GOVERNMENT OF PAKISTAN CENTRAL BOARD OF REVENUE. C.No.1-167(I) ITP/97 Islamabad, the 15th July, 1997 CIRCULAR NO. 6 OF 1997 (INCOME TAX)

Size: px

Start display at page:

Download "GOVERNMENT OF PAKISTAN CENTRAL BOARD OF REVENUE. C.No.1-167(I) ITP/97 Islamabad, the 15th July, 1997 CIRCULAR NO. 6 OF 1997 (INCOME TAX)"

Kristina Beasley
6 years ago
Views:

1 GOVERNMENT OF PAKISTAN CENTRAL BOARD OF REVENUE C.No.1-167(I) ITP/97 Islamabad, the 15th July, 1997 CIRCULAR NO. 6 OF 1997 (INCOME TAX) SUBJECT: FINANCE SUPPLEMENTARY (AMENDMENT) ACT, 1997 AND FINANCE ACT, EXPLANATION OF PROVISIONS RELATING TO INCOME TAX. The Important changes made in the Income Tax Ordinance, 1979, through the Finance Supplementary (Amendment) Act, 1997 and the Finance Act, 1997, are explained in the following paragraphs. 2. Valuation of Unexplained Investments: [Section 13(3)] A new sub-section (3) has been added to section 13 to enable the Board to frame rules for determining the value of any article or property for the purposes of said section. 3. Allowance for Purchase of Books: [Sections 42, 45 and proviso to paragraph A of Part I of the First Schedule]. The allowance for purchase of books has been revived. With the amendment in the law there is no ceiling on the amount that could be invested in the purchase of books. However, the assessee is required to furnish, in support of his claim, the purchase receipt(s) containing National Tax Number (NTN) of the books seller. This condition is, however, not applicable in respect of books imported by an assessee for his own use. 4. Exemption of Income, Non-applicability of 80D and of Withholding Provisions of Sub-sections (2) & (7D) of Section 50 in respect of Receipts of Foreign Investors from their Investment in Government and Corporate Securities and Redeemable Capital. [Clause (80) in Part I and Clause (30) in Part IV of the Second Schedule]. Clause (80).- A new clause (80) has been inserted in part-i of the schedule exempting from tax income of non-resident investors (excluding local branches, subsidiaries or offices of

2 foreign banks, companies, associations of persons or any other person operating in Pakistan) from investments in Federal Government and corporate securities and redeemable capital as defined in the Companies Ordinance, 1984, (XI, VII of 1984) listed on a registered stock exchange, where the investments are made exclusively from foreign exchange remitted into Pakistan through a Special Convertible Rupee Account maintained with a bank in Pakistan. Clause (30).-- A new clause (30) has been added to Part-IV of the Second Schedule excluding above mentioned receipts from withholding tax provisions of sub sections (2) and (7D) of section 50 and minimum tax under section 80D. 5. Enhancement of Powers of Regional Commissioner and Exemption from Tax Withholding to Importers of Certain Petroleum Products. [Section 50(5)]. (i) Enhancement of Regional Commissioner's Power. So far, Regional Commissioners could certify reduction of rate of collection of tax under sub-section (5) of section 50, by 50%, if the aggregate of tax paid or collected under this sub-section during the year equalled the amount of tax paid by such assessee for the immediately preceding year. The first proviso to clause (b) of sub section (5) of section 50 has been amended to enable the Regional Commissioners to reduce the rate of collection of tax upto 100%. (ii) Import of Petroleum Products. The second proviso to sub-section (5) of section 50 has been amended to extend exemption from tax withholding to the following four petroleum products:-- (a) (b) (c) (d) Motor Spirit (MS); Fuel Oil (FO); JP-I: and MTBE.

