Category: Taxation

Stay updated on taxation news, tax laws, FBR policies, compliance, audits, income tax, sales tax, and fiscal developments in Pakistan.

Pakistan decides 10% regulatory duty on petrol import

KARACHI: Pakistan has decided to impose regulatory duty at 10 per cent from July 01, 2022.

The country presented its federal budget 2022/2023 on June 10, 2022 and proposed increase on regulatory duty on various imported goods.

READ MORE: Penalty amount revised for late filing income tax returns

The Finance Bill, 2022 suggested levying 10 per cent regulatory duty on import of motor spirit as against existing rate of zero percent.

Experts at PwC A.F. Ferguson Chartered Accountants said that the notifications for amendments relating to regulatory duty and additional duty are yet to be issued. “The comments are based on ‘Salient Features’ issued with the finance bill,” they added.

READ MORE: Advance tax on immovable property purchase enhanced to 250% for non-filers

The government also proposed increase in regulatory duty from zero per cent to 10 per cent on other paper, paperboard, cellulose wadding and webs of cellulose fibers.

Furthermore, the government planned to increase regulatory duty from 10 per cent to 20 per cent on optic fiber cables.

The Finance Bill also proposed amendments in reduction of regulatory duties, which included:

Regulatory duty has been proposed to be reduced as follows:

Case hardening steel from 30 per cent to 20 per cent

Chrome yellow from 15 per cent to 0 per cent

The Finance Bill proposed reduction / concessions in customs duty:

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

READ MORE: Pakistan massively increases taxation on motor vehicles

– 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.

– Membranes for filtering / purifying water.

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

– Raw materials of Ivy leaves extract powders.

– Motor spirit.

In addition to CD, Additional Customs Duty (ACD) is also proposed to be 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.

READ MORE: New rates of capital gain tax on disposal of securities

Reduction in Customs Duty and Additional Customs Duty

CD leviable on import of following goods is proposed to be reduced:

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

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

– Specified fibers of polypropylene.

In addition to CD, ACD, leviable on import of following goods is also proposed to be 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.

READ MORE: Pakistan slaps 45% corporate tax on banks

– 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.

June 19, 2022
Penalty amount revised for late filing income tax returns

ISLAMABAD: Penalty amount has been revised for filing income tax returns after due date.

The Finance Bill, 2022 proposed revision in penalty amount for late filing of income tax returns by salaried persons and other taxpayers.

The government presented federal budget 2022/2023 on June 10, 2022 and proposed various amendments to tax laws for ensure documentation and broadening of tax base.

READ MORE: Advance tax on immovable property purchase enhanced to 250% for non-filers

The Finance Bill, 2022 proposed amendment to Section 182 of Income Tax Ordinance, 2001. According to the amendment penalty amount revised where any person fails to furnish a return of income as required under Section 114 within the due date.

The proposed amendment is:

“Such person shall pay a penalty equal to higher of –

(a) 0.1 per cent of the tax payable in respect of that tax year for each day of default; or

(b) rupees one thousand for each day of default:

Provided that minimum penalty shall be —

(i) rupees ten thousand in case of individual having seventy-five percent or more income from salary; or

(ii) rupees fifty thousand in all other cases:

READ MORE: Pakistan massively increases taxation on motor vehicles

Provided further that maximum penalty shall not exceed two hundred percent of tax payable by the person in a tax year:

Provided also that the amount of penalty shall be reduced by 75 per cent, 50 per cent and 25 per cent if the return is filed within one, two and three months respectively after the due date or extended due date of filing of return as prescribed under the law;

Explanation.— For the purposes of this entry, it is declared that the expression “tax payable” means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under section 120, 121, 122 or 122D.

The existing amount of penalty is as followed:

Such person shall pay a penalty equal to 0.1 per cent of the tax payable in respect of that tax year for each day of default subject to a maximum penalty of 50 per cent of the tax payable provided that if the penalty worked out as aforesaid is less than forty thousand rupees or no tax is payable for that tax year such person shall pay a penalty of forty thousand rupees:

READ MORE: New rates of capital gain tax on disposal of securities

Provided that If seventy-five percent of the income is from salary and the amount of income under salary is less than five million Rupees, the minimum amount of penalty shall be five thousand Rupees:

Provided further that if taxable income is up-to eight hundred thousand Rupees, the minimum amount of penalty shall be five thousand Rupees:

Provided also that the amount of penalty shall be reduced by 75 per cent, 50 per cent and 25 per cent if the return is filed within one, two and three months respectively after the due date or extended due date of filing of return as prescribed under the law.

Explanation.— For the purposes of this entry, it is declared that the expression “tax payable” means tax chargeable on the taxable income on the basis of assessment made or treated to have been made under section 120, 121, 122 or 122C.

