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Income Tax Ordinance Proposed Changes,
Via Budget 2011-2012
Applicable In ICAP Spring 2012 Attempt
INCOME TAX ORDINANCE, 2001
Provisional Assessment
Section 2(5)
Provisional Assessment is proposed to be included under the definition of assessment to broaden the scope of Assessment, to legalize the provisional Assessment and to remove anomalies under section 122C of the Income Tax Ordinance 2001.
Collective Investment Scheme
Section 2(11C)
In order to harmonize Income Tax Ordinance 2001 with NBFC Law and Companies Ordinance 1984, definition of Collective Investment Scheme is proposed to be inserted in the Income Tax Ordinance 2001 and this scheme would include closed-end fund and open-ended scheme.
Income from Business
Section 18(1d)
In order to broaden the tax base and to discourage waiver of loans by Banks on political bases it is proposed to treat the waiver of either profit on debt or debt itself as a business income of the person and all the benefits of such type available through ay policy or Circular already issued or to be issued by State Bank of Pakistan.
Deductions of Profit on Debt , Financial Costs and Lease Payments
Section 28(1g)
Any amount incurred by SME Bank to State Bank of Pakistan (SBP) on account of share of the SBP in the profits derived from investments in small business out of credit line provided by SBP on Profit & loss sharing basis is allowed as deduction from income. There was anomaly because of the word corporation instead of SME Bank. In order to remove anomaly the word “corporation” is replaced with SME Bank.
Tax Credit for Investment in shares and Insurance
Section 62
Previously investment in new shares of public companies were subject to tax credit only .To encourage the investment in insurance policies as well by salaried and business persons Finance Bill proposes tax credit on payment of life insurance premium to a company registered with SECP under Insurance Ordinance 2000 (XXXIX of 2000)
Further the maximum investment limit subject to tax credit is enhanced from 10% to 15% and Rs.300,000/- to Rs. 500,000/- and the time period for holding the investment to get the benefits of tax credit is enhanced from one year to three years.
Tax Credit for Contribution to an Approved Pension Fund
Section 63
To provide the tax relief against contributions in approved pension fund, Maximum limit of contribution of Rs. 500,000/- is proposed to be withdrawn through amendment in the section. Now the tax credit will be available on the investments up to maximum of 20% of the taxable income.
Tax Credit for Enlistment
Section 65C
Through Finance Act. 2010 5% tax credit was allowed to a company, which enlists itself in any registered stock exchange in Pakistan and the said tax credit is allowed in the tax year in which the company is enlisted on stock exchange. To encourage the corporate sector to get its shares enlisted on stock exchanges, this tax credit is proposed to be enhanced to 15%.
Tax Credit for Equity Investment
Section 65D
To encourage equity financing and to provide relief to set up of new industrial undertakings on or after July 01, 2011 Finance Bill proposes that Tax credit @100% of the tax payable shall be allowed to a Company for the period of five years from the date of commencement of commercial production. This relief is also available for the period of five years to existing companies for the Purposes of balancing, modernization and replacement in an industrial undertaking already set up in Pakistan and owned by it subject to the condition that such investment is made on or after July 01, 2011 through 100% equity financing .
Unexplained Income or Asset
Section 111
In order to broaden the tax base, concealment of income or furnishing of inaccurate information and particulars relating to the production, sales , amount and any item liable to tax in whole or part is also proposed to be included under the scope of un disclosed income or assets.
Minimum Tax on the Income of certain persons
Section 113
Excess payments of minimum tax under this section against the actual tax liability of the companies for subsequent period is currently allowed to be carried forward for three years immediately succeeding the tax year for which the amount is paid . The Finance Bill proposes to increase the period to five years for carry forward of excess payment of minimum tax under this section.
Now gross sales or gross receipts, excluding those which fall under PTR, are proposed to be included under the definition of turnover for this section. Under current definition of turnover, only gross receipts, other than those which fall under PTR, are included in the definition.
Return of Income
Section 114(1) , 114(1A),114(2) , 114(6A)
In order to broaden the tax base and documentation of the economy, mandatory filing of income tax return by Commercial & Industrial consumer of electricity with annual billing over rupees one million is proposed in the Finance Bill.
Finance Bill also proposes enhancement of basic exemption of income for individual taxpayers from Rs.300,000/- to Rs.350,000/-. However, in order to document the economy, they would still be required to file income tax return, if their income is between Rs.300,000/- to Rs. 350,000/-.
The additional conditions of attachment of tax payment proof as per return and wealth statement as required under section 116 is proposed to be inserted for a valid return of Income.
