I N D E X. RIAZ AHMAD & COMPANY Chartered Accountants INTRODUCTION 1 EXECUTIVE SUMMARY 2 4 INCOME TAX 5 48 SALES TAX FEDERAL EXCISE DUTY 58 60

Transcription

1 Riaz Ahmad & Company

2 I N D E X DESCRIPTION PAGE NO. INTRODUCTION 1 EXECUTIVE SUMMARY 2 4 INCOME TAX 5 48 SALES TAX FEDERAL EXCISE DUTY OTHER LAW 61 CONTACT PARTNERS 62

3 INTRODUCTION This Memorandum has been prepared to facilitate our clients in better understanding of the changes made in income tax, sales tax, federal excise duty and other law through the Finance Act, The changes have been explained in a concise manner and insignificant changes of consequential, administrative, procedural or editorial nature have been ignored for the sake of brevity. Included under the heading of Income Tax Ordinance, 2001 is a dedicated portion, titled General, which covers complete rates of income tax, schedule of filing of various periodical statements, rates for deduction of income tax at source, filing date of income tax return, computation of advance tax, etc. for convenience and ready reference of our clients. The Finance Act, 2017, unless otherwise stated, has come into force on 01 July This Memorandum may be accessed on our web-site: It is recommended that the text of the Finance Act, 2017 as published in the Official Gazette and the relevant laws and notifications, wherever applicable should be referred to in considering the interpretation of any provision. This Memorandum contains only general comments. Final decision on any issue should not be taken without detailed consideration and professional advice. This Memorandum should not be published in any manner without the consent of the firm. For professional advice, you may contact our following tax experts: Sarfraz Mahmood Muhammad Arshad Inaam Ellahi Sheikh Muhammad Waqas Liaqat Ali Panwar Pirzada M. Khurram Raheel Arshad Bilal Ahmad Lahore Office Karachi Office Faisalabad Office Islamabad Office LAHORE: 13 July

4 EXECUTIVE SUMMARY Income Tax Durable goods have been excluded from the definition of 'fast moving consumer goods'. Liaison office has been defined as a place of business, acting for the principal, head office or an entity of which it is a part, maintains itself out of foreign remittance and no income is derived in Pakistan from its activities. Online marketplace has been defined as information technology platform run by e-commerce entity to facilitate transactions between buyer and seller. Concept of startup has been introduced whereby the person engaged in 'technology driven products or services' duly certified by Pakistan Software Export Board, having turnover less than one hundred million rupees in each of the last five tax years will be exempt from tax including minimum tax for three years. Super tax 4% on income of banking companies 3% on other taxpayers earning income of Rupees 500 million or above has been further extended upto tax year Now, tax on undistributed profits (instead of undistrib uted reserves) shall be 7.5% of accounting profit before tax on every public company other than a scheduled bank or a modaraba that does not distribute 40% of its after tax profit within six months of the end of the tax year. Return on investment on sukuks from a company shall be charged to tax on the same lines as in the case of special purpose vehicle. Final taxation on builders and developers is no more available. Threshold of loan given to an employee without any profit or at reduced rate of profit has been enhanced from five hundred thousand rupees to one million rupees for the purposes of taxation of the employee. Now, expenditure incurred by pharmaceutical manufactures on account of sales promotion and advertisement, exceeding ten percent of their turnover shall not be allowed as admissible deduction. Tax depreciation on assets jointly owned by the taxpayer and Islamic Financial Institution pursuant to arrangement of Musharika or Diminishing Musharika Financing will be allowed to lessee (taxpayer). Tax credit for investment in sukuks shall also be allowed to a resident person, other than a company, being original allottee as is being allowed in respect of investment in shares of a public company. If the taxpayer surrenders the insurance policy within two subsequent years of its acquisition, the credit allowed in this regard shall be deemed to have been wrongly allowed. Limit of taxable income for the purposes of deductible allowance in respect of tuition fee has been enhanced from one million rupees to one and a half million rupees. Maximum limit of premium paid for claiming tax credit in respect of health insurance has been enhanced from one hundred thousand rupees to one hundred and fifty thousand rupees

5 EXECUTIVE SUMMARY Three percent tax credit previously available in respect of ninety percent sales to registered person has been withdrawn. Period of tax credit for enlistment of company in stock exchange has been enhanced to four years. Profits and gains derived from sui gas field shall also be taxed in accordance with the Rules given in Part I of Fifth Schedule from tax year 2017 and onwards. Administrative and management expenditure of non-profit organizations (NPOs) shall not exceed 15% of their total receipts subject to specified conditions for the purposes of claiming one hundred percent tax credit. Moreover, surplus funds of the NPO shall be 10%. General rate of minimum tax u/s 113 on turnover has been enhanced from 1% to 1.25%. The concept of provisional assessment has been eliminated. Threshold of latest assessed income for the purpose of payment of advance tax u/s 147 by individual has been enhanced from five hundred thousand rupees to one million rupees. Now, revised monthly statement of withholding tax may be furnished within sixty days of its filing. Financial institutions shall also provide information in respect of any other reportable person to the FBR for the purposes of automatic exchange of information under bilateral agreement or multilateral convention. Directorates-General for broadening the tax base and for the purpose to conduct audit of transfer pricing in transactions between associates have been introduced. Advance tax collected by stock exchange from its members on purchase or sale of shares in lieu of tax on commission earned by such members shall now be final tax. Advance tax collected on electricity bills of CNG stations shall be final tax. Advance tax on sale, purchase or transfer of immoveable properties shall also be collected by housing authorities, housing societies, co-operative societies and registrar of properties. Tax collected on immoveable property acquired and disposed of within the same tax year shall be minimum tax. Pakistan Tobacco Board shall collect advance 5% of purchase value from the person purchasing tobacco. General rate of tax on dividend income has been enhanced from 12.5% to 15%. Rate of tax to be collected from subscribers of internet, mobile telephone and prepaid internet or telephone card has been reduced from 14% to 12.5%. Limit of quantity of raw material to be imported which is sought to be exempted from withholding tax at import stage has been enhanced from 110% to 125% of the quantity imported and consumed during previous tax year

