Federal Budget Seminar 2013-14 Pakistan Society of Human Resource Management Saqib Masood Partner / Head of Tax Services KPMG Taseer Hadi & Co. Karachi 05 July 2013
Salary Taxation Tax rate slabs enhanced from 6 to 11 through the Finance Act. [ First Schedule Part I Division I Clauses (IA)] Maximum tax rate for highest slab enhanced from 20% to 30%. Adjustment of tax credits / rebates for withholding tax purposes which were proposed to be withdrawn through the Finance Bill has been reinstated through Finance Act. [ S. 149] The impact of the revised rates as per Finance Act swings in the manner given slide # 2. 1
Comparison of Tax Liability Annual Gross Salary (Rs) Tax liability on existing tax rates (Rs) Tax liability on tax rates proposed by the Finance Bill (Rs) Tax liability on tax rates enacted through Finance Act (Rs) +/- in Tax Liability as against the existing v/s enacted 600,000 10,000 12,500 10,000-900,000 32,500 37,500 32,500-1,200,000 62,500 67,500 62,500-1,800,000 140,000 140,000 140,000-2,400,000 245,000 235,000 245,000-3,000,000 512,500 350,000 362,500-30% 3,600,000 640,000 487,500 500,000-22% 4,200,000 760,000 642,500 655,000-14% 4,800,000 880,000 807,500 820,000-7% 6,000,000 1,120,000 1,137,500 1,150,000 +3% 7,200,000 1,360,000 1,472,500 1,485,000 +9% 8,400,000 1,600,000 1,832,500 1,845,000 +15% 9,600,000 1,840,000 2,192,500 2,205,000 +20% 10,800,000 2,080,000 2,552,500 2,565,000 +23% 12,000,000 2,320,000 2,912,500 2,925,000 +26% 25,000,000 4,920,000 6,812,500 6,825,000 +39% 2
Salary Taxation (Continued) The employee mandatorily required to submit return of total income in respect of taxable salary. Annual statement by employer in lieu of the tax return done way with. Every salaried person required to file the wealth statement alongwith tax return for the tax year 2013. Obligation of withholding tax shifted from an employer to any person responsible for paying Salary [S.114,115,118] 3
Salary Taxation (Continued) The Bill has proposed to withdraw reduction in tax liability @ 75% on salary income of full time teacher or researcher, employed by a non profit educational or research institution recognized by Higher Education Commission, a Board of Education or a University recognized by the Higher Education Commission including Government Training and Research Institution. However the Finance Act has restricted the reduction from 75% to 40%. [Clause 2 of Part III of Second Schedule] 4
Taxation of Individuals (Other than Salary) & AOP Tax rate slabs enhanced from 5 to 7. Maximum tax rate at highest slab enhanced from 25% to 35%. The impact of the revised rates as per Finance Act swings in the manner given at slide # 6. [ First Schedule Part I Division I Clauses (I)] 5
Comparison of Tax Liability Tax of Non Salary Income Annual Income Existing Enacted through Act +/- in Tax Tax Liability Liability 600,000 20,000 20,000-900,000 57,500 57,500-1,200,000 102,500 102,500-1,800,000 207,500 207,500-2,400,000 327,500 327,500-3,000,000 472,500 472,500-3,600,000 622,500 622,500-4,200,000 772,500 782,500 +1% 4,800,000 922,500 962500 +4% 6,000,000 1,222,500 1,322,500 +8% 7,200,000 1,522,500 1,742,500 +14% 8,400,000 1,822,500 2,162,500 +19% 9,600,000 2,122,500 2,582,500 +22% 10,800,000 2,422,500 3,002,500 +24% 12,000,000 2,722,500 3,422,500 +26% 25,000,000 5,972,500 7,972,500 +33% 6
Withholding tax on School Fee Educational Institutions required to collect advance tax@ 5% of the fee where the annual fee of a student exceed of Rs 200,000/- Tax so collected by the educational institution is adjustable against the final tax liability of the taxpayer. [S.236I] 7
Taxation of Income from House Property The Finance Act has now changed the regime for taxation of property income from FTR to net income basis. In order to compute net income under the head Income from Property section 15A has been inserted, specifying deductions which interalia include the following. - Repair allowance equal to 1/5 th of the rent. - Insurance premium paid for damage and destructions. - Local rate, tax, charge or cess - Collection charges upto 6 % of the rent chargeable to tax - Ground rent - Borrowing cost - Legal cost 8
Taxation of Income from House Property Withholding tax rates given below specified for the purpose of deduction from income from property. Recipient Withholding tax rate Company 15% of gross amount of rent Individuals and association of persons Amount below Rs 150,000 Amount exceeding Rs 150,000 but does not exceed Rs 1,000,000 Nil 10% of the gross amount exceeding Rs 150,000 Amount exceeding Rs 1,000,0000 Rs 85,000 plus 15% of the gross amount exceeding Rs.1000,000 Non-resident 20% of gross amount of rent Owner of the property made liable to pay advance tax in four installments, after adjusting the withholding tax deducted from the rent 9
Taxation of Dividend Exemption of dividend in specie withdrawn. [S. 8, clause 103B of Part I of Second Schedule] 10
Minimum Tax Minimum Tax rate for Individual & AOP (having turnover of Rs fifty million or more) enhanced from 0.5% to 1% through Act. Eligibility for carry forward of unadjusted minimum tax has been extended to Individuals and AOP s [S.113] 11
Minimum Tax (Continued) The scope of minimum tax extended to the persons; deriving income from business of construction and sale of residential, commercial or other buildings. deriving income from development and sale of residential, commercial or other plots. The Federal Government to specify tax rates in the official gazette [S. 113 A and 113B] 12
New Categories for Tax Return Filing The Finance Act added following categories of persons requiring to mandatorily file the tax return - holder of commercial and industrial connection of Electricity where the annual bill exceeds Rs 500,000 as against 1,000,000. - person who is registered with Chamber of Commerce and Industry or any trade association or any market committee or any professional body such as PMDC,PEC,ICAP, ICMAP. The Commissioner empowered to call upon the person to file the tax return with in the period of less than thirty days. [S.114] 13
