Comments on Budget & Fiscal Laws 2011

COMMENTS ON BUDGET & FISCAL LAWS, 2011 COMMENTS ON BUDGET & FISCAL LAWS, 2011 By Anjum Asim Shahid Rahman, Chartered Accountants, Lahore Finance Bill 2011 This Memorandum summarizes an overview of economy for the year 2010-2011 and the important changes proposed through the Finance Bill 2011. It contains comments on the budget and on the Finance Bill 2011, including highlights, of the changes brought through the Income Tax Ordinance, 2001, the Sales Tax Act, 1990, the Federal Excise Act, 2005, the Custom Act, 1969, the Finance Act, 1989, the Securities and Exchange Commission of Pakistan Act, 1997, Oil and Gas Regulatory Authority Ordinance, 2002 and the Provisional Collection of Taxes Act, 1931. The amendments proposed through the Income Tax Ordinance, 2001 and through other laws are intended to be effective once the parliament has accorded it's assent and thereafter, would be effective from July 01, 2011 i.e. tax year 2012 unless otherwise indicated. Whereas certain provisions relating to customs duty, excise duty and sales tax have been made applicable from June 04, 2011. This Memorandum is intended to provide general guidance to the readers on the important changes brought through the bill and should not be considered as a substitute for specific advice relating to a particular enactment. For considering the precise effect of a proposed change, reference should be made to the appropriate wordings in the relevant statute and the notifications issued where relevant. The Memorandum has been prepared exclusively for the use of our clients and staff, based on information available with us till the time of giving it for printing. Anjum Asim Shahid Rahman Chartered Accountants Table of Contents Pages Budget at a glance 26 Overview of the Economy 2010-2011 26 The Finance Bill 2011 - Highlights 33 Summary of changes in: 38 The Income Tax Ordinance, 2001 38 The Sales Tax Act, 1990 50 The Federal Excise Act, 2005 55 The Customs Act, 1969 58 Other Laws 61 The Provisional Collection of Taxes Act, 1931 62 Budget at a Glance 2011-2012 2010-2011 2011-2012 2010-2011 Rupees in billion % % RECEIPTS Revenue Tax Non Tax 2,074 658 1,779 632 75% 24% 64% 23% Gross revenue receipts 2,732 2,411 99% 87% Less: Provincial Share 1,203 1,034 43% 37% Net revenue receipts 1,529 1,377 55% 50% Other sources Net capital receipts 396 325 14% 12% External receipts 414 387 15% 14% Self financing of PSDP by provinces - 342 0% 12% Estimated provincial surplus 125 167 5% 6% Bank borrowings 304 167 11% 6% 1,239 1,388 45% 50% 2,768 2,765 100% 100% TOTAL RECEIPTS EXPENDITURE Current General public service 1,593 1,388 58% 50% Defence 495 442 18% 16% Others 228 168 8% 6% Total current expenditure 2,316 1,998 84% 72% Development Federal government 300 290 11% 10% Provincial government 55 373 2% 13% Other development expenditure 97 104 4% 4% Total development expenditure 452 767 16% 28% TOTAL EXPENDITURE 2,768 2,765 100% 100% Overview of the Economy 2010-2011 Pakistan's economy reflected a slow growth over the last five years with the real GDP posting a moderate CAGR of nearly 3.7%. During FY 2010-11 the economy has witnessed a growth of 2.4% which is 37% lower than the growth recorded in FY 2009-10. This low GDP reflects the overall pressure on the economy causing high unemployment rate, inflation, fiscal deficit and debt burden. Among the three major sectors of the economy, services was the major contributor in the overall growth of the country with 4.1% growth over the preceding fiscal year. As a consequence, the agriculture sector grew at rate of 1.2% against the target of 3.8%. Major crops witnessed negative growth while minor crops along with livestock and fishery recorded positive growths. Manufacturing, the third major sector of the economy, grew by 1.2%. It was the Small Scale Manufacturing (SSM) that played an important role in the positive contribution to GDP. While the Large Scale Manufacturing (LSM) growth was hampered due to reduced output in textile and petroleum products (submersions of refineries under Wood water, energy crisis and circular debt). The deceleration in the economic growth can mainly be attributed to the devastating floods of 2010, deteriorating law and order situation, energy crises, price hike in petroleum products and a fallout of the global financial crisis. Figure 1: Real GDP Growth In FY 2010-11, the Rupee against the US Dollar stabilized, while a higher growth in nominal GNP had a direct impact on the per capita real income with a growth of 0.7% in FY 2010-11. In dollar terms the per capita income rose from USD 1,073 in FY 2009-10 to USD 1,254 in FY 2010-11. Figure 2: Per Capita Income (in USD) Inflation remains a major challenge for the political government and the economy at large despite a stringent monetary policy. The rise in the food, prices due to destruction of crops in 2010, floods and the rise in cost of production mainly due to oil price hike and energy crisis in aggregate contributed to the persistently high level of inflation which was recorded at 14% in FY 2010-2011. Increased government borrowings to cover the fiscal deficit also fueled inflation during the preceding fiscal year as did printing of currency by the SBP. Performance of Sub-Sectors Pakistan's economy also comprises three sectors namely (i) Agriculture, (ii) Manufacturing and (iii) Services. These three sectors make up the GDP of the economy of Pakistan. In the FY 2010-11 the service sector outperformed the other two sectors in contribution to GDP. The performance of all the three sectors has been provided in the ensuing paragraphs. Service sector comprises transport, storage, communication, wholesale and retail trade, finance and insurance. This sector contributed approximately 53% to the total economy in FY 2010-11 and grew by 4.1% as against 2.9% of last fiscal year. Social services witnessed a rising trend while other areas showed a stable growth. The agriculture sector, which provides employment to approximately 47% of the total workforce, includes crops, livestock, fishery and forestry. The crops are further classified into two categories namely major crops and minor crops. In the FY 2010-2011 the major crops i.e. rice and cotton have experienced negative growth of 4%, whereas the minor crops have witnessed positive growth of 4.8%. The significant contributor which led to an overall positive growth in the agriculture is livestock, which experienced a growth of 3.7%. The manufacturing sector is third largest sector of the economy, accounting for almost 18% contribution to GDP. The manufacturing sector of Pakistan is divided into two branches namely Large Scale Manufacturing (LSM) and Small Scale Manufacturing. LSM remained victim of power shortage and cost escalation due to price hike of raw materials and power tariffs. Another main factor which led to adverse growth in the manufacturing sector is the recent floods which disrupted the operations of various large scale manufacturing units. The increased cost of borrowing, due to tight monetary policy resulted in negative growth in the sector. This decrease in the trend of investments has resulted in loss of employment opportunities which are generated as a consequence of new investments. Conversely, the small scale manufacturing sector has done well and as a result contributed towards the GDP. Additionally, the mining sector has also experienced a decline in the FY 2010-2011. The significant reasons behind this decline are low investments in the sector, followed by law and order situation in the regions where major mining operations take place. Investments and Savings Investment is a key determinant of growth; however in FY 2010-11 the total investment as a percentage of GDP decreased from 15.4% in FY 2009-2010 to 13.4%. Private sector investment fell by 1.7%, while public sector investment also declined by 0.3% in the FY 2010-2011. The decrease in the indicators has adversely affected the economy as low investment from both the private and the public sectors has led to a fall in the aggregate demand in the economy, thus resulting in a decrease in the GDP growth. The national and domestic savings witnessed a marginal growth of 5.3% and 2.1% respectively in comparison to the previous year's figures of 13.8% and 9.5% of GDP in FY2010-11 as against 13.1 % and 9.3% of GDP in FY 2009-10. Figure 4: Structure of Investment and Savings as Percentage of GDP Public Debt Public debt is the outcome of the developments taking place on the fiscal and current account deficits; thus