Comments on Finance Bill 2012

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Comments on Finance Bill-2012-13
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Comments on Finance Bill-2012-13
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TABLE OF CONTENTS
Page #
Income Tax
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Sales Tax
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Federal Excise
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Comments on Finance Bill-2012-13
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Comments on Finance Bill 2012-13
The Comments on Finance Bill-2012-13 contains highlights of Finance Bill 2012
relating to Income Tax, Sales Tax, Federal Excise Duty and Custom Duty.
All changes through the Finance Bill 2012-13 are effective July 1, 2012, except for
the amendments made in Table-I of the Federal Excise Act, 2005 effective from 2.6.2012
and Sales Tax Act, 1990 which are effective from June 1, 2012.
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FEDERAL BUDGET 2012-13
INCOME TAX
SECTION 2
Definitions
35AA
New definition of NCCPL is proposed to be inserted in section 2. NCCPL means
National Clearing Company of Pakistan Limited, which is a company
incorporated under the Companies Ordinance, 1984 (XLVII of 1984) and licensed
as clearing House by the Securities and Exchange Commission of Pakistan.
SECTION 9 & 10
Taxable Income
Total Income
Exempt income is proposed to be included in the definition of total income.
SECTION 13
VALUE OF PERQUISITES
13(7)
Concessional loans given by employers to employee are proposed to be exempt
upto Rs. 500,000/14(a)(ii)
Cap of 10% on interest rate is proposed to be fixed on concessional loans
obtained by the employees.
SECTION 37
CAPITAL GAINS
37(1A)
Capital gain on sale of immovable property is now proposed to be taxable if sold
within two years from the date of purchase. New slab of tax rates for the purpose
is proposed to be inserted as Division VIII of Part I of First Schedule.
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Period
Rate of
Tax
Immovable
10%
S.No.
1
Where holding period of
property is up to one year
2
Where holding period of Immovable
property is more than one year but not more
than two years.";
5%
37(5)
Immovable property is proposed to be included in the list of capital asset for the
purpose of taxation as defined in proposed sub section (1A) of section 37 of the
Income Tax Ordinance, 2001.
37A & 100B
Capital Gain on Sale of Securities
Special Provisions related to Capital Gain Tax
37A(1A)
In order to calculate gain on sale of securities, a formula / method, which is selfexplanatory, is proposed to be introduced, as under:
A-B
A is the consideration received by the person on disposal of the security; and
B is the cost of acquisition of the security;
100B
Under the rules, National Clearing Company of Pakistan Limited (NCCPL) will
develop automated system and it will calculate tax on the basis of transaction
date processed through its system and information provided by Central
Depositary Company (CDC).
NCCPL will issue certificate to taxpayer and this certificate will be submitted by
taxpayer along with the income tax return which shall be conclusive evidence in
respect of income from capital gain on shares.
Further, to encourage investment in capital market there will be no inquiry
regarding investment made in shares of companies listed in any of stock
exchange in Pakistan till 30th June 2014 provided that amount remains invested
for the period of 120 days.
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SECTION 39
Income from Other Sources
(cc)
An amount of additional payment on delayed refund is proposed to be included in
the list of “income from other sources”.
By adding new clause, the amount received as additional payment on delayed
refund is now taxable.
SECTION 62
Tax Credit for investment in shares
62(2)
The limit on tax credit for investment is further relaxed and it is enhanced to 20%
of taxable income from 15%. Further, the current of investment available for tax
credit is increased from 500,000 to 1,000,000 and the minimum holding period is
reduced for 03 years to 2 years.
SECTION 65B & D
Tax Credits for Investment:
65B(1,4,5)
It may be recalled that Section 65E was introduced vide Finance Act, 2011,
wherein the tax credit was allowed on investment by a company with 100%
equity investment in BMR of plant and machinery already installed, in an
industrial undertaking setup in Pakistan before the 1st day of July 2011. The said
credit was allowed subject to the fulfillment of certain conditions. The bill with a
view to remove ambiguities and elaborate these conditions seeks to substitute
those conditions. The proposed conditions are as follows:
A. Tax payers shall be a company set up in Pakistan before 1st day
of July 2011.
B. Investment should be raised through issuance of new equity
shares and the amount should be invested in purchased and
installation of plant and machinery for an industrial undertaking
including corporate dairy farming, for the purpose of expansion
of the plant and machinery already installed therein or
undertaking a new project.
