It is not at all aimed at reducing the tax burden for lower income group, taxing the rich and mighty and promoting tax-friendly culture. The sycophants of government, as usual, are admiring the measures taken in fiscal laws and procedures, even though none of them have a clue about what these are all about. Opponents of the government are, however, critical of government policies of extending unprecedented benefits to the rich and increasing incidence of taxes on the poorer segments of society. As expected, the rich landed classes, owners of huge assets, rent-seekers and stock market manipulators have again succeeded in avoiding proper taxation.
The focus of amendments proposed in fiscal laws and procedures does not portray any meaningful paradigm and more or less conforms to maintaining status quo. No significant relief is provided to the existing taxpayers, corporate taxation is still very high, banks have been overtaxed to meet targets and above all, no political will has been demonstrated to expand tax base and bring non-filers into the tax net.
No concrete efforts are in offing towards simplification of tax system, improvement in resource mobilisation, boosting economic activity, generating employments by ensuring rapid industrialisation and reducing the cost of doing business. On the contrary, the scope of withholding taxes has been further widened to convert income tax into indirect tax. The tall claim of extraordinary collection under income tax is a total farce as major portion of it comes from presumptive taxation, which in substance is indirect taxation.
GOALS AND ACHIEVEMENTS: The Revenue projection for the next year for CBR is fixed at Rs 1.025 trillion against the current year's target of Rs 835 billion, which CBR is positive, to exceed by Rs 40 to 50 billion by 30th June, 2007. The CBR, according to official quarters, has shown "remarkable results" in exceeding revenue targets for the third consecutive year.
According to independent analysts, this is not due to any improvement in tax system or better administration but for the single factor that in a consumption-orientated economy imports have increased manifold during the current financial year resulting into automatic enhancement in revenue. It is a fact that the major chunk of all the four principal taxes, namely customs, excise, sales tax and income tax, is collected at the import stage. Pakistan has registered a record current account deficit this year.
Even marked increase in taxes has not bridged fiscal deficit, which has in fact remained around 4%. of GDP. The fiscal space that the government is talking about gets marginalised by a huge fiscal deficit of Rs 373.5 billion. The revenue deficit is also over Rs 200 billion, which is a matter of great concern. The government has failed to control its non development expenditures and the result is that total national debt is now over Rs 3.5 trillion.
This is a disturbing situation that on the one hand there is impressive growth in our economy and on the other the fiscal deficit has widened, current account deficit is beyond government's control and the divide between the rich and the poor is assuming alarming proportions. There is something fundamentally wrong with our economic and fiscal policy, the main flaw being complete lack of the redistributive feature of our tax system. The poor are not getting any direct benefit from the increase in revenue or economic growth. Rather they are subjected to increasing burden of taxes.
More and more people are losing the middle class status and being pushed into the lower middle class. Rural poverty and unemployment is getting notoriously uncontrollable. However, the absentee landlords, unscrupulous businessmen and those enjoying power are becoming richer and richer day by day. The unbearable incidence of indirect taxes on the poorer segments of society is making their lives more difficult, whereas the rich are enjoying the luxury of presumptive taxes even under the Income Tax Law (which is supposed to have progressive tax), by shifting their burden of taxes on others. In this scenario the claims of huge subsidies in food items and relief for the poor are merely an eye-wash.
TAX REFORMS: The ongoing tax reform process designed, sponsored and supervised by the World Bank and other donors, who have lent over 100 million dollars to the Government of Pakistan, is not facilitating the taxpayers or the lower staff of CBR, but showering extraordinary benefits and facilities on a few selected ones.
Tax machinery is presently undergoing great metamorphosis and there prevails despair and frustration amongst the tax officials and staff (this can be judged from the number of resignations filed in the last five years). They are of the view that with new changes they have lost their traditional powers while their hands have been tied up.
Financially they are feeling a great crunch because salaries paid to them are just peanuts. Even the so-called increase of 15% in the present budget is a cruel joke. On the other hand, the taxpayers feel that they have been excluded from the reform process; neither any input is solicited by CBR nor policies designed, are aimed at removing long persisting irritants.
There is a consensus that the real beneficiaries of reform process are only foreign consultants (and a few local ones) who are getting extraordinary money for admittedly substandard work. Why did CBR not consult the Parliamentary Committee on Finance for such lucrative appointments? CBR, despite its tall claims of reforms and what not, has miserably failed to broaden the tax base and take stringent measures against non-filers and known tax evaders.
There is a complete failure on the part of tax managers to improve tax-to-GDP ratio, which even after extorting Rs 850 billion from the Pakistanis is hopelessly low at 9.5%. This shows that the focus of tax reform is totally misplaced and misdirected.
