A. F. FERGUSON & CO.

FEDERAL BUDGET 2015

This memorandum gives a brief overview of Pakistan economy and significant amendmentsproposed by the Finance Bill 2015 relating to Income Tax, Sales Tax, Federal Excise Dutyand Customs Duty. All changes proposed through the Finance Bill 2015 are effectiveJuly 1, 2015, except for changes proposed in the First and Fifth Schedules to the CustomsAct, 1969 which shall have effect from the next day of assent given to the Finance Act by thePresident of the Islamic Republic of Pakistan.For considering the precise impact of a particular change, reference should be made to thespecific wordings in the relevant statute. The proposals introduced are to be approved by theNational Assembly and should not generally be acted upon without obtaining appropriateadvice. Our firm will issue a detailed memorandum on Finance Act, 2015 once approved by theNational Assembly.This memorandum can also be accessed on our website www.pwc.com/pk

June 6, 2015

2015 A. F. FERGUSON & CO., Chartered Accountants, a member firm of the PwC network. All rights reserved. PwC refers to the network of member firms ofPricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Page Number

Economic Overview 3Income Tax 8Sales Tax 16Islamabad Capital Territory

(Tax on Services) Ordinance, 2001 22Federal Excise Duty 24Customs Duty 25Common Provisions 28

CONTENTS

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3Economic Survey 2014-15Economy has done better than lastyear.Inflation has remained all time low inany year in this decade. Foreignexchange reserves improvedsubstantially on account of increasedhome remittances, issue of Sukuk,decrease in import bill for oil,privatization proceeds and receipt ofthe tranche from the donors. Thesefactors, inter alia, encouraged StateBank of Pakistan to bring discount rateat all time low of 7%, in the last 42years.On the other hand, manufacturing andagriculture sectors being principalemployment generating sectors havenot shown desired improvements.Exports have fallen even in value terms.Current years expected goals in theprivate sector remained sluggish.Resource mobilization efforts do notseem to be in place in the manner thatmay lead to a respectable tax-to-GDPratio of over 15%.These trends would place pressure onemployment creation and availabilityof funds with the Government for socialservices of education, health, law &order and infrastructure.Foreign direct investment is expected infollowing years in infrastructure sectorby way of China-Pakistan economicCorridor (CPEC).In summary, macro-economicindicators are heading in positivedirection, however, private sectorsinitiatives by way of contribution in theform of taxes and investments inmanufacturing and agriculture sectorshave to be accelerated, if nationaleconomic objectives of distributionalequity, increase in level of employmentand economic society cover is to bemade available to the people.

FY 14 15 FY 13 14

GDP growth rate 4.24% 4.03%Per capita income - US$ 1,512 1,384FDI (July April)US$ million 2,057 1,866

Inflation 4.8% 8.7%Public debt(PKR billion)

- Domestic 11,932 10,920- Foreign 5,004 5,076

16,936 15,996Budget deficit -

%age of GDP 3.8% 3.9%

Source: Economic Survey of Pakistan 2014-2015

KEY ECONOMIC INDICATORS

The following table sets out the Key Budget Financials:

2015-2016 2014-2015(Revised)

Rs inBillion %

Rs inBillion %

Tax revenue 3,418 2,910Non-tax revenue 895 1,042Gross revenue receipts 4,313 3,952Public account receipt net 254 288Total receipts 4,567 100 4,240 100

Less: Provincial share in Federal taxes (1,849) (40) (1,575) (37)Net revenue receipts 2,718 60 2,665 63

Expenditure- Current expenditure 3,615 79 3,558 84- Development expenditure 969 21 754 18

4,584 100 4,312 102Deficit (1,866) (40) (1,647) (39)

- Domestic debts non-bank 485 393- Domestic debts banks 283 402- Foreign debt 751 692- Privatization proceeds 50 18- Surplus from provinces 297 142

(1,866) (1,647)

Budget Financials

BUDGET AT GLANCE

4

36%

14%

36%

14%

Domestic debts non-bank Domestic debts banks Foreign debts Surplus from provinces

21%

20%

5% 3%5%

32%

14%

Income Tax

Sales Tax

Customs Duty

Federal Excise Duty

Petroleum levy, Gas Infrastructure Cess & Others

Borrowings

Non-tax revenue

Receipts

3%

5%

19%

16%

WHERE THE RUPEE COMES FROM

Borrowings

5

33%

12%

12%

6%

3%

WHERE THE RUPEE GOES TO

31%

22%13%

11%

2%

9%

16%

Provincial share in Federal taxes Debt servicing Defence Affairs and Services Grants and transfers Subsidies Federal Government expenses including pensions Development expenditure

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FY 15 16 FY 14 15(Revised)

Rs inBillion

Rs inBillion

There is nosubstantial changein the ratio of directand indirect taxes.A substantial andincremental shift isrequired to decreasedisparity in incomeand reduce theburden of indirecttaxes on commonman.

Direct Taxes:

Income Tax 1,327 1,092 Workers Welfare Fund 20 16

1,347 1,108Indirect Taxes:

Customs Duty 299 255 Sales Tax 1,250 1,082 Federal Excise Duty 206 159 Petroleum Levy 135 126 Gas Infrastructure Cess 145 145 Natural Gas Surcharge 30 30 Others 6 5

2,071 1,8023,418 2,910

Income Tax39%

CustomsDuties9%

Sales Tax36%

FederalExcise Duty

6%

PetroleumLevy4%

GasInfrastructure

Cess4%

Others2%

BREAK-UP OF TAX REVENUE

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INTRODUCTION OF ONE-TIME SUPERTAXA one-time super tax for tax year 2015 has beenproposed on (i) banking companies; and(ii) all other taxpayers having income ofRs 500 million or above. The general rate ofsuper tax is 3% of the income while the rate oftax for banking companies shall be 4% of theincome.As specifically stated in the relevant provision,this tax is for the rehabilitation of temporarydisplaced persons.The term income for the purpose of this sectionshall be the taxable income under section 9 ofthe Income Tax Ordinance, 2001 (excludingexempt income) and also includes profit on debt,dividend, capital gains, brokerage andcommission, taxable under special provisions ofthe Ordinance. Such income in the cases subjectto final tax regime will also include imputableincome as newly defined under section 2(28A)of the Ordinance to mean the income whichwould have resulted in the same tax had theamount not subjected to final tax.One time super tax shall also be applicable oncompanies engaged in the extraction andproduction of petroleum and mineral deposits ifsuch companies are taxable at the rateprescribed under the Ordinance not being thosesubject to special rates of tax under therespective overriding Agreements withGovernment of Pakistan.The income from profit on debt, dividends andbrokerage and commission are susceptible to beincluded separately as well as under theimputable income basis. This matter needs to beclarified.Super tax is payable for tax year 2015 whichincludes cases having special tax years otherthan June 30, 2015 such as Banking companies,insurance companies, sugar companies, etc.which follows special tax years which have