3 6. Certificate to Recognized Provident Funds for Non-deduction or Deduction of Tax at a Lower Rate. Under Section 50(7D). [Proviso to sub-section (7D) of section 50] A proviso has been added to sub-section (7D) of section 50 which authorizes the Deputy Commissioner of Income Tax to give a certificate to a recognized provident fund for exemption from deduction of tax or deduction at a lesser rate, under that subsection, for a period of three years, if he is satisfied that such fund shall not be liable to pay any tax or is liable to pay tax at a rate which is less than the rate specified in the First Schedule. 7. Tax Withholding Rate on Mobile Telephone Bills. [Section 50(7F), Paragraph L in Part I of the First Schedule] Tax was being 10% of mobile telephone bills. This rate has been modified and the tax would now be Rs 1500 per annum per subscriber. 8. Payment of Advance Tax: [Sections 53 and 87]. Section 53 has been substituted. The following are the effects of this change:- (i) Now, companies and registered firms have to pay advance tax in respect of their income (excluding the income to which sections 27, 80C, 80CC, or sub-section (2) of section 50 applies) on the basis of ratio of tax to assessed turnover for the latest assessment year in respect of which the tax payable has been determined under section 59, 59A, 60, 62, 63 or 65, as reduced by the tax already paid under section 50 in the financial year. The following is an example:-- Example: Turnover assessed for the latest assessment year e.g. A/Y = = Rs.1,000,000 Tax determined for the A/Y = = Rs.40,000 Ratio = Tax assessed = 40,000 = 4% Turnover assessed - 1,000,000

4 Advance Tax Liability for Financial year Turnover Ratio Advance Tax Payment due by Payable 1st Quarter = 400,000 4% = Rs.16,000 7th Oct. 97 2nd Quarter = 500,000 4% = Rs.20,000 7th Jan. 98 3rd Quarter = 300,000 4% = Rs.12,000 7th Apr. 98 Tax for 4th Quarter a) Turnover for the period 1 st April to 30 th May = Rs.400,000 b) Turnover for 1 st June to 15 th June = Rs. 50,000 c) Turnover for 16 th to 30 th June to be taken equal, to (b). = Rs.50,000. Turnover of 4th Quarter = Rs. 500,000 4% = Rs. 20,000 15th Jun. 98. (ii) The advance tax is payable by companies and registered firms in four installments according to the following schedule: TURNOVER RELATING TO THE PERIOD TAX TO BE PAID ON OR BEFORE From 1 st of July to 30 th of September. the seventh day of October From 1 st of October to 30 th of December the seventh day of January From 1 st of January to 30 th of March the seventh day of April From 1 st of April to 30 th of June. (Turnover for 16 th June to 30 th June shall be taken equal to the turnover of the period between 1 st of June to 15 th of June) the fifteenth day of June

5 (iii) (iv) In the case of non-resident assesses, dividend income shall be excluded from the total income for the purposes of payment of advance tax. Assessees, other than companies and registered firms, shall continue to pay advance tax in four equal installments, as before, on 15th September, 15th December, 15th March and 15th June. 9. Compulsory Filing of Income Tax Returns by Certain Persons: [Section 55 - Finance Supplementary (Amendment) Act, 1997 (IV of 1997) and Finance Act, 1997]. (1) A new clause (c) has been inserted in sub-section (1) of section 55 [through the Finance Supplementary (Amendment) Act, 1997 (Act IV of 1997)] requiring the following persons to file a compulsory return of income for assessment year (income year ), irrespective of the quantum of their incomes: (i) (ii) (iii) (iv) Owner of immovable property with land area of 250 square yards or more, located within the areas falling in the limits of a Metropolitan/Municipal Corporation or a Cantonment Board or the Islamabad Capital Territory; owner of any motor vehicle; subscriber of a telephone; and person who has undertaken foreign travel, other than for Hajj, Umrah or Ziaraat, during the income year. (2) The persons referred to at Sr. (i) and (iv) above, if they are non-resident Pakistanis, are not required to file a compulsory return under the aforesaid clause (c) unless they are earning taxable incomes. (3) Widows, orphans below the age of 25 years, pensioners and the disabled persons* falling in the above mentioned four categories are also not required to file compulsory return, if they do not earn taxable income. *The expression `disabled person' means a person who, on account of injury, disease or congenital deformity, is handicapped for undertaking any gainful profession or employment in order to earn his livelihood, and includes a person who is blind, deaf, physically handicapped or mentally retarded.

