Finance Bill 2008

Proposed Amendments in Income Tax Ordinance, 2001 and Impact thereon.

Presented by Syed Naved Andrabi.

Andrabi & Gabriel.

Advocates, Solicitors & Tax Attorneys'

Economic Growth 2007.

• • • • • • • • GDP Growth of 5.8% Escalating Current Account/ Fiscal Deficit.

Rising Global Commodity Prices.

Significant Increase in Global Oil Prices.

Worsening Security Environment.

Acute Shortage of Power.

Unstable Exchange Rate.

Political Instability.

Andrabi & Gabriel, Lahore.

•

Proposed Amendments, 2008.

Income Tax Ordinance, 2001.

After Tax Profits of Branch of Foreign Company operating in Pakistan to be Dividends. Section 2 (19) (f ).

– Tax @ 10% on Remittance. – Final Discharge.

– Will be Double Taxation.

– Harsh Amendment.

Andrabi & Gabriel, Lahore.

Maintenance of

Electronic

Record.

• • • • • • Section 237A Introduced.

Allows FBR to Require any Person.

Electronic Record… 2 (19) (C).

Electronic Resources… 2 (19) (D).

Telecommunication System… 2 (19) (E).

Certain Definitions of Electronic Transactions Ordinance, 2002 Adopted… 2 (19) (B) Andrabi & Gabriel, Lahore.

Taxation of Local Authority.

• • • • • • By way of General Amendment the term Local Authority is to be read as Local Government.

Definition of Local Government added… 2 (31A).

Meaning as given in Respective Provincial Local Government Ordinances, 2001.

Local Authorities brought into the Tax Net.

Proviso Added to Section 54 by Finance Act, 2003 Omitted & Section 3 made effective.

All Local Authorities having exemption from tax within their statute also to be taxed. Andrabi & Gabriel, Lahore.

Progressive Taxation of Income From Property.

• • • • • The Universal rate of Tax @ 5% Abolished.

Section 15; 155 (2) & Division VI of Part I of the First Schedule Amended.

• Income up to PKR. 150,000. Exceeding PKR. 150,000 but less than PKR 500,000.

No Tax (Other than Company).

5% of the amount exceeding PKR 150,000. Exceeding PKR 500,00 but Less than PKR 1,300,000. Amount Exceeding PKR 1,300,000/ PKR 17,500. Plus 10% of the amount Exceeding PKR 500,000.

PKR 97,500. Plus 15% of the amount exceeding PKR 1,300,000.

Andrabi & Gabriel, Lahore.

Payment of Salary up to PKR 15,000. Allowed to be paid in Cash .

• • • Amendment in Section 21 (1) (m) made.

Salary above PKR. 15,000 from July 01, 2008 to be paid through banking instrument, i.e., Cheque; Bank Transfer; Electronic Transfer etc., directly into the bank account of the employee.

It recognizes the inflationary trends and the fact that the general employee is not interested in opening an account only for such purposes.

Andrabi & Gabriel, Lahore.

First Year Allowance at 90%.

• • • • • Insertion of Section 23A and Part II of the Third Schedule amended.

Industries set-up in notified Rural & Under Developed Areas allowed.

Accelerated Depreciation of 90% allowed.

Withdrawal of Exemption compensated through Accelerated Depreciation.

Conditions for Initial Allowance shall apply. Andrabi & Gabriel, Lahore.

Set-Off of Accumulated Losses on Amalgamation.

• • • • By Finance Act, 2007 Current Year Loss was Restricted For Allowance & Carry Forward.

By Proposed Insertion of Sub-Section 2A in Section 57A Accumulated Loss, other than Speculation Loss now allowed.

In Case of Non-Banking Financial Institutions; Modarbas and Insurance Companies.

Banking Companies… Rule 8 of 7 th Schedule. Andrabi & Gabriel, Lahore.

Charitable Donations.

• • • • Section 61 & Clause 61 of the Second Schedule to the Income Tax Ordinance, 2001 amended.

Eligible Donations for all Persons shall now be 10% of the Taxable Income.

Earlier for Individual & AOP 30% & Companies 15% of the Total Income.

All other conditions remain the same.

Andrabi & Gabriel, Lahore.

Thin Capitalization.

• • • • Amendment in Section 106 made.

Thin Capitalization Rules apply only to Foreign Controlled Resident Companies, other than Financial Institutions & Banking Companies.

Proposed to Include a Branch of a Foreign Company Operating in Pakistan.

Application may be Difficult.

Andrabi & Gabriel, Lahore.

Minimum/Turn Over Tax Abolished.