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C. A tax credit would be allowed for period of 5 years from the date
of setting up or commencement of commercial production from
the plant or expansion project, whichever is later .
The tax credit would be allowed:
Where a tax payer maintain separate account of an expansion project or a new
project, the tax payer should be allowed a tax credit equal to 100% of the tax
payable, including minimum tax and final tax payable under any of the provisions
of the Ordinance attributable to such expansion project or new project.
In all other cases the credit under this section would be such proportion of the tax
payable, including minimum tax and final tax payable under any of the provisions
of Income Tax Ordinance 2001 as is the proportionate between the new equity
and total equity including new equity.
The tax credit would be available against the tax payable in the year in which the
plant and machinery is installed and for subsequent 4 years.
SECTION 122
Amendment of Assessment
122(5A)
Under the proposed amendment, the Additional Commissioner is now
empowered to make inquiries, as he deems necessary, before amendment of
assessment order under section 122(5A).
The Commissioner has also been empowered to ask for details and to place his
enquiries before he decides to amend any assessment order in cases where he
thinks that the earlier assessment order was wrong and inflicted the interest of
Tax Revenue. This provision appears to harmonize the law with the already
prevalent practice in such cases.
122C(2) Proviso
A provisional assessment becomes final assessment after expiry of sixty (60)
days. As and when the provisional assessment becomes final then all the
provisions under the Ordinance will follow. The order shall take no effect if an
Individual taxpayer and a firm / partners files their income tax return along with wealth
statement its reconciliation statement and other documents required u/s 116(2A) of the
Ordinance.
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It has now been provided that a company can also skip the same where it e-files it return
along with its Audited Accounts within the said 60 days.
SECTION 128
Procedure in Appeal
128(1A)
The bill proposes to empower the Commissioner (Appeal) to stay recovery of tax
for a period of 30 days.
SECTION 129
Decision in Appeal
Sub-section 5,6,7-Omission
At present, under sub-section (5) of section 129 if the Commissioner (Appeal)
has not made an order within 4 months, the relief sought by tax payer is deemed
to be allowed. However, this sub-section is now proposed to be omitted.
In the light of proposed amendment that the taxpayer would not allow stay for
more than 30 days and the Commissioner (Appeals) not bound to any time limit,
the decision seems to be harsh and become a stone in the way of relieving the
taxpayer in appeal forum.
SECTION 152
Payments to Non-Residents
152(1AAA)
A new sub Section 152(1AAA) is proposed to be inserted after Sub-Section
(1AA) of 152, where by every person is liable to deduct tax @ 10% while making
payment for advertisement services to a non-resident media outside the
Pakistan.
The payment to a Permanent establishment in Pakistan of a non-resident
company regarding the good, transportation or any other case have been omitted
from the 153 Section and now have been covered under Section 152, so as to
put together all the provisions for a Permanent establishment in Pakistan of a
non-resident company under a single section.
SECTION 153
Payments for goods, services and contracts
153(1)
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Before amendment this section was dealt with withholding tax of both resident
and non-resident persons. After proposed amendment, this section now deals
with WHT of resident persons only.
153A
A new section 153A is introduced whereby every manufacturer at the time of sale
to distributor, dealers and wholesaler shall collect withholding tax at the rate of
1% of gross amount of sales.
The tax collected under this section is adjustable against tax liability of the
distributor, dealer and whole seller.
This newly introduced strategy is to catch un-registered / un-documented
persons, however, registered distributor, dealer and wholesaler shall bear
unnecessary burden of 1% WHT on gross amount of their purchases.
SECTION 231A
Cash Withdrawal from a bank
The daily limit for cash withdrawal is now proposed to be increased from Rs.
25,000 to Rs. 50,000.
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FIRST SCHEDULE
Rates of tax for individuals and AOP
The basic limit of exemption is proposed to be enhanced upto Rs. 400,000/- from the
existing limit of Rs. 350,000/- for both individual and AOP.
The slab rates are proposed to be re-introduced for Associations of Persons (AOPs)
instead of fixed rate at 25%.The income of an AOP will be taxed at a flat rate of 25% in
TY 2012.
