1
Presentation at the
POST BUDGET SEMINAR-2015
Organized by
Karachi Tax Bar Association
By
Abdul Qadir Memon
Former President
Pakistan Tax Bar Association
On June 09, 2015
2
“Where there is an Income
Tax, the just man will pay
more and the unjust less
on the same amount of
income”- Plato
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Budget direction
Taxation Measures for Capital and Commodity Markets
Introduction of one time Super tax
Exemption and Incentives for Manufacturing sector
Incentives for the construction industries
Taxability of Companies providing services
Provisions relating to Tax Credits
Advance tax on banking transactions otherwise than through cash for non-filers
Taxation Regime of Banking Companies
Tax on Profit on Debt
Definitions of “Consumer Goods” and “Fast Moving Consumer Goods”
Withdrawals of Powers to grant Exemptions, tax concessions or amending withholding
provisions
Reward to whistleblowers
Automatic selection of Retailer for audit
Payment to Residents for use of Machinery & Equipment
Agreements for the avoidance of double taxation and prevention of fiscal evasion
Enhancement of withholding tax rates
Filer versus Non-Filer
Offences and Penalties
4
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Create clear difference between filer and nonfiler;
Measures for broadening of the tax base and
documentation of economy;
Increasing the share of the direct taxes;
Incentives for Agriculture Sector;
Incentives for Construction /Housing Sectors;
Incentives for Manufacturing sector;
Relief measures for Khyber Paktunkhawa;
Withdrawal of Powers to issue concessionary
SROs.
5
Taxation Measures for Capital and
Commodity Markets
6

Tax on undistributed reserves shall be imposed
at the rate of ten percent, on every public
company other than a scheduled bank or a
modaraba, that derives profits for a tax year
but does not distribute cash dividends within
six months of the end of the said tax year or
distributes dividends to such an extent that its
reserves, after such distribution, are in excess
of hundred percent of its paid up capital, so
much of its reserves as exceed hundred per
cent of its paid up capital shall be treated as
income of the said company.
7
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The ‘reserves’ includes amount set-aside
out of revenue or other surpluses excluding
capital reserves, share premium reserves
and reserves required to be created under
any law, rule or regulation.
The tax on undistributed reserves is also
payable for the tax year 2015 and the
taxpayers who have special tax year and
have already closed their financial
statements would also be required to pay
the aforesaid tax.
8
Capital Gains on disposal of Securities including Debt
Where Holding period of a
security is
Tax
year
2014
Tax year
2015
Tax year 2016
proposed by
Finance Bill
Less than twelve months
8%
12.5%
15%
Twelve months or more
but less than twenty-four
months
0%
10.0%
12.5%
Twenty –four months or
more but less
than four years
0%
0%
7.5%
Provided that the rate for companies in respect of debt securities shall
be taxed at the normal corporate rate, as specified in Division II of Part
I of First Schedule to the Ordinance. Similar amendments have also
been proposed in Rule (6B) of the Fourth Schedule
9

That a mutual fund or a collective investment
scheme or a REIT scheme shall deduct Capital
Gains Tax at the rates as specified below, on
redemption of securities as prescribed, namely
Category
Individual and
association of persons
Individual and
association of persons
Filer
10% for stock fund
10% for other
Non-Filer
17.5%
10% for stock fund
25%
25% for others
Provided further that in case of a stock fund if dividend
receipts of the fund are less than capital gains, the rate of
tax deduction shall be 12.5%
10
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At present, Section 62 of the Ordinance provides tax
credit for investment in shares and insurance up to a
maximum threshold is Rs. 1 million. The Finance Bill
now seeks to enhance the maximum threshold up to
Rs.1.5 million in order to further encourage the
investment in shares and insurance.
Tax credit for enlistment
At present, Section 65C provides tax credit at the
rate of 15% of the tax payable for the year of a
company which opts for enlistment in any
registered stock exchange in Pakistan in the tax year
in which the company is enlisted. The Finance Bill
now proposes to enhance the tax credit from 15%
to 20% of the tax payable for the year.
11
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In order to bring the transaction of sale and purchase of
commodities through Pakistan Mercantile Exchange Limited
(PMEX)at par with equity transactions at the stock exchanges
of Pakistan amendments have been proposed the Finance bill
to add clause (42A) in Section 2 defining “PMEX” and Section
236T for collection of following tax by the PMEX :-
S.
