Budget Brief 2008 (WEB)

The Budget Brief 2008 contains a review of
economic scenario and highlights of Finance

Bill 2008 as they relate to direct and indirect
taxes and certain corporate and other laws.
The provisions of the Finance Bill 2008 are

generally applicable from 01 July 2008, unless
otherwise specified.
The Budget Brief contains the comments,

which represent our interpretation of the
legislation, and we recommend that while
considering their application to any particular
case, reference be made to the specific
wordings of the relevant statutes.
11 June 2008
Budgetbrief2006 1
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2 Budget Brief 2008
Page
Contents
Budget at a Glance 5
Economic Analysis 7
Economic Scenario 9
Highlights (Income Tax, Customs, Sales Tax, Federal Excise and

Miscellaneous) 15
Significant Amendments
Income Tax 21
Sales Tax 41
Federal Excise Duty 49
Customs 55
Capital Value Tax 61
Workers’ Welfare Fund 63
Petroleum Products (Development Surcharge) 65
Labour Laws 67
Corporate Laws 69
This brief is being issued as part of our client service programme exclusively for the information of clients and
staff of KPMG Taseer Hadi & Co. and other KPMG member firms.
Budget Brief 2008 3
4 Budget Brief 2008
Budget at a glance
Budget Revised Budget

Estimate Estimate Estimate
2007-08 2007-08 2008-09
---------------------------------(Rupees in billion)------------------------
Tax Revenue - CBR

Direct Taxes
Income tax 388.0 367.3 477.0
Others 20.3 21.0 19.0
408.3 388.3 496.0
Indirect Taxes
Customs 154.0 148.0 170.0
Sales tax 375.0 375.0 472.0
Federal excise 91.0 92.0 112.0
Others 2.3 2.3 1.4
622.3 617.3 755.4
1,030.6 1,005.6 1,251.4
Non Tax Revenue 337.6 393.3 427.8
1,368.2 1,398,9 1,679.2
Less Provincial Share 466.0 457.2 568.3
902.2 941.7 1,110.9
Net Capital Receipts 58.5 142.8 221.3
External Receipts 258.5 275.4 300.2
Self Financing of PSDP by Provinces 122.7 129.7 124.4
Change in Provincial cash balance 51.8 32.6 78.9
Privatisation Proceeds 75.0 1.7 25.1
Bank Borrowings 80.9 424.1 149.0
1,549.6 1,948.0 2,009.8
Expenditure
Current Expenditure
General Public Services
Debt Servicing 437.4 564.2 619.4
Others 204.5 317.5 310.1
641.9 881.7 929.5
Defence Affairs & Services 275.0 277.2 296.1
Economic Affairs 78.9 293.4 201.1
Others 60.5 63.9 66.5
1,056.3 1,516.2 1,493.2
Developmental Expenditure
PSDP 470.0 395.1 472.7
Others 23.3 36.7 43.9
493.3 431.8 516.6
Total Expenditure 1,549.6 1,948.0 2,009.8
Budget Brief 2008 5
Tax Revenue
2%
2% 9%
9%
37% 37%
38%
37%
15% 14%
2007-08 2008-09
Income Tax Customs Sales Tax Fed Excise Others
1% Expenditure 1%
21% 24%
37% 38%
2%
2%
9%
19%
2%
2% 18%
24%
2007-08 2008-09
Debt Servicing Defence Public Order Economic Affair Education General Public Services Others
6 Budget Brief 2008
Economic Analysis
Domestic Debt as % of GDP

GDP Growth Trend
10.0%
9.0%
9.0% 45.0% 40.3%
39.3%
8.0% 7.5% 40.0% 35.7%
6.8% 32.8%
7.0% 6.5% 35.0% 30.0% 30.0% 30.3%
5.8% 5.8%
6.0% 30.0%
4.6% 4.7% 25.0%
5.0%
20.0%
4.0%
15.0%
3.0%
10.0%
2.0%
5.0%
1.0%
0.0%
0.0% 01-02 02-03 03-04 04-05 05-06 06-07 07-08
1980s 1990s 02-03 03-04 04-05 05-06 06-07 07-08
Overall Deficit Inflation

12,000 7.0%
6.0% 16.0%
10,000
14.0%
5.0%
8,000 12.0%
Rs. Billion
4.0% 10.0%
6,000
3.0% 8.0%
4,000 6.0%
2.0%
4.0%
2,000 1.0% 2.0%
0.0%
0 0.0%
99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08
(B)
GDP(mp) Overall Deficit CPI SPI
Budget Brief 2008 7
8 Budget Brief 2008
Economic Scenario
The Fiscal year 2007-2008 has GDP growth of 5.8 percent in 2007- GNP (Constant
5.6 6.7 6.1
Factor Cost)
exposed the vulnerability of 2008 (2006-2007 6.8 percent) has
sustainability of the growth over been contributed as follows:
Per capita income increased by
medium to long term due to high
Sectoral Contribution to the 17.2 percent in dollar terms from
inflation (both core and food) and GDP growth (Percent Point)
$925 to $1085 per annum.
burgeoning Fiscal and Current Account 2005-06 2006-07 2007-08
deficits. These factors have already Agriculture 1.4 0.8 0.3 The target for inflation for the year
started straining the Reform Process Industry 1.1 2.1 1.3 was set at 6.5 percent. However,
and putting pressure on a delicate Services 3.3 3.9 4.2 as of 30 April, it has been at 10.3
balance between fiscal and monetary Real GDP 5.8 6.8 5.8 percent and the average for the
policy initiatives to manage the year 2007-08 is expected to be 11
economy. The year did have its own A number of key targets have been percent i.e. 4.5 percent over the
uniqueness in terms of continuing missed which are generally target.
judicial crisis, imposition of emergency summarized as follows:
The overall position of inflation,
and the new government which (Percentages)
based on CPI (Consumer Price
emerged as a result of February 2008 Target Projected
Index), has been as follows:
Elections. GDP 7.2 5.8
Agriculture 4.8 1.5 2006-07 2007-08
The new democratically elected
Manufacturing 10.9 5.4 Overall inflation 7.8 10.3
government has inherited an economy Food inflation 10.3 15.0
Large Scale Manufacturing 12.5 4.8
which after a few years of continuing Non-food inflation 6.0 6.8
Investment 23.3 21.6
high growth of around 6 to 7 percent is Core inflation 5.9 7.5
National Savings 18.3 13.9
being threatened by domestic and SPI (Sensitive Price Index) 6.9 13.7
Overall Fiscal Deficit 4.0 6.5
global market issues. The domestic WPI (Wholesale Price
CPI based inflation 6.5 10.3 10.8 14.1
factors are both political and economic Index)
Current Account Deficit 6.0 8.0
policy failures, continuing political
uncertainty, judicial crisis and The structure of savings and
The composition of GDP growth in
inadequate focus on structural investment as percent of GDP is
various sectors has been summarized
weakness in key sectors such as given in following table:
in the table below:
energy, agriculture and exports, high (Percentages of GDP)
(Growth in Percentage)
food and core inflation and increasing Description 2004- 2005- 2006- 2007-
2005- 2006- 2007- 2005 2006 2007 2008
sense of deprivation in lower income
2006 2007 2008
Total
groups. Investment
19.1 22.1 22.9 21.6
GDP (Constant
5.8 6.8 5.8
Factor Cost) Changes in
The weak and bearish sentiments 1.6 1.6 1.6 1.6
Stock
across global markets, potential Manufacturing 8.7 8.2 5.4
Gross Fixed
17.5 20.5 21.3 20.0
recession and slow down in developed Large scale
8.3 8.6 4.8
Investment
manufacturing
economies, global commodity shortage - Public
4.3 4.8 5.7 5.7
Small scale Investment
and high prices and continuing increase 8.7 8.1 7.5
manufacturing - Private
in crude oil prices, have further 13.2 15.7 15.6 14.3
Investment
Construction 10.2 17.9 15.2
aggravated the situation. Foreign
Electricity, Gas 1.6 3.9 5.1 7.6
-14.7 -26.6 2.5 Savings
distribution
The economic data indicates a decline National
17 18.2 17.8 13.9
in GDP growth which is not broad Agriculture 6.3 3.7 1.5 Savings
Major Crops -3.9 8.3 -3.0 Domestic
based and three fourths of the growth Savings
15.4 16.3 16.0 11.7
Minor Crops 0.4 -1.3 4.9
was contributed by Services sector
Livestock 15.8 2.8 3.8
alone.
Services sector 6.5 7.6 8.2
Budget Brief 2008 9
The overall Fiscal deficit for 2007- weeks of imports, down from 30.6
08 was targeted at Rs. 398 billion weeks in June 2007. The external debt and foreign
i.e. 4.0 percent of GDP which is exchange liabilities (EDL) as of 31
The overall foreign investment for March 2008 stood at US$45.9
expected to be Rs. 683.4 billion i.e.
the ten months (July’ 07 to April billion which represent an increase
6.5 percent of GDP.
’08) of the current year has of $5.4 billion or 13.3 percent as
Revenue balance is expected to be declined by 32.2 percent and was against $40.5 billion as of 30 June
a deficit of Rs. 287 billion or 2.7 $3.6 billion as against $5.3 billion in 2007. The increase comprise of
percent of GDP. the corresponding period, last year. $4.2 billion as exchange translation
The detailed components of new difference and $1.2 billion as net
Exports were targeted at US$19.0
inflow of foreign investment are additional disbursement of EDL.
billion, 10.2 percent over last year.
summarized as follows: The EDL represents 26.9 percent
However, the ten months exports
(up to April’ 08) have been (in Million US$) of GDP as against 52 percent as of
US$15.3 billion i.e. 3.6 percent July - April 30 June 2000 and 28.1 percent as
2006- Change
higher than exports for the 2007 2006- 2007- percent of 30 June 2007. The EDL as
2007 2008
corresponding period for last year. percentage of Foreign Exchange
Foreign
Private 6960.0 5278.1 3580.5 - 32.2 earnings as of 31 March 2008 was
Imports were targeted at US$28.0 Investment 127.1 percent against 121.6
billion i.e. 2.1 percent lower than Foreign percent on 30 June 2007.
Direct 5139.6 4180.8 3481.6 - 16.7
the last year. However, the imports Investment
for the ten months have been Portfolio The share of interest payment as
1820.4 1097.3 98.9 - 91.0
US$32.1 billion and are showing an Investment
percentage of revenue and
increase of 28.3 percent, as Foreign
Public 1468.3 671.4 20.5 - 96.9 expenditure has been as follows:
against 8.9 percent increase last Investment
year. 8428.3 5949.5 3601.0 - 39.5 As percentage of
1999- 2005- 2006- 2007-
Trade deficit has increased to US$ 2000 2006 2007 2008
Public debt declined from 55.2
17.0 billion in the first ten months Total Revenue 41.0 18.8 22.1 21.6
percent of GDP in 2006-07 to 53.5
as against US$11.0 billion for the Tax Revenue 51.8 25.2 32.3 29.0
percent of GDP in 2007-08.
corresponding period, last year. Total
29.6 14.9 17.2 17.0
Expenditure
However, as a percentage of GDP, Domestic debt is at Rs. 3,020
Current
it is expected at 12.3 percent in billion as of 31 March 2008, against Expenditure
33.5 19.6 23.0 23.1
2007-08 and is likely to be around Rs. 2,610 billion as of 30 June GDP 5.5 2.7 3.3 3.0
US$20.5 billion. 2007.
Current Account deficit for the year Domestic debt as a percentage of Monetary Policy
2007-08 is expected to be 8.0 GDP has slightly increased from The Monetary policy had undergone a
percent of GDP. 30.0 to 30.3 percent. gradual shift, over the last few years,
Remittances of US$5.3 billion for Outstanding Domestic Debt from a relaxed monetary policy to a
(Rupees in Billions) current aggressive tight monetary
the last ten months against US$4.5
2005 2006 2007 2008
billion for the corresponding period. policy to address the inflationary
Permanent
Debt
526.2 514.9 562.5 615.7 pressure.
Foreign exchange reserves stood
Floating Debt 778.2 940.2 1107.7 1407.2
at US$12.3 billion in April 2008 State Bank of Pakistan has thrice
Unfunded
against US$13.7 billion in April Debt
854.0 859.2 940.0 997.2 enhanced the discount rate and Cash
2007 and US$15.6 billion as of 30 Total 2158.4 2314.3 2610.2 3020.1 Reserve Requirement (CRR) and
June 2007. The reserves as of percent of Statutory Liquidity Requirement (SLR).
32.8 30.0 30.0 30.3
GDP The latest package of monetary
April 2008 were sufficient for 19.4
10 Budget Brief 2008
measures, were announced on 21 May representing an increase of 111 PSDP will increase by 20 percent
2008 and the significant features of the percent. in 2008-09 over the revised
measures were as follows: estimates of 2007-08.
i) Discount rate was raised to 12 Budget 2008-2009 The share of current expenditure in
percent representing 250 basis total budgetary outlay for 2008-09
The total outlay of budget 2008-09
points over the discount rate as of is 74.3 percent as compared to
is Rs. 2,010 billion. This size is
1 July 2007. 77.8 percent in revised estimates
29.7 percent higher than the size of
for 2007-08.
ii) CRR and SLR were enhanced to 9 budget estimates 2007-08.
percent and 19 percent The expenditure on General Public
The resource availability during
respectively. Services (inclusive of debt
2008-09 has been estimated at Rs.
servicing transfer payments and
iii) The minimum margin for opening 1,836 billion against Rs. 1,394
superannuation allowance) is
of Letters of Credit for imports billion in the budget estimates of
estimated at Rs. 930 billion which
(excluding food and edible oil) was 2007-08.
is 62.3 percent of the current
fixed at 35 percent.
Net revenue receipts for 2008-09 expenditure.
iv) A floor of 5 percent was fixed for have been estimated at Rs. 1,111
The size of Public Sector
rate of return on PLS and Saving billion indicating an increase of
Development Programme for 2008-
accounts. 23.1 percent over the budget
09 is Rs. 550 billion. While for
estimates of 2007-08.
v) SBP has abolished the Annual Other Development Expenditure an
Credit plan. The provincial share in federal amount of Rs. 44 billion has been
revenue receipts is estimated at allocated. The PSDP shows an
The M2 supply growth was projected at
Rs. 568 billion during 2008-09 increase of 20 percent over the
13.7 percent based on initial target of
which is 22 percent higher than the revised estimates for 2007-08.
7.2 percent GDP growth and 6.5
budget estimates for 2007-08.
percent of inflation. The M2 supply The provinces have been allocated
growth during July-May 2008 slowed to The capital receipts (net) for 2008- an amount of Rs. 150 billion for
9 percent as compared to 14 percent 09 have been estimated at Rs. budget estimates 2008-09 in their
during the corresponding period of 221 billion against the budget PSDP.
financial year 2006-07. The Net estimates of Rs. 59 billion in 2007-
An amount of Rs. 27 billion has
Domestic Assets (NDA) of the Banking 2008.
been allocated to Earthquake
system registered an expansion of Rs.
The external receipts in 2008-09 Reconstruction and Rehabilitation
656 billion during July-May 2008 as
are estimated at Rs. 200 billion. Authority (ERRA) in the PSDP
against the expansion of Rs. 395 billion
This shows an increase of 16.1 2008-09.
during the corresponding period last
percent over the budget estimates
year. The increase in NDA was mainly Key objectives for the Budget 2008-
for 2007-08.
due to high government borrowings for 2009.
budgetary support particularly due to The overall expenditure during
Restore economic stability through:
contraction of Net Foreign Assets 2008-09 has been estimated at Rs.
(NFA) due to weakness in external 2,010 billion of which the current Reduction in Fiscal and
balance of payments position. expenditure is Rs. 1,493 billion and Current Account deficits.
Public Sector Development
The borrowing requirement of the Rationalization of subsidies.
Programme (PSDP) at Rs. 550
government, based on 23 May
billion. Current expenditure shows Building Foreign exchange
statistics, increased from Rs. 324 billion
a decrease of 1.5 percent over the reserves to US$12 billion.
(net of privatization) to Rs. 683.4 billion
revised estimates of 2007-08, while
Budget Brief 2008 11
Protect vulnerable groups throughout the Reform process, have
through targeted program of been threatened by large slippages in
cash transfers. the Budget 2007-08. This has had
multiplier effect on a large of proportion
Focus on Agriculture and
our population of around 70 to 80
Manufacturing sectors to
million, below income level of less than
enhance productivity and
two dollars due to higher food inflation
competitiveness.
and lesser job opportunities.
Restore Investors confidence.
The trend of relying mostly on services
Remove key bottlenecks in and trading sector has continued during
supportive infrastructure for 2007-08 and the Agriculture and
spurring growth. Manufacturing sectors had shown
relatively poor performance during this
Increase social sector
period. In view of high poverty level and
allocations to improve social
economic potential of the country the
indicators.
focus required a significant change and
Significant addition to low cost it is heartening to note that an effort has
housing for low income groups. been made for 2008-09 to have more
focus on Agriculture and Manufacturing
Key Assumptions of macro-economic sectors to ensure that our growth is
conditions for 2008-2009 are as broad based and sustainable. Further,
follows: the proposals have also been included
Revised for direct intervention measures to
Estimate accelerate impact on a large poor
2008-2009 2007-2008
section of the population and to ensure
GDP growth 5.5 5.8
that the growth transforms into an
Inflation 12 percent 11.0 percent
inclusive growth.
Gross Investment to
25 percent 21.6 percent
GDP
The targets set by the policymakers are
Fiscal deficit 4.7 percent 6.5 percent
laudable but a concerted and cohesive
Current Account
deficit
6.0 percent 8.0 percent effort will be required to ensure that
Foreign exchange US$ 12 US$ 12.3 targets which appear to be ‘stretched
reserves billion billion targets’ under the current scenario are
Rs. 472.7 Rs. 395 achieved if not exceeded. It is
Development Plan
billion billion
imperative to note that any slippages
Conclusions this year could have very severe socio-
political implications.
The Budget 2008-2009 has been
announced as part of development of a
long term perspective plan with certain
stated key objectives by a government
which was elected through a popular
mandate in February 2008.
The macro-economic strategy over the

last few years which was hard earned
by the nation through sacrifices made
The SWOT Analysis of Pakistan Economy is given below:
Strengths Weaknesses
4-5 years of strong growth has led to higher medium Credibility of statistics
term growth path Indications of doubtful sustainability of growth momentum
Resilience against shock and extra ordinary jerks Continued sharp increase in prices of food items
Rise in per capita income from US $ 503 in 2002 to US Incompetent contribution of various sectors of economy in
$ 1085 in 2007-08 tax revenue
Robust Consumer spending Inefficiency in utilization of development expenditure
Substantial increase in private sector credit High administrative costs
Balance between fiscal deficit and growth Quality of governance
Medium Term Development Framework Record trade and Current Account deficits
Maintenance of external and domestic debt within limit Concentration of export in restricted items and markets
Reach to Global Capital Markets High cost of doing business
Geo political situation post 9/11 Lack of focus on agriculture sector
Higher foreign direct investment Political instability
Reduction in poverty level Shortage of skilled workforce
Tight monetary policy to moderate inflationary pressure Energy crisis and water crisis
Poor HDI indicators
Decline in trend of foreign investment
Increasing trade and current account deficit
Continued subsidies to loss making public sector
companies
Pakistan Economy Challenges

y y g
Sustainability of growth momentum Supply side improvement to match growing
Addressing structural problems in domestic demand
energy, agriculture and exports Achieve political stability and institutional
sectors strengthening
Job creation Harmonious relationship amongst Federation
Poverty alleviation and its units
Improving social indicators and Equitable distribution of resources between
enhancement of safety nets Federal, Provincial and Local governments
Strengthening of physical infra- Revenue generation by provinces
structure Balanced approach of combination of Fiscal and
Converting the demographic Monetary Policy measures to combat inflation
transitions into demographic dividend
Opportunities Threats
Capacity constraints with India in IT sector Political uncertainty and current judicial crisis
Recent investment in IT sector Issues in Balochistan and Northern Areas
BPO’s potential Worsening of situation on Western borders
Telecom and Media revolution Anti Pakistan attitude in Afghanistan
Geo political situation Level of corruption
Foreign Direct Investment Broadening gap between Rich and Poor
Investment in education and health Social unrest
Lapsing of WTO multi-fibre agreement Public discontent with the policies which may threaten
Global high commodity prices reform process
Focused skills development to secure dividend Persistent high global oil prices
from demographic advantage Increasing trend of terrorist activities
Pressure on exchange rates
Soaring core and food inflation
Highlights
percent withholding tax treated as additional tax or penalty levied

