C. No. 4(47) TP-1/89 Islamabad, the 26th July, 1989 CIRCULAR NO. 9 OF 1989 (INCOME TAX) SUBJECT: FINANCE ACT, 1989--EXPLANATION OF IMPORTANT PROVISIONS RELATING TO INCOME TAX. The important amendments made in the Income Tax Ordinance, 1979, (hereinafter referred to as the `Ordinance') through the Finance Act, 1989, are explained as under for general guidance. 1. The exemption on donations.--sub-section (1-A) of Section 14 of the Ordinance has been omitted which empowered the Federal Government to grant exemption from tax in respect of donations made, without any monetary limit, to a hospital, or to an institutions or fund established for scientific research or for educational, religious or charitable purposes, subject to fulfilment of such conditions as the Central Board of Revenue may impose in each case. The monetary limits on donations as specified in Section 47 would now be applicable. 2. Withdrawal of the power of the Federal Government to grant approval to a fund or institution for donations without any monetary limits.--sub-section (4) of Section 47 of the Ordinance has been amended and, except for the Quaid-e-Azam Memorial Fund, the power of the Federal Government to grant approval to a fund or institution for donations without any monetary limit has been withdrawn. 3. Deduction of tax at source from bank profit/interest.-- Sub-section (2-A) of Section 50 has been amended to make the provisions relating to tax-withholding on bank profit/ interest operative again from 1st July, 1989. No deduction of tax is required to be made if the amount of profit/interest in a financial year does not exceed Rs. 1,00,000. Tax is to be deducted @ 5% on the whole of the amount of profit/interest if such amount exceeds Rs. 1,00,000 in any financial year. The following classes of recipients continue to be exempted from provisions of sub-section (2A) of Section 50 vide S.R.O. 484(I)/84, dated 14th June, 1984:- (i) a Provincial Government ; (ii) a local authority ; (iii) recipients who qualify for exemption under clause (78) of Part I of the Second Schedule to the Income Tax Ordinance, 1979; and
(iv) persons who produce a certificate from the Income Tax Officer that to the best of his knowledge and belief the recipient shall not be liable to pay any tax under the Ordinance during the income year. Deductions under sub-section (2A) are adjustable against the regular tax demand. 4. Deduction of tax from payments to contractors, suppliers etc. by private companies under Section 50(4).--Clause (2) of Part IV of the Second Schedule to the Ordinance has been amended requiring private companies with paid-up capital of rupees two million and above to deduct tax under Section 50(4) from payments exceeding rupees ten thousand in case of services rendered and rupees fifty thousand in case of goods supplied or contracts executed in a financial year. Previously, the limit on paid-up capital was rupees three million. 5. Deduction of tax from brokerage and commission.--a new sub-section (4A) has been instered in Section 50 providing for deduction of tax at source from payments (including a payment by way of an advance) to a person, on account of brokerage or commission by or on behalf of Government, a local authority, a company, a foreign contractor or consortium where such payment exceeds Rs. 50,000 in any financial year. Tax is to be deducted at the rate of 10% of such payment and such deductions would be adjustable against advance tax payments under Section 53 and/or the regular tax demand. 6. Collection of tax at import stage under Section 50(5).--In the budget for the year 1988-89, tax-payers liable to advance tax under Section 53 were exempted from the provisions of Section 50(5) vide S.R.O. 535(I)/88, dated 26th June, 1988. This concession now stands withdrawn as the said notification has been rescinded vide S.R.O. 567(I)/89, dated the 3rd June, 1989. Now such tax-payers would be liable to tax deduction @ 1 1/2% subject to issuance of a certificate by the concerned Commissioner of Income Tax to the effect that the said person is liable to pay advance tax under Section 53 during the financial year in which the goods are imported. 7. Collection of tax from public transport.--sub-section (6) of Section 50 has been amended to cover passenger transport vehicles with seating capacity of ten or more passengers for collection of income tax alongwith the motor vehicles tax. Revised rates for collection of income tax under this sub-section, which would be effective from 1st July, 1989, are as under :- (1) goods transport vehicles with registered laden weight of- (a) less than 2030 Kg. Three hundred rupees per annum. (b) 2030 Kg. or more per annum. One thousand two hundred rupees
