AMENDMENTS IN TAX LAWS IN PAKISTAN

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1 AMENDMENTS IN TAX LAWS IN PAKISTAN JUNAIDY SHOAIB ASAD CHARTERED ACCOUNTANTS

2 TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001

3 TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001 TAX ON PROFIT ON DEBT Rate of tax for profit on debt for recipients other than companies for tax year 2018 and onwards shall be charged as follows (Section 7B read with Div IIIA Part I First Schedule) S.No Profit on Debt Slab Existing Revised Existing Rates Rate of tax Revised Rates 1 Where profit on debt does not exceed Rs.25,000,000 Where profit on debt does not exceed Rs.5,000,000 10% 10% 2 Where profit on debt exceeds Rs.25,000,000 but does not exceed Rs.50,000,000 Where profit on debt exceeds Rs.5,000,000 but does not exceed Rs.25,000,000 2,500, % of the amount exceeding Rs 25,000, % 3 Where profit on debt exceeds Rs.50,000,000 Where profit on debt exceeds Rs.25,000,000 5,625, % of the amount exceeding Rs 50,000,000 15%

4 TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001 VALUE OF PERQUISITES Threshold for interest free loan from employer has been increased from 0.5 million to Rs 1 million. Benchmark rate of 10% on interest free loan is to be included in the salary income of the employee. However, no addition on account of interest shall be made where the loan does not exceed above threshold limit. (Section 13)

5 TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001 DEDCUTIBLE ALLOWANCE FOR EDUCATION EXPENSE FOR INDIVIDUALS Threshold of taxable income for availing deductible allowance on account of education expenses has been increased from Rs 1 million to 1.5 million. (Section 60D formerly 64AB)

6 TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001 TAX CREDIT FOR INVESTMENT IN SHARES AND INSURANCE Tax credit for investment in Sukuks offered by public listed companies has been introduced vide Finance Act to original allottee of Sukuk. Further, in case of tax credit for life insurance premium, policy should be held for atleast two years from the date of acquisition otherwise tax credit shall be disallowed for the previous years. (Section 62)

7 TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001 TAX CREDIT FOR INVESTMENT IN HEALTH INSURANCE Threshold limit for investment in health insurance for availing tax credit has been increased from Rs. 100,000 to Rs. 150,000 (Section 62A)

8 TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001 QUARTERLY ADVANCE TAX PAYMENT Threshold of taxable income for payment of quarterly installment of advance tax by business individual is increased from Rs. 0.5 million to Rs. 1 million (Section 147)

9 TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001 PERSON NOT REQUIRED TO FURNISH RETURN OF INCOME A widow, an orphan below the age of 25 year, a disable person and a non-resident person owning immovable property are not required to file return where they only: (Section 115) i. Owns immovable property with a land area of 250 sq. yds or more or owns any flat located in the area falling within the municipal limits or areas in a cantonment or the Islamabad Capital Territory; ii. Owns immovable property with a land area of 500 sq. yds. or more located in a rating area; iii. Owns a flat having covered area of 250 sq. ft. or more located in a rating area; or iv. Owns a motor vehicle having engine capacity above 1000 cc

10 TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001 WEALTH STATEMENT Revision of wealth statement filed under section 116 is now allowed before receiving notice under section 122(9) of the Ordinance. Previously the taxpayer could amend the wealth statement before issuance of assessment order under section 122 of the Ordinance. (Section 116)

11 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001

12 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 SUPER TAX Application of section 4B Super tax for rehabilitation of temporary displaced persons has been extended for tax year 2017 (Section 4B)

13 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 TAX ON UNDISTRIBUTED RESERVES BY PUBLIC COMPANIES OTHER THAN BANKS OR MODARABA The Finance Act has replaced provision of tax on undistributed reserves. Previously tax at the rate of 10% of reserves in excess of 100% of its paid up capital was payable where the public company did not distribute 40% of after tax profit or 50% of paid up capital whichever is less. According to new provision tax at the rate of 7.5% shall be payable on accounting profit before tax if atleast 40% of after tax are not distributed by the public company as dividend within six months of the end of the tax year. For tax year 2017, such distribution may be made at any time before the due date of filing of return of income for tax year (Section 5A)

14 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 TAX CREDIT FOR ENLISTMENT Tax credit at the rate of 20% available to newly listed companies has been extended to subsequent three years after the year of enlistment. However, tax credit for last two years i.e. third and fourth tax years shall be restricted to 10%. (Section 65C)

