05

Income Tax
employee will not be subject to to Rs. 1,000,000. It is also

Individuals’ Taxation - addition under section 13(7) of the proposed that while determining
Ordinance. such threshold, income subject to
Concession to certain final taxation shall be excluded.
employees having  Basic exemption threshold
interest free loans,
The threshold of basic exemption Capital Gains – Short
enhancement of for individuals is proposed to be term gains on listed
exemption threshold enhanced to Rs. 300,000
(presently for salaried men Rs. securities made liable
to Rs. 300,000 180,000, salaried women Rs. to tax
Sections 13(7), 147(2) & (4B), 200,000 and other individuals Rs.
Clauses (1) & (1A) of Division I of 100,000). The tax rates Table-I Section 37, 37A, Division VII of Part I of
Part I of First Schedule, Clause applicable to individuals provided in the First Schedule and Clause (110) of
(1A) of Part III of Second Schedule clauses (1) & (1A) are accordingly Part I of the Second Schedule
proposed to be amended. The
The Finance Bill proposes following Capital Gains arising on sale of the
proposed tax rates table is being
amendments pertaining to the taxation following shares and securities are
provided separately in this
of individuals: presently exempt from tax:
document.
 Interest free / reduced rate loans  Shares in public companies which

 Advance tax
include listed companies and those
Under the existing provisions companies whose 50% or more
Section 147 of the Ordinance
where a loan is made by an shares are held by the
requires every individual having
employer on or after 01 July 2002 Government;
latest assessed income of Rs.
to an employee, where either no
200,000 to pay advance tax in
interest is payable or the rate of  Units in a unit trust;
prescribed manner. This threshold
interest is less than the bench mark
is now proposed to be enhanced to
rate, an amount computed on the  Listed modaraba certificates and
Rs. 500,000. For further details
basis of bench mark rate (reduced instruments of redeemable capital
regarding mechanism of payment
by any interest paid) shall be (such as participation term
of advance tax, please refer
included in taxable salary of the certificates)
advance tax section of this
employee. The bench mark rate, in
document.
accordance with provisions of  Vouchers issued by the
section 13(14) of the Ordinance, is Government in Pakistan
 Reduction in tax liability of
12 percent for tax year 2010 and Telecommunication Corporation.
senior individuals
will be 13 percent for tax year
2011. Capital Gains on the aforementioned
Clause (1A) of Part III of Second
Schedule to the Ordinance shares and securities have all along
The Finance Bill now proposes that been exempt from tax with the stated
provides reduction in tax liability of
no addition shall be made in the objective to help capital markets grow
senior individuals aged 60 years or
case of an employee, where such and to encourage equity investment.
more on the first day of relevant tax
employee has waived interest on Exemption was withdrawn for the
year by 50% provided his taxable
his account with the employer. For banking companies starting Tax Year
income does not exceed Rs.
example, if an employee, has 2009; Capital Gain being taxable at
750,000. The Finance Bill now
opted for no interest on his 35% and 10% depending upon the
proposes to enhance the threshold
provident fund account, then such
Budget Brief 2010 17

© 2010 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG
Network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity.
nature of security and the period of  Shares of a public company; of the Ordinance, such capital gain will
investment. For all other investors, attract advance tax provisions.
exemption is applicable until tax year  Vouchers of Pakistan
ending on 30 June 2010. Telecommunication There has been an expectation of the
Corporation; stakeholders that either any gain
The Finance Bill now proposes the accrued until 30 June 2010 shall
following amendments:  Modaraba certificates; or remain exempt or any gain on disposal
of securities purchased on or before 30
 Stocks and shares in the nature of  Instrument of redeemable June 2010 shall remain exempt, for the
stock-in-trade to be excluded from capital reason that the current exemption will
the definition of capital asset continue until tax year ending on 30
It is pertinent to mention here that the June 2010. However, the Finance Bill
 Taxability of short term capital abovementioned graduated tax rates does not provide any such exception in
gains on sale of securities as proposed by the Finance Bill also the proposed amendments.
separate block of income to be include rates for the Tax Year 2010 for
provided as per proposed section which the Capital Gain is tax exempt. The Finance Bill also proposes
37A in the following manner: This appears to be an oversight. collection of advance tax on Capital
Gains on sale of securities on quarterly
Tax Year Holding period Holding In view of the proposed enactment of basis from all taxpayers excluding
less than 06 period of 06 section 37A, the Finance Bill also individuals whose annual taxable
months months to 1 proposes corresponding amendment in income is less than Rs. 500,000.
year the definition of ‘Capital Asset’ in Advance tax is proposed to be paid
section 37(5) by excluding ‘shares and within seven (07) days after the close of
2010 10% 7.5%
securities’ from its ambit. While the each quarter in the following manner:
intent appears to exclude only specified
2011 10% 8% securities covered in the newly Holding period less 2%
proposed section 37A, the proposed than 06 months
2012 12.5% 8.5%
amendment in section 37(5) may lead
2013 15% 9%
to interpretational issues. Holding period of 06 1.5%
months to 1 year
2014 17.5% 9.5% It appears that no change is intended in
taxation of Capital Gain on sale of non- No provision is proposed to reduce
2015 * 10%
listed securities and other capital advance tax so computed by the
* Tax rate not provided for in the
assets and such gain will continue to be amount of tax collected under section
Finance Bill. taxable according to the tax rate as it 233A of the Ordinance, if any, or by any
applies to the taxpayer with a 25% excess taxes deducted / paid by a
 Exemption contained in clause reduction in the amount of gain where person in a quarter under advance tax
(110) of Part I of Second Schedule the asset being disposed of had been other than on capital gain. Further, the
to be withdrawn, but exemption to held for more than one (01) year proposed dates for payment of advance
capital gain on securities held for However, as mentioned above, due to tax also do not corroborate with due
more than one year to be provided proposed exclusion of ‘stocks and dates for advance tax payment. Thus, a
in proposed section 37A shares’ from the definition of capital taxpayer having advance tax liability
asset, interpretational issues may under normal provisions of section 147
 The term ‘securities’ is proposed to arise.. Further, due to proposed and for capital gains as well will have to
be defined as: omission of clause (a) in section 147(1) make payment and compliances twice
for each quarter. It is therefore
18 Budget Brief 2010 © 2010 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG
suggested that appropriate tax has been maintained at one-half community at one hand, and on the
amendments be made in the proposed percent (0.5%) since 1991. other hand, they will be compelled to
changes to bring the advance tax suffer additional cost in the form of
The Finance Bill now proposes the
requirements in line with the normal minimum tax levy, which would further
following amendments with reference to
advance tax payment requirements in affect their liquidity. The present
minimum tax:
so far due dates and adjustment of tax situation rather demands abolishment
credits are concerned. The proposed  The rate of minimum tax is to be of minimum tax, instead of extending its
amendments will not apply to banking enhanced to one percent (1%) domain.
companies as they will continue to pay
 The provisions of minimum tax to
advance tax on monthly basis in
apply to specified individuals and
accordance with the provisions of the
AoPs listed below:
Revision of Return
Seventh Schedule to the Ordinance.
(a) Individuals having a minimum
Section 114
turnover of Rs. 50 million or The Bill seeks to incorporate the
Minimum Tax - more in Tax Year 2009 or in amendments regarding revision of
Enhancement of rate any subsequent tax year; and return which were earlier inserted
through the Finance (Amendment)
from 0.5% to 1% and (b) AoPs having a minimum
Ordinances 2009 and 2010. These
turnover of Rs. 50 million or
extension of scope to more in Tax Year 2007 or in amendments primarily provide for
individuals and AoPs any subsequent tax year. penalty on revision of return at different
stages as follows:
Section 113 This would imply that where turnover
for the specific tax year (Tax Year 2009 If a taxpayer wishes to file a revised
Minimum tax under section 80D of the in case of individuals and Tax Year return before receipt of notice under
repealed Income Tax Ordinance 1979 2007 in case of AoPs) or for any section 177 for audit or notice under
was first introduced in 1991 and was subsequent tax year is in excess of the section 122 (9) for amendment of
then applicable to the resident minimum threshold of Rs. 50 million, assessment, he will be required to
companies only. Its scope was later minimum tax would be payable for Tax deposit the amount of tax short paid or
extended in 1992 to resident registered Year 2011 and onwards. tax sought to be evaded alongwith the
firms and in 1999 to resident
It is also understood that only resident default surcharge and no penalty shall
individuals, AoPs and unregistered
individuals and AoPs would be subject be recovered from him.
firms. The last three categories
to minimum tax levy only and non-
(individuals, AoPs and unregistered
resident taxpayers shall remain outside However, the taxpayer will be required
firms) were however excluded from the
the scope of minimum tax. Minimum tax to pay twenty five percent of penalties
application of minimum tax in 2001.
payment will continue to be adjustable leviable under the Ordinance alongwith
After repeal of the 1979 Ordinance and against tax liability (other than minimum the amount of tax and default
promulgation of the 2001 Ordinance in tax liability) for the following three (03) surcharge, if he wishes to deposit the
2002, the application of minimum tax tax years. amount of tax as pointed out by the
provisions as contained in section 113 Commissioner during the audit or
Due to prevailing economic situation, before the issuance of notice under
of the 2001 Ordinance was restricted to
the enhancement of rate to 1% appears section 122 (9), and fifty percent of the
resident companies only, and later,
to be a negative step, as when the leviable penalties alongwith the amount
this levy was omitted in 2008.
business opportunities are being of tax and default surcharge, if he
Minimum tax was re-promulgated squeezed and the infrastructure wishes to revise the return after
through the Finance Act 2009 with support e.g. supply of electricity etc. are issuance of notice under section 122
certain changes with respect to mode not proper there is a likelihood of (9).
of computation. The rate of minimum sustaining losses by the business