The proposed Federal Revenue Board Act, 2007 again shows control of things in the hands of tax bureaucrats and financial wizards (sic) sitting in the Ministry of Finance. We have emphasised repeatedly that Federal revenue Board should be insulated from all kinds of governmental and political interferences and pressures, which is possible only if it is managed by professionals and made answerable and accountable before the joint House Committee of the Parliament.
ANALYSIS OF AMENDMENTS IN DIRECT TAXES
1. INCOME TAX
1.1 SECTION 2(1A) - DEFINITION OF AMALGAMATION: The scope of definition is proposed to be extended to companies providing services as Banks and other companies engaged in services as they are pursuing mergers and acquisition in Pakistan.
1.2 SECTION 2(19A) - DEFINITION OF "ELIGIBLE PERSONS" According to notes on clauses, substitution of the words "has obtained" with the word "holds" is aimed at removing an editorial mistake.
1.2.1 For the purpose of voluntary pension scheme the condition of computerised National Identity Cards is provided in case of non-availability of National Tax Number
1.3 Section 2(45A) & (45B)- Definitions of "Private Equity and Venture Capital Fund" and "Private Equity and Venture Capital Fund Management Company"
Two new definitions are proposed to provide incentive for private equity and venture funds as well as "Private Equity and Venture Capital Fund Management Company" which will be construed as defined under the Private Equity and Venture Capital Fund Rules, 2007 issued by the Security and Exchange Commission of Pakistan.
1.4 SECTION 2(59A) - DEFINITION OF SMALL COMPANY: Two amendments have been proposed in the definition of Small Company: a) at any time number of employees should not exceed two hundred and fifty, and b) in respect of annual turnover the present limit of not exceeding two hundred million rupees is proposed to be enhanced to two hundred and fifty million rupees.
1.5 Section 18(4) - Business income of 'Private Equity and Venture Capital Fund'
An amendment is proposed to include the income of private equity and venture capital fund to be taxed as business income.
1.6 SECTION 49(3) - EXEMPTION TO FEDERAL AND PROVINCIAL GOVERNMENT:
The Finance Act, 2006 extended waiver of non-deduction/collection of tax from Federal Government, Provincial Government or local authority. A proviso is proposed to reaffirm the position that this facility is not available to organisations mentioned in Article 165 of the Constitution of Pakistan.
1.7 SECTION 56A - SET-OFF OF LOSSES OF COMPANIES OPERATING HOTELS:
This new section proposes to allow for set-off of losses of companies operating hotels in Pakistan and AJ&K against their business income in either of the territories. This is aimed at providing incentives to hotel business run by companies in both the territories which have losses due to heavy investment in earlier years of business.
1.8 SECTION 57A - SET-OFF OF LOSSES CONSEQUENT TO AMALGAMATION:
Sub-section (1) is proposed to be substituted to exclude brought forward and capital losses for set-off of amalgamating companies against profit of amalgamated companies and vice versa.
1.9 SECTION 59AA - GROUP TAXATION:
This new section will offer holding companies and their 100% owned subsidiaries opting for taxation as one fiscal unit, besides consolidated accounts, computation of income and tax payable. However, the companies in the group will be required to give irrevocable option and the facility will be restricted to companies locally incorporated under the Companies Ordinance, 1984. It is clearly mentioned that relief under Group Taxation will not be available in respect of losses suffered prior to the formation of the Group. For this purpose, the CBR will provide rules for regulation of Group Taxation.
1.10 SECTION 59B - GROUP RELIEF:
The entire section is proposed to be substituted for regulating and imposing certain conditions for holding and subsidiary companies to obtain the benefit of Group Relief which was inserted for the first time by Finance Act, 2004.
1.11 SECTION 62 - INVESTMENT IN SHARES:
The limit of investment in shares is proposed to be raised to rupees three hundred thousand from the existing rupees two hundred thousand.
1.12 SECTIONS 92 & 93 - PRINCIPLE OF TAXATION OF ASSOCIATION OF PERSONS:
Professional firms at present are not taxed as AOP but respective shares in the hands of members is taxed separately. The amendment is proposed to remove this exception meaning by that they will be taxed in the same manner as non-professional firms. Consequently, all the conditions relating to filing of returns by the professional firms have been proposed to be removed. Since professional firms are being subjected to presumptive taxation where tax is deducted u/s 153, there was an impression that professional firms will not fall in presumptive tax regime as professional individuals do. The proposed amendment removes this impression. Consequently, section 93 is proposed to be omitted as it only relates to professional firms. The effect of this proposed amendments is that professional and non-professional firms are going to be taxed in the same manner.