15 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 TAX CREDIT FOR NON PROFIT ORGANIZATIONS The Finance Act has fixed threshold limit for administrative and management expenses upto 15% of total receipts in order to avail 100% tax credit by NPOs. However, the Finance Act has provided that this condition shall not be applicable where charitable and welfare activities have commenced for the first time within last three years and total receipts of NPO during the year are less than Rs. 100 million. (Section 100C) Further, the tax at the rate of 10% has been imposed on surplus fund by NPOs. Here, surplus fund means funds or money: (a) Not spent on charitable and welfare activities during the tax year; (b) Received during the tax year as donations, voluntary contributions, subscriptions and other incomes; (c) Which are more than 25% of the total receipts of the non-profit organization received during the tax year; and (d) Are not part of restricted fund Note: restricted fund means 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 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 COLLECITION OF TAX BY STOCK EXCHANGE FROM ITS MEMEBERS Tax collected by stock exchange from its members shall be final tax instead of adjustable tax from tax year 2018 and onwards (Section 233A)

17 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 PENALTY FOR FAILURE TO MAINTAIN AND FURNISH RECORD OF TRANSACTION BETWEEN ASSOCIATES Penalty in case of failure to maintain record of transaction between associates (Transfer pricing) has been imposed at Rs 10,000 or 5% of amount of tax whichever is higher. Further, non-maintenance of document and information as required under rule 108 would attract 1% of the value of transaction for which record is not maintained (Section 182) Further, non-furnishing of information regarding transaction between associates will attract penalty of Rs. 25,000 for first default and Rs 50,000 for each subsequent default (Section 182) Rules have been circulated for comments and not yet finalised

18 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 PENALTY FOR FAILURE TO FURNISH INFORMATION TO THE BOARD BY FINANCIAL INSTITUTION OR REPORTING ENTITY Under section 165B Financial Institution are required to make arrangement to provide information to FBR relating to non resident under bilateral arrangement. Under this arrangement Common reporting standard has been introduced. Failure to furnish information by financial institution or reporting entity to the Board shall attract penalty of Rs 2,000 for each day of default subject to minimum penalty of Rs. 25,000. (Section 182)

19 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 DEDUCTION OF ADVAMCE TAX ON DIVIDENDS Rate of advance tax on dividend has been increased from 12.5% to 15% whereas rate of tax on dividend from Stock Fund and Money Market Fund has been increased from 10% to 12.5%. However, the Finance Act has further provided that rate of tax on dividend received by person other than a company from a money market mutual fund shall be 10% where the amount of dividend does not exceed Rs. 2.5 million. (Section 150)

20 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 DEDUCTION OF ADVANCE TAX ON RETURN ON INVESTMENT IN SUKUKS Every company offering investment in sukuk shall be required to deduct tax from payments of a return on investment in sukuks at the following rates provided under Division IB, Part III of the First Schedule to the Ordinance. (Section 150A) Sukuk Holder Tax Rate Condition Company 15% Individual or AOP 12.5% Where return on investment is more than 1 million Individual or AOP 10% Where return on investment is less than 1 million Non-filers 17.5%

21 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 COLLECTION OF ADVANCE TAX ON PRIVATE MOTOR VEHICLES Non-banking financial institution are included in the ambit of withholding agent for collecting advance tax at the rate of 4% of value of motor vehicle at the time of leasing. Further, leasing include shariah compliant or conventional mode leasing either through ijara or otherwise. (Section 231B)

22 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 FIXED RATE FOR HAJJ GROUP OPERATORS Fixed tax of Rs. 5,000 per Haji for Hajj group operator has been extended for tax year 2017 (Section 72A Part IV 2nd Schedule)

23 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 CONDITIONS FOR CLAIMING EXEMPTION ON IMPORT U/S 148 BY INDUSTRIAL UNDERTAKINGS Quota eligibility for import for availing exemption under section 148 has been increased from 110% to 125% of raw material imported and consumed during the previous tax year. The Finance Act further provides that the exemption shall not be available in respect of raw material specified in sub-section 8 of section 148 of the Ordinance. (Clause 72B Part IV 2 nd Schedule). Such raw material includes i. edible oils; ii. packing materials; and iii. plastic raw material falling under PCT heading to (Clause 72B Part IV 2nd Schedule)

24 TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001 REDUCED RATE OF MINIMUM TAX ON CERTAIN SERVICE PROVIDERS Reduced rate of 2% on certain service sector has been extended to tax year 2018 along-with requirement for audit and irrevocable undertaking for tax year Further, the Act now include following service sectors in the list.of companies eligible for exemption. (Clause 94 Part IV 2 nd Schedule) i. Service rendered by Pakistan Stock Exchange ii. Building maintenance services iii. Service rendered by Pakistan Mercantile Exchange Limited.