already ended. This effectively representsretrospective charge in the cases where financialstatements have already been finalised.TAX ON UNDISTRIBUTED RESERVESUndistributed reserves of a public company(other than modaraba and a scheduled bank)have again been proposed to be taxed with effectfrom tax year 2015. This effectively representsre-introduction of similar levy imposed undersection 12(9A) of repealed Income TaxOrdinance, 1979 vide Finance Act 1999.Such tax is proposed to be payable at the rate of10% on the whole amount of undistributedreserves as are in excess of 100% of paid upcapital.A special provision has been introduced that anycash distribution before the date of filing thereturn shall be considered as distribution for taxyear 2015.The term reserves has been defined in a sub-section to this provision, however, in case thisprovision is to be retained then the termreserves shall be required to be defined as theamount reflected in the financial statementsprepared under the accounting framework.This provision in essence levies a tax on entireundistributed accumulated reserves. This tax iseffectively chargeable on reserves that havearisen out of taxed income. When the identicallevy was introduced under the repealed 1979Ordinance, similar issues were raised andconsequently this tax was effectively related toincome for the year and was not applicablewhere distribution for the year was lower of 40%of the profit for the year or 50% of the paid upcapital. This is either an omission or a seriousdefect as under the earlier law the minimumthreshold of distribution was introduced afterrealising the practical problems. This means thatthe similar mistake has been repeated whichrequires immediate redressal.

INCOME TAX

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The economic rationale of this tax regime is tobe examined in the context that accumulatedreserves will effectively be used in the paymentof tax if there is no distribution of profits in cashwhich may arise for various reasons includingnon-availability of reserves in liquid form.Further, this tax is also payable for tax year 2015which includes cases having special tax yearalready ended. This effectively representsretrospective charge in the cases where financialstatements have already been finalised.REVISION IN TAX RATESThe rate of tax on companies other than bankingcompanies shall be 32% for tax year 2016. Thisreduction is in line with the announcementmade by the Finance Minister in 2013 wherebythe rate of tax for companies is to be brought to30% in a phased manner over five years(from tax years 2014 to 2018).The rate of tax on dividends (other than fromstock funds) has been increased from 10% to12.5% for filers and from 15% to 17.5% fornon-filers. Dividend from stock funds shall betaxable at the rate of 15% instead of 12.5%.The revised status of tax on Capital Gains ondisposal of securities under section 37A isproposed to be as under:

Holding period Tax Year2016 2015Less than 12 months 15% 12.5%12 months to lessthan 24 months

12.5% 10%24 months to lessthan 48 months

7.5% 0%More than 48 months 0% 0%

This amendment has effectively brought into taxnet long term capital gains which arise ondisposal of securities. This policy changerepresents departure of an understanding thatonly short term trading gains were intended tobe taxed under the Income Tax provisions.A consistent policy regime is essential forbridging the trust gap between the taxpayers andpolicymakers.

Rate of tax on capital gains of insurancecompanies for tax year 2016 has been prescribedin line with similar income in the hands of othertaxpayers as laid down for income covered undersection 37A.Adjustable withholding tax of 14% has also beenintroduced on internet services.The tax slabs for salary income have beenrevised. The maximum rate of 30% has beenretained, however, the slabs within thatstructure have been amended which has resultedin some relief for lower brackets. Similaramendments have been made for non-salariedincome.Minimum tax on income of distributors ordealers in fertilizers business is proposed to beincreased from 0.2% to 0.5%.TAX REGIME OF BANKING COMPANIESDividend income and capital gains for bankingcompanies are subject to tax under SeventhSchedule at the rate of 10% and 12.5%respectively. All other income of bankingcompanies are taxable at the rate of 35%.It is important to note that special regime ofrates of tax are applicable in such cases andbanking companies, were not extended thereduction of tax rate from 35% to 30% over theperiod of 5 years (2014 to 2018) which isotherwise available to all other companies. It isnow proposed that the tax regime for thebanking companies will be revised and allincomes including dividend and capital gainsshall also be taxable at the rate of 35%. Inaddition to this, the one-time super tax at therate of 4% shall also be payable by bankingcompanies for tax year 2015. As a matter ofconsequential amendment, the provisionsrelating to attribution of expenses have beenomitted.

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COLLECTION OF TAX ON BANKINGTRANSACTIONS FROM NON FILERSA unique regime for collection of tax on bankingtransactions has been introduced for personswho are non-filers for tax purposes. Under thisregime almost all banking transactions inter aliaincluding sale of instrument like demand draft,pay order, etc. and transfer of any sum throughcheque and other similar manners or clearinginterbank transfer through cheques shall besubject to collection of tax at the rate of 0.6% ofthe transaction amount. This provision will onlybe applicable where total payments for alltransactions exceed Rs 50,000 in a day.The amounts so collected are adjustable againstthe tax liability if the person files the return ofincome. On a practical side, the position appearsto be that almost all banking transactionsundertaken by all persons will be subject to thisregime of collection of tax except those caseswhere the persons name is on the list of activetaxpayers. Validity of this provision will bequestioned by persons who are otherwise nottaxable or are exempt under the Federal taxregime.REAL ESTATE INVESTMENT TRUSTS(REIT)The gain on disposal of immovable property to aREIT scheme is exempt from tax upto June 30,2015. This period of exemption is proposed to beextended to June 30, 2020 for sale of immovableproperty to a Developmental REIT Scheme withthe objective of development and construction ofresidential buildings.Furthermore, dividend income fromDevelopmental REIT Scheme set up by June 30,2018 shall be allowed a rebate of 50% for threeyears from June 30, 2018. The aforesaidconcession is also required to be extended to thedividend income on such REITs which areestablished or set up before the said date.In line with mutual funds and CollectiveInvestment Schemes, REIT Schemes have alsobeen obliged to collect Capital Gains Tax onredemption of securities at the applicable rates.

MINIMUM TAX ON TRADING HOUSESLarge trading houses as defined under clause 57of part IV of the Second Schedule are exemptfrom payment of minimum tax for a period often years. Disputes emanated in certain caseswhen the field forces denied exemption ofminimum tax on the alleged contention that theminimal activity of preparation and sale ofbakery items alters the character of entity fromtrading house to a manufacturer. This action hasnow been undone by a clarificatory amendment.Now, the activity of preparation and sale ofbakery items to the extent of 2% of totalturnover shall not disqualify such companiesfrom the aforesaid exemption subject tofulfilment of other conditions.TAX CREDIT ON ENLISTMENT OFCOMPANIESThe tax credit on enlistment of companies isproposed to be enhanced from 15% to 20% oftax payable.TAX ON PROFIT ON DEBTThe tax regime for profit on debt derived byresident taxpayers has been revamped.Henceforth, all profits on debt received frompersons who are withholding tax agent forsection 151 shall be taxed at the slab ratesranging from 10% to 15%. This effectively meansthat except for banking companies which aretaxed under special provisions of SeventhSchedule, the gross amount of profit on debtshall be taxed at the newly prescribed rates. Thetaxability of profit on debt in the case ofcompanies (other than banking companies)needs to be examined.TAX EXEMPTIONSTax exemptions have been introduced for thefollowing sectors and activities:

(a) Manufacture of plant and machinery forrenewable energy resources;

(b) Operation of warehousing and coldchain facilities for agricultural produce;

(c) Operating Halal meat production;(d) Any manufacturing unit set up in the

Province of Khyber Pakhtunkhwa;

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(e) Transmission line project; and(f) LNG Terminal owner and operators;