READ MORE: Pakistan slaps 45% corporate tax on banks

June 18, 2022
Pakistan’s tax employees announce pen down strike for salary raise

KARACHI: Employees of apex tax collecting agency of Pakistan i.e. Federal Board of Revenue (FBR) have announced pen down strike on June 17, 2022 (Friday) demanding raise in salary and allowances.

Sources in All Pakistan FBR employees said that they had announced a pen down strike all over the country on June 17, 2022 to highlight their demand for a pay raise and increase in fuel allowance.

READ MORE: FBR assigned tax collection target of Rs7 trillion in 2022/2023

The employees have been demanding to de- freeze there IJP (Internal Job Posting) allowance since many years, but the same has not been approved even in this budget.

The officers are demanding a pay raise in terms of special Revenue allowance and increased fuel allowance, being the sole federal breadwinning organization that has been achieving its budgetary targets for quite a few years.

The aggrieved informed that all the demands have been forwarded to Chairman FBR through proper channel.

READ MORE: FBR extends working hours on May 30 – 31 for tax collection

The officials of FBR were ensured a pay raise in this budget but the same was removed from the bill at the eleventh hour, which caused distress among the employees.

It should be noted over here that recently Prime Minister had de-freezed the allowance of all employees of the president house and prime Minister’s secretariat, but the government denied the right to FBR employees.

Several other Federal Government institutions have been given a pay raise and increase in various allowances in the recent budget but the same has been denied to the FBR workforce despite the fact that they have been showing exceptional performance, with regards to achieving their budgetary targets.

Though Finance Minister Miftah Ismail has congratulated the Federal Board of Revenue (FBR) and its Chairman Asim Ahmed for collecting Rs490 billion revenue in May 2022 through his twitter account, yet the long standing demand of de-freezing the IJP allowance of the officials, and that of pay raise was overlooked in the budget.

READ MORE: FBR chairman replaced despite massive collection growth

It should be noted that the federal budget 2020-2021 clearly stated that FBR revenues increased by 17 per cent and the government was on track to achieve the revised target of Rs 4,800 billion, which was then achieved accordingly. Likewise in this financial year 2021-2022, the net revenue collection grew to Rs5,349 billion during July-May (2021-22) as against the collection of Rs.4,164 billion during July-May (2020-21) with a 28.4 percent growth.

This highlights the efforts put in by the officials of FBR in achieving their budgetary targets.

It shall also be highlighted that the FBR employees have been observing Saturday as a working day for the past six months unlike all the other federal and provincial government organizations, and these employees always go an extra mile to perform their duties.

It is because of FBR’s efforts that the government exchequer receives all the needed revenues, and the importance of this organization cannot be denied at all.

READ MORE: FBR surpasses collection target for July – April FY22

It is ironic that FBR employees are deprived of their basic right amid inflation crisis.

The aggrieved have made clear that if their demands are not met, they will observe a pen down strike for even longer periods, as they are finding it difficult to make both ends meet, and because there is a huge disparity between their and other institution’s salaries.

June 16, 2022
FBR’s committee to examine service record of customs officials

ISLAMABAD: The Federal Board of Revenue (FBR) on Wednesday constituted a scrutiny committee to examine service record of employees of Pakistan Customs Department.
(more…)

June 15, 2022
Sindh announces tax relief measures in budget 2022-2023

KARACHI: The province of Sindh has announced sales tax relief measures in the budget 2022-2023 presented in the provincial assembly on Tuesday.

Sindh Chief Minister Syed Murad Ali Shah announced a number of measures to facilitate taxpayers in payment of sales tax on services.

READ MORE: Sindh increases salary by 15% from July 1, 2022

He said relief to public has been provided by extending existing measure to ensure that relief continues to reach common man. For this purpose;

Exemption from SST is being proposed on toll manufacturing services.

READ MORE: Sindh unveils Rs1.714 trillion budget for 2022/2023

5 per cent reduced SST rate for “Recruiting Agents” will continue for next two years i.e. up to 30th June, 2024. This relief is proposed for Pakistanis aspiring to work overseas.

Services provided by Cable TV Operators are levied at a reduced rate of 10 per cent, the existing relief is proposed to be extended for a further period of two years ending on 30th June, 2024.

Whereas, the following cable TV operators are proposed to be exempt:

a) Cable TV Operators in rural areas under PEMRA License of “R” Category to be exempt from SST till 30th June, 2023.

READ MORE: Khyber Pakhtunkhwa raises salary, pension by 15%

The rate of SST on commission charges received by food delivery channels (i.e. Foodpanda, Cheetay Logistics, etc.) from Home Chefs is proposed to be reduced from 13 per cent to 8 per cent for a period of two (2) years ending on 30th June, 2024. This relief is proposed in order to encourage small scale businesses. In all other cases, the services provided or rendered by Commission Agents shall continue to be liable to SST at 13 per cent.