larger gap in these two deficits cause the public debt to grow at an accelerated rate. Low fiscal and current account deficits, along with the stability in the exchange rate, are critical in maintaining public debt at a sustainable level. In FY 2010-11, a considerable rise in the public debt has been observed where the external debt and liabilities from public sources equal 91.6% of the total external debt and liabilities. Public and publicly guaranteed debt accounts for the largest share of the total external debt liability and stands at 78.2% in the quarter ending March 2011 which is a 5.8% growth over the preceding fiscal year. Current Account The current account balance has long suffered a current account deficit; however in the current FY the deficit turned to surplus of US$ 99 million. The higher export bill, strong and sustained inflows of workers remittances, logistic support related receipts and grants received all contributed to this improvement. Figure 5: Current Account Balance as Percentage of GDP Trade The preceding FY has experienced a decrease in the balance of trade by almost US$ 3 billion. This fall is attributable to an increase in the growth of merchandise export of about 27% in the fiscal year. imports have also experienced a relative slowdown in growth due to an overall fall in demand in the economy. The significant contributor in export as always has been the textile sector. However, the wheat crop also contributed more than US$ 400 m to the export bill. The increase in exports remained concentrated in few items namely, cotton, rice and leather. This reinforces the need for diversification if the economy is to avoid setbacks from natural disasters such as the recent floods, which disrupted manufacturing operations along with the severe damage to the raw material. On the contrary, the import bill also witnessed an increase of about US$ 4 billion in the FY 2010-11 which primarily was driven by the 'Price Effect' rather than the 'Quantity Effect'. In the preceding fiscal year the trade deficit improved by US$ 240 m. Figure 6: Trade (Import and Export Trend) - All Values in USD Billion Foreign Direct Investment (FDI) Foreign direct investment (private) stood at $ 1,232 million during July-April 2010-11 as against $ 1,725 million in last year, thereby showing a decline of 29%. This is mainly due to volatile security condition in the country, high interest rates, electricity outages and cuts in the Public Sector Development Program. The main attraction for foreign investors remained the power, oil and gas and financial businesses sectors of the economy. No measures have been announced in the budget which shall act towards building confidence of the potential foreign investors. It is therefore anticipated that this trend of fall in the FDI figures will continue in the succeeding years. In terms of the economy's total size, investment dipped to 13.4% against last year's 15.4% which largely is a reflection of deterioration of law and order situation, which reduced the foreign direct investment and increased the cost of investment. However, in absolute terms, total investment grew and stood at PKR 2.5 trillion, which is PKR 300 billion more than last year. Figure 7: Foreign Direct Investment-Value in USD Billion Workers' Remittances During July -- April, 2011, overseas workers remitted an amount equivalent to $ 9.1 billion as compared to $ 7.3 billion last year thereby an increase of 23.8% has been witnessed. Keeping this trend in view, remittances for the full-year are estimated to reach up to $ 12 billion. Meanwhile, .with estimated trade deficit at $ 11.3"billion and workers' remittances of about $ 12 billion, the current account deficit is estimated to decrease to around $ 1 billion in 2010-11 from the previous year's deficit of $ 3.9 billion. Figure 8: Workers' Remittances Values in USD Billion Foreign Exchange Reserves The current foreign exchange reserves of the country stand at USD 17.2 billion which is approximately USD 500 million higher in comparison to FY 2009-2010. The contributors to this position of the foreign exchange reserves apart from the current account balance surplus are the funds from international donor / lending organizations. Figure 9: Foreign Exchange Reserves - Values in USD Billion Inflation (CPI) Inflationary pressures were quite severe in the beginning of fiscal year 2010-11 and became worse by the devastating floods. The inflation figures touched their record high of 14.1 percent in FY 2010-11. The main driver of the CPI index has been the increase in the food prices. During FY 2010-11, food has remained the major driver of the inflation on the back of supply disruptions due to floods as well as hike in prices of imported edibles. Food inflation recorded at 18.4 percent which has been mainly due to increase in prices of sugar, milk, poultry, meat, fresh vegetables and fruits owing to shortfall in production of these items and significant increase in world food prices. The inflation based on non food component witnessed an increase of 10.4% in this period. Figure 10: Inflation Monetary Policy The FY 2010-2011 witnessed an increase in interest rates by 150 basis points. Since Nov. 2010 there has been no change in the interest rates by the government. The government's effort to control inflation is falling victim to its own policy of extensive borrowing from the SBP to cover the fiscal deficit. Finance Bill 2011 -- Highlights Income Tax Ordinance, 2001 * The threshold of taxable income for individual taxpayers is proposed to be enhanced from Rs. 300,000 to Rs. 350,000. * Minimum tax paid in terms of section 113 is proposed to be available for adjustment in five subsequent years instead of currently allowable period of three years. * Waiver of 'profit on debt' and principal outstanding, duly approved under the schemes issued by the SBP, is proposed to be treated as business income. * Permanent Establishment of non-resident person is proposed to be brought under the Final Tax Regime on account of the supply of goods and execution of contract. * Tax deduction under section 153 of the companies on provision of services is proposed to be a minimum tax. * The credit allowable to a company for enlistment in Stock Exchange is proposed to be increased to 15% of tax liability as opposed to the existing slab of 5%. * Upper limit for investment in new shares for claiming tax credit proposed to be increased from Rs. 300,000 to Rs. 500,000. Such credit is also proposed to include premium paid for life insurance policies in respect of individuals earning salaries and business income. * A tax credit equal to 100% of the tax payable is proposed to be allowed for a period of five years to a company which establishes a new industrial undertaking owning 100% equity and engaged in manufacturing in Pakistan or makes investment under BMR relating to purchase and installation of plant and machinery in an existing undertaking. * Monetary threshold of taxable income for filing of wealth statements by individuals or members of AOP is proposed to be enhanced from Rs. 500,000 to Rs. 1,000,000. * An industrial or commercial electricity connection holder is also proposed to file income tax return if his annual electricity bill exceeds Rs. 1 million. * A single member court of Appellate Tribunal Inland Revenue is proposed to dispose of cases involving tax or penalty threshold not exceeding Rs. 1 million instead of present limit of Rs. 5 million. * Monthly filing of statements by withholding tax agents is proposed as against on quarterly basis. * Rate of tax on dividend income received by a commercial bank from an asset management company is proposed to be enhanced from 10% to 20%. * Rate of withholding tax on cash withdrawals is proposed to be reduced from 0.3% to 0.2%. * Final Tax Regime @ 10% prescribed for profit on debt in the hands of individuals and non-corporate sector in respect of income from schemes of the Federal or the Provincial Government. * Excess provision over the prescribed limit of 5% for bad and doubtful debts in respect of consumer and small and medium enterprises is allowed to be carried forward to future years. SALES TAX ACT, 1990 * To facilitate cash flow of industrial sector full adjustment of sales tax paid on import or local purchase of capital goods has been allowed. * Exemption of sales tax withdrawn on defence stores at import and local supply to bring it in line with international best practices. * Sales tax exemption regime rationalized to reduce its scope to selected sectors. * Value