Nadeem Butt (FCA) Chartered Accountant

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1 Prepared By Nadeem Butt (FCA) Principal Taj Arcade, 3 rd Floor, Office # 06, Opposite Services Hospital, 73-Main Jail Road, Lahore Pakistan

2 Nadeem & Co. s AMENDMENTS THROUGH FINANCE ACT, AND AFTER THAT TILL APRIL 24, 2014 The amendments through these laws are effective as the same have already formed part of law and would therefore be effective from July 01, (Tax Year 2014) unless otherwise stated within this document. This tax related document is intended to provide general guidance to our clients, staff, students and other persons related to taxation in any way and the same should not be deemed as an expert advice relating to any particular case, issue or matter as the case may be. Further for effective and better understanding of amendments, reference should be made to the appropriate wording to the relevant law, circulars, notifications, sales tax general orders issued there under and judgments given by the various appellate bodies within Pakistan. This document has been prepared only for the aforesaid persons based on the information available with us till April 24, No responsibility whatsoever related to any mistake or material contained in this document shall be undertaken. The document should not be published or issued in any manner without taking written permission from the Firm. Nadeem & Co. s Page1

3 Nadeem & Co. s CONTENTS TABLE 1. ABOUT THE AUTHOR 3 2. COMPLETE AMENDMENTS RELATED TO INCOME TAX ORDINANCE, 2001 FOR THE TAX YEAR 2014 IN COMPARISON WITH TAX YEAR COMPLETE AMENDMENTS & EXPLANATIONS RELATED TO INCOME TAX ISSUED THROUGH STATUTORY REGULATORY ORDERS (SROs) AND CIRCULARS WITH OUR ISSUED FROM JULY 1 ST, TO APRIL 24, INCOME SUPPORT LEVY ACT, AMENDMENTS RELATED TO SALES TAX ACT, 1990 FOR THE TAX YEAR 2014 IN COMPARISON WITH TAX YEAR AMENDMENTS & EXPLANATIONS ISSUED THROUGH STATUTORY REGULATORY ORDERS (SROs), CIRCULARS & GENERAL ORDERS WITH OUR RELATED TO SALES TAX ISSUED FROM JUNE 16, TO APRIL 24, Page2

4 Nadeem & Co. s ABOUT THE AUTHOR 1. Sixteen (16) years post qualification practical / teaching / notes / book writing experience of Taxation after qualifying as a in 1998 and practicing as Fellow Member of ICAP under the name and style of Nadeem & Co. s mainly in audit, income tax & sales tax. 2. Handling more than two hundred and fifty (250) various corporate and non corporate clients related to accounting, financial matters, audit (internal and external) and income tax / sales tax laws in Pakistan. 3. Member, (special invitees) Taxation Committee of Lahore Chamber of Commerce & Industry (LCCI). 4. Tax & audit advisor of all Pakistan Cottage Industry & Small Traders Association. 5. Life Member of Lahore Tax Bar Association. 6. Provided professional training on Financial and Taxes to various businessmen at Pakistan Readymade Garments & Technical Training Institute (PRGTTI). 7. Appointed on behalf of the income tax department by the Central Board of Revenue (now FBR) for Special Audit Under section 4A of the repealed Income Tax Ordinance, 1979 of various concerns. 8. Visiting faculty member of the Professional Academy of Commerce (PAC), Punjab Group of Colleges and ICMAP in providing facilities for the preparation of exams of Business Taxation. 9. Professional author of following two books on taxes in Pakistan: a. Conceptual Approach to Taxes b. Principles of taxes in Pakistan 10. The Book on Conceptual Approach to Taxes has the following status: Recommended book all over Pakistan by: The Institute of s of Pakistan Punjab Group of Colleges Institute of Cost & Management Accountants of Pakistan (recommendation under process) 11. His two students of ICMAP got 1 st and 2 ND positions all over Pakistan by scoring 98% and 97% marks in the subject of Business Taxation 12. His one student of ICAP got gold medal from ICAP in Module C in the subject of Financial Accounting. Page3

5 Nadeem & Co. s AMENDMENTS RELATED TO INCOME TAX ORDINANCE, 2001 FOR THE TAX YEAR 2014 IN COMPARISON WITH TAX YEAR Page4 SR. PARTICULARS PAGE 1. Rate of tax for company other than a banking company [1 st Schedule, Division II, 5 clause (i)] 2. Taxability of dividend for company [Section 8 & 169] 5 3. Taxability of income from property [Section 15 & 15A] 6 4. Adjustment of losses [Section 56] 6 5. Initial allowance for plant & machinery [Section 23 & Third Schedule] 6 6. Definition of company [Section 80] 7 7. Acceptance of agricultural income [Section 111] 7 8. Rate of minimum tax [Section 113] 7 9. Minimum tax [Section 113A & 113B] Persons that are required to file Income Tax Return [Section 114] Pre-conditions to revise Income Tax Return [Section 114] Persons not required to furnish a return of income [Section 115] Requirement of Wealth Statement [Section 116] Method of furnishing of return and other documents [Section 118] Investment tax on income [Section 120A] Time for provisional assessment [Section 122C] Appointment of Appellate Tribunal [Section 130] Applicability of advance tax on property income [Section 147] Tax on import of foreign produced film [Section 148] [1 st Schedule, Part II] Tax deduction on salary [Section 149] Definition of prescribed person [Section 152] Definition of prescribed person [Section 153] Revised rates for withholding tax [Section 153] [1 st Schedule, Division III, Part III] Payment to traders & distributors [Section 153A] Persons required to deduct tax on property income [Section 155] Rate of tax deduction in case of individual, AOP and company [Section 155] [1 st 14 Schedule, Division V, Part III] 27. Tax rates for Prizes and Winnings [Section 156] [1 st Schedule, Division VI, Part IV, 15 clause 1] 28. Certificate of collection / deduction of tax is no more a sufficient evidence [Section ] 29. Annual withholding tax statement [Section 165] Furnishing of information by banks [Section 165A] Additional payment for delayed refunds [Section 171] Representatives [Section 172] Audit by Commissioner Inland Revenue [Section 177] Assistance to Commissioner Inland Revenue [Section 178] Taxpayer s registration [Section 181] Displaying of National Tax Number [Section 181C] Offences and penalties [Section 182] Prosecution for unauthorized disclosure of information by a public servant [Section 198] 19