Levy of default surcharge and penalty The Bill also seeks to incorporate the Due date
under the provisions of section114 (6A) amendment earlier inserted through the
could be a matter of interpretation, Finance (Amendment) Ordinances between 1 the end of tax
where the taxpayer is not required to 2009 and 2010 regarding furnishing of January and 30 year
pay any amount of tax on revision of a wealth statement, wealth June
return, due to excess payment of taxes reconciliation statement and an
made at the time of filing of original explanation of sources of acquisition of  In any other 30 September
return. This interpretation may occur for assets specified therein, where a case next following
the reason that the provisions of person files a return in response to a the end of tax
section 114 (6A) interalia includes tax provisional assessment under section year
sought to be evaded and interpretation 122C, where no income tax return has
of this phrase could be a contentious been filed in response to a notice.
issue, as evasion without establishing
mens-rea cannot be adjudicated, For persons other than companies:
whereas, an omission in the return Due date for filing of
cannot be equated with evasion. return / statements Due date
Therefore, it is suggested that the
provisions either be amended Section 118 (3)
 Annual 31 August next
appropriately or clarification be issued statement of following the
The Bill seeks to change the due date
that where a taxpayer has already paid deduction of end of tax year
for filing of return / statements from 30
excess taxes at the time of filing of income tax from
September to 31 August for the
original return, no default surcharge or salary, filed by
following:
penalty shall be levied. the employer of
 Annual statement of deduction of an individual
income tax from salary, filed by the
Wealth statement employer of an individual  Return of 31 August next
Section 115 (4B) and 116 (4) and income through following the
116 (2)  Return of income through e-portal in e-portal in the end of tax year
the case of a salaried person case of a
Every person (other than a company) salaried person
falling under final tax regime and filing
 Statement under section 115 (4)
statement under section 115 (4) of the
 Statement under 31 August next
Ordinance is currently required to file
After the aforesaid amendment, the section 115 (4) following the
wealth statement and reconciliation of
position of due dates for filing of return / end of tax year
wealth statement, if the tax paid under
statements will be as follows:
final tax regime is Rs. 25,000.
 Return of 30 September
For companies: income under next following
The Bill seeks to change the above
section 114 the end of tax
threshold to Rs. 35,000 and shift the
Due date for filing return of income year
requirement for filing of wealth
under section 114 or statement under
statement, alongwith reconciliation of
section 115 (4):
wealth statement to the relevant section
i.e. from sub-section (4B) of section
Due date
115 to sub-section (4) of section 116.
 With tax year 31 December

ending next following
It appears that this amendment is The Commissioner under section 122C
Amendment of proposed to enable issuance of will now be empowered to frame
assessment amended assessment orders where provisional assessment instead of a
statement under section 115 (4) is filed, best judgment assessment, where no
Section 122 (3) (4) (5AA)
because the courts have held that as return has been filed in response to a
Section 169 no assessment order is treated to have notice. The provisional assessment is
been issued in such cases, therefore, to be framed on the basis of available
The Bill seeks to make the following
an amended assessment order cannot information and to the best of the
amendments:
be issued in such cases. Commissioner’s judgment. The
provisional assessment will become
 To include sub-section (5A) within
 To povide similar timeline, as final, if within sixty (60) days of receipt
sub-section (4) providing powers of
exists for other assessment orders, of the provisional assessment order,
further amendment of an
for further amendment in an the person still does not file return
assessment or an amended
amended order issued under along with wealth statement and wealth
assessment. This amendment is
section 122 (5A). reconciliation statement explaining the
proposed to take effect from 04
source of acquisition of his assets.
July 2003.
 Incorporate the amendment Filing of wealth statement along with
inserted through the Finance wealth reconciliation statement and
 Introduce a new sub-section (5AA)
(Amendment) Ordinances 2009 explanation of sources of acquisition of
to provide that the Commissioner
and 2010 in sub-section (3) assets has been made mandatory
is deemed to have and always had
regarding a revised return filed along with return filed in pursuance to a
the powers to amend an
under sub-section (6A) of section provisional assessment.
assessment order under sub-
114 to be treated as an amended
section (5A), where appeal has
assessment order issued by the Tax demand specified in the provisional
been filed or decided against the
Commissioner. assessment order will become payable
order of the Commissioner, in
as the Order becomes final on expiry of
respect of any point or issue which
60 days, following its service.
was not the subject matter of such Provisional
appeal. This amendment is similar
to sub-section (1A) introduced in assessment It is noted that the provisions of section
122C would mainly be applicable in the
section 66A of Repealed Income Section 122C case of individuals and association of
Tax Ordinance 1979. However, the
persons, as mandatory condition of
distinguishing feature is that the The Bill seeks to incorporate the
filing of wealth statement and wealth
amendment proposed is intended amendments regarding Provisional
reconciliation will not apply in the case
to apply retrospectively Assessment which were earlier inserted
of corporate taxpayers.
through the Finance (Amendment)
 Insert an Explanation in sub- Ordinances 2009 and 2010.
section (3) of section 169 to the
The Ordinance authorized the
Appeal effect orders
effect that the expression “an
assessment shall be treated to Commissioner of Income Tax to frame Section 124
have been made under section Best Judgment assessment in a case,
Through Finance Act 2005, the
120” shall interalia mean the return where a person did not file his tax
Commissioner (Appeals) was divested
or statement under sub-section (4) return after required by the
of powers to set-aside an assessment.
of section 115 shall be taken for all Commissioner through a notice to do
Therefore, consequential amendment is
purposes of this Ordinance to be so.
now proposed to be made in sub-
an assessment order.
section (2) of section 124, which

