalers
44.
Collection of advance tax by educational intuitions
45.
46.
47.
48.
49.
50.
51.
52.
Advance tax on purchase or transfer of immovable property

Advance tax under Chapter XII
Default surcharge
Additional payment for delayed refunds
Offences and penalties
Prosecution for making false or misleading statements
Income Tax Authorities
Dividend in specie
231B
234
236
236B
236C
236H
236I & Clause 89 to PartIV of Second Schedule
236K
236O
205
171
182
195
207
236S
14
15
15
15
15
15
15
16
16
16
16
16
16
16
17
FIRST SCHEDULE
Page
53.
Rates of tax for individuals and Association of Persons
18
54.
Association of Persons
18
55.
Tax Year
18
56.
Salaried taxpayer
18
57.
Reduction in tax liability
18
58.
Rates of tax for companies
19
59.
Rate of Super tax for rehabilitation of temporarily displaced persons
19
60.
Rate of tax on dividend income
19
61.
Rate of tax on profit on debt
19
62.
Rate of tax on capital gains on securities
19
63.
Rate of tax on capital gain on immovable property
20
64.
Minimum Tax
20
65.
Advance tax on imports
20
66.
Advance tax on dividends
21
67.
Advance tax on profit on debt
21
68.
Advance Income tax on payment to non-residents
21
69.
Advance income tax on payment to resident on payment for goods

and services
21
70.
Collection of advance income tax on petroleum products
21
Table of Contents
Page
71.
Collection of advance income tax on Brokerage and Commission
21
72.
Collection of advance income tax on goods transport vehicles
22
73.
Collection of advance income tax on passenger transport vehicles
22
74.
Collection of advance income tax on private motor vehicles
22
75.
Motor Vehicle tax when collected in lump sum
22
76.
Advance tax on electricity consumption
22
77.
Advance tax on telephone users
22
78.
Advance tax on cash withdrawal
22
79.
Advance tax on transaction in bank
22
80.
Advance tax on purchase, registration and transfer for motor

vehicles
22
81.
Advance tax on sale to distributors, dealers or wholesalers
23
82.
Advance tax on domestic electricity consumption
23
83.
Advance tax on international air ticket
23
84.
Advance tax on Banking transactions otherwise than through cash
23
85.
Rate of collection of tax by Pakistan Mercantile Exchange Limited
23
86.
Advance tax on the payment to residents for use of machinery and

equipment
23
87.
Collection of Advance tax on remittance of educational expenses
23
THE SECOND SCHEDULE

PART-I
Clause
Page
(103A)
24
20, 113 and 126F
24
88.
Exemption to Inter-corporate Dividend
89.
Deletions
90.
Tax credit in respect of donations to The Indus Hospital, Karachi
(61)
24
91.
Exemption to The Indus Hospital, Karachi
(66)
25
92.
Sale of immoveable property to a REIT Scheme
93.
Exemption to the income derived by China Overseas Port Holding

Company Limited
(126A)
25
94.
Income of Manufacturer of certain Plant, Machinery & Equipment
(126I)
25
95.
Income of Warehousing or Cold Chain facilities
(126J)
25
96.
Income from operating Halal Meat production
(126K)
25
97.
Income from industrial undertaking set-up in KPK
(126L)
25
(99A)
25
Table of Contents
Clause
Page
(126M)
25
98.
Income from Transmission Line Project
99.
Exemption to LNG Terminal Operators and Terminal Owners
(141)
26
100.
Exemption to income from social security contribution
(142)
26
Clause
Page
13C, 14, 14A, 14B and

21
26
Clause
Page
(11A) (iv)
26
(11A), (xviii)
26
(11A), (xix) & (11D)
27
(11A), (xx)
27
(11A), (xxi)
27
(11A), (xxii), (xxiii), (xxiv)

& (xxv)
27
(16A)
27
PART-II
101.
Deletions
PART-IV
102.
Exemption from minimum tax to KAPCO
103.
Coal Mining Project in Sindh Exemption from minimum tax
104.
105.
Exemption from minimum tax and alternate corporate tax to LNG

Terminal Operators and Terminal Owners
Exemption from minimum tax for businesses in KPT, FATA & PATA
106.
Rice Mills Exemption from minimum tax for the tax year 2015
107.
Exemption from minimum tax
108.
Exemption from withholding of tax for advertisement services
109.
Exemption from withholding of tax while making payment to PE of a

non-resident E&P companies
(46)
27
110.
Exemption from payment of tax at import stage under Section 148
(56)
28
111.
Deletion
28
112.
Large Trading Houses
56B, 56H, 59 sub-clause

(iii), 72A and 83
(57)
113.
Deduction of tax from cash withdrawal by exchange companies
(61A) and (28B) of Part-II
29
114.
Exemption from invocation of Section 111
(86)
29
115.
Collection of advance tax on functions and gathering
(90)
29
116.
Exemption from payment of tax at import stage under Section 148
(91) & (92)
29
117.
Exemption from collection of tax on exports
(93)
29
28
Income Tax
1.
the manner of drafting of the proposed section, there

may be multiple tax charges on the same reserves
which have not been paid out in subsequent years.
This arises because the proposed section does not
charge tax on the additional reserves arising during
the year but instead levies a charge on the entire
amount in excess of hundred percent of paid up
capital.
Excess reserves of public company to suffer tax

Section 5(A)
It may be recalled that excess reserves of a public
company were earlier taxed vide introduction of sub
section (9A) of Section 12 of the Repealed Ordinance
by the Finance Act, 1999. The said provision remained
applicable till 30 June 2002 but was not made part of
the Ordinance, effective from 01 July 2002. The Bill
now seeks to reintroduce taxation of excess reserves
by proposing insertion of Section 5A in the Ordinance.
The proposed insertion of Section 5A in the Ordinance

would tend to slow down growth of corporate
businesses as the profits instead of being reinvested in
the business would be distributed among the
shareholders due to imposition of the suggested tax
on excess reserves. It is perhaps for this reason that
the said provision when originally introduced in the
repealed Ordinance was not included in the Ordinance.
By virtue of the proposed amendment, tax shall be

imposed on a public company that derives profits for a
tax year but does not distribute cash dividends within
six months of the end of the said tax year or distribute
dividends to such an extent that its reserves are in
excess of hundred percent of its paid-up capital.
2.
By implication therefore, it would mean that a loss
making company in any income year shall not be
exposed to this additional imposition even if its
reserves exceed the stipulated limit of hundred
percent.
Tax shall be charged at the rate of ten percent of so
much of the reserves as exceed hundred percent of
the companys paid-up capital.
The Bill proposes a proviso to sub section (1) of
Section 5A whereby for tax year 2015, cash dividends
may be distributed before the due date for filing of the
return for tax year 2015. Although if enacted, the
proposed section would be effective from the tax year
2016, it appears from the proviso that retrospective
effect for tax year 2015 may also be envisaged.
Sub section (3) of the proposed Section 5A defines the
term reserves which includes amounts set-aside out
of revenue or other surpluses excluding capital
reserves, share premium reserves and reserves
required to be created under any law, rules or
regulations.
Super tax for rehabilitation of temporary displaced

persons
Section 4B
A one-time super tax has been proposed to be levied
on all persons for the tax year 2015 invariably on all
types of income whether taxable under the normal law
or under the Final Tax Regime (FTR). To remove any
sort of ambiguity, it has been stated that the super-tax
will apply to income from all sources and on all
persons including income of insurance companies, oil
and gas and mineral companies, banking companies
and on capital gains of listed securities.
Corresponding amendments have also been proposed
in the Fourth, Fifth, Seventh and Eight Schedules to
the Ordinance to provide for applicability of section 4B
to incomes falling in the respective Schedules.
For charging super-tax on such persons who are
subjected to tax under FTR, the concept of imputable
income has been reintroduced which has been defined
through insertion of Clause (28A) in section 2 of the
Ordinance.
The super tax is proposed to be charged as follows
This section shall not apply to a public company being

a scheduled bank, modaraba or a public company in
which fifty percent or more shares are held by the
Government.
It should be noted that the proposed section aims to
levy a charge on income which has already been
subject to corporate tax as part of the companys
profit for the year. Hence the proposed section, in
effect, creates a double tax on the companys income;
first on the companys profits through the provision of
normal taxation and then again as part of its reserves.
Furthermore, it should be observed that on account of
Banking company
4% of income
Person other than a banking

company having income equal
to or exceeding Rs.500 million
3% of income
The super tax is required to be paid at the time of

filing the return of income and in case it is not paid,
the Commissioner is empowered to collect the same
by passing an order in writing.
Income Tax
3.
The Bill proposes to takeaway the discretion available

to the Federal Government and thus relocate the
authority of granting exemptions or concessions to the
legislature i.e. the Parliament.
Capital gain on disposal of securities

Section 37A, Fourth Schedule
Presently gain on disposal of securities is taxable
where the security is held for a period less than 2
years.
However the Federal Government, subject to approval

of the ECC of the Cabinet, can still amend the Second
Schedule if the following circumstances exist
The Bill now seeks to tax capital gain on securities that

are held for a period less than 4 years. Rates of tax
based on the holding period of securities are
Holding period
Less than 12 months
than 24 months
than 4 years
Tax year
2015
2016
12.5%
15%
10%
12.5%
0%
7.5%
Corresponding amendments have also been made in

the Fourth Schedule to the Ordinance to amend the
capital gain tax rates in line with the above.
Similarly, the Bill proposes to withdraw the powers of

the Board available under section 159 to amend the
rates of withholding tax, exempt persons, classes of
persons, goods or classes of goods form withholding
tax under the Ordinance.
The Bill further seeks to provide that if a company

holds a debt security and derives any capital gain on
its disposal, such gain shall be chargeable to tax at the
applicable corporate tax rate.
5.
The Bill also proposes that a mutual fund or a
collective investment scheme or a REIT scheme would
be required to deduct capital gain tax on redemption
of securities in the following manner
Category
Individuals and AOP
Company
Filer
10%
10% for stock
funds
25% for others
Non-filer
17.5%
25%
It is further provided that where dividend receipts of a

stock are less than capital gains, the rate of tax
deduction would be 12.5%.
4.
Exemptions and tax concessions - Second Schedule

Sections 53 and 159
Presently the Federal Government is empowered to
amend the Second Schedule to the Ordinance in order
to provide or takeaway exemptions and tax
concessions or to provide conditions in respect
thereof. Such powers are exercised by the Board
under delegated authority of the Federal Government
which at times is criticized by certain quarters on the
touchstone of discretion exercised by the Federal
Government.
national security issues

natural disaster
national food security in emergency
situations
protection of national economic interests in
situations owing to abnormal fluctuation in
international commodity prices
removal of anomalies in taxes
development of backward areas
implementation of bilateral/ multilateral
agreements
Profit on debt now taxable as a separate block for all

taxpayers, including companies
Section 7B and Section 151
As per Section 151 of the Ordinance, profit/yield on
certain categories of debt is subject to withholding tax
at the gross amount, after deduction of zakat. The tax
deducted under this section is generally construed as
a final discharge of tax liability for all categories of
taxpayers, other than companies.
The Bill proposes to introduce a separate scheme of
taxation in respect of profit on debt derived by all
categories of taxpayers, including corporate
taxpayers. Such profit on debt, is to be taxed through
the newly proposed Section 7B at the following rates:
S.No
Profit on Debt
Rate of Tax
(1)
1
(2)
Where profit on debt does
not exceed Rs.25,000,000
Where profit on debt
exceeds
Rs.25,000,000 but does
not exceed Rs.50,000,000
Where profit on debt
exceeds
Rs.50,000,000
(3)
10%
2,500,000 + 12.5%
of the amount
exceeding
Rs.25,000,000
Rs.5,625,000 + 15%
of the amount
exceeding
Rs.50,000,000
Income Tax
Consequently, it would appear that the tax deducted

under Section 151 will be adjustable against the tax
determined pursuant to the proposed Section 7B.
7.
Sections 65B, 65D and 65E provide tax credit for

industrial investment against the tax payable by an
industrial undertaking including on account of
minimum tax and final tax payable under the
Ordinance. The claim of tax credits against the tax
liability under FTR was disputed by the tax authorities
on the premise that section 169 provides that no tax
credits are available against taxes impose under FTR.
However, subsequently the FBR issued a clarification
that the tax credit being specific is allowable against
FTR.
The amendments proposed by the Bill in respect of

profit on debt would be welcomed by the corporate
sector, which is currently taxable at the applicable
corporate tax rates. However, under the proposed
amendments, companies would no longer be able to
allocate expenses against its interest income.
Amendments rationalizing the proposed insertion of
Section 7B have also been suggested in the provisions
of Section 151. However, in the proposed
amendments to the provisions of Section 151
reference has inadvertently been made to Section 5A
(tax on excess reserves) instead of Section 7B.
6.
In order to remove any ambiguity, a new sub section

(6) is proposed to be inserted in section 65 that
provides general guidance with regard to claim of tax
credits. The proposed amendment seeks to provide
that in case of tax credits under section 65B, 65D and
65E, the restriction of non-allowance of tax credit
under section 169 that treats the tax withheld under
various provisions of the Ordinance as a final tax will
not be applicable.
Commissioner empowered to issue reduced/nil

withholding tax certificate to a permanent
establishment of a non-resident
Sub-section (4A) of Section 152
It would be recalled that previously, payments for
goods and services made to a Permanent
Establishment (PE) of a non-resident person were
captured within the ambit of Section 153. The
provisions of Section 153(4) permit the Commissioner
to issue a nil or reduced withholding certificate in
certain specific circumstances.
Pursuant to the amendments made by the Finance
Act, 2012, the withholding requirements on payments
made to a PE of a non-resident person were
transferred to Section 152. However, no
corresponding powers were given to the
Commissioner in respect of providing a nil or reduced
withholding certificate in respect of such payments.
Therefore, presently, PEs of non-resident persons,
which have already paid sufficient taxes or have
significant brought forward losses, cannot obtain a nil
or reduced withholding tax certificate since the same
cannot be issued in such circumstances under Section
159, and no other powers exist for the provision of
such a certificate. This has resulted in significant
financial burdens for such taxpayer.
In order to address the above issues, the Bill now
proposes to introduce sub section (4A) in Section 152
which confers powers to the Commissioner to provide
nil or reduced withholding tax certificates in
appropriate circumstances to PEs of non-resident
persons.
Tax credit on industrial investments

Section 65
The Bill also seeks to provide that the condition for

charge of minimum tax under Clause (d) of sub section
(1) of section 113 i.e. due to applicability of tax
credits to a taxpayer shall not apply, in case of tax
credits for industrial investment availed under the
above referred sections. Accordingly, such taxpayer
will not be liable to pay minimum tax under section
113 of the Ordinance.
8.
Tax credit for enlistment

Section 65C
Presently, a company is allowed a tax credit equal to
15% of the tax payable for the tax year in which the
company is enlisted on a registered stock exchange in
Pakistan.
The Bill proposes to enhanced the tax credit from 15%
to 20% of the tax payable.
9.
Tax credit for industrial undertakings

