SECTION WISE EXEMPTIONS, RATE REDUCTION AND CLARIFICATIONS (With references)

Transcription

1 CHAPTER 10 SECTION WISE EXEMPTIONS, RATE REDUCTION AND CLARIFICATIONS (With references) General Clarifications / Exemptions 1. Any amount payable settled by payment or inter-account adjustment of receivables against the payables tantamount to actually paid attract deduction and deposit of tax under the relevant section. [Circular # 01 of 2009] 2. Services rendered outside Pakistan 1% of the gross receipts shall be charged [Clause (3) of Part II of 2 nd Schedule] 3. Income from construction contract outside Pakistan shall be 1% of the gross receipts [Clause (3A) of Part II of 2 nd Schedule] 4. Tax on capital gain derived by a person from sales of shares or assets by a private limited company to Private Equity and Venture Capital Fund shall be 10% of such gains. 5. E-filing of withholding statements is mandatory for companies and AOPs [SRO 681(I)/2009, date ] Section 148 IMPORTS 1. Goods imported by Federal Government [Section 49]. 2. Goods imported by Provincial Government [Section 49 and SRO 947(I)/2008, ]. 3. Goods imported by a local authority [Section 49 and SRO 947(I)/2008, ]. 4. Goods imported by Institutions of the Agha Khan Development Network (Pakistan) listed in Schedule 1 of the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network [Clause (16) of Part IV of 2 nd Schedule]. 5. The provisions of section 148, shall not apply to the import of goods classified under Pakistan Customs Tarrif falling under Chapter 27, 86 and 99. [Clause (56) Part IV of 2 nd Schedule]. 6. The provisions of section 148, shall not apply to the goods imported by direct and indirect exporter covered under sub-chapter 7 of Chapter XII of SRO 450(I)/2001 dated June 18, [Clause (56) Part IV of 2 nd Schedule]. 7. The provisions of section 148, shall not apply to the goods temporarily imported into Pakistan for subsequent exportation and which are exempt from customs duty and sales tax under Notification No. SRO 1065(I)/2005, dated [Clause (56) Part IV of 2 nd Schedule]. 8. The provisions of section 148, shall not apply to the Manufacturing Bond as prescribed under Chapter XV of Customs Rules, 2001 notified vide SRO 450(I)/2001, dated [Clause (56) Part IV of 2 nd Schedule]. 9. Fully as well partly designed/assembled cypher devices, for use within the country as are verified by Cabinet Division (NTISB) with reference to design, quality and quantity [Clause (60) of Part IV of 2 nd Schedule]. 10. Goods imported by foreign company and its associations whose majority share capital is held by a aforeign government [SRO 947(I)/2008, ]. 11. A person who imports plant, machinery, fixtures, fittings or its allied equipments for the purposes of setting up an industrial undertaking (including hotels) owned by such person, or for installation of an existing industrial undertaking (including hotels) owned by the person and a certificate to that effect from the Commissioner of income tax, in respect of such plant, machinery, fixtures, fittings or equipments is produced. [SRO 947(I)/2008, ] 7

2 12. A person who imports plant and machinery for execution of a contract with the Federal Government or a provincial government or a local government and produces a certificate from that government [SRO 947(I)/2008, ] 13. Companies importing High-speed diesel oil, light diesel oil, high-octane blending component or kerosene oil crude oil for refining and chemicals used in refining thereof in respect of such imports [SRO 947(I)/2008, ]. 14. The provisions of clause (vi) of Notification # SRO 593(I)/91, dated the 30 th June, 1991 shall not apply to any importer being an industrial undertaking engaged in the manufacture of vanaspati ghee or oil. [Clause 52 Part IV, 2 nd Schedule]. 15. Import of petroleum (E&P) companies covered under the Customs and Sales Tax Notification SRO 678/2004 dated , except motor vehicles imported by such companies. 16. Goods imported by Businessmen Hospital Trust, Lahore [SRO 840(I)/79 dated September 12, 1979]. 17. Goods temporarily imported into Pakistan for subsequent exportation which are exempt from Customs duty and Sales Tax under Notification No. S.R.O 1065(I)/2005 dated 20 th October [SRO 863(I)/2006 dated 22 nd August 2006] 18. Import of goods or classes of goods for the execution of contract, imported by contractors and sub-contractors engaged in the execution of power project under the agreement between the Islamic Republic of Pakistan and HUB Power Company Limited [SRO 129(I)/2009 dated 7 th February 2009] 19. Goods imported by companies operating trading houses whicha. Have paid up capital of exceeding Rs.250 million; b. Own fixed assets exceeding Rs. 300 million at the close of the Tax Year; c. Maintain computerized records of imports and sales of goods; d. Maintain a system for issuance of 100% cash receipts on sales; e. Present accounts for tax audit every year; and f. Is registered with the Sales Tax Department: [Clause (57) of Part IV of 2 nd Schedule] 20. Import and subsequent supply of items with dedicated use of renewable sources of energy like solar and wind etc., even if locally manufactured, which include induction lamps, SMD, LEDs with or without ballast with fittings and fixtures, wind turbines including alternator and mast, solar torches, lanterns and related instruments, PV modules alongwith the related components including invertors, charge controllers and batteries [Cl 77, Part IV, 2 nd Schedule] 8

3 Section 149 SALARY 1. Where the taxable income, in a tax year, of a taxpayer aged 60 years or more on the first day of that tax year does not exceed 750,000 rupees, his tax liability on such income shall be reduced by 50%. {Clause (1A), Part III, 2 nd Schedule} 2. The tax payable by a full time teacher or a researcher, employed in a non profit education or research institution duly recognized by Higher Education Commission, a Board of Education or a University recognized by the Higher Education Commission, including government training and research institution, shall be reduced by an amount equal to 75% of tax payable on his income from salary {Clause (2), Part III, 2 nd Schedule} 3. Medical allowance upto 10% of the Basic Salary if medical facility or reimbursement of medical expenses are not provided [Clause (139) Part I, 2 nd Schedule] 4. Any special allowance or benefit (not being entertainment or conveyance allowance) or other perquisite within the meaning of section 12 specially granted to meet expenses wholly and necessarily incurred in the performance of the duties of an office or employment of profit [Clause (39) Part I, 2 nd Schedule] 9

