FINANCE BILL HIGHLIGHTS- 2017

Transcription

1 1

2 FEDERAL BUDGET 2017 This memorandum has drafted to portray the significant changes which have been proposed to be incorporated in Finance Bill These changes are mainly relating to Income Tax, Sales Tax, Federal Excise Duty, ICT (Tax on Services), Custom duty. It also includes micro and macro-economic characteristics of our country. We have prepared this commentary for benefit, information and guidance of our prestigious clients both local and foreign clients doing business in Pakistan and it is available at our website These changes proposed in Finance Bill 2017 will be generally be applicable from 1st July, 2017 until and unless specified. The notes specified in this document are based on Finance Bill This finance bill shall be published as Finance Act 2017 as and when enacted. The memorandum is aimed at providing general guidance with the objective of keeping our clients and staff abreast of the changes in the aforementioned laws. MHSS accepts no duty of care or liability for any loss occasioned to any person acting in this publication. The readers are therefore advised to seek professional advice before exercising any judgment, interpretation of any legal provision and acting thereupon. 2

3 Table of Contents SECTION A. BUDGET AT A GLANCE... 4 SECTION B. OVERVIEW OF THE ECONOMY... 6 SECTION C. INCOME TAX ORDINANCE, SECTION D. TAX RATES FOR THE TAX YEAR SECTION E. SALES TAX ACT, SECTION F. FEDERAL EXCISE ACT, SECTION G. CUSTOMS ACT,

4 SECTION A. BUDGET AT A GLANCE SOURCES OF FUNDS Change Rupees in Billion % Net Revenue Receipts* 2,926 2, Net Capital Receipts External Receipts Privatization Proceeds Provincial Surplus Bank Borrowings Total 5,104 4, % 1% 7% 1% 16% 17% 8% 9% % 57% Net Revenue Receipts* Net Capital Receipts External Receipts Privatization Proceeds Provincial Surplus 9% 11% Bank Borrowings APPLICATION OF FUNDS Change Rupees in Billion % General Public Services including others * * 2,844 2, Defense Affairs and Services Development Expenditure 1,340 1, Total 5,104 4, % 21% General Public Service including others ** Defense Affairs and Services 18% 18% 61% 56% Development Expenditure 4

5 *NET REVENUE RECEIPTS Change Rupees in Billion % Tax Revenue 4,013 3, Non-Tax Revenue 1, Gross Revenue Receipts 5,310 4, Less: Provincial Share in Taxes 2,384 2, Total 2,926 2, % 20% Tax Revenue Non-Tax Revenue 80% 76% ** GENERAL PUBLIC SERVICES Change INCLUDING OTHERS Rupees in Billion % Foreign Loan Repayments Interest Payments 1,363 1, Pension Grant & Transfers Subsidies Running of Civil Government Total 2,844 2, % 20% Tax Revenue Non-Tax Revenue 80% 76% 5

6 SECTION B. OVERVIEW OF THE ECONOMY Pakistan economic growth for fiscal year has been recorded at 5.28 percent as compared to last year s economic growth of 4.5 percent being the highest in last eight years. The 5.28 percent growth is achieved on the back of recovery in the agriculture sector and better than expected performance in the services sector along with consistent growth in industrial sector. Fiscal deficit as a percent of GDP was confined at 3.9 percent for the period July-March against 3.4 percent in the same period of fiscal year The NDA of the banking system observed an expansion of Rs. 1,112.9 billion (9.42 percent) during July-April, FY2017 compared to Rs billion (5.40 percent) in the same period of last year. Pick up in credit to the private sector, credit to Public Sector Enterprises (PSEs) and rise in government borrowing from the banking system were the major causative factors of monetary expansion during July-April, FY2017. Inflation during July-April average at 4.1 percent as against 2.8 percent in the same period last year. The uptick in inflation is due to revival of international commodity and oil prices, along with rise in domestic demand due to pick up of economic activities. During July-March FY2017 exports declined by 1.3 percent and stood at US$ 16.1 billion as compared to US$ 16.3 billion in July-March FY2016. Imports during the first nine months (July- March ) increased by 14 percent compared with the same period last year. Reversal in global oil prices accompanied by falling exports the trade deficit widened by 33.1 percent to US$ 17.8 billion in July-March FY2017. The country s total liquid FX reserves as on end-march FY2017, declined to US$ billion of which SBP US$16.47 billion and Commercial Banks US$ 5.10 billion. The average exchange rate during July- May 04 FY2017, at to a dollar, was down marginally (0.5 percent) against last year s comparable average of Pak rupee remain stable over the year. As at March 2017 gross public debt reached at Rs. 20,872 billion (46.3 percent of GDP) compared to Rs. 19,678 (46.8 percent of GDP) billion as of March 2016, representing an increase of 1,194 billion during first nine months of current fiscal year as compared with Rs. 2,297 billion during the same period last year. The Credit Rating of the country is improved to B as compared to last year which was B-. During July-April , Foreign Portfolio Investment (FPI) increased to US$ million compared to US$ million last year. National savings reached to 13.1 percent of GDP in FY2017 against 14.3 percent last year. Domestic savings are recorded at 7.5 percent of GDP in outgoing fiscal year as compared to 8.2 percent of GDP last year. 6

7 Percentage (%) FINANCE BILL HIGHLIGHTS The PSX-100 index which was at 37, level as on 30th June 2016 gained 14,604 points and remained at the level of 52, as on May 15, 2017 showing growth of 38.7 percent. In terms of market capitalization, it increased from Rs. 7, billion as on 30th June 2016 to Rs 10, billion on 15th May, 2017 depicting a growth of 35.6 percent. During this period, the Index touched its highest point at 52, on May 15, 2017, whereas its lowest point was at 37, on July 4, Summary of key performance indicators are as follows: Description P Gross Domestic Product (GDP) Growth % Total Investment Growth % Consumer Price Index (CPI) Growth % Trade Deficit - % of GDP Current Account Deficit - % of GDP Total Public Debt to GDP Ratio Foreign Exchange Reserves US$ billion * Depreciation in Rupee Value against US$ - % International Credit Rating S&P B- B- B- B PSX 100 Index Growth % P = Provisional; * As of May 04, 2017 GROWTH Economy of Pakistan has continued the growth momentum as the GDP growth reached to 5.28 percent in against the growth of 4.5 percent registered last year. The economic growth in outgoing fiscal year is highest in the last decade, which is an indicator that there is a strong turn around in economic activities of the country. However, it is considered much below Pakistan s potential, and is significantly lower than other countries in the region especially Bangladesh and India which are growing at the rate of 6.9 percent and 7.2 percent respectively as depicted in the graph below: Country Wise GDP Growth Rates Pakistan India Bangladesh Srilanka

8 Industrial Sector contributes percent in GDP; industrial sector recorded a growth of 5.02 percent as compared to 5.80 percent last year. During July-March FY2017, the Large Scale Manufacturing (LSM) registered an impressive growth of 5.1 percent as compared to 4.6 percent in the same period last year. For the current financial year, growth in electricity generation and distribution was 3.40 percent in comparison to previous year growth of 8.43 percent. Similarly, decenters of mining & quarrying and construction also registered growth of 1.34 percent and 9.05 percent respectively in current fiscal year as compared to growth of 6.86 percent and percent in the previous year. The Agricultural Sector accounts for percent of GDP in current financial year as against percent in the previous year. Agriculture Sector registered a growth of 3.46 percent against the growth of 0.27 percent last year. Services Sector has witnessed a growth of 5.98 percent in this fiscal year as compared to 5.55 percent last year. Finance and Insurance contributed positively by percent. All components of services contributed positively, as Wholesale and Retail Trade grew by 6.82 percent, Transport, Storage and Communication by 3.94 percent, Housing Services by 3.99 percent, General Government Services by 6.91 percent and Other Private Services by 6.28 percent. The private consumption expenditure in nominal terms reached to percent of GDP in FY 2017 as compared to percent of GDP last year, whereas public consumption expenditures are percent of GDP as compared to percent last year Sector Wise Growth Performance (%) Gross Domestic Product (GDP) Agriculture Manufacturing Commodity Producing Sector Services Sector INVESTMENT & SAVING Total investment has reached to the level of Rs. 5,027 billion as compared to the Rs. 4,527 billion last year, showing the growth of percent in FY2017. Investment to GDP ratio has reached to percent in FY Fixed investment have increased to Rs. 4,517 billion as compared to Rs 4,061 billion last year, and recorded growth of percent and fixed investment as percentage of GDP is recorded at percent. Private investment has registered a growth of 6.63 percent and private investment as percentage of GDP reached to 9.90 percent. 8

9 Public investment grew by percent and as percentage of GDP it has increased from 3.79 percent to 4.28 percent. Public Sector Investment increased by Rs. 1,363 billion in FY 2017 compared to Rs. 1,103 billion in FY National savings reached to 13.1 percent of GDP in FY2017 against 14.3 percent last year. Domestic savings are recorded at 7.5 percent of GDP in outgoing fiscal year as compared to 8.2 percent of GDP last year. During July-April FY2017, foreign direct investment received were US$ 1,610.6 million compared to US$ 1,425.2 million in the same period last year recording a growth of 12.4 percent. The CPEC envisages projects in energy and infrastructure, with a total financial outlay of around US$ 46 billion. Financial outlay of Energy sector projects is estimated to be US $ billion while Infrastructure projects are estimated to be US $ billion. National Savings & Investments - % of GDP Growth 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% P Total Investment Public Investment Private Investment National Savings Domestic Savings CAPITAL MARKETS FY-2017 witnessed an overall huge rise in the stock market indices and witnessed an increase of about percent since the inception of the year. The PSX-100 share index positive performance during the period from inception of the year to May 2017 was attributed to a number of factors including stable political environment, investment projects backed by CPEC; stable exchange rate against the dollar; improving security and law enforcement situation; renewed foreign interest in stocks; increased confidence shown by the multilateral donor agencies. The PSX 100 Index demonstrated an overall virtuous performance during this period from July 2016 March The index touched its highest point at 50, as on May 8, 2017 whereas, its lowest point was at 37, as on July 4,