25 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001

26 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 TAX ON DIVIDEND Rate of tax on dividend other than power sector and mutual funds has been increased from 12.5% to 15% whereas rate of tax on dividend from mutual fund has been increased from 10% to 12.5%. However, Finance Act has provided that rate of tax shall remain 10% where amount of dividend do not exceed Rs. 2.5 million (Section 5)

27 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 TAX ON RETURN ON INVESTMENT IN SUKUKS Scope of tax on return on investment in sukuks has been broadened vide Finance Act. Now the person receiving return on investment in Sukuks from any company shall be liable to tax at the rate provided in Division IIIB, Part I, First Schedule to the Ordinance Section 5AA) Sukuk Holder Tax Rate Condition Company 25% Individual or AOP 12.5% Where return on investment is more than 1 million Individual or AOP 10% Where return on investment is less than 1 million

28 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 TAX ON BUILDERS AND DEVELOPERS Application of fixed tax on builders and developers now restricted to tax year 2017 if projects undertaken for construction and sale of residential, commercial or other building and plots initiated and approved during tax year Thus, projects undertaken after 2017 will be taxable on net income basis. However, such tax is applicable to residential and commercial buildings and plots vide Finance Act. Words any other buildings and plots has been excluded. (Section 7C & 7D)

29 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 DEDUCTION NOT ALLOWED AGAINST BUSINESS INCOME Threshold for allowable expenditure on account of sale promotion, advertisement and publicity for pharmaceutical manufacturer has been increased from 5% to 10%. (Section 21)

30 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 DEPRECIABLE ASSETS Ownership of the depreciable assets is deemed as owned by the taxpayer where the asset is jointly owned by a taxpayer and an Islamic Financial Institution in arrangement of Musharika or Diminishing Musharika Financing (Section 22)

31 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 CAPITAL GAIN ON SALE OF SECURITIES Rates of tax for capital gain on disposal of securities has been provided as follows (Section 37A) S.NO Period Where holding period of a security is less than twelve months Where holding period of a security is twelve months or more but less than twenty-four months Where holding period of a security is twenty-four months or more but the security was acquired on or after 1st July, 2013 Where the security was acquired before 1st July, 2013 Future commodity contracts entered into by members of Pakistan Mercantile Exchange Tax Year 2018 and onwards for securities acquired before 1 st July 2016 Filer Non - Filer Tax Year 2018 and onwards for securities acquired after 1 st July 2016 Filer Non - Filer 15% 18% 15% 20% 12.5% 16% 15% 20% 7.5% 11% 15% 20% 0% 0% 0% 0% 5% 5% 5% 5% Finance Act has provided that rate of tax on cash settled derivatives traded on the stock exchange shall be 5% for the tax years 2018 to 2020.

32 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 TAX CREDIT TO A PERSON REGISTERED UNDER THE SALES TAX ACT 1990 Tax credit available to manufacturer making sales not less than 90% to sales tax registered person has been withdrawn. (Section 65A)

33 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 MINIMUM TAX ON TURNOVER General minimum tax rate on turnover has been increased from 1% to 1.25% However, Minimum tax for person running an online market place as defined in clause 2(38B) shall be 0.5% as provided vide the Finance Act. (Section 113)

34 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 TAXABILITY OF IMPORT OF FERTILIZERS Import of fertilizer by manufacturer of fertilizer previously been taxed on net income basis shall now be final tax. (Section 148(7))

35 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 ADVANCE TAX ON SALE OR TRANSFER OF IMMOVABLE PROPERTY Advance tax collected on sale or transfer of immovable property shall be minimum tax where property is acquired and disposed off within the same tax year (Section 236C)

36 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 EXTENSION IN TIME FOR FURNISHING RETURN Extension in time for filing return may be granted by the Chief Commissioner upon application by the taxpayer where the Commissioner has refused to grant the extension or further extension. Such extension would be allowed for maximum 15 days unless further extension is justified on the basis of exceptional circumstances. (Section 119)

37 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 PROVISIONAL ASSESSMENT Provisional assessment by the Commissioner in the absence of return filed has been withdrawn. (Section 122C). Now the department may made assessment on best judgment.

38 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 REVISION OF WITHHOLDING TAX STATEMENTS Revision of withholding statement filed under statement 165 is now allowed within 60 days of filing (Section 165)

39 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 DISCLOSURE OF INFORMATION BY FBR TO EOBI EOBI can obtain information from FBR regarding salaries (Section 216)

40 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 AMENDMENT IN WITHHOLDING TAX RATES ON CERTAIN PAYMENTS TO NON-RESIDENTS The withholding tax rate for a non-resident deriving income from contract has been increased from 12% to 13% where non-resident is a non-filer. Further, tax deducted shall be adjustable and shall be assessed on net income basis unless such non-resident opts for final tax regime (Section 152) Following are withholding rates for payment made to non-filer non-resident. (Section 152) Goods Existing rates Revised rates Company 6% 7% Non-Company 6.5% 7.75% Company 12% 14% Services Non-Company 15% 17.5% Contract 12% 13%

41 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 AMENDMENT IN WIHHOLIDNG TAX RATES ON CERTAIN PAYMENTS TO RESIDENTS Withholding agent is required to collect tax from agent or any third person on account of payment for services where such agent / third person retains his services charges / fees (Section 153). According to recent judgment of Supreme court no withholding was required on such payment. Rate of collection of withholding tax on supply of goods and services to resident person has been amended as follows. (Section 153) Existing Revised Company Non- Company Company Non- Company Distribution of FMCG 3% 3.50% 2% 2.5% Sale of goods (nonfilers) 6% 6.50% 7% 7.75% Services (non-filers) 12% 15% 14.5% 17.5% Contract (non-filers) 10% 10% 12% 12.5%