4 Section 150 DIVIDENDS 1. Dividend paid to the Federal Government [Section 49]. 2. Dividend paid to a Provincial Government [Section 49]. 3. Dividend paid to a Local Authority [Section 49]. 4. Dividend paid to a Venture Capital Company. [Clause (38A) of Part IV of 2 nd Schedule]. 5. Dividend paid to the Islamic Development Bank. [Clause (38B) of Part IV of 2 nd Schedule]. 6. Dividend paid to National Investment (Unit) Trust or a Collective Investment Scheme or a modaraba or Approved Pension Fund or an Approved Income Payment Plan or a REIT Scheme or a Private Equity and Venture Capital Fund or a recognized provident Fund or an approved superannuation fund or an approved gratuity fund. [Clause (47B) of Part IV of 2 nd Schedule]. 7. Dividend paid to a shareholder who produces a certificate from the Commissioner to the effect that his income during the tax year is exempt from tax under the Ordinance. [SRO 1236(I)/91 dated December 05, 1991]. 8. Any income derived from inter-corporate dividend within the group companies entitled to group taxation under section 59AA or section 59B. (Clause 103A, Part I, 2 nd Schedule) 9. Provisions of withholding tax under this ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. [Rule 5(2), 7 th Schedule, ITO, 2001] No exemption Certificate is required [Circular # 2 of 2008] 10. If income of the company is exempt, the tax shall be withheld on payment of dividend [C. No. 1(8)TP-III/89/ ] 11. Payment made to the International Finance Corporation established under the International Finance Corporation Act, 1956(XXVIII fo 1956) [Cl 67, Part IV, 2 nd Schedule] 12. Payment made to The ECO Trade and Development Bank [Cl 71, Part IV, 2 nd Schedule] 10

5 Section 151 PROFIT ON DEBT 1. Yield or profit paid to the Federal Government. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 2. Yield or profit paid to a provincial Government. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 3. Yield or profit paid to a local authority. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 4. Yield or profit paid to non-resident and such yield or profit is subject to withholding tax under section 152(2). [Section 151(2)]. 5. Yield or profit paid to persons whose income is exempt from tax and produces a certificate from the Commissioner of an exemption from deduction of tax. [Section 159]. 6. Yield or profit paid on investments in National Savings Schemes of the Directorate of National Savings that were exempt from tax under the repealed Income Tax Ordinance, 1979 and where investment was made on or before June 30, 2001 [Section 239(14)]. 7. Yield or profit paid on Mahana Amadni Account of the Directorate of National Savings where the monthly installment does not exceed Rs [Section 239(14)]. 8. Yield or profit paid to institutions of the Agha Khan Development Network (Pakistan) listed in Schedule 1 of the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network. [Clause (16) of Part IV of 2 nd Schedule]. 9. Yield or profit paid to a non-resident, (excluding a local branch or subsidiary or office of foreign bank, company association of persons or any other person operating in Pakistan), in respect of their Pak rupees denominated Government securities, where the investments are exclusively made from foreign exchange remitted into Pakistan through a Special Convertible Rupees Account maintained with a bank in Pakistan. [Clause (19) of Part IV of 2 nd Schedule] 10. Yield or profit paid to National Investment (Unit) Trust or a Collective Investment Scheme or a modaraba or Approved Pension Fund or an Approved Income Payment Plan or a REIT Scheme or a Private Equity and Venture Capital Fund or a recognized provident Fund or an approved superannuation fund or an approved gratuity fund. [Clause (47B) of Part IV of 2 nd Schedule]. 11. Yield or profit paid on investment in Behbood Savings Certificates or Pensioner s Benefit Account. [Clause (36A) of Part IV of 2 nd Schedule]. 12. The tax payable in respect of any amount paid as yield or profit on investment in Bahbood Savings Certificate or Pensioners Benefit Account shall not exceed 10% of such profit [Clause (6) of Part III of 2 nd Schedule] 13. Yield or profit paid to a Special Purpose Vehicle for the purpose of securitization. [Clause (38) of Part IV of 2 nd Schedule]. 14. Yield or profit paid to a Venture Capital Company. [Clause (38A) of Part IV of 2 nd Schedule]. 15. Yield or profit paid on investments made out of foreign currency account or deposit held on May 28, 1998, with a bank authorized under the Foreign Currency Accounts Scheme of State Bank of Pakistan. [Clause (59)(iii) of Part IV of 2 nd Schedule]. 16. Yield or profit paid to a resident individual on investments or deposit in Defence Savings Certificates, Special Savings Certificates, Savings Accounts or Post Office Savings Account, where such investment or deposit does not exceed Rs. 150,000 [Clause (59)(iv)(a) of Part IV of 2 nd Schedule] 17. Yield or profit paid to a resident individual on investment made in Monthly Income Savings Account Scheme of Directorate of National Savings, where monthly installment in an account does not exceed Rs [Clause (59)(iv)(b) of Part IV of 2nd Schedule] 11

