INCOME TAX LAW

CUSTOM DUTY
A tax levied on imports (and, sometimes, on exports) by the customs authorities of a country to raise state revenue, and/or to protect domestic industries from more efficient or predatory competitors from abroad. Customs duty is based generally on the value of goods or upon the weight, dimensions, or some other criteria of the item (such as the size of the engine, in case of automobiles).

Law Governing Body:

It is a basic rule in a democratic form of Government that no tax can be levied or collected except under the authority of law. This rule has been embodied in Article 77 of the Constitution of the Islamic Republic of Pakistan, 1973, which reads as under: "Tax to be levied by law only. No tax shall be levied for the purposes of the federation except by or under the authority of Act of Parliament." The Act of Parliament also includes an Ordinance promulgated by the President. (Article 260 (2) of the Constitution of Pakistan, 1973). The Federal Legislative under its law making power under Article 70(6) of the Constitution of Pakistan, 1973, has power to make laws with respect to duties of customs, including export duties under Entry No. 43 of the Fourth Schedule to the Constitution. The law imposing a tax must be a valid law (AIR 1955 S.C. 661) and then the tax so imposed cannot be questioned in a court of law as excessive, unjust or oppressive (AIR 1954 Punjab 264). The Federal Government is fully competent to impose regulatory duty subject to the inbuilt conditions of Section 18(2).

Exemption of Customs Duty:

Undoubtedly the Customs Act is a taxing statute. Its charging provisions as contained in Section 18 are to be construed in favor of the subject whereas the exemption provisions as contained in Sections 19 and 20 of the Act are to be construed in favor of the Government. The assessed have to prove his title for the exemption. Goods dutiable (1) Except as herein after provided, customs duties shall be levied at such rates as are prescribed in the First Schedule and the Second Schedule or under any other law for the time being in force, on (a) Goods imported into or exported from Pakistan

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(b) Goods brought from any foreign country to any customs-station, and without payment of duty, there transshipped or transported for, or thence carried to, and imported at any other customs-station (c) Goods brought in bond from one customs-station to another. Exemption to Export Processing Zones In terms of Notification No. S.R.O. 881(I)/80 and Customs Export Processing Zones Rules, 1981 existence of an extensive infrastructure/factory or an assembly is not a pre-condition to avail the exemption, the petitioner is to take the task of assembly only by using screw drivers, pliers, or a table and the same did not require any extensive infrastructure/factory. (PTCL 1996 CL. 1). Exemption from customs duty and sales tax on tyres under Notification Nos. S.R.O's. 500(1)/88 and 505(1)/88 The tyres of specification 23.1--26/10 PR(TT) and 28L-26/12PR(TT) are essentially useable with log skidders earth moving machines, vibratory, road-rollers and combine harvesters and not exclusively for agricultural tractors, therefore not entitled to concession envisaged under Notification No. S.R.Os. 500(I)/88, and 505(I)/88 (PTCL 1998 CL. 257). Exemption from customs duty on CNG cylinders under Notification No. S.R.O. 367(I)/94 In view of the permission granted to the appellants by the Ministry of Commerce which is endorsed to C.B.R., Islamabad as well as Customs Authorities at Karachi and confirmation by C.B.R. that CNG cylinders are not being manufactured locally, the same are entitled exemption from customs duty & sales tax under Notification No. S.R.O. 367(I)/94 (PTCL 1998 CL. 239). Under the President's Salary, Allowances and Privileges Act, 1975 (a) General goods.No customs-duties or sales tax shall be levied on the following articles if imported or purchased out of bond by the President on appointment or during his tenure of office, namely: (a) articles for the personal use, wear or consumption of the President or any member of the family of the President provided that the cost thereof shall not exceed two hundred thousand rupees per annum (b) one motor car of any make and engine power (c) foodstuffs and tobacco for consumption by the President, members of his family and his guests, whether official or not (d) articles for furnishing of the President's official residence (e) official cars, river craft or aircraft.