N0
Nature of Transaction
Rate of withholding
1
in case of sale or purchase of future
commodity contract as per clause (a) and (b)
of sub-section (1) of section 236T
0.1% of value of sale
or purchase contract
2
in case of sale or purchase of future
commodity contract as per clause (c) and (d)
of sub-section (1) of section 236T in lieu of
tax on the commission earned by such
members
0.1% of value of sale
or purchase contract
12
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Tax rate on dividend for non-filer has
increased from 15% to 17.5% of which 7.5%
shall continue to be adjustable. Dividend
from stock funds shall be taxable at the rate
of 15% instead of 12.5%. The reduced rate
of tax of 7.5% applicable to dividends paid
by certain specified companies remains
unchanged.
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For Mutual Funds, existing rate of 10% shall
continue
13
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“Imputable Income” in relation to an amount
subject to final tax means the income which
would have resulted in the same tax, had this
amount not been subject to final tax;”
The Super Tax would be payable along with
Return for the tax year 2015 on the date the
return is to be filed by a person.
Furthermore, it is also provided that the
proceedings for recovery, penalty and default
surcharge in respect of Super Tax would be taken
by the Commissioner in similar manner as
provided for the recovery, penalty and default
surcharge of tax in the Ordinance.
14
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I.
II.
III.
The one time for the tax year 2015 Super Tax is proposed
to be levied as follows:Banking Company at the rate of 4% of the income; or
Persons, other than a banking company, having income
equal to or exceeding Rs.500 million at the rate of 3% of
the income.
The income for this purpose shall be the sum of:Profit on debt, dividend, capital gains, brokerage and
commission;
Taxable income under section (9);
Imputable income as defined in Clause (28A) of Section 2;
and iv) Income computed under Fourth, Fifth, Seventh and
Eighth Schedule.
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Industrial undertaking engaged in the manufacturing of
plant, machinery, equipments and items dedicatedly
used for generation of renewable energy from solar,
wind and like sources [Clause (126I)].
Industrial undertaking engaged in operating
warehousing or cold change facilities for storage of
agriculture produce [Clause (126J)].
Industrial undertaking engaged in operating halal meat
production, which has obtained halal certification
[Clause (126K)].
Manufacturing unit set up in Khyber Pukhtukhwa
Province irrespective of specific product [Clause
(126L)].
Taxpayers from a transmission line project [Clause
(126M)].
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In order to generate employment and job opportunities in the
country the Bill proposes to allow tax credit to the new
manufacturing units setup between 01/07/2015 to 30/06/2018
@ 1% for every 50 employees registered with EOBI and Social
Securities institutions in their respective provinces subject to
following conditions:1.
2.
3.
4.
The company must be incorporated and the unit is setup
between 01/07/2015 to 30/06/2018.
Number of employees should be more than 50 and they are
registered with EOBI and SSI.
The unit is managed by the company formed under the
Companies Ordinance and its registered office is situated in
Pakistan.
The unit is not establish by splitting up or reconstruction or
reconstitution or transfer of machinery of plant from
undertaking already established in Pakistan before
01/07/2015.
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Incentives for Construction and Housing Sectors
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Through the Finance Act, 2013, Sections 113A and
113B were inserted. According to these sections the
Federal Government had to notify in official Gazette
the rates of tax, mode, and time of payment of
amount of tax. After lapse of about two years such
notification has not been issued by the Government
therefore these sections are not effective so far.
The bill now proposes that section 113A in respect of
Minimum Tax on Builders shall not have effect till
30th June-2018; however tax @ 2% of the value of
land notify by any authority for the purpose of stamp
duty shall be charged for the purpose of section 113B
being minimum tax on land developers
19
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At present, Clause (99A) provides that the profit and
gains accruing to a person on sale of immovable
property to a REIT Scheme are exempt from tax up to
30th June, 2015. The Finance Bill proposes to insert a
proviso in aforesaid Clause to exempt profit and gains
on sale of property to a Developmental REIT Scheme
with the object of development and construction of
residential building up to 30th June, 2020.
