Category: Budget 2022-2023

FBR applies separates CGT rates on immovable properties

ISLAMABAD: The Federal Board of Revenue (FBR) has implemented capital gain tax on disposal of immovable properties as amended through Finance Act, 2022.

The FBR issued Income Tax Circular No. 15 of 2022-2023 to explain the important amendments introduced through the Finance Act, 2022 to the Income Tax Ordinance, 2001.

READ MORE: FBR explains tax on deemed income from immovable property

The FBR said that earlier, the gain arising on the disposal of immovable property after the holding period of 4 years was exempt from tax.

Now the holding period concession will separately apply which for open plots is six years, for constructed property is four years and for flats is two years.

Further, whole amount of gain on disposal of immovable property will be taxable at graduated rates provided in Division VIII of Part I of First Schedule of the Ordinance given as under:

READ MORE: Super tax to apply for Tax Year 2022 and onwards: FBR

01. Where the holding period does not exceed one year: the tax rate for open plots shall be 15 per cent; for constructed property at 15 per cent; and for flats 15 per cent.

02. Where the holding period exceeds one year but does not exceed two years: the tax rate for open plots shall be 12.50 per cent; for constructed property at 10 per cent; and for flats at 7.5 per cent.

03. Where the holding period exceeds two years but does not exceed three years: the tax rate for open plots shall be 10 per cent; for constructed property at 7.5 per cent; and zero per cent for flats.

READ MORE: Pakistan enhances income tax rates for banks

04. Where the holding period exceeds three years but does not exceed four years: the tax rate for open plots shall be 7.5 per cent; for constructed property at 5 per cent; and zero per cent for flats.

05. Where the holding period exceeds four years but does not exceed five years: the tax rate for open plots shall be 5 per cent; zero per cent for constructed property; and zero per cent for flats.

06. Where the holding period exceeds five years but does not exceed six years: the tax rate for open plot shall be 2.5 per cent; zero per cent for constructed property; and zero per cent for flats.

07. Where the holding period exceeds six years: the tax rate shall be zero for open plots, constructed property and flats.

READ MORE: Declaring beneficial owner made mandatory for companies, AOPs

The concessional taxation regime for capital gains has been made applicable only to disposal of immovable properties situated in Pakistan.

The benefit of holding period and concessional rate of tax is not available in respect of capital gains arising on disposal of immoveable property situated outside Pakistan.

Furthermore, to streamline capital gains taxation regime, the concessions earlier available under sub-sections (3) and (3A) of section 37 in terms of reduction in capital gain by certain percentages on disposal of capital assets held for more than one year has been withdrawn.

READ MORE: Pakistan reintroduces capital value tax on motor vehicles

Sub-section (4A) of section 37 has been omitted.

Accordingly, non-recognition provision of section 79 will apply to determine the cost of acquisition on transfer of capital asset under the circumstances contained therein.

July 23, 2022
FBR explains tax on deemed income from immovable property

ISLAMABAD: The Federal Board of Revenue (FBR) has explained the new introduced tax on deemed income through Finance Act, 2022.

The FBR issued Income Tax Circular No. 15 of 2022/2023 to explain important amendment brought through Finance Act, 2022 to the Income Tax Ordinance, 2001.

The FBR said that a new section 7E has been introduced through Finance Act, 2022 whereby for tax year 2022 and onwards, a resident person is treated to have derived income equal to five per cent of fair market value of the capital assets situated in Pakistan which will be chargeable to tax at the rate of 20 per cent under Division VIIIC of Part I of First Schedule of the Ordinance.

READ MORE: Super tax to apply for Tax Year 2022 and onwards: FBR

Following exclusions have been provided to which this section will not apply:

(i) One capital asset owned by the resident person;

(ii) Self-owned business premises from where the business is carried out by the persons appearing on the active taxpayer’s list at any time during the year;

READ MORE: Pakistan enhances income tax rates for banks

(iii) Self-owned agriculture land where agriculture activity is carried out by the person but excluding farmhouse and annexed land. Farmhouse has been defined in this section;

(iv) Capital asset allotted to —

(a) A Shaheed or dependents of a Shaheed belonging to Pakistan Armed Forces;

(b) A person or dependents of a person who dies while in the service of Pakistan armed forces or federal or provincial government;

READ MORE: Declaring beneficial owner made mandatory for companies, AOPs

(c) A war wounded person while in service of Pakistan armed forces or federal or provincial government;

(d) An ex-serviceman and serving personnel of armed forces or ex-employees or serving personnel of federal and provincial governments who are original allotees of the capital asset as duly certified by the allotment authority;

(v) Any property from which income is chargeable to tax under the Ordinance and tax leviable has been paid;

(vi) Capital asset in the first year of acquisition on which tax under section 236K has been paid;

READ MORE: Pakistan reintroduces capital value tax on motor vehicles

(vii) Where fair market value of the capital assets in aggregate excluding capital assets mentioned in serial nos. (i) to (vi) above does not exceed rupees twenty-five million;

(viii) Capital assets which are owned by a provincial government or local government;

(ix) Capital assets owned by local authority, a development authority, builders and developers for land development and construction subject to the condition that such persons are registered with Directorate General of Designated Non-Financial Businesses and Professions.