6 EXECUTIVE SUMMARY Sales tax Sales tax shall be charged / levied on the value of goods imported irrespective of their final destination in territories of Pakistan where Sales Tax Act is not applicable. Further tax shall be charged, levied and paid on zero rated goods supplied to person who has not obtained registration number. Notice for recovery of tax shall not be issued if the taxpayer has paid 25% of the tax due and appeal against the order is pending with the Commissioner (Appeals). Fertilizer products (other than Urea) was previously subject to ta x under retail price regime. Such products shall now be subject to sales tax at fixed rates per bag. As fertilizer products manufactured from LNG were already subject to reduced rate of 5%, fixed taxes shall apply only in respect of fertilizers manufactured from natural gas other than LNG. Natural gas supplied to fertilizer plants for use as feed stock in manufacturing of fertilizer is made subject to sales tax at reduced rate of 10%. Poultry related equipment has been subject to reduced rate of sales 7%. Supply of locally produced coal has been subject to sales tax at higher of 17% of value of supply or Rupees 425 per metric tonne. Commercial import of fabric shall be subject to sales tax at the rate of 6% plus 2% value addition tax. Rate of sales tax on supplies of finished fabric to and by retailers; supplies of finished fabric to end consumers; other supplies of finished fabrics shall now be 6% instead of 5%. Rate of sales tax on supplies to any person, including retail sales, of locally manufactured finished articles of: (a) textiles and textile made -ups including carpets; and (b) leather and artificial leather shall now be 6% instead of 5%. Federal excise duty Scope of duty on imported goods has been expanded to areas / places where Federal Excise Act is not applicable. Notice for recovery of tax shall not be issued if the taxpayer has paid 25% of the tax due and appeal against the order is pending with the Commissioner (Appeals). Rate of duty on various types of cement has been enhanced from Rupee 1 to Rupees 1.25 per kilogram. Rate of duty on telecommunication services, except in specified area, has been reduced to 17% from 18.5%

7 INCOME TAX ORDINANCE, 2001 Fast moving consumer goods - definition Section 2(22A) Durable goods have specifically been excluded from the definition of 'fast moving goods' which will now be read as, "fast moving consumers goods means consumer goods which are supplied in retail marketing as per daily demand of a consumer excluding durable goods". Liaison office - definition Section 2(30C) Liaison office has been defined as under: liaison office means a place of business acting for the principal, head office or any entity of which it is a part, and (a) its activities do not result in deriving income in Pakistan; and (b) maintains itself out of any amount remitted from outside Pakistan received through normal banking channels. Explanation,- It is clarified thati. place of business shall not be treated as liaison office if it engages in: (a) commercial activities; (b) trading or industrial activities; or (c) the negotiation and conclusion of contracts; ii. iii. NCCPL the activities shall be treated to be commercial activities, if these include (a) providing after sales services for goods or services; or (b) marketing or promoting pharmaceutical and medical products or services; subject to clause (i), a place of business shall be treated as a liaison office, if it undertakes activities of (a) an exploratory or preparatory nature, to investigate the possibilities of trading with, or in, Pakistan; (b) exploring the possibility of joint collaboration and export promotion; (c) promoting products where such products are yet to be supplied to, or sold in, Pakistan; (d) promoting technical and financial collaborations between its principal and taxpayers in Pakistan; or (e) provision of technical advice and assistance. Section 2(35AA) This sub-section has been amended to include 'any subsidiary of NCCPL notified by the FBR' in the definition of NCCPL. So now, 'NCCPL' means National Clearing Company of Pakistan Limited, which is a company incorporated under the Companies Ordinance, 1984 (XLVII of 1984) and licensed as "Clearing House" by the Securities and Exchange Commission of Pakistan or any subsidiary of NCCPL notified by the Board (FBR) for the purpose of this clause. Officer of Inland Revenue Section 2(38A) New income tax authorities, "District Taxation Officer Inland Revenue" and "Assistant Director Audit" have been introduced and included in the definition of Officer of Inland Revenue. Relevant sections 207 and 208 have also been amended for this purpose. Online marketplace - new definition Section 2(38B) & Clause (28C) Part II, Second Schedule online marketplace means an information technology platform run by e-commerce entity over an electronic network that acts as a facilitator in transactions that occur between a buyer and a seller. Moreover, reduced rate of withholding tax at five percent has been introduced in case of a person running such business, by adding new clause (28C) in Second Schedule