10 The aggregate Market Capitalization stood at Rs. 10, billion on May 8, 2017 compare to Rs. 7, billion as of June 30, 2016 depicting growth of percent. 4 companies are listed on PSX as of end March, 2017 while 6 companies were listed in FY2016. Some of the relevant statistics related to the Pakistan Stock Exchange are as follows: Description P PSX 100 Index Points (Month end June) 29,653 34,399 37,784 50,936 May PSX 100 Index Growth % Aggregate Market Capitalization (Growth %) May Total Shares (Volume Million) 56,580 64,617 55,430 70,518 March INFLATION *P = Provisional Inflation remained at 4.5 percent in FY2015 and further reduced to 2.8 percent in FY2016. Inflation during July-April FY2017 has been surged to 4.1 percent. Food inflation have been estimated at 3.9 percent as compared to 2.1 percent in the same period last year. The increase in food inflation over the last year is due to moderate increase in prices of major consumable food items. Non-food inflation have been estimated at 4.3 percent as compared to 3.3 percent in the same period last year. The increase in food inflation over the last year is due to moderate increase in prices of major consumable items. Core inflation which is non-food & non-energy during July-April FY2017 is recorded at 5.1 percent as against 4.1 percent during the same period last year. Description P CPI (Consumer Price Index) Food Inflation Non-food Inflation SPI (Sensitive Price Index) WPI (Wholesale Price Index) P = Provisional; BALANCE OF PAYMENTS & RESERVES The overall external account balance recorded US$ 1.6 billion during July-April FY2017 compared to US$ 0.9 billion during the same period last year, on the back of higher financial inflows and lower international oil prices. The current account balance was increased by percent during July-April FY2017 as compared to last year (US$ 6.1 billion in FY2017 against US$ 2.4 billion). As a percentage of GDP it stood at 2.00 percent compared to 0.90 percent of the comparing period last year. 10

11 The overall trade deficit posted an increase of 33.1 percent during July-April FY2017, mainly reflecting decline in exports. During July-April FY 2017 exports declined by 1.3 percent and stood at US$ 16.1 billion as compared to US$ 16.3 billion in July-April FY2016. The imports increased by percent in July April FY2017 compared to last year. Services trade deficit fell by 1.9 percent during the first nine months of FY2017. This year Pakistan has received inflows amounting to US$ 550 million on account of CSF during July April of FY2017 against US$ 937 million in the same period of last fiscal year. Remittances could not continue its upward growth trajectory during July-April FY2017, the remittances remained US$ billion as compared to billion last years. Total foreign exchange reserves reached to highest level to US$ billion compared to US$ billion at end of June Exchange rate remained at Rs per US$ during July-May FY2017, compared to Rs per US$ at end of June The Pak Rupee s deprecation was around 0.5 percent during July- May FY2017. Some of the relevant statistics related to balance of payments and foreign exchange reserves are as follows: Description P Growth % Growth % Growth % Growth % Exports Imports Workers Remittances ($ in billion) Foreign Direct Investment (FDI) Foreign Exchange Reserves US$ in billion PUBLIC DEBT Public debt was recorded at Rs. 20,873 billion as at end March 2017 registering an increase of Rs. 1,194 billion during first nine month of current fiscal year. Out of this total increase, increase in domestic debt was Rs. 1,121 billion while government borrowing from domestic sources for financing of fiscal deficit was Rs. 1,018 billion. This differential is mainly attributed to increase in government credit balances with State Bank of Pakistan/commercial banks. Similarly, increase in external debt contributed Rs. 73 billion to public debt. Similar to the last year's trend, composition of public debt further improved due to increased mobilization through medium to long term domestic debt instruments and higher disbursements from external sources. 11

12 During July-March , public debt servicing reached at Rs. 1,410 billion against the annual budgeted estimate of Rs. 1,945 billion. Public debt servicing consumed nearly 45 percent of total revenues during first nine months of the current fiscal year against a ratio of 46 percent during the same period last year. External debt and Liabilities (EDL) stock was recorded at US$ 75.7 billion as at end of March 2017 out of which external public debt was US$ 58.4 billion. Moreover, external public debt recorded an increase of US$ 0.7 billion in first nine months of Description P Domestic Currency Debt Growth Foreign Currency Debt Growth Foreign Currency Debt to Total Public Debt Ratio Total Public Debt to GDP Ratio Depreciation in Value of Rupee against US$ - % International Credit Rating S&P B- B- B- B New Guarantees issued as a percentage of GDP P = Provisional TAXATION EXPENDITURES Total Taxation expenditure for FY2017 have been estimated at Rs billion compared to Rs billion for the previous fiscal year representing an increase of 5.39 percent. Expenditure in income tax contribute 3.37 percent to total expenditure whereas expenditure in sales tax and custom duties account for percent and percent respectively. Costume duties expenditure have been increased from Rs billion to Rs billion for the fiscal year representing an increase of percent. Income tax expenditure represents a significant decrease of percent as compared to last year whereas sales tax expenditure has been increased to percent. Description Income Tax P Sales Tax Custom Duties Total P = Provisional 12

13 SECTION C. INCOME TAX ORDINANCE, SUPER TAX FOR REHABILITATION OF TEMPORARILY DISPLACED PERSONS [SECTION 4B] Through the Finance Act, 2016, Super tax was imposed on; i. banking companies; and ii. other taxpayers having income of Rs. 500 million or above, at the rate of 4% and 3% respectively for tax year 2016 and 2017 only. Through the Finance Act, 2017, the said levy has been extended to Tax Year TAX ON UNDISTRIBUTED PROFITS [SECTION 5B] In Finance Act 2017, the word Reserves has been proposed to be replaced with Profits in section namely Tax on Undistributed reserves and has proposed some more technical changes which would make the section simpler than the earlier. The whole section has been proposed to amend in the following manner: 1) Subject to this Ordinance, for tax year 2017 and onwards, a tax shall be imposed at the rate of ten percent, 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 forty percent of its after tax profits within six months of the end of the tax year through cash or bonus shares: Provided that for tax year 2017, bonus shares or cash dividends may be distributed before the due date mentioned in sub-section (2) of section 118, for filing of a return. 2) The provisions of sub-section (1) shall not apply toa) a company qualifying for exemption under clause (132) of Part I of the Second Schedule; and b) a company in which not less than fifty percent shares are held by the Government." 3. TAX ON BUILDERS [SECTION 7C] This proposal Seeks to restrict the applicability of section 7C to the business or projects undertaken for construction and sale of residential, commercial or other buildings initiated and approved during tax year Furthermore, in section 7C, for sub-section (4), the following shall be substituted, namely: This section shall apply to projects undertaken for development and sale of residential, commercial or other plots initiated and approved; 1) During tax year 2017 only; 2) For which payment under rule 13S of the Income Tax Rules, 2002 has been made by the developer during tax year 2017; and 3) The Chief Commissioner has issued online schedule of advance tax installments to be paid by the developer in accordance with rule 13ZB of the Income Tax Rules,

14 4. TAX ON DEVELOPERS [SECTION 7D (4)] This proposal Seeks to restrict the applicability of section 7D to the business or projects undertaken for construction and sale of residential, commercial or other buildings initiated and approved during tax year Furthermore, in section 7D, for sub-section (4), the following shall be substituted, namely: This section shall apply to projects undertaken for development and sale of residential, commercial or other plots initiated and approved; 1) During tax year 2017 only; 2) For which payment under rule 13S of the Income Tax Rules, 2002 has been made by the developer during tax year 2017; and 3) The Chief Commissioner has issued online schedule of advance tax installments to be paid by the developer in accordance with rule 13U of the Income Tax Rules, GENERAL PROVISIONS RELATING TO TAXES IMPOSED UNDER SECTIONS 5, 6 AND 7 [SECTION 8 (1) & 8 (1) (D)] Prior to Finance Act 2017 Tax on builders and developers falls under the Final Tax Regime. By way of amendment proposed through the Finance Act, 2017, Taxes on Builder and Developers are no more falls under the Final Taxation Regime. 6. VALUE OF PERQUISITES [SECTION 13(7)] Prior to Finance Act 2017 under section 13, where a loan is made, on or after the 1st day of July, 2002, by an employer to an employee and either no profit on loan is payable by the employee or the rate of profit on loan is less than the benchmark rate, the amount chargeable to tax to the employee under the head Salary and this sub section do not apply where amount do not exceed five hundred thousand. Through Finance Act 2017, now this amount has been proposed to enhance to one million Rupees. 7. DEDUCTIONS NOT ALLOWED [SECTION 21(O)] Prior to the Finance Act, 2017, the income tax provisions relating to expenditure in respect of sales promotion, advertisement and publicity in excess of five per cent of turnover incurred by pharmaceutical manufacturers was not allowed. Through Finance Act 2017, the percentage has been sought to increase to Ten Per cent of the turnover. 8. DEPRECIATION [SECTION 22(15)] By way of amendment through Finance Act 2017 new provision has been inserted in sub-section (15) of section 22, which states that where a 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, as the case may be, pursuant to an arrangement of Musharika financing or diminishing Musharika financing, the depreciable asset shall be treated to be wholly owned by the taxpayer. 14

15 9. EXEMPTIONS AND TAX CONCESSIONS IN THE SECOND SCHEDULE [SECTION 53(2)] Through Finance Act 2017 the power available to Federal Government under the above stated sub section, has been granted to the board but this power is only exercisable after approval of the Minister In-charge of the Federal Government. Furthermore, previously under section 53 (4), Any notification issued under sub-section (2) after the commencement of the Finance Act, 2015, shall, if not earlier rescinded, stand rescinded on the expiry of the financial year in which it was issued. But through Finance Act 2017 it is now proposed 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: It is further proposed that all notifications issued on the first day of July, 2016 shall continue to be in force till the thirtieth day of June, 2018, if not earlier rescinded. 10. DEDUCTIBLE ALLOWANCE ON EDUCATIONAL EXPENSES [SECTION 64D] Under Section 64D, every individual having taxable income of less than Rs. 1 million rupees in a tax year is allowed deductible allowance for tuition fee paid for the education of his / her children. Now this tax credit availing limit has been enhanced to 1.5 Million rupees through Finance Act, TAX CREDIT ON INVESTMENT IN HEALTH INSURANCE [SECTION 62A] Under section 62A, tax credit is allowed in respect of amount of contribution or premium paid by a noncorporate resident taxpayer for health insurance to any insurance company approved by SECP. In the said section, a formula is given which is (A/B) *C. whereby the amount of C was One hundred thousand rupees which has been Proposed to enhance to One hundred and fifty thousand through Finance Act TAX CREDIT TO A PERSON REGISTERED UNDER SALES TAX ACT, 1990 [SECTION 65A] Presently every manufacturer, registered under the Sales Tax Act, 1990 is entitled to a tax credit of 3 per cent of tax payable for a tax year, if ninety per cent of his sales are to the person who is registered under the aforesaid Act during the said tax year. By way of amendment proposed through Finance Act, 2017, above-mentioned Tax Credit allowed has been withdrawn. 13. TAX CREDIT FOR ENLISTMENT [SECTION 65C] Section 65C has allowed the company, who opts for enlistment in any registered stock exchange in Pakistan, a tax credit equal to twenty percent of the tax payable is allowed for the tax year in which the said company is enlisted and for the following tax year. Through proposed amendment, this credit has been extended to the following three tax years. However, rate of tax credit for the last two tax years is proposed to be ten percent of the tax payable. So, the tax credit would be allowed in the following manner: 15