Income Tax final tax. thereon.
Definition of term dividend enlarged Thin capitalization rule to apply to a Withholding tax on payment to non-
to include after tax profits of a Pakistan branch of foreign resident allowed to be made on
branch of foreign company company. reduced treaty rates without
operating in Pakistan. intimation to the Commissioner.
Provisions regarding minimum tax
Holder of National Identity Card for omitted. Submission of import documents
Overseas Pakistanis (NICOP) required for remittance of foreign
Builders and developers of
made eligible for Voluntary Pension currency for imports without
residential, commercial and
Scheme deduction of tax where title to the
industrial property subjected to
goods passes outside Pakistan.
Threshold for payment of salary minimum tax at specified rates.
other than through banking channel Remittances through foreign
Wealth statement to be filed by
enhanced from Rs. 10,000 to Rs. currency accounts and exchange
salaried employees, where salary
15,000. companies treated as payment to
income is Rs. 500,000 or more
non-residents for withholding tax.
First Year Allowance in the shape even if annual statement filed by
of accelerated depreciation @ 90 the employer is treated as filing of Small company to act as
percent proposed for industrial income tax return. withholding tax agent.
undertakings in specified rural and
Board empowered to introduce “Manufacturer” defined for purpose
underdeveloped areas.
scheme of investment tax payable of exclusion from final tax regime in
Exemption from income tax, on undisclosed income / respect of tax deducted from
reduction in rate of tax or tax unexplained assets. supply of goods.
liability and exemption from
Time limit prescribed for CIT AOP having turnover of Rs. 50
operation of provisions of Income
(Appeals) to pass fresh order on million and above and individual
Tax Ordinance 2001 provided in
remand from higher appellate having turnover of Rs. 25 million
other laws and in force on the
authorities. and above to act as withholding tax
commencement of the Ordinance
agent.
withdrawn. Time limit for decision by CIT
(Appeals) in respect of appeal filed Payment for advertisement
Set-off and carry forward of
before him increased from three to services to a non-resident media
accumulated losses of
four months, person relaying from outside
amalgamating or amalgamated
Pakistan, subjected to withholding
NBFC, modaraba or insurance FBR empowered to entertain
tax of 10 percent which shall be
company or banking companies application for correcting error in
final tax.
allowed upto a period of six years. order or decision of the Board in
Alternate Dispute Resolution Board empowered to exempt
Limit of donation for the purpose of
cases. persons, class of persons, goods
tax credit reduced from 30 percent
or class of goods from withholding
to 10 percent for individuals and Time limit for payment of tax
tax.
AOP and from 15 percent to 10 demand reduced from thirty days to
percent for companies. fifteen days. Commissioner empowered to
require installation of electronic tax
Insurance premium and re- Board empowered to make
register by any person.
insurance premium paid to a non- scheme for recovery of tax arrears
resident person subjected to 5 or withholding tax and waiver of
New scheme introduced for Graduated tax rates for small Tax free contribution by employer
taxpayer’s registration in lieu of company, where turnover exceeds to recognized provident fund
National Tax Number certificate. prescribed limit of Rs. 250 million. restricted to lower of one-tenth of
salary or Rs. 100,000.
Consequential relief in amount of Separate graduated tax rates and
penalty on reduction of concealed withholding tax rates for rental Employer’s contribution to
income in appeal. income earned by corporate and approved superannuation fund that
non-corporate taxpayers. is not exempt liable to withholding
Fine for failure to maintain
tax at the rate of tax applicable to
prescribed records not to exceed Withholding tax rate on imports
year of withdrawal instead of
Rs. 50,000. reduced from 5 percent to 2
average rate of tax of preceding
percent.
New establishment of Directorate three years.
General of Withholding Taxes Rates of withholding tax on private
For banking companies, provision
proposed. motor cars revised.
for classified advances / off
Withholding tax collection Withholding tax rate on telephone balance sheet items to be allowed
prescribed on purchase of new bills exceeding Rs. 1,000 @ 10 as per section 29 and 29 A of
motor car and jeeps on first percent instead of graduated rates. Ordinance instead of the amount
registration. claimed in accounts supported by
Rate of withholding tax on cash
certificate from external auditors.
Withholding tax on stock exchange withdrawals from bank exceeding
transactions, other than in respect Rs. 25,000 increased from 0.2
of financing of carry over trades, percent to 0.3 percent. Customs
made minimum tax instead of final
Redundant exemptions deleted Duty concessions and sales tax
tax.
from Second Schedule. exemption on import of capital
Tax collected on electricity bills goods, even if manufactured
Income of State Bank of Pakistan locally.
upto bill amount of Rs. 20,000 per
and State Bank of Pakistan
month treated as minimum tax.
Services Corporation exempted. Import of non-essential and luxury
Electronic record generated, items discouraged by enhancing
Exemption on capital gains on the rates of customs duty.
maintained, issued, served,
shares etc. extended upto tax year
received, filed or requisitioned by
ending 30 June 2010. Higher incidence of import duty on
the Board to be treated as valid,
cars/ jeeps above 1800 cc.
authentic and according to Tax liability on yield from Bahbood
provisions of the Ordinance. Saving Certificates or Pensioners Rates of cumulative duty and taxes
Benefit Account limited at 10 on import of used or old vehicles
Basic exemption for salaried
percent. enhanced by 10 percent.
taxpayer increased from Rs.
150,000 to Rs. 180,000 and for Unrealized gains and losses on Customs duty at the rate of Rs.500
woman salaried taxpayer from Rs. investments in the case of non-life per set levied on import of mobile
200,000 to Rs. 240,000. insurance companies to be phone.
excluded from computation of
Marginal relief provided for salaried Rationalization of customs duty
taxable income.
taxpayers against enhancement in rates on cascading principle on
tax due to change in slab. Exemption on capital gains on import of industrial inputs.
shares etc. earned by insurance
Society and Cooperative society to The time limit for passing the
companies extended upto tax year
be taxed at par with company. adjudication order enhanced from
ending 30 June 2010.
90 days to 120 days.
Duty concessions for Rate of default surcharge Biscuits, confectionary and snacks
manufacturers of toilet and laundry enhanced from 1 percent to 1.5 excluded from the retail based tax
soaps based in Azad Jammu & percent per month. regime.
Kashmir.
Monetary limit for single member
Additional customs duty on import Appellate Tribunal increased from Federal Excise
of components and sub- Rs. 1.5 million to Rs. 10 million.
Change in definition of ‘duty due’
components of auto sector.
Exemption of sales tax on import has been made which refers to
Exemption / concession of customs and local supply of fertilizers and payment of FED at the time of filing
duty on import of industrial inputs pesticides. the return.
including duty free samples.
Exemption of sales tax on import The scope of ‘franchise services’
Exemption / concession of customs and local supply of fertilizers and extended.
duty on import of non-survey based exemption of sales tax on energy
Services rendered outside Pakistan
goods. saver lamps.
and recipient in Pakistan made
Amnesty scheme for release of Acetic acid, soda flakes/solid, chargeable to FED.
confiscated / smuggled vehicles on cotton linter and sequins zero
Time limit for revision of returns
payment of arrears of duty and rated.
enhanced from 90 to 120 days.
taxes.
Sales tax refunds to persons
Time limit for adjudication of cases
registered in AJK on purchase of
Sales Tax taxable goods from Pakistan.
Enhancement of FED rate from 15

Sales tax rate increased both on Refund/exemption of sales tax on
percent to 16 percent on goods
goods and services from 15 reciprocal basis to non-resident
and services subject to FED in VAT
percent to 16 percent. entrepreneurs visiting Pakistan on
mode.
business tours.
Change in definition of “taxable
Enhanced rate of FED at the rate
activity” enhanced to supply of Exemption of sales tax on medical
of 21 percent proposed on all
goods, rendering of services or equipment, apparatus, reagents,
telecommunication services.
both. disposables, spares and donations
supplied to operating hospitals of Rate on cement enhanced to nine
Unclaimed input tax credit to be
more than 49 beds. hundred and fifty rupees per metric
claimed in six succeeding tax
ton.
periods instead of twelve. Amnesty scheme for wavier of past
dues for unregistered persons if Rates on domestic and
Carry forward of excess input tax
registered by 31 July 2008. international traveling increased.
over output tax is re introduced for
all registered persons. Sui Northern Gas Pipelines Limited Increase in retail price and rate of
to deduct input tax on gas supplies FED on cigarettes notified.
Sales tax officer to conduct audit
in AJK.
even if audited earlier by office of FED levied at the rate of five
the Auditor General. Fixed tax @ 0.7 5percent at import percent on import as well as locally
and manufacturing stage in lieu of manufactured cars exceeding
Time limit for revision of returns
tax payable by dealers of electric engine capacity 850 cc.
goods.
Rates of FED on banking,
Time limit for adjudication of cases
insurance and franchise services
increased from five to ten percent.
Crop insurance exempted. West Pakistan Industrial and Securities and Exchange
Commercial Employment Ordinance, 1969
Registered manufacturer importing
Carton black oil as raw.
(Standing Orders) Ordinance,
More elaborative provisions
1968
introduced to deal with insider
Rate of default surcharge
Workman to get normal monthly trading.
enhanced from 1 percent to 1.5
percent per month. wages even during suspension
Strict penal provision introduced to
period for misconduct enquiry.
curb insider transactions.
Exemption from payment of whole
amount of default surcharge and The Minimum Wages for
Modaraba Companies and
penalties if the principal amount Unskilled Workers Ordinance, Modaraba (Floatation and
paid unto 30 June 2008. 1969
Control) Ordinance, 1980
Adjudication authorities to pass the Legal cover provided to minimum
Registrar empowered to issue
order within 240 days of show wages of Rs. 6,000.
binding directions to any modaraba
cause notice. company.
Employees’ Old-age Benefits
Collector to pass the appellate Act, 1976 Companies Ordinance, 1984
order within 240 days of filing the
Establishment with five employees Period of four months for holding of
appeal.
brought under the scope of AGM reinstated.
The limitation for re-opening Employees’ Old-age Benefits Act,
enhanced from two to five years. 1976. Prescribed period for payment of
dividend after declaration removed
Penalty of Rs.5,000 in case of non- Exception removed to bring bank and Commission empowered to
filing the return. If return filed within or banking company under the specify such period.
fifteen days after the due date, ambit of Employees’ Old-age
penalty at the rate of Rs.100 for Benefits Act, 1976. Economic Reforms Act, 1992
each day of default will be levied.
Minimum pension benefit under Foreign Exchange Regulation no
Employees Old-age Benefits Act, more subservient to Economic
Miscellaneous 1976 increased to Rs, 2,000. Reforms Act.
The Provincial Employees’ Existing pension benefit enhanced Securities and Exchange
Social Security Ordinance, 1965 by 15 percent. Commission of Pakistan Act,
Wage limit enhanced to Rs. 10,000
1997
Foreign Exchange Regulation
for applicability of Provincial Act, 1947 The number of members on the
Employee’s Social Security Securities and Exchange Policy
Ordinance, 1965. State Bank of Pakistan empowered
Board reinstated to nine.
to impose substantial penalties on
Employer’s Social Security any defaulting persons under the No more involvement of Finance
contributions caped at 6percent . FE Regulations. Minister, or Advisor to Prime
Minister on Finance ensuring
Monthly contribution per employee Overriding effect of Economic
Commission’s independence.
enhanced to Rs. 360 per month Reforms Act, 1992 on the FE
under Social Security self Regulations removed. Khushhali Bank Ordinance, 2000
assessment scheme.
Khushhali Bank Ordinance
repealed so as to regulate all
microfinance banks under one
legal framework.
The Insurance Ordinance, 2000
Minimum supervision fee increased

from Rs. 100,000 to Rs. 500,000.
Rules made under section 66(4)

provided protection from expiry.
Listed Companies (Substantial

Acquisition of Voting Shares and
Take-overs) Ordinance, 2002
Right to decide percentage of the

voting shares to be acquired
transferred from acquirer to the
Commission.
Penalty for non-compliance /

contravention enhanced
substantially.
Income Tax
Significant amendments
company’ etc in lieu of previous to bring the payment within the ambit of
Definitions definitions in light of the changes Pakistan-source income. Similarly,
brought in the relevant laws, a amendment would be required in
Sections 2(5B), (19A), 2(30A),
similar substitution has not been section 150 to bring branch profit
2(30B), 2(35B)
proposed for the definition of remittance within the ambit of
“Private Equity and Venture Capital withholding tax.
The Finance Bill seeks to extend
Fund’. It is pertinent to note that
the benefit of tax credit under
Voluntary Pension System Rules,
while omitting the definition, there
is no proposal to amend the
Real Estate
2005 to overseas Pakistanis
corresponding references in the Investment Trust
participating in the scheme and
holding national identity card.
relevant sections of the Ordinance Scheme
where this term has been used.
Section 2(47A) and 2(47B)
The Bill proposes to replace
definitions of ‘asset management Taxation of profits The concept of Real Estate Investment
company, ‘investment company’, repatriated by Trust [REIT] was introduced through
the Finance Act, 2006. Specific
‘leasing company’ and ‘non-
banking finance company’ in line branches of foreign exemptions from tax as well as
with the changes brought in laws companies withholding tax provisions were
governing these companies. As provided to REITs to encourage
the laws referred to in the existing Section 2(19) investment in the real estate sector by
definitions stand replaced by the the public at large by routing savings
Presently, after tax profits repatriated
Non-Banking Finance Companies through a collective investment
by a branch office of a non-resident
(Establishment and Regulation) scheme. To this effect, SECP
company operating in Pakistan to its
Rules 2003 and the Non-Banking introduced the REIT Rules, 2006;
Head Office are not subject to tax. This
Finance Companies and Notified however these have now been
has been a comparative advantage to
Entities Regulation, 2007, the replaced by REIT Regulations 2008. In
non-resident companies operating
proposed amendments are to bring line with this change in regulatory
through branch office as compared to
conformity in the definitions as regime, the Finance Bill seeks to
locally incorporated subsidiaries, where
used in the legislations regulating substitute the current definitions of
payment of dividend to shareholders is
such companies and the tax law. ‘REIT’ and REIT management
taxed at 10 percent.
company’ with ‘REIT Scheme’ and
The Bill seeks omission of ‘REIT management company’ as
The Finance Bill seeks to remove this
definitions of ‘Private Equity and contained in the REIT Regulations
distinction between a local company
Venture Capital Fund’ and ‘Private 2008.
and a branch office by extending the
Equity and Venture Capital Fund definition of ‘dividend’ to include
Management Company’ since In terms of REIT Regulations 2008,
remittance of after tax profits of
these definitions referred to Private REIT Scheme is a closed end mutual
branches of foreign companies.
Equity and Venture Capital Fund fund launched by a REIT Management
Rules, 2007 are no more relevant Company which is licensed by SECP to
The apparent intention is that tax at 10
after issuance of NBFC and launch REIT Scheme and provide REIT
percent of after tax profits of a branch
Notified Entities Regulations, 2007 management services.
office will be chargeable as and when
by SECP governing venture such profits are repatriated to the Head
capitals. It is however to be noted No change has been proposed in tax
Office. Though branch profit is being
that whereas new definitions have exemptions and other benefits already
included in the definition of dividend,
been proposed for ‘investment available to REITs. However, there is a
yet it would require appropriate
company’ and ‘asset management need to correct the reference in other
amendment in section 101(6) in order
provisions which still carry the relate to admissibility of initial and carry forward of accumulated
reference of REIT Rules, 2006. allowance. losses of amalgamating companies
against income of the amalgamated
Inadmissible Exemption and tax company was restricted to assessed

losses of amalgamating companies for
deduction provisions in other the year of amalgamation only.
Salary payment Section 21(m) laws The Finance Bill now seeks to restore
Section 54 the position existing prior to Finance
Under section 21(m) salary paid or
Act, 2007 relating to carry forward and
payable exceeding ten thousand
Section 54 currently provides protection set-off of accumulated business losses
rupees per month, other than by a
to the provisions of other laws, in force to the extent of amalgamation of non-
crossed cheque or direct transfer of
at the commencement of the banking finance companies,
funds to the employee’s bank account
Ordinance, providing exemptions from modarabas and insurance companies.
is considered as an inadmissible
tax, tax at reduced rates, reduction in Accordingly, for amalgamations taking
deduction.
tax liabilities or exemption from place after 01 July 2008, the
The Finance Bill proposes to enhance operation of a particular provision of the amalgamated company will be entitled
the threshold from Rs. 10,000 to Rs. Ordinance. to set-off of accumulated business
15,000. Accordingly, salary paid in cash losses of the amalgamating companies
upto Rs. 15,000 would now qualify as The Finance Bill now seeks to withdraw against its income, subject to a six year
admissible deduction. the said exemptions available under the carry forward life starting from the tax
provisions of other laws in force at the year succeeding the tax year in which
commencement of the Ordinance.
First year allowance loss was first incurred by the
amalgamating company. It is however
Section 23A Tax benefit on suggested that this benefit should be
Third Schedule (Part II) extended to all amalgamations as
amalgamation of covered in section 2(1A) of the
The Finance Bill proposes to insert a
new section 23A to provide for
specified entities Ordinance.
allowability of first year allowance on Section 57A

plant, machinery and equipment Charitable Donations
The Ordinance since its inception in
installed by any industrial undertaking
2002 had explicitly provided for set-off Section 61
set up in specified rural and under
and carry forward of tax losses of
developed areas, and owned and Under section 61, a person is entitled
amalgamating companies against
managed by a company. for a tax credit on sum paid or property
income of the amalgamated company
given as donation to specified
The rate of first year allowance would in a manner similar to carry forward of
institutions. The tax credit under this
be 90 percent on eligible depreciable such losses by the amalgamating
section is calculated by applying a tax
assets, as defined in section 23, used company itself. This benefit was
to taxable income ratio on the amount
after 01 July 2008 and would be initially available to banking companies
which is the lesser of:
allowed in place of initial allowance and non-banking financial institutions
admissible under section 23. and was subsequently extended to Amount of donation, including the
cover companies operating in the fair market value of property given.
The provisions of section 23 would
insurance sector as well as companies
apply, while claiming the first year Thirty percent of the individual or
managing industrial undertakings or
allowance, except provisions of sub- association of person’s taxable
providing services. However, through
section 1 and 2 of section 23 as they income or fifteen percent of the
an amendment brought through the
Finance Act, 2007, benefit of set-off
company taxable income as the
case may be.
inadmissibility of insurance or
reinsurance premium paid in case of
Minimum tax
non-withholding of tax by the insurance Section 113
The Finance Bill proposes to reduce
company. Section 137, 147(4AA) & 147(6AA)
the limit from thirty percent to ten
percent of individual’s or association’s Section 80D of the Repealed
However, where a tax treaty exists
taxable income and the limit of fifteen Ordinance was inserted through
between Pakistan and the country of
percent to ten percent of the company’s Finance Act, 1991 to provide payment
residence of the non-resident insurance
taxable income. of minimum tax by a resident company
company, provisions of such treaty will
@ 0.5 percent of the turnover, where
override the proposed amendments in
Taxation of insurance so far as these are more beneficial to
no tax is payable or the tax paid is less
than minimum tax.
premium of non- the non-resident. Generally, tax
treaties provide for taxation of business At the time of promulgation of the
resident insurance income only, if it is attributable to a PE Income Tax Ordinance, 2001, the
companies in Pakistan of the non-resident provisions of section 80D were carried
company. in the Income Tax Ordinance, 2001 by
Sections 101(13A), 152(1AA),
way of section 113.
152(1BB), Division II of Part III of
the First Schedule and Rule 5(d) of Thin Capitalisation Minimum tax levy was generally viewed
the Fourth Schedule rule to apply to as unjust due to the reason that the
company was liable to this tax, in spite
Presently, the Ordinance does not branches of foreign of incurring losses or availability of
explicitly provide for taxation of companies exemptions, etc.
insurance or re-insurance premium of
non-resident insurance companies as Section 106 The Finance Act, 2004 allowed some
earned through insurance in Pakistan relief by way of carry forward of
The Ordinance provides for
or providing reinsurance to Pakistani minimum tax, for set off against future
inadmissibility of interest expense
insurance companies. Such income is tax liability for five tax years,
incurred by a foreign controlled resident
accordingly considered taxable only in immediately succeeding the tax year for
company on a foreign loan from
case attributable to a permanent which the amount was paid.
shareholders or an associate of
establishment [PE] of the non-resident
shareholders in so far as the foreign The Finance Bill now seeks to delete
insurance company in Pakistan. Since
loan to foreign equity ratio exceeds 3:1. section 113 which should be
non-resident insurance companies
This provision applies where interest on considered as a positive move.
generally do not operate in Pakistan
such loan is either exempt or taxable at However, while deleting this section,
through a PE, the Finance Bill proposes
a rate, lower than the rate provided in provisions regarding unadjusted
to charge tax on insurance premium of
the Ordinance. minimum tax were required to be
such companies in case it is paid by an
continued till the minimum tax paid in
insurance company in Pakistan by
The Finance Bill proposes to extend its prior years was fully adjusted but this
treating it as Pakistan-sourced income.
applicability to branch of a foreign has not been done.
The Finance Bill seeks to impose
company. However, suitable
withholding tax at 5 percent of Due to deletion of section 113,
amendments have not been proposed
insurance or re-insurance premium consequential amendments have also
in definitions of ‘foreign equity’ and
which will be considered final discharge been proposed in section 137 relating
‘foreign debt’ to appropriately cater to
of the tax liability of the non-resident to payment of tax on due date and
the proposed change which may result
insurance company. The Fourth section 147(4AA) relating to payment of
in interpretational issues.
Schedule to the Ordinance is also advance tax.
proposed to be amended to provide for
Taxation of Builders Persons not required introduced in July 1997 providing tax at
the rate of 7.5 per cent on undisclosed
and Developers to furnish a return of income. Subsequently, another Tax
Section 113C income Amnesty Scheme 2000 was introduced