1.13 SECTIONS 95, 96 & 97 - DISPOSAL OF BUSINESS BY INDIVIDUAL, AOP AND COMPANY TO WHOLLY OWNED COMPANIES: An amendment is proposed in these sections to remove the concept of fair market value of stocks and trade at the time of disposal.
-- 1.14 Section 97A - Disposal of assets under a scheme of arrangement and reconstruction.
This new section proposes to provide non-taxation where any scheme of arrangement or reconstruction takes place u/ss 282L and 284 to 287 of the Companies Ordinance, 1984 subject to various conditions which are almost the same as provided in section 97.
-- 1.15 Section 100A and Seventh Schedule - Special provisions relating to banking business
The Banking Companies defined in section 2(7) are proposed to be taxed in accordance with rules contained in Seventh Schedule (w.e.f. tax year 2008) wherein certain rules have been framed to regulate the taxation of banking companies.
-- 1.16 Section 113A - Taxation on income of retailers
Retailers having turnover up to rupees five million have an option under this section for payment of fixed tax. This amendment purposes that once they exercise the option of fixed tax, they are not entitled to claim any adjustment of withholding tax collection or deduction for the relevant year.
-- 1.17 Section 113B- Taxation of certain retailers
Any retailer being an individual or AOP having turnover exceeding rupees five million is presently required to pay final tax @ 1%, which forms part of single sales tax @ 3% of the declared turnover. The amendment proposes that tax payable will be:
where turnover exceeds rupees five million but does not exceed ten million, rupees twenty five thousand plus 0.5% of the turnover exceeding rupees five million; where turnover exceeds rupees ten million, rupees fifty thousand plus 0.75% of the turnover exceeding rupees ten million.
Such retailers shall not be entitled to claim any adjustment of any withholding tax collected or deducted any head during the year.
-- 1.18 Section 114(2A) - Electronic filing of return
The facility of filing returns through electronic means is extended to any other matters relating to such filing of statement or documents as well.
-- 1.19 Section 116 - Wealth Statement
An amendment is proposed to require a taxpayer to file a wealth statement where his declared income for the current year exceeds rupees five hundred thousand.
-- 1.20 Section 130(4) - The condition for appointment of an Accountant Member which is presently restricted to an officer equivalent in rank to Regional Commissioner is proposed to be relaxed to include Commissioner of Income Tax or Commissioner of Income Tax (Appeals) having five years experience of the said position.
-- 1.21 Section 147(4AA) & (6A) - Advance Tax
It is proposed that for the purpose of advance tax liability u/s 113 (minimum tax) will also be taken into account to determine the instalment payable. A new sub-section (6A) is proposed to impose advance tax in the first year of the business of the company.
Over the period of time, CBR has used this section to meet day to day cash requirements of the Govt of Pakistan. These funds utilised in advance, before their adjustment at the time of filing returns, result in heavy cost to the payers as they could employ this amount in their business capital to earn profits.
If they borrow money from banks to pay these advances as per Karachi Inter Bank Rate (KIBOR) quantification can be made in respect of cost of funds. CBR should pay to these taxpayers compensation on the basis of KIBOR. This position was available prior to 1997 when on advance tax, the government used to pay 6% as interest.
-- 1.22 Section 148 - Imports
Sub-section (2) is proposed to be substituted to provide that only those persons or goods will fall outside the ambit of collection of tax, which are specified by the CBR.
Sub-sections (3) and (4) are proposed to be omitted to disallow exemption certification facility to a manufacturer who has paid tax equal to the last year's tax liability. Further amendment seeks to issue exemption certificate of 0.5% of the value of goods imported for a person not liable to tax.
Other amendments proposed in this section are to exclude from Presumptive Taxation and provide exemption from withholding tax on sale of goods to large import houses, to redefine 'Value of Goods' to include Federal Excise Duty for the purpose of levying withholding provision.
-- 1.23 Section 149 - Deduction from salary
An amendment is proposed to authorise employer to adjust tax withheld from employees under other heads and also to give tax credit admissible on donations and investment in shares.
-- 1.24 Section 152 - Payment to non-resident
An editorial mistake is proposed to be removed by referring to sub-section (1A) which is presently wrongly mentioned as sub-section (1).
1.25 Section 153 - Payment for goods and services
Amendments are sought in this section to exclude service provider to exporters, from Presumptive Tax Regime and to allow cotton ginners to pay withholding tax instead of deduction to be made by withholding agents ie textile mills, and exclude from PTR payment on sale of goods and execution of contracts by a public listed company. A new sub-section (6B) is proposed to restrict the exclusion of PTR to companies (manufacturers) only w.e.f. tax year 2007. The deduction of 2% over and above in case of non-disclosure of NTN or CNIC is proposed to be removed.
