Pakistan Federal Budget 2010-11 – Salient Features Income Tax

Pakistan’s Federal Budget Bill 2010-11 for the next year has just been announced and we are pleased to share with you the salient features of the bill with you. A detailed analysis will be delivered once the bill is actually enacted into an act of the parliament. Please give your suggestion before the same is passed.

INCOME TAX Relief Measures

1.  In order to provide relief to large number of taxpayers deriving their incomes from Salary and business, the limit of Basic Exemption is proposed to be enhanced from  Rs.200,000/- to Rs.300,000/- in respect of Salaried taxpayers, while in the respect of Non-Salaried taxpayers it has been proposed to enhanced from Rs.100,000/- to Rs.300,000/.

 2.  For welfare of industrial & commercial consumers of electricity, the maximum rate of  advance  tax  deductible  under  section  235  on  monthly  electricity  bills  is proposed  to be  reduced  from 10%  to 5%, on  the amount of  the bills payable by them;
3.  The Senior Citizens of the age of 60 years or more, are proposed to be eligible for relief of 50% of tax on their income, if their income does not exceed Rs.100,000/- as compared to previous maximum limit of Rs.75,000/-. However this relief shall not be available on income subject to Presumptive Tax Regime.
4.  In  pursuance  of Prime Minister’s Relief Package  to  rehabilitate  the  economy  of Khyber  Paktunkhwa,  FATA  and  PATA,  some  amendments  are  proposed  to  be introduced  in  the  Income Tax Law. These measures provide  following  reliefs  to industrial  and  commercial  taxpayers  hailing  from most  and moderately  affected
areas, as prescribed:
a)  Waiver of entire amount of default surcharge & penalty till 30th June 2010;
b)  Exemption from advance tax on electricity for tax years 2010 and 2011;
c)  Exemption from withholding tax on exports;
d)  Recovery of outstanding income tax arrears through easy installments;
e)  Enhancement of  income  tax exemption  limit from Rs.0.1 million  to Rs.0.3  million;
f)  Annual Audit with the approval of FBR; and 

 g)  Exemption  from  advance  tax  on  import  of  plant  and machinery  upto  30th  June 2011;
However  these concessions  shall not be available  to manufacturers and  suppliers  of cement, sugar, beverages and cigarettes.
5.  For the wellbeing of disabled persons, 100% depreciation expense can be claimed  on Ramp built  to provide access  to disabled persons,  is proposed  through a new provision to be inserted in the law.
6.  In order to provide relief to employees, exemption from taxation of perquisites on waiver of employees obligation to pay or repay, and amount owed to employer, is proposed.
7.  In order to facilitate the withholding agents, instead of e-filing monthly, quarterly and annual withholding  tax statements,  the e-filing of only quarterly withholding tax statements is proposed; 
Income Tax Incentives
   For the wellbeing of listed company a Tax credit for BMR costs incurred by such a company is proposed to be provided @ 10% for the tax year of its incurrence. This concession has been proposed to be admissible for the tax years 2011 to 2015;
2.  With  the purpose  to encourage enlistment of corporate  sector, a 5%  tax credit  is proposed to be allowed to a company in the tax year of its enlistment.
3.  In  order  to  align  with  rest  of  the  scheme,  10%  withholding  tax  deductible  on Government Securities is proposed to be a FINAL tax.
4.  Withholding tax deductible on debt instruments is proposed to be a FINAL tax, in order  to  relieve  the  non-resident  taxpayers  of  statutory  requirement  for  filing income tax return.
5.  For  providing  incentive  to  foreign  lenders  for  tax-free  repatriation  of  profits earned on foreign industrial loans, Clause 72(iii) of Part-IV of Second Schedule to the Income Tax Ordinance 2001 is proposed to be re-instated.
6.  The  maximum  rate  of  withholding  tax  deductible  on  payments  made  to  non-resident  taxpayers who are not subject  to Avoidance of Double Taxation Treaties (other than payments made on account of royalty and fee for technical services) is proposed to be @ 20% instead of 30%;
7.  Honoring wide demand,  the  rate of withholding  tax deductible @ 20% on cross-word puzzles is proposed to be reduced to a rate of 10%; 
 Income Tax Revenue Measures 
1.  In  order  to  strengthen  the  drive  for  documentation,  a  uniform  tax  rate  for  small
companies as well as AOPs is proposed @ 25% of their taxable income.
2.  Advance tax deductible on imports made by commercial importers is proposed to
be enhanced to @5% being a FINAL tax.
3.  Tax  on  capital  gains  accruing  on  account  of  holdings  of  stocks/shares/securities for  six-months  or  less  is  proposed  @  10%,  while  holdings  of stocks/shares/securities  exceeding  six-months  is  proposed @  7.5%. However  no tax has been proposed on such capital gains arising held for a period exceeding 12 months.
4.  In order  to  rationalize  and  simplify  slab-rates provided  in  respect of advance  tax deductible on goods transport vehicles under Item (1) of Division-III of Part-IV of Second Schedule to the Income Tax Ordinance 2001 are proposed to be abolished, and  tax  is proposed @ Re.1 per kilogram of  the  laden weight capacity of goods
transport  vehicle.  No  change  has  been  proposed  in  the  rate  of  tax  on  goods forwarding contracts, which remain taxable at the existing rate of 2%.
5.  In  order  to  bring  clarity  on  advance  tax  deductible  on  Cash Withdrawals  from Banks,  various  banking  transactions  including modes  like  withdrawals  through Demand  Draft,  Pay Order, Online  Transfer,  Telegraphic  Transfer,  TDR,  CDR, STDR and RTC, are proposed to be subject to 0.3% deduction of the advance tax, if such  transactions exceed  threshold of Rs.25,000/-  in a single day. The advance tax is adjustable.
6.  Turnover Tax on Loss Making Companies is proposed to be enhanced to @ 1%. 