TAX ON RESIDENT SHIPPINGCOMPANIESThe presumptive tax regime for residentshipping companies has been revamped. Atpresent, in case of a loss, the presumptiveregime of tax was effectively not applicable.Now, such cases will also be subject topresumptive tax regime applicable to shippingcompanies.INCOME FROM PROPERTYAn important amendment has been proposed inrespect of income from property. Expensesincurred to the extent of 6% of rent chargeablewholly and exclusively for the purpose ofderiving rent are admissible against rentalincome. Previously, such expenses were limitedto collection charges only. This amendment hasprincipally brought the taxability of rentalincome in line with other heads of income.TAX DEDUCTION FOR PROFIT ON DEBTON HOUSE BUILDING LOANS INSTEADOF TAX CREDITA special provision has been introduced to allowdeduction for profit on debt or share inappreciation of house by an individual on loanfrom a bank or other such institutions, obtainedfor the construction of a new house oracquisition of a house. At present, a tax credit isallowed on this account which is now proposedto be removed.The maximum amount of deduction allowedunder the section shall be equal to 50% oftaxable income or Rs 1 million, whichever islower.TAX CREDIT FOR EMPLOYMENTGENERATIONA tax credit has been introduced for companiesin relation to their employment generation.Under this provision, any company engaged inmanufacturing formed between July 1, 2015 toJune 30, 2018 shall be allowed a tax credit of 1%for every 50 employees registered with EOBI

and social security schemes. The maximum taxcredit shall, however, not exceed 10% of the taxpayable.This is a positive step in relation to economicneed for employment generation therefore it isimperative that this regime should be applicablefor all persons including non-corporatetaxpayers and also to persons engaged inactivities other than manufacturing.Equity demands that this provision should alsobe applicable to existing taxpayers generatingnew employments.TAX CREDIT ON INVESTMENT INSHARES & LIFE INSURANCE PREMIUMThe monetary threshold for claiming tax crediton investment in shares of public company andlife insurance premium is enhanced from Rs 1million to Rs 1.5 million.AGREEMENTS FOR AVOIDANCE OFDOUBLE TAXATION AND PREVENTIONOF FISCAL EVASIONEnabling provisions have been introduced toallow Government of Pakistan to enter intoAgreements for Exchange of Information andsuch allied matters in addition to the existingprovision relating to Agreements for Avoidanceof Double Taxation and Prevention of FiscalEvasion.This amendment has been introduced toempower the government to obtain or renderinformation in respect of transactions oractivities undertaken in other countries orPakistan respectively.Furthermore, a new section 165B has beenintroduced to enable the banks and financialinstitutions to provide information in relation tonon-resident persons to FBR that may berequired to be furnished to any other countryunder the agreement referred above.These amendments have apparently been madeto cater for reporting and other requirementsintroduced in various countries such as USFATCA regulations.

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MINIMUM TAX ON LAND DEVELOPERSEnabling provisions to collect minimum tax onland developers were introduced throughFinance Act, 2013. Federal Government wassupposed to prescribe the rates for suchtaxation. Since no rate has so far been prescribedtherefore land developers were not subject tominimum tax. Now, a minimum tax is proposedat the rate of 2% of value of land notified by theauthorities for stamp duty.FILING OF REVISED RETURNSThe condition of obtaining prior approval fromthe Commissioner for filing a revised return willnow not be required if the revised return is filedwithin 60 days of filing of the original return.FORMATION OF PANEL FOR SPECIALAUDITA new concept of formation of panel forconducting special audit has been introduced.Under these provisions, a panel comprising oftwo or more persons will be empowered toconduct an audit including a forensic audit ofincome tax affairs of a taxpayer. The Panel shallconsist of an Officer of Inland Revenue or a Firmof Chartered Accountant or Cost andManagement Accountant or any other person asdirected by the FBR.The procedure prescribed for the conduct ofspecial audit envisage that member of the Panelother than Officer of the Inland Revenue shalleffectively provide the support function for thataudit. The legal and procedural aspects forconducting such audit shall be undertaken bythe member of the panel being the Officer ofInland Revenue.

STAY BY THE COMMISSIONER(APPEALS)Currently, the Commissioner (Appeals) isempowered to grant a stay of tax demand in anappeal before him for a period of 30 days only.Practical and legal difficulties are being facedunder the present regime as in many cases,appeals are not decided within the said 30 days.

In order to address this difficulty, a positiveaction has been undertaken wherebyCommissioner (Appeals) has been empowered togrant a stay for a further period of 30 days and isrequired to decide the appeal within suchextended period. Based on interpretation ofArticle 199 of the Constitution of IslamicRepublic of Pakistan, this implies that the stayshall continue to be operative until the appeal isdisposed of.This positive amendment should also beintroduced in the parallel provisions laid downin Sales Tax and Federal Excise laws.PAYMENT OF TAX ON DEMANDA positive amendment has been made byreinstating the time period of 30 days instead of15 days for payment of tax demand pursuant toan order.UPWARD ESTIMATE FOR ADVANCETAXPresently taxpayers, other than banks are notmandatorily required to discharge advance taxliability to the extent of 90% of the tax payablebased on an estimate before the last instalmentis due. This envisage a possibility of notdischarging the advance tax liability in line withthe income earned during that period. It is nowproposed that advance tax to the extent of 50%of the estimate higher than the latest assessedbasis is paid by the due date of secondinstalment for that particular year. The regimenow introduced is in line with that applicable forbanking companies in Seventh Schedule.Furthermore, the rate of default surcharge forany short payment of advance tax is proposed tobe reduced from 18% to 12% per annum.RESTRICTION ON POWERS OFFEDERAL GOVERNMENT TO ISSUESROs FOR TAX EXEMPTIONS ANDCONCESSIONSAs a policy measure, it is proposed that thediscretionary powers of the Federal Governmentand FBR for granting concessions andexemptions will be eliminated. Now, suchactions, if required, can only be undertaken in

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special cases by way of a decision of theEconomic Coordination Committee of theFederal Cabinet.Under sections 148(2) and 159(3), (4) and (5) ofthe Income Tax Ordinance, 2001 various SROshave been issued which provide concessions orexemptions on collection of advance tax onimports and other withholding tax provisions.The Finance Bill proposes to omit section 148(2)and 159(3), (4) and (5) of the Ordinance. Therelevance of the SROs already in force prior toomission of this section will be ascertained onthe basis of principle of prospective applicationof legal provision. It is considered thatretrospective application is not envisaged,however, in order to avoid unnecessary litigationand disputes at field level, it is essential that theprotection / savings for the substantiveprovision are introduced.EXEMPTION CERTIFICATES TO NON-RESIDENTSUpto June 30, 2012, the Commissioner InlandRevenue was allowed to issue exemptioncertificates in cases of residents and permanentestablishments (PE) of non-resident companies.Through Finance Act, 2012, some withholdingprovisions applicable to PEs of non-residentswere transposed in section 152 where the entirewithholding tax provisions relating to non-residents were consolidated. In this process, theenabling provisions for the issue of exemptioncertificates were missed out. As a correctivemeasure, a new sub-section is proposed insection 152 to allow the Commissioner to issueexemption certificates in eligible cases of non-residents.

