PROPOSALS ON INCOME TAX/CVT FOR BUDGET 2010 –
RECEIVED SO FAR, ARE GIVEN AS UNDER:
Received from PROPOSAL
1. Overseas Chamber Companies be allowed deposit all WHT deducted during a particular month on the 7th of the
of Commerce and following month. This will ease the hardship borne by banks/companies as a collection agency.
Appeal process u/s 124/127/129/131/132 from the time the assessee file his tax return to the time
when assessment is deemed to be completed should not exceed two years by the following
(i) ITAT to give its decision within three months of filing of an appeal [as in the case of CIT (A)]
(ii) In case as per section 124(4) CIT required to given/ issue appeal effect within the period of
two months is not adhered to the taxpayer may assume that relief to has been given.
The time period to the CIT to amend an assessment order should be rationalized to maximum of two
To remove the limit of Rs1.5 billion on the cost of vehicles under sub-section (13) of section 22.
Payments to non-residents person u/s 152: CIR to examine each application received for a nil WHT
certificate to give the decision based on the merit of the case within 30 days time frame.
Tax on provident fund, if any, should be levied at the time of receipt by an employee upon retirement
or resignation from service.
Tax rebate u/s 63: Life Insurance Premium be added to the list of eligible investment and the
investment corridor be increased to 20% of taxable income or Rs.500,000 whichever is lower.
Received from PROPOSAL
2. Lahore Chamber 1. BROADENING OF TAX BASE -
and Industry In our humble view the challenge the government faces is not how to increase current tax revenues, but how to
(LCC&I) widen the tax base to prevent tax-revenue erosion in the future. As per data available the tax payers are less
than 2% of the total population.
However, we feel that in order to broaden the desired tax base, to minimize the avenues to evade tax, to create
a fairer society and to generate more employment opportunities following steps are suggested:-
i) complete details and data base of all the owners / holders / allottees of the property (including
residential, commercial, industrial), cars, club membership, utilities (including residential, commercial and
industrial), vehicles, buses, credit cards, investment in fixed deposits, national saving schemes and
stocks be prepared and on the basis of that information a complete profile may be generated.
ii) National Tax Number should be made mandatory for purchase / sale / transfer of immovable property
(no exemption whatsoever,) Motor Vehicle, Club Membership, Credit Cards, Registration with CDC and
Distribution of Profit/Markup exceeding statutory taxable limit.
iii) Submission of quarterly statements by the Registrars & Housing Societies for registration / transfer of
Immovable Property (Industrial Commercial, Residential & Agricultural) Motor Vehicle Registration
Authorities, Clubs (Private & Public), Credit Card issuing authorities, Central Depository Company and
Financial Institutions distributing profit more than statutory taxable limited.
iv) The exemption under section 111 (4) of the Ordinance to the foreign exchange brought into Pakistan
through proper banking channel should only be allowed to those remittances which are invested in the
v) The concept of presumptive taxation be gradually reduced and only the real income be taxed; because
such system distort the entire taxation system and affect the organized sector adversely.
vi) The taxes must be equitable and fair between different classes of society. All the segments of the society
should be brought in the tax net.
viii) Three years tax amnesty from audit may be allowed to the new tax payers.
ix) The CNIC of an individual, Company’s Incorporation Number and Firm’s Registration Number may be
adopted as Common Tax Identifier for the resident taxpayer, as National Tax Number.
x) Strict compliance of law in respect of filing of tax returns should be ensured.
xi) Like assessment years 1991-1992 to 2000-2001, a scheme may be announced; whereby the new
taxpayer may be allowed amnesty to declare capital three times of the declared income for the year and
no question would be asked for the income earned / business activities conducted by them in the
2. Reduction in Tax Rates.
Corporate taxes are very high in Pakistan as compare to other developing and developed markets. See table
below where data has been collected from other countries.
Country *Pakistan Malaysia Korea Indonesia China India
Tax rate 35% 28% 29.7% 30% 33% 33.66%
*companies in addition to corporate tax also pay 5% WPPF and 2% WWF. This makes effective tax rate 42% for
public and private companies.
It is interesting to note that Singapore reduced their effective tax rates from 22% in 2004 to 19% in 2007. It is
pertinent to note reason given by Singapore government behind this reduction:
“Singapore will lower its existing corporate tax rate by at least 1% to stay competitive”
In reference to Hong Kong, where companies are taxes at just 17.5%, one of the lowest in the world. Lee said
Singapore had to lower its corporate tax rate or lose out to the former British colony in attracting investors.
Therefore, in the overall interest of the country and to continue the journey of economic progress in the present
economic crises, it is strongly recommended to reduce the tax rates reasonably:-
i) The rate of Income Tax for the corporate and non-corporate sectors be reduced by 5%;
ii) The present statutory limit of exemption under the Income Tax law be increased from Rs.100,000/- to
iii) The withholding tax on payment of Technical Fee should be reduced from 15% to 5% enabling
the flow of more Technical Services and investment; and
iv) The import of Plant & Machinery should be exempted from withholding of tax u/s. 148.
These measures will not only promote investment in Pakistan but also encourage companies and investors to
further broaden their business as their returns will increase which will ultimately benefit the economy to be
competitive with its neighbors and at the same time augment the shareholders return.
Presently in addition to the corporate tax of 35% of the Company, it is obligatory for the manufacturing sector to
pay Workers Welfare Fund @ 2% of the taxable income and Workers Profit Participation Fund @ 5% of profit,
which result in tax impact of approximately 42%.
3. Multiplicity of taxes
Manufacturing sector in Pakistan plays a vital role specially in terms of improving the employment
statistics of the country and directly contributing towards the GDP, faces in addition to normal taxation,
taxes on account of WPPF and WWF which resultantly increases their cost of dong business thus
making their products less competitive with importers.
See table below where data has been collected from various countries pertaining to their welfare benefit
structure and is clear that except for Pakistan all the welfare benefits are calculated by taking
salary/wages as a base rather than the profitability of the company.
Country * Pakistan India ** Korea ***Singapore **Indonesia
Tax rate 7% 0% 3.4% Various % 3.7%
This sort of levy further discourages the existing manufacturers to expand their business in Pakistan and
at the same time discourages foreign investors in setting up the manufacturing operations.
It is therefore proposes that WWF & WPPF may be eliminated in its entirety OR we suggest that instead
of burdening the taxpayer with above levies, an Endowment Fund be created out of existing funds
available with the Government of Pakistan under these two heads and whatever profit earned from such
endowment fund may be utilized for the benefit of the workers. Utilization of WWF and WPPF by the
Company through a Fund (just like Provident Fund) for the benefit of their workers to build schools,
hospitals etc may be allowed.
We hope if the suggested changes implement these will improve the cost of doing business for
manufacturing concerns in Pakistan.
5. Simplification of laws, rules & documents
We are of the view that taxation laws including forms, statements and other necessary documents may be
simplified and must not be as complicated & cumbersome as to cause needless inconvenience and hardships to
the taxpayer. This is also an impediment in expansion of tax base in Pakistan. There are also a number of short
comings in the existing Return forms and statements. We therefore desire that such forms, statements, including
acknowledgement receipts of the return etc. be designed in consultation with the tax and accounting associations
6. Departmental Audits
Audit without parameter is a menace for taxation system. There are three Audits for checking the Income Tax
Assessment Order. Besides two from within the Tax Department, there is one Auditor from Revenue Department,
Islamabad. No parameters are fixed for these Auditors. The Revenue Department Auditors check the assessment
orders after 2 to 4 years of the completion of assessments.
Due to non-availability of scope of audit, these auditors tend to start Re-Assessment of the completed
Assessment. Audit objections are thrust upon the Taxation Officers. Frivolous demands are created to the
determent of taxpayer. It is therefore proposed that parameters of Audits by Internal Auditor and Revenue
Department Auditors be fixed.
7. Facilitation of taxpayer
i) Withholding taxes from utilities bills:
The withholding of tax on several utility bills especially on electricity bills in block funds of taxpayer and in the
end not contributing much to the exchequer, because in most of the cases the same is being refundable to the
taxpayer. It is not only creating lot of problems but is also against the policy of the Government to avoid such
withholding which ultimately results in refund of tax. In tax year 2009, tax collected u/s. 235 in the cases of
individual and AOP was no more refundable. As per amendment made through Finance Act, 2009 tax collected
under this section exceeding Rs. 36,000/- per annum will only be refundable. It is, therefore, proposed that the
relevant provisions may appropriately be modified.
ii) Toughest Mode of Recovery of Tax & Problems in Refund of Tax.
The Ordinance has been very tough against the taxpayers in case of recovery of tax due from them. There are a
number of provisions in the Ordinance whereby the Commissioner has been empowered to proceed to recover
the tax due from the taxpayer by one or more of the modes provided therein. The modes for recovery of tax
include recovering the tax through attachment and sale of property, rights to arrest of taxpayers and taxpayer
detention in prison for a maximum period of six months, seizure of bank accounts, imposition of penalties and
additional tax etc.
The taxpayers feel great disappointment when they find that the revenue takes appropriate care to safeguard
their interests in the Ordinance; but taxpayers’ interests or rights generally and particularly in respect of
obtaining the refund of tax paid in excess to the amount they are chargeable to tax under Ordinance are not
adequately taken by the department.
Provision is made in section 170; whereby the Commissioner may be authorized to admit an application made
after the expiry of the stipulated period of 2 years on genuine reason.
Section 170(4) may suitably be amended in view of the above proposed amendments, particularly substituting
the 60 days with 15 days within which the Commissioner shall pass the order, and in case of his failure to pass
the order within the stipulated period of 15 days, the refund application be deemed to have been accepted by
iv) Revision of Statement under Section 115(4)
Provision in section 115(4) of the Ordinance be made to entitle tax payers to revise statement 115(4) of the
v) Filing of Monthly Statements of Withholding of Tax
Filing of monthly statements for withholding of tax is not only increasing volume of works but also creating high
cost of compliance. Moreover, it is not benefiting FBR; as such it is proposed that filing of monthly statement be
substituted with quarterly.
(1) Tax Slab based on Turnover for Small Companies Clause (59A) of Section 2,
Paragraph-III, Div-II, Part-I of
1.1. The concept of “Small Company” was introduced in income tax law through Finance Act, 2005, to
develop corporate culture and to encourage small and medium enterprises to convert themselves into
the corporate entity. “Small Company” has been defined in Clause (59A) of Section 2 as under:-
(i) A company incorporated on or after July 1, 2005 under the Companies Ordinance, 1984;
(ii) Has paid up capital plus undistributed reserves not exceeding Rs 25 Million;
(iii) Has annual turnover not exceeding Rs 250 Million;
(iv) Has employees not exceeding 250 any time during the year; and
(v) Is not formed by the splitting up or the reconstitution of a company already in existence;”
1.2. The Finance Act, 2008 omitted the words “other than a small company, as defined in clause (59A) of
section 2” from Section 153, resultantly small company becomes withholding agent. Initially the concept
of small company was introduced to encourage the taxpayers entered in corporate sector but later on
due to withholding liability again they are going back to non-corporate.
We are of the view that appropriate amendment would be required to be made in Section 153 of the
1.3. Moreover, the above provision is applicable to companies incorporated on or after July 1, 2005; which
created discrimination between the newly incorporated companies and existing taxpayers. It is therefore
proposed that this relief may also be extended to companies incorporated prior to 1st July, 2005.
2. Adjustment of Withholding taxes for retailers
Section 113(A)(3) & (B)(c)
Sub-section 3 of section 113A and Sub-section (c) of section 113B of the Income Tax Ordinance, 2001
provides that the retailer shall not be entitled to claim any adjustment of withholding tax collected or
deducted under any head during the year.
This restriction should abolish to facilitate the small business entrepreneurs.
3. Income from Property
Section 15, 155, Division VI of Part I, Division V of Part III of First Schedule
The Finance Act, 2008 and SROO 766(I)/2008 dated 21-07-2008 amended Division VI of Part I of the First
Schedule. By virtue of that tax rate of 5% deduction provided in the said Division for the purpose of Section 15
has been substituted with the following progressive tax rates for individuals, association of persons and
companies effective from 1st July, 2008:-
S.No Gross amount of rent Rate of Tax for Individual & AOP
(1) If gross amount of rent does not exceed Rs.150,000/-. Nil
(2) From Rs.150,000/- to Rs.400,000/-. 5 percent of the amount exceeding
(3) Where the gross amount of rent exceeds Rs.400,000 but does not Rs.12,500 plus 7.5 percent of the gross
exceed Rs.1,000,000 amount exceeding Rs.400,000/-
(4) Where the gross amount of rent exceeds Rs.1,000,000 Rs.57,500 plus 10 percent of the gross
amount exceeding Rs.1,000,000/-
S.No Gross amount of rent Rate of Tax for Companies
(1) If gross amount of rent does not exceed Rs.400,000/- 5 percent of the amount of rent
(2) Where the gross amount of rent exceeds Rs.400,000 but does Rs.20,000 plus 7.5 percent of the gross amount
not exceed Rs.1,000,000 exceeding Rs.400,000/-
(3) Where the gross amount of rent exceeds Rs.1,000,000 Rs.65,000 plus 10 percent of the gross amount
The exemption benefit should also be available for Companies like Individual and AOP are enjoying.
3. Advance Tax paid by the Taxpayer - Section 147
Sub-section 2 of section 147 of the Income Tax Ordinance, 2001 provides where the individuals or
association of persons latest assessed taxable income (excluding incomes chargeable to tax under the
Presumptive Tax Regime) is two hundred thousand and above, shall be liable to pay advance tax in four
equal quarterly installments. The limit of Rs. 200,000/- was substituted with Rs.150,000/- by the Finance
This limit may please be extended to Rs. 500,000/-.
4. Payments for Goods and Services – Section 153
a) Increase in threshold for withholding of tax:-
Clause (xii) (a) and (b) of SRO 586(I)/91 dated 30th June, 1991 provides that the provisions of Sub-section (4) of
section 50 of the Income Tax Ordinance, 1979 (Section 153 of the Income Tax Ordinance, 2001) shall not apply
to the following persons receiving payments:-
i) not exceeding rupees twenty five thousand on account of supply of goods, in a financial year; and
ii) not exceeding rupees ten thousand on account of services rendered or execution of a contractor, in a
The above limits of Rs. 25,000/- and Rs. 10,000/- were fixed almost fifteen years back and require to be
The amount of Rs. 25,000/- on account of supply of goods and Rs. 10,000/- on account of services rendered or
execution of contract may be increase to Rs. 200,000/- and Rs. 50,000/- respectively.
• Exemption or lower rate certificate related under section 153 are not allowed for all manufacturers-
cum-suppliers (Individual and AOP), needs rationalization irrespective of corporate or non-corporate
b) Liability as Withholding Agent
Government has always justified the exclusion of companies from the Final Tax Regime on the premise that the
company was withholding agent and in order to provide level playing field; they have been excluded. However,
the Finance Act 2008 added clause (g) in the list of prescribed person; whereby the scope of this section has
been expended to the AOP(s) having annual turnover of Rs. 50,000,000/- in the tax year 2007 and onwards.
Now AOP as payer is liable to deduct tax on the purchases and as payee the tax deducted on the sale of
manufactured goods is considered as their full and final liability.
Like company exclude AOP as well from the Final Tax Regime on the income arising on the transactions
referred in sub-section (1) of section 153.
c) Exemption from withholding tax payment covered under the Presumptive Tax Regime.
There are number of services under the Presumptive Tax Regime like Commission earned by the Travel Agents
etc. On the one hand the taxes deducted on their incomes constitute full and final tax liability and on the other
hand there clients while making payments to them are also deducting tax under section 153, which unnecessary
creating hardship for them and refund as well.
Clause (57) may be inserted after clause (56) of the Part IV of the Second Schedule to the Ordinance.
“The provision of section 153 shall not apply in respect of Services rendered by Travel Agents, Indenting
Commission Agents, Advertising Agents, Yarn Dealers etc.”
5. Audit under Section 177
Presently all returns of income filed, qualify for acceptance under the Self Assessment Scheme and the income
or loss and Tax declared in the return by the taxpayer is accepted.
It will create and further strengthen the confidence of tax payers, more tax will be paid by tax payers, specially
the Corporate tax payers, to avoid reopening of assessments, It will enhance the taxpayer confidence due to
sincerity and integrity of tax regime and
It will reduce the discretionary powers entrusted to the Commissioner for reopening the assessment.
Section 177 of the Ordinance provides that the Federal Board of Revenue may lay down criteria for selection of
any person for an audit of person’s income tax affairs, by the Commissioner and shall keep the criteria
6. Tax Incentive for Senior Citizens and Handicapped irrespective of taxable income
The restriction of income limit of Rs.500,000/- in Clause 1A of Part III of the 2nd Schedule available for tax
benefit is unjust and be done away with. It should be applicable to all the senior citizens as prescribed
irrespective of one’s income.
Similar incentive may also be announced for the Handicap taxpayers as well.
i. Income tax on cash withdrawal from Banks be reduced to 0.2%, threshold be increased from Rs.
25,000/- to Rs. 50,000/- and exemption be granted to Salaried Class.
ii. The tax so collected under section 234A is final tax for CNG stations; these should be exempted from
other tax deductions as defined in 231A, 235 etc.
The CNG stations should be allowed to claim adjustment of all other deductions in any head.
iii. The advance tax @ 10% under section 235 shall not charge on all industrial consumers or having Final
Tax Regime (FTR) income.
The refund claim of excess amount deducted under this section should be allowed to every taxpayer
as vested right.
iv. Average rate of tax for shares from AOPs (section 88 & 88A) needs improvement because they are
paying double taxes on their more than one share from AOPs.
v. Sub-sections 2,3 & 4 of Section 148 were omitted in Finance Act, 2007 & 2008 needs restoration to
encourage the importers.
Decrease in Slab of Advance Income Tax on Electricity Bills:
Through Finance Act, 2008, the slab of collection of advance income tax on electricity bills exceeding
Rs.20,000/- has been enhanced from Rs.2,000/- to 10% of the amount of electricity bill. The said levy and
collection of exorbitant advance income tax has no reasonable nexus with the expected income liable to be
taxed. In the present circumstances of law and order situation, high rates of utilities and other inputs, local
industry is facing lot of problems threatening its very existence. Rising cost of inputs has already made adverse
affect on our capability to efficiently manage our business resources. The unprecedented exorbitant levy of
advance income tax would absorb our total financial resources resulting in collapse of entire local industry. To
avoid this situation, we strongly propose to withdraw this levy of 10% advance income tax on electricity bills by
maintaining previous rate of Rs.2,000/-
(5) INCOME TAX:-
Minimum Exemption for income tax Should be Rs.250,000/-
Taking into account the inflation and increase in costs of utilities, it is proposed that increase in the exemption
limit be allowed and from the next fiscal year, It should be set at Rs.250,000/-. It is further proposed that this
exemption limit should be accordingly adjusted in the future years taking into account the inflation rate and
increase in costs of utilities.