6 Nadeem & Co. s 39. Selection Audit by Board [Section 214C] Reward to officers and officials of Inland Revenue [Section 227A] Rate of advance tax on cash withdrawals from bank [Section 231A] [1 st Schedule, 20 Division VI, Part IV] 42. Rates for collection of Tax by a Stock Exchange Registered in Pakistan [Section A] [1 st Schedule, Division IIA, Part IV] 43. Rates for collection of Tax NCCPL [Section 233A] [1 st Schedule, Division IIB, Part IV] Rate of advance tax on purchase of Motor Cars and Jeeps [Section 231B] [1 st 20 Schedule, Division VII, Part IV] 45. Advance tax on Goods Transport Vehicle [Section 234] Rates of collection of tax [Section 234] [1 st Schedule, Division III, Part IV] Rate of advance tax mobile phone & prepaid telephone card [Section 236] [1 st 21 Schedule, Division V, Part IV] 48. Advance tax at the time of sale by auction [Section 236A] [1 st Schedule, Division VI, 22 Part IV] 49. Deduction or collection of tax [Section 236D to 236J] Tax rates for non-salaried individuals and AOPs [1 st Schedule, Division I, Part I, clause 23 1] 51. Tax rates for salaried individuals [1 st Schedule, Division I, Part I, clause 1A] Amendments in Second Schedule Amendments in Seventh Schedule Income tax Statutory Regulatory Orders (SROs) issued from July 17, to April 24, Status of Income Tax Circulars issued by Federal Board of Revenue (FBR) from July 36 01, to April 24, A list of withholding Agents issued by FBR under the Income Tax Ordinance, A detailed list of prescribed persons issued by FBR under each withholding section of the Income Tax Ordinance, A list of advisory council for FBR issued 59. Section wise exemptions under Part II, III and IV of Second Schedule of ITO, 2001 issued 1. Rate of tax for company other than a banking company [1 st Schedule, Division II, clause (i)] SR. CATEGORY STATUS IN TAX YEAR 1. Small Company / Modaraba STATUS IN TAX YEAR % 2. Banking Company 35% 3. Other than above 35% 34% To encourage the corporate sector (other than at Sr. 1 & 2), the rate of tax has been reduced by 1% for tax year Taxability of dividend for company [Section 8 & 169] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 Page5 8 & 169 Dividend income for company was taxable under Normal Tax 10%. Dividend income for companies is taxable under fixed and final 10%. Previously dividend income for Companies was chargeable to tax under normal tax 10% after allowing deductions

7 Nadeem & Co. s and adjustment of losses against dividend income. Now dividend income for Companies is chargeable to tax at flat rate of 10% (7.5% in case of reduced tax rate under Part II of 2 nd Schedule) as Final Tax. Hence now deductions and losses cannot be adjusted against dividend income received by companies. 3. Taxability of income from property [Section 15 & 15A] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Fixed tax on property income 15A Income from property was taxable under Separate Block of Income and property income below Rs. 150,000 was not taxable for individuals & AOP s. 4. Adjustment of losses [Section 56] Normal tax regime for property income Income from property is chargeable to tax under normal tax regime (NTR) and normal slab rates shall be applicable. Deductions allowable against property income In computing income from property, deduction shall be allowed for expenditures or allowances specified in section 15A such as 1/5 th of rent chargeable to tax (RCT) as repair allowance, interest on loan, allowance for unpaid rent etc. Although this amendment was not a part of Finance Bill, however the property income is now chargeable to tax as part of total income under normal tax regime instead of fixed tax as final tax. Although this amendment was not a part of Finance Bill, however a new section 15A has been inserted which specifies the deductions allowed against Property Income. Page6 SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Losses were adjustable against income from salary. 56 Income from property was chargeable to tax under separate block of income; hence losses were not adjustable against property income. Losses are not adjustable against income from salary. Income from property is chargeable to tax under normal tax regime however still losses are not adjustable against income from property. Previously losses under any head of income except capital losses and speculation losses were adjustable against Income from salary. Now losses cannot be adjusted against income from salary. Similarly, although income from property is now chargeable to tax under normal tax regime but still no loss under any head of income shall be adjusted against the same.