The proposed Slab as would be applicable both for business Individuals and firms is as
under;
Individual & AOP
S.# TAXABLE INCOME
1
Upto 400,000
2
400,001 -750,000
3
750,001-1,500,000
4
1,500,001-2,500,000
5
2,500,001 and above
RATE OF TAX
Nil
10% of the amount exceeding
400,000
35,000+15% of the amount
exceeding 750,000
147,500+20% of the amount
exceeding 1,500,000
347,500 + 25% of the amount
exceeding 2,500,000
Salaried Persons
S.# TAXABLE INCOME
1
Upto 400,000
2
400,001 -750,000
3
750,001-1,500,000
4
1,500,001-2,500,000
5
2,500,001 and above
RATE OF TAX
Nil
5% of the amount exceeding
400,000
17,500+10% of the amount
exceeding 750,000
92,500+15% of the amount
exceeding 1,500,000
242,500 + 20% of the amount
exceeding 2,500,000
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Minimum Tax
Reduction in minimum tax from 1% to 0.5% was announced in budget 2012 but
no amendment was made in first schedule of the Ordinance to the effect by
Finance Bill, 2012.
However, as per news of business Recorder dated 4.6.2012, FBR will rectify an
error in the Finance Bill 2012 by amending section 113(2)(b) of the Ordinance for
reduction in the turnover tax rate from 1% to 0.5% as announced in Budget.
Rate of Tax on capital gain of Immovable Property:
S.No.
1
2
Period
Rate
of Tax
Where
holding
period
of 10%
Immovable property is up to one
year
Where holding period of
5%
Immovable property is more than
one year but not more than two
years.";
Advance Tax on Goods Transport Vehicles
The advance tax is proposed to be enhanced from Rs. 1 per KG of the laden
weight to Rs. 5.
Goods transport vehicle having laden weight of 8,120 kilo gram or more, Rs.
1200 per annum shall continue to be collected after a period of ten years from
the date of first registration in Pakistan.
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SECOND SCHEDULE
Exemptions
Part II-Reduction in Tax Rates
Clause
9-A
Description
Status
Reduced rate of collection of tax By inserting the proposed
on imports
proviso, exemption certificate for
imports at reduced rate of 3% is
required
from
concerned
commissioner, mentioning the
status of the taxpayer as
industrial undertaking.
Part IV- Exemption from specific provisions
Clause
Description
Status
41A
Tax collected at import stage is The option is given to importers
final tax-Option available.
to opt out of presumptive tax
regime subject to the condition
that minimum tax liability under
normal tax regime shall not be
less than 60% of tax already
collected under section 148
41AA
Tax collected at the time of The option is proposed to be
realization of foreign exchange given to exporters to opt out of
proceeds on account of export of presumptive
tax
regime
goods by an exporter shall be the provided that minimum tax
final tax
liability under normal tax regime
should not be less than 50% of
the already deducted.
41AAA
tax deducted from payments in
respect of sale of goods, in
certain cases, shall be the final
tax.
The option is proposed to be
allowed to supplier of goods to
opt out of presumptive tax
regime provided that minimum
tax liability under normal tax
regime should not be less than
70% of tax already deducted.
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THIRD SCHEDULE:
Depreciation:
Section
23
Description
Initial allowance
assets
Status
on It is proposed that rate of
initial allowance on building
(only) be reduced to 25% as
compared to existing 50%.
FORTH SCHEDULE
Rate of tax on capital Gain on Sale of Shares:
Rule
6B
Description
Status
Rate of tax on gain on The rate of tax on capital gain
disposal of shares.
is proposed to be changed.
Proposed rates are 8.5% for
the year 2013 & 9% for the
year 2014 & 2015, as
compared to existing rates of
9% , 9.5% and 10%
respectively, subject to the
condition that securities are
held for more than 6 months
but less than 12 months
EIGHTH SCHEDULE- Newly inserted
Rules for the computation of capital gain on listed securities:
As discussed earlier, eighth schedule is proposed to be inserted to make rules
for the computation of capital gain on listed securities.
Under the rules, National Clearing Company of Pakistan Limited (NCCPL) will
develop automated system and it will calculate tax on the basis of transaction
date processed through its system and information provided by Central
Depositary Company (CDC).
NCCPL will issue certificate to taxpayer and this certificate will be submitted by
taxpayer along with the income tax return which shall be conclusive evidence in
respect of income from capital gain on shares.
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SALES TAX
SECTION-11
Assessment of tax and recovery of tax not levied or short levied
or erroneously refunded:
In order to streamline the provisions of law, merger of section 11 and 36 is
proposed which pertains to assessment and recovery of tax not levied or short
levied or erroneously refunded.
Before amendment, the time period for issuance of show cause notice under
section 11 was 3 years whereas the time limit for issuance of show cause notice
under section 36 was five years, which is now uniformly 5 years for both
assessment of tax and recovery.