6 (4) The exceptions mentioned in sub-paragraphs (1)(iv), (2) and (3), do not absolve such persons from filing returns of income if they are earning taxable income. 10. Tax Amnesty Scheme: [Section 59D]. A new section 59D has been inserted in the Ordinance to enable the CBR to make a scheme for the payment of tax on undisclosed income. Under the said scheme, any person may declare his undisclosed income including any investment deemed to be the income under section 13 or any other deemed income, for any year(s) relevant to any assessment year(s) ending on or before 30th June, The tax on such income is 7.5%. Amnesty from penalty or prosecution has been granted on to such declarations. The said income/assets can also be incorporated in the books of accounts. The Scheme and the rules are being circulated separately. 11. Provisional Assessment in Certain Cases: [Section 60A]. An assessing officer could frame a provisional assessment where a concealed asset:- i) is impounded by a government agency; or ii) comes to the knowledge of the assessing officer. With the amendment of Section 60A(1) the assessing officer can now make a provisional assessment only in the event described at (i) above. 12. Imposition of Penalties: [Sections 108, 109, 110 and 111] To rationalize the quantum of penalties, amendments have been made in sections 108, 109, 110 and 111 as under:-- a) Penalty for failure to furnish returns of income (Section 108).- Penalty can now be 0.1% of the tax payable for each day of default subject to a minimum of Rs.500 and the maximum of 25% of the tax payable.

7 b) Penalty for failure to maintain prescribed accounts. [Section 109]. The penalty for the default has been 15% of the tax payable subject to a minimum of Rs.2000/-. c) Penalty for non-compliance with statutory notices, etc. [Section 110]. Amended section provides for imposition of penalty equal to 50% of the tax that would have been avoided had the income been accepted as correct income. d) Penalty for concealment of Income, etc. [Section 111] (i) The penalty for concealment of income or furnishing of inaccurate particulars shall be equal to the tax sought to be evaded. 13 Appeal to High Court [Section 136]. (ii) Treatment of non-disclosure as Concealment: [Section 111(2)]. In section 111(1)(a) the words, or failure to disclose income chargeable to tax'' have been inserted. With this amendment the failure to disclose income, for instance, by way of not filing a return of income where such income was chargeable to tax, now falls within the ambit of concealment of income. ITAT is the highest appellate forum on questions of fact. The questions of law could earlier on be referred to the High Court by the Tribunal on an application made by the assessee or the department inviting a cumbersome procedure. By amending section 136, both taxpayers as well as the Department can now file an appeal directly to the High Court on questions of law. 14 Registration of Income Tax Practitioners: [Section 157]. Retired Income Tax officers of the Department can also get themselves registered as Income Tax Practitioners. Sub-section (2) of section 157 has been amended accordingly.