with tax rate of 10 per cent on
The Finance Bill proposes to insert a Section 115(1) undisclosed income which was
new section 113C to deal with taxation enhanced from 11 per cent to 14 per
Under section 116 (2), every resident
of builders and developers. A person cent depending on timing of
individual is liable to file wealth
who is a developer of land for declarations filed during the extended
statement along with his return of total
residential, commercial or industrial period of the amnesty. This amnesty
income where his last declared or
purposes or a builder engaged in scheme was also coupled with property
assessed income or declared income
construction of houses, commercial or and commercial surveys. Under this
for the year exceeds Rs. 500,000.
industrial property shall be liable to pay scheme, assets of approximately Rs.
Whereas, proviso to section 115(1)
tax in the following manner. 120 billion were disclosed on which tax
states that salaried individual shall not
collection was around Rs. 12 billion.
Builder Rs. 50 per square be required to file the return of total
feet on covered income, if his employer has filed the
There is no provision in the Ordinance
constructed area. annual statement of salary. Therefore
parallel to section 59D of Repealed
salaried individuals were not filing the
Developer Rs. 100 per square Ordinance, empowering FBR to
wealth statements on the plea that
yard on the area of announce any amnesty scheme.
wealth statement can only be filed
land developed. along with the return of total income
The Finance Bill now seeks to insert a
The imposition of tax in the above and since return is not required to be
new section 120A in the Ordinance to
manner would be considered as filed, therefore wealth statement is not
empower FBR to make a scheme of
minimum tax and as such the builder necessary.
payment of investment tax in respect of
and developer would be required to The Finance Bill seeks to substitute the undisclosed income, representing any
compare minimum tax liability with tax sub section 1 of section 115, whereby amount or investment made in movable
liability computed under normal tax annual statement of salary filed by the or immovable assets. The salient
regime and pay the higher of these employers would be considered as features of the proposed new section
amounts as tax. return of total income furnished by the are as follows:
The terms “builder” and “developer” salaried individual. The proviso to
have not been defined in the Income substituted sub section (1) makes A person who declares undisclosed
Tax Ordinance, 2001, therefore the salaried individual liable to file wealth income in accordance with the
meaning of these terms as used in statement as required under section scheme and the rules, the tax on
common parlance may be adopted 116. such income called ‘investment tax’
which would include persons who carry shall be charged at such rate as
out the activity of construction and Investment tax on may be prescribed;
development of property in ordinary
course of business.
income The person shall be entitled to
Section 120A incorporate such income in books
of accounts in tangible form; and
Under the Repealed Ordinance, in
1997, section 59D was inserted The person shall not be liable to
enabling the then CBR to make a pay any tax, charge, levy, penalty
scheme for the payment of tax on or prosecution in respect of such
undisclosed income. Exercising such income.
powers, an amnesty scheme was
The proposed section defines of three months from the end of the return of income for that year. Due to
‘undisclosed income’ as any income month in which the appeal was lodged proposed omission of section 113 for
including any investment to be deemed provided a notice by the appellant payment of minimum tax, consequential
as income under section 111 of the stating that no order has been made is omission is being proposed in section
Ordinance (relating to unexplained personally served by the appellant on 137.
income or assets) or any other deemed the Commissioner (Appeals) at least
The Finance Bill proposes to reduce
income, for any year or years, which thirty days before the expiration of
the time limit for payment of tax
was chargeable to tax but was not so period of three months. Any period
determined under an assessment order
charged. during which the hearing of appeal is
or an amended assessment order or
adjourned on the request of the
any other order issued by the
The ‘investment tax’ is defined as tax appellant is excluded in the
Commissioner from thirty days to fifteen
chargeable on the undisclosed income computation of the period of three
days.
under the scheme and shall have the months referred to above. The Finance
meaning of ‘tax’ as defined in section Bill proposes to enhance the said
2(63) of the Ordinance. Although the period of three months to four months Tax arrears
Bill does not specify any tax rate for this and consequential amendments are settlement incentive
scheme, the Finance Minister in his proposed in relevant sub-sections.
budget speech indicated rate of scheme
2percent .
Alternative Dispute Section 146B
Resolution A new section 146B is proposed to
Assessment giving Section 134A
empower FBR to make scheme in
effect to an order respect of recovery of tax arrears or
A new sub-section (4A) is proposed to withholding taxes and waiver of
Section 124 be inserted empowering the Chairman additional tax or penalty levied thereon.
of the Board to entertain and decide an It is also proposed to empower FBR to
Where the Income Tax Appellate
application for correcting any error in make rules under section 237 for
Tribunal, High Court and Supreme
order or decision of the Board in implementation of such scheme.
Court remands any matter to
Alternative Dispute Resolution cases.
Commissioner of Income Tax (Appeals) This provision may help in curtailing
Further, according to salient features of
for making a fresh order, the Bill protracted litigation and timely recovery
budget, a time limit of 90 days is being
proposes time limitation of one year of due taxes.
provided under the Income Tax Rules
from the end of the financial year in
2002 for making an order by the FBR
which the Commissioner is served with
the order.
on receipt of recommendations from Collection of tax on
the ADRC. import of goods
Time limitation for Due date for payment Section 148, Part II of First
order by of tax
Schedule
Commissioner of Under section 148 Collector of customs

Section 137(2) is required to collect tax at the general
Income Tax (Appeals) rate of 5 percent of the value of goods
The due date for payment of tax
Section 129 imported.
payable by a taxpayer on the taxable
The Commissioner of Income Tax income including minimum tax payable The Finance Bill proposes to reduce
(Appeals) is required to make an order under section 113 for a tax year is the the rate of collection of tax from 5
on an appeal filed before the expiration due date for furnishing the taxpayer’s percent to 2 percent. This reduction in
tax rate has been given immediate insurance company shall be deemed to Payment to non-residents
effect vide S.R.O. 566(I)/2008 dated 11 be Pakistan source income. through foreign currency
June 2008, which imply that the accounts and exchange
reduction in collection of tax rate is Consequential amendments is companies
applicable with effect from 11 June proposed in section 152 to provide that
2008. every person making payment of An explanation is being proposed to be
insurance premium or re-insurance inserted to clarify that payments to non-
Certain amendments are also proposed residents include remittances, through
premium to a non-resident person shall
regarding concessionary withholding foreign currency accounts and
deduct tax from the gross amount paid
tax rates under section 148 in Second exchange companies and that this
at the rate of 5 percent which shall be
Schedule which are discussed in our section shall mutatis mutandis apply,
treated as final tax on the income of the
comments on the proposed on transactions through such accounts
non-resident person arising out of such
amendments in Second Schedule. and companies.
payment.
Section 148 (4A) It appears that the aforesaid
Payment liable to reduced rate
The Commissioner is empowered explanation has been inadvertently
under Tax Treaty
under sub-section (4A) of section 148 proposed to be inserted in clause (b) of
Where a person intends to make a sub-section (7) of section 152 as it has
to issue reduced rate (0.5 percent)
payment to a non-resident person no relevance to the educational and
certificate for collection of tax at import
without deduction of tax under section medical expenses.
stage in cases of persons whose
152, he is required to furnish a notice to
income is not subject to final taxation
and who are not likely to pay any tax,
the Commissioner setting out the name
and address of the non-resident person
Payments for goods
other than minimum tax under section
113.
and the nature and amount of payment. and services
The Finance Bill proposes that this
Section 153
Due to proposed omission of section notice will not be required in case of
113 for payment of minimum tax, payments that are liable to a reduced Section 153 contains provision relating
consequential omission of sub-section rate under relevant agreement for to deduction of tax at source from
(4A) of section 148 is being proposed. avoidance of double taxation. payment, made to a resident person or
PE in Pakistan of non-resident person
Payments on account of import
Payments to non- of goods where the title to the
on account of sale of goods, rendering
of services and execution of contracts
residents goods passes outside Pakistan etc. The Finance Bill proposes following
Presently notice to the Commissioner is amendments to the provision of this
Section 152 (1AA) & (1BB) (5) (7)
not required for non-deduction of tax section.
Payments on account of from payment to a non-resident on Small company to act as
insurance premium and re- account of import of goods where title
withholding tax agent
insurance premium to non- to the goods passes outside Pakistan.
residents It is proposed that such transaction A small company is presently not
should be supported by import required to withhold tax from payments
According to amendment proposed in
documents. made by it against supply of goods,
section 101 (Geographical source of
rendering of services and execution of
income), any amount paid on account
contracts. Amendments are proposed
of insurance premium or re-insurance
to require a small company to withhold
premium by an insurance company to
tax from the aforesaid payments.
an overseas insurance company or re-
Company engaged in Payment to non- shall be liable to tax at the rate of 5 per
manufacturing excluded from resident media cent with certain exceptions.
final tax regime
persons The Finance Bill now proposes to
Amendment in sub-section (6A) and amend section 155(2), whereby finality
deletion of sub-section (6B) of section Section 153A,
of tax deduction would be no more
153 is proposed to clarify that tax Section 169
subject to section 15. This can be
deducted, from payments made to a Division IIIA of Part III of the First
viewed that chargeability of income
company being a manufacturer, on Schedule
from property, after the proposed
account of supply of goods, shall not be The Finance Bill seeks to insert section amendment, will be governed under
a final tax for such company. 153A to provide withholding of tax at two separate sections i.e. sections 15
It is also proposed to define the the rate of ten percent on payments for and 155. Therefore, it is imperative
expression “manufacturer” for the advertisement services to a non that this anomaly be resolved.
purpose of this section to mean a resident media person relaying from
person who is engaged in production or outside Pakistan. The withholding of tax The Bill also proposes to substitute tax
manufacturing of goods, which made under this section would be final rate of 5 percent provided in Division VI
includes: discharge of tax liability of the recipient. of Part I of First Schedule for the
purpose of section 15, with the
Any process in which the article Though withholding of tax and final tax
following progressive tax rates for
singly or in combination with other provisions have been proposed, yet it
individuals and association of persons:
articles, material, components, is may require an appropriate amendment
either converted into another in section 101 in order to bring the
Gross amount of
S.No. Rate of Tax
distinct article or produce is so payment within the ambit of Pakistan rent (Rs.)
changed, transferred or reshaped source income. 1 Up to 150,000 NIL
that it becomes capable of being 5 percent of the
Taxation of Income
amount
put to use differently or distinctly; or 2 150,001 to 400,000
exceeding Rs.
150,000
A process of assembling, mixing, from Property Rs. 12,500 plus
10 percent of the
cutting, packing, repacking or 3
400,001 to
amount
Section 155, Division VI of Part I of 1,000,000
preparation of goods in any other exceeding Rs.
First Schedule and Division V of 400,000
manner. Rs. 72,500 plus
Part III of First Schedule 15 percent of the
1,000,001 and
Specified AOP and individual to 4 amount
above
Prior to amendment made through the exceeding Rs.
act as withholding tax agent 1,000,000
Finance Act, 2006, income from
The progressive tax rates proposed in
It is also proposed to include the property was chargeable to tax on net
the case of company are:
following categories of association of income basis under section 15 of the
persons and individuals in the list of Ordinance. The Finance Act, 2006
Gross amount of
prescribed persons that are required to amended the provisions of section 15, S.No.
rent (Rs.)
Rate of Tax
withhold tax from payments made whereby the gross amount of rent has 1 Up to 400,000
5 percent of the
amount
against supply of goods, rendering of become chargeable to tax at the rate of Rs. 20,000 plus
services and execution of contracts: 5 percent under final tax regime. 400,001 to
10 percent of the
2 amount
Section 155(2) provides that tax 1,000,000
exceeding Rs.
An AOP having turnover of fifty 400,000
deducted on payment of rent shall be
million rupees or above. Rs. 80,000 plus
treated as final tax on the income from 15 percent of the
1,000,001 and
property, subject to section 15 which 3 amount
An individual having turnover of above
exceeding Rs.
twenty-five million rupees or above. provides that income from property 1,000,000
Simultaneously, the Bill also proposes 2007 to empower FBR to amend the taxes to consist of a Director General
to substitute the withholding tax rate of rates of withholding tax prescribed and Directors, Additional Directors,
5 per cent for the purpose of section under the Ordinance. All such Deputy Directors and Assistant
155 with the following progressive amendments shall have effect in Directors and such other officers as the
withholding tax rates in the case of respect of any tax year beginning on Board may by notification in the official
individual and association of persons: any date before or after the gazette appoint. It is also proposed to
commencement of the financial year in empower the Board to specify
S.No.
Gross amount of
Rate of Tax which the notification is issued and functions, jurisdiction and powers of the
rent (Rs.)
shall not be applicable in respect of Directorate General of withholding
1 Up to 150,000 NIL
income on which tax withheld is treated taxes.
5 percent of as discharge of final tax liability. Further
the amount
2 150,001 to 500,000
exceeding Rs.
150,000
the Board is required to place all
notifications issued in a financial year
Cash withdrawal
Rs. 17,500
plus 10 percent
before both Houses of Majlis-e-Shoora Section 231A
500,001 to
3
1,300,000
of the amount (Parliament). Division VI Part VI of the First
exceeding Rs.
500,000 Schedule
It is now proposed to amend sub-
Rs. 97,500
plus 15 percent section (3) of section 159 to empower Under this section, banking company is
1,300,001 and
4 of the amount the Board to exempt persons, class of required to withhold tax at the rate of
above
exceeding Rs.
1,300,000 persons, goods or class of goods from 0.2 percent of the aggregate amount of
In the case of a company, the withholding tax under the Ordinance in cash withdrawal exceeding Rs. 25,000
progressive rates for withholding tax addition to the power of amending the in a day. The tax so deducted is treated
are proposed as under: rates of withholding tax prescribed as advance tax.
under the Ordinance.
The Finance Bill now seeks to enhance
Gross amount of
S.No. Rate of Tax the withholding tax rate from 0.2
Records
rent (Rs.)
5 percent of percent to 0.3 percent.
1 Up to 400,000
the amount
Rs. 20,000 Section 174
2
400,001 to
plus 10 percent
of the amount A new sub-section (5) is proposed to be
Purchase of motor
1,000,000
exceeding Rs.
400,000 inserted in section 174 to empower the cars and jeeps
Rs. 80,000 Commissioner to require any person to
plus 15 percent
Section 231B, Division VII of Part
1,000,001 and
of the amount
install and use an Electronic Tax
3
above IV of the First Schedule
exceeding Rs. Register of such type and description
1,000,000
as may be prescribed for the purpose Presently, under section 231B, the
Prima facie the above tables and the of storing and accessing information authorised dealers or manufacturer is
proposed rates for chargeability of tax regarding any transaction that has a collecting withholding of tax at the rate
and withholding tax are not consistent of five percent on the purchase value of
bearing on the tax liability of such
with each other for individuals and vehicle.
person.
association of persons.
The Finance Bill proposes to substitute
Directorate General of this section to make every person other
Exemption or lower
withholding taxes than Federal Government, Provincial
rate certificate Government, foreign diplomat or
Section 230A diplomatic mission in Pakistan liable to
Section 159
pay advance tax at the time of
It is proposed to establish a new
Sub-section (3), (4) and (5) were registration of a new motor car or a
Directorate General for withholding
inserted in section 159 by Finance Act jeep. The advance tax would be
payable according to the engine b. On sale of shares in lieu of tax on bills and mobile telephone bills and
capacity in the following manner. the commission earned by prepaid telephone card. The collection
members. of tax from telephone subscriber, other
Engine Capacity Amount of
than mobile phone subscriber, is being
final tax c. On trading of shares by the
made on varying amount depending on
(Rupees) members.
the amount of telephone bill.
Upto 850cc 10,000 The tax collected under clause a and b
The Finance Bill proposes to change
above is considered as final tax.
851cc to 1000cc 14,000 the basis of collection of advance tax
The Finance Bill proposes to substitute from telephone subscriber. Under the
1001cc to 1300cc 22,500 proposed revised basis, the collection
sub section 2 of section 233A to
provide that tax collected under clauses of advance tax would be made at ten
1301cc to 1600c 22,500
A to C above shall be minimum tax. percent on the amount of bill exceeding
1601cc to 1800cc 35,000 Rs. 1,000. Therefore, there will be no
1801cc to2000cc 30,000 Electricity withholding of tax on bills up to Rs.

1,000.
Above 2000cc 50,000 Consumption
In the above chart, the amount of tax Section 235 Division IV, Part IV of Electronic Records
for two categories is the same i.e. the First Schedule
Section 2(19B), (19C), (19D) &
1001cc to 1300cc and 1301cc to
Presently, tax is collected from (19E), 237A
1600cc which appears to be a mistake.
electricity consumers at graduated
Electronic Transaction Ordinance, 2002
In the First Schedule for the purpose of amounts along with the electricity bill.
[ETO] was promulgated on 11
this section, rate of advance tax The tax so collected is treated as
September 2002 to recognize and
payment is provided under the heading minimum tax in the hands of tax
facilitate documents, records,
“amount of final tax”, whereas neither in payers, other than a company.
information, communication and
the section nor in section 169 it is
The Finance Bill proposes to treat the transactions in electronic form, and to
provided that payment of advance tax
amount of tax as minimum tax only, provide for the accreditation of
under section 231B is final. We where the bill amount is upto Rs. certification service providers. The ETO
understand that advance tax under this twenty thousand per month. provides that no document, record,
section would be adjustable against the
information, communication or
person’s ultimate tax liability. The Finance Bill further proposes to
transaction shall be denied legal
change the rate of collection of tax from
recognition, admissibility, effect,
Rs. 2,000 to ten percent, where the
Collection of tax by a amount of electricity bill exceeds
validity, proof or enforceability on the
ground that it is in electronic form and
stock exchange rupees 20,000. The tax collection rate
has not been attested by any witness.
remains the same where the bill
Section 233A The ETO further provides that the
amount falls in other slabs.
requirement under any law for any
Under section 233A stock exchange
document, record, information,
registered in Pakistan shall collect Telephone users communication or transaction to be in
advance tax from its members interalia
written form shall be deemed satisfied
in following cases. Section 236
where the document, record,
Division V, Part IV of the First
a. On purchase of shares in lieu of information, communication or
Schedule
tax on the commission earned by transaction is in electronic form, if the
members. Under this section, advance tax is same is accessible so as to be usable
collected on the amount of telephone for subsequent reference. Similarly,
the ETO recognises electronic form and ‘addressee’ shall mean the person ‘transaction’ shall mean an act or
electronic retention of information as intended by the originator to series of acts in relation to creation
compliant to such requirement under receive the electronic or performance of rights and
any law under specified conditions. communication but would not obligations;
include an intermediary;
Consequent to promulgation of ETO, ‘electronic record’ shall include the
FBR initiated automation process of tax ‘automated’ shall mean without contents of communications,
administration system, whereby active human intervention; transactions and procedures under
electronic filing of return and this Ordinance, including
withholding tax statement was made ‘electronic’ shall include electrical, attachments, annexes, enclosures,
mandatory in the case of corporate digital, magnetic, optical, biometric, accounts, returns, statements,
taxpayers. electro-chemical, wireless or certificates, applications, forms,
electromagnetic technology; receipts, acknowledgements,
The Finance Bill now seeks to notices, orders, judgments,
introduce new section 237A to broaden ‘electronic signature’ shall mean approvals, notifications, circulars,
the automation in tax administration. any letters, numbers, symbols, rulings, documents and any other
The salient features of this section are images, characters or any information associated with such
as follows: combination thereof in electronic communications, transactions and
form, applied to, incorporated in or procedures, created, sent,
The FBR will be empowered to associated with an electronic forwarded, replied to, transmitted,
require any person to use its document, with the intention of distributed, broadcast, stored, held,
information system and electronic authenticating or approving the copied, downloaded, displayed,
resource, in order to replace or same, in order to establish viewed, read, or printed, by one or
supplement, its mutual business authenticity or integrity, or both; several electronic resources and
processes by automated business any other information in electronic
processes and substitute its paper ‘information’ shall include text, form;
based records by electronic message, data, voice, sound,
records. database, video, signals, software, ‘electronic resource’ shall include
computer programs, codes telecommunication systems,
Electronic record generated, including object code and source transmission devices, electronic
maintained, issued, served, code; video or audio equipment,
received, filed or requisitioned encoding or decoding equipment,
through the electronic resource of ‘information system’ shall mean an input, output or connecting devices,
the FBR shall itself sufficiently and electronic system for creating, data processing or storage
conclusively prove its validity, generating, sending, receiving, systems, computer systems,
authenticity and integrity and shall storing, reproducing, displaying, servers, networks and related
be treated to have been done so recording or processing computer programs, applications
according to the provisions of the information; and software including databases,
Ordinance. data warehouses and web portals
‘originator’ shall mean a person by as may be prescribed by the FBR
For the purpose, the Finance Bill also whom, or on whose behalf, from time to time, for the purpose
seeks to introduce relevant definitions electronic document purports to of creating electronic record; and
through insertion of new clauses (19B) have been generated or sent prior
to (19E) in section 2 of the Ordinance to receipt or storage, if any, but ‘telecommunication system’ shall
whereby: shall not include an intermediary; include a system for the
conveyance, through the agency of
electric, magnetic, electro- Percentage of 16 Rs. 2,250,001 to Rs. 2,850,000 16.00
‘incremental
magnetic, electro-chemical or Total income income’ taxable 17 Rs. 2,850,001 to Rs. 3,550,000 17.50
threshold
electro-mechanical energy, of S. No. at next 18 Rs. 3,550,001 to Rs. 4,550,000 18.50
(Rs.) applicable tax
speech, music and other sounds, rate 19 Rs. 4,550,001 to Rs. 8,650,000 19.00
(Percent)
visual images and signals serving 20 Rs. 8,650,001 and above 20.00
for the impartation of any matter 1 Up to 500,000 20
An analysis showing quantitative
otherwise than in the form of 2
500,001 to
30 impact of the budget proposals for
1,050,000
sounds or visual images and also salary taxation as compared to the
1,050,001 to
includes real time online sharing of 3
2,000,000
40
existing tax regime is tabulated below:
any matter in manner and mode as 2,000,001 to
4 50
may be prescribed by FBR from 4,450,000
Tax liability Tax
Gross
time to time. 4,450,001 and Salary
Saving
5 60 Existing Rs.
above Proposed
180,000 450 - 450
In addition to the marginal relief, the Bill 200,000 500 20 480
Taxation of salary also proposes further rationalisation of 270,000

