Category: Budget

This is parent category of budgets presented by Pakistan government. Here you will find year-wise federal and provincial budgets.

FBR makes mandatory purchase of immovable property through banking channel

ISLAMABAD: Federal Board of Revenue (FBR) has made mandatory the purchase of immovable property of fair market value above Rs5 million through banking channel.

The FBR issued explanation to the Finance Act, 2019 on Tuesday regarding purchase of assets through banking channel under Section 75A of Income Tax Ordinance, 2001.

The FBR said that a new section 75A has been introduced in the Ordinance which requires that no person shall purchase immovable property having fair market value greater than Rs.5,000,000 or any other asset having fair market value more than Rs.1,000,000 otherwise than by a crossed cheque drawn on a bank or through crossed demand draft or crossed pay order or any other crossed banking instrument showing transfer of amount from one bank account to another bank account.

Fair market value of immovable property shall be the value notified by the Board under sub-section (4) of section 68 or the value fixed by provincial authority for the purpose of stamp duty, whichever is higher.

In case the transaction is not through banking channel as specified above,-

(a) such person cannot claim deductions mentioned in sections 22,23,24 & 25 on such assets. Hence, no deduction for depreciation, initial allowance, intangibles and pre-commencement expenditure shall be allowable for assets purchased otherwise than through banking channel as specified above;

(b) the amount of purchased through cash which was required to paid through banking channel as stated above, shall not be treated as cost as per section 76 for computation of any gain in sale of such asset.
Further, any person purchasing immovable property having fair market value greater than five million through cash or bearer cheque shall pay a penalty of 5% of the value of property determined by the Board under sub-section (4) of section 68 or the value determined by the provincial authority for the purposes of stamp duty, whichever is higher.

The above provisions of law are illustrated through the following examples.

Example 1

Mr A is deriving income from business and has declared taxable income as under.

Sale: 100,000,000.

Cost of sales: 70,000,000.

Breakup of cost of sale

Initial depreciation on machinery: 10,000,000.

Normal depreciation of machinery: 6,000,000.

Salaries: 40,000,000.

Fuel and utilities: 14,000,000.

Gross profit: 30,000,000.

Admin & distribution expenses: 10,000,000

Taxable income: 20,000,000

Mr. A had bought machinery of Rs40 million for the year through cash. As per section 75A, business deduction under section 22 & 23 pertaining to initial depreciation of Rs10,000,000 and normal depreciation of Rs6,000,000 shall not be admissible. Hence, Rs16,000,000 will be added in taxable income resulting in taxable income of Rs36,000,000.

Mr. A subsequently sells the machinery after three years at Rs12,000,000. For the purpose of computing gain, the cost of the asset has to be deducted from the sale price but in this case, the machinery was purchased through cash, hence, the cash amount cannot be treated as cost. Resultantly, Rs12,000,000 will be treated as gain chargeable to tax under the head “income from business”.

Example 2.

Mr. B derives income from salary only. He has purchased immovable property through cash and the FBR value of the property is Rs8,000,000 but the DC value of property for the purpose of stamp duty is Rs6,000,000. As per serial No. 21 of section 182, penalty at 5 percent of FBR value of property of DC value, whichever is higher, is to be imposed. In this case, the FBR value of property is greater than DC value, hence penalty shall be imposed at 5 percent of Rs8,000,000 at Rs400,000.

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FBR allows reduced duty rates for import of certain CBU vehicles

July 30, 2019
CNIC condition not applicable on purchases below Rs50,000

KARACHI: The condition of providing CNIC details is not applicable on purchases up to Rs50,000 by a person, said Zeeshan Merchant, former vice president of Karachi Tax Bar Association (KTBA).
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July 11, 2019
Elimination of zero rating, other policy and administrative measures to generate Rs733.47 billion

KARACHI: Federal Board of Revenue (FBR) to generate additional revenue of Rs733.47 billion during current fiscal year after abolishing zero-rating of sales tax and other policy and administrative measures.

Pakistan has outlined its strategy for enhancing revenue collection before the International Monetary Fund (IMF) through eliminating exemptions, distortion and other policy and administrative measures.

These budgetary measures likely enhance tax to GDP ratio by 1.7 in the fiscal year 2019/2020.

