Finance Act, 2014 Explanation regarding Important amendments made in the Income Tax Ordinance, Amendments in Mutual Funds Taxation Regime.

Transcription

1 INCOME TAX Finance Act, 2014 Explanation regarding Important amendments made in the Income Tax Ordinance, Clause (61A) of sec 2, clause (99) of Part I of2nd Schedule, DIV I of Part III of first Schedule. Amendments in Mutual Funds Taxation Regime. To claim exemption under the clause 99 bonus shares, bonus units or certificates shall not be considered for the purpose of computing 90% distribution of income. In other words, to claim exemption, 90% of the income must be distributed in the form of cash dividend. Tax deduction on dividend income distributed by them to the unit holders. In case of companies the rate of tax deduction for dividends distributed by mutual funds other than stock funds shall be 25%. Stock Funds have also been defined through Finance Act, 2014 as collective investment scheme or mutual fund where investible funds are invested by way of equity shares in companies to the extent of 70% of the investment. For Stock Funds the rate shall be 10% (if dividend receipts are more than capital gains receipts) or 12.5% (if receipts from capital gains are more than dividend received). Clause (29) of sec 2, Section 39(1)(m), Section 236M and 236N For Individuals Since the rate of dividend and interest income is both 10% the rate of 25% applicable to companies shall not apply. However, in case of stock funds where capital gains receipts are higher than dividend receipts, the rate shall be 12.5% for individuals as well. Taxation of Bonus Shares. Issuance of the bonus shares as income of the shareholder of the company, receiving bonus shares, by excluding the word but does not include, in case of a shareholder of a company, the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by the company to the shareholders with a view to increasing its paid up share capital The income deemed has been included under the head Income from Other Sources under section 39(1)(m) of the Ordinance.

2 Section 236M and 236N bonus shares issued by companies quoted on stock exchange and those not quoted on stock exchange. Companies issuing bonus shares have been made responsible for collecting tax on the said deemed income, which is 5% of the value of bonus shares. Tax collected by the companies shall be a final tax on the income of the shareholder of the company arising from issuance of bonus shares. Companies quoted on stock exchange, issuing bonus shares to the shareholders of the company, shall withhold bonus shares, at the rate of 5% of the bonus shares to be issued. These bonus shares withheld shall only be issued to the shareholder if the company collects, within fifteen days, from the shareholder tax equal to five per cent of the value of the total bonus shares issued to the shareholder determined on the basis of the day-end price on the first day of closure of books. In case of default, either on the part of the company or the shareholder, the company shall deposit the bonus shares withheld in CDCPL or any other entity as may be prescribed. These bonus shares shall be disposed of in the mode and manner as may be prescribed and the proceeds thereof shall be paid to the Commissioner by way of credit to the Federal Government. Companies not quoted on stock exchange, issuing bonus shares to the shareholders of the company, shall deposit tax, within fifteen days of the closure of books, at the rate of 5% of the value of the bonus shares on the first day of closure of books. The company shall be entitled to collect and recover the tax deposited under subsection (1), from the shareholder, on whose behalf the tax has been deposited, before the issuance of bonus shares. If a shareholder neither makes payment of tax to the company nor collects its bonus shares, within three months of the date of issuance of bonus share, the company may proceed to dispose of its bonus shares to the extent it has paid tax on its behalf. The proceeds of the bonus shares disposed of and paid under section 236M and 236N, shall be treated to have been paid on behalf of the shareholder.