8 INCOME TAX ORDINANCE, 2001 Startup Section 2(62A) & Clause 143 of Part I and Clause 11A & 43E of Part IV of Second Schedule New concept of startup has been introduced which means, (i) a business of a resident individual, AOP or a company that commenced on or after first day of July, 2012 and the person is engaged in or intends to offer technology driven products or services to any sector of the economy provided that the person is registered with and duly certified by the Pakistan Software Export Board (PSEB) and has turnover of less than one hundred million rupees in each of the last five tax years; or (ii) any business of a person or class of persons, subject to the conditions as the Federal Government may, by notification in the official Gazette, specify. Profit and gains derived by a start-up shall be exempt from tax for the tax year in which it is certified by the PSEB and the following two tax years. Moreover, provisions of section 113 regarding minimum tax and provisions of section 153 regarding withholding tax being recipient of payment, shall not apply in case of such business. Super tax for rehabilitation of temporarily displaced person Section 4B Super tax imposed only for tax year 4% on the income of banking companies 3% on other taxpayers earning income of Rupees 500 million or above was extended to tax year 2016 through Finance Act, 2016, has now again been extended for tax year Tax on undistributed profits Section 5A 'Tax on undistributed reserves' has now been replaced with 'tax on undistributed profits' before tax for the year applicable retrospectively from tax years 2017 and onward. The tax shall be 7.5% of accounting profit before tax on every public company other than a scheduled bank or a modaraba that derives profit for a tax year but does not distribute at least 40% of its after tax profit within six months of the end of the tax year through cash or bonus shares. Bonus shares or cash dividends for the tax year 2017 may be distributed before the due date of filing return of income of the company. This tax shall not be applicable to electric power generation companies qualifying for exemption under clause (132) of Part I of the Second Schedule and companies in which not less than fifty percent shares are held by the Government. Tax on return on investment in sukuks Sections 5AA & 150A By amendment in section 5AA, return on investment in sukuks from a company shall also be charged to tax as is the case with return on investment in sukuks from a special purpose vehicle. Accordingly, section 150A regarding withholding tax on such return has also been amended. Tax on builders and developers Sections 7C, 7D & 8 Final tax regime for builders and land developers, as was introduced through Finance Act, 2016, has now been abolished. However, final tax regime shall apply to projects undertaken for construction / development and sale of residential and commercial buildings / plots initiated and approved during tax yes 2017 and for which advance tax for approval was paid during tax year 2017 and for which the Chief Commissioner has issued online schedule of advance tax installments to be paid by the builders or developers, in accordance with the respective Income Tax Rules, Consequently, tax on projects initiated and approved after the tax year 2017 and onwards shall be charged under normal tax regime. For this purpose, section 8 has been amended to exclude sections 7C and 7D from final tax regime

9 INCOME TAX ORDINANCE, 2001 Value of perquisites Section 13(7) In case, the loan is provided by the employer to its employee without any profit or at reduced rate of profit, the differential deemed profit computed using specified rate, was added in the income of the employee provided that amount of loan was not exceeding five hundred thousand rupees. Now, this limit of five hundred thousand rupees has been enhanced to one million rupees. Deduction not allowed Section 21(o) Limit of deduction allowed to pharmaceutical manufactures in respect of expenditure incurred on account of sales promotion, advertisement and publicity has been enhanced from five percent to ten percent of their turnover. Now such expenditure in excess of ten percent of turnover will not allowed as admissible deduction. Depreciation Section 22(15) By inserting new proviso after the sub-section (15) of this section, the depreciable asset shall be treated to be wholly owned by the taxpayer where the depreciable asset is jointly owned by a taxpayer and an Islamic Financial Institution licensed by the State Bank of Pakistan or Securities and Exchange Commission of Pakistan, pursuant to an arrangement of Musharika or diminishing Musharika financing. Accordingly, tax depreciation on asset financed under Musharika or diminishing Musharika arrangements shall be allowed to the lessee. Exemption and tax concessions in the Second Schedule Section 53(2) & (4) By amendment in sub-section (2) of this section, the FBR has been empowered to grant exemptions and concessions with the approval of Federal Minister-in-Charge pursuant to the approval of the Economic Coordination Committee of Cabinet instead of the Federal Government. Further, following two provisos have been added after sub-section (4) to validate notifications upto 30 June 2018 which were issued from 01 July 2016 onward: "Provided that all such notifications, except those earlier rescinded, shall be deemed to have been in force with effect from the first day of July, 2016 and shall continue to be in force till the thirtieth day of June, 2018, if not earlier rescinded: "Provided further that all notifications issued on or after the first day of July, 2016 and placed before the National Assembly as required under sub-section (3) shall continue to remain in force till the thirtieth day of June, 2018, if not earlier rescinded by the Federal Government or the National Assembly. Tax credit for investment in shares and insurance Section 62(1) & (2) A resident person, other than a company, shall also be entitled to a tax credit for a tax year in respect of cost of acquiring in the tax year, sukuks offered to the public by a public company listed and traded on stock exchange in Pakistan, provided the resident person is the original allottee of the sukuks. The amount of such tax credit shall be computed according to same formula as is being used for tax credit in respect of shares of a public company or premium paid on life insurance. Moreover, by inserting a proviso in this section, if the taxpayer surrenders the insurance policy within two subsequent years of its acquisition, tax credit allowed under this section shall be deemed to have been wrongly allowed