Section 36 of the Act, is proposed to be deleted.
5th and 6th SCHEDULE:
Under the proposed amendment, zero rating of sales tax on supplies against
international tender, appearing at Serial No. 4 of the Fifth Schedule to the Act,
has been withdrawn w.e.f. 02 June 2012. The same is proposed to be included in
Table II of the Sixth Schedule.
As a result supplies against international tender will now be an exempt supply
instead of being zero rated
The substitution of zero rating with sales tax against international tender as
enforced through Finance Bill seems to discourage refund claims as accrued on
supplies so made against international tenders. The proposed amendment
through Finance Bill comes into force at once on 02 June 2012.
SRO 589(1)/2012 dated 1 June 2012
Rule 5- Power of Board to Transfer the Jurisdiction
The bill seeks to amend the rule 5 of the sales tax act regarding registration
whereby the FBR may transfer the registration of any registered person or any
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business of a registered person to an area of jurisdiction where the place of
business or registered office or manufacturing unit is located.
Rule 7 -Change In Particulars
Presently under the rule 7 of the Sales Tax Rules, 2006 the only procedure
required was to file ST-2, whereas the sales tax department had their own
Standard Operating Procedure which it was following for changes in particular.
The amendment seeks to elaborate the procedure for change in particulars in the
following manner:
or children, the change shall be made by Local Registration Office (LRO) on
receipt of verification of documents from RTO.
change shall be made by LRO on receipt of verification of documents from RTO.
the same shall only be allowed by LRO on receipt of verification from RTO or
LTU, however, this change shall only allowed in case where same persons who
are the members of AOP are nominated as directors in the corporate entity.
a new sales tax registration number shall be issued to the entity.
Rule 12- Blacklisting and Suspension of Registration:
The bill seeks to substitute rule 12 which deals with blacklisting and suspension
of suspected units. After the amendment, where the Commissioner or Board has
reason to believe that the registered person is to be suspended or blacklisted,
the procedure as prescribed by the board shall be followed.
No rule / procedure is prescribed till date by the FBR, which is likely to be
prescribed at an early date.
S.R.O. 590(1)/2012 & S.R.O. 592(1)/2012
Commercial Importers - Value Addition at Import Stage and Immunity from
Audit –
Presently sales tax value addition on import stage is fixed at 10% for commercial
importers. The same is abolished w.e.f. 02 June 2012.
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At present those commercial importers who do not claim refund of excess input
tax are not subjected to audit except with the permission of the Board. After
introduction of S.R.O. 592(1)/2012 the immunity to the importer stands abolished
w.e.f. 2 June 2012. The records of the commercial importers will now be
subjected to audit under section 25 of the Sales Tax Act, 1990.
SRO 594(I)/2012 (effective 01 June 2012)
Withdrawal of higher rate of sales tax
Presently there are three different rates prevailing in Sales Tax regime, 22%,
19.5% and 16%. The amendment seeks to remove various rates of sales tax to
standard rate of 16%.
This will helps to reduce the direct cost of product in which various items are
used as raw materials and may also provide desired fiscal space especially to
the steel industry in lowering their selling prices
SRO 595(I)/2012 (effective 2 June 2012)
Re-meltable scrap
Zero rating of Remeltable Scrape (PCT Heading 72.04) notified through SRO
549(I)/2008 dated 11 June 2008 has been withdrawn and shifted to exemption
through insertion at Serial No. 31 of SRO 595(I)/2012.
Zero rating of remeltable scrap was introduced with the objective to collect sales
tax effectively from steel melters /re-rollers through electricity bills. The
Government apprehends that zero rating on re-meltable scrap was misused by
some steel melters by charging sales tax only on processing charges.
Apparently, to control such misuse, zero-rating on re-meltable scrap is substituted
with sales tax exemption.
Exemption on waste paper
Local supply of waste paper is proposed to be exempt.
The idea behind the decision is to curtail loss of revenue on account of illegal
input tax adjustments.
S.R.O. 591(1)/2012 dated 1 June 2012, (effective 2 June 2012)
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Substitution of Zero-Rating with Exemption on Monofilament Yarn and Net
Cloth
Presently the import of and supply of polyethylene and polypropylene falling
under the PCT heading nos. 3901.1000.1000, 3901.2000, 3902.1000 is zerorated for the manufacturing of mono filament yarn and net cloth. Now S.R.O.