Proposals by Automobile Spare Parts - Importers and Dealers
1. In recent past, some of the tax payers have received notices from Income Tax Dept in which it is written
that the authorities will conduct annual audits in the business premises, which is not acceptable at all by
the business community as it interferes with the routine business activity.
2. The rate of Income Tax are too high, and should be lowered down to reasonable extent so that the tax
net is expanded, and the tax burden on present tax payers is reduced and they will be encouraged to
pay more taxes, and will avoid the tax evasion.
- The rate of income tax be reduced in order to broaden the tax net and discourage the income tax evasion
- The refund process should be computerized in line with the e-filing the income tax return
- The powers of Income Tax Commissioner to issue an exemption certificate for import of raw material by
the manufacturers should be restored
- The interaction between the taxpayer and the tax collector should be minimized
PROPOSALS BY PAKISTAN TANNERS ASSOCIATION
1. Present withholding tax on export of leather which is 1.25% may be reduced to 0.75% for at least one year wh
a recession period.
2. To reduce presumptive Tax (Withholding Tax) on Import from 1% to 0.25%.
Received from PROPOSAL
3. Lasbela Chamber System based exemption certificates are issued by the Commissioners vide SRO.947(I)/2008
of Commerce and dated 5th September, 2008 to the importers of plant, machinery, fixtures, fittings or equipment for
Industry (LCC&I) availing exemption of income tax u/s 148(1) at import stage.
It is suggested that System based exemption certificate may be issued for full fiscal year ending
June for all imports of capital goods.
SUMMARY OF BUDGET PROPOSALS MOVED BY
Received From PROPOSAL
4. Faisalabad Chamber Set off of Business Loss Consequent to Amalgamation
of Commerce and
Industry (FCC&I) Section 57A was inserted by Finance Ordinance 2002 to provide incentive for merger of sick
companies. Originally accumulated loss under the head “income from business” of the
amalgamating company or companies was allowed to be set off or carried forward against
the business profits and gains of the amalgamated company and vice versa upto a period of
six tax years immediately succeeding the tax year in which the loss was first computed in
case of amalgamating company or amalgamated company or companies. This section was
substituted by Finance Act, 2007 and the incentive was restricted to set off of loss for the
year of amalgamation. The brought forward losses of amalgamating companies were
excluded from the scope of this section.
In view of current business crises there is a need to enlarge the scope of this section to give
incentive for merger of companies running sick units with the companies having adequate
financial resources to revive these sick units. It is therefore proposed that the incentive for
merger provided at the time of insertion of section 57A be restored and definition of
“amalgamation" under Section 2(1A) be enlarged to include all companies incorporated
under the Companies Ordinance, 1984.
In order to facilitate merger of the sick units with the running healthy businesses appropriate
amendments should be made in Section 4 of the Competition Commission of Pakistan
(Merger Control) Regulations 2007. The threshold for application to the Commission for
merger is enhanced by revising “gross value of assets” from Rs. 300 million to RS. 1 billion
and “annual turnover” from Rs. 500 million to Rs. 1.5 billion. The exorbitant rates of fee
charged by Competition Commission ranging from Rs. 250,000/- to Rs. 750,000/- needs to
be rationalized as high fee rates are discouraging the merger of sick units with the healthy
The Cambers of Commerce and Industry and Trade Associations used to enjoy income tax
exemptions since inception of Pakistan because of their nature of non-profit operations. A
cumbersome procedure is being followed by Income Tax Authorities, such as formation of
committees, for approval of trade organization under Section 2(36) of the Income Tax
Ordinance, 2001 which is resulting in delay and hardship.
It is suggested that trade organizations approved by the Directorate of Trade Organization
(DTO) should be granted automatic approval under Section 2(36) of the Income Tax
Tax on Dividends
Inter corporate dividends were excluded from the purview of final tax by insertion of proviso
in Section 8 through Finance Act, 2007. Consequent amendment has not been made in
Section 5 to exclude the companies from the purview of Section 5. This has created an
ambiguity regarding tax on dividend income. It is proposed tax on inter corporate dividends
may be withdrawn as an investment incentive.
Income from Property
The rent received or receivable by a person for a tax year is subjected to tax under this
section under the head income from property. Since the income from property covered
under section 155 is subject to final taxation, therefore, provisions of Section 15 should be
appropriately amended to allow declaration of such income on receipt basis.
Deductions not allowed
Section 21(l) provide that expenditure exceeding Rs. 10,000/- if not paid by a crossed
cheque shall not be allowed as deduction in computing the income from business.
Applicability of section 21(l) was restricted to profit and loss expenses as explained by CBR
vide Circular No. 6 of 1990 dated July 15, 1990 and Circular No. 11 of 1998 date July 25,
1998. These circulars were superseded by issuing a fresh explanation vides Circular No. 01
of 2006 dated July 01, 2006. The scope of this section was enlarged to include every
expenditure debit-able to trading or manufacturing accounts or profit and loss account in the
purview of this section.
The new circular created hardship for the taxpayers and also in contradiction to Section 73
of the Sales Tax Act, 1990 wherein the limit for purchase through crossed cheque is Rs.
50,000/-. It is therefore suggested that appropriate steps be taken to remove this anomaly.
In view of current economic crises there are number of medium and small size business
concerns who could not pay interest on loans and are making requests to the bankers to
waive off interest / markup to make the units viable. The waiver of profit on debt, if allowed
by the bankers, is currently taxable. It is proposed that waiver of profit on debt to the sick
units be either exempt from tax or allowed to be recognized as income in subsequent five
Carried Forward of Business Losses
In order to over come the current liquidity problems of the business community appropriate
amendments be made in section 208 of the Companies Ordinance, 1984 to exclude the
private limited companies from the ambit of section 208.
Advance Tax on Imports
Powers of the Commissioner to issue Exemption certificate from withholding tax on import of
raw material for own industrial use were withdrawn through Finance Act, 2007, this has
created hardship to the importers of raw material who are using this material for own
production but their income falls under presumptive tax regime, such as exporter-cum-
manufacturers. These taxpayers are paying excess tax on imports which is to be refunded
as their tax liability is restricted to tax deducted by banks on export realization. It is
proposed that powers of Commissioner to issue exemption certificate on import of industrial
raw material be restored.
Withholding Tax on Payments for Goods and
The concept of “small company” was introduced through Finance Act, 2005. Such
companies were given certain incentives to encourage the corporate sector. One of the
incentive was that small company was not required to withhold tax on payment made for
goods and services. This incentive was suddenly withdrawn through Finance Act, 2008.
This action of FBR has shattered the taxpayers confidence. In order to restore the
confidence of taxpayers the incentives provided to the small companies at the time of
introduction of this concept are required to be restored.
Under Section 170(4) of the Income Tax Ordinance, 2001 the Commissioner shall within 45
days of receipt of refund application serve on the person applying for the refund, an order in
writing of the decision after providing the taxpayer an opportunity of being heard.
Large number of refunds is pending due to pending verification of payments made by the
taxpayers. It is suggested that a reasonable time limit be fixed to complete the process of
verification of tax payment challans by amending Section 170 of the Income Tax Ordinance,
The cases of taxpayers are being selected for audit under Section 177 simultaneously for
more than one tax years. Subsequent tax years are being selected without first finalizing the
earlier tax years already selected. This practice is creating hardship to the taxpayers and
badly affecting the day to day business activities as the taxpayers are required to divert lot of
resources to comply with the audit proceedings.
It is suggested that audit proceedings for one tax year should be initiated at one time and
should be finalized before selection of other tax year. The selection of subsequent tax year
should be made, if necessitated by the audit findings of audit finalized.
It is suggested that in order to restore the confidence of taxpayers, the selection of audit
cases be made within one year from the filing of tax return. The time limitation should be
provided in the law. As the selection of audit after expiry of 4 to 5 year is creating hardship to
In order to broaden the tax based and encourage the new taxpayers, it is suggested that an
incentive scheme should be announced wherein the new business enterprises should be
exempted from selection for audit for the first three years of operations. This will encourage
the new taxpayers to enter into the tax net.
Presently different thresholds of basic exemption are provided for different heads of income,
which is against the justice and equity. In order to bring the basic exemption from business
and rental income at par with the salary income the limit of basic exemption under the head
business and income from property be enhanced to Rs. 180,000/-, whereby keeping in view
the high inflation rate and increase in salaries & wages the basic limit of tax for salaried
individuals should be increased from Rs.180,000/- to Rs.250,000/-.
Withholding Tax on Bank Cash Withdrawal
Presently tax at the rate of 0.3 % is being deducted on the cash withdrawals exceeding
Rs.25,000 per day. It is suggested that the rate of deduction of tax be reduced to 0.1% and
the threshold of withdrawals be raised to Rs. 100,000/- per day. It is further suggested that
tax should not be deducted from the account holder having NTN and is an exiting taxpayer.
In addition, the specific exemption may please be allowed to the NGO's, NPO's and
Companies which are not required to pay any tax.
Marginal tax relief in Finance Act, 2008
The introduction of marginal tax relief in Finance Act, 2008 has in fact complicated the
computation of tax. The method of calculation of marginal relief should be abolished and this
relief should be given by decreasing the rates of tax in different slabs.
Received from PROPOSAL
5. REGIONAL TAX Mentioning of business activity may kindly be made a mandatory requirement and any Return whether e-
OFFICE (RTO), filed or manually filed, may be considered a deficient Return' if the said column is left blank by the tax payer
KARACHI. and it be considered a case of "short document" for the purposes of issuance of a Notice under Section 120(3)
of the Income Tax Ordinance, 2001.
With the speculation in market value of property rates in the country especially in the urban areas, the
present Collector's rate is only a fraction of the fair market liquidity of the property. It is therefore proposed
that the Board may specifically appoint Valuation firms in order to have an estimate of the fair market value
of a property which will be used in assessment / audit procedures. Similarly, a minimum amount of capital
value Added Tax needs to be levied because many transactions (non-arms length, baynami, etc) are mad even
below the Collector's rate.
Transactions of immoveable properties put CVT levy on the purchasers whereas the gain in the hand of seller is
out of tax net of Federal as well as Provincial Governments. The gain on immovable properties should either be
collected by the Federal Government or by the Provincial Governments. The Federal Government can not levy tax
on immoveable properties in view of the constitutional restriction. However multiple transactions carried out of
the taxpayers were legally approved by the appellate fora as" an adventure in the nature as business income". It is
suggested that a property which has undergone more than one transaction is 'last five years may attract
withholding tax @ 10% at the collector rate to be collected by the Registrar of property from the seller. This
collection would be final except in the case builder or developer.
1. Section 120 of Income Tax Ordinance 2001 accept all the returns which are filed u/s 114. Return is due in
the case of AOP and Individuals on or before 30th September and in the case of company either upto 30th
September or 31st December depending upon the tax year they have adopted.
2- It is experienced that a number of taxpayers who have taxable income and they are supposed to file returns
within the due date, deliberately do not file returns and in the absence of any deference they become non-filers.
Some of them however file the return at their own convenience and at the cost of revenue. No doubt late filing
return attracts additional tax but question is not of the levy of additional tax, it is important that they withhold
information necessary for audit which would further generate revenue.
3- In order to ensure the maximum compliance it is suggested that section 120 may suitable to be amended so I
that the return filed with due date or extended date may qualify the deeming assessment u/s 120. It is, therefore,
suggested that the following amendment may be introduced in section 120. After the word "income" the words
may inserted, “within due date or extended date”.
4- There is now no utility of present section 120A which was introduced with the concept of tax amnesty.
This section may be replaced with the following new section 120A.
5- The replaced Section 120A may be introduced for dealing with the return filed after the due date. The
Commissioner shall process the assessment after calling for the documents and evidence based upon which the
return was furnished after due date. The Commissioner after making assessment of income shall determine tax due
thereon after providing opportunity to be heard.
6- Consequential amendment in section 127 may also to be made to provide appeal against the order passing
u/s. 12° ,A.
It is noted that Vegetables and fruits markets are an un-organized sectors where people are earning taxable income
but remained out of tax net. Market Committees duly approved by Provincial Governments are monitoring and
implementing these market affairs. Fruits and vegetables are duly auctioned in the vegetable and fruits markets by
auctioneers who are collecting 2% to 5% from the successful bidder on each bid for the market committee.
It is suggested that Market Committee may be considered as withholding agent for the collection of income tax
along with market fee from the auctioneers. It is further suggested that 5% of withholding may also be collected
by the auctioneer from the successful bidder and hand-over the same to market committee who would collect
Market Committee fee along with income tax withholding from the auctioneer. For income tax purpose Market
Committee will be the withholding agent. For this purpose a new withholding section u/s 236AA may be
NTN should be held mandatory in case of commercial outlets and industrial undertakings applying for new
electric connection or gas connection. Existing electricity connection an gas connection for commercial and
industrial undertaking may also be allowed to furnish NTNs to these utilities service providers within three
The size of parallel economy almost equals the size of official economy. Increased emphasis on documentation,
therefore, is need of the hour. To start with, for all the refund claimants, it should be mandatory to give bank
account number where the refund cheque should land after all the procedural formalities. Secondly, the taxpayer
should give undertaking that he does not operate any other account in the name of business. The process in
question should be gradual and not sudden so that there is no resistance from any quarter.
Tax rate for small companies is 20 percent and corporation is 35 percent. The differential of 15 percent viz-a-viz general
corporate rate discourages corporatization and expansion of companies. This differential has to be reduced to counter this
disincentive towards expansion,
At present, CVT is payable on recorded value of the transaction. It is noted that some times the recorded value is less than
collector's rate. In such cases the concept of Minimum CVT is required to be introduced; where the recorded value is less
than collector's rate, the CVT would be levied on the collector's rate. Similarly in property transactions where no value
is recorded e.g. General power of Attorney, gift deed, the minimum CVT should again be equal to collector's value.
It is observed that the prevalent collector's rate is only 20% of the real value of the property, Based on the values of the
properties transferred in case of public auction as well as acquisition by the Multi-national and banking companies,
actual/market value can be determined 5 such cases provide a yard stick to measure actual market value of the property.
Hence a mechanism needs to be devised to determine the value of the properties near to the actual value. Suitable
amendment in law needs to be made to enable the department to apply a uniform multiplier to the collector's rate for each
year to be announced by FBR yearly.
In order to harmonize tax laws of the country it is proposed that penalty for non-filing of "Income Tax return, annual and
monthly withholding statements should be the same as provided in Sales Tax Act.
Sub-Section (4) of Section 170 provides that the Commissioner shall pass an order within sixty days
of the receipt of application from the taxpayer under sub-section (1) of section 170. The person
aggrieved by such order passed may prefer appeal under section 127 before the Commissioner
(Appeals). Section 127, however, provides appeal against order passed under section 170 but it does
not contemplate appeal for not passing order under section 170. Thus in case no order is passed
within sixty day's of the receipt of the application then no appeal can be preferred under section 127
to the Commissioner (Appeals), As a result taxpayer resort to complaints to FTO on account of mal
administration owing to passing ,of no order as stipulated in section 170 and the department has to
in order to ovoid this embarrassment before the FTO, it is proposed that section 127 may be amended
wherein it should be provided that in case no order under section 170(4) is passed within sixty days then
appeal shall lie under section 127 of !he Income Tax Ordinance, 2001 before the Commissioner (Appeals).
Without prejudice to the above the right of appeal is the creature of statute. This right has been created in
section 127 of the Income Tax Ordinance, 2001 being the governing provision relating to appeal
before Commissioner (Appeals). But Section 127 (1) is silent if the Commissioner fails to pass an
order under section 170(4). This creates an apparent anomaly in the law in section 127(1) if read with
Presently only a non-resident taxpayer can obtain on advance ruling under section 206A.
This facility should be extended to the resident taxpayers as well.
Certain Recipients to be included in taxable income
Any compensation received for restraint of trade or avoidance of competition should be taxed in the
hands of recipient. It should however be equally apportioned for inclusion in the income for the year
during which the restraint would apply, if received in lump sum.
Self generated goodwill should also be deemed to be a capital asset chargeable to tax under the head
"Income from capital gains". Whereas its cost of acquisition may be deemed to be nil.
Slump sale of a source of business should also be taxable, if such transaction involves a source
comprising of less than 50% of the assets of the person.
Unlike the revision of wealth statement, there is no bar or restriction on the furnishing of a revised
return, This open ended and boundless option of revising return without the fear of any restriction or
penalty encourages taxpayer to file the wrong particulars in the original return and furnished a revised
return when caught by the tax department in audit. This should be restricted to only one revision.
The proviso to Section 8 makes tax deducted on dividend income received by companies adjustable.
However, no corresponding changes have been made to Section 5 being the charging section of income
from dividend, which still require the application of prescribed rates on the gross amount of dividend. The
proviso and section 5 need to be revised to bring harmony to taxation of dividend in the hands of
Clause (92) of the Second schedule is being misused by educational institutions. Schools situated in cities and
posh localities may therefore be excluded from the ambit of clause (92).
75% tax rebate to full time teachers/doctors is also being misused. Full time teachers/doctors therefore may be
defined in the Ordinance to prevent the misuse of this clause or the clause may be deleted.
Provision of minimum taxation is being misused by restaurants who by posing as retailers and by under declaring
their annual sales are availing the benefit of section 113A of the income Tax Ordinance, 2001. Either the section
be withdrawn or else the restaurants may be excluded from the purview of this section.
While issuing refunds one has to certify that the amount against which refund is being issued has been paid into
the Government Treasury. Delay in issuance of refund occurs because of this certification as in case of deductions
not traceable in Data processing Centre it becomes time consuming to verify the payment of such amount.
Similarly some of the certificates of tax deduction which are not issued by the deducting authority on the
prescribed format are not accepted by the Department for the purpose of allowing credit. If simplification of
refund issuance process is desirable then the certification and the conditionality of prescribed certificate may be
done away with. One solution to the problem is that a taxation officer may be allowed to give credit on the basis
of original challans and original certificates of tax deduction in whatever form they are. A harsh penal provision
however may be introduced for discouraging those who seek credit on the basis of fake challans or the
withholding agents who issue bogus deduction certificates.
Issues relating to non-residents:
Like other countries, a separate Taxation Directorate may be created for the taxation of non-residents.
In the company Ordinance it may be made mandatory for the auditor auditing the accounts of a company to issue
a certificate to the effect that all the transactions made by the non-resident with his associates have been found to
be on arms length. In the certificate one of the four methods which has been applied' for detecting transfer pricing
may be clearly out lined.
In case of dispute in the interpretation of treaty provisions the notes made during the treaty negotiations, the
international pra1tfs and the OECD commentary may be taken into consideration.
CNIC may be designated as NTN. This single action will help broaden the tax base and it would be easy to track
economic transactions giving rise to tax net.
Penalty for non filers should be enhanced to a fix amount of Rs.l0,000.
Scope of withholding taxes should be rationalized and brought under final tax regime. Tax on commercial imports
may be enhanced to 5% and made final.
The time period for processing of refund application is extended upto 90 days under section 170(4) of the Income
Tax Ordinance, 2001 that still is too short. Some time officers feel handicap due to the non-availability of records.