addition tax levied on commercial importers enhanced from 2% to 3%. * Sales tax exemption withdrawn on cement/concrete blocks and bricks. * Sales tax leviable on sugar at import and local supply stage has been withdrawn and federal excise duty @ 8% is levied instead. * Zero-rating regime rationalized to limit its application to selected sectors. * Specific provisions for enforcement of blacklisting regime. * A new designation introduced namely Inspector Inland Revenue as an authority under the Sales Tax Act, 1990. * Rejection of refund claim where directly or indirectly incidence is passed on to the consumers. * FBR empowered to condone time limit in time bound cases dealt by authorities specified in section 30 of the Sales Tax Act, 1990. FEDERAL EXCISE ACT, 2005 * Quantum of excise duty reduced on cement. * Reduction in the rate of the federal excise duty leviable on aerated beverages from 12% to 6%. * Federal excise duty on services provided by property developers or promoters abolished. * Exemption on local supply of reclaimed lead to recognized manufacturers of lead batteries. * Excise duty slab revised upward to enhance the burden of the federal excise duty on locally produced cigarettes. * Federal excise duty rationalized on filter rods for cigarettes from Rs.1 per filter rod to 20% ad valorum. * Federal excise duty on un-manufactured tobacco is being enhanced from Rs. 5 per kg to Rs. 10 per kg. * Uniformity proposed in the period of recovery of federal excise" duty and sales tax. * Confiscation provisions extended to beverages along with cigarettes. * Time limit prescribed to decide the case after issuance of show cause notice. * Various provisions of the Federal Excise Act, 2005 harmonized with the Sales Tax Act, 1990. CUSTOMS ACT, 1969 * Regulatory Duty removed on edible items, furniture, toiletries and make-up items. * Custom duty reduced to 5% on pharmaceutical raw materials. * Concession prescribed for butyl acetate industry through concession on import of its raw materials (Sabutol). * Incentives provided for glass industry raw materials namely "mirror backing paint" and "waste / scrap of glass". * Incentive for CNG compressors manufacturing industry prescribed through concession on 15 components. * Concession extended to machinery and equipment for oil exploration companies. * Concession extended to raw material of audio cassettes. * Incentive extended for hi-tech car audio manufacturing industry through concession on import of mechanism for car audio system. * Corrections prescribed in industrial SRO 565(1)/2006 to ensure expeditious clearance. * Tariff rationalized on bars, rods and profiles of refined copper and copper alloy. * Separate PCT codes prescribed for brass scrap and armored cash carrying vehicle. * Tariff correction to remove ambiguity in re-import scheme. * Duty draw back introduced in respect of supply of goods against international tenders. * Extension of limitation period from three to five years for cases unearthed during audit. * Limitation period for claim of refund to be counted from the date of finalization of the case (order / decision / judgment). * Enabling provision introduced for collection of transit fee in the Customs Act, 1969. OTHER LAWS * Finance Act, 1989 (V of 1989) - Capital Value Tax * Withdrawal of Capital Value Tax (CVT) is proposed on purchase of modaraba certificate or a registered instrument of redeemable capital or shares of a public company, listed on a registered stock exchange in Pakistan by a resident person. * Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) It is proposed that the Securities and Exchange Commission of Pakistan (SECP) shall remit any surplus of receipts over the actual expenditure in a financial year to the Federal Consolidated Fund and any deficit from the actual expenditure shall be made up by the. Federal Government. All fines and penalties imposed and collected by the SECP are also proposed to be credited to the Federal Consolidated Fund. * Oil and Gas Regulatory Authority Ordinance, 2002 (XVII of 2002) It is proposed that the Oil and Gas Regulatory Authority (the Authority) shall remit any surplus of receipts over the actual expenditure in a financial year to the Federal Consolidated Fund and any deficit from the actual expenditure shall be made up by the Federal Government. All fines and penalties imposed and collected by the Authority are also proposed to be credited to the Federal Consolidated Fund. SUMMARY OF CHANGES IN THE INCOME TAX ORDINANCE, 2001 Definition of assessment Section 2(5).---The bill seeks to include the words "provisional assessment" in the definition of assessment. The proposed change is more of rectificatory in nature as power to make provisional assessment, already exists uncle" the provisions of sections 122C and 123. Definition of Collective Investment Scheme Section 2(11c).---The bill seeks to insert definition of above and has adopted the same from Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 which states: Collective investment scheme means a close-end, fund and an open-end scheme: The proposed definition is for the purpose of Clause (99) of the Part I of the Second Schedule to the Income Tax Ordinance, 2001. Waiver of profit on debt and debt Section (18)(1)(d).---In order to revive sick units, as part of policy the State Bank of Pakistan Banking Policy Department issued Circular No. 29 of 2002 and other schemes from time to time to provide relief to sick industries which defaulted in repayment of profit on debt or principal amount of debt. The tax department had been attempting to tax such relief of waiver of principal amount of debt but judicial pronouncements held that waiver of principal amount of debt does not constitute income in the hands of the taxpayers. The bill seeks to clarify by way of insertion of an explanation in section 18(1)(d) that such a waiver of profit on debt as well as debt constitutes income chargeable to tax under the head income from business. This amendment is negation of the policy of the Government to revive sick units. It is to be appreciated that when a sick unit did not have the ability to discharge principal amount of debt, how it can pay tax upon waiver of debt? The implementation of this provision will result in a hardship situation'. The proposed amendment, if implemented, will provoke tax litigations as tax officers would like to amend assessments under the provision of section 122(5A) till the period such assessments can be amended under the law. Investment in shares and insurance policies Section 62.---The proposed substitution seeks to enlarge the scope to include within its ambit investment in life insurance policies and provide tax incentive by way of tax credit in respect of premium paid on a life insurance policy to a life insurance company registered with the Securities and Exchange Commission of Pakistan under 'the Insurance Ordinance, 2000, (XXXIX of 2000). The bill does not change the other basis of allowing tax credit under this section except that the tax credit shall be calculated at the lower of 15 % of the taxable income of the person or Rs.500,000 or the total cost of acquiring the shares/the total contribution/premium paid on life insurance policies. Presently this' threshold is equal to 10% of the persons taxable income of the year or Rs.300,000. The bill also seeks to enhance minimum holding period of investment in shares to 36 months from existing prescribed holding period of 12 months from the date of acquisition of shares to avail this tax incentive. In case of disposal of shares within the period of three years, the tax credit already availed by the taxpayer shall be disallowed by the Commissioner in the year of disposal of shares. However, it is not clear as to how the tax credit already allowed will' be withdrawn whether through the amendment of assessment or otherwise. The purpose and intent behind the proposed changes appear to encourage taxpayers to take a long term position in fresh issuance of shares on Registered Stock Exchanges or disinvestment through Privatization Commission, The above is a positive change from the point of view of promotion of investment in life insurance policies. However long term view on investments may not be seen that encouraging. Contribution to an Approved Pension Fund Section 63(2)(iii).