16 Period First year of enlistment Subsequent two years Rate of tax credit 20% of tax payable 10% of tax payable 14. SPECIAL PROVISIONS RELATING TO THE PRODUCTION OF OIL AND NATURAL GAS [SECTION 100] Section 100 states the taxability of profits and gains related to production of oil and natural gas, exploration and extraction of other mineral deposits. Through proposed amendment in Finance bill, 2017, it is proposed to exclude the profits and gains derived from Sui gas fields from its purview. 15. TAX CREDITS FOR NON PROFIT ORGANIZATIONS [NPOs] [SECTION 100C] The Bill proposes to add further condition for a nonprofit organization to claim 100% tax credit. Through these amendments, the administrative and management expenditure of the NPO must not exceed 15% of the total receipts. So excess claimed expenses may entail to non allowability of 100% tax credit on the income of these NPOs The Bill also proposes to impose tax at the rate of 10% on surplus funds of a non-profit organization. In this regard, surplus funds mean funds or monies: (i) (ii) (iii) (iv) not spent on charitable and welfare activities during the tax year; received during the tax year as donations, voluntary contributions, subscriptions and other incomes; or more than twenty-five percent of the total receipts of the non-profit organization received during the tax year; are not part of restricted funds: Explanation: For the purpose of this subsection, 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. 16. FURNISHING A RETURN OF INCOME [SECTION 114] Prior to Finance Bill 2017, Section 114 states that any person who, having furnished a return, discovers any omission or wrong statement therein, may file revised return subject to the various conditions and one of which is that taxable income declared should not be less than and loss declared should not be more than income or loss, as the case may be, determined by an order issued under sections 121, 122, 122A, 122C, 129, 132, 133 or 221. Through Finance Bill 2017, section 122C has been removed from the above stated sections. 16

17 17. PERSONS NOT REQUIRED TO FILE A RETURN OF INCOME [SECTION 115] Section 115 gives a list of persons who are not required to file income tax return due to solely having immoveable property of specified area given in section 114(1)(b)(iii): (i) (ii) (iii) (iv) a widow, an orphan below the age of 25 years, a disabled person and in case of ownership of immovable property, a non-resident person Finance bill, 2017 now proposed that above persons are not required to file income tax return solely for the reason that they own following: i. He/she owns immovable property with a land area of 250 square yards or more, or a flat in the municipal limits, Cantonment or Islamabad Capital Territory; or ii. He/she owns immovable property with a land area of 500 square yards or more, or a flat having covered area of 2000 square feet or more, located in a rating area; or iii. owns a motor vehicle having engine capacity above 1000cc. 18. FURNISHING OF WEALTH STATEMENT [SECTION 116] Prior to the Finance Bill 2017, a person filing a return in response to provisional assessment is required to file a Wealth Statement along with a wealth reconciliation statement and an explanation of source of acquisition of assets specified therein in the case of an individual and wealth statements of all members in the case of an association of persons and such wealth statements shall be accompanied by wealth reconciliation statements and explanation of source of acquisition of assets specified therein. Through Finance Bill 2017 this sub section has been removed. Additionally, the Finance Bill has proposed to allow the person to file a revised Wealth Statement at any time before the receipt of notice under sub-section (9) of section 122, for the tax year to which it relates. 19. EXTENSION OF TIME FOR FURNISHING RETURNS AND OTHER DOCUMENTS [SECTION 119] Return of income u/s 114, 117, statement under section 115 (4) and wealth statement u/s 116 could be filed after the due date after taking extension from the commissioner on an application due to reasons of absence, sickness, misadventure or any other reasonable cause. This extension was only allowed for 15 days after the due date of filing of above mentioned returns and statements. Through finance bill , a proviso to section 119 sub section 4 is proposed to be inserted which states that where the Commissioner has not granted extension for furnishing return by the Commissioner, the Chief Commissioner may on an application made by the taxpayer for extension or further extension grant extension or further extension for a period not exceeding fifteen days unless there are exceptional circumstances justifying a longer extension of time. 17

18 20. BEST JUDGMENT ASSESSMENT [SECTION 121] Through Finance Bill 2017 it has been proposed to add that the person who fails to furnish return of income in response to notice under sub-section (3) or sub-section (4) of section 114 the Commissioner may, based on any available information or material and to the best of his judgement, make an assessment of the taxable income or income of the person and the tax due thereon. 21. AMENDMENT OF ASSESSMENTS [SECTION 122] Previously, sub section (1) of the above stated section the commissioner may amend an assessment order treated as issued under section 120 or issued under section 121 or issued under section 122C, by making such alterations or additions as the Commissioner considers necessary. Finance bill has omitted the power to make amendment order under section 122 against the orders issued under section 122C. 22. PROVISIONAL ASSESSMENT [SECTION 122C] Finance Bill has withdrawn powers to issue Provisional assessment order under section 122C of the Ordinance. Accordingly, exclusion provision debarring the right to appeal against order under section 122C has also been vacated from section 127 of the Ordinance. 23. DUE DATE FOR PAYMENT OF TAX [SECTION 137] According to section 137, due date of payment of tax under any assessment order, amended assessment order or any other such order was within 30 days from the date of service of such notice and in case of a notice served under section 122C it was within 45 days from the service of such notice. As finance bill has omitted section 122C from the ordinance so there is no question of a notice of tax demand under an assessment order made u/s 122C, provision relating to its due date has been omitted. 24. RECOVERY OF TAX FROM PERSONS ASSESSED IN AZAD JAMMU AND KASHMIR [SECTION 146] Prior to amendment through finance bill , section 146 only included persons assessed in Azad Jammu and Kashmir. By way of amendment through finance bill , persons assessed in Gilgit- Baltistan are also added in section ADVANCE TAX PAID BY THE TAXPAYER [SECTION 147] Prior to amendment through finance bill , section 147 did not impose advance tax on a person whose latest assessed taxable income was less than Rs. 500,000. The Bill proposes to enhance the limit of latest assessed taxable income of an individual from five hundred thousand rupees to one million rupees for the purpose of payment of advance tax. 18

19 26. IMPORTS [SECTION 148] Prior to amendment through finance bill , tax collected under section 148 on import of fertilizers by manufacturer of fertilizer was an adjustable tax. The Bill seeks to bring the above tax under the ambit of Final Tax PAYMENTS TO NON-RESIDENTS [SECTION 152] Finance bill propose to amend the withholding income tax rates for non-filers in the following manner: Type of Dividend Section Existing Proposed Payment for execution of specified contract 152(1A) 12% 13% Payment for supplies of goods in case of company 152(2A)(a) 6% 7% Payment for supplies of goods other than company 152(2A)(a) 6.5% 7.75% Payment for services rendered (other than transport) in case of Company 152(2A)(b) 12% 14% Payment for services rendered (other than transport) in other cases 152(2A)(b) 15% 17.5% Payment for execution of contract 152(2A)(c) 12% 13% Furthermore, Bill now proposed to provide right to nonresident contractors having Permanent Establishment in Pakistan chargeable to tax under section 152(1A) of the Ordinance to claim exemption from withholding of tax or reduced rate of withholding income tax. 28. PAYMENTS FOR CONTRACTS [SECTION 153(1)(C)] The Bill proposes to reduce withholding tax rates in respect of payments on account of fast moving consumer goods from 3% to 2% in case of companies and from 3.5% to 2.5% in case of payment to other than companies. For this purposes, Fast Moving Consumer Goods are defined in Clause 22A of Section 2 in the following manner: Fast moving consumer goods means consumer goods which are supplied in retail marketing as per daily demand of a consumer excluding durable goods ; Furthermore, a new provision has been proposed to be added to Section whereby the recipient of the payment under clause 153(1)(b) receives the payment through an agent or any other third person and the agent or, as the case may be, the third person retains service charges or fee, by whatever name called, from the payment remitted to the recipient, the agent or the third person shall be treated to have been paid the service charges or fee by the recipient and the recipient shall collect tax along with the payment received. It is further proposed that in case of non-filers the rate of tax proposed to be deducted from payments under section 153 of the Ordinance are as under- 19

20 Description Rates of tax Company Other than company Existing Proposed Existing Proposed In case of sale of goods 6% 7% 6.5% 7.75% In case of rendering or providing services (other than transport services) 12% 14.5% 15% 17.5% In case of execution of contract 10% 12% 10% 12.5% 29. WITHHOLDING INCOME TAX STATEMENTS [SECTION 165] The Finance bill proposes to introduce the provision to revise the withholding Income tax statements within sixty days of filing of original statements of withholding Income Tax filed under section 165. Under the current law, there was no such provision to revise withholding tax statements in case of any error or omission. 30. APPOINTMENT OF ICMA TO CONDUCT AUDIT [SECTION 176] Prior to Finance Act 2017, The Board was eligible to appoint only a chartered accountants firm for the purpose of audit u/s 177. By way of amendment through Finance Act 2017, The Board may also appoint a firm of cost and management accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966) along with a firm of chartered accountants to conduct audit u/s PENALTIES [SECTION 182] By way of amendment through Finance Act 2017, some additional sections of the Ordinance for levy of penalties have been added. The following new serial number and entries relating thereto in columns (2), (3) and (4) are proposed to be added, namely 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, 2002 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, , 108 and 165B DEFAULT SURCHARGE [SECTION 205] The bill also seeks to provide the calculation of default surcharge for the taxpayers having special tax years. In this regard, the default surcharge shall be calculated on and from the first day of the fourth 20

21 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. 33. ADVANCE RULING [SECTION 206A] Previously, where there is any inconsistency between a circular and an advance ruling, priority shall be given to the terms of the advance ruling and that section was not applicable to a non-resident taxpayer having a permanent establishment in Pakistan. Now the bill seeks to remove this provision. 34. OFFICER OF INLAND REVENUE [CLAUSE 38A OF SECTION 2] Officer of Inland Revenue means any Additional Commissioner Inland Revenue, Deputy Commissioner Inland Revenue, Assistant Commissioner Inland Revenue, Inland Revenue Officer, Inland Revenue Audit Officer, District Taxation Officer, Assistant Director Audit, or any other officer however designated or appointed by the Board for the purposes of this Ordinance. 35. DIRECTORATE-GENERAL OF BROADENING OF TAX BASE [SECTION 230D] The bill also seeks to establish a new directorate by introducing concept of Directorate General of Broadening of Tax Base. 36. DIRECTORATE-GENERAL OF TRANSFER PRICING [SECTION 230E] The bill also seeks to establish a new directorate by introducing concept of Directorate General of transfer Pricing in the following manner: (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 function 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. 37. ADVANCE TAX ON PRIVATE MOTOR VEHICLES [SECTION 231B] Under the present law, advance tax is to be collected from 3% of the value of the motor vehicle where the vehicle is being leased by a leasing company, scheduled bank, investment bank, Development Financial Institution or a Modaraba. The Bill seeks to include non-banking financial 21