6 18. The rate of withholding tax in respect of payments for profit on debt payable to a non-resident person, having no permanent establishment in Pakistan, shall be the rate as provided in Avoidance of Double Taxation treaty of the respective country of the non-resident. (Clause 5A, Part II, 2 nd Schedule) 19. Any profit on debt, payable to National Bank of Pakistan, on foreign currency loan of US $ 100 million, given to Pakistan State Oil Company Limited (PSO) under agreement executed at Bahrain on the 29 th May, 2001, approved by the Federal Government vide Finance Division s letter No.F.3(3)EF(B-III)/2001, dated the May 29, (Clause 74A, Part I, 2 nd Schedule) 20. Provisions of withholding tax under this ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. [Rule 5(2), 7 th Schedule, ITO, 2001] No exemption Certificate is required [Circular # 2 of 2008] 21. Payment made to the International Finance Corporation established under the International Finance Corporation Act, 1956(XXVIII of 1956) [Cl 67, Part IV, 2 nd Schedule] 22. Payment made to the Pakistan Domestic Sukuk Company Ltd. [Cl 68, Part IV, 2 nd Schedule] 23. Payment made to The ECO Trade and Development Bank [Cl 71, Part IV, 2 nd Schedule] Section 151(1)(b) PROFIT ON DEBT 1. Profit on an account or deposit paid to the Federal Government. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 2. Profit on an account or deposit paid to a provincial Government. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 3. Profit on an account or deposit paid to a local authority. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 4. Profit on an account or deposit paid to non-residents and such profit is subject to withholding tax under section 152(2). [Section 151(2)]. 5. Profit on an account or deposit paid to institutions of the Agha Khan Development Network (Pakistan) listed in Schedule 1 of the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network. [Clause (16) of Part IV of 2nd Schedule]. 6. Profit on an account or deposit paid to National Investment (Unit) Trust or a Collective Investment Scheme or a modaraba or Approved Pension Fund or an Approved Income Payment Plan or a REIT Scheme or a Private Equity and Venture Capital Fund or a recognized provident Fund or an approved superannuation fund or an approved gratuity fund. [Clause (47B) of Part IV of 2 nd Schedule]. 7. Profit on an account or deposit paid to a Special purpose Vehicle for the purpose of securitization. [Clause (38) of Part IV of 2nd Schedule]. 8. Profit on an account or deposit paid to a Venture Capital Company. [Clause (38A) of Part IV of 2 nd Schedule]. 9. Profit on an account or deposit paid on an amount in a account or deposit created out of foreign currency account or deposit held on May 28, 1998, with a bank authorized under the Foreign Currency Accounts Scheme of State Bank of Pakistan. [Clause (59)(iii) of Part IV of 2 nd Schedule]. 10. Profit paid on an a foreign currency account or deposit maintained in accordance with Foreign Currency Accounts Scheme introduced by the State Bank of Pakistan, by a citizen of Pakistan and a foreign national residing abroad, foreign association of persons, a company registered and operating abroad and a foreign national residing in Pakistan. [SRO 594(I)/91 dated June 30, 1991]. 12

7 11. Profit paid on a rupee account or deposit held by a citizen of Pakistan residing abroad, where the deposit(s) in the said account is/are made exclusively from foreign exchange remitted into the said account. [SRO 594(I)/91 dated June 30, 1991]. 12. Profit on an account or deposit paid by a Pakistani bank to a foreign bank, approved by the Federal Government for the purposes clause (84) of Part I of Second Schedule to the Income Tax Ordinance, 2001, for such period as may be determined by the Federal Government: Provided that- (a) the profit is earned on deposits comprising of remittances from abroad held in a rupee account opened with a Pakistani bank with the prior approval of the State Bank of Pakistan; (b) the Pakistani bank maintaining the said rupee account holds 20 per cent or more of the equity capital of the said foreign bank and the management of the latter vests in the Pakistani bank; and (c) the rate of profit chargeable on the said deposits does not exceed the rate of interest chargeable on the deposits in the foreign currency accounts allowed to be opened with banks in Pakistan by the State Bank of Pakistan.[SRO 594(I)/91 dated June 30, 1991]. 13. Profit on inter bank deposit paid to a banking company by another banking company. [SRO 594(I)/91 dated June 30, 1991]. 14. Provisions of withholding tax under this ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. [Rule 5(2), 7 th Schedule, ITO, 2001] No exemption Certificate is required [Circular # 2 of 2008] 15. Payment made to the International Finance Corporation established under the International Finance Corporation Act, 1956(XXVIII of 1956) [Cl 67, Part IV, 2 nd Schedule] 16. Payment made to the Pakistan Domestic Sukuk Company Ltd. [Cl 68, Part IV, 2 nd Schedule] 17. Payment made to Asian Development Bank established under ADB Ordinance, [Cl 69, Part IV, 2 nd Schedule] 18. Payment made to The ECO Trade and Development Bank [Cl 71, Part IV, 2 nd Schedule] Section 151(1)(c) PROFIT ON DEBT 1. Profit on a Government or a local authority Security paid to the Federal Government. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 2. Profit on a Government or a local authority Security paid to a provincial Government. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 3. Profit on a Government or a local authority Security paid to a local authority. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 4. Profit on a Government or a local authority Security paid to non-residents and such profit is subject to withholding tax under section 152(2). [Section 151(2)]. 5. Profit on a Government or a local authority Security paid to institutions of the Agha Khan Development Network (Pakistan) listed in Schedule 1 of the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network [Clause (16) of Part IV of 2nd Schedule]. 6. Profit on Pak rupee denominated Government Security paid to a non-resident, (excluding a local branch or subsidiary or office of foreign bank, company, association of persons or any other person operating in Pakistan), where the investment is exclusively made from foreign exchange remitted into Pakistan through a Special Convertible Rupees Account maintained with a bank in Pakistan. [Clause (19) of Part IV of 2 nd Schedule]. 13