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Exemption on tobacco and cigarettes No customs duties or sales tax shall be levied on tobacco imported by manufacturers in Pakistan for the manufacture of cigarettes when such cigarettes are for consumption by the President, members of his family or the guests. (Vide Section 14(2) of the Act). Exemption from customs duties and inspection. 1. The receiving state shall, in accordance with such laws and regulations as it may adopt, permit entry of and grant exemption from all Customs-duties, taxes, and related charges other than charges for storage, cartage and similar services, on: (a) articles for the official use of consular post (b) articles for the personal use of a consular officer or members of his family forming part of his household, including articles intended for his establishment. The articles intended for consumption shall not exceed the quantities necessary for direct utilization by the persons concerned. 2. Consular employees shall enjoy the privileges and exemptions specified in paragraph 1 of this Article in respect of articles imported at the time of first installation. 3. Personal baggage accompanying consular officers and members of their families forming part of their households shall be exempt from inspections. It may be inspected only if there is serious reason to believe that it contains articles other than those referred to in sub-paragraph (b) of paragraph 1 of this Article. Levy and imposition of duty A tax or a duty can only be imposed under the authority of an Act of Parliament in view of the Article 77 of the Constitution of Pakistan, 1973. This being essentially a legislative power cannot be delegated to a subordinate authority empowering it to levy a tax or duty. There is, however, no objection in delegating a power to a subordinate authority for allowing exemption. There is much difference in taxability or liability and its playability. The taxability is created by legislature while playability follows to be enforced by the executive authority after quantification. The exemption concerns not the liability but only the playability (PLD 1978 Lah. 468 as relied on (1961)3 AER 1051 P.C.). Custom Duty Tariff The word "Tariff" is an anglicized form of the Arabic word 'Tariff' which means Notification. In its technical sense it means list of duties of customs to be paid on imports or exports and the law imposing these duties. The duties of customs are levied and collected under the Customs Act, 1969. But this is not the whole truth. By imposing tariff, State is able to increase or decrease the import or export of any specific goods. After devaluation of the Pakistan currency on 11th May, 1972 the exemption from export duties on major items were withdrawn and rates of duty were reasonably increased and certain new levies were imposed.

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Import Tariff At present the First Schedule to the Customs Act, 1969 (Import Tariff) consists of 99 Chapters divided into XXI Sections each consisting of a number of articles grouped together. The scheme of the tariff was that it arranged in serial number the name of dutiable articles specifying against them the general rate of duty based on the lines of Brussels Tariff Nomenclature. In the year 1988 the Pakistan decided to shift her customs tariff to Harmonized Code System for which it acceded to the convention in September, 1987. On experimental basis this system was introduced with effect from 15th April, 1988 side by side the CCN Tariff. Legally this system had been introduced with effect from 26th June, 1988 when it was made First Schedule to the Customs Act, 1969 by the Finance Ordinance, 1988. Export Tariff The Second Schedule to the Customs Act, 1969 (Export Tariff) consists of about 23 items only. The rate of customs duties has been specified against each item. For Export Tariff See Customs Tariff and Trade Controls - An allied publication which is separately published each year. Expression "under any other law for the time being in force": The expression "under any other law for the time being in force" as used in sub-section (1) of section 18 refers to all laws other than the Customs Act, 1969 (PTCL 1991 CL. 388 + PTCL 1998 CL. 396). Tax Adjustment Ordinance, 1996 does not fall under the expression "any other law for the time being in force" because the said Ordinance does not by itself levy the service charge but amend the Customs Act, 1969 by adding Section 18-B which has now become its part (PTCL 1998 CL. 396).

Tax Rates:
Customs Tariffs get in the largest single share of national revenue. Most dutiable items are subject to ad valorem duties that range from 0% to 30%. In many cases, a 15% sales tax on imported goods (food, raw materials, and capital goods are exempt from this tax). Alcohol is levied at a rate up to 65%, but can be as high as 225%. These rates were significantly lowered in the late 1990s from an average high of 30% in the early 1990s.

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Scope of Custom Duty:
This power is exercised so as to control the fluctuating prices trend in the international market, apart from generating extra funds/revenue for the State. It is to regulate the import and export of the items so as to maintain proper balance in the ever fluctuating international market. (PTCL 1997 CL. 1). The reasons as mentioned were that it was not possible for the legislature to know the details of the fluctuating international prices from time to time during the course of the year and for that matter a device or a frame work for levying regulatory duty was delegated to the Federal Government (PTCL 1997 CL. 146). Levy of regulatory duty not only regulates the price structure but it also generates additional funds for the public purpose (PTCL 1997 CL. 146 + PLD 1991 SC. 884).

CAPITAL VALUE TAX

The Capital Value Tax is levied under section 7 of the Finance Act, 1989, which after amendments by Finance Acts, 1990 and 1992, reads as follows:

Law Governing Body:

According to a circular, through amendments in sub-section (1) of section 7 Finance Act 1989, the scope of levying CVT has been extended by bringing the renewal of lease or any premium paid thereon in respect of immoveable property in the range of chargeability of CVT. CVT is payable with effect from July 1, 2009 on the renewal of lease or any premium paid thereon. Share of a public company in any registered stock exchange in Pakistan by a resident person has been excluded from the payment of CVT on the trading of the said shares from the same date.

Scope of Capital Value Tax:

The tax authorities have plans to broaden the scope of 2 percent capital value tax on purchase of immovable property, and have proposed amendments in the Finance Act 1989 asking the parliament to re define the definition of Urban Areas for bring in additional areas for taxation, tax official explained Daily Times. In this regard, the Federal Board of Revenue (FBR) has sought sweeping powers from the parliament to impose the said tax on purchase of immoveable property.