It is proposed that period of at least 140 days may be given for issuance of refunds by making necessary
amendments in law. In order to curb the tendency of fraudulent refunds, powers may be given to the
Commissioners to withho1d refunds on the lines of section 103 of the repealed Ordinance 1979.
In order to enforce recovery of tax demand, necessary amendment in law is proposed for mandatory payment of
tax upto 15% of tax demand before the
filing of first appeal and subsequent 15% for filing of appeal at next appellate forum. Necessary amendment in
recovery rules is proposed in order to safeguard the revenue and to avoid un-necessary litigation.
Received from PROPOSAL
6. Directorate (i) At present all sectors are not in the ambit of taxation, e.g. agricultural sector which heavily
General of contributes to the GDP. Necessary amendment may be made to bring the agricultural income into the
Internal Audit, ambit of taxation.
ii) Informal sector of economy, contributing substantially in the GDP, is also out of tax net because back
of documentation. Measures should be taxed for documentation to bring the informal sector in the tax
net. In this regard following proposals are made.
(a) Installation of commercial electricity meter may be subject to obtaining of NTN certificate.
(b) Provision in law be made to make it obligatory for various local authorities to require NTN
certificate from the applicant before providing various commercial services.
(c) Purchase of immoveable property may be subjected to production of NTN certificate.
(d) Threshold for residential electricity and gas bills may be fixed beyond which NTN
requirement would be attracted.
AMENDMENT IN SECTION 205 OF THE INCOME TAX ORDINANCE. 2001
The Internal Audit parties of this organization detect loss of revenue on account of non-payment of arrear
and propose charge of additional tax under Section 205 of the Income Tax Ordinance, 2001. The Taxation
Officers are contesting the said observation on the ground that additional tax on outstanding demand cannot
be charged until it is paid as per provisions of Section 205 of the Income Tax Ordinance, 2001 as interpreted
by some recent judicial pronouncement whereby it has been held that without ascertainment of the date of
payment, additional tax cannot be charged. For ready reference the section is reproduced as under:-
"205. Additional Tax - (1) a person who fails to pay-
(a) any tax, including any advance payment of tax U/S 147
(b) any penalty; or
(c) any amount referred to in section 140 or 141
on or before the due date for payment shall be liable for additional tax at the rate equal to twelve
percent per annum on the tax, penalty or other amount unpaid computed for the period commencing
on the date on which the tax, penalty or other amount was due and ending on the date on which it was
paid ..... "
It is suggested that amendment in above Section be made with regard to charge of said additional tax before
the payment of original tax demand. This will accelerate the recovery of outstanding demand and facilitate
timely collection of taxes.
Originally the Income Tax Ordinance, 2001 provided for detailed functions and powers of the Directorate
General Internal Audit (Direct Taxes) thorough Section 231. Later, through the Finance Act, 2005, the entire
Section 231 was omitted and revised powers of the Directorate General have been laid down through SRO
NO.60/1/2005 dated 30.6.2005. The exercise of statutory powers of this important department on the basis of
SRO appears to diminish the significance of this organization.
In fact, statutory powers can only be exercised on the strength of the statue itself or else any action
taken would be illegal and also challengeable. Therefore, section 231 may be revived.
Received from PROPOSAL
7. Chief Commissioner i) Minimum tax is payable by a resident company under section 113. However, companies
Inland Revenue, declaring gross loss are not liable to pay minimum tax. This facility is going to be exploited and,
Abbottabad therefore, the provisions of section 113 are required to be so amended as to make all companies pay
turnover tax if tax payable is less than 0.5% of the turnover.
ii) Return of income for a tax year is required to be filed within thirty days from the date of service
of notice u/s 114(4). Thirty days period is too long and is also one of the hurdles in enforcing prompt
compliance by non filers etc. The words "within thirty days" appearing in Section 114(4) are, therefore,
recommended to be substituted by words "within such period as may be specified in such notice".
iii) Presently penalty u/s 182 for late/non filing of return is leviable equal to 1/10th of 1 % of the tax
payable. Under the scheme of USAS, non-corporate taxpayers get away with the mischief of these
provisions by declaring losses or BTL income. It is proposed that fixed amount may be made the basis
of penalty for default of non filing/late filing of return of income.
iv) In order to ensure maximum compliance by non filers, default of notice u/s 121(1)(d) may also
be included in Section 186 for the purposes of imposition of penalties for non compliance of said
v) Provision of Section 205 required to be amended suitably so as to provide imposition of
additional tax in the cases of consistent default of non payment of due taxes. The words "and ending on
the date on which it was paid" as appearing in Section 205(1) may be substituted with the words "to the
date of passing of order or payment of tax which ever is earlier.
CAPITAL VALUE TAX
vi) The rate for determining CVT on transfer etc of urban immoveable
properties given in Circular No. 4 of 2009 are confusing and have created lots of ambiguities
particularly amongst the Revenue Authorities as the circular says that:-
i) Where the value is recorded 4% of the recorded value; OR
ii) Where the value is not recorded, Rs. 100 per Sq Yds of the landed value;
Higher of the value of (i) and (ii) has to be adopted.
The words "where the value of property is recorded/non recorded" in para (i) and (ii) above are the main
source of confusion as these create an impression that if the value of property is recorded then 4% of the
recorded value has to be collected as CVT and if value of the property is not recorded then Rs. 100 Per
Sq Yds/Sq. Ft. have to be collected. Higher value of the scenario as given in Para (i) and (ii) above is
not possible to be determined. It is, therefore, proposed that the substantive law may suitably be
amended by substituting para (i) and (ii) above with the words "4% of the recorded value or Rs. 100 per
Sq. Yds/Sq. Ft which ever is higher.
Received from PROPOSAL
8. Chief Commissioner At present there is no provision to select the statements filed u/s 113(4) for Audit u/s 177 who declare retail
Inland Revenue, Audit tax u/s 113A & 1138. Such provisions should be incorporated in the Ordinance.
At present there is no provision in the law to work back the income of those taxpayers who file statements of
final taxation u/s 115(4). So in the absence of such provisions, the exact amount of concealment cannot be
determined in such cases. There should be such provisions as to work back the income of the taxpayer who
file statements u/s 115(4).
There is no threshold for deduction of withholding tax u/s 155 which is creating hardships for those owners
of properties who are earning nominal rental income and have no other source of income. Section 155 should
be accordingly amended by prescribing a certain threshold for withholding agents.
Un-like provisions of section 114, there is no provision in section 115 to revise these statements where any
wrong statement omission is discovered by the taxpayer. There should be a provision to revise statements
filed u/s 115.
Since the department is vigorously following the policy of audit u/s 177, some documents like balance sheet,
wealth statement, personal expenditure statement and detailed trading/P&L account should be made p.U1 of
the return so that desk audit can be effectively carried out.
There is misconception amongst the taxpayer that a case is selected for audit u/s 177 on the basis of some
definite information/reason/grounds, whereas a case is selected for audit having regard to brought parameters
given in that selection. The intimation letter regarding selection of case should mention only the area which
w1l1 be audited by Income Tax Authorities not the grounds/reason on which a case is selected for audit.
Explicit and clear changes should be made in the sections relevant to audit proceedings in the law instead of
issuing notifications, instructions and circulars from time to time. Since issuance of such instructions through
circulars either creates further mis-understanding and confusion among the taxpayers or causes
discouragement for the Tax Department. Hence after due consideration/discussion by the Parliament, Law
Making Bodies and FBR, ambit of audit proceedings should be clearly specified for the convenience of both
taxpayers as well as the Tax Department.
As per Section 111(3) in case of any concealment found in any taxpayer, the difference in the business
income chargeable to tax is to be taxed under the head "income from other sources" in the tax year
immediately proceeding the financial year in the difference is discovered. As per law in situation where
concealment is established in the months of July to October, the Taxation Officer is required to wait for the
filing of return by the taxpayer for the immediately preceding financial year that is almost 4 to 5 months
period which is practically not possible. It should be therefore amended to be taxed in the same tax year to
which said concealment relates.
As per Section 114(6) the person can revise return on discovery of any omission or wrong statement. Earlier
taxpayers were taking undue advantage of this provision by revising the return even after the concealment
issue was confronted to the taxpayer. Although this loophole has been corrected through issuance of Circular
No. 03 dated 17.07.2009 but same directions should be made part of the Ordinance for return as well as
wealth statement in clear words.
To increase tax to GDP ratio, it is essential to bring all the sectors into the tax net. Presently agriculture and
real estates are exempt from tax. It should not be like rather these two sectors vis-a-vis tax on capital gains
should be taxed. Presently a great burden of tax is on the manufacturing sector that discourages
manufacturing activities in the country. It should be dimensioned to other sectors. Moreover tax on service
sector required to be enhanced. It should be activity based i.e. if a doctor receives Rs 1000 to check a patient,
he should pay 10% tax out of this amount. In this way he has to document each and every transaction and tax
officers are to ensure these documentation. And this should expand to all the services including lawyer,
consultants, designers, architects etc.
Minimum tax should be rationalized. For this certain amendments are required to be made in Income Tax
Law. As it is levied on the companies which are not paying tax under normal law, hence make it possible to
bring a large number of Taxpayer Company in the tax net. There is a provision in law to carry forward the
amount of tax (minimum tax) to the next years to make it adjusted against other years' tax liability. Then
there is no provision in the law to get refunded the balance amount that is not adjusted against tax liability. It
is proposed to omit this provision from the law because it is of no use rather create ambiguity in the law. As
far as revenue impact of the omission of this section is c0ncerned, it will have positive impact on revenue.
With the deletion of the provision of adjustment of minimum tax against tax liability of coming years,
taxpayer will have to pay tax (minimum tax) on the basis of turnover for the year without making any
adjustment of tax liability for the year against the payment of minimum tax that was paid in the previous
year. It is rationalized as the minimum tax is based on turnover and not on the profit. Although the
companies are not earning profit but they have made sales and against which they have to pay tax.
There is a dire need to determine the rate of tax at import stage. It is proposed in this regard that there must
be separate rate of tax for manufacturer and commercial importers, so that no refund issues are involved. It
can be 1 or two percent for manufacturer and 6 percent for commercial importers. However, to cater this
situation there must be rigid vigilance at the import stage. An Income Tax Officer can be appointed in the
ports to handle with this situation.
It is proposed that no exemption certificate is to be issued to any persons unless the person has paid excess
amount of tax. It is a norm that taxpayer at the behest of new fiscal year asked for the issuance of exemption
certificates and the Commissioner concerned have to issue as the law permits to do so. As at the beginning of
the year one can only predict and make projection for the coming year and nothing is done on the basis of
real business activities. Some taxpayers ask to get the refund of previous years to be adjusted against tax
liability of coming year.
Received from PROPOSAL
9. Chief Commissioner 1. MEASURES FOR IMPROVEMENT OF TAX TO GDP RATIO:-
Inland Revenue, LTU,
Karachi Low tax to GDP ratio has persistently remained a bane of our taxation system. It is, therefore, proposed that
A Centralized Databank may be created by collecting online information from below mentioned sources:-
Import data from Customs (PACCS and One Custom)
SBP data in respect of remittances made to non-residents abroad, details in respect of interest paid by the
banks to its account holders, deduction of tax from Government Securities & other debt instruments issued
by the banks for the Government, deduction on prizes & winnings
Collection of PEMRA data in respect of electronic media to be utilized for effective monitoring of
Collection of SECP data in respect of registered companies
Collection of data from Professional / Trade Bodies / Clubs / Utility Companies in respect of memberships /
subscribers and expenses incurred / billed / paid
Collection of data from Banks in respect of Credit Cards issued.
Expansion of CVT Pilot Project coupled with gathering of information from Motor Registration Authorities /
Motor Manufacturers down to the level of each District
By including certain other persons or class of person in the list of withholding agents (WHA) such as:
Business Individuals where business turnover exceeds Rs. 12.5 million.
AOP where business capital exceeds Rs. 250,000
Private Educational Institutions, Hospitals, Clinics, Maternity Homes, NPO(s), Professional & Foreign
Representative Offices for the purpose of withholding tax in respect of payments made against rent of
buildings / premises
25 % rebate on electric consumption by commercial & industrial consumer in the shape of a scheme, with
the condition that power distributing company appends CNIC of the user along with the particulars of the
meter owner. The scheme is marketable since it shall give an edge to those consumers who would be using
and hence the others would also opt in and in return provide data to broaden the tax base
Its availability may be facilitated for subsequent use through properly devised software which may prove
helpful in more ways than one. The creation of such a data bank would enable the tax authorities to utilize
the same for effective monitoring and plug loopholes of the system of withholding taxes and will have a
salutary effect on enhancing the tax to GDP ratio as well.
Rates of Penalties: Penalties provided u/s.182(1) and 182(2) are on very lower side which are not effective
deterrent to non-filers. These rates may be increased substantially so that non-filing may be discouraged and
an effective deterrence may be created.
Green Tax: one of the basic purposes of effective fiscal policy is to encourage production of useful items and
to discourage manufacturing of harmful substances. Green Tax universally are imposed to discourage
production and sale of items harmful to public health. It is therefore proposed that a Green Tax may be
introduced. A Green Tax on manufacturing and sale of items hazardous to environment and public health
e.g. plastic bags may not only provide revenue to exchequer but also improve environmental protection.
Tax credit as a means to broaden tax base and improve documentation: Tax credit for individuals on
submission of evidences of expenses o9n medical treatment, children education and all other household
expenses may help in broadening of tax base and improvement of documentation. If an individual has
incentive of tax credit then he/she will get evidence of every expense/purchase he/she incurs/makes.
Similarly tax credit to business who is dealing only with Sales Tax/Federal Excise/Income Tax registered
persons only and who file necessary evidences will encourage documentation.
Penalty for default of filing of a return or statement is leviable equal to one-tenth of one percent of the tax
payable for each day of default subject to a minimum penalty of five hundred rupees and a maximum penalty
of 25% of the tax payable in respect of that tax year.
The departmental view is that the term tax payable as used in section 182 means the tax chargeable on the
basis of assessment made u/s 120, 121 or amended assessment u/s 122. The learned Tribunal, vide its
decision dated 03-06-2003 in ITA No.1038, 1039/KB/2003 (in the case of PSO Ltd) directed to calculate the
penalty on the basis of the return filed by the taxpayer and not on the basis of the assessment. Reference
application filed by the department is pending before the High Court.
It is proposed that following explanation may be inserted in section 182:
“Explanation – In this section, “tax payable” means tax chargeable on the basis of assessment or amended
assessment made u/s 120, 121 or 122 of the Ordinance.
UNEXPLAINED INCOME OR ASSETS – SECTION 111
The scope of un-explained income and assets as laid down in section 111 is very narrow and limited and
needs to be revisited to have an all-encompassing definition of concealment. During the course of audit
proceedings u/s 177, additions have been made on account of suppressed production and sales while passing
orders u/s 122(1) of the Income Tax Ordinance, 2001. The Appellate Authorities have been deleting such
additions on the ground that there is no provision under the law to make additions on account of suppressed
sales and production as the same are not covered under the existing provisions of section 111 of the Income
Tax Ordinance, 2001.
It is proposed that following clause may be inserted after clause (c) of sub-section (1) of Section 111:
“(d) any person has concealed income or furnished inaccurate particulars of income including:-
the suppression of any production, sales or any amount chargeable to tax; the suppression of any item of
receipt liable to tax in whole or in part;
iii) the claiming of any deduction for any expenditure not actually incurred."
It is now well settled through studies that bigger the tax base is, the lesser the rates of tax can be. And in
order to bring more people into tax base, further efforts must be made. Therefore keeping in view the same it
is proposed that an Inland Revenue Intelligence department may be established under the auspicious of
Federal Board of Revenue (FBR) in corroboration with Business Community, Professionals, Tax Advisors
and other Stake holders. The mandate of such department should not restrict to detection of evasion cases but
research on taxation issues such as undocumented economy, E-Commerce, and Contribution by different
Sectors according to percentage of G. D. P.
For automation and facilitation Common Tax Identification (CTI) number to be introduced for Companies
and Firms and CNIC for Individuals.
Return forms (IT-1) which remained same for a few years were changed a year before. This should not be
changed for the next few years, so that they become user friendly.
The scope of Section 223(2)(F) be extended Since one window operation is being implemented for all
Federal Taxes, “Inland Revenue” so the person representing Income Tax can also represent in Sales Tax and
Federal Excise cases.
There is a growing trend towards corporate mergers, acquisitions etc in recent years. This has given rise to
litigation on a number of issues. The following rules can be incorporated in the tax law, in order to avoid
a) Any compensation received for restraint of trade or avoidance of competition should be taxed
in the hands of recipient. It should however be equally apportioned for inclusion in the income for the years
during which the restraint would apply, if received in lump sum.
b) Self generated goodwill should be deemed to be a capital asset chargeable to tax under the
head “income from capital gains”, with its cost of acquisition deemed to be “nil”.
c) Slump sale of a source of business should be taxable, if such transaction involves a source
comprising of less than 50% of the assets of the person.
Section 67/rule 13 should be suitably amended to make it obligatory for a person deriving taxable
and exempt income to maintain separate accounts for taxable and exempt sources.
There is inconsistency between the International Accounting standards and Income Tax Law. A
committee may be formed to work on relevant provisions so that, in consistency may be removed
In section 15, the sub-section (6) should be substituted as under:
“(6) Subject to this Ordinance, the tax deducted under section 155 shall be the minimum tax in respect of the
income under this section, which shall be taxed as a separate block of income.” The purpose is to withdraw
the concessionary treatment given to property income.
In section 21 Clause (g) after the words “fine or penalty”, the words “or any other amount” should be added
to clear ambiguity in language.
In section 21 Clause(l) the words of “ten” mentioned in sub clause (a) of second proviso should be replaced
by “five”, and in its sub-clause (b) the word “local” should be inserted before the words “freight charges” in
its sub-clause (ii) and before the words “travel fare” in its sub-clause (iii).
In section 32 after sub-section (2) the following proviso should be added :-
“Provided that a person shall not be allowed to account for some of the amounts on cash basis and some of
the amounts on accrual basis, in the form of a hybrid system or any other system”.
After section 64 a new sub-section 64A may be inserted allowing tax credit for expenses incurred upon the
education of the taxpayer himself or any of his dependents and for expenses incurred on purpose of
educational scientific and professional books and computer hardware and software. The formula similar to
sections 61 to 64 may be prescribed. The purpose is to promote education.
In section 67 after sub-section (1) the following sub-section shall be inserted:-
“(1A). This section shall have effect notwithstanding anything contained in sections 99, 100 and 100A of this
Ordinance or the schedules referred to in these sections.”
In section 71, after sub-section (2) the following proviso shall be added:-
“Provided that nothing contained in this section shall apply to an unrealized gain or loss on account of
fluctuation in foreign exchange rates.”
In section 108 after sub-section (1), the following proviso should be added:-
“Provided that where the Commissioner on the basis of available facts has made out a prima facie case that
a transaction is not at an arm’s length on the basis of a comparative uncontrolled transaction, the burden of
proof shall lie upon taxpayer to establish that the comparable transaction is at variance from the transaction
entered into by the taxpayer.”