-- 1.26 Section 154 - Exporters
In sub-section (4), for the words "export or sale to an exporter", the words "transactions referred to in this section" are proposed to be substituted. Now for all kinds of transactions, deduction will be final tax whereas previously it was only restricted to sales to exporters.
-- 1.27 Section 169 - Tax collected or deducted as final tax
It is proposed that inter-corporate dividend within group companies be excluded from the presumptive tax regime and tax to be levied at the rate normally applicable to companies.
-- 1.28 Section 181 - National Tax Number Certificate
The condition that a person has NTN is proposed to be waived by CBR to allow use of computerised National Identity Cards.
-- 1.29 Section 231B - Purchase of motor car
New section proposes to impose an adjustable withholding tax on purchase of a motor car by manufacturer or authorised dealer of motor cars. This section will not apply to Federal or Provincial Governments and Foreign diplomats in Pakistan. tax.
-- 1.30 Section 234A - CNG Stations
Amendment proposes a new withholding provision on CNG stations on the amount of gas bills issued by gas marketing companies. This will be a final tax on the income of CNG stations arising from the consumption of gas.
-- 1.31 Section 235 - Electricity consumption
It is proposed that tax collected on the amount of electricity bill of a commercial or industrial consumer shall be minimum tax on the income of a person "other than a company" and there shall be no refund unless the tax so collected is in excess of the amount for which taxpayer is chargeable in the case of a company.
-- 1.32 Section 239A - Transition to Federal Board of Revenue
In the Finance Bill, 2007 bill for Federal Board of Revenue has been presented and in view of this change it is provided that reference to CBR wherever occurring in any order, rule, notification etc shall automatically be construed as reference to Federal Board of Revenue on enforcement of the Federal Board of Revenue Act, 2007.
-- 1.33 First Schedule
IN THE FIRST SCHEDULE THE FOLLOWING SIGNIFICANT AMENDMENTS ARE PROPOSED:
a) To reduce rate of tax on retailers from 0.75% to 0.5%.
b) To continue corporate rate of 35% for tax year 2007 and onwards.
c) To levy uniform rate of 10% for dividend income
d) Reduce the rate of tax u/s 148 from 6% to 5%.
e) Enhance withholding tax on import of polyester filament yarn
f) To reduce withholding tax from 6% to 2% on payment of passenger transport service
g) To levy uniform rate of 1% on all exports
h) To collect 6% withholding tax on gas bills in case of CNG stations
i) To levy withholding tax @ 0.5% on purchase price of motor vehicles
1.34 Section Schedule
THE FOLLOWING SIGNIFICANT AMENDMENTS ARE PROPOSED IN THE SECOND SCHEDULE:
a) To extend the scope of exemption to private equity and venture capital fund.
b) To allow exemption to micro finance banks for 5 years starting from tax year 2008. However, such banks will not issue dividends to their shareholders and their profit and gains, if any, shall be utilised exclusively for micro finance operation.
c) To withdraw exemption on interest income of Continuous Funding System (CFS) of Mutual Funds.
d) To exempt a person from real estate income from sale of immovable property to a Real Estate Investment Trust (REIT) up to 30.6.2010.
e) To extend the scope of exemption to Private and Venture Capital Fund under clause (101), Part-I
f) To extend exemption to capital gain under clause (110), Part-I up to 30.6.2008.
g) New exemption for transfer of a capital asset of the existing stock exchanges on demutualization of stock exchanges.
h) Exemption to Hydel Power Generation Projects set up in AJK or Pakistan.
i) To extend exemption on income from transfer of membership rights of stock exchange to a company up to 30.6.2008.
j) In respect of construction contracts outside Pakistan, reduced rate of 1% on gross receipts, provided income is brought into Pakistan in foreign exchange through normal banking channel.
k) In respect of profit on debt to a non-residents having no PE at the rate provided in Avoidance of Double Taxation Treaty with the said country.
l) Reduced rate of 10% on capital gain from sale of shares/assets of private limited company to private equity and venture capital fund.
m) Reduce withholding tax of 1% of capital goods and raw material (other then polyester filament yarn) by a corporate manufacturer for its own use.
n) In clause (13H), Part-II, Federal Excise Duty will also form part of import value for the purpose of collecting withholding tax.
o) To levy withholding tax @ 2% on import of edible oil including crude oil imported as raw material for manufacture of ghee or cooking oil, energy saver (lamp), bitumen, fixed wireless terminal, pesticide and wedicides.
p) To withdraw reduction in tax available to newly listed companies.