8 Nadeem & Co. s 5. Initial allowance for plant & machinery [Section 23 & Third Schedule] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Initial allowance on plant & machinery was 50%. 6. Definition of company [Section 80] Initial allowance on plant & machinery is 25% that is equal to rate applicable on building. The initial allowance rate on plant & machinery has been brought down equal to the rate applicable on building. However this amendment has no effect on 90% rate of depreciation allowance available under sections 23A & 23B. SECTION STATUS IN TAX YEAR 80 on the said persons. STATUS IN TAX YEAR 2014 Now Non-profit organization, all cooperative Societies (including Finance & other Societies), a trust, an entity or a body of persons established or constituted by or under any law for the time being in force have been included in the definition of company. The definition of Company has been enlarged by including the said persons that has resulted into application of all the provisions of Income Tax Ordinance, 2001 on the said persons as applicable on a Company e.g. turnover tax & withholding tax provisions etc. 7. Acceptance of agricultural income [Section 111] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Where a person explains any unexplained income as agricultural income; such explanation shall be accepted to the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law. It is clearly evident from the said amendment that a person has to pay provincial income tax otherwise his explanation of unexplained income as agricultural income shall not be accepted for the purposes of section 111. Further even a person pays tax under section 111 of the Income Tax Ordinance, 2001 then still the provincial income tax has to be paid. 8. Rate of minimum tax [Section 113] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 Page7 113 Rate of minimum tax was 0.5% and facility of carry forward to unadjusted turnover tax was available to Companies only. Now rate of minimum tax has been increased to 1% & in addition to corporate taxpayers, individuals & AOPs are also entitled to adjust unadjusted minimum tax paid for the year against the tax liability (other than minimum tax) for the subsequent five tax years. Although the rate of minimum tax has been increased by 0.5% on the said persons however the facility of carry forward of unadjusted turnover tax has also been extended to individuals and AOPs in addition to corporate sector.

9 Nadeem & Co. s 9. Minimum tax [Section 113A & 113B] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR A 113B Tax on income of certain persons: A retailer other than a company and having annual turnover up to Rs. 5,000,000 may opt to pay 1% turnover tax as final tax. Tax on income of certain retailers: A retailer other than a company having annual turnover more than Rs. 5,000,000 and subject to Sales Tax Special Procedure Rules shall pay final tax at rates specified in section 113B. Minimum tax on Builders: Any person deriving income from construction and sale of residential, commercial, industrial or other buildings shall pay minimum tax at rates, mode and manner as the Federal Government may specify. Minimum tax on land Developers: Any person deriving income from development and sale of residential, commercial or other plots shall pay minimum tax at rates, mode and manner as the Federal Government may specify. 10. Persons that are required to file Income Tax Return [Section 114] It is clearly evident from the said amendment that the Fixed Tax Regime / Final Tax under section 113A & 113B is no more in tax year 2014 as the retailers are now to be taxed under normal tax regime read with sections 236G and 236H of the Income Tax Ordinance, Further, Builders and developers have been brought under minimum tax regime (subject to this ordinance) however the rate of minimum tax on builders and developers has not so far been notified by the Federal Government. STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 Page8 (a) every company, (b) every person (other than a company) whose taxable income for the year exceeds the maximum amount not chargeable to tax, (c) any non-profit organization, & (d) any welfare institution approved, (e) any person not covered in the above clauses who, (i) has been charged to tax in respect of any of the two preceding tax years; (ii) claims a loss carried forward for a tax year; (iii) owns immovable property with a land area of 250 square yards or more or owns any flat located in areas falling within the municipal existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment or the Islamabad Capital Territory; (iv) owns immoveable property with a land area of 500 square yards or more located in a rating area; (v) owns a flat having covered area of 2,000 square feet or more located in a rating area; (vi) owns a motor vehicle having engine capacity above 1000CC; & (except the following)

10 Nadeem & Co. s (vii) has obtained National Tax Number. (viii) is the holder of commercial or industrial connection of electricity where the amount of annual bill exceeds Rs.1,000,000. with limitation of Rs. 500,000 in place of Rs. 1,000,000. Person registered with any chamber of commerce, trade or business association, any market committee or any professional body including (ICAP, ICMAP, PEC, PBC & PMDC). Where Business income of an individual is between Rs. 300,000 & 400,000. Technical comments: Another step by the Federal Government to earn more revenue by extending the scope of persons that are required to file the Income Tax Return. 11. Pre-conditions to revise Income Tax Return [Section 114] Any person, who having furnished a return, discovers any omission or wrong statement therein, may file revised return subject to the following conditions namely: (a) (b) (c) (d) STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 It is accompanied by the revised accounts or revised audited accounts, as the case may be; The reasons for revision of return, in writing, duly signed, by the taxpayers are filed with the return. Taxable income declared is not less than and loss declared is not 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; Not Applicable Provided that if any of the above conditions, is not fulfilled the return furnished shall be treated as an invalid return as if it had not been furnished. it is accompanied by approval of the Commissioner Inland Revenue in writing for revision of return; Technical Comments: One more limitation imposed on persons for revision of return after having approval from the concerned commissioner. Further, this amendment is to bring the income tax provisions for revision of income tax return in consonance with Sales Tax Law. 12. Persons not required to furnish a return of income [Section 115] Page9 Section STATUS IN TAX YEAR STATUS IN TAX YEAR A taxpayer whose entire income in a tax year consists of income chargeable under the head Salary is not required to file his return of income, if the employer has filed related annual statement of deduction Relief withdrawn Due to withdrawal of said relief in tax year 2014 (read with section 114) such taxpayers are now required to file return of income. The requirement of electronic filing of return by the salaried individual