July 23, 2022

Super tax to apply for Tax Year 2022 and onwards: FBR

ISLAMABAD: The Federal Board of Revenue (FBR) on Thursday said that super tax will be applicable for tax year 2022 and onwards.

The FBR issued Income Tax Circular No. 15 of 2022/2023 to explain important amendments made to Income Tax Ordinance, 2001 through Finance Act, 2022.

The FBR said that a new section 4C to Income Tax Ordinance, 2001 has been introduced through Finance Act, 2022 and this section will apply for tax year 2022 and onwards.

Except for the persons whose income as envisaged in this section is below Rs150 million, all other persons including those assessed under Fourth, Fifth and Seventh Schedules to the Ordinance are liable to pay super tax on graduated rates ranging from 1% to 4% based on graduated income slabs provided in Division JIB of Part I of First Schedule given as under:

S. No.	Income under Section 4C	Rate of Tax
1.	Where income does not exceed Rs150 million	0% of the income
2.	Where income exceeds Rs150 million 1% of the income but does not exceed Rs200 million	1% of the income
3.	Where income exceeds Rs200 million 2% of the income but does not exceed Rs250 million	2% of the income
4.	Where income exceeds Rs250 million but does not exceed Rs300 million	3% of the income
5.	Where income exceeds Rs300 million	4% of the income

However, for tax year 2022 the rate of super tax under this section will be 10% instead of 4%, where the income of the persons engaged, partly or wholly, in business of airlines, automobiles, beverages, cement, chemicals, cigarette & tobacco, fertilizer, iron & steel, LNG terminal, oil marketing, oil refining, petroleum & gas exploration and production, pharmaceuticals, sugar and textiles exceeds Rs.300 million. For tax year 2023, this super tax on income of banking companies will be 10% if the income for the year exceeds Rs. 300 million.

For the purposes of this section, the income will be the sum of the following:

(i) Profit on debt, dividend, capital gains, brokerage, and commission;

(ii) Taxable income (other than brought forward depreciation and brought forward business losses) under section 9 of the Ordinance, excluding amounts specified in (i) above;

(iii) Imputable income as defined in clause (28A) of section 2 excluding amounts specified in clause (i) above; and

(iv) Income computed, other than brought forward depreciation, brought forward amortization and brought forward business losses under Fourth, Fifth and Seventh Schedule.

Super tax payable under this section will be paid on the date and manner as specified in under section 137(1) of the Ordinance.

In case of default by the person liable to pay super tax under this section, Commissioner through an order in writing will determine the liability of the person and proceed to recover the same under applicable provisions of the Ordinance, the FBR added.

July 21, 2022

Pakistan enhances income tax rates for banks

ISLAMABAD: Pakistan has enhanced tax rates for banks through amendments introduced through Finance Act, 2022.

In this regard the apex tax agency of the country, i.e. Federal Board of Revenue (FBR) on Thursday issued Income Tax Circular No. 15 of 2022/2023 to explain important amendments made to Income Tax Ordinance, 2001 through Finance Act, 2022.

READ MORE: Declaring beneficial owner made mandatory for companies, AOPs

The FBR said that tax rates for banking companies are enhanced as explained hereunder:

The taxable income arising from additional income of banking companies earned from additional investment in Federal Government securities for tax year 2020 and 2021 was taxable at the rate of 37.5 per cent instead of rates provided in Division II of Part I of First Schedule of the Income Tax Ordinance, 2001.

READ MORE: Pakistan reintroduces capital value tax on motor vehicles

This provision was further amended through Finance Act, 2021, whereby income attributable to investment in the Federal Government securities of banking companies was made taxable on the basis of advances to deposit ratios at graduated tax rates of 40 per cent, 37.5 per cent and 35 per cent, if ratio was up to 40 per cent, 40-50 per cent and above 50 per cent respectively.

The Finance Act, 2022 has introduced enhanced rates of tax on taxable income of banks attributable to investment in Federal Government securities.

READ MORE: Customs duty exemption, concession granted

The enhanced rates for tax year 2022 are 55 per cent, 49 per cent and 35 per cent if gross advances to deposit ratio was upto 40 per cent, 40-50 per cent or above 50 per cent respectively.

For tax year 2023, and onwards tax rates will be 55 per cent, 49 per cent and 39 per cent if gross advances to deposit ratio is up to 40 per cent, 40 -50 per cent or above 50 per cent respectively.