MINIMUM TAX ON SERVICES OFCOMPANIESA provision has been introduced in respect ofminimum tax on services rendered or providedby a company. Fundamentally, there is nochange in law and the exemption fromapplication of minimum tax on services ofcorporate taxpayers, which is currently providedin clause 79 of Part IV of the Second Schedule to

the Ordinance is proposed to form part of therelevant section.This alignment has been undertaken to addressthe matter raised by the Federal TaxOmbudsman. That authority had questioned theright of the Federal Government to allowconcessions through a notification instead of anenactment by the Parliament. Accordingly, thisprovision has been proposed to take effect fromtax year 2009 being the year in which theminimum tax provision was first introduced.OPTION FOR NORMAL TAX REGIMEFOR EXPORTERSThe exporters are subject to tax at the rate of 1%of export proceeds. This collection of tax is alsothe discharge of final tax liability in respect ofincome from such exports. Under clause 41AA(inserted by Finance Act, 2012 and omitted byFinance Act, 2014) the exporters were entitled toopt out on a year to year basis from thepresumptive tax regime subject to minimumpayment of tax.By way of expressed provision, a right ofirrevocable option to be taxed under normalregime has been re-introduced. The newprovision prescribes that the amount deductedat source shall be the minimum tax liability onincome from such exports.Since the tax deducted is being treated asminimum tax under this provision which isotherwise equal to minimum tax under section113, therefore, for practical purposes, benefitshall inter alia accrue only in relation to losses(if any) arising from export business, whichcould be set off and carried forward (includingby way of group relief).

RATE OF DEFAULT SURCHARGE &COMPENSATIONThe rate of default surcharge in case of failure topay tax deducted or collected has been reducedfrom 18% to 12%. Similarly, the rate of statutorycompensation on delayed refund is proposed tobe reduced from 15% to KIBOR plus 0.5%.

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COMPUTERISED NATIONAL IDENTITYCARD (CNIC) NUMBERAs a policy measure, the Federal Governmenthad shown its intention to replace the NationalTax Number (NTN) with CNIC number which isrequired to be obtained by every Pakistanicitizen.Through this amendment, it is proposed that inthe case of an individual, CNIC number shall betaken to the NTN. The amendment appears to bein line with the aforesaid policy, however, it isimportant to note that CNIC is issued to allPakistani Citizens irrespective of their tax statuswhereas all NTN holders are required to file areturn of income. The policy measure appears tobe in the right direction however substantiveprovisions need to be aligned in relation to thepersons holding CNIC not required to complywith the tax filing and other requirements forNTN holders.In practical sense, this amendment also impliesthat henceforth, there is no requirement for anindividual to obtain an NTN for filing the returnof income. Now, a return of income can be filedwith reference to the CNIC of that person. If theobjective is limited to this aspect then throughthis amendment the process of obtaining NTNfor filing of return is removed.SELECTION OF RETAILERS FOR AUDITA new regime for selection of audit for Retailershas been introduced. Retailers, who areregistered under Sales Tax Special ProcedureRules, 2007 shall be subject to compulsory andautomatic selection for audit of their income taxaffairs under section 177 of the Ordinanceunless:(a) Name of the person appears in the sales tax

active taxpayers list;(b) Complete return of income has been filed

within the due date;(c) Tax payable as per return has been paid;(d) 2% tax on turnover under section 113

(Minimum Tax) has been paid by a personregistered as retailer who files a return

below taxable limit and who in the precedingtax year had either not filed the return orhad declared income below taxablelimit; and

(e) 25% higher than last years tax liability hasbeen paid.

This regime has been introduced apparently tocater for the cases where compliance to the salestax laws were not made on account of theperceived actions for income tax purposes on thebasis of returns filed under the sales tax law.Now an effective immunity from audit isavailable irrespective of the amounts declaredfor sales tax purposes if the income tax is paid inexcess of 25% of last years tax liability. This isthe introduction of another form of presumptiveincome tax.This regime shall be applicable from the date tobe notified by the FBR.PRESUMPTIVE TAX ON PAYMENTS TORESIDENTS FOR CERTAIN ROYALTIESA new presumptive tax at the rate of 10% hasbeen introduced on payments to a residentperson for the use or right to use any industrial,commercial or scientific equipment. Presently,such payments to non-residents are subject tofinal tax regime. Even in such cases of non-residents, presumptive tax is not applicable ifthe person has a Permanent Establishment inPakistan.This provision requires to be re-examined inrelation to the activities undertaken by certaininstitutions who are earning income by way ofconsideration for the use of equipment, etc.Presumptive regime for such activities /transactions is not in line with the principle oftaxation especially for companies where suchactivities are supposed to be taxed on net incomebasis instead of a final tax liability based ongross consideration received. The correctmeasure would have been the introduction ofadjustable withholding regime if there is aperception of avoidance of tax on suchconsiderations.

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COLLECTION OF TAX ON REMITTANCEOF EDUCATION RELATED EXPENSESIn line with the tax collection regime forpayments of education fees to local institutionsin certain cases, a parallel regime is proposed tobe introduced for tax collection at 5% onadjustable basis on remittance of educationexpenses abroad.Under this provision, the banks and otherfinancial institutions shall collect tax onpayment of educational expenses abroad. Thisregime has presumably been introduced tocollect tax from persons outside the normal taxregime remitting education fees abroad throughbanking channels. This provision is effectivelyapplicable only where payments are to be madeunder Foreign Exchange Act 1947.Notwithstanding the conceptual validity of theprovision introduced, for practical purposes, inthe case of persons outside tax regime, paymentsare generally routed through private foreigncurrency accounts where in practice, there is noenquiry for income tax purposes in respect of thepurpose of remittance made abroad.DIVIDEND IN SPECIEDividend in specie was not subject towithholding and the said matter has beendecided by the higher courts in favour oftaxpayers. It is now proposed that withholdingtax provisions will be applicable on distributionby way of dividend in specie. Withholding underthis provision will be on the amountrepresenting the value of asset released from thereserves as per the financial statements.TAX COLLECTION BY PAKISTANMERCANTILE EXCHANGE LIMITEDA special regime of taxation has been introducedfor transactions undertaken by PakistanMercantile Exchange Limited.

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ACTIVE TAXPAYERSThe concept of Active Taxpayers is proposed tobe introduced in line with that applicable underthe Income Tax provisions. In the case ofIncome tax, a non-active taxpayer / non-filer isinter alia subject to higher rate of withholdingtax. In the case of sales tax, FBR will make rulesfor restrictions and limitations which may interalia include non-availability of input tax relatingto transactions with such non-active taxpayers.All registered persons are to be treated as activetaxpayers except the following:

Black listed, blocked or suspended; Fails to file return for 2 consecutive months; Fails to file income tax return by due date; Fails to file two consecutive monthly or

annual statements under section 165 of theIncome Tax Ordinance, 2001.

COTTAGE INDUSTRYAny person having utility bills ofRs 800,000 or more during the last 12 monthsinstead of previous limit of Rs 700,000 has beenexcluded from the definition of cottage industry.TOLLMANUFACTURINGToll manufacturing represents supply of goodstaxable under the Federal Sales tax laws.Provincial revenue authorities have incorrectlyconsidered the same as being a service renderedsubject to tax by Provincial governments underrespective provincial sales tax laws. Tollmanufacturing is effectively a part of the wholeprocess of manufacturing of goods undertakenby two persons. An amendment is proposed inthe definition of supply to consolidate theaforesaid status of toll manufacturers as being asupplier of goods for Federal sales tax purposes.

