Budget Briefing 2008

BUDGET BRIEFING
2008
This Memorandum is correct to the best of our knowledge

and belief at the time of going to press. It is intended to
provide only a general outline of the subjects covered. It
should neither be regarded as comprehensive nor
sufficient for making decisions, nor should it be used in
place of professional advice. The Firm and Ernst & Young
LLP do not accept any responsibility for any loss arising
from any action taken or not taken by anyone using this
publication.
This Memorandum may be accessed on our website

http://www.ey.com/pk
E Ford Rhodes Sidat Hyder & Co.

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Budget Briefing
This Memorandum has been prepared as a general guide for the benefit of our clients and is available to other
interested persons upon request. This should not be published in any manner without the Firm’s consent. This is
not an exhaustive treatise as it sets out interpretation of only the significant amendments proposed by the
Finance Bill, 2008 (the Bill) in the Income Tax Ordinance, 2001 (the Ordinance), the Sales Tax Act, 1990 (the
ST Act), the Customs Act, 1969 (the Customs Act), the Federal Excise Act, 2005 (the FE Act), the Finance
Act, 1989, the Companies Ordinance, 1984 (the CO), the Insurance Ordinance, 2000 (the IO), the Securities
and Exchange Ordinance, 1969 (the SE Ordinance), the Securities and Exchange Commission Act, 1997 (the
SEC Act), the Listed Companies (Substantial Acquisition of Voting Shares and Take-Overs) Ordinance, 2002
(the Take-overs Ordinance), the Modaraba Companies and Modaraba (Floatation and Control) Ordinance,
1980 (the Modaraba Ordinance), the Workers’ Welfare Fund Ordinance, 1971 (the WWF Ordinance), the
Foreign Exchange Regulation Act, 1947 (the FER Act) and the Labor Laws in a concise form sufficient enough
to amplify the important aspects of the changes proposed to be made. The Repealed Ordinance means the
Income Tax Ordinance, 1979 since repealed. The Board means the Federal Board of Revenue, Government of
Pakistan.
Changes of consequential, administrative, procedural or editorial in nature have either been excluded from these
comments or otherwise dealt with briefly.
The amendments proposed by the Bill after having been enacted as the Finance Act, 2008, shall, with or without
modification, become effective from the tax year 2009, unless otherwise indicated.
It is suggested that the text of the Bill and the relevant laws and notifications, where applicable, be referred to in
considering the interpretation of any provision. Since these are only general comments, no decision on any issue
be taken without further consideration and specific professional advice should be sought before any action is
taken.
Contents Page
Highlights i - iv
Income Tax 1 - 32
Sales Tax 33 - 44
Customs 45 - 48
Federal Excise 49 - 58
Capital Value Tax 59
Companies Ordinance 61 - 64
Insurance Ordinance 65
Securities and Exchange Ordinance 67 - 70
Securities and Exchange Commission of Pakistan Act 71
Take-Overs Ordinance 73 – 74
Modaraba Companies and Modaraba Ordinance 75
Workers’ Welfare Fund 76
Foreign Exchange Regulation 77
Labor Laws 78 - 79
KARACHI: 12 June 2008


Highlights i
Income Tax
♦ Remittance of after-tax profit of a branch of a foreign company operating in Pakistan made liable to tax in
the same manner as dividend paid to shareholders.
♦ First Year Allowance (FYA) at the rate of 90 percent is proposed to be allowed on plant, machinery and
equipment of industrial undertakings setup in specified rural and under developed areas.
♦ Accumulated business loss of an amalgamating NBFC, modaraba or insurance company to be available for
set off against the profits and gains of an amalgamated company.
♦ Thin Capitalization Rule extended to a branch of a foreign company operating in Pakistan.
♦ Minimum tax no longer payable by a resident company except those engaged as builders and developers.
♦ Persons engaged in the business as builders and developers are now liable to pay minimum tax.
♦ The Board is proposed to be empowered to make a scheme of whitening undisclosed income referred to as
“investment tax on income”.
♦ Clarification made that remittances to non-resident through secondary mode(s) are also subject to
withholding tax.
♦ Certain withholding tax provisions for payment of goods are rationalized. A “small company” is now
classified as a withholding tax agent. Individuals and AOPs having turnover of Rs.25 million and Rs.50 million
or above respectively are also included in prescribed persons who are liable to withhold tax.
♦ A non-resident media person subject to withholding tax on account of advertising services relayed from
outside Pakistan which would be the final tax liability of the recipient.
♦ Tax arrears settlement incentive scheme for waiver of additional tax and penalty is to be prescribed by the
Board.
♦ FBR empowered to require any person to maintain and provide electronic record
♦ Income-tax exemptions contained in any other statutes not to be applicable
♦ Limit of eligible donations for tax credit reduced to 10% of taxable income for all persons
♦ Payments to non-resident for insurance or re-insurance premium deemed to be Pakistan source income and
subjected to 5% full and final tax.
♦ Salaried individual having salary income of Rs.500,000 or more required to file wealth statement.
♦ Time limit for passing of appellate order by Commissioner (Appeals) extended to four months.
♦ Chairman FBR empowered to rectify order of ADR Committee issued by the Board on an application filed by
the aggrieved person.
♦ Time limit for payment of tax on demand reduced to 15 days.
♦ Rate of collection of tax under Section 148 reduced to 2%.
♦ Payments to non-resident liable to reduced rate of tax under the DTT not required to undergo approval from
the Commissioner.
♦ FBR empowered to allow exemption from withholding tax.
♦ Commissioner of Income-tax authorized to register a taxpayer where required.
♦ Consequent relief allowed in the amount of penalty on reduction of concealment of income in appeal.
♦ Directorate General of withholding taxes established.
♦ Collection of withholding tax on registration of newly purchased motor cars and jeeps.
♦ Collection of tax on Stock Exchange transactions treated as minimum tax.
♦ Adjustment of withholding tax on monthly electricity bills exceeding Rs.20,000 allowed.
♦ Reference to Local Authority in the Ordinance substituted by Local Government.
♦ Threshold of salary payable in cash increased to Rs.15,000 per month.

Highlights ii
Sales Tax
♦ The term supply re-defined.

♦ Sales tax rates enhanced by 1 per cent across the board.
♦ Adjustment of delayed input tax restricted to six succeeding tax periods.
♦ Carry forward of excess input tax to the next tax period allowed.
♦ Sales tax department can re-audit even if DRRA has already conducted sales tax audit.
♦ Rate of default surcharge 1.5 per cent per month from first day of default.
♦ Chairman of the Board is empowered to reconsider the order passed under ADR.
♦ Biscuits, confectionery, electric bulbs and snacks no longer under Retail Price Scheme.
♦ Energy saving lamps exempted.
♦ Pesticides and fertilizers exempted.
♦ Supplies to government hospitals and charitable hospitals of more than 50 beds exempted.
♦ Special procedures for retailers extended to all persons involved in retail sales.
♦ Stevedores brought under normal sales tax regime and special rates for stevedores abolished.
♦ Sales tax rates on supplies to CNG stations enhanced to 25 per cent.
♦ All imports subjected to levy of 2 per cent value addition tax.
♦ No refund of 2 per cent value addition tax.
♦ Rates of sales tax for steel products revised upwards.
♦ Special procedures for wholesale-cum-retail outlets introduced.
♦ Extra tax @ of 0.75 per cent imposed on supply of various electric home appliances.
♦ New sales tax return introduced.
♦ Electronic filing of sales tax returns mandatory for all registered persons.
♦ Time limit for filing a refund application increased from 60 days to 120 days.
♦ Amnesty from payment of default surcharge and penalty introduced for both registered and unregistered
persons.
Customs
♦ Withdrawal of certain powers of the FBR.

♦ Suspension of the use of Unique User Identifier (UUI) by the Collector in case of complaint or information
about violation of the Customs Act, by a registered user.
♦ Imposition of punishment for the removal of goods from the port without the payment of customs duty on
the person having custody of the goods.
♦ Extension of adjudication period from 90 to 120 days.
♦ Authorizing the single bench of the Appellate Tribunal to hear the appeals involving the revenue uptil rupees
10 million as against the existing limit of rupees 5 million.
♦ Empowering the Chairman, Alternative Dispute Resolution (ADR) to rectify any error found in the
order/decision.
Federal Excise
♦ Time of payment of duty due changed.

♦ Scope of definition of term “Franchise” enhanced.
♦ Scope of services for the purpose of levying duty enhanced.
♦ Time limit for filing of revised return enhanced.
♦ Scope and rate of default surcharge changed.
♦ Manner of valuation of goods liable to duty changed.
♦ Time limit of recovery of unpaid duty or erroneously refunded duty or arrears duty enhanced.

Highlights iii
♦ Penal exposures in respect of various specified offences changed.

♦ Period of deciding adjudication matters by the Federal Excise Officer enhanced.
♦ Period of deciding appeals by Collector (Appeals) enhanced.
♦ Period of filing application for rectification of mistakes by the aggrieved person enhanced.
♦ Federal Excise Officer authorized to issue attested duplicate documents.
♦ Banks are required to ensure proper payment of duty before making remittance of franchise fee.
♦ Certain motor cars are liable to pay duty at five percent ad val.
♦ Goods and services subject to duty in Sales tax mode enhanced to sixteen percent.
♦ Goods for further manufacture of goods in the Export Processing Zone and Crop Insurance are exempt for
duty.
Capital Value Tax
♦ Loan obtained from banks against property offered as collateral through General Power of Attorney liable to
CVT.
♦ Definition of Urban Area amended to bring the same in line with the Pakistan Devolution Plan.
Companies Ordinance
♦ Time limit increased for holding annual general meeting.

♦ Ineligibility of certain persons to become directors.
♦ Exemption on appointment of managing agents, sole purchase, sales agents, etc.
♦ SECP empowered to bring all type of companies within ambit of Section 208 for the purpose of investment in
associated companies and undertakings.
♦ Period for payment of dividend to be specified by the Commission.
Insurance
♦ Increase in annual supervision fee payable to the SECP.

♦ Extension of the power of the SECP to prescribe maximum levels of acquisition costs and management
expenses.
♦ Application of certain rules and restrictions to reinsurance brokers which were previously only applicable to
direct insurance intermediaries.
Securities and Exchange Ordinance
♦ Definition of commodity futures contracts enlarged.

♦ Provisions to curb insider trading re-enacted.
♦ "Inside information" and "insider" defined.
♦ Listed companies obliged to disclose inside information.
♦ Enlargement of power of enquiries, penalties, and appeals.
♦ Enlargement of powers to make rules and regulations.

Highlights iv
Securities and Exchange Commission of Pakistan Act
♦ Terms of office of the Commissioner regulated.