---The bill seeks to omit clause (iii) from the statute book to remove the existing limit of Rs. 500,000,to allow of tax credit available in respect of premium or total contribution made in the year by a person towards the approved pension fund under Voluntary Pension System Rules, 2005. After the proposed change the existing limit of tax credit is allowable on the basis of lower of: (a) total contribution or premium paid by the person in the year; (b) twenty percent of the eligible person's taxable income for the relevant tax year; or (c) fifty percent, of the total taxable income of the preceding year. Tax credit for listing on Registered Stock Exchange Section 65C(1).---The proposed amendment seeks to enhance the tax credit to 15% from existing limit of 5% for a corporate taxpayer which opts to list itself on any Registered Stock Exchange in Pakistan. Tax credit is available in the shape of reduction in tax payable for the tax year in which the company would be enlisted. This is a one time incentive but' positive in nature and will promote listing or, conversion of private and public unlisted companies into listed companies. Tax credit for equity investment Section 65D.---A new section is proposed to be inserted in the Ordinance which provides for tax incentive equal to 100% credit of tax payable in the year any taxpayer being a company, which establishes a new industrial undertaking for manufacturing activity in Pakistan or invests any amount for purchase and installation of machinery for the purpose of Balancing, Modernization and Replacement (BMR) of plant and machinery in an existing industrial undertaking established and owned by it. This incentive is available to holding company which owns 100% equity of the subsidiary company. The incentive is available for investment on or after July 01, 2011 for a period of five years or commencement of commercial production whichever is later. However, in the event the Commissioner Inland Revenue discovers on the basis of documents or otherwise that any of the condition stipulated for availing this incentive was not fulfilled, he may re-compute the tax payable by the taxpayer for the relevant tax year by withdrawing the tax credit originally allowed, as if it was wrongly allowed. The purpose behind the proposed insertion is to promote industrialization and enhance manufacturing activities in the country either in new ventures or BMR in line with the Government's Policy to promote industrial activity. This is a positive change which will generate employment and will provide economic opportunities to various segments ' 'of the society. Unexplained income or assets Section 111(1)(d).---The proposed amendment seeks to enlarge the ambit of unexplained income or assets by including in it the concealment or furnishing of inaccurate particulars of income comprising suppression of production, sales or any amount chargeable 'to tax or suppression of any item of receipts liable to tax in whole or in part. The intention of the legislature is to take punitive actions once concealment of income is detected. The focus of the Government is to document the economy and enlarge the tax collection by minimizing tax evasion. Minimum tax on the income of certain persons Section 113(2).---Presently minimum tax paid by a resident company or an individual having a turnover of Rs.50 million or above in the tax year 2009 or in any subsequent tax year or an AOP having a turnover of Rs.50 million or above in the tax year 2007 or in any subsequent tax year, is adjustable against normal tax liability in succeeding three years. The bill seeks to extend the existing period of three years to five years to claim adjustment of minimum tax paid in any tax year. This is a beneficial change as it will provide relief to those entities which have taxable income in succeeding years. Definition of turnover Section 113(3)(a).---The bill seeks to include the word 'gross sales' as part of definition of turnover in addition to the word 'gross receipts'. It appears that the purpose behind the proposed insertion of 'gross sales' in the ambit of turnover is to reflect the receipts from manufacturing activities. Taxation of income of certain retailers Section 113B(b).---This is a consequential change and rectificatory in nature to replace Chapter II of the Sales Tax Special Procedures Rules, 2006 with Chapter III of the Sales Tax Special Procedures Rules, 2007. Return of income Section 114(1)(b)(viii).---The bill seeks to insert sub-clause (viii) requiring the holders of commercial or industrial connections of electricity to mandatorily file return of income where the amount of bill exceeds Rs.1 million in any year. This is an important change as it will highlight number of consumers of electricity who may be non-filers for one reason or the other. Although the Government had the powers and was always in a position to obtain information about such electricity consumers from electric distribution companies and take necessary actions. Section 114(1A).---A new section is proposed to be inserted whereby persons enjoying income from business', between Rs.300,000 to Rs.350,000 in a tax year who although are not liable to pay income tax on such income but are mandatorily required to file their return of income. The purpose behind the proposed change is to promote documentation by requiring persons earning income below the taxable threshold to file return of income. Section 114(2)(d) & (e).---The new sub-clauses are proposed to be inserted requiring any person filing the return of income to pay any tax due with the return and also file wealth statement, if required under the provisions of section 116. Wealth statement Section 116(2).---The bill seeks to: (a) enhance the monetary threshold for filing of wealth statement for a resident taxpayer, being an individual, from Rs.500,000 to Rs.1,000,000; and (b) require all individuals being members of an AOP whose share from income of such AOP, before tax, for the year is Rs.1,000,000 or more to file their wealth statements and wealth reconciliation statements along with the return of income of the AOP. Section 116(2A).---A new subsection is proposed to be inserted in the statute book whereby in case of a provisional assessment under section 122C a person being an individual or member of AOP, files a return such return shall be accompanied by a wealth statement and reconciliation statement explaining the source of acquisition of assets and in case of a member of an AOP with wealth statement and reconciliation statement explaining sources of acquisition of assets specified, of all the members. Appeal to the Commissioner (Appeals) Section 127(1).---The proposed amendment seeks to restrict a person against whom a provisional assessment order under section 122C has been framed from filing an appeal to the Commissioner Appeals against such an order. It is interesting to note that under the law a provisional assessment order attains status of final assessment order upon expiry of sixty days at which stage first appeal becomes barred by time. The above is against the principle of natural justice and judicial judgments, which stipulate that all orders raising tax liability against the taxpayers are subject to appeals. This amendment may not be able to withstand the test of constitutional petitions, if filed against the proposed amendment. Appointment of the Appellate Tribunal Section 130(8A) & (8AA).---The proposed amendment seek to curtail the monitory threshold from existing limit of Rs.5 million to Rs.1 million as regards the amount of tax or penalty involved to be heard by a single bench. Additionally, the word Chairman is proposed to be replaced by the word Chairperson to include the possible appointment of both the genders to this position. The curtailment of limit is a positive change as cases involving revenue upto Rs.5 million to be heard by single bench appeared unreasonable. Disposal of appeals by the Appellate Tribunal Section 132(2).---The proposed amendment seeks to remove the word "may if it deems fit, dismiss the appeals in default" from the statute book whereby curtailing the power of the Tribunal to dismiss She appeals for non-appearance of the any party to the appeal. With the proposed change the tribunal may in ex parte proceedings decide the case on the basis of available record. Due date for payment of tax Section 137(2) proviso.---The proposed amendment seeks to insert the' word "immediately clarifying" that in case of passing of provisional assessment order under section 122C, the tax shall be payable "immediately" after the expiry of 60 days from the date of service of the notice. Advance tax paid by the taxpayer Section 147(5B) first proviso.