8 7. Profit on a Government or a local authority Security paid to National Investment (Unit) Trust or a Collective Investment Scheme or a modaraba or Approved Pension Fund or an Approved Income Payment Plan or a REIT Scheme or a Private Equity and Venture Capital Fund or a recognized provident Fund or an approved superannuation fund or an approved gratuity fund. [Clause (47B) of Part IV of 2 nd Schedule]. 8. Profit on a Government or a local authority Security paid to Special purpose Vehicle for the purpose of securitization. [Clause (38) of Part IV of 2 nd Schedule]. 9. Profit on a Government or a local authority Security paid to a Venture Capital Company. [Clause (38A) of Part IV of 2 nd Schedule]. 10. Profit paid on a Government or a local authority Security created out of foreign currency account or deposit held on May 28, 1998, with a bank authorized under the Foreign Currency Accounts Scheme of State Bank of Pakistan. [Clause (59)(iii) of Part IV of 2 nd Schedule]. 11. Provisions of withholding tax under this ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. [Rule 5(2), 7 th Schedule, ITO, 2001] No exemption Certificate is required [Circular # 2 of 2008] 12. Payment made to the International Finance Corporation established under the International Finance Corporation Act, 1956(XXVIII of 1956) [Cl 67, Part IV, 2 nd Schedule] 13. Payment made to the Pakistan Domestic Sukuk Company Ltd. [Cl 68, Part IV, 2 nd Schedule] 14. Payment made to Asian Development Bank established under ADB Ordinance, [Cl 69, Part IV, 2 nd Schedule] 15. Payment made to The ECO Trade and Development Bank [Cl 71, Part IV, 2 nd Schedule] Section 151(1)(d) PROFIT ON DEBT 1. Profit on bond, certificate, etc. paid to the Federal Government. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 2. Profit on bond, certificate, etc. paid to Provincial Government. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 3. Profit on bond, certificate, etc. paid to a local authority. [Section 49 and SRO 594(I)/91 dated June 30, 1991]. 4. Profit on bond, certificate, etc. paid to a Financial Institution. [Section 151(1)(d)]. 5. Profit on bond, certificate, etc. paid to a banking company or a development financial institution under a loan agreement by a borrower. [Section 151(1)(d)]. 6. Profit on bond, certificate, etc. paid to non-residents and such profit is subject to withholding tax under section 152(2). [Section 151(2)]. 7. Profit on bond, certificate, etc. paid to a person whose income is exempt from tax and produces a certificate from the Commissioner of an exemption from deduction of tax. [Section 159]. 8. Profit on bond, certificate, etc. paid to institutions of the Agha Khan Development Network (Pakistan) listed in Schedule 1 of the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network. [Clause (16) of Part IV of 2 nd Schedule] 9. Profit on Pak rupees denominated corporate securities and redeemable capital, as defined in the Companies Ordinance, 1984, listed on a registered stock exchange paid to a non-resident, (excluding local branch or subsidiary or office of foreign bank, company, association of persons or any other person operating in Pakistan), where the investment is exclusively made from foreign exchange remitted into Pakistan through a Special Convertible Rupees Account maintained with a bank in Pakistan. [Clause (19) of Part IV of 2 nd Schedule]. 14

9 10. Profit on bond, certificate, etc. paid to National Investment (Unit) Trust or a Collective Investment Scheme or a modaraba or Approved Pension Fund or an Approved Income Payment Plan or a REIT Scheme or a Private Equity and Venture Capital Fund or a recognized provident Fund or an approved superannuation fund or an approved gratuity fund. [Clause (47B) of Part IV of 2 nd Schedule]. 11. Profit on bond, certificate, etc. paid to Special purpose Vehicle for the purpose of securitization. [Clause (38) of Part IV of 2 nd Schedule]. 12. Profit on bond, certificate, etc. paid to a Venture Capital Company. [Clause (38A) of Part IV of 2 nd Schedule]. 13. Profit on Term Finance Certificate issued on, or after 1 st July, 1999 to a company [Clause (59)(i) of Part IV of 2 nd Schedule]. 14. Profit paid on Term Finance Certificate being the instrument of redeemable capital under the Companies Ordinance, 1984 issued by Prime Minister s Housing Development Company (Private) Limited [Clause (59)(ii) of Part IV of 2 nd Schedule]. 15. Profit paid on bond, certificate, etc. created out of foreign currency account or deposit held on May 28, 1998, with a bank authorized under the Foreign Currency Accounts Scheme of State Bank of Pakistan. [Clause (59)(iii) of Part IV of 2 nd Schedule]. 16. Profit on Term Finance Certificates paid to a resident individual where such investment does not exceed Rs. 150,000 [Clause (59)(iv)(a) of Part IV of 2 nd Schedule] 17. Profit on inter-bank deposits paid to a banking company by another banking company. [SRO 594(I)/91 dated June 30, 1991]. 18. Provisions of withholding tax under this ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. [Rule 5(2), 7 th Schedule, ITO, 2001] No exemption Certificate is required [Circular # 2 of 2008] 19. Payment made to the International Finance Corporation established under the International Finance Corporation Act, 1956(XXVIII fo 1956) [Cl 67, Part IV, 2 nd Schedule] 20. Payment made to the Pakistan Domestic Sukuk Company Ltd. [Cl 68, Part IV, 2 nd Schedule] 21. Payment made to Asian Development Bank established under ADB Ordinance, [Cl 69, Part IV, 2 nd Schedule] 22. Payment made to The ECO Trade and Development Bank [Cl 71, Part IV, 2 nd Schedule] 23. Coal Mining and Coal based Power Generation Projects in Sindh],- (i) the dividend income of the shareholders of such a project shall be exempt from provisions of section 150 from the date of commencement of business till 30 years from such date; and (ii) the payments made on account of sale or supply of goods or providing or rendering of services during project construction and operations, shall be exempt from the provisions of section 153. [Cl 78, Part IV, 2 nd Schedule] Section 152(2) PAYMENT TO NON-RESIDENTS 1. Salary paid that is covered under section 149. [Section 152(3)(a)]. 2. Dividend paid that is covered under section 150. [Section 152(3)(a)]. 3. Rent of immovable property that is covered under section 155. [Section 152(3)(a)]. 4. Prize on prize bond, or winnings from a raffle, lottery, or crossword puzzle that is covered by section 156. [Section 152(3)(a)]. 5. The provisions of sub-section (2) of section 152 shall not apply in respect of payments to foreign news agencies, syndicate services and non-resident contributors, who have no permanent establishment in Pakistan. 6. Commission and brokerage that is covered by section 233. [Section 152(3)(a)]. 15