8 First Schedule to the Ordinance: The following amendments have been made in the First Schedule:- 15 Reduction in Tax Rates: [Substitution of paragraph A in Part I of the First Schedule Finance Supplementary (Amendment) Act, 1997.] The tax rates in respect of individuals, AOPs, URFs, HUFs, etc. as prescribed in paragraph A, referred to above, have been reduced as follows:-- i) Where the total income 5% of total income does not exceed Rs.100,000. ii) Where the total income Rs.5,000 plus 10% of exceeds Rs.100,000 but the amount exceeding does not exceed Rs.200,000. Rs.100,000. iii) Where the total income Rs.15,000plus 15% of exceeds Rs.200,000 but the amount exceeding does not exceed Rs.300,000. Rs.200,000. iv) Where the total income Rs.30,000plus 20% of exceeds Rs.300,000. the amount exceeding Rs.300,000. Basic Tax Credit in salary cases = Rs.2,500 Basic Tax Credit in case of working women = Rs.3,000 Basic Tax Credit in other cases = Rs.2,000 For the purposes of assessment the above rates will be applicable to assessment year For the purposes of deduction of tax from salaries under section 50(1), the new rates are applicable w.e.f i.e. financial year Rationalization of Taxation of Perquisites and Allowances of Salaried Persons: [In the First Schedule in Part I in paragraph A, proviso (g)]. (Finance Supplementary (Amendment) Act, 1979). Perquisites are taxable where the total income of an employee, inclusive of the value of perquisites, exceeds Rs.300,000, at the following rates:-

9 Value of Perquisites Tax Rates Where the amount representing the value of allowances and perquisites: (i) does not exceed 3% of such amount Rs.100,000; (ii) exceeds Rs.100,000 Rs.3,000 plus 5% of the but does not exceed amount exceeding Rs.200,000. Rs.100,000. (iii) exceeds Rs.200,000 Rs.8,000 plus 10% of but does not exceed the amount exceeding Rs.300,000. Rs.200,000. (iv) exceeds Rs.300,000. Rs.18,000 plus 15% of the amount exceeding These rates shall be applicable from Assessment Year However, for purposes of deduction of tax these would be effective from The rules for the fixation of value of major perquisites are being notified separately. 17 Reduction in Corporate Income Tax Rates: [First Schedule Part V paragraph A - Finance Supplementary (Amendment) Act, 1979]. In the case of companies which allocate 2% of their net profits as contribution to education and health of their workers and for payments of pensions and gratuity to them, the rates of tax for assessment year would be the following: Banking Public Other Company Company Company 55% 30% 35%

10 18 Rebate for Certain Importers and Whole sellers: [First Schedule]. Rebate in tax is 5% on imports/wholesale business, if complete particulars of sales are provided. This rebate is admissible only in respect of tax relating to imports and wholesale business and not in respect of income from other business or sources. 19 Measures for Documentation: [Sub-paragraphs 2, 2C and 2E of Paragraph A, of Part IV of the First Schedule]. To encourage documentation, the First Schedule has been amended to allow following tax rebates:- (i) (ii) A rebate of five per cent in tax to non corporate taxpayers deriving income from business or profession if they issue serially numbered cash memos with name, address and National Tax Number printed thereon; A rebate in tax equal to 5% of expenses incurred by an assessee on the education of dependent children to the extent of Rs. 30,000 per annum, per child provided receipt of such expenses bears the National Tax Number of the educational institution. 20 Special Tax Rebate (STR) for Senior Citizens: [Paragraph A, Part I, First Schedule]. Special tax rebate available to senior citizens with total income upto Rs.200,000/- has been enhanced from 25% to 50% of the tax payable. 21 Small Exporters: Proviso (c) to Paragraph A in Part 1 of the First Schedule has been amended to allow rebate to exporters with incomes of upto Rs.100, Simplification of Rate Structure in respect of income from Exports: The provisions relating to rebate in tax on income from exports were scattered over various parts of Income Tax Ordinance, All these provisions have therefore, been consolidated in the Eighth Schedule to the Ordinance.