• • • Section 113 to be Omitted. Amendments in Section 137; 147 & 148 Proposed.

Tax @ 0.5% of the Gross Turn Over to be paid by Resident Companies in case no Tax was paid or tax paid was less than ½% of the Turn Over from the Tax Year 2009.

Unabsorbed Minimum Tax Credits can be availed.

Andrabi & Gabriel, Lahore.

Minimum Tax on Builders & Developers.

• • • • Section 113C & Division 1AA of Part I to the First Schedule to be Inserted. Minimum Tax on Builders and Developers of Commercial, Industrial and Residential Properties to Pay: Builders…PKR 50/Sq. Ft. of Constructed Area.

Developers…PKR 100/Sq. Yd. of Developed Area.

Andrabi & Gabriel, Lahore.

Salaried Person Having No Other Income To File Wealth Statement.

• • • Sub-Section (1) of Section 115 Substituted.

Annual Statement filed by the Employer to be treated as a Return Furnished U/S 114.

Employee to file Wealth Statement required U/S 116 if Income for the Tax Year or Last Tax Year is more than PKR 500,000. Andrabi & Gabriel, Lahore.

Investment Tax.

• • • • • • • Section 120A to be Inserted for Payment of Tax on Undisclosed Assets.

FBR Entrusted to make a Scheme.

No Scheme issued so far.

Budget Speech suggests Investment Tax @ 2%.

No Additional Tax, Penalty & Prosecution.

Undisclosed Income for any Year or Years.

Deemed Income U/S 111 Covered. Andrabi & Gabriel, Lahore.

Assessments to Give Appeal Effects.

• • • Appeal Effect to be given by Commissioner within One Year from the end of Financial Year in which the Order is Served on Commissioner.

The Same Limitation is now being entrusted on the Commissioner Appeals.

Appropriate amendment in Section 124 is proposed.

Andrabi & Gabriel, Lahore.

Adjudication By Appellate Commissioner.

• • • • Sub-Sections (5); (6) & (7) of Section 129 being amended to extend the Time Limit of Three Months to Four Months.

Relief Sought Deemed to be allowed if no Order passed within Four Months of Filing of appeal.

Appellate Commissioners’ Burden Relieved.

All other Conditions remain the same.

Andrabi & Gabriel, Lahore.

FBR Order in ADRC.

• • • • • • • FBR may Pass Order on Recommendations.

Order or Decision now Rectifiable. [134 (4A)] Powers Entrusted to Chairman.

Appropriate Order to be in Writing.

Order to be Just & Equitable.

Application by Aggrieved Person.

Hearing to be allowed… Audi Alteram Partem. Andrabi & Gabriel, Lahore.

Curtailment of Period For Collection & Recovery of Tax Demand.

• • • • • • Section 137 (2) being amended.

Time allowed reduced to 15 days from 30 days.

Seemingly a bit Harsh.

Current Practice to Recover After 1 st Appeal.

In some cases even After 2 nd Appeal.

Tax Collector being facilitated as the targets for the Next Year may be difficult.

Andrabi & Gabriel, Lahore.

Settlement of Arrears of Tax.

• • • • Section 146B being introduced.

FBR Empowered to issue a Scheme For Recovery of Tax Arrears; Withholding Taxes; Waiver of Additional Tax & Penalty.

May be General or on Case to Case basis.

Special Rules may also be Proposed By FBR for Effective Implementation.

Andrabi & Gabriel, Lahore.

Uniformity Of Withholding Tax At Import Stage.

• • • • Rate of Withholding Tax @ 2%.

Lower Rates Provided by Clause 13; 13A; 13B; sub-clause i to iii & vii to xxiv of Clause13G & 13H of Part II of 2 nd Schedule Omitted.

Goods Covered By Zero Rating Schemes and Fibres Yarns & Fabric not disturbed @ 1%.

SRO 566 & 567(I)/2008 issued to make it effective immediately.

Andrabi & Gabriel, Lahore.

Insurance Or Re-Insurance Premium Paid To Non-Resident Persons.

• • • • • Sections 101(13A); 152(1AA); (1BB) & Clause 1A Of Division-II of Part-III of the First Schedule to the Ordinance.

Premium Considered Pakistan Source Income.

Every Person to Withhold Tax @ 5%. Tax So Deducted Deemed to be Final Tax.

May Result into increase in Insurance Rates.

Andrabi & Gabriel, Lahore.

Certain Payments To Non-Residents.

• • • • Provisions of Section 152 (5) not applicable on Payments Liable to Reduced Rate under Agreement for Avoidance of Double Taxation.

Commissioner’s Certificate not required.