10 7. Payment that is taxable in the hands of a permanent establishment in Pakistan, with the written approval of the Commissioner. [Section 152(3)(b)]. 8. The provisions of sub-section (1B) of section 152 shall not apply in respect of a non-resident person unless he opts for the presumptive tax regime. Provided that a declaration of option is furnished in writing within three months of the commencement of the tax year and such declaration shall be irrevocable and shall remain in force for three years [Clause 41, Part IV, 2 nd Schedule] 9. The provisions of sub section (6) of section 153 shall not apply in respect of payments received by a resident person for providing services by way of operation of container or chemical or oil terminal at a sea-port in Pakistan or of an infrastructure project covered by the Government s Investment Policy, [Clause 42, Part IV, 2 nd Schedule] 10. The provisions of sub section (6A) of section 153 shall not apply to cotton ginners [Clause 47D, Part IV, 2 nd Schedule] 11. Payment made by the person who is liable to pay tax thereon as a representative of the nonresident provided a declaration to this effect is filed with the Commissioner prior to making the payment [Sections 152(3)(c) and 152(4)]. 12. Payment that is not chargeable to tax subject to a notice in writing to the Commissioner to this effect indicating the name and address of the payee and the nature and amount of payment. The Commissioner on receipt of the notice shall pass an order accepting the contention or directing to deduct the tax. This exemption shall not apply if the Commissioner directs otherwise [Sections 152(3)(d), 152(5), 152(5A) and 152(6)]. No notice to the Commissioner is required for payment on account of: - Import of goods where the title to the goods passes outside Pakistan (certain restrictions apply) [Sections 152(7)]. - Educational and medical expenses remitted in accordance with the regulations of the State Bank of Pakistan [Sections 152(7)] 13. Payment made to the International Finance Corporation established under the International Finance Corporation Act, 1956(XXVIII fo 1956) [Cl 67, Part IV, 2 nd Schedule] 14. Payment made to Asian Development Bank established under ADB Ordinance, [Cl 69, Part IV, 2 nd Schedule] 15. Payment made to The ECO Trade and Development Bank [Cl 71, Part IV, 2 nd Schedule] Section 153(1) PAYMENT FOR GOODS AND SERVICES 1. Payment made to the Federal Government [Section 49]. 2. Payment made to a local authority [Section 49 and SRO 586(I)/91 dated June 30, 1991] 3. Payment made to a local authority [Section 49 and SRO 586(I)/91 dated June 30, 1991]. 4. Payment for sale of goods to an importer who has paid tax at the time of import of such goods provided the goods are sold in the same condition as they were when imported [Section 153(5)(a) and Clause (47A) of Part IV of 2 nd Schedule]. 5. Payment of refund of security deposit. [Section 153(5)(b)]. 6. Payment representing the cost of construction material supplied to the contractor by the Federal Government, Provincial Government or a local authority [Section 153(5)(ba)]. 7. Payment for purchase of an asset under a lease and buy back agreement by a modaraba, leasing company, banking company or financial institution [Section 153(5)(c)]. 16

11 8. 1% tax shall be deducted on sale of rice by Rice Exporters Association of Pakistan to Utility Store Corporation in accordance with the provisions of the agreement, signed with Ministry of Food Agriculture and Livestock on April 30, 2008 [Clause (13HH) of Part II of 2 nd Schedule] % tax shall be deducted on sale value of rice to be sold by Rice Exporters Association of Pakistan (REAP) to Utility Store Corporation, in accordance with the provisions of the agreement, signed with Ministry of Food, Agriculture and Livestock (MINFAL) on the May 5, [Clause (13HHH) of Part II of 2 nd Schedule]. 10. The provisions of section 153 and 169 shall not apply to large import houses, provided that the exemption under this clause shall not be available if any of the conditions provided in section 148 are not fulfilled for a tax year. (Clause 57A, Part IV, 2 nd Schedule) 11. The provisions of clause (a) sub-section (1) of section 153 shall not apply to payments received on sale of air tickets by traveling agents, who have paid withholding tax on their commission income. {Cl. 43B, P IV, 2 nd Schedule} 12. The provisions of section 153(1)(b) shall not be applicable to the news print media services in respect of the advertising services. {Cl. 16A, P IV, 2 nd Schedule} 13. The provisions of section 153(1)(b) shall not be applicable to any payment received by a manufacturer of iron and steel products relating to sale of goods manufactured by him. {Cl. 16A, P IV, 2 nd Schedule} 14. Payment for securitization of receivables by a Special Purpose Vehicle to the Originator. [Section 153(5)(d)]. 15. Payment made to institutions of the Agha Khan Development Network (Pakistan) listed in Schedule 1 of the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network. [Clause (16) of Part IV of 2 nd Schedule]. 16. Payment made to a special purpose vehicle for the purpose of securitization [Clause (38) of Part IV of 2 nd Schedule]. 17. Payments made on account of supply of petroleum products imported by the same supplier under the Government of Pakistan s de-regulation policy of POL products [Clause (43A) of Part IV of 2 nd Schedule]. 18. Payment made by a manufacturer-cum-exporter excluding payments relating to goods sold in Pakistan or payments in respect of which special rates of tax deduction are specified [Clause (45) of Part IV of 2 nd Schedule]. 19. Payment made to an oil distribution company or an oil refinery or PE of non-resident E&P companies for supply of its petroleum products [Clause (46) of Part IV of 2 nd Schedule]. 20. Goods imported by companies operating trading houses whicha. Have paid up capital of exceeding Rs.250 million; b. Own fixed assets exceeding Rs. 300 million at the close of the Tax Year; c. Maintain computerized records of imports and sales of goods; d. Maintain a system for issuance of 100% cash receipts on sales; e. Present accounts for tax audit every year; and f. Is registered with the Sales Tax Department: [Clause (57) of Part IV of 2 nd Schedule] 17

