DISCUSSION ON
THE FINANCE ACT, 2009
VS
THE FINANCE BILL, 2009
By
ASIF S. KASBATI
FCA, FCMA & LLB
(Director Tax Services)
asif.kasbati@pk.pwc.com
A.F.Ferguson & Co.
(A member firm of PWC network)
On July 9, 2009
At Income Tax Bar Association, Karachi
BILL VIS-À-VIS ACT
OVERALL STATISTICS
Number Percent
of items
age
Proposed
256
100
Amended / Rejected
123
48
Enacted without change
133
52
2
BILL VIS-À-VIS ACT
STATISTICS - DIRECT TAX
Number Percent
of items
age
Proposed
89
100
Amended / Rejected
68
76
Enacted without change
21
24
3
INCOME TAX
INTERNALLY DISPLACED
PERSONS TAX (IDPT)
Section 12 & Para 1A - S-I
Bonus paid or payable to corporate employees receiving salary income
of Rs 1,000,000 or more (excluding bonus) is subject to IDPT @ 30% of
the bonus- for the Tax Year 2009 as per the Finance Bill, however,
 tax Year 2010 as per the Finance Act.
DECISION IN APPEAL BY
COMMISSIONER (APPEALS)
Section 129(5) to (7)
The Bill proposed to abolish the concept of deemed relief for an appeal,
in cases where the Commissioner (Appeals) had not made an order on
an appeal on expiration of four months from the end of the month in
which the appeal was lodged. This proposal has not been enacted in the
Finance Act.
4
[ Income Tax … contd ]
STAY ORDER OF APPELLATE TRIBUNAL
Section 131
The Finance Act provides to grant stay in two stages.
In the first stage, stay for the period of 30 days will be
granted on filing of appeal. During the said period notice to
respondent will be issued and after hearing both the parties,
the Tribunal may pass the order as it deems fit but in no
case, the period of stay shall exceed 180 days.
In the Bill, there was no concept of granting stay in the first
stage for 30 days during which the parties were to be heard
and thereafter the decision for further stay was to be taken.
5
[ Income Tax … contd ]
ALTERNATIVE DISPUTE RESOLUTION (ADR)
Section 134A
Bill : The ADR Committee shall make recommendations within 180 days
of its constitution, in respect of the resolution of the dispute. If the
Committee failed to make a recommendation within 180 days, the FBR
could dissolve the Committee and appoint a new Committee.
Act :
(1) The Committee is to make recommendations within 90 days of its
constitution.
(2) If the Committee fails to make recommendations within 90 days, the
FBR may dissolve the Committee and appoint a new Committee
which shall decide the matter within further period of 90 days.
(3) If after the expiry of 90 days, the dispute is not resolved, the matter
shall be taken up by the appropriate forum for decision.
6
[ Income Tax … contd ]
RECOVERY OF TAX OUT OF PROPERTY
Section 138
Bill proposed to empower the Commissioner to stop removal of any goods
manufactured or stored or kept by a tax defaulter. This proposal has not
been enacted.
ADVANCE TAX - BASIS
Section 147
Bill proposed to amend the mode of determining the advance tax liability for
Companies and AOPs on the basis of ‘actual turnover’ instead of ‘latest
assessed tax’. This change has been enacted for companies only.
AOPs will continue to pay advance tax on the latest assessed tax basis.
However, where there is no latest assessed tax, AOPs will now pay advance
tax on the basis of “own estimate”.
7
[ Income Tax … contd ]
ADVANCE TAX – DUE DATES
Section 147
As the actual amount of turnover could not be available on the due dates
specified in the existing law for companies, the Finance Act has
amended the due dates for companies as follows:
*
Due dates as per
the Bill
Due dates as per
the Act
September 15
October 15
December 15
January 15
March 15
April 15
June 15
June 15 *
For advance tax instalment due on June 15, the tax will presumably
be based on the actual turnover for April and May, and an estimate
of turnover for June, unless the FBR clarifies otherwise.