Section 65E
The existing provisions allow a tax credit to a company
setup in Pakistan before 1 July 2011 which invests
any amount with 100% new equity raised through
issuance of new shares, in the purchase and
installation of plant and machinery for an industrial
undertaking including corporate dairy farming for the
purpose of expansion of the existing plant and
machinery installed or undertaking a new project. This
Income Tax
is however subject to certain conditions to be met by

the company.
The tax credit admissible against the tax payable of
the tax year in which the plant or machinery is
installed and for the subsequent 4 years.
The Bill proposes to allow the tax credit for a period of
5 years beginning from the date of setting up on
commencement of commercial production from the
new plant or expansion project whichever is later.
10. Advance payment of tax
Section 147
Presently a company or an AOP is required to pay
advance tax in 4 equal instalments on a quarterly
basis. Where they estimate that the tax payable for
the relevant tax year is likely to be more than the
amount based on latest assessed income and tax
liability they can make an estimate at any time before
the last instalment is due and pay the advance tax
accordingly.
The Bill now seeks to require the above taxpayers to
estimate the tax payable for the relevant tax year at
any time before the second instalment is due i.e. even
before completion of half year after such estimation.
The proposed amendment requires payment of 50% of
the estimated advance tax by the due date of the
second quarter of the relevant tax year . The
remaining 50% is required to be paid in the 3 rd and 4th
instalments.
11. Tax credit for employment generation by
manufacturers
Section 64B
A new tax credit is proposed to be introduced whereby
a taxpayer being a company set up a new
manufacturing unit between 1 July 2015 to 30 June
2018. The tax credit will be available for a period of
10 years at the rate of 1% for every 50 employees
registered with EOBI and Employee Social Security
Institution of the provincial government during a tax
year subject to the following conditions
A new company is incorporated in Pakistan

and manufacturing unit is setup between 1
July 2015 and 30 June 2018
Employs more than 50 employees in a tax

year and get them registered with EOBI and
Employee Social Security Institution of the
provincial government
The manufacturing unit is not established by

the splitting up or reconstruction of an
undertaking already in existence or by

transfer of machinery or plant from an
existing undertaking
It is further provided that the manufacturing unit shall
be treated to have been setup on the date on which
the manufacturing unit is ready to go into either trial
or commercial production.
12. Tax credit for investment in shares and life insurance
premium paid
Section 62
This section provides for tax credit to encourage
investment in shares and life insurance by a resident
person other than a company. A tax credit in the ratio
of a persons assessed tax to the persons taxable
income in a tax year is presently allowed upto lessor of
the cost of acquiring the shares/ premium paid or
20% of the persons taxable income for the year or
Rs.1 million.
The Bill now seeks to enhance the limit of Rs.1 million
to Rs.1.5 million.
13. Deductible allowance for profit on debt
Section 64A
Presently a person is entitled to a tax credit in respect
of any profit or share in rent/ share in appreciation for
value of house which is paid on a loan given by a bank
or NBFI or by government or local government or a
public company listed on the stock exchange. The tax
credit is available if the loan is utilized for construction
of a new house or acquisition of house. The tax credit
is presently available at the average rate of tax of the
person on the lessor of the total amount paid or 50%
of the persons taxable income for the year or
Rs.750,000.
The Bill seeks to omit section 64 and insert a new
section 64A in the same Part X of Chapter III which
deals with tax credits. Although this section caters to
almost the same benefit on the amount paid for the
purpose of construction a new house or acquisition of
a house, however, instead of allowing a tax credit, the
proposed section seeks to allow a deductible
allowance to the individual. All other aspects and
threshold for eligibility remain the same as discussed
above except that the ceiling of Rs.750,000 is
proposed to be enhanced to Rs.1 million. It needs to
be appreciated that effectively, the benefit to the
taxpayer is enhanced as per the proposed amendment
since section 64 which is now proposed to be omitted
provided for a tax credit at the average rate of tax
whilst the deduction from income would reduce the tax
at the top rate applicable to the individual.
Income Tax
It is however, suggested that the new section 64A be

placed in Part IX of Chapter III which is meant for
deductible allowances.
14. Exports
Section 154
Presently the tax deductible on proceeds of an
exporter or an indenting commission agent and
payments by a direct exporter to an indirect exporter
is considered final tax on such transactions.
The Bill now seeks to provide an irrevocable option to
such person to opt out of final taxation at the time of
filing the return. However, the option suggests that
the tax deducted under this section shall be treated as
minimum tax instead of a final tax of the person opting
out of FTR.
This effectively means that the taxpayer so opting out
could be taxed at normal tax rate based on his profits
and the tax so deducted would be adjustable against
his ultimate tax liability. However, it needs to be
appreciated that in case the tax liability works out to
less than the amount of tax withheld, then in such a
case the tax withheld will be considered as minimum
tax liability.
It appears that the exporters will not opt out of FTR
for the following reasons
(a) The exporter is still required to pay the amount of
tax withheld which will be treated as minimum tax
and therefore he will not benefit from opting out
of FTR.
(b) It should be noted that the current rate of
minimum tax under section 113 is also 1% for all
taxpayers except for certain classes of persons
that have been allowed a reduced rate of less than
1%. Therefore, unless a reduce rate of minimum
tax is provided in section 113 for exporters, there
would not be any benefit of opting out of FTR.
15. Taxpayers registration
Section 181
The government is keen to broaden the tax base by
increasing the number of taxpayers which is
insignificant considering the countrys population and
as a result, the tax to GDP ratio is not at the desired
level.
The Bill proposes to adopt, effective tax year 2015, in
the case of individuals, Computerized National Identity
Cards issued by the National Database and
Registration Authority as NTN. This would mean that
every CNIC holder would become NTN holder

regardless of the fact whether he has taxable income
or not. Accordingly, such an individual will be required
to file a tax return since under section 114 of the
Ordinance, the requirement of filing a return of
income is also on a person who has obtained NTN.
16. Advance tax on banking transaction otherwise than
through cash
Section 236P
In order to enhance the incidence of taxation on nonfilers using the banking system, the non-cash Banking
transaction of such persons are now also proposed to
be exposed to collection of tax @ 0.6% at the time of
issuing
Demand draft
Pay order
Special deposit receipt
Cash deposit receipts
Short term deposit receipts
Call deposits receipts
Rupees traveler cheque
Sale of any instrument
It is further proposed that tax may be collected from

non-filers on transfer of any sum through
Cheque or clearing
Interbank or intra bank transfers through
cheques
Online transfer
Telegraphic transfer
Mail transfer
Direct debit
Payment through internet
Payment through mobile phone
Account to account fund transfer
Third party account to account fund transfer
Real time account to account fund transfer
Real time third party account fund transfer
Automated teller machine (ATM) transfers
Any other mode of electronic or paper base
transfer
The tax is required to be collected @ 0.6% on the total

payments for all transactions above exceeding
Rs.50,000 in a day.
It is further proposed that tax will not be collected in
the case of Pakistan Real-time Interbank Settlement
Mechanism (PRISM) or to payments made for federal,
provincial and local government tax.
10
Income Tax
17. Collection and exchange of information

Section 107 sub section (1), (1A) and (1B)
Section 165B
The past few years have seen a concentrated global
initiative towards information sharing and exchange
for the purposes of combating tax evasion and
avoidance. The precursor to this initiative was the
Foreign Account Tax Compliance Act (FATCA),
introduced by the United States of America and aimed
at disclosure of information by foreign financial
institutions (FFIs) and other financial intermediaries
with a view to prevent tax evasion by US citizens and
residents through use of offshore accounts.
Following the success of FATCA, the Organization for
Economic Co-operation and Development (OECD)
developed Common Reporting Standard (CRS),
formally referred to as the Standard for Automatic
Exchange of Financial Account Information, an
information standard for the automatic exchange of
information (AEoI). On 6 May 2014, the OECD
Declaration on Automatic Exchange of Information in
Tax Matters was endorsed by 34 member countries
along with several nonmember countries. More than
65 jurisdictions publicly committed to implementation,
with more than 40 having committed to a specific and
ambitious timetable leading to the first AEoI by 2017.
In affirmation of this global trend, the Bill proposes to
amend Section 107 and introduce a new Section 165B
to deal with the powers of the revenue in respect of
exchange of financial information. The Bill proposes
that by virtue of Section 107, the Federal Government
may now also enter into agreements for the exchange
of information including AEoI. The Bill further
proposes to empower the Board to obtain and collect
information when solicited by another country under
such agreements.
The Bill also proposes to insert a new Section 165B
whereby every financial institution would be required
to provide information to the Board in respect of nonresident persons.
The information received under both the proposed
amendments may be used only for tax and related
purposes and is required to be kept confidential.
18. Dividend
Section 94 & the First Schedule
The rate of tax on dividends for all tax payers has been
increased from 10% to 12.5%. The reduced rate of tax
of 7.5% applicable to dividends paid by certain
specified companies remains unchanged.
Under the existing scheme of taxation, dividend

income derived by an investor, whether from a
resident company or a foreign company, is taxable on
the gross amount in accordance with Section 5.
However, Section 94, while dealing with the principles
of taxation of companies provides that dividends
received from a resident company will be taxed in
accordance with Section 5 whereas dividends received
from a foreign company will be taxed either under the
head income from business or income from other
sources. Therefore, there was a conflict between the
provisions of Section 5 and Section 94 vis--vis
dividend income derived by a resident person from
foreign companies.
The Bill proposes to rationalize the provisions of
Section 94 with the existing scheme of taxation under
Section 5 by omitting the word resident in sub
section (2). However, the provisions of sub section (3),
dealing with dividends paid by foreign companies,
have still not been omitted. Although taxability of
dividend income would still ultimately be governed by
Section 5, a conflict between the various provisions
will continue to exist until sub section (3) of Section
94 is also omitted.
19. Revision of return
Section 114
Section 114 specifies the persons who are obliged to
file a return of income for a tax year and the mode and
manner in which the return is to be filed. The section
also authorizes revision of a return already filed in
certain circumstances subject to certain conditions.
One such condition recently prescribed is obtaining
approval of the Commissioner in order for a return to
be revised.
The Bill now proposes that where a return of income is
revised within 60 days of its filing, the condition of
obtaining prior approval from the Commissioner will
not be applicable.
20. Grant of stay by Commissioner (Appeals)
Section 128
The Commissioner (Appeals) is empowered to grant
stay from recovery of tax demand to a taxpayer for an
aggregate period not exceeding 30 days. It is
experienced that in certain cases while the stay was
granted, the appeal remained undecided beyond 30
days in which case the taxpayers had to approach the
Appellate Tribunal or the High Court for further stay.
The Bill now proposes to grant powers to the
Commissioner (Appeals) to grant stay from recovery
of tax demand for a further period of 30 days subject
11
Income Tax
to the condition that the appeal shall be decided within

the extended period of 30 days.
21. Due date for payment of tax demand
Section 137
Under the Income Tax Ordinance, 1979 (since
repealed) as well as when the Ordinance was
promulgated, 30 days time was provided for payment
of tax demand arising from an order passed by the tax
authorities, from the date the order was
communicated to the taxpayer. The Finance Act, 2008
shortened the period of 30 days to 15 days.
The Bill now proposes to revert to the earlier position
whereby 30 days would be available for payment of
tax demand arising from an order passed by the tax
authorities.
22. Withholding tax on services rendered by companies
Section 153, Clause (79), Part IV, Second Schedule
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
was ambiguity on the interpretation of this provision
whereby applicability of such minimum tax on the
corporate sector was unclear. However, in the circular
issued by the Board on amendments introduced via
the Finance Act, 2009, it was clarified that tax
withheld from payments relating to services rendered
would only be considered minimum tax in case of noncorporate 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.
To clarify this position, the Bill now seeks to substitute
Clause (b) in the proviso to sub section (3) of section
153 to provide that in case of companies, the tax so
deducted is adjustable effective from the tax year
2009 and that in case of a person other than a
company, the tax so withheld will be a minimum tax.
Correspondingly, the Clause (79) ibid, is proposed to
be deleted.
23. Payment to residents for use of machinery and
equipment
Section 236Q
The provisions of the Ordinance at present, do not
specifically provide for withholding of tax from
payments to residents on account of hire of machinery
and/ or equipment. Accordingly, there have been
different views on withholding of tax from such
payments. Certain quarters are of the view that on
such payments tax is deductible under section

153(1)(b) i.e. on account of services rendered while
some are of the view that withholding of tax from such
payment is governed by section 153(1)(c) i.e. on
account of execution of contract.
The Bill proposes to insert a new section which
provides for withholding of tax @ 10% from payments
to a resident person for use of or right to use
industrial, commercial and scientific equipment as well
as on account of rent of machinery. It is further
proposed that the tax deducted under this section
shall be final tax of the person. The obligation to
withhold tax under this section has been proposed on
a prescribed person as per the definition given in
section 153(7) of the Ordinance.
24. Collection of tax on remittance of education
expenses abroad
Section 236R
The Bill proposes to insert a new section 236R
requiring collection of advance tax @ 5% on the
amount of education expenses remitted abroad.
Education expenses have been defined to include
tuition fee, boarding and lodging expenses, any
payment for distant learning to any institution or
university in a foreign country and any other expense
related or attributable to foreign education.
The obligation to collect tax from education related
expenses is on banks, financial institutions, foreign
exchange companies or any other person responsible
for remitting foreign currency from the payer of
education related expenses.
The tax collected under this section is proposed to be
advance tax which would be available for adjustment
against the tax liability of the payer of education
related expenses.
25. Concept of whistleblower
Section 227B
One of the biggest challenges that the current
government faces in improving economy of the
country is an alarmingly small tax base. It is
undoubtedly a bitter fact that even in this modern era
where the access of information is now more readily
available, there still remains a substantial revenue in
Pakistan which is outside the ambit of tax net. The
stakeholders i.e. the tax officials at the Federal
Government and tax professionals have been
struggling for years in devising methodologies
enabling people at large to pay their due taxes
voluntarily. However, unfortunately the level of
voluntary compliance is still negligible due to variety
12
Income Tax
of reasons including fear of harassment and

corruption.
In view of this backdrop, the Bill seeks to propose a
new concept of whistleblower in the following tax laws:
Income Tax Ordinance, 2001

Sales Tax Act, 1990
Federal Excise Act, 2005
The Bill defines whistleblower separately under each

of the above laws as a person who reports
concealment or evasion of tax/duty leading to
detection or collection of tax/duty, corruption or
misconduct, to the competent authority having power
to take action against the person or a income tax,
sales tax or federal excise authority committing fraud,
corruption, misconduct, or involved in concealment or
evasion of tax/duty.
With the introduction of the proposed new concept of
whistleblower, the Bill also proposes to add a new
section under the respective laws dealing with reward
to whistleblowers. It is proposed that Board may
sanction reward to whistleblowers in cases of
concealment or evasion of tax/duty, corruption or
misconduct providing credible information leading to
such detection of evasion of tax/duty.
It is proposed that the procedure for sanction of award
and its apportionment is to be notified in the official
Gazette by the Board.
It is also proposed that the claim of reward by the
whistleblower shall be rejected in the following
circumstances(a)
(b)
(c)
the information provided is of no value;

the Board already had the information;
the information was available in public records;
or
(d) no collection of duties is made from the
information provided from which the Board can
pay the reward.
26. Collection of tax by Pakistan Mercantile Exchange

Limited
Section 236T
The proposed Section 236T obliges PMEX to collect
tax @ 0.1% from its members (i) on purchase and sale
of futures commodity contracts, and (ii) ) on purchase
and sale of futures commodity contracts in lieu of tax
on the commission earned by such members. It is
proposed that the tax so collected shall be a minimum
tax. PMEX has been defined in the proposed Clause
(42A) of Section 2 of the Ordinance to mean Pakistan
Mercantile Exchange Limited a futures commodity
exchange company incorporated under the Companies

Ordinance, 1984 and is licensed and regulated by the
SECP.
27. Audit
Sections 121, 176, 177, 210 and 211
Under the existing provisions of Section 177, the
Board is inter-alia, empowered to appoint a firm of
Chartered Accountants or a firm of Cost and
Management Accountants to conduct tax audit of any
person or classes of person within the parameters as
determined by the Board.
The Bill now proposes to insert sub section (11) to
provide for appointment of special audit panels by the
Board for the purpose of conducting tax audit
including a forensic audit of a person or classes of
person within the parameters as determined by the
Board.
The special audit panels so appointed will comprise of
2 or more members among the following
(a) an officer or officers of Inland Revenue;
(b) a firm of Chartered Accountants;
(c) a firm of Cost and Management Accountants; or
(d) any other person as directed by the Board.
It is also proposed that the special audit panel will be
headed by a Chairman who will be an officer of Inland
Revenue. The officer or officers Inland Revenue being
members of the special audit panel (duly authorized by
the Commissioner) will be authorized to exercise the
power available under Section 175 and 176 of the
Ordinance for the purpose of conducting tax audit
under the proposed provisions. In case where the
person being audited fails to comply with the
requirements of the audit, best judgment assessment
can be framed under Section 121 of the Ordinance
against the person. It is further provided that if any
member of the special audit panel, other than the
Chairman is absent from the audit proceedings, the
audit may continue and such audit will not be invalid or
called in question due to absence of the member. It is
also proposed that functions performed during the
audit by an officer or officers of Inland Revenue as
members of special audit panel shall be treated to
have been performed by the special audit panel. The
Board will be authorized to prescribe the mode and
manner of constitution, procedure and working of the
special panel.
13
Income Tax
Corresponding amendments have also been proposed

