KARACHI: Pakistan has withdrawn tax amnesties for industrial promotion through Finance Act, 2022 by making certain amendments to the Income Tax Ordinance, 2001,
Analysts at PwC A. F. Ferguson & Co. explained amendments made through Finance Act, 2022 to Sections 59C, Section 65H and Section 100F of the Income Tax Ordinance, 2001.
The analysts said that amnesties, introduced vide the Income Tax (Amendment) Ordinance, 2022, with respect to the following investments have been withdrawn with effect from March 2, 2022:-
a) New & existing industrial undertakings – Section 59C;
Through the Finance Act, 2022 certain tax credits for industrial promotion under Section 60C, Section 62 and Section 62A of Income Tax Ordinance, 2001 have also been withdrawn.
Tax credits and deductible allowances in respect of the following, have been withdrawn:-
a) Profit on debt incurred on house financing – Section 60C;
b) Investment in new shares of listed companies, mutual funds or life insurance policies, Sukuk, etc. – section 62; and
c) Purchase of Health insurance policies – section 62A.
Experts at PwC A. F. Ferguson & Co. explained the amendment saying that presently, income received by any person (not being a citizen of Pakistan) engaged as a contractor, consultant, or expert on a project in Pakistan is exempt from tax to the extent provided for in a bilateral or multilateral technical assistance agreement between the Federal Government and a foreign government or public international organization, subject to certain conditions. Such exemption is limited to agreements where ‘technical assistance’ is being provided.
The Finance Act 2022, has enhanced the scope of above exemption by removing the term ‘technical assistance’ from the above provision, meaning thereby now all sorts of agreement between Federal Government and a foreign government or public international organization would be covered under the above exemption.
Furthermore, the exemption would also be available to a citizen of Pakistan provided such person is either a non-resident person or a resident person solely by reason of the performance of services under the agreement.
The Act has also empowered the Federal Government to grant exemption on income of any person on a case-to-case basis through a notification in the Official Gazette in respect of an official development assistance financed loans and grant-in-aid, subject to such conditions and limitations as may be specified.
Capital gains tax on disposal of immovable properties located in Pakistan shall be taxed at the following rates:
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.
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.
Tax experts at PwC A. F. Ferguson & Co. said consequently, capital gains relating to disposal of immovable properties situated outside Pakistan will be taxed at applicable rates irrespective of holding period.
KARACHI: A resident person, who owns capital assets in Pakistan, will be taxed on deemed income arising from capital assets for tax year 2022.
An important amendment has been made part of the Income Tax Ordinance, 2001 through Finance Act, 2022.
Experts at PwC A. F. Ferguson & Co. explained this provision of the ordinance made part through Finance Act, 2022, as a resident person owning capital assets in Pakistan will be taxed on deemed income arising from capital assets for tax year 2022 and onwards.
For this purpose, such deemed income shall be computed as 5 per cent of the Fair Market Value (as determined by the FBR under section 68 of Income Tax Ordinance, 2001 of capital assets.
The rate of tax on such income is prescribed as 20 per cent.
This translates into an effective tax at 1 per cent of Fair Market Value of capital assets.
The experts said that an exclusionary definition of ‘capital asset’ has been provided, which effectively means that such tax is leviable only in respect of ‘immovable property’ situated in Pakistan owned by resident persons.
For the purposes of such tax; however, while following immovable properties shall stand excluded, the Federal Government has been empowered to notify any exclusion or inclusion of any person and/ or property from the scope of such tax:
(a) one immovable property owned by the resident person;
(b) self-owned business premises from where the business is carried out by the persons appearing on the active taxpayers’ list at any time during the year;
(c) self-owned agriculture land where agriculture activity is carried out by person excluding farmhouse (defined in a specified manner) and land annexed thereto;
(i) a shaheed or dependents of a shaheed belonging to Pakistan Armed Forces;
(ii) a person or dependents of the person who dies while in the service of Pakistan armed forces or Federal or provincial government;
(iii) a war wounded person while in service of Pakistan armed forces or Federal or provincial government; or
(iv) an ex-serviceman and serving personnel of armed forces or ex-employees or serving personnel of Federal and provincial governments, being original allottees of the capital asset duly certified by the allotment authority;
(e) any property from which income is chargeable to tax under the Ordinance and tax leviable is paid thereon;
(f) immovable property in the first tax year of acquisition where tax under section 236K of the Income Tax Ordinance, 2001 has been paid;
(g) where the fair market value of the capital assets in aggregate excluding the capital assets mentioned in clauses (a) through (f) above does not exceed Rs 25 million;
(h) immovable property owned by a provincial government or a local government; or
(i) immovable property owned by a 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 Business and Professions.