Discouraging misuse of exempt income: Exemption like that on agricultural income and on foreign
remittances encourages the unorganized sector to continue with tax evasion. Whenever an investment is
protected then it is explained in the form of exempt income on account of agriculture or foreign remittances.
Till such an occasion arises the unorganized sector continues to grow outside tax net with the intention that if
any probe is made by tax authorities then it will be explained from exempt income. Such exemptions
therefore need to be withdrawn. Even if such exemption cannot be eliminated for constitutional reasons (like
agricultural income) or due to foreign exchange needs (like foreign remittances) then its declaration may be
made mandatory an section 53(1 A) may be made applicable to all exempt income.
Second schedule of the Income Tax Ordinance 2001 provides exemptions. The great number of these
exemptions creates distortions in the system. These exemptions may be revisited as to minimize the
(i) Foreign Exchange related exemptions had been granted to encourage foreign investments / project
loans, profit on debt to non-residents on loan and additionally to cover gains on FCA, FEBC, US$ Bonds and
income of Pakistani companies earning income abroad. It is interesting to note that profit on debt accruing to
National Bank of Pakistan on US$ 100 million loan advanced to PSO is also specifically exempt vide clause
74A income which is otherwise a business activity of the bank. It is proposed that clause 74A relating to
income of National Bank of Pakistan and clauses 78, 79, 80, 81A, 88A and 135 relating to FCAs may be
(ii) Capital gains are exempt in Pakistan, while the same are major source of revenue around the world. It
is the need of the time to tax capital gain, since its taxing will not only create a major additional source of
revenue, but shall discourage accumulation of wealth within the hands of a few people. It is also liable to
gradually remove the income disparity between the poor and the rich.
Capital gain has remained exempt from tax in Pakistan on the pretext that wavier shall encourage healthy
stock activities, which will, in turn, contribute to improved investment as well as will encourage
industrialization, ultimately helping the economy to grow at faster rate. Unfortunately, the desired results do
not appear on the near horizon. It is well known fact that only a few brokerage houses have benefited out of
trade in stocks in the past and the trend remains the same till date.
Present practices adopted at stock exchanges of Pakistan are more of trading and less investment
oriented. The change of hand of shares during the day and before being recorded as final transaction at
Central Depository Company is in no way contributing to the real growth of the national economy. At the
same time, the process of COT is practically working as parallel banking system.
It is also a well known fact that the brokerage houses have not diverted their respective earnings
towards the process of industrialization, but have further engaged themselves into the activities which do not
contribute much in the shape of taxes. Furthermore, exempting this source of income has led to
concentration of wealth in few hands, which is not only against the principal of welfare but is also hurting
the fabric of the society by creating disparity.
It is therefore proposed that the said tax may initially be imposed at a flat rate of 15% on the capital
gain of assets, where the period of retention is less than 13 months, whereas assets held for longer durations
may be kept exempt. This will not only act as a tool to generate additional revenues, but will also encourage
long term holding of assets.
The insurance companies have been contesting that their receipt on account of premium do not fall in the
ambit of “turnover” and therefore they are not liable to minimum tax on turnover.
The learned Tribunal vide its judgment reported as (1998) 77 Tax 35 (Trib.) held that the gross receipts of an
insurance company are included in the term “turnover” as defined in the explanation to section 80-D(2) of
the Repealed Ordinance as the same is derived from rendering of benefit to the insured persons. Reference
applications filed by the taxpayers are pending before the High Court.
It is proposed that following clause may be added in sub-section (3) of Section 113:
“(e) The gross receipts of an insurance company derived from rendering of services or giving benefits to the
The learned Tribunal vide its judgment reported as 2006 PTD (Trib.) 1800 has held that compensation on
delayed refund is capital in nature and not taxable. Such income may be treated as income from other
sources and a new clause (cc) may be added in Section 39(1).
Recently the department has been issuing compensation on delayed refund under section 171 of the Income
Tax Ordinance, 2001. The taxpayers contend that tax can not be withheld from compensation as it does not
fall in any clauses (a), (b), (c) & (d) of sub-section (1) of section 151 of the Income Tax Ordinance 2001. It
is therefore, proposed that the word “compensation on delayed refund” may be inserted in clause (c) of sub-
section (1) of section 151 of the Income Tax Ordinance, 2001.
In section 170 in sub-section (3) the following words shall be added before the words “where the
commissioner is satisfied” :-
“Notwithstanding anything contained in Part II of this chapter.”
As per the provisions of Section 170 a taxpayer who has paid tax in excess of the amount actually payable by
him may apply to the Commissioner for a refund of the excess amount. Under clause (c) of sub-section (2)of
Section 170 an application for a refund shall be made by the taxpayer within two years of the later of -
The date on which the Commissioner has issued the assessment order to the
taxpayer for the tax year to which the refund application relates; or
The date on which the tax was paid.
The question arises that if a taxpayer fails to file a refund application within the prescribed time, what will
happen? Shall the refund be barred by time limitation and then not allowable to the taxpayer? Although it is
a mistake by the taxpayer and is against the established norms of natural justice and fairplay but that is how
the law is to be applied. The hon’ble High Court of Sindh in its judgment reported as (2003) PTD 739 (H.C.
Kar) has held that “nobody could be allowed to take advantage of his own wrong.”
Therefore, necessary clarification is required in this regard.
POWER TO WITHHOLD REFUND IN CERTAIN CASES
Powers to withhold refund, as in the Repealed Ordinance, are not available to the Commissioner.
It is proposed that the Commissioner may be empowered to withhold refund in certain cases.
170(4A) Power to withhold refund in certain cases
Where refund of any amount becomes due to the taxpayer as a result of an order under the Income Tax
Ordinance, 2001 or under the provisions of Section 120 on the basis of return of income or under any
provision of the Repealed Ordinance, the Commissioner may withhold the refund till such time as deemed fit
if he is of the opinion that grant of refund is likely to adversely affect the revenue in the following cases:
Where a notice has been or is likely to be issued for audit under section 177.
Where a notice under section 122(5A) has been issued for amendment of assessment of an appeal or further
The order is subject matter of an appeal or further proceedings;
If any proceedings under the Income Tax Ordinance, 2001 are pending.
It is an open secret now that Multinational Corporations in Pakistan indulge in transferring their profits by
way of transfer pricing – following amendments are proposed in this regard.
In clause (f) of sub-section (3) of section 85 to the Income Tax Ordinance, 2001, words “fifty per cent”
wherever appearing may be substituted with the words “twenty six per cent.”
After clause (f) of sub-section (3) of section (3), following further clauses may be added:
more than half of the board of directors or members of the governing board, or one or more executive
directors or executive members of the governing board of one company, are appointed by the other
more than half of the directors or members of the governing board, or one or more of the executive directors
or members of the governing board, of each of the two companies are appointed by the same person or
the manufacture or processing of goods or articles or business carried out by one company is wholly
dependent on the use of know-how, patents, copyrights, trade-marks, licensees, franchises or any other
business or commercial rights of similar nature, or any data, documentation, drawing or specification relating
to any patent, invention, model, design, secret formula or process, of which the other company is the owner
or in respect of which the other company has exclusive rights; or
Eighty per cent or more of the raw materials and consumables required for the manufacture or processing of
goods or articles carried out by one company, are supplied by the other company, directly or through a third
person, or by persons specified by the other company, and the prices and other conditions relating to the
supply are influenced by such other company; or
the goods or articles manufactured or processed by one company, are sold to the other company or to persons
specified by the other company, and the prices and other conditions relating thereto are influenced by such
other company ; or
there exists between the two companies, any relationship of mutual interest, as may be prescribed.
REPORT FROM A CHARTERED ACCOUNTANT:-
A new sub-section (2B) may be inserted in section 114 of the Income Tax Ordinance, 2001, as follows:
Every person who has entered into an international transaction during a previous year shall obtain a report
from an accountant and furnish such report on or before the specified date in the prescribed form duly signed
and verified in the prescribed manner by such accountant and setting forth such particulars as may be
PENALTIES FOR TRANSFER PRICING MANIPULATIONS:-
A new sub-section (3A) may be inserted in section 184 of the Income Tax Ordinance, 2001, as follows:
Where in the case of a taxpayer, any amount is added or disallowed in computing the total income under
section 108, the amount so added or disallowed shall be deemed to represent the income in respect of which
particulars have been concealed or inaccurate particulars have been furnished, unless the taxpayer proves to
the satisfaction of the Commissioner or the Commissioner (Appeals) that the price charged or paid in such
transaction was computed in accordance with arm’s length standard and in the manner prescribed under that
section, in good faith and with due diligence."
In sub-section (3) of section 184 of the Income Tax Ordinance, 2001, following phrase may be added at the
beginning: “Subject to the provisions of sub-section (3A),”
A new section 185A may be inserted in the Income Tax Ordinance, 2001, as follows:
(1) If any person fails to keep and maintain any such information and document as required by Rule (3A) of
Income Tax Rules, 2002, or fails to furnish to the Commissioner any such information or document the
person shall be liable for a penalty equal to two per cent of the value of each international transaction entered
into by such person."
(2) If any person fails to furnish a report from an accountant as required by sub-section (2B) of section 114,
the Commissioner may direct that such person shall pay, by way of penalty, a sum of one hundred thousand
INFORMATION AND DOCUMENTS TO BE KEPT AND MAINTAINED U/S 108:-
A new sub-rule (3A) may be inserted in Rule 29 of the Income Tax Rules, 2002 as follows:
Every person who has entered into an international transaction shall keep and maintain the following
information and documents, namely:—
a description of the ownership structure of the taxpayer enterprise with details of shares or other ownership
interest held therein by other enterprises;
a profile of the multinational group of which the taxpayer enterprise is a part along with the name, address,
legal status and country of tax residence of each of the enterprises comprised in the group with whom
international transactions have been entered into by the taxpayer, and ownership linkages among them;
a broad description of the business of the taxpayer and the industry in which the taxpayer operates, and of
the business of the associated companies with whom the taxpayer has transacted;
the nature and terms (including prices) of international transactions entered into with each associated
companies, details of property transferred or services provided and the quantum and the value of each such
transaction or class of such transaction;
a description of the functions performed, risks assumed and assets employed or to be employed by the
taxpayer and by the associated companies involved in the international transaction;
a record of the economic and market analyses, forecasts, budgets or any other financial estimates prepared
by the taxpayer for the business as a whole and for each division or product separately, which may have a
bearing on the international transactions entered into by the taxpayer;
a record of uncontrolled transactions taken into account for analyzing their comparability with the
international transactions entered into, including a record of the nature, terms and conditions relating to any
uncontrolled transaction with third parties which may be of relevance to the pricing of the international
a record of the analysis performed to evaluate comparability of uncontrolled transactions with the relevant
a description of the methods considered for determining the arm’s length price in relation to each
international transaction or class of transaction, the method selected as the most appropriate method along
with explanations as to why such method was so selected, and how such method was applied in each case;
a record of the actual working carried out for determining the arm’s length price, including details of the
comparable data and financial information used in applying the most appropriate method, and adjustments, if
any, which were made to account for differences between the international transaction and the comparable
uncontrolled transactions, or between the enterprises entering into such transactions;
the assumptions, policies and price negotiations, if any, which have critically affected the determination of
the arm’s length price;
details of the adjustments, if any, made to transfer prices to align them with arm’s length prices determined
under these rules and consequent adjustment made to the total income for tax purposes;
any other information, data or document, including information or data relating to the associated company,
which may be relevant for determination of the arm’s length price.
Nothing contained in sub-rule (1) shall apply in a case where the aggregate value, as recorded in the books of
account, of international transactions entered into by the taxpayer does not exceed five million rupees
Provided that the taxpayer shall be required to substantiate, on the basis of material available with him, that
income arising from international transactions entered into by him has been computed in accordance with
Rule 23 or section 108.
The information specified in sub-rule (1) shall be supported by authentic documents, which may include the
official publications, reports, studies and data bases from the Government of the country of residence of the
associated enterprise, or of any other country;
reports of market research studies carried out and technical publications brought out by institutions of
national or international repute;
price publications including stock exchange and commodity market quotations;
published accounts and financial statements relating to the business affairs of the associated enterprises;
agreements and contracts entered into with associated enterprises or with unrelated enterprises in respect of
transactions similar to the international transactions;
letters and other correspondence documenting any terms negotiated between the taxpayer and the associated
documents normally issued in connection with various transactions under the accounting practices followed.
Provided that where an international transaction continues to have effect over more than one previous year,
fresh documentation need not be maintained separately in respect of each previous year, unless there is any
significant change in the nature or terms of the international transaction, in the assumptions made, or in any
other factor which could influence the transfer price, and in the case of such significant change, fresh
documentation as may be necessary under sub-rules (1) and (2) shall be maintained bringing out the impact
of the change on the pricing of the international transaction.
After sub-rule (6) of Rule 23 of the Income Tax Rules, 2002, following proviso may be inserted:
Provided that where more than one price may be determined by the most appropriate method, the arm's
length price shall be taken to be the arithmetical mean of such prices.
Provided further that where the total income of an associate is computed under this rule on determination of
the arm's length price paid to another associated company, the income of the other associated company shall
not be recomputed by reason of such determination of arm's length price in the case of the first mentioned
Received from PROPOSAL
10. Chief Commissioner Measures for improvement of tax to GDP ratio.
Inland Revenue, Sialkot.
Improvement of tax to GDP ratio can be made through widening the tax base, as many sectors are not on
tax roll and taxpayers net have not been increased with the ratio of population and the businesses being
carried on in the country. The escaped areas are pointed as under:-
Mandatory sharing of information with the FBR by the withholding agents, utility agencies, Security
Exchange Commission of Pakistan can expand the tax base.
External Survey through Survey & Collection Wing in each RTO/LTU for booking of new taxpayers.
In view of immense revenue potential in the real estate / construction work, this sector has not been
included in tax net. In addition to that, huge profits / income is earned from sale / purchase of properties
which is also escaped from taxation. It is, therefore, proposed that gain on sale of immovable properties
may also be included as taxable income under the head “capital gains” through amendment in Section 37.
The tax base remains punctured and the burden of taxation is skewed towards only a few segments of the
society. In direct taxation the withholding tax regime accounts for more than 70 per cent of the revenue
and the salaried class is the main victim. On the other hand, almost 83 per cent of all indirect taxes
(including VAT) are contributed by 18 commodities and 53 per cent of indirect taxes are generated from
five commodities, including petroleum products, automobiles telecom, machinery and cigarettes. This is
in sheer contrast to all tall claims of broadening of tax base during the last eight years. The services
sector, inclusive of the retail sector, transport, construction, hotels/restaurants and commission agents, is
a major non-compliant sector as its contribution to the GDP does not match its tax contribution. The
services sector remained the major driver of the GDP growth during the last seven years or so.
The Wealth Tax Ordinance be restored which was the main source of tax to GDP ratio or subsection (2)
of Section 116 may be omitted so that all the cases irrespective of quantum of income should file their
wealth statements/reconciliation statements so that on the basis of definite information action 122 of the
Income Tax Ordinance, 2001 may be initiated timely. After the introduction of Universal Self
Assessment Scheme noncompliance ratio has considerably increased.
The Universal Self Assessment Scheme may be revisited because of the fact that in the grab of said
Scheme, non-compliance ratio as well tax evasion culture has improved. The tax collection u/s 137 &
147 has considerably been decreased because of the fact that no yardstick is available for those cases in
which the income declared is continuously being reduced by the taxpayers. The present Universal Self
Assessment Scheme may be revised giving certain increase in ratio of the income declared, tax paid for
the last year, as has been done in the past.
(ii) Analysis of Tax Exemption.
Exemptions allowed under the clauses 35 to 56 should have been revisited. Exemption allowed to the
judges of the superior courts, ministers and president of Pakistan on account of various perquisites is
against the natural justice when the tax is chargeable from the low paid employees on the perquisites
received by them. These exemptions create discrimination with the other employees.
Exemption allowed under the clauses 61 & 66 may also be revisited to minimize the institutions
receiving exemption on income on the plea that they are non profit organizations, whereas most of them
misusing these exemptions and receiving heavy fees for their services from general public.
Stock markets have matured and its players have become capitalists owning industries, banks, financial
institution in addition to big brokerage houses. Stock Market index touched its highest level of 15,700 in
April 2008 that places the KSE as one of the best performing stock market of the world. With this
performance exemption of capital gain on stock is not justified.
Imposition of Capital Gain Tax on real estate. Section 37 of Income Tax Ordinance, 2001 may be
amended by bringing immovable property in the definition of capital asset for the purpose of applying
provisions of the said section.
Inclusion of Withholding Taxes:
Regime for manufacturers viz-a-viz commercial importers (how to address alleged misuse).
Exemption Certificate from operating of the provisions of section 148 of the Ordinance may be issued by
the Commissioner of Income Tax to the manufacturer to avoid problems faced in receipt of refund.
However, following information / details may be enforced from the applicants :-
(i) Installed production capacity and actual production of each item during the counting year
(ii) Quantitative and qualitative details of each imported item (L/C wise)
During accounting year immediately preceding.
During the current accounting period, to-date.
During the remaining period of current accounting period.
Reconciliation with imported raw material earlier.
Copies of Sales Tax Returns for the previous as well as current period.
Quantitative details of each item imported during the financial year and the quantity of different material
desired to be imported.
Consumption certificate issued by the Central Excise Department, if any.
(b) Rate of imports, streamlining of grant of exemption certificates to manufacturers. How can
manufacturers be facilitated?
Uniform rate may be prescribed for all the importers u/s 148 of the Income Tax Ordinance, 2001.
Minimum Taxation and Presumptive Tax Regime.
Tax deducted / collected as advance by the tax withholding agents under various provisions of the
Income Tax Ordinance, 2001 has been treated as final tax liability u/s 169 of the Income Tax Ordinance,
2001. Considering the tax collected in advance or withheld as final discharge of tax liability is irrational
and illogical. In this way, the big businessmen have been benefited, whereas the small businessman is
taxed on higher rate. Through Finance Act, 2009, Section 153 of the Income Tax Ordinance, 2001 has
already been excluded from the presumptive tax regime. The section 169 is proposed to be amended
considering the volume of business and tax withheld.
Capital Value Tax.
At present capital value tax is charged on the assets falls within the rating area by virtue
of which collection of capital value tax has been decreased to 50% approximately. It is proposed that
capital value tax may be charged without any distinction of urban as well as rural area on transfer of
vides transferring the properties. Hopefully this amendment will increase in revenue reasonably.
Received from PROPOSAL
11. Chief Commissioner a) BROADENING OF TAX BASE:
Inland Revenue, Multan.