♦ Securities and exchange policy board regulated.
♦ Powers and functions of the commission extended.
♦ Powers to call for examination.
♦ Appeal to the appellate bench of the commission.
Take-over Ordinance
♦ Enlargement of the scope of certain transactions.

♦ SECP may prescribe percentage of shares to be acquired.
♦ Enlargement of scope of obligation of the acquirer.
♦ Reduction of the obligations of the manager to the offer.
♦ Increase in penalties for non-compliance.
♦ Empowerment of the Commission to make regulations.
♦ Empowerment of the Commission to issue directives, circulars, etc.
Modarabas
♦ Registrar of Modarabas empowered to issue directions.

♦ Power to make regulations.
♦ Powers to issue directives, circulars, codes, guidelines, etc. by the SECP.
Workers Welfare Fund
♦ Scope of Workers Welfare Fund extended to all commercial establishments having total income of
Rs. 500,000 and above.
♦ Total income as defined in Section 2 of the Act to be the basis for determination of Workers Welfare Fund
liability.

Table of Contents 1
INCOME TAX
Section Page
1. After-tax profit of a branch of a foreign company liable to tax on remittance 2 (19)(f) 5
2. Industrial undertaking in specified rural and under developed areas entitled 23A, Third 5
to First Year Allowance (FYA) Schedule Part II
3. Accumulated business loss of non-banking finance companies (NBFCs), 57A, (2A) 5
modarabas or insurance companies to be available for set off in the event of
amalgamation
4. Thin Capitalization Rule extended to a branch of a foreign company in 106, (1) 6
Pakistan
5. Minimum tax provision withdrawn 113 6
6. Minimum tax payable by builders and developers 113C 7
7. Investment tax on undisclosed income 120A 7
8. Certain clarificatory amendments in respect of payment to a non-resident 152, (7) 8
9. Withholding tax provision for payment of goods and services rationalized 153, (5), (6A), 8
(6B) & (9)
10. Payment to non-resident media person to suffer withholding tax 153A 9
11. Tax arrears settlement incentives scheme 146B 9
12. Amendments in certain definitions 2 Clauses (5b), 9
(30A), (30B),
(35B), (47A),
(47B)
13. Electronic Record 2 Clauses 10
(19B), (19C),
(19D), (19E)
174, 237A
14. Eligible Person 2, Clause (19A) 10
15. Local Government 2, Clause (31A) 10
16. Limit for salary payable by crossed cheque 21, Clause (m) 10
17. Exemptions and tax provisions in other laws 54 10
18. Tax credit on charitable donations 61 11
19. Taxability of amount paid on account of insurance or re-insurance premium 101(13A), 11
152(1AA) and
(1B)
20. Filing of return of income and wealth statement 115 11
21. Time limit for decision by Commissioner (Appeals) 129 12
22. Alternate Dispute Resolution 134A 12
23. Due date for payment of tax 137 12

Table of Contents 2
Section Page
24. Imports 148 13
25. Payments to non-residents 152(5) 13
26. Exemption from withholding tax 159 13
27. Withholding tax on purchase of motor car and jeeps 231B 13
28. Collection of tax by a Stock Exchange 233A 14
29. Electricity consumption 235 14
30. Taxpayers’ Registration 181 14
31. Penalty for concealment of income 184 15
32. Prosecution for failure to maintain records 193 15
33. Directorate General of withholding taxes 230A 15
THE FIRST SCHEDULE
Section Page
34. Rates of tax for individuals and association of persons 15
35. Exemption to women taxpayers 16
36. Marginal Relief 16
37. Tax year 16
38. Salaried tax payer 16
39. Reduction in tax liability 17
40. Rates of tax on retailers 17
41. Rate of tax on builders and developers 17
42. Rates of tax for companies 17
43. Rate of tax on dividend income 18
44. Income from property 18
45. Advance income tax on private motor car 18
46. Advance tax on electricity bill 19
47. Advance tax on registration of new motor car or a jeep 19
48. Withholding tax rates 19
49. Rates of tax for non-resident taxpayers 22
THE SECOND SCHEDULE
50. Clauses proposed to be deleted by the Bill 23

51. Salary of health professionals at Shaukat Khanum Memorial Hospital Clause (2) 23
52. Non-resident employees of British Council Clause (6) 23

Table of Contents 3
Section Page
53. Annuity issued by State Life Insurance Corporation or Life Insurance Clause (21) 24
companies
54. Receipts from superannuation funds Clause (25) 24
55. Exemption to receipt from voluntary pension system Clause 24
(57)(3)(x)
56. Straight deduction on account of donation to certain institutions Clause (61) 24
57. Donation to Liaquat National Hospital Clause (62) 24
58. Exemption in other laws Clause (66) 24
59. Profit on debt on a registered foreign industrial loan Clause (72)(iii) 25
60. Profit to non-residents under Islamic mode of financing Clause (77) 25
61. Income of Pakistan Cricket Board Clause (98) 25
62. Editorial changes in respect of certain institutions Clauses (99), 25
(99A) and
(103)
63. Exemption to inter-corporate dividend Clause (103A) 25
64. Exemption to Capital gain extended Clause (110) 25
PART-II

66. Income of Fauji Foundation and Army Welfare Trust Clause (10) 26
67. Purchase of locally produced edible oil Clause (13C) 26
68. Sale of rice to Utility Stores Corporation by Rice Exporters Association of Clause (13H) 27
Pakistan
69. Reduced rate of tax on dividend to a non-resident company Clause (16) 27
PART-III
70. Reduction in the rate of turnover tax for cigarette distributors Clause (3) 27
71. Yield of Bahbood Savings Certificates or Pensioners Benefit Account Clause (5) 27
PART-IV

73. Permanent establishment of non-resident E&P companies Clause (43A) 28
74. Income of Manufacturers of Iron and Steel products to be taxed under Clause (46A) 28
normal tax regime
75. Exemption from withholding of tax to certain institutions Clause (47B) 28
76. Income of Designated National Authority Clause (65) 29

Table of Contents 4
Section Page
77. Exemption from applicability of withholding tax provisions of Section 235 to Clause (66) 29
certain industries
THE THIRD SCHEDULE
78. First year allowance Part-II, Para (2) 29
THE FOURTH SCHEDULE
79. Unrealized Capital Gain and Loss not taxable for General Insurance Business Rule 5 29
80. Withholding of tax on insurance/ reinsurance premium by general insurance Rule 5(d) 30
business
81. Exemption period extended for capital gain from specified securities Rule 6A 30
THE FIFTH SCHEDULE
82. The Petroleum Policy and the Ordinance need to be harmonized 30
THE SIXTH SCHEDULE

83. Employer’s annual contribution to a recognized provident fund when deemed Part-I, Rule 3 31
to be income of employee Sub-rule (a)
84. Deduction of tax on payments made out by an approved superannuation
Part-II, Rule 5 31
fund
THE SEVENTH SCHEDULE
85. General observation 31

86. Classified advances and off balance sheet items allowable as per the normal Rule 1(c), (d), 31
provisions of law (e) and (f)
87. Minimum Tax no longer payable by banking companies Rule 7 32
88. Adjustment of amalgamation losses Rule 8(1A) 32
89. Tax on capital gain continues Rule 8 32

Income Tax 5
1. After-tax profit of a branch of a foreign company liable to tax on remittance

Section 2, Clause (19)(f)
The Bill seeks to expand the definition of “Dividend” as defined in Clause (19) of Section 2 by proposing
insertion of a new Sub-clause (f). While profit of a branch of a foreign company operating in Pakistan
was always subject to tax in Pakistan like any other corporate entity, the same after-tax profit when
remitted was not again liable to tax. The proposed amendment now seeks to tax remittance of after-tax
profit apparently on the analogy of tax on dividend in the hands of shareholders out of after-tax profits
of a corporate entity. The applicable rate of tax on remittance of profit would be 10 percent. It may be
recalled that even tax on dividend from a corporate entity was, over the years, demanded by various
quarters to be conferred tax exemption on the grounds that it is double taxation as, such dividend is
nothing but appropriation of after-tax profits of an entity. This argument was often repelled by
contending that the company is an entity independent of its shareholders, i.e. owners and therefore,
there is no double taxation in view of two separate beneficiaries of income liable to tax under the two
different heads of income.
The proposed tax on remittance of after-tax profit of a branch of a foreign company operating in
Pakistan fails even on the aforesaid test of two beneficiaries receiving two forms of income – company
earning profit as business income and its shareholders receiving the same income in the form of
dividend. We do not find justification in this new imposition because of the fact that a branch has no
existence of its own independent of its head office or an affiliate of which it is a branch. The beneficiary
is the same as also the nature of income which does not change by merely expanding the statutory
definition of dividend. In view of this, therefore, it is difficult to discern a conceptual justification or
rationale to impose a tax when a branch legitimately seeks to remit its after-tax profits. Viewed from
another prospective, this new tax cannot be seen as a legitimate attempt to curb remittance of profits by
a branch as a measure of foreign exchange conservation, for, the avowed policy of the Government over
the years and more particularly in recent years has been encouragement of foreign investors to remit
capital and also profits thereon.
2. Industrial undertaking in specified rural and under developed areas entitled to First Year Allowance
(FYA)
Section 23A
Third Schedule Part II
It is widely recognized that a process of industrialization needs to be accelerated in rural and under
developed areas to serve the wider objectives of economic development. As one of the measures
towards this end, a new Section 23A is sought to be introduced to bring in the incentive of FYA. The
proposed Section seeks to entitle an industrial undertaking to claim FYA on plant, machinery and
equipment if such undertaking is setup in rural and under developed areas as may be specified in due
course. FYA would be allowed in lieu of initial allowance (of depreciation) at the rate of 90 percent of
the cost of “eligible depreciable assets” of an industrial undertaking owned and managed by a company
when such assets are put to use after 01 July 2008. It may be noted that the qualifying date of 01 July
2008 is with reference to the first time use of the qualifying assets regardless of the date of setting up of
an industrial undertaking or the date of incorporation of a company.
3. Accumulated business loss of non-banking finance companies (NBFCs), modarabas or insurance

companies to be available for set off in the event of amalgamation
Section 57A, Sub-section (2A)
In an attempt to facilitate corporate consolidation through amalgamation of NBFCs, modarabas or

insurance companies, the first ever fiscal step in the tax regime was initiated through the Finance

Income Tax 6
Ordinance, 2002 by introducing Section 57A of the Ordinance. The Finance Act, 2007 brought in a
significant change whereby in the event of amalgamation of two or more companies, the assessed loss of
the amalgamating company or companies only for the tax year is allowed to be set off against business
profits and gains of the amalgamated company. As a consequence, accumulated losses preceding the tax
year in which the amalgamation takes place stand lapsed.
The Bill now proposes to revert back to pre 2007 position in so far as NBFCs, modarabas, or insurance
companies are concerned. The proposed Sub-section (2A) provides that in the event of amalgamation
of the said entities, accumulated business loss (excluding speculation business losses) shall be allowed
to be carried forward and set off against the business profits and gains of the amalgamated company.
This right of carry forward and set off shall be available to the amalgamated company upto a period of
six tax years immediately succeeding the tax year in which the loss of an amalgamating company or
companies was first computed.
4. Thin Capitalization Rule extended to a branch of a foreign company in Pakistan