10 INCOME TAX ORDINANCE, 2001 Deductible allowance for profit on debt and Deductible allowance for education expenses Sections 64A & 64AB Both sections 64A and 64AB have be re-numbered as 60C and 60D respectively to shift those at the right place under the head of "deductible allowances". By amendment in re-numbered section 60D, every individual shall now be entitled to a deductible allowance in respect of tuition fee if his taxable income is less than one and a half million rupees. Earlier this limit was one million rupees. Tax credit for investment in health insurance Section 62A(2) Maximum limit of contribution or premium paid for claiming tax credit in respect of health insurance has been enhanced from one hundred thousand rupees to one hundred and fifty thousand rupees. Tax credit to a person registered under the Sales Tax Act, 1990 Section 65A This section has been omitted and thereby three percent tax credit in respect of ninety percent sales to person registered under the Sales Tax Act, 1990 will no more be available. Tax credit for enlistment Section 65C Period of tax credit for enlistment in stock exchange has been enhanced from two tax years to four tax years with the condition that the tax credit for the last two tax years shall be ten percent of the tax payable. Principles of taxation of companies Section 94 Sub-section (3) of this section regarding taxation of dividend paid by a non -resident company to a resident person under the head "Income from Business" or "Income from other Sources" has been omitted. Accordingly, ambiguousness of taxation of dividend received from a non-resident company has been removed and now dividend shall be taxed at reduced rate as per section 5, in the same manner as in the case of dividend received from a resident company. This sub-section should have been omitted through Finance Act, 2015 when sub-section (2) of this section was amended by substituting the words 'resident company' with 'company' which resulted in ambiguity in taxation of dividend income. Special provision relating to the production of oil and natural gas, and exploration and extraction of other mineral deposits Section 100(2) Profits and gains derived from sui gas field for the tax year 2017 and onwards shall also be taxed in accordance with the Rules given in Part I of the Fifth Schedule. Earlier taxation of sui gas field was being dealt with normal provisions of law. Tax credit for certain persons Section 100C By inserting new clause (d) in sub -section (1) of this section, another condition has been imposed to claim one hundred percent tax credit by non-profit organizations (NPOs), trusts or welfare institutions that the administrative and management expenditure does not exceed 15% of total receipts. However, this condition will not apply to NPO if (a) charitable and welfare activities of the NPO have comme nced for the first time within last three years and (b) total receipts of the NPO during the tax year are less than one hundred million rupees. Moreover, surplus funds of NPO shall be taxed at the rate of ten percent. For this purpose 'surplus funds' have been defined as under: "Surplus funds mean funds or monies (a) not spent on charitable and welfare activities during the tax year; (b) received during the tax year as donations, voluntary contributions, subscriptions and other incomes; (c) which are more than twenty-five percent of the total receipts of the non-profit organization received during the tax year; and (d) are not part of restricted funds

11 INCOME TAX ORDINANCE, 2001 Explanation.- For the purpose of this sub-section, restricted funds mean any fund received by the organization but could not be spent and treated as revenue during the year due to any obligation placed by the donor. Minimum tax on the income of certain persons Section 113 Rate of minimum tax on turnover has been enhanced from 1% to 1.25%. Persons not required to furnish a return of income Section 115(3) Sub-section (3) of this section has been amended and thereby a widow, an orphan below the age of 25 years, a disabled person or a non-resident person in case of ownership of immovable property shall also not be required to furnish return of income solely by the following reasons: (a) own immoveable property with a land area of five hundred square yards or more located in a rating area; (b) owns a flat having covered area of two thousand square feet or more located in rating area; (c) owns a motor vehicle having engine capacity above 1000CC. Wealth statement Section 116(3) Now, wealth statement can be revised at any time before the receipt of notice of opportunity of being heard under section 122(9) for the tax year to which it relates. Earlier this option was available any time before making the assessment order under sub-section (1) or (4) of section 122. Extension of time for furnishing returns and other documents Section 119(4) In case, the Commissioner has not granted extension for furnishing return of income or statement, the Chief Commissioner has now specifically been empowered to grant extension or further extension for a period not exceeding fifteen days unless there are exceptional circumstances justifying a longer extension of time. Provisional assessment Sections 122C, 114, 116, 121, 122, 127 & 137 By omitting section 122C, the concept of provisional assessment introduced through Finance Act, 2010 has now been withdrawn. Corresponding amendment has been made in section 121, "Best judgment assessment" to pass assessment order on the basis of available information or material and to the best judgment of the Commissioner. Consequential amendments have also made in sections 114, 116, 122, 127 and 137. Appointment of the Appellate Tribunal Section 130(3) An Officer of Inland Revenue Service in BS-20 or above and a law graduate, shall no more be eligible for appointment as judicial member of the Appellate Tribunal. Recovery of tax from persons assessed in Azad Jammu and Kashmir and Gilgit-Baltistan Section 146 Gilgit-Baltistan (GB) has been added in this section after Azad Jammu and Kashmir (AJ&K) for recovery of unrecovered amount of tax assessed in GB because the person's residence is in Pakistan or has no moveable or immoveable property in GB. Such amount will recovered in the same manner as the amount of tax assessed in AJ&K is being recovered by the Commissioner in Pakistan. Advance tax paid by the taxpayer Section 147(2) & (4B) Threshold of latest assessed income for the purpose of payment of advance tax by the individual has been increased from five hundred thousand rupees to one million rupees