in the following sections
(a) section 176 to provide for authorizing the
special audit panel to enter the business premises
of a taxpayer in order to obtain any information,
require production of any record and to exercise
the powers as are vested in a Court under the
Code of Civil Procedure, 1908
(b) section 210 - to provide for authorizing the
Commissioner to delegate to a special audit panel
or to a firm of Chartered Accountants or a firm of
Cost And Management Accountants to conduct
audit under section 177
(c) section 211 to provide for enabling the special
audit panel to exercise the powers as are available
to a Commissioner for conducting the audit.
Taking all the above amendments together it appears
that the Board has been empowered to constitute a
joint team of Inland Revenue Officers and
professionals and has given a framework of the
proposed special audit panel(s). However, yet again
the proposal fails to answer the lingering questions of
selection of cases. It is still unclear as to who is
authorized to select cases and assign them to the
special audit panel.
28. Automatic selection for audit of retailers
Section 214D
A new section is proposed to be inserted for selection
of cases for audit of retailers. It is proposed that
retailers who are registered under Rules (4) and (6) of
Sales Tax Special Procedures Rules, 2007 i.e. large
retailers either operating as unit of a national or
international chain of stores, operating an aircondition mall, retailer who has a credit and debit card
machine, retailer whose annual preceding electricity
bill exceeds Rs.600,000 and a wholesaler-cum-retailer
engaged in bulk import and other retailers who pay
sales tax on electricity bills. The aforesaid retailers a
proposed to be automatically selected for audit if they
do not fulfill the following conditions
(a) enlistment on the active taxpayer list in case of
large retailer registered under Rule (4)
(b) Complete return of income furnished within time
(c) The tax payable alongwith the return has been
duly paid
(d) 2% tax is paid under section 113 i.e. on turnover
basis in case of small retailer registered under
Rule (6) who files the return below taxable limit
and in the preceding tax year has either declared
income below taxable limit or not filed the return
(e) In case of small retailer who has declared taxable

income in previous year he must pay 25% higher
tax than the previous tax year
The proposed section provides that the scheme will
become effective from the date notified by the Board
in the official Gazette.
Based on past history where we understand that after
abolition of minimum tax on retailers, most of them
have not filed their returns, the conditions
enumerated above for avoiding an audit by retailers
seem to be tough and it would be difficult to assess
whether those retailers who are non-filers at present
would agree to file their returns.
29. Single rate of tax for all incomes of banking
companies
Seventh Schedule
At present, the Seventh Schedule applicable to banks
provides for taxation of dividend income and capital
gains at reduced rates of tax. Besides this, the Finance
Act, 2014 also introduced the concept of proration of
expenses between dividend income, capital gains and
income taxable at the full rate of tax.
The Bill now proposes to abolish the reduce rate of tax
on dividend income and capital gains. In line with these
proposed amendments, the provisions relating to
proration of expenses between different sources of
income have also been proposed to be abolished.
Consequently, income derived by a banking company
from all sources including dividend and capital gain is
proposed to be taxed @ 35%.
Consequent to proposed Section 4B introducing super
tax on certain taxpayer, amendments have also been
proposed in the Seventh Schedule to levy super tax on
banking companies @4%. It may be noted that unlike
the threshold of income of Rs.500 million for a tax
year for the purpose of levy of super tax on taxpayers
other than banking companies, there is no threshold
proposed in the Seventh Schedule.
30. Deductions against income from property
Section 15A
Section 15A provides for deductions in computing
income chargeable under the head income from
property. Presently a deduction not exceeding 6% of
the rent chargeable to tax in respect of property is
allowed on account of expenditure incurred for the
purpose of collecting rent. However, presently any
administrative expenses like salaries etc. incurred by
the owner of property are not explicitly deductible
against income from property.
14
Income Tax
The Bill now proposes to enhance the deduction

allowed to also cover expenses incurred including
administration expenses subject to the threshold of 6%
of rent chargeable to tax in respect of such property.
31. Tax on shipping business carried on by resident
person
Section 7A and Clause (21) of Part II of the Second
Schedule
Taxability of shipping business carried on by a resident
person is currently governed by as Clause (21) of Part
II of the Second Schedule of the Ordinance. The Bill
proposes to transfer the provision to the main text of
the Ordinance as a newly inserted Section 7A.
32. Tax credit for non-profit organizations
Section 100C
Section 100C deals with tax credits available to
welfare trust, charitable and non-profit organizations
on fulfilment of specified conditions. The Bill proposes
to make editorial amendments to the said section in
order to rationalize availability of tax credits.
33. Minimum tax on builders
Section 113A
The said section was introduced through the Finance
Act, 2013. In the Finance Bill, 2013, minimum tax at
the rate of Rs.25 per square foot as per the
construction or site plan had been proposed. However,
at the time of enactment, the rate of minimum tax was
not incorporated in the legislation and instead the rate
was deferred until notification in the official gazette.
To date we are not aware of any such notification that
may have been issued by the Federal Government.
The Bill now proposes insertion of sub section (3)
which states that the provisions of Section 113A shall
not be effective till 30 June 2018. It should be noted
that in the absence of a notification specifying the rate
of minimum tax, the existing provisions were, for all
practical purposes, not operational. Hence the
proposed amendment to the said section simply
appears to resolve the apprehension of builders in
respect of levy of minimum tax until 2018.
34. Minimum tax on land developers
Section 113B
The Finance Act, 2013 introduced the concept of
minimum tax on land developers. In the Finance Bill,
2013 minimum tax at the rate of Rs.50 per square
yard as per the layout or site plan had been proposed.
However, at the time of enactment, the rate of
minimum tax was not incorporated in the legislation
instead, the rate was deferred until notification in the

official gazette.
The Bill now proposes to levy minimum tax at the rate
of two percent of the value of land notified by any
authority for the purpose of stamp duty.
35. Power of the Board to exempt goods from collection
of income tax at import stage withdrawn
Section 148
Under the existing provision of Section 148, the Board
has the power to exempt certain goods or persons
from collection of income tax at the time of import.
The Bill now proposes to withdraw such power.
36. Tax on local purchase of cooking oil or vegetable
ghee
Section 148A, Section 169
The Bill seeks to introduce a new Section 148A
whereby the manufacturers of cooking oil or vegetable
ghee shall be chargeable to tax at the rate of two
percent on purchase of locally produced edible oil.
Such tax shall be final tax in respect of income
accruing from locally produced edible oil.
Being a final tax, corresponding amendment has also
been made in Section 169.
37. Reduction in the rate of default surcharge in case of
failure to pay tax collected or deducted
Sub-section (1B) of Section 161
Section 161 applies where a person fails to collect or
deduct tax as required under the Ordinance or where
having collected or deducted the tax fails to deposit
the same with the Government Treasury. This section
empowers the tax authorities to collect such tax from
the withholding agent by treating him as an assessee
in default under specific circumstances. The said
section also imposes a default surcharge on the
amount of tax not collected, deducted or paid at the
rate of eighteen percent. The Bill proposes to reduce
the rate of default surcharge payable by such a person
to twelve percent.
38. Advance tax on private motor vehicles
Section 231B
Presently, every manufacturer of motor car or jeep is
required to collect advance tax at the time of sale.
However, the Bill seeks to broaden the scope of
advance tax collection under this section by replacing
the words car or jeep with vehicle . As per the
proposed amendment motor vehicle includes car, jeep,
van, sports utility vehicle, pickup trucks, caravan
15
Income Tax
automobile, limousine, wagon or any other automobile

used for private use. The Bill also proposes to insert
the definition of the expression date of first
registration for different modes of acquisition of
vehicles.
39. Tax on motor vehicles
Section 234
Presently, any person collecting motor vehicles tax is
required to also collect advance tax on motor vehicles.
The word motor vehicle is not defined in the
Ordinance. The Bill has proposed to define the term
motor vehicle by making reference to the newly
proposed definition inserted through sub section (7) of
Section 231B.
40. Advance tax on telephone and internet user
Section 236
Presently, under Section 236 advance tax is collected
on telephone bill, prepaid card and sales of units
through electronic medium. Now the Bill seeks to
include internet bills and prepaid card for internet
within the ambit of this section. Tax is to be collected
at the rate of fourteen percent of the amount of bill.
41. Advance tax on purchase of domestic air tickets
Section 236B
Currently, advance tax on purchase of domestic air
tickets is collected under this Section irrespective of
flight routes. Now the Bill seeks to provide exemption
from collection of advance tax on purchase of
domestic air ticket for the following routes:
Baluchistan coastal belt

Azad Jammu and Kashmir
FATA
Gilgit-Baltistan and Chitral
Furthermore, the exemption available to Federal

Government, Provincial Government and the person
who produces certificate of exemption of income from
collection of advance tax under this section is
proposed to be deleted from this section but to be
consolidated in a newly proposed Section 236O.
42. Advance tax on sale or transfer of immovable
property
Section 236C
Currently, Federal Government, Provincial
Government and Local Government enjoy exemption
from collection of advance tax on sale or transfer of
immovable property under this Section. The
exemptions have now been proposed to be relocated
to Section 236O. However, the latter section does not

provide any exemption for the local government.
43. Advance tax on sale to retailers and wholesalers
Section 236H
Presently, every manufacturer, distributor, dealer,
wholesaler or commercial importer of various items
listed in this section including fertilizer are required to
collect advance tax on sale to a retailer. Now the Bill
seeks to exclude sales of fertilizer from collection of
advance tax under this section.
Furthermore, the Bill, in order to broaden the scope of
collection of advance tax under this section, proposes
to include sale to wholesalers along with sale to
retailers under this section. It should be noted that the
sale to wholesaler by manufacturers or commercial
importers of the specified items is already captured in
Section 236G. Hence the proposed amendments may
lead to double collection of advance tax from
wholesalers in case of sales made by manufacturers,
both under Sections 236G and 236H. If the intent of
the legislation is to broaden the collection of advance
tax by including sales to wholesalers made by
distributors and dealers, the law should be rationalized
by omitting wholesalers from the provisions of Section
236G to avoid double collection of tax from the
wholesalers.
44. Collection of advance tax by educational institutions
Section 236I & Clause 89 to Part-IV of Second
Schedule
Currently, as per Clause (89) of Part-IV of the Second
Schedule, following persons are exempted from
collection of advance tax by educational institutions:
a)
b)
c)
d)
the Federal Government or a Provincial

Government
an individual entitled to privileges under the
United Nations (Privileges and Immunities) Act,
1948 (XX of 1948)
a foreign diplomat or a diplomatic mission in
Pakistan
a person who is a non-resident and he:
i. furnishes copy of passport as an evidence to the
educational institution that during previous tax
year, his stay in Pakistan was less than one
hundred eighty-three days;
ii. furnishes a certificate that he has no Pakistansource income; and
iii. fee is remitted directly from abroad through
normal banking channels to the bank account of
the educational institution.
16
Income Tax
The bill proposes to retain the above exemptions only

for persons specified in (a)(c) and (d) above by
inserting sub section (6) of Section 236I and Section
236O. Consequentially, Clause (89) of Part-IV of the
Second Schedule has been proposed to be deleted.
45. Advance tax on purchase or transfer of immovable
property
Section 236K
The exemptions available to the Federal Government,
Provincial Government, Local Government and Foreign
Diplomatic mission in Pakistan from collection of
advance tax on purchase or transfer of immovable
property under this section is proposed to be deleted
from this section. However, a similar exemption is
sought to be provided to the Federal Government and
Provincial Government under the newly proposed
Section 236O.
48. Additional payment for delayed refunds

Section 171
The compensation rate for delay in refunds payable by
the Revenue to the tax payer, is presently fifteen
percent per annum of the amount of refund. The Bill
now proposes to change the rate of compensation to
KIBOR plus 0.5% per annum.
49. Offences and penalties
Section 182
Penalties for non-compliance had been consolidated in
Section 182 via the Finance Act 2010. The Bill now
seeks to amend S.No (1A) and (1AA) of Section 182 of
the Ordinance in the following manner:
a)
Minimum penalty of Rs.50,000 is proposed to be

reduced to Rs.10,000 for failure to file final tax
statement under Section 115, withholding tax
statement under Section 165 or failure to furnish
information under Section 165A. Such a
reduction had previously been offered by virtue of
Clause (16) of Part III of the Second Schedule
which has now been proposed to be incorporated
in the provisions of Section 182. The
aforementioned clause has correspondingly been
proposed to be deleted.
b)
Penalty for failure to furnish wealth statement or

wealth reconciliation statement under Section
116 has been proposed to be charged at 0.1% of
the taxable income per week or Rs.20,000,
whichever is higher instead of Rs.100 for each
day of default.
46. Advance tax under Chapter XII

Section 236O
As highlighted above, exemptions available to various
persons under Sections 231A, 231AA, 236B, 236C,
236D, 236I and 236K are proposed to be deleted from
their respective sections. The bill proposes to insert a
new Section 236O, whereby the following persons
shall be exempted from collection of advance tax
under the entire chapter XII:
a)
b)
c)
the Federal Government or a Provincial

Government
a foreign diplomat or a diplomatic mission in
Pakistan
a person who produces a certificate from the
Commissioner that his income during the tax year
is exempt.
It should be noted that in providing the exemption,

Section 236O uses the words the advance tax under
this chapter shall not be collected in the case of
withdrawals made by... It may be observed that the
specific drafting of the proposed section may in
practice restrict its applications. It is, therefore,
proposed that the Section 236O should appropriately
be re-drafted to avoid any adverse inferences at a
later stage.
47. Default surcharge
Section 205
The rate of default surcharge, for failure to pay any
tax or advance tax by the due date or payment of
atleast 90% of the advance tax liability, is presently
18% per annum. The Bill now proposes to reduce the
rate of default surcharge to 12% per annum.
50. Prosecution for making false or misleading

statements
Section 195
An editorial amendment is sought by the Bill. The Bill
seeks to substitute reference to sub section (3) of
Section 187 with Entry against S.No 10 in column (2)
of the Table in sub section (1) of section 182 as
Section 187 was already omitted by the Finance Act
2010.
51. Income Tax Authorities
Section 207
Consequent to the proposal of Section 177 whereby
special audit panel shall be appointed, the Bill also
seeks to insert a new clause in section 207 whereby
special audit panel shall also be treated as a tax
authority.
Income Tax
17
52. Dividend in specie

Section 236S
The Bill proposes to insert a new section viz. section
236S which provides for collection of tax from the
gross amount of dividend in specie @ 12.5%. The tax
so collected shall be final tax in terms of section 5 of
the Ordinance.
18
Income Tax
THE FIRST SCHEDULE

53. Rates of tax for individuals and Association of
Persons
The rates of tax chargeable for the tax year 2016
(corresponding to the income year ending at any time
between 01 July 2015 to 30 June 2016) have been
revised as under. The basic threshold has remained
unchanged:
Salaried taxpayers
Salaried
taxpayers
Rate
Upto Rs.400,000 Nil

Rs.400,001
500,000
2% of excess over Rs.400,000
Rs.500,001
750,000
Rs.2,000 + 5% of excess over

Rs.500,000
Rs.750,001
1,400,000

Rs.750,000
Rs.1,400,001
1,500,000
Rs.79,500 + 12.5% of excess

over Rs.1,400,000
Rs.1,500,001
1,800,000

Rs.1,500,000
Rs.1,800,001
2,500,000
Rs.137,000 + 17.5% of excess

over Rs.1,800,000
Rs.2,500,001
3,000,000

Rs.2,500,000
Rs.3,000,001
3,500,000
Rs.359,500 + 22.5% of excess

over Rs.3,000,000
Rs.3,500,001
4,000,000

Rs.3,500,000
Rs.4,000,001
7,000,000
Rs.597,000 + 27.5% of excess

over Rs.4,000,000
Over
Rs.7,000,000
Rs.1,422,000 + 30% of excess

over Rs.7,000,000
Non-salaried taxpayers
Non-Salaried
taxpayers
Rate
Upto Rs.400,000
Nil
Rs.400,001
500,000
7% of excess over Rs.400,000
Rs.500,001
750,000

Rs.500,000
Non-Salaried
taxpayers
Rate
Rs.750,001
1,500,000

Rs.750,000
Rs.1,500,001
2,500,000
Rs.144,500 + 20% of excess

over Rs.1,500,000
Rs.2,500,001
4,000,000
Rs.344,500 + 25% of excess

over Rs.2,500,000
Rs.4,000,001
6,000,000
Rs.719,500 + 30% of excess

over Rs.4,000,000
Over
Rs.6,000,000
Rs.1,319,500 + 35% of excess

over Rs.6,000,000
54. Association of Persons

Association of persons continues to be taxed as per
the rate card of non-salaried taxpayers for the tax
year 2016.
55. Tax year
Tax year means a period of twelve months ending on
30 June and corresponds to the period to which the
income of the taxpayer relates.
56. Salaried taxpayer
Salaried taxpayer is a person having salary income in
excess of 50% of his/her taxable income.
57. Reduction in tax liability
A senior citizen of Pakistan, being a taxpayer, aged
sixty years or more on the first day of the relevant tax
year, is allowed a rebate of 50% of the tax payable if
his/her taxable income in that tax year is
Rs.1,000,000/- or less. The said rebate continues and
the rule, that in determining the threshold as above,
income under final tax regime shall be excluded, also
remains unchanged.
In addition, the relief as above shall also be available
to an individual who, irrespective of his age, is
registered as a disabled person according to his/her
Computerized National Identity Card.
19
Income Tax
58. Rates of tax for companies