370,000
2,025
9,250
1,280
2,685
745
6,565
tax brackets with a view to reduce the
income effective tax rate on income previously
420,000
470,000
14,700
16,450
6,100
11,390
8,600
5,060
taxed at higher rate. Further, the Bill 570,000 25,650 19,520 6,130
Clause (1A), Division I, Part I, First 670,000 40,200 29,610 10,590
seeks to enhance the maximum non-
Schedule to the Ordinance 770,000 57,750 45,450 12,300
taxable threshold of salary to Rs. 920,000 82,800 68,040 14,760
Until June 2006, salary income was 180,000 and Rs. 240,0000 from the 1,070,000 117,700 95,300 22,400
1,220,000 152,500 120,880 31,620
taxable at progressive tax rates ranging existing limits of Rs. 150,000 and Rs. 1,470,000 183,750 160,500 23,250
from 3.5 percent to 30 percent. 200,000 in case of male and female 1,720,000 258,000 213,620 44,380
Through the Finance Act, 2006, a 1,970,000 295,500 274,200 21,300

employees, respectively.
2,270,000 363,200 339,100 24,100
simplified taxation regime was 2,870,000 459,200 457,750 1,450
introduced whereby salary was taxed The proposed new tax brackets and 3,570,000 624,750 623,100 1,650
4,570,000 868,300 844,030 24,270
on a ‘flat rate’ basis that is to say, the rates effective from Tax Year 2009 8,670,000 1,734,000 1,645,900 88,100
rate applicable to the income bracket in shall be as under: 8,720,000 1,744,000 1,651,900 92,100
which the gross salary falls along with 15,000,000 3,000,000 2,405,500 594,500
30,000,000 6,000,000 4,205,500 1,794,500
rationalisation of tax rates from 0.25 S.No. Taxable income Rate
percent to 20 percent. While this

simplified the computation of tax liability 1 Up to Rs. 180,000
Percent
Nil Tax rates for Small
of employees for the employers for 2 Rs. 180,001 to Rs. 250,000 0.50 Company
purposes of withholding tax, it created 3 Rs. 250,001 to Rs. 350,000 0.75
Division II, Part I, First Schedule to
hardship for employees where income 4 Rs. 350,001 to Rs. 400,000 1.50
the Ordinance
brackets changed during the year due 5 Rs. 400,001 to Rs. 450,000 2.50
to pay raise or bonuses etc. 6 Rs. 450,001 to Rs. 550,000 3.50 The concept of small company was
7 Rs. 550,001 to Rs. 650,000 4.50 introduced through the Finance Act,
The Finance Bill seeks to cater to this 2005 whereby a company registered on
8 Rs. 650,001 to Rs. 750,000 6.00
hardship and provide relief to salaried or after 1st July 2005 under the
9 Rs. 750,001 to Rs. 900,000 7.50
individuals by providing ‘marginal relief’ Companies Ordinance 1984 having
10 Rs. 900,001 to Rs. 1,050,000 9.00
paid-up capital plus undistributed
where salary income is in excess of the
11 Rs. 1,050,001 to Rs. 1,200,000 10.00 reserves not exceeding Rs. 25 million
income threshold of the immediately
12 Rs. 1,200,001 to Rs. 1,450,000 11.00 and having annual turnover below Rs.
preceding income bracket. The relief is
13 Rs. 1,450,001 to Rs. 1,700,000 12.50 250 million qualifies for preferential tax
proposed to operate as under: rate of 20 percent as against 35
14 Rs. 1,700,001 to Rs. 1,950,000 14.00
percent in case of other companies.
15 Rs. 1,950,001 to Rs. 2,250,000 15.00
Presently, where the annual turnover of
a small company exceeds Rs. 250 Memorial Hospital and Research in excess of 25 percent of accumulated
million, the company is no more eligible Center, Lahore. balance. This provision remains intact.
for concessional rate of 20 percent.
Clause (6) Clause (62)
The Finance Bill seeks to rationalize
taxation of small companies by Exemption of salary income of non- Exemption in respect of donation paid
providing progressive tax rates where citizen persons under employment of to the Liaquat National Hospital
turnover exceeds the prescribed limit the British Council. Association, Karachi.
as per the following table:
Clause (21) Clause (63A)
Income attributable Rate
to turnover Exemption to income from annuity Exemption in respect of donation paid
Up to Rs. 250 million 20 percent issued by State Life Insurance to President’s Relief Fund for
Corporation of Pakistan or a life Earthquake Victims 2005.
insurance company.
Rs. 250 million to Rs. 20 percent plus 25
350 million percent of income
Clause (63B)
attributable to Clause (25)
turnover in excess of Exemption in respect of donation paid
Rs. 250 million
The clause currently provides for as sponsorship in connection with the
Rs. 350 million to Rs. 25 percent plus 30
500 million percent of income exemption to payment from an holding of 2nd session of the World
attributable to approved superannuation fund. Islamic Economic Forum, 2006.
turnover in excess of
Rs. 350 million However, for the purpose of such
Rs. 500 million and 30 percent plus 35 exemption there are certain limits Clause (72)(iii)
above percent of income
attributable to prescribed for certain funds that are
turnover in excess of
This clause provides exemption in
subject to the said exemption. These
Rs. 500 million respect of payment to non-resident on
limits are proposed to be omitted
account of profit on debt in three
Exemptions and thereby making the exemption under
this clause available to payments from
different scenarios. The Finance Bill
Concessions an approved superannuation fund to
seeks to omit one of these scenarios,
providing exemption on profit on debt in
the full extent and without any limit.
The Finance Bill seeks to withdraw respect of a foreign loan as is utilized
certain exemptions, reduced rates, for industrial investment in Pakistan
The clause excludes certain payments
reduction in tax liabilities and provided that the agreement for such
from the scope of the said exemption.
exemption from operation of specific loan is concluded on or after the First
These exclusions are intact.
provisions of the Ordinance. Proposed day of February 1991, and is duly
amendments are summarised in each registered with the State Bank of
Clause (57)(3)(x)
category as follows: Pakistan.
Exemption to accumulated balance
Withdrawal of exemptions
received, upto 25 percent, from the Clause (77)
Following exemptions of Part I of voluntary pension system offered by a
Exemption of any profit derived by a
Second Schedule have been pension fund manager under the
non-resident person in respect of the
withdrawn: Voluntary Pension System Rules, 2005.
Islamic mode of financing, including
Clause (2) istisna, morabaha, musharika.
However, under section 156B(1)(b) of
Exemption of salary income of non- the Ordinance, the pension fund
citizen or non-resident persons under manager is required to withhold tax
service contract with Shaukat Khanam from payment in respect of withdrawal
from pension accounts, if withdrawal is
Clause (82) The withdrawal of this clause would Clause (10)
become applicable with effect from 1
Exemption of profit on Special US Reduced tax rate of 20 percent on
July 2008, therefore, exemption
Dollar Bonds issued under the Special income chargeable under the head
provided therein will remain applicable
US Dollar Bonds Rules, 1998. "Income from business " as is not
for transactions covered under the
exempt under clause (58) of Part I,
specified period i.e. upto thirtieth day of
Clause (83) derived by M/s Fauji Foundation and
June, 2008.
Army Welfare Trust.
Exemption of profit on debt derived
from Pak rupees account or certificates Clause (138)
Clause (13)
of deposit which have been created by
Exemption in respect of any income
conversion of a foreign currency Reduced rate of withholding tax under
referred to in Section 3.4 (a) of the
account or deposit held on the 28th day section 148 at the rate of 1 percent on
Facilitation Agreement between the
of May, 1998, with a bank authorised imports of capital goods and raw
President of the Islamic Republic of
under the Foreign Currency Accounts material imported by a manufacturer,
Pakistan and the taxpayer purchasing
Scheme of the State Bank of Pakistan. registered with Sales Tax Department,
the Kot Addu Power Station from
exclusively for own use. The said
Pakistan Water and Power
Clause (98) clause has now been omitted vide
Development Authority for a period of
Notification No. 567(I)/2008 issued on
Exemption to Pakistan Cricket Board ten years from 28th June, 1996.
11 June 2008.
that is currently covered under the
existing Clause, providing exemption to Withdrawal of reduction in tax
The imports by a manufacturer shall
any Board or other organization rates
now be subject to withholding tax at the
established in Pakistan for the
Following reduced rates provided in rate specified in Part II of the First
purposes of controlling, regulating or
Part II of Second Schedule have been Schedule to the Ordinance which has
encouraging major games and sports
withdrawn: been amended vide notification No.
recognised by the Government.
566(I)/2008 issued on 11 June 2008 to
Clause (6) 2 percent of the value of goods.
Clause (132A)
Reduced rate of 10 percent on the
Exemption in respect of payments profit on Special US Dollar Bonds Clause (14)
made on or after the first day of July, purchased out of any incremental Reduced rate of withholding tax of 0.75
1991, for the supply of plant, equipment deposits made in the existing foreign percent, as provided for foreign
and machinery to Hub Power Company currency accounts on or after the 16th exchange proceeds on account of
Limited by a non-resident being a day of December, 1999, or out of new exports of rice and fish and precious
foreign individual, company, firm or accounts opened on or after the said and semi-precious stones, as specified
association of persons. date, derived by a resident person. in this Clause.
Clause (133A) Clause (9A) Clause (15)

Exemption in respect of any income Reduced tax rate of two and a half Reduced rate of 0.75 percent as
derived by an individual from transfer of percent, under section 231B of the applicable for foreign exchange
his membership rights or shares of a Ordinance, to be collected at the time proceeds on account of exports of fish
stock exchange in Pakistan along with of sale of motor car and the withholding and fisheries products packed in retail
a room in the Stock Exchange to a tax agents where sale invoice is issued packs of five hundred grams to two
company at any time between the first and delivery of motor car is made after kilograms.
day of July, 2005, and the thirtieth day 31st August, 2007.
of June, 2008.
Clause (16) Terminal, Fixed Wireless Terminal, Clause (11)
Pesticides and weedicides.
Reduced rate of 7.5 percent on Exemption of applicability of section
dividends received by a non-resident 113 of the Ordinance on certain
Withdrawal of reduction in tax
company from a company engaged persons including National Investment
liability
exclusively in mining operations, other (Unit) Trust or a collective investment
than petroleum. Following reduction in tax liability scheme or a real estate investment
provided in Part III of Second Schedule trust etc. The withdrawal is in
Withdrawal of reduced rates with have been withdrawn: consequence of omission of section
immediate effect 113 of the Ordinance.
Clause (3)
The following reduced rates prescribed Clause (33)
Consequent to the proposed deletion of
in Part II of the Second Schedule have
section 113 of the Ordinance, Clause Exemption in respect of payment made
been withdrawn with immediate effect
(3) of Part III of the Second Schedule, to the persons specified in this Clause,
vide Notifications issued in this respect:
providing for reduction upto 80 percent in respect of profit on debt under
of tax liability under section 113 of the section 151 of the Ordinance or in
Clause (13B)
Ordinance, of a company engaged in respect of commission / mark-up on
Reduced rate of 1 percent on import of the business of distribution of cigarettes transactions through stock exchange
phosphatic fertilizers as specified in manufactured in Pakistan, is proposed under section 233A of the Ordinance.
Notification No. S.R.O. 609(I)/2004, to be omitted.
dated 16th July, 2004 has been Clause (36)
withdrawn vide Notification No. Withdrawal of ‘exemption from
567(I)/2008 issued on 11 June 2008. applicability of specific Exemption from applicability of
withholding tax under clause (c) of sub-
provisions’
Clause (13G) section (1) of section 151 in respect of
Following exemptions from operations any amount paid as interest or profit on
Notification No. 567(I)/2008 issued on of specific provisions of the Ordinance, Special US Dollar Bonds issued under
11 June 2008 has withdrawn the as provided in Part IV of Second the Special US Dollar Bonds Rules,
reduced rate of 1 percent, provided in Schedule have been withdrawn: 1998 is proposed to be withdrawn.
Clause (13G) of Part II of Second
Schedule on import of various classified Clause (3A)
Clause (42A)
goods including Capital goods, Exemption provided in this clause in
Cement, Coal, Sugar, Wheat, Raw Exemption from the withholding tax on
respect of the application of the
Wood, Trucks in CBU condition having payment made for supply of relief
provisions of sub-sections (5) and (5A)
Gross Vehicle Weight exceeding 5 goods for earthquake victims to the
of section 34 and section 70 of the
tons, Dump trucks, Fully dedicated President Relief Fund for Earthquake
Ordinance to any benefit derived by
CNG buses and agricultural tractors, Victims, 2005.
way of waiver of profit on debt or the
surgical and like machinery/ equipment debt itself under the State Bank of
etc. Clause (58)
Pakistan, Banking Policy Department’s
Circular No. 29 of 2002, dated the 15th Exemption from additional tax under
Clause (13H) October, 2002, to the extent not set off section 205 of the Ordinance on
Notification No. 567(I)/2008 issued on against the losses under Part VIII of telecom companies for default of not
11 June 2008 has withdrawn the Chapter III. collecting withholding tax under section
reduced rate of 2 percent on import of 236 (1)(b) on sale of prepaid cards
raw material for steel industry, poultry during tax year 2004, if the amount not
feed, stationery, edible oils, Energy collected is deposited within three
saver lamps, Bitumen, Wireless months.
New exemptions tax year ending on 30 June 2010 as 151(1)(a) of the Ordinance on payment
against current availability of such of such profit / yield is 10 percent.
Following new exemptions are
exemption upto tax year ending on 30
proposed to be included in Part I of
June 2008. New exemption from
Second Schedule:
applicability of specific
Clause (66)(xix) and (xx) New provision for reduction in provisions
tax rates
Clause 66 of Part I of the Second Following new exemptions from
Schedule provides for exemption of Following new reduced rates provisions operation of specific provisions of the
income of charitable and like are proposed to be included in Part II of Ordinance are proposed to be included
institutions. The Finance Bill seeks to the Second Schedule: in Part IV of Second Schedule:
extend the list to include:
Clause (13HH) Clause (65)
Pension of a former President of
Finance Bill proposes to add new A new Clause (65) in Part IV of the
Pakistan and his widow under the
clause i.e. Clause 13HH in Part II of the Second Schedule is proposed to be
President Pension Act, 1974;
Second Schedule. The proposed inserted providing exemption of any
insertion of this clause seeks to provide income derived by a project approved
The State Bank of Pakistan and the
for the reduced withholding tax rate of 1 by Designated National Authority from
State Bank of Pakistan Banking
percent on account of sale of rice by transfer/sale of Clean Development
Services Corporation.
Rice Exporters Association of Pakistan Mechanism Credits i.e. Certified
to Utility Stores Corporation in Emission Reductions etc.
The first inclusion seems to be
accordance with the agreement signed
misplaced as this clause mainly
with the Ministry of Foods, Agriculture The Clause seems to be misplaced and
comprises the institutions.
and Livestock on 5 May 2008. should have been proposed in Part I of
Clause (103A) the Second Schedule.
This clause provides exemption to Reduction in tax Clause (66)

inter-corporate dividend within the
liability A new Clause (65) in Part IV of the
group companies entitled to group
taxation under section 59AA of the Following new reduced tax liability Second Schedule is proposed to be
Ordinance. The Finance Bills proposes provisions are proposed to be included inserted providing exemption from
to extend the exemption to inter- in Part III of the Second Schedule: collection of advance tax on electricity
corporate dividend within the group consumption under section 235 of the
Clause (5) Ordinance, to the exporters-cum-
companies entitled to group relief under
section 59B of the ordinance as well. manufacturers of carpet, leather and its
A new clause i.e. Clause 5 of Part III of
articles, surgical goods, sports goods
the Second Schedule is proposed to be
and textile and its articles.
Clause (100) inserted which seeks to provide that tax
payable, under section 151(1)(a) of the
Exemption of capital gains on listed Other amendments /
Ordinance, in respect of any amount
securities available upto tax year substitutions in Second
paid as yield or profit on investment in
ending on 30 June 2008 is proposed to
Bahbood Savings Certificates or Schedule
be extended upto tax year ending on 30
Pensioners Benefit Account shall not
June 2010. Likewise, clause (6A) of Part I of Second Schedule
exceed 10 percent of such profits.
the Fourth Schedule has also been
Clause (61)
proposed to be amended to extend the
The proposed insertion of Clause (5)
exemption for insurance companies of The Finance Bill proposes to amend
seems to be superfluous as currently
capital gains on listed securities upto maximum limit of donation in respect of
the applicable tax rate, under section
which a person can claim exemption provisions of the Clause in line with the enacted and shall have had effect
under clause (61). The limit is proposed terms used in relevant Rules and accordingly.
to be amended for individuals and Regulations governing the entities
association of persons from 30 percent making the distribution out of capital Further, Finance Act 2005 omitted
to 15 percent, whereas, for companies gains which are subject to exemption Clause 40 of Part IV of the Second
from 15 percent to ten percent. under this Clause. Schedule to the Ordinance, under
which a manufacturer might opt for final
Part II of Second Schedule
The proposed new Clause proposes to tax regime in respect of tax deduction
Clause (13C) enhance the scope of exemption, under section 153 of the Ordinance.
thereby covering the distribution
The Finance Bill seeks to amend the received by a taxpayer out of the Consequent to insertion of section
reduced rate, applicable in respect of capital gains of the REIT Scheme, in 153(6A) of the Ordinance and omission
purchase of locally produced edible oil addition to other entities currently of Clause 40 of Part IV of the Second
by manufacturers of cooking oil or provided therein. Schedule, Clause 41A of Part IV of the
vegetable ghee or both, from existing 1 Second Schedule was inserted which
percent to 2 percent of the purchase clarified that notwithstanding the
Part IV of Second Schedule
price. omission of Clause 40 of Part IV of the
Clause (43A) & (46) Second Schedule through Finance Act
Clause (99)
In Finance Act 2007, exploration and 2005, the manufacturers who had
The Finance Bill seeks to substitute the opted for final tax regime under section
production companies were exempted
Clause by a new one. The proposed 153 of the Ordinance on or before 30
from withholding tax on payment
new Clause is reworded to bring the June 2005 would remain under final tax
received by a permanent establishment
provisions of the Clause in line with the regime by virtue of the option filed by
of a non-resident oil exploration and
terms used in relevant Rules and them under Clause 40 of Part IV of the
production companies for its supplies of
Regulations governing the entities Second Schedule.
petroleum products. However, while
subject to exemption under this Clause.
giving effect to the said exemption,
Clause (43A) of Part IV of the Second Clause 41A of Part IV of the Second
As per the proposed new Clause, Schedule, explaining the applicability of
Schedule was erroneously amended
exemption is proposed to be provided section 153(6A) of the Ordinance for
instead of Clause (46) of Part IV of the
on income derived by: the specified period i.e. in respect of
Second Schedule.
period on or before 30 June 2005, has
a Collective Investment Scheme; or proposed to be omitted.
The Finance Bill now proposes to make
the correction of the aforesaid error and
a REIT Scheme,
accordingly the effect is now proposed
to be made in Clause (46) of Part IV of Taxation of Insurance
If not less than ninety percent of the
accounting income of that year, as
the Second Schedule. Companies
reduced by capital gains whether Fourth Schedule
Clause (41A)
realized or unrealized, is distributed
amongst the unit or certificate holders Section 153(6A) of the Ordinance was Rules 5 (b), 5(d), 6A, Section 101
or shareholders as the case may be. inserted through Finance Act 2005 by and 152
virtue of which manufacturer was
Unrealized gains
Clause (103) brought out of the scope of the final tax
regime covered under section 153 of Under Rule 5 of the Fourth Schedule
The Finance Bill seeks to substitute the the profits and gains of insurance (other
the Ordinance. In section 153(6A), it
Clause by a new one. The proposed than life insurance) is the amount
was provided that this sub-section shall
new Clause is reworded to bring the disclosed by the annual accounts under
be deemed always to have been so
the Insurance Ordinance, 2000 as The effect of proposed changes would reinsurance company under proposed
adjusted by the prescribed adjustments be that the amount taken to reserve to new sub-section (1BB) in section 152.
(especially Rule 5(b)) which prescribes meet depreciation of investments shall
following conditions: not be allowed as a deduction and It is viewed that withholding tax
credits on account of appreciation requirement shall apply where foreign
Any amount either written off or
would be taxable only upon realisation insurance / reinsurance company would
taken to reserve to meet
if not enjoying exemption under Rule be resident of non-treaty jurisdiction,
depreciation or loss on the
6A. whereas, in cases where a double tax
realisation of investments shall be
treaty provisions are applicable,
allowed as a deduction; and Inadmissible deduction –
withholding tax obligations shall be
premium for insurance or governed in accordance with provisions
Any sums taken credit for in the
accounts on account of reinsurance to foreign company of such treaty and where such treaty
appreciation, or gains on the A new sub-rule (d) is also proposed to provisions provides exemption from
realisation of investments shall be be inserted in Rule 5, whereby no Pakistan tax to insurance premium
treated as part of the profits and deduction shall be allowed for any payable to insurance / reinsurance
gains, provided the Commissioner expenditure incurred on account of company, such payment would be
considers the amount to be insurance premium or reinsurance absolved from withholding tax under
reasonable. premium paid to an overseas insurance the law which would not affect
or re-insurance company or a local deductibility of expenses.
In view of the above provisions, the
insurance industry has been seeking a agent of an insurance company until
tax at 5 percent on the gross amount is Capital gain exemption extended
deferral of the applicability of IAS39
which requires accounting for changes withheld. The Finance Bill also seeks to amend
in the fair value of investments and may Rule 6A to extend capital gains
have resulted in taxation of unrealised For the purpose, insurance / exemption on specified listed
amounts. Agreeing to the position of reinsurance premium are also intended instruments upto tax year ending on 30
the industry the deferral was allowed by to be covered within the scope of June 2010 in line with proposed
SECP. Now, the proposed changes Pakistan-source income and amendment in clause (110) of Part I of
inter-alia seeks to address the issue of consequently liable to tax withholding the Second Schedule.
the taxation of unrealised amounts and through proposed amendments in
the above conditions are proposed to section 101 and 152. In this regard, the
be amended as follows: Finance Bill seeks to insert sub-section Recognised Provident
(13A) in section 101 providing that any
Subject to rule 6A (providing capital amount paid on account of insurance or
Fund
gains exemption), any amount of reinsurance premium by an insurance Sixth Schedule
investment written off shall be company to an overseas insurance or
allowed as a deduction, but any reinsurance company shall be deemed Part I, Rule 3 (a)
amount taken to reserve to meet to be Pakistan-source income. Similarly Presently the contribution made by an
depreciation of investment shall not sub-section (1AA) is proposed to be employer in excess of one tenth of the
be allowed as a deduction; and inserted in section 152 providing for salary of the employee is considered as
withholding of tax at prescribed rate of taxable in the hands of the employee. It
Any sums taken credit for in the
5 percent on payment of insurance is now proposed to amend Rule 3(a)
accounts on account of
premium or reinsurance premium to a whereby the amount in excess of ‘one
appreciation of investment shall not
non-resident person which shall be tenth of salary or Rs. 100,000,
be treated as part of the profits and
treated as final discharge of tax liability whichever is low’ shall be taxable.
gains, unless these have been
of such foreign insurance or
crystallised as gains or losses on
the realisation of investments.
Approved provisions. There had been demand Provision for classified advances
superannuation funds from stakeholders to provide special and off balance sheet items shall
rules for taxation of banking companies be allowed as claimed in the
Sixth Schedule alike to insurance companies and oil accounts, provided a certificate
and gas exploration companies, due to from the external auditors is
Part II, Rule 5 peculiar business dynamics of banking furnished by the banking company
Under present Rule 5, payment from an companies so as to avoid dispute and to the effect that such provisions
approved superannuation fund made to minimise litigations, especially with are in line with the requirements of
an employee not eligible for exemption regard to deductibility of bad debts, as Prudential Regulations [Rule 1(c)]
under clause 25 of Part I of the Second the regulatory requirements under
Schedule is subject to tax at average Prudential Regulations were not Expense charged in the accounts
tax rate of three years or such less consistent with sections 29 and 29A of in respect of a debt classified as
period during which the employee has the Ordinance. This long persistent ‘substandard’ under Prudential
been member of the fund. demand was accepted and through the Regulations shall not be allowed as
Finance Act, 2007, Seventh Schedule deduction. However, if such debt is
The Finance Bill now proposes to was inserted in the Ordinance whereby re-classified as ‘doubtful’ or ‘loss’
amend this rule to provide that tax shall specific rules were prescribed for subsequently, a deduction shall be
be imposed at the rate applicable to the taxation of banking companies. allowed for the amount disallowed
year of withdrawal. being ‘substandard’. Further,
The salient features of the Seventh reversal of provision in respect of a
The rationale of existing provision is Schedule include as follows: substandard debt, which was
that since accretions to be paid from disallowed earlier, shall not be
the fund pertains to prior years of Primarily, a banking company’s taken as income [Rule 1(d),(e) &(f)]
service whereas payment is made in income as disclosed in the annual
lump sum in current year therefore accounts furnished to the State Adjustments made in the accounts
imposition of tax at the rate of current Bank of Pakistan, subject to due to application of International
year may be burdensome for the specified adjustments, shall be Accounting Standards 39 and 40
employee. It is therefore suggested taken as “Income from Business” shall be excluded. Accordingly,
that employees may be provided an [Rule 1] gain or loss shall also be
option to be taxed at the average rate determined on disposal of an asset
of three years by including reference of Deductions for depreciation, initial or discharge of a liability taking into
Rule 5 of Part II of the Second allowance and amortization of account the historical cost of such
Schedule in section 12(6) of the intangibles shall be available in asset or liability, without having
Ordinance. accordance with sections 22, 23 regard to the adjustments made by
and 24 [Rule 1(a)] virtue of application of aforesaid
accounting standards [Rule 1(g)]
Taxation of Banking Deductions shall be inadmissible if
Companies these attract provisions of section Liabilities, against which deduction
21 of the Ordinance [Rule 1(b)] was allowed, if remains unpaid for
Seventh Schedule three years shall be added in the
Gain or loss on disposal of first tax year, following the end of
Rule 1 (c), (d), (e) and (f), Rules 7 depreciable asset shall be the three years. Payment of such
and 8(1A)
computed in accordance section liability shall however be allowed
Historically, taxation of banking 22(8) [Rule 1(b)] as deduction in the year of
business has been dealt with a payment [Rule 2(2)]
combination of general and specific
Gain or loss on sale of shares of shall be allowed in accordance with companies, a similar amendment is
listed securities shall be dealt provisions of section 29 and 29A of the proposed to be made in the Seventh
separately. Loss shall be set-off Ordinance. Section 29 of the Ordinance Schedule by way of inserting new sub-
against gain on sale of shares of provides certain conditions which rule 1A to Rule 8.
listed securities and any interalia include that the debt should
unabsorbed loss shall be carried have been written off in the books of It should be noted that exemption of tax
forward and set-off up to six years accounts, whereas, section 29A deals on capital gains which has been
[Rule 2(3)] with provisions relating to consumer extended till the tax year ending on 30
loans. June 2010 (including for insurance
Foreign banks shall be allowed companies) is not available for banking
deduction for head office The proposed amendment would again company and the taxability will be
expenditure in the ratio of gross create distortion between the regulatory governed as specified in the Seventh
receipts of permanent requirements applicable to banking Schedule as follows:
establishment to world gross companies and the taxation laws,
receipts, provided that expenditure hence would again lead to disputes and Capital gains will be taxed at 10
are: litigations, which appears to be against percent if the holding period is over
the spirit of introduction of the Seventh one year; and
− charged in the books of Schedule. It is therefore suggested that
accounts of the permanent existing Rule 1(c) to (f) should be Capital gains will be taxed at
establishment; retained in the present form. normal rates in other cases.
− certified by the external The Finance Bill seeks to abolish