q) To exclude service providers to exporters, from PTR.
r) To exclude from withholding tax payments to foreign news agencies, syndicate services and non-resident contributors who have no PE in Pakistan.
s) To provide exemption from withholding tax on sale of petroleum produce to PE of non-resident petroleum exploration and production companies
t) To avoid double levy of withholding tax on sale of air tickets by travelling agents who have also paid tax on commission income.
u) To extend exemption from withholding on profit on debt, commission and dividend to Private Equity and Venture Capital Fund.
v) To exempt from withholding tax on import of capital goods and raw materials to exporters registered in Sales Tax Department as manufacturers.
w) To exempt from withholding tax on imports by non-resident petroleum exploration companies.
x) To exclude from PTR and provide exemption from withholding on sale of goods on Large Import Houses.
-- 1.35 Fourth Schedule
In clause (6A), the exemption on capital gain from sale of shares and modaraba certificate is proposed to be extended up to 30.6.2008.
-- 1.36 Seventh Schedule
The existing seventh schedule has been proposed to be substituted after levy of 1% uniform withholding tax on all kinds of exports. The proposed seventh schedule now relates to computation of business income of banking companies.
2. CAPITAL VALUE TAX
2.1 Section 7, Finance Act, 1987 - Exclusion of taxation for certain "power of attorney"
A proposal is made to exclude from the ambit of levy any power of attorney executed between spouses, father and sons or daughters, grand parents, grand children, brother and sister. The power of attorney should be other than revocable and time bound not exceeding sixty days.
-- 2.2 Section 7(2)(c) - Withdrawal of CVT on imported cars
Proposal made is withdrawal of CVT on imported cars
ANALYSIS OF AMENDMENT IN INDIRECT TAXES
1. CUSTOMS:
-- 1.1 The amendments set out in the First Schedule in the Customs Act by Finance Bill, 2007 shall have effect as per provisions of Provisional Collection of Taxes Act, 1931 with immediate effect ie on 9th June, 2007, whereas all other proposed amendments will apply from 1st July, 2007, if approved by the Parliament.
-- 1.2 Clause 21 of Finance Bill, 2007 deals with amendments suggested in the various provisions of Customs Act, 1969. We are not taking each and every proposed amendment in seriatim but commenting on some significant changes that can have implications for all stakeholders. Various amendments are proposed in section 2 which are aimed at defining some important concepts like "Custom Duties", "fee and services charges", "appropriate officer" and "the Federal Board of Revenue".
-- 1.3 Section 3A - Director General of Intelligence and Investigation
Section 3A is proposed to be substituted to define the scope of newly empowered Director General of Intelligence and Investigation who at present, is a retired army official. It seems that armed forces have decided that in addition to their active role in politics they must also exert their power and influence in revenue administration and matters.
-- 1.4 Section 3B - Director General of Internal audit
Through proposed substitution a new authority is being introduced.
-- 1.5 Section 3D - Director General of Valuation
The proposed substitution intends to insert the role of Director General of Valuation with the corresponding change in law.
-- 1.6 Section 18 - Goods dutiable
Proposed amendment aims to remove the omission by including reference to section 25A as well as to provide that cumulative incidence of Custom Duty does not exceed the bound tariff rate under multilateral agreements.
-- 1.7 Section 18D - Levy of fee and service charges
The new proposed section is to provide for levy of fees and service charges on account of services to be provided through public-private partnership.
-- 1.8 Section 19C - Minimal duties not to be demanded
New section is proposed to cater for benchmark of minimum duties and taxes on goods declaration which shall not be demanded. If the cumulative amount of all duties and taxes on Goods Declaration is equal to or less than rupees one hundred, it is proposed that such duty will not be demanded.
-- 1.9 Sections 21A - Power to defer collection of Custom Duty
An amendment is proposed to harmonise the provision of this section with sub-section (2) of section 83.
-- 1.10 Section 22A - Temporary export of imported plant and machinery
This new section is proposed to facilitate duty-free re-importation of temporarily exported plant and machinery. For this kind of re-imported duty-free activity, CBR will prescribe general terms and conditions through rules.
-- 1.11 Section 25 - Determination of Custom value of goods
Amendment seeks to change the title of this section to distinguish custom values determined u/s 25 and 25A to remove any impracticability for application of this section.
-- 1.12 Section 25A - Power to determine value of goods
The entire section is proposed to be substituted to empower the Director General of Valuation to determine and notify the value of different categories of goods.
-- 1.13 Section 25D - Value determined not to be challenged
Proposed new section will give legal cover to the value determined on the basis of computation of cost of raw material including their valuation addition.