12 INCOME TAX ORDINANCE, 2001 Imports Section 148(7) & (8) The tax required to be collected on import of fertilizer by manufacturer of fertilizer shall now be a final tax. Moreover, the tax required to be collected on the import of plastic raw material imported by an industrial undertaking falling under PCT heading to for a tax year shall be minimum tax. Payments to non-residents Section 152(1B), (4A) & Clause (41) of Part IV of Second Schedule Provisions of clause (41) of Part IV of Second Schedule requiring option to be filed by the non-resident person for taxation under final tax regime on income arising from certain contracts have now been placed in sub-section (1B) of this section as a consequence of deletion of clause (41). The inserted new proviso has not specified any time limit for filing the option as well as period of validation of the option for assessment under final tax regime. Moreover, sub-section (4A) has been substituted to allow in writing by the Commissioner, the facility of making payment without deduction of tax or deduction of tax at a reduced rate, to a non-resident person having permanent establishment in Pakistan in respect of: (a) a contract or sub-contract under a construction assembly or installation project in Pakistan; (b) any other contract for construction or services rendered thereto; or (c) a contract for advertisement serv ices rendered by T.V. Satellite Channels. Previously, such facility was available only in respect of supply of goods, rendering or providing services and execution of a contract. Payments for goods, services and contracts Section 153(1)(c) Where the recipient of the payment in respect of rendering or providing services, receive the payment through an agent or third person after retention of service charges or fee, by whatever name called, then such retention of service charges or fee shall be treated as payment made by the recipient and the recipient shall collect tax alongwith the payment received from the agent or third person. Statements Section 165(2) If any person after furnishing monthly statement of withholding tax, discovers any omission or wrong statement therein, a revised statement may be furnished within sixty days of filing of original statement. Earlier this facility was not available. Furnishing of information by financial institutions including banks Section 165B(1) & (2) Financial institution shall also make arrangements to provide information regarding any other reportable person to the FBR for the purpose of automatic exchange of information under bilateral agreement or multilateral convention. Earlier, such information was provided in respect of non-resident person only. For this purpose, 'reportable person' has been defined in Chapter XIIA of the Income Tax Rules, 2002 inserted through SRO 166(I)/2017 dated 15 March 2017, as under: Reportable person means a person other than: i. A corporation the stock of which is regularly traded on one or more established securities markets; ii. Any corporation that is a Related Entity of a corporation described in sub-clause (i); iii. A governmental entity; iv. An International Organization; v. A Central Bank; or vi. A Financial Institutional. Notice to obtain information or evidence Section 176 A firm of cost and management accounts as defined under the Cost and Management Accountants Act, 1996 has also been empowered to conduct audit in the same manner as the powers have already been given to a firm of under this section

13 INCOME TAX ORDINANCE, 2001 Offences and penalties Section 182 Any person who fails to maintain records in respect of transactions between associates shall pay penalty of ten thousand rupees or five percent of the amount of tax on income whichever is higher. Similarly, if any person fails to furnish the information required in this regard shall pay penalty of twenty five thousand rupees for first default and fifty thousand rupees for each subsequent default. Moreover, penalties in respect of following offences have also been added in this section. Sr. No. Offences 17 Any reporting financial institution or reporting entity who fails to furnish information or country-by-country report to the Board as required under section 107, 108 or 165B within the due date. 18 Any person who fails to keep and maintain document and information required under section 108 or Income Tax Rules, Penalties Such reporting financial institution or reporting entity shall pay a penalty of two thousand rupees for each day of default subject to a minimum penalty of twenty five thousand rupees. 1% of the value of transactions, the record of which is required to be maintained under section 108 and Income Tax Rules, Section of the Ordinance to which offence has reference 107, 108 and 165B 108 Prosecution for non-compliance with certain statutory obligation Section 191(1) Any person who without reasonable excuse fails to provide return of income as required by the Commissioner through notice or fails to comply with provisions of Chapter XII regarding collection / deduction of tax at source, shall commit an offence punishable on conviction with a fine or imprisonment for a term not exceeding one year or both. Default surcharge Section 205(1B) Default surcharge due to non-payment or short payment of advance tax by the person having a special tax year, shall be calculated on and from the first day of the fourth quarter of the special tax year till the date on which assessment is made or the last day of special tax year, whichever is earlier. Advance ruling Section 206A(3) Now, a non-resident taxpayer having a permanent establishment in Pakistan can also apply for advance ruling in the same manner as was being done by a non-resident taxpayer under the provisions of this section. Disclosure of information by a public servant Section 216(3) Employees Old Age Benefit Institution shall also not be precluded from disclosure of information regarding salaries reported in statement furnished under section 165. Directorate-General of Broadening of Tax Base Directorate-General of Transfer Pricing Section 230D Section 230E New directorates have been introduced for broadening of tax base and audit for determination of transfer pricing at arm's length by inserting following two sections 230D and 230E:

14 INCOME TAX ORDINANCE, D. Directorate-General of Broadening of Tax Base. (1) The Directorate-General of Broadening of Tax Base shall consist of a Director-General and as many Directors, Additional Directors, Deputy Directors, Assistant Directors and such other officers as the Board may, by notification in the official Gazette, appoint. (2) The Board may, by notification in the official Gazette, specify the functions, jurisdiction and powers of the Directorate-General of Broadening of Tax Base." "230E. Directorate-General of Transfer Pricing. (1) The Directorate-General of Transfer Pricing shall consist of a Director-General and as many Directors, Additional Directors, Deputy Directors, Assistant Directors and such other officers as the Board may, by notification in the official Gazette, appoint. (2) The functions of the Directorate General of Transfer Pricing shall be to conduct transfer pricing audit. Explanation: For the removal of doubt, it is clarified that transfer pricing audit refers to the audit for determination of transfer price at arm's length in transactions between associates and is independent of audit under section 177, 214C or 214D which is audit of the income tax affairs of the taxpayer. (3) The Board may, by notification in the official Gazette, specify the criteria for selection of the taxpayer for transfer pricing audit and may further specify functions, jurisdiction and powers of the Directorate- General of Transfer Pricing. Advance tax on private motor vehicles Section 231B(1A) & Clause (102) of Part IV of Second Schedule Sub-section (1A) of this section has been substituted to enhance scope and rate of withholding tax from a non-filer from three percent to four percent. The substituted sub-section is as under: (1A) Every leasing company or a scheduled bank or a non-banking financial institution or an investment bank or a modaraba or a development finance institution, whether shariah compliant or under conventional mode, at the time of leasing of a motor vehicle to a non-filer, either through ijara or otherwise, shall collect advance tax at the rate of four per cent of the value of the motor vehicle. Moreover, by inserting new clause (102) in Part IV of Second Sche dule, such provision shall not be applicable in case of light commercial vehicles leased under the Prime Minister's Youth Business Loan Scheme. Brokerage and commission Section 233(2A) Now, the principal shall withhold tax on payment to electronic or print media for advertising services in the manner as specified in following new sub-section of this section: (2A) Notwithstanding the provisions of sub-section (1), where the principal is making payment on account of commission to an advertising agent, directly or through electronic or print media, the principal shall deduct tax (in addition to tax required to be deducted under clause (b) of sub-section (1) of section 153 on advertising services excluding commission), at the rate specified in Division II of Part IV of the First Schedule on the amount equal to- A x Where A = amount paid or to be paid to electronic or print media for advertising services (e xcluding commission) on which tax is deductible under clause (b) of sub- section (I) of section 153. (2B) Tax deducted under sub-section (2A) shall be final tax on the income of the advertising agent."

15 INCOME TAX ORDINANCE, 2001 Collection of tax by a stock exchange registered in Pakistan Section 233A(2) Advance tax collected by stock exchange registered in Pakistan from its members on purchase or sale of shares in lieu of tax on commission earned by such members, shall now be final tax instead of adjustable tax. CNG stations Section 234A Advance tax collected on the amount of electricity bill (under section 235) of CNG stations shall now be a final tax on the income of CNG station arising from the consumption of the gas. It has also been clarified that tax on income arising from consumption of gas means the tax collected on the amount of gas bill of a CNG station which is inclusive of sales tax and all incidental charges. However, the CNG stations have now been entitled to claim any adjustment of withholding tax collected or deducted under any other head, during the tax year. Electricity consumption Section 235(2) After sub-section (2) of this section, explanation has been added whereby electricity consumption bill means electricity bill inclusive of sales tax and all incidental charges. Domestic electricity consumption Section 235A(1) Similar to section 235, it has been clarified that electricity bill shall be inclusive of sales tax and all incidental charges. Advance tax on sale or transfer of immoveable property, Advance tax on purchase or transfer of immoveable property and Tax on purchase or transfer of immoveable property Sections 236C, 236K & 236W By adding a proviso after sub-section (2) of section 236C, tax collected on immoveable property acquired and disposed of within the same tax year shall be minimum tax. Moreover, scope of collection of advance tax has been enhanced by inserting the word 'recording' in sub-section (1) of all the sections 236C, 236K and 236W and by adding following explanation therein: Explanation,- For removal of doubt, it is clarified that the person responsible for registering, recording or attesting transfer includes person responsible for registering, recording or attesting transfer for local authority, housing authority, housing society, co-operative society and registrar of properties." Advance tax on tobacco Section 236X Under this new section, Pakistan Tobacco Board or its contractors, at the time of collecting cess on tobacco, directly or indirectly, shall collect advance tax at the rate of five percent of the purchase value of tobacco from every person purchasing tobacco including manufacturers of cigarettes. Tax collected under this section shall be adjustable. Validation Section 241 All notifications and orders issued and notified, in exercise of the powers conferred upon the Federal Government, before the commencement of Finance Act, 2017 shall be deemed to have been validly issued and notified in exercise of those powers