auditors that the claim has minimum tax by deleting section 113, General amendment
been made in accordance with therefore, corresponding amendment is
The Finance Bill seeks to substitute the
the rules and are reasonable in also proposed by deleting Rule (7) in
words ‘local authority’ wherever used in
relation to the operation of Seventh Schedule.
the Ordinance with the words ‘Local
permanent establishment [Rule
Presently, section 57A restricts set off Government’. The provisions containing
4]
of brought forward loss and capital the word ‘local authority’ include
loss of amalgamating company or sections 27, 49, 61, 64, 80, 83, 101,
The Seventh Schedule was made
companies, against business profits 151, 153, 155, 172 and 233 and
effective from 01 January 2008 relevant
and gains of the amalgamated clauses (13), (25) and (132) of Part I of
to tax year 2009 in the case of banking
company, in case the amalgamated the Second Schedule. The Finance Bill
companies, which was welcomed by
company does not continue the however also proposes deletion of
and large with suggestions that
business of amalgamating company for clause (25) of Part I of the Second
transitory provisions be also provided
a minimum period of five years from the Schedule.
therein due to difference of treatment in
date of amalgamation. The Finance Bill
respect of certain items of expenses
seeks to amend section 57A by way of
under the provisions of the Seventh
insertion of sub-section (2A ) to allow
Schedule and earlier applicable general
set off and carry forward of the
scheme of taxation.
accumulated loss under the head
‘Income from business’ (not being
The Finance Bill now seeks to
speculation loss ) in the case of
substitute Rule 1(c) with deletion of
amalgamation of Non-banking Finance
clauses (d), (e) and (f) of Rule 1,
Company, modarabas or insurance
whereby provisions for classified
company without the limit of continuing
advances and off balance sheet items
business for 5 years. For banking
Sales Tax Act, 1990 and Rules
and 32AA related to definition of retail

Arrears Input tax tax, chargeability of retail tax, retail tax
return, audit of retailer, respectively.
Section 2 (2A) Section 2 (14)
The forgoing sections have become
The Finance Bill seeks to simplify the The Finance Bill seeks to re-phrase the
redundant, due to the introduction of
definition of the term ‘arrears’ to mean definition of “input tax” to make it
“special procedure for payment of sales
sales tax due and payable by a person simpler. Sales tax levied in Azad
tax by retailers” under ‘Sales Tax
under the Sales Tax Act, 1990, before Jammu and Kashmir [AJK] on the
Special Rules, 2007’, therefore, same
a particular date but which has not yet supply of goods is excluded from the
is proposed to be done away with,
been paid. purview of input tax.
under the Finance Bill.
The terms such as default surcharge,
extra amount of tax, fines, penalties Output tax Sales tax
and fees, which were previously part of
Section 2 (20)
the definition of “arrears” are now Section 2 (29A)
proposed to be made part of the newly Corresponding to the provisions of
Corresponding to the provisions of
inserted definition of ‘Sales Tax’ under section 2 (14), the Finance Bill
section 2 (2A), the Finance Bill
sub-section 29(A) and simultaneously proposes similar changes with
proposes to insert definition of “sales
these terms are to be deleted from reference to the definition of “output
tax” to mean tax, additional tax, default
definition of “arrears” to avoid any tax”.
surcharge, fine, penalty or fee imposed
duplication.
or charged and any other sum payable
Provincial sales tax under the Sales Tax Act, 1990 and
Associates related Rules thereunder.
Section 2 (22A)
(associated persons) This proposed amendment seems to be
The Finance Bill proposes insertion of a
Section 2 (3) more of a clarificatory nature.
new definition of “provincial sales tax”
to include within its ambit the
The Finance Bill seeks to redefine the
definition of “associated persons” to
Balochistan Sales Tax Ordinance, Supply
2000, Islamabad Capital Territory (Tax
bring it in line with the definition as Section 2 (33)
on Services) Ordinance, 2001, the
given in the Income Tax Ordinance,
Punjab Sales Tax Ordinance, 2000, the The Finance Bill now proposes to
2001.
North West Frontier Province Sales Tax simplify the definition of “supply”;
Ordinance, 2000 and the Sindh Sales however it appears that due to the
Association of Tax Ordinance, 2000. proposed exclusion of the word “lease”
persons, Company, This proposed amendment seems to be
from the foregoing definition, lease
Firm and Person more of a clarificatory nature.

transactions would fall out of the
purview of sales tax, which were
Section 2 (3A), (5AA), (11A) and previously specifically brought into the
(21) Retail tax, Retail tax sales tax ambit through Finance Act,
The Finance Bill seeks to insert return, Audit of retailer 2006.
definitions of “association of persons”, Section 2 (28A), 3 (AA), 26AA and

“company”, “firm” and “person”, in the 32AA
Sales Tax Act, 1990. These are more
or less similar to those given in the The Finance Bill proposes to omit the
Income Tax Ordinance, 2001. sections Section 2 (28A), 3 (AA), 26AA
Tax Trust and Unit Trust Determination of tax
Section 2 (34)
Section 2(44) and 2(44AA) liability
The Finance Bill proposes to delete the Two new terms ‘trust’ and ‘unit trust’ Section 7(1)
terms ‘retail tax’, ‘default surcharge’ are proposed. The term “trust” means
Under the first proviso to section 7(1),
and ‘any other sum payable’ from the any obligation attached with the
registered persons are allowed to
definition of “tax”, bringing it in line with ownership of property and arising out of
adjust any unclaimed amount of input
the proposed definition of sales tax. confidence reposed or declared in and
tax relating to any month within the
accepted by the owner for the benefit of
subsequent 12 months.
Taxable activity another. Whereas, the term “unit trust”
The Finance Bill now proposes to
means any trust under which beneficial
Section 2 (35) interests are divided into units such that reduce the period of adjustment from
entitlement of beneficiaries to income 12 months to 6 months.
The Finance Bill proposes to re-define
or capital is determined by the number
‘taxable activity’ as any economic The proposed amendment will not only
of units held.
activity whether for profit or not, cause undue hardship to registered
including an activity in the form of persons, but it would also increase
business, trade or manufacture, supply Wholesaler piling of claims under Section 66 of the
of goods, rendering of services, one off Act.
Section 2 (47)
adventure in the nature of a trade and
anything undertaken during The Finance Bill proposes to amend Adjustable input tax
commencement or termination of the the definition of “wholesaler” to exclude
economic activity excluding services there from a wholesaler-cum-retailer Section 8B
provided by an employee to his from its purview.
The Finance Bill proposes to remove
employer and an activity carried on by
This proposed amendment seems to be the condition for adjustment of input tax
an individual as a private recreational
in line with the amendment in Chapter on purchase of fixed assets after the
pursuit or hobby.
XII of the “Sales Tax Special Procedure start of production of a new unit. This
Although, the foregoing amendment Rules, 2007”, which lays down special will enable a registered person to adjust
seems to be more of a clarificatory procedure for payment of sales tax by input tax on purchase of fixed assets at
nature with the intent of increasing the wholesaler-cum-retail outlets. any time in twelve equal monthly
tax base; however this could lead to instalments, even prior to start of
unnecessary disputes between sales
tax authorities and registered persons
Scope of tax production of a new unit.
with reference to interpretation of a Section 3 Refund of input tax

taxable activity.
The Finance Bill seeks to increase the
Section 10
rate of sales tax from 15percent to
Time of supply 16percent . A registered person is entitled to refund
of input tax under Section 10.
Section 2 (44) This is a major revenue generating
measure proposed under the Sales Tax The Finance Bill now proposes to allow
The Finance Bill seeks to amend the
Act, 1990. the carry forward of excess input tax
definition of “time of supply” by
against supplies to the next period,
explaining time of supply in respect of
other than zero rated or exports, which
provision of services.
will be treated as input tax for that
This proposal seems to be more of period. FBR will however be
clarificatory nature.
empowered to prescribe the procedure
for refund of such excess input tax.
Returns interest rates to avoid short filing by
taxpayers..
Section 26(3)
This proposed amendment will allow a
registered person to claim excess input Under the foregoing section, a Appeals
tax of a tax period against sales tax registered person is allowed to revise a
Section 45B
payable of the next period and other sales tax return within a period of 90
supplies related to zero rated and days, subject to the approval of The Finance Bills seeks to relax the
exports. Collector. time limit imposed on the Collector
(Appeals) for issuance of order from 90
The Finance Bill now proposes to
Assessment of tax enhance the foregoing time limit to 120
days to 120 days, with a relaxation of
further extension of 120 days instead of
days.
Section 11(4) 90 days.
Section 11 was changed through

Finance Act, 1996 empowering an
Offences and This would lead to delay in settlement
of appeals.
officer of Sales Tax to show cause a penalties
registered person who had committed a
default on account of late filing of return
Section 33 Appeals to appellate
and short payment of tax, however, no The sales tax return cannot be filed tribunal
time limit was given in which such without summary of sales and purchase
Section 46
proceedings were to be initiated. invoices since the introduction of e-
filing. Therefore, the question of non- The Finance Bill seeks to relax the time
The Finance Bill now proposes to limit
filing of summary of sales and purchase limit imposed on the Appellate Tribunal
the time period for issuance of show
invoices does not arise. for issuance of order from 06 months to
cause notice to a maximum period of
08 months.
five years. The Finance Bills now seeks to
withdraw the penalty of Rs. 25,000, This would lead to further delay in
Further, the Finance Bill also proposes
effective from 01 July 2008, on non- settlement of appeals.
to extend the time period for the
filing of summary of sales and purchase
issuance of order from 90 days to 120 The Chairman or authorized Member of
invoices as its non-filing would
days, with relaxation of further Appellate Tribunal is empowered to
tantamount to non-filing of returns.
extension of 120 days instead of 90 dispose of the appeals through a single
days. bench if the difference in tax involved
Default surcharge does not exceed fifteen hundred
Access to record Section 34(1)

thousand rupees.
documents etc. Additional sales tax is payable at the

The Bill seeks to enhance this
threshold to rupees ten million.
rate of 1percent for the default of first
Section 25(2) Similarly, the threshold relating to fine
six months and at the rate of 1.5percent
or penalty is also increased to rupees
The Finance Bill seeks to enhance from the seventh month and the period
ten million under Clause (b) of Section
powers of Sales Tax Officers to onward.
46(9) of the Sales Tax Act, 1990.
conduct the audit of records of a
The Finance Bill now seeks to impose
registered person even if the same
additional tax at a uniform rate of
were earlier audited by the office of the
1.5percent from the first month of
Auditor General of Pakistan.
default in order to keep the rate of
default surcharge higher than bank
Alternative Dispute Representatives, Electric bulbs including energy
saving lamps and fluorescent.
Resolution liability and obligation
Snacks including potato chips sold
Section 47A(4) of representatives in retail packing.
Under the current mechanism of Section 58, 58B

Alternative Dispute Resolution [ADR],
The Finance Bill seeks the insertion of
Sixth Schedule
the Board decides the disputed matter
two new sections related to The Finance Bill proposes to delete
on the basis of recommendations of
‘representative’ and ‘liability and certain clauses and at the same time
ADRC. It has been observed in
obligation of representative’, previously extend certain exemptions in respect of
number of instances that even the
not given under the Sales Tax Act, a number of items.
unanimous recommendations of ADR
1990.
members are turned down by the Board Some significant changes in the Sixth
without explaining the basis of These proposed sections are similar to Schedule are summarized below:
difference of opinion or varied those contained in the Income Tax
Ordinance, 2001. Exemption on edible vegetables
interpretation of provisions of law.
including roots and edible fruits
The ADR forum, which principally (other than imported fruits except if
executes out-of-court settlement of the Repayment of tax to imported from Afghanistan)
disputes between the field formation persons registered in whether fresh, frozen or otherwise
and taxpayer, could not, at times, lead preserved in packaged form.
to amicable resolution of disputes and Azad Jammu and
taxpayer is compelled to revert to the Kashmir Margarine excluding liquid
margarine [1517.1000] to be
litigation fora for redressal of his
Section 61A exempted.
grievance.
To enable Azad Jammu and Kashmir Ready mix concrete blocks to be
The proposed insertion of sub-section
Government to pay refunds to their exempted.
4A shall facilitate the taxpayer, not
being satisfied with the order or registered persons on purchase of
Energy saving lamps [8539.3910]
decision to approach the Chairman, taxable goods from Pakistan, the
to be exempted.
FBR for rectification of any error. Finance Bill seeks to insert a new
However, such revision in the Board’s section to empower the FBR for the Goods supplied to hospitals run by
order can be made, if the Chairman is repayment of input tax paid on any the Federal Government or
satisfied and records the reasons in goods acquired in or imported into Provincial Government or
writing that there is any error in the Pakistan by persons registered in Azad Charitable operating hospitals of
Board’s order or decision, which is not Jammu and Kashmir. more than 49 beds have been
just and equitable. Similar amendments exempted.
are also proposed in the relevant Third Schedule Cardiology/cardiac surgery
provisions of other tax statutes. disposables and other equipments
The Finance Bill proposes to exclude
under the PCT code 9938 to be
the following items from the Third
exempted.
Schedule on which tax @ 15percent
was levied on their retail price: Tractors [8701.9090] to be
exempted.
Biscuits
Goods and services purchased by
Confectionery
non-resident entrepreneurs and
traders visiting Pakistan to
participate in trade fairs and STR-7, which is to be supported by the procedures were previously introduced
exhibitions to be exempted from following annexures, also prescribed: through SRO 465(I)/2007 dated 9 June
sales tax, subject to reciprocity and 2007.
Annexure A: Summary of domestic
such conditions and restrictions as
purchases
may be specified by FBR.
The Sales Tax
Annexure B: Summary of imports
Significant changes in Special Procedure
Annexure C: Summary of domestic
Rules, 2007
Sales Tax Rules, sales
2006 Annexure D: Summary of exports

These rules are issued vide SRO
525(I)/2008 dated 11 June 2008.
SRO 530(I)/2008 has been issued to Annexure E: Federal Excise Significant changes therein are
amend the Sales Tax Rules 2006 and summarized in the following
Annexure F: Production Statement
which will be effective from 1 July 2008. paragraphs.
Rule 5 Rule 18(3) Chapter II