provides time limitation for issuing new including books of accounts of the Appellate Tribunal or any other
assessment order in set-aside cases. taxpayer and the reasons shall be authority, shall be excluded.
communicated to the taxpayer,
while calling for record or Validation of amendments made
Record keeping and documents, including books of by the Finance (Amendment)
Audit accounts of the taxpayer. Ordinances 2009 and 2010
relating to audit
Reasons for audit by  A new section 214C is proposed to
Commissioner and random / be inserted to provide that the Section 176 and 177
parametric selection by Board Board may select persons or
The Bill seeks to incorporate following
classes of persons for audit of
Section 177 and 214C amendments which were earlier
Income Tax affairs, through
inserted through the Finance
The Finance (Amendment) Ordinances computer ballot which may be
(Amendment) Ordinances 2009 and
2009 and 2010 amended section 177, random or parametric, as the
2010:
withdrawing the earlier provisions of Board may deem fit and the Board
selection of cases either on the basis of shall be deemed always to have
 Requirement for maintaining books
FBR criteria or on the basis of reasons had the power to select any
of accounts, documents etc.
to be given by the Commissioner. persons or classes of persons for
prescribed under the law for six
audit of income tax affairs.
years instead of five years from the
The Commissioner was supposed to end of relevant tax year and
conduct audit of any person, without Further, it is proposed to be
requirement of keeping records,
assigning any reason by calling for any provided in sub-section (2) of
documents, books in respect of
record or document including books of section 214C, that audit of income
any proceeding pending before
accounts under the income tax laws or tax affairs of persons selected by
any authority or court until final
any other law for the time being in the Board shall be conducted as
decision of the proceedings.
force. per procedure given in section 177
and all the provisions of the
 Conducting an audit any time
Further, in 2009, the Board selected Ordinance shall apply accordingly
within six (06) years of the end of
certain cases for tax year 2008 through except first proviso to sub-section
the tax year, to which it relates.
computer balloting and the taxpayers (1) of section 177, regarding
challenged such selections on the conducting of audit by the
 In case of failure to provide
pretext that the Board has no such Commissioner after recording
necessary documents, authorizing
powers. reasons in writing.
the Commissioner to make Best
Judgment assessment, whereby
The Bill now seeks to incorporate the Period of limitation for assessment completed earlier on
amendments made through the assessment and other the basis of tax return filed by the
aforesaid Ordinances and in addition proceedings person will be of no legal effect.
thereto, the following amendments are
Section 226 (b)
also proposed to resolve the issues  In addition to engaging Firms of
faced: The Bill proposes an amendment in Chartered Accountants for
section 226 (b) to the effect that in conducting audit, FBR may also
 In sub-section (1) of section 177, a computing the period of limitation for engage Firms of Cost and
proviso is proposed to be inserted an assessment or other proceedings Management Accountants in line
to the effect that the Commissioner under the Ordinance, the period, for with the Sales Tax Act 1990 and
may, after recording reasons in which any proceedings for the tax year Federal Excise Act 2005.
writing call for record or documents remained pending before any Court,
Consequential Amendments (1A), 211, 215 (1) (2), 217 (3), 237 regulation of any tax, other than taxes
relating to tax audits (2), 239 (3) (7) and 239B collected by a local authority for local
purposes.
Section 120 (1A), 121 (1), 210 (1B) A major component of the World Bank
funded tax reforms has been the The aforesaid Ordinance was re-
The Bill seeks to propose the following
organizational restructuring of FBR to promulgated in the form of the Finance
consequential amendments:
make it a more vibrant organization in (Amendment) Ordinance, 2010. As the
line with the need to curb tax evasion, four months period is about to expire,
 Consequential amendments in
expand tax base while at the same therefore the said amendments have
section 120 (1A) and section 121
time, being more responsive to the now been proposed through the
(1) (d) of the Ordinance regarding
outstanding problems of taxpayers. Finance Bill, with a provision specifying
conducting of audit by the
that such amendments shall take effect
Commissioner and inclusion of
The FBR Act was promulgated in July and shall be deemed to have taken
firms of Cost and Management
2007, providing a foundation to effect from 5 June 2010.
Accountants to whom accounts,
restructuring process that was to follow.
documents and records are to be
These Amendments were made in the
produced for the purposes of best
In January 2009, FBR through an Income Tax Ordinance 2001, the Sales
judgment assessment respectively.
internal notification created the Inland Tax 1990, and the Federal Excise Act
Revenue wing, thereby integrating the 2005 through the Finance
 Consequential amendment in
departments of Income Tax and Sales (Amendment) Ordinances, 2009 and
section 210 (1B) to the effect that
Tax and Federal Excise under a single 2010 re-designating the posts of
the Commissioner may delegate
Member Inland Revenue so as to taxation and appellate authorities
his powers to a firm of Chartered
provide a one window facility for all specified therein. The Finance Bill now
Accountants or a firm of Cost and
three taxes in line with international seeks to validate such changes. The
Management Accountants
practice. However, the process got existing and revised designations have
appointed by the Board or the
stalled as the notification was been summarized in the table below.
Commissioner to conduct the audit
challenged before the High Court by
of persons selected for audit
the Customs and Excise wing of FBR. All existing references in the Income
under section 177.
Tax Ordinance, 2001, the Sales Tax
To expedite the reforms process, the Act, 1990 and the Federal Excise Act,
Finance (Amendment) Ordinance, 2009 2005 to taxation authorities are to be
Amendments aimed (the Ordinance) was promulgated by changed to corresponding authorities in
to harmonize Income the President on 28 October 2009, the Inland Revenue Service.
Tax, Sales Tax And providing for creation of the Inland
Revenue service. Appeals pending before the Customs,
Federal Excise Duty Excise and Sales Tax Appellate
Laws In terms of Article 89(2) of the Tribunal to be transferred to Appellate
Constitution of Pakistan, any Ordinance Tribunal Inland Revenue to be
Sub-sections (2) (11A) (13) (13A) dealing with any matter referred to in constituted under the Income Tax
(38) (48A) (65) of section 2 Article 73(2) of the Constitution requires Ordinance 2001, as amended
parliamentary approval within four (04) aforesaid.
Sections 119 (6), 122A (1), 134A months of its promulgation or else it
(2) (3), 137 (6), 146B (1), 161 (1B), stands lapsed after the aforesaid period The term ‘additional tax’ appearing in
162 (2), 202, Part XII of Chapter X, of 4 months. Article 73(2) of the various provisions of the Income Tax
205 (1) (1A) (1B) (2) (3) (5) (6), Constitution deals with matters that are Ordinance, 2001 has been substituted
205A, 207, 208(1), 209, 210 (1) subject of money bills; including with ‘default surcharge’ in line with the

Sales Tax Act 1990 and Federal Excise dividend, rent of immovable property, The Finance Bill proposes collection of
Act, 2005. salary, capital gains and other income advance tax on income from taxable
where tax withheld is considered final Capital Gains within seven (07) days of
discharge of tax liability). Generally, the close of each quarter in the
advance tax is payable on business following manner:
Designations Designations income with separate payment dates
prior to after
amendments amendments and mode of computation provided for Where securities 2%
individuals, association of persons, and were held for less
(a) Board Board
companies. Individuals, and than 6 months
(b) Regional Chief
Commissioner Commissioner association of persons (such as
of Income Tax Inland Revenue partnerships) who earned taxable Where securities 1.5%
(c) Commissioner Commissioner income of less than Rs. 200,000 during were held for 6
of Income Tax Inland Revenue the latest tax year are however exempt months to 1 year
from payment of advance tax.
(d) Commissioner Commissioner Association of persons [AoPs]
of Income Tax Inland Revenue
(Appeals) (Appeals) The Finance Bill now proposes to bring AoPs who earned taxable income of
(e) Taxation Additional capital gains chargeable to tax within Rs. 200,000 or more in the latest
Officers Commissioner the ambit of advance tax payments by
Inland Revenue; assessed tax year are required to pay
omitting clause (a) of section 147(1) of advance tax in the following manner:
Deputy
Commissioner the Ordinance.
Inland Revenue; (A / 4 ) – B where:
Assistant The Finance Bill proposes further
Commissioner amendments in section 147 of the
Inland Revenue;
 A is the tax assessed of the AoP
Ordinance, which are discussed below for the latest tax year; and
Inland Revenue
separately for each class of taxpayer.
Officer;
Inland Revenue
 B is the tax paid in the quarter
Audit Officer; Individuals which is adjustable against tax liability
Superintendent As mentioned above, individuals whose
Inland Revenue; The Finance Bill proposes to bring
taxable income for the latest assessed
Inspector Inland AoPs at par with companies with regard
Revenue; and tax year is below Rs. 200,000 are not
to liability to pay advance tax. Except
required to make advance tax
Auditor Inland for taxable Capital Gains, the mode of
Revenue payments. The Finance Bill seeks to
computation of advance tax proposed
enhance this limit to Rs. 500,000.
by the Finance Bill is as follows:
Except for a separate amendment

( A x B / C ) – D where:
proposed for payment of advance tax
Advance Tax on taxable Capital Gains earned during  A is the AoP’s turnover for the
Section 147 a quarter, no change is proposed by quarter;
the Finance Bill to the mode of payment
Provisions for payment of advance tax
which will continue to be the latest  B is the tax assessed for the latest
on quarterly basis have been subject to tax year;
assessed tax liability payable in four
changes from time to time. Presently, th
instalments, that is, by 15 September,  C is the AoP’s turnover for the
advance tax is required to be paid by th th th
15 December, 15 March and 15 latest tax year; and
every taxpayer whose income for the
June of the tax year.
latest tax year was charged to tax
(excluding income on account of
 D is the tax paid in the quarter quarter where advance tax is payable
which is adjustable against tax by 15th June.
Collection/Deduction
liability of Tax, Final Tax
Consequently, requirement of a
The Finance Bill now proposes to Regime and
change the due dates for payment of
mandatory preparation of estimate of
advance tax in the following manner:
Withholding Tax
income before close of the tax year and
payment of up to 90% of estimated tax
Statements
Quarter Present Proposed
liability for the year shall also become Sections 148, 151,153,155,
dates dates
applicable to AoPs and any shortfall 169,231AA, 233A, 236, 236A,
may attract default surcharge under
September 15
th
25
th 236B
provisions of section 205(1B)
quarter October September
Division I of part III, Division III of
The due dates for payment of advance th th
part III, Division V of part III,
December 15 25
tax are also proposed to be changed as Division VIA of part IV, Division IIA
quarter January December
follows: of part IV, Division V of Part IV,
Division IX of part IV
th th
March 15 April 25 March
Quarter Present Proposed
quarter Collection of tax on import of
dates dates
edible oil and packing material
th th
th th June 15 June 15 June
September 15 25 Section 148(7) provides that tax
quarter
quarter September September collected at import stage will be final tax
except for specified cases, whereas,
th th
December 15 25 Further, advance tax is proposed to be sub-section (8) provides that tax
quarter December December paid separately on taxable Capital collected on import of edible oil and
Gains in the same manner as in the packing material will be minimum tax.
th th
March 15 March 25 March case of individuals and AoPs, that is, This position is seen as creating an
quarter within seven (07) days of close of the ambiguity with regard to status of tax
quarter at the following rates: collected on import of edible oil and
th th
June 15 June 15 June packing material. The Finance Bill now
quarter Where securities 2% seeks to clarify the position by
were held for less proposing amendment in sub-section
than 6 months (7), whereby it is specifically being
Advance tax on taxable Capital Gains
provided that finality of tax collected
is however proposed to be paid within
Where securities 1.5% shall not apply in the case of import of
seven (07) days of close of the quarter
were held for 6 edible oil and packing material.
as in case of individuals.
months to 1 year
Further, clause (iv) of SRO 593/91
Companies Separate dates for payment of advance
dated 30 June 1991, as validated
tax on Capital Gains and for business
Except for banking companies which through insertion of clause (52) of Part
income could result in administrative
are required to pay advance tax on IV of Second Schedule for industrial
inconvenience for taxpayers. FBR
monthly basis, all other companies are undertaking engaged in the
should consider providing for the same
required to pay advance tax on manufacturing of vanaspati ghee or oil ,
dates for payment of these taxes.
quarterly basis within 15 days from provides exemption from collection of
close of the quarter except for June tax on import of plant, machinery,
fixtures, fittings or any other equipment
for purposes of setting up an industrial