12 21. Fully as well partly designed/assembled cypher devices, for use within the country as are verified by Cabinet Division (NTISB) with reference to design, quality and quantity. [Clause (60) of Part IV of 2 nd Schedule]. 22. Payment made to residents of Tribal Areas or Azad Kashmir who execute contracts in Tribal Areas or as the case may be, Azad Kashmir only and produces a certificate to this effect from the Political Agent concerned or the district authority, as the case may be, or in case of Azad Kashmir, from the Taxation Officer concerned [SRO 586(I)/91 dated June 30, 1991]. 23. Payment made to a person who produces a certificate from the Commissioner to the effect that his income during the tax year is exempt from tax [SRO 586(I)/91 dated June 30, 1991]. 24. Payment made by a company or an AOP having turnover of 50M rupees or above exclusively for the sale of agricultural produce, including fresh milk, live chicken birds and eggs by any person engaged in poultry farming and by an industrial undertaking engaged in poultry processing which has not been subjected to any process other than that which is ordinarily performed to render such produce fit to be taken to the market [SRO 586(I)/91 dated June 30, 1991]. 25. Payment made to a company for the sale of electricity and gas [SRO 586(I)/91 dated June 30, 1991]. 26. Payment made to a company for the sale of crude oil [SRO 586(I)/91 dated June 30, 1991]. 27. Payment made to Attock Refinery Limited, National Refinery Limited or Pakistan Refinery Limited for the sale of their products [SRO 586(I)/91 dated June 30, 1991]. 28. Payment made to Pakistan State Oil Company Limited, Shell Pakistan Limited or Caltex Oil (Pakistan) Limited for the sale of petroleum products [SRO 586(I)/91 dated June 30, 1991]. 29. Payments made in cash to a hotel or restaurant for providing accommodation or food or both as the case may be [SRO 586(I)/91 dated June 30, 1991]. 30. Payment made to a shipping company or air carrier for sale of passenger ticket or cargo charges of goods transported [SRO 586(I)/91 dated June 30, 1991]. 31. Payment made for sale of goods not exceeding Rs. 25,000 in a financial year. Provided that where the total payments in a financial year, exceed Rs. 25,000 the payer shall deduct tax from the payments including the tax on payments made earlier without deduction of tax during the same financial year [SRO 586(I)/91 dated June 30, 1991]. 32. Payment made for services rendered, services provided and execution of a contract not exceeding Rs. 10,000 in a financial year. Provided that where the total payments in a financial year, exceed Rs. 10,000, the payer shall deduct tax from the payments including the tax on payments made earlier without deduction of tax during the same financial year [SRO 586(I)/91 dated June 30, 1991]. 33. Payment made for sale of cottonseed [SRO 586(I)/91 dated June 30, 1991]. 34. Payment made to a manufacturer of goods, who produces a certificate from the Commissioner to the effect that his income during the tax year is not likely to be chargeable to tax due to assessed losses carried forward [SRO 586(I)/91 dated June 30, 1991]. 35. Payment made to an owner of one goods transport vehicle, once in a financial year from a payer on account of carriage of goods on behalf of such payer on a single journey undertaken during the said financial year [SRO 586(I)/91 dated June 30, 1991]. 18

13 36. Payment made to a person whose income is not liable to final taxation and who produces a certificate from the Commissioner to the effect that his income during the tax year is not likely to be chargeable to tax due to assessed losses carried forward. [SRO 586(I)/91 dated June 30, 1991]. 37. Payment made to a person whose income is not liable to final taxation; and (a) in respect of goods sold in Pakistan, the said tax shall be paid by the exporter, if the sales in (b) Pakistan are in from whom tax has been deducted under sub-section (1) of section 153; the aggregate of the tax deducted under the said sub-section is equal to or exceeds the tax payable under section 147 in respect of that tax year; and (c) produces a certificate to that effect from the Commissioner [SRO 586(I)/91 dated June 30, 1991]. 38. Payments made by exporters of goods on account of supply of such goods as are purchased in respect of goods exported outside Pakistan. Provided that (d) (e) (f) the exporter shall deduct tax on account of goods purchased in respect of goods sold in Pakistan; if tax has not been deducted from payments on account of supply of goods excess of five percent of export sales; and nothing contained in this clause shall apply to payments made on account of purchases of such goods in respect of which special rates of tax deduction have been specified. [SRO 368(I)/94 dated March 07, 1994]. 39. Provisions of withholding tax under this ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. [Rule 5(2), 7 th Schedule, ITO, 2001] No exemption Certificate is required [Circular # 2 of 2008] 40. Payments on account of insurance premiums to and claims discharged by the Insurance Companies are not liable to deduction of tax [C. No. 1(25)IT-I/80, ] 41. Payment made to the International Finance Corporation established under the International Finance Corporation Act, 1956(XXVIII of 1956) [Cl 67, Part IV, 2 nd Schedule] 42. Payment made to the Pakistan Domestic Sukuk Company Ltd. [Cl 68, Part IV, 2 nd Schedule] 43. Payment made to Asian Development Bank established under ADB Ordinance, [Cl 69, Part IV, 2 nd Schedule] 44. Payment made to The ECO Trade and Development Bank [Cl 71, Part IV, 2 nd Schedule] 45. Import and subsequent supply of items with dedicated use of renewable sources of energy like solar and wind etc., even if locally manufactured, which include induction lamps, SMD, LEDs with or without ballast with fittings and fixtures, wind turbines including alternator and mast, solar torches, lanterns and related instruments, PV modules alongwith the related components including invertors, charge controllers and batteries [Cl 77, Part IV, 2 nd Schedule] 46. (a) The rate of deduction of withholding tax under clauses (a) and (b) of subsection (1) of section 153 shall be one percent on local sales, supplies and services provided or rendered to the following categories of sales tax zero rated taxpayers, namely:- (i) textile and articles thereof; (ii) carpets; (iii) leather and articles thereof including artificial leather footwear; (iv) surgical goods; and (v) sports goods; 19