Following amendments are proposed for the purpose:-
In Section 114, sub-section(1)(b) after clause(iii), new clause (v) is proposed to be inserted as under:-
“(v) maintains bank account having loan/leasing facility”.
b) MISUSE OF UNIVERSAL SELF ASSESSMENT SCHEME
Misuse of USAS has adversely effected, tax to GDP ratio. Investment made by the taxpayers
remains un-probed due to acceptance of return u/s 120 of the Income Tax Ordinance, 2001. To counter
the situation, following amendments are proposed.
i) In section 114, sub-section(2) a new clause (d) is proposed to be inserted as under:-
“(d) if filed for the first year of business shall fully state the amount of investment employed in the
business duly supported with documentary evidence regarding source of investment thereof”.
ii) In section 116, sub-section (2), the words “where last declared or assessed income or the declared
income for the year is five hundred thousand rupees or more” may substituted by the words “irrespective
of the quantum of income last declared or assessed or declared for the year”
c) TAXATION OF AGRICULTURAL SECTOR:
Revenue collection by provinces from agricultural sector is not as per its potential due to lack of
effective tax collecting machinery. It is suggested that exemption provided to agricultural sector u/s 41of
the Income Tax Ordinance, 2001 be withdrawn and brought under taxation like other heads of income.
This will help in eliminating many distortions in the existing tax policy.
d) RESTORATION OF WEALTH TAX:
In view of existing economic recession, it is suggested that wealth tax may be restored with
rationalized exemptions. In this way more revenue can be generated without disturbing the general
The second schedule to Income Tax Ordinance, 2001 still contains so many exemptions and tax
concessions which vitiate the principle of equality and creates disparities among the taxpayers. This
distortion is required to be removed from the tax statutes. Accordingly the second schedule is to be
overhauled to minimize exemptions and concessions in tax especially:-
(i) The allowances and perquisites allowed to legislators, men in uniform, judiciary and other
privileged classes under clauses (51) (52) (53) (54) (55) & (56) be removed from part-I of second
(ii) Exemption allowed under clause (93) for profit and gains derived by a taxpayer from the running
of a computer training institution or computer training scheme may be withdrawn as this concession in
the past was granted to promote computer literacy.
Gain in real estate sector are highly under taxed. Growth of the sector is not duly reflected by its share to
national exchequer through payment of taxes.
It is proposed that all the immovable properties which are sold within 1-Year period from the date of its
purchase, should be included in the definition of capital assets and corresponding gain arising out of said
sale/purchase should be brought to tax under the head capital gain. Accordingly section 37 treating the
capital gain on immovable property as a distinct class of income may be amended
Minimum Taxation rationalized in Finance Act, 2009 may be kept intact.
The cases of taxpayers making imports for own consumption be subjected to compulsory audit
ascertaining whether the goods imported are fully consumed viz-a-viz the capacity of the Industrial Unit.
Rate on imports, rationalized in Finance Act, 2009 may be kept intact
Presumptive tax regime needs to be done away with. Due to this regime for instance huge investment
made in the installation of CNG Stations is being ignored. By bringing PTR cases to normal taxation
provisions, the maintenance/furnishing of books of accounts be enforced.
(i) Existing laws have already been made simple. However the implementation of laws needs to be
(ii) Declaration of bank account number in the returns by claimant of refunds may be made
mandatory so that the refund amount is credited directly to the taxpayer’s account without interaction
between the taxpayer and tax collector.
(iii) It is proposed that an amendment may be made in Section 170 of the Income Tax Ordinance,
2001 to withhold refund in those cases which are selected for audit u/s 177 of the Income Tax
(i) The royalties and fee for technical services should be included in the domain of minimum
(ii) Maintenance of accounts should be made mandatory for such kind of income so that the
transactions made between related/associated parties should be identified whether they have made on at
Received from PROPOSAL
12. Cement Manufacturer 10% WHT on electricity bills should not be made from Cement Sector.
WWF should be abolished.
Received from PROPOSAL
13. Engineering Depreciation rate on vehicles (section 22, 23A and Part I of Third Schedule).
Development Board (EDB)
The depreciation rate applicable to vehicles for the purpose of section 22 is 15%, if vehicle is not plying for
hire. Vehicles are also not eligible for FYA u/s 23A with restricted value of PKR 1.5 million.
It is, therefore, proposed that:
(i) Depreciation rate for corporate sector on vehicles under the Ordinance be increased to 25% p.a.
with an initial depreciation @ 50% in the year of purchase; and
(ii) Restricted value be increased from PKR 1.5 M to PKR 2 M.
This will boost local industry (OEMs & Vendors) and in turn increase revenue to National Exchequer.
Received from PROPOSAL
14. Pakistan Edible Oil Government Increased the Income Tax (WHT) from 1% to 2% on the purchase of locally produced edible
Refiners Association oils.
To review the interpretation of locally produced oil and withdraw the Advance Income Tax of 2%
applicable on buyers for buying Refined Palm Oil from the local Edible Oil Refineries. OR the same
should also be applicable on the sale of imported RBD Palm Oil. The commercial/ industrial importers and
the refiners may be treated at par.
Levy of WHT on imported Edible Oil in the PTR.
Prior to 30-6-2009 income tax on edible oil and vegetable ghee industry was as under-
(i) On import of raw material at the rate of 2% u/s 148(8), which was the final discharge;
(ii) In FA 2009 import of raw material at the rate of 3% u/s 148(8), which was minimum tax instead of
Received from PROPOSAL
15. MR ALI A. RAHIM Bigger the Tax Base-Lesser the Rates
It is now well settled through studies that bigger the tax base is, the lesser the rates of tax can be
Further, efforts must be made to bring more people into tax club.
Establishment of Research and Development Department Under the auspicious of Federal Board of
Revenue (FBR) in corroboration with Business Community, Professionals, Tax Advisors and other Stake
Area of Studies-Examples –
Economic and Tax Factors
Contribution by different Sectors According to percentage of G. D. P.
Further, encouragement and Incentives be provided for Savings and Investment
New provision to be introduced for Tax Credit for investments made in National Saving Schemes and
quoted and unquoted mutual funds to give incentives for savings which will create investment and
It is proposed that tax should be imposed on all segments of the society. Exemptions and concessions to
certain classes of income or classes of persons be abolished.
It is proposed that reduced rates be Extended for Small Company and Medium Enterprise (SME).
Capital gain on sale of Immovable properties should be reintroduced by the provincial
governments and should be collected by the registrar, registering the property collectors rates should be
Capital gain on sale of shares should only be exempted subject to certain conditions.
Tax payers may be given incentive if they give documented
documented bills for sales and supply, contracts or services.
For automation and facilitation Common Tax Identification (CTI) number to be introduced for
Companies and Firms and CNIC for Individuals.
Efforts to be made for effective legislation of Regulations which require mandatory incorporation of the
above on all the documents executed in any form, at any stage e.g.
(a) Transfer of Properties
(b) Transfer of Shares
(c) Transfer of Vehicles any model or cc
(d) Bank Documents
(e) Travel Documents
(f) Large Expenditures
Return forms have remained constant for a few years with slight changed. This should not be changed in
future, so that they become user friendly.
Quarterly statements should be reintroduced instead of monthly statements.
E-filing of returns and statements should not be made mandatory.
Jurisdiction for monitoring of tax on deductions be clearly made and these should be checked once in
three (3) years.
Selection of cases for audit should be made on scientific basis, after only cross verification with third
Issue: The perusal of the definition shows that under Sub-section (d) and (f) any services or any
substantial equipment installed or other assets or property capable of activities giving rise to income has
Proposal: Since, the industrial growth has been promised by the government. It would be
appropriate that a minimum period of suitable time be included in Sub-section (d) and (f). A minimum
period, therefore, is suggested to also be 90 days.
Rationale: To correspond the provisions with treaty provisions
ISSUE The consideration for the disposal of any property or right referred to in Sub-clauses (a)
through (e) are included within the definition of term royalty. If the definition of the capital assets as
Sub-section (5) of section 37 is read, the disposal of any property or right falls under the purview of
Sub-section (5) of section 37
PROPOSAL It is, therefore, suggested that clause (g) of section 2(54) be deleted which is
overlapping section 37(5).
RATIONALE To avoid confusion and overlapping.
ROYALTY & FEE FOR TECHNICAL SERVICES
ISSUE Option under Rules 18 & 19 of the Income Tax Rules, 2002 read with section 6
PROPOSAL The said concession should either be brought in through an amendment in section 6 or it
may be put in Second Schedule, which is part of the statute itself
RATIONALE The intention of the lawmaker appears to be to allow the non-resident persons having a
permanent establishment in Pakistan to avail final tax basis assessment as provided under section 6 read
with section 8. According to the rules of interpretation, rule cannot override the main statute, the
concession given to the non-residents in the said rules is not legally proper, this is despite the fact of
usage of words “Subject to the Ordinance” appearing in the beginning of section 6.
TAXABILITY OF EMPLOYEES CONTRIBUTE TO PROVIDENT FUND
ISSUE By virtue of an amendment made in Rule 3 of Part I of the Sixth Schedule to the Income
Tax Ordinance, 2001, Vide Finance Act, 2008 any amount in excess of Rs. 100,000/- paid to an
employee by a Provident Fund is taxable in the hands of the employee.
PROPOSAL It is proposed that this additional burden on the salaried class may be withdrawn.
RATIONALE Since the salaried class is the most tax compliant class of people and paying their due
share of taxes as applicable, they should not be further burdened.
INCOME FROM PROPERTY
ISSUE Under this section, a charge is created on rent received or rent receivable by a person in a
tax year other then the rent exempt from tax under this Ordinance. Sub section (2) defines the term
“Rent” which means any amount received or receivable by the owner of land or a building as
consideration for the use or occupation of, or the right to use or occupy, the land or building and
including forfeited deposit paid under a contract for sale of land or a building
PROPOSAL It is suggested that in Sub-section (2), where-ever the word “Or” has been used between
the expressions “The Land” “Building” said “Or” be replaced by “And”.
RATIONALE Under the provisions of section 39 (1)(d), ground rent has been specially dealt with
arising out of the land alone. Since the word “Or” has been used in definition clause in between “Land”
and “Building”, it is suggested that according to the rules of interpretation, it connotes disjunctive
consideration. It seems the intention of legislature is that if an amount is received or receivable by the
owner of land & building, such amount would be treated as rent. As such, rent of land is being specially
and separately dealt with under section 39
STOCK IN TRADE
ISSUE Under this section, the concept of determination of the cost of Stock in trade disposed of
has been introduced. Generally in the cases of companies, the valuation has to be mandatorilly made on
the basis of International Accounting Standards
PROPOSAL It is, therefore, proposed that in section 35, where-ever word “Person” has been used,
words “Other Than Companies” may be inserted
RATIONALE Conversance of Tax laws with International Accounting Standards
INCOME FROM OTHER SOURCES
ISSUE Loan, advances, deposit for issuance of shares and gifts otherwise than by a crossed cheque
drawn on a bank or through normal banking channel from person holding NTN Card. However practical
difficulties arise in respect of payment received as loan or gift from non-resident to family members.
PROPOSAL It is therefore, proposed that a proviso be added for dispensing with the condition of NTN
(Certificate) for amounts received from abroad.
INCOME FROM OTHER SOURCES
ISSUE The world is moving very fast. The concept of paper money is being replaced by plastic money.
The normal banking practices are now absorbing concept of electronic banking. One may receive loan,
gift or advance through other mode of transfers
PROPOSAL (a) It is, therefore, suggested that the condition of holding an NTN should be
abolished. Since all bank accounts have CNIC's
(b) Advance Rent received be included sub-section (4) subject to just and reasonable restrictions.
INVESTMENT IN SHARES
ISSUE Increase in investment rebate.
PROPOSAL It is proposed that the limit of investment should be increased to Rs. 500,000/-
RATIONALE To encourage investment for industrialization.
FAIR MARKET VALUE
ISSUE Discretion of the Commissioner
PROPOSAL It is, proposed that suitable parameters for valuation may be prescribed by the FBR in
Rule 228 in the Income Tax Rules, 2002. For the purposes of Immovable properties, changes have been
incorporated vide SRO 392(I)/2009 dated May 19, 2009, for the basis of valuation of constructed
properties, the fair market value is to be determined by the Commissioner of Income Tax. It is suggested
that the collector valuation should be accepted for built up properties also on one side and the valuation
table of the collector should be substantially increased to being it in close proximity to the actual market
RATIONALE To eliminate the chance of encouraging corruption and also broader the documented
ISSUE Under section 79(1) under clause (d) no gain or loss shall be taken to arise where the asset
is compulsorily acquired under any law, but a condition has been put that such gain or loss will not be
taken if consideration received is reinvested by the recipient in any asset of a like kind within one year of
PROPOSAL It is, proposed that words “Of A Like Kind” be deleted.
The period for reinvestment i.e. one year is too short. This may be increased to atleast three years
ISSUE Sub-section (2) of section 79 stipulates that provisions of section (1) shall not apply where
person is a non-resident. This seems to be discriminatory and could cause unnecessary hardship in the
case of gift and transmission of the asset to an executor or beneficiary on the death of a person and
distribution of assets to non-resident members of an AOP or non-resident shareholder in the case of a
company, in the event of liquidation of the company or dissolution of an AOP.
PROPOSAL It is, proposed that Sub-section (2) be deleted
RATIONALE To eliminate discrimination
ISSUE Companies paying dividends to non-residents may be treated as representative and asked
to file statements under section 115(4) by the commissions.
PROPOSAL It is proposed that such companies may not be treated as “Representatives” for the
purposes of dividends declared if they file the statement under section 165 (as is the case of salary
RATIONALE To reduce burden on companies for filing returns as representatives.
FURNISHING OF RETURN AS REPRESENTATIONS
ISSUE Application to the Commissioner.
PROPOSAL It is proposed that right of representation before the Chief Commissioner may also be
introduced to redress the grievance of taxpayers, if the said application is rejected by the Commissioner
of Income Tax.
RATIONALE Principles of natural justice.
EXTENSION OF TIME FOR FURNISHING RETURN & OTHER STATEMENTS
ISSUE According to Sub-section (6) extension of time granted under Sub-section (3) shall not for
the purpose of charge of additional tax under
Sub-section (1) of section 205 change the due date for payment of Income Tax under section 137. The
interpretation of this Sub-section (6) plainly shows that addition tax imposition shall not stop running
PROPOSAL It is, proposed that Sub-section (6) may kindly be deleted
RATIONALE It is submitted that once extension is granted by the Commissioner, it cannot be said that
Taxpayer has failed. Even otherwise, once the Commissioner grants time, it will be very harsh in genuine
DECESION IN APPEAL BYTHE COMMINISSIONS
ISSUE Upto the year 2005 the Commissioner of Income Tax (Appeals) [CIT(A)] had the power to set
aside orders framed by the assessing offices.
PROPOSAL It is, proposed that this power to set aside the appeal should be re-incorporated in the law.
RATIONALE It has been noticed that to give relief, the CIT(A) is required to examine evidences.
However due to paucity of time and with the staff that is posted with the CIT(A) it is not possible for the
CIT(A), hence this power to set aside be re-incorporated in the law.
DISPOSAL OF APPEALS BY APPELLATE TRIBUNAL
ISSUE Appeal can be dismissed in default
PROPOSAL It is, proposed that said Sub-section (2) may accordingly be amended in the following
“The Appellate Tribunal shall afford an opportunity of being heard to the parties and in case of
failure to attend the appeal by the person filing the appeal, the tribunal may proceed ex-parte to decide
the appeal on the basis of the available record”
RATIONALE In fiscal laws, and more particularly law governing Income tax, it has been the practice to
decide the matters on merits, as Income Tax Appellate Tribunal (ITAT) is the last fact finding authority
and by virtue of Sub-section (1) of section 132, the decision of the Appellate Tribunal on an appeal shall
In our considered opinion, the language used in Sub-section (2) is defective and needs suitable
amendment as it cannot be presumed that legislature intended to cause injustice
STAY OF DEMAND
ISSUE Unrealistic and frivolous demands are created by the tax authorities due to pressure on
PROPOSAL Automatic stay of demand upto 85% for first stage of appeal and 50% till the ITAT stage
of appeal be provided (as was provided in the Repealed Ordinance, 1979).
RATIONALE Principles of natural justice.
Appropriate amendment be made to adjust - unadjusted amount of tax of one quarter to another within
the same tax year (refer to the formula)
ISSUE Group companies which share common expenses reimburse the same to the company that
actually pays the expenditure, after deduction of the relevant tax.
PROPOSAL It is, proposed that reimbursement of expenses, between group companies should be
exempted from the deduction of tax.
RATIONALE To reduce the cash flow burden and also the process of refund.
TAX ON EXPORT INDENTING COMMISSION
ISSUE Tax on Commission paid to indenting agents is being taxed @ 5%.
PROPOSAL It is, proposed that like exports these should be taxed at 1%.
RATIONALE To encourage indenting agents to being more export business to Pakistan.
EXEMPTION OR LOWER RATE CERTIFICATE
ISSUE Grant of an exemption or lower rate certificate
PROPOSAL It is, proposed that words “Within 15 Days” may be inserted after the words “The
Commissioner Shall” in Sub-section (1)
The right of appeal be provided to challenge the refusal of application before the CIT(A)
RATIONALE No time frame prescribed
STATEMENT REGARDING IMMOVABLE PROPERTIES
ISSUE In the Repealed Ordinances, under the provisions of section 143A every Registering Officer,
Revenue Officer or Other Officer appointed to register any documents relating to property (other than
agricultural land) under the Registration Act, 1908 was required to furnish a statement regarding the
properties, the value of which was not less than Rs. 50,000/- registered with him during the preceding
PROPOSAL It is recommended that this provision be brought in under the Income Tax Ordinance,
RATIONALE In our opinion, such statement is instrumental for broadening the tax base
ISSUE Refund applications and order thereon
PROPOSAL It is, proposed that following amendment be made
In clause (b) of Sub-section 2 word “And” be deleted and clause (c) (prescribing time limit to file
Refund application) be deleted
In case no order is passed by the Commissioner on the said application,
It is, proposed that a proviso be added after sub-section (4) as under: -
“Provided that if no order is passed within the time specified in this Sub-section, the application shall be
deemed to have been accepted and all the provision of this Ordinance shall have effect accordingly”
Without prejudice to above
Sub-section (5) is not in conformity with section 127, therefore, it is proposed that necessary
amendments be made.
RATIONALE Good governance and to fill up lacunas.
PENALTY FOR NON-PAYMENT OF TAX
ISSUE Penalty for non-payment of tax (other then penalty) has been imposed on the failure of
payment any tax due by the due date. A person is liable for penalty at various rates of penalties ranging
for 5% to 100% of such tax due. No time frame is provided for imposition of penalties between each
PROPOSAL It is proposed that a proviso be added to provide the time frame between each event
Provided that no penalty shall be imposed in case of subsequent failure unless the time between
passing of each order is not less than 30 days
RATIONALE Curative amendment
ISSUE Advance ruling provisions to non-residents
PROPOSAL Appropriate amendment is proposed to widened and extended the scope to other resident
INCOME TAX PRACTITIONER
ISSUE Appearance before tax authorities.
PROPOSAL It is proposed that Income Tax Practitioner (ITP) should be replaced with Federal Tax
RATIONALE Since one window is being implemented for all Federal Taxes, as “Inland Revenue” so the
person can also represent in Sales Tax and Federal Excise cases–facilitation.