undertaking, or for installation in an services – Reduced rate of 1% the tax withheld will no more be final
exiting industrial undertaking and a withholding tax for large tax and will be adjustable.
certificate to that effect from the distribution houses The above amendments will not
Commissioner is produced.
 Section 153 contains provisions increase the tax incidence on income
relating to deduction of tax at from property and now property income
The Finance Bill now seeks to omit
source on account of sale of i.e. gross amount of rent on aggregate
clause (52) of Part IV of Second
goods, rendering or providing of basis will be taxed with reference to
Schedule. Consequently, no such
services and execution of contract. section 15 and as per the graduated tax
exemption from collection of tax on
The prescribed person is also rates provided in Division VI of Part I of
imports of stated items will be available
defined in this section to act as the First Schedule.
any more to an industrial undertaking
engaged in manufacturing of vanaspati withholding agent.
The Finance Bill also proposes to insert
ghee and oil. The Finance Bill proposes to the references of - section 15 in
extend the scope of prescribed section 169(3). This section provides
Tax deduction on profit on debt person, to an individual having that if all the income of the tax payer
from government securities to be turnover of fifty million or above in falls under final tax regime, then he will
final tax the tax year 2009 or in any not be required to file a return of
subsequent year. Consequent to income and assessment shall be
Presently, tax deducted under section treated to have been made under
this proposed amendment,
151 is the final tax for all tax payers, section 120. The purpose of this
individual will be liable to deduct
other than a company, in respect of the insertion seems to keep income from
tax at source on sale of goods,
following profit on debts. property within final tax regime, not on
services rendered and execution of
contracts. the basis of withholding tax but due to
 Account, deposit or a certificate imposition of tax under section 15 akin
under the National Saving Scheme  Clause 24A of Part II of the Second to sections 5 to 7 of the Ordinance,
or Post Office Savings Account. Schedule provides reduced rate of otherwise, the purpose of providing tax
one percent of withholding tax rate on gross amount of rent would
 Account or deposit maintained with under section 153(1) on distribution have been defeated .
a banking company or financial of cigarette and pharmaceutical
institution. products. The Finance Bill Advance tax on transactions in
proposes to extend the benefit of banks
 Bond, certificate, debenture, reduce withholding tax rate to large
The banking companies are deducting
security or instrument of any kind distribution houses who fulfil the
tax under section 231A on aggregate
other than a loan agreement. conditions prescribed for large
cash withdrawal exceeding Rupees
import houses in clause d of
25,000 in a day, at the rate of 0.3
The Finance Bill proposes to extend the section 148(7).
percent.
scope of final tax regime for all tax
payers including the company in
Income from property –
The Finance Bill now proposes to
respect of tax deduction on profit of withholding tax to be adjustable introduce a new section 231AA,
debt from debt instrument, Government but tax imposed to be final whereby the banking companies would
Securities including Treasury Bills and Section 155 deals with the deduction of be required to withhold tax at the rate of
Pakistan Investment Bonds. tax at source on payment of rent which 0.3 percent of the amount of
is a final tax in the hands of recipient of withdrawals made through any mode of
Individuals having turnover of income from property. banking transactions including demand
Rs. 50 million to withhold tax draft, payment order, online transfer,
The Finance Bill now seeks to delete telegraphic transfer, CDR, STDR, RTC
from payment for goods and
sub-section 2 of section 155 whereby
or the total of such transactions in a c. On trading of shares by the advance tax at the rate of 5 percent of
day exceeds Rupees 25,000. members. the gross amount of domestic air ticket.
The advance tax shall not be deducted The tax collected under clause a) and Exemptions from withholding tax
if the withdrawal is made by the Federal b) above is treated as final tax. provisions
Government, Provincial Government, a However, the Finance Act, 2008
foreign diplomat, or a diplomatic substituted sub section 2 of section The Finance Bill proposes to allow
mission in Pakistan or a person who 233A to provide that tax collected under exemption of withholding tax provisions
produces a certificate from the clauses a) to c) above shall be as summarised below to most affected
Commissioner that his income during minimum tax. and moderately affected areas of
the tax year is exempt from tax. Khyber Pakhtunkhwa, FATA and PATA
The Finance Bill now seeks to replace upto 30 June 2011.
The professional bodies were time and the word minimum with adjustable in
again recommending for increase in the respect of above clauses a) to c).  The provisions of section 148
tax rate and threshold limit under regarding collection of tax on
Collection of advance tax from
section 231A as the said section was imports of plant and machinery for
inserted with the objective of telephone users.
establishment of business in the
encouraging the documentation of Presently, advance tax is being above areas. However, this
economy. The above proposed collected on telephone bill and prepaid concession shall not be available to
amendment will however negate this cards for telephone. the manufacturers and supplier of
objective and would be quite unjust and cement, sugar, beverages and
will result in excess outflow of cash. The Finance Bill seeks to extend the
cigarettes.
scope of collection of advance tax to
Tax on motor vehicles sale of units through any electric
 The provisions of section 154
The existing provisions require medium or whatever form. Further,
regarding withholding tax on export
collection of advance tax in accordance person issuing or selling units through
of goods originating from above
with varying slab rates dependent on any electronic medium or whatever
areas and the exporter also based
registered laden weight of the vehicle. form shall collect advance at the time of
in these areas.
The Finance Bill now proposes sing issuance or sale of units.
rate for collection of tax i.e. Re. 1 per Advance tax on sale by auction  The provisions of section 235
Kg of laden weight. regarding collection of advance tax
There has been an anomaly as to on electricity bill of a commercial or
Collection of tax by Stock whether the existing provisions of industrial consumers located in
Exchange advance tax on sale by auction deals above areas.
with only such property which is
Under section 233A, stock exchange
confiscated or all other sales by The Finance Bill also defines the term
registered in Pakistan is required to
auction. The Finance Bill now proposes “most affected area” and “moderately
collect advance tax from its members
to amend the provisions of section affected areas”. Most affected areas
interalia in following cases.
236A to clarify that sale of any property means district Peshawar, Malakand
a. On purchase of shares in lieu of or goods by auction, including property Agency, and district of Swat, Buner,
tax on the commission earned by or goods confiscated or attached, shall Shangla, Upper Dir, Lower Dir, Hangu,
members. be subject to collection of advance tax. Bannu, Tank, Kohat and Chitral.
b. On sale of shares in lieu of tax on
Advance tax on purchase of air Moderately affected areas means
the commission earned by
members. ticket districts of Charsadda, Nowshera, DI
Khan, Batagram, Lakki Marwat, Swabi
The Finance Bill proposes to insert a
and Mardan.
new section 236B for collection of