The FBR will generate additional revenue of Rs222.77 billion from measures taken through budget 2019/2020 in the sales tax, which included:

Petroleum products levy increase to 15 PRs (and set as a floor) and

GST rate at 17 percent (set as a floor)

Cancel SRO # 480 and bring steel sector, edible oil and medium to large retailers to 17 percent GST regime

Extend the list of products under the retail price taxation – Third Schedule (home appliances, paint.., currently under SRO # 480)

Cancel SRO#1125 and bring exportable sectors to standard GST regime at 17 percent rate, with immediate cash refund for exported goods only

Remove certain items from exemptions (packaged food), and apply GST tax at 17 percent.

Increase GST on sugar from 8 percent to 17 percent

Redefine the exemption available to Cottage Industry

An additional amount of Rs90.114 billion estimated under Federal Excise Duty (FED) through following measures:

0.2 Increase of FED on cigarettes and remove the third tier.

Introduce FED on cigarettes coming from non tariff areas

Increase/introduce FED on sugary drinks to 13 percent

Increase FED on cement from 1.5 Rs per kg to 2 Rs

Additional amount of Rs324.98 billion estimated through eliminating exemptions and other distortions in Income Tax, such as

Personal Income Tax (PIT): lower the threshold to Rs400,00 and Rs600,000 for non-salaried and salaried individuals respectively, increase tax rates Increase in rate of minimum tax u/s 113 from 1.25 to 1.5 percent

Extend the regime of higher withholding tax rates for non-filers

Resume Telecom withholding rate

Change in income tax regime of Services sector (banks and insurance companies)

Abolish BMR credit incentives

Increase the holding period liable to tax for capital gain tax on immovable properties and securities

Taxation of gifts from unrelated person at standard PIT rate

Aligning value of immovable properties with the market rates

Reduction of number of withholdings and simplification of procedures

Amortization of expenditure in BOT projects over useful life of the project instead of current 10 year amortization

Long term lease hold right may be considered as purchase of property

Taxation of formal agricultural sector within the scope of federal government

Rationalization of tax credit available to Non-profit organizations (NPOs)

An amount of Rs60 billion has been estimated to be generated through measures taken under Customs duty:

Increase in Additional Customs Duty Rate on finished and luxury goods

Withdrawal of exemption on import of LNG and subjected to 5 percent duty

Revenue administrative measures to generate Rs 35.6 billion through following steps:

Implement Track and Trace system for Tobacco Products

Automated monitoring of GST and income at retail (point of sale)

Changes in ADCIR mechanism

Separation of audit & adjudication functions

Making procedure for prosecution easier

Enabling and strengthening FBR field formations

Cleansing of databases and integration to enable effective data mining

Enabling efficient enforcement through investment in FBR

Infrastructure and process reengineering

Taxpayer education and facilitation

July 9, 2019
Key points of Pakistan’s revenue driven fiscal consolidation

KARACHI: The International Monetary Fund (IMF) has highlighted points of Pakistan’s budget 2019/2020 which envisaged a substantial revenue driven fiscal consolidation.

“The FY 2019/20 budget envisages a substantial fiscal consolidation. The primary deficit is expected to decline to 0.6 percent of GDP, from estimated 1.8 percent of GDP in FY 2018/2019,” the IMF said in the country report on Pakistan issued on Monday after a successful $6 billion loan program for the country.

The report said that the envisaged fiscal consolidation will be largely revenue driven:

a) Sales tax measures are mostly focused on simplifying the system by eliminating numerous exemptions and preferential rates and enhancing the sales tax of petroleum products. In particular, exemptions granted to four export-oriented sectors for domestically sold products will be eliminated, together with non-essential food related products exemptions.

Moreover, preferential rates related to sugar, steel sector, edible oil, medium and large retailers will also be eliminated and aligned with the standard 17 percent sale tax rate.

b) Income tax measures will aim at widening the tax base and closing the loopholes that are fostering tax avoidance.

The income tax threshold will be reduced for salaried and non-salaried individuals to PRs 600,000 and PRs 400,000 respectively, and the tax rate at the top of income distribution increased.

The collection of withholding tax on telecom services that had been stalled in the court will be resumed, and tax credit available for machinery investment and to non-profit organizations will be rationalized.

The FBR will also align the value of immovable properties with market rates and specify conditions under which the long-term lease hold will be considered as the purchase of property.