Section 106, Sub-section (1)
The concept of thin capitalization was first introduced by the Finance Ordinance, 2002 whereby
deductibility of profit on debt was restricted in the hands of the borrower if the debt to equity ratio
exceeded the prescribed limit i.e. 3:1 ratio. The scope of this Section is now proposed to be extended to
a branch of a foreign company operating in Pakistan.
As stated earlier, since this Section was restricted to a “foreign-controlled resident company”, the
provision was couched using the term “foreign equity”, as defined in the said Section itself, in relation to
debt. Since the said definition remains unchanged, despite proposed expansion of the provision to a
branch, it would appear that the balance of head office account in the books of account of a branch
would partake as “foreign equity” although not statutorily supported by the said term as defined. An
appropriate amendment in the said definition, therefore, appears to be necessary.
5. Minimum tax provision withdrawn

Section 113
The provision for minimum tax was introduced for the first time by the Finance Act, 1991. Minimum tax
was payable by every company resident in Pakistan at the rate of 0.5 percent of its turnover, should the
actual tax liability be less than the amount of such minimum tax.
The Finance Act, 2004 subsequently amended the aforesaid original provision whereby, in the event of
minimum tax exceeding the actual tax payable for a tax year calculated on profit basis, the tax payer was
entitled to carry forward the excess amount of the minimum tax paid for adjustment against the actual
tax liability for the subsequent five tax years.
The Bill proposes to entirely withdraw the minimum tax provision. It may not be out of place to mention
that provisions governing minimum tax were originally introduced as one of the single most effective
expedients of resource mobilization in view of the paltry contribution of direct taxes by a substantial
number of entities even in the corporate sector. The current budget formulated in the backdrop of
serious resource constraints now proposes to withdraw minimum tax provision which seems to be
inconsistent with the ground realities. The provision was already reasonably rationalized when the
Finance Act, 2004 permitted adjustment of the minimum tax paid in the following years in the event of
profit, thereby making the impact of minimum tax less painful in view of the permitted adjustment. A
resource-constraint budget seeking to do away altogether the said provision from the tax regime does
not appear to be quite understandable.

Income Tax 7
6. Minimum tax payable by builders and developers

Section 113C
Undoubtedly, there are certain sectors of business in our country whose contribution to direct tax
revenue is far from satisfactory. The proposed insertion of this new Section also seems to be driven by
the fact that persons engaged in the business as builders and developers ought to contribute to direct
tax revenue a certain minimum regardless of their bottom line. The Bill proposes to impose a minimum
tax based on a fixed amount of tax in case of a builder, at the rate of Rs.50/- per square feet of covered
constructed area and that for a developer, at Rs.100/- per square yard on the area of land developed.
The scope of the proposed provision is wide enough and shall be applicable to any person including an
individual, an association of persons (AOP) or a company engaged as a developer of land for residential,
commercial or industrial purposes or a builder engaged in construction of houses, commercial or
industrial property.
7. Investment tax on undisclosed income

Section 120A
Once again the tax history in Pakistan has repeated itself. Over time, various governments did introduce
one or the other form of tax amnesty scheme under various nomenclatures. This time round the Bill
proposes to introduce an enabling provision which shall empower the Board to make a scheme of
whitening undisclosed income which the Bill conveniently and euphemistically refers to as “investment
tax on income”. Although the full scope and implications of this provision would not be known until the
entire framework of the scheme is formulated and issued by the Board, at this stage, however, the Bill
proposes to provide yet another opportunity. Needless to emphasize that each such opportunity in the
past was proclaimed as the final and last opportunity by the sitting government and its Finance Minister,
yet again, the Bill provides for declaration of undisclosed income representing any amount or investment
made in movable or immovable assets. It is also not revealed at this stage from the Bill what the tax rate
shall be as the cost of making a clean breast of oneself. However, the Finance Minister indicated a rate of
2 percent in his budget speech. The underlying objective, though suspect, appears to be the
consequence of yielding to the powerful lobbies who may have evaded their due amount of taxes in the
past and may now wish to bring it to surface.
It may be pertinent to emphasize that ever since the first scheme of declaration of black and ill-gotten
money was introduced by the 1958 Martial Law regime, followed by another in 1969, repeated on a
confined scale in 1976, followed by a yet another scheme in 1985 commonly referred to as “Whitener
Bond Scheme”, an amnesty for voluntary disclosure in 1997 and the amnesty scheme of 2000, the Bill
now proposes that declarants of such undisclosed income who shall have paid tax in accordance with the
scheme and the rules shall be entitled to incorporate in their books of account such undisclosed income
which is represented in tangible form. The term “undisclosed income” is proposed to be defined to mean
any income including any investment which may be deemed as income pursuant to Section 111 of the
Ordinance or any other deemed income for any year or years which may have escaped taxation. Sub-
section (3) of the proposed Section further seeks to give immunity from any liability on account of any
tax, charge, levy, penalty of prosecution in respect of such undisclosed income.
Time and again, on each occasion, whenever any amnesty scheme was launched and implemented,
honest tax payers and organized sectors of business who demonstrated a responsible tax behavior had
reasons to express their resentment by asserting that each such scheme puts premium on dishonesty
and honest tax payers were left clamoring for having been meted out an unfair treatment to their great
detriment. Only a naïve citizen would tend to believe that this scheme too would be the last and final in
the annals of tax history of Pakistan.

Income Tax 8
8. Certain clarificatory amendments in respect of payment to a non-resident

In Clause (a) of Sub-section (7) of this Section, the Bill proposes to insert the words “and is supported
by import documents” as a consequence of which Sub-section (5) of this Section which does not apply
to payment on account of import of goods is subjected to a yet another condition, which was in any case
implied without even the proposed amendment that there shall be proper import documents to support a
payment pertaining to import of goods. An explanation is also proposed to be added, in Clause (b) of
this Sub-section which is totally misplaced in so far as it appears from the construction. Instead of
inserting the explanation proposed to be made in Clause (b), this should have been at the end of Section
152 so as to be pervasive to the entire said Section. The explanation is to the effect that all modes of
payments to non-residents are subject to the withholding tax provisions embodied in Section 152 and
therefore, regardless of the mode of remittance, be it through foreign currency accounts or secondary
source of payment through exchange companies, payment to a non-resident shall suffer withholding tax
as provided in the Ordinance.
Whatever be the objective underlying the proposed amendments in Clause (a) of Sub-section (7) and
the proposed explanation sought to be inserted for amplifying mandatory deduction of withholding tax
regardless of the mode of remittance, the practical effectiveness of these amendments would remain a
moot point, whether any surreptitious payment purportedly on account of import of goods, invariably
through secondary sources would come within the withholding tax net or not, despite the fact that those
are not absolved any way from the provisions of withholding tax regardless of the mode of remittance.
9. Withholding tax provision for payment of goods and services rationalized

Section 153, Sub-sections (5), (6A), (6B) & (9)
Withholding and final tax regime with regard to payment on account of goods and services has
undergone various changes in the preceding years. Presently, a company being a manufacturer, in its
capacity as a recipient is not subject to Final Tax Regime in respect of taxes withheld on account of
supply of goods. Individuals and AOPs being manufacturers, in their capacity as recipients, are subject to
the Final Tax Regime.
The Bill now proposes to replace the words “a company” in place of the words “any person” in Sub-
section (6A) and also seeks to omit Sub-section (6B). The cumulative effect of the aforesaid two
amendments maintains the existing legal position with regard to excluding the applicability of the Final
Tax Regime to a company, being manufacturer, and retaining the applicability of the said provision in
respect of individuals and AOPs, being manufacturers.
By a yet another amendment proposed to be made, Clause (e) of Sub-section (5) is sought to be
omitted with a consequential amendment in Clause (b) of Sub-section (9) of this Section whereby a
“small company” as defined in Section 2 of the Ordinance shall now be included in the list of prescribed
persons liable to deduct tax from prescribed payments.
Until now, individuals and AOPs were not categorized as withholding tax agents in view of the provisions
of Sub-section (9) of this Section. The Bill now proposes to expand the category of prescribed persons
as withholding tax agents by seeking to insert Clause (g) and Clause (h) in Sub-section (9) whereby an
AOP having turnover of Rs.50 million or above and an individual having turnover of Rs.25 million or
above shall henceforth be obliged to act as withholding tax agents while making payment on account of
sale of goods, rendering or providing of services or on the execution of a contract.

Income Tax 9
In order to avoid any potential ambiguity, the term “manufacturer” for the purposes of this Section is
proposed to be defined as any person who is engaged in production or manufacturing of goods in a
manner such that any process, assembling, mixing, cutting, packing, repacking or preparation of goods
transforms or changes an article or produce so as to become capable of being put to use in a different or
distinctive manner.
10. Payment to non-resident media person to suffer withholding tax

Section 153A
The Bill proposes to introduce a new Section which provides that payment for advertisement services by
any person to a non-resident media person would be subject to withholding tax at the rate of 10 percent.
The proposed provision shall be applicable for such advertisement services relayed from outside
Pakistan. The tax withheld at the prescribed rate of 10 percent shall be deemed to be the final tax
liability of such non-resident media person.
11. Tax arrears settlement incentives scheme

Section 146B
In order to facilitate settlement of arrears of tax, enabling provision is being proposed to empower the
Board to prepare scheme for waiver of additional tax and penalty and make rules for its implementation.
Similar provision already exists in the ST Act.
12. Amendments in certain definitions

Section 2 Clauses (5b), (30A), (30B), (35B), (47A), (47B)
In order to update the definitions of certain companies and organizations that are governed by other
statues, definitions of the following have been updated as under –
“Asset Management Company” means an asset management company as defined under the Non
Banking Finance Companies and Notified Entities Regulations, 2007.
“Investment Company” means an investment company as defined under the Non Banking Finance
Companies (Establishment and Regulation) Rules, 2003.
“Leasing Company” means a leasing company as defined under the Non Banking Finance Companies and
Notified Entities Regulations, 2007.
“Non Banking Finance Company” means NBFC as defined under the Non Banking Finance Companies
(Establishment and Regulation) Rules, 2003.
“Real Estate Investment Trust (REIT) Scheme” means REIT Scheme as defined under the Real Estate
Investment Trust Regulations, 2008.
“Real Estate Investment Trust Management Company (REITMC)” means REITMC as defined under the
Real Estate Investment Trust Regulations, 2008.