22 institution in this list and leasing under Islamic mode of financing to cover vehicles being leased under shariah compliant or conventional mode, either through Ijara or otherwise. It is proposed that such tax will not be collected in case of vehicle leased under the Prime Minister s Youth Business Loan Scheme. 38. COLLECTION OF TAX BY A STOCK EXCHANGE REGISTERED IN PAKISTAN [SECTION 233A] The Bill seeks to bring tax collected from members of stock exchange on sales/purchases of shares under the final tax regime. Previously, such tax was adjustable. 39. ELECTRICITY CONSUMPTION [SECTIONS 235 AND 235A] The Bill proposes to add an explanation to require advance tax collection on the amount of electricity consumption bill inclusive of sales tax and other incidental charges. 40. ADVANCE TAX ON SALE OR TRANSFER OF IMMOVABLE PROPERTY [SECTION 236C] Currently, advance tax collected under section 236C on sale or transfer of immovable property is an adjustable tax. The Bill proposes to bring the above tax under the ambit of minimum tax if the property is acquired and disposed of within the same tax year. 41. ADVANCE TAX ON SALE TO DISTRIBUTORS, DEALERS, WHOLESALERS AND RETAILERS [SECTION 236G AND 236H] Currently every manufacturer and wholesaler of the various products will collect advance tax at the rate specified in the ordinance, and now the bill seeks to add the business of Batteries in the above referred products so now advance income tax will be collected from wholesalers and retailers of this business group too. 42. ADVANCE TAX ON TOBACCO [SECTION 236X] The Bill proposes collection of tax from purchaser of tobacco including cigarette manufacturers at five percent of the purchase value. 43. VALIDATION [SECTION 241] Bill seeks to introduce a new section which states that all notifications and orders issued, in exercise of the powers conferred upon the Federal Government, before the first day of July, 2017 shall be deemed to have been validly issued and notified in exercise of those powers, notwithstanding anything contained in any judgment of a High Court or the Supreme Court. 22

23 1. RATES OF TAX [FIRST SCHEDULE] RATE OF TAX FOR SALARIED INDIVIDUALS, BUSINESS INDIVIDUALS AND AOPS There is no change in the tax rates of Salaried Individuals, Business Individuals and Association of Persons. CORPORATE TAX The rate of tax for companies for the tax year 2018 shall be 30% as prescribed in the Division II of Part I of First Schedule. RATE OF TAX ON DIVIDENDS The rate of tax and withholding on dividend is proposed to be increased as prescribed in the Division III of Part I of First Schedule as under: DIVIDEND RECEIVED FROM Companies covered under clause (b) Part III of the First Schedule Dividend received from Mutual Funds INCREASED FROM 12.5 to 15 percent 10 to 12.5 percent PROFIT ON DEBT The present rates of tax on profit on debt of non-corporate taxpayers as prescribed in the Division IIIA of Part I of First Schedule are as under: Profit on Debt Rate of tax Where profit on debt does not exceed Rs. 25 Million 10% Where profit on debt exceeds Rs. 25 Million but does not exceed Rs. 50 Million Where profit on debt exceeds Rs.50 Million The rate of tax on profit on debt has been proposed to be revised as under: 2,500, % of the amount exceeding Rs 25 Million Rs 5,625, % of amount exceeding Rs 50 Million Profit on Debt Rate of tax Where profit on debt does not exceed Rs. 5 Million 10% Where profit on debt exceeds Rs.5 Million but does not exceed 12.5% Rs.25 Million Where profit on debt exceeds Rs. 25 Million 15% CAPITAL GAINS ON DISPOSAL OF SECURITIES Capital gains on disposal of securities shall be subject to tax at a flat rate of 15% [20% for non-filer] for securities acquired on or after July 1, 2013 as prescribed in the Division VII of Part I of First Schedule. 23

24 The revised table is as under. Holding period Tax Year 2015 Tax Year 2016 Tax rate Tax Year 2017 Where holding period of a security is less than twelve months. 12.5% 15% 15% 18% Where holding period of a security is twelve months or more but less than twenty-four months. 10% 12.5% 12.5% 16% Where holding period of a security is twenty-four months or more but the security was acquired on or after 1st July, % 7.5% 7.5% 11% Tax Year 2018 and onwards Filer Non-Filer Filer Non-Filer 15% 20% Where the security was acquired before 1st July, % 0% 0% 0% 0% 0% Future commodity contracts entered into by members of Pakistan Mercantile Exchange. 0% 0% 5% 5% 5% 5% WITHHOLDING TAX ON CERTAIN PAYMENTS MADE TO NON-RESIDENTS The rate of tax on payments made to the permanent establishment of non-resident in Pakistan in case of non-filers is proposed to be increased as prescribed in the Division II of Part III of First Schedule as under: Rate of Tax Supply of goods Rendering of services Company Others Company Others Existing 6% 6.5% 12% 15% Proposed 7% 7.75% 14% 17.5% WITHHOLDING TAX ON PAYMENTS TO RESIDENTS FOR GOODS, SERVICES AND CONTRACTS In case of payments made to resident non-filers, the rate of tax deduction is proposed to be increased as prescribed in the Division III of Part III of First Schedule as under: Description Rate of tax Present Proposed Supply of goods: - Company 6% 7% - Others 6.5% 7.75% Rendering of services: - Company 12% 14.5% - Others 15% 17.5% Execution of contract: - Company 10% 12% - Others 10% 12.5% In the case of supplies made by the distributors of Fast Moving Consumer Goods, the rate of tax deduction is proposed to be reduced as under: 24

25 Rate of Tax Company Others Existing 3% 3.5% Proposed 2% 2.5% WITHHOLDING TAX ON PROPERTY INCOME The applicable rate of withholding tax on income from property received by a Company being a non-filer is proposed to be increased from 15% to 17.5% as prescribed in Division V of Part III of First Schedule. TAX WITHHOLDING ON PRIZES AND WINNINGS The rate of withholding tax on a prize on prize bond or crossword puzzle, is proposed to be enhanced from 20% to 25% for non-filer as prescribed in Division VI of Part III of First Schedule. TAX WITHHOLDING ON PETROLEUM PRODUCTS The rate of collection on petroleum products is proposed to be increased from 15% to 17.5% for non-filer as prescribed in Division VIA of Part III of First Schedule. ADVANCE TAX ON TELEPHONE AND INTERNET SUBSCRIBERS The rate of advance tax in case of subscribers of internet, mobile telephone and prepaid internet or telephone cards is proposed to be reduced from 14% to 12.5% as prescribed in Division V of Part IV of First Schedule. ADVANCE TAX ON PURCHASE, REGISTRATION AND TRANSFER OF MOTOR VEHICLES In case of filers only, the rate of advance tax on registration or transfer is proposed to be reduced as prescribed in Division VII of Part IV of First Schedule in the following cases: Engine capacity Tax Amount Existing Proposed Up to 850 cc 10,000 7, cc to 1000 cc 20,000 15, cc to 1300 cc 30,000 25,000 ADVANCE TAX AT THE TIME OF SALE BY AUCTION Tax at the rate of 15% is proposed to be collected from non-filers purchasing any property or goods through public auction. Presently, the applicable rate is 10% for both filers and non-filers as prescribed in Division VIII of Part IV of First Schedule. ADVANCE TAX ON SALES TO RETAILERS Presently, every manufacturer, distributor, dealer, wholesaler or commercial importer of specified goods at the time of sale to retailers and every distributor or dealer at the time of sale to wholesaler are required to collect advance tax at 0.5% under section 236H as prescribed in Division XV of Part IV of First Schedule. The Bill proposes to increase the rate to 1% for non-filers and for sale of electronics by filers. 25

26 ADVANCE TAX ON INSURANCE PREMIUM The lower limit for collection of advance tax by insurance companies on life insurance premium from nonfilers is proposed to be enhanced from Rs. 0.2 million to Rs. 0.3 million in aggregate as prescribed in Division XXV of Part IV of First Schedule. ENHANCEMENT OF MINIMUM TAX The rate of minimum tax on turnover has been enhanced from 1% to 1.25% as prescribed in Division IX of Part II of First Schedule. 26

27 2. EXEMPTIONS FROM TOTAL INCOME [SECOND SCHEDULE PART I] INSTITUTIONS WITH EXEMPT INCOME [CLAUSE 66] Under Clause 66 following charitable or welfare organization are proposed to be granted exemption from Income tax: (xxxi) (xxxvii) (xxxviii). (xxxviiii). (xxxviiv). Society for the Welfare of SIUT 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 December 25, Gulab Devi Chest Hospital. Pakistan Poverty Alleviation Fund. National Academy of Performing Arts. INCOME OF JICA [CLAUSE 140A (NEW)] Income Tax Exemption has been proposed to be granted to any profit on debt received by Japan International Cooperation Agency (JICA), from Islamabad Burhan Transmission Reinforcement Project (Phase-I) undertaken in pursuance to the loan agreement for Islamabad-Burhan Transmission Reinforcement Project (Phase-I). EXEMPT INCOME OF POLITICAL PARTIES [CLAUSE 143 (NEW)] Any income derived by a political party registered under the Political Parties Order, 2002 with the Election Commission of Pakistan shall be exempt from Income Tax. EXEMPT INCOME OF STARTUPS REGISTERED BY PSEB [CLAUSE 144 & 43F of Part IV (NEW)] The Bill proposes to introduce a new clause where a resident person being an individual, AOP or Company (incorporated or registered in Pakistan on or after 01 July 2012), is engaged in or intends to offer technology driven products or services and is Registered and certified by the Pakistan Software Export Board (PSEB) Has a turnover of less than one hundred million in each of the last five tax years Its profit and gains shall be exempt for the tax year in which it is certified by the PSEB and the following two tax years. Further, this exemption is also applicable for provisions of minimum tax under section 113 of the Ordinance. Moreover, said persons will also be exempt from the application of the provisions of section 153 of the Ordinance where the startup is the recipient of payment. Now the term Startup has been defined in Clause 62A of Section 2 of the Ordinance in the following manner: 27