TAX WITHHOLDING ON CASH WITHDRAWAL–INCREASE IN THRESHOLD
ISSUE Cash Withdrawal from banks – tax withholding
PROPOSAL Threshold be increased from Rs. 25,000/- to Rs. 50,000/-
RATIONALE Relief for small Withdrawals
RATE OF TAX - NON SALARY
ISSUE Exemption limit
PROPOSAL Exemption should be increased to Rs. 250,000/-
RATIONALE Relief to taxpayers
RATE OF TAX - SALARY
ISSUE Exemption limit – Applicable rate of tax
PROPOSAL Exemption should be increased to Rs. 300,000/-
It is proposed that the slabs should be readjusted to provide relief to taxpayers.
RATIONALE Relief to the salaried class
EXEMPTION FOR WIDOWS & SENIOR CITIZENS
ISSUE Behbood Certificates and Pensioners Benefit Account can only be purchased by widows
and seniors citizens and are exempted for deduction of tax but have to pay tax on filing of the annual
PROPOSAL They should be given special relief, by exempting them from tax on these certificates and
RATIONALE To give benefit to widows and the senior citizens due to reduction of profit rate and effect
RATE OF TAX – QUOTED COMPANIES
ISSUE Applicable rate of tax
PROPOSAL It is proposed that the rate of tax for quoted public companies be presently reduced to
30% from 35%.
RATIONALE To encourage companies to be quoted on the stock exchanges.
EXEMPTION – COMPUTER TRAINING INSTITUTES
ISSUE Computer Training Institutions (expired June 2005).
PROPOSAL Period of Exemption be extended upto June 2016.
RATIONALE To promote computer literacy
MINOR CORRECTIVE AMENDMENTS
DEDUCTION OF TAX AT SOURCE
Clause (36A) of Part IV of Second Schedule to be made as Part of Clause (59) of Part IV of Second
CHARGES FOR RETURNS / STATEMENTS – RULE 230
Due to availability of returns and statements through internet Rule 230 to be deleted
NATIONAL TAX NUMBER – SECTION 181 READ WITH RULE 83
Substitution of Word Card with Certificate
Received from PROPOSAL
16. Securities and Due to issues encountered by mutual funds, provident funds, approved pension funds, gratuity funds
Exchange Commission and superannuation funds regarding contribution of profit in the WWF. These funds are structured as
of Pakistan (SECP) trust in compliance with the SECP regulatory frame work and income tax rules. Most of these funds
represents the pooled investments and operate as open ended funds. Necessary relief may be provided
by exempting these funds from contribution to the WWF.
Received from Proposal
17. Karachi Stock The capital markets play a key role in Pakistan’s economy for capital formation and therefore, it is
Exchange (KSE) critical that the government facilitates this sector by reducing the cost of doing business. Key benefits of
• A substantial increase in the savings/investment rate
• Increase the documentation and fund raising by businesses through the market
• Encourage raising of capital through the market by new industrial undertakings or for expansion
• Improve liquidity in the market so as to reduce the impact cost but draw a balance between investing
Our proposals for the Federal Budget 2010-11 are therefore directed towards providing an impetus to
create an investment friendly environment which would spur investment and industrial activity in the
country. It is essential that the Government come up with incentives that promote investment in Pakistan
especially in the stock markets of the country as this will not only bring valuable foreign exchange to the
country but will also result in a higher level of economic activity.
These tax proposals can only be effective in the backdrop of continued reform. The KSE is particularly
1. The ongoing energy crisis and circular debt issue
2. Lack of certainty about pricing of commodities
• Market forces are the best determinants of commodity pricing. Arbitrary setting of prices hampers
investment in the economy.
3. Regulation, whether tax or otherwise, should be practical (rather than cumbersome) and cost effective
to comply with.
The KSE is focusing its tax proposals on the Capital Gains Tax because it is a significant change to the
current taxation regime and is committed to working with the Government to implement a long term and
effective tax policy. We are encouraging the Government to move away from presumptive tax regime
and move towards a direct tax regime. We encourage the Government to eliminate withholding taxes to
reduce the cost of doing business.
In addition, there should be no concept of a minimum tax.
Capital Gains, except banking companies, have been exempt from taxation and this exemption is due to
be withdrawn from Tax Year 2010 and onwards. With the introduction of Capital Gains Tax, all other
taxes and levies related to purchase and disposal of securities would be abolished, with the exception of
Federal Excise Duty (FED) on brokerage services.
In view of the possible pressure being created in the market due to the uncertainty of how tax on Capital
Gains will be imposed, KSE management has worked out what it believes will be a fair basis for
imposing the tax and would urge the Government to announce the proposed structure at the very earliest.
IMPOSITION OF CAPITAL GAINS TAX AND WITHDRAWAL OF ALL OTHER TAXES ON THE
A study of other jurisdictions reveals the following:
Country Long Term tax rate Short Term tax rate Withholding tax
(above 1 year) (less than 1 year) on transactions
India (implemented in 2004) None 10% Yes
Mauritius None None None
Sri Lanka None None None
UAE None None None
Nigeria 10% 10% Yes
Bangla Desh None None None
Our analysis found that only 2 countries in MSCI Frontier Markets and 3 countries in MSCI Emerging
Markets have imposed a capital gains tax. Therefore, as we compete with these countries the capital
gains tax introduced must be rational with our competitors for Pakistan to remain an attractive
destination for portfolio investment.
Tax Rate on Capital Gains
A gradual progressive Capital Gains Tax implementation is proposed whereby In FY 2010-11, the
Capital Gains Tax would start at a rate of 5% initially and would be elevated to a rate of 10%. This
schedule would apply to both equity and derivative products.
Tax Rate on Capital Gains
Financial Year 2010-11 2011-12 2012-13 2013-14 2014-15
Rate 5% 6% 7% 9% 10%
Proposed Definition of Short Term Capital Gain/Loss
Gain or loss, as the case may be, arising on the disposal of a Capital Asset with a holding period of less
than 180 days. (This is consistent with Section 224 of the Companies Ordinance,1984 which requires the
Directors, Officers and beneficial owner of more than 10% shares to tender gain arising on transactions
carried out within six months.)
Holding Period for taxability of Capital Gain
Holding period for exemption of capital gains shall be increased in the following manner:
Financial Year 2010-11 2011-12 2012-13 2013-14 2014-15
Days 180 or more 180 or more 270 or more 270 or more 360 or more
Carry Forward of Capital Losses
Currently, Tax Law allows Capital Losses to be adjusted against Capital Gains and unabsorbed Capital
Losses can be carried forward for six (6) years. Once Capital Gain earned on listed shares becomes
taxable, the said provision will also apply to Capital Losses on listed shares.
Applicability of Capital Gains Tax
Effective from July 1st, 2010, Capital gains tax for investors should be imposed only where the Capital
gains fall in the category of Short Term Capital Gain (holding period is less than 180 days.) The tax
shall be applicable on all equity and derivative products,
provided all other under mentioned taxes currently applied on stock market transactions are removed.
• Withholding tax at 0.01% on purchase value of shares traded from Members in lieu of their
commission (Minimum Tax) u/s 233A(a)
• Withholding tax at 0.01% on sale value of shares traded from Members in lieu of their commission
(Minimum Tax) u/s 233A(b)
• Withholding tax at 0.01% on sale value of shares traded from Members
(Minimum Tax) u/s 233A(c)
• Withholding tax at 10% markup of COT/CFS from Members, (CFS & CFS MK-II at present stands
discontinued) (Adjustable) u/s 233A(d)
Moreover, it is important to note that the rationale for removal of the above mentioned withholding
taxes is clear because of the implementation of Federal Excise Duty (FED) on commission of brokers
with effect from July 2009.
However, it would not be out of place to mention that earlier the Finance Minister on July 6, 2009
during a visit to the KSE had announced the following:
1. Under sub section (2) of Section 233A, of the Income Tax Ordinance 2001, the applicability of
minimum tax would be changed to adjustable tax.
2. Under clause (c) of sub section (1) of section 233A of the Income Tax Ordinance 2001, the
applicability of Withholding Tax on Sale would be withdrawn/ omitted to eliminate double taxation.
Effective Date of Capital Gains Tax
It is proposed that the Government implement an effective date of July 1, 2010 which imposes a capital
gains tax on securities purchased on July 1, 2010 and thereafter. The holding period of inventory
(shares) as at June 30, 2010 will be deemed as over 6 months old and hence no capital gains tax will be
levied irrespective when such inventory/shares are being disposed / sold. This should be a direct tax with
no withholding as per international practice.
Scope of Capital Gains Tax
• Capital Gains on transactions entered into by foreign investors through designated UIN would be
• Scope of Capital Gains Tax is limited to Capital Gains arising from transactions undertaken by the
• Investors undertaking equity transactions directly
• Investors dealing in listed equity derivative products would be required to pay the Capital
Gains Tax along with their annual tax returns in the same manner as described above.
Exclusion from Capital Gains Tax
Capital Gains Tax would be applicable only if the holding period is less than 180 days at the time
investment is cashed out (redeemed and not reinvested) and the Capital Gain falls in the category of
Short Term Capital Gain.
The Karachi Stock Exchange (KSE) has recently introduced Bonds Automated Trading System (BATS)
to provide a bond market trading platform to market participants, mainly to strengthen and deepen the
money market in line with international best practices. Its prime objective is to facilitate corporate and
retail investors to trade corporate and commercial papers by providing much needed price discovery to
the debt market.
However, the BATS at KSE could not get required momentum in view of operation of a parallel non-
exchange platform to trade in debt securities, available to the financial institutions by the State Bank.
In order to shift the burden of debts from commercial banks and other financial
institutions to retail investors, so that investor base of debt securities is broadened, it is proposed that
trading in all debt securities, including but not limited to Treasury Bills, Pakistan Investment Bonds
(PIBs), National Saving Bonds and Term Finance Certificates listed and traded at a Stock Exchange of
Pakistan (through an automated system).
To promote exchange traded funds, Authorized participants shall be exempt from capital gains tax to the
extent of shares surrendered by them for the purchase of ETF units.
CALCULATION OF CAPITAL GAINS FOR NON-RESIDENTS
In Pakistan, there is a technical flaw in the manner of calculation of capital gains especially in the case
of investment in shares where the investment is made in foreign currency. Such a gain is calculated in
historical rupee terms. Due to this reason a tax liability may arise to a non-resident due to devaluation of
Pakistani rupee vis-à-vis foreign currency even if the shares are sold at the same value in foreign
currency or even at a loss. This manner of calculation of capital gain needs to be corrected.
Capital Gains and losses for non-residents are to be calculated in terms of the currency in which such
investment is made. For example, capital gains for investment in shares by a non-resident in US Dollars
are to be made in US Dollars instead of Pakistani Rupee.
This is an internationally accepted practice as only real income or loss can be taxed. There is no
deviation in any tax jurisdiction. In Pakistan this issue never arose as capital gains were exempt from
tax. It is for this reason that India inserted a proviso in Section 48 of the Indian Income Tax Act, 1961 so
that these lacunae in the law are removed.
It is therefore proposed that a proviso similar to section 48 of the Indian Income Tax Act 1961 be
inserted in Section 76 of the Ordinance relating to cost of investment for the purpose of determining of
The implementation of this proposal will help attract foreign investment into Pakistan as investment
would not be exposed to losses stemming from depreciation of the Pakistani Rupee.
TERM FINANCE CERTIFICATES (TFCS)
Presently, the definition of share given in the Ordinance does not include redeemable capital like TFCs
and therefore, the provisions of section 233A of the Ordinance are not applicable on the trading of
TFCs. However, for CVT purposes TFCs have been specifically brought in the scope of the levy as per
clause E of sub-section (2) of section 7 of the Finance Act, 1989.
It is therefore suggested that redeemable capital which includes TFCs may be removed from the scope
as provided for in clause E referred above in order to develop the secondary market for these securities.
At present, the debt securities, though listed at the Stock Exchange, are not actively traded and the
capital value tax collection hinders the growth in the secondary market for debt securities. Hence, the
said amendment has been proposed in order to promote and facilitate the development of secondary
market for debt instruments.
CAPITAL GAINS ON CORPORATIZATION AND DEMUTUALIZATION
Members of the Karachi Stock Exchange (currently owners of the Exchange) have agreed to segregate
their ownership rights from trading rights, retaining trading rights after the demutualization as per terms
and conditions agreed upon through the Memorandum of Understanding (MoU) signed with the SECP.
In this regard, KSE has appointed a leading international investment bank to advise and assist KSE to
take the demutualization plan forward.
In order to facilitate a speedy corporatization and demutualization of the KSE, certain exemptions are
required in the Income Tax Ordinance, 2001 as well as Stamp Act.
Although through the Finance Act, 2007 clauses (110A) and (110B) have been inserted in Part I of the
Second Schedule to the Income Tax Ordinance, 2001, one of the exemptions that was demanded at that
time was not considered in the previous budget.
In this regard a new clause 110C may be inserted in Part-I of the Second Schedule to the Income Tax
Ordinance, 2001 mentioned as under:
“Any income chargeable under the head "Capital Gains" being income from the sale of shares of a
public limited company setup in connection with the corporatization and demutualization of Karachi
Stock Exchange to financial institutions and general public by the shareholders on divestment of their
holding in connection with the corporatization and demutualization.”
Received from PROPOSAL
18. Pakistan Tanners Present withholding tax on export of leather which is 1.25% may be reduced to 0.75% for at least one year
Association which is a recession period.
Deduction of income tax u/s 50(4) be exempted 100%.
Received from PROPOSAL
The Federation of SET OFF OF BUSINESS LOSS CONSEQUENT TO AMALGAMATION U/S 2(1A) & 57A OF ITO, 2001
of Commerce and Section 57A was inserted by Finance Ordinance 2002 to provide incentive for merger of sick companies. Originally
Industry accumulated loss under the head “income from business” of the amalgamating company or companies was allowed to be
(FPCC&I) set off or carried forward against the business profits and gains of the amalgamated company and vice versa upto a
period of six tax years immediately succeeding the tax year in which the loss was first computed in case of amalgamating
company or amalgamated company or companies. This section was substituted by Finance Act, 2007 and the incentive
was restricted to set off of loss for the year of amalgamation. The brought forward losses of amalgamating companies
were excluded from the scope of this section.
In view of current business crises there is a need to enlarge the scope of this section to give incentive for merger of
companies running sick units with the companies having adequate financial resources to revive these sick units. It is
therefore proposed that the incentive for merger provided at the time of insertion of section 57A be restored and
definition of “amalgamation" under Section 2(1A) be enlarged to include all companies incorporated under the
Companies Ordinance, 1984.
NON-PROFIT ORGANIZATION U/S 2(36)
The Cambers of Commerce and Industry, Dry Port Trust and Trade Associations used to enjoy income tax exemptions
since inception of Pakistan because of their nature of non-profit operations. A cumbersome procedure is being followed
by Income Tax Authorities, such as formation of committees, for approval of trade organization under Section 2(36) and
clause 58 to the 2nd Schedule of the Income Tax Ordinance, 2001 which is resulting in delay and hardship.
It is suggested that trade organizations and Dry Ports approved by the Directorate of Trade Organization (DTO) and
Competent Authorities should be granted automatic approval under Section 2(36) of the Income Tax Ordinance, 2001.
TAX ON DIVIDENDS U/S 5 & 8
Inter corporate dividends were excluded from the purview of final tax by insertion of proviso in Section 8 through
Finance Act, 2007. Consequent amendment has not been made in Section 5 to exclude the companies from the purview
of Section 5. This has created an ambiguity regarding tax on dividend income. It is proposed tax on inter corporate
dividends may be withdrawn as an investment incentive. Or reduced rate of 5% be announced for inter corporate
INCOME FROM PROPERTY U/S 15
The rent received or receivable by a person for a tax year is subjected to tax under this section under the head income
from property. Since the income from property covered under section 155 is subject to final taxation, therefore,
provisions of Section 15 should be appropriately amended to allow declaration of such income on receipt basis.
DEDUCTIONS NOT ALLOWED U/S 21
Section 21(l) provide that expenditure exceeding Rs. 10,000/- if not paid by a crossed cheque shall not be allowed as
deduction in computing the income from business. Applicability of section 21(l) was restricted to profit and loss
expenses as explained by CBR vide Circular No. 6 of 1990 dated July 15, 1990 and Circular No. 11 of 1998 date July 25,
1998. These circulars were superseded by issuing a fresh explanation vides Circular No. 01 of 2006 dated July 01, 2006.
The scope of this section was enlarged to include every expenditure debit-able to trading or manufacturing accounts or
profit and loss account in the purview of this section.
The new circular created hardship for the taxpayers and also in contradiction to Section 73 of the Sales Tax Act, 1990
wherein the limit for purchase through crossed cheque is Rs. 50,000/-. It is therefore suggested that appropriate steps be
taken to remove this anomaly.
WRITE OFF U/S 34(5) & (5A) AND 70
In view of current economic crises there are number of medium and small size business concerns who could not pay
interest on loans and are making requests to the bankers to waive off interest / markup to make the units viable. The
waiver of profit on debt, if allowed by the bankers, is currently taxable. It is proposed that waiver of profit on debt to the
sick units be either exempt from tax or allowed to be recognized as income in subsequent five years.
CARRIED FORWARD OF BUSINESS LOSSES. U/S 57
A restriction has been imposed on the private limited companies under Section 208 of the Companies Ordinance, 1984
that the loans and advances to associated companies can only be granted at the prevailing bank rate. Interest received by
the lender companies are subject to tax at normal rate even if the company has carried forward business losses.
It is suggested that in order to over come the current liquidity problems of the business community appropriate
amendments be made in Section 208 of the Companies Ordinance, 1984 to exclude the private limited companies from
the ambit of Section 208. Moreover the interest income on loans arranged for associated undertaking may be allowed to
be off set against carried forward losses and the borrowing cost of the current year if the loan is granted out of the
WITHHOLDING TAX ON PAYMENTS FOR GOODS AND SERVICES U/S 153
The concept of “small company” was introduced through Finance Act, 2005. Such companies were given certain
incentives to encourage the corporate sector. One of the incentive was that small company was not required to withhold
tax on payment made for goods and services. This incentive was suddenly withdrawn through Finance Act, 2008. This
action of FBR has shattered the taxpayers confidence. In order to restore the confidence of taxpayers the incentives
provided to the small companies at the time of introduction of this concept are required to be restored.
MONITORING OF WITHHOLDING TAX U/S 161
The cases of taxpayers are being selected for monitoring of withholding tax under Section 161 simultaneously for month
one year. In most of the notices figures are taken from the financial statements and assessee is requested to reconcile
those figures with the payments. This lengthy exercise takes lot of time and resources of the taxpayers. Since the
taxpayers are filing monthly and annual withholding tax statements; it is suggested that this data should be used from
monitoring and only notices in case of any material difference should be issued. Moreover monitoring of one year should
be carried out at one time.
REFUNDS U/S 170
Under Section 170(4) of the Income Tax Ordinance, 2001 the Commissioner shall within 45 days of receipt of refund
application serve on the person applying for the refund, an order in writing of the decision after providing the taxpayer
an opportunity of being heard.