Income Tax 10
13. Electronic Record

Section 2 Clauses (19B), (19C), (19D), (19E)
Section 174, Section 237A,
To keep pace with the rapid development in electronic mode of record keeping, the Federal Board of
Revenue has recently adopted significant measures like enabling electronic filing of returns and
statements by the corporate sector. To provide validity and authenticity to this mode of record keeping
and data transmission, it is proposed that the Board may require any person to use its information
system and electronic resource or to supplement its manual business process and substitute its paper
based record by electronic record. It is further proposed that electronic record maintained, received,
filed or requisition through the electronic resource of the Board shall be sufficient and conclusive with
regard to its validity authenticity and integrity for the purpose of the Ordinance. It is further proposed to
insert a new Sub-section (5) in Section 174 (which deals with requirement for maintenance of record)
to empower the Commissioner to require any person to install and use an electronic tax register for the
purpose of storing information regarding any transaction that has a nexus to the tax liability of such
person.
In this regard, definitions of electronic record, electronic resource and telecommunication system have
been incorporated in the law. Further certain specific terminologies defined in the Electronic
Transactions Ordinance, 2002 have been adopted for the purposes of the Ordinance.
14. Eligible Person

Section 2, Clause (19A)
The definition of eligible person for the purpose of Voluntary Pension System Rules, 2005 has been
expanded to include an individual Pakistani who holds a National Identity Card for Overseas Pakistanis.
15. Local Government

Section 2, Clause (31A)
A general amendment has been proposed to replace the term “Local Authority” wherever appearing in
the Ordinance with the word “Local Government” to bring it in line with the change in the governance
pattern of the government whereby Local Authorities like Municipal Corporations and Development
Authorities have been replaced by District Governments.
16. Limit for salary payable by crossed cheque

Section 21, Clause (m)
Presently any salary exceeding Rs.10,000 per month that is not paid by a crossed cheque or direct
transfer of funds to the employee’s bank account is not allowed as an admissible deduction for tax
purpose. It is now proposed that the limit of Rs.10,000 per month be enhanced to Rs.15,000 per month.
17. Exemptions and tax provisions in other laws

Section 54
This section provides that no provision in any other law that provides for an exemption from any tax
imposed, a reduction in the rate of tax, a reduction in tax liability or an exemption from the operation of
any provision of the Ordinance would have any legal effect unless such exemption is provided in the
Ordinance. Through a proviso inserted in this Section, it was stated that if any exemption was available
under any other law before this Ordinance came into force then such exemption would be available
unless withdrawn.

Income Tax 11
It is now proposed that this proviso be omitted meaning thereby that any exemption from Income-tax
would only be available if it is provided in the Ordinance itself. We noted that certain exemptions like
exemption to the State Bank of Pakistan and pension of a former president of Pakistan that was provided
under a specific statute have now been proposed to be inserted in Part I of Second Schedule. However, if
there are exemptions from Income-tax that remain provided under other statues that have not so far
been incorporated in the Ordinance then such exemptions would no longer be available.
18. Tax credit on charitable donations

Section 61
A person is entitled to a tax credit in respect of any donation paid to certain organizations established
and run by the Federal Government, Provincial Government or Local Government and to any approved
non-profit organization. The tax credit is allowed as a deduction from the tax liability of the donor of an
amount which is calculated by applying the persons effective tax rate to the donation given during a tax
year. However, the donations that are eligible for tax credit in the case of an individual or AOP cannot
exceed 30% of the taxable income and in the case of company 15% of the taxable income of the company
for the tax year.
It is now proposed that the aforesaid ceilings of 30% and 15% be reduced to 10% for all persons. It is
worth mentioning that availability of tax credit is considered a vital incentive in inducing persons
specially the corporate sector to donate generously for charitable purposes that contributes
tremendously towards the welfare of the down trodden. The proposed reduction in the maximum eligible
ceilings of donations may turn out to be a majour disincentive in mobilizing donations especially in the
corporate sector.
19. Taxability of amount paid on account of insurance or re-insurance premium

Section 101, Sub-section (13A)
Section 152, Sub-section (1AA)and (1B)
A new Clause (13A)is proposed to be inserted in section 101 which deals with geographical sources of
income. It is proposed that any amount paid by an insurance company to an overseas insurance or re-
insurance company on account of insurance or re-insurance premium would be treated as Pakistan
source income. Insurance companies would be required to withhold tax at the rate of 5% of the premium
in terms of Sub-Section (1AA) that is proposed to be inserted in Section 152. The tax so withheld is
proposed to be treated as full and final discharge of tax liability in respect of the premium received by
the overseas insurance or re-insurance company. It may, however, be noted that any benefit available to
the overseas insurance or re-insurance company under any Double Taxation Treaty (DTT) between the
country of its residence and Pakistan would continue to be available in terms of Section 107 of the
Ordinance which provides that the provisions of DTT would override the provisions of the Ordinance.
20. Filing of return of income and wealth statement

Section 115
Presently a salaried taxpayer is not required to furnish a return of income if he has no income other than
salary and his employer has filed the annual statement of deduction of income tax from salary as
required under the law. On the other hand Section 116 which deals with requirement to file wealth
statement states that a resident taxpayer filing a tax return and having a declared income of Rs.500,000
or more is required to file a wealth statement. In view of the above, in the case of a salaried taxpayer
having taxable salary of Rs.500,000 but having no other income who was not required to file a return
(by virtue of his employer having filed the annual statement of deduction of tax), an ambiguity prevailed
whether such salaried individual is required to file a wealth statement or not.

Income Tax 12
The current provisions of Section 115 are being substituted and it is proposed that salaried taxpayers
may not file their return if the employer fulfills his obligation of filing the prescribed statements.
However, if his salary income for the tax year is Rs.500,000 or more, he shall be required to file a wealth
statement as required under Section 116.
21. Time limit for decision by Commissioner (Appeals)

Section 129
The Commissioner (Appeals) is required to issue an order on an appeal filed before him before the
expiration of three months from the end of the month in which the appeal was filed. In case no decision is
made then the relief sought by the appellant is deemed to be allowed. It is now proposed that the
limitation of three months for passing the order by the Commissioner (Appeal) be relaxed to four
months.
22. Alternate Dispute Resolution

Section 134A
Any aggrieved person in connection with any matter pending before any Appellate Authority can file an
application to the Board for resolution of any dispute. The Board is empowered to examine the
application and appoint a committee that consists of an Income Tax Officer and two persons from a panel
comprising of professionals and reputable taxpayers. This committee has the power to examine the issue
and give recommendations to the Board in respect of the resolution of dispute as it may deem fit. The
Board may then on the recommendation of the committee pass an order as it may deem appropriate.
It is now proposed that the Chairman of the Board be empowered to pass an order to entertain and
decide an application of an aggrieved person for correcting an error in an order passed by the Board
after recording the reasons in writing. The necessity of providing this authority to the Chairman of the
Board is not understandable as orders are passed by the Board after proper review of the
recommendation of the committee by senior officers of the Board. In case the Board has passed the
order based on the recommendations of the committee who have recommended a decision against the
aggrieved person, then rectifying such order would mean that the Chairman would be acting against the
recommendations of the committee. This appears to undermine the worthiness of the committee that is
comprised of professionals, reputable tax payers and officers of the tax department. Moreover, no
prejudice is caused to the aggrieved person since the decision of the Board is not binding on him and he
can continue to pursue his remedy before the relevant appellate forum.
23. Due date for payment of tax

Section 137
Presently any tax demand raised by the tax authorities is payable within thirty days from the date of
service of notice. It is now proposed that the time limit of thirty days be reduced to fifteen days.
24. Imports
Section 148
Presently, the general rate of collection of tax at the time of import of goods is 5%. It is now proposed
that this rate may be reduced to 2%. Apart from this there is no change in respect of the finality of the
tax withheld which is full and final tax liability in case of a commercial importer. However, it should be
noted that in the Second Schedule there were several clauses e.g. Clauses (9), (13), (13A), (13E),
(13G) that provided a reduced rate of 1% on import of goods. Most significantly under clause (13) a
reduced rate of 1% was provided on import of capital goods and raw materials imported exclusively by a

Income Tax 13
manufacturer for his own consumption. The Bill now seeks to omit the aforesaid clauses meaning
thereby that import of these goods would now require collection of tax at 2% instead of 1%.
Similarly, clause (56) of Part IV of the Second Schedule provided an exhaustive list of goods that were
exempted from collection of tax under Section 148. This clause is now being substituted by a fairly
condensed clause which provides exemption from collection of tax under Section 148 on import of goods
classified under Pakistan Custom Tariff falling under Chapters 27, 52.01, 86 and 99. It should further be
noted that the rate of 2% under Section 148 is effective immediately as an amendment has been made
through SRO 556(I)/2008 dated 11 June 2008. Similarly, the clauses of Second Schedule referred to
above have been omitted or substituted as the case may be immediately through SRO 567(I)/2008
dated 11 June 2008.
At present, the Commissioner is empowered to issue reduced rate certificate of 0.5% to persons (other
than those covered under the Final Tax Regime i.e. Commercial Importers) who are not likely to pay any
tax other than minimum tax at 0.5%. Since the provisions of minimum tax under Section 113 are
proposed to be abolished by the Bill, therefore it is also being proposed that the authority of the
Commissioner to issue this exemption be also withdrawn. It may however be noted that the
Commissioner of Income-tax is still empowered to issue an exemption or lower rate certificate to any
person in terms of the powers vested upon the Commissioner under Section 159 of the Ordinance.
25. Payments to non-residents

The general rate of withholding tax under Section 152 is 15% for royalty and fees for technical services
and 30% for all other payments. Under Sub-section (5), if a persons intents to make a payment to a non-
resident person without deduction of tax, he is required to obtain an approval from the Commissioner
before making such payment. The Bill now seeks to propose that this requirement would not apply to
such payments that are liable to reduced rate under any Double Taxation Treaty (DTT).
It appears that the intention of the amendment is to allow the payers to invoke the reduced rate of
withholding tax provided in the DTT between the country of residence of the non-resident person and
Pakistan and withhold tax accordingly. However, the amendment does not clearly suggest this intention.
In our view clear authority should be given to the payer in Section 152 to enable him to invoke the
reduced rate of withholding tax as provided in the DTT.
26. Exemption from withholding tax

Section 159
At present the Federal Government is empowered to notify any exemption from withholding tax under
the powers vested under Sub-section (2) of Section 53. The Board is only empowered to amend the rate
of withholding tax prescribed under the Ordinance through Notification in the Official Gazette. It is now
proposed that the Board may also be empowered to exempt persons, classes of person, goods or classes
of goods from withholding tax under the Ordinance.
27. Withholding tax on purchase of motor car and jeeps