READ MORE: Khyber Pakhtunkhwa presents Rs1.33 trillion budget 2022-2023

The existing exemption on health insurance services is proposed to continue further for a period of one year till 30th June, 2023.

GIZ, a German development agency, facilitating development projects in Sindh, is proposed to be granted conditional exemption on Sales tax on services as indirect relief to the Public.

June 14, 2022

High tax may erode banks’ earnings up to 20%

KARACHI: The proposed corporate tax rate for banks may erode earnings of the sector by up to 20 per cent on annual basis.

The government presented federal budget on June 10, 2022 and proposed enhancement in tax rates for banking companies.

The government announced various taxation measures on the banking sector in the Budget 2022/2023. This includes i) increase in corporate tax to 45 per cent against existing 35 per cent, ii) imposition of poverty alleviation tax of 2 per cent and iii) hike in tax rate in case of adverse Asset to Deposit Ratio (ADR).

New rates would be applicable from Jul 1, 2022 subject to the approval of National Assembly.

Analysts at KTrade expect this development to erode the KTrade’s banking sector earnings by 15 per cent – 20 per cent cumulatively, on an annual basis. Consequently, they have revised down target prices by 15 per cent.

1) Corporate tax enhanced to 45 per cent: The government proposed to increase the taxation to 45 per cent from 2023 onwards in order to meet the direct tax collection target of Rs2.6 trillion for 2022-2023. The analysts expect this to erode banking sector’s earnings by an average of 10.5 per cent on an annual basis.

Type of Tax	2022	2023 and onwards
Corporate Tax	35 per cent	45 per cent
Super Tax	4 per cent	0 per cent
Poverty Alleviation Tax	2 per cent	2 per cent

2) Adverse tax measures on low ADR: Banks would face higher taxation if the ADR threshold falls below 50 per cent. As a reminder, average ADR of banking sector improved to 48.5 per cent in Mar22 as opposed to 45.2 per cent in the same period last year. New rates as per the Finance Bill are as follows:

Gross Advances to Deposits Ratio	Existing Rate of Tax	Proposed Rate of Tax
Upto 40 per cent	40.0 per cent	55.0 per cent
40 per cent – 50 per cent	37.5 per cent	49.0 per cent
Exceeding 50 per cent	35.0 per cent	45.0 per cent

Within Ktrade universe, the analysts highlight BAFL, MEBL and HBL to remain immune because of exceeding the threshold ADR with ADR standing at 60 per cent, 54 per cent, and 50 per cent respectively.

Meanwhile, UBL, MCB and ABL with ADR of 45 per cent would face the negative consequences of higher taxation of 49 per cent.

This would result in further earnings attrition to the tune of 7 per cent for the said companies.

June 14, 2022

Advance tax on immovable property purchase enhanced to 250% for non-filers

ISLAMABAD: Pakistan has announced a sharp increase in advance tax on purchase of immovable property to 250 per cent for persons not filing income tax returns.
(more…)

June 13, 2022
Pakistan massively increases taxation on motor vehicles

ISLAMABAD: Pakistan has massively increased the amount of tax on purchase of motor vehicles from July 01, 2022.
(more…)

June 13, 2022

New rates of capital gain tax on disposal of securities

ISLAMABAD: The government has proposed new rates of capital gain tax on disposal of securities traded at Pakistan Stock Exchange (PSX).

Pakistan presented its federal budget on June 10, 2022 and introduced various taxation measures to boost revenue collection.

Through Finance Bill, 2022 proposed to revise the rates of capital gain tax for tax year 2023 and onwards.

Following is the proposed rates of capital gain tax:

S.No	Holding Period	Rate of Tax for Tax year 2023 and onwards
(1)	(2)	(3)
1.	Where the holding period does not exceed one year	15%
2.	Where the holding period exceeds one year but does not exceed two years	12.5%
3.	Where the holding period exceeds two years but does not exceed three years	10%
4.	Where the holding period exceeds three years but does not exceed four years	7.5%
5.	Where the holding period exceeds four years but does not exceed five years	5%
6.	Where the holding period exceeds five years but does not exceed six years	2.5%
7.	Where the holding period exceeds six years	0%
8.	Future commodity contracts entered into by members of Pakistan Mercantile Exchange	5%”;

The Federal Board of Revenue (FBR) collects capital gain tax on disposal of securities under Section 37A of the Income Tax Ordinance, 2001.

Following is the text of Section 37A of Income Tax Ordinance, 2001:

37A. Capital gain on disposal of securities.—(1) The capital gain arising on or after the first day of July 2010, from disposal of securities, other than a gain that is exempt from tax under this Ordinance, shall be chargeable to tax at the rates specified in Division VII of Part I of the First Schedule:

Provided that this section shall not apply to a banking company and an insurance company.