Large number of refunds are pending due to pending verification of payments made by the taxpayers. It is suggested that
a 30 days limit be fixed to complete the process of verification of tax payment challans by amending Section 170 of the
Income Tax Ordinance, 2001.
AUDIT U/S 177
The cases of taxpayers are being selected for audit under Section 177 simultaneously for more than one tax years.
Subsequent tax years are being selected without first finalizing the earlier tax years already selected. This practice is
creating hardship to the taxpayers and badly affecting the day to day business activities as the taxpayers are required to
divert lot of resources to comply with the audit proceedings.
It is suggested that audit proceedings for one tax year should be initiated at one time and should be finalized before
selection of other tax year. The selection of subsequent tax year should be made, if necessitated by the audit findings of
It is suggested that in order to restore the confidence of taxpayers, the selection of audit cases be made within one year
from the filing of tax return. The time limitation should be provided in the law. As the selection of audit after expiry of 4
to 5 year is creating hardship to the taxpayers.
In order to broaden the tax based and encourage the new taxpayers, it is suggested that an incentive scheme should be
announced wherein the new business enterprises should be exempted from selection for audit for the first three years of
operations. This will encourage the new taxpayers to enter into the tax net.
PAYMENT FOR GOODS AND SERVICES U/S 153
Presently individuals / AOP’s conducting business as manufacturers are liable to tax at the rate of 3.5% of their receipts
and such tax constitute full and final discharge of tax liability. Whereas in the case of a company conducting business as
manufacturer is subjected to normal taxation. It is suggested that the taxation of the Individuals / AOP’s be brought to
normal tax regime like companies.
The tax was required to be deducted U/S 153 (2) on the payments including sales tax if any which is against the
fundamental right of the taxpayer it is, therefore, suggested that the deduction be allowed to made on the payments
excluding sales tax value.
ADVANCE TAX ON PRIVATE MOTOR VEHICLES U/S 231B
Presently all taxpayers including FTR cases are subjected to withholding tax. No exemption clause is available to the
persons subjected to FTR. It is suggested that the exemption clause be extended to issue exemption certificate to such
TAX ON MOTOR VEHICLE U/S 234
Presently all taxpayers including FTR cases are subjected to withholding tax. No exemption clause is available to the
persons subjected to FTR. It is suggested that the exemption clause be extended to issue exemption certificate to such
ELECTRICITY CONSUMPTION U/S 235
Presently all taxpayers including FTR cases are subjected to withholding tax. No exemption clause is available to the
persons subjected to FTR. It is suggested that the exemption clause be extended to issue exemption certificate to such
TELEPHONE USERS U/S 236
Presently all taxpayers including FTR cases are subjected to withholding tax. No exemption clause is available to the
persons subjected to FTR. It is suggested that the exemption clause be extended to issue exemption certificate to such
BASIC EXEMPTION 1ST SCHEDULE PART – I TO ITO, 2001
Presently different thresholds of basic exemption are provided for different heads of income, which is against the justice
and equity. In order to bring the basic exemption from business and rental income at par with the salary income the limit
of basic exemption under the head business and income from property be enhanced to Rs. 180,000/-, whereby keeping in
view the high inflation rate and increase in salaries & wages the basic limit of tax for salaried individuals should be
suitably increased from Rs.180,000/- .
WITHHOLDING TAX ON BANK CASH WITHDRAWAL
Presently tax at the rate of 0.3 % is being deducted on the cash withdrawals exceeding Rs.25,000 per day. It is suggested
that the rate of deduction of tax be reduced to 0.2% and the threshold of withdrawals be raised to Rs. 50,000/- per day. It
is further suggested that tax should not be deducted from the account holder having NTN and exiting taxpayer. In
addition, the specific exemption may please be allowed to the NGO's, NPO's and Companies which are not required to
pay any tax.
PARTICULARS OF INCOME TAX AND SALES TAX REGISTRATION
Under the present Inland Revenue Taxation System the Sales Tax and Income Tax Collectorates are in operation under
Chief Commissioner Inland Revenue. In this regard it is suggested that the particulars in the Performa for the registration
of Sales Tax and Income Tax should be the same.
WORKERS’ WELFARE FUND ORDINANCE, 1971
The workers’ welfare fund have been levied from July 01, 2008 on the taxpayers whose income falls in the presumptive
tax regime @ 2% on 4% of sale or profit declared in financial statements which ever is higher. This levy has resulted in
increase in cost of doing business of taxpayers, particularly exporters, who are paying final tax on export realization
irrespective of quantum of profits.
It is suggested that the exemption limit for charging the Workers Welfare Fund be enhanced to 2.5 million and the
taxpayers filing statement of final tax under Section 115(4) of the Income Tax Ordinance, 2001 be exempted form levy
of Workers Welfare Fund.
WITHHOLDING TAX ON LEATHER EXPORT:
Present withholding tax on export of leather which is 1.25% may be reduced to 0.75% for at least one year which is a
Deduction of Income Tax under Section 50(4) be exempted 100%.
The withholding Tax on Leather Garments/Leather Goods may be reduced from present 1% to 0.5% for two years.
Withholding Tax of 1% on the Import of Chemicals and Raw, Semi-Finish and Finished Leather should be abolished.
TAX ON AGENCY COMMISSION
Section 233 sub section 1 of Income Tax Ordinance 2001 charges tax on commission earned @ 10%. The tax charged is
treated as full and final discharge of tax liability i.e. PTR (Reference Section 233 sub section 3). Charging of tax on basis
of PTR is questionable as by following this method tax is not being charged on "Income" rather on "Turnover/Revenue"
as no expense is allowed to be deducted from such amount on which tax is being calculated.
From July 2004 Shipping Industry is paying tax in this manner. For your information, 26% of Shipping Agents' earnings
through Export Agency Commission is being paid to exchequer by way of taxes (10% as tax under PTR and 16% as FED
on Commission). This high rate of tax, not on Income, but on Revenue is unjust and needs to be reviewed.
We therefore, suggest that:
- PTR should be abolished;
- Tax should only be charged on income;
- If collection of tax through withholding mechanism is necessary then it should only be collected as "Advance Tax" at
reduced rates which is adjustable against final assessment.
INCOME TAX ON KDLB
Karachi Dock Labor Board is a body formed under The Karachi Dock Workers (Regulation of Employment) Scheme. It
was promulgated through an Ordinance No. XXVIII of 1973 which was eventually passed as Act No. IX of 1974 on 1st
March, 1974. The objects of the Scheme are to ensure greater regularity of employment for dock workers and to secure
that adequate number of dock workers is available for the efficient performance of the dock workers, expeditious and
economic turnaround of the ships and speedy transit of the goods through the Port. It meets its operational cost through
levy of a cess and its income is finely balanced against its expenditure. Any additional burden will lead to enhancement
in its already high cess (Rs.1,000 per 20 feet container for containerized cargo and Rs. 60 per ton for bulk/break bulk
cargo) thus, hurting our imports and exports. We, therefore, urge you to reverse imposition of income tax upon KDLB.
The export of carpets reduced drastically which is reflected on the carpet export figures. This state of affairs is not only
affected the exporter’s community but also the Government Exchequer. The Rebate incentive was playing a significant
role in sustaining the growth of Carpet Sector in recent past. The hikes in fuel, electricity and transportation costs have
forced the exporters to raise the prices of their products. WTO regime demands quality products on cheaper rates. The
stiff competition is seen from the neighboring countries particularly India where a rebate of more that 11% and in Iran
15% is given to carpet sector. Buyers have no choice but to divert to cheaper sources. Apart from this, the Government
has imposed a withholding tax on carpet export ranging from 0.75% to 1%, thus forcing carpet exports to decrease
drastically. We suggest that the Government should provide at least 5% rebate to make our products competitive. The
withholding tax should be reduced to .25% to provide added benefit to our exporters. This change will bring confidence
in the carpet exporters and the country will earn valuable foreign exchange.
RETURN OF INCOME FOR SHIPPING BUSINESS OF NON-RESIDENT
Section 143 of Income Tax Ordinance 2001 lays down the criteria for filing the return and payment of tax for Non-
Residents having income from shipping business in Pakistan. Return is required to be filed on vessel to vessel basis.
Filing of return on vessel to vessel basis is more appropriate in case of non scheduled vessels such as tankers and
trampers. In case of scheduled vessels i.e. vessels calling under Liner Agency Agreement return filing on vessel to vessel
basis is not advised.
WITHHOLDING TAX UNDER SECTION 148 (IMPORTS) OF THE INCOME TAX ORDINANCE
Current decision of disallowing exemption on deduction of withholding tax under section 148 for industrial undertaking is
resulting in a case of perennial refunds for companies with high turnover, low margin products causing great hardship to
the tax payers. A brief summary of rate of withholding tax applied previously is as under:
Tax Year Rate of Tax on an Industrial Undertaking Exemption
2007 6% Allowed
2008 1% Disallowed
2009 2% Disallowed
2010 3% Disallowed
On the contrary exemption is allowed under section 153(4) provided the conditions laid down in section 147 (Section 147
attached as annexure A) are adhered to. Previously, when the conditions laid down in section 147 were met, tax
exemption under section 148 was also allowed but the same was omitted when the rate was reduced to 1%. However,
after increasing the rate to 3% the need for issuance of exemption has arisen and if an exemption is allowed to a party
under section 153(4), disallowing exemption under 148 seems illogical.
Bar on issuance of exemption u/s 148 is more detrimental for high turnover, low margin products like steel, plastics,
rubber and copper based industries with multiple cash cycles in a year. Such companies work on estimated 5% Net
Profit Margin and rely on circulating the funds 4 to 5 times a year. For such companies 3% withholding tax is unjustifiable
and more unjustifiable if exemption is not allowed.
Moreover, 10% withholding tax on electricity consumption is being deducted under section 235.
Tabulated position of various types of withholding tax currently levied is as under:
Type of Tax Rate on Industrial Exemption Adjustable
u/s 153 3.5% on supplies Allowed Yes
u/s 148 3% on imports Disallowed Yes
u/s 235 10% of electricity Allowed but Yes
consumption generally not given
u/s 231A. 0.3% on Cash Allowed Yes
In view of the above, it is recommended that FBR by exercising powers conferred under section 159 of the Income Tax
Ordinance 2001 should allow exemption or lower rate certificate for deduction u/s 148 to companies who are eligible for
exemption under section 153(4) or who have met the conditions laid out in section 147 because the current rate of 3% is
putting unnecessary strain on tax payer's cash flows and will increase interaction with government departments for huge
refunds. Deductions u/s 148 is adjustable and refundable hence there is no reason to disallow exemption because
excess amount collected will be refunded in any case. We feel that a rationale approach should be adopted facilitating
the tax payer without affecting FBR's revenue target.
LEVY OF WITHHOLDING TAX ON IMPORTED EDIBLE OILS IN THE PTR MODE (1511.9020):
The present structure of income tax application on Edible Oil and Vegetable Ghee industries vide Finance Bill 2009 is as
1. on import of raw material @ 3 % u.s 148(8)
2. as minimum tax liability instead of Final Discharge
PROPOSAL: Reinstate the status of 148(8) as final discharge of liability as FBR has admitted an error unwarrantedly
imposed, and secondly the tax paid on packing material must be refundable as previously, to reduce the burden of cost
of production on Vegetable Ghee/Cooking Oil to provide relief to consumer through SRO.
WITHHOLDING TAX ON IMPORT OF ALL INDUSTRIAL RAW MATERIALS SHOULD BE
REDUCED TO 1%
Withholding Tax on all raw materials other than 5 export industrial items should be 1%. This measure will save industry
and unemployment from devastating competition dumping from outside countries.
TAX ON TAX AT IMPORT STAGE AND SUPPLY STAGE
Income tax is charged at both the above stage after including sales tax in the value on which the withholding tax in
charged. It is clear tax on tax and defeats the rationale of good taxation. Hence we suggest that Withholding Tax should
be charged on value excluding Sales Tax at both Import and Supply Stage.
SUPPLY OF IMPORTED RAW MATERIAL BY NON – IMPORTERS
The rate of Withholding Income Tax rate should be 1% instead of present 3.5% as theses goods are already
charged to Income Tax at import stage. This shall facilitate chain formation in supply of imported goods.
INCOME TAX DEDUCTED ON SUPPLY OF GOODS U/S 152
CURRENT STATUS: Section 153(a) of Income Tax Ordinance, 2008, provides for deduction of With holding tax on
payments made against sale of goods. The tax rate applicable under Div III of Part III of First Schedule of ITO, 2008 is
3.5% of the gross amount payable in case of goods other than rice, cotton seed or edible oils. The term Gross
Amount under section 153(2) include the sales tax, if any, payable in respect of the sale. Under 153(6) The tax
deducted under this section shall be a final tax on the income of a resident person. However, The provisions of sub-
section (6) in so far as they relate to payment son account of supply of goods from which tax is deductible under this
section shall not apply in respect of 6[a company] being a manufacturer of such goods.
RECOMMENDATION: Sales Tax and FED levies should not be added into the value of goods for deduction of
tax under section 147(9) and 153(2) as it tantamount to “Tax upon tax”. In section 153(6A) words “a company” should
be replaced by words “a person” restoring the position prior to Finance Act, 2008, allowing all categories of
manufacturers to claim adjustment of tax deducted u/s 153(1). Present rate of 3.5% is very high and it is nearly
impossible for intermediate suppliers and wholesalers to make supplies with such a heavy tax being levied on supplies
made by them. Thus discouraging supply chain formation and documentation of economy. We, therefore, propose as
The tax rate may be reduced to 1% of the sale value excluding sales tax and under Section 153(6) the words final may
be replaced with minimum.
The tax rate may be reduced to 1.5% of the sale value excluding sales tax and the tax status under section 153(6) be
retained as Final discharge of liability.
TAX ON GEM INDUSTRY:
Gemstone Industry should be exempted from the Taxes for 5 Years.
Income Tax: CBR circular No. 1 of 2007 (Income Tax) dated 02-07-07 whereby amendments have been made in the I.
Tax ordinance 2001 through the Finance Act 2007. The addition of new sub section 6(B) to section 153 has directly
affected Arms & Ammunition sector as under:
− Income Tax Exemption Certificate U/S 153 stopped.
− Tax deductible U/S 153 on Sales of Goods will be discharged of final tax liability.
− Arms & Ammunition projects become unviable due to deduction of Tax U/S 153 if treated as Final Tax Liability.
This situation has made this sector unviable. Earlier the customers were deduction Income Tax U/S 153 from the bill on
sale of goods which stand refundable to the manufacturing unit as per our outstanding refund amount with the I. Tax
Department and advance tax payment. Against this, I. Tax department were issuing I. Tax exemption Certificate which is
stopped. Naturally the customers have started deduction from bills of the manufacturing units. So if all the deduction of
tax U/S 153 by the client becomes final tax liability then all these projects would become UNVIABLE and fear closure due
DIFFICULTIES IN GETTING NTN IN NWFP:
The commencement of the centralized system for issuance of NTN has worsened the process instead of facilitating the
tax payers. Though the FBR has provided a facility to apply for getting NTN electronically or manually, but both the
procedures do not help taxpayers in getting the number within the prescribed period of 48 hours. The registration
process, which is supposed to be done in hours, has been halted for months because of the applications galore. The
situation is so much deplorable that even for minor alteration or change in the existing NTN certificates, taxpayers have
to undergo immense hardships and difficulties. Delays in the issuance of NTNs and lack of coordination between the
FBR, Islamabad and field offices, like Regional Tax Offices and Large Taxpayers Units, are not only depriving taxpayer
from getting the tax number within the prescribed time but is also deprives the national exchequer form billions of rupees
in revenue along with tax returns. Under the laid down conditions by the FBR no taxpayer could get sales tax registration
without NTN registration. This means that no business establishment could start functioning till it gets NTN and thereafter
sales tax registration. This pathetic condition of the FBR and its field offices at the 1st step (i.e. issuance of NTN), also
raises concerns regarding the smooth functioning/handling of detailed assessment procedures.
WITHHOLDING TAX ON EXPORTERS’ AGENTS COMMISISON
The Exporters’ Agent who are instrumental in getting the export orders for the exporters should be charged @
1% on the commission paid by the exporters in Pakistan currency (same as charge on Exporters), as full and
The federal Government must pay attention to eliminate advance tax / withholding tax in the coming budget. However if
the government feels any set back in collection of funds, it should be eliminated in phases. The withholding tax collected
from the exporters who makes 100% exports is required to be exempt from payment immediately.
- Rate of withholding tax on import of industrial raw materials may be brought down and The
Commissioner of Income Tax may be granted powers to allow exemption in the cases where tax
deduction exceeds the tax liability.
Keeping in view the accelerated rate of inflation, it is proposed that exemption limit for an individual male be raised from
Rs. 180,000/- to Rs. 400,000/-.
TAX PAYER CARD:
Tax payer card is proposed to be introduced to all tax payers who have filed and completed tax return for last 3 fiscal
years and a mechanism may be established to monitor these tax payers on annual basis to facilitate the process, with
clear benefits such as 50% discount on government fees like passport fee, driving license fee, waiver on loan processing
fee and any other one time charges taken by banks for loan/finance processing, reduced markup rates, exemption in
withholding tax charged against other banking services etc.
MANDATORY E-FILING OF INCOME TAX RETURN BY AOP’S & SPECIFIED INDIVIDUALS:
With the e-filing of income tax returns being made mandatory, especially for AOP’s and specified individuals, their
problems have eactually been increased. Most of the traders are computer illiterate and are facing extreme problems in
e-filing their income tax returns, therefore, Federal Board of Revenue (FBR) should immediately defer the condition of e-
filing of income tax returns to provide relief to businessmen.
REDUCTION IN TAX RATES AND RELIEF FOR WAR EFFECTED AREAS:
Peshawar, the provincial capital, has been severely affected by the wave of terrorism. Peshawar is at the verge of
industrial breakdown as many industrial units have been closed. A number of industrial workers lost the jobs in order to
revive the industry, the government should take special measures to provide fiscal relief to businessmen and
industrialists in the province.
Not only the industries sustained an irrecoverable loss, but the traders, businessmen, professionals, service providers,
hotels i.e. all businesses are badly effected due to the security crisis & terrorism.
Taking into consideration the said critical situation, a suitable relief package shall be given in addition to the measures
taken recently be the government, to the war affected areas including the following and other such measures:
− Reduced rates of corporate tax should be introduced.
− Abolishing certain withholding taxes.
− Reduced rates of taxes for individuals.
These shall be given for a period of 3-4 years in order to revive economic activity in the areas otherwise the stoppage of
industrial and business activity will lead to zero based tax.
The threshold for withholding tax on cash withdrawal should be increased from Rs 25,000 to Rs 50,000 and exemption
should be granted to the salaried class in order to provide relief to them.
CAPITAL VALUE TAX:
The Capital Value Tax on Property should be abolished or amended in a manner that it does not burden the lower
classes while providing relief to the privileged class.