Persons not required to file Return of Total income
Section 115 (4)
Previously profit paid by Federal Government, a Provincial Government or a Local Government to any person on any security issued by them except deposits or certificates under National Savings Scheme or Post Office Savings Account was not subject to Final Tax under section 151. Finance Bill 2011 proposes to treat tax deducted against profits of said securities as final tax and therefore persons deriving income under section 151(1c) also proposes to file statement in lieu of Income Tax Return under section 115(4).
Through Finance Act. 2010 tax deducted by Stock Exchanges registered in Pakistan from its members was made adjustable and the members were required to file Income Tax return instead of Statement in lieu of return. There was anomaly in this regard under this section and the same is removed.
Wealth Statement
Section 116(2) , 116(2A)
It is proposed in the Finance bill that the taxpayers being an individual or member of association of persons whose last declared or assessed income or the declare income for the year is one million rupees or more shall file wealth statement along with wealth reconciliation statement for that year along with return of income. Currently the limit of income for filing of wealth statement is five hundred rupees or more.
Subsection 2A was inserted vide Finance Act. 2010 and the persons whose Income is assessed under Section 122C are also required to file wealth statement for the year along with return of total income and such statement are required to be accompanied by wealth reconciliation statement explaining the sources of acquisition of assets specified therein. There was ambiguity for the filing of wealth statement and the same is removed after insertion of the word individual and member of association.
Appeal to the Commissioner (Appeals)
Section 127
The provisional Assessment order passed under section 122C is proposed to be out of the scope of appealable orders. This is very harsh provision and against the basic rights and norms of justice.
Appointment of Appellate Tribunal
Section 130
It is proposed that the amount of tax or penalty to decide the appeal by single member bench is reduced from five million to one million rupees.
Advance Tax paid by the Tax payer
Section 147(5B)
It is proposed that advance tax on capital gains against sales of securities shall be deposited in to government treasury within twenty one days from the close of each quarter. Currently this period is seven days.
;
Profit on Debt
Section 151 , Section 169
It proposed that the tax deducted on profit on debt from investment made by individuals in Debt instruments, Government securities including Treasury Bills and Pakistan Investment Bonds, shall be final tax on profit on debt for all types of taxpayers. This will encourage domestic investment in the Government Securities.
Taxpayer would not required to file Income tax return and he would file statement under section 15(4)
Withholding Tax on Payment for Goods and Services
Section 153, Clause 47D , Part-IV, 2nd Schedule
The section 153 is substituted in order to remove anomalies in this section. The tax deducted against the payments to companies on account of rendering or providing of services is proposed to be minimum tax as in the case of individuals and AOPs.
It is also proposed to empower the commissioner to issue certificate for non deduction of tax or deduction of tax at reduced rate on receipt of application made by recipient of a payment against sales of goods.
The payments made to traders of yarn by the taxpayers specified in the zero rated regime of sales tax are also proposed to be exempt from withholding tax under this section.
Turnover is also proposed to be defined to remove ambiguity for the purpose of this section.
In case of Cotton ginners tax deducted / paid would not be final tax.
Consequent to the substitution of this section and reorganization of sub-sections, the references of sub-sections of this section in other sections, clauses are also proposed to be amended accordingly.
Withdrawal of balance under Pension Fund
Section 156B
It is proposed to enhance the limit of withdrawal subject to withholding tax under this section from 25% of cumulative balance of individual pension fund to 50% of cumulative balance in the approved pension fund.
Statements
Section 165
It is proposed that withholding agents shall file statements on monthly basis instead of quarterly basis and these statements are to be filed by 15th of month following the month to which the withholding tax pertains.
In order to broaden the tax base it is proposed that NTN and CNIC are to be provided in the withholding statement filed by the withholding agents along with other particulars.
It is also proposed that an annual statement is to be filed by the person deducting tax from salaries and annual statement shall also be filed in case of salaries ranging from Rs. 300,000-350,000 Rupees.
Credit for Tax Collected or deducted
Section 168(3)
It is proposed that no credit shall be allowed for the taxes collected or deducted under different sections of the Income Tax Ordinance 2001 which are final tax on the income of the person.
Offences and Penalties
Section 182
Under section 182(1), the amount of penalty is computed on the basis of fraction of tax payable. For the purpose of this section, tax payable is proposed to be explained, which means the tax chargeable on the taxable income on the basis of assessment made or treated to have been made under sections 120, 121, 122, 122C.
Advance Ruling
Section 206A
It is proposed that option to get advance ruling is not available to non- resident taxpayer who has permanent establishment in Pakistan.