42 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 AMENDMENT IN WITHHOLDING TAX ON RENT PAYMENTS TO COMPANIES Rate of advance tax on rent for companies being non-filer is chargeable to tax at the rate of 17.5% of gross amount of rent. (Section 155)

43 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 AMENDMENT IN WITHOLDING TAX RATE ON DISTRIBUTION OF PRIZE AND WINNINGS Rate of advance tax on prizes and winnings has been increased from 20% to 25% (Section 156)

44 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 BROKERAGE AND COMMISSION Computation of amount of commission to advertising agents has been provided vide Finance Act through insertion of new sub-section. Principal is required to deduct tax at the rate provided under Division II of Part IV of First Schedule to the Ordinance i.e. at the rate of 10% being a filer and 15% for non-filer on amount of commission to be calculated as follows: A x 15 / 85; where A = amount paid or to be paid to electronic or print media for advertising services (excluding commission) on which tax is deductible under section 153(1)(b) of the Ordinance. Such tax deducted shall be final tax on income of the advertising agent and shall be deducted irrespective of tax deductible under section 153(1)(b) of the Ordinance on payment to electronic and print media. The purpose of insertion of this new sub-section is to fix the percentage of commission on which tax is to be deducted irrespective of the fact whether or not the advertising agent receive any commission. (Section 233(2A))

45 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 COLLECTION OF ADVANCE TAX AT THE TIME OF SALE TO RETAILER Rate of collection of advance tax on sales to retailer by distributor, dealers or wholesaler in respect of certain products has been amended as follows (Section 236H) Existing Revised Category of sale Rate of tax Rate of tax Filer Filer Nonfiler Electronics 0.5% 1% 1% Others 0.5% 0.5% 1%

46 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 ADVANCE TAX ON INSURANCE PREMIUM Threshold limit for collection of advance tax at 1% from non-filer in respect of life insurance premium has been increased from Rs. 0.2 million to Rs. 0.3 million (Section 236U)

47 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 REDUCTION IN TAX RATE FOR PERSON RUNNING ONLINE MARKET PLACE Rate of tax on commission derived by person running online market place as defined in clause 2(38B) shall be 5% instead of 12% or 15% being a filer and a non-filer respectively. (Clause 28C Part II, 2 nd Schedule)

48 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 EXEMPTIONS FOR STARTUP BUSINESS OF INFORMATION TECHNOLOGY Concept of startups has been introduced for information, technology business offering technology driven products or services provided that business is registered and is duly certified by the Pakistan Software Export Board (PESB).. However business has been commenced on or after 1 st July (Section 2(62A)) Following exemptions have been provided under the Ordinance for such business: i. Exemption on Profit and gain derived by start-up business of information technology for the tax year in which the business starts up and the following two tax years. (Clause 144 Part I 2 nd Sch) ii. iii. Exemption from minimum tax under section 113 of the Ordinance. (Clause 43F Part IV 2 nd Sch.) Exempt from withholding under section 153 of the Ordinance on payments received. (clause 43F of Part IV of 2nd Sch.)

49 COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001 DEFINITIONS Durable goods has been excluded from Fast Moving Consumer Goods (FMCG). Durable goods have however not being defined (Section 2(22A)) Definition of Liaison office has been provided vide Finance Act, However, place of business shall not be treated as liaison office if it engages in commercial activities, trading or industrial activities, or the negotiation and conclusion of contracts. (Section 2(30C))

50 AMENDMENTS IN SALES TAX ACT, 1990

51 AMENDMENTS IN SALES TAX ACT, 1990 NEW CONCEPT Tier- 1 Retailers is define to mean following persons: (Section 2(43A)) a. A retailer operating as a unit of a national or international chain of stores b. A retailer operating in an air-conditioned shopping mall, plaza or center, excluding kiosks c. A retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds rupees six hundred thousand; and d. A wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of consumers. Such retailers shall pay sales tax at the rate of 17% and shall be liable for filing monthly sales tax return. If such retailers are making supplies of finished goods of the five sectors specified in notification S.R.O 1125(I)/2011 they shall pay sales tax at the rates prescribed in said notification. Such retailers shall have an option to pay sales tax at the rate of 2% of their total turnover, including turnover of exempt supplies without adjustment of any input tax. To exercise such option, such retailers will have to file an option before the respective Chief Commissioner having jurisdiction by 15 th of July and this option shall remain in force for the whole financial year.

52 AMENDMENTS IN SALES TAX ACT, 1990 CHARGABILITY OF SALES TAX ON IMPORTED GOODS Sales tax is required to be charged on goods imported into Pakistan irrespective of their final destination in territories of Pakistan. (Section 3). Purpose of said amendment to tax goods imported for FATA / PATA.