14 Provided that withholding tax under clause (a) and (b) of sub-section (1) of section 153 shall not be deducted from sales, supplies and services made by traders of yarn to the above mentioned categories of taxpayers. Such traders of yarn shall pay minimum 0.1% on their annual turnover on monthly basis on 30th day of each month and monthly withholding tax statement shall be e-filed under the provisions of section 165 of this Ordinance; (b) provisions of clause (a) of sub-section (1) of section 111 of this Ordinance shall not apply to the amounts credited in the books of accounts maintained for the period ending on the 30th June 2011, by the sellers supplies, service providers to the categories of sales tax zero-rated taxpayer, as mentioned in sub-clause (a); and (c) provision of sub-clauses (a) and (b) shall be applicable only to the cases of sellers, suppliers, service providers of the above mentioned categories of sales tax zero-rated taxpayers, who are already registered and to those taxpayers who get themselves registered by the 30th June, [Cl 45A, Part IV, 2 nd Schedule] (Clarifications available in circular # 8 of 2011, attached as Annexure A) 68. The rate of tax, under clause (a) of sub-section (1) of section 153, from distributors of cigarette and pharmaceutical products and for large distribution houses who fulfill all the conditions for a large import house, as laid down under clause (d) of sub-section (7) of section 148, for large import houses, shall be 1% of the gross amount of payments. [Cl 24A, Part II, 2 nd Schedule] 69. Purchase of agricultural produce directly from the grower subject to receipt of prescribed certificate from the grower [Cl 12, Part IV, 2 nd Schedule, SRO 787(I)/2011 dated August 22, 2011] 70. Cash payment made for meeting the incidental expenses of a business trip to the crew of Oil Tanker [Cl 12, Part IV, 2 nd Schedule, SRO 787(I)/2011 dated August 22, 2011] 71 Withholding 1% shall be deducted at the time of local purchase of steel scrap from steel melters who have opted for special procedure under the Sales Tax Act, [Cl 12, Part IV, 2 nd Schedule, SRO 787(I)/2011 dated August 22, 2011] 72 Tax withheld on payments received by companies for providing or rendering of services will not be treated as minimum tax. [Cl 79, Part IV, 2 nd Schedule, SRO 1003(I)/2011 dated October 31, 2011] 73 Tax u/s 153(1)(a) shall not be deducted against payment made to petroleum agent or distributor registered under Sales Tax Act, 1990 [Cl (43C), Part IV, 2 nd Schedule, SRO 57(I)/2012 dated January 24, 2012] Section 153(1A) PAYMENT FOR RENDERING OR PROVIDING OF SERVICES OF STITCHING, DYING, PRINTING, EMBROIDERY, WASHING, SIZING AND WEAVING. 1. Payment made to the Federal Government [Section 49]. 2. Payment made to a Provincial Government [Section 49]. 3. Payment made to a Local Authority [Section 49]. 4. Payment made to Asian Development Bank established under ADB Ordinance, [Cl 69, Part IV, 2 nd Schedule] Section 154(1) & (2) EXPORTS 1. Realization on behalf of the Federal Government [Section 49]. 20

15 2. Realization on behalf of a Provincial Government [Section 49]. 3. Realization on behalf of a Local Authority [Section 49]. 4. Realization against export of cooking oil or vegetable ghee to Afghanistan by a person from whom tax has been collected on the import of edible oil [Clause (47C) of Part IV of 2 nd Schedule]. 5. Realization on behalf of Cotton Export Corporation of Pakistan. [SRO 987(I)/92 dated October 07, 1992]. Section 154(3) INDIRECT EXPORTS 1. Realization on behalf of the Federal Government [Section 49]. 2. Realization on behalf of a Provincial Government [Section 49]. 3. Realization on behalf of a Local Authority [Section 49]. 4. Realization on behalf of Cotton Export Corporation of Pakistan [SRO 987(I)/92 dated October 07, 1992]. Section 154(3A) EXPORTS 1. Goods exported by the Federal Government [Section 49]. 2. Goods exported by a Provincial Government [Section 49]. 3. Goods exported by a Local Authority [Section 49]. Section 154(3B) INDIRECT EXPORTS 1. Payment made to the Federal Government [Section 49]. 2. Payment made to a Provincial Government [Section 49]. 3. Payment made to a Local Authority [Section 49]. Section 155 INCOME FROM PROPERTY 1. Rent paid to the Federal Government [Section 49]. 2. Rent paid to a Provincial Government [Section 49]. 3. Rent paid to a Local Authority [Section 49]. 4. Rent paid to institutions of the Agha Khan Development Network (Pakistan) listed in Schedule 1 of the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network [Clause (16) of Part IV of 2 nd Schedule]. 5. Rent paid to a person who produces a certificate from the Additional Commissioner to the effect that the recipient s income during the tax year is exempt from tax under the Ordinance [SRO 1130(I)/91 dated November 07, 1991]. 6. No threshold available for non-deduction of tax on payment of rent [Circular # 3 of 2007] 7. Provisions of withholding tax under this ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. [Rule 5(2), 7 th Schedule, ITO, 2001] No exemption Certificate is required [Circular # 2 of 2008] 8. Payment made to the Pakistan Domestic Sukuk Company Ltd. [Cl 68, Part IV, 2 nd Schedule] Section 156 PRIZES AND WINNINGS 1. Prize or winnings paid to a person whose income is exempt from tax and produces a certificate from the Commissioner of an exemption from deduction of tax [Section 159]. 21