The rates of tax for companies, for tax year 2016,
have been revised, and are as under:
received by a person from such Developmental REIT

Scheme shall be reduced by fifty percent for three
years from 30th June, 2018.
61. Rate of tax on profit on debt
Companies
Public and Private
Cooperative and Finance
Society
Banking
Small
Tax Year
2015
2016
33
33
32
32
35
25
35
25
The threshold on capital for small Companies is

proposed to be enhanced for a maximum Rs.25 million
to Rs.50 million.
59. Rate of Super tax for rehabilitation of temporarily
displaced persons
The rate of super tax for rehabilitation of temporarily
displaced persons have been proposed as under:
Taxpayer
60
Rate %
Banking Company
Person, other than a banking company,

having income of Rs.500 million or more
Rate of tax on dividend income
Tax Year
2015
2016
Companies owning power project

privatized by WAPDA, companies
set-up for power generation and
companies supplying coal,
exclusively to power generation
projects
7.5
7.5
Others
10
12.5
12.5
15
Stock fund, if dividend receipts are
less than capital gains
Rate %
Upto
Rs.25,000,000
Rs.25,000,001
50,000,000
Over
Rs.50.000,000
10%
Rs.2,500,000+ 12.5% of the
amount exceeding
Rs.25,000,000
Rs 5,625,000 + 15% of the
amount exceeding
Rs.50,000,000
62. Rates of tax on capital gains on securities

The rate card for levying tax on capital gains arising
on sale of securities (other than Companies), as
referred to in Section 37A have been proposed as
under:
Tax Year
Holding period
The rate of tax on dividend received by all taxpayers

for tax year 2016 have been revised and are as under:
Dividend from
The existing rate of tax on profit on debt is 10%. The

proposed rates of tax are as under:
Dividend received by a company from a collective

investment scheme, REIT Scheme or a mutual fund,
other than a stock fund, shall be taxed at the rate of
25%.
However, if a Developmental REIT Scheme with the
object of development and construction of residential
buildings is set up by 30th June, 2018, dividend
2015
2016
Less than 12 months
12.5
15.0
More than 12 months but less than

24 months
More than 24 months but less than
48 months
10.0
12.5
7.5
The rate for companies in respect of debt securities

shall be as specified in Division II of Part I of First
Schedule which is proposed to be 32%
However, mutual fund or a collective investment
scheme or a REIT scheme shall deduct, on redemption
of securities, capital gains tax at the revised rates as
specified below:
Taxpayer
Individual and AOP
Company
Rate (%)
Filer
10% for stock funds

10% for others
10% for stock funds
25% for others
NonFiler
17.5
25
20
Income Tax
In case of a stock fund if dividend receipts of the fund

are less than capital gains, the rate of tax deduction
shall be 12.5%
63. Rate of tax on capital gain on immovable property
65. Advance tax on imports

The Bill proposes to enhance the scope of the table
and has specified separate tax rates for filer and nonfiler and now the table reads as under:
The rate of tax on capital gain on immovable property

remained unchanged and are as under:
Holding period of immovable
property
Upto 1 year
Rate %
Taxpayer
10
More than 1 year but not more than

two years
More than 2 years
Industrial undertaking importing

remeltable steel (PCT Heading
72.04) and directly reduced iron
for its own use
64. Minimum Tax

The rates of minimum tax as a percentage of the
taxpayers turnover have remained unchanged and are
as under:
Taxpayer
Rate %
Oil marketing companies, oil refineries,

Sui Southern Gas Company Limited and
Sui Northern Gas Pipelines Limited
(where annual turnover exceeds Rs. 1
billion.)
Pakistan International Airlines
Corporation
0.5
1.5
Persons importing pulses
Commercial importers covered

under Notification No. S.R.O.
1125(I)/2011 dated 31
December 2011
4.5
Ship breakers on import of ships
4.5
6.5
Industrial undertakings not

covered above
5.5
Companies not covered above
5.5
Manufacturers covered under

Notification No. S.R.O.
1125(I)/2011 dated 31
December 2011
Proposes to insert Persons

importing Cotton
Distributors of pharmaceutical products,

fast moving consumer goods and
cigarettes
0.2
Rice mills and dealers

Flour mills
In all other cases
Proposes to insert Persons

importing Gold; and
Dealers or distributors of fertilizers
Motorcycle dealers registered under the

Sales Tax Act 1990
Persons importing plastic

fertilizers in pursuance of
Economic Coordination
Committee of the cabinet's
decision No. ECC-155/12/2004
dated 9 December 2004
Persons importing urea
Poultry industry including breeding,

broiler production, egg production, feed
production
Petroleum agents and distributors

registered under the Sales Tax Act, 1990
Rate % (of
import value
as increased
by customs
duty, sales tax
and federal
excise duty)
NonFiler
filer
0.25
Persons not covered above
21
Income Tax
66. Advance tax on dividends

The Bill proposes to enhance the rate of withholding
tax on dividend for non-filer to 17.5% from existing
15%.
However, a collective investment scheme, REIT
Scheme and mutual fund would deduct tax on payment
to a non-filer as per the following table:
Stock
Fund
Money
market fund,
Income Fund
or any other
fund
Individuals
10
10
Company
10
25
AOP
10
10
69. Advance income tax on payment to resident on

payments for goods and services
The Bill seeks to introduced the rate of withholding tax
for non-filer when making payments on account of
goods and services, which are as under
Rate of tax
NonCorporate
Filer
Non
filer
Corporate
Further, the Bill proposes to reduce the withholding

rates of taxes to 50% on the dividend paid by the
Developmental REIT scheme set up to 30th June 2018
for development and construction of residential
buildings for three years from 30 June 2018.
However, in the case of stock fund, if dividend receipts
are less than the capital gains, the rate of tax to be
deducted shall be 15% instead of the existing 12.5%.
67. Advance tax on profit on debt
The advance tax rate for recipients who are non filers
is proposed to be 17.5% from 15% if the yield or profit
paid exceeds Rs. 500,000.
68. Advance income tax on payment to non-residents
The Bill proposes to segregate the rates of
withholding taxes between corporate and others on
account of making payment to a permanent
establishment (PE) and brings the rate of withholding
in line with the rates applicable to a resident person
which are as under:
For supply of goods

For services other
than transport
services
For execution of
contract
The Bill also seeks to include the payment to a

sportsperson under the ambit of execution of contract
by PE on which the rate of withholding tax at 10% of
the gross amount payable.
Rate of tax
NonCorporate
Corporate
Filer Non- Filer Nonfiler
filer
4
6
4.5
6.5
8
12
10
15
10
7.5
10
Filer
Non
filer
For supply of
goods
4.5
6.5
For services other

than transport
services
12
10
15
For execution of
contract
10
7.5
10
The Bill seeks to treat the payment of sportsperson

under the ambit of execution of contract at 10% as
final tax effective from the tax year 2013.
70. Collection of advance income tax on petroleum
products
The Bill seeks to introduce the rate of collection of tax
for non-filer which at 15% of gross amount for every
person selling petroleum products to a petrol pump
operator. However, the withholding rates for a filer
remain unchanged at 12% of the gross amount.
71. Collection of advance income tax on Brokerage and
Commission
The Bill seeks to enhance the rate of collection of tax
from advertising agents along with introduction of
rate of collection of taxes from a non-filer which are
as under:
Rate of tax
Filers
For advertising agents
Other than advertising agents
10%
12%
Nonfilers
15%
15%
22
Income Tax
72. Collection of advance income tax on goods transport

vehicles
Vide Finance Act, 2012 a tax was introduced on goods
transport vehicles at the rate of Rs.5 per KG of the
laden weight. Now the Bills seeks to reduce the rates
of collection of tax on goods transport vehicles which
are as under:
Amount of tax
Filers
Amount of tax on per
KG of laden weight
Non-filers
Rs. 2.5
Rs. 4
73. Collection of advance income tax on passenger

transport vehicles
The Bill seeks to revise the rate of collection of tax on
passenger transport vehicles plying for hire for on the
basis of seating capacity which are as under:
Capacity
Rs. Per seat per annum

Filers
Non-filers
Four or more persons

but less than ten
Rs. 50
Rs.100
Ten or more persons

but less than twenty
Rs.100
Rs.200
Twenty persons or
more
Rs.300
Rs.500
74. Collection of advance income tax on private motor

vehicles
The Bill also seeks to revise the rate of collection of

advance income tax payable for tax year 2016 at the
time of paying annual motor vehicle tax, in the case of
private motor vehicles as under:
Engine capacity
Amount of tax
76. Advance tax on electricity consumption

The rate of collection of advance tax on electricity bills
continues to remain the same as previously
introduced.
77. Advance tax on telephone users
The Bill seeks to levy the tax on internet bill of a
subscriber and pre-paid cards for internet at the rate
of 14%.
78. Advance tax on cash withdrawal
The Bill proposes to enhance the rate of collection of
advance tax on cash withdrawal by non-filer from 0.5%
to 0.6% for transactions exceeding Rs. 50,000 per
day.
79. Advance tax on transactions in bank
The Bill proposes to introduce the rate of collection of
advance tax on banking transactions other than cash
transactions by a non-filer to 0.6% if the amount
exceeds Rs. 25,000 in a day.
80. Advance tax on purchase, registration and transfer
of Motor Vehicles
The Bill proposes to enhance the scope of section
231B and now the rates of collection of income tax
leviable on registration and sale by a manufacturer,
are proposed to be charged as per the following rates:
Engine capacity
Amount of tax
Filers
Non-filers
Rs.10,000
Rs.10,000
851 cc 1000 cc
Rs.20,000
Rs.25,000
1001 cc 1300 cc
Rs.30,000
Rs.40,000
1301 cc 1600 cc
Rs.50,000
Rs.100,000
1601 cc 1800 cc
Rs.75,000
Rs.150,000
1801 cc 2000 cc
Rs.100,000
Rs.200,000
2001 cc & 2500cc
Rs.150,000
Rs.300,000
Rs.12,000
2501 cc & 3000cc
Rs.200,000
Rs.400,000
Rs.4,500
Rs.15,000
Above 3000cc
Rs.250,000
Rs.450,000
Rs.10,000
Rs.30,000
Non-filers
Rs.1,200
1001 cc 1199 cc
Rs.1,500
Rs.4,000
1200 cc 1299 cc
Rs.1,750
Rs.5,000
1300 cc 1499 cc
Rs.2,500
Rs.7,500
1500 cc 1599 cc
Rs.3,750
1600 cc 1999 cc
2000 cc & above
The rate of collection of taxes on a lump sum basis are

the same and not proposed to be changed.
Up to 850 cc
Filers
Rs.800
Up to 1000 cc
75. Motor vehicle tax when collected in lump sum
23
Income Tax
Further, the Bill proposes to introduce separate rates

of collection of taxes on transfer of motor, as per the
following rates which would be reduced by 10% each
year from the date of first registration in Pakistan:
Amount of tax
Engine capacity
Up to 850 cc
Filers
Non-filers
Rs.5,000
851 cc 1000 cc
Rs.5,000
Rs.15,000
1001 cc 1300 cc
Rs.7,500
Rs.25,000
1301 cc 1600 cc
Rs.12,500
Rs.65,000
1601 cc 1800 cc
Rs.18,750
Rs.100,000
1801 cc 2000 cc
Rs.25,000
Rs.135,000
2001 cc & 2500cc
Rs.37,500
Rs.200,000
2501 cc & 3000cc
Rs.50,000
Rs.270,000
Above 3000cc
Rs.62,500
Rs.300,000
81. Advance tax on sale to distributors, dealers or

wholesalers
The rate of collection of advance tax on sale to
distributors, dealers or wholesalers has been proposed
to be enhanced as under:
Category of Sale
Fertilizer
Rate of Tax
Filers
Non-filers
0.7%
1.4%
82. Advance tax on domestic electricity consumption
84. Advance tax on Banking transactions otherwise than

through cash for non-filer
The rate of collection of advance tax for tax year 2016
banking transaction for non-filer are proposed to be
leviable at the rate of 0.6% of the transaction for nonfiler if the total transactions in a day exceeds Rs.
50,000.
85. Rate of collection of tax by Pakistan Mercantile
Exchange Limited
The rate of collection of tax by Pakistan Mercantile
Exchange Limited are proposed as under:
Type
Rate
Sale or purchase of future commodity

contract from its member
0.1%
Commission on sale or purchase of future

commodity contract from its members on
commission earned by them
0.1%
86. Advance tax on the payment to residents for use of

machinery and equipment
The rate of deduction of tax is proposes at 10% of the
gross amount of payment for the use or the right to
use industrial, commercial and scientific machinery
and equipment.
87. Collection of advance tax on remittances of
education expenses
The bill proposes to collect tax at the rate of 5% from
the amount remitted abroad on account of education
related expenses.
The Bill seeks to propose collection of advance tax on

domestic electricity consumption at the rate of 7.5% if
monthly bill exceeds Rs. 75,000 which is currently
leviable where the bill exceeds Rs. 100,000 monthly.
83. Advance tax on international air ticket
The Bill seeks to propose the following amount of
advance income tax collectible on the type of ticket
which is currently leviable at the rate of 4% on other
than economy class. Proposed amount of taxes are as
under:
Type of ticket
First/Executive Class
Others excluding Economy
Economy
Rs. Per person

16,000
12,000
-
24
Income Tax
THE SECOND SCHEDULE

PART-I
88. Exemption to Inter-corporate Dividend
Clause (103A)
The Finance Act, 2007 introduced the concept of
group taxation and group relief by inserting Sections
59AA and 59B in the Ordinance respectively.
Section 59AA of the Ordinance specifies that wholly
owned group companies shall be construed as one
fiscal unit for the purpose of group taxation subject to
certain conditions to be met as specified.
Section 59B of the Ordinance permits a subsidiary
company, subject to certain conditions as mentioned
therein, to surrender its assessed losses (excluding
capital loss) for the tax year (other than brought
forward losses and capital losses) either to its holding
company or to another subsidiary of the same holding
company.
the condition that return of the group has been filed

for the tax year. It follows that this amendment (which
would be applicable from the tax year 2016) has been
proposed to undo the above decision of the ATIR.
However, the amendment fortifies the view of the
taxpayer that before this amendment, the exemption
from inter-corporate dividend could be availed without
actually opted for the group taxation or group relief.
89. Deletions
The Bill proposes to omit the following Clauses.
Clause
(20)
(113)
Consequentially, inter corporate dividend within the

group companies entitled to group taxation to which
Section 59AA or Section 59B applies is exempt from
tax by virtue of Clause (103A) of Part-I of the Second
Schedule.
Recently the Taxation Authorities opined that intergroup dividend can only be exempt under Clause
(103A) when group companies actually opt for group
taxation (Section 59AA) or group relief (Section59B)
i.e. group return has actually been filed. However, it
was the contention of the taxpayer that the word
entitled signifies that any taxpayer which is entitled
to invoke Section 59AA or Section 59B of the
Ordinance, the benefit of the above Clause could be
availed. There is no mention in Clause (103A) of the
Ordinance that for availing the benefit of exemption,
the group companies are required to actually opt for
it. The Appellate Tribunal Inland Revenue (ATIR), in a
case reported as 2012 PTD (Trib) 911 (where only
application of Section 59AA was involved), also
fortified the view point of the taxpayers with the
observation that had the legislature intended to make
compliance to the requirements of Section 59AA of
the Ordinance [pre-condition to availing of the benefit
under Clause (103A)], it would have said it in so many
words. Such being not the position, the word
entitled would signify that any company which was
entitled under Section 59AA of the Ordinance could
avail the benefit of the said Clause.
(126F)
Description
This Clause exempted any income
received by a person from an annuity
issued under the Pakistan Postal
Annuity Certificate Scheme on or after
the 27 July 1977, not exceeding ten
thousand rupees per annum.
Under the said Clause, exemption was
provided to capital gain on sale of
shares of certain industrial
undertakings which qualified for
exemption under Clause (126) of this
Schedule for a particular time period.
Clause (126) was omitted through the
Finance Act, 2014 as the exemption
period provided therein expired and
the relief became infructuous. The Bill
accordingly proposes to omit Clause
(113) being redundant.
This Clause exempted, uptil the tax
year 2012, profits and gains derived
by a taxpayer, other than one involved
in manufacturing and supplying
cement, sugar, beverages and
cigarettes, located in the most
affected and moderately affected
areas of Khyber Pakhtunkhwa, FATA.
The Bill proposes to delete the said
Clause since the time limit prescribed
therein has expired and the Clause has
consequently become redundant.
90. Tax credit in respect of donations to The Indus