A new sub rule is proposed to be added
A new sub rule is proposed to be added Retailers operating under these rules
thereby allowing the sales tax return to
whereby registration as a manufacturer shall charge and collect sales tax at
be filed electronically by 18th of the
will be made after verification of the rates given below based on the quarter
month in case the due date has been
manufacturing facility by the Local th turnover of supplies.
prescribed as 15 of the month and tax
Registration office. th
due is deposited by 15 of the same S. Quarterly turnover Sales tax
No. rate
month.
Rule 10 1 Up to Rs. 1.25 million Nil
It is proposed that a registered person Rule 23 2 More than Rs. 1.25 0.5percent
million and up to Rs. 2.50 of turnover
is to surrender all his multiple sales tax
It is proposed that input tax credit be million which is in
registrations and retain single excess of
not allowed on goods destroyed under
registration under intimation to the Rs. 1.25
this rule. million
Central Registration Office. Such
registered person will be allowed to file 3 More than Rs. 2.5 million Rs. 6,250
a single monthly sales tax return from Rule 28(1A) plus
0.75percent
the tax period July 2008 and onwards.
A new sub rule is proposed to be of turnover
Tax liabilities of surrendered multiple which is in
introduced whereby limited liability
sales tax registrations will be excess of
companies being manufacturers cum Rs. 2.5
transferred to the single registration
exporters are allowed to file refund million
retained by such person.
claims electronically, subject to certain
Turnover under this rule is to include
conditions mentioned therein.
Rule 14 value of all supplies included in the
Third Schedule and value of supplies
Electronic filing of sales tax returns will Rule 39A which are exempted and zero rated
be made mandatory for all registered under the Act.
Through introduction of this new sub
persons with effect from the tax period
rule, the procedure for processing of Supplies made by a retailer which are
July 2008.
refund claims of persons registered in subjected to deduction of withholding
A new format of sales tax-cum-federal Large Taxpayers Units has become tax under the Income Tax Ordinance,
excise return is prescribed under Form part of the Refund Rules. These 2001 shall be chargeable to sales tax
under section 3 of the Act. A retailer is
entitled for adjustment of input tax
Chapter XI taxable supply of locally produced coal
(PCT heading 27.01) at one thousand
credit against such supplies. Rates of sales tax for steel melter, steel rupees (Rs. 1,000/-) per tonne.
re-roller and composite unit of steel
Assessable value for turnover of SRO 535(I)/2008 dated 11 June 2008
melting and re-rolling have been
jewellers is proposed not to be less lists down fertilizers which are
enhanced.
than ten percent of actual sale price of exempted from payment of sales tax at
jewellery supplied. the event of their import or supply.
Chapter XII
Value addition on mild steel products SRO 536(I)/2008 dated 11 June 2008
has been enhanced from thirteen Chapter XII containing special list down the pesticides and active
hundred thirty [1,330] rupees to sixteen procedure rules for payment of sales ingredients of such pesticides, which
hundred and eighty [1,680] rupees per tax by “Manufacturer of Biscuits, are exempted from payment of sales
metric tons. Confectionery and Snacks” has been tax at the event of their import or
substituted by special procedure for supply.
This Chapter shall continue to apply for
payment of sales tax by “Wholesaler-
next two years on all retailers who have Through SRO 537(I)/2008 dated 11
cum-Retail Outlets”.
paid sales tax under this chapter during June 2008 amendments have been
2007-2008. made in SRO 644(I)/2007 dated 27
Chapter XIII June 2007 to enhance rates of sales
Chapter IV A new Chapter XIII has been inserted
tax chargeable on various items from
17.5percent to 18percent and from
which deals with “Special Procedure for
A new proviso has been added to allow 20percent to 21percent .
Payment of Extra Sales Tax on
input tax credit to gas distribution
Specified Electric Home Appliances”. SRO 538(I)/2008 dated 11 June 2008
companies for supplies made in Azad
amends SRO 509(I)/2007 dated 09
Jammu and Kashmir.
Significant SROs June 2007 regarding zero rating of
various goods at import and supply
Chapter X SRO 524(I)/2008 dated 11 June 2008. stage.
Amnesty has been announced from the
Chapter X deals with special procedure SRO 539(I)/2008 dated 11 June 2008
whole amount of sales tax, default
for payment of sales tax by commercial through which conditional exemptions
surcharge and penalty payable by a
importers. on import of raw material have been
person in respect of taxable supplies
made prior to 11 June 2008 in case he granted to manufacturers of dextrose
Every commercial import is to pay sales
applies for voluntary registration during and saline infusion giving sets.
tax at the rate of two [02] percent in
addition to sales tax payable under the period 01 June 2008 to 31 July SRO 542(I)/2008 dated 11 June 2008
section 3 of the Act. 2008. has been issued regarding exemption
SRO 529(I)/2008 dated 11 June 2008 of sales tax on cellular telephone sets
Two percent value addition tax is not be
has been issued to bring amendments in excess of activation charges of Rs.
chargeable in case goods are imported
in SRO 647(I)/2007 dated 27 June 500.
by a manufacturer for in house
consumption. 2007 to substitute the Table given SRO 549(I)/2008 dated 11 June 2008
under the notification regarding specified goods which are chargeable
Value addition tax paid at import stage exclusion of registered persons from to sales tax at the rate of zero per cent
can be adjusted against output tax for the purview of sub-section 1 of section on fulfilling certain conditions and
the same tax period. 8B of the Act. restrictions.
Refund of excess value added tax, if SRO 532(I)/2008 dated 11 June 2008 SRO 551(I)/2008 dated 11 June 2008
any, is not allowed under these rule. specifies fixation of minimum value of prescribes list of items which are
conditionally exempted from payment
of sales tax.
Rescinded SROs
SRO 543(I)/2006 dated 05 June 2006
which required furnishing of monthly
statements of production data by
manufacturers have now been
rescinded through SRO 527(I)/2008
dated 11 June 2008.
SRO 559(I)/2006 dated 05 June 2006

which required filing of monthly sales
and purchase summaries by a
registered person has been rescinded
through SRO 528(I)/2008 dated 11
June 2008.
Through SRO 552(I)/2008 dated 11

June 2008 several exemption
notifications have been rescinded with
effect from 01 July 2008.
Amnesty Scheme of
Sales Tax & Federal
Excise Duty
announced vide
SRO.511(I)/2008,
dated 05 June 2008
The Board has announced the amnesty
scheme for waiver of default surcharge
and penalty, if the principal amount of
sales tax or Federal excise duty
outstanding by means of contravention
report, show cause notice or
adjudication order, is deposited by the
registered persons on or before 30
June 2008.
NOTE: The changes proposed under

Finance Bill appear to be applicable
w.e.f. 01 July 2008.
Federal Excise Act, 2005
produce, manufacture, sell or trade in The Finance Bill now seeks to extend
Definition of ‘Duty or do any other business activity in applicability of FED, by amending
Due’ respect of goods or to provide service provisions of clause(d) of sub-section
or to undertake any process identified (1) of section 3, to include services
Section 2(9a) with franchiser against a fee or originating outside Pakistan but
consideration including royalty or terminating in Pakistan. Consequential
Clause (9a) defines ‘duty due’ as the
technical fee, whether or not a trade amendment is also proposed in section
duty required to be paid on the last date
mark, service mark, trade name, logo 3(5)(c), whereby liability to pay duty in
of the month of clearance, where
or brand name or any such case where services are rendered out
Section 4 of the Federal Excise Act,
representation or symbol is involved. of Pakistan shall be of the recipient of
2005 [FE Act] read with Rule 44 of the
such service in Pakistan.
Federal Excise Rules, 2005 requires
It appears that the revised definition
payment of duty at the time of filing the
deviates considerably from the The proposed amendments appear to
return. This has created an anomaly
dictionary or general meaning of the aim to bring import of services within
with respect to due date of payment of
term ‘Franchise’. The purpose of the ambit of FED whereby Pakistan
duty. The Finance Bill now proposes
extension of scope appears to cover based entity, being recipient of service,
that clause (9a) shall be substituted to
technical services. Though due to will be responsible to collect and
define the term ‘duty due’, so as to refer
definition FED would be applicable on deposit FED against the remittances
duty in respect of clearances made or
technical services irrespective of made to Foreign Service provider.
services provided or rendered during a
representational rights, still there
month and shall be paid at the time of
appears requirement for grant of rights It is worthwhile to mention that Chapter
filing of return. Since the taxpayers are
by the franchisor to the franchisee for 98 of the First Schedule to the Customs
already depositing FED at the time of
such services, which apparently may Act, 1969 provides list of services on
filing of return, as such the proposed
create ambiguity with regard to which FED is applicable on import of
insertion seems to be of clarificatory
applicability of FED on technical services into Pakistan. It is also
nature.
services where no grant of right is relevant to note that the list of services
attached thereto. inter-alia include several services
Definition of provided or rendered by advertisers,
‘Franchise’ Further, the rate of FED on franchise recruitment agents, share transfer
services is also proposed to be agents, property developers and
Section 2(12a) enhanced from 5percent to 10percent , promoters, architects, leasing
Under the existing definition of as such the proposed definition may companies, professionals &
‘Franchise’ as provided under Rule create hardship for trade and business consultants, etc., which are not covered
2(ma) of the Federal Excise Rules, and may discourage the foreign under the First Schedule to FE Act.
2005 [FE Rules], the consideration in investments in Pakistan.
the form of technical fee is not Apart from procedural and legal
explicitly covered. FED levied on import anomalies involved in collection and
payment of FED on import of services,
Revised definition of the term
of services it is implied that this revenue measure
‘franchise’ is proposed to be inserted may also discourage foreign investment
Sections 3(1)(d) & 3(5)(c)
enlarging the scope of franchise in Pakistan and in cases where the
Section 3 of FE Act interalia provides non-resident service providers do not
services on which FED is applicable.
levy of FED on services provided or bear the incidence of duty, cost of
Under the proposed definition, the
rendered in Pakistan. doing business on the part of local
franchise refers to an arrangement
under which franchisee is contractually entrepreneurs would enhance.
or otherwise granted any right to
Filing of return the Sales Tax Act, 1990 may also be
applicable to FED relating to
determinable, the price of identical or
similar goods, on which the goods can
Sections 4(4) & 4(8) chargeability, exemption, registration, be sold to the general body of retailers,
book-keeping, return filing, offences, will be considered.
Under Section 4(4) of FE Act, the
penalties, and recovery of arrears, etc.
registered person is allowed to file the
For the purpose, besides the proposed The above provision deviates
revised return within 90 days, if any
amendment SRO 543 dated 11 June significantly from the provisions of
omission or wrong declaration made in
2008 has also been issued for determination of value for sales tax
the original return needs to be rectified,
immediate effect of certain provisions of purposes under Section 2(46) of the
however such facility can be availed
the Sales Tax Act, 1990. Sales Tax Act, 1990.
after approval of the Collector
concerned. Section 4(4) is now being
amended to enhance the prescribed Default surcharge In order to align the above provision
with sales tax law, Section 12(1) is
time limit of 90 days to 120 days.
Section 8 proposed to be substituted to determine
the value for FED in accordance with
This is laudable change, which will Prior to proposed substitution of
the provisions of Section 2(46) of the
remove practical difficulties faced by Section 8 of FE Act, there were two
Sales Tax Act, 1990, excluding the
the taxpayers. However, since excise slabs for levy of default surcharge i.e.
amount of FED payable thereon.
is levied and paid in self assessment one percent per month for first six
mode, the requirement of filing of months and one and half percent per
revised return should not be linked with month thereafter. Now, a uniform rate Limitation period
approval of the Collector and mere of one and half percent per month is enhanced for
intimation should be considered proposed for levy of default surcharge.
sufficient.
deliberate evasion
Further, the substituted version covers Section 14
By insertion of Section 4(8), it seems the defaults relating to inadmissible
that legal backing is being provided to adjustment, claim of refund and duty Section 14 (1) prescribes a period of
the composite return as prescribed drawbacks, which are connected with three years for recovery of unpaid duty
under Sales Tax Rules, 2006, which corresponding provisions of Section 34 and erroneous refunds in all cases.
has been introduced through of the Sales Tax Act, 1990, which is However, under Section 36 of the Sales
notification issued on 11 June 2008. also proposed to be amended through Tax Act, 1990, the limitation period for
the Finance Bill. issuance of show cause notice is
distinct for inadvertent and wilful
Application of the defaults.
provisions of Sales Determination of
Tax Act, 1990 value for purposes of To synchronize the provisions of
duty Section 14 with that of Sales Tax Act,
Section 7(2) 1990, the Finance Bill now proposes to
Section 12(1) provide separate time limit of five years
FED though chargeable in sales tax
for issuance of show cause notice
mode, applicability of certain Under the existing provisions of Section
where defaults on account of short-levy
procedures and provisions relating to 12(1), the value for charging FED on
or erroneous payment of refund is
sales tax to FED are considered vague. excisable goods, where rate of FED is
attributable to collusion or deliberate
The Finance Bill seeks to bring dependent on the value, is taken as the
acts.
harmony between FED and sales tax wholesale cash price of such goods. It
by insertion of sub-section (2) in section is also provided that in case the
In view of various judgments of the
7 of FE Act, whereby the provisions of wholesale cash price is not
superior courts, it is binding upon the
adjudicating authorities to specify the
reference of the provision of recovery
Time limit of or order. Under Section 17 of FE Act,
the registered person is required to
provisions, under which the show adjudication order maintain and retain the specified excise
cause notice is issued. However, there extended records for a minimum period of five
is no mechanism in place, which years. It appears that the proposed
determines whether the default is Section 31(3) amendment is meant to harmonize
inadvertent or otherwise. It appears Section 35(3) with Section 17 relating
Under Section 31(3), the adjudicating
that by means of proposed to retention of records.
authorities are required to decide the
amendment, the authorities would gain
cases within a timeframe of 90 days of
powers to open the cases for audit
beyond three years’ prescribed time
the issuance of show cause notice, Power to rectify
limit.
which may further extend to maximum
mistakes in orders
period of 90 days. Now, the time limit
of 90 days is proposed to be enhanced Section 36
Offences & penalties to 120 days, further extendable for
The Bill proposes to increase the time
another 120 days. This will benefit the
Sections 19(1) & 19(5) period to rectify any mistake in orders
authorities to pass the adjudicating
from three years to five years.
Under the existing provisions of Section order within eight months’ time from the
19(1) of FE Act, the rate of penalty in date of show cause notice in totality.
case of non-filing of return, failure to Alternative dispute
make payment or short payment of duty Time limit to pass resolution
is Rs.10,000.
order-in-appeal Section 38(4)
The Finance Bill now proposes to levy enhanced Under the current mechanism of
a penalty of Rs.5,000 in case of non- Alternative Dispute Resolution [ADR],
filing of return and Rs.10,000 or five
Section 33(2)
the Board decides the disputed matter
percent of the duty involved, whichever Proviso to Section 33(2) proposes to on the basis of recommendations of
is higher, for any failure or short enhance the time limit of 90 days to ADRC. It has been observed in
payment of duty due. 120 days from the date of filing of number of instances that even the
appeal as prescribed for passing the unanimous recommendations of ADR
A proviso is also proposed to be order by Collector (Appeals). The members are turned down by the Board
inserted to relax the above penalty for extended date under the said proviso is without explaining the basis of
the person, who manages to file the also proposed to be enhanced from 90 difference of opinion or varied
return within fifteen days after the due days to 120 days. interpretation of provisions of law.
date. In such cases, the rate of penalty
will be Rs.100 for each day of default.
Powers of Board or The ADR forum, which principally
executes out-of-court settlement of the
The apparent intention of above Collector to pass disputes between the field formation
proposed changes is to synchronize the certain orders and taxpayer, could not, at times, lead
penal provisions of FE Act with that of to amicable resolution of disputes and
the Sales Tax Act, 1990. Section 35(3)
taxpayer is compelled to revert to the
The Bill proposes to enhance the time litigation fora for redressal of his
Under other proposed amendment in grievance.
limit to reopen any decision or order
Section 19(5), services are also
passed by the field formation or the
included for penal action in cases The proposed insertion of sub-section
Board or the Collector from two years
where a service provider obtains any 4A of Section 38 shall facilitate the
to five years, from date of such decision
inadmissible refund or duty drawback.
taxpayer, not being satisfied with the the rate of Rupee one per kilogram as Motor car and other vehicles – Sr.
order or decision, to approach the applicable on import of raw materials No.49
Chairman, FBR. However, such under SRO.24(I)/2006 will remain in
New insertion in First Schedule is
revision in the Board’s order can be tact.
proposed, whereby FED at the rate of
made, if the Chairman is satisfied and
five percent on motor cars and other
records the reasons in writing that there Increase in retail price & rate of
motor vehicles principally designed for
is any error in the Board’s order or FED on cigarettes – Sr.No. 9, 10 &
the transport of persons (other than
decision, which is not just and 11.
those of heading 87.02), including
equitable. Similar amendments are also
Following amendments are proposed in station wagons and racing cars of
proposed in the relevant provisions of
the captioned entries relating to cylinder capacity exceeding 850cc.
other taxing statutes.
cigarettes:
Issuance of duplicate Table II - Excisable

Product Rate of FED
of federal excise Local cigarettes Sixty three Services
if retail price percent of retail
documents exceeds sixteen price Enhancement of FED rate on
rupees per ten services liable to FED in sales
Section 43A cigarettes
tax mode
A new section is proposed to be Local cigarettes Three rupees and The Finance Bill seeks to enhance rate
inserted under Section 43A, whereby if retail price seventeen paisas
exceeds seven per ten cigarettes
of FED from 15percent to 16percent in
the registered person can obtain the
rupees and forty plus sixty nine respect of following services:
attested duplicate copy of any federal three paisas per percent per
excise document as available with the ten cigarettes but incremental
Advertisement on closed circuit
department on payment of prescribed does not exceed rupee or part
sixteen rupees thereof T.V.
fee of Rs. 100, if the registered person per ten cigarettes
applies for it. Advertisements on cable T.V.
Local cigarettes Three rupees and network
Similar provision also exists under if retail price seventeen paisas
does not exceed per ten cigarettes Inland carriage of goods by air
Section 69 of the Sales Tax Act,1990
seven rupees
and it will facilitate the taxpayers when and forty three Shipping agents [excluding
any statutory record is misplaced. paisas per ten NVOCC, IFF and slot carriers]
cigarettes
Facilities for travel – Sr. No.3
First Schedule to the The Bill also proposes to place
FED rates on domestic and
Federal Excise Act, restriction that for the purpose of levy,
international air travelling, as increased
2005 collection and payment of duty at the
rates specified, no cigarette
vide SRO.410 dated 04 April 2008 are
proposed to be incorporated mutatis
Table I - Excisable goods manufacturer shall reduce price from
mutandis in the First Schedule to FE
the level adopted on the day of the
Edible oils / Vegetable ghee / Act, with simultaneous rescindment of
announcement of budget 2008-09.
Cooking oil – Sr.No. 1& 2 said notification through SRO. 545
dated 11June 2008. The rescindment
Since FED is applicable on edible oil Cement – Sr.No.13
of SRO can be viewed that from 11
and vegetable ghee and cooking oil in June 2008 till the Finance Bill is
Rate of FED enhanced from Rs.750 per
sales tax mode, as such the rate is approved by the parliament, the
metric ton to Rs.900 per metric ton.
being enhanced from fifteen to sixteen enhanced rates of FED would not be
percent ad val. However, fixed FED at appliacable.
Enhancement of rate of FED on
Significant Federal Amendments in
Telecommunication services –
Sr.No.6 Excise notifications Federal Excise Rules
Rate of FED on all telecommunication
issued on 11 June 2005
services is proposed to be enhanced 2008 SRO 546(I)/2008
from 15percent to 21percent of the
charges. Application of sales tax on The rules have been amended to
excise laws provide reference of certain documents,
forms and definitions of sales tax in
Enhancement of rate of FED on S.R.O.543(I)/2008 place of existing documents, forms and
excisable services
As mentioned earlier, the S.R.O. definitions provided under FE Rules,
The services rendered or provided by declares certain definitions and 2005 such as Forms FE-I, FE-II and
insurance companies in respect of the requirements of the Sales Tax Act, FE-III, Challan, Collector, Collectorate,
specified type of insurance, Non-fund 1990 applicable in respect of duty Form etc.
banking / non-banking financial leviable under FE Act, with immediate
companies and Franchise services are effect. SRO further amends Rule 41A to
proposed to be subjected to enhanced empower the Collector to require an
rate of FED at ten percent of the Filing of return for carriage of aircraft operator to furnish a copy of the
charges. Currently, all such services goods by air passengers manifest in such form and
are subject to FED at the rate of five manner as may be specified in respect
percent. S.R.O. 544(I)/2008 of inland or international journeys.
Through S.R.O 550(I)/2006 dated 5
The Bill also seeks to provide Rule 43A has also been amended to
June 2006 adjustment of input FED
explanation that in the case of reinsurer provide reference to the definition of
was made available for specified
FED shall only be applicable in cases ‘franchise’ as proposed in the Finance
excisable services, including carriage of
where reinsurer directly provides Bill to be inserted in section 2 of FE
goods by air. SRO 544 has now
insurance services by proposed Act.
amended SRO 550 providing that an
amendment in entry 7 of the First
airline shall file return for carriage of
Schedule. In Rule 43A, a new sub-rule (7) has
goods by air by the day specified in
been inserted empowering the bank
sub-rule (9) of Rule 41A of FE Rules,
Third Schedule to the 2005.
remitting amount on account of
franchise fee, technical fee or royalty,
Federal Excise Act, to deduct FED where it has not been
2005 FED on air travel paid and issue a certificate on its letter
services head showing the name and
Exemptions provided registration number of the franchisee
S.R.O.545(1)/2008 and the amount of FED so deducted.
Life and health insurance shifted to
The S.R.O rescinds the earlier SRO The Bank is required to deposit the
Table II of the Schedule being
410 (I)/2008 date 29 April 2008, FED in its own monthly return without
categorized as services.
wherein rates of FED for domestic and any adjustment or deduction,
international travelling by air have been whatsoever, whereas, the franchisee
Registered manufacturer importing
specified, as the Finance Bill now would also declare the amount so
Carbon black oil as raw material.
seeks to insert such rates in the First deducted by the bank in his return.
Schedule to FE Act.
Customs Act, 1969 and Rules
provided on the import of polyester penal provisions under the afore-

Establishment of staple fiber. mentioned entry of Section 156(1) of
office of Directorate The Finance Bill now seeks to omit
Customs Act.
General of Post clause (ab) from Section 21.