8
[ Income Tax … contd ]
9
[ Income Tax … contd ]
COMMERCIAL IMPORTERS
Section 148(7) & (9A) - PII - SII
Commercial importers (other than for edible oil and packing materials)
continue to remain under the FTR. The proposal in the Bill to treat the tax
collected from such importers as minimum tax has not been enacted.
The proposal to increase the rate of tax to be collected on imports to 4%
from 2% has been enacted.
The tax collected on import of edible oil and packing materials is to be
treated as minimum tax.
RAW-MATERIAL IMPORTS
Cl. 9A - PII - SII
A reduced tax rate of 3% is to apply on raw-materials imported by an
industrial undertaking for its own use. As per bill, it was 4%.
10
[ Income Tax … contd ]
“When there is an
income tax, the just
man will pay more and
the unjust less on the
same income.”
PLATO
11
[ Income Tax … contd ]
EXPORT
Section 154
Exporters continue to remain under the FTR. The tax collected on
exports to be treated as minimum tax, which was proposed in the Bill,
has not been enacted.
ANNUAL STATEMENT
Section 165
Bill proposed that every person collecting or deducting tax from a
payment shall furnish an Annual Statement within 2 months after the end
of the accounting year of such taxpayer. The proposal has not been
enacted.
Consequently, the ‘Annual Statement of Withholding Tax’ continues to be
filed within 2 months after the end of the financial year (July-June basis),
including by the companies having special income years.
12
[ Income Tax … contd ]
13
[ Income Tax … contd ]
Section 170
REFUND ORDERS
Bill proposed an increase in time limit for issuing Refund Order by the
Commissioner from 45 days to 90 days. Act has revised the time
limit to 60 days.
POWERS TO WITHHOLD REFUND IN CERTAIN CASES
Section 170A
Bill proposed to empower the Commissioner to withhold a refund till
such time he deemed fit, if the refund arose out of an order that was
the subject matter of an appeal or further proceedings under the
Ordinance. The above proposal has not been enacted.
14
[ Income Tax … contd ]
RECORDS
Section 174
According to the Bill, the accounts and documents were required
to be maintained by an assessee till later of 5 years after the end
of the tax year to which these related OR the final decision in any
proceedings including proceeding for assessment, appeal,
revision, reference, petition and any proceedings before an
ADRC.
The above amendment has not been enacted.
Consequently, such accounts and documents continue to be
required to be maintained only for 5 years after the end of the
tax year to which these relate.
15
[ Income Tax … contd ]
PROSECUTION FOR NON-COMPLIANCE WITH
CERTAIN STATUTORY OBLIGATIONS
Section 191
Bill : Any person who without reasonable excuse, fails to furnish a return
of income, final tax statement or wealth statement may also be
considered to have committed an offence which is punishable on
conviction with a fine or imprisonment for a term not exceeding 1 year, or
both.
Act : The above proposal has not been enacted.
OFFENCES AND PROSECUTION
Section 195, 196, 198 & 201
Certain amendments were proposed through the Bill in respect of levy of
fines specified in the following sections. However, these have not been
enacted.
Section
Description
195
Prosecution for making false or misleading statement
196
Prosecution for obstructing an income tax authority
198
Prosecution for unauthorized disclosure of information by a public servant
201
Institution of prosecution proceedings without prejudice to other action
16
[ Income Tax … contd ]
ADDITIONAL TAX
Section 205
If a taxpayer fails to pay tax as per the ‘own estimate’ or the tax so paid
is less than 90% of the tax chargeable for that tax year, the taxpayer is
liable to pay additional tax on the amount of tax so chargeable or the
amount which the tax paid by him falls short of 90%.
Bill proposed that the additional tax will be calculated from the first day of
the last quarter of the relevant tax year (i.e. in the case of a taxpayer
having accounting year ending on December 31, the additional tax will
be calculated from October 1). This has not been enacted.