53 AMENDMENTS IN SALES TAX ACT, 1990 SALES TAX ON SPECIFIED RATES ON GOODS COVERED UNDER EIGHTTH SCHEDULE Goods specified in Eight Schedule shall be charged to sales tax at the specified rate further, retail price along with amount of sales tax is required to be legibly, prominently and indelibly printed by the manufacturer on each article as required in case of Third Schedule item. (Section 3(2)) Certain goods shall be charged to sales tax at the rates specified in Eight Schedule to the Act. which includes following (Eighth Schedule) a. Supply of fertilizers are chargeable to sales tax at the specified rates b. Some gases and locally manufactured coal are charged at specific rates subject to certain conditions c. Imports and supply of specific Poultry machines will be charged at the rate of 7% d. Multimedia projectors at the rate of 10% e. Fish feed at the rate of 10%

54 AMENDMENTS IN SALES TAX ACT, 1990 AMENDMENT IN SALES TAX RATES 1. MOBILE PHONES Sales tax on low priced cellular mobile phones or satellite phones has been increased from Rs. 300 to Rs. 650 whereas sales tax medium priced cellular or satellite mobile phones has been reduced from Rs. 1,000 to Rs (Ninth Schedule) 1. HYBRID ELECTRIC VEHICLES Sales tax on local supply of Hybrid Electric Vehicles (HEVs) falling under the PCT heading at the following rates: (SRO 587(I)/2017 dated 1st July 2017) Upto 100cc 50% of the standard rate i.e. 8.5% 1801 to 2500cc 75% of the standard rate i.e % 1. STEEL SECTOR Fixed rate of sales tax for steel sector has been increased from Rs.9 per unit of electricity to Rs per unit of electricity. (Rule 58H of the Sales Tax Special Procedure Rules, 2007) 1. TEXTILE GOODS Sales tax on retail sales to five export oriented sectors has been enhanced from 5% to 6%. (SRO 584(I)/2017 dated 1 st July 2017)

55 AMENDMENTS IN SALES TAX ACT, 1990 EXEMPTION FROM CHARGEABILITY OF FURTHER SALES TAX The Federal Government vide SRO 585(I)/2017 dated 1 st July 2017 has exempted the following goods from chargeability of further tax. i. Fertilizers ii. Supplies by steel melters, re-rollers and ship breakers operating under chapter XI of the Sales Tax Special Procedure Rules, 2007; and iii. Supplies covered under Fifth Schedule to the Sales Tax Act, 1990 at zero rate

56 AMENDMENTS IN SALES TAX ACT, 1990 EXEMPTION FROM SALES TAX WITHHOLDING Sales tax is not required to be withheld anymore where supplies are made by an active taxpayer to another registered person with the exception of advertisement services (SRO 586(I)/2017 dated 1 st July 2017)

57 AMENDMENTS IN SALES TAX ACT, 1990 RECOVERY OF TAX Stay against recovery proceedings has been provided where taxpayer files an appeal with the Commissioner Appeals under section 45B of the Act in respect of any order and has paid 25% of the amount of tax. (Section 48)

58 AMENDMENTS IN FEDERAL EXCISE ACT, 2005

59 AMENDMENTS IN FEDERAL EXCISE ACT, 2005 CHARGABILITY OF SALES TAX ON IMPORTED GOODS The Finance Act has provided for chargeability of duty on goods imported into Pakistan irrespective of their final destination in territories of Pakistan (Section 3). Purpose of said amendment to tax goods imported for FATA / PATA.

60 AMENDMENTS IN FEDERAL EXCISE ACT, 2005 RECOVERY OF TAX Stay against recovery proceedings has been provided where taxpayer files an appeal with the Commissioner Appeals under section 33 of the Act in respect of any order and has paid 25% of the amount of tax. (Section 37)

61 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011

62 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 DEFINITIONS FRANCHISE Amendment in the definition of Franchise has been made regarding determination of franchise services irrespective of consideration or fee against the franchise. Now the franchise service shall be chargeable to sales tax even in case no payment is made or required to be made in franchise arrangement. (Clause 2(46)) PLACE OF BUSINESS IN SINDH Amendment in the definition of place of business in Sindh has been made to include following person who carries on an economic activity through: (Clause 2(64(b)) i. Virtual presence ii. A website iii. Web portal; or iv. Any other form of e-commerce by whatever named called or treated

63 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 PERSON LIABLE TO PAY TAX Amendment has been made to include recipient of taxable service as a person liable to pay tax. Service provider and service recipient shall be jointly and severally liable to pay tax where service provider has failed to make payment of tax within the prescribed due date and the person receiving taxable supply fails to make payment to the service provider within 180 days from the date of tax invoice. Further, it is also clarified that the withholding agent shall also be considered as registered person liable to pay tax and the amount of tax liable to be withheld by the withholding agent is also proposed to be included in the amount of tax. (Section 9)