Withholding tax statements various provisions of the Ordinance Appellate Tribunal, as the case
are summarised in Table-II may be, shall immediately serve a
Every person collecting or deducting
copy of the order on the
advance tax is required to file annual
Commissioner and thereupon all
statement of such taxes within two Offences and the provision of this Ordinance
months after the end of the financial
year or within extended time allowed by penalties relating to the recovery of penalty
shall apply as if the order was
the Commissioner. In addition to annual Section 182 to 190 made by the Commissioner.
statement, the withholding agents are
also required to file the statements of The Finance Bill proposes to substitute
 Where in consequence of any
withholding / collection of tax made existing penal provisions contained in
order under this Ordinance, the
under the various provisions of the section 182 to 190 by new section 182.
amount of tax in respect of which
collection and withholding taxes on Further, in order to empower Federal
any penalty payable under sub-
monthly, quarterly and six monthly Government or the Board to exempt
section (1) is reduced, the amount
basis. any person or class of persons from
of penalty is also proposed to be
payment of penalty or default surcharge
reduced accordingly.
The Finance Bill proposes to do away a new section 183 is proposed to be
with the filing requirement of annual, introduced the salient features of the
 Other penalties such as penalty for
monthly and six monthly basis of proposed amendments are as follows:
failure to give notice of
statement of collection / withholding
discontinuation of business under
taxes and provides that the withholding  Any person who commits any
section 117 and of the appointment
agent will be required to file these offence specified in column (2) of
as liquidator under section 141 are
statements on quarterly basis on or the Table-III of comparison existing
th proposed to be withdrawn.
before 20 of the following month after and proposed provisions given at
the end of the respective quarters. the end, in addition to and not in
 Penalties for various types of
derogation of any punishment to
offences are provided in section
It is further proposed to provide that which he may be liable under this
182 to 189 and orders under all
withholding statement shall be required Ordinance or any other law, be
these sections are appealable
to file even, where no withholding tax is liable to the penalty mentioned
before Commissioner (Appeals).
collected or deducted. against that offence in column (4)
As the Bill seeks to bring all the
thereof (as against existing penalty
penalty provisions in section 182
It appears that filing of nil withholding stated in column (3) for reference
and omit sections 183 to 189,
tax statement on quarterly basis by a purposes):
therefore, as a consequence,
person, especially the non-resident
reference to sections 183 to 189
persons, who obtain NTN for filing of  These penalties are proposed to be
has been proposed to be omitted in
their returns / statement of final taxation applied in a consistent manner and
section 127.
,but do not make any payment would no penalty shall be payable unless
create an unnecessary burden. an order in writing is passed by the
 Under the existing law, imposition
Therefore, it is suggested that the non- Commissioner, Commissioner
of penalty in relation to an act or
residents who do not make any (Appeals) or the Appellate Tribunal
omission is an alternative to
deduction or collection of tax due to no after providing an opportunity of
prosecution and if any penalty has
payment in Pakistan should be being heard.
been paid and the Commissioner
excluded from withholding tax
institutes prosecution proceedings,
statement’s filing requirements.  It is also proposed that where a
the Commissioner is required to
Commissioner (Appeals) or the
refund the amount of penalty paid.
Note: The existing and proposed Appellate Tribunal makes an order,
But this provision of refunding
rate of withholding tax rates under the Commissioner (Appeals) or the
penalty is proposed to be omitted allow such cost from tax year 2010 in Provision for classified advances
thereby imposition of penalty and the following manner:
prosecution could be applied Rule 1 (c) provides allowability of
simultaneously.  The cost will be certified by a provision for classified advances and
Chartered Accountant or a Cost off balance sheet items at the rate of
Accountant one percent of such advances, subject
Taxation of to filing of external auditors’ certificate
Exploration and  The cost shall be allowed over a to the effect that such provisions have
period of ten years or the life of the been made in line with the Prudential
Petroleum Companies development and production or Regulations.
Fifth Schedule mining lease whichever is less,
starting from the year of The Finance Bill now seeks to further
Rule 4A of Part I commencement of commercial amend this Rule to provide admissibility
production of provisions for advances and off -
Decommissioning cost represents balance sheet items at the rate of five
estimated cost for abandonment,  If commercial production percent of total advances for consumer
restoration, removal of production st
commenced prior to the 1 July and small medium enterprises with the
facilities and bringing the site to their 2010, deduction shall be allowed condition of filing of auditors’
original condition on relinquishment of from the tax year 2010 over the certificate.
the lease area. This cost is incurred in period of ten years or the
terms of Petroleum Concession remaining life of the development The small medium enterprises shall
Agreement [PCA]. The Oil and Gas and production or mining lease, have the same meaning as defined in
Exploration & Production Companies which ever is less. the Prudential Regulation issued by the
[E&P Companies] have been claiming State Bank of Pakistan.
such as tax deductible, whereas, the
tax authorities have been disputing the Taxation of Banking As per the existing Rule 1(c), if the
claim on the pretext that this cost is not
Companies actual bad debts are less than the
an incurred expenditure and will be amount computed at the rate of one
deductible when incurred on Seventh Schedule percent, the deduction shall be limited
relinquishment of the lease area. In the to actual bad debts. In other cases
recent past the Pakistan Petroleum
Rule 1 (c) and 8A
where the actual bad debts are in
Exploration and Production Companies The Seventh Schedule was introduced excess of the amount of provisions
Association attempted to settle this vide Finance Act, 2007 with the computed at the rate of one percent,
issue with the Board by signing a objective to provide special set of rules the excess amount is allowed to be
Memorandum of Understanding (MoU). for taxation of banking business similar carried forward to subsequent tax
to insurance companies and oil and gas years.
Under the MOU, E&P Companies were exploration companies and to minimise
willing to accept the non-deductibility of litigations, especially with regard to The Finance Bill does not propose such
this cost upto tax year 2009 and the deductibility of bad debts. changes in respect of provision
Board had to recommend its computed at the rate of five percent of
deductibility in the Finance Bill 2010 The Seventh Schedule was effective total advances for consumer and small
from tax year 2010 and onwards. from tax year 2009 (income year ended & medium enterprises. Accordingly,
31 December 2008) and was subject to only five percent of such advances
In line with the understanding given in amendments from time to time. portfolio would be allowed as
the MOU, the Finance Bill proposes to admissible deduction, irrespective of
the actual quantum of the provision.

Transitional provisions made in tax year 2008 or prior Other amendments
to the said tax year.
The banking industry and the Institute Deceased Individuals -First
of Chartered Account of Pakistan were II. Provisions against charge of tax liability on
pursuing for enactment of transitional irrecoverable advances were deceased’s estate
provisions for allowability of provisions neither claimed in the return of
Sections 87
for bad debts already disallowed and income nor allowed by the tax
deductibility of unabsorbed depreciation authorities. The Ordinance provides that the legal
of lease losses. The demand of the representatives of a deceased
industry was accepted by the Federal  Rule 8A (3) - Tax depreciation on individual shall be liable for any tax that
Board of Revenue vide letter No. F. No. assets given on lease upto tax year the individual would have become liable
4(1) ITP/ 2008-49 dated 23 December 2008 would be allowed to be set off if he had not died and any tax payable
2009. The impacts of the transitional against rental income from these in respect of the income of the
provisions have been accounted for in leased assets. This proposed deceased estate.
the return of income for tax year 2009 provision would be applicable, as if
as per the contents of the above letter. the Seventh Schedule has not The Finance Bill now proposes to
However, in order to make these came into force and the taxation of provide that the tax liability under the
transitional provisions as part of the leasing transaction would be Ordinance shall be the first charge on
Seventh Schedule, the Finance Bill governed under the ordinary deceased’s estate.
proposes to insert Rule 8A in the provisions of the Ordinance.
Schedule. The salient features of these Unexplained income or assets –
transitional provisions are as follows: The Finance Bill does not provide the Addition to be made in the
effective date of transitional provisions.
relevant tax year
 Rule 8A (1) - The write off of actual Generally, the proposed amendments
bad debts against provisions for will be effective from 01 July 2010, Section 111
irrecoverable advances would be unless otherwise stated. Following this
The Ordinance provides that where any
allowed in terms of sections 29 and basis, it appears that the transitional
amount is credited in a person’s books
29A with the following conditions: provisions would be applicable with
of accounts, or a person has made any
effect from 2010, which is against the
investment or is the owner of any
I. Provisions against direction of the Federal Board of
money or valuable article, or a person
irrecoverable advances were Revenue’s letter. However, by
has incurred any expenditure, and the
made prior to tax year 2009. implications, the intent of the
person offers no explanation about the
transitional provision appears to be
nature and source or the explanation
II. These provisions neither were applicable effective from tax year 2009
offered is not satisfactory, such amount
claimed in the return of for the reason that adjustments
will be included to taxable income of
income nor allowed by the tax provided, subject to occurrence of
the person as ‘Income from Other
authorities. certain events are to be made in the
Sources’ in the tax year immediately
year in which such events take place. It
preceding the financial year in which it
 Rule 8A (2) -The write back of would, however, be appropriate if such
was discovered. However such an
provision against irrecoverable an ambiguity is clarified.
action cannot be taken if such amount
advances in tax year 2009 and
relates to a period beyond preceding
thereafter would not be taxable,
five tax years or assessment years.
subject to the conditions that:
Now, the Finance Bill proposes that

I. Provisions against
such addition will be made in such tax
irrecoverable advances were
year to which the amount relates,
whereas, limitation of preceding five tax  Only Active Taxpayers will be able special judge and transfer of case
years or assessment years is sought to to participate in the Procurement from one Special Judge to another
be abolished. Tenders for disposal
Tax liability to pass on to the  Only Active Taxpayers will be able  Eligibility criteria of special judge
estate in bankruptcy to operate as Clearing Agent, i.e. a person who is or has been a
Shipping Agent, etc. Session Judge
Section 138B
The Finance Bill proposes to insert new  Only Active Taxpayers will be able  Application of Code of Criminal
section 138B to provide that if a to serve as Consultant, Advisor, Procedure, 1898 to the
taxpayer is declared bankrupt, the tax etc. proceedings
liability under the Ordinance shall pass
on the estate in bankruptcy. This The underlying criteria to be used to These amendments were re-
section further provides that if tax become Active Taxpayer may include: promulgated through the Finance
liability is incurred by an estate in (Amendment) Ordinance 2010 and now
bankruptcy, the tax shall be deemed to  Consistent compliance in regular the Finance Bill proposes to make it
be a current expenditure in the filing of Income Tax returns, Sales part of the Ordinance in the form of Act
operations of the estate in bankruptcy Tax and Federal Excise Returns, to comply with constitutional
and shall be paid before the claims and withholding tax statements; requirements. It is also proposed that
preferred by other creditors are settled. and such changes will take effect from 05
June 2010.
Active taxpayers’ list  Timely paying taxes and
responding to the legal notices Computer generated notice or
Section 181A document bearing authentication
A new section 181A is proposed to be Trial by Special Judges in the prescribed manner shall
inserted to empower the Board to Section 203 be sufficient and valid
institute active taxpayers’ list and
Until 27 October 2009, section 203 of Section 217
regulate as may be prescribed. Though
rules yet to be prescribed, the very the Ordinance provided that an offence The Finance Bill proposes to amend
intent of this proposed section as it punishable shall be tried exclusively by provisions of section 217 of the
appears on the web-portal of the Board a Special Judge appointed by the Ordinance to provide validation to any
is that in future: Federal Government under the notice or document, if it is computer
Pakistan Criminal Law (Amendment) generated and bears the authentication
 Only Active Taxpayers will be Act, 1958. A trial could only be made prescribed by the Board. This
allowed to Import and Export upon a complaint in writing made by the amendment was earlier made through
Commissioner. the Finance (Amendment) Ordinances
 Sales Tax Input Credit/Adjustment 2009 and 2010 and now being
allowed, only if purchases are Through the Finance (Amendment) proposed to comply with constitutional
made from Active Taxpayers Ordinance, 2009, the provisions of requirements. The proposed
section 203 were changed in the amendment to take effect from 05 June
 Expenses for Income Tax will only following manner: 2010.
be admissible if purchases are
made from Active Taxpayers  Appointment of as many special
judges as the Federal Government
considers necessary and
assignment of jurisdiction to each