16 INCOME TAX ORDINANCE, 2001 THE FIRST SCHEDULE RIAZ AHMAD & COMPANY THE FIRST SCHEDULE Part I RATES OF TAX Division III Rate of Dividend Tax General rate of tax on dividend given in clause (b) of this Division has been enhanced from 12.5% to 15%. Moreover, rate of tax shall be 12.5% in case dividend is received by a person from a mutual fund and is above Rupees 2.5 million. The rate of tax shall remain 10% if such dividend received is less than or equal to Rupees 2.5 million. Division IIIA Rate for Profit on Debt The rate of tax on profit on debt imposed under section 7B shall be as follows: Sr. No. Period Rate of tax 1. Where profit on debt does not exceed Rs. 5,000,000 10% 2. Where profit on debt exceeds Rs. 5,000,000 but does not exceed Rs. 25,000, % 3. Where profit on debt exceeds Rs. 25,000,000 15% Division VII Capital Gains on Disposal of Securities The rate of tax under section 37A for the tax years 2017 and 2018 are as under: Sr. No. Holding Period 1. Where holding period of a security is less than twelve months 2. Where holding period of a security is twelve months or more but less than twentyfour months 3. Where holding period of a security is twenty-four months or more but the security was acquired on or after 1st July, Where the security was acquired before 1st July, Future commodity contracts entered into by the members of Pakistan Mercantile Exchange Tax Year 2018 Tax Year 2017 Securities acquired before Securities acquired after Filer Non-Filer Filer Non-Filer Filer Non-Filer 15% 18% 15% 18% 15% 20% 12.5% 16% 12.5% 16% 15% 20% 7.5% 11% 7.5% 11% 15% 20% 0% 0% 0% 0% 0% 0% 5% 5% 5% 5% 5% 5% Rate of tax on cash settled derivatives traded on the stock exchange shall be 5% for the tax year 2018 to Division IX Minimum tax under section 113 General rate of minimum tax u/s 113 has been increased from 1% to 1.25% of turnover for the year. Moreover, the rate of minimum tax for a person running an online market place shall be 0.5% of turnover for the year

17 INCOME TAX ORDINANCE, 2001 THE FIRST SCHEDULE RIAZ AHMAD & COMPANY Part II RATES OF ADVANCE TAX Rate of advance tax to be collected by Collector of Customs from industrial undertaking and commercial importer, being a filer under section 148 shall be as follows: Person Industrial undertaking (for its own use) Commercial importer Importing plastic raw material falling under PCT Heading to Filer 1.75% of the import value as increased by customs duty, sales tax and Federal excise duty 4.5% of the import value as increased by customs duty, sales tax and Federal excise duty Part III DEDUCTION OF TAX AT SOURCE Division I Advance Tax on Dividend General rate of advance tax to be collected u/s 150 and 236S shall now be 15%. Moreover, the rate of tax required to be deducted by a collective investment scheme, REIT Scheme or a mutual fund has been substituted as follows: Person Stock Fund Money market Fund, Income Fund or REIT Scheme or any other Fund Filer Non-filer Individual 12.5% 12.5% 15% Company 12.5% 25% 25% AOP 12.5% 12.5% 15% Rate of tax on dividend received by a person, other than a company from a money market mutual fund shall be 10% if the amount of dividend does not exceed two and a half million rupees. Division II Payment to Non-Residents The rate of tax to be deducted from a payment to non-resident on execution of contract under subsection (1A) of section 152 in case of non-filer has been enhanced from 12% to 13%. The rate of tax to be deducted from a payment to permanent establishment in Pakistan of a non-resident person, on sale of goods under section 152(2A), for non-filer has been increased from 6% to 7% for company and from 6.5% to 7.75% in other cases. The rate of tax to be deducted from a payment to permanent establishment in Pakistan of a non-resident person, for rendering or providing of services under section 152(2A), for non-filer has been increased from 12% to 14% for company and from 15% to 17.5% in other cases. The rate of tax to be deducted from a payment to permanent establishment in Pakistan of a non-resident person, on execution of contracts under section 152(2A) in case of other than sports person has been enhanced from 12% to 13%. Division III Payments for Goods or Services The rate of tax to be deducted from payments in respect of fast moving consumer goods (FMCG) supplied by the distributors has been reduced to 2% from 3% in case of company and to 2.5% from 3.5% in case of other than a company

18 INCOME TAX ORDINANCE, 2001 THE FIRST SCHEDULE RIAZ AHMAD & COMPANY Rate of tax to be deducted on sale of goods falling under clause (1)(b) of this Division has been enhanced from 6% to 7% for non-filer in case of company and from 6.5% to 7.75% for non-filer in case of other than company. Rate of tax to be deducted for rendering or providing of services under clause (2)(ii)(b) of this Division has been enhanced from 12% to 14.5% for non-filer in case of company and from 15% to 17.5% for non-filer in case of other than company. Rate of tax to be deducted on execution of a contract under clause (3) of this Division has been enhanced from 10% to 12% for non-filer in case of company and from 10% to 12.5% for non-filer in case of other than company and sportsperson. Division V Income from Property By amendment in Division V, rate of tax to be deducted under section 155, in case of a company being non-filer shall be 17.5% of the gross amount of rent. Division VI Prizes and Winnings The rate of tax to be deducted under section 156 on prize on a prize bond or cross-word puzzle in case of non-filer has been enhanced from 20% to 25%. Division VIA Petroleum Products The rate of tax to be deducted under section 156A in case of non-filer has been enhanced from 15% to 17.5%. Division VIB CNG Stations The rate of tax to be deducted on gas bill of a Compressed Natural Gas station under section 234A, in case of a non-filer shall be 6%. Part IV DEDUCTION OR COLLECTION OF ADVANCE TAX Division V Telephone users Rate of tax to be collected under section 236 in case of subscribers of internet, mobile telephone and pre-paid internet or telephone card has been reduced to 12.5% from 14%. Division VII Advance tax on purchase, Registration and Transfer of Motor Vehicles By amendment in this Division, rates of tax under section 231B for registration and sale of motor vehicle having engine capacity up to 850cc, 851cc to 1000cc and 1001cc to 1300cc in case of filer have been reduced to Rupees 7,500, Rupees 15,000 and Rupees 25,000 respectively from Rupees 10,000, Rupees 20,000 and Rupees 30,000 respectively. Division VIII Advance tax at the time of sale by auction Now, rate of tax to be deducted on the gross sale price of any property or goods sold by auction under section 236A, in case of a non-filer shall be 15%