(2) passenger transport vehicles with registered seating capacity of-- (a) ten or more persons but Twenty rupees per seat per less than twenty persons. annum. (b) twenty persons or more. Twenty five rupees per seat per annum. 8. Limiting exemption to dividend income and levy of withholding tax on such income.--a new sub-section (6A) has been inserted in Section 50 requiring companies listed on a stock exchange in Pakistan, the N.I.T. and Investment Corporation of Pakistan to deduct tax from dividend payments to share holders, not being companies, where the amount of such dividend exceeds Rs. 15,000 in a financial year. Tax is to be deducted @ 7.5% of dividend income exceeding Rs. 15,000 with effect from 1st July, 1989. Clause (80) of Part I of the Second Schedule to the Ordinance has also been amended to limit exemption to dividend income under sub-clauses (a), (cc), (d), (e) and (f) upto Rs. 15,000. Dividend income exceeding Rs. 15,000 received from company listed on a stock exchange in Pakistan including a listed modaraba company, the N.I.T. or the Investment Corporation of Pakistan will be charged to tax @ 7 1/2% as a separate block of income for the income years relevant to assessment year 1989-90 and on wards. 9. Deduction of tax from rent of house property.--a new sub-section (7B) has been inserted in Section 50 whereby tax is required to be deducted from rent (including payment by way of an advance) of house property (including rent of furniture, and fixture, if any) paid by or on behalf of Government, a local authority, a company or the diplomatic mission of a foreign state, where the annual rent of such property exceeds Rs. 100,000. Tax is to be deducted @ 5% of such rental income with effect from 1st July, 1989 and such deduction would be adjustable against advance tax payment under Section 53 and/or the regular tax demand. 10. Revision of last dates for filing of returns of income.-- Section 55 of the Ordinance has been amended to revise the last dates for filing of returns for different categories as under:-
(1) Registered firms closing their income year 31st July each year on or before 31st December each year. (instead of 1st October). (2) No account cases including salary cases 31st August each year closing their inome year on 30th June (instead of 1st October) each year. (3) Account cases closing their income year 30th September each year on 30th June each year. (instead of 1st October) (4) Companies closing their income year on 31st December each year or before 30th June each year. (instead of 15th January). Last dates for filing of returns of income in respect of other categories remain unchanged. 11. Withdrawal of tax credit for B.M.R. of plant and machinery.--section 107 of the Ordinance has been amended to withdraw tax credit of 15% on investment in the purchase of plant and machinery with effect from 1st July, 1988. 12. Hearing of revision petitions by the Central Board of Revenue in certain cases.-- Section 138 of the Ordinance has been amended to make Appellate Assistant Commissioner (AAC) and Commissioner hearing appeals as an A.A.C., directly subordinate to the Central Board of Revenue. From 1st July, 1989 and onwards power of revision by the Commissioner or the Regional Commissioner to review and revise orders of the A.A.C. and CIT (Appeals) vests in the Central Board of Revenue. A Member Judicial (Income Tax) has been posted in the Central Board of Revenue to perform these functions. 13. Income of religious or charitable trusts, etc.--clause (93) of Part I of the Second Schedule to the Ordinance has been amended to withdraw tax exemption to certain incomes of religious or charitable trusts, etc. Income of such trusts from house property shall, however, remain exempt from tax. 14. Tax holiday for industrial undertakings set up in certain specified areas.--clause (118A) of Part I of the Second Schedule to the Ordinance has been amended to extend eight years tax holiday to industrial undertaking set up by June 30th 1993. Exemption under this clause has also been extended to the industrial undertakings set up in the divisions of Dera Ghazi Khan and Bahawalpur in the Punjab and the divisions of Sukkur and Larkana in Sind. 15. Restricting the scope of key industries.--clause (118B) of Part I of the Second Schedule has been amended to restrict tax holiday for four years to the following key industries only:- (i) bio-technology goods ;
(ii) fibre optics ; (iii) computers and soft-ware ; (iv) electronic equipment ; (v) (vi) solar energy equipment ; and fertilisers. The Central Board of Revenue has notified a number of 44 key industries under the un-amended clause (118B) vide S.R.O. 1058 (I)/88, dated the 24th November, 1988. The said notification stands rescinded vide S.R.O. 692(I)/88, dated the 29th June, 1989. However, any key industry specified under S.R.O. 1058 (I)/88, dated the 24th November, 1988 which is set up between 1st July, 1988 and 30th June, 1989 will be eligible to tax holiday for 4 years subject to the fulfilment of certain other conditions as specified in clause (118B) ibid. 16. Withdrawal of tax exemption to the income of Pakistan Security Printing Corporation Ltd. Karachi.--Clause (131) of Part I of the Second Schedule to the Ordinance has been amended to withdraw tax exemption to the income derived by the Pakistan Security Printing Corporation Limited, Karachi on or after 1st July, 1989. 17. Reduction in the rate of initial depreciation allowance on plant and machinery.-- Sub-rule (1) of rule 5 of the Third Schedule to the Ordinance has been amended to reduce the rate of initial depreciation allowance from 40% to 25% of the written down value in respect of the following types of assets :- (i) (ii) (iii) machinery or plant (other than x-rays and electrotherapeutic apparatus and accessories or ships or motor vehicles not plying for hire; machinery or plant (other than ships or motor vehicles not plying for hire), given on lease by the assessee, being a scheduled bank, a financial institution or a leasing company approved by the Central Board of Revenue for the purpose of Third Schedule, on or after 1st July, 1982; and X-ray and electrotherapeutic apparatus and accessories. The new rate of initial depreciation allowance of 25% of the written down value shall be effective in respect of the income years relevant to assessment year 1989-90.