28 Startup means a business of resident individual, AOP or a company incorporated or registered in Pakistan 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 (PESB) and having turnover of less than one hundred million in each of the last five tax years. 3. EXEMPTIONS FROM SPECIFIC PROVISIONS [SECOND SCHEDULE PART IV] OPTION TO NON-RESIDENTS FOR FINAL TAX REGIME UNDER SECTION 152 (1A) [CLAUSES 41] Currently, every person making a payment in full or part (including a payment by way of advance) to a non-resident person on the execution of a) a contract or sub-contract under a construction, assembly or installation project in Pakistan, including a contract for the supply of supervisory activities in relation to such project; or b) any other contract for construction or services rendered relating thereto; or c) a contract for advertisement services rendered by T.V. Satellite Channels, The tax deductible under above section shall be a final tax on the income of a non-resident person arising from a contract provided such non-resident person file an option under clause 41 Part IV Second Schedule to the Ordinance. Now this Option to opt for Final Tax regime is withdrawn so all non-resident contractors will be taxed only under the Normal Tax Regime as per Finance Bill EXEMPTIONS FROM TAX ON IMPORTS [CLAUSE 56] The bill has added the following companies on which provisions related to collection of tax on their imports as per Section 148 will not apply; i. Z&M Oils (Pvt.) Ltd, ii. Exceed Petroleum (Pvt.) Ltd, iii. Petrowell (Pvt.) Ltd, iv. Quality-1 Petroleum (Pvt.) Ltd, v. Horizon Oil Company (Pvt.) Ltd, vi. Outreach (Pvt.) Ltd, vii. Kepler Petroleum (Pvt.) Ltd shall be inserted. EXEMPTIONS FOR HAJJ OPERATORS [CLAUSE 72A] The exemption available under this clause to Hajj Group Operator in respect of Hajj operations has been proposed to extend till

29 EXEMPTION FROM TAX UNDER SECTION 148 FOR INDUSTRIAL UNDERTAKINGS [CLAUSE 72B] The bill proposes to increase the quota for the purpose of exemption of tax to be paid at import stage, in respect of raw material to the extent of 125% instead of the existing quota of 110% of the quantity of raw material imported and consumed during the previous tax year. EXEMPTION FROM DEDUCTION OF TAX UNDER SECTION 153 [CLAUSE 94] Pakistan Stock Exchange has been included in the list of companies for which tax deductible from payments against services rendered under section 153 of the Ordinance would no longer treated as minimum tax and would be adjustable against the final tax liability. The period for application of clause 94 has been extended to 30 June Moreover, the last date to furnish irrevocable undertaking for tax year 2018 being extended to November EXEMPTION FROM TAX WITHHELD ON CASH WITHDRAWAL [CLAUSE 101 (NEW)] The bill has proposed the new clause which states that the provisions of cash withdrawal from bank shall not apply in respect of cash withdrawal made from a Branchless Banking (BB) Agent Account utilized to render branchless banking services to customers. EXEMPTION FROM TAX WITHHELD ON MOTOR VEHICLES [CLAUSE 102 (NEW)] The provisions of advance tax on private motor vehicles shall not apply to light commercial vehicles leased under the Prime Minister s Youth Business Loan Scheme. 4. BANKING COMPANIES [SEVENTH SCHEDULE] An explanation has been added to Rule 1 (g) where it is clarified that nothing in this sub-rule 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. 5. RULES FOR THE COMPUTATION OF CAPITAL GAINS ON LISTED SECURITIES [EIGHTH SCHEDULE] APPLICABLE TO NON-COMPANY TAXPAYERS Time period for submission of statement of capital gains by the NCCPL to the Board has been extended from 30 days to 45 days. Moreover, due date for payment of tax collected by NCCPL to the board has been extended from 31st to 31st August next following the financial year in which the amount was collected. 29

30 SECTION D. TAX RATES FOR THE TAX YEAR 2018 TAX RATES FOR THE TAX YEAR TAX RATES FOR INDIVIDUAL & AOP MINIMUM TAX (Division I, Part 1 of the First Schedule) Upto Rs.400,000 0% Nature of Payement Section Filer Non-Filer Filer Non-Filer Rs.400,000 to Rs. 500,000 Rs.500,000 to Rs. 750,000 Rs.750,000 to Rs. 1500,000 Rs.1,500,000 to Rs. 2500,000 Rs.2,500,000 to Rs. 4,000,000 Rs.4,000,000 to Rs. 6,000,000 Exceeding Rs. 6,000,000 7% of the amount exceeding Rs 400,000 Rs. 7, % of the amount exceeding Rs 500,000 Rs. 32, % of the amount exceeding Rs 750,000 Rs. 144, % of the amount exceeding Rs 1500,000 Rs. 344, % of the amount exceeding Rs 2500,000 Rs. 719, % of the amount exceeding Rs 4,000,000 Rs. 1,319, % of the amount exceeding Rs 6,000,000 Individual & AOP [having annual turnover Rs.10 Million or more] and Companies Oil Marketing Companies, Refineries, SSGCL, SNGPL, PIA, Poultry Industry and Dealer or Distributor of Fertilizer Distributors of Pharma, Fast Moving Consumer Goods, Cigrattes, Petroleum Agent, Rice Mills/Dealers and Flour Mills Motorcycles Dealers Imports of edible oil and packing material (Comapanies & Industrial Undertaking) Imports of edible oil and packing material (Other than Above) Services (Companies) (8) 148(8) 153(1)(b) 1.00% of Turnover 0.5% of Turnover 0.2% of Turnover 0.25% of Turnover 5.50% 8.00% 6.00% 9.00% 8.00% 12.00% 1.25% of Turnover 0.5% of Turnover 0.2% of Turnover 0.25% of Turnover 5.50% 8.00% 6.00% 9.00% 8.00% 14.50% Services (Other Than Above) 153(1)(b) 10.00% 15.00% 10.00% 17.50% TAX RATES FOR SALARIED PERSON Transport Services 153(1)(b) 2.00% 2.00% 2.00% 2.00% (Division I, Part 1 of the First Schedule) Electronic & Print Madia Advertising Services (Companies) 153(1)(b) 1.50% 12.00% 1.50% 12.00% 1 Upto Rs.400,000 0% Electronic & Print Madia Advertising Services (Others) 153(1)(b) 1.50% 15.00% 1.50% 15.00% 2 Rs.400,000 to Rs. 500,000 2% of the amount exceeding Rs 400,000 Services to Textile, Carpets, Leather, Surgical & Sport Goods 153(1)(b) 1.00% 1.00% 1.00% 1.00% 3 Rs.500,000 to Rs. 750,000 Rs. 2, % of the amount exceeding Rs 500,000 4 Rs.750,000 to Rs. 1,400,000 5 Rs.1,400,000 to Rs. 1,500,000 6 Rs.1,500,000 to Rs. 1,800,000 Rs.14, % of the amount exceeding Rs 750,000 Rs. 79, % of the amount exceeding Rs 1,400,000 Rs. 92, % of the amount exceeding Rs 1,500,000 FINAL DISCHARGE OF TAX Non-Filer Non-Filer Nature of Payement Section Filer Filer Rs.1,800,000 to Rs. 2,500,000 Rs.2,500,000 to Rs. 3,000,000 Rs.3,000,000 to Rs. 3,500,000 Rs.3,500,000 to Rs. 4,000,000 Rs.4,000,000 to Rs. 7,000,000 Exceeding Rs. 7,000,000 Rs. 137, % of the amount exceeding Rs 1,800,000 Rs. 259, % of the amount exceeding Rs 2,500,000 Rs. 359, % of the amount exceeding Rs 3,000,000 Rs. 472, % of the amount exceeding Rs 3,500,000 Rs. 597, % of the amount exceeding Rs 4,000,000 Rs. 1,422, % of the amount exceeding Rs 7,000,000 Imports of Remultiple Steel, Potassic Fertilizer, Urea, Gold, Cotton, LNG & Manufacturers under SRO.1125(1)2011 Imports of Pulses Imports Commercial covered under SRO.1125(1)2011 Imports of Ships by Ship Breakers Import (Companies & Industrial Undertaking) Import (Other Than Above) % 1.50% 1.00% 1.50% 2.00% 3.00% 2.00% 3.00% 4.50% 3.00% 4.50% 3.00% 4.50% 6.50% 4.50% 6.50% 5.50% 8.00% 5.50% 8.00% 6.00% 9.00% 6.00% 9.00% Dividend % to 25% 7.50% to 25% 7.50% to 25% 7.50% to 25% TAX RATES FOR COMPANIES Profit on Debt upto Rs. 500,000 (Other than companies) % 10.00% 10.00% 10.00% (Division II, Part 1 of the First Schedule) Profit on Debt Exceeding Rs. 500,000 (Other than companies) % 17.50% 10.00% 17.50% TYPE TAX RATE (2017) TAX RATE (2018) Royalty or Fee for Technical Services by Non-Residents 152(1) 15.00% 15.00% 15.00% 15.00% Banking Company 35% 35% Contract by Non-Resident 152(1)(A) 7.00% 12.00% 7.00% 12.00% Public and Private Company 31% 30% Sale of goods (Companies) 153(1)(a) 4.00% 6.00% 4.00% 7.00% Small Company 25% 25% Sale of goods (Other Than Companies) 153(1)(a) 4.50% 6.50% 4.50% 7.75% Sale of Rice, Cotton seed and edible oil 153(1)(a) 1.50% 1.50% 1.50% 1.50% CAPITAL GAIN ON DISPOSAL OF IMMOVABLE PROPERTY Sale by Distributor of fast moving consumer goods (Companies) 153(1)(a) 3.00% 3.00% 2.00% 2.00% (Division VIII, Part 1 of the First Schedule) Sale by Distributor of fast moving consumer goods (Other) 153(1)(a) 3.50% 3.50% 2.50% 2.50% Irrecpective of holding period allotement covered U/S 236C (4) Holding period upto [01] Year acquired on or after ( ) Holding period upto [02] Year acquired on or after ( ) Holding period upto [03] Year acquired on or after ( ) Holding period is more than [03] Year acquired on or after ( ) Holding period is upto [03] Year acquired before ( ) Holding period is more than [03] Year acquired before ( ) % 10.00% 7.50% 5.00% 0.00% 5.00% 0.00% % 10.00% 7.50% 5.00% 0.00% 5.00% 0.00% Local Supply to Textile, Carpets, Leather, Surgical and Sports Goods Sectors, Cigrattes and Pharmaceutical Products Contracts (Companies) Contracts (Other than Companies) Contracts (Sports Persons) Services of Stiching, Dying, Printing, Embroidery, Washing, Sizing and Weaving to Exporters Exports Indenting Commission Prize & Winnings 153(1)(a) 153(1)(c) 153(1)(c) 153(1)(c) 153(2) (2) % 1.00% 1.00% 1.00% 7.00% 10.00% 7.00% 12.00% 7.50% 10.00% 7.50% 12.50% 10.00% 10.00% 10.00% 10.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 5.00% 5.00% 5.00% 5.00% 15% to 20% 20.00% 15% to 20% 25.00% Commission on petroleum products 156A 12.00% 15.00% 12.00% 17.50% REDUCTION FOR SENIOR CITIZEN / DISABLE PERSON Advertizing Commissions 233 (1) 8.00% 16.00% 8.00% 16.00% [(1 B) Division I, Part 1 of the First Schedule] Brokerage and Commission (Other Than Above) 233 (1) 12.00% 15.00% 12.00% 15.00% 50% reduction in tax to disable persons holding National Database Registration Authority's CNIC or a Tax payer having age of 60 Years or above, where regular income is upto Rs. 1,000,000/- from all sources, except income covered in Final Tax Regeme CNG Stations on Gas Bills 234A 4.00% 4.00% 4.00% 6.00% PAYMENT/DEDUCTION ON INCOME FROM PROPERTY U/S 15 & 155 FOR IND. & AOP REDUCTION FOR TEACHERS AND RESEARCHER (Division VIA, Part 1 of the First Schedule) & (Dision V, Part III of the First Schedule) [Clause (1)(2), Part III of the Second Schedule] % reduction in tax for full time Teacher and Researcher employed in Non-Profit education or research institution's recognized by HEC or employees of government training and research institutions Upto Rs. 200,000 Rs.200,000 to Rs.600,000 NIL 5% of gross amount exceeding Rs. 200,000 NIL 5% of gross amount exceeding Rs. 200,000 WEALTH STATEMENT AND RECONCILIATION U/S 116 Filing of Wealth statement along with reconciliation statement U/S 116 is compulsory for all individual tax payer. Rs.600,000 to Rs.1,000,000 Rs.1,000,000 to Rs.2,000,000 Exceeding Rs. 2,000,000 Rs. 20, % of gross amount exceeding Rs. 600,000 Rs. 60, % of gross amount exceeding Rs. 1,000,000 Rs. 210, % of gross amount exceeding Rs. 2,000,000 Rs. 20, % of gross amount exceeding Rs. 600,000 Rs. 60, % of gross amount exceeding Rs. 1,000,000 Rs. 210, % of gross amount exceeding Rs. 2,000,000 DEDUCTION ON INCOME FROM PROPERTY U/S 155 FOR COMPANIES WORKER WELFARE FUND 2% of WWF shall be paid by industrial establishments, who's income during the tax year is Rs.500,000 or more and shall be entitled to claim deductible allowance for the amount paid as WWF in a tax year. (Dision V, Part III of the First Schedule) The rate of Tax to be Deducted under section 155, in case of company shall be 15% for filer and 17.5% for non-filer of Gross Amount of Rent. 30