3 Section 37A, Section 100B, DIV VII of Part I of first schedule Capital gains on disposal of Securities. The debts securities in the definition of security in section 37A, the gain/loss on disposal of debt securities shall be computed, collected and paid into national exchequer using the NCCPL s mechanism as laid down in the Eight Schedule to the Ordinance, unless opted out with the approval of the Commissioner. However, Companies shall not be subjected to this regime section 100B(2)(d) and will continue to be taxed as in the past with the rates applicable to companies and not the rates as amended in Division VII of Part I of First Schedule. Individuals, on the other hand, trading debts securities shall be subject to mechanism as laid down in the Eight Schedule to the Ordinance. Securities held for a period between 12 and 24 months have also been made taxable under the Ordinance, at a rate of 10%. However, securities held for a period of more than 24 months shall continue to be taxed at 0%. Foreign Institutional Investors investing in Stock Exchange and NCCPL The rate have been revised and for securities held upto one year, capital gains tax shall be 12.5% and for securities held between 12 and 24 months, the rate shall be 10%. The Eight Schedule was not applicable to Foreign Institutional Investors investing in Stock Exchange and NCCPL was not required to collect tax from them in view of section 100B (2)(d), it was expected that Foreign Institutional Investors will file their returns to declare their gains. However, Alternative Corporate Tax (Section 113C) since no Return was being filed, nor was it possible to enforce their returns, Foreign Institutional Investors have been brought into tax net by amending section 100B and tax shall now be collected using NCCPL s mechanism as laid down in the Eight Schedule to the Ordinance. It shall only be applicable to companies. Corporate Tax mean total tax payable by the company, including on account of Minimum tax and final taxes payable but not including mentioned in Section 8 = General provisions relating to taxes imposed under section 5, 6 and 7. Section 161 = Failure to pay tax collected or deducted. Section 162 = Recovery of tax from the person from whom tax was not collected or deducted and Any amount charged or paid on account of default surcharge or penalty and the tax payable under this section.

4 ACT mean the tax at a rate of 17% of a sum equal to accounting income less the amounts, as specified in Sub-section 8, which include exempt income. Section 65D = Tax credit for newly established industrial undertakings. Section 65E = Tax credit for industrial undertaking established before the first day of July, Section 100C = Tax credit to certain persons. Section 37A = Capital gain on disposal of securities. Section 148(7) = Imports Section 150 = Dividends Section 153(3) = (Payment of goods, services and contracts) The tax deductable under clause (a) and (c) of sub-section (1) and under subsection (2) of this section, on the income of a resident person shall be final tax. Section 154(4) = (Exports) The tax deductable under this section shall be a final tax on the income arising from the transactions referred to in this section. Section 156 = Prizes and winnings Section 233(3) = Brokerage and commission Where any tax is required to be collected from a persons under sub-section (1), such tax shall be the final tax on the income of such person, and Clause (18A), Part II of the Second Schedule Similarly, ACT shall not apply to taxpayer chargeable to tax in accordance with the provisions contained in the Fourth, Fifth and Seventh Schedules of the Ordinance. Accounting income has also been defined to mean the accounting profit before tax for the tax year, as disclosed in the financial statements, or as adjusted under sub-section (7) or (11) excluding share from the associates recognized under equity method of accounting. If ACT is greater than the Corporate Tax, the excess shall be carried forward to the following tax year and shall be adjusted against taxable income (not including accounting income) for that year. However The excess cannot be carried forward beyond 10 tax years.

5 Example 1 If corporate tax excluding minimum tax under section 113 = Rs 100 Minimum tax u/s 113 = Rs. 140 Alternative Corporate Tax = Rs. 200 Example 2 then Corporate Tax u/s 113C = Rs. 140 Excess amount of ACT over Corporate Tax is Rs. 60 which can be carried forward for ten years and Rs. 40 can be carried forward u/s 113(2)(c) of five succeeding tax years. Total Receipts 200 Total Expenses 50 Accounting income as per accounts 150 Taxable income 25 Breakup of total receipts Export Sales 20 Contract Receipts 30 Business Receipts 130 Dividend Receipts 10 Exempt Income 10 Computation of Accounting Income for calculating ACT a. Total Receipts in the accounts 200 b. Less amounts covered under section 113C(8): Export Sales 20 Contract Receipts 30 Dividend Receipts 10 Exempt Income c. Receipts pertaining to accounting income for 130 section 113C (a-b) = = Less : apportionment of expenses as per section 100C(7) Percentage of receipts of accounting income 65% u/s 113 C d. 65% of total expenses 32.50