11 Nadeem & Co. s of income tax from salary, provided his salary income for the tax year is more than Rs.400,000 but less than Rs 500,000. having salary income of Rs 500,000 or more is still intact. 13. Requirement of Wealth Statement [Section 116] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Every resident taxpayer being an individual filing a return of income for any tax year shall furnish a wealth statement and wealth reconciliation statement for that year along with such return if his taxable income of tax year or tax year 2012 exceeds Rs. 1,000,000 or his tax liability under final tax regime exceeds Rs. 35, Where a person furnished a wealth statement and intends to file a revised wealth statement that was being filed without filing revised wealth reconciliation and reason of revision of wealth statement. Every resident taxpayer being an individual filing a return of income for any tax year shall furnish a wealth statement and wealth reconciliation statement for that year along with such return; Provided that every member of an association of persons shall also furnish wealth statement and wealth reconciliation statement for the year along with return of the association. Where a person furnished a wealth statement and intends to file a revised wealth statement, then the person must file revised wealth reconciliation along-with reasons to revise wealth statement. It is clearly evident from the said amendment that the filing of wealth statement for individuals filing income tax return (without any threshold of income or tax paid) is now must. Now from tax year 2014 no wealth statement shall be revised without filing revised wealth reconciliation and reason of revision of wealth statement. Further the E-Portal from tax year to onwards shall not allow to any individual to file income tax return before filing of wealth statement. 14. Method of furnishing of return and other documents [Section 118] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 Page A taxpayer whose entire income in a tax year consists of income chargeable under the head Salary is not required to file his return of income, if the employer has filed related annual statement of deduction of income tax from salary, provided his salary income for the tax year does not exceed Rs 500, There was requirement of electronic filing of return along-with wealth statement and wealth reconciliation by the salaried individual having salary income of Rs 500,000 or more. Relief withdrawn and now where individuals deriving salary income exceeding Rs.400,000 are required to file the income tax return along-with wealth statement & wealth reconciliation statement. The filing requirement is same however now proof of tax paid shall also be attached with the return of income. Due to withdrawal of said relief (read with section 114) such taxpayers are now required to file return of income along with proof of payment in the form of challans or any other equivalent document.

12 Nadeem & Co. s 15. Investment tax on income [Section 120A] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR A Where any person declares undisclosed income under section 120A, the tax on such income called investment tax shall be charged at prescribed rates and such person shall be entitled to incorporate in his books of account such undisclosed income in tangible form and shall not be liable to pay any tax, charge, levy, penalty or prosecution under ITO, Section deleted. Previously a person was entitled to incorporate undisclosed income in his books of account by paying nominal tax rate such as 2% or other rate on undisclosed income and after this the person was not required to pay any other tax, charge, levy, penalty or prosecution under Income Tax Ordinance, Now this section has been omitted that has resulted into non-availability of whitening of undisclosed income that will now be taxed under section 111 along with levy of default surcharge and penalty on such income. 16. Time for provisional assessment [Section 122C] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR C Provisional assessment was treated as final assessment order after the expiry of 60 days from the date of service of such orders. Now provisional assessment shall be treated as final assessment order after the expiry of 45 days from the date of service of such orders. In order to make the provisions of section 122C stricter for non-compliant taxpayers the period to treat the provisional assessment as final assessment has been reduced by 15 days (from 60 days to 45 days). 17. Appointment of Appellate Tribunal [Section 130] SECTION PARTICULARS STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 Page A person may be appointed as Judicial Member if the person: 130 A person may be appointed as Accountant Member if the person: a. has exercised the powers of a District Judge and is qualified to be a Judge of a High Court b. is or has been an advocate of High Court and is qualified to be a Judge of the High Court c. a. He is an officer of Inland Revenue Service equivalent in rank of Regional Commissioner b. A CIR or CIR (Appeals) having at least three year experience as Commissioner or Collector Is an officer of Inland Revenue Service in BS-20 or above and is a law graduate

13 Nadeem & Co. s 130 Chairperson of the Tribunal c. who has practiced for 10 years Except in special circumstances, the person appointed should be judicial member. Technical Comments: To enlarge the scope for the appointment of Judicial Member, Accountant Member & Chairperson, more persons have been given opportunity to work in the said capacity. 18. Applicability of advance tax on property income [Section 147] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Advance tax was not required to be paid on property income as the same was taxable as fixed and final tax. Now advance tax is also required to be paid on property income due to taxability of the same under normal tax regime. Now a person deriving income from property is required to pay advance tax quarterly subject to conditions specified in section Tax on import of foreign produced film [Section 148] [1 st Schedule, Part II] SECTION PARTICULARS STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 TECHNICAL COMMENTS 148 Rate of tax 5% of the value of goods (a) 5% of the value of goods in the case of industrial undertakings (b) 5% in all other cases of companies (c) 5.5% in case of all taxpayers other than above; and (d) Notwithstanding the provision of clause (c) above, 12% of the value of the film in the case of a foreign produced film imported for the purposes of screening and viewing. Another benefit to corporate sector as compared to noncorporate sector due to reduction in the rate of withholding tax for corporate sector. Page Status of tax deducted on import of foreign produced film for the purpose of screening and viewing: Final tax Adjustable Previously income from business of import of foreign produced film for the purposes of screening & viewing was taxable under final tax regime. Now it is taxable under normal tax regime.