---The proposed amendment seeks to enhance the period for payment of advance tax from 7 days to 21 days in case of advance tax on capital gains on sale of securities. This will provide some relief to the taxpayers. Persons not required to furnish a return of income Sections 151(3) & 115(4).---The proposed changes seeks to bring profit on debt arising to a taxpayer other than a company in Final Tax Regime (FTR) arising on the securities issued by the Federal Government or Provincial Government or the Local Government. Presently income from such securities are taxed on net income basis. It is interesting to note that securities of the Federal and the Provincial Governments were not issued to individual or non-corporate taxpayers and it appears that it is the intention of the Government to issue such securities in future to individuals or non-corporate taxpayers as well. The Government intends to raise funds from non-corporate sector as well and reduce burden of government borrowings on banking system or corporate sector as part of its policy to finance its budgetary deficits. Consequential changes are also proposed in section 115(4) whereby non-corporate taxpayers are not required to file their returns of income in respect of above source of income rather now would file prescribed statements under section 165. Payment of goods and services Section 153,168 & 169.---Under the existing provisions, permanent establishment of the non-resident were not covered under the final tax regime and were required to be assessed under the normal tax regime in line with provisions of section 105. Tax withheld on payments received by companies providing services by virtue of the proviso was not treated as minimum tax which had also been clarified by the Board vide Circular No.6 of 2009 dated August 18, 2009. Subsequently vide internal letter issued on April 26, 2011 the Board in supersession of Circular No. 6 of 2009 clarified that tax deducted on payments for rendering of services is to be treated as minimum tax in all cases. Exemption certificates under section 153(1)(b) were denied by the tax authorities to companies providing services on the basis of the clarification issued by the Board. Petitions have been filed challenging the later clarification issued by the Board in the High Court. The substituted section proposes to bring within the ambit of final tax regime payments received by permanent establishment of the non resident. It also proposes to enlarge the scope of minimum tax regime to companies providing or rendering services. It further proposes to define turnover to include Sales Tax and Federal Excise Duty or any trade discounts shown on the invoice. In our view this is a typographical error and the intent was to define gross payment since the term turnover has not been used in the section. Yarn traders receiving payments from taxpayers covered under the zero rated regime of sales tax have been exempt from the application of this section. The Commissioner has further been empowered to allow deduction of tax at reduced rate. Certain referential changes due to the substitution of the section have been proposed in sections 168 and 169. Withdrawal of balance under Pension Fund Section 156B.---The bill seeks to increase the exemption of withdrawal from twenty five percent to fifty percent of the accumulated balance at or after the retirement age from application of the withholding provision. Withholding tax statements Section 165.---Withholding agents were required to file quarterly statement instead of monthly statement vide amendment made through the Finance Act, 2010. The proposed amendment seeks to revert back to the position of requiring withholding agents to file monthly statements instead of quarterly statements. It additionally places the responsibility of providing information in the statement with regards to Computerized National Identity Card Number or National Tax Number of the person whose tax has been withheld. Subsection (2) which requires quarterly statement to be filed on or before 20th day of the succeeding month is being substituted to curtail the period of filing the statement by 15th day of the succeeding month. A new subsection (6) is proposed to be inserted whereby every employer would additionally be required to file annual statement even in respect of employees whose annual salary exceeds three hundred thousand rupees. Offences and penalties Section 182(1) Table S.No.1.---Under the existing provision for non-filing of return of income or a statement under section 115 or a wealth statement or wealth reconciliation statement or a statement under section 165 by the due date, penalty equal to 0.1% of the tax payable for each day of default subject to a minimum of five thousand rupees and a maximum of 25% of the tax payable is attracted. The tax authorities have been attempting to interpret the words "tax payable" to mean tax calculated by applying the applicable rates to the taxable income of the tax payable, ignoring the provisions of section 4 and the decision of the appellate authorities. The Appellate Tribunal has held that tax payable means the amount payable with the return and not the amount calculated by applying the rate of tax to the taxable income of the tax payer. The department filed a reference application in the Honorable Sindh High Court against the decision of the Appellate Tribunal on the issue. The Honourable Sindh High Court while upholding the interpretation of the Appellate Tribunal dismissed the departmental reference in limine. The bill proposes to insert an explanation to clarify that the term `tax payable' for the above mentioned default to mean 'tax chargeable on the taxable income' on any assessment made or treated to have been made under sections 120, 121, 122 or 122C. In our view, the proposed insertion apart from being an attempt to nullify the decision of the superior court, is also against the principle of natural justice since its implementation would not allow the benefit of any tax payments, tax credits and refunds due to the taxpayer under the Ordinance. Advance ruling Section 206A(1).---The proposed insertion restricts the scope by providing that non-resident having permanent establishment in Pakistan can not apply for advance ruling to the Board. As a result this provision shall only be available for nonresidents who do not have a PE in Pakistan. This amendment will provide set-back to the concept of advance ruling. Advance tax at the time of sale by auction Section 236A(1).---The proposed insertion seeks to enlarge the scope of withholding tax provision to cover any auction by a tender. In a recent judgment of the appellate forum it was held that auction by tender is not covered within the provision of existing law. Advance tax on purchases of air ticket Section 236B(3) & (4).---The proposed insertion seeks to clarify that the tax collected is adjustable against the final tax liability of the person. Further the tax is not collectable on tickets purchased by the Federal Government or Provincial Government or a person who produces a certificate from the Commissioner Inland Revenue that income of such person during the tax year is exempt. First Schedule Part I, Division-I Clause (1).---The proposed amendment seeks to remove the word association of persons (AOP) from the First Schedule having become redundant effective tax year 2011. The flat rate of tax applicable to AOP was 25% as provided in Division IB. Minimum taxable threshold and tax benefit Part I, Division-I Clause (I) & (1A).---The bill proposes to increase the minimum threshold for the purposes of levy of tax on the taxable income to Rs.350,000 for all individuals. Non salaried persons The substituted tax tariff will provide relief to the extent indicated below. Taxable income up to Proposed slab Previous slabs Tax saving Rupees Rate % Rate % Rupees 301,000 0 7.5 22,575 310,000 0 7.5 23,250 325,000 0 7.5 24,375 350,000 0 7.5 26,250 Salaried persons Part I, Division-I Clause (1).---The tax tariff has been substituted to allow benefit of the change in minimum threshold salaried persons will benefit from this change to the extent exhibited hereunder: Gross income up to Proposed slab Previous slabs Tax relief Rupees Rate % Rate % Rupees 310,000 0 0.75 2,325 325,000 0 0.75 2,438 350,000 0 0.75 2,625 350,001 1.50 1.50 - Capital gains on disposal of securities Part I, Division-VII.---Although there are no changes in effective tax rates the proposed amendment seeks to correct the description of the holding period of securities. Exports Part III, Division-IV Clause (3).