As such, the additional tax continues to be calculated in all the cases
from April 1 in that year to the date on which the assessment is made or
June 30 of the financial year next following, whichever is earlier.
17
[ Income Tax … contd ]
EXEMPTION FOR UNIVERSITIES
OR OTHER EDUCATIONAL INSTITUTIONS
Cl5 – PI – SII
Any income of a university or other educational institution established
solely for educational purposes and not for purposes of profit, is
presently exempt from tax.
Bill :
a) It was proposed that such exemption will only be available to those
universities / institutions which have been approved by the
concerned Director General of LTU / RTO for this purpose.
b) Existing universities / institutions were also required to have such
approval within six months from the date of notification of the
Finance Act.
Act : The above proposals have not been enacted.
18
[ Income Tax … contd ]
19
[ Income Tax … contd ]
POWER PROJECTS PRIVATIZED BY WAPDA
Cl 17, PII SII
Bill : Withholding tax rate on dividends declared or distributed by
purchaser of a power project privatized by WAPDA will be the normal
rate of 10% instead of the earlier applicable reduced rate of 7.5%.
Act : The amendment has not been enacted.
Cl 13C – PII – SII
WITHHOLDING TAX ON LOCAL
PURCHASE OF EDIBLE OIL
Withholding tax continues to be charged at the rate of 2% on payments
by manufacturers of cooking oil or vegetable ghee or both, on purchase
of locally produced edible oil.
It was proposed through the Bill that the same rate will apply on the local
purchase of imported edible oils. This proposal has not been enacted.
20
[ Income Tax … contd ]
TAX PAYABLE BY FULL TIME TEACHER OR RESEARCHER Cl2 – PIII – SII
Under the existing clause, the tax payable by a full time teacher or a
researcher is reduced by an amount equal to 75% of tax payable on his
salary income.
The Bill proposed to restrict the relief to 50%, however, the same has not
been enacted.
Cl16A – PIV – SII
NEWS PRINT MEDIA SERVICES
Bill proposed a reduced withholding tax of 2% from 6% on payments for
print media services.
Act exempted withholding tax on payments for print media in respect of
advertising services.
21
[ Income Tax … contd ]
BANKING COMPANIES – PROVISIONS FOR
ADVANCES AND OFF BALANCE SHEET ITEMS
S-VII
Bill : Provisions for classified advances and off balance
sheet items charged in the accounts were to be allowed
as a deduction @ maximum 1% of such classified
advances and excess amount of provision, if any, was
not to be carried forward.
Act : Provision is now allowable to the extent of 1% of
the total advances. Any provision in excess of the
allowable limit is to be carried forward.
22
BILL VIS-À-VIS ACT
STATISTICS - INDIRECT TAXES
Number Percent
of items
age
Proposed
146
100
Amended / Rejected
53
36
Enacted without change
110
64
23
INDIRECT TAXES – ST, FED & Customs Act
PASSING OF ORDER BY
COLLECTOR (APPEALS)
S11(4), 36 & 45B of ST, S31 & 33 of FED;
& S179 & 193A of CA
Bill : The overall limit for assessment, adjudication or for passing
order by Collector (Appeals) was reduced 180 days. It was also
provided that any period during which the proceedings are:
(a) adjourned at the request of the taxpayer; or
(b) postponed due to stay order or alternative dispute resolution
proceedings shall be excluded from the computation of period
specified.
Act : Now Limited the time for the adjournments at the request of the
taxpayer [i.e. case (a)] to a maximum of 30 days.
24
[ ST, FED & CA .… contd ]
TAX INVOICES
S23 of ST & 18 of FED
Bill proposed a requirement to indicate NTN or CNIC of the customer
on the tax invoice in case of supply of taxable goods to an
unregistered person.
This proposal has not been enacted.