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It is to be noted that Developmental REIT Scheme as
defined under clause (17D) of section (2) of the
Ordinance read with Real Estate Investment Trust
Regulations, 2015 means a REIT Scheme established
for investment in Real Estate with the object of
development, construction and refurbishment of such
real estate for industrial, commercial, residential or a
combination thereof. However, the benefit is only
provided to a REIT Scheme for development and
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construction of residential buildings.
In the wake of controversial clarification,
subsequent insertion of Clause (79) in Part IV of the
Second Schedule, decisions of the Honorable
Appellate Tribunal Inland Revenue and Honorable
the Federal Tax Ombudsman in respect of taxability
of companies providing services under section
153(1)(b) ; the Finance Bill proposes to substitute
the proviso to sub-section (3) of section 153 to
clarify that tax deductible on transactions referred
to in clause (b) of sub-section (1) of section 153
shall be (i) adjustable, with effect from tax year
2009, if payments are received by a company and
(ii) a minimum tax, if payments are received by a
person other than a company.”
21
Presently, Section 65B, 65D and 65E provides tax
credits for investments in industrial undertakings
against tax payable including minimum tax u/s. 113
and final tax payable u/s. 169. But, the tax
department disagrees to allow this credit due to the
reason that corresponding amendment were not
proposed in Section 113 and 169. Although, FBR has
already issued clarification in this regard, but to
remove any ambiguity, the Bill proposes to insert subsection (6). After proposed amendment, the
provisions of Section 113(1)(d) and 169(2)(d) shall not
apply while calculating the tax credit in eligible cases.
22
Every banking company shall collect advance adjustable tax at the
time of sale of any instrument, including demand draft, pay order,
special deposit receipt, cash deposit receipt, short term deposit
receipt, call deposit receipt, rupee traveller’s cheque or any other
instrument of such nature and at the time of transfer of any sum
through cheque or clearing, interbank or intra bank transfers through
cheques, online transfer, telegraphic transfer, mail transfer, direct
debit, payments through internet, payments through mobile phones,
account to account funds transfer, third party account to account
funds transfers, real time account to account funds transfer, real time
third party account to account fund transfer, automated teller
machine (ATM) transfers, or any other mode of electronic or paper
based funds transfer. As per Sub-Section 4 the advance tax shall not
be collected in the case of Pakistan Real-time interbank settlement
mechanism (PRISM) transactions or payments made for Federal,
Provincial or Local Government Taxes.
23
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Currently under Rule (6) read with Rule [(6A) related to
apportionment of expenses] of the Seventh Schedule
different type of Banking incomes are being taxed at the
following rates :Nature of Income
Present Rates
Business Income
35%
Dividend (After admissibility of expenditure under
Rule (6A)
10%
Capital Gains(After admissibility of expenditure
under Rule (6A)
As per
schedule
Dividend from its Assets Management Company
20%
Dividend received from Money Market & Income
Funds
25%
The Finance Bill proposes to omit the aforesaid Rules and
propose to insert Rule (7B) Rule (7C) whereby the Capital
Gains and Dividends would be taxed at the rate of 35%.
24
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The Finance Bill seeks to insert Section 7B;
whereby, the receipt from profit on debt is
proposed to be taxed as a separate block of
income received from the following
withholding agents under Section 151 of the
Ordinance:
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National Savings and Post Office;
Banking company or Financial institution;
Federal Government, Provincial Government or Local
Government; or
A banking company, a financial institution, a Company
referred to in section 80(2)(b)(i)/(ii) or a Finance Society.
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Sub-Section (1) of Section 7B proposes that the tax at
different rate is to be imposed ranging from 10% to
15% in the following manner and tax so deducted
under section 151 of the Ordinance shall be adjusted
accordingly:S.NO
1
2
3
Profit on Debt
Where profit on debt does not
Exceed Rs 25,000,000
Where profit on debt exceeds
Rs 25,000,000 but does not Exceed
Rs 50,000,000
Where profit on debt exceeds
Rs 50,000,000
Rate of tax
10%
2,500,000 + 12.5% of the
amount exceeding
Rs 25,000,000
Rs 5,625,000 + 15% of the
amount exceeding
Rs. 50,000,000
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Recently, the Income Tax Appellate Tribunal, Lahore in
Appeal numbers 1203, 1204 & 1205/LB/2014 (Tax Years
2011 to 2014) defined ‘FMCG’ and held that steel re-rolling
products qualify as ‘FMCG’. The Finance Bill seeks to
resolve the settle the unnecessary interpretation of the
definition of ‘FMCGs’ and defined terms “Consumer
Goods” as goods that are consumed by the end consumer
rather than used in the production of another good and
“Fast Moving Consumer Goods” (FMCG) as consumer
goods which are supplied in retail marketing as per daily
demand of a consumer. Division IX of Part I of the First
Schedule provides that minimum tax shall be computed at
the rate of 0.2% of the turnover for the year in the case of
distributors of consumer goods including fast moving
consumer goods.