16 2. Prize or winnings paid to institutions of the Agha Khan Development Network (Pakistan) listed in Schedule 1 of the Accord and Protocol dated November 13, 1994, executed between the Government of the Islamic Republic of Pakistan and Agha Khan Development Network [Clause (16) of Part IV of 2 nd Schedule]. 3. Provisions of withholding tax under this ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. [Rule 5(2), 7 th Schedule, ITO, 2001] No exemption Certificate is required [Circular # 2 of 2008] Section 156B WITHDRAWAL FROM PENSION FUND 1. Withdrawal before the retirement age: a. Where the person suffers from any disability as mentioned in sub-rule (2) of rule 17 of the Voluntary Pension System Rules, 2005 which renders him unable to continue with any employment at the age which he may so elect to be treated as the retirement age or the age as on the date of such disability if not so elected by him. b. Payment to the nominated survivor(s) of the deceased person which would be treated as if the person had reached the age of retirement. 2. Withdrawn, in excess of 25% of accumulated balance at or after the retirement age which is: a. Invested in an approved income payment plan of a pension fund manager [Section 156B]; b. Paid to a life insurance company for the purchase of an approved annuity plan ; c. Transferred to another individual pension account of the eligible person; or d. Transferred to the survivors pension account (in case of death of the eligible person) maintained with any other pension fund manager as specified in Voluntary Pension System Rules, 2005 [Section 156B]. 3. Withdrawal by a person whose income is exempt from tax and produces a certificate from the Commissioner of an exemption from deduction of tax [Section 159]. Section 231A CASH WITHDRAWAL FROM A BANK 1. Withdrawal by the Federal Government [Section 49 and 231A(2)(a)]. 2. Withdrawal by a Provincial Government [Section 49 and 231A(2)(a)]. 3. Withdrawal by a Local Authority [Section 49]. 4. Withdrawal by a foreign diplomat or a diplomatic mission in Pakistan [Section 231A(2)(b)]. 5. Withdrawal by a person whose income is exempt from tax and produces a certificate from the Commissioner of an exemption from deduction of tax. [Section 159 and 231A(2)(c)]. 6. Any cash withdrawal, from a bank made by an earthquake victim against compensation received from GOP including payments through Earthquake Reconstruction and Rehabilitation Authority account. [Clause 61, Part II, 2 nd Schedule]. 7. Provisions of withholding tax under this ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. [Rule 5(2), 7 th Schedule, ITO, 2001] No exemption Certificate is required [Circular # 2 of 2008] 8. Cash withdrawal by exchange companies duly licensed and authorized by the State Bank of Pakistan on their bank account exclusively dedicated for their authorized business related transaction subject to issuance of exemption certificate by the Commissioner for a financial year. [SRO 383(I)/2012, Clause (61A), Part IV, 2 nd Schedule] 22

17 Clarifications 9. The incidence of withholding tax is on the person in whose name the account, deposit or any other arrangement exists and from which a cash withdrawal in excess of Rs. 25,000 per day is made. 10. Withholding tax is attracted on issuance of bearer Pay Order or other similar banking instrument either by debiting an account, deposit or any other arrangement, or against cash received. 11. Withholding tax is not attracted on encashment of Pay Order or other similar banking instruments. 12. Withholding tax is not attracted on direct cash payment against home remittances from abroad. 13. Withholding tax is attracted on cash withdrawn from ATM outside Pakistan against credit card issued in Pakistan. 14. Withholding tax is not attracted on cash withdrawal from ATM in Pakistan against credit card issued outside Pakistan. 15. Withholding tax is not attracted on credit card issued by Non-banking companies. 16. Transactions through clearing house are not cash withdrawals and therefore withholding tax is not attracted. 17. Whenever there is a cash withdrawal of full amount or amount of withdrawal and tax involved exceed the balance, then either the bank should refuse payment on account of withdrawal amount exceeds the balance or make payment to the person presenting the instrument after setting aside the amount of tax involved. 18. Withholding tax is not attracted on cash withdrawals by banks from accounts maintained with sub-treasury for their day-to-day cash requirements. 19. Generally, the withdrawal limit from an ATM is below Rs. 25,000 per day and therefore, withdrawals for day-to-day requirements by default do not attract withholding tax. However, in case cash withdrawal from an ATM per day exceeds Rs. 25,000, withholding tax would be attracted. 23

18 Softax (Pvt) Limited Section 231B ADVANCE TAX ON PRIVATE MOTOR VEHICLES 1. Not applicable in the case of: a. The Federal Government b. The Provincial Government c. The Local Government d. A Foreign Diplomat e. A diplomatic mission in Pakistan Section 233 BROKERAGE AND COMMISSION 1. Brokerage or commission paid to the Federal Government [Section 49]. 2. Brokerage or commission paid to a Provincial Government [Section 49]. 3. Brokerage or commission paid to a Local Authority [Section 49]. 4. Brokerage or commission paid to National Investment (Unit) Trust or a Collective Investment Scheme or a modaraba or Approved Pension Fund or an Approved Income Payment Plan or a REIT Scheme or a Private Equity and Venture Capital Fund or a recognized provident Fund or an approved superannuation fund or an approved gratuity fund. [Clause (47B) of Part IV of 2 nd Schedule]. 5. Brokerage or commission paid to a special purpose vehicle for the purpose of securitization [Clause (38) of Part IV of 2 nd Schedule]. 6. Brokerage or commission paid to a Venture Capital Company [Clause (38A) of Part IV of 2 nd Schedule]. 7. Provisions of withholding tax under this ordinance shall not apply to a banking company as a recipient of the amount on which tax is deductible. [Rule 5(2), 7 th Schedule, ITO, 2001] No exemption Certificate is required [Circular # 2 of 2008] 8. Payment made to the International Finance Corporation established under the International Finance Corporation Act, 1956(XXVIII fo 1956) [Cl 67, Part IV, 2 nd Schedule] 9. Payment made to Asian Development Bank established under ADB Ordinance, [Cl 69, Part IV, 2 nd Schedule] 10. Payment made to The ECO Trade and Development Bank [Cl 71, Part IV, 2 nd Schedule] 24