64 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 CHARGEABILITY OF SALES TAX ON LABOUR AND MANPOWER SUPPLY SERVICES Exclusion / exemption from sales tax on reimbursement of salaries and allowances received on actual basis by the person providing labour and manpower supply services has been done away with vide notification no. SRB-3-4/12/2017 dated 5 th June Now the service provider is required to charge sales tax on gross amount including reimbursement of salaries and allowances. Such amendment shall take effective from 1 st July (Rule 42E(3))

65 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 TAX CREDIT NOT ALLOWED Restriction / limitation for claiming input tax adjustment in respect of certain goods and services has been included in section 15A of the Act which is currently covered under Rule 22A(ii) of the Sindh Sales Tax on Services Rules, The provision provide for exclusion of input tax adjustment in respect of following goods or services which are liable to sales tax whether Federal or Provincial sales tax and are used or consumed in the provision of services taxable under the Sindh Sales Tax on Services Act, 2011: i. Goods or services chargeable to sales tax at the specific rate ii. Goods or services chargeable to sales tax at the fixed rate iii. Goods or services chargeable to sales tax at such rates not based on value; or iv. Goods or services chargeable to sales tax at the rate lesser than 13% ad volorem In addition to the above, the person providing taxable telecommunication services chargeable to sales tax at the rate of 19.5% ad volorem, can claim adjustment of input tax paid on goods and services chargeable to sales tax at the rate not exceeding 17% ad volorem (Section 15A(1)(jj)) Further, rate of sales tax on telecommunication services for claiming input tax adjustment has been increased from 19% to 19.5%. Such increase is in line with the increase in rate for telecommunication services from 19% to 19.5% in Schedule to the Act. (Section 15A(1)(k))

66 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 INPUT TAX ADJUSTMENT FOR CAPITAL GOODS New provision has been inserted for adjustment of input tax in respect of capital goods, machinery and fixed assets as are classified under Chapter 84 and 85 of the First Schedule to the Customs Act, 1969 against output tax in twelve equal monthly installments. Chapter 84 and 85 of the Customs Act include following class of goods: (Section 15B) i. Chapter 84 Nuclear reactors, boilers, machinery and mechanical appliances, parts thereof ii. Chapter 85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles

67 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 ASSESSMENT OF TAX Period for passing assessment order has been increased from 120 days to 180 days from issuance of the show cause notice. (Section 23(3)) Further, period for passing order for recovery of tax not levied or short levied has been increased from 120 days to 180 days from issuance of the show cause notice. (Section 47(3))

68 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 OFFENCES & PENALTIES New provision has been inserted regarding monitoring or tracking by electronic or other means in respect of registered person or class of registered person or any of the service or class of the service. As and when prescribed by the Board the person providing taxable services shall compulsorily use the electronic means for issuance of tax inovices. (Section 54A) Penalty has been imposed in respect of non-compliance of above provision. Such penalty would be Rs. 100,000 or an amount equal to tax involved whichever is higher. Further, such person upon conviction by a special judge shall be liable imprisonment upto one year or fine upto Rs. 100,000 or both. (Section 43(7B))

69 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 APPEALS The Commissioner Appeal is empowered to decide the cases of deregistration under section 25A of the Act. (Section 57(1))

70 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 RECOVERY OF ARREARS Stay against recovery proceedings has been allowed till the decision in appeal where appeal has been filed by the taxpayer before the Commissioner Appeals against the order passed by the officer of the SRB and the taxpayer has paid 25% of amount of tax due. (Section 66(1)) Further, New section has been inserted regarding recovery of tax from the taxpayer without giving notice where the taxpayer has paid tax less than the tax due as indicated in his return. Such tax short paid alongwith default surcharge shall be recovered by attaching his bank account. However, penalty shall not be imposed unless show cause notice is given to such person. (Section 47A)

71 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 AMENDMENT IN SINDH SALES TAX ON SERVICES RULES, 2011 Certain amendments has been made vide notification no. SRB-3-4/12/2017 dated 5 th June 2017 and such amendment shall take effect from 1 st July PERIOD FOR CLAIMING INPUT TAX ADJUSTMENTS Period for claiming input tax adjustment has been increased from four to six months w.e.f. 1 st July Previously the registered taxpayers can claim adjustment of unadjusted input tax during four succeeding tax periods. (Rule 22) ADVERTISING SERVICES Services of advertising agents in respect of advertisement on walls shall be chargeable to sales tax. (Rule 33) Further, scope of taxable advertising services has been widened by including services of advertisement on buildings and walls in the definition of advertisement services as per Rule. (Rule 34)

72 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 RENTING OF IMMOVABLE PROPERTY SERVICES Rate of sales tax on services for renting of immovable property has been reduced from 8% 3%. (Rule 42BBB) to FRANCHISE SERVICES Option was previously available to elect tax rate of 13% on franchise services (tariff heading ) instead of 10% by resident franchise service provider or franchisee receiving franchise services from service provider resident outside Pakistan. Such option has been withdrawn vide SRO 3-4/18/2017 dated 6 th July Therefore, franchise services are chargeable at the rate of 10% without any input tax adjustment. INTELLECTUAL PROPERTY SERVICES Option was previously available to elect tax rate of 13% on intellectual property services (tariff heading ) instead of 10% by resident service provider or person receiving services from service provider resident outside Pakistan. Such option has been withdrawn vide SRO 3-4/23/2017 dated 11 th July Therefore, intellectual property services are chargeable at the rate of 10% without any input tax adjustment.