-- 1.14 Section 39 - When no drawback allowed
Amendment is aimed at bringing the section in conformity with proposed section 90B.
-- 1.15 Section 81 - Provisional determination of liability
Amendment is sought to include an additional instrument of payment, namely pay order, to settle differential duty determined under provisional assessment and to authorise Director Valuation to extend the limitation period.
-- 1.16 Section 179 - Powers of adjudication
Proposed amendment aims in rationalising the adjudication powers by enhancing the monetary limit from three hundred thousand rupees to fifty hundred thousand rupees in respect of Deputy Collector.
-- 1.17 Section 185A - Cognisance of offence by Special Judge
An amendment is proposed to authorise only those officers who are notified by the Federal Government to file any complaint with the Special Judge.
-- 1.18 Section 193A - Procedure in appeal
Proposed amendment aims to include time limit for deciding cases to withdraw power of Collector Appeals to remand back the cases. The Collector (Appeals) will be required to pass order within ninety days from the date of filing of appeal and in case of any extension in period he will be required to record the reasons in writing.
-- 1.19 Section 194 - Appellate Tribunal
For the technical member proposal is made to appoint an officer of Customs and Excise Group equivalent rank to that of Member of Board or Chief Collector of Customs or Director General or a senior Collector with five years experience in that position or any other officer of Customs and Excise Group with other designations equivalent to aforesaid designation.
-- 1.20 Section 194A - Appeal to Appellate Tribunal
Proposed amendment prescribes the personnel of minimum rank for filing of appeals before the appellate tribunal and to provide protection to pending appeals.
-- 1.21 Section 194B - Orders of Appellate Tribunals
For deciding cases of single bench limitation in terms of monetary benchmark is proposed to be enhanced to rupees five million.
-- 1.22 Section 195C - Alternative Dispute Resolution
A number of amendments have been made to bring this section in conformity with directions given by honourable Supreme Court of Pakistan in recent cases that where fraud is involved, settlement cannot be made through this mechanism. Other amendments aim at providing time limit for appointment of committees and making recommendations. Retired District and Session and High Court judges can also be part of committee.
-- 1.23 Section 196 - Reference to High Court
Amendment is proposed to enable Directors of Intelligence and Investigation to file reference in the High Court
-- 1.24 Section 202 - Recovery of Government dues
The proposed proviso intends recovery of arrears, empowering the Board to write off non-recoverable arrears as well.
-- 1.25 Section 203A - Power to authorise expenditure
The proposed amendment authorises the Board to prescribe the manner in which fee and service charges collected, including by public/private partnership u/s 18D, are to be expended.
-- 1.26 Section 207 - Custom House Agents to be licensed
Proposal is made to amend the section restricting scope of licensing of Freight Forwarders.
-- 1.27 Section 211 - Principal and agents to maintain record
Presently, all principals and agents transacting business, except those importing or exporting goods for bona fide private or personal purposes, are bound to keep records for three years. Amendment is proposed to enhance the period to five years.
-- 1.28 Section 225 - Transition to Federal Board of Revenue
With the introduction of Federal Board of Revenue Act, 2007 transitional clause is proposed to be inserted in the form of this new section to ensure that transition is smoothly carried on.
-- 1.29 First Schedule/Second Schedule
Proposal for substitution of both the schedules is made.
-- 1.30 Special surcharge
Clause (22) of Finance Act, 2007 imposes as additional Custom Duty as special surcharge on imports of goods as specified in First Schedule at the rate of 1% of the value of the said goods as determined u/s 25 or 25A, as the case may be. However, it is clarified that for the purposes of Sales Tax, additional Custom Duty shall not constitute a part of such value of goods. A table is also inserted providing detail of items which shall be exempt from the surcharge. These include all goods specified in Chapter-07, edible oil and fats, petroleum oils and oils obtained from certain minerals, motor spirit, aviation spirit, high speed diesel oil, furnace oil, pharmaceutical goods, fertilisers and special items mentioned in Chapter-99 as well as temporary importation under SRO. 1065(I)/2005, imports under DTRE scheme and imports under manufacturing bonds scheme.
2. SALES TAX:
-- 2.1 The Finance Bill, 2007 has made certain amendments in the Sixth Schedule to the Sales Tax Act, 1990 and in terms of Provisional Collection of Taxes Act of 1931, these withdrawals of exemptions shall have effect from 9th June, 2007. All other amendments proposed in Sales Tax Act, 1990 will apply w.e.f. 1st July, 2007 on approval of the proposed Bill by the Parliament.