31 SECTION E. SALES TAX ACT, 1990 SALES TAX REGIME FOR RETAILERS [SECTION 3(9A)] Sales tax on Retailers is under development of improvements in last 4 years. Earlier SRO. 608(I)/2014 dated 02 July, 2014 was introduced to amend the Special procedure for sale tax on retailers where by following procedure was enacted, 1) The Retailers were divided into two Tiers from July 01, 2014: - Tier 1 retailer were defined to include large national or international chain store retailers, retailers operating in Air conditioned malls/plazas, Retailers having Electricity bill exceeding Rs 600,000 per annum, wholesaler cum retailers. - Tier 1 retailers were required to pay sales instead of 0.75 Percent to 17%. It was also made obligatory to install cash registers on the retail outlets with its online real time connectivity with FBR. - All other retailers are classified as Tier 2 retailers so they were required to pay sale tax at 5% or 7.5% on their electricity bills. Retailers community has challenged this law in the High Courts of Pakistan so subsequently SRO 491(I)/2016 dated July, 2016 has amended this procedure further by giving retailers of tier 1, an option to pay sale tax at 2% without any input Sales tax adjustment. Retailer Challenge the illegality of both SRO s at High Courts of Pakistan so Lahore High Court, Lahore in its decision No. WP No dated October has held SRO 608(I)/2014 dated 02 July, 2014 as illegal. Now through Finance Act 2017 a new section 3(9A) has been inserted whereby tier 1 retailer are now to required pay sale tax at 17% and enlighten to claim input sale tax. However, Retailers are allowed to avail rate of sales of turnover without any adjustment of input sales tax. Retailers opting to pay 2% sales tax shall file an option to the Chief Commissioner of Regional Tax Office or Large Taxpayers Unit having jurisdiction by fifteenth day of July opting to pay sales tax on the basis of turnover and such an option shall remain in force for the whole financial year. Retailers making supplies of finished goods of the five sectors specified in Notification No. S.R.O. 1125(I)/2011, dated the 31st December, 2011 [Textile, Sports Goods, Leather, Surgical Goods] shall pay sales tax in respect of such supplies at the rates prescribed in the said Notification. May it be clarifying here that section 3(9) of the Act still exists whereby retailer Tier 2 are required to pay sales tax on electricity bill at the rate of 5% if electricity bill is less than Rs20,000 and 7.5% in case Electricity bill per month is more than Rs 20,

32 FURTHER TAX ON ZERO RATED SUPPLIES [SECTION 3(1A) AND 4] Further tax at the rate of two percent is sought to be extended to zero rated supplies. However, since the further tax has been applicable to persons who are required to get registration under the Sales Tax Act 1990 but fail to do so, therefore, in our opinion it will not be applicable to goods exported outside Pakistan, however, local supplies at the rate of zero percent sales tax will be subjected to this further tax. ENFORCEMENT OF NOTIFICATIONS [SECTION 13(7)] This Bill propose that all notification issued from 1st July, 2016 will continue to inforce and shall continue to be in force till 30th June, 2018, if not earlier rescinded. APPOINTMENT OF OFFICER OF SALES TAX AND THEIR POWER [SECTION 30] List of Officers of Sales tax has been extended to include District Taxation Officer and Assistant Director Audit. OFFENCES AND PENALTIES [Section 33] Following new penalties are introduced through Finance Act, 2017: Any person who manufactures, possesses, transports, distributes, stores or sells cigarette packs without, or with counterfeited, tax stamps, banderoles, stickers, labels or barcodes. a) Such cigarette stock shall be liable to outright confiscation and destruction. Any person committing the offence shall pay a penalty of twenty-five thousand rupees or one hundred percent of the amount of tax involved, whichever is higher. He shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to five years, or with additional fine which may extend to an amount equal to the loss of tax involved, or with both. b) In case of transport of cigarettes without, or with counterfeited, tax stamps, banderoles, stickers, labels or barcodes, permanent seizure of the vehicle used for transportation of non-conforming or counterfeit cigarette packs; and c) In case of repeat sale of cigarettes without or with counterfeited, tax stamps, banderoles, stickers, labels or barcodes, the premises used for such sale be sealed for a period not exceeding 15 days. 40C(2) 32

33 RECOVERY OF TAXES [SECTION 48] This finance bill states that if the appeal is pending before the commissioner in land revenue (Appeals), Commissioner Inland Revenue will stay the proceedings for recovery of tax provided 25% of the disputed demand has been paid by the Taxpayer. SERVICE OF ORDER [SECTION 56] It is also proposed that service of notice will include notices or orders sent electronically through or to the e-folder maintained for the purpose of e-filing of Sales Tax-cum Federal Excise returns by the Limited Companies, both public and private. SALES TAX AT RETAIL PRICE THIRD SCHEDULE [Table-1] The Bill proposes that Fertilizer shall be excluded from chargeability to sales tax at 17%. On retail price so it will be taxable under Normal Sales tax mechanism as prescribed in section 3(1)(a). Sr. No. Description Heading/sub heading No 32 Fertilizer Respective Heading EXEMPTIONS SIXTH SCHEDULE [TABLE-1] Import and supply of following items have been proposed to be exempted from levy of sales tax through insertion of following entries in table 1 under section 13(1): Sr. No. 100C Description Vehicles imported by china overseas port holding company limited and its operating companies for 23 years for construction development and operations of Gwadar port. Heading/Sub heading No Goods received as gift or donation from a foreign government or 9908 organization by the federal or provincial government. 135 Sunflower and canola hybrid seeds meant for sowing. Respective heading 136 Combined harvesters upto five years old Single cylinder agriculture diesel engines (compression-ignition internal combustion piston engines) of 3 to 36 HP, and CKD kits thereof. 14 Following items for use with solar energy:- Solar Power Systems Off grid/on-grid solar power system (with or without provision for USB/charging port) comprising of: i. PV Module. ii. Charge controller

34 14A iii. Batteries for specific utilization with the system (not exceeding 50 Ah in case of portable system). iv. Essential connecting wires (with or without switches). v. Inverters (off-grid/ on-grid/ hybrid with provision for direct connection/ input renewable energy source and with Maximum Power Point Tracking (MPPT). vi. Bulb holder 2. Water purification plants operating on solar energy. Following systems and items for dedicated use with renewable source of energy like solar, wind, geothermal etc. 1. a) Solar Parabolic Trough Power Plants. b) Parts for Solar Parabolic Power Plants. i. Parabolic Trough collectors modules. ii. Absorbers/Receivers tubes. iii. Steam turbine of an output exceeding 40MW. iv. Steam turbine of an output not exceeding 40MW. v. Sun tracking control system. vi. Control panel with other Accessories 2. a) Solar Dish Sterling Engine. b) Parts for Solar Dish Sterling Engine. i. Solar concentrating dish. ii. Sterling engine. iii. Sun tracking control system. iv. Control panel with accessories. v. Sterling Engine Generator 3. a) Solar Air Conditioning Plant b) Parts for Solar Air Conditioning Plant 4. i. Absorption chillers. ii. Cooling towers. iii. Pumps. iv. Air handling units. v. Fan coils units. vi. Charging & testing equipment. a) Solar Desalination System b) Parts for Solar Desalination System i. Solar photo voltaic panels. ii. Solar water pumps. iii. Deep Cycle Solar Storage batteries. iv. Charge controllers. v. Inverters (off grid/on grid/ hybrid) with provision for direct connection/input from renewable energy source and with Maximum Power Point Tracking (MPPT) Solar Thermal Power Plants with accessories

35 6. 7. a) Solar Water Heaters with Accessories. b) Parts for Solar Water Heaters i. Insulated tank ii. Vacuum tubes (Glass) iii. Mounting stand iv. Copper and Aluminum tubes c) Accessories: i. Electronic controller ii. Assistant/ feeding tank iii. iv. Circulation Pump Electric heater/ immersion rod (one piece with one solar water heater) v. Solenoid valve (one piece with one solar water heater) vi. Selective coating for absorber plates a) PV Modules. b) Parts for PV Modules i. Solar cells. ii. Tempered Glass. iii. Aluminum frames. iv. O-Ring. v. Flux. vi. Adhesive labels. vii. Junction box & cover. viii. Sheet mixture of paper and plastic ix. Ribbon for PV Modules (made of silver &Lead). x. Bypass diodes. xi. EVA (Ethyl Vinyl Acetate) Sheet (Chemical) 8. Solar Cell Manufacturing Equipment Respective headings Respective heading Respective headings i. Crystal (Grower) Puller (if machine). ii. Diffusion furnace. iii. Oven. iv. Wafering machine. v. Cutting and shaping machines for silicon ingot. vi. Solar grade polysilicon material. vii. Phosphine Gas. viii. Aluminum and silver paste Respective headings 9. Pyrometers and accessories for solar data collection Solar chargers for charging electronic devices Remote control for solar charge controller Wind Turbines. a) Wind Turbines for grid connected solution above 200 KW (complete system). b) Wind Turbines upto 200 KW for off-grid solutions comprising of: i. Turbine with Generator/Alternator. ii. iii. iv. Nacelle with rotor with or without tail. Blades. Pole/ Tower Respective headings 35