Time limit of
Clearance Audit
Suspension of adjudication order
Section 3DD
registration under extended
This section seeks to empower the
Board to appoint officers at the
Customs Section 179(3)
Directorate General of Post Clearance Computerized System Under Section 179(3), the Customs
Audit [PCA]. authorities are required to adjudicate
Section 155F
the cases involving confiscation of
Under Section 26A of the Customs Act,
Under Section 155F, the Collector of goods or imposition of penalty under
the appropriate customs officer is
Customs is empowered to cancel the the Customs Act within 90 days of the
vested with authority to conduct audit or
registration of any non-compliant receipt of contravention report or within
investigation or enquiry with respect to
person having the unique user identifier such period if extended by the
correctness of any declaration,
under Customs Computerized System Collector, not exceeding further 90
statement or document for determining
usually abbreviated as ‘PACSS’. days.
the liability of any person towards
customs duty, taxes, fees, surcharge, The Bill seeks to empower the Collector The proposed amendment enhances
fines and penalties. It appears that the of Custom in exceptional the time limit for passing the
post import audits particularly in the circumstances, to be documented in adjudication order from 90 days to 120
cases of under-invoicing will be carried writing, to suspend use of unique user days.
out by the Directorate General of PCA. identifier of any person on any
complaint or violation of the provisions
Power of single bench
Compensation to of law. The proposed amendment
of the Appellate
would facilitate the importers /
importer against exporters to avoid repetition of the Tribunal
commitments registration process, particularly when it
is cancelled unjustifiably due to any Section 194C(4)
Section 21(ab) misapprehension.
The Chairman or authorized Member of
Under Clause (ab) of Section 21, the Appellate Tribunal is empowered to
Board is empowered to authorize any Penalties dispose of the appeals through a single
amount to the importer or local buyer of bench if the difference of duty or tax
any goods in order to compensate the Section 156(1) involved, amount of fine, or penalty
commitment given to such person for Section 156(1) contains details of does not exceed five million rupees.
levy or zero-percent or any lower rate offences and penalties as applicable
of customs duty on import or local The Bill seeks to enhance this
under various provisions of the
procurement of any goods. threshold to rupees ten million in terms
Customs Act. The proposed
of the customs arrears.
This clause was inserted through amendment in Entry No.43 provides for
Finance Act, 2005 to enforce power to proceeds against other person
negotiated settlement in cases of having custody of the imported goods
sovereign guarantees given by the concealed / removed fraudulently, in
Government to manufacturers or addition to the owner of goods. Such
importers, particularly the guarantees person now will also be exposed to the
Alternative Dispute Significant Rice seeds
Resolution Committee exemptions / Energy saving lamps / bulbs
Section 195C(4A) reduction in rates of Dredgers
Under the current mechanism of customs tariff Specified solar energy equipments
Alternative Dispute Resolution [ADR], Power plants imported by WAPDA
First Schedule to the Customs
the Board decides the disputed matter on temporary basis
Act, 1969; Pakistan Customs
on the basis of recommendations of
Tariff or Concessionary customs Samples, if imported by
ADRC. It has been observed in
notifications manufacturers under Chapter 99 of
number of instances that even the
unanimous recommendations of ADR PCT
Policy measures
members are turned down by the Board Other relief Measures
without explaining the basis of Tariff rationalization is continued to take
difference of opinion or varied place under cascading principle. Rates of customs duty are proposed to
interpretation of provisions of law. Generally, the cascading of custom be slashed to zero to ten percent for
duties is applicable as follows: the following industrial segments:
The ADR forum, which principally
executes out-of-court settlement of the Primary raw materials 0–5 Water dispensers;
disputes between the field formation percent
Hooks & eyes;
and taxpayer, could not, at times, lead Secondary / components 5 - 10
to amicable resolution of disputes and Aluminium alloy;
percent
taxpayer is compelled to revert to the
Electric irons;
litigation fora for redressal of his Finished goods 20 - 35
grievance. percent Mini choppers;
The proposed insertion of sub-section Vacuum cleaners;

4A shall facilitate the taxpayer, not
Under the proposed amendments in Central heating gas boilers;
being satisfied with the order or
Pakistan Customs Tariff [PCT], the
decision to approach the Chairman, Mini ovens, gas stoves, gas
import of non-essential and luxury
FBR for rectification of any error. heaters & cooking ranges
items has been discouraged by
However, such revision in the Board’s
enhancing the rates of customs duty, Air handling equipments;
order can be made, if the Chairman is
however for certain industrial goods the
satisfied and records the reasons in Central heating equipments;
rates of customs duty are being
writing that there is any error in the
reduced to minimize the cost of doing UPS;
Board’s order or decision, which is not
business.
just and equitable. Similar amendments Chlorinated paraffin,
are also proposed in the relevant Significant exemptions of customs
provisions of other tax statutes. duty Chrysotile cement pipes;
Exemptions of customs duty on import Sheets & fittings

of following goods are proposed: Perforated steel products
Fully dedicated CNG buses Specified active ingredients,
Specified medicines for cancer / chemicals and packing materials
heart treatment, etc. used by the pharmaceuticals
Bitumen, JP4 & JP8 Base oil used for lubricating oils
Calcium carbide Sulphonic acid setting up of a new industrial unit
provided that such import is made
PTA & Polyester staple fiber Sewing machines CKD/SKD
against a valid contract or an
Caustic soda Special purpose motor vehicles irrevocable letter of credit for a
minimum C&F value of US$ 50 million.
Printing screens Cars / jeeps above 1800cc
Other changes have been made in
Nickel not alloyed
Significant Customs parent notification SRO.575 imposing
conditions for import of capital goods by
Textile buckram
notifications issued on various segments.
Revenue measures
11 June 2008 The generators having capacity upto
The rates of customs duty are 75KVA have inter-alia been included
proposed to be enhanced on the Regulatory duty waived
under Sr.No.35, which can be imported
following imported goods, generally SRO.553(I)/2008 under SRO.575 at zero-percent rate of
classified as finished goods meant for customs duty subject to fulfilment of
trading in same state or non-essential This notification rescinds two different
specified conditions including
use: notifications of regulatory duty i.e.
certification by Alternative Energy
SRO.947(I)/2007, dated 12 September
Dairy products Development Board, Islamabad. The
2007 [carbon less paper and wax
rate of duty on such generators is
Fruits paper] and SRO.1172(I)/2007, dated 05
20percent as per proposed PCT.
December 2007 [raw cane & beet
Chewing gum; sugar and white crystalline beet sugar].
Chocolate;
Under the proposed PCT the rates of Substitution of and
Processed food;
customs duty on above items have condonation of delay
been enhanced to neutralize the impact
of abolition of regulatory duty. in submission of
Fruit juices;
Duty concessions and sales tax
installation /
Aerated waters;
exemption on import of capital consumption
Ceramic products; goods certificates
Air-conditioners; SRO.554(I)/2008 SRO.555(I)/2008
Refrigerators; SRO.575(I)/2006, dated 05 June 2006 The installation or consumption
Electric fans; [SRO.575] allows reduced rate of certificates to be submitted by WAPDA,
customs duty and exemption of sales KESC, SNGPL and SSGCL in respect
Toasters; tax on import of plant, machinery, of import of goods under specified
equipment and apparatus, including concessionary notification, shall be
Microwave & electric ovens;
capital goods subject to fulfilment of accepted for release of their financial
Cooking ranges specified conditions. Generally, the securities if signed by the CEO, MD or
benefit of SRO is admissible on plant & Head of Organization in lieu of
Televisions;
machinery and capital goods which are installation or consumption certificate
Furniture & lighting equipments; not manufactured in Pakistan. required from Sales tax or Federal
Excise Collectorates. Further any delay
Cosmetics; By virtue of this notification additional
in submission thereof shall also stand
condition is prescribed for availing the
Cellular phones; condoned on submission of such
benefit of SRO.575 that the capital
certificate. This notification seems to
Betel leaves; goods should be imported as plant for
facilitate the public sector power and
gas distribution companies to improve 1000CC Besides above amendment, the
their liquidity position. Appendices to SRO.693 have been
From 1001CC to US$ 11,000 substituted to include the goods / parts
1300CC
Duty concessions on of the vehicles, which were not
previously listed.
From 1301CC to US$ 15,400
manufacturing of 1500CC
soaps in Azad Jammu Zero-percent rate of
From 1501CC to US$ 18,700
& Kashmir 1600CC customs duty on
SRO.559(I)/2008 From 1601CC to US$ 23,100 import of components
Manufacturers of toilet and laundry 1800CC (Asian for assembly of CNG
makes only, but
soaps based in Azad Jammu &
excluding jeeps)
dedicated buses
Kashmir have been extended
concessionary duty regime in line with SRO.562(I)/2008
SRO.565(I)/2006, as available to Additional customs By amending SRO.655(I)/2006, dated
Pakistan based manufacturers.
duty on import of 22 June 2006 [SRO.655] zero-percent
rate of customs duty is now applicable
Rates of cumulative inputs of auto sector on import of components for assembly
duty and taxes on SRO.561(I)/2008 of fully CNG dedicated vehicles under

PCT heading 87.02. Previously, it was
import of vehicles Under SRO.693(I)/2006, dated 01 July enhanced from zero-percent to ten
enhanced 2006 [SRO.693], the import of sub-
components and components of
percent under SRO.655.
SRO.560(I)/2008 different type of vehicles are subjected

to additional customs duty at specified Reduction in rates of
SRO.577(I)/2005, dated 06 June 2005,
provides a table of cumulative duty and
rates provided under the table to customs duty on
tax rates on imported automotive
SRO.693. Further, the various types of
goods have been listed in the
goods meant for
vehicles in old and used condition.
Appendices to this SRO.693, which are assembly /
Through the amendment notification,
the cumulative rates of duty and taxes
subject to additional customs duty. manufacturing of
have been enhanced by ten percent The rates of customs duty on certain vehicles
under each and every slab with respect components / sub-components of the
to engine capacity of the vehicles. following type of vehicles have been SRO.563(I)/2008
enhanced, if such goods are imported Certain amendments have been made
The revised table is as under:-
as part of any kit form for the assembly in the clauses of SRO.656(I)/2006,
Automotive vehicles Duty and or manufacturing of motor cars and dated 22 June 2006 [SRO.656] that
meant for transport taxes in US$ vehicles: pertain to conditions, which are
of persons. PCT Rate of additional Enhanced required to be complied with for availing
customs duty, rate of
prior to customs duty exemption / concession of customs
Upto 800CC (Asian US$ 4,400
amendment duty on import of inputs for assembly or
makes only) 87.03 15 percent 17.5 percent manufacturing of specified vehicles.
Upto 800CC (Other US$ 6,600 87.11 25 percent 30 percent Under the rate table of SRO.656,
than Asian makes)
following reductions in the rates of
From 801CC to US$ 5,500 customs duty have been made:
From 35percent to 32.5percent on
components in any kit form, if
have adverse impact on local
manufacturers of such goods.
Exemption /
imported for assembly / concession of
Besides above, the Table of SRO.565
manufacture of motor cars and
has been substituted in entirety, which customs duty on
vehicles falling under PCT heading
87.03;
extends benefit of concession / import of non-survey
exemption of customs duty on import of
From 25percent to 20percent on specified inputs which include the
based goods
components in any kit form, if following new industrial segments: SRO.565(I)/2008
imported for assembly /
Chlorinated Paraffin; This SRO amends the parent
manufacturing of vehicles falling
under PCT heading 87.11. notification SRO.567(I)/2006, dated 05
Chrysotile cement pipes, sheets &
June 2006 [SRO.567], as amended
fittings;
from time to time, which provides
Exemption / Evaporators & condensers for exemption or reduced rate of customs
concession of chilled water coils, steam heating duty on various imported goods subject
coils, shell & tube type;
customs duty on to fulfilment of specified conditions. The
Tables I & III of SRO.567 stand
import of industrial Disposable infusion giving sets;
substituted, which inter-alia extends the
inputs Distilled fatty acid [Soya bean oil, benefit of duty concession on the
palm oil and coconut oil] following imports:
SRO.564(I)/2008
Hooks & eyes Pure Terephthalic Acid [PTA]
It amends the concessionary
notification SRO.565(I)/2006, dated 05 Air handling equipments Vitamin mineral premix
June 2006 [SRO.565], which provides Motorcycle chain BOPP packing adhesive tape
reduced rates of customs duty and
exemptions on various raw materials, if Perforated steel products Textile bukram
imported by specific industrial Central heating equipment Misc. drugs including blood fraction
segments. & immunological products, tetanus,
Uninterrupted Power System [UPS]
The words ‘as are not manufactured hepatitis B, human albumin, factor
locally’ have been omitted from the Water Dispenser viii & plasma derived fibrin sealant,
preamble of SRO.565. There have Antihempohilic factor ix,
Central heating gas boiler;
been disputes on various goods with intravenous immunoglobulin, ,
the Board as well as Engineering Gas heaters intramuscular immunoglobulin, etc.
Development Board whether the PVC / PVCD pharma grade
Gas stoves, cooking range with
imported goods are being
oven
manufactured in Pakistan or not. Even Cetylpyridinium chloride pad
in number of cases, although the Aluminium Alloy
Under Table II of SRO.567, the
identical goods are found to have been
Electric iron concession of customs duty is further
manufactured in Pakistan, but due to
reduced from 6.5percent to 4.5percent
their quality, the industries are more Mini chopper on import of specified grades of
inclined to prefer import of quality raw
Vacuum cleaner polyester staple fibers. This reduced
materials. Therefore, it appear to be
rate of duty will reduce cost of doing
industry friendly drive, which may Mini oven business within the textile industry.
enhance competitiveness of the
specified industries, however, it may Nickel rotary printing screens
Relief on smuggled /
confiscated vehicles
SRO.568(I)/2008
This amends SRO.487(I)/2007, dated
09 June 2007 allowing release of
confiscated / seized vehicles, which
were imported in violation of Import
Policy Order, against payment of
leviable duty/taxes and 30percent
redemption fine of CIF value of
vehicles. The scheme shall remain
applicable up to 30 June 2008.
NOTE: As per declaration made under

the Provisional Collection of Taxes Act,
1931, the duties of customs are
applicable w.e.f. 12 June 2008.
Capital Value Tax
Where the value of Rs.50 Further the Finance Bill seeks to

Capital Value Tax immovable property is per substitute the definition of term ‘urban
not recorded square
[CVT] yard of
area’. The consequential effects of this
the land change would be that:
Section 7 of the Finance Act, 1989 area
3. Purchase of modaraba 0.02 of Municipal body will be excluded

CVT was introduced vide section 7 of
certificates or any the from the definition;
the Finance Act, 1989. After amended instrument of redeemable purchas
from time to time, present application of capital, or shares of a public e value
company listed on stock Presently rating areas as defined under
CVT is summarised in the following
exchange in Pakistan the Urban Immovable Property Act,
table:
4. Residential flats with 1958 are covered in the definition. The
covered areas measuring Finance Bill seeks to clarify that such
S. Description of assets Rate of 1500 sq. feet and above.
No. CVT rating areas as in force in Punjab,
Percent
NWFP, Sindh and Balochistan except
Where the value of 2percent
where the rate under section 117 of the
1. Motor vehicle, not immovable property is of the
previously used in Pakistan, recorded. recorded respective Provincial Local Government
of an engine capacity: value Ordinance, 2001 is zero.
Not exceeding 800cc NIL Where the value of Rs. 50
and three wheelers immoveable property per
is not recorded square
801cc to 1000cc 3.75
yard of
1001cc to 1300cc 5 the land
area
1301cc to 1600cc 6.25
In terms of section 7, CVT is applicable
Exceeding 1600cc 7.5
on acquisition of assets through
2. Immovable property (other
specified forms including by power of
than commercial &
residential flats) situated in attorney.
urban area, measuring at
least one Kanal or 500 The Finance Bill now seeks to add a
square yards whichever is
less: proviso in sub-section 1 of section 7 to
provide deferment of CVT on
Where the value of 2 of the
immovable property is recorded
acquisition of an asset by general
recorded value power of attorney unless such power of
attorney is used by the bank to enforce
Where the value of Rs.50
mortgage of property offered as
immovable property is per
not recorded square collateral against a loan or in other
yard of words the property is transferred in the
the land
name of the bank.
area
Commercial immovable
The amendment is proposed to mitigate
property of any size:
the burden of tax on the banks where
Where the value of 2 of the general power of attorney is frequently
immovable property is recorded used in transaction relating to the
recorded value
mortgage of properties as collateral to
loans.

Workers’ Welfare Fund
of total income as defined in the WWF establishments for the purpose of

The Workers Welfare Ordinance. Consequently, the definition WPSE Ordinance. The term
Fund Ordinance, of ‘total income’ provided in WWF ‘commercial establishment’ means an
Ordinance would prevail for levy of establishment which carries on any
1971 WWF. business, trade or profession or any
Sections 2, 4 and 11B work in connection with, or incidental or
In view of self-assessment scheme
ancillary to any business, trade or
Chargeability of WWF provided in the Income Tax Ordinance,
profession.
2001, consequential amendment has
Prior to Finance Act, 2006, Workers’ also been proposed in section 4(4) of In view of the proposed insertion of
Welfare Fund [WWF] was chargeable the WWF Ordinance to remove the sub-clause (iva) of clause (f) of section
at the rate of 2 percent of total income words ‘At the time of making an 2 of the WWF Ordinance, every
as assessable under income tax laws assessment under the Ordinance, or as business concern would become liable
and the term ‘total income’ had same soon thereafter as may be the’ and ‘on to WWF if such concern has total
meaning as defined in income tax laws. the basis of the income so assessed’ to income of Rs. 500,000 or more for a tax
The Finance Act, 2006 amended the bring the provision in line with the year.
definition of ‘total income’ provided in scheme of the Income Tax Ordinance,
section 2(f) of the Workers’ Welfare The proposed extension of scope of
2001. Similar amendment has been
Fund Ordinance, 1971 [WWF ‘industrial establishment’ appears to
proposed in section 4(5) of the WWF
Ordinance] whereby total income increase the cost of doing business and
Ordinance.
means as follows; may have negative impact on business
Every business having total environment. Time and again, the stake
Where return of income is required income of Rs. 500,000 or more to holders have been suggesting to
to be filed, the profit (before abolish the levy of WWF as well as
pay WWF
taxation or provision for taxation) Workers’ Profit Participation Charge or
as per accounts or the declared The Finance Bill also seeks to extend to allow the industrial establishments to
income as per the return of income, the scope of ‘industrial establishment’ use such levy for the betterment of their
whichever is higher; and by insertion of new sub-clause (iva) in workers on their own instead of
clause (f) section 2 of the WWF transferring it to the government.
Where the return of income is not
Ordinance, whereby any establishment,
required to be filed, the profit Prior approval of Governing
to which the West Pakistan Shops and
(before taxation or provision for Body for appointments
Establishment Ordinance, 1969 [WPSE
taxation) as per accounts or four
Ordinance] for the time being applies,
percent of the receipts as per the Section 11B(3) of the WWF Ordinance
shall constitute as ‘industrial
statement filed under section 115 provides that the Chairman of Workers’
establishment’ for levy of WWF under
of the Income Tax Ordinance, 2001 Welfare Board shall be its chief
the WWF Ordinance.
whichever is higher. executive and may appoint a Secretary
Under WPSE Ordinance, or other staff, as the Board may
However, the charging section still sanction. The Finance Bill seeks to
‘establishment’ means a shop,
provides for levy of WWF at 2 percent amend this provision by making such
commercial establishment, industrial
of so much of total income as appointments conditional to prior
establishment, private dispensary,
assessable under the Income Tax approval of the Governing Body of the
maternity home, residential hotel,
Ordinance, 2001. This created anomaly Board.
restaurant, eating house, café, cinema,
that which income will be taken for levy
theatre, circus, or other place of public
of WWF.
amusement or entertainment, and such
The Finance Bill now seeks to amend other establishment or class thereof as
section 4(1) of the WWF Ordinance so Government may, by notification in the
as to provide levy of WWF at 2 per cent official Gazette, declare to be
Petroleum Products (Development Surcharge)
Ordinance, 1961
The Bill seeks to insert a new sub-

Definition of licensee section (1A) requiring every ‘licensee’
to pay PDL to the Federal Government.
Section 2(4C)
Under First Schedule to the Ordinance,
Definition of the term ‘licensee’ is
PDL is applicable on specified
proposed to be inserted which means
petroleum products, which inter-alia
the licensee defined under the
include Aviation Spirit, Kerosene, High
Compressed Natural Gas [CNG]
Speed Diesel, furnace oil, lubricating
(Production and Marketing) Rules,
oil, etc. Now, the proposed
1992, or the Liquefied Petroleum Gas
amendment seeks to include the CNG
(Production and Distribution) Rules,
and LPG for levy and payment of PDL.
2001, as the case may be, and as
specified by rules. It appears that Oil and Gas Regulatory
Authority may issue the relevant
Inclusion of CNG and notification for describing the procedure
for collection and payment of PDL.
LPG in the definition
of ‘Petroleum product’
Section 2(5)
The definition of term ‘Petroleum
product’ refers to any petroleum
product specified in the First Schedule
to Petroleum Products (Development
Surcharge) Ordinance, 1961 [the
Ordinance]. However, by means of
proposed amendments CNG and LPG
are also included in the definition of
petroleum products.
Levy of Petroleum
Development
Surcharge
Section 3(1)
Section 3(1) is the charging provision
under the Ordinance, whereby every
refinery and every company shall pay
to the Government a development
surcharge [PDL] equal to the differential
margin in respect of petroleum products
produced or, as purchased for resale
except for export.
Labour Laws
every industry or establishment where