Section 231B
Through the Finance Act, 2007 a withholding tax was introduced which required a local manufacturer or
authorized dealer of motor cars to collect advance tax at the rate of 2.5% (initially 5%) at the time of
sale of motor car. This provision was largely seen as a discriminatory provision as it required collection
of tax only by a local manufacturer on sale of locally manufactured motor cars. On the other hand no

Income Tax 14
such advance tax was imposed on imported cars sold by automobile dealers. This collection of tax by
automobile manufacturers was however, suspended by the Board since early 2008 so to help the local
car industry in competing with the imported cars in times of high inflation that has resulted in drop in
their sales.
The Bill seeks to substitute the existing provisions of Section 231B and proposes to impose a tax on
every person who purchases a new motor car or jeep. The tax would be payable at the time of
registration. See comments on rates in the discussion on First Schedule.
The proposed section suggests that the tax paid would be advance tax but the table of tax based on
engine capacity as provided in the First Schedule states the amount as final tax. However, no
amendment has been suggested with respect to tax collected under Section 231B in Section 169 which
deals with finality of the tax withheld/collected at source.
The existing exemption from collection of tax from the Federal Government, Provincial Government,
foreign diplomat, a diplomatic mission in Pakistan is proposed to continue.
28. Collection of tax by a Stock Exchange

Section 233A
This tax was originally imposed through the Finance Act, 2004 and required Stock Exchanges in Pakistan
to collect tax from its members on sale of shares in lieu of commission earned by them, on trading of
shares by members and from financing of carry over trades. The tax collected from members in lieu of
commission on sale and purchase of shares is treated as the final tax of the members in lieu of
commission earned by them. The tax collected on trading by members as well as their customers and
from financing of carry over trade is treated as advance tax that is adjustable against the tax liability of
the person from whom the tax has been collected.
The Bill now seeks to treat the tax collected from members in lieu of sale and purchase of shares as
minimum tax instead of final tax. However, it is noted that no corresponding amendment is proposed in
Section 169 which provides that the tax collected from members in lieu of commission shall be the final
tax liability. The Bill further seeks to treat the tax collected from members/customers on trading of
shares as the minimum tax of the person from whom the tax has been collected.
29. Electricity consumption

Section 235
Through the Finance Act, 2007 an amendment was made in Section 235 to treat the tax collected from
electricity as the minimum tax on the income of industrial and commercial consumer(other than a
company). Accordingly, no refund of tax collected under this section is allowed except to companies. It
is proposed that the treatment of the tax as minimum tax would be to the extent of bill amount of upto
Rs. 20,000 per month. Therefore, in cases where the average monthly bill exceeds Rs. 20,000, the tax
withheld would not be treated as the minimum tax liability.
30. Taxpayers’ Registration

Section 181
The existing provisions of Section 181 requiring every taxpayer to apply for National Tax Number
Certificate are proposed to be substituted. Under the proposed amendment, apart from assigning the
responsibility on the taxpayer to obtain registration it is also sought to empower the Commissioner to
register a taxpayer where the facts of the case requires him to do so.

Income Tax 15
31. Penalty for concealment of income

Section 184
This section levies a penalty where the Commissioner or Commissioner (Appeals) or the Appellate
Tribunal is satisfied that any person has concealed income or furnished inaccurate particulars of such
income. The penalty can be levied equal to the amount of tax which the person has sought to evade by
concealing his income. The Bill now seeks to provide that where in consequence of any order, the tax
imposed is reduced, the consequential penalty would also be reduced to that extent.
32. Prosecution for failure to maintain records

Section 193
It is proposed to provide a monitory limit of Rs.50,000 for a fine for deliberately not maintaining
records. Presently there is no prescribed monitory limit on the fine.
33. Directorate General of withholding taxes

Section 230A
Through this proposed section a new department of Directorate General of withholding taxes is sought to
be created. The Board has been authorized to notify the functions, jurisdiction and powers of the
Directorate.
THE FIRST SCHEDULE
34. Rates of tax for individuals and association of persons
The basic threshold for charge of income tax is proposed to be raised from the existing Rs. 150,000 to
Rs. 180,000 for salaried taxpayers and accordingly, the rates of tax chargeable for the tax year 2009
(corresponding to the income year ending at any time between 01 July 2008 to 30 June 2009) have
been rationalized as under. Rates of tax for non-salaried taxpayers have remained unchanged.
Salaried Taxpayers
Taxable Income Rate of Tax Taxable Income Rate of Tax

(%) (%)
Upto Rs.180,000 Nil
Rs. 180,001 – 250,000 0.50 Rs. 1,050,001 – 1,200,000 10.00
Rs. 250,001 – 350,000 0.75 Rs. 1,200,001 – 1,450,000 11.00
Rs. 350,001 – 400,000 1.50 Rs. 1,450,001 – 1,700,000 12.50
Rs. 400,001 – 450,000 2.50 Rs. 1,700,001 – 1,950,000 14.00
Rs. 450,001 – 550,000 3.50 Rs. 1,950,001 – 2,250,000 15.00
Rs. 550,001 – 650,000 4.50 Rs. 2,250,001 – 2,850,000 16.00
Rs. 650,001 – 750,000 6.00 Rs. 2,850,001 – 3,550,000 17.50
Rs. 750,001 – 900,000 7.50 Rs. 3,550,001 – 4,550,000 18.50
Rs. 900,001 – 1,050,000 9.00 Rs. 4,550,001 – 8,650,000 19.00
Over Rs.8,650,000 20.00

Income Tax 16
Non Salaried Taxpayers
Taxable Income Rate of Tax Taxable Income Rate of Tax

(%) (%)
Upto Rs.100,000 Nil Rs. 300,001 – 400,000 7.50
Rs. 100,001 – 110,000 0.50 Rs. 400,001 – 500,000 10.00
Rs. 110,001 – 125,000 1.00 Rs. 500,001 – 600,000 12.50
Rs. 125,001 – 150,000 2.00 Rs. 600,001 – 800,000 15.00
Rs. 150,001 – 175,000 3.00 Rs. 800,001 – 1,000,000 17.50
Rs. 175,001 – 200,000 4.00 Rs.1,000,001 – 1,300,000 21.00
Rs. 200,001 – 300,000 5.00 Over Rs.1,300,000 25.00
35. Exemption to women taxpayers
In the case of a woman taxpayer, no tax is levied if the taxable income is within the threshold mentioned
below. The threshold for salaried taxpayer for the tax year 2009 has been raised while for non-salaried
taxpayer continues at the same level.
Category Threshold
Non-salaried taxpayer Rs. 125,000
Salaried taxpayer Rs. 240,000
36. Marginal Relief
For a salaried taxpayer, the long awaited concept of marginal tax relief is being proposed to be
introduced. The relief will work in the following manner.
Increase in tax not to exceed tax payable on

Total income does not exceed
the maximum of the relevant slab Plus
Rs.500,000 20%
Rs.1,050,000 30%
Rs.2,000,000 40%
Rs.4,450,000 50%
Over Rs.4,450,000 60%
It is pertinent to mention that marginal relief is not proposed for non salaried taxpayers which seems to
be unjust and discriminatory.
37. Tax year

"Tax Year" means a period of twelve months ending on 30 June and corresponds to the period to which
the income of tax payer relates.
38. Salaried tax payer

“Salaried Tax Payer” is a person having salary income in excess of 50% of his/her taxable income.

Income Tax 17
39. Reduction in tax liability
A senior citizen of Pakistan, being a taxpayer, aged 60 years or more on the first day of the relevant tax
year, is allowed a rebate of 50% of the tax payable if his/her taxable income in that tax year is less than
Rs.400,000. The said rebate continues to be applicable.
The provision to reduce the income tax liability of a full time teacher or a researcher employed in a non-
profit educational or research institution duly recognized by a Board of Education or a University or the
Higher Education Commission and to a teacher and researcher of Government training and research
institution also continues to be available. The tax liability in such cases is reduced by an amount equal to
75% of the tax payable on his / her income from salary.
40. Rates of tax on retailers
The rate of tax applicable on a retailer continues at 0.50% of the turnover in case his declared turnover is
less than 5 million.
41. Rate of tax on builders and developers
The rate of tax applicable on builders and developers as a minimum tax is proposed as under:
Category Rate of tax

Builders Rs.50 per square foot of the covered
constructed area
Developers Rs.100 per square yard of the area of land
developed
42. Rates of tax for companies
a) For public, private and banking companies, the rate of tax remains unchanged at 35% for tax year
2009.
b) A Co-operative and finance society had the option to be taxed at the income tax rate applicable to a
company or an individual whichever resulted in a lower income tax. It is proposed that this
concession be withdrawn from the tax year 2009.
c) The present rate of tax for a “small company” for the tax year 2009 is proposed to be rationalized as
under:
Income attributable to turnover Rate of Tax

i) upto 250 million 20 %
ii) exceeding Rs.250 million but not 25 % of the income on the amount exceeding
exceeding Rs.350 million Rs.250 million plus tax as in (i) above
iii) exceeding Rs.350 million but not 30 % of the income on the amount exceeding
exceeding Rs.500 million Rs.350 million plus tax as in (ii) above
iv) exceeding Rs.500 million 35% of the income on the amount exceeding
Rs.500 million plus tax as in (iii) above

Income Tax 18
43. Rate of tax on dividend income

The rate of tax on dividend received by all taxpayer continues at 10 percent.
44. Income from property

The rate of tax to be paid in respect of income from property which is presently worked out at 5 percent
of the gross amount of rent received for all taxpayers is proposed to be enhanced from tax year 2009
(corresponding to the income year ending at any time between 01 July 2008 to 30 June 2009) as
under:
i) Individuals and Association of Persons
Gross amount of rent Rate of Tax
Upto Rs.150,000 Nil
Rs.150,001 – Rs.400,000 5% of the amount exceeding
Rs.150,000
Rs.400,001 – Rs.1,000,000 Rs.12,500 + 10% of the amount
exceeding Rs.400,000
Over Rs.1,000,000 Rs.72,500 + 15% of the amount
exceeding Rs.1,000,000
The schedule which has been inserted in Division-V prescribing rates for withholding of tax from the
gross amount of rent payable to an individual or association of person is different from the schedule
prescribed for charging tax as above. A clarification would be required to address the anomaly.
ii) Company
Gross amount of rent Rate of Tax
Upto Rs.400,000 5%
Rs.400,001 – Rs.1,000,000 Rs.20,000 + 10% of the amount
exceeding Rs.400,000
Over Rs.1,000,000 Rs.80,000 + 15% of the amount
exceeding Rs.1,000,000
45. Advance income tax on private motor car

Advance income tax payable at the time of paying annual motor vehicle tax, in the case of private motor
cars, is proposed to be increased as under:
Engine capacity Amount of Tax

Upto 1000 cc Rs. 500
1001 cc – 1199 cc Rs. 750
1200 cc – 1299 cc Rs. 1,000
1300 cc – 1599 cc Rs. 2,000
1600 cc – 1999 cc Rs. 3,000
Over 1999 cc Rs. 5,000

Income Tax 19
46. Advance tax on electricity bill

The rate of collection of advance tax on electricity bill exceeding Rs.20,000 which is presently fixed at
Rs.2,000 is being proposed to be collectable at 10% of the amount of bill.
47. Advance tax on registration of new motor car or a jeep
The rate of collection of advance tax by manufacturer or authorized dealers of motor cars which is
presently fixed at 5 percent of the gross amount payable is being withdrawn. It is proposed instead that
purchaser of motor cars or jeeps shall pay advance tax at the time of registration of the new motor car
or jeep in accordance with the following slabs.
Engine capacity Amount of final tax (Rs.)