The constitutional validity of this tax in relation to entry 50 of the Fourth Schedule to the Constitution of Pakistan and the scope of any amount which can be deemed as income will have to be tested, they added.
Pakistan has introduced a 10 percent tax on money transfers to non-residents lacking a permanent establishment within the country who derive income from various financial services.
1. The requirement of CNIC / NTN for the purposes of invoices issued to unregistered persons and restriction of input tax attributed to such supplies retained to the extent of supplies to unregistered distributors.
2. Sales tax regime of pharma sector revamped with 1 per cent final sales tax on manufacturers and importers without any input adjustment.
3. The rate of fixed tax on other than Tier-1 retailers shall be increased by 100 per cent if the said retailers are not appearing on the Active Taxpayer List.
5. Value of supply not to include the amount of subsidy provided by the Federal Government or Provincial Government to the electricity consumer.
6. Through the Bill, ‘locally produced coal’ was proposed to be taxed at 17 per cent which has not been approved in the Act. It has now been subject to sales tax at higher of 17 per cent ad valorem or Rs 700 per metric tonne.
7. The proposed increase in sales tax rate from 5 per cent to 10 per cent for following has not been approved in the Act.
1. Slab rates for super tax introduced for taxpayers having income in excess of Rs 150 million. The Bill earlier proposed such threshold at Rs 300 million at a standard rate of 2 per cent.
2. Super tax rate is enhanced to 10 per cent for certain specified sectors for tax year 2022 whereas for banking companies such enhanced rate of super tax will be applicable for tax year 2023.
6. The revised slab rates for salaried individuals introduced by setting below taxable limit at Rs 600,000 as against the original proposal of Rs 1,200,000. Further, the reduction in tax rates proposed in Finance Bill has not only been reversed but the tax incidence has also been enhanced (as compared to position prior to Finance Bill).
7. The right to carry forward minimum tax retained, however, the period is reduced from five to three years.
8. The tax credit on contributions to Voluntary Pension Scheme retained.
9. The resident individual will now also include a citizen of Pakistan who was not in any one foreign country for more than 182 days.
10. The credit for income covered by final tax in respect of assets declared in wealth statement or books of account in excess of imputable income is inter alia subject to submission of audited financial statements.
ISLAMABAD: Small retailers or a shopkeepers have to pay double the amount of fixed tax in case of not appearing on the Active Taxpayers List (ATL).
The federal government through the Finance Bill, 2022 introduced a scheme of fixed tax for small retailers.
However, the National Assembly approved the bill with certain changes in the fixed tax regime. The Finance Act, 2022 now has binding on the small retailer to register themselves with the tax department and appear on the Active Taxpayers list (ATL) in order to avail the fixed tax facility.
In sub section 9, Section 3 of Sales Tax Act, 1990, a new proviso has been inserted through the Finance Act, 2022, which stated:
“Provided that the above rates of tax shall be increased by one hundred percent if the name of the person is not appearing in the Active Taxpayers List issued by the Board under section 181A of the Income Tax Ordinance, 2001 on the date of issuance of monthly electricity bill.”
Similarly, a new Section 99A has been inserted to the Income Tax Ordinance, 2001 and approved through the Finance Act, 2022, which is as follow:
“99A. Special provisions relating to payment of tax through electricity connections.
(1) Notwithstanding anything contained in the Ordinance, a tax shall be charged and collected from retailers other than Tier-I retailers as defined in Sales Tax Act, 1990 (VII of 1990) and specified service providers on commercial electricity connections at the rates provided in clause (2A) of Division IV, Part IV of the First Schedule.
(2) A retailer who has paid sales tax under sub-section (9) of section 3 of Sales Tax Act, 1990 (VII of 1990), shall not be required to pay tax under this section and the sales tax so paid shall constitute discharge of tax liability under this section.
(3) The tax collected or paid under this section shall be final tax on the income of persons covered under this section in respect of business being carried out from the premises where the electricity connection is installed.