Immunity from investigation or Tax credits, Tax credit for enlistment
inquiry by any governmental exemptions and Section 65B
agency against any officer
concessions To encourage listing of companies on
Section 217
Tax credit for investments stock exchanges, the Finance Bill
The Finance Bill proposes a very proposes to provide tax credit to such
important amendment in section 217 of Sections 65B companies who opt for enlistment in
the Ordinance whereby no investigation any registered stock exchange in
or inquiry can be conducted by any The Finance Bill proposes to provide Pakistan.
governmental agency against any tax credit for investments by inserting a
officer or official for anything done in his new section 65B. The salient features Such a company shall be entitled to tax
official capacity under the Ordinance, of the proposed tax credit are as credit equal to 5 percent of the tax
rules, instructions or directions made or follows: payable in the tax year in which it is
issued thereunder without prior enlisted.
approval of the Board.  It shall be applicable to a company
which owns an industrial Exemption to interest on foreign
The proposed amendment seems to be undertaking set up in Pakistan loan utilised for industrial
unjust and appears to be against the investment in Pakistan
fundamental rights and public policy  Any amount invested in purchase
provided in the Constitution of Islamic of plant and machinery for Clause (72)(iii) of Part I of Second
installation, for the purpose of Schedule
Republic of Pakistan, rather it creates a
discrimination within different functions balancing, modernization and
The Finance Bill proposes to reinsert
of the executive. replacement, in an industrial
sub-clause (iii) of clause (72) of Part I
undertaking shall be entitled for this
of Second Schedule, earlier omitted
credit
Establishment of Directorate vide the Finance Act, 2006, to provide
General of Training and exemption to a foreign individual,
 Tax credit equal to 10 percent of
Research company, firm or association of
the tax payable shall be allowed
persons in respect of profit on debt on a
Section 229 against the tax payable by the
foreign loan as is utilised for industrial
company in the tax year in which
The Finance Bill proposes to insert a investment in Pakistan subject to the
such costs are incurred
new section 209 to create directorate following conditions:
general of training and research.
 Tax credit shall apply if the plant
 The agreement of such loan is
and machinery is purchased and
100% tax depreciation on ramp concluded on or after 01 February
installed at any time between 01
built for access of disabled 1991
July 2010 and 30 June 2015
persons
 The agreement is duly registerd
 If tax credit is allowed, and
Third Schedule with the State Bank of Pakistan
subsequently it is detected that the
The Finance Bill proposes to provide company did not fulfil or comply to
100% tax depreciation on a ramp built any of the conditions prescribed,
to provide access to persons with tax payable for the relevant tax
disabilities not exceeding Rs. 250,000 year will be recomputed and the
each. provisions of the Ordinance shall
apply accordingly
Exemption to income of any  Exemption from collection of tax on are acquired with the approval of the
university or any other import of plant and machinery for Ministry of Textile Industry.
educational institution in establishment of business (other
affected areas of Khyber than manufacturers and suppliers As this clause provides exemption of
Pakhtunkhwa, FATA and PATA of cement, sugar, beverages and income, therefore, appropriate place of
cigarettes) in most affected and this clause would have been Part I
Clause (92A) of Part I of Second moderately affected areas until 30 instead of Part IV of Second Schedule
Schedule, Clauses (10A) of Part IV June 2011 to the Ordinance.
of Second Schedule
For the purpose of these exemptions Exemptions withdrawn being
The Finance Bill proposes to provide
most affected areas shall mean district redundant
exemption to any income of any
Peshawar, Malakand Agency, and
university or any other educational Clauses (102), (110), (110A)
districts of Swat, Buner, Shangla,
institution established in the most
Upper Dir, Lower Dir, Hangu, Bannu, Certain exemptions have become
affected and moderately affected areas
Tank, Kohat and Chitral, whereas, redundant either due to the person no
of Khyber Pakhtunkhwa, FATA nad
moderately affected areas shall mean more existent or due to the
PATA for a period of two years ending
districts of Charsadda, Nowshera, DI amendments proposed in the Finance
on 30 June 2011.
Khan, Batagram, Lakki Marwat, Swabi Bill. Consequently, the following
and Mardan. exemptions are proposed to be
The Finance Bill further proposes
following exemptions to business withdrawn:
It is however noted that the Ordinance
located in most affected and
itself not applicable in the areas of  Dividend income of Investment
moderately affected areas of Khyber
FATA and PATA unless the same is Corporation of Pakistan [102]
Pakhtunkhwa, FATA and PATA:
extended by the President of Pakistan
or the Governor of Khyber  Capital gains exemption on listed
 Exemption from penalty on failure
Pakhtunkhwa in terms of Articles 246 securities etc. [110]
to pay tax due under proposed
and 247 of the Constitution of Islamic
section 182, provided principal
Republic of Pakistan.  Exemption of gain on transfer of
amount of tax is deposited by 30
June 2010 capital asset of existing stock
Further, existing clause (92) of Part I of exchange to new corporatized
Second Schedule already provides stock exchange [110A]
 Exemption from collection of tax on
exemption to any income of any
electricity consumption (other than
university or other educational
commercial and industrial
institution established solely for
consumers located in most affected
education purposes and not for
and moderately affected areas)
purposes of profit.
until 30 June 2011
 Exemption from collection of tax on Exemption to income of foreign

export proceeds where exports experts
originate from most affected and Clause (73) of Part IV of Second
moderately affected areas until 30 Schedule
June 2011. This exemption shall
however be restricted to the The Finance Bill proposes to insert this
exporters based in such areas. new clause to provide exemption from
income tax payable by a foreign expert
provided that services of such expert

Proposed
Tax Rates S. Taxable income
Existin
g Rate
Rate %
S. Total Income Percentage of
No (Rs.)
%
No. Threshold ‘incremental
income’ taxable
at next
Table - I 6 400,001 to 2.50 2.50 applicable tax
rate %
450,000
Salaried Individuals 7 450,001 to 3.50 3.50 1 Upto 550,000 20
550,000
The Finance Bill has proposed to
8 550,001 to 4.50 4.50 2 550,001 to 30
introduce following changes in the case 650,000 1,050,000
of salaried individuals:
9 650,001 to 6.00 6.00 3 1,050,001 to 40
750,000 2,250,000
 Enhancement of non-taxable limit
10 750,001 to 7.50 7.50
of income from Rs. 200,000 to Rs. 900,000 4 2,250,001 to 50
4,550,000
300,000. 11 900,001 to 9.00 9.00
1,050,000 5 4,550,001 and 60
 Higher slab rate of 20% being above
12 1,050,001 to 10.00 10.00
stretched down from taxable 1,200,000
income of Rs. 8,650,001 to Rs. 13 1,200,001 to 11.00 11.00

Individuals (other than salaried
4,550,000. Consequently, salaried 1,450,000 individuals and retailers)
individuals having salary of Rs. 14 1,450,001 to 12.50 12.50
The existing non-taxable limit of income
1,700,000
4,550,001 to Rs. 8,650,000 will be of individuals (other than salaried
taxable at 20% instead of present 15 1,700,001 to 14.00 14.00
1,950,000 individuals and retailers) is proposed to
rate of 19%. increase from Rs. 100,000 to Rs.
16 1,950,001 to 15.00 15.00
2,250,000 300,000. This has brought existing 14
 Concessional treatment for female
17 2,250,001 to 16.00 16.00
slabs to eight proposed slabs. The
with respect to basic exemption 2,850,000 comparison of existing and proposed
limit higher than male is proposed rate card is set out in following table
18 2,850,001 to 17.50 17.50
to be withdrawn. 3,550,000
Proposed
19 3,550,001 to 18.50 18.50
Existing
S. Taxable income
Rate %
Rate %
The existing and proposed rates 4,550,000 No (Rs.)
applicable to income of salaried 20 4,550,001 to 19.00 20
individuals are set out in following table: 8,650,000
1 Upto 100,000 0 0
21* 8,650,001 and 20.00 20
above
Proposed
S. Taxable income
Existin
2 100,001 to 0.50 0
g Rate
Rate %
No (Rs.) 110,000
%
*For comparison purposes only, otherwise

the proposed table provides tax rate of 20%
3 110,001 to 1.00 0
1 Upto 200,000 0 0 where taxable salary is above 4,550,000 125,000
4 125,001 to 2.00 0
Following marginal relief introduced 150,000
2 200,001 to 0.50 0
250,000 earlier stand applicable without any
5 150,001 to 3.00 0
3 250,001 to 0.75 0
change: 175,000
300,000
6 175,001 to 4.00 0
4 300,001 to 0.75 0.75
350,000 200,000
5 350,001 to 1.50 1.50