Transfer of Title to be supported by Import Documents.

Remittances made through F.E. Companies & F.E. Accounts are Payments U/S 152. Andrabi & Gabriel, Lahore.

Payments For Goods & Services.

• • • • • Small Company to Withhold Tax. [153 (5)(e)] Word Person Replaced by Company. [153 (6A)] Sub-Section (6B) Omitted.

AOP with Turnover of 50 (M) & Individual with Turnover of 25 (M) to Withhold Tax. [153 (9) (g) & (h)] Definition of Manufacturer explained. Andrabi & Gabriel, Lahore.

Non-Resident Media Persons. Section 153A; 169 (1) (b) of the Ordinance.

• • • • • Payment for Advertisement Services to Non-Resident Media Persons Taxable. Any Person making payment shall Withhold Tax @ 10% of the Gross Amount.

The Tax Withheld shall be Final Tax.

No Consequential Amendment in Section 101.

Section 152 (1A) (c) gives a rate of 6%. (Advertisement by T.V Satellite Channels).

Andrabi & Gabriel, Lahore.

Small Companies.

• • • • • • • Small Companies as Defined in Section 2 (59A).

To act as a Withholding Agent.

Progressive Tax Rates Introduced.

Turnover Less Than 250(M) More Than 250(M) & Less Than 350(M) More Than 350(M) & Less Than 500(M) More Than 500(M) 20% 25% 30% 35% Andrabi & Gabriel, Lahore.

Powers of the FBR Enhanced To Allow Exemption From Withholding.

• • • • Section 159 (3) to be Replaced.

FBR may Exempt Persons; Class of Persons; Goods or Class of Goods from Withholding.

The Power of the Parliament given to FBR.

Can Be Construed Both Ways… Facilitation or Misuse.

Andrabi & Gabriel, Lahore.

Electronic Tax Register (ETR).

• • • • • Section 174 (5) Proposed to be Added.

Commissioner Empowered to Direct any Person to install ETR .

Prescribed ETR to be Installed.

Information having bearing on Tax Liability to be Stored.

Prescribed Rules Awaited.

Andrabi & Gabriel, Lahore.

Other Amendments.

• • • • Tax Payers’ Registration Scheme & Rules to be Prescribed/Notified. Section 181 Consequential Relief in Penalty if Tax Reduced Section 184 (5).

Fine for Non-Maintenance of Record Limited to PKR 50,000. Section 193 (b).

Directorate General of Withholding Introduced.

Andrabi & Gabriel, Lahore.

Other Changes.

• • • • Withholding on Cash Withdrawals Increased.

Concept of Withholding Tax on Purchase of Vehicles Changed to Payment of Tax at the time of Registration of the Vehicle. Tax Collected from the Members of Stock Exchange now Minimum Tax & not Final Tax.

Electricity Bills more than PKR 20,000 shall be subject to 10% Withholding and Adjustable. Andrabi & Gabriel, Lahore.

Other Changes… Continued.

• • • • Clause 66 of Part IV to 2 nd Schedule Exempts certain Exporters-Cum-Manufacturers.

Land Line Telephones bills more than PKR. 1000/- subject to 10% Withholding.

Maximum Tax Payable on Profit Paid on Bahbood Savings Scheme & Pensioner’s Benefit Account Restricted up to 10% of such Profit.

SBP Exempted…. PCB Taxed.

Andrabi & Gabriel, Lahore.

Other Changes… Continued.

• • • • Reduced Rate of Tax for Cooperative & Finance Societies Withdrawn.

Rice Supplied by REAP To USC subject to Reduced Rate of Withholding Tax @ 1%.

Provisions For Classified Advances in case of Banks allowed as Per Section 29 & 29A.

Accumulated Losses of Banking Companies Allowed to be Adjusted for Six Years.

Andrabi & Gabriel, Lahore.

Salaried Persons.

• • • • Basic Exemption increased to… Employee Women Employee PKR 180,000.

PKR 240,000.

Marginal Tax Relief.

Marginal Increase not Defined.

Relief Ranges between 20% to 50%.

Andrabi & Gabriel, Lahore.

Salaried Persons… Continued.

• • Employers’ Contribution to PF Restricted To 1/10 th of Salary or PKR 100,000 which ever is Low.

Contribution made by Employer & Paid to the Employee to be Taxed at the Current Year Rates and not at the Average of the Three Years.

Andrabi & Gabriel, Lahore.

Finance Bill 2008

Thank You.

Presented by Syed Naved Andrabi.

Andrabi & Gabriel.

Advocates, Solicitors & Tax Attorneys'