Jurisdiction of Income Tax Authorities
Section 209
It proposed to delegate the powers of transfer of cases or persons from one Commissioner to other by the Board and Chief Commissioner.
Advance Tax at the time of sale by auction
Section 236A
It is proposed to enhance the scope of advance tax collection on sales by action after including the auction through tenders also under the preview of this section.
Income Tax Ordinance Proposed Changes,
Via Budget 2011-2012
Applicable In ICAP Spring 2012 Attempt
INCOME TAX ORDINANCE, 2001
Provisional Assessment
Section 2(5)
Provisional Assessment is proposed to be included under the definition of assessment to broaden the scope of Assessment, to legalize the provisional Assessment and to remove anomalies under section 122C of the Income Tax Ordinance 2001.
Collective Investment Scheme
Section 2(11C)
In order to harmonize Income Tax Ordinance 2001 with NBFC Law and Companies Ordinance 1984, definition of Collective Investment Scheme is proposed to be inserted in the Income Tax Ordinance 2001 and this scheme would include closed-end fund and open-ended scheme.
Income from Business
Section 18(1d)
In order to broaden the tax base and to discourage waiver of loans by Banks on political bases it is proposed to treat the waiver of either profit on debt or debt itself as a business income of the person and all the benefits of such type available through ay policy or Circular already issued or to be issued by State Bank of Pakistan.
Deductions of Profit on Debt , Financial Costs and Lease Payments
Section 28(1g)
Any amount incurred by SME Bank to State Bank of Pakistan (SBP) on account of share of the SBP in the profits derived from investments in small business out of credit line provided by SBP on Profit & loss sharing basis is allowed as deduction from income. There was anomaly because of the word corporation instead of SME Bank. In order to remove anomaly the word “corporation” is replaced with SME Bank.
Tax Credit for Investment in shares and Insurance
Section 62
Previously investment in new shares of public companies were subject to tax credit only .To encourage the investment in insurance policies as well by salaried and business persons Finance Bill proposes tax credit on payment of life insurance premium to a company registered with SECP under Insurance Ordinance 2000 (XXXIX of 2000)
Further the maximum investment limit subject to tax credit is enhanced from 10% to 15% and Rs.300,000/- to Rs. 500,000/- and the time period for holding the investment to get the benefits of tax credit is enhanced from one year to three years.
Tax Credit for Contribution to an Approved Pension Fund
Section 63
To provide the tax relief against contributions in approved pension fund, Maximum limit of contribution of Rs. 500,000/- is proposed to be withdrawn through amendment in the section. Now the tax credit will be available on the investments up to maximum of 20% of the taxable income.
Tax Credit for Enlistment
Section 65C
Through Finance Act. 2010 5% tax credit was allowed to a company, which enlists itself in any registered stock exchange in Pakistan and the said tax credit is allowed in the tax year in which the company is enlisted on stock exchange. To encourage the corporate sector to get its shares enlisted on stock exchanges, this tax credit is proposed to be enhanced to 15%.
Tax Credit for Equity Investment
Section 65D
To encourage equity financing and to provide relief to set up of new industrial undertakings on or after July 01, 2011 Finance Bill proposes that Tax credit @100% of the tax payable shall be allowed to a Company for the period of five years from the date of commencement of commercial production. This relief is also available for the period of five years to existing companies for the Purposes of balancing, modernization and replacement in an industrial undertaking already set up in Pakistan and owned by it subject to the condition that such investment is made on or after July 01, 2011 through 100% equity financing .
Unexplained Income or Asset
Section 111
In order to broaden the tax base, concealment of income or furnishing of inaccurate information and particulars relating to the production, sales , amount and any item liable to tax in whole or part is also proposed to be included under the scope of un disclosed income or assets.
Minimum Tax on the Income of certain persons
Section 113
Excess payments of minimum tax under this section against the actual tax liability of the companies for subsequent period is currently allowed to be carried forward for three years immediately succeeding the tax year for which the amount is paid . The Finance Bill proposes to increase the period to five years for carry forward of excess payment of minimum tax under this section.
Now gross sales or gross receipts, excluding those which fall under PTR, are proposed to be included under the definition of turnover for this section. Under current definition of turnover, only gross receipts, other than those which fall under PTR, are included in the definition.
Return of Income
Section 114(1) , 114(1A),114(2) , 114(6A)
In order to broaden the tax base and documentation of the economy, mandatory filing of income tax return by Commercial & Industrial consumer of electricity with annual billing over rupees one million is proposed in the Finance Bill.
Finance Bill also proposes enhancement of basic exemption of income for individual taxpayers from Rs.300,000/- to Rs.350,000/-. However, in order to document the economy, they would still be required to file income tax return, if their income is between Rs.300,000/- to Rs. 350,000/-.