400,000
7 200,001 to 5.00 0
300,000
Companies
Proposed
Existing
S. Taxable income
Rate %
Rate %
No (Rs.)
The Finance Bill has not proposed any
change in rate of tax on taxable income
8 300,001 to 7.50 7.50 of company, which presently is 35%.
400,000
However, following incentives have
9 400,001 to 10.00 10.00 been proposed:
500,000
 To encourage enlistment at a stock
10 500,001 to 12.50 12.50
600,000 exchange, a 5% tax credit to be
allowed in the tax year of
11 600,001 to 15.00 15.00 enlistment.
800,000
 Tax credit equal to 10% of tax
12 800,001 to 17.50 17.50
1,000,000 payable will be allowed to a
company in the year of investment
13 1,000,001 21.00 21.00
to1,000,000
in plant and machinery for
installation, for balancing,
14 1,300,001 and 25 25 modernization and replacement
above
[BMR] in an industrial undertaking
set up in Pakistan.
Retailers (whether individuals or
Association of Persons)
Finance Bill proposes to enhance rate

of taxation of retailers under final tax
regime from 0.5% to one percent.
Association of Persons (other

than retailer)
Finance Bill has proposed to introduce

flat rate of tax of 25% to be imposed on
taxable income of Association of
Persons (other than retailer) for the Tax
Year 2010 and onwards instead of
existing 14 slab rates. It is pertinent to
note that taxability on proposed rate is
being affected retrospectively from Tax
Year 2010, instead of following year i.e.
Tax Year 2011.
Small company
Rate of tax has been proposed to

increase from existing 20% to 25% in
the case of small company.

Withholding Tax Rates
Table - II
Status of tax collected / deducted
Rate %
Existing Proposed
Sec. Type of Payment
Ind and Ind and
Existing Proposed Company Company
AOP AOP
148 Collection of tax at Imports
Value of goods inclusive of 4 5 Final Final Final Final

customs duty and sales tax
(Commercial Imports).
Import of raw material for own 3 No change Adjustable / Adjustable / Adjustable / Adjustable /
consumption by an Industrial Minimum in Minimum in Minimum in Minimum in
undertaking case of case of case of case of edible
edible oil & edible oil & edible oil & oil & packing
packing packing packing material
material material material
149 Salary Slab Slab rates Adjustable N/A Adjustable N/A

rates
150 Dividend 10 No change Final Final Final Final
151 Profit on debt
(a) Yield on an account, deposit or a 10 No change Final Adjustable Final Adjustable

certificate under the National
Savings Scheme or Post office
saving account.
(b) Profit on a debt, being an account 10 No change Final Adjustable Final Adjustable
or deposit maintained with a
banking company or a financial
institution.
(c) Profit on any security by Federal 10 No change Final Adjustable Final Final
Government, a Provincial
Government or a local Government
other than profit on National
Saving Scheme or Post Office
Rate %
Existing Proposed
Ind and Ind and
AOP AOP
Saving account to any person.
(d) Profit on any bond, certificate, 10 No change Final Adjustable Final Adjustable
debenture, security or instrument
of any kind (excluding loan
agreement between a borrower
and a banking company or a
development finance institution)
issued by a banking company, a
financial institution, company as
defined in the Companies
Ordinance, 1984 and a body
corporate formed by or under any
law for the time being in force, to
any person other than a financial
institution.
152 Payments to non-residents
(a) Royalty and technical fee 15 No change Final Final Final Final
(b) Execution of contract or sub- 6 No change Final Final Final Final subject
contract under the construction, subject to subject to subject to to option
assembly or installation project in option option option
Pakistan including a contract for
the supply of supervisory activities
in relation to such projects.
(c) Contract for advertisement 6 No change Final Final Final Final subject
services rendered by TV Satellite subject to subject to subject to to option
channel. option option option
(d) Insurance premium or 5 No change Final Final Final Final

re-insurance premium
(e) Other payments 30 20 Adjustable Adjustable Adjustable Adjustable

Rate %
Existing Proposed
Ind and Ind and
AOP AOP
153 Goods, services and execution

of contract
(a) Sales of rice, cotton or edible oils. 1.5 No change Final Final Final Final
(Adjustable (Adjustable
manufactur manufacturer /
er / listed listed
company) company)
(b) Sale of cigarettes and 1 No change Final Final Final Final

pharmaceutical products by (Adjustable (Adjustable
distributors of such goods manufactur manufacturer /
er / listed listed
company) company)
Sale of goods by Large distribution 3.5 1 Final Final Final Final

houses (Adjustable (Adjustable
er / listed listed
company) company)
(c) Sale of any other goods 3.5 No change Final Final Final Final
(Adjustable (Adjustable
er / listed listed
company) company)
(d) For passenger transport services 2 No change Minimum Adjustable Minimum Adjustable
(e) For other services 6 No change Minimum Adjustable Minimum Adjustable
(f) Execution of a contract 6 No change Final Final / Final Final /

Adjustable Adjustable
listed listed
38 Budget Brief 2010

Rate %
Existing Proposed
Ind and Ind and
AOP AOP
company company
(g) Deduction by exporter or an export 0.5 No Change Final Final Final Final
house on rendering of certain
services
153A Payment to non-resident media 10 No change Final Final Final Final

person for services relaying from
outside Pakistan
154 Exports
(a) Export proceeds, proceeds from 1 No change Final Final Final Final
sales of goods to an exporter
under an inland back-to-back letter
of credit or any other arrangement,
export of goods by an industrial
undertaking located in an Export
Processing Zone, Collection by
collector of customs at the time of
clearing of goods exported.
(b) Indenting commission. 5 No change Final Final Final Final
155 Income from Property
Annual rent of immovable property At No change Tax Tax Tax Tax imposed
including rent of furniture and varying imposed is imposed is imposed is is final,
fixtures and amounts for services slab final, final, final, instead of tax
relating to such property. rates instead of instead of instead of withheld
tax withheld tax withheld tax withheld
156 Prizes and winnings
(a) Amount of prize bond winning 10 No change Final Final Final Final
(b) Prize on cross-word puzzle 20 10 Final Final Final Final
(c) Amount of raffle/lottery winning, 20 No change Final Final Final Final

prize on winning a quiz, prize

Rate %
Existing Proposed
Ind and Ind and
AOP AOP
offered by a company for

promotion of sales
156A Petroleum products
Commission and discount to petrol 10 No change Final Final Final Final

pump operators
231A Cash withdrawal
Cash withdrawal exceeding 0.3 of the No change Adjustable Adjustable Adjustable Adjustable
Rs. 25,000 amount
withdraw
n
231AA Transactions in banks
Withdrawal made through any - 0.3 of the Adjustable Adjustable Adjustable Adjustable
mode of banking transactions transaction
including Demand Draft, Payment
Order, Online Transfer,
Telegraphic Transfer, CDR, STDR,
RTC exceeding Rs. 25,000 in a
day
231B Purchase of Motor Vehicle Varying No change Adjustable Adjustable Adjustable Adjustable
slabs
233 Brokerage & Commission
(a) Payment of brokerage and 10 No Change Final Final Final Final

commissions
(b) Commission to advertisement 5 No Change Final Final Final Final

agent
233A Collection of tax by stock

exchange
(a) On purchase of shares 0.01 of No change Minimum Minimum Adjustable Adjustable

purchase
value

Rate %
Existing Proposed
Ind and Ind and
AOP AOP
(b) On Sale of shares 0.01 of No change Minimum Minimum Adjustable Adjustable

sale
value
(c) On trading of Shares 0.01 of No change Minimum Minimum Adjustable Adjustable

trade
value
(d) Financing of COT 10 No change Adjustable Adjustable Adjustable Adjustable
234 Goods transport vehicle
Registered laden weight Varying Re. 1 per Adjustable / Adjustable / Adjustable / Adjustable /
rates per kg of lade Final in Final in Final in Final in
laden weight respect of respect of respect of respect of
weight income income income income
earned earned earned earned
through through through through plying
plying or plying or plying or or hiring out of
hiring out of hiring out of hiring out of vehicle
vehicle vehicle vehicle
234A CNG stations -On amount of gas 4 No change Final Final Final Final
bill
235 Electricity bills
(a) On electricity bill below Slab No change Minimum Adjustable Minimum Adjustable
Rs. 20,000 rates
(b) On electricity bill exceeding 10 5 Minimum Adjustable Minimum Adjustable

Rs. 20,000 /Adjustable /Adjustable
if the bill if the bill
amount amount
exceeds exceeds
Rs. 30,000 Rs. 30,000

Rate %
Existing Proposed
Ind and Ind and
AOP AOP
236 Telephone bill
(a) Telephone bill exceeding 10 No change Adjustable Adjustable Adjustable Adjustable

Rs. 1,000
(b) Mobile telephone, prepaid 10 No change Adjustable Adjustable Adjustable Adjustable

telephone card
(c) Sale of units through any electronic - 10 Adjustable Adjustable Adjustable Adjustable
medium or whatever form.
236A Sale by auction
Sale price of the property 5 No change Adjustable Adjustable Adjustable Adjustable
236B Purchase of air ticket - On gross - 5 of the Adjustable Adjustable Adjustable Adjustable
amount of purchase of domestic air gross
ticket amount