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The Bill proposes to take away the powers of the Federal
Government or the Federal Board of Revenue to grant
exemptions & tax concessions in the Second Schedule,
amend the rates of withholding tax, exempt persons, classes
of persons, goods or classes of goods from withholding tax
except where an approval has been received from the
Economic Coordination Committee of the Cabinet, whenever
circumstances exist to take immediate action for the purpose
of national security, natural disaster, national food security
in emergency situations, protection of national economic
interest in situations arising out of abnormal fluctuation in
international commodity prices, removal of anomalies in
taxes, development of backward areas and implementation
of bilateral and multilateral agreements.

It is also proposed that after the promulgation of Finance
Act, 2015, any notification issued under sub-section (2) shall,
if not earlier rescinded, stand rescinded on the expiry of the
financial year in which it was issued.
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The Finance Bill proposed to insert section 227B;
whereby the Board may sanction reward to
whistleblowers in cases of concealment or evasion of
income tax, fraud, corruption or misconduct providing
credible information leading to such detection of tax.
However the claim of reward of the whistleblowers
shall be rejected due to following reasons:
The information provided is of no value;
 The Board already had the information;
 The information was available in public records; or
 No collection of taxes is made from the information provided
from which the Board can pay the reward.
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The Board will prescribe the procedure in this behalf
and also specify the apportionment of reward
sanctioned for whistleblowers under this section.
29
It is proposed that retailers who are registered under Rules (4)
and (6) of the Sales Tax Special Procedure Rules, 2007 would be
automatically selected for audit if they do not fulfill the
following conditions-
His name appears in the sales tax active taxpayers’ list ;
 Complete return of income within the meaning of section
114(2) read with section 118 has been filed within due
date including extended date;
 Tax along with return under section 137(1) has been paid;
 In case of filing below taxable return or in the preceding
tax year return was either not filed or declared income
below taxable limit; and
 In case of declaring taxable income in preceding year he
should pay 25% higher tax than that of paid in preceding
year.
However, this section shall be effective from the date
announced by the Board through notification.

30
At present, income from the lease of any building
together with plant and machinery is charged to
tax under the head income from other sources
and no tax is deductible on lease of machinery
only.
The Bill proposes to insert Section 236Q to
impose withholding tax @ 10% on payments for
use or right to use industrial, commercial and
scientific equipment and rent of machinery. The
tax so deducted shall be final tax in the hand of
recipient.
31
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The Finance Bill proposes to empower the Federal
Government to enter into an agreement, bilateral or
multilateral with the government or governments of foreign
countries or tax jurisdictions for the avoidance of double
taxation and the prevention of fiscal evasion and exchange of
information including automatic exchange of information with
respect to taxes on income. The amendments appears to have
been proposed in the wake of recent legislations like FATCA.

The Bill also seeks to give powers to the Board to obtain and
collect information when solicited by another country under
such agreements.