The changes have been incorporated by substituting sub-rule (6A) of rule 6C of Seventh Schedule to the Ordinance.

READ MORE: Commodities’ illegal movement to be treated as smuggling

The tax rate on income of banking companies has been enhanced to 39 per cent for tax year 2023 from current 35 per cent through amendment in Division II of Part I of First Schedule of the Ordinance.

Additionally, the application of section 4B has been restricted up to tax year 2022 in case of banking companies.

July 21, 2022
Declaring beneficial owner made mandatory for companies, AOPs

ISLAMABAD: The Federal Board of Revenue (FBR) on Thursday said that declaration of beneficial owner has been made mandatory for companies and Association of Persons (AOPs) under income tax laws.

The FBR issued Income Tax Circular No. 15 of 2022-2023 to explain the important amendment made through Finance Act, 2022 to Income Tax Ordinance, 2001.

READ MORE: Pakistan reintroduces capital value tax on motor vehicles

The FBR said that previously companies and AOPs were not required to disclose the natural individuals who are ultimate beneficial owners.

Thus beneficial ownership could be hidden through intervening companies and trusts.

READ MORE: Customs duty exemption, concession granted

To bring transparency and to remove this obscurity, as per best international practices, companies and AOPs are now required to disclose details of their beneficial owners who are natural persons.

Definition of term ‘beneficial owner’ has been provided by inserting new clause (7A) in section 2 of the Income Tax Ordinance 2001.

READ MORE: Commodities’ illegal movement to be treated as smuggling

Corresponding new section 181E has been inserted in the Ordinance whereby every company and association of persons will furnish electronically, particulars of its beneficial owners and will be required to update these particulars as and when there is a change in particulars of beneficial owners.

Penalty of Rs. 1,000,000 has also been prescribed by incorporating entry No. 30 in the Table, in sub-section (1) of section 182 for each default of company or association of persons who contravenes the provisions of section 181E of the Ordinance.

READ MORE: Special tax regime for pharma sector introduced

July 21, 2022
Pakistan reintroduces capital value tax on motor vehicles

KARACHI: The federal government of Pakistan has reinstated the Capital Value Tax (CVT) at a rate of one percent on the value of both locally manufactured and imported motor vehicles. This move marks the revival of a tax that was previously withdrawn in phases and ultimately abolished in 2020.
(more…)

July 21, 2022
Customs duty exemption, concession granted

KARACHI: The Finance Act, 2022 has amended provisions of Customs Act, 1969 to grant exemption and concessions from customs duty.

Following are the exemptions and concessions of customs duty:

Exemption of Customs Duty and Additional Customs Duty

READ MORE: Commodities’ illegal movement to be treated as smuggling

Customs Duty (CD) leviable on the import of following categories of items / sectors is exempted for incentivizing the respective sectors:

– Machinery and capital goods for mechanization of farming including machinery pertaining to irrigation, drainage, harvesting, plant protection etc.

– Specified raw materials used for manufacturing of LED lights, LED bulbs (including parts thereof) and brush ware.

– 26 Active Pharmaceutical Ingredients for incentivizing Pharmaceutical manufacturers.

– Raw materials for manufacture of first aid bandages.

READ MORE: Special tax regime for pharma sector introduced

– Membranes for filtering / purifying water.

– The drug ‘Grafalon’ and gadget ‘Irisvision’.

– Raw materials of Ivy leaves extract powders.

– Motor spirit.

– Cinematographic equipment imported during the period commencing on the 1st July, 2018 and ending on the 30th June, 2023.

– Bullet proof vehicles and jammers imported by Federal Government, Provincial Government or such states and territories as are or may be included in Pakistan.

READ MORE: Defacing sales tax invoice declared as offence

– Smartphones including those in CKD/SKD condition (subject to certain conditions prescribed for import of CKD/SKD units).

In addition to CD, Additional Customs Duty (ACD) is also exempted on import of the following goods:

– Raw materials imported by paper sizing industry and chlorinated paraffin wax industry and manufacturers of aluminum conductor composite cores.

– Stamping foils for manufacturing of optic fiber cables.

– Aluminum paste and powder imported by the Coating industry.

– Guts, bladders and stomachs of animals.

Reduction in Customs Duty and Additional Customs Duty

CD leviable on import of following goods is reduced:

– Specified categories of other woven fabrics and artificial flowers / foliage of other materials imported by manufacturers of footwear.

READ MORE: FBR to collect 3% further tax on supply to inactive taxpayer

– High-density fiber (HDF) boards of wood or other ligneous materials

– Specified fibers of polypropylene.

– Through the Finance Bill, CD was proposed to be reduced on 10 categories of direct and reactive dyes. Such reduction in CD has now been restricted to 6 categories through the Act.