CAPITAL GAIN TAX:
Capital Gain Tax should not be levied on landed property. It is provincial subject and not covered by the Income Tax
Ordinance. Its levy would lead to confusion and will deter Pakistanis living abroad from making investment in real estate
development in Pakistan.
TAX ON UNIVERSITY INCOME:
1. Under clause 92 of second schedule of Income Tax Ordinance 2001 any income of any universities or other
educational institution established solely for educational purposes is exempted from payment of income tax
therefore all sort of taxes such as withholding tax on utilities bills and sales tax charged on utility bills may be
2. At present tax slab for faculty hired on contract basis is 6%,where as tax on full time teacher is very low further
they also get tax rebate @ 75%, It is proposed that the tax of 6% on said contract my be waived off and the tax
slab of normal teaching staff together with the mentioned rebate may be given to faculty hired on contract.
3. Zero taxes should be charged on traveling if the purpose of travelling is directly related to education.
4. Donations to universities shall be allowed as straight forward deductions and shall be treated as admissible
expenditure under Income Tax Ordinance 2001,
5. Universities and Institutes may not be declared as Withholding Tax agents (WTA) as WTA are bound by law to
deduct tax on various payments. Being WTA Universities and Institutes are deducting tax on services / supplies,
consequently the sellers / service providers include tax amount in the invoice price which increases the cost of
purchase / services rendered and the said cost is borne by Universities and Institutions.
6. Loans should be given to students at concessional rates as given under Part I and Part II of export refinance
Scheme to exporters.
7. Zakat deduction from the Endowment Fund of Chartered Universities and Institutes may also be exempted.
REDUCTION IN RATES OF CORPORATE TAX /WPPF
Presently the rate of Corporate Tax is 35% which is very high. In addition 5% Workers Profit Participation Fund (WPPF)
and 2% Workers Welfare Fund (WWF) are payable. These high rates hamper investment and growth in the industrial
sector as less funds are available for expansion. Hence it is suggested that the rate of Corporate Tax on pharmaceutical
sector be reduced to 10%.
Furthermore the 5% WPPF of profit is payable to the industry’s workers according to their entitlement and the balance
amount, if any, has to be surrendered to WWF. It is suggested that if the industry makes a charitable donation to a tax
approved project then such payment be deductible from the balance amount payable to WWF, if any.
WPPF SHOULD BE FULLY DISTRIBUTED & UTILIZED FOR WORKERS THROUGH
Currently the industry has been paying 5% on profit before interest and taxes on account of WPPF. It is suggested that
the contribution of this fund should be fully available for the welfare projects of the workers and the corporate entities
should be allowed to initialize housing, educational and welfare related projects for workers on account of this fund.
Before the amendment through Finance Act, 2008, the only manufacturer establishment having assessed total income
Rs.100,000/- or more was required to pay WWF @ 2% OF TOTAL INCOME, HOWEVER, THE FOLLOWING WERE
I) Person whose income is covered under presumptive Tax Regime i.e. exporter, importer, etc.
II) Brought forward assess loss was allowed to be adjusted from income for the year to workout liability of WWF.
Now, after amendment effective from Tax year 2009, the following position emerges:
i) Every establishment covered under Shop Act whether manufacturer of not, liable to pay WWF on total income
exceeding Rs. 500,000/- without adjustment of brought forward assessed losses.
ii) Person whose income is covered under presumptive Tax Regime i.e. exporter and importer has to pay WWF @
2% on 4% of total turnover or income declared as per account whichever is higher, resulting levy of WWF shall
run in million of rupees.
As the present position of WWF is ominous for business environment and shall effect adversely growth of economy,
which is already at terminal stage. Therefore, the erstwhile position before amendment through Finance Act, 2008,
may kindly be restored. OR 2% WWF may be abolished altogether as the companies are already paying
high corporate tax or minimum tax.
ABOLITION OF WITHHOLDING TAX ON EXPORT OF RAW COTTON:
Withholding Tax on supply of raw cotton has been reduced to 1% from 1.5% at the ginning stage. Previously
withholding tax on ginning and exports of raw cotton were same. We urge upon the Government to abolish
withholding tax of 1% on export of raw cotton to make the exports of raw cotton competitive.
WITHHOLDING TAX INCREASED FROM 2% TO 3% ON IMPORT STAGE IN LAST BUDGET
We wish to bring to your kind attention that prior to budget 2007-08 the rate of withholding tax on industrial
import within the meaning of Part-II of the First Schedule read with section 148 of the Income Tax Ordinance
2001 was 6% but The Commissioner of Income Tax had powers to grant exemption with reference to sub-
section (4) of section 148 of the Income Tax Ordinance 2001 in the cases where deduction of tax exceeded
the tax liability.
Later on, the rate of withholding tax was reduced to 5% however simultaneously the power to The
Commissioner of Income Tax were withdrawn by omitting sub-section (4) of section 148 of the Income Tax
Ordinance 2001 vide Finance Act 2007.
Vide Finance Act 2008 the rate of withholding tax further reduced to 2%.
At one point of time Government was considering to reduce corporate tax from 35% to 25% and that was
lauded by the Corporate Sector. We propose that the same proposal may be forwarded to the Federal
Government so as to consider in the forthcoming budget.
WITHHOLDING TAX ON CNG
• EXISTING LAW: Section 234 A (1) of the Income Tax Ordinance, 2001 relating consumption of the Gas
from the CNG Station is the final Tax Liability in pursuance of sub section 3 of the said section. However,
sub section (4) of section 234 A stipulates that a tax payers shall not be entitled to claim any adjustment of
withholding Tax collected or deducted under any other head during the tax year.
• SUGGESTED LAW: in this regard we conducted a detailed meeting with Mr. Asrar Rauf, member Direct
Tax Policy, held in Karachi at FBR Building. We here below append Two supporting documents issued by
the FBR for supporting our appeal to delete the Sub Section (4) of section 234 A and since CNG Station
falling under FTR, to avoid Double taxation exemption of Withholding tax deducted in the Electric Bills may
immediately be implemented in this coming Budget. Further Tax Exemption Certificate should be provided
for supplies of CNG to Customers who deduct tax under section 153 to avoid Double Taxation. Further, as
already discussed in depth with FBR No Audit shall be conducted for CNG Stations under FTR.
• REASON FOR CHANGE: To avoid double taxation and hardship to the tax payers.
IMPACT ON REVENUE: FBR has applauded the efforts and contribution of the CNG Sector towards National
1. The rate of income tax for corporate/non-corporate sector be reduced by 5%from the current tax slabs.
2. To generate jobs & attract new investments, all industrial units starting production till 31-12-2013 and providing jobs
to at least 25 persons be exempted from income tax for a period of 5-years from the date of production/operation.
3. New tax payers be exempted from audit for a period of 3-years, it will encourage to broaden the tax net.
4. Upto 5% tax payers be selected for audit through random ballot only.
5. All incomes to be taxed, including Real Estate transactions, Stock Markets, etc
6. No deduction shall be allowed for any expenditure incurred on account of insurance premium or reinsurance
premium paid to an overseas insurance or re-insurance company or a local agent of an overseas insurance
company, registered in a country where double taxation treaty does not exist, until tax at the rate of 5% is withheld
on the gross amount of insurance or re-insurance premium.
7. Income tax being charged on gas bill must be charged in slabs on CNG station.
8. Income Tax Ordinance 2001 contains procedural difficulties for the assessee which need to be removed. It is
suggested that only one time notice be issued to the assessee instead of making queries on a continuous basis
which results in inconvenience.
9. Substantial funds are blocked either due to late assessment or pending refunds, thus putting undue pressure on the
liquidity of the respective companies. Special directives to the concerned authorities are required for early
determination and disbursement of refunds. Income tax refunds be allowed within 90 days of application.
10. There must be a time limit for issuance of notice U/S 56 by the Commissioner Income Tax. In addition, assessment
should not be completed 'Ex-parte' without proper service of notice. Similarly a limit of maximum one year be fixed to
finalize all cases pertaining to an assessment year.
11. Credit / adjustment of input tax should be allowed within the relevant tax period and in the immediately following tax
period irrespective of the closing dates. Adjustment of refunds etc should be allowed towards tax liabilities.
12. New Assessee should be allowed to formulate initial capital to the tune of 10 times of their taxable income.
13. Clause IA, part III, Second schedule, Income Tax Ordinance, 2001 provides for 50 % reduction in income tax for tax
payer aged 60 years or more. It is suggested that income tax reduction should be increased to 75 % and the limit of
annual income to Rs. 600,000/- from the present Rs. 400, 000/-.
14. Section 122 of Income Tax Ordinance empowers Commissioner of Income Tax to amend assessment orders issued
under section 120 etc within a period of five years. It is suggested that this period of five years should be reduced to
For the units where the income tax withheld at the time of realization of export proceeds constitutes full and final
discharge of their total tax liability income tax refund arises on account of deduction of income tax under other sections of
Income Tax Ordinance, 2001. In such cases the refund should be assessed automatically at the time of submission of
return under section 143b and the amount of refund paid to the exporters within 30 days from the date of assessment.
PROPOSALS ON INCOME TAX/CVT FOR BUDGET 2010 –
RECEIVED SO FAR, ARE GIVEN AS UNDER:
Received from PROPOSAL
1. All Pakistan That income tax on import of oilseed be reduced from 3% to 1%.
Received from PROPOSAL
2. Association of Request for continuing the income tax rebate given to teachers and researchers as prescribed in 2nd
Private Universities Schedule.
& Institutes of Request for maintaining the tax exemption status for private universities and degree awarding
Pakistan. institutions. Exemption given u/s 92 of 2nd Schedule.
Request for exemption of private universities and degree awarding institutions from WHT charged on
utility bills u/s 236 on telephone bills u/s 235 on electricity bills (Sales tax, income tax, CED or any
other duty may kindly be exempted) and u/s 231(A) cash withdrawal from bank above Rs.25,000.
Received from PROPOSAL
3. Maqsood Tax Basic tax threshold for War-Torn Areas be enhanced. Necessary amendments, where required,
Advisors & shall be incorporated under the Income Tax Ordinance, 2001, through Finance Act, 2010.
Received from PROPOSAL
4. American High Corporate Income Tax
Business Council Proposal
(ABC) of Pakistan. In order to remain internationally competitive, Pakistan needs to reduce its corporate tax rate to a
maximum of 30% in line with regional standards.
Lower corporate tax will promote investment in Pakistan and encourage corporatization and will
enable Pakistan to be internationally competitive.
Workers’ Welfare Fund (WWF) and Workers’ Profit Participation Fund (WPPF)
a) Ever-rising demand for spending on the social sector specially health and education, we suggest
utilization of WPPF by the company itself through a fund for the interest of their own workers who
contributed towards generation of the profit. Companies are willing to incur this expense as part of
their cost of doing business in Pakistan but would like this investment to help their workers.
Company manages it through a fund, following the same legal requirements associated with the
Provident Fund, to benefit its workers to help build schools and hospitals near their operation and
b) Elimination of frivolous clause of interest % on dividends declared (which goes to a maximum of
75% of the dividend rate) and keep it only linked to bank rate + 2.5%.
This proposal would clearly enhance investment in the much needed social sector across Pakistan
and will clearly have a major impact on improvement of health and education facilities across
It will positively impact poverty alleviation through availability of much needed funds for facilities like
schools, hospitals, etc. and in turn enhance the motivation and moral of workers and ultimately
Rationalize Minimum Turnover Tax for all Companies
It is recommended that to create a win-win situation, we are not recommending elimination of the turnover
tax, but reduction from 0.5% to 0.1% as done for distributors of cigarette manufacturers.
Hence it is recommended that this minimum tax under section 113 be reduced for all companies to 0.1%
1. Companies willing to enter Pakistan and planning on investing in capital or marketing, will be
2. An unfair levy will be rationalized and will not act as a show stopper for companies in difficult financial
Simplify Advance Tax for Manufacturers
1. It is recommended that preferably the law be changed to the one, which was in force before the
2006 Finance Act amendment whereby a company was required to pay advance tax equal to one
fourth of the tax liability finalized for the latest tax year or at least the benchmark of 90% should be
reduced to 75%.
2. Manufacturers should be given exemption from withholding taxes u/s 153 and u/s 148. They
should only be required to pay advance tax u/s 147. This way the manufacturers will pay the same
amount of advance tax but through a much simpler way. Reduce complexity at both ends, i.e.
payer and government.
Help simplify and streamline tax process for good corporate citizens and will ease cash position of the
Further, it will eliminate the imposition of additional tax due to estimation variance. As due to
uncertainty of economic and political condition of Pakistan it is very difficult to estimate the taxable
income with 90 % accuracy especially in a case very a company’s business income is very volatile like
income from investment in listed securities.
Tax Relief for lower Salaried Class
It is recommended that salaried class individuals should be given exemption up to Rs. 500,000 and
amount earned above this limit should be considered as taxable.
Relief to the lower salaried class may be given specially in the current tough economic times.
Introduction of a “Tax Payer Card”
“Tax Payer Card” be introduced to all tax payers with clear benefits (some suggestions’ below):
1. Quick processing of application and 50% discount on government fees like passport fee, NIC fee,
driving license fee etc
2. Waiver on loan processing fee and any other one time charges taken by banks for loan/finance
3. Reduced markup rates for these tax payers which can be managed if loan taken from National
4. Waiver of references for opening of new bank accounts, and obtaining credit cards
It is suggested that a minimum criteria for people issued with a “Tax Payers Card” is to all tax payers
who have filed and completed tax returns for last 3 fiscal years. A proper mechanism may be
established to monitor these tax payers on an annual basis to facilitate the process.
This shall help the tax payer in motivating to pay proper tax and get valued returns thereon.
Elimination of Cap on exemption of Interest on House Loans
No cap should be placed on tax rebate on interest paid on Housing Finance loan to an existing tax
Encourage tax payer as the perceived benefit to existing tax payer is significant. It will significantly
help lowering the burden of building a house for tax payers.
Simplify Income tax return and Wealth Statement Bracket Increase
1. It is suggested that the annual return filed by the tax payer employer should be accepted as a tax
return and employee should not be asked to file it separately on September 30 each year. The
format of this salary certificate should be defined by the FBR so that it meets their need as well.
2. Criteria of submission of wealth statement should to be raised to Rs. 1.5 million.
The above shall result in reducing the work for salaried tax payer and also make the tax administration
Tax on Employers’ Contribution to Recognized Provident Fund
Due to above anomalies and complexities, tax on Provident fund contribution is unwarranted and
should be withdrawn.
This will result in reducing the already heavy tax burden on salaried class. Further PF contribution
being a retirement benefit, should not be brought into tax net.
Internally Displaced Persons Tax
It is proposed that amendment made through the Finance act 2009 should be repealed
It will allow a just and equitable taxation regime to prosper and enhance trust in government policies.
It will also help avoid litigation and spending of huge sums of money by both the government as well
as Pakistan citizens hurt by this unfair tax.
PRESUMPTIVE TAX REGIME
Manufacturers cum importers assessed under NTR, meeting certain preset criteria, should be given
option to merge their manufacturing and trading profits for the purpose of their final tax calculations.
Preset criteria will limit possible abuse & only those companies should be allowed to opt who meet
minimum criteria on investment in fixed assets, or company turnover.
Encourage foreign companies to test market new product on import basis and then set-up
manufacturing once market potential confirmed. In addition, simplicity of tax regime will make taxation
much more transparent and in line with global standards for investors.
Prior Years Bad Debts Disallowed by the Tax Authorities
It is recommended that the above notification be made part of law at the earliest to give it legal
sanctity. Also, it should be clearly mentioned in the final notification issued that the consumer write-off
whether they are routed through provisions or written off directly should be covered under Section 29
and not under Section 29A of the Income Tax Ordinance, 2001. This will ensure that consume write-
offs will be treated separately from consumer provisions and not be made part of the 3% threshold
criteria available under Section 29-A of the Income Tax Ordinance, 2001.
Significantly impact viability and effectiveness of banks to operate in Pakistan and also help reduce
their effective tax rate.
Allowance of Bad Debts Expense Post Calendar Year Ended December 31, 2007
It is recommended that the current capping of 1% of advances be increased to 5% of total advances
for SME sector and consumer loans and 2% of total advances for corporate sector loans. In absence
of the same, banks may be compelled by their statutory auditors to take huge write-offs of deferred tax
asset at the time of finalization of December 2009 accounts.
SME & consumer business would be given a chance to grow which would benefit the economy of the
AMENDMENT OF ASSESSMENT – SECTION 122
We recommend that the time period allowed to the Commissioner to amend an assessment order be
reduced from a period of five years to two year. We further recommend that a time frame of 60 days
should be fixed for the Commissioner to complete this audit from the date it is started.
The proposed amendment will ensure that tax inspections are not kept pending and commissioners
issue NOC’s in a reasonable time period whereby easing recordkeeping and processing burden on
APPEAL PROCESS – SECTION 124/127/129/131/132
We recommend that the entire appeal process from the time the assessee files its return to the time
when an assessment is deemed to be complete, should not exceed two years. The following steps
should be taken to ensure the above.
1. A time frame should be introduced, whereby ITAT is required to give its decision within 3 months
of filing of an appeal, as is currently the case with CIT (appeals) and it should be strictly followed.
In case no notice of hearing is issued by the ITAT, the relief sought by the appellant in the appeal
shall be deemed to have been granted
2. We recommend that the two months period stipulated in law should be strictly adhered to. In the
event the time frame of two months is breached, it should be stated in law that the assesses may
assume that relief is deemed to have been given, i.e. the appeal effect order stands issued in
favor of the assesses, and where payment has been made a refund stands determined.
It will save significant resources of corporate taxpayer as well as re-build confidence in investing and
growing their business in Pakistan.
Streamline Collection of Withholding Taxes
It is recommended that payers should be allowed to deposit all withholding tax deducted during the
month on the 7th of the following month.
This will result in time saving for the companies. Withholding taxes will be deposited into the
Government Treasury on a monthly basis without any loss of revenue to the Government.
Electronic Filing of Return
The FBR should issue clear instruction to all tax offices not to insist filing of hard copy of return after it
has duly filed electronically.
This will be a great convenience for tax payers as well as promotion of IT culture in the Pakistan.
Payments to Non Resident Persons under Section 152 of the Income Tax Ordinance, 2001
It is recommended that the tax authorities examine each application received for a nil withholding tax
certificate, and give its decision based on the merits of the case within the time frame of 30 days
stipulated in law. There is absolutely no justification in not responding within the 30 day time frame
allowed as this causes unnecessary hardship to tax payers who have to meet the expectation of non-
resident service providers to make this payment within a reasonable time frame.
Service providers outside Pakistan may stop the existing contract or may not be keen to renew the
same as payments are not received on a timely basis which in turn would harm the economy of the
Unwarranted notices received u/s 176 of the Income Tax Ordinance 2001
It is recommended that verification of tax challans be made through the FBR electronic system as the
taxpayers are filing the tax deduction statements on monthly basis which also contains the information
of the Tax Payment Receipt Numbers. Such notices should be only issued in cases where the
taxpayer has not already submitted the information.
This will help reduce unnecessary workload on the companies to provide the same information twice
and let them focus on value added work.