The Bill also proposes to insert Section 165B to obtain
information from financial institution in respect of nonresidents. Similarly, corresponding amendments have also
been proposed in Section 176(1)(a) to give powers to the
Commissioner Inland Revenue to obtain such information. 32
Nature of Receipt
Section
Existing
Rates
Proposed
Rates
Subscriber of internet prepaid
internet card or units through any
electronic medium
236
-
14%
Purchase of international air ticket
(per person first class / per person
other than first class excluding
economy)
236L
4%
Rs.16,000/
Rs.12,000
Payment to resident for right to use
industrial, commercial and scientific
equipment & rent of machinery
236Q
-
10%
236R
-
5%
On remittance of education related
expenses abroad
33
Nature of Receipt
Imports of Gold and
Cotton
Dividend by
companies other
than power projects
Profit on debt
exceeding Rs.500,000
Sale of goods by
company being PE of
NR
Sale of goods by
other than company
being PE of NR
Section
Existing Rates
Proposed Rates
Filer Non-Filer
Filer Non-Filer
148
5.5%
&
6.0%
8% & 9%
1%
1.5%
150
10%
15%
10%
17.5%
151
10%
15%
10%
17.5%
152(2A)
3.5%
3.5%
4%
6%
152(2A)
3.5%
3.5%
4.5%
6.5%
34
Nature of Receipt
Services rendered by company
being PE of NR
Services rendered (excluding
transporters) by other than
company being PE of NR
Execution of contract by
company being PE of NR
Execution of contract by other
than company being PE of NR
Sale of goods by a company
Sale of goods by other than a
company
Execution of contracts by
company
Section
Existing Rates
Proposed Rates
Filer Non-Filer
Filer Non-Filer
152(2A)
6%
6%
8%
12%
152(2A)
6%
6%
10%
15%
152(2A)
6%
6%
7%
10%
152(2A)
6%
6%
7.5%
10%
153
4%
4%
4%
6%
153
4.5%
4.5%
4.5%
6.5%
153
7%
7%
7%
10%
35
Nature of Receipt
Commission / discount to
petrol pump operator
Cash withdrawals in excess
of Rs.50,000
Transactions in banks
Transfer of registration or
ownership of motor vehicle
Brokerage & commission
other than advertising
Commission / discount to
petrol pump operator
Section
Existing Rates
Proposed Rates
Filer
NonFiler
Filer
NonFiler
156A
12%
12%
12%
15%
231A
0.3%
0.5%
0.3%
0.6%
231AA
0.3%
0.3%
0.3%
0.6%
231B
10,000
To
250,000
10,000
To
450,000
NIL
To
62,500
5,000
To
300,000
233
12%
12%
12%
15%
156A
12%
12%
12%
15%
36
Nature of Receipt
Brokerage & commission on
advertising
Collection of advance tax along with
motor vehicle tax with engine capacity
from up to 1000cc to 2000cc and above
Sale of immoveable property from
seller
Sales of Electronic, Sugar, Cement, Iron
& Steel products, Fertilizer,
Motorcycles, Pesticides, Cigarette’s,
Glass, Textile, Beverages, Paint or Foam
Sector to distributors, dealers and
wholesalers
Specified transaction in bank by nonfilers exceeding Rs.50,000/- in a day
Dividend in specie
Sectio
n
Existing Rates
Proposed Rates
Filer
Non-Filer
Filer
Non-Filer
233
7.5%
7.5%
10%
15%
234
1,000
To
12,000
1,000
To
24,000
800
To
10,000
1,200
To
30,000
236C
0.5%
1%
0.5%
1%
Fertilizer
0.2%
Fertilizer
0.4%
236G
Other
than
Fertilizer
0.1%
Other
than
Fertilizer
0.2%
236P
-
-
-
0.6%
236S
-
-
10%
17.5%
Fertiliz
er
0.7%
Other
than
Fertiliz
er
0.1%
Fertilizer
1.4%
Other than
Fertilizer
0.2%
37
Offences and Penalties
S.
No.
Offences
Section of the
Ordinance
which offence
has reference
1A
Where any
person fails
to furnish a
statement as
required
under
Section 115,
165 or 165A
within the
due date
115, 165 and
165A
Existing
Proposed
Such person
Shall pay a
shall pay a
penalty of
penalty of
Rs.2,500/- for
Rs.2,500/- for
each day of
each day of default subject
default subject to a minimum
for a minimum penalty of Ten
penalty of fifty
Thousand
thousand
rupees.
rupees
38
Offences and Penalties
S.
No.
1AA
Offences
Section of the
Existing
Ordinance
which
offence has
reference
Where any
114, 115 and Such person
person fails to
116
shall pay a
furnish Wealth
Rs.100/- for
Statement or
each day of
Wealth
default
Reconciliation
Statement
Proposed
Such person
shall pay a
0.1% of the
taxable
income per
week or
Rs.20,000/-,
whichever is
higher
39
Thank you and God
bless you all
40