14 Nadeem & Co. s 20. Tax deduction on salary [Section 149] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Every employer paying salary to employee was required to deduct tax on salary. 21. Definition of prescribed person [Section 152] Now every person responsible for paying salary to employee is required to deduct tax on salary. The scope of persons required to deduct tax on salary has been broadened. However, still tax shall be deducted after adjustment of taxes deducted under other heads and tax credits admissible under sections 61 to 64. SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Previously it was not defined that who is prescribed person for the purposes of section Definition of prescribed person [Section 153] Now, it has been defined that the prescribed person in section 152 means prescribed person as defined in section 153(7). Definition of prescribed person under section 153(7) now added in section 152 for withholding tax purposes. (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Federal Government Company STATUS IN TAX YEAR Association of persons constituted by, or under, law Non-profit organization Foreign contractor or consultant Consortium or joint venture Exporter or an export house AOP, having turnover of fifty million rupees or above in tax year 2007 or in any subsequent tax year Individual, having turnover of fifty million rupees or above in tax year 2009 or in any subsequent tax year STATUS IN TAX YEAR 2014 Person registered under the Sales Tax Act, 1990 This amendment has enlarged the definition of Prescribed Person with addition of persons registered under Sales Tax Act, Now persons registered under Sales Tax Act are not only to deduct tax under section 153 but also required to file monthly statements under section 165. Page Revised rates for withholding tax [Section 153] [1 st Schedule, Division III, Part III] Type of payment STATUS IN TAX YEAR STATUS IN TAX YEAR 2014

15 Nadeem & Co. s Rate for all persons Rate for Companies Rate for Persons other than company Sale of goods 3.5% 3.5% 4% Rendering of services 6% 6% 7% Contracts 6% 6% 6.5% Technical comments: Another benefit given to corporate sector as compared to non corporate sector. 24. Payment to traders & distributors [Section 153A] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR A Every manufacturer, at the time of sale to distributors, dealers and wholesales, shall collect tax at 0.5% of the gross amount of sales from the aforesaid persons Section omitted Although this section has been omitted however a new section 236G has been inserted with limited scope that is covering the similar provisions. 25. Persons required to deduct tax on property income [Section 155] STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 (a) Federal Government, Provincial Government, Local Government (b) Company (c) Non-profit organization (d) Diplomatic mission of a foreign state (e) Charitable institution (f) a private educational institution (g) a boutique (h) a beauty parlor (i) a hospital, a clinic or a maternity home; (j) Individuals or association of persons paying gross rent of Rs.1,500,000 & above in a year. Technical comments: The scope of prescribed person for the purposes of section 155 has been extended by including categories as defined above from point (e) to (j). 26. Rate of tax deduction in case of individual, AOP and company [Section 155] [1 st Schedule, Division V, Part III] STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 In case of individual, AOP & company (A) In case of individual & AOP Page14 S. No. Gross amount of rent Rate of tax 1. Where the gross Nil S. No. Gross amount of rent Rate of tax 1. Where the gross Nil

16 Nadeem & Co. s amount rent does not exceed Rs. 150, Where the gross amount of rent exceeds Rs. 150,000 but does not exceed Rs. 400, Where the gross amount of rent exceeds Rs. 400,000 but does not exceed Rs. 1,000, Where the gross amount of rent exceeds Rs. 1,000,000. Technical comments: 5% of the gross amount exceeding Rs. 150,000. Rs. 12,500 plus 7.5% of the gross amount exceeding Rs. 400,000 Rs. 57,500 plus 10% of the gross amount exceeding Rs. 1,000,000. amount rent does not exceed Rs. 150, Where the gross amount of rent exceeds Rs. 150,000 but does not exceed Rs. 1,000, Where the gross amount of rent exceeds Rs. 1,000,000. (B) In case of company 10% of the gross amount exceeding Rs. 150,000. Rs. 85,000 plus 15% of the gross amount exceeding Rs. 1,000,000. The rate of tax to be deducted under section 155, in the case of company shall be 15% of the gross amount of rent. 1. It is to be noted that from Tax year 2014 the rates of tax deduction on property income are different from rates of computation of tax liability for recipient on property income. 2. Further, rates of tax deduction are applicable on gross amount of rent while rates of computation of tax liability on income from property are now applicable on net amount of property income after allowing deductions under section 15A. 27. Tax rates for Prizes and Winnings [Section 156] [1 st Schedule, Division VI, Part IV, clause 1] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR and 1 st Schedule The rate of tax to be deducted under section 156 on a prize on prize bond or cross-word puzzle was 10% of the gross amount paid. The rate of tax to be deducted under section 156 on a prize on prize bond or cross-word puzzle is 15% of the gross amount paid. Rate of tax has been increased by 5% to earn more revenue by the Federal Government. 28. Certificate of collection / deduction of tax is no more a sufficient evidence [Section 164] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Certificate of collection or deduction of tax is a sufficient evidence of collection or deduction of tax. Omitted Due to this amendment now only tax paid challan or any other equivalent document shall be accepted as a valid evidence for collection or deduction of tax. Page Annual withholding tax statement [Section 165] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR 2014