19 INCOME TAX ORDINANCE, 2001 THE FIRST AND SECOND SCHEDULE Division XV Advance tax on sale to retailers RIAZ AHMAD & COMPANY Division XV has been substituted. Now, rate of collection of tax under section 236H on the gross amount of sales shall be as follows: Category of sale Rate of tax Filer Non-filer Electronics 1% 1% Others 0.5% 1% Division XXV Advance Tax on Insurance Premium In case of non-filer, the limit of life insurance premium on which tax is to be deducted has been enhanced to exceeding Rupees 0.3 million in aggregate per annum from exceeding Rupees 0.2 million per annum. THE SECOND SCHEDULE Part I EXEMPTIONS FROM TOTAL INCOME Income exempt from tax Clause (66) In sub-clause (xxxi), the name of Society for Welfare of Patients of SIUT has been changed as Society for the Welfare of SIUT. Income of following institutions has also been exempted by adding following new clauses: (xxxvi) Asian Infrastructure Investment Bank and persons as provided in Article 51 of Chapter IX of the Articles of Agreement signed and ratified by Pakistan and entered into force on the 25 th December, (xxxvii) Gulab Devi Chest Hospital. (xxxviii) Pakistan Poverty Alleviation Fund. (xxxix) National Academy of Performing Arts. (xl) Pakistan Sweet Homes Angels and Fairies Place. (xli) National Rural Support Programme. Profit on debt received by Japan International Cooperation Agency (JICA) Clause (140A) By adding new clause (140A), exemption has been provided to Japan International Cooperation Agency on receipt of profit on debt from Islamabad-Burhan Transmission Reinforcement Project (Phase I). Part IV EXEMPTION FROM SPECIFIC PROVISION Exemption from provisions of section 148 Clause (56)(ia) By amendment in sub-clause (ia) of clause (56), e xemption from provisions of withholding tax under section 148 on import of certain petroleum products by the entities mentioned in this sub-clause has been extended to any other oil marketing company licensed by Oil and Gas Regulatory Authority (OGRA). Advance tax on foreign-produced TV plays and serials Clause (56A) Since, section 236E was omitted by Finance Act, 2016 resultantly this clause being redundant has been omitted

20 INCOME TAX ORDINANCE, 2001 THE SECOND, SEVENTH AND EIGHTH SCHEDULE Hajj group operators Clause (72A) Exemption provided to Hajj group operators in respect of Hajj operations from the applicability of provisions relating to banking transaction u/s 21(l), minimum tax u/s 113 and withholding tax on payment to non-residents u/s 152 subject to payment of Rupees 5,000 per Hajji, has been extended to tax year Imports (Exemption certificate from withholding tax) Clause (72B) By amendment in second proviso to this clause, limit of quantity of raw material to be imported which is sought to be exempted from tax u/s 148, has been enhanced from 110% to 125% of the quantity of raw material imported and consumed during the previous tax year. New proviso has been inserted restricting issuance of exemption certificate u/s 148 to an industrial undertaking, importing raw materials as specified in sub-section (8) of section 148. Exemption from provisions of section 153(3)(b) Clause (94) Exemption from provisions of clause (b) of sub -section (3) of section 153 regarding minimum tax on services has been extended to tax year 2018 in respect of specified services. Moreover, building maintenance services, services rendered by Pakistan Stock Exchange Limited and Pakistan Mercantile Exchange Limited, have also been in list of specified services included to avail the aforesaid exemption. Branchless Banking (BB) Agent Account Clauses (101) Under this new clause, exemption from provisions of section 231A regarding withholding tax on cash withdrawals has been provided to Branchless Banking (BB) Agent Accou nt used for rendering branchless banking services. THE SEVENTH SCHEDULE RULES FOR THE COMPUTATION OF THE PROFITS AND GAINS OF A BANKING COMPANY AND TAX PAYABLE THEREON Taxable income Rule 1(g) Explanation in clause (g) of Rule 1 has been added regarding exclusion of notional gain / (loss) adjustments made in annual accounts due to application of International Accounting Standards 39 and 40. The said explanation is as follows: Explanation.- For removal of doubt, it is clarified that nothing in this clause shall be so construed as to allow a notional loss, or charge to tax any notional gain on any investment under any regulation or instruction unless all the events that determine such gain or loss have occurred and the gain or loss can be determined with reasonable accuracy. THE EIGHTH SCHEDULE RULES FOR COMPUTATION OF CAPITAL GAINS ON LISTED SECURITIES Manner and basis of computation of capital gains and tax thereon Rule (1)(6) Period for furnishing of statement of capital gains and tax computed thereon by National Clearing Company (Private) Limited ( NCCPL) to FBR, has been extended from 30 days to 45 days of the end of each quarter