36 v. Inverter for use with Wind Turbine. vi. Deep Cycle Cell/ Battery (for use with wind turbine) Wind water pump Geothermal energy equipment. i. Geothermal heat pumps. ii. Geothermal Reversible iii. Chillers. iv. Air handlers for indoor quality v. control equipment. vi. Hydronic heat pumps. vii. Slim Jim heat exchangers. viii. HDPE fusion tools. ix. Geothermal energy installation tools and equipment. x. Dehumidification equipment. xi. Thermostats and intellizone. 15. Any other item approved by the Alternative Energy Development Board (AEDB) and concurred to by the FBR Following items for promotion of renewable energy technologies or for conservation of energy:- i. SMD/LED/LVD lights with or without ballast, fittings and fixtures. ii. SMD/LED/LVD street lights, with or without ballast, PV module, fitting and fixtures iii. Tubular day lighting device. iv. Wind turbines including alternators and mast. v. Solar torches. vi. Lanterns and related instruments. vii. LVD induction lamps. viii. LED bulb/tube lights. ix. PV module, with or without, the related components including invertors (off grid/on grid/ hybrid) with provision for direct connection/input from renewable energy source and with Maximum Power Point Tracking (MPPT), charge controllers and solar batteries. x. Light emitting diodes (light emitting in different colors). xi. Water pumps operating on solar energy along with solar pump controllers xii. Energy saver lamps of varying voltages xiii. Energy Saving Tube Lights. xiv. Sun Tracking Control System xv. xvi. Invertors (off-grid/on grid/hybrid) with provision for direct connection/input from renewable energy source and with Maximum Power Point Tracking (MPPT). Charge controller/ current controller Respective headings Provided that exemption under this serial shall be available with effect from

37 15A Parts and components for manufacturing LED lights: i. Aluminum housing/ shell for LED (LED light fixture) ii. Metal clad printed circuit boards (MCPCB) for LED iii. Constant current power supply for of LED lights (1-300W) iv. Lenses for LED lights If imported by LED light manufacturers registered under the Sales Tax Act, 1990 subject to annual quota determination by the Input Output Co efficient Organization (IOCO) ; REDUCE RATE OF SALES TAX [EIGHTH SCHEDULE (TABLE-1)] The bill seeks to adopt reduce rate of sale tax on the following items vide Eight schedule of the sales tax Act 1990: Sr. Heading/sub Description No. heading No 35 DAP Respective heading 36 NP (22-20) Respective heading 37 NP (18-18) Respective heading 38 NPK-I Respective heading 39 NPK-II Respective heading 40 NPK-III Respective heading 41 SSP Respective heading 42 CAN Respective heading 43 Natural gas Respective heading 44. Phosphoric acid Respective heading Rate of sale tax Status Rs. 100 per 50 kg bag Nil Rs. 168 per 50 kg If manufactured from gas bag other than imported LNG Rs. 165 per 50 kg If manufactured from gas bag other than imported LNG Rs. 251 per 50 kg If manufactured from gas bag other than imported LNG Rs. 222 per 50 kg If manufactured from gas bag other than imported LNG Rs. 341 per 50 kg If manufactured from gas bag other than imported LNG Rs. 31 per 50 kg If manufactured from gas bag other than imported LNG Rs. 98 per 50 kg If manufactured from gas bag other than imported LNG 10% If supplied to fertilizer plants for manufacturing of urea 5% If imported by fertilizer company for manufacturing of DAP 37

38 45. Following machinery for poultry sector i. Machinery for preparing feeding stuff ii. Poultry incubators and brooders iii. Insulated sandwich panels iv. Poultry sheds v. Evaporative air cooling system vi. Evaporative cooling pad 46. Multimedia projectors 47. Locally produced coal Respective heading SALE TAX ON IMPORT OF CELL PHONE [NINTH SCHEDULE[TABLE]SECTION 3(3B)] 7% 7% 7% 7% 7% 7% % If imported by educational Institution Rs. 425 per metric tonne or 17% ad valorem, whichever is higher A Merged rate of Rs.650 per set on import and locally manufactured low and medium price cellular and satellite phones has been proposed to be introduced. ANNOUNCEMENTS THROUGH SALIENT FEATURES Through salient feature issued along with the budget documents, certain measures have been announced, however, the enabling enactments are expected to be made through notification in due course. Certain significant announcements are as under: SALE TAX WITHHOLDING- [SPECIAL PROCEDURES] No sales tax withholding is applicable on supplies made by a registered person to another registered person except provision of advertisement service and supplies made to Government Institutions. IMPORT OF FABRIC [SPECIAL PROCEDURE] It is proposed that sale tax on commercial imports of fabric will be applicable at the rate of 6%. SALES TAX ON STEEL SECTORS [SPECIAL PROCEDURE] The existing rate of Rs. 9 per unit of electricity is proposed to be enhanced to Rs per unit with corresponding increase in ship breaking and other allied industry. 38

39 SECTION F. FEDERAL EXCISE ACT, 2005 PENALTY ON CIGARETTES MANUFACTURES [SECTION 19 SUB-SECTION 10] Finance Bill 2017 has proposed to introduce a new sub section 10 to section19 which states that where any person is engaged in the manufacture or production of cigarettes in the manner contrary to this Act or the rules made thereunder or otherwise evades duty of excise on cigarettes or is engaged in the manufacture or production of counterfeited cigarettes or tax stamps, banderoles, stickers, labels or barcodes, or is engaged in the manufacturing or production of cigarettes packs without affixing, or affixing counterfeited, tax stamps, banderoles, stickers, labels or barcodes, the machinery, equipment, instruments or devices used in such manufacture or production shall, after outright confiscation, be destroyed in such manner as may be approved by the Commissioner and no person shall be entitled to any claim on any ground whatsoever, or be otherwise entitled to any compensation in respect of such machinery or equipment, instruments or devices and such confiscation or destruction shall be without prejudice to any other penal action which may be taken under the law against the person or in respect of the cigarettes, tax stamps, stickers, labels, barcodes or vehicles involved in or otherwise linked or connected with the case ENFORCEMENT OF NOTIFICATIONS This Bill propose that all notification issued from 1st July, 2016 will continue to inforce and shall continue to be in force till 30th June, 2018, if not earlier rescinded. APPOINTMENT OF OFFICER OF EXCISE AND THEIR POWER [SECTION 29 SUB-SECTION 1] List of Officers of Sales tax has been extended to include District Taxation Officer and Assistant Director Audit. RECOVERY OF DUTY [SECTION 37] This finance bill states that if the appeal is pending before the commissioner in land revenue (Appeals), Commissioner Inland Revenue will stay the proceedings for recovery of duty provided 25% of the disputed demand has been paid by the Taxpayer. SERVICE OF ORDER [SECTION 47 SUB-SECTION 1 & 2] It is also proposed that Service of notice will include notices or orders sent electronically through or to the e-folder maintained for the purpose of e-filing of Sales Tax-cum Federal Excise returns by the Limited Companies, both public and private. EXCISABLE GOODS [TABLE I TO FIRST SCHEDULE TO THE ACT] Description of and rate of duty on the locally produced cigarettes is proposed to be modified and enhanced as under: 39

40 Sr. Existing Proposed Sr. Description of goods Rate of FED Description of goods PCT Rate of FED 9a For the period from to , locally produced cigarettes if their on-pack printed retail price exceeeds Rs. 4,000/- per 1,000 cigarettes 9b For the period from onw ards, locally produced cigarettes if their on-pack printed retail price exceeeds Rs. 4,400/- per 1,000 cigarettes Rs. 3,436/- per 1,000 cigarettes Rs. 3,705/- per 1,000 cigarettes 9 Locally produced cigarettes if their on-pack printed retail price exceeeds Rs. 4,500/- per 1,000 cigarettes Rs. 3,740 per 1,000 cigarettes 10a For the period from to , locally produced cigarettes if their on-pack printed retail price does not exceeed Rs. 4,000/- per 1,000 cigarettes Rs. 1,534/- per 1,000 cigarettes 10 Locally produced cigarettes if their on-pack printed retail price exceeeds Rs. 2,925/- per 1,000 cigarettes but does not exceeds Rs. 4,500/- per 1,000 cigarettes Rs. 1,670 per 1,000 cigarettes 10b For the period from onw ards, locally produced cigarettes if there on-pack printed retail price does not exceeed Rs. 4,400/- per 1,000 cigarettes Rs. 1,649/- per 1,000 cigarettes 10a Locally produced cigarettes if their on-pack printed retail price does not exceeed Rs. 2,925/- per 1,000 cigarettes Rs. 800 per 1,000 cigarettes It has been further proposed to increase the rate of duty on cement in the following manner: Sr. Existing Proposed Sr. Description of goods Rate of FED Description of goods PCT Rate of FED 13 Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cement, w hether coloured in the form of clinkers Rs. 1 per kilogram 13 Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cement, w hether coloured in the form of clinkers Rs per kilogram This above proposed change will effectively increase the amount of duty to Rs. 62.5/- payable on cement bag which presently contains 50 kg of cement. In our opinion, this burden eventually will be borne by the end consumer. RESTRICTIONS [TABLE I TO FIRST SCHEDULE TO THE ACT] The bill proposed to clarify that no cigarette manufacturer shall reduce retail price from the level adopted on the day of the announcement of the latest budget. Secondly, no brand shall be priced and sold at a retail price (excluding sales tax) lower than forty-five percent of the retail price under column (2) serial number 9 of Table-I of the First Schedule to this Act. EXCISABLE SERVICES [TABLE II TO FIRST SCHEDULE TO THE ACT] However, the bill has proposed reduction in the rate of duty to telecommunications services as under: Sr. Existing Description of goods 6 Telecommunication services (excluding such services in the area of province w here such province has imposed provisitional sales tax and has statred cllecting same through its ow n Board or Authority, as the case may be) Rate of FED 18.5 % of charges Sr. Description of goods Proposed 6 Telecommunication services (excluding such services in the area of province w here such province has imposed provisitional sales tax and has statred cllecting same through its ow n Board or Authority, as the case may be) PCT (all subheadings) Rate of FED 17 % of charges 40

41 CONDITIONAL EXEMPTIONS [TABLE I TO THIRD SCHEDULE TO THE ACT] The bill seeks to introduce new clause of exemption: Sr. 20A Description of goods Vehicles imported by China Overseas Ports Holding Company Limited (COPHCL) and its operating companies, namely:- i. China Overseas Ports Holding Company (Private) Limited; ii. Gw adar International Terminal Limited; iii. Gw adar Marine Services Limited; and iv. Gw adar Free Zone Company Limited; for a period of 23 years for construction, development and operations of Gw adar Port and Free Zone Area subject to limitations, conditions prescribed Under PCT heading 9917 (3). Heading/ Sub Heading No. Respective Headings 41