-- 2.2 Section 2(5AB) - "Cottage Industry"
Definition of "cottage industry" is proposed to mean a manufacturer whose annual turnover from taxable supplies during a tax period does not exceed Rs 5,000,000 or whose annual bills of electricity, gas and telephone do not exceed Rs 600,000.
-- 2.3 Section 2(14)(e) - Input tax
In the definition of input tax, a new sub-clause is proposed to give adjustment for Sales Tax levied under provincial enactments.
-- 2.4 Section 2(20) - Output tax
It is proposed that this definition may be substituted to widen the scope by including amongst others, provincial Sales Tax levy
-- 2.5 Section 2(27) - Retail price
In the definition of retail price, in addition to charges and taxes, duties are also proposed to be included.
-- 2.6 Section 2(37)(3) - Tax fraud
In the ambit of tax fraud, falsifying sales tax invoices are also proposed to include causing falsification.
-- 2.7 Section 2(44) - Time of supply
Substitution is proposed to include delivery of goods as time of supply. However, where any goods are supplied by a registered person to any associated person and goods are not removed, the time of supply shall be the time at which goods are made available to the recipient. In cases where goods are supplied under hire/purchase agreement, the time of supply will be construed as the date on which agreement is entered into.
-- 2.8 Section 4 - Zero rating
A new sub-clause (d) is proposed to include in the ambit of zero rating any goods specified by the Federal Board of Revenue through a general order as are supplied to a registered person or class of registered persons engaged in the manufacturing and supply of zero rated goods.
-- 2.9 Section 7 - Determination of tax liability
Amendment is proposed to make this section subject to the provisions of newly proposed section 8B. It aims at linking tax liability with the extent of adjustment of input tax.
-- 2.10. Section 8 - Tax credit not allowed
Presently the goods used or to be used for any purpose other than for the manufacture or production of taxable goods are not entitled to tax credit. However, with the decision of Honourable Supreme Court of Pakistan that even fixed assets are subject to sales tax levy, input will be allowable against such supply, therefore the reason for this amendment.
-- 2.11 Section 8A - Joint and several liability of registered person in supply chain where tax unpaid
Amendment is sought to empower the Federal Board of Revenue to exclude certain transactions from purview of this section.
-- 2.12 Section 8B - Adjustment of input tax
A new section 8B is proposed debarring a registered person to adjust input tax in excess of 90% of the output tax for a tax period. It is provided that where tax is charged on the acquisition of fixed assets it shall be adjusted against the output tax in twelve equal monthly instalments after the start of production of a new unit. However, CBR can authorise any person from the purview of this harsh section by notification in the official gazette. An exception is also created from the above condition to a registered person if his accounts are subject to audit under the Companies Ordinance, 1984.
-- 2.13 Section 10 - Refund of input tax
Substitution is proposed to this section limiting the scope of refund to zero rated supply or export only.
-- 2.14 Section 11 - Assessment of tax
In sub-section (4) amendment is proposed to exclude the words "of Collector Adjudication".
-- 2.15 Section 22 - Record
A new sub-section (1A) is proposed requiring the registered person to disclose business bank account and for companies to submit audited accounts duly certified by auditors.
-- 2.16 Section 23 - Tax invoices
New sub-section (4) is proposed authorising the FBR to prescribe procedure for regulating the issuance and authentication of tax invoices.
-- 2.17 Section 24 - Retention of record and documents
Retention is proposed to be extended from three years to five years.
-- 2.18 Section 30A - Director General (Intelligence and Investigation) Custom and Excise
Since new name is assigned to Director General of Intelligence and Investigation, suitable amendments are proposed in section 30A.
-- 2.19 Section 30B - Director General of Inspection and Internal audit
Amendment seeks to adopt the new name of the designation assigned.
-- 2.20 Section 13D - Director General of Valuation and Post Clearance Audit
With the change in name of authority, the words "and Post Clearance Audit" are proposed to be omitted.
-- 2.21 Section 30DD - Director of Post Clearance Audit
This new section proposes for inclusion of the above mentioned authority which will consist of a Director, Additional Director, Deputy Directors or Assistant Director notified by FBR.
-- 2.22 Section 37A - Power to arrest and prosecute
Presently, powers to arrest included for any alleged "tax fraud in respect of a supply or supplies made by a registered person". These words are now proposed to be omitted to narrow down the scope of these powers.
-- 2.23 Section 38A - Power to call for information
Presently, information from regulatory authorities concerning licences and authorisation is not available which is proposed to be included.
-- 2.24 Section 47A - Alternative Dispute Resolution
Substitution is proposed for the entire section to remove the procedural inconsistencies, exclude acts of criminal nature and provide time limitation for recommendation by the committees. Committees are now required to make recommendation within 60 days of their constitution in respect of a dispute and this period can only be extended by Board on the request of the committee.