7.  Withholding  tax on gross value of  Inland Air Ticket has  been proposed @  5%. Under  the  scheme  the  Inland  Air-Ticketing  persons  shall  withholding  the  tax, which will be adjustable against the tax liability of the purchaser of such ticket; 
Income Tax Technical Changes

1.  Section 4 of the Income Tax Ordinance 2001 is proposed to be amended to include a  reference  regarding  tax  credit  on  account  of  share  of  profits  received  by  a company from an AOP.
2.  In order  to bring  clarity,  expression  ‘CD’  appearing  in Division-V of Part-IV of First Schedule  to  the  Income Tax Ordinance 2001  is proposed  to be  replaced by ‘any electronic medium’.
3.  The mandatory  requirement  of  Filing  of Wealth  Statement  by  the  Taxpayers  in FTR cases with yearly tax amounting to Rs.35, 000/- is proposed to be included in section 116 of the Income Tax Ordinance 2001.
4.  For  enforcing  checks  on  non-compliant  taxpayers,  and  to  encourage  compliant-taxpayers, a new section 181A is proposed to be inserted in the Ordinance.
5.  In order to streamline accounting of Advance Tax payments, certain amendments are  proposed  in  section  147  of  the  Ordinance,  so  that  quarterly  advance  tax payments  are  paid  by  25th  of  last month,  as  compared  to  earlier  requirement  of such payments by 15th of every month after the end of a quarter. 
6.  Through an editorial amendment,  the  reference of  ‘minimum  tax’ on  importer of edible oil and packing materials under section 148, is proposed to be incorporated in provisions referring to final tax on the income of an importer. 
7.  For  the purposes of clarity,  through an editorial amendment  the reference of sub-section  (1AA)  of  section  152  is  proposed  to  be  inserted  in  sub-section  (2)  of section 152. 
8.  In  order  to  rationalize  the  definition  of  ‘Prescribed  Persons’  as  given  in  sub-section (9) of section 153, an individual with  turnover of Rs.50 millions or above is proposed to be added. 
9.  In order to perceive better audit of withholding taxes, the withholding agents shall be  required  to  e-file  quarterly  statements  even  in  the  cases  where  no-tax  was deducted.  For  the  purpose  of  alignment  and  uniformity,  the  words  ‘a  person collecting tax’ are proposed to be replaced with the words ‘a withholding agent’ in sub-section (2) of section 165.
10.  Editorial amendments  in Section 236A of  the Ordinance are proposed  in order  to bring  clarity  and  remove  confusion  about  the  charge  of  advance  tax  on  public auction of all kind of property including confiscated or attached goods.

 11.  On merger  of  Investment  Corporation  of  Pakistan with  Industrial  Development Bank,  the  exemption  available  to  ICP  on  dividend  received  from  any  other company is proposed to be withdrawn. 
12.  Exemption under clause (52) of Part-IV of the Second Schedule to the Income Tax Ordinance 2001 available  to Vanaspati Ghee or Oil  is proposed  to be withdrawn, in view of demise of SRO. 593(I) 1991 Dated 30th June 1991.

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