FURTHER TAXSupply of taxable goods to unregistered personswas subject to tax at the rate of 18%. Such rate of18% represents 17% being the standard sales taxand 1% as the amount of further tax. Now, therate of tax on such supplies is proposed to beincreased to 19% on account of enhancement offurther tax to 2%.INPUT TAX ADJUSTMENT ONIMPORTED GOODSInput tax adjustment on imports based onprovisional bill of entry or goods declarationunder section 81 of the Customs Act, 1969 is nowproposed to be allowed.INPUT TAXFollowing amendments have been made inrespect of admissibility of input tax:(a) Input tax paid in respect of prefabricated

buildings are proposed to be allowed,previously this was not an allowableadjustment.

(b) Services for which input tax adjustment isbarred under respective provincial sales taxlaws will not be allowed as input tax fordetermining the Federal sales tax liability.There is no rationale of relating theadmissibility of input tax on genuineservices rendered in relation to supply ofgoods under the Federal Sales tax law. Thisis a departure from a normal VAT regime.

(c) Input tax on certain goods and services atthe time of filing of return by buyer and havenot been declared by the supplier in hisreturn will not be allowed. This amendmenteffectively means that an eligible input taxshall become inadmissible only for thereason that the supplier of goods has notdeclared such supply in his return of salestax. There is no rationale for relating these

SALES TAX

two different aspects with the admissibilityof input tax. The items which will fall withinthis mischief will be notified by the FBR.

(d) Input tax on import or purchase ofagricultural machinery or equipment whichis subject to sales tax at 7% under EighthSchedule shall not be admissible as input taxin respect of supply of goods.

The restrictions as imposed under (b) to (d)above may be challenged on Constitutionalgrounds.JOINT AND SEVERAL LIABILITYIn the context of joint and several liabilityrelated provision, onus to prove collusion foravoidance of payment of sales tax shall be on therevenue.PRIZE SCHEMEFBR is proposed to introduce prize schemes toencourage the general public to make purchasesfrom registered persons issuing sales taxinvoices. Such provisions exist in many otherjurisdictions and the entitlement to prize ismade on the basis of lottery where the receipt /invoice of sales tax is an eligible criteria forpayment of prize.FIFTH SCHEDULE ZERO RATINGSupply of locally manufactured plant andmachinery earlier zero rated underSRO 397(I)/2001 are proposed to continue to bezero rated under Fifth Schedule.Export of exempted goods by manufacturer shallbe zero rated. Accordingly, respective input taxadjustment would be available to suchmanufacturer/exporter.

SIXTH SCHEDULE - EXEMPTIONSItems exempted under SRO 880(I)/2007, SRO408(I)/2012 and SRO 760(I)/2012 are proposedto continue to be exempted under SixthSchedule.Supplies of marble and granite by manufacturersexempted under SRO 76(I)/2008 are proposedto continue to be exempted under SixthSchedule subject to conditions of annualturnover of less than Rs 5 million and annualutility bills not more than Rs 800,000.Items covered under Fifth Schedule to theCustoms Act, 1969 now proposed to beexempted under Sixth Schedule.Import and supply of equipment under PCTcodes 3006.9100, 3926,9050 and 8539.3930 areproposed to be exempted under Sixth Schedule.Import or supply of following are proposed to beexempted under Sixth Schedule:

Description PCT HeadingAircraft, whether imported oracquired on wet or dry lease

8802.2000,8802.3000,8802.4000

Maintenance kits for use intrainer aircrafts of PCT headings8802.2000 and 8802.3000

RespectiveHeadings

Spare parts for use in aircrafts,trainer aircrafts or simulators

RespectiveHeadings

Machinery, equipment and toolsfor setting up maintenance, repairand overhaul (MRO)workshop by MRO companyrecognized by Aviation Division

RespectiveHeadings

Operational tools, machinery,equipment and furniture andfixtures on one-time basis forsetting up Greenfield airports bya company authorized byAviation Division

RespectiveHeadings

Aviation simulators imported byairline company recognized byAviation Division

RespectiveHeadings

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Local supply of following are proposed to beexempted under Sixth Schedule

Description PCT HeadingRaw and pickled hides and skins, wetblue hides and skins

41.01, 41.02,41.03,

4104.1000,4105.1000,4106.2100,4106.3000,4106.9000

Bricks (upto June 30, 2018) 6901.1000Crushed stone (upto June 30, 2018) 2517.1000

Exemption in respect of machinery, equipment,raw materials, components and other capitalgoods for use in buildings, fittings, repairing orrefitting of ships, boats or floating structuresimported by Karachi Shipyard and EngineeringWorks Limited is proposed to be omitted.EIGHTH SCHEDULEImport and supply of ingredients of poultry andcattle feed exempt under SRO 1007(I)/2005 areproposed to be taxed at 5% under EighthSchedule.Reduced rate notified vide followingnotifications are proposed to be subject to samereduced rate and conditions under EighthSchedule- SRO 69(I)/2006 @ 16%- SRO 313(I)/2006 @ 6%- SRO 657(I)/2013 @ 5%- SRO 572(I)/2014 @ 10%Following items are proposed to be subject toreduced rate of 7% under Eighth Schedule:

Description PCT HeadingTillage and seed bed preparationequipment

Certain PCTheadings

Seeding or planting equipment Certain PCTheadings

Irrigation, drainage and agro-chemicalapplication equipment

Certain PCTheadings

Harvesting, threshing and storageequipment

Certain PCTheadings

Post-harvest handling and processing& miscellaneous machinery

8437.1000 &8433.4000

Following items are proposed to be subject toreduced rate of 10% instead of 5% underEighth Schedule:

Description PCT HeadingMachinery and equipment fordevelopment of grain handlingand storage facilities.

Respectiveheading

Complete plants for relocatedindustries.

Respectiveheading

Machinery, equipment and othercapital goods meant for initialinstallation, balancing,modernization, replacement orexpansion of oil refining (mineraloil, hydro- cracking and othervalue added petroleumproducts), petrochemical andpetrochemical downstreamproducts including fibers andheavy chemical industry,cryogenic facility for ethylenestorage and handling.

Respectiveheading

Following items subject to reduced rate of 5%under Eighth Schedule are proposed to beomitted:

Description PCT Heading

Following items imported by CallCenters, Business ProcessingOutsourcing facilities duly approvedby Pakistan TelecommunicationAuthority.(1) Telephone sets/head sets.(2) Cat 5/Cat 6/Power cables(3) PABX Switch(4) Plasma TV(5) Dedicated telephone exchange

system for call centres.(6) Other digital cell recorders

Various

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Description PCT Heading

Proprietary Formwork System forbuilding/structures of a height of 100ft and above and its various items/components consisting of thefollowing, namely:-(1) Plastic tube.(2) Plastic tie slot filters/plugs,plastic cone.(3) Standard steel ply panels, Specialsized steel ply panels, wedges, tubeclamps (B-Type & G Type), push/pullprops, brackets (structure), steelsoldiers (structure), drop head,standard, prop tic, buard rail post(structure), coupler brace, cantileverframe, decking beam/Infill beam anddoorway angles.(4) Lifting Unit (Structure)(5) Bolts, tie bolts, anchor boltassembly (fastener), anchor screw(fastener).(6) Nuts(7) Steel pins, tie wing nut (fastener).(8) Steel washers, water plate(fastener).(9) Adjustable base jack (thread rodwith nut and steel plate), adjustablefork head (threaded rod with nut andsteel channel).