Offences and Penalties – Comparison of existing
provisions and proposed provisions
Table - III
S. Relevant
Offences Existing Penalties Proposed Penalties
No. Section
(1) (2) (5) (3) (4)

1 Failure to furnish a return of 114, Equal to 0.1% of tax payable for
income or a statement as 115,116 each day of default subject to a
required under section 115 or and 165 minimum penalty of Rs. 5,000 Equal to 0.1% of tax payable for
wealth statement or wealth and a maximum penalty of 25% each day of default subject to a
reconciliation statement; or of tax payable of that tax year minimum penalty of Rs. 5,000
and a maximum penalty of 25%
Failure to furnish a statement Rs. 2,000; and in case of of tax payable of that tax year
under section 165 within the due continuing default additional
date penalty of Rs. 200 for each day
of default
2 Failure to issue cash memo or 174 and -- Higher of Rs. 5,000 or 3% of
invoice or receipt as required Chapter VII amount of tax involved
under the Ordinance or the of the
Rules Income Tax
Rules
3 Failure to make an application 181 -- Rs. 5,000
for registration under the
Ordinance
4 Failure to notify changes of 181 -- Rs. 5,000
material nature in the particulars
of registration
5 Failure to deposit amount of tax 137 5% of the amount of tax in 5% of the amount of tax in
due or any part thereof in default default
prescribed time or manner as
laid down under the Ordinance For the second default an For the second default an
or Rules additional penalty of 20% of the additional penalty of 25% of the
amount of tax in default amount of tax in default
For the third default an For the third and subsequent
additional penalty of 25% of the defaults an additional penalty of
amount of tax in default 50% of the amount of tax in
default
For the fourth and subsequent
defaults an additional penalty of [Note: Cap on total penalty not
50% of the amount of tax in to exceed 100% of tax amount
default is proposed to be removed.]
But the total penalty not to
exceed 100% of such amount of
tax
6 Repetition of erroneous 137 -- Higher of Rs. 5,000 or 3% of the
calculation in the return for more amount of tax involved
than one year whereby amount
of tax less than the actual tax
payable under this Ordinance is
paid

S. Relevant
No. Section
(1) (2) (5) (3) (4)

7 Failure to maintain records 174 Rs. 2,000 Higher of Rs. 10,000 or 5% of
required under the Ordinance or the amount of tax on income
Rules For the second failure Rs. 5,000
For a third and subsequent
failure Rs. 10,000
8 Without any reasonable cause, 177 --
non compliance with the
provisions of section 177 by
failure to produce record or
documents on receipt of:
Rs. 5,000;
a) first notice;
Rs. 10,000; and
(b) second notice; and
Rs. 50,000.
(c) third notice
9 Failure to furnish information 176 Rs. 2,000 Rs. 5,000 for the first default
required or to comply with any and Rs. 10,000 for each
other term of the notice served For the second failure Rs. 5,000 subsequent default
under section 176 For third and subsequent failure [Note: Proposed penalties have
Rs. 10,000 no reference to assessed tax
In case assessed tax liability is liability to cap maximum
less than Rs. 10,000 the amount exposure.]
of penalty to be reduced by 75%
10 For 114,115,116,
174, 176,177
(a) making a false or and general. Where a statement or omission Higher of Rs. 25,000 or 100% of
misleading statement made knowingly or recklessly the amount of tax shortfall.
either in writing or orally or 200% of tax shortfall.
electronically including a Provided that in case of
statement in an In other case 25% of the tax an assessment order deemed
application, certificate, shortfall under section 120, no penalty
declaration, notification, shall be imposed to the extent of
Provided that in case of an the tax shortfall occurring as a
return, objection or other assessment order deemed
document including books result of the taxpayer taking a
under section 120, no penalty reasonably arguable position on
of accounts made, shall be imposed to the extent of
prepared, given, filed or the application of this Ordinance
the tax shortfall occurring as a to the taxpayer‘s position.
furnished under this result of the taxpayer taking a
ordinance; reasonably arguable position on
(b) furnishing or filing of a the application of this Ordinance
false or misleading to the taxpayer‘s position.
information or document or
statement either in writing
or orally or electronically;
(c) omission from a statement
made or information
furnished in any matter or
thing without which the
statement or the
information is false or
misleading in a material
particular
11 On denial or obstructing the 175 and177 Rs. 10,000 Higher of Rs. 25,000 or 100% of
access of the Commissioner or the amount of tax involved.
any officer authorized by the
Commissioner to the premises,
place, accounts, documents,

S. Relevant
No. Section
(1) (2) (5) (3) (4)

computers or stocks
12 Concealment of income or 20, 111 and An amount equal to tax sought Higher of Rs. 25,000 or an
furnishing inaccurate particulars General. to evade. amount equal to tax sought to
of such income, including but evade.
not limited to the suppression of However, no penalty shall be
any income or amount payable on mere disallowance However, no penalty shall be
chargeable to tax, the claiming of a claim of exemption from tax payable on mere disallowance
of any deduction for any of any income or amount of a claim of exemption from tax
expenditure not actually declared by a person or mere of any income or amount
incurred or any act referred to in disallowance of any expenditure declared by a person or mere
sub-section (1) of section 111, declared by a person to be disallowance of any expenditure
in the course of any proceeding deductible, unless it is proved declared by a person to be
under this Ordinance before any that the person made the claim deductible, unless it is proved
Income tax authority or the knowing it to be wrong that the person made the claim
appellate tribunal. knowing it to be wrong
13 Obstruction to any Income tax 209, 210 Rs. 10,000 Rs. 25,000
Authority in the performance of and
his official duties General.
14 Contravention of any of the General -- Higher of Rs. 5,000 or 3% of
provision of this Ordinance for amount of tax involved
which no penalty has,
specifically, been provided in
this section
15 Failure to collect or deduct tax 148,149,150, -- Higher of Rs. 25,000 or 10% of
as required under any provision 151, 152, amount of tax
of this Ordinance or failure to 153, 153A,
pay the tax collected or 154, 155,
deducted as required under 156, 156A,
section 160 156B, 158,
160, 231A,
231B, 233,
233A, 234,
234A, 235,
236, 236A.


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Income Tax

employee will not be subject to to Rs. 1,000,000. It is also

 Interest free / reduced rate loans  Shares in public companies which

Budget Brief 2010 17

Budget Brief 2010 19

 With tax year 31 December

Budget Brief 2010 21

Budget Brief 2010 23

Except for a separate amendment

Budget Brief 2010 25

Budget Brief 2010 27

Budget Brief 2010 29

Now, the Finance Bill proposes that

Budget Brief 2010 31

 Exemption from collection of tax on Exemption to income of foreign

Budget Brief 2010 33

income of Rs. 8,650,001 to Rs. 13 1,200,001 to 11.00 11.00

*For comparison purposes only, otherwise

5 350,001 to 1.50 1.50

Finance Bill proposes to enhance rate

Association of Persons (other

Finance Bill has proposed to introduce

Rate of tax has been proposed to

Budget Brief 2010 35

148 Collection of tax at Imports

Value of goods inclusive of 4 5 Final Final Final Final

149 Salary Slab Slab rates Adjustable N/A Adjustable N/A

150 Dividend 10 No change Final Final Final Final

151 Profit on debt

(a) Yield on an account, deposit or a 10 No change Final Adjustable Final Adjustable

Saving account to any person.

152 Payments to non-residents

(d) Insurance premium or 5 No change Final Final Final Final

(e) Other payments 30 20 Adjustable Adjustable Adjustable Adjustable

Budget Brief 2010 37

153 Goods, services and execution

(b) Sale of cigarettes and 1 No change Final Final Final Final

Sale of goods by Large distribution 3.5 1 Final Final Final Final

(e) For other services 6 No change Minimum Adjustable Minimum Adjustable

(f) Execution of a contract 6 No change Final Final / Final Final /

38 Budget Brief 2010

153A Payment to non-resident media 10 No change Final Final Final Final

(b) Indenting commission. 5 No change Final Final Final Final

155 Income from Property

156 Prizes and winnings

(b) Prize on cross-word puzzle 20 10 Final Final Final Final

(c) Amount of raffle/lottery winning, 20 No change Final Final Final Final

Budget Brief 2010 39

offered by a company for

156A Petroleum products

Commission and discount to petrol 10 No change Final Final Final Final

231A Cash withdrawal

231AA Transactions in banks

233 Brokerage & Commission

(a) Payment of brokerage and 10 No Change Final Final Final Final

(b) Commission to advertisement 5 No Change Final Final Final Final

233A Collection of tax by stock

(a) On purchase of shares 0.01 of No change Minimum Minimum Adjustable Adjustable

40 Budget Brief 2010

(b) On Sale of shares 0.01 of No change Minimum Minimum Adjustable Adjustable

(c) On trading of Shares 0.01 of No change Minimum Minimum Adjustable Adjustable

(d) Financing of COT 10 No change Adjustable Adjustable Adjustable Adjustable

234 Goods transport vehicle