Finance Supplementary Bill: Major changes introduced to income tax

Finance Supplementary Bill: Major changes introduced to income tax

Finance Supplementary Bill: Major changes introduced to income tax have been announced by the Federal Board of Revenue (FBR).

The changes to income tax regime have been introduced through the Finance Supplementary (Second Amendment) Bill, 2019, presented on January 23, 2019. The amendments, designed to enhance the tax structure, provide relief to specific sectors, and promote economic activities, encompass a range of provisions.

One of the key changes is the introduction of a simplified scheme for small shopkeepers, aiming to broaden the tax base. The federal government is now empowered to prescribe simplified tax schemes for small shopkeepers in specified cities and terrifies.

To stimulate economic growth and generate employment, incentives are proposed for banks that advance loans to Micro & Small Enterprises, low-cost housing, and agricultural finance. Banks’ income arising from loans to these sectors in addition to loans in 2018 will be taxed at a reduced rate of 20 percent instead of the standard 35 percent, and they will be exempt from super tax.

In a move to facilitate non-resident Pakistanis, the bill proposes allowing them to purchase immovable property and vehicles without filing requirements. Similarly, for locally manufactured vehicles up to 1300 CC, the restriction on purchase is proposed to be abolished for non-filers.

The bill eliminates advance income tax on cash withdrawal and cash-denominated instruments for filers, providing relief to individuals withdrawing cash from banks.

To streamline the tax process and promote ease of doing business, the number of withholding statements is set to be reduced from 12 to 2, requiring businesses to file biannual statements.

Specifically addressing the wedding industry, the bill reduces the minimum advance tax for small marriage halls and community halls with a function area less than 500 sqyd from Rs. 20,000 to Rs. 5,000.

Incentivizing foreign remittance, the bill exempts advance tax on cash withdrawal from foreign remittance-fed accounts.

For the banking sector, the super tax rate of 4 percent is maintained until tax year 2021, while non-banking entities will see the abolition of this tax from tax year 2020.

Several amendments target corporate dividends, including a reduction in tax on inter-corporate dividend for companies availing group relief. The bill also abolishes the tax on undistributed profits to promote capital formation.

Other notable changes include the abolition of withholding tax on members of the stock exchange, the allowance of carry forward of losses for individuals dealing in shares and stocks, and the designation of advance income tax on imports by commercial importers as a final tax liability.

In a bid to promote the renewable energy sector, the bill grants a five-year exemption to industrial undertakings manufacturing equipment used in renewable energy generation, provided they are set up between March 1, 2019, and June 30, 2023.

Additionally, the bill abolishes advance tax at the time of auction of franchise rights for teams participating in national and international sports tournaments, offering tax concessions to promote sports activities.

A significant amendment allows provisional assessment of offshore assets not declared earlier if discovered by the Commissioner or any federal or provincial government department or agency. This provision enhances scrutiny and regulation of offshore assets.

The Finance Supplementary (Second Amendment) Bill, 2019, reflects a comprehensive effort by the government to create a more favorable and inclusive tax environment, stimulate economic growth, and provide relief to various sectors. The bill is expected to undergo further scrutiny and deliberation before potential implementation.