Various

NINTH SCHEDULESales tax rates under Ninth Schedule on importand/or registration of IMEI by Cellular MobileOperators have been doubled.REVAMPING OF SALES TAX REGIMEFOR CERTAIN ITEMSSales tax regime for certain items identified inthe Annexure A has been revamped.This revamping inter alia includes substitutionof zero rating with the exemption regime andintroduction of reduced rate of tax for certainitems which were earlier exempt / zero rated. Allthese aspects have been identified in theAnnexure referred above.

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A. F. FERGUSON & CO. Federal Budget 2014a member firm of the PwC network

ANNEXURE A RELATING TO AMENDMENTS TO FIFTH, SIXTH AND EIGHTHSCHEDULE

Description HS Code Current Law Proposed5th 6th 8th 5th 6th 8th

Soyabean meal 2304.0000 Tax rate 5% Tax rate 10%Poultry feed and Cattle feedincluding their allingredients except soybeanmeal of PCT heading2304.0000 and oil-cake ofcottonseed falling underPCT heading 2306.1000.

2301.2090,2305.0000,2306.2000,2306.3000,2306.4100,2306.5000,2309.9010,2309.9020,2309.9090,2936.2100,2936.2200,2936.2300,2936.2400,2936.2500,2936.2600,2936.27002936.2800

Exempt Proposedto beomitted

Tax rate 5%

WheyFlavored milkButterDesi gheeCheeseMilk and cream,concentrated or containingadded sugar or othersweetening matterYogurt

04.040402.990405.10405.90406.1010402.1000

04.03.1000

Zero ratedsubject tocertainconditionsspecified inChapterXIV ofSales TaxSpecialProcedureRules 2007(STSPR)

Exemptif notcoveredunderFifthSchedule

Proposedto beomitted

Exemptif notsold inretailpackingunderbrandname

Reduced rateof 10% if soldin retailpacking undera brand name

Processed cheese not gratedor powdered

0406.3 Exempt Exemptif notsold inretailpackingunderbrandname

Cream 04.01 and04.02

Zero ratedsubject tocertainconditionsspecified inChapterXIV ofSTSPR

Omitted Reduced rateof 10% if soldin retailpacking undera brand name

Directly reduced iron 72.03 Tax rate 5% Proposed to beomitted

Description HS Code Current Law Proposed5th 6th 8th 5th 6th 8th

Incinerators of disposal ofwaste management,motorized sweepers andsnow ploughs

Re-importation of foreignorigin goods which weretemporarily exported out ofPakistan subject to similarconditions as are envisagedfor the purposes of applyingzero-rate of customs dutyunder the Customs Act,1969.Plant, machinery,equipment and specificitems used in production ofbio-dieselReclaimed lead, if suppliedto recognized manufacturerof lead batteriesWaste papers

8417.8000,8430.2000

and8479.8990

99.18

RespectiveHeadings

Respectiveheadings

Respectiveheadings

Exempt Proposedto beomitted

Tax rate 5%

Oilseeds meant for sowing. Respectiveheadings

Tax rate 5% Tax rate 10%Plant and machinery notmanufactured locally andhaving no compatible localsubstitutes

Respectiveheadings

Tax rate 5% Tax rate 10%

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In 2001, certain services were subjected to SalesTax in the four Provinces and Islamabad CapitalTerritory (ICT) through respective Ordinances.Since promulgation of ICTO, no addition /amendment to the list of services taxable in ICTwas made although after the 18th amendment,the Provinces whilst reiterating their right to taxservices, have expanded their list of taxableservices. Furthermore, Sindh, Punjab and KPKhave formed their own regulatory bodies tocollect the taxes whereas FBR regulates thecollection of sales tax on services rendered inBaluchistan and ICT. In order to harmonise thelist of services taxable in ICT with the servicestaxable in the Provinces, following new servicesrendered in ICT are proposed to be taxable:

S. No. ofSchedule Description

5 Construction services, excluding:(i) construction projects (industrial

and commercial) of the value(excluding actual and documentedcost of land) not exceeding Rs. 50million per annum.

(ii) the cases where sales tax isotherwise paid as propertydevelopers or promoters.

(iii) Government civil works includingCantonment Boards.

(iv) construction of industrial zones,consular buildings and otherorganizations exempt from incometax.

(v) construction work underinternational tenders againstforeign grants-in-aid.

(vi) residential construction projectswhere the covered area does notexceed 10,000 square feet forhouses and 20,000 square feet forapartments

6 Services provided by property developersand promoters (including allied services)excluding the actual purchase value ordocumented cost of land.

7 Services provided for personal care bybeauty parlours, clinics and slimmingclinics, body massage centres, pedicurecentres; including cosmetic and plasticsurgery by such parlours/clinics, butexcluding:

S. No. ofSchedule Description

(i) annual turnover does not exceedRs.3.6 million; or

(ii) the facility of air-conditioning is notinstalled or available in thepremises.

8 Services provided for personal care bybeauty parlours, clinics and slimmingclinics, body massage centres, pedicurecentres; including cosmetic and plasticsurgery by such parlours/clinics, butexcluding:(i) annual turnover does not exceed

Rs.3.6 million; or(ii) the facility of air-conditioning is not

installed or available in thepremises.

9 Management consultancy services.10 Services provided by freight forwarding

agents, and packers and movers.11 Services provided by software or IT-

based system development consultants.12 Services provided by technical, scientific

and engineering consultants.13 Services provided by other consultants

including but not limited to humanresource and personnel developmentservices; market research services andcredit rating services.

14 Services provided by tour operators andtravel agents including all their alliedservices or facilities (other than Hajj andUmrah).

15 Manpower recruitment agents includinglabour and manpower supplies.

16 Services provided by security agencies.17 Services provided by advertising agents.18 Share transfer or depository agents

including services provided throughmanual or electronic book-entry systemused to record and maintain securitiesand to register the transfer of shares,securities and derivatives.

19 Business support services.20 Services provided by fashion designers,

whether relating to textile, leather,jewellery or other product regimes,including allied services, marketing,packing, delivery and display, etc.

21 Services provided by architects, townplanners and interior decorators.

ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES)ORDINANCE, 2001 (ICTO)

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S. No. ofSchedule Description

22 Services provided in respect of rent-a-car.

23 Services provided by specializedworkshops or undertakings(autoworkshops; workshops forindustrial machinery, construction andearth- moving machinery or other specialpurpose machinery etc; workshops forelectric or electronic equipments orappliances etc. including computerhardware; car washing or similar servicestations and other workshops).