Hospital, Karachi
Clause (61)
The above Clause contains a list of names of approved
donees, to whom donation made is exempt from tax.
The name of The Indus Hospital, Karachi has been
proposed to be added to the said list.
The Bill seeks to put a condition in Clause (103A) that

inter-corporate dividend can only be exempt subject to
25
Income Tax
91. Exemption to The Indus Hospital, Karachi

Clause (66)
The Bill proposes to grant exemption to the income of
The Indus Hospital, Karachi by inserting its name in
the list of institutions and entities whose income is
exempt from tax.
92. Sale of immoveable property to a REIT Scheme
Clause (99A)
The above Clause grants exemption to profits and
gains accruing to a person on sale of immoveable
property to REIT Scheme upto 30 June 2015. The Bill
proposes to enhance the period of sale to 30 June
2020 in case of sale of immoveable property to a
Developmental REIT Scheme with the objective of
development and construction of residential buildings.
93. Exemption to the income derived by China Overseas
Port Holding Company Limited
Clause (126A)
The income derived by China Overseas Port Holding
Company Limited from Gwadar port operations
presently enjoys exemption from tax for a period of
twenty years beginning 06 February 2007. The Bill
proposes to extend the exemption period from 20
years to 23 years.
96. Income from operating Halal Meat production

Clause (126K)
A new Clause is being proposed to be inserted as a
consequence of which profits and gains derived by a
taxpayer from an industrial undertaking set-up
between 01 July 2015 and 31 December 2016 which
is engaged in operating halal meat production and has
obtained halal certification for a period of four years
beginning with the month in which the industrial
undertaking is set-up or commercial production is
commenced whichever is later.
97. Income from industrial undertaking set-up in KPK
Clause (126L)
taxpayer from a manufacturing unit set-up in KPK
Province between 01 July 2015 and 30 June 2018 for
a period of five years beginning with the month in
which the industrial undertaking is set-up or
commercial production is commenced whichever is
later. However, the exemption is subject to the
following conditions:
-
The manufacturing unit is set-up between 01 July

2015 and 30 June 2018 both days inclusive.
The manufacturing unit is not established by

splitting up or reconstruction or reconstitution of
an undertaking already in existence or by transfer
of machinery of plant from an undertaking
established in Pakistan at any time before 01 July
2015.
94. Income of Manufacturer of certain Plant, Machinery

& Equipment
Clause (126I)
taxpayer from an industrial undertaking set-up by 31
December 2016, which is engaged in the
manufacturing of plant, machinery, equipment and
items with dedicated use (no multiple uses) for
generation of renewable energy from sources like
solar and wind for a period of five years beginning
from 01 July 2015.
95. Income of Warehousing or Cold Chain facilities
Clause (126J)
taxpayer from an industrial undertaking set-up
between 01 July 2015 and 30 June 2016 which is
engaged in operating, warehousing or cold chain
facilities for storage of agriculture produce for a
period of three years beginning with the month in
which the industrial undertaking is set-up or
commercial operations are commenced whichever is
later.
98. Income from Transmission Line Project

Clause (126M)
taxpayer from transmission line project set-up in
Pakistan between 01 July 2015 and 30 June 2018.
The exemption is applied to projects:
-
Owned and managed by a company formed for

operating the said project and registered under
the Companies Ordinance, 1984 and having its
registered office in Pakistan;
Not formed by the splitting up, or the

reconstruction or reconstitution, of a business
already in existence or by transfer to a new
business of any machinery or plant used in a
business which was being carried on in Pakistan at
any time before the commencement of the new
business; and
26
Income Tax
Owned by a company fifty percent of whose

shares are not held by the Federal Government or
Provincial Government or a Local Government or
which is not controlled by the Federal Government
or a Provincial Government or a Local
Government.
99. Exemption to LNG Terminal Operators and Terminal

Owners
Clause (141)
A new clause is being proposed to be inserted by
virtue of which profits and gains derived by LNG
Terminal Operators and Terminal Owners will be
exempt from tax for a period of five years from the
date of commencement of commercial operations.
100. Exemption to income from social security
contribution
Clause (142)
A new clause is being proposed to be inserted as a
consequence of which income from social security
contributions derived by Employees Social Security
Institutions of Balochistan, Khyber Pakhtunkhwa,
Punjab and Sindh shall be exempt from tax. However,
income other than income from social security
contributions would remain taxable.
PART-II
101. Deletions
Following is the itemized listing of clauses of Part II of
the Second Schedule which have been proposed to be
deleted. This is due to these being becoming
infructuous due to efflux of time as well as changes
brought about by the Bill.
Clause
Description
(13C)
Purchase of locally produced

edible oil by manufacturers of
cooking oil or vegetable ghee
or both.
Advance tax under Section
234 in case of goods
transport vehicle.
(14)
(14A)

234 in case of passenger
transport vehicle plying for
hire with a registered seating
capacity of twenty persons or
more.
Reduced
Rate of
Tax
2% of the
purchase
price
Rs.2 per
kilogram
of the
laden
weight.
Rs.250 per
seat per
annum.
(14B)
(21)

234 in case of goods
transport vehicle for the
period from 01 July 2012 to
17 November 2013.
Clause (21) was inserted
through the Finance Act,
2002 providing the basis for
determining tax of a resident
engaged in shipping business
on presumptive basis in the
following manner.
Rs.2 per
kilogram
of the
laden
weight.
i.
Ships and all floating

crafts including tugs,
dredgers, survey vessels
and other specialized
crafts registered in
Pakistan;
One US$
per gross
registered
tonnage
per annum
ii. Ships and all floating

crafts including tugs,
dredgers, survey vessels
and other specialized
crafts not registered in
Pakistan;
Fifteen US
Cents per
gross
registered
tonnage
per annum
The Bill now seeks to

withdraw the above
concession which was
otherwise available upto 30
June 2020.
PART-IV
102. Exemption from minimum tax to KAPCO
Clause (11A), Sub-clause (iv)
Exemption provided to income arising to the purchaser
of Kot Addu Power Station from owning and operating
the power station under Clause (138), Part I of the
Second Schedule to the Ordinance, was withdrawn
through the Finance Act, 2008.
The Bill now proposes to omit sub-clause (iv) of Clause
(11A), which provided exemption from levy of
minimum tax to KAPCO under section 113 of the
Ordinance, being redundant provision.
103. Coal Mining Project in Sindh Exemption from
minimum tax
Clause (11A), Sub-clause (xviii)
Profits and gains derived by a taxpayer from coal
mining project in Sindh, supplying coal exclusively to
power generation projects is exempt from tax under
Clause (132B) of Part-I of the Second Schedule to the
27
Income Tax
Ordinance which was introduced vide Finance Act,

2014. The Finance Act, 2014 also inserted reference
of Clause (132B) in Sub-clause (v) of Clause (11A) of
the Part-IV of the Second Schedule to the Ordinance
exempting from levy of minimum tax, under Section
113 of the Ordinance receipts from sale of electricity,
which was not appropriate since Clause (132B)
exempts profits and gains from coal mining projects.
The Bill has now rectified the situation and proposes to
delete the reference of Clause (132B) from Sub-clause
(v) of Clause (11A). The Bill proposes to exempt coal
mining projects from levy of minimum tax under
Section 113 of the Ordinance.
104. Exemption from minimum tax and alternate
corporate tax to LNG Terminal Operators and
Terminal Owners
Clause (11A), Sub-clause (xix) & Clause (11D)
With the proposed exemption from tax to profits and
gains derived by LNG Terminal Operators and
Terminal Owners under Clause (141), Part I of the
Second Schedule to the Ordinance, the Bill also
proposes to exempt such LNG Terminal Operators and
Terminal Owners from the levy of minimum tax under
section 113 of the Ordinance.
In line with the above proposed exemptions to LNG
Terminal Operators and Terminal Owners, the Bill also
seeks to provide exemption from the levy of
Alternative Corporate Tax under section 113C of the
Ordinance.
105. Exemption from minimum tax for businesses in KPT,
FATA & PATA
Clause (11A), Sub-clause (xx)
Clause 126F, Part I of the Second Schedule to the
Ordinance provided exemption to profits and gains
derived by a taxpayer, excluding manufacturers and
suppliers of cement, sugar, beverages and cigarettes,
located in the most affected and moderately affected
areas of Khyber Pakhtunkhwa, FATA and PATA for the
tax years 2010, 2011 and 2012.
Consequent amendment has now been proposed to be
brought in Clause (11A) by way of inserting a new subclause (xx) wherein exemption from the levy of
minimum tax under section 113 of the Ordinance is
being proposed.
The proposed amendment would have a retrospective
impact being related to tax years 2010, 2011 and
2012. However, the Bill does not provide for any
mechanism as to how such amendment would be
applied in cases where minimum tax has already been
charged and paid for the above tax years. The viable
medium to avail the benefit of such exemption would
either be revision of return already filed or, in cases
where assessments have been amended, rectification

of the amended assessment orders passed for the
relevant tax years.
106. Rice Mills Exemption from minimum tax for the tax
year 2015
Clause (11A), Sub-clause (xxi)
SRO 57(1)/2012 dated 24 January 2012 inserted
Clause (13) in Part-III of the Second Schedule to the
Ordinance whereby rice mills were subject to a
reduced rate of minimum tax, under Section 113 of
the Ordinance at 0.2% of the turnover. The Bill now
proposes to exempt the levy of minimum tax in case of
rice mills for the tax year 2015.
107. Exemption from minimum tax
Clause (11A), Sub-clause (xxii), (xxiii), (xxiv) & (xxv)
With the proposed exemption from tax on profits and
gains derived by a taxpayer from the following
industrial undertakings, under respective Clauses of
Part-I of the Second Schedule to the Ordinance, the
Bill also proposes to exempt such projects from the
levy of minimum tax under Section 113 of the
Ordinance.
Industrial Undertaking
Income of Manufacturer of
equipment with dedicated used
for generation of renewable
energy
Income of Warehousing or Cold
Chain Facilities
Income from Operating Halal
Meat Production
Income from Industrial
Undertaking set-up in KPK
Relevant Clauses
of Part-I of the
Second Schedule
126I
126J
126K
126L
108. Exemption from withholding of tax for advertisement

services
Clause (16A)
Under the aforesaid Clause, exemption was provided
from withholding of tax under section 153(1)(b) of the
Ordinance in respect of payments to electronic and
print media for advertisement services. The exemption
therein has been proposed to be withdrawn in the Bill.
109. Exemption from withholding of tax while making
payment to PE of a non-resident E&P companies
Clause (46)
Earlier, payments in respect of supply of goods,
rendering of services and execution of contracts to a
permanent establishment (PE) of a non-resident
28
Income Tax
person were subject to withholding of tax under

section 153(1) of the Ordinance. Clause (46), Part IV
of the Second Schedule to the Ordinance provided for
exemption from withholding of tax under section
153(1) in respect of payment received by an oil
distribution company or an oil refinery or a PE of nonresident Petroleum Exploration and Production (E&P)
Companies.
Through the Finance Act, 2012, payment to a PE of
non-resident was excluded from the purview of section
153(1) and a new sub section (2A) was inserted in
section 152 of the Ordinance, providing for
withholding of tax in respect of above payments to a
PE of non-residents.
However, corresponding change was not brought into
Clause (46), Part IV of the Second Schedule to the
Ordinance resulting in withdrawal of exemption from
withholding of tax on account of payment received by
a PE of non-resident Petroleum Exploration and
Production (E&P) Companies.
The Bill now proposes to introduce amendment in the
aforesaid clause by inserting reference to section
152(2A) to account for the above anomaly and
restore exemption from withholding of tax to the
above companies.
111. Deletion
The following Clauses are proposed to be omitted
since the time limits prescribed therein have expired
and the clauses have consequently become redundant:
Clause
(56B)
&
(56H)
(59) Subclause (iii)
(72A)
110. Exemption from payment of tax at import stage

under Section 148
Clause (56)
The goods classified under Pakistan Custom Tariff
falling under Chapter 27 is presently exempted from
payment of tax at import stage. The Bill seeks to
withdraw the said exemption.
Likewise all goods classified under Chapter 99 of
Pakistan Custom Tariff are also presently exempted
from payment of tax at import stage. The Bill seeks to
withdraw said exemption from goods falling under PCT
heading 9918.
The Bill also proposes to exempt from payment of tax
at import stage in case of certain petroleum products
imported by oil marketing companies and oil refineries
as under:
-
Petroleum oils and oils obtained from bituminous

minerals crude
Furnace Oil
High Speed Diesel Oil
Motor split
JP-1
Base Oil for Lubricating oil
(83)
Description
Under the aforesaid Clauses, the
exemption was provided in respect
of collection of tax at import stage
under Section 148 on the imports of
potatoes subject to certain
conditions, for a particular time
period.
Sub-clause (iii) of Clause (59)
provides exemption from
withholding of tax on profit on debt
in respect of Pak rupee accounts or
certificates referred to Clause (83),
Part I of the Second Schedule to the
Ordinance. Clause (83) of Part-I was
omitted through the Finance Act,
2008
Under the aforesaid Clause,
exemption was provided in case of a
Hajj group operator in respect of Hajj
operations from the applicability of
Clause (1) of Section 21, Section
113 and Section 152 of the
Ordinance subject to certain
conditions, for tax years 2013 and
2014.
Under the aforesaid Clause,
exemption was provided from the
filing of wealth statement for the tax
year 2013 to a person other than
company or a member of an
association of persons, subject to
certain conditions.
112. Large Trading Houses

Clause (57)
Large Trading Houses, subject to certain conditions,
are exempt from payment of minimum tax under
Section 113 of the Ordinance and are not subject to
withholding of tax under Section 153 of the
Ordinance. The Bill seeks to propose to insert a further
explanation to Clause (57) to clarify that in-house
preparation and processing of food and allied items for
sale to customers shall not disqualify a company from
being treated as a Trading House, provided all other
conditions as mentioned therein are fulfilled and sale
of such items does not exceed 2% of total sales.
29
Income Tax
113. Deduction of tax from cash withdrawal by exchange

companies
Clause (61A) and (28B) of Part-II
The Bill proposes to omit Clause (61A) which grants
exemption from withholding of tax under Section
231A in respect of cash withdrawal by exchange
companies duly licensed and authorized by the SBP on
bank accounts exclusively dedicated for authorized
business related transactions, subject to certain
conditions.
However, Clause (28B) has been proposed to be
inserted in Part II of the Second Schedule to the
Ordinance wherein a reduced rate of 0.15% has been
proposed on cash withdrawals by such exchange
companies.
114. Exemption from invocation of Section 111
Clause (86)
The above Clause was inserted in the Ordinance
through SRO 1065(I)/2013 dated 20 December 2013,
whereby the investment made by an individual, AOP or
company in a Greenfield industrial undertaking was
granted exemption, subject to certain conditions as
specified therein, from probe of source of investment
under Section 111 of the Ordinance. One of the
condition is that the investment has to be made on or
after 01 January 2014 and commercial production of
the said industrial undertaking has to be commenced
on or before 30 June 2016. The Bill proposes to
extend the period of commencement of commercial
production from 30 June 2016 to 30 June 2017.
Seeding or planting equipments.