The Provincial five or more persons are employed. West Pakistan
Employees’ Social Previously employees limit prescribed Industrial and
for this purpose was ten for industry or
Security Ordinance, establishment set up on or before 2006
Commercial
1965 and twenty if such industry or Employment
The Finance Bill has proposed to
establishment was set up on or after 01
July 2006.
(Standing Orders)
extend application of this Ordinance to Ordinance, 1968
employees earning wages upto Rs. The rate of monthly contribution is
10,000. Previously this limit was upto proposed to be reduced from 6percent It has been proposed to change the
five thousand rupees. to 5percent of the employee’s wages. name of this ordinance by omitting
prefix “West Pakistan” as “Industrial
Under this Ordinance, the employers’ Section 22 of the Act entitles the and Commercial Employment
normal contributions are made at rates insured person to the benefits of (Standing Orders) Ordinance, 1968”.
prescribed in Schedule to the Provincial monthly old-age pensions on the
Social Security (Contribution) Rules, condition that prescribed contributions The Schedule to this Ordinance
1966. Currently, rates of contribution for minimum specified years have been provides various standing orders. The
have been prescribed upto seven made. Now the Bill proposes to remove standing order 15 deals with
percent of normal wages. Now the Bill this minimum contribution condition for suspension during the period of inquiry
proposes to introduce a cap of six employees insured on or after 01 July of misconduct provided that during the
percent of wages for employees 2008. suspension period, subsistence
earning wages of upto four hundred allowance upto fifty percent of monthly
This Act is currently not applicable to wages can be paid. Now, the Bill
rupees per day or ten thousand rupees
employees of a bank or banking proposes to remove this provision
per month. Previously these wage limits
companies. The Bill proposes to entitling workman to his normal monthly
were two hundred rupees per day and
remove this exclusion so as to make wages during the period of suspension.
five thousand per month, respectively.
this applicable for employees of banks
Under a scheme introduced effective or banking companies also.
01 July 2001, employers have an
The Minimum Wages
The old-age pension or invalidity
option to opt for self assessment
pension benefit to the insured person is
for Unskilled Workers
scheme and pay contribution at fixed
calculated on the basis of contribution Ordinance, 1969
rate for each secured person
paid in immediately preceding month
employed. The rate of such contribution The Prime Minister in his first speech
when conditions were fulfilled subject to
is proposed to be enhanced from Rs. upon taking charge of his office
minimum pension benefit of Rs. 1,500
210 per month to Rs. 360 per month announced minimum wages of Rs.
per month. The Bill proposes to change
per secured employee. 6,000 per month but this was not yet
computation basis from preceding
provided with legal cover. Now the Bill
month to twelve calendar months and
Employees’ Old-age minimum benefit of Rs. 2,000 per
has proposed to amend this minimum
wage by introducing amendment in the
Benefits Act, 1976 month for pension commencing on or
Schedule to the Minimum Wages for
after 01 July 2008. It is also proposed
Unskilled Workers Ordinance, 1969.
The Employees’ Old-age Benefits Act, to increase the existing pension
1976 is a statute intended to provide benefits by 15percent .
security and benefit to the old age
employees of industrial, commercial or
other organizations covered by it. The
Bill proposes to make this applicable on
Corporate Laws
Exchange Regulation Act, 1947 and the information possessed and used
Foreign Exchange rules & regulations made thereunder. for transacting any deal is inside
Regulation Act, 1947 information; and
The Bill proposes to introduce a new

Securities and an insider person suggesting or
section 23K in the Foreign Exchange Exchange Ordinance, recommending to another person
to engage in dealing, without the
Regulation Act, 1947 to empower the 1969 inside information being disclosed.
State Bank of Pakistan to impose
penalty, if in its opinion, any person Section 2(cd) But excludes:
contravenes any provisions of this Act,
Definition of “Commodity Futures a) any transaction performed under
or any order, rule, regulation or
Contracts” is proposed to be extended an agreement that was conducted
direction issued thereunder. The
so as to include transactions of before the time of gaining access
proposed penalties may extend to
contracts that are settled at a price to inside information; or
Rupees one million for each
determined at the initiation of the
contravention and in case of continuing b) the disclosure of insider
contract that may be settled by delivery
contravention a further per day penalty information by an insider person as
or cash.
of upto twenty thousand rupees until required under law.
contravention ceases. In the case of Sections 15A to 15F
contravention by a company, every The section also provides that no
Sections 15A and 15B are proposed to contract shall be void or unenforceable
director, manager, secretary or other
be substituted by insertions of new by reason only of an offence under this
officer or agent shall also be deemed
sections 15A to 15F. The new sections section.
guilty of such contravention if this
seek to broaden the definitions of
happened either with his knowledge,
insider trading and insiders and Section 15B defines “inside
consent or he did not act diligently to
enhance and add new penal provisions information” as information which has
prevent such contravention.
including removal from office, not been made public:
It is also proposed that in case penalty cancellation of registration and
a) relating directly or indirectly to
is not duly paid by the person, the State debarment of auditors for a three year
listed securities or one or more
Bank of Pakistan may recover such period from auditing any listed
issuers and which if it were made
penalty from any of account or asset of company.
public, would likely have an effect
the defaulter held with the State Bank
Section 15A defines “insider trading” to on the prices of those listed
or any other bank or a financial
include transactions involving listed securities or on the prices of
institution, without giving any notice. It
securities to which inside information related securities and
is further proposed that in case such
pertains by the following:
other bank or financial institution to b) in relation to derivatives on
which notice was sent to debit and pay an insider person directly or commodities relating, directly or
such penalty fails to do so, it shall itself indirectly or using others to indirectly, to one or more of such
be liable to pay such amount to the transact such deals; derivatives and which are traded in
State Bank as the contravention has accordance with accepted market
any other person to whom inside practices on those markets.
been committed by itself.
information has been passed or
In order to provide legal cover to the disclosed by an insider person or In relation to persons responsible for
above proposals, the overriding effect using others to transact such deals; the execution of orders concerning
of the Protection of Economic Reforms listed securities, information which is
persons specified above and any conveyed by a client to such person
Act, 1992 has also been proposed to
other person who knows or ought and related to the client’s pending
be removed to the extent of the Foreign
to have known under normal and orders.
reasonable circumstances that the
Section 15C defines the term “insider” h) any person obtaining insider imprisonment has now been removed
to include: information through unlawful and monetary penalty for indulging in
means; and insider trading has now been increased
a) sponsors, executive officers,
to higher of Rupees ten million or three
directors of an issuer; i) a spouse, lineal ascendant or
time the amount of gain made or loss
descendant, partner or nominee of
b) sponsors, executive officers, avoided or loss suffered by another
a person referred to in clause (a) to
directors and partners of a legal person. In addition to fine such person
(h).
person or unincorporated business may be directed by the Commission to
association, in which the issuer Section 15D provides that the listed surrender to the Commission, an
holds shares or voting rights, companies shall inform the public as amount equivalent to gain made or loss
directly or indirectly, of twenty per soon as possible of insider information avoided or to pay to any other person
cent or more; which directly concerns the listed who has suffered a loss and amount
securities. Where the disclosure is equivalent to the loss so suffered.
c) sponsors, executive officers,
deemed prejudicial to the legitimate
directors and partners of a legal The section also provides for removal
interest of the company, the disclosure
person or unincorporated business of persons indulging in insider trading
can be delayed with notification to the
association who holds, directly or from their office or cancellation of
Commission and maintenance of
indirectly, shares or voting rights of registration as a broker or agent, by an
confidentiality provided the delay does
ten percent or more in an issuer; order of the Commission. Where the
not mislead the public.
violation is committed by the auditor, in
d) sponsors, executive officers and
Listed companies or persons acting on addition to being removed as the
directors of an organization, that
its behalf, are required to maintain and auditor of the issuer, may also be
has been engaged in the
regularly update a list of persons debarred from auditing any listed
placement of listed securities or
employed, under contract or otherwise company for a period of three years.
the public offer of securities or the
who have access to inside information
issuing and marketing of such A new fine of upto Rupees thirty million
and provide such list to the
securities, who has had access to is also proposed for disclosure of inside
Commission whenever requested.
insider information during his information to any other person who is
employment till a period of one Persons discharging managerial not required to possess such
year after leaving employment; responsibilities within a listed company information for any reason.
and persons closely associated with
e) any natural person holding, directly Section 15F
them shall notify the Commission of
or indirectly, ten percent or more
transactions conducted on their own This section has been added to give
shares of an issuer;
account relating to the securities of powers to the Commission to make
f) sponsors, executive officers and such listed company. regulations to regulate persons who
directors of credit institutions in produce or disseminate research
The stock exchanges have also been
which the issuer has an account; concerning listed securities or issuers
asked to adopt structural changes to
of listed securities and persons who
g) any person obtaining inside detect and prevent insider trading and
produce or disseminate other
information as part of his market abuse practices.
information recommending or
employment or when discharging
Section 15E suggesting investment strategy.
his usual duties in an official
capacity or in any other way The contravention of provisions of
relating to work performed under insider trading was punishable with
contract of employment or imprisonment for a term which may
otherwise; extend to three years or with a fine upto
three times the amount of gain accrued
or loss avoided. The penalty relating to
Modaraba Companies The Companies NBFC licensed (i) to undertake asset
management services in relation to
and Modaraba Ordinance, 1984 asset management company; and (ii)
(Floatation and The Finance Bill has proposed
as venture capital company in relations
to a fund; as registered with the
Control) Ordinance, following amendments to the
Commission.
Companies Ordinance, 1984 [the
1980 Ordinance]. Section 208
The Bill proposes to introduce various Section 158 The Finance Act 2007 granted powers
powers to the Registrar and the
to the Commission to exempt any class
Commission as discussed hereunder. Section 158 “Annual General Meeting”
of companies from restriction provided
[AGM] is proposed to be amended to
It is proposed that the Registrar would in the section and to frame regulations
increase the period of holding the AGM
be provided with powers to issue for specified classes of companies.
from existing “three” months to “four”
direction to a modaraba company or months. It is also proposed to enhance Now, the Bill proposes to omit the
modaraba companies in general the fines on contravention of provisions wording of ‘such classes of’ companies
binding it/them & the management of this section to minimum of fifty from sub-section 2A(b) so as to
thereof, notwithstanding anything thousand rupees (from twenty thousand broaden the scope of this sub-section
contained in any other provision of this rupees) and maximum upto five to cover all companies.
Ordinance, if the Registrar is satisfied hundred thousand rupees (from fifty
that it is necessary in the public thousand rupees) in case of default by
Section 233
interest, or to prevent the interest of a listed company; and maximum fine of The Bill proposes to empower the
Modaraba certificate holders or for rupees one hundred thousand (from ten Commission to specify the form and
proper management of any modaraba thousand rupees) in the case of default manner in which the company should
company. by any other company. send its financial statements to the
The Bill further proposes to empower members.
Section 187
the Commission to make regulations for
The ineligibility criteria for becoming a
Section 251
the purposes of this Ordinance, subject
to prior publication of draft regulation director of a listed company is Section 251 prescribes period of forty
seeking public opinion for at least proposed to be extended to include a five days in the case of listed company
fourteen days and the regulation may sponsor, director or officer of a and thirty days in other cases for the
provide a fine upto one hundred corporate brokerage house. However payment of dividend from the date of its
thousand rupees and in case of such prohibition shall not be applicable declaration; and also prescribes strict
continuing contravention a further fine where the company is a stock penal actions in the case of default.
of Rs. 1,000 per day. exchange.
Now, the Bill proposes to remove the
Besides the above, it is also proposed Section 206 period specified and to empower the
to empower Commission to issue Commission for specifying such time
This section imposes bar on
directives, circulars, codes, guidelines for payment of dividend.
appointment of managing agents.
or notifications for the purpose of this
However, sub-section 2 provides Part VIIIA
Ordinance and the rules and
exceptions to certain classes of
regulations made thereunder. Section 282B was amended vide
agreements where Federal
Government exempts them by Finance Act, 2007 for granting powers
notification in the official Gazette. to the Commission for making
regulations and to issue such
The Bill now proposes to extend this directives, circulars, codes, notifications
exception to agreements with the and guidelines as considered
necessary for the purposes of Part term. The existing section provides that initiating actions against insider
VIIIA. However, consequential the Commissioner appointed to fill trading offenders.
amendments could not be made in casual vacancy shall hold office for
maintaining and issuing panels of
section 282G, 282J, 282K and 282M so three years starting the time such
auditors from which companies
as to make reference to the regulations vacancy occurred.
may appoint auditors, and
besides rules. The Bill proposes to
This Bill now proposes to remove this approving audit firms for financial
make these consequential
lacuna by clarifying that such institutions, listed companies and
amendments now.
Commissioner shall hold office for three NBFIs.
years from the date of appointment
Economic Reforms instead of occurrence of such vacancy.
Promoting and regulating any post
employment benefit scheme, fund,
Act, 1992 The Bill also proposed to introduce age arrangement or undertaking (inter
Section 3 of the Economic Reforms limits for appointment as well as alia including pension,
Act, 1992 provides that this Act has retirement age of Commissioners. superannuation, gratuity and
overriding effect on the Foreign provident funds and schemes)
Section 12
Exchange Regulation Act, 1947, the established by the companies and
Customs Act, 1969, the Income tax This section was amended vide state owned corporations.
Ordinance, 1979 and any other law for Finance Act, 2007 whereby the number
Section 32, 32A and 33
the time being in force. of members on the Securities and
Exchange Policy Board were increased Various amendments are proposed to
The Bill proposes to curtail this to ten from nine so as to include ex enhance and streamline the
overriding effect to the exclude the officio, the Finance Minister or, in his implementation powers of the
Foreign Exchange Regulation Act, absence, the Advisor to Prime Minister Commission inter alia including seeking
1947 [FE Regulation] from the ambit of on Finance, as member of the Board assistance and binding the local
this Act. The proposed change appears and also provided that such persons be administration or Police for this
to be introduced to restore the sanctity appointed as Chairman of the Board purpose.
of the FE Regulation and to give effect with the power to exercise casting vote
Persons aggrieved by an order of the
to the changes proposed through in the case of tie.
Commission has right of appeal before
introduction of new section 23K in the It has now been proposed to reverse all the Appellate Bench of the
FE Regulation empowering SBP to amendments made in this section vide Commission, subject to the restriction
impose penalty in the case of Finance Act, 2007 to bring it back to its that where Commission has sanctioned
contravention of any provision of FE original form so as to ensure legal proceedings in a court of law,
Regulation. independence of the Commission. such right cannot be exercised. It is
now proposed to enhance such
Section 20
restriction even in the case where
Securities and Commission has the responsibility for proceeding have been sanctioned at
Exchange monitoring the performance of various forums other than court of law also.
Commission of functions and now it is proposed to
Pakistan Act, 1997 enhance such responsibility by Khushhali Bank

inclusion of the following functions:
Section 7
Ordinance, 2000
hearing and deciding investor
complaints against persons The Bill proposes to repeal Khushhali
This section prescribes term of office of
involved in brokerage business for Bank Ordinance, 2000 with the
the Commissioners including those
violations of securities laws, rules, intention to regulate all microfinance
appointed to fill the vacancy due to
regulations, directives, codes, etc. Banks including Khushhali Bank under
cessation of office on completion of
one legal & regulatory framework as
provided under the Microfinance
Listed Companies Section 12
Institutions Ordinance, 2001. (Substantial The proposed amendment seeks to

transfer right to decide the percentage
Acquisition of Voting from acquirer to the Commission to
The Insurance Shares and Take- decide the voting shares to be acquired
Ordinance, 2000 Overs) Ordinance, through public offer by the acquirer.
Section 11 2002 Section 13
This Bill proposes to increase minimum The amendment proposed seeks to

Section 3
annual supervision fee to Rs. 500,000 clarify that where the acquirer is a
from Rs. 100,000. This section provides exemptions from company, whether incorporated in
applicability of this Ordinance in Pakistan or out side Pakistan, the
Section 66 prescribed scenarios inter alia including directors are required to provide that
transfer of voting shares from financial they accept responsibility for
This section empowers the
institutions including their subsidiaries, information contained in any document,
Commission to make rules so as to
and co-promoters, pursuant to an relating to the public offer.
prescribe maximum levels of
agreement.
acquisition costs and management Further, amendment is also proposed
expenses. Sub-section 4 however The Bill proposes to exclude this to the proviso of this sub-section
provided that the powers conferred scenario and to further clarify that requiring directors exempting
under this section shall expire on 31 exemption from the Takeovers themselves from their responsibility to
December next, following the date five Ordinance does not extend to allotment state the same and its reason in the
years from the commencement date, of voting shares under sole discretion public announcement of offer.
and all rules made shall be repealed on of the directors as per section 86(7) of
such expiry. Section 15
the Companies Ordinance, 1984.
Further, new exceptions have been The bill proposes to amend this section
The Bill has proposed to omit this sub-
proposed for: by dividing the clauses in two sub-
section so as to provide protection to
any such rule made or to be made sections to remove ambiguities in the
transfer of voting shares between
under this section without any time timings of specified actions by relevant
relatives without consideration,
limit. provisions.
acquisition of voting shares by CFS
Section 94 & section 102 Section 26
Financiers acting as financiers,
The Bill also propose to remove ‘direct’ The Bill proposes to substantially
transfer of voting shares of listed
from direct insurance businesses in increase the amount of penalty for non-
company or companies by
regulations applicable to licensing of compliance / contravention with the
sponsors of a holding company
insurance broker to apply such provisions of this Ordinance to the
held on the date of incorporation of
regulations to all insurance brokers. extent of fifty million rupees from
the holding company, making those
rupees one million and for continuing
companies subsidiaries of the
The part relating to intermediaries was default, the penalty has also been
holding company, within two years
applicable to ‘direct insurance business’ increased to rupees two hundred
of incorporation of the holding
and the bill proposes to remove an thousand from ten thousand for every
company; and
anomaly as certain section of this part day during which contravention
relate to licensing and other acquisition of voting shares by a continues.
arrangements with insurance business. strategic investor in a demutualised
stock exchange.
Section 29A
A new section has been proposed to be
inserted, empowering the Commission
to make regulations for the purposes of
this Ordinance, provided such draft
regulations shall first been made public
for not less than seven days for seeking
public opinion in the prescribed
manner, before making such regulation.
It is also proposed that such regulation

may provide that contravention thereof
shall be punishable with a fine which
may extend to thirty million rupees and,
in case of continuing contravention,
with a further fine upto Rupees one
hundred thousand rupees for every day
of such contravention.
Section 29B
A new section is proposed to be
inserted to empower the Commission
for issuance of directives, circulars,
codes, guidelines or notifications as are
necessary for the purpose of this
Ordinance, the rules and regulations.
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Budget Brief 2008 (WEB)

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The Budget Brief 2008 contains a review of

economic scenario and highlights of Finance

The provisions of the Finance Bill 2008 are

The Budget Brief contains the comments,

Highlights (Income Tax, Customs, Sales Tax, Federal Excise and

Federal Excise Duty 49

Capital Value Tax 61

Workers’ Welfare Fund 63

Petroleum Products (Development Surcharge) 65

Budget Revised Budget

Tax Revenue - CBR

Income Tax Customs Sales Tax Fed Excise Others

Domestic Debt as % of GDP

Overall Deficit Inflation

GDP(mp) Overall Deficit CPI SPI

The macro-economic strategy over the

Pakistan Economy Challenges

percent withholding tax treated as additional tax or penalty levied

 Enhancement of FED rate from 15

The Insurance Ordinance, 2000

 Minimum supervision fee increased

 Rules made under section 66(4)

Listed Companies (Substantial

 Right to decide percentage of the

 Penalty for non-compliance /

Inadmissible Exemption and tax company was restricted to assessed

allowability of first year allowance on Section 57A

Section 113C income Amnesty Scheme 2000 was introduced

Commissioner of Under section 148 Collector of customs

changed, transferred or reshaped source income. 1 Up to 150,000 NIL

that it becomes capable of being 5 percent of the

1801cc to2000cc 30,000 Electricity withholding of tax on bills up to Rs.

Taxation of salary also proposes further rationalisation of 270,000

Through the Finance Act, 2006, a 1,970,000 295,500 274,200 21,300

percent to 20 percent. While this

Clause (133A) Clause (9A) Clause (15)

This clause provides exemption to Reduction in tax Clause (66)

− certified by the external The Finance Bill seeks to abolish

and 32AA related to definition of retail

Firm and Person more of a clarificatory nature.

The Finance Bill seeks to insert return, Audit of retailer 2006.

definitions of “association of persons”, Section 2 (28A), 3 (AA), 26AA and

with reference to interpretation of a Section 3 Refund of input tax

Section 11 was changed through

Access to record Section 34(1)

documents etc. Additional sales tax is payable at the

Under the current mechanism of Section 58, 58B

2006 Annexure D: Summary of exports

Rule 5 Rule 18(3) Chapter II

SRO 559(I)/2006 dated 05 June 2006

Through SRO 552(I)/2008 dated 11

NOTE: The changes proposed under

Issuance of duplicate Table II - Excisable

provided on the import of polyester penal provisions under the afore-

General of Post clause (ab) from Section 21.

Resolution Committee exemptions /  Energy saving lamps / bulbs

Section 195C(4A) reduction in rates of  Dredgers

The proposed insertion of sub-section  Vacuum cleaners;

Exemptions of customs duty on import  Sheets & fittings

duty and taxes on SRO.561(I)/2008 of fully CNG dedicated vehicles under

SRO.560(I)/2008 different type of vehicles are subjected

NOTE: As per declaration made under

 Where the value of Rs.50 Further the Finance Bill seeks to

3. Purchase of modaraba 0.02 of  Municipal body will be excluded

Enhancement of FED rate from 15

Minimum supervision fee increased

Rules made under section 66(4)

Right to decide percentage of the

Penalty for non-compliance /

Resolution Committee exemptions / Energy saving lamps / bulbs

Section 195C(4A) reduction in rates of Dredgers

The proposed insertion of sub-section Vacuum cleaners;

Exemptions of customs duty on import Sheets & fittings

Where the value of Rs.50 Further the Finance Bill seeks to

3. Purchase of modaraba 0.02 of Municipal body will be excluded