17 Nadeem & Co. s 165(1) Proviso after section 165(6) Following explanation added after subsection (1) Explanation:- For the removal of doubt, it is clarified that this subsection overrides all conflicting provisions contained in the Protection of Economic Reforms Act, 1992, the Banking Companies Ordinance, 1962, the Foreign Exchange Regulation Act, 1947 and regulations made under the State Bank of Pakistan Act, 1956, if any, on the subject, in so far as divulgence of information under section 165. Person deducting tax u/s 149 was required to file annual statement of deduction tax in case where income is between 300,000 and 350,000. This proviso after sub-section (6) has been omitted. Through this amendment the provisions of section 165(1) override all conflicting provisions contained in other laws that prohibit to provide such information. Previously a person was required to file annual statement of deduction of tax under section 149 even where no tax has been deducted during the period if annual salary of any of the employees is between Rs. 300,000 and Rs. 350,000. Now because of omission of this proviso, filing of particulars of said employees is no more required to be stated in the annual statement required under section Furnishing of information by banks [Section 165A] Page16 STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 New section added by Finance Act,. Summary is given below: Every banking company shall make arrangements to provide to the Board in the prescribed form and manner: a. Online access to its central database containing details of its account holders and all transactions made in their accounts; b. A list containing particulars of deposits aggregating Rs. 1(M) or more during the preceding calendar month; c. A list of payments made by any person against bills raised in respect of a credit card issued to that person, aggregating to Rs. 100,000 or more during the preceding calendar month; d. A consolidated list of loans written off exceeding Rs. 1(M) during the calendar year; and e. A copy of each currency transactions report and suspicious transactions report. Banking company shall also nominate a senior officer at the head TECHNICAL COMMENTS The requirement under this section so far is not applicable due to stay granted against application of the said section by virtue of judgment of the Sindh High Court.

18 Nadeem & Co. s office to coordinate with the Board. Bank company & its officers shall not be liable to any civil, criminal or disciplinary proceedings against them for furnishing information. 31. Additional payment for delayed refunds [Section 171] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Following explanation added after sub-section (2) Explanation:- For the removal of doubts, it is clarified where a refund order is made on an application under sub-section (1) of section 170, for the purpose of compensation, the refund becomes due from the date refund order is made and not from the date the assessment of income treated to have been made by the Commissioner under section 120. Previously there was doubt about the date from which refund becomes due on an application for refund under section 170. This doubt has been removed by above explanation. 32. Representatives [Section 172] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR An explanation has been inserted whereby the expression business connection includes transfer of asset or business in Pakistan by a non-resident. Any person in Pakistan can be regarded a representative of a nonresident, where such person has any business connection with the non-resident person. The commissioner is now empowered to recover tax liabilities of the nonresident from a person who has purchased assets or business from the non-resident in Pakistan. 33. Audit by Commissioner Inland Revenue [Section 177] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Explanation: The Commissioner s power to select and conduct audit of a person is independent of powers conferred on the FBR under section 214C for selection of a person for tax audit. The amendment is aimed to nullify the effect of a decision of Lahore High Court holding that powers to select taxpayers cases for audit only vested with FBR. 34. Assistance to Commissioner Inland Revenue [Section 178] Page17 Following persons are empowered and required to assist the Commissioner in the discharge of the Commissioner s functions under this Ordinance. Every officer of:

19 Nadeem & Co. s STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 (a) Customs (b) Federal Excise, Sales Tax Omitted (c) Provincial Excise and Taxation (d) District Coordination Officer (e) District Officers including District Officer Revenue (f) Police and the Civil Armed Forces Technical comments: A Technical change has been made by excluding the officers of Sales Tax and Federal Excise since the relevant powers are now with officers of Inland Revenue Service. 35. Taxpayer s registration [Section 181] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR Following proviso added after sub-section (3): Provided that the Board may in case of individuals allow, in place of National Tax Number, use of Computerized National Identity Card issued by the National Database and Registration Authority. The said proviso has been inserted and now Board may allow in case of individuals the use of CNIC in place of NTN. 36. Displaying of National Tax Number [Section 181C] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR C New section added by Finance Act, Every person deriving income from business chargeable to tax and who has been issued NTN shall display his NTN at a conspicuous place at every place of his business. Now every person deriving income from business and who has been issued NTN shall display his NTN at every place of his business and in case of failure the person shall be liable to pay fine of Rs. 5, Offences and penalties [Section 182] Page18 Sr. Offences Penalties in tax year Penalties in tax year Where any person Lower of the following: Higher of the following: fails to furnish a return of income as 2. required under section 114 within due date Where any person fails to furnish (a) 0.1% of the tax payable for each day of default subject to a minimum penalty of Rs. 5,000 (b) 25% of the tax payable in respect of that tax year as above (a) 0.1% of the tax payable in respect of that tax year for each day of default subject to a maximum penalty of 50% of the tax payable (b) Rs. 20,000 Rs.100 for each day of Technical comments Penalties have not only been increased but also rationalized so that taxpayers may avoid from various

20 Nadeem & Co. s wealth statement or wealth reconciliation statement. Where any person fails to furnish a statement as required under section 115, 165 or 165A within the due date Where a taxpayer who, without any reasonable cause, in non compliance with the provisions of section 177 fails to produce the record or documents on receipt of: Any person who fails to furnish the information required or to comply with any other term of the notice served under section 176 Any person who fails to display his NTN at the place of business as required under this Ordinance or the rules made there under. as above First notice: Rs. 5,000 Second Notice: Rs. 10,000 Third Notice: Rs. 50,000 First default: Rs. 5,000 Subsequent default: Rs. 10,000 default. Higher of the following: (a) Rs. 2,500 for each day of default (b) Rs. 10,000 First notice: Rs. 25,000 Second Notice: Rs. 50,000 Third Notice: Rs. 100,000 First default: Rs. 25,000 Subsequent default: Rs. 50,000 Rs. 5,000 non-compliances under the provisions of Income Tax Ordinance, Prosecution for unauthorized disclosure of information by a public servant [Section 198] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 Page A person who discloses any particulars in contravention of section 216 shall commit an offence punishable on conviction with: Fine = not specified Imprisonment = not exceeding 6 months or both A person who discloses any particulars in contravention of section 216 shall commit an offence punishable on conviction with: Fine = not less than Rs. 500,000 Imprisonment = not exceeding 1 Year or both 39. Selection Audit by Board [Section 214C] Previously the amount of fine under section 198 was not specified. Now it has been specified that fine shall not exceed Rs. 500,000. Limit on period of imprisonment has been increased to 1 year.