24 Services provided for specified purposesincluding fumigation services,maintenance and repair (includingbuilding and equipment maintenanceand repair including after sale services)or cleaning services, janitorial services,dredging or desilting services and othersimilar services etc.

25 Services provided by underwriters,indenters, commission agents includingbrokers (other than stock) andauctioneers

26 Services provided by laboratories otherthan services relating to pathological ordiagnostic tests for patients.

27 Services provided by health clubs, gyms,physical fitness centres, indoor sportsand games centres and body or saunamassage centres

28 Services provided by laundries and drycleaners.

29 Services provided by cable TV operators.9819.9000 Sixteen per cent Technicalanalysis and testing services

30 Services provided by TV or radioprogram producers or productionhouses.

31 Transportation through pipeline andconduit services.

32 fund and asset (including investment)management services.

33 Services provided by inland portoperators (including airports and dryports) and allied services provided atports and services provided by terminaloperators including services in respect ofpublic bonded warehouses, excluding theamounts received by way of fee underany law or bylaw.

S. No. ofSchedule Description

34 Technical inspection and certificationservices and quality control (standardscertification) services

35 Erection, commissioning and installationservices.

36 Event management services37 Valuation services (including

competency and eligibility testingservices),

38 Exhibition or convention services39 Services provided in respect of mining of

minerals, oil & gas including relatedsurveys and allied activities

40 Services provided by property dealersand realtors.

41 Call centres.42 Services provided by car/automobile

dealers.The existing services, with certain changes,taxable in ICT are as follows:S.No. ofSchedule Description

1 Services provided or rendered by hotels,motels, guest houses, marriage halls andlawns (by whatever name called)including pandal and shamianaservices, clubs including race clubs, andcaterers.

2 Advertisement on television and radio,excluding advertisementsa) sponsored by an agency of the

Federal or Provincial Governmentfor health education;

b) sponsored by the PopulationWelfare Division relating toeducational promotioncampaign;(c) financed out of fundsprovided by a Government undergrant-in-aid agreement; And

c) conveying public service messages,if telecast on television by the WorldWide Fund for Nature (WWF) orUnited Nations Childrens Fund(UNICEF)

3 Services provided by persons authorizedto transact business on behalf of others(a) stevedore; (b) customs agents; and(c)ship chandlers.

4 Courier services and cargo servicesbyroad provided by courier companies;

INCREASE IN SCOPE AND RATEAERATED BEVERAGESThe rate of duty is proposed to be enhancedfrom 9% to 12% of retail price with effect fromJuly 1, 2015.LOCALLY PRODUCED CIGARETTESDescription of and duty on the locallyproduced cigarettes (PCT heading 24.02) isproposed to be enhanced as under, with effectfrom July 1, 2015:S.No. Description of goods

Revisedrate

9 Locally produced cigarettes iftheir on-pack printed retailprice exceeds Rs 3,350 per1,000 cigarettes

Rs 3,030per 1,000cigarettes.

10 Locally produced cigarettes iftheir on-pack printed retailprice does not exceedRs 3,350 per 1,000 cigarettes

Rs 1,320 per1,000cigarettes.

It appears that average tax incidence wouldincrease from 58% to 63%.FILTER ROD FOR CIGARETTESIt is proposed to charge duty on filter rod forcigarettes (PCT heading 5502.0090), with effectfrom July 1, 2015:S.No. Description of goods

Revisedrate

56 Filter rod for cigarettes Rs 0.75 perfilter rod.

EXEMPTIONS Travel by air on socio economic

routesIt has been proposed to exempt excise duty onservices provided or rendered in respect of travelby air of passengers on socio economic routes.Duty is currently payable at Rs 500 perpassenger.Socio economic routes are proposed to beredefined as the shortest part of journeysstarting from or ending at an airport located inMakran coastal region, FATA, Azad Jammu andKashmir, Gilgit-Baltistan or Chitral. The phrasethe shortest part of journeys needs to befurther clarified to avoid tax disputes.Exemptions available under notificationconsolidated in 3rd ScheduleThe exemptions earlier available in respectof following goods/ services undernotification SRO 778(I)/2006, notification SRO474(I)/2009, notification SRO 802(I)/2009 and81(I)/2010 are proposed to be incorporated inThird Schedule to FE Act:- Services of air travel for Hajj passengers,

diplomats and Supernumerary crew;- White cement (PCT heading 25.23) ;- Motor cars and other motor vehicles

principally designed for the transport ofpersons including station wagons and racingcars of cylinder capacity exceeding 850cc;

- Services provided or rendered by bankingcompanies and non-banking financialcompanies in respect of Hajj and Umrah,cheque book, insurance, Musharika andModaraba financing and utility billcollection; and

- Advertisement in newspapers andperiodicals.

FEDERAL EXCISE DUTY

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TRANSHIPMENT OF GOODSUnder the Customs Act, 1969, transhipment ofgoods is allowed without payment of duty, ifgoods are transported to other station. It hasnow been clarified that assessment and paymentof duties and other charges in case oftranshipment of goods will be made at the portof destination. Some other procedural aspectshave been clarified in this respect.OFFENCES AND PENALTIESA new penalty of Rs. 50,000 is being introducedfor a person contravening the requirement ofplacement of invoice and packing list inside theimport container or consignment. Furthermore,offence relating to untrue declaration and illegalremoval or concealment of goods during transithas also been penalised.WITHDRAWAL OF EXEMPTIONS ANDCONCESSIONSLast year, the Government announced a policyto withdraw concessionary SROs in three phases(years). For that purpose, Fifth Schedule to theCustoms Act, 1969 was introduced throughFinance Act, 2014, and SROs 575(I)/2006 and567(I)/2006 were consolidated therein withcertain changes. The framework for review ofSROs, as announced, is based on following:(i) Minimally utilized concessions are being

withdrawn;(ii) Socially sensitive concessions are

retained; and(iii) Remaining concessions are either

withdrawn or continued at enhancedrates.

Through this Budget, being the second phase ofimplementation of aforesaid policy, some moreSROs are expected to be withdrawn, which havenot been notified so far. The concession inrespect of following sectors has been withdrawnby virtue of amendment in the Fifth Schedule,resulting that regular rate is applicable thereon:

Sector / GoodsExisting

concessionaryrate (nowwithdrawn)

Business ProcessesOutsourcing / Call CenterEntities

15%

Relocated Industries 10%Proprietary Formwork systemfor building / structures of100 ft and above

10%

Petroleum oils and oilsobtained from bituminousminerals, crude, motor sprit,furnace oil

0%

Soyabean meal 5%Hi-speed diesel 7.5%Concentrated Coccidiostats 5%Certain Medecaments 5%Certain poly items 4% / 8.5%Certain textile products (of /or relating to yarn

9% / 7%

REDUCTION IN CUSTOMS DUTYBy virtue of amendment in First Schedule,reduction in customs duty has been provided forthe following, in addition to reduction inmaximum tariff rate from 25% to 20% across theboard.

PCT Code RateOld New4011.10008517.61003402.13004011.20107605.29007606.92908517.62908529.1090

25%20%20%20%20%20%20%20%

15%10%15%15%15%15%15%15%

CUSTOMS DUTY

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Reduction in customs duty in respect offollowing sectors has been provided by placingthe same under the Fifth Schedule:

Sector ConcessionAgricultural Reduction in customs duty on

import of agriculturalmachinery from 5 20% to2%.