---The bill proposes to provide correct reference to section 153 by replacing subsection (1A) with subsection (2). Cash withdrawal from a bank Part IV, Division-VI.---The bill proposes to reduce the rate of advance tax on cash withdrawal from banks to 0.2% as against the existing rate of 0.3%. Second Schedule -- Part I Exemption from total income The bill proposes to omit the following clauses from the Schedule: * Clause (61).---Bank of Commerce and Credit International Foundation for Advancement of Science and Technology (Sub-clause xi). * BCCI Foundation.(sub-clause-xxv). * Clause (74A).---Profit and debt payable to National Bank of Pakistan on foreign currency loan of US $ 100 million given to PSO. * Clause (93).---Profit and gain from any computer training institutions or schemes recognized by the Board or Education or University. * Clause (114A).---Any income chargeable under the head capital gain derived by a person from sale of ships and all floating crafts including tugs, dredgers, survey vehicles and other specialized craft. The bill propose to insert the following clause in the Schedule: * Islamic Development Bank Clause (107A).---Any income derived by the Islamic Development Bank from its operations in Pakistan in connection with its social and economic development activities. Second Schedule -- Part II Reduction in tax rates Profit on debt payable to non-resident having no Permanent Establishment in Pakistan Clause (5A).---A proviso is proposed to be inserted whereby the tax deducted on profit on debt from debt instruments, government securities including treasury bills and Pakistan Investment Bonds shall be final tax on profit on debts payable to a non-resident person having no permanent establishment in Pakistan. Second Schedule-- Part III Reduction in tax liability Tax on import of old and used automotive -vehicles Clause (4).--The bill seek to replace S.R.O.932(I)/2004 dated November 20, 2004 by S.R.O. 577(1)/2005 dated June 06, 2005. The tax under section 148 of the Income Tax Ordinance, 2001 shall not exceed the amount specified in column (3) of the table bellow: S.No. Automotive vehicles of Asian makes meant for transport of person. Duty and taxes in US$ or equivalent amount in Pak rupees. (1) (2) (3) 1 Up to 800cc US$ 4,400 2 Up to 801 cc to 1000cc US$ 5,500 3 From 1001 cc to 1300 cc US$ 11,000 4 From 1301 cc to 1500 cc US$ 15,400 5 From 1501 cc to 1600 cc US$ 18,700 6 From 1601 cc to 180 cc (Excluding Jeeps) US$ 23,100 The provisions of section 71(2) of the Income Tax Ordinance, 2001 state that where an amount is in a currency other than rupees, the amount shall be converted to the rupees at the SBP rate applying between the foreign currency and the rupee on the date the amount is taken into account. Second Schedule -- Part IV Exemptions from specific provisions Minimum tax Clause (11A).---The bill proposes to insert in sub-clause (i) to provide exemption from minimum tax to a pension fund registered under the Voluntary Pension Scheme Rules, 2005. Islamic Development Bank Clause (38C).---The bill proposes that the deduction of tax under sections 151, 152, 153 and 233 shall not apply to the Islamic Development Bank. Seventh Schedule Taxation of Banking Companies Rule 1(c),---Presently, Rule 1(c) provides that "provision for doubtful advances and off balance sheet items" are admissible to the extent of "1% of total advances" or actual whichever is lower and "5% of Consumers and small and medium enterprises (SMEs)". Further, presently the excess of 1 % of total advances threshold is allowed to be carried over to succeeding years. However, nothing is stipulated in the Rule in respect of carried over of excess provision over 5% of consumers and SMEs threshold. Rule 1(c).---The proposed amendments seek to clarify the admissibility of doubtful advances for consumers and SMEs on the basis of 5% of advances or actual whichever is lower. This benefit is available in respect of advances for consumers and SMEs with effect from July 01, 2010. The proposed amendments also stipulates that excess of 5% threshold of consumers and SMEs would also allowed to be carried over to succeeding years by virtue of this amendment. Rule 6 proviso.---The bill seeks to insert a new proviso in Rule 6 whereby dividend received by a banking company from its asset management company shall be taxed at the rate of 20%. The intention behind the proposed amendment is to tax the dividend income of the bank from its assets management operations at a higher rate of 20% instead of normal rate of 10% which appears to be a revenue enhancement measure from the existing taxpayers. Summary of changes in the Sales Tax Act, 1990 Scope of tax Section 3B.---The proposed amendment seeks to reduce the rate of sales tax from 17% to 16% on all taxable supplies including goods covered under the Third Schedule to the Sales Tax Act, 1990. The rate of sales tax was enhanced by 1% i.e. from 16% to 17% last year through the Finance Act, 2010 despite suggestions for reduction in rates from various forums. Adjustable Input tax Section 8B.---Under the existing provision a registered person is restricted from claiming input tax adjustment in excess of 90% of the output tax. The adjustment of input tax paid on fixed assets was allowed in twelve monthly installments. By virtue of the proposed substitution of the proviso the restriction of claiming input tax in excess of 90% has been made ineffective and registered person have also been facilitated to claim total' input tax adjustment in the month it is paid on fixed assets or capital goods. De-registration, blacklisting and suspension of registration Section 21(3).---The bill proposes insertion of new subsection to prescribe consequential effects of blacklisting and suspension of registration of registered person in following manner:-- * during suspension period, invoices issued will not be considered for the purposes of sales tax refund or input tax credit; and * on black listing of registered person, the refund or input tax credit of invoices issued by such person whether issued prior to or after blacklisting will be rejected through an order after opportunity of hearing to such person. The proposed amendment though aimed at curbing issuance of fake invoices causing huge loss to exchequer will create hardship for business community as the rejection of input tax credit or refund to genuine acquirer of goods especially in case of those invoices that were issued prior to blacklisting of supplier will unduly increase the cost of business as well as potential litigation. Revision of return Section 26(3).---The proposed amendment seeks to permit revision of 'special returns' filed under section 27 of the Act with the permission of the Commissioner Inland Revenue. Under the existing law only revision of monthly returns is provided. Appointment of authorities Section 30.---The bill proposes to establishment of new tax authority namely 'Inspector Inland Revenue' who shall be subordinate to Inland Revenue Officer. Alternative Dispute Resolution Section 47A.---It is proposed that the Chairman FBR and a Member nominated by him will be empowered to pass an order on being satisfied that an error exists in the order or decision of the Board passed on the recommendations of Alternative Dispute Resolution Committee. Refunds Section 66.---The bill also proposes that where the incidence of tax is directly or indirectly passed on to the consumer; the registered person will not be entitled to claim refund of such amount. Similar provisions already exists in the section 3B of the Act, which provides that where any tax is inadvertently or under misapprehension collected from the consumer, the registered person is required to deposit the same in the government exchequer. Condonation of time limit Section 74.---The bill proposes to add an 'explanation' to clarify the expression that the Board has the powers to condone any lapse of the department whereby limitation of any action is expiring. The Board is also empowered to delegate this power of condonation to the Commissioner. Since the amendment is proposed to be inserted through an 'explanation', it will be applicable retrospectively. However, in case of past and closed transactions such condonation would be unjustified and adversely affects the vested rights of the registered person and would trigger uncalled for litigation. Sixth Schedule The bill proposes to withdraw exemption granted to following items, with effect from June 4, 2011. Table I- Imports or Supplies S.No. Description 29A Surgical tapes 29B Ultrasound gel 30 Diapers for adults (patients) 34 Bricks 35 Building blocks of cement including ready mix concrete blocks 41 Computer software 42 Ambulances, firefighting vehicles, waste disposal trucks, brake down lorries, and vehicles for the maintenance of streetlights and overhead cables. 