Upto 850 cc Rs. 10,000
851 cc – 1000 cc Rs. 14,000
1001 cc – 1300 cc Rs. 22,500*
1301 cc – 1600 cc Rs. 22,500*
1601 cc – 1800 cc Rs. 35,000*
1801 cc – 2000 cc Rs. 30,000*
Over 2000 cc Rs. 50,000
* There seems to be a printing error in the finance bill
48. Withholding tax rates
Rate % Whether under
Type of Payment Existing Proposed final tax regime
Collection of tax at imports
Value of goods inclusive of customs duty 5 2 Yes, except in
and sales tax case of industrial
undertaking
importing goods
as raw materials,
plant and
machinery and
equipment for its
own use
Profit on debt
a) Yield on a National Savings Deposit 10 No change Yes

Certificate including a Defence
Savings Certificate under the
National Savings Scheme;
b) Profit on a debt, being an account 10 No change Yes

or deposit maintained with a
banking company or a financial
institution;

Income Tax 20

c) Profit on any bond, certificate, 10 No change Yes

debenture, security or instrument
of any kind (excluding loan
agreement between a borrower and
a banking company or a
development finance institution)
issued by a banking company, a
financial institution, company as
defined in the Companies
Ordinance, 1984 and a body
corporate formed by or under any
law for the time being in force, to
any person other than a financial
institution.
d) Profit on any security issued by the 10 No change No

Federal Government, a Provincial
government or a local authority to
any person other than a financial
institution
Goods and services
a) Sale of rice, cotton seed or edible 1.5 No change Yes

oils
b) Sale of any other goods 3.5 No change Yes
c) For passenger transport services 2 No change Yes
d) For other services 6 No change Yes
e) Execution of a contract 6 No change Yes
CNG Station – Refer to Section 234A 6 No change Yes
Exports
Export proceeds 1 % of Yes

Proceeds from sale of goods to an export No change
exporter under an inland back-to-back proceeds Yes
letter of credit or any other
arrangement Yes
Export of goods by an industrial
undertaking located in an Export
Processing Zone

Income Tax 21

Income from property At varying
slab rate for
Annual rent of immovable property individual,
including rent of furniture and fixtures 5 association Yes
and amounts for services relating to of persons
such property. and
company
Prizes and winnings
a) Amount of prize bond winning 10 No change Yes

b) Amount of raffle/lottery winning,
cross-word puzzle or prize on 20 No change Yes
winning a quiz offered by companies
for promotion of sales
Telephone users
Telephone subscriber (other than Various 10 of No

mobile phone) amount
exceeding
Rs.1,000
Amount of bill of mobile telephone or

sale price of prepaid telephone card 10 No change No
Cash withdrawal
0.2 of the 0.3 of the
Amount exceeding Rs.25,000/- amount amount No
withdrawn withdrawn
Commission or discount allowed on
sale of petroleum products by a petrol
pump operator
Yes
Amount of commission or discount 10 No change
Commission income of indenting
commission agents, advertising agents
and yarn agents
Yes
Amount of payment 10 No change
Commission income of others
Amount of payment 10 No change Yes
Collection of tax by stock exchange

0.01 of No change Minimum tax
Purchase of shares purchase
value

Income Tax 22

Sale of shares 0.01 of No change Minimum tax
sale value
Trading of shares 0.01 of No change Minimum tax

traded
value
Financing of COT 10 of the No change No

carry over
charge
49. Rates of tax for non-resident taxpayers
The applicable withholding tax, for Tax Year 2009 on certain payments to non-residents is as under:
Rate %
Type of payment
Existing Proposed
Dividends from:
- a company who is purchaser of a power project privatized by WAPDA 7.5 No change
- a company engaged exclusively in mining operations, other th/an
petroleum 7.5 No change
- a company engaged in power generation project 7.5 No change
- others 10 No change
Branch profit remittance tax 0 10
Technical services fee 15 No change
Insurance premium / re-insurance premium 0 5
Advertisement services to a media person relaying from outside Pakistan 0 10
Royalty 15 No change
Shipping income 08 No change
Air transport income 03 No change
Profit on debt 30 No change
Others (excluding those specifically mentioned herein) 30 No change
Execution of a contract
- contract or sub-contract under a construction, assembly or installation
project in Pakistan, including a contract for the supply of supervisory
activates in relation to such profit 6 No change
- contract for construction or services rendered relating thereto 6 No change
- a contract for advertisement services rendered by TV satellite channels 6 No change

Income Tax 23
The taxes withheld in all the above cases except for taxes withheld under the head “Profit on debt” and
“Others” constitute full and final settlement of the non-resident tax liability in Pakistan in respect of such
income.
A non-resident contractor earning income from “execution of contract” can opt for the final tax regime,
which means that the taxes withheld would be construed as its full and final settlement of tax liability.
The option must be exercised within three months of the commencement of the tax year and shall
remain irrevocable for three years. In case the option has not been exercised by the non-resident person,
the taxable income shall be assessed on the basis of his net business profits and the taxes withheld would
be treated as advance tax adjustable against his eventual tax liability.
THE SECOND SCHEDULE

PART-I
50. Clauses proposed to be deleted by the Bill
Itemized listing of clauses under Part-1 of the Second Schedule which have been proposed to be deleted
owing to these becoming infructuous due to efflux of time as well as changes brought about by the Bill.
Clause No. Description of Clause
63A Donation to the President’s Relief Fund for Earthquake Victims 2005
63B Donation for 2nd session of the World Islamic Economic Forum, 2006
82 Profit on Special US Dollar Bonds issued under the Special US Dollar

Bonds Rules, 1998
83 Profit on debt from Pak rupee accounts or certificates of deposit created
by conversion of a foreign currency account or deposit held on 28 May
1998 with a bank authorized under the Foreign Currency Accounts
Scheme of SBP
132A Payments for the supply of plant, equipment and machinery to Hub
Power Company Limited by a non-resident
133A Income derived by an individual from transfer of his membership rights or
shares of a stock exchange in Pakistan alongwith a room in the Stock
Exchange to a company between 01 July 2005 and 30 June 2008
138 Income arising to the purchaser of Kot Addu Power Station from owning
and operating the power station
51. Salary of health professionals at Shaukat Khanum Memorial Hospital

Clause (2)
The above clause provided exemption from tax on salary received by a health professional, not being a
citizen of Pakistan or a resident individual, under a contract of service concluded with the Shaukat
Khanum Memorial Hospital and Research Center, Lahore, and approved by the Federal Government for
the purposes of this clause. The Bill seeks to withdraw the said exemption.
52. Non-resident employees of British Council

Clause (6)
The Bill seeks to withdraw the exemption available to a person, not being a citizen of Pakistan, in respect
of the salary received by him by virtue of his employment with the British Council.

Income Tax 24
53. Annuity issued by State Life Insurance Corporation or Life Insurance companies
Clause (21)
Exemption available to annuity or annuities issued by the State Life Insurance Corporation or a life
insurance company is proposed to be withdrawn.
54. Receipts from superannuation funds

Clause (25)
Clause (25) primarily deals with exemption available to payment received from an approved
superannuation fund. However, the existing clause also contains duplicate provisions allowing exemption
from tax to payments on account of gratuity payments which is already covered under Clause 13,
accordingly, the Bill seeks to correct the above by amending Clause (25) suitably.
55. Exemption to receipt from voluntary pension system

Clause (57)(3)(x)
The Bill seeks to withdraw the exemption which is hitherto available to receipts upto 25% of the
accumulated balance from a voluntary pension system offered by a pension fund manager under the
Voluntary Pension System Rules, 2005 at the time of the eligible person’s retirement, disability or
dealth.
56. Straight deduction on account of donation to certain institutions

Clause (61)
Under the existing clause, donations paid to certain specified institutions are available as an allowable
deduction in accordance with the following limits:
a) in the case of an individual or association of persons, thirty percent of the taxable income of the
person for the year; and
b) in the case of a company, fifteen percent of the taxable income of the person for the year.
The Bill seeks to limit the deduction in both the above cases to 10% of the taxable income for the year.
57. Donation to Liaquat National Hospital

Clause (62)
The Bill seeks to withdraw the deduction available to a taxpayer on account of donation paid to Liaquat
National Hospital Association, Karachi.
58. Exemption in other laws

Clause (66)
In accordance with the amendment proposed in Section 54 of the Ordinance, the Bill seeks to
incorporate the following exemptions:
a) Pension of a former President of Pakistan and his widow under the President Pension Act, 1974.
b) State Bank of Pakistan and State Bank of Pakistan Banking Services Corporation.

Income Tax 25
59. Profit on debt on a registered foreign industrial loan

Clause (72)(iii)
The above clause provides exemption to a non-resident person in respect of profit on debt on a foreign
loan as utilized for industrial investment in Pakistan the agreement for which is concluded on or after 01
February 1991 and is duly registered with the State Bank of Pakistan. The Bill seeks to withdraw such
exemption.
60. Profit to non-residents under Islamic mode of financing

Clause (77)
Exemption provided to profit derived by a non-resident person in respect of Islamic mode of financing is
proposed to be withdrawn by the Bill.
61. Income of Pakistan Cricket Board

Clause (98)
The above clause exempts income derived by any Board or other organization established in Pakistan for
the purposes of controlling, regulating or encouraging major games and sports recognized by the
Government. The Bill proposes to insert a proviso with a view to exclude income of the Pakistan Cricket
Board from application of the above clause.
62. Editorial changes in respect of certain institutions

Clauses (99), (99A) and (103)
In accordance with the proposed amendments in the definition section of the Ordinance, the above
mentioned clauses are proposed to be amended by the Bill.
It seems that the changes do not in essence have any effect of withdrawing or extending the exemptions.
However, the term used in the substituted Clause (99)for a mutual fund, an investment company
registered under the (Non-Banking Finance Company Establishment and Regulation Rules, 2003) and a
unit trust scheme constituted by an assets management company registered under the Asset
Management Companies Rule, 1995 is “Collective Investment Scheme”. “Collective Investment Scheme”
has been defined in (Non-Banking Finance Companies Establishment and Regulation Rules 2003), as
being one which includes closed-end fund and an open ended scheme. Since the term has not been
defined in the Ordinance, we feel a reference should have made in Clause (99) for clarity.
63. Exemption to inter-corporate dividend

Clause (103A)
In terms of the above clause, inter-corporate dividend within a wholly owned locally incorporated group
to which Section 59AA applies, is exempt. The Bill seeks to extend the exemption to such dividends
received by companies forming groups who are entitled to “Group Relief” under Section 59B of the
Ordinance.
64. Exemption to Capital gain extended

Clause (110)
The provisions of Clause (110) above contains exemption to income chargeable under the head "capital
gains", being income from the sale of modaraba certificates or any instrument of redeemable capital as
defined in the Companies Ordinance, 1984, listed on any stock exchange in Pakistan or shares of a public

Income Tax 26
company and the Pakistan Telecommunications Corporation vouchers issued by the Government of
Pakistan, derived by a taxpayer upto tax year ending on 30 June 2008. The Bill seeks to extend the
period of exemption upto the tax year ending on 30 June 2010.
PART-II
Itemized listing of clauses of Part II of the Second Schedule which have been proposed to be deleted
owing to these being becoming infructuous due to efflux of time as well as changes brought about by the
Bill.