RETENTION OF RECORDS
S24 of ST; S17 of FED & S211 of CA
Through the Finance Act, the original requirement of maintaining the
records upto 5 years after the end of the tax period to which such
records relate is restored. As per the amendments proposed through
the Bill, the records were required to be maintained for a period of 5
years or till the final decision in any proceedings, whichever is later.
25
[ ST, FED & CA .… contd ]
ALTERNATIVE DISPUTE RESOLUTION
S47A of ST; 38 of FED &
S195C of CA
Bill : Proposed to increase the time period of 60 days to 180 days for the
committee to make recommendations to the FBR, failing which the FBR
was empowered to dissolve the first committee and constitute a new
committee.
Act : The time period for the First Committee to make recommendations
has been reduced from 180 days to 90 days.
The Second Committee, formed in case of failure of first committee, to
make recommendations, has now also been bound to make
recommendations within a further period of 90 days.
If after the expiry of that period the dispute is not resolved, the matter
shall be taken up by the appropriate forum for decision.
26
[ ST, FED & CA .… contd ]
ALTERNATIVE DISPUTE RESOLUTION
S47A of ST; 38 of FED &
S195C of CA
Through the Bill, the FBR was also made responsible to
pass order within 45 days of the receipt of recommendations
from the Committee. The Finance Act has deleted the
aforesaid time limit in the FED. The corresponding
provisions has been retained in the ST to require the FBR to
pass order within 45 days of receipt of recommendations.
27
SALES TAX - OTHER ISSUES
DEFAULT SURCHARGE
Section 34
Bill : A separate rate of default surcharge of 2% per month in the
case of ‘tax fraud’ was proposed to be omitted thereby making the
general rate of default surcharge applicable in all cases including ‘tax
fraud’.
Act : This proposal has not been enacted. As such, the separate rate
of default surcharge of 2% continues to apply in the case of ‘tax
fraud’.
The explanation that ‘tax due’ does not include the amount of penalty
for the purposes of computing default surcharge has been restored
by the Finance Act.
28
[ Sales Tax … contd ]
AUTHORISED OFFICERS TO HAVE ACCESS TO
Section 38
PREMISES, STOCKS, ACCOUNTS AND RECORDS
Under section 38, the FBR or the Collector had powers to
appoint any officer to have free access to premises, stocks,
accounts, records and other documents of the registered
person or to seek any information or explanation from the
registered person.
Above powers of the Collector have been withdrawn
through the Finance Act. Now, the FBR has exclusive
powers to appoint officer for the purpose of section 38. The
Bill had not proposed such amendment in section 38.
29
[ Sales Tax … contd ]
POWER OF FBR & COLLECTOR TO CALL FOR RECORDS
Section 45A
Bill : Time limit for issuing order by FBR or Collector, as the
case may be, for seeking records of the departmental
proceedings was proposed to be reduced from 5 to 3 years.
Act : Omitted such proposal thereby restoring the original 5
years’ time limit.
EXEMPTION ALLOWED
S VI
Exemption from sales tax has further been extended to
newsprint [PCT Heading 4801.0000] through the Act.
30
FEDERAL EXCISE – OTHER ISSUES
PAYMENT OF DUTY BY OTHER PERSON
Section 3
The power to create an exception to specify any goods or services in
respect of which the liability to pay duty shall be of any ‘other person’
specified in a notification as proposed in the Bill has not been adopted in
the Finance Act.
Under section 3, FED is inter alia payable by the person manufacturing
or producing or importing specified goods or rendering the specified
services or a recipient of services rendered by the person out of
Pakistan.
ASSESSMENT OF MINIMUM LIABILITY OF
DUTY IN CASE OF NON-FILERS
Section 4A
The concept of ‘assessment of tax’, proposed in the Bill, to determine
minimum liability of duty of a person failing to file a return by the due
date, has not been enacted in the Finance Act.