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New areas, which are expected to be brought within the scope of this tax would be the areas located 10 kilometers from notified rated areas in big districts of the country. The proposed definition of urban areas include: Islamabad capital territory, cantonment areas, the rating areas as defined under Urban Immoveable property Act, 1958 as enforced in Punjab, NWFP, Sindh and Balochistan except where the rate under the respective provincial local government ordinance 2001 is zero. The areas which are to be included in this tax are: areas up to 40 kilometers from outer limits of the cantonment board in Karachi and up to 40 kilometer from notified areas of Karachi City District. In case of Lahore and Faisalabad, in addition to up to 30 kilometers from the outer limits of the cantonment boards in Lahore and Faisalabad and up to 30 kilometer from the notified rated areas of Lahore and Faisalabad City district. The government imposed CVT in the budget of 2006-07 at the rate of 2 percent on the recorded value of urban immoveable property measuring 500 square yards or 01 Kanal (which ever is less). In case of value of immoveable property is not recorded, CVT may be collected at the rate of Rs 50 per square yards. The minimum threshold of size will not apply in case of commercial property. http://pakistanrealestate.pk/dir/fbr-seeks-broadening-of-cvt-scope/

Tax Rates:
The circular further said that the recorded value of CVT is leviable on immovable property from July 1, 2009, while where the value of immovable property is not recorded then CVT would be charged as Rs. 100 per square yard of the landed area. The built-up property has been taxed at the rate of Rs. 10 per square feet of the constructed area in addition to the value worked out above. The circular states that the commercial immovable properties situated in urban areas would also be taxed with the same ratio. In case of residential flats, tax on the recorded value of the flat would remain the same, four per cent, while in case the value is not recorded, Rs 100 per square yards would be collected for the covered area. As per circular, Capital Value Tax on shares traded on the stock exchanges has been withdrawn from July 1, 2009 as previously a registered stock exchange was obliged to collect CVT at the rate of 0.01 per cent.

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Exemptions of Capital Value Tax:
The federal government has decided to exempt revocable and time bound power of attorney executed between blood relatives for the transfer of immoveable property from capital value tax (CVT). It was contended that a revocable power of attorney executed in favor of a family member without any consideration and which does not transfer any property right to the attorney, may not be liable to CVT. There is no Capital Value Tax (CVT) on transfer of immovable property within the jurisdiction of federal capital as the levy was withdrawn as a special case in the federal capital through Finance Act 2010. The federal government has eliminated the four per cent Capital Value Tax (CVT) on transaction of immoveable property up to one kanal from July 1, 2010.

FEDERAL EXCISE DUTY

(2) (3) This Act may be called the Federal Excise Act, 2005, It extends to the whole of Pakistan It shall come into force on 1st day of July, 2005.

Law Governing Body:

The Federal Excise Act, 2005, was promulgated with effect from 1st July, 2005, repealing the Central Excises Act, 1944. Following are some of the significant changes brought about by the new Act: The word Federal was used in place of Central. Therefore, now the term Federal Excise Duty is more appropriate as compared to old Central Excise Duty for the duties of excise levied under the 2005 Act. The system of physical supervision has been entirely done away with and now all clearances will be self-assessed and no prior permission for clearance will be required. The payment of duty will be on monthly basis and the duty on allclearances during the month will be payable by the 15th of next month. This is in contrast to previous requirement of payment of duty prior to clearance. No gate passes are required for clearances as in the old system. Double taxation has been eliminated by allowing adjustment of the excise duty paid on the input goods used directly in the manufacture of excisable goods. On some services and goods FED is payable in VAT more i.e. in the same manner as provided in the Sales Tax Act, 1990. For details see the link Goods/Services Liable to Excise Duty on this page.

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Scope of FED:
Goods produced or manufactured in Pakistan Goods imported into Pakistan Goods as the Federal Government may, by notification in the official Gazette, specify, as are produced or manufactured in the non-tariff areas and are brought to the tariff areas for sale or consumption therein Services, provided or rendered in Pakistan

Exemption of Federal Excise Duty

The goods and services specified in the First Schedule, which shall be charged to Federal excise duty as, and at the rates, set-forth therein; The goods and services specified in Third Schedule shall be exempt from duty subject to such conditions and restrictions, if any, specified therein and no adjustment in terms of section 6 shall be admissible in respect of goods exempt from duty of excise whether conditionally or otherwise; and The goods as mentioned in the Second Schedule shall be chargeable to FED in the same manner as provided in the Sales Tax Act, 1990, as provided in section 7 of the Federal Excise Act, 2005. The same shall apply to services as notified vide SRO 550(I)/2006 dated 5th June 2006.

Tax Rates
As part of budgetary measures for the year 2007-08, Special FED at 1% has been levied on goods which are manufactured or are imported in Pakistan. This duty is in addition to FED as prescribed in First Schedule of the Federal Excise Act, 2005. For list of goods excluded from purview of this special duty and other details see SRO 655(I)/2007.
http://www.pakcustoms.org/federal_excise_duty/