(1A) The gain arising on the disposal of a security by a person shall be computed in accordance with the following formula, namely: —

A – B

Where —

(i) ‘A’ is the consideration received by the person on disposal of the security; and

(ii) ‘B’ is the cost of acquisition of the security.

(2) The holding period of a security, for the purposes of this section, shall be reckoned from the date of acquisition (whether before, on or after the thirtieth day of June, 2010) to the date of disposal of such security falling after the thirtieth day of June, 2010.

(3) For the purposes of this section “security” means share of a public company, voucher of Pakistan Telecommunication Corporation, Modaraba Certificate, an instrument of redeemable capital,debt Securities, unit of exchange traded fund and derivative products.

(3A) For the purpose of this section, “debt securities” means –

(a) Corporate Debt Securities such as Term Finance Certificates (TFCs), Sukuk Certificates (Sharia Compliant Bonds), Registered Bonds, Commercial Papers, Participation Term Certificates (PTCs) and all kinds of debt instruments issued by any Pakistani or foreign company or corporation registered in Pakistan; and

(b) Government Debt Securities such as Treasury Bills (T-bills), Federal Investment Bonds (FIBs), Pakistan Investment Bonds (PIBs), Foreign Currency Bonds, Government Papers, Municipal Bonds, Infrastructure Bonds and all kinds of debt instruments issued by Federal Government, Provincial Governments, Local Authorities and other statutory bodies.

“Explanation: For removal of doubt it is clarified that derivative products include future commodity contracts entered into by the members of Pakistan Mercantile Exchange whether or not settled by physical delivery.”

(3B) For the purpose of this section, “shares of a public company” shall be considered as security if such company is a public company at the time of disposal of such shares.

(4) Gain under this section shall be treated as a separate block of income.

(5) Notwithstanding anything contained in this Ordinance, where a person sustains a loss on disposal of securities in a tax year, the loss shall be set off only against the gain of the person from any other securities chargeable to tax under this section and no loss shall be carried forward to the subsequent tax year:

Provided that so much of the loss sustained on disposal of securities in tax year 20l9 and onwards that has not been set off against the gain of the person from disposal of securities chargeable to tax under this section shall be carried forward to the following tax year and set off only against the gain of the person from disposal of securities chargeable to tax under this section, but no such loss shall be carried forward to more than three tax years immediately succeeding the tax year for which the loss was first computed.

(6) To carry out purpose of this section, the Board may prescribe rules.

The rate of tax to be paid under section 37A shall be as follows:—

June 12, 2022

Pakistan slaps 45% corporate tax on banks

ISLAMABAD: Pakistan has slapped corporate income tax at 45 per cent on banks, which is raised from 35 per cent.

The country presented its federal budget on June 10, 2022 and introduced tax measures for boosting revenue collection.

READ MORE: Tax rates for business individuals, AOPs during TY2023

Through Finance Bill, 2022 the tax rate for banking companies have been proposed to increase to 45 per cent from existing 35 per cent.

In this regard, the bill proposed amendment to Division II, Part I of First Schedule of the Income Tax Ordinance, 2001.

Proposed Rates of Tax for Companies

READ MORE: Pakistan reintroduces advance tax on foreign payments

The rate of tax imposed on the taxable income of a company shall be as set out in the following Table, namely:-

Type of Company Rate of Tax
Small company 20%
Banking company 45%
Any other company 29%

Following are the existing rates of tax for corporate entities for tax year 2022:

(i) The rate of tax imposed on the taxable income of a company for the tax year 2007 and onward shall be 35%:

Provided that the rate of tax imposed on the taxable income of a company other than a banking company, shall be 34% for the tax year 20145:

READ MORE: Exchange companies to withhold tax on payment to MTOs

Provided further that the rate of tax imposed on the taxable income of a company, other than a banking company, shall be 33% for the tax year 2015:

“Provided further that the rate of tax imposed on taxable income of a company, other than banking company shall be 32% for the tax year 2016, 31% for tax year 2017, 30% for tax year 2018 and 29% for tax year 2019 and onwards.

READ MORE: Salaried persons denied adjustments against deduction

(iii) where the taxpayer is a small company as defined in section 2, tax shall be payable at the rate of 25%:

Provided that for tax year 2019 and onwards tax rates shall be as set out in the following Table, namely:—

Tax year Rate of Tax
2019 24%
2020 23%
2021 22%
2022 21%
2023 and onwards 20%”

June 12, 2022

Type of Company	Rate of Tax
Small company	20%
Banking company	45%
Any other company	29%

Tax year	Rate of Tax
2019	24%
2020	23%
2021	22%
2022	21%
2023 and onwards	20%”