6 Profit on Special US Dollar Bonds purchased out of any incremental
deposits made in the existing foreign currency accounts on or after 16
December 1999, or out of new accounts opened on or after the said
date, liable to deduction of tax under section 151(1)(c) @ 10%
9, 13, 13A, 13B These clauses specify reduced rate of 1% for tax collection under section
148 of the Ordinance at the import stage
13G Reduced rate of tax collection under section 148 of 1% proposed to be

withdrawn in respect of capital goods, cement, coal, sugar and
condemned ships for the purpose of breaking
13H Reduced rate of 2% under section 148 for certain specified items
14 and 15 Reduced rate of 0.75% under section 154 on account of exports of

specified items
66. Income of Fauji Foundation and Army Welfare Trust

Clause (10)
The said clause reduces the rate of tax to 20% in respect of income in the case of Fauji Foundation and
Army Welfare Trust, chargeable under the head "Income from business" as it is not exempt under clause
(58) of Part I, of the First Schedule. The Bill seeks to withdraw the availability of reduced rate of tax to
such institutions.
67. Purchase of locally produced edible oil

Clause (13C)
In respect of manufacturers of cooking oil or vegetable ghee or both, the rate of income tax on purchase
of locally produced edible oil is provided @ 1% of the purchase price. The Bill seeks to enhance this tax
rate to 2%.

Income Tax 27
68. Sale of rice to Utility Stores Corporation by Rice Exporters Association of Pakistan
Clause (13H)
Rice Exporters Association of Pakistan is proposed to be allowed the facility of reduced withholding tax
rate of 1% in respect of amounts payable for supply of rice to Utility Stores Corporation.
69. Reduced rate of tax on dividend to a non-resident company

Clause (16)
In the case of a non-resident company, rate of deduction of tax under Section 150 of the Ordinance on
dividends received from a company engaged exclusively in mining operations, other than petroleum, is
presently specified at 7.5% worked out on the gross amount of dividend. The Bill proposes to withdraw
the availability of this reduced rate.
PART-III
70. Reduction in the rate of turnover tax for cigarette distributors

Clause (3)
In accordance with the proposed deletion of section 113 of the Ordinance which levies minimum tax
@0.5% of turnover, the above clause specifying reduction of minimum tax by 80% is also proposed to be
deleted.
71. Yield of Bahbood Savings Certificates or Pensioners Benefit Account

Clause (5)
The Bill seeks to specify withholding tax rate of 10% in respect of yield or profit on investments in
Bahbood Savings Certificates or Pensioners Benefit Account. It may be noted that Clause (36A) of
Part IV of the Second Schedule to the Ordinance provides exemption from withholding of tax under
Section 151 in respect of such yield or profit. Since the said Clause (36A) has not been proposed to be
withdrawn, the two clauses appear contradictory to each other.
PART-IV
Itemized listing of clauses of Part IV of the Second Schedule which have been proposed to be deleted
owing to these being becoming infructuous due to efflux of time as well as changes brought about by the
Bill.
3A Benefit derived by way of waiver of profit on debt or the debt itself under
the State Bank of Pakistan, BPD Circular No.29 of 2002 dated 15
October 2002 to the extent not set off against the losses under Part VIII
of Chapter III of the Ordinance
11 Minimum tax on certain specified persons
16 Minimum tax on Aga Khan Development Network
19 Minimum tax on non residents in respect of their receipts from Pak

Income Tax 28

rupees denominated Government and corporate securities and listed
redeemable capital, listed on a registered stock exchange, where the
investments are made exclusively from foreign exchange remitted into
Pakistan through a Special Convertible Rupee Account maintained with a
bank in Pakistan
36 Withholding provisions of Section 151(1)(c) to any amount paid as

interest or profit on Special US Dollar Bonds issued under the Special US
Dollar Bonds Rules, 1998
41A Option to manufacturers to elect for final tax regime
42A Withholding tax for supply of relief goods to earth quake victims
56 Exemption from tax collection under Section 148 in respect of specified

items, however, such exemption is proposed to be applicable to the
import to goods classified under Pakistan Customs Tariff falling under
Chapters 27, 52.01, 86 and 93
57 Exemption from inter alia, minimum tax under section 113 to Trading
Houses
58 Applicability of Section 205 to telecom companies
73. Permanent establishment of non-resident E&P companies

Clause (43A)
The above clause exempts imports of petroleum products by certain persons including permanent
establishments (PEs) of Exploration and Production (E&P) companies from application of withholding
tax at import stage under Section 148 of the Ordinance. The Bill seeks to withdraw the availability of
such exemption to PEs of E&P companies.
74. Income of Manufacturers of Iron and Steel products to be taxed under normal tax regime
Clause (46A)
Manufacturers of iron and steel products (irrespective of their status) are proposed to be taxed under
the normal provisions of the Ordinance. Accordingly, the tax withheld from sale of such goods under
Section 153 of the Ordinance would now be considered as advance tax.
75. Exemption from withholding of tax to certain institutions

Clause (47B)
The Bill seeks to replace the existing Clause (47B) which provides exemption from the application of
Sections 150, 151 and 233 of the Ordinance in respect of payments received by National Investment
Unit Trust, collective investment scheme or a modaraba, approved pension fund, approved income
payment plan or a REIT Scheme or a Private Equity and Venture Capital Fund or an approved provident
fund or an approved superannuation fund or an approved gratuity fund. The substitution does not in
essence extend or withdraw any exemption.

Income Tax 29
76. Income of Designated National Authority

Clause (65)
Income derived by a project approved by Designated National Authority (DNA) from transfer/ sale of
Clean Development Mechanism Cards emissions credit i.e. Certified Emissions Reduction (CER) etc. is
proposed to be exempt from income tax.
77. Exemption from applicability of withholding tax provisions of Section 235 to certain industries
Clause (66)
The Bill seeks to exempt application of Section 235 viz. tax collection on electricity consumption to
exporters-cum-manufacturers of the following products:
a) carpets;
b) leather and articles thereof including artificial leather footwear;
c) surgical goods;
d) sports goods; and
e) textile and articles thereof
THE THIRD SCHEDULE
78. First year allowance

Part-II, Para (2)
In line with the proposed insertion of Section 23A in the Ordinance, the bill seeks to propose a rate of
90% for first year allowance in respect of eligible depreciable assets.
THE FOURTH SCHEDULE
79. Unrealized Capital Gain and Loss not taxable for General Insurance Business
Rule 5
Rule 6A of the Fourth Schedule exempts capital gains arising on disposal of specified securities including
shares of a public company in the hands of an insurance company, irrespective of the fact whether it is
engaged in life insurance or general insurance business. However, Rule 5 of the said Schedule while
laying down the principles for computing the income of general insurance business, provides in Clause
(b) thereof that any amount either written off or taken to reserve to meet depreciation is allowable as a
deduction and any sum taken credit for in the accounts on account of appreciation of investments is
treated as income. This created a situation where realized gains are exempt from tax while unrealized
gains, arising as a result of their measurement under International Financial Reporting Standards, are
taxed.
To remove this ambiguity, the Bill proposes to replace sub-Rule (b) of Rule 5 whereby unrealized gains
and losses would no longer be taxable. Moreover, any amount of investment written off would be allowed
as a deduction.
It needs to be highlighted that the same ambiguity exists for life insurance business. However, the Bill
seeks to harmonize the computation of income for general insurance business without bringing about
similar provisions for life insurance business.

Income Tax 30
80. Withholding of tax on insurance/ reinsurance

premium by general insurance business
Rule 5(d)
In line with the proposed insertion of Sub-section (1AA) in Section 152 of the Ordinance, a new sub-
Rule (d) is proposed to be inserted in Rule 5 whereby general insurance businesses making payment of
insurance / reinsurance premium to a non-resident company or its agent can claim such an expense as
an allowable deduction only when applicable tax has been withheld.
81. Exemption period extended for capital gain from specified securities
Rule 6A
The exemption as provided in Rule 6A for capital gain arising to a insurance company on account of sale
of Modaraba certificates, any listed redeemable capital, shares of a public company and Pakistan
Telecommunications Corporation vouchers is presently available upto the tax year ending on 30 June
2008. The Bill seeks to extend the exemption period upto 30 June 2010.
It needs to be noted that insurance companies are required to follow calendar year as their tax year.
Accordingly, this exemption would effectively expire on 31 December 2009.
THE FIFTH SCHEDULE
82. The Petroleum Policy and the Ordinance need to be harmonized
The Federal Government in the year 2007 announced Petroleum Exploration and Production Policy
2007. The background of formulating a fresh policy for petroleum exploration and production as stated
in the model document is stated as under:
“The importance of the domestic petroleum industry to the economy of Pakistan cannot be over-
emphasized as an issue of national security, national self reliance and as a major source of
government revenue. The Government of Pakistan (GOP) is committed to accelerate an
exploration and development programme in order to reverse the decline in crude oil production,
to increase the domestic gas production and supply and to reduce the burden of imported energy
which otherwise will have adverse effect on the balance of payments & trade. The purpose of this
Petroleum Exploration and Production Policy 2007 (Policy) is to establish the policies,
procedures, tax and pricing regime in respect of petroleum exploration and production (E&P)
sector.”
Accordingly, the Policy contains certain specific measures for new concessions being signed under the
Policy. The Policy also established royalty as an allowable expenses both for onshore and offshore
concessions for computing the income chargeable to tax of an E&P company. Also an income tax rate of
40% is prescribed to be payable by an E&P company in respect of profit and gains computed in
accordance with Part I of the Fifth Schedule to the Ordinance.
The Bill, however, does not propose any corresponding amendments to Part I of the Fifth Schedule to the
Ordinance. Keeping in view the overriding status of the Ordinance in relation to income tax matters as
contained in Sections 3 and 54 thereof, the legitimacy of the Policy in relation to tax matters is open to
question.