21 Nadeem & Co. s SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR C Explanation: The Commissioner s power to select and conduct audit of a person is independent of powers conferred on the FBR under section 177 for selection of a person for tax audit. The Board shall keep the parameters confidential. Through the aforesaid amendments FBR intends to keep independent of the powers under section 177 and confidentiality of audit parameters. 40. Reward to officers and officials of Inland Revenue [Section 227A] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR A New section added by Finance Act, Cash reward will be allowed to Officers / Officials of Inland Revenue and informer for their meritorious conduct of discovery and realization of concealment or evasion of taxes. This section has been inserted to encourage the officers of Inland revenue for detection of concealment or evasion of income tax after recovery of such tax. Reward shall also be allowed to informer for providing credible information leading to such detection. 41. Rate of advance tax on cash withdrawals from bank [Section 231A] [1 st Schedule, Division VI, Part IV] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR A 0.2% of the cash amount withdrawn. 0.3% of the cash amount withdrawn. Rate of advance tax has been increased to earn more revenue by the Federal Government. 42. Rates for collection of Tax by a Stock Exchange Registered in Pakistan [Section 233A] [1 st Schedule, Division IIA, Part IV] Page20 (i) (ii) In case of purchase of shares as per clause (a) of section 233A(1). In case of sale of shares as per clause (b) of section 233A(1). (iii) In case of trading of shares as mentioned in clause (c) of section 233A(1) (iv) In case of financing of carry over trades (Badla) as per clause (d) of section 233A(1). STATUS IN TAX YEAR 0.01% of purchase value STATUS IN TAX YEAR % of sale value 0.01% of traded value 10% of the carry over Omitted The last clause has been omitted however the same has been transferred under section 233AA with responsibility of withholding tax by NCCPL instead of stock exchange.

22 Nadeem & Co. s 43. Rates for collection of Tax NCCPL [Section 233A] [1 st Schedule, Division IIB, Part IV] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR A & 1 st Schedule New division inserted by Finance Act, The rate of deduction under section 233AA shall be 10% of profit or markup or interest earned by the member, margin financier or securities lender. This section has been inserted after omission of section 233A with responsibility of withholding tax by NCCPL instead of stock exchange. 44. Rate of advance tax on purchase of Motor Cars and Jeeps [Section 231B] [1 st Schedule, Division VII, Part IV] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 TECHNICAL COMMENTS 231B The rate of payment of tax was as follows: Engine Capacity Amount of Tax Upto 850cc Rs.7, cc to 1000cc Rs.10, cc to 1300cc Rs.16, cc to 1600cc Rs.25, cc to 1800cc Rs. 22, cc to 2000cc Rs. 16,875 Above 2000cc Rs.50,000 The rate of payment of tax now as follows: Engine Capacity Upto 850cc 851cc to 1000cc 1001cc to 1300cc 1301cc to 1600cc 1601cc to 1800cc 1801cc to 2000cc Above 2000cc Amount of Tax Rs.10,000 Rs.20,000 Rs.30,000 Rs.50,000 Rs.75,000 Rs.100,000 Rs.150,000 Rate of advance tax has been increased to earn more revenue by the Federal Government. 45. Advance tax on Goods Transport Vehicle [Section 234] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 Now this advance tax is adjustable. 234 Previously advance tax on Goods transport vehicle of person deriving income from plying or hiring out of vehicle was final tax The Goods Transport Vehicle sector has been shifted from final tax regime to normal tax regime. 46. Rates of collection of tax [Section 234] [1 st Schedule, Division III, Part IV] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 Page & New clause inserted Where the motor vehicle tax is collected in lump sum,- (a) upto 1000cc Rs.7,500 This clause specifies the amount of advance income tax in case where motor vehicle tax is collected in lump sum.

23 Nadeem & Co. s 1 st Schedule (b) 1001cc to 1199cc (c) 1200cc to 1299cc (d) 1300cc to 1599cc (e) 1600cc to 1999cc (f) 2000cc and above Rs.12,500 Rs.17,500 Rs.30,000 Rs.40,000 Rs.80, Rate of advance tax mobile phone & prepaid telephone card [Section 236] [1 st Schedule, Division V, Part IV] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR & 1 st Schedule 10% of the amount of bill or sales price of pre-paid telephone card or sale of units through any electronic medium or whatever form. 15% of the amount of bill or sales price of pre-paid telephone card or sale of units through any electronic medium or whatever form. Rate of advance tax has been increased to earn more revenue by the Federal Government. 48. Advance tax at the time of sale by auction [Section 236A] [1 st Schedule, Division VI, Part IV] SECTION STATUS IN TAX YEAR STATUS IN TAX YEAR A & 1 st Schedule 5% of the gross sale price of any property or goods sold by auction. 10% of the gross sale price of any property or goods sold by auction. Another revenue measure by the Federal Government. 49. Deduction or collection of tax [Section 236D to 236J] Following new sections have been inserted by Finance Act for the tax year 2014: Section 236D Who is required to deduct or collect tax Prescribed person Rate 10% of the total amount of bill Exemption limit Nil Adjustable or final Adjustable From whom tax is required to be deducted or collected Person arranging or holding a function in a marriage hall, marquee, hotel, restaurant, commercial lawn, club etc. Time of deduction or collection Collection of bill Page22