-- 2.25 Section 48 - Recovery of arrears of tax Amendments are sought in this section empowering the Board to write-off arrears.
-- 2.26 Section 50A - Computerised system Amendments are proposed determining the responsibility of a registered person in case of computerised transactions.
-- 2.27 Section 67 - Delayed refund Amendment is proposed that instead of the word "return" the words "refund claim" should be substituted. Now the Government will pay 6% as compensation for delayed refund not from the date of filing of return but from date of filing refund claim. It is strange that tax becomes due with the filing of return but overpaid tax for which it should have been the duty of the department to refund, the compensation period is also curtailed.
-- 2.28 Section 76 - Federal Board of Revenue A new section is proposed to replace reference to Central Board of Revenue with Federal Board of Revenue for which a new act is proposed in Finance Bill, 2007.
-- 2.29 Sixth Schedule A number of amendments have been proposed in the Sixth Schedule, detail of which is available in the Finance Bill, 2007.
3. FEDERAL EXCISE:
-- 3.1. Finance Bill, 2007 proposes various amendments in Federal Excise Act, 2005 which will take effect from 1.7.2006 on approval by the Parliament and the President. [See salient features of changes made in Federal Excise Act of 2005 at our websites www.paktax.com.pk and www.huzaimaikram.com
-- 3.2. Section 2(8b) - "dutiable goods"
The term dutiable goods are proposed to mean all excisable goods specified in the First Schedule except those which are exempt u/s 16 of the Act.
-- 3.3 Section 2(8c) - "dutiable supply"
This expression means a supply of dutiable goods made by a manufacturer other than supply of goods which is exempt u/s 16 of the Act.
-- 3.4 Section 2(8d) - "dutiable services"
Proposed definition means all excisable services specified in the First Schedule except those, which are exempt u/s 16 of the Act.
-- 3.5 Section 2(16a) - "non-fund banking services'
This expression includes all non-interest based services provided or rendered by the banking companies or non-banking financial institutions against a consideration in the form of a fee.
-- 3.6 Section 2(21a) - "sales tax mode"
Proposed definition of the expression means the collection and payment under the Sales Tax Act and Rules referred to excise charge as if such duties were chargeable u/s 3 of Sales Tax Act, 1990 or other relevant rules notification etc.
-- 3.7 Section 2(23a) - "supply"
The expression "supply" includes sale, lease or disposition of goods and shall include such transactions as the Federal Government may notify in the official gazette from time to time
-- 3.8 Section 3 - Duties specified in First Schedule
A new sub-section (5) is proposed to explain the liability to pay excise duty in respect of goods produced or manufactured, goods imported in Pakistan, services provided or rendered in Pakistan and goods produced or manufactured in non-tariff areas and brought to tariff areas for sale and consumption.
-- 3.9 Section 4 - Filing of returns and payment of duties
Amendments are sought in this section to allow the payment of Excise Duty with monthly return and to substitute the words "challan" with "return".
-- 3.10 Section 7 - Application of provision of sales tax
Amendments are proposed to mention the term "sales tax mode" which is also proposed to be added in section 2. Through another amendment explanation to section 7 is proposed to be made in conformity with section 4.
-- 3.11 Section 10 - Applicable value and duty
The proposal is made to link the chargeability of excise duty with supplies instead of clearance.
-- 3.12 Section 12 - Determination of value for the purpose of duty
Amendment is proposed to define the manner of calculation of excise duty in case of items chargeable on retail price basis.
-- 3.13 Section 14A - Short paid amount recoverable without notice
Amendment is proposed empowering the Board to recover any short payment through stoppage of clearance and attachment of bank accounts.
-- 3.14 Section 17 - Record
Retention period is proposed to be extended for five years.
-- 3.15. Section 29 - Appointment of Federal Excise Officer
Amendment is proposed to include new authorities with the designations of Director General of Intelligence and Investigation and Director General Internal audit.
-- 3.16 Section 33 - Appeal to Collector (Appeals)
Amendment is proposed to pass appellate orders within ninety days from the date of filing of appeals and in case of any extended period, the Collector (Appeals) have to record the reasons in writing.
-- 3.17 Section 38 - Alternative Dispute Resolution
The entire section is proposed to be substituted to determine the scope of dispute resolution, formulation of committees to resolve any dispute, time limitation to conclude proceedings by such committees and procedural methodology.
-- 3.18 Section 49 - Federal Board of Revenue
This new section proposes to replace the reference Central Board of Revenue with Federal Board of Revenue as new Act for FBR is proposed in Finance Bill, 2007.