43 Aircrafts 44 Ships, of gross tonnage exceeding 15 LDTs, excluding those for recreational or pleasure purpose 62 Defence stores, whether manufactured locally or imported by the Federal Government 64 Spare pails and equipment for aircraft and ships covered by serial number's 43 and 44 above 65 Equipment and Machinery for pilotage, salvage or towage for use in ports or airports 66 Equipment and Machinery for air navigation 67 Equipment and Machinery used for services provided for handling of ships or aircrafts in a customs-port or customs-airport 68 Such plant and machinery as is notified by the Federal Government in the official Gazette but if imported, these shall be entitled to exemption from sales tax on importation if these are not manufactured in Pakistan. 69 Tractors, Bulldozers and combined harvesters; and components 70 Import and supply of fully dedicated CNG Euro-2 buses Table II- Local Supplies only 5 Supply of such agricultural implements as specified in a notification issued by the Federal Government in the official Gazette. Notifications Following changes are brought in sales tax law through notifications to be effective immediately: S.R.O. 480(I)/2011, dated June 3, 2011.---Exemption to machinery and equipment Following notifications are rescinded through this notification Reference Subject S.R.O. 1240(I)/2005 dated 16th Dec, 2005 Exemption dump trucks for off- highway use S.R.O. 542(I)/2006 dated 5th June, 2006 Exemption to supply and import of agricultural machinery and equipments SRO 275(1)/2008 dated 12th March 2008. - do - Notification No. 1(3)STM/2004(PT-II) dated 23rd August, 2009 Sales tax rate on local supply of sugar * S.R.O. 481(I)/2011 dated June 3, 2011- conditional exemption Through this notification, another notification namely S.R.O. 551(I)/ 2008 dated June 11, 2008 which prescribed conditional exemption is amended in the following manner: - withdrawal of exemption on CNG Kits, cylinders and valves for CNG Kits, Commercial catalogues, Rock Phosphate, Phosphoric Acid and Mineral Oil 97% (W/V). - exemption to white crystalline sugar - exemption to reclaimed lead if supplied to recognized manufactures of lead batteries. * S.R.O. 482(I)/2011 dated June 3, 2011--- value addition tax on commercial importer Through this notification, Sales Tax Special Procedure Rules, 2007 are now amended to enhance value addition tax on commercial importers from two per cent to three per cent of value of goods. * S.R.O. 485(I)/2011 dated June 3, 2011 Through this notification, S.R.O. 1161(1)/2007 dated 30 November, 2007 is rescinded which provided zero rating on import of raw material for manufacturing of diapers. * S.R.O. 486(I)/2011 dated June 3, 2011- zero rating Through this notification, zero rating on various goods specified in S.R.O. 549(1)/2008 dated June 11, 2008 is withdrawn on followings: -- dedicated buses meant for transportation of 40 or more passengers -- Trucks and dumpers --- Trailers and semi-trailers -- Road tractors for semi-trailers, prime movers and road tractors -whole annexure to notification as annexed to entry No. 3 to the notification. * S.R.O. 487(1)/2011 dated June 3, 2011- revision of return Through this notification, the Sales Tax Rules, 2006 are now amended to withdraw facility of upward revision of return without permission. This relaxation from seeking permission was earlier provided through S.R.O. 278(I)/2010 dated April 28, 2010. Summary of changes in the Federal Excise Act, 2005 Definition Section 2(16).---The proposed amendment seeks to enlarge definition of word manufacture in relation to tobacco by inclusion of activities or preparation of un-manufactured tobacco by drying, cutting and thrashing of raw tobacco. Special Excise Duty (SED) Section 3A.---The bill proposes complete withdrawal of special excise duty by omission of section 3A from the Federal Excise Act, 2005 which empowered the Federal Government to levy SED. Further, S.R.O.655(I)/2007 dated June 29, 2007 through which SED was levied by the Federal Government is also rescinded with effect from July 1, 2011. Recovery of unpaid duty Section 14.---The bill also proposes to enhance the time period from three years to five years for serving of notice for recovery of unpaid or erroneously refunded duty. Further, in line with the provisions are contained in the Sales Tax Act, 1990, it is proposed to prescribe time limitation of 120 days for passing an order after issuance of a show cause notice subject to extension of period granted by the Commissioner upto a maximum of 60 days with reasons to be recorded in writing. It is also proposed that while computing the time limitation, the period during which the proceedings are adjourned due to a stay order or Alternative Dispute Resolution Committee (ADRC) proceedings or adjournment granted to the registered person not exceeding 30 days, shall be excluded. Similar provisions existed in section 31(3) of the Federal Excise Act, 2005 which were deleted by the Finance Amendment Ordinance, 2009 then on its expiry by the Finance Amendment Ordinance, 2010 and finally by the Finance Act, 2010. Confiscation of Cigarettes and Beverages Sections 26 & 27.---The bill proposes to enlarge the scope of confiscation and destruction provisions of the Act to beverages. Presently, only cigarettes are subject to the provisions of confiscation and destruction in above cited sections. Alternative Dispute Resolution Section 38.---Similar to the provisions in the Sales Tax Act, 1990; the bill proposes to prescribe time limitation of 45 days for the Board to pass an order based on the recommendations of the Alternative Dispute Resolution Committee. FIRST SCHEDULE -- Table I The bill also proposes to bring the following amendments in the First Schedule to the Federal Excises Act, 2005: Change in rates S.No. Particulars Existing rates in % Proposed rates in % 4 Aerated waters 12% 6% 5 Aerated waters containing sugar. 12% 6% 6 Aerated waters if manufactured locally 10% 6% 7 Unmanufactured Tobacco Rs.5 per K.g Rs.10 per K.g. 13 Cement (various specified types) Rs.700 per m.t Rs.500 per m.t Exemption from levy of duty: S.No. Description of goods 17 Solvent oil (non-composite) 18 Other 21 Other fuel oils 26 Mineral greases 28 Transformer oil 29 Other mineral oils excluding sewing machine oil 30 Waste oil 39 Carbon black oil (carbon black feedstock) including residue carbon oil 40 Methyl tertiary butyle ether (MBTE) 46 Greases 47 Organic composite solvents and thinners, not elsewhere specified or included; prepared paint or varnish removers, (i) Solvent oil (composite) (ii) Other (excluding thinners) 48 Viscose staple fiber 49 Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 87,02), including station wagons and racing cars of cylinder capacity exceeding 850cc. 51 Air Conditioners 52 Deep Freezers Change in basis of levy S.No. Particulars Existing Proposed 50 Filter rods for cigarettes Re. 1 per rod 20% ad vol Inclusion of new item - amendment to be effective immediately S.No. Particulars Proposed duty 53 White Crystalline Sugar 8% ad val. Rationalization of duty on cigarettes S.No. Existing provisions Proposed Description Rate Description Rate 9 If retail price exceeds Rs. 19.5 per 10 cigarettes 65% of retail price If retail price Exceeds Rs.21 per 10 cigarettes 65% of retail price 10 If retail price exceeds Rs.10 per10 cigarettes but Rs. 5.25 per10 cigarettes plus 70% of If retail price Exceeds Rs.11.50 per Rs. 6.04 per 10 cigarettes S.No. Existing Provisions Proposed Not exceeding Rs . 19.5 Incremental amount 10 cigarettes but not exceeding Plus 70% of incremental Mental amount 11 If retail price does not exceed Rs.10 p Rs. 5.25 per 10 cigarettes If retail price does not exceed Rs. 11.5 per 10 cigarettes Rs. 6.04 per 10 cigarettes FIRST SCHEDULE -- Table II The bill proposes to abolish FED on services provided by property developers and promoters. SECOND SCHEDULE The bill also proposes for inclusion of White Crystalline Sugar in Second Schedule to the Federal Excise Act, 2005 to make its collection under the sales tax mode. Further, it is also proposed that the amendment should be made effective immediately. FED on franchise fee, technical fee or royalty Rule 43A of Special Procedures for Excisable Services.