The additional conditions of attachment of tax payment proof as per return and wealth statement as required under section 116 is proposed to be inserted for a valid return of Income.
Persons not required to file Return of Total income
Section 115 (4)
Previously profit paid by Federal Government, a Provincial Government or a Local Government to any person on any security issued by them except deposits or certificates under National Savings Scheme or Post Office Savings Account was not subject to Final Tax under section 151. Finance Bill 2011 proposes to treat tax deducted against profits of said securities as final tax and therefore persons deriving income under section 151(1c) also proposes to file statement in lieu of Income Tax Return under section 115(4).
Through Finance Act. 2010 tax deducted by Stock Exchanges registered in Pakistan from its members was made adjustable and the members were required to file Income Tax return instead of Statement in lieu of return. There was anomaly in this regard under this section and the same is removed.
Wealth Statement
Section 116(2) , 116(2A)
It is proposed in the Finance bill that the taxpayers being an individual or member of association of persons whose last declared or assessed income or the declare income for the year is one million rupees or more shall file wealth statement along with wealth reconciliation statement for that year along with return of income. Currently the limit of income for filing of wealth statement is five hundred rupees or more.
Subsection 2A was inserted vide Finance Act. 2010 and the persons whose Income is assessed under Section 122C are also required to file wealth statement for the year along with return of total income and such statement are required to be accompanied by wealth reconciliation statement explaining the sources of acquisition of assets specified therein. There was ambiguity for the filing of wealth statement and the same is removed after insertion of the word individual and member of association.
Appeal to the Commissioner (Appeals)
Section 127
The provisional Assessment order passed under section 122C is proposed to be out of the scope of appealable orders. This is very harsh provision and against the basic rights and norms of justice.
Appointment of Appellate Tribunal
Section 130
It is proposed that the amount of tax or penalty to decide the appeal by single member bench is reduced from five million to one million rupees.
Advance Tax paid by the Tax payer
Section 147(5B)
It is proposed that advance tax on capital gains against sales of securities shall be deposited in to government treasury within twenty one days from the close of each quarter. Currently this period is seven days.
;
Profit on Debt
Section 151 , Section 169
It proposed that the tax deducted on profit on debt from investment made by individuals in Debt instruments, Government securities including Treasury Bills and Pakistan Investment Bonds, shall be final tax on profit on debt for all types of taxpayers. This will encourage domestic investment in the Government Securities.
Taxpayer would not required to file Income tax return and he would file statement under section 15(4)
Withholding Tax on Payment for Goods and Services
Section 153, Clause 47D , Part-IV, 2nd Schedule
The section 153 is substituted in order to remove anomalies in this section. The tax deducted against the payments to companies on account of rendering or providing of services is proposed to be minimum tax as in the case of individuals and AOPs.
It is also proposed to empower the commissioner to issue certificate for non deduction of tax or deduction of tax at reduced rate on receipt of application made by recipient of a payment against sales of goods.
The payments made to traders of yarn by the taxpayers specified in the zero rated regime of sales tax are also proposed to be exempt from withholding tax under this section.
Turnover is also proposed to be defined to remove ambiguity for the purpose of this section.
In case of Cotton ginners tax deducted / paid would not be final tax.
Consequent to the substitution of this section and reorganization of sub-sections, the references of sub-sections of this section in other sections, clauses are also proposed to be amended accordingly.
Withdrawal of balance under Pension Fund
Section 156B
It is proposed to enhance the limit of withdrawal subject to withholding tax under this section from 25% of cumulative balance of individual pension fund to 50% of cumulative balance in the approved pension fund.
Statements
Section 165
It is proposed that withholding agents shall file statements on monthly basis instead of quarterly basis and these statements are to be filed by 15th of month following the month to which the withholding tax pertains.
In order to broaden the tax base it is proposed that NTN and CNIC are to be provided in the withholding statement filed by the withholding agents along with other particulars.
It is also proposed that an annual statement is to be filed by the person deducting tax from salaries and annual statement shall also be filed in case of salaries ranging from Rs. 300,000-350,000 Rupees.
Credit for Tax Collected or deducted
Section 168(3)
It is proposed that no credit shall be allowed for the taxes collected or deducted under different sections of the Income Tax Ordinance 2001 which are final tax on the income of the person.
Offences and Penalties
Section 182
Under section 182(1), the amount of penalty is computed on the basis of fraction of tax payable. For the purpose of this section, tax payable is proposed to be explained, which means the tax chargeable on the taxable income on the basis of assessment made or treated to have been made under sections 120, 121, 122, 122C.