11 Second Schedule to the Ordinance: The following new clauses have been amended or inserted, as the case may, in the Second Schedule: [Clause (41)]. A new clause (41) has been inserted in the Second Schedule to exempt from tax the Disturbance Pay of the armed forces personnel for the Assessment Year Income of Investment Companies etc. [Clause (56)]. Under sub-clause (1A) of clause (56) the income derived by any Mutual Fund or NIT (Unit) Trust of Pakistan from any instrument of redeemable capital (as defined in the Companies Ordinance, 1984), is exempt if at least 90% of its income of that year is distributed amongst the Unit Holders. Under the amended clause, exemption of such income would also be available to an investment company or a collective investment scheme approved by the Corporate Law Authority. 25. [Clause (80)]. Refer to paragraph Computer Training Institutions: [Clause (86B),Part I] Profits and gains derived by an assessee from the running of any computer training institution or computer training scheme approved by the CBR, set up between the first day of July 1997, and the thirtieth day of June, 2000, would be exempt from tax for a period of five years beginning with the month in which such institution is set up. 27 Exemption of Income of Mutual Funds and Investment Companies: [Clause (102D)]. Exemption from tax has been granted in respect of any income derived by a Mutual Fund or an investment company registered under the Investment Companies and Investment Advisor's Rules, 1971 or a unit trust scheme constituted by an asset management company registered under the Assets Management Companies Rules, 1995,

12 if not less than ninety percent of its income of that year is distributed amongst the unit/certificate/shareholders, as the case may be. 28 Mohatta Palace Gallery Trust: [Clause (91)]. In clause (91) the name of Mohatta Palace Gallery Turst has been added to enable its donors to claim tax exemption on the amounts donated by them in accordance with the conditions specified in the said clause. 29 Bonus Shares: [Clause (108)]. Bonus shares have been exempted from tax for a period of three years commencing 1st July, 1997 i.e. till 30th June, Capital Gains on sale of shares etc.: [Clause (116)]. The exemption in respect of Capital gains was to expire on 30th June, It has been further extended till 30th June, Extension of Exemption Period: [Clauses (125C) and (125D). Part I]. The incomes of industrial undertakings engaged in fruit processing [clause (125C)] and soft and stuffed toys [clause (125D)] were exempt for five years if such undertakings were set up by 30th June, This exemption would now be available to those units also which are set up by 30th June, Manufacturer of Solar Energy Equipment: [Clause (125E)]. Income of manufacturers of solar thermal, photovoltaic equipment for production of solar appliances, has been exempted for a period of five years from the date of commencement of commercial production, if such industrial undertakings are set up between 1st July, 1997 and 30th June, 2000.

13 33. Export of Computer Software: [Clause (179)]. Exemption was available to computer software export companies, for seven years from the date of commencement of business, if business was commenced by 30th June; Clause (179) has been substituted by a new clause and now income from export of computer software and related services developed in Pakistan, would be exempt. Besides, the exporter need not be a company for availing of this exemption. 34. Minimum Tax on Turnover of Shares: [Clause (2), Part IV of the Second Schedule]. Clause (2) of Part IV has been substituted by a new clause. Consequently, the provisions of minimum tax under section 80D shall not apply to National Investment (Unit) Trust or a Mutual Fund established by the Investment Corporation of Pakistan or an investment company registered under the Investment Companies and Investment Advisor's Rules, 1971 or any other company in respect of turnover representing transactions in shares, of securities listed on a registered stock exchange. 35. [Clause (30), Part IV of the Second Schedule]. Refer to paragraph Amount Deposited in Qarz-e-Hasna Scheme: [Clause (31), Part IV of the Second Schedule]. A new clause (31) has been added in Part IV, whereby, it has been provided section 13, Chapter XI on Chapter XII shall not be applicable in respect of any amount deposited in the Qarz-e-Hasna Scheme under the Prime Minister's Fund for National Debt Retirement. (NASEER AHMAD) Secretary Income Tax Policy Tele:

TAXATION OF INCOME FROM SALARY TAX YEAR 2018 (JULY 01, 2017 TO JUNE 30, 2018)

CIRCULAR NO. 9 OF (INCOME TAX) TAXATION OF INCOME FROM SALARY TAX YEAR 2018 (JULY 01, 2017 TO JUNE 30, 2018) The Circular on taxation of Income Salary is being updated as under:- The Computation of Tax