73 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 REDUCTION IN SALES TAX RATES Amendment has been made in reduced sales tax rates for certain services vide notification no. SRB-3-4/11/2017 dated 5 th June Such amendment shall take effect from 1 st July Tariff Heading Description of service Current rate New rate Travel Agents 10% 8% Tour Operators 10% 8% Renting of immovable property services 8% 3% Telecommunication Services 19% 19.5% Services provided or rendered by an indenter 13% 3% subject to the from a place of business in Sindh for which the condition that the registered person receives the value of service input tax credit / from place outside Pakistan in foreign exchange adjustment shall not through normal banking channels in the business be admissible bank account of the registered person in the manner prescribed by the State Bank of Pakistan Services provided or rendered by a call centre from a place of business in Sindh for which the registered person receives the value of the service from a place outside Pakistan in foreign exchange through banking channels in the business bank account of the registered person in the manner prescribed by the State Bank of Pakistan 13% 3% subject to the condition that the input tax credit / adjustment shall not be admissible

74 AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011 EXEMPTION Exemption from sales tax on services of life insurance under tariff heading (other than its related re-insurance service) has been extended from 30 th June 2017 to 30 th June 2018 vide notification no. SRB-3-4/10/2017 dated 5 th June 2017.

75 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012

76 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012 DEFINITIONS DUE DATE OF FILING The Finance Act has amended the definition of the due date of filing of return to provide for different dates for furnishing different annexures of the Punjab sales tax return in line with the Federal Sales Tax Act, 1990 whereby annexure of sales is to be e-filed on 10th of the month following the month of sales. (Section 2(17)). Notification for submission of Annexure C by 10 th of the month from tax period July 2017 has been issued notification no. PRA/Orders.06/2017(I) dated 5 th July PLACE OF BUSINESS The Finance Act has extended the definition of place of business by amending sub-clause (b) of sub-section(30) of section 2 of the Punjab Sales Tax on Services Act, 2012 (PSTSA 2012). Through the said amendment, the activities performed through ecommerce or virtual presence including web portals shall now be treated as place of business for levy of the Punjab sales tax on the activities carried out through e-commerce, web-portals, etc. Now any business activity carried via virtual presence in Punjab through any computer application / software shall be subjected to Punjab sales tax. (Section 2(30))

77 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012 PERSON LIABLE TO PAY TAX COLLECTED AT SOURCE A new section 11A has been inserted in the statute book whereby, in case the recipient of taxable service being withholding agent fails to make the payment of tax to the service provider within 180 days and the service provider has also not made payment of tax within the due date, the recipient and the provider of services shall jointly and severally be liable for payment of tax. (Section 11A) Another section has been inserted which empowers the Authority to declare any person as tax collecting agent. The said person shall be liable to pay the tax so collected to the Government as per procedures to be prescribed by the Authority, including related to registration, record keeping, invoicing, returns and other related matters. (Section 14A)

78 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012 INPUT TAX CREDIT / ADJUSTMENT The amendment has been made to allow a registered person to claim adjustment, deduction or refund of the tax paid or payable under any other law with the condition to furnish tax invoice or Goods Declaration (GD) bearing the name of claimant and its National Tax Number (NTN), in case of domestic purchases or imports respectively. The Authority will be empowered to put restrictions on claim/ adjustment of input tax by issuing notification with the approval of the Government. (Section 16)

79 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012 INPUT TAX ADJUSTMENT FOR CAPITAL GOODS New provision has been inserted for adjustment of input tax in respect of capital goods, machinery and fixed assets as are classified under Chapter 84 and 85 of the First Schedule to the Customs Act, 1969 against output tax in twelve equal monthly installments. Chapter 84 and 85 of the Customs Act include following class of goods: (Section 16C) i. Chapter 84 Nuclear reactors, boilers, machinery and mechanical appliances, parts thereof ii. Chapter 85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles

80 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012 ASSESSMENT OF TAX The current period of issuance of show cause notice for amendment of assessment has been increased from five years to eight years. (Section 24)

81 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012 RECOVERY OF ARREARS The new clause (bb) to the sub-section (1) has been inserted whereby the Authority upon issuance of notice in writing would be authorized to recover the amount of tax payable by a taxpayer from any other person who owe any amount to the taxpayer under legally enforceable relation including purchase contracts, contracts with credit or financial institutions or banking companies, lease contracts, loan agreements, building loan contracts, life insurance contracts, employment or work contracts etc. Further, the Act has provided for automatic stay against recovery of the disputed tax till the decision in appeal where 25% of the demand as a result of assessment order has been deposited. (Section 70)