(4) For the purposes of this section, Board with the approval of the Minister in-charge may issue an income tax general order to-
(a) provide the scope, time, payment, recovery, penalty, default surcharge, adjustment or refund of tax payable under this section in such manner and with such conditions as may be specified.
(b) provide record keeping, filing of return, statement and assessment in such manner and with such conditions as may be specified;
(c) provide mechanism of collection, deduction and payment of tax in respect of any person; or
(d) include or exempt any person or classes of persons, any income or classes of income from the application of this section, in such manner and with such conditions as may be specified.”
The rate of tax leviable under section (99A), and collectable under sub section (1A) of Section 235 shall be as under:-
Gross amount of monthly bill
Tax
Where the amount does not exceed Rs. 30,000
Rs. 3000
Where the amount exceeds Rs. 30,000 but does not exceed Rs. 50,000
Rs. 5000
Where the amount exceeds Rs. 50,000 but doesnot exceed Rs. 100,000
Rs. 10,000
Specified retailers and service providers through Income Tax General Order
KARACHI: About four years jail term has been prescribed for tempering data of Pakistan Single Window (PSW).
According to Finance Act, 2022 certain amendments have been made to Customs Act, 1969 to prescribed fine and penalty for attempting to tamper or making unauthorized entry to the online data of PSW.
Offence: If any person makes or attempts to make unauthorized access to information, data or personal details of registered user of Pakistan Single Window system or systems connected or ancillary thereto;
Penalty: Imprisonment which may extend up to six months or with fine which may extend to one hundred thousand rupees or with both.
Offence: If any person makes or attempts to make unauthorized copy, transmission or cause to transmit any data, information or detail in relations to Pakistan Single Window system or systems connected or ancillary thereto;
Penalty: Imprisonment which may extend upto six months or with fine which may extend to one hundred thousand rupees or with both.
Offence: If any person makes unauthorized interference, or attempt to interfere, damage or attempt to damage any part of whole of the Pakistan Single Window system or data or system connected to or ancillary thereto;
Penalty: Imprisonment which may extend to three years or fine which may extend to five hundred thousand rupees or with both.
Offence: If any person makes or attempts to make use of any information system, device or data to make any illegal claim or title or cause any person to part with property or to enter into any express or implied contract or intent to commit fraud by any input, alteration, deletion or suppression of data, resulting in unauthentic data with the intent that such data be considered or acted upon for legal purpose, as if it were authentic in relations to Pakistan Single Window system or Systems connected or ancillary thereto;
Penalty: Imprisonment which may extend to four years or fine which may extend to one million rupees or with both.
Offence: If any person uses, makes, supplies, retains, obtains device, system or software for offences under section 13 of the Pakistan Single Window Act, 2021 (III of 2021);
Penalty: Imprisonment which may extend to six months or with fine which may extend to one hundred thousand rupees or with both.
Offence: If any person obtains, sells, process, uses or transmits another person’s Unique User Identifier or makes an attempt thereof without authorization;
Penalty: Imprisonment which may extend to four years and fine which may extend to one million rupees or with both.
Offence: If any person tampers with or attempts to tamper with, alters, reprogrammes any Pakistan Single Window system or system connected or ancillary thereto for unauthorized use;
Penalty: Imprisonment which may extend to four years and fine which may extend up to one million rupees or with both and any devices or systems used in offence shall be liable to confiscation.
Offence: If any person writes, offers, makes available, distributes or transmits a malicious code or abets in the same, with intent to cause harm to Pakistan Single Window system or data resulting in or intending to result in corruption, destruction, alteration, suppression, theft or loss to the Pakistan Single Window system or data, or any attempt thereof.
Penalty: Imprisonment for a term which may extend to four years and fine which may extend to five million rupees or with both.
The National Assembly passed the Finance Act, 2022 that empowers the government to enforce the laws that were amended through federal budget 2022/2023.
In this regard amendment has been made to Petroleum Products (Petroleum Levy) Ordinance, 1961.
It is worth mentioning that the previous PTI government had not imposed a petroleum levy in order to provide petroleum products at cheaper rates.
However, the current coalition government led by PML-N in its budget 2022/2023 announced on June 10, 2023 estimated collection of Rs750 billion during the current fiscal year.