---Through notification S.R.O. 488(1)/2011 dated June 3, 2011 rate of FED on franchise fee, technical fee and royalty is also enhanced from 5 per cent to 10 per cent of value of taxable services. The notification shall be effected from June 4, 2011. Summary of changes in the Customs Act, 1969 Repayment of duty incurred for supplies against international tenders Section 21(c).---The bill proposes to authorize repayment of duty either wholly or partly paid for supplies against international tenders: Under the existing law, repayment of duty was only available in respect of goods used in the production or repair of other goods meant for exportation, or for supply to such persons who are entitled to import same at concessionary rates. This is a positive amendment meant to provide incentives to local manufacturers and suppliers of domestic goods against international tenders entitling to claim duty draw back. Time limitation for recovery of duty Section 32(3A).---The bill proposes to extend the time period for serving of show cause notice from three years to five years for recovery of duty discovered by an audit or examination of an importer's accounts or by any means other than documents provided at the time of import of goods. Time limitation for claim of refund Section 33.---The bill proposes to clarify that the, time limitation for claim of refund of one year will be counted from the date of decision or judgment of officer of the Customs or the Board or the Appellate Tribunal or the Court. Levy of transit fee Section 129 A.---The bill proposes to authorize the Board to levy transit fee on any goods or class of goods in transit across Pakistan to a foreign territory at such rate to be prescribed by the Board through notification in the Official Gazette. First Schedule to the Customs Act, 1969 Following changes are proposed to be made in the First Schedule to the Customs Act, 1969 to be effective immediately from June 4, 2011. * Tariff rationalization on following items by reducing rate of duty from 10% to 5%: 7407.1010 - - - Bars 7407.2100 - - Of copper-zinc base alloys (brass) * Corrections in descriptions of PCT codes: 2923.9010 - - - Betaine 2930.9060 - - - O.O. diethyl O-(3, 5, 6-trichloro 2- pyridy) Phosphorothioate Creation of separate PCT codes for following: 7404.0010 - - - Brass scrap 7404.0090 - - - Other 8710.0010 - - - Armoured cash carrying vehicles 8710.0090 - - - Other Notifications Following changes have been brought through notifications issued along with the Finance Bill 2011, amending or deleting various other notifications effective from June 4, 2011. S.R.O. 475(1)/2011- dated June 3, 2011 This notification amends S.R.O. 565(1)2006 dated June 5, 2006 which is prescribing exemption / concession on duty on raw materials used for manufacturing of specified goods. Some of the significant amendments are as follows:- * concession provided for butyl acetate industry through concession on import of its raw materials (Sabutol). * incentives given on glass industry raw materials namely "mirror backing paint" and "waste / scrap of glass". * incentive for CNG compressors manufacturing industry through concession on its 15 components. S.R.O. 476(I)/2011- dated June 3, 2011 This notification amends S.R.O.567(I)2006 dated June 5, 2006 to specify additional items of Pharmaceutical industry for duty concession as stated in Table III, Heading A captioned as 'Active Pharmaceutical Ingredients'. S.R.O. 477(I)/2011- dated June 3, 2011 This notification amends S.R.O. 575(I)2006 dated June 5, 2006 which prescribes concession for machinery used by various industries. The amendment brought through the notification dealt with the concession for hotel industry for promotion of tourism industry and sports and recreation services. Previously, concessions were only available subject to approval of the Ministry of Tourism whereas now concessions can be availed on approval from Tourism Departments of the Provincial Governments, Gilgit-Baltistan, FATA and Department of Tourist Services of the Capital Administration and Development Division. S.R.O. 478(I)/2011- dated June 3, 2011 This notification amends S.R.O. 678(I)/2004 dated August 7, 2004 to prescribe 10% per cent ad valorem duty for X-mass trees, well-head and integral components and parts thereof used by E&P companies and their contractors for oil exploration. Previously, these items were subject to duty at the rate of 15%. S.R.O. 479(I)/2011 dated June 3, 2011 This notification amends S.R.O. 482(I)/2009 dated June 13, 2009 whereby regulatory duty was imposed on import of 397 items falling under various categories such as food, fruits and vegetables, furniture, motor vehicles, weapons, tiles and ceramics, tobacco, makeup items, toiletries etc. The proposed amendment seeks to curtail this list to tobacco, tiles and ceramics, motor vehicles, weapons, Betel Nuts and Maize imported from India. Accordingly, all remaining items are now exempt from regulatory duty. Summary of changes in the Finance Act, 1989 (V of 1989) Levy of tax on Capital Value of certain assets Section 7(1).---The proposed amendment seeks to withdraw Capital Value Tax (CVT) on purchase of modaraba certificate or a registered instrument of redeemable capital as defined in the Companies Ordinance, 1984 (XLVII of 1984), or shares of a public company, listed on a Registered Stock Exchange in Pakistan by a resident person comprising resident individual, resident company or resident association of person as defined in section 81 of the Income Tax Ordinance, 2001 (XLIX of 2001). Section 7(4) 3rd proviso.---A consequential amendment has been proposed pursuant to proposed amendment in subsection (1) of section 7 as aforesaid and seeks to omit the third proviso for collection of CVT by a Registered Stock Exchange in Pakistan on purchase value of modaraba certificates or any instrument of redeemable capital or shares of a public company from the resident person. Summary of changes in the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) Expenditure to be charged on the Fund Section 24(3A).---The proposed insertion of a new subsection (3A) requires that the Securities and Exchange Commission of Pakistan (SECP) shall remit any surplus of receipts over the actual expenditure in a financial year to the Federal Consolidated Fund and any deficit from the actual expenditure shall be made up by the Federal Government. Fines and penalties to be credited Section 40AA ---A new section 40AA is proposed to be inserted which requires that all fines and penalties imposed and collected by the SECP shall be credited to the Federal Consolidated Fund. Summary of changes in the Oil and Gas Regulatory Authority Ordinance, 2002 (XVII of 2002) Expenditure to be charged on the Fund Section 17(4).--The proposed insertion of a new subsection (4) requires that the Oil and Gas Regulatory Authority (the Authority) shall remit any surplus of receipts over the actual expenditure in a financial year to the Federal Consolidated Fund and any deficit from the actual expenditure shall be made 'up by the Federal Government. Fines and penalties to be credited Section 18(2).---A new sub-section (2) is proposed to be inserted which requires that all fines and penalties imposed and collected by the Authority shall be credited to the Federal Consolidated Fund. Summary of changes in the Provisional Collection of Taxes Act, 1931 (XVI of 1931) Following is the summary of the amendments / insertions of the provisions of respective laws which have become effective from 4th June, 2011 under the Provisional Collection of Taxes Act, 1931 (XVI of 1931) whereas rest of the amendments are proposed to be effective from 1st July, 2011 subject to the approval by the Parliament. The Customs Act, 1969 First Schedule (Effective 4th June, 2011) Sales Tax Act, 1990 Sixth Schedule, Table-I, Column (1) Serial No. 29A, 29B, 30, 34, 35, 41, 42, 43, 44, 62, 64, 65, 66, 67, 68, 69 & 70 and corresponding entries in Columns (2) and (3) (Effective 4th June, 2011) Sixth Schedule, Table-II, Column (1) Serial No. 5 and corresponding entries in Columns (2) and (3) (Effective 4th . June, 2011) Federal Excise Act, 2005 First Schedule, Table-I, Column (1) Serial No. 7 Column (4) Serial Nos. 9, 10 & 11 and corresponding entries in Columns (2), (3) & (4) Serial No. 53 and corresponding entries in Columns (2), (3) & (4) In the Restriction for 2010-2011 (Effective 4th June, 2011) Second Schedule, Table, Column (1) Serial No. 3 and corresponding entries relating thereto in Columns (2) & (3) (Effective 4th June, 2011).