82 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012 GENERAL ADMINISTRATION RESTRICTION ON AUTHORITY ISSUING OR RENEWING A BUSINESS LICENSE New section has been inserted which authorizes the Authority requiring any competent authority to hold the issue or renew a license or permission to any person to engage in an economic activity which is taxable under the Act unless the licensee or grantee furnishes the evidence that he is a duly registered person under section 25, 26or 27 of the Act. (Section 76A) COMMUNICATOIN OF NOTICE, ORDERS ETC The Authority, while issuing notification, may communicate electronically in respect of all communications including notifications, order, assessment or requisition from officers. This facility of electronic communication has been extended for the service of notices and show cause notices as well. (Section 78)

83 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012 TAX CHARGEABLE The following amendments have been made in the Second Schedule to the Act: Telecommunication Services (Serial No. 6) )Serial no. Description of the Table 6 (z) i. internet services whether dialup or broadband including e mail services, data communication network services (DCNS) and value added data services ii. such charges payable on the international leased lines or bandwidth services used by: (a) software exporting firms registered with Pakistan Software Export Board; and (b) data and internet service providers licensed by the Pakistan Telecommunication Authority; and i. such charges payable on the international leased lines used by the software exporting firms registered with Pakistan Software Export Board for software exports. And Rate of Tax Nineteen and a half percent Note that the exclusion from chargeability of tax under Telecommunication Services has been amended and now only the internet services whether dialup or broadband including services, data communication network services (DCNS) and value added data services when the charges do not exceed Rs per month per student.

84 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012 Construction Services (Serial no. 14) The Government of Punjab on the recommendations of the Authority had issued a notification No. SO (TAX) 5-24/2016 dated 05 October 2016 effective from 01 July 2016 whereby a reduced rate scheme was announced for construction services. The aforesaid notification is valid up to 30 June The Finance Act has introduced a similar scheme by inserting explanation in the taxable service category under Sr. No. 14 of the Second Schedule to the PSTSA Amendment has been made as follows: Type of Construction Service Rate of sales tax All services specified at S.No.14 without input tax credit or adjustment to the extent of Government civil works including those of cantonment boards involved in the ongoing development schemes and projects launched during Financial Year and funded under the Annual Development Plan of the Punjab Government or funded through foreign loans where the negotiations were finalized after 1st of July 2016 or funded under Public Sector Development Program of the Federal Government or funded by the Cantonment Boards One percent All services specified at S.No.14 without input tax credit/adjustment to the extent of Government civil works including those of cantonment boards involved in the ongoing development schemes and projects launched prior to Financial Year and funded under the Annual Development Plan of the Punjab Government or funded through foreign loans where the negotiations were finalized as on 1st of July 2016 or funded under Public Sector Development Program of the Federal Government or funded by Cantonment Boards Zero percent Note all other construction services are taxable at reduced rate of five percent without input tax credit/adjustment.

85 AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012 Services provided by persons engaged in contractual execution of work or furnishing supplies (Serial no. 16) Exemption available in the scenario where the annual turnover of the contractual works or supplies does not exceed Rs.50 million has been withdrawn. After the said amendment the services of the persons engaged in the contractual execution of work or furnishing supplies shall be taxable irrespective of the value of the work, except for the contracts involving printing or supplies of books which will remain exempt irrespective of the value of contracts.

86 AMENDMENTS IN ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES) ORDINANCE, 2001

87 AMENDMENTS IN ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES) ORDINANCE, 2001 REDUCTION IN SALES TAX RATE Service provided or rendered by marriage halls and lawns, by whatever named called, including pandal and shamiana services and caterers shall be subjected to sales tax at the rate of 5% without any input tax adjustment (SRO 589(I)/2017 dated 1 st July 2017 read with SRO 495(I)/2016 dated 4 th July 2016.

88 AMENDMENTS IN ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES) ORDINANCE, 2001 EXEMPTION FROM SALES TAX Sales tax on export of IT services or IT enabled services has been exempted vide SRO 590(I)/2017 dated 1 st July 2017

89 AMENDMENTS IN THE KHYBER PAKHTUNKHWA SALES TAX ON SERVICES ACT, 2013

90 AMENDMENTS IN THE KHYBER PAKHTUNKHWA SALES TAX ON SERVICES ACT, 2013 SCOPE OF SERVICES Ride hailing services are included in the list of services under First Schedule to the Act. However, corresponding amendment to levy sales tax would be notified by the Provincial Government.

91 AMENDMENTS IN THE KHYBER PAKHTUNKHWA SALES TAX ON SERVICES ACT, 2013 EXEMPTION FROM SALES TAX Various services including money transfer, construction of bridges, gas supply and sanitation services are proposed for exemption. However separate notification in this regard will be issued by KPKRA to give effect to this announcement.

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