591(1)/2012 substitutes the word “zero rating” with “exemption”; however other
conditions provided in S.R.O 811(1)/2009 dated 19 September, 2009 shall
remain unchanged.
As a result of shifting from zero rating to exemption, input tax is no more
adjustable.
SRO 604(I)/2012 & 605(I)/2012 (effective 2 June 2012)
Reduction in rate of sales tax on soya bean seed, etc.
The rate of sales tax on import of soybean seed by solvent extraction industries
as laid down SRO 313(I)/2006 dated March 31 2006 has been reduced from 7%
to 6%.
The rate of sales tax on import rapeseed, sunflower seed and canola seed
introduced through SRO 69(I)/2006 dated 28 January 2006 has been reduced
from 15% to 14%.
SRO 594(1)/2012 (effective 2 June 2012)
Notifications Rescinded
Notifications which have been rescinded, listed below:
555(I)/1996
Adjudication powers of Sales Tax Officers.
849(I)/1997
Exemption from sales tax to imported industrial raw material and other goods, if
imported directly by the manufacturers who are liable to pay turnover tax or are
engaged in manufacture of the goods other than taxable goods.
103(I)/2005
Fixation of value of Potassic Fertilizers for sales tax at Rs.4,610/- per metric ton.
15(I)/2006
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Fixation of value of locally produced nitrogenous fertilizer, Calcium Ammonium
Nitrate (CAN) for sales tax at Rs.3,765/- per metric ton.
644(I)/2007
Levy of sales tax at higher rate 22% and 19.5% of value of goods on import and
supply of certain goods.
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THE FEDERAL EXCISE ACT, 2005
IST SCHEDULE
EXEMPTIONS
The following items are proposed to be exempt from levy of FED:
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IST SCHEDULE
Reduction in rates (effective from 1.7.2012)
CementRate of FED on Portland Cement, Aluminous cement, super sulphate cement,
whether or not coloured or in the form of clinker has been reduced from Rs.
500/MT to Rs. 400/MT
IST SCHEDULE
TABLE-II
FED on Air Travel
Rates of FED on air travel is proposed to be changed as under
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FED NOTIFICATIONS
SRO 598(1)/2012 (effective 2 June 2012)
SECTION 3
This notification amends the notification No.SRO 649(I)/ 2005 dated 01 July 2005, which
levied duty on specified goods entering the tariff area from a non-tariff area of Pakistan.
Effectively, duty leviable on cosmetics goods as listed out in serial no. 42 to 45 of Table I
of the Act, has now also been withdrawn at the time of entering into tariff area from a
non-tariff of Pakistan.
SRO 599(I)/2012 (effective 2 June 2012)
SECTION 16
This notification amends the notification No. SRO 474(I)/ 2009 dated 13 June
2009 which exempts certain goods or services from the levy of duty.
Exemption available to Viscose staple fiber has been withdrawn.
603(I)/2012 (effective 2 June, 2012)
WITHDRAWL OF NOTIFICATIONS
Following notifications are withdrawn by issuance of SRO 603(1)/2012
SRO 807(I)/2005 dated 12 August 2005-WITHDRAWN
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The rescinded SRO related to Rebate on Federal Excise Duty which was granted
on base oil used in manufacturing of certain types of lubricating oils.
SRO 671(I)/2006 dated 29 June 2006-WITHDRAWN
The rescinded SRO related to minimum price for the purpose of assessment of
excise duty at import stage was fixed in case of lubricating oil in packs (PCT
headings 2710.1951 and 2710.1952).
SRO 777(I)/2006 dated 01 August 2006-WITHDRAWN
The rescinded SRO pertained to special rate of excise duty which was fixed on
the tickets issued for travel by air to certain specified destinations.
SRO 949(I)/2006 dated 06 September 2006 – WITHDRAWN
The rescinded SRO pertained to import and supply of solvent oil (PCT heading
2710.1150) for manufacturing of shoe adhesive were exempted from excise duty.
SRO 1229(I)/2007 dated 18 December 2007-WITHDRAWN
The rescinded SRO pertained to special excise duty which was exempted on the
tractor parts supplied by registered vendors to the manufacturers of agricultural
tractors (PCT heading 8701.9019)
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A.R.KHAN & COMPANY
CHARTERED ACCOUNTANTS
6/33-A, Arkay Square (Ext).
Shahra-e-Liaquat.
Karachi-74000
Phones: 021-32437244, 38113688
Fax: 021-32416679
e-mail [email protected]
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