Irrigation, drainage and agro chemical
application equipments.
Harvesting, threshing and storage equipments.
Post-harvest handling and processing equipments.
The Bill further proposes to exempt payment of tax at

import stage while importing [Clause (92)]:
-
Aircraft whether imported or acquired on wet or

dry lease.
Maintenance kit for use in trainer aircrafts.
Spare parts for use in aircrafts, trainer aircrafts
or simulators.
Machinery, equipment and tools for setting up
maintenance, repair and overhaul workshops.
Operational tools, machinery, equipment and
furniture and fixtures on one time basis for
setting up Greenfield airports.
Aviation simulators.
117. Exemption from collection of tax on exports

Clause (93)
With the proposed exemption from tax to profits and
gains derived by industrial undertaking from operation
of Halal Meat production under Clause (126K) of Part-I
of the Second Schedule to the Ordinance, the Bill
seeks to propose to exempt collection of tax on
exports under Section 154(1) of the Ordinance made
by such undertaking.
115. Collection of advance tax on functions and gathering

Clause (90)
The aforesaid clause provided exemption from
collection of advance tax on functions and gatherings
under section 236D of the Ordinance to Federal
Government, Provincial Government, an individual
entitled to privileges under the United Nations
(Privilege and Immunities) Act, 1948 and a foreign
diplomat or a diplomatic mission. The Bill now
proposes to withdraw the above exemptions by
omitting the above clause.
116. Exemption from payment of tax at import stage
under Section 148
Clause (91) and (92)
The Bill proposes to exempt payment of tax at import
stage at the time of import of certain equipment as
under [Clause (91)]:
-
Tillage and seed bed preparation equipments.
30
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31
Table of Contents
SALES TAX
Section
Page
Definitions
33
Scope of tax- Further tax
33
Time and manner of payment
6 (1)
34
Determination of tax liability
7(2)
34
Tax credit not allowed
8 (1)
34
Joint and several liability of registered persons in supply chain where tax unpaid
8A
34
Exemptions
13
34
Registration
14
35
Access to record, documents etc.
25(3)
35
10
Special audit by Chartered Accountants or Cost Accountants
32A
35
11
Offences and penalties
33
36
12
Monitoring or tracking by electronic or other means
40C
36
13
Agreement for the exchange of information
56A & B
36
14
Prize scheme to promote tax culture
56C
37
15
Fifth Schedule-Zero Rated Goods
37
16
Sixth Schedule-Exemptions
13
37
17
Amendments in the Eighth Schedule
3(2)(aa)
39
18
Amendments in the Ninth Schedule
3B
42
19
Certain Sales Tax and Federal Excise measures announced in the salient features of
the budget documents
42
20
Amendments in the Islamabad Capital Territory (Tax on Services) Ordinance, 2001
42
32
33
Sales Tax
1.
Definitions
i.
Active taxpayer
Section 2(1)
Previously , this limit was enhanced from rupees six

hundred thousand to rupees seven hundred thousand
vide Finance Act, 2008.
iii.
The Bill proposes to introduce the concept of an active

taxpayer by inserting a new definition of this term.
Sub- section (1) of section 2 defines an active
taxpayer to mean a registered person who does not
fall in any of the following categories:
-
Who is blacklisted or whose registration is

suspended or blocked under section 21
Who fails to file the monthly tax return under
section 26 by the due date for consecutive two
tax periods
Who fails to file the income tax return under
section 114 or statement under section 115 of
the Income Tax Ordinance, 2001 by the due date
Who fails to file two consecutive monthly
withholding tax statements or an annual
withholding tax statement under section 165 of
the Income Tax Ordinance, 2001.
The definition of retailer inter alia states that the

total turnover per annum shall be taken into account
for the purposes of registration of the retailer under
section 14. The concept of annual turnover has
become redundant, since the scheme of registration
and charging of sales tax by the retailers is no more
linked or based on turnover.
iv.
The amendment is aimed to provide the legal coverage

to the provisions of SRO 1125(I)/2011 dated 31
December 2011, which requires the toll
manufacturers of the five sectors (leather, textile,
carpet, surgical and sports goods) to pay the sales tax
on their conversion charges at the rate of 2%.
The concept of Active Taxpayers list is similar to the

one introduced in last year under the income tax law in
order to identify the Filers and Non-Filers. Under
the sales tax law, it will distinguish the active
taxpayers from the suspended and blacklisted
persons. The power to issue the Active Taxpayers List
is assigned to the Board under the newly proposed
section 21A, alongwith the power to issue rules for
imposing restrictions and limitations on non-active
taxpayers.
Cottage industry
Section 2(5AB)
Cottage industry is already defined as a manufacturer
whose annual turnover from taxable supplies made in
any tax period during the last twelve months does not
exceed five million rupees or whose annual utility
(electricity, gas and telephone) bills during the last
twelve months do not exceed seven hundred thousand
rupees.
The Bill proposes to increase the limit of seven
hundred thousand to eight hundred thousand rupees.
The amendment is aimed to give effect to the increase
in the prices of the utilities in the recent years.
Supply Toll manufacturing

Section 2(33)
The Bill seeks to enlarge the scope of the definition of
supply. It is proposed that the transfer or delivery of
goods manufactured by the toll manufacturers (who
manufacture goods from the raw material not
belonging to them, on charges basis) to the owners or
their nominated persons would be considered as
supply.
It is imperative to note that a person would be ousted

from the list of active taxpayers, if he does not file his
returns for two consecutive tax periods within the due
date. Further, the status of an active taxpayer has also
been linked with the fulfilment of filing requirements,
as provided under the Income Tax Ordinance, 2001.
ii.
Retailer
Section 2(28)
The provincial sales tax authorities/ boards consider

the activities of the toll manufacturers as Services
and have levied sales tax thereon at the standard rate.
Whereas, through the proposed amendment, it is
intended to charge tax on the activities of toll
manufacturers under the Sales Tax Act, 1990. Unless
the matter is resolved between the Federal and
Provincial tax authorities, the said amendment will
result in levy of tax on the toll manufacturing activities
twice.
2.
Scope of tax- Further tax

Section 3
This is a charging section and lays down the various
tax rates leviable under the ST Act. Further tax was
levied at the rate of one percent on the taxable
supplies made to a person who has not obtained
registration number by introducing sub section 1(A) in
section 3 vide Finance Act, 2013. The rate of further
tax is now proposed to be enhanced to two percent.
The measure is aimed to increase the cost of doing
business of un-registered persons and to push them to
get registration.
34
Sales Tax
3.
4.
Time and manner of payment

Section 6(1)
input tax paid on pre-fabricated buildings will be

available for input tax adjustment.
This sub section deals with time and manner of

payment of sales tax in case of goods imported into
Pakistan. Under this sub-section sales tax is collected
by the Customs Authorities, as it is a customs duty
payable under the Customs Act, 1969 by applying the
relevant sections related to collection, payment and
enforcement. Now the Bill seeks to include the powers
of recovery as well to the Customs authorities. The
proposed amendment will empower the customs
authorities to recover subsequently the short
payments or non-payments. However, this may create
difficulties in cases, where the goods imported have
been used in the taxable supplies and the registered
persons have paid the sales tax thereon.
It is also proposed to restrict the claim of input tax

under the following circumstances:
Determination of tax liability

Section 7(2)
This section provides the mechanism for
determination of tax liability by prescribing the
amount of claimable input tax against output tax. Subsection 2 of section 7 specifies conditions for
entitlement to deduct input tax from the output tax.
Clause (ii) of the said sub section states that the
registered person is entitled to claim the input tax on
goods imported, if he holds a bill of entry or goods
declaration in his name, showing his sales tax
registration number which is duly cleared by the
customs under section 79, dealing with declaration
and assessment for home consumption, or section
104 of the Customs Act, 1969, dealing with clearance
of bonded goods. However, the taxpayers were denied
the claim of input tax paid on goods imported and
cleared on provisional basis under section 81 of the
Customs Act, 1969. The Bill now proposes to include
section 81 ibid in clause (ii) of sub section (2) of
section 7, which will enable the registered persons to
claim adjustment of input tax paid in the
aforementioned manner.
5.
Tax credit not allowed

Section 8(1)
This section prescribes the situations under which the
credit of input tax is not allowed. Through the Finance
Act, 2014, four new situations were added; out of
which, one, inserted under clause (h) of sub-section
(1) of section 8, imposed restriction of input tax credit
on goods used in, or permanently attached to,
immoveable property, such as building and
construction materials, etc. It is now proposed to
amend the said clause (h) by excluding the prefabricated buildings from this list. As a result, any
6.
services in respect of which input tax adjustment

is barred under the respective provincial sales tax
law;
import or purchase of agricultural machinery or
equipment subject to sales tax at the rate of 7%
under Eighth Schedule to the Sales Tax Act,
1990; and
from the date to be notified by the Board, such
goods and services which have not been declared
by the supplier in his return at the time of filing of
return by the buyer.
Joint and several liability of registered persons in

supply chain where tax unpaid
Section 8A
This section deals with the joint and several liability of
a registered buyer for payment of any un-paid amount
in case of default in payment of tax by the supplier.
The Bill seeks to make the department liable to prove
that in case any tax remains unpaid in a supply chain,
the buyer was aware or in knowledge of the said fact.
The amendment is proposed in the light of verdict of
the Lahore High Court wherein the honorable Court
concluded that while invoking the provisions of section
8A, it is the responsibility of the department to prove
that the buyer was in knowledge of the fact that the
seller will not pay the tax to the government treasury.
7.
Exemptions
Section 13
This section deals with the exemption from tax
granted to import/ supply of goods through the Sixth
Schedule and various notifications issued from time of
time. Under clause (a) of Sub Section (2) of this
section, the Federal Government is empowered to
issue notifications in order to exempt any taxable
supply or import and under clause (b) of sub-section
(2), the Board by special order in each case can
exempt any import or supply of goods.
The Bill now proposes to withdraw the powers of the
Board to issue any order for granting the exemption
by omitting the clause (b) of sub section 2. Further,
the Bill also seeks to amend the clause (a) of subsection (2) by placing following restrictions on the
Federal Government in order to issue the notifications
under this section.
35
Sales Tax
the notifications shall be issued pursuant to the

approval of the Economic Coordination
Committee of Cabinet
the notifications shall be issued in the following
circumstances:
to take immediate action for the purposes of

national security, natural disaster, national
food security in emergency situations,
for protection of national economic interests
in situations arising out of abnormal
fluctuation in international commodity prices,
for removal of anomalies in taxes, and
for development of backward areas and
implementation of bilateral and multilateral
agreements.
It is also proposed to place all the notifications before

the National Assembly issued in a financial year under
section 13. Further, the Bill also proposes that the
notifications issued by the Federal Government in the
aforesaid manner shall stand rescinded on the expiry
of the financial year, if not rescinded earlier. So
effectively, all the notifications issued under section
13 will be repealed at the close of the financial year in
which these were issued; and, in order to continue the
status of exemption on such products during the
subsequent period, either the said exemption be
inserted in law or a fresh notifications will be issued.
The aforementioned proposed amendments were
earlier made part of the Sales Tax Act, 1990, through
the Finance (Amendment) Ordinance, 2015
promulgated on 30 April 2015. Now the Bill seeks to
incorporate these amendments through the
legislative process of the parliament.
8.
Chapter I of the Sales Tax Rules, 2006. It is assumed

that after making amendments in Section 14, the rule
related to registration will be deleted/ amended to
avoid duplication. As per the proposed amendment
every person who is engaged in making taxable
supplies in Pakistan, including zero-rated supplies and
falling in any of the following categories is required to
be registered under the Sales Tax Act, 1990:-
Registration
Section 14
Historically the title of Section 14 was Requirement
of Registration, wherein a list of persons was
provided who were liable for registration. Further,
section 15 to 20 dealt with various other matters
related to registration. Vide Finance Act, 2004, the
title of Section 14 was replaced with the
Registration and Board was empowered to regulate
the rules related to the registration. Section 15 to 20
were also omitted and the matters dealt therein with
respect to compulsory registration, change of
registration, transfer of registration, etc. were made
part of the rules. This section is now witnessing a
reversal and the Bill now seeks to amend the Section
14 in a manner that the list of persons required to be
registered is proposed to be once again incorporated
in Section 14. By and large the list of persons required
to be registered is same as provided in Rule 4 of the
9.
a manufacturer who is not running a cottage

industry;
a retailer who is liable to pay sales tax under the
Act or rules made thereunder, excluding such
retailer required to pay sales tax through his
electricity bill under sub-section (9) of section 3;
an importer;
an exporter who intends to obtain sales tax refund
against his zero-rated supplies;
a wholesaler, dealer or distributor; and
a person who is required, under any other Federal
law or Provincial law, to be registered for the
purpose of any duty or tax collected or paid as if it
were a levy of sales tax collected under the Act.
Access to record, documents, etc.

Section 25(3)
This section deals with the access to record and
documents, especially for the Audits conducted by the
department. It is proposed to delete the reference of
section 36 as appearing in sub section (3) of section
25, since the matters dealt in section 36 were made
part of section 11 vide Finance Act, 2013 and
accordingly section 36 was omitted. Hence, the
reference of section 36 appearing in section 25 was
superfluous and has rightly been proposed to be
deleted.
10. Special audit by Chartered Accountants or Cost

Accountants
Section 32A
This section authorizes the Board or the Commissioner
to appoint a Chartered Accountant or a Cost and
Management Accountant or a firm of such
accountants to conduct audit of records and refund
claims of the registered persons.
The aforesaid provisions are proposed to be
substituted while empowering the Board to appoint as
many special audit panels as may be necessary,
comprising two or more members from the following
(a)
(b)
an officer or officers of Inland Revenue;

a firm of Chartered Accountants as defined
under the Chartered Accountants
Ordinance, 1961 (X of 1961);
36
Sales Tax
(c)
(d)
A firm of Cost and Management

Accountants as defined under the Cost and
Management Accountants Act, 1966 (XIV
of 1966); or
Any other person as directed by the Board.
The special audit panel is formed to conduct audit of a

registered person or persons, including audit of
refund claims and forensic audit and the scope of such
audit shall be determined by the Board or the
Commissioner Inland Revenue on a case-to-case basis.
It is also proposed that the Board may, where it
considers appropriate, also get such audit conducted
jointly with similar audits being conducted by
provincial administrations of sales tax on services.
The Bill proposes for the appointment of the Chairman
who shall be an officer of Inland Revenue for the
purpose of heading each special audit panel. It is also
proposed that in the event any one member of the
special audit panel, other than the Chairman, is absent
from conducting an audit, the proceedings of the audit
may continue and audit conducted shall not be invalid
or be called in question merely on the ground of such
absence.
The Bill also proposes that the Board may prescribe
Rules in respect of constitution, procedure and
working of special audit panel. It is also proposed that
every member of the special audit panel shall have the
powers of officers of Inland Revenue.
11. Offences and penalties
Section 33
This section deals with the general and specific
penalties under specified circumstances. The penalty
for late filing of the sales tax return or for late deposit
of tax is at a concessional rate of Rupees 100 per day
provided the delay does not exceed fifteen days.
Higher penalties are attracted after the expiry of
fifteen days. The Bill now proposes to restrict the
availability of the concessional rate of Rs. 100 per day
to a delay of upto ten days only by making amendment
is Sr. No. 1 and 5 of the Table.
12. Monitoring or tracking by electronic or other means
Section 40C
Section 40C was inserted vide Finance Act, 2013,
whereby the Board was authorized to issue
notification in order to specify any registered person
or class of registered persons or any goods or class of
goods in respect of which monitoring or tracking of
production, sales, clearances, stocks or any other
related activity may be implemented through
electronic or other means.
Sub section (2) prescribes that in such cases, no

taxable goods shall be removed or sold by the
manufacturer or any other person without affixing tax
stamp, banderole, stickers, labels, etc. in any such
form, style and manner as may be prescribed by the
Board.
The Bill now seeks to amend sub section (2) by
inserting the word barcode after the word labels,
meaning thereby, the Board may also impose the
condition of affixing barcodes on the said goods for
the monitoring purposes.
The Bill also seeks to add sub-section (3), which
provides that the aforementioned tax stamps,
banderoles, stickers, labels, barcodes etc., shall be
acquired by the registered person from a licensee
appointed by the Board. The licensee shall also install
the related required equipment in the premises of the
said registered person. The price of the equipment and
tax stamps, banderoles, stickers, labels, barcodes etc.
supplied by the licensee shall be fixed by the Board.
13. Agreement for the exchange of information
Sections 56A & 56B
As a consequence of the Eighteenth amendment to
the Constitution of Islamic Republic of Pakistan
whereby each province is empowered to levy tax on
identifiable services, it has become imperative for the
tax regulatory authorities in Pakistan to exchange
information in order to check the tax evasion and
avoidance by the taxpayers. Hence, Section 56A has
been proposed to be introduced by the bill whereby
the federal government is empowered to enter into
multilateral and bilateral agreement with the
provincial government for exchange of the required
information.
At the same time, the said section also empowers the
federal government to exchange information with a
foreign government under a multilateral and bilateral
agreement. Such an approach, it appears, is in line
with the global initiative towards information sharing
and exchange for the purposes of combating tax
evasion and avoidance. The precursor to this initiative
was the Foreign Account Tax Compliance Act
(FATCA), as introduced by the Inland Revenue
Services (IRS) and the more recent Common
Reporting Standard (CRS) developed by the
Organization for Economic Co-operation and
Development (OECD) that are aimed at disclosure of
information by foreign financial institutions (FFIs) and
other financial intermediaries with a view to prevent
tax evasion by the tax payers residing in the other
jurisdictions.
37
Sales Tax
The information received under both the proposed

amendments may be used only for tax and related
purposes and is required to be kept confidential as
proposed under section 56B.
(xvi)
14. Prize scheme to promote tax culture