Income Tax 31
THE SIXTH SCHEDULE
83. Employer’s annual contribution to a recognized provident fund

when deemed to be income of employee
Part-I, Rule 3 Sub-rule (a)
The employer’s contribution to a recognized provident fund in excess of one tenth of the salary of an
employee is presently deemed to be income of such an employee.
The Bill proposes that the employer contributions to a recognized provident fund in excess of one tenth
of the salary or Rs.100,000, which ever is lower will be deemed to be income of an employee.
84. Deduction of tax on payments made out by an approved superannuation fund

Part-II, Rule 5
The trustees of an approved superannuation fund are required to deduct tax, while making payment of
contributions made by an employer to an employee during his life time, at the average rate of tax at
which the employee was liable to tax during the preceding three years or during such period, if less than
three years, as he was a member of the fund.
The Bill proposes a change in the basis of deduction of tax by prescribing that tax shall be withheld at the
income tax rate applicable to the year of payment.
THE SEVENTH SCHEDULE
85. General observation

The Seventh Schedule to the Ordinance, effective from the tax year 2009, is applicable for banking
companies. It contains specific provisions for the computation of profits and gains of a banking company
and the tax payable thereon. The fundamental principle envisaged in the Schedule is that the pre-tax net
profits, as disclosed in the financial statements, constitute the basis of computing the income of a
banking company, subject to adjustments as provided in the said Schedule. The idea behind inserting this
specific Schedule was to provide special provisions like those available for insurance businesses and
mineral exploration companies. However, when the Seventh Schedule was promulgated, it left behind
certain provisions including for bad debts not allowed in previous years and unabsorbed depreciation for
assets given on lease. Accordingly, various representations were made before the relevant tax
authorities and it was anticipated that due amendments would be brought about in the Schedule.
However, the amendments proposed by the Bill do not materially cater to the anomalies that arose due
to the insertion of the Seventh Schedule and, on the contrary, some of the regressive provisions of the
past have been reintroduced.
The amendments proposed by the Bill are discussed in the following paragraphs.
86. Classified advances and off balance sheet items

allowable as per the normal provisions of law
Rule 1(c), (d), (e) and (f)
In terms of the existing provisions of the Schedule, bad debts were dealt as under:
a) provisions for classified advances and off balance sheet items claimed in the accounts are
allowable on the basis of a certificate from the external auditors to the effect that such provisions
are in accordance with the Prudential Regulations issued by the State Bank of Pakistan;

Income Tax 32
b) irrecoverable debt, classified as ‘substandard’ in accordance with the Prudential Regulations is

not allowed;
c) a ‘substandard’ irrevocable debt is eligible for deduction upon its subsequent classification as
‘doubtful’ or ‘loss’ under the Prudential Regulations; and
d) an item classified as ‘substandard’ and having taxed in a previous tax year is subsequently
classified as ‘recoverable’, also stands for deduction.
Being developed on the basis of the Prudential Regulations, the above provisions laid to rest the major
issue faced by the banking companies for claiming their doubtful debts as an allowable deduction.
However, since the above provisions did not address the issue of bad debts relating to years prior to the
enforcement of the Seventh Schedule, it was demanded that relevant amendments be brought about in
the Schedule. The Bill however proposes to substitute the above provisions by allowing deduction in
respect of classified advances and off balance sheet items in accordance with the normal provisions of
Sections 29 and 29A of the Ordinance. The proposed amendment has brought the banking companies
back to the old status where allowability of bad debts has always remained a contentious issue with the
taxation authorities.
87. Minimum Tax no longer payable by banking companies

Rule 7
In line with the proposed deletion of section 113 of the Ordinance, relating to payment of minimum tax
based on turnover, appropriate amendments are also being proposed by the Bill to omit Rule 7 of the
Schedule.
88. Adjustment of amalgamation losses

Rule 8(1A)
The accumulated business loss, other than speculation business loss, of an amalgamating banking
company or companies is proposed to be available for set off or carry forward against the business
profits and gains of the amalgamated company and vice versa upto a period of six tax years immediately
succeeding the tax year in which the loss was first computed. The said amendment seems to be in line
with the amendment proposed in section 57A of the Ordinance whereby like treatment is also proposed
for non banking financial companies, modarabas and insurance companies.
89. Tax on capital gain continues

Rule 8
Income computed under the Schedule is chargeable to tax under the head “income from business” and
taxable @ 35%. However, the income under the head “dividend” and “capital gains on sale of shares of
listed companies” is taxable @ 10%. It is also provided that where the shares of listed companies are
disposed of within one year of the date of acquisition, the gain is taxable at the rate applicable to a
banking company.
The said provisions continue to apply in the case of banking companies, even though amendments are
proposed to be made in respect of extending the exemption period in relation to gains arising on disposal
of specified securities to all companies, including insurance companies. Accordingly, banking companies
are not treated at par with other companies in relation to capital gains arising on sale of shares of listed
companies.

Table of Contents 33
SALES TAX
Section Page
1 Definitions 2 35
2 Increase in sales tax rates 3 36
3AA, 26AA and 36
3 Retail tax
32AA
4 Adjustment of input tax 7 36
5 Tax credit not allowed 8 36
6 Adjustable input tax 8B 36
7 Carry forward of input tax 10 37
8 11, 26, 36 and 37
Change in time limit
45B
9 Sales tax audit 25 37
10 Offences and Penalties 33 37
11 Default surcharge 34 38
12 Appeals to the Appellate Tribunal 46 38
13 Alternate Dispute Resolution 47A 38
14 Power to make rules 50 38
15 Representatives 58A and 58B 38
16 Repayment of tax to persons registered in the Azad Jammu and Kashmir 61A 38
17 Third Schedule 39
18 Sixth Schedule 39
19 Changes in Sales Tax Special Procedures Rules, 2007 39
20 Amendments in Sales Tax Rules, 2006 42
21 Significant SRO’s 42
22 Summary of significant SRO’s of 2008 44

34

Sales Tax 35
1. Definitions
Section 2
The existing definition of supply is exhaustive and it includes the sale, lease, auction or disposition of
goods to satisfy a debt, other disposition of goods carried out for consideration, possession of taxable
goods held immediately before a person ceased to be a registered person and also includes putting to
private, business or non business use of goods acquired, produced or manufactured. Now, it is proposed
to restrict the definition of supply to the extent of sale or other transfer of the right to dispose of goods
as owner including such sale or transfer under hire purchase agreement with the same existing power to
the Federal Government to specify other transactions which shall or shall not constitute supply.
The existing definition of time of supply provides that the supply shall be deemed to have taken place at
the time of delivery of goods by the supplier with the exception that in case of supply to an associated
person, where the goods are not to be removed, the time of supply shall be the time at which these
goods are made available to the recipient. Now, in accordance with the proposed definition, time of
supply of goods other than hire purchase agreement, means the time at which the goods are delivered or
made available to the recipient irrespective of the fact that this supply is to an associate or non associate
person. Further, in respect of services, the time of supply is proposed as the time at which the services
are rendered or provided. However, in respect of supply under hire purchase, the time of supply will
remain the same i.e. the time the agreement is entered into.
The definition of taxable activity is proposed to be revised by excluding the use of goods acquired for
private purpose or for the manufacture of exempt goods from the ambit of taxable activity and by
including one-off adventure or concern in the nature of trade or anything done or undertaken during the
commencement or termination of the economic activity. Further, the activities of an employee providing
services to an employer in that capacity and an activity carried on by a person as a private recreational
pursuit or hobby are proposed to be excluded from the ambit of taxable activity.
Currently, under the sales tax law only restricted relatives, companies or undertakings under common
management and companies or undertakings having same ownership to the extent of twenty percent
were treated as associated persons. It is proposed to substitute the definition of associated persons in
order to harmonize the said definition with the much wider definition of associates given in the Income
Tax Ordinance, 2001.
The definitions of “association of persons”, “company”, “firm”, “trust” and “unit trust” have been
proposed in the sales tax law, which are identical to the definitions of these terms given in the Income
Tax Ordinance, 2001 with the exception that definition of company provided in the Income Tax
Ordinance, 2001 also covers the Provincial Government and a Local Authority, whereas the definition of
company proposed in the sales tax law does not cover them.
Currently, the definition of tax covers the sales tax, retail tax, default surcharge and any other sum
payable under the Act. It is proposed to restrict this definition to the extent of sales tax. However, a new
definition of sales tax is proposed which encompasses the tax, additional tax, default surcharge, fine,
penalty, fee or any other sum levied under the provisions of this Act or Rules made there under. Further,
the definition of arrears covers the unpaid amount of tax, default surcharge, extra amount of tax, fines,
penalties, fees or other sums assessed, adjudged or demanded under this Act. Now, by covering all these
levies under the definition of sales tax, the definition of arrears is also proposed to be substituted by the
sales tax due and payable before that day, which has not yet been paid.
The definitions of input tax and output tax are proposed to be simplified. There is no apparent change in
the scope of both terms with the exception that the amount levied under the Sales Tax Act, 1990, as

Sales Tax 36
adapted in the state of Azad & Jammu and Kashmir, is proposed to be excluded from the definition of
input tax.
The scope of definition of “person” is proposed to be extended to include a foreign government, a

political sub division of a foreign government or public international organization.
It is proposed to amend the definition of wholesaler in order to exclude a person who, in addition to
making retail supplies is engaged in wholesale business. By making the said amendment, a retailer also
engaged in wholesale business would now not necessarily fall in the category of wholesaler.
2. Increase in sales tax rates

Section 3, SRO 537(I)/2008
It is proposed to enhance the rate of general sales tax from 15 per cent to 16 per cent. The sales tax rate
on certain specified goods has been enhanced as follows –
Revised Current
Chemicals, plastic, paper, asbestos, etc. as covered by Table I of SRO 21 per cent 20 per cent
644(I)/2007 dated June 27, 2007
Iron and steel products as covered by Table II of SRO 644(I)/2007 18.5 per 17.5 per
dated June 27, 2007 cent cent
The above changes in sales tax rates are effective from 1 July 2008.
3. Retail tax
Sections 3AA, 26AA and 32AA
These sections have been deleted being redundant since retailers are covered by Chapter 1 of Sales Tax
Special Procedures Rules, 2007.
4. Adjustment of input tax

Section 7
It is permitted to adjust input tax on purchases of twelve preceding tax periods provided reasons for
delayed input tax adjustment are specified. It is proposed that the period