31
[ Federal Excise … contd ]
EXEMPTION ALLOWED
S-1, Table II
Bill : Duty was proposed to be levied at the rate of 16% on
advertisements in newspapers and periodicals, and on hoarding boards,
pole signs, sign boards and shop boards.
Act : Duty on classified advertisements in newspapers and periodicals
and on shop boards has been withdrawn.
DUTY ON TELECOMMUNICATION SERVICES
S-1, Table II
Duty on SMS proposed @ Rs 0.20 per SMS, in addition to 19% of the
charges, has not been adopted in the Act.
Duty on telecommunication services [PCT heading: 98.12] was proposed
to be revised to 19% from 21% through the Bill. Now, through the Act this
duty has been revised to 19.5%.
32
CUSTOMS DUTY – OTHER ISSUES
REVIEW OF VALUE DETERMINED
Section 25D
Bill : A time limit of 30 days was proposed to file review
application before the Director General of Valuation where
the customs value has been determined by the Collector of
Customs or Director of Valuation or any other competent
authority.
Act : Omitted the said time limit of 30 days, thereby
restoring the existing provisions whereby there is no time
limit prescribed to file review application.
33
[ Custom Duty … contd ]
EFFECTIVE RATE OF DUTY
Section 31A
Bill : The following amounts were proposed to be included in the
determination of effective rate of duty applicable to any goods:(a) Special Customs Duty on imported goods (Section 18A);
(b) Lower rate of duty applicable under a trade agreement
between the Government of Pakistan and a Foreign
Government /
preferential rate of duty (Section 18C); and
(c) Fee and service charges levied by Federal Govt. (Section
18D).
Act : The fee and service charges levied by the Federal Govt.
(noted in ‘c’ above) have been excluded for this purpose.
34
[ Custom Duty … contd ]
POWER OF ADJUDICTION
Section 179
Bill : The Principal Appraiser or Superintendent was proposed to be
empowered to adjudicate cases involving duty and taxes not exceeding
Rs 50,000 for the purposes of confiscating goods or for imposing
penalty.
Act : This proposal has not been enacted.
ORDER OF APPELLATE TRIBUNAL
Section 194B
The Finance Act now provides to grant stay in two stages. In the first
stage, stay for the period of 30 days will be granted on filing of appeal.
During the said period notice to respondent will be issued and after
hearing both the parties, the Tribunal may pass the order as it deems fit
but in no case, the period of stay shall exceed 180 days. In the Bill, there
was no concept of granting stay in the first stage for 30 days during
which the parties were to be heard and thereafter the decision for further
stay was to be taken.
35
[ Custom Duty … contd ]
REFERENCE TO HIGH COURT
Section 196
Bill : The Director of Post Clearance Audit was
proposed to be authorised to file a reference
application before the High Court with regard to an
order of the Appellate Tribunal.
Act : The proposed amendment has not been
adopted.
36
PETROLEUM DEVELOPMENT LEVY
CARBON SURCHARGE
(PETROLEUM DEVELOPMENT LEVY)
S-V
BILL : A ‘Carbon Surcharge’ in place of Petroleum Development
Levy, was proposed to be levied on various petroleum products
ranging from Rs 3 to Rs 14 per litre.
ACT : Carbon Surcharge on Compressed Natural Gas (CNG) at
Rs 6 per litre was not enacted.
SC Order : The Supreme Court of Pakistan has suspended the
levy of Carbon Surcharge on petroleum products.
37
“To tax and to please,
no more than to love and be wise,
is not given to man”
Edmund Burke – 1774
38
STAMP ACT
Bill : The Stamp Duty on registration of the
Memorandum and Articles of Association in
Islamabad Capital Territory was proposed to
be abolished.
Act : The above proposal has not been
enacted.
39
“Taxes, after all, are dues that we pay
for the privileges of Membership in an
Organised Society.”
Franklin D. Roosevelt – 1936
__________________________________
“In the world, nothing can be said to be
certain except Death and Tax.”
Benjamin Franklin - 1789
40
THANK YOU
41