Section 56C
0402.1000
The above items are proposed to be included in the

Sixth Schedule thereby making them exempt instead
of zero rated. This would mean that the eligibility of
claim of input tax would no longer be available to
suppliers of the above mentioned goods. Moreover if
the aforesaid goods are sold in retail packing under a
brand name, the same would be subject to a reduced
rate of sales tax of 10% under the Eighth Schedule.
The proposed new section is aimed to broaden the tax

base whereby, the Board is allowed to introduce prize
schemes to encourage the general public to make
procurement only from the registered persons who
issues tax invoices.
15. Amendment in the Fifth Schedule- Zero Rated Goods
Milk and cream,

concentrated and
added sugar or other
sweetening matter
16. Sixth Schedule- Exemptions
The Fifth Schedule to the Act lists goods that are zero
rated. The Bill proposes the following amendments in
this Schedule:
The Sixth Schedule deals with exemption of goods

from the levy of sales tax . The Bill has proposed
withdrawal of the following exemptions :
Supply of specified locally manufactured plant and

machinery to Export Processing Zones (EPZ) which is
included under serial No. 6 of the Fifth Schedule is
proposed to be shifted to a newly inserted serial No.
6A and the zero rating of such plant and machinery
would be subject to conditions, restrictions and
procedure which are detailed therein.
Table 1 (on import and local supply)
The Bill further proposes to amend serial 9 of the Fifth

Schedule which deals with exempted goods that are
exported by a manufacturer involved in local supplies
of both taxable and exempted goods. Currently the
benefit of zero rating is conditional i.e. applicable for
only those manufacturers who are making local
supplies of both taxable and exempt goods. The Bill
now proposes to remove the above condition which
would mean that any manufacturer who exports
exempted goods can avail the benefit of zero rate of
sales tax regardless of the fact the manufacturer is
involved in local supplies of both taxable and
exempted goods.
The Bill has further proposed the omission from zero
rating of the following items covered under serial No.
12Clause
No.
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(xv)
Description
Flavored milk
Yogurt
Cheese
Butter
Cream
Desi ghee
Whey
PCT Heading
0402.9900
0403.1000
0406.1010
0405.1000
04.01 and
04.02
0405.9000
04.04
S.No.
Description
28
Poultry feed and

cattle feed including
their all ingredients
except soyabean
meal of PCT heading
2304.0000 and oilcake of cottonseed
falling under PCT
heading
2306.1000.
Incinerators of
disposal of waste
management,
motorized sweepers
and snow ploughs.
Re-importation of
foreign origin goods
which were
temporarily
exported out of
Pakistan subject to
similar conditions as
are envisaged for
the purposes of
applying zero-rate
of Customs Act,
1969 (IV of 1969).
39
56
Heading Nos. of the First

Schedule to the Customs
Act, 1969 (IV of 1969)
2301.2090, 2305.0000,
2306.2000, 2306.3000,
2306.4100, 2306.5000,
[2309.9090, 2936.2100,
2936.2200, 2936.2300,
2936.2400, 2936.2500,
2936.2600, 2936.2700
and 2936.2800]
8417.8000, 8430.2000
and 8479.8990
99.18
38
Sales Tax
The aforesaid goods have now been proposed to be

separately subject to a reduced rate of sales tax under
the Eighth Schedule.
Table 2 (on local supply only)
S.No.
Description
13
Reclaimed lead, if
supplied to
recognized
manufacturers of
lead batteries
Waste paper
14

Act, 1969 (IV of 1969)
Respective headings
122
123
Aircraft, whether imported or

acquired on wet or dry lease
124
Maintenance kits for use in

trainer aircrafts of PCT
headings 8802.2000 and
8802.3000
Spare parts for use in
aircrafts, trainer aircrafts or
simulators
Machinery, equipment and
tools for setting up
maintenance, repair and
overhaul (MRO)
workshop by MRO company
recognized by Aviation
Division
Operational tools, machinery,
equipment and furniture and
fixtures on one-time basis for
setting up Greenfield airports
by
a company authorized by
Aviation Division
Aviation simulators imported
by airline company recognized
by
Aviation Division
125
Respective headings
126
Table 3 (Annexure)
S.No.
10
Description
Machinery,
equipment, raw
materials,
components and
other capital goods
for use in buildings,
fittings, repairing or
refitting of ships,
boats or floating
structures imported
by Karachi Shipyard
and Engineering
Works Limited.
Plant, machinery,
equipment and
specific items used
in production of biodiesel.
16

Act, 1969 (IV of 1969)
Respective headings
foil with set.

Urine drainage bags
127
128
Respective headings
Table 1 (on import and local supply)
120
121
Respective
headings
Respective
headings
Respective
headings
Respective
headings
Table 2 (on local supply only)

Sr. No.
17
Description
Raw and pickled hides and
skins, wet blue hides and skins
18
Supplies made by
manufacturers of
marble and granite having
annual turnover less than five
million rupees even if their
annual utility bill is more than
eight hundred thousand
rupees
Bricks (up to 30th June,
2018)
Crushed stone (up to 30th
June, 2018)
The proposed amendments aims to include the

following goods in the Sixth Schedule :
Sr. No.
117
118
119
Respective
headings
8802.2000,
8802.3000,
8802.4000
Respective
headings
Description
Appliances for colostomy
Colostomy and urostomy bags
Tubular day lighting devices
(TDDs)
Various diagnostic kits or
equipment.
Blood Bag CPDA-1 with blood
transfusion set pack in
aluminum
Tariff Heading
3006.9100
3926.9050
8539.3930
3822.0000
19
Respective
headings
20
Tariff Heading
41.01,
41.02,
41.03,
4104.1000,
4105.1000,
4106.2100,
4106.3000,
4106.9000
Respective
headings
6901.1000
2517.1000
39
Sales Tax
The exempt goods mentioned in the sixth schedule as

prescribed in the schedule below shall be substituted:
78
Desi ghee
79
Cheese
80
Processed
cheese not
grated or
powdered
TABLE - I
Sr.
No.
Description
73
Milk and
cream
-
73A
74
75
Flavored milk
Yogurt
76
Whey
77
Butter
Substituted
through
Finance Bill
2015
Milk
Tariff
Heading
Milk and
cream,
concentrated
or
containing
added sugar
or other
sweetening
matter,
excluding
that sold in
retail
packing
under a
brand name
Flavored
milk,
excluding
that sold
in retail
packing
under a
brand
name
Yogurt,
excluding
that sold in
retail
packing
under a
brand name
Whey,
excluding
that sold in
retail
packing
under a
brand name
Butter,
excluding
that sold in
retail
packing
under a
brand name
04.01 and
04.02
04.01
Desi ghee,
excluding
that sold in
retail
packing
under a
brand name
Cheese,
excluding
that sold in
retail
packing
under a
brand name
Processed
cheese not
grated or
powdered,
excluding
that sold in
retail
packing
under a
brand name
0405.9000
0406.1010
0406.3000
17. Amendments in the Eighth Schedule

0402.9900
The Eighth Schedule deals with items that are liable to

sales tax at reduced rates.
The Bill proposes enhancement in the rates of sales
tax for the following goods listed in Table I to the
Eighth Schedule S.No.
Description
0403.1000
1
4
6
04.04
Soyabean meal
Oilseeds meant for
sowing
Plant and
machinery not
manufactured
locally and having
no compatible local
substitutes.
Existing
Rate of
Sales Tax
5%
5%
Proposed
Rate of
Sales Tax
10%
10%
5%
10%
0405.1000
40
Sales Tax
The Bill proposes the addition of the following goods in

Table -1 to the Eighth Schedule Sr.
No.
7
Description
Flavoured
milk
Tariff
Heading
0402.9900
Rate
Condition
10%
Sold in
retail
packing
under
a brand
name
Sold in
retail
packing
under
a brand
name
Sold in
retail
packing
under
a brand
name
Sold in
retail
packing
under
a brand
name
Sold in
retail
packing
under
a brand
name
Sold in
retail
packing
under
a brand
name
Sold in
retail
packing
under
a brand
name
Sold in
retail
packing
under
a brand
name
Yogurt
0403.1000
10%
Cheese
0406.1010
10%
10
Butter
0405.1000
10%
11
Cream
04.01 and
04.02
10%
12
Desh ghee
0405.9000
10%
13
14
Whey
Milk and
cream,
concentrated
and
added sugar
or other
sweetening
matter
04.04
0402.1000
10%
10%
Sr.
No.
15
16
17
Description
Poultry feed,
cattle
feed, and
their
ingredients
except
soya bean
meal of
PCT heading
2304.0000
and oilcake
of cottonseed
falling under
PCT
heading
2306.1000
Incinerators
of
disposal of
waste
management,
motorized
sweepers and
snow ploughs
Reimportation of
foreign origin
goods which
were
temporarily
exported
out of
Pakistan
Tariff
Heading
Various
Tariff
Headings
Rate
Condition
5%
8417.8000,
8430.2000
and
8479.8990
5%
99.18
5%
18
Reclaimed
lead
Respective
headings
5%
19
Waste paper
47.07
5%
Subject to
similar
conditions
as are
envisaged
for the
purposes
of customs
duty
under the
Customs
Act,1969.
If supplied
to
Recognized
manufactu
rers
of lead and
lead
batteries
41
Sales Tax
Sr.
No.
20
Description
Plant,
machinery,
equipment
and
specific items
used in
production of
biodiesel
Tariff
Heading
Respective
headings
Rate
5%
21
Rapeseed,
sunflower
seed and
canola seed
1205.0000,
1206.0000
16%
22
Soya bean
seed
1201.1000
6%
23
25
26
Secondhand
and worn
clothing or
footwear
Agricultural
tractors
Tillage and
seed bed
preparation
equipment.
6309.0000
Condition
The
Alternative
Energy
Development
Board
(AEDB),
Islamabad
shall
certify in
the
prescribed
manner
and
format as
per
Annex-B,
as
given in
the
Sixth
Schedule.
On import
by
solvent
extraction
industries
On import
by
solvent
extraction
industries,
subject to
the
condition
that
no refund
of
input tax
shall
be
admissible.
27
28
29
30
S.No.
1
5
6
10%
Various
Tariff
Headings.
7%
Various
Tariff
Headings.
Various
Tariff
Headings.
7%
Various
Tariff
Headings.
7%
7%
8437.1000
7%
8433.4000
The Bill proposes enhancement in the rate of sales tax

for the following goods listed in Annexure of Table-2
to the Eighth Schedule -
5%
8701.9020
Seeding or
planting
equipment.
Irrigation,
drainage
and agrochemical
application
equipment.
(i) Harvesting,
threshing and
storage
equipment.
Post-harvest
handling and
processing &
miscellaneous
machinery:
(i) Vegetables
and fruits
cleaning and
sorting or
grading
equipment
(ii) Fodder
and
feed cube
maker
equipment
Description
Machinery and
equipment for
development of
grain handling and
storage facilities.
Complete plants
for relocated
industries.
Machinery,
equipment and
other capital goods
meant for initial
installation,
balancing,
modernization,
replacement or
expansion of oil
refining,
Existing
Rate of
Sales Tax
5%
Proposed
Rate of Sales
Tax
10%
5%
10%
5%
10%
42
Sales Tax
petrochemical and
petrochemical
downstream
products.
The Bill proposes the omissions of following goods
from the relevant Table -1 and 2 of the Eighth
ScheduleS.No.
Description
Tariff
Heading
Table -1
3
Directly reduced iron.
72.03
Table- 2
3
Items imported by Call Centers,

Business Processing
Outsourcing facilities duly
approved by the Pakistan
Telecommunication Authority
Proprietary Formwork System
for building / structures of a
height of 100 ft and above and
its various items and
components
Various
Headings
Various
Headings
The above goods would now be taxable at the

standard rate of 17% instead of the concessional rate
of 5%.
C.Smart
Cellular
Mobile
Phones or
Satellite
Phones
Description
A.Low
priced
Cellular
Mobile
Phones or
Satellite
Phones
B.Medium
priced
Cellular
Mobile
Phones or
Satellite
Phones
Sales Tax on Import

Existing
Rate of
Sales
Tax
Rs.150
Proposed
Rate of
Sales
Tax
Rs.300
Rs.250
Rs.500
Sales Tax at the time

of registration of IMEI
Existing
Proposed
Rate of
Rate of
Sales
Sales Tax
Tax
Rs.150
Rs.300
Rs.250
Rs.500
Rs.1000
Rs.500
Rs.1000
19. Certain Sales Tax and Federal Excise measures

announced in the salient features of the budget
documents
Through the salient features it was observed that
certain measures were taken in sales tax and federal
excise duty however coverage of the same was not
provided under the Finance Bill. It appears that since
the SROs have not been issued with the Budget,
therefore the below listed measures in sales tax and
federal excise duty would be covered when the related
SROs are issued--
Rationalization of sales tax on steel sector

melters, re- rollers and ship breakers.
Sales Tax Rules regarding temporary registration

are being introduced to facilitate the importerscum- manufacturers.
The electronic monitoring system is proposed to

be introduced to monitor the production of
specified sector i.e. cigarettes, beverages,
cement, fertilizer and sugar; and also to monitor
the sales of restaurants etc.
The provisions of temporary registration being

inserted in the Sales Tax Rules, 2006, whereby a
manufacturer shall be able to import machinery
etc. without having to wait for completion of
procedural formalities.
18. Amendments in the Ninth Schedule

The Bill proposes enhancement in the rates of sales
tax for the goods listed in the Table to the Ninth
Schedule-
Rs.500
20. Amendments in the Islamabad Capital Territory (Tax

on Services) Ordinance, 2001
Sales tax on services was originally levied through four
separate Provincial Sales Tax Ordinances, 2000
through which identical services were subjected to
sales tax. Subsequently the Islamabad Capital
Territory (Tax on Services) Ordinance, 2001 was also
introduced wherein similar services such as hotels,
clubs, advertisement on T.V. and radio, courier were
subject to sales tax. The administration and collection
of the provincial as well as Islamabad Capital Territory
sales tax was with the Federal tax authority.
Subsequently the scope of tax was expanded by
including additional services under the Federal Excise
Act, 2005 such as telecommunication, banking and
insurance services, franchise services, etc.
Sales Tax
43
In pursuance of the 18th amendment to the

Constitution of Pakistan and the 7th NFC award the
Provinces of Sindh, Punjab and Khyber Pakhtunkhwa
established their respective Revenue Authorities to
administer and collect sales tax on services.
Accordingly the respective Provincial Sales Tax
Ordinances of 2000 were repealed and replaced with
the Provincial Sales Tax on Services Act wherein
significant additional services were brought into the
tax net.
The impact of the above was that a wide range of
services became taxable in the provinces of Sindh,
Punjab and KPK, however the same services were not
being taxed in Islamabad Capital Territory. The Bill
now proposes to rectify this position by amending the
existing Schedule to the Islamabad Capital Territory
Ordinance, 2001 to include a wide range of services
that are being taxed in other provinces.
Through the proposed amendment the services of
contractual execution of work, technical scientific and
engineering consultants, business support services
etc. have been proposed to be included in the
Schedule of taxable services with effect from 1 July
2015 along with the respective rate of sales tax.
However definitions or Rules / procedures for the said
services have not been provided thereby leaving it
open to interpretation. Moreover the services that are
already taxable under the Federal Excise Act, 2005
such as telecommunication, banking and insurance
services, franchise services, etc. are not included in
this Ordinance and will continue to be taxable under
the Federal Excise Act, 2005.
44
45
Table of Contents
CUSTOMS
Section
Page
19 & 20
47
32(3)
47
Geeneral powers to exempt customs duties
Untrue Statement, error etc.
Transshipment of goods
79 (1),121 & 123
47
Punishment for offences
156
47
First schedule- Significant changes in rates of custom duty
48
Fifth Schedule- Import of Plant and Machinery etc.
18
48
46
47
Customs
Customs Act, 1969

1.
3.
On application by the owner of any goods imported to

any customs-station as for transshipment to some
other customs-station or foreign destination, the
custom authorities may grant leave to transship the
same without payment of duty and entry of goods at
the custom-station of destination and such goods will
be subject to taxes and duties at their port of
destination.
General Powers to Exempt Customs Duties

Section 19 & 20
Under section 19 the Federal Government may, by
notification in the official Gazette, exempt any goods
or class of goods from the whole or any part of
customs duty leviable under the Act and may remit
any fine, penalty, charge or any other amount
recoverable under the Act.
Now, for further clarification for collection of duties

on goods under transshipment, following
amendments being proposed under Sections 79, 121
and 123 of the Act :
Further under section 20 grants power to the Board

who in exceptional circumstances may by special
order, exempt any goods from the payment of the
whole or any part of the duty leviable under the Act.
i. Declaration and assessment for home

consumption or warehousing
Section 79 Sub-section (1)
The Bill now seeks to withdraw the powers of the