In addition to CD, ACD, leviable on import of following goods is also reduced:

– Direct and reactive dyes.

– Glycerol crude and Glycerol for the coating industry.

– Goods pertaining to Aluminum, polymers of ethylene, Biaxially Oriented Polypropylene (BOPP) used by the packing industry.

– Adhesive, Epoxide resins, Filter media/ paper, Non-woven fabric media and Steel plates / sheets of prime quality imported by manufacturers of filters, other than automotive.

– Organic composite solvents and thinners imported by manufacturers of Dibutyl Orthophthalates.

– Plywood, veneered panels & similar laminated wood, poly (methyl methacrylate) and cyanoacrylate.

– Flavoring powders for food preparation for snacks manufacturers.

July 17, 2022
Commodities’ illegal movement to be treated as smuggling

In a move to tighten control over the illegal movement of essential commodities, the Finance Act, 2022, has expanded the definition of smuggling.
(more…)

July 16, 2022
Special tax regime for pharma sector introduced

KARACHI: A special sales tax regime has been introduced for pharmaceutical sector through Finance Act, 2022 by making amendments in Sales Tax Act, 1990.

As per the special tax regime manufacture or import of substances registered as drugs under the Drugs Act, 1976 shall be subject to 1 per cent sales tax with the condition that such tax shall be final discharge of tax in the supply chain and no input tax shall be allowed to the importer and manufacturer of such goods.

READ MORE: Defacing sales tax invoice declared as offence

According to explanation of Finance Act, 2022 released by PwC A. F. Ferguson & Co. prior to the amendments made through the Finance (Supplementary) Act, 2022, the entire pharma sector was exempt from levy of sales tax both at input as well as output stage, except for certain packing materials.

The aforesaid exemption regime was converted into a zero-rating regime for import and local supplies for finished items of pharma sector, however, sales tax was imposed at standard rate of 17 per cent on purchase / import of Active Pharmaceutical Ingredients (API).

READ MORE: FBR to collect 3% further tax on supply to inactive taxpayer

As a result, the pharma sector was allowed to claim sales tax refund on all purchases including APIs and provincial sales tax on services. A faster – pharma system for expeditious processing of refund claims for pharma sector was introduced.

These amendments were made with the aim to improve documentation of the pharma sector.

READ MORE: FBR starts online monitoring sales of jewelers

The special tax regime for Pharma Sector has now been introduced whereby manufacture or import of substances registered as drugs under the Drugs Act, 1976 shall be subject to 1 per cent sales tax with the condition that such tax shall be final discharge of tax in the supply chain and no input tax shall be allowed to the importer and manufacturer of such goods.

Furthermore, APIs, excluding excipients, for manufacture of drugs registered under the Drugs Act, 1976 or raw materials for the basic manufacture of Active Pharmaceutical Ingredients shall also be subject to 1 per cent sales tax with no input tax adjustment and subject to certification by DRAP and certain procedural conditions.

READ MORE: Tax concessions to pilots withdrawn

July 14, 2022
Defacing sales tax invoice declared as offence

KARACHI: Defacing sales tax invoice has been declared as an offence under Sales Tax Act, 1990 as amendment has been made through Finance Act, 2022.

The defacing of sales tax invoice will attract penalties as well as imprisonment.

READ MORE: FBR to collect 3% further tax on supply to inactive taxpayer

According to explanation of amendments made through Finance Act, 2022, issued by PwC A. F. Ferguson, defacing the prescribed invoice number or the barcode or QR code has been introduced as an offence subject to levy of penalty of higher of Rs 500,000 or 200 per cent of the amount of tax involved.

Upon conviction by a Special Judge, a simple imprisonment for a term which may extend to two years, or with additional fine which may extend to two million rupees, or with both may also be imposed.

READ MORE: FBR starts online monitoring sales of jewelers

Any person who abets commissioning of such offence has also been made liable, upon conviction by a Special Judge, to simple imprisonment for a term which may extend to one year, or with additional fine which may extend to two hundred thousand rupees, or with both.

Certain penalties were introduced through Tax Laws (Third Amendment) Ordinance, 2021 on failure of Tier-1 retailers to register and integrate business which have now been ratified in the Act.

READ MORE: Tax concessions to pilots withdrawn

The Finance Act, 2022 also amended laws related to powers of the FBR regarding initiating criminal proceedings.

The powers of the FBR to prescribe rules for initiating criminal proceedings against any specified authority for willful or deliberate acts/omissions resulting in personal benefits and undue advantage to authority, person or taxpayer have been withdrawn. Earlier, the FBR was empowered to this effect through Finance Act, 2019.

READ MORE: Pakistan grants tax exemption to charitable organizations

July 14, 2022