6 Accounting income for ACT = (c-d)=( ) Computation of total tax liability A. Tax liability under 17% of B. Corporate 34% of C. Final tax liability: Exports 1% 0.20 Contract 6% 1.80 Dividend 5% 1.00 Total final tax payable = 3.00 Total tax payable (A+C) = ( ) Example 3 Taxable income for the year 200 Brought forward losses (300) Taxable Income / loss after BF losses (100) Accounting Income as per section 113C 250 Section 2(23A), 2(35C), 150, 151, 181A, 231A, 231B, 236C, 236G, 236K Computation of tax liability A. Corporate 34% on taxable income 0 B. Tax liability under 17% of Total tax payable (higher of A or B) Concept of filer and non filer Transactions Section Rates Filer Non-filer (i) Deduction of tax on dividend % 15% (ii) Deduction of tax on profit on debts % 15% (exceeding Rs. 500,000 rate for profit on debts which is less than Rs. 500,000 shall be 10%. (iii) Deduction of tax on cash withdrawal 231A 0.3% 0.5% (iv) Sale of immovable property 236C 0.5% 1.0% (v) Sale to distributors / dealers / 236G wholesalers - Fertilizers 0.2% 0.4% - Others 0.1% 0.2%

7 (vi) Purchase of immovable property (where purchase price is more than Rs. 300,000) (vii) Rates for motor vehicles 236K 1% 2% 231B and 234 Refer to para 15 Who is considered as filer and who as Non-filer two new clauses ie., 2(23A) and 2(35C) have been inserted in Income Tax Ordinance, 2001 which define filer as a taxpayer whose name appears in the active taxpayer list issued by the Board from time to time or is holder of a taxpayer s card. Rules for inclusion of the name in ATL are also being issued. Capital gains Section 37 Section 92 and 88A A non-filer is a person who is not a filer. Capital gain on immovable property is chargeable to tax u/s 37(1A) as per rates provided in DIV VIII, Part I, of the First Schedule. 10% where holding period is upto one year and 05% where holding period is more than one year but less than two years. 0% where property held for a period more than two years. Taxation of AOP in which One Member is A Company If a company is a member of an AOP, its share shall be excluded for the purpose of computing total income of the AOP. The share of the company shall be taxed separately, in the hands of company, as per rates applicable to a company. Section 100C and 159 and clauses (58),58(A), (59) and (60) of Part I of 2 nd Schedule Section 88A has been omitted. Prior to Finance Act, 2014, as per section 88A, the share of profits derived by a company from an AOP, was added in the taxable income of the company but the company was allowed a tax credit for its share of profits from the AOP. As the share of company is now to be taxed in the hands of the company and it is not to be included in the total income of the AOP, hence, there is no need for section 88A which stands omitted through 100% Tax credit in respect of non-profit organizations, trust, and welfare institutions. Reference To whom available Clause (58) A trust administered under a scheme approved by the federal Government in this behalf and established in Pakistan exclusively for the purposes of carrying out such activities as are for the Nature of income exempts Donations, voluntary contributions, subscriptions, house property, investments in the securities of the Federal Government and so much of the income chargeable under the head Income fro business as is

8 benefit and welfare of expended in Pakistan for the purposes of carrying out welfare activities. Clause (58A) Clause (59) i. Ex-servicemen and serving personnel, including civilian employees of the Armed Forces, and their dependents; or ii. Ex-employees and serving personnel of the Federal Government or a Provincial Government and their dependents, where the said trust is administered by a committee nominated by the Federal Government or, as the case may be, a Provincial Government. A trust or welfare institution or non-profit organization approved by Chief Commissioner of Income Tax for the purposes of this subclause. A university or other educational institution being run by a non-profit organization existing solely for educational purposes and not for purposes of profit Held under trust or other legal obligations wholly, or in part only-for religious or charitable purposes and is actually applied or finally set apart for application thereto Any income. Income from investments in securities of the Federal Government, profit on debt from scheduled banks, grant received from Federal Government or Provincial Government or District Governments, foreign grants and