Advance Ruling
Section 206A
It is proposed that option to get advance ruling is not available to non- resident taxpayer who has permanent establishment in Pakistan.
Jurisdiction of Income Tax Authorities
Section 209
It proposed to delegate the powers of transfer of cases or persons from one Commissioner to other by the Board and Chief Commissioner.
Advance Tax at the time of sale by auction
Section 236A
It is proposed to enhance the scope of advance tax collection on sales by action after including the auction through tenders also under the preview of this section.
Sales Tax Act,
Via Budget 2011-2012
Applicable In ICAP Spring 2012 Attempt
SALES TAX ACT, 1990
Decrease of Sales Tax Rate by 1%
The general rate of Sales Tax is proposed to be decreased from 17% to 16% through the Finance Bill 2011. Through this amendment the general as well as the tax rate on the third schedule items would also been reduced to 16%.
The decrease in rates would be effective from 1st July, 2011.
Section 8B
Section 8B was originally inserted through Finance Act, 2007, limiting the adjustment of input tax to 90% of the output tax for a particular tax period & the tax paid on the acquisition of fixed assets is adjustable against the output tax in twelve equal monthly installments.
Now, through the bill it is proposed to allow immediate full adjustment of sales tax paid on import or local purchase fixed assets or capital goods to mitigate the cash flow of industrial sector and to ensure timely and quick adjustment of input tax paid.
De-Registration, blacklisting and suspension of registration
Section 21
Section 21 prescribes the procedure for de-registration of registered person on satisfaction of the authorities that such person is not required to be registered under the law or may blacklist or suspend any registered person on satisfaction that such person has issued fake invoices or committed any tax fraud.
Now through Finance Bill, 2011, a new sub-section (3) is proposed to be inserted after sub-section (2) that during the period of suspension of registration, the invoices issued by such person shall not be entertained for the purposes of sales tax refund or input tax credit, and once such person is blacklisted, the refund or input tax credit claimed against the invoices issued by him, whether prior or after such blacklisting shall be rejected through a self speaking appealable order and after affording an opportunity of being heard to such person.
This provision is harsh from the purchaser point of view being penalized on the default on part of other party which is against the norms of justice.
Returns, Special Returns
Section 26, 27
Sub-section (3) of section 26 describes that a registered person may revise a return within 120 days of filing of original return with the approval of Commissioner of Inland Revenue & section 27 describes the special returns to be filed by a registered person.
Now, through Finance Bill, amendment has been proposed in sub-section (3) of section 26 that the special returns required to be filed under section 27 may also be revised within 120 days with the prior approval of Commissioner Inland Revenue.
Decrease of Sales Tax Rate by 1%
The general rate of Sales Tax is proposed to be decreased from 17% to 16% through the Finance Bill 2011. Through this amendment the general as well as the tax rate on the third schedule items would also been reduced to 16%.
The decrease in rates would be effective from 1st July, 2011.
Section 8B
Section 8B was originally inserted through Finance Act, 2007, limiting the adjustment of input tax to 90% of the output tax for a particular tax period & the tax paid on the acquisition of fixed assets is adjustable against the output tax in twelve equal monthly installments.
Now, through the bill it is proposed to allow immediate full adjustment of sales tax paid on import or local purchase fixed assets or capital goods to mitigate the cash flow of industrial sector and to ensure timely and quick adjustment of input tax paid.
De-Registration, blacklisting and suspension of registration
Section 21
Section 21 prescribes the procedure for de-registration of registered person on satisfaction of the authorities that such person is not required to be registered under the law or may blacklist or suspend any registered person on satisfaction that such person has issued fake invoices or committed any tax fraud.
Now through Finance Bill, 2011, a new sub-section (3) is proposed to be inserted after sub-section (2) that during the period of suspension of registration, the invoices issued by such person shall not be entertained for the purposes of sales tax refund or input tax credit, and once such person is blacklisted, the refund or input tax credit claimed against the invoices issued by him, whether prior or after such blacklisting shall be rejected through a self speaking appealable order and after affording an opportunity of being heard to such person.
This provision is harsh from the purchaser point of view being penalized on the default on part of other party which is against the norms of justice.
Returns, Special Returns
Section 26, 27
Sub-section (3) of section 26 describes that a registered person may revise a return within 120 days of filing of original return with the approval of Commissioner of Inland Revenue & section 27 describes the special returns to be filed by a registered person.
Now, through Finance Bill, amendment has been proposed in sub-section (3) of section 26 that the special returns required to be filed under section 27 may also be revised within 120 days with the prior approval of Commissioner Inland Revenue.