Board granting exemption by deleting section 20.
Moreover the power of the Federal Government to
grant exemption is pursuant to the approval of the
Economic Coordination Committee of Cabinet. This
approval is sought for whenever circumstances arise
to take immediate action for the purposes of national
security, natural disaster, national food security in
emergency situations arising out of from abnormal
fluctuation in international commodity prices, removal
of anomalies in duties, development of backward
areas and implementation of bilateral and multilateral
agreements.
2.
Transshipment of goods
For the purposes of declaration and assessment of

goods under Section 79 of the Act for home
consumption or warehousing, it is proposed that
goods under transshipment would also be covered
under the scope of the Section 79 of the Act.
Moreover, an explanation proposed to be added in
Section 79 of the Act which clarifies that the
assessment of duty, taxes and other charges on
goods under transshipment shall be changes/levied
at the port of destination.
The Bill proposes that all notifications by the Federal

Government for providing exemption shall be placed
before the National Assembly in a financial year. It is
also proposed that any notification issued under Subsection (2) of Section 16 of the Act after 1st July 2015
shall, if not earlier rescinded, stand rescinded on the
expiry of the financial year in which the said
notifications were issued.
ii. Transshipment of goods without payment of duty

Untrue statements, error etc.

iii. Entry, etc, of transshipped goods

Section 123
In terms of Section 32(3) of the Act, the custom

authorities are empowered to recover any duty or
charge not levied/short levied/erroneously refunded
due to an inadvertence, error or misconstruction by
issuing a show cause notice within three years from
the relevant date. However, in a case, the recoverable
amount is less than one hundred rupees, the customs
authorities shall not initiate any action under this
section.
Now, it is proposed that the lower limit of exception to
the recoverable amount of duty is increased from
Rs.100 to Rs.20,000.
It is proposed to introduce a proviso after sub

section (1) of Section 121 of the Act whereby the
computerized system may automatically authorize
transshipment of goods to other customs-station
subject to risk selectivity criteria.
An explanation is also proposed to be added after

Sub section (2) of Section 123 of the Act which
provided that in case of import of goods through a
LCL (less than a container load) for transshipment
to another destination, the custom station of first
entry shall be the custom-station where the goods
are de-consolidated.
4.
Punishment for Offences

Serial No.1(ii) of Table of Section 156
It is proposed to introduce a new penalty of not more
than Rs.50,000 being imposed on the person who
contravenes the requirement of placement of invoice
48
Customs
and packing list inside the import of container or

consignment. It seems that this penalty is introduced
with the objective to avoid under-invoicing at import
stage whereby importers avoid the requirement of
placing the invoice of supplier and list of goods with
the consignment so that, they are able to provide a
duplicate invoice (generally a fake invoice) with very
low import value thereby avoiding payment of duties
and taxes on much higher actual import values.
5.
custom duty subject to certain conditions laid

down under the Table.
Note:
The proposed amendments discussed at point no.7
and 8 above shall have effect from the following day
the assent is given by the President to the Finance Bill
2015-16.
First Schedule - Significant changes in rates of

custom duty
Section 1
The following significant changes have been proposed
in the custom duties of various items:
6.
Various items are presently liable to duty at the

rate of 1%, it is proposed that such rate be
increased to 2%;
The maximum rate of duty of 25% is proposed to

be reduced to 20%;
Fifth Schedule- Import of Plant and Machinery etc.

See Section 18
The Fifth Schedule to the Act provides the reduced
rate/exemption with certain conditions or limitations
from levy to customs duty on import of plant and
machinery for various sectors. The following
significant propositions are being introduced:
Customs duty on import of agriculture machinery

be reduced from existing rate of 5% - 20% to 2%;
Customs Duty on import of used construction

machinery by construction companies who are
registered with Pakistan Engineering Council and
SECP be reduced to 10%;
Reduced rate of customs duty available at the

rate of15% to Call Centers and Business
processing outsourcing facilities is being
withdrawn;
Reduced rate of customs duty on complete plant

for relocated industries is being withdrawn;
10% rate on import of machinery and equipment

by an industrial concern is being increased upto
15%; and
New exemption from levy of custom duty is being

introduced through Part V to the Fifth Schedule
which covers the Aviation industry. Import of
Aircraft and parts thereof will be made 0%
49
Table of Contents
FEDERAL EXCISE
1.
Exemptions
2.
Power of Board or Commissioner to pass certain orders
3.
4.
Departmental Audit
5.
Agreements for the exchange of information
6.
Disclosure of information by a Public Servant
Section
Page
16
51
35(1)
51
45A
51
46
51
47A
52
47B
52
52
7.
First Schedule,
Table I
8.
Rate of duty on cigarettes modified
First Schedule,
Table I
52
9.
Levy of duty on filter rod for cigarettes
First Schedule,
Table I
53
10.
Withdrawal of duty on socio-economic routes
First Schedule,
Table II
53
11.
Amendments in the Third Schedule
Third Schedule,
Table I & II
53
50
51
Federal Excise
1.
Section 45A
Exemptions
Section 16
Section 45A was inserted by the Finance Act, 2013,

whereby the Board may, by notification in the official
Gazette, specify any registered person or class of
registered persons or any goods or class of goods in
respect of which monitoring or tracking of production,
sales, clearances, stocks or any other related activity
may be implemented through electronic or other
means as may be prescribed. In such cases, no
excisable goods shall be removed or sold by the
manufacturer or any other person without affixing tax
stamp, banderole, stickers, labels, etc. in any such
form, style and manners as may be prescribed by the
Board.
Under Sub section (2) of Section 16, the Federal

Government may, by notification in the official
Gazette, exempt any goods or class of goods or any
services or class of services from the whole or any
part of the duty leviable under this Act.
Further under Sub section 3 of Section 16, the Board
may by special order, exempt from the payment of the
whole or any part of the duty leviable under this Act,
any goods or services on which such duty is leviable.
The Bill now seeks to withdraw the powers of the
Board granting exemption from the levy of the FED as
provided in Sub-section (3) of Section 16. In view of
the proposed withdrawal of powers of the Board, the
Federal Government is only vested with the powers to
grant exemption for levy of FED on any goods or class
of goods or any services or class of services as the
case may be, subject to the approval of the Economic
Coordination Committee of Cabinet. This approval is
sought for whenever circumstances exist to take
immediate action for the purposes of national
security, natural disaster, national food security in
emergency situations arising out of abnormal
fluctuation in international commodity prices, removal
of anomalies in duties, development of backward
areas and implementation of bilateral and multilateral
agreements.
The Bill proposes that all notifications by the Federal
Government for providing exemption shall be placed
before the National Assembly in a financial year. It is
also proposed that any notification issued under Subsection (2) of Section 16 after 1st July 2015 shall, if
not earlier rescinded, stand rescinded on the expiry of
the financial year in which the said notifications was
issued.
2.
3.
Power of Board or Commissioner to pass certain

orders
Section 35(1)
Under Sub-section (1) of Section 35, the Board or the
Commissioner is authorized to take suo moto action to
call for and examine the records of any proceedings
under this Act, or for verifying the legality or propriety
of any decision or order passed by a subordinate
officer and may pass such order as he may think fit.
The Bill now seeks to expand the scope of this section
whereby the actions by the Board or the
Commissioner, as the case may be taken under sub
section (1) on application by the aggrieved person in
addition to their suo moto action.
The Bill now seeks to expand the affixation

requirements under the FE Act and proposes to
include barcodes before sale and removal of
excisable goods by the manufacturer.
The Bill also proposes to insert a new Sub-section (3),
whereby such tax stamps, banderoles, stickers, labels,
barcodes etc., shall be acquired by the registered
persons referred to in Sub-section (2) from a licensee
appointed by the Board for the purpose, against price
approved by the Board. The price shall include the cost
of equipment installed by such licensee in the
premises of the said registered person.
4.
Departmental Audit
Section 46
The heading of Section 46 reads as Departmental
Audit. The Bill seeks to amend the aforesaid heading
whereby the word Departmental is proposed to be
omitted with the result that the proposed new heading
is to be read as Audit.
Sub-Section 4 of section 46 authorizes the Board to
appoint a Chartered Accountant or a Cost and
Management Accountant or a firm of such
accountants to conduct audit of a person liable to pay
duties under this Act in such manner and subject to
such conditions it may specify.
The aforesaid provisions are proposed to be omitted
and now the Board may appoint as many special audit
panels as may be necessary, comprising two or more
members from the following
(e) an officer or officers of Inland Revenue;
(f) a firm of Chartered Accountants as defined under
the Chartered Accountants Ordinance, 1961 (X of
1961);
52
Federal Excise
(g)
(h)
A firm of Cost and Management Accountants as

defined under the Cost and Management
Accountants Act, 1966 (XIV of 1966) or
Any other person as directed by the Board.
It is also proposed that the provisions of Section 107

of the Income Tax Ordinance, 2001 shall, mutatis
mutandis, apply to this section
6.
The special audit panel is formed to conduct audit

of a registered person or persons, including audit
of refund claims and forensic audit and the scope
of such audit shall be determined by the Board or
the Commissioner Inland Revenue on a case-tocase basis. It is also proposed that the Board may,
where it considers appropriate, also get such
audit conducted jointly with similar audits being
conducted by provincial administrations of sales
tax on services.
The Bill also proposes to add new Sub-sections
(5), (6), (7) and (8), whereas the existing Subsection (5) has been proposed to be renumbered
as Sub-section (9).
The Bill proposes to insert a new Section 47B. This

Section places restrictions regarding information
acquired under any provisions of this Act, or in
pursuance of a bilateral or multilateral agreement or
tax information exchange agreement is to be treated
as confidential and no public servant shall disclose any
such information, except as provided under section
216 of the Income tax Ordinance, 2001.
7.
S.No.
4
5
The Bill also proposes that the Board may

prescribed Rules in respect of constitution,
procedure and working of special audit panel. It is
also proposed that every member of the special
audit panel shall have the powers of officers of
Inland Revenue under sections 23 and 45 and
Sub-sections (1) to (3) of Section 46.
Agreements for the exchange of information

Section 47A
The Bill proposes to insert a new Section 47A,
whereby the Federal Government may enter into
bilateral or multilateral agreements with
provincial governments or with governments of
foreign countries for the exchange of information,
including electronic exchange of information, with
respect to excise duty imposed under this Act or
any other law of Pakistan, or under the
corresponding laws of that country and may, be
notification in the official Gazette, make such
provisions as may be necessary for implementing
such agreements.

First Schedule, Table I
The rate of duty on aerated waters, as mentioned in
serial Nos. 4, 5 and 6 of Table I of the First Schedule
to the FE Act, have been proposed to be enhanced
from nine percent of retail price to twelve percent
of retail price.
The Bill proposes for the appointment of the

Chairman who shall be an officer of Inland
Revenue for the purpose of heading each special
audit panel. It is also proposed that in the event
any one member of the special audit panel, other
than the Chairman, is absent from conducting an
audit, the proceedings of the audit may continue
and audit conducted shall not be invalid or be
called in question merely on the ground of such
absence.
5.
Disclosure of Information by a Public Servant

Section 47B
8.
Description
Aerated waters
Rate of Duty
12 % of retail
price
12 % of retail
price
Aerated waters, containing

added sugar or other
sweetening matter or flavoured
Aerated waters if manufactured 12 % of retail
wholly from juices or pulp of
price
vegetables, food grains or fruits
and which do not contain any
other ingredient, indigenous or
imported, other than sugar,
colouring materials,
preservatives or additives in
quantities prescribed under the
West Pakistan Pure Food Rules,
1965
Rate of duty on cigarettes modified

The rate of duty on cigarettes have been proposed to
be changed by substituting serial Nos.9 and 10 of
Table I of the First Schedule to the FE Act along with
the description of goods. Proposed entries are as
follows:
53
Federal Excise
Table
No.
Relevant entry
in Table
Existing Provision
10
Description
Rate
of duty
Locally
produced
cigarettes if
their onpack printed
retail price
exceeds
rupees two
thousand
seven
hundred and
six per
thousand
cigarettes
Rupees
2,632 per
thousand
cigarettes
Locally
produced
cigarettes if
retail price
does not
exceed
rupees two
thousand
seven
hundred and
six per
thousand
cigarettes
Rupees
1,085 per
thousand
cigarettes
Proposed Provision
Description
Locally
produced
cigarettes if
retail price
exceeds
rupees
three
thousand
three
hundred
and fifty per
thousand
cigarettes
Locally
produced
cigarettes if
retail price
does not
exceed
rupees
three
thousand
three
hundred
and fifty per
thousand
cigarettes
Rate
of duty
Rupees
3,030 per
thousand
cigarettes
Rupees
1,320 per
thousand
cigarettes
11. Amendments in the Third Schedule

The Third Schedule to the FE Act lists goods and
services that are exempt from duty of excise whether
conditionally or otherwise. Currently, some of the
exemptions are also available through various
notifications issued by the Board from time to time.
The proposed amendment in the Third Schedule aims
to include the exempt goods and services mentioned in
the notifications within the body of the Third Schedule
as described in the table below. It is likely that the
respective SROs will be rescinded with effect from 01
July 2015.
TABLE I (GOODS)
Entry
Heading / subDescription of goods
No.
heading Number
Items listed in SRO 474(I)/2009 dated 13
June 2009 proposed to be incorporated in
Table I of the Third Schedule
25.23
18
White cement
19
Motor cars and other

motor vehicles
principally designed for
the transport of persons
including station wagons
and racing cars of
cylinder capacity
exceeding 850cc.
87.03
TABLE II (SERVICES)
Entry
Heading / sub9. Levy of duty on filter rod for cigarettes
Description of goods
No.
heading
Number
Services provided or
98.03
rendered in respect of
The following good is proposed to be brought under
travel by air of
the purview of excisable goods by including the same
passengers on socioin Table I of the First Schedule to the FE Act.
economic routes, which
means the shortest part
Heading /
Entry
Description of
Rate of
9
of journeys starting from
sub-heading
No.
goods
duty
or ending at an airport
Number
located in Markran
Filter rod for
5502.0090 Rs. 0.75 per filter
56
coastal region, FATA,
cigarette
rod
Azad Jammu and
Kashmir, Gilgit-Baltistan
10. Withdrawal of duty on socio-economic routes
or Chitral
First Schedule, Table II
Services exempt under Rule 41A of the
special procedures for excisable services of
The rate of duty of Rs.500 on services provided or
Federal Excise Rules, 2005 proposed to be
rendered in respect of travel by air of passengers on
incorporated in Table II of the Third
Socio-economic routes excluding journeys along the
Schedule
Balochistan coastal belt, as mentioned in sub-clause
9803.1000
(iii) of clause (a) in serial no 3, is proposed to be
rendered in respect of
deleted.
10
travel by air of
passengers on
international journeys
54
Federal Excise
Entry
No.
11
12
Description of goods
Heading / subheading Number
from Pakistan to:

(a) Hajj Passengers;
(b) Diplomats; and
(c) Supernumerary
crew
Services listed in SRO 802(I)/2009 dated
14 September 2009 and SRO 81(I)/2010
dated 13 February 2010 proposed to be
incorporated in Table II of the Third
Schedule
Advertisements in
9802.4000
newspapers and
periodicals
Services listed in SRO 474(I)/2009 dated 13
June 2009 proposed to be incorporated in
Table II of the Third Schedule
98.13
rendered by banking
companies and nonbanking financial
companies in respect of
Hajj and Umrah, cheque
book, insurance,
Musharika and Modaraba
financing and utility bill
collection.
Notes
55
Notes
56

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A public company deriving profit for the year and

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Certain amendments made in the definitions of

Prize scheme to promote tax culture

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Excess reserves of public company to suffer tax

Collection and exchange of information

Dividend paid by non-resident companies

Withholding tax on services rendered by companies

Payment to residents for use of machinery and equipment

Collection of tax by Pakistan Mercantile Exchange Limited

Automatic selection for audit or retailers

Tax on shipping business carried on by resident person

Tax credit for non-profit organizations

Sub-section (4A) of 152

Sub-section (1B) of 161

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Advance tax on private motor vehicles

Collection of advance tax by educational intuitions

Advance tax on purchase or transfer of immovable property

Rates of tax for individuals and Association of Persons

Reduction in tax liability

Rates of tax for companies

Rate of Super tax for rehabilitation of temporarily displaced persons

Rate of tax on dividend income

Rate of tax on profit on debt

Rate of tax on capital gains on securities

Rate of tax on capital gain on immovable property

Advance tax on imports

Advance tax on dividends

Advance tax on profit on debt

Advance Income tax on payment to non-residents

Advance income tax on payment to resident on payment for goods

Collection of advance income tax on petroleum products

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Collection of advance income tax on Brokerage and Commission

Collection of advance income tax on goods transport vehicles

Collection of advance income tax on passenger transport vehicles

Collection of advance income tax on private motor vehicles

Motor Vehicle tax when collected in lump sum

Advance tax on electricity consumption

Advance tax on telephone users

Advance tax on cash withdrawal

Advance tax on transaction in bank