In addition, the minimum tax rate will increase and taxation of gifts from unrelated persons will be introduced.

c) Federal excise duties on certain products will be introduced or increased (cigarettes, sugary drinks, cement); while

d) custom duty measures will eliminate the exemptions on import of liquified natural gas and increase the additional custom duty for finished and luxury goods.

e) Revenue administration measures will support policy implementation. The emphasis will be given to the modernization and digitalization of FBR functions, improvement of the database and the streamlining of legal procedures.

To strengthen the collection of excises on cigarettes and eliminate illicit trade, the track-and-trace system will we implemented in the second quarter of the year.

July 9, 2019
Reduced sales tax rates on supply of gold, jewelry imposed

The Federal Board of Revenue (FBR) has introduced significant amendments through the Finance Act, 2019, bringing gold, jewelry, and other precious articles into the sales tax ambit by implementing reduced rates on supplies.
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July 8, 2019
FBR allows reduced duty rates for import of certain CBU vehicles

KARACHI: Federal Board of Revenue (FBR) has allowed reduced rate of customs duty on import of certain automotive vehicles in Completely Built Units (CBUs) under Automotive Development Policy 2016-2020.

Following are the automotive vehicles, which are granted reduced customs duty rates on import:

1. Agricultural Tractors, having an engine capacity exceeding 26 kW but not exceeding 75kW (PCT code 8701.9220, 8701.9320) at 15 percent.

2. Agricultural Tractors (other than mentioned at S. No. 1 above) (PCT Code 8701.9100, 8701.9400, 8701.9500) at 10 percent.

3. Fully dedicated LNG buses (CBU) (PCT Code 8702.9030) at one percent

4. Fully dedicated LPG buses (CBU) (PCT Code 8702.9040) at one percent

5. Fully dedicated CNG buses (CBU) (PCT Code 8702.9050) one percent.

6. Hybrid Electric Vehicle (HEV) (CBU) (PCT code 8702.2090, 8702.3090) at one percent.

7. Hybrid Electric Vehicle (HEV) (CBU) (PCT code 8704.2214, 8704.2294, 8704.2340, 8704.3240) at one percent.

8. Trailers (PCT code 87.16) at 15 percent

July 6, 2019
Aviation industry allowed duty free import of aircraft, spare parts

KARACHI: Federal Board of Revenue (FBR) has allowed duty free import of aviation related goods including aircraft and spare parts under National Aviation Policy 2015.

According to Finance Act, 2019 following goods related to aviation have been allowed duty free import:

1. Aircraft HS Code 8802.4000 at zero percent customs duty under condition whether imported or acquired on wet or dry lease. In case of M/s Pakistan International Airlines (PIA) Corporation this exemption shall be admissible on and from the 19th March, 2015.

2. Spare parts Respective headings at zero percent for use in aircraft, trainer aircraft and simulators.

3. Maintenance Kits Respective headings at zero percent for use in trainer aircraft (8802.2000 & 8802.3000).

4. Machinery, equipment & tools respective headings at zero percent for setting up Maintenance, Repair & Overall (MRO) workshop by MRO company recognized by Aviation Division.

5. Machinery, equipment, operational tools, furniture& fixture respective headings at zero percent on one time basis for exclusive use of New/Greenfield airports by company authorized by Aviation Division.

6. Aviation simulators Respective headings zero percent on one time basis for aircrafts by airline company recognized by Aviation Division.

The FBR said that for the purposes of this Part, the following conditions shall apply besides the conditions as specified in column (5) of the Table below:—

(i) the Chief Executive, or the person next in hierarchy duly authorized by the Chief Executive or Head of the importing company shall certify that the imported goods/items are the company’s bonafide requirement. He shall furnish all relevant information online to Pakistan Customs Computerized System against a specific user ID and password obtained under section 155D of the Customs Act, 1969 (IV of 1969). In already computerized Collectorates or Customs stations where the Pakistan Customs Computerized System is not operational, the Director Reforms and Automation or any other person authorized by the Collector in this behalf shall enter the requisite information in the Pakistan Customs Computerized System on daily basis, whereas entry of the data obtained from the customs stations which have not yet been computerized shall be made on weekly basis;

(ii) the exemption shall be admissible on production of certificate by the Aviation Division, Government of Pakistan to the effect that the intending importer is operating in the country or intends to operate in the county in the airline sector;

(iii) the list of imported items is duly approved by the Aviation Division, Government of Pakistan in line with Policy Framework approved by the Government of Pakistan;

(iv) the Chief Executive, or the person next in hierarchy duly authorized by the Chief Executive or Head of the importing company shall furnish an undertaking to the customs authority at the time of import that the goods imported shall be used for the purpose as defined/notified by the Aviation Division, Government of Pakistan under the Aviation Policy; and

(v) in case of deviation from the above stipulations, the Collector of Customs shall initiate proceedings for recovery of duty and taxes under the relevant laws.