Filing of Wealth Statement The threshold of Rs. 1 Million taxable income for filing of Wealth statement withdrawn. Now every individual, including a Members of AOP is required to file wealth statement w.e.f TY2013. A person liable to pay tax under FTR will also be required to file wealth statement alongwith return without any threshold w.e.f TY 2013. [S.116 (2) and (4)] 14
Revision of Returns Currently a person is entitled to revise return of total income subject to the condition that the revised return is accompanied by the revised audited accounts and the reason for revision are duly filed and taxable declared income is not less than or loss declared is not more than the declared income or loss, as the case may be. Another condition imposed that a return can only be revised with the written approval of the Commissioner. [S.114(6A)] 15
Revision of Wealth Statement A person, on discovery of any omission or wrong statement, was eligible to revise the wealth statement at any time before deemed assessment was amended. The Act specified that wealth statement is required to be supported with the revised wealth reconciliation and the reasons for revision. [S.116 (3)] 16
Evidence of Collection or Deduction of Tax Currently a certificate issued by the withholding tax agent is treated as sufficient evidence for the purpose of collection and deduction of tax and the recipient is entitled to claim the credit of tax paid on the basis of the said certificate Now by virtue of the amendment brought in through the Act certificate shall not be considered as the sufficient evidence of payment of tax and the tax payer must submit copy of the tax challan to claim credit for tax deduction/ paid..[section 164] 17
Agriculture & Un explained Investment Section 111 contains the provisions relating to taxation of unexplained income or assets or incurring of expenditures. The Act introduced that any investment made, money or valuable article owned and expenditure made out of agriculture income shall be accepted to the extent that tax on the said agriculture income has been paid under the relevant Provincial Law. 18
Access of Information Section 165 and 165A by virtue of the Act has been inserted empowering FBR for access of information of account holders. The Banks made responsible to; - Allow online access to their central database. - Submit list of particulars of deposits aggregating to Rs 1,000,000 or more during the preceding calendar month. 19
Access of Information (Continued) Submit list of payments made by any person against bills raised in respect of the credit card issued to that person aggregating to Rs 100,000/- or more during the preceding calendar month. Submit a consolidated list of loans written off exceeding Rs 1,000,000 during a calendar year. Submit a copy of each Currency transaction report and Suspicious Transaction Report generated and submitted by it to the Financial Monitoring Unit under Anti Money Laundering Act 2010.. 20
Withholding tax on Weddings etc Owner, lease-holder, operator /manager of marriage hall, marquee, hotel, restaurant, commercial lawn, club, community place etc are made responsible to deduct tax @10% of the bill amount from the person arranging gathering related to wedding, seminar, workshop, session, exhibition, concert, show, party or any other gathering for such purpose. Tax so collected is adjustable against the final tax liability of the taxpayer. [S.236D] 21
Income Support Levy Act 2013 Income Support Levy Act 2013 has been enacted w.e.f. TY.2013 to charge a levy in respect of value of the Net Moveable Assets held by a person on the last date of the Tax Year at the rate of 0.5% of the net moveable wealth exceeding one million rupees. A person who is liable to pay the levy under this Act shall pay the levy along with the wealth statement 22
Income Support Levy Act 2013 The net moveable wealth has been defined as the amount by which the aggregate value of the moveable assets belonging to a person declared in wealth statement, is in excess of the aggregate value of all the liabilities owed by that person on the closing date of the tax year. Administrative and recovery proceedings contained under the Income Tax Ordinance 2001 shall apply 23
Sales Tax Retrospective application of sales tax The Finance Bill has increased sales tax rate of 16 percent to 17 percent and few other rates with effect from 13 June 2013. However, the Honorable Supreme Court held the enhancement of tax rates without approval of Parliament as unconstitutional. The Finance Act has now provided applicability of enhanced tax rate with effect from 13 June 2013. Taxable supplies to unregistered persons The Finance Bill has proposed further tax of two percent of value on taxable supplies to a person who has not obtained registration number. The Finance Act, has now reduced the rate of two percent to one percent of the value. 24
Sindh Sales Tax on Services New services The Sindh Finance Bill proposes to impose Sindh Sales Tax on following new services w.e.f. 01 July 2013 read with exemption notification issued by SRB on 18 June 2013: Description of Services Advertising agents, sponsorship services, business support services, Architects/Town planners, software & IT consultants, market research agency, commodity brokers, surveyors, event management services (i.e. event photography) Rate of Sales Tax 16% Management Consultants 16% Legal practitioner and consultants, accountant and auditors and tax consultants 4% (no input tax credit) 25
Sindh Sales Tax on Services Change in Rates SRB changed rates of Sindh Sales Tax for following services vide notification dated 18 June 2013: Description of Service Construction services [w.e.f. 01 July 2013] Freight forwarding agents [w.e.f. 18 June 2013] Rate of Sindh Sales Tax 4% [no input tax credits] Rs.500/Bill of Lading 26
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