9 Clause (60) Religious or charitable institution, excluding private religious trust which does not ensure for the benefit of the public. house property. Any income derived from voluntary contributions applicable solely to religious or charitable purposes of the institution; Now all the above exemptions have been withdrawn and replaced with tax credit equal to the amount of tax payable on such income. It is also clarified that approval already obtained in respect of non-profit organizations, trusts and welfare institutions under the omitted sub-clause (3) of clause (58), shall continue to be valid for sub-section (2)(c) of section 100C. However, the tax credit admissible shall be subject to fulfilling the following conditions; a. Return has been filed; b. Tax required to be deducted or collected has been deducted or collected and paid; and c. Withholding tax statements for the immediately preceding tax year have been filed. Before this amendment, income of the foregoing trust, welfare institutions, nonprofits organizations, religious and charitable institutions, universities, etc., was exempt from tax and they were entitled to get exemption certificates from collection and deduction of tax (withholding tax) from them. Now the exemption has been withdrawn and replaced with 100% tax credit, a corresponding amendment has also been made in section 159 for grant of exemption certificate from collection and deduction of tax (withholding tax) from them in eligible cases. Example for an NPO Donations/voluntary payments/subscription Rs. 100 Income from Federal Government Securities Rs. 50 Income from property Rs. 30 Business Income Rs. 30 Income from trading of shares u/s 37A Rs. 55 Capital gains from sale of immovable property Rs. 35 TOTAL Rs. 300 Business income subject to 100% tax credit = 30 x 30/300 = 3 Business income subject to normal tax = 27 (30-3)

10 Income u/s 37A and Capital gains shall be subject to normal rates applicable. Total tax payable NPO = Rs. 117 ( ) And Rs. 183 ( ) will be subject to 100% tax credit if the conditions as specified in section 100C are fulfilled. Section 113 Minimum tax on turnover For convenience and easy referencing the rates of minimum tax have been clubbed in DIV IX of Part I of the First Schedule as under: S.No Person(s) Minimum tax as % of the person s turnover for the year. (1) (2) (3) 1. a. Oil marketing companies, Oil 0.5% refineries, Sui Sothern Gas Company Limited and Sui Northern Gas Company Limited (for the cases where annual turnover exceeds rupees one billion): b. Pakistani Airlines; and c. c. Poultry industry including poultry breeding, broiler production, egg production and poultry feed production. 2. a. Distributors of pharmaceutical 0.2% products, consumer goods including fast moving consumer goods, fertilizers and cigarettes; b. Petroleum agents and distributors who are registered under the Sales Tax Act, 1990; c. Rice mills and dealers; and d. Flour Mills. 3. Motorcycle dealers registered under the 0.25% Sales Tax Act, In all other cases. 1%

11 Section 114 Return of Income To file return by persons who are members of following associations is restricted to resident persons only. Section 148 i. Chamber of commerce and industry ii. Any trade iii. Business association iv. Any market committee v. Any Professional body including vi. Pakistan Engineering council vii. Pakistan Medical and Dental Council viii. Pakistan Bar Council ix. Any Provincial Bar Council, x. Institute of Chartered Accountants of Pakistan xi. Institute of Cost and Management Accountants of Pakistan. Tax on import of ships by ship breakers Introducing new sub-section (8) in section 148. Rate of Tax is 4.5% This is Final tax The ship breakers have been exempted under clause (9AA), Part IV of the Second Schedule from the provisions of clause (a) of sub-section (1) of section 153 as recipient of payment in respect of supplies made by the ship breakers from breaking of ships. It is also clarified that the above concession is in respect of business of ship-breaking only and is restricted to supplies of ship-breaking business only and if a taxpayer is conducting other business e.g., having composite units of re-rolling or steel melting, clause (9AA) shall not be applicable.