July 6, 2019
Finance Act 2019: FED imposed on all imported vehicles

The federal government, under the Finance Act 2019, extended the application of Federal Excise Duty (FED) to all imported vehicles, aligning the tax regime with that of locally manufactured automobiles. This policy shift represents a significant move towards harmonizing the taxation framework across the domestic and import markets.
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July 5, 2019
Finance Act 2019: CNIC condition for sales tax invoices applicable from August 01

KARACHI: The condition of obtaining CNIC number for unregistered persons at the time of supplies by registered person will be applicable from August 01, 2019.

The condition has been proposed to be applicable from July 01, 2019 through Finance Bill 2019.

However, through Finance Act, 2019 this condition now will be applicable from August 2019.

An amendment has been introduced through Finance Bill 2019 to Section 23 of Sales Tax Act, 1990 under which it was now required specifically to mention particulars on invoices in Urdu or English language. Tax Invoice is also required to reflect CNIC Number of recipient in case supplies are made to unregistered person.

The Finance Bill 2019 also proposed to require a supplier of textile yarn and fabric to mention count, denier and construction, in addition to description, on tax invoice at the time of making taxable supply.

According to commentary on Finance Act, 2019 issued by PwC A F Ferguson Chartered Accountants NTN or CNIC are now required to be mentioned in tax invoice in respect of supply to unregistered persons.

In the Finance Bill 2019, only CNIC was proposed to be mentioned on tax invoice.

Further through Finance Act 2019, such requirements have been made effective from 1st August, 2019.

However, an exception from such requirement has been introduced through the Finance Act for supplies made by a retailer where the transaction value inclusive of sales tax does not exceed rupees fifty thousand, if sale is being made to an ordinary consumer.

The term ‘Ordinary Consumer’ has also been explained in the Finance Act as a person who is buying goods for his own consumption and not for the purpose of re-sale or processing. It has been further provided in the Finance Act that in case it is subsequently proved that CNIC provided by the purchaser was not correct, liability of tax or penalty shall not arise against the seller, in case of sale made in good faith.

July 5, 2019
Finance Act 2019: Capital gain tax on immovable properties exempted on holding period above 8 years

KARACHI: The government has exempted the capital gain tax on immovable property where holding period is above eight years. The amendment has been brought through Finance Act, 2019 as it was proposed 10 years through Finance Bill 2019.

According to commentary on Finance Act, 2019 by PwC A F Ferguson Chartered Accountants, prior to finance bill 2019, capital gains on disposal of immovable properties were taxable as a separate block of income at the rates specified in the First Schedule, determined on the basis of holding period of immovable property.

The bill proposed to completely revamp the taxation of capital gains on disposal of immovable properties. It was proposed to tax gain on disposal of open plots as well as constructed properties at normal rates, subject to reduction in the amount of gain on the basis of holding period exceeding the specified thresholds.

Through amended finance bill, the taxability of gain arising on disposal of immovable properties as separate block of income has been restored.

However, the slab rates specified for such taxation are now based on the amount of gain, which are specified as under:

1. Where the gain does not exceed Rs 5 million: 5 percent

2. Where the gain exceeds Rs 5 million but does not exceed Rs 10 million: 10 percent

3. Where the gain exceeds Rs 10 million but does not exceed Rs 15 million: 15 percent

4. Where the gain exceeds Rs 15 million: 20 percent

Further, the holding period of property for ascertaining capital gain has been reduced vis-à-vis that proposed in the finance bill as under:

(a) For open plot of land, the gain chargeable to tax will be reduced by 25 percent if the holding period exceeds one year but does not exceed 8 years (as against 10 years proposed in the FB). Further, where the holding period exceeds 8 years (as against 10 years proposed in the FB), gain will be taken as zero.

(b) For constructed properties, the gain chargeable to tax will be reduced by 25 percent if the holding period exceeds one year but does not exceed 4 years (as against 5 years proposed in the FB). Further, where the holding period exceeds 4 years (as against 5 years proposed in the FB), gain will be taken as zero.

July 5, 2019