24 Nadeem & Co. s 236E Any licensing authority certifying any foreign TV drama serial or a play dubbed in Urdu or any other regional language, for screening and viewing on any landing rights channel, shall collect advance tax Rs. 100,000 per episode. Nil Adjustable Distributors Certification 236F PEMRA Rates specified in Division XIII of Part IV of the First Schedule. Nil Adjustable Licensee Licensing 236G 236H Every manufacturer or commercial importer of electronics, sugar, cement, iron, and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass textile, beverages, paint or foam sector, Every manufacturer, distributor, dealer, wholesaler or commercial importer of electronics, sugar, cement, iron, and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass textile, beverages, paint or foam sector, 0.1% of gross value of sales 0.5% of gross value of sales Nil Adjustable Distributors, dealers and wholesales to whom such sales have been made Nil Adjustable Retailers at the time of sale to distributors, dealers and wholesalers at the time of sale to retailers Page23 236I Educational Institution 5% of fee Rs.200,000 Adjustable 236J Every market committee In this section "market committee" includes any committee or body formed under any provincial or local law made for the purposes of establishing, regulating or Group Tax or (per Class annum) Rs. A 10,000 B 7,500 5,000 C or any other class Nil Adjustable Person paying the fee. Dealers, Commission Agents and Arhatis At the time of fee collection At the time of issuance or renewal of license

25 Nadeem & Co. s organizing agricultural, livestock and other commodity markets. Comments: In order to earn more revenue, the Federal Government has inserted new sections (236D to 236J) to enlarge the scope of persons required to deduct tax at source under Income Tax Ordinance, Tax rates for non-salaried individuals and AOPs [1 st Schedule, Division I, Part I, clause 1] STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 S. No. Taxable income Rate of Tax (1) (2) (3) 1. Where taxable income does not exceed Rs. 400, Where the taxable income exceeds Rs. 400,000 but does not exceed Rs.750, Where the taxable income exceeds Rs. 750,000 but does not exceed Rs.1,500, Where the taxable income exceeds Rs. 1,500,000 but does not exceed Rs.2,500,000 0% 10% of the amount exceeding Rs. 400,000 Rs. 35, % of the amount exceeding Rs. 750,000 Rs. 147, % of the amount exceeding Rs. 1,500,000 S. No. Taxable income Rate of Tax (1) (2) (3) Where the taxable income exceeds Rs. 2,500,000 Rs. 347, % of the amount exceeding Rs. 2,500, Where the taxable income exceeds Rs. 2,500,000 but does not exceed Rs.4,000,000 Rs. 347, % of the amount exceeding Rs. 2,500, Where the taxable income exceeds Rs. 4,000,000 but does not exceed Rs.6,000,000 Rs. 722, % of the amount exceeding Rs. 4,000, Where the taxable income exceeds Rs. 6,000,000 Rs. 1,322, % of the amount exceeding Rs. 6,000,000 Page24 Technical comments: Three more slabs have been added from 5 to 7 above whereas 5 th slab restricted to taxable income up to Rs. 4 million and further the maximum rate is 35% on taxable income above Rs. 6 million.

26 Nadeem & Co. s 51. Tax rates for salaried individuals [1 st Schedule, Division I, Part I, clause 1A] STATUS IN TAX YEAR STATUS IN TAX YEAR 2014 Page25 S. No. Taxable income Rate of Tax (1) (2) (3) 1. Where taxable income does not exceed Rs. 400,000 0% 2. Where the taxable income exceeds Rs. 400,000 but does not exceed Rs. 750, Where the taxable income exceeds Rs. 750,000 but does not exceed Rs. 1,500, Where the taxable income exceeds Rs. 1,500,000 but does not exceed Rs. 2,000, Where the taxable income exceeds Rs. 2,000,000 but does not exceed Rs. 2,500, Where the taxable income exceeds Rs. 2,500,000 5% of the amount exceeding Rs. 400,000 Rs. 17, % of the amount exceeding Rs. 750,000 Rs. 95, % of the amount exceeding Rs. 1,500,000 Rs. 175, % of the amount exceeding Rs. 2,000,000 Rs. 420, % of the amount exceeding Rs. 2,500,000 S. No. Taxable income Rate of Tax (1) (2) (3) Where the taxable income exceeds Rs. 750,000 but does not exceed Rs. 1,400, Where the taxable income exceeds Rs. 1,400,000 but does not exceed Rs. 1,500, Where the taxable income exceeds Rs. 1,500,000 but does not exceed Rs. 1,800, Where the taxable income exceeds Rs. 1,800,000 but does not exceed Rs. 2,500, Where the taxable income exceeds Rs. 2,500,000 but does not exceed Rs. 3,000, Where the taxable income exceeds Rs. 3,000,000 but does not exceed Rs. 3,500, Where the taxable income exceeds Rs. 3,500,000 but does not exceed Rs. 4,000, Where the taxable income exceeds Rs. 4,000,000 but does not exceed Rs. 7,000,000 Rs. 17, % of the amount exceeding Rs. 750,000 Rs. 82, % of the amount exceeding Rs.1,400,000 Rs. 95, % of the amount exceeding Rs. 1,500,000 Rs. 140, % of the amount exceeding Rs. 1,800,000 Rs. 262, % of the amount exceeding Rs. 2,500,000 Rs. 362, % of the amount exceeding Rs. 3,000,000 Rs. 475, % of the amount exceeding Rs. 3,500,000 Rs. 600, % of the amount exceeding Rs. 4,000,000