Construction Reduction in customs duty to10%, on import ofconstruction machinery inused condition, by theconstruction companiesregistered with PakistanEngineering Council andSECP.

Aviation Customs duty on variousitems used in aviation sectorreduced to 0%, subject tocertain conditions.

INCREASE IN CUSTOMS DUTYAs part of review / rationalization ofcustoms duty, following major changes havebeen made:(i) Goods subject to duty at the rate of

1% under the First Schedule, willnow be subject to duty at the rate of2%.

(ii) Duty on following goods has beenincreased by virtue of amendment inFirst Schedule:

PCT Code RateOld New2701.12002701.19002710.19413206.49903903.19903903.90008482.10008517.6990

1%1%1%10%5%5%5%10%

5%5%5%15%10%10%10%15%

(iii) Following new entries have beenintroduced in the First Schedule,subject to duty at more than 20%:

PCT Code Rate4016.99507318.22207320.10308302.30208483.1013

35%35%35%35%35%

(iv) Concessionary rate under the FifthSchedule is increased for thefollowing:

SectorConcessionary

RateOld New

Machinery Equipmentand Other Capitalgoods for initialinstallation , BMR orexpansion of OilRefining petrochemical and petrochemical downstreamproducts includingfiber and heavychemical industry

5% 10%

Machinery andEquipment by anindustrial concern

10% 15%

Fresh and Dry Fruitsfrom Afghanistan(Chapter 8)

5% 10%

Preparations of a kindused in animal feeding

5% 10%Nucleic acids and theirsalts (Furazolidone)

5% 10%Defence stores,excluding those of theNational Logistic Cell

10% 15%

OTHER CHANGES / ANNOUNCEMENTS(i) Under the Fifth Schedule, import of

plant, machinery and equipment forsetting-up industries in FATA wassubject to customs duty at 10%. Thesaid concession is now restricted toimports made during July 1, 2014 tillJune 30, 2019.

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(ii) Following general conditions prescribedin Part I of the Fifth Schedule are nownot applicable:(a) Valid contracts or letter of credit for

import of machinery and equipmentfor setting up of a new industrialunit; and

(b) The total C&F value of such importsshould have been US $ 50 million orabove.

(iii) Following announcements have beenmade in the salient features:(a) Exports of perishable goods

namely fruits, vegetables, dairyproducts and meat shall be allowedagainst Pak currency instead ofdollars w.e.f. 1-7-2015;

(b) Quota for ghee and vegetable oilunder DTRE for export toAfghanistan and Central Asia isbeing enhanced from 1000 MetricTon per 90 days to 1000 Metric Tonper month.

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WHISTLEBLOWERSA new concept of whistleblower has beenproposed to be introduced in income tax, salestax and federal excise duty laws, whereby FBR isto be empowered to sanction reward to personswho provide information regarding concealmentor evasion of tax/duty, tax fraud, corruption ormisconduct.FBR already has powers to sanction rewards toits officials. Through proposed amendmentssuch powers are aimed to reward persons otherthan departmental officials who provideinformation about malpractices.POWERS TO GRANT EXEMPTIONS BYFBR/ FEDERAL GOVERNMENTAs a policy measure, the discretionary powers ofthe Federal Government or the FBR to grantexemptions from taxes and duties under all thefour fiscal legislations have been proposed to beabolished. However, in special circumstancesidentified below, such notifications can be issuedby the Federal Government subject to approvalof Economic Coordination Committee ofCabinet:- national security;- natural disaster;- national food security in emergency

situations;- protection of national economic

interests in situations arising out ofabnormal fluctuation in internationalcommodity prices;

- removal of anomalies in taxes;- development of backward areas; and- implementation of bilateral and

multilateral agreements.

This amendment was introduced recentlythrough Presidential Ordinance. Through theFinance Bill, 2015 the contents of the Ordinancehave been adopted in the respective taxingstatutes.Further, it has been proposed that exemptions tobe granted by Federal Government under theseprovisions have to be placed before NationalAssembly (a requirement already there in theIncome Tax Ordinance) and that exemptionswould not extend beyond the end of financialyear in which these are granted. It is, however,apt to highlight that powers available withFederal Government to subject specified goodsto lower rate of tax/ duty, available undersection 3(2)(b) of ST Act and section 3(4) of FEAct, have not been proposed to be made subjectto above conditions.The relevance of the SROs already in force priorto omission of relevant provisions will beascertained on the basis of principle ofprospective application of legal provision. It isconsidered that retrospective application is notenvisaged, however, in order to avoidunnecessary litigation and disputes at field level,it is essential that the protection / savings for thesubstantive provision are introduced.AGREEMENTS FOR EXCHANGE OFINFORMATION & DISCLOSURE OFINFORMATIONNew provisions are proposed to be introduced inthe income tax, sales tax and federal excise dutylaws whereby Federal Government has beenempowered for entering into bilateral ormultilateral agreements with the provincialgovernments as well as the governments offoreign countries with respect to exchange ofinformation concerning all three levies.

COMMON PROVISIONS RELATING TO FISCAL STATUTES

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Further, in line with the provisions already therein the Income Tax Ordinance, informationobtained under such agreements or that inpossession of public servants under ST Act andFE Act have been prescribed to be confidentialnotwithstanding other laws.MONITORING & TRACKING OF GOODSBy virtue of certain amendments introducedthrough Finance Act, 2013, certain provisionswere inserted in sales tax/excise duty law vestingFBR with the powers to require specific goods tobe affixed with stamps, banderols, stickers,labels etc. so as to these could be electronicallymonitored/ identified.An amendment is proposed in these provisionswhereby barcodes could also be used aselectronic identifiers and FBR to be empoweredto prescribe vendors from which such identifierscould be procured at notified prices.

SPECIAL AUDIT PANELSThe provisions earlier there in the sales tax andexcise duty law providing for audit of taxpayersby Chartered Accountant (CA) and Cost &Management Accountant (CMA) firms areproposed to be replaced with the concept ofaudit by special audit panels. In the Income TaxOrdinance, however, provisions relating to auditby CA and CMA firms remain intact and conceptof special audit panel has been introduced inaddition thereto.FBR, under the proposed concept, is to beempowered to notify special audit panels, to beheaded by an officer of Inland Revenue andcomprising of two or more of following:(a) officer of Inland Revenue;(b) CA Firm;(c) CMA Firm; or(d) Any other person.

Further, necessary amendments are alsoproposed in respective statutory provisions toregulate the conduct of audits by proposedspecial audit panels.POWERS OF BOARD ORCOMMISSIONER TO REVIEW THEORDER BY SUBORDINATE OFFICERSUnder the section 45A of ST Act and section 35of FE Act, FBR and Commissioner InlandRevenue are empowered, on a suo moto basis, toexamine/call for the record of any proceedingsand review an order passed by any ofsubordinate authorities.An amendment is proposed in these legalprovisions which will effectively enable the FBRto undertake revisionary powers even on thebasis of application by the taxpayer in additionto the right of suo moto action.Similar amendment is also required in provisionrelating to revisionary powers of the relevantCommissioner in both Statutes.

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