42 SECTION G. CUSTOMS ACT,1969 DIRECTORATE GENERAL OF CHINA PAKISTAN ECONOMIC CORRIDOR Considering the importance of China Pakistan Economic Corridor, Finance Bill proposed to establish a new Directorate of China Pakistan Economic Corridor. Said Directorate will be headed by the Directorate General of China Pakistan Economic Corridor. It shall consist of a Director General and as many Directors, Additional Directors, Deputy Directors, Assistant Directors and such other officers as the Board may appoint by notification in the official Gazette. ENFORCEMENT OF NOTIFICATIONS This Bill propose that all notification issued from 1st July, 2016 will continue to inforce and shall continue to be in force till 30th June, 2018, if not earlier rescinded. DETERMINATION OF CUSTOM VALUE A new proviso has been inserted in sub-section 2 of section 25A whereby it is clarified that where the value declared in a goods declaration, filed under section 79 or section 131 or mentioned in the invoice retrieved from the consignment, as the case may be, is higher than the value determined under sub-section (1), such higher value shall be the customs value. OBLIGATION TO PRODUCE DOCUMENTS AND PROVIDE INFORMATION FOR END USE VERIFICATION OF GOODS Under section 26, a new sub-section 2 has been proposed to be inserted whereby the Board or any officer authorized in this behalf may require any person to provide such information as is held by that person which is required for the purposes of End Use Verification of goods. REFUND TO BE CLAIMED WITHIN ONE YEAR Like Section 66 of the Sales Tax Act, 1990, a new sub-section 33(3) has been proposed whereby no refund shall be allowed under this section, if the sanctioning authority is satisfied that the incidence of customs duty and other levies has been passed on to the buyer or consumer. PERIOD FOR WHICH GOODS MAY REMAIN WAREHOUSED Finance Bill 2017 proposed to add new clause under section 98 which states that the Chief Collector of Customs can contain goods for a period not exceeding one month in case of notified perishable goods and a period not exceeding three months in case of nonperishable goods. RIGHT OF APPEAL IN CASE OF CANCELLATION OF REGISTRATION OF REGISTERED USER ID Finance Bill proposed to give right of appeal upon cancellation of registered User ID so a new proviso has been proposed under section 155F of the Act whereby a person aggrieved by an order of the Collector, cancelling or confirming the suspension of his unique user identifier, may, within thirty days of communication of such order, prefer an appeal to the Chief Collector who may pass an order annulling, modifying or confirming the order passed by the Collector. 42

43 IMPOSITION OF PENALTY Finance Bill has proposed imposition of penalty on an agency / persons (including port authorities) for failure to entertain a delay and detention certificate issued by the officer of Customs. POWERS OF BOARD OR COLLECTOR TO PASS REVISED ORDERS Finance Bill 2017 has proposed to add new clause under section 195 which states that where it is deemed necessary to pass fresh orders, in respect of proceedings referred to in sub-section (1), the Board or Collector of Customs or Collector of Customs (Adjudication) may pass the order itself or himself, as the case may be, or assign the case to an officer of equal or higher rank, who may have passed the earlier order, for passing such order as he may think fit: Provided that no order confiscating goods of greater value or enhancing any fine in lieu of confiscation, or imposing or enhancing any penalty, or requiring payment of any duty not levied or short-levied shall be passed unless the person affected thereby has been given an opportunity of showing cause against it and of being heard in person or through a counsel or other person duly authorized by him. POWER TO ENTER INTO MUTUAL LEGAL ASSISTANCE AGREEMENTS ON CUSTOMS MATTERS [SECTION 219A] (1) A new section 219A has been proposed whereby the Board may, of its own motion or upon request from an international organization, a foreign customs administration, or any other foreign competent authority, enter into memorandum of understanding pertaining to mutual legal assistance in customs matters, or in pursuance of any bilateral or a multilateral agreement, undertake activities, which, inter alia, include: (a) coordinated border management; (b) information and data sharing; (c) bilateral and multilateral international special operations, including, by the method of controlled delivery; (d) capacity building and technical assistance initiatives; and (e) any other matter to which both or all parties agree. (2) Notwithstanding anything contained in any other law, for the time being in force, the Board may, on behalf of the Federal Government, request an international organization, a foreign customs administration, or any other foreign competent authority for legal assistance on any matter or offence under this Act, or upon request received therefrom; and (3) The Board may, by notification in the official Gazette, prescribe the rules for any of the matters enumerated in this section. 43

44 REDUCTION IN CUSTOMS DUTY Following changes has been made in the duty structure of items discussed herein: Items Fowls of the species Gallus domesticus (chicken 11 3 Hatching eggs 11 3 Sheets of veneering Pre-fabricated modular clean rooms panels 20 3 Fabric (non-woven) for pharmaceutical industry 16 5 Uncoated polyester film and aluminum wire for manufacturers of metalized yarn Raw materials for manufacturers of baby diapers namely Adhesives based on polymers or rubbers and Hot melt adhesives Raw materials for manufacturers of baby diapers namely Pre-Laminated Tape, Frontal Tape, PE +NW laminate sheet and Poly back sheet Coal others Import of solar panels and related components were exempted from the condition of local manufacturing till 30th June 2017 which is extended till 30th June Concessionary rate of 11% available on Set top boxes, TV broadcast transmitter and Reception apparatus etc. extended till 30 th June Surcharge in excess of 0.25% for cargo in bonded at Karachi for upcountry Bonds exempted. 4. Exemption extended on import / donation of specified items (presently allowed only to municipal authorities including development authorities), to Federal, Provincial, AJ&K, Gilgit-Baltistan Governments, NDMA, PDMA and Govt. emergency/ rescue services excluding contractors thereof. 5. Customs duty on import of Bituminous and other coal imported by coal based power projects having an implementation agreement with the Government of Pakistan is reduced to 3%. TARIFF RATIONALIZATION 1. Separate PCT code for compressors of vehicles at 35% duty is proposed. 2. Separate PCT code for classification of electric cigarettes is proposed at 20%. 3. Concession in duty/taxes on Hybrid Electric Vehicles above 2500 cc withdrawn. 4. Additional duty is levied on cylinder head for motorcycles. 5. Extension of concession on 11 more components of trailers. INCREASE IN CUSTOMS DUTY Customs duty is proposed to be increased in following cases: - Aluminum beverage cans; from 11% to 20%. - Bituminous coal; from 3% to 5%. Old Rate New 44

45 EXEMPTION FROM CUSTOMS DUTY Exemption from customs duty is proposed on following items: - Raw skins and hides - Stamping foils - Ostriches - 5 years old combined harvester s threshers - Cellular mobile phones (converted into Regulatory Duty) - Certain telecom equipment s LEVY / INCREASE OF REGULATORY DUTY Regulatory duty is proposed / increased as under: - 10% on import of harvesters-threshers five to ten years old - 20% on import of harvesters-threshers more than ten years old. - 5% on synthetic filament yarn (of polyesters) - 10% on animal protein meals - From 5% to 15% on 565 non-essential items. - Rs. 250 per set levied on mobile phones (In lieu of existing customs duty of Rs. 250 per set). - Certain telecom equipment s at 9%. - Levy on betel nuts increased from 10% to 25%. - Rs 200/KG levied on betel leaves. REDUCTION IN REGULATORY DUTY Regulatory duty is proposed to be reduced as under: 1. From 5% to 0% on Fowls of the species Gallus Domesticus (chicken). 2. From 10% to 5% on aluminum waste or scrap. 45

46 PARTNERS MUHAMMAD MAQBOOL, FCA Fellow member of Institute of Chartered Accountants England & Wales, Canada and Pakistan. He also graduated as Master of Commerce from University of Punjab in He has been senior partner in Qamar-ul-Islam & Co., and Sadat Hyder Qamar & Company (Chartered Accountants) He is Senior Partner of MHSSCo. Professional Experience and Achievements: He has 22 years accountancy experience in the field of Financial Consultancy, System Consultancy, Audit, Corporate and Taxation matters. He has rich experience of handling a large number of national and international consultancy assignments. Presently, he is council member of ICAP. He was Vice Present of ICAP. He was Past President of Association of Pakistan Institute of Public and Finance Accountants (1995), Chairman Education and Training Committee of ICAP ( ) and represented ICAP on International forums. MALIK HAROON AHMAD, FCA Fellow Member of Institute of Chartered Accountants of Pakistan. He also graduated as Bachelor of Commerce from University of Punjab in He worked in the capacity of Senior Manager Tax Ford Rhodes Sidat Hyder & Company (Chartered Accountants), a member firm of Ernst & Young International, one of the big accountancy firms in the world. Professional Experience and Achievements: He has 16 years experience in the field of consultancy especially Taxation matters, Audit and Corporate. During his service, he gained diversified experience of corporate tax planning, counseling and benefit optimization, Handling matters relating to Capital Value tax, Provincial Professional Tax, Corporate Asset Tax. He supervising a large team of employees (around 150) working in the fields of Corporate Compliance Services, Internal Control development and Re engineering Services, Audit & Assurance, Accountancy assignments. He is also Life time member of Lahore Tax Bar Association. He is a writer of three books published by the Professional Business Publications [PBP], Emile Wolf International United kingdom. He is writer of Articles on different issues in the Newspapers and Magazines. He is also interviewed as tax expert in TV shows on different taxation issues. 46

47 SHAHID MEHMOOD SHAKER, FCA Fellow Member of Institute of Chartered Accountants of Pakistan. He qualified as Chartered Accountant in June He also qualified his MBA in finance in the year He worked as a partner in Qadeer and Company, Chartered Accountants (from February 2005 September 2009) and also worked as CFO in Ayesha Textile Mills Limited (from September February 2005). Professional Experience and Achievements: He has 5 years experience in the field of consultancy especially Audit, System development and System Evaluation assignments. He has very rich experience of conducting various assignments in External audit as well as Internal Audit section specially assignments relating to Financial Institutions, Textile sector, Construction companies, Steel Sector, Leather Sector, Rice Sector, Sugar, Power Sector etc. He is presently assigned the task to prepare opinions on different aspects of corporate laws and foreign currency exchange control regulations. MUHAMMAD SAFDAR, FCA Fellow Member of Institute of Chartered Accountants of Pakistan (ICAP). He did his Bachelors from University of Punjab in He started his career in 2005 as proprietor of Muhammad Safdar & Co. Chartered Accountant. Professional Experience and Achievements: He is experience and expert in the areas of Financial advisory, Feasibility studies, Corporate restructuring, Tax planning, Compliance Services, Audit and Assurance Services. He is also working as advisor to the Board of a number of industrial undertakings. He was also a visiting faculty member of University of Punjab. 47

48 * 48

49 49