12 Section 148 Tax rates on import Section 148 read with Part II of the First Schedule. Reduced rates for certain classes of persons existed in the Second Schedule, Now, all the rates for collection of tax under section 148 have been clubbed, by substituting Part II of the First Schedule. S.No Persons Rate (1) (2) (3) 1. i. Industrial undertaking importing remeltable steel (PCT heading 72.04) and directly reduced iron its own use; ii. Persons importing potassic fertilizers in pursuance of Economic Coordination Committee of the cabinet s decision No. ECC- 155/12/2004 dated the 9 th 1% of import value as increased by customsduty, sales tax and federal excise duty. December, 2004; iii. Persons importing urea; and iv. Manufacturers covered under Notification No. S.R.O 1125(1)/2011 dated the 31 st December, Persons importing pulses 2% of import value as increased by customsduty, sales tax and federal excise duty. 3. Commercial importers covered under Notification No. S.R.O 1125(1)/2011 dated the 31 st December, % of import value as increased by customsduty, sales tax and federal excise duty. 4. Ship breakers on import of ships 4.5% 5. Industrial undertaking not covered under 5.5% S.No 1 to 4 6. Companies not covered under S.No 1 to 5 5.5% 7. Persons not covered under S.No 1 to 6 6%

13 Section 149 Tax deduction on director s fee Director s fee is included in the definition of salary but tax is not being deducted as per average rate of tax on the estimated income of the salaried individuals. From 1 st July 2014, the rate of tax deduction for Directors ship fee, Fee for attending board meeting or Such fee by whatever name called Section 150 and 151 Shall be tax at 20% of the gross amount payable. The tax deducted shall be adjustable against income under the head salary. Dividend and Profit on debt for non-filers (section 150 and 151 read with DIV I and IA, Part III of the First Schedule. Dividend (Section 150) Rate of dividend is 10% for filer and 15% for non-filer. When, non-filer, tax shall be 15% but when, they filing the return dividend rate shall be 10%. The additional 5% tax for a non-filer shall be adjustable against the total income for the year, at the time of filing of return. Profit on debts (Section 151) As per sub-section (3) of section 151, the rate of tax on profit on debts was final for a taxpayer other than a company. Amendment by Finance Act, Tax deductable for a filer as final 10% of yield or profit, and 15% for a non-filer with yield or profit exceeding Rs. 500,000. To attract the non-filer to file the return the additional 5% tax for a non-filer shall be adjustable against the total income for the year.

14 In case of Joint account if at least one person in the joint account is filer, the joint account holder as an entity shall be treated as filer. In case an account is held in a bank in the name of a minor, the minor shall deemed to be filer if the parent, guardian or any person who has made deposits in the minor s account is filer. Section 231B, 234, clause (3) and (4) of DIV III of Part IV and DIV VII of Part IV of the First Schedule Amendments in withholding taxes collected on transaction related to private Motor vehicles. a. Revision of rate of advance tax to be collected with payment of private Motor Vehicle Tax; S.No Engine capacity For filers For non-filers 1. Upto 1000cc Rs. 1,000 Rs. 1, to 1199cc Rs. 1,800 Rs. 3, to 1299cc Rs. 2,000 Rs. 4, to 1499cc Rs. 3,000 Rs. 6, to 1599cc Rs. 4,500 Rs. 9, to 1999cc Rs. 6,000 Rs. 12, cc and above Rs. 12,000 Rs.24,000 Revised rates for collection of advance income tax where motor vehicle tax is collected in lump-sum are as follows; S.No Engine capacity For filers For non-filers 1. Upto 1000cc Rs. 10,000 Rs. 10, to 1199cc Rs. 18,000 Rs. 36, to 1299cc Rs. 20,000 Rs. 40, to 1499cc Rs. 30,000 Rs. 60, to 1599cc Rs. 45,000 Rs. 90, to 1999cc Rs. 60,000 Rs. 120, cc and above Rs. 120,000 Rs. 240,000

15 b. Sub-section (3) of Section 231B Collection of advance income tax on sale of locally manufactured motor vehicles; Engine capacity Amount of tax for filer Amount of tax for nonfiler Upto 850cc Rs. 10,000 Rs. 10, to 1000cc Rs. 20,000 Rs. 25, to 1300cc Rs. 30,000 Rs. 40, to 1600cc Rs. 50,000 Rs. 100, to 1800cc Rs. 75,000 Rs. 150, to 2000cc Rs. 100,000 Rs. 200, to 2500cc Rs. 150,000 Rs. 300, to 3000cc Rs. 200,000 Rs. 400,000 Above 3000cc Rs. 250,000 Rs. 450,000 This advance income tax shall not be collected from the Federal Government, a Provincial Government, a Local Government, a foreign diplomat or a diplomatic mission in Pakistan. c. Collection of advance income tax on registration of private motor vehicles. Before Finance Act, 2014 under section 231 B, advance tax collecting on new locally manufactured vehicles, now tax is collectable from both locally manufactured and imported private vehicles when first registered in Pakistan. On the other hand the tax shall not be collected if the person, in whose name vehicle is being registered, provides evidence that advance income tax has been collected from the same person in respect of same vehicle; i. In the case of locally manufactured vehicle by the manufacturer of the vehicle under section 231B, or ii. In the case of imported vehicle, on import of the vehicle, u/s 148. If the person in whose name the vehicle is being registered is not the same as the person who purchased the vehicle from manufacturer or imported it, and paid tax at that stage, then the tax will be collected on registration of the vehicle.

16 This advance income tax shall not be collected from the Federal Government, a Provincial Government, a Local Government, a foreign diplomat or a diplomatic mission in Pakistan. Engine capacity Amount of tax for filer Amount of tax for nonfiler Upto 850cc Rs. 10,000 Rs. 10, to 1000cc Rs. 20,000 Rs. 25, to 1300cc Rs. 30,000 Rs. 40, to 1600cc Rs. 50,000 Rs. 100, to 1800cc Rs. 75,000 Rs. 150, to 2000cc Rs. 100,000 Rs. 200, to 2500cc Rs. 150,000 Rs. 300, to 3000cc Rs. 200,000 Rs. 400,000 Above 3000cc Rs. 250,000 Rs. 450,000 d. Collection of advance income tax on transfer of private motor vehicles; Under Sub-section (2) of Section 231B, advance income tax shall be collected on transfer of private motor vehicles from person in whose name vehicle is being transferred. The tax collected is adjustable against the income tax liability of the person paying the tax. In case a vehicle has been sold may times without being registered equal number of times in the name of persons buying the vehicle. - The person approaching the Motor vehicle authority for registration not liable to pay the tax u/s 231B(2) pertaining to all the persons who had previously bought the vehicle without registration. - The tax authority collect single transfer of registration from such a person applying for transfer in his name. - The motor vehicle authority has to register and collect the tax from all those persons for the period in which the vehicle was owned by them but not registered.

17 - The motor vehicle authority shall not collect the tax u/s 231B of these persons in the buying chain from the final person who approaches the Motor Vehicle Authority for registration in his name. if those persons are available. - If the intermediary buyers are not traceable or could not be found, the tax is to be collected from the final person, who is entitled to recover the same from the intermediary buyers. The tax shall be collected for upto five years from first registration in Pakistan. The rates of the tax for the year have been provided in the schedule and the rates shall be reduced by 10% for each year after the first year. Engine Capacity Rate of tax First Year Rate of tax Second Year Rate of tax Third Year Rate of tax fourth Year Rate of tax Fifth Year Filer Non-filer Filer Non-filer Filer Non-filer Filer Non-filer Filer Non-filer Upto 850cc 10,000 10,000 9,000 9,000 8,000 8,000 7,000 7,000 6,000 6, to 1000cc 20,000 25,000 18,000 22,500 16,000 20,000 14,000 17,500 12,000 15, to 1300cc 30,000 40,000 45,000 90,000 40,000 80,000 35,000 70,000 30,000 60, to 1600cc 50, ,000 45,000 90,000 40,000 80,000 35,000 70,000 30,000 60, to 1800cc 75, ,000 67, ,000 60, ,000 52, ,000 45,000 90, to 2000cc 100, ,000 90, ,000 80, ,000 70, ,000 60, , to 2500cc 150, , , , , , , ,000 90, , to 3000cc 200, , , , , , , , , ,000 Above 3000cc 250, , , , , , , , , ,000 Section 153, 156A and 233 This advance income tax shall not be collected from the Federal Government, a Provincial Government, a Local Government, a Foreign diplomat or a diplomatic mission in Pakistan. Rationalization of rates of tax deduction. Contract signed by sports persons have been included in clause (c) of sub-section (1) of section 153 and a new sub-paragraph (iii) has been added in paragraph (3) in DIV III, Part III of the First Schedule. Rate of tax shall be 10% of the gross amount payable in the case of sports persons. Sales of Goods section 153(1)(a) 4% of the gross amount payable in the case of companies, 4.5% in case of other taxpayers. Rendering Services section 153(1)(b) 8% of the gross amount payable in the case of companies, 10% in case of other taxpayers.

18 Execution of contract section 153(1)(c) 7% of the gross amount payable in the case of companies, 7.5% in case of other taxpayers. 0.5% on Exporter or an export house making payment for getting services of stitching, dying, printing, embroidery, washing, sizing and weaving. 12% on Commission paid by a person selling petroleum products to a petrol pump operator of the amount of payment. Section 159 Brokerage and commission 7.5% in case of advertising agents and 12% in all other cases. Exemption certificate for persons subject to Hundred percent tax credit under section 100C. A new clause (c) has been inserted in sub-section (1) of section 159 to unable such persons to apply to the Commissioner for exemption from deduction or collection of tax under DIV II or III of Chapter X or Chapter XII. It is also clarified that as NPOs, welfare institutions and trusts are subject to 100% tax credit in respect of specified incomes only, such as donations, voluntary contributions, house property, income from Government Securities etc., Exemption Certificate regarding withholding taxes in respect of amounts which are taxable and not subject to 100% tax credit is not to be issued. Section 235A It is further clarified that a certificate can only be issued subject to the condition that return has been filed for the immediately preceding year and withholding statements have also been filed and tax has also been paid. Advance tax on domestic electricity consumption 10% advance tax on the amount of electricity bill of a domestic consumer if the monthly bill exceeds Rs. 100,000 This tax adjustable against the tax liability. The prescribed person/withholding agent under this section shall be required to file withholding statement under section 165.

19 INCOME TAX Section 235B Finance Act, 2014 Explanation regarding Important amendments made in the Income Tax Ordinance, Tax on steel melters, re-roller etc., Re. 1 per unit of electricity consumed shall be collected from steel melter, steel re-roller and composite steel units, registered for the purpose of Chapter XI of Sales Tax Special Procedure Rules, The prescribed person, under this section for collecting tax, shall be the people preparing the electricity bill in the manner electricity consumption charges are charged. The prescribed person/withholding agent under this section shall be required to file withholding statement under section 165. This tax shall be deemed to be the tax in lieu of tax required to be deducted under sub-section (1) of section 153 on payment for purchase of local scrap. This tax shall not be adjustable and no person shall be entitled to claim the credit of tax collected under this section. A new clause (9A) has been inserted in Part IV of the 2 nd Schedule absolving steel melter, steel re-roller and composite steel units from deducting tax under section 153(1)(a) on purchase of scrap. Provided that tax is collected in accordance with section 235B. The exemption from non-deduction of tax is conditional to the requirement that tax is collected u/s 235B. Hence, such persons will have the option to either absolve (free) themselves of their responsibility as a withholding agent from deducting tax on purchase of scrap and in lieu of deduction pay Re. 1 per unit of electricity consumed or to fulfill their responsibility as a withholding agent and deduct tax u/s 153(1)(a) on purchase of scrap. The persons who do not wish to pay tax u/s 235B and instead would opt to fulfill their liability as a withholding agent u/s 153(1)(a) on purchase of scrap may furnish option to the commissioner and obtain exemption from collection of tax u/s 235B. In spit of this, such option exercised shall be exercised once in a financial year and it shall be irrevocable.

20 Section 236B Advance tax on purchase of domestic Air Ticket. Before Finance Act, 2014, the person preparing the air ticket shall deduct the tax. The prescribed person has been now changed, and the airline issuing the air ticket shall now be the prescribed person for collecting this tax. The mode, manner and time of collection under this section shall be separately prescribed in the rules.

21 INCOME TAX Section 236K Finance Act, 2014 Explanation regarding Important amendments made in the Income Tax Ordinance, Advance tax on purchase or transfer of immovable property. Advance tax 1% of the value of the property if the purchaser is a filer, and 2% of the value of property if the purchaser is a non-filer. Threshold for advance tax is Rs. 3million. The prescribed person for collecting this withholding tax shall be any person responsible for registering or attesting transfer of any immovable property and the tax shall be collected at the time of registration or at the time of attestation of transfer, whichever is earlier. The prescribed person / withholding agent under this section shall be required to file withholding statement u/s 165. The advance tax collected under this section shall be adjustable against the tax liability of the purchaser at the time of filing of return. No tax under this section shall be collected in case of the Federal Government, a Provincial Government, a Local Government, a foreign diplomatic mission, or a scheme introduced by the Federal Government or a Provincial Government or any Authority established under a Federal or Provincial law for expatriate Pakistanis. In the case of inheritance, the property is neither purchased nor any consideration is paid, withholding tax under this section shall not be applicable. In case of gifts, as its genuineness cannot be determined at that stage withholding tax shall be paid on the value notified by the provincial governments, the taxpayer may claim refund, in case of genuine gift, after filing the return.

22 INCOME TAX Section 236L DIV III, Part I of the First Schedule Finance Act, 2014 Explanation regarding Important amendments made in the Income Tax Ordinance, Advance tax on purchase of international Air Ticket. The collection of advance tax on Air tickets of classes other than economy for journeys originating from Pakistan. Every Airline issuing tickets for journey originating from Pakistan shall be the prescribed withholding agent for this section. Advance tax shall be collected in the manner air ticket charges are collected or charged. The prescribed person/withholding agent under this section shall be required to file withholding statement u/s 165. The advance tax collected under this section shall be adjustable against the tax liability of the passenger at the time of filing of return. The mode, manner and time of collection under this section shall be separately prescribed in the rules. Rate of Dividend Tax S.No Persons Rate (1) (2) (3) 1. i. Dividends declared or distributed by 7.5% purchaser of a power project privatized by WAPDA. ii. Dividend declared on shares of a company set up for power generation; and iii. Dividend declared on shares of a company supplying coal exclusively to power generation projects. 2.. Dividend received by a person from a stock 12.5% fund for tax year 2015 and onwards (if dividend receipts are less than capital gains). 3.. Dividend received by a company from a 25% collective investment scheme or a mutual fund, other than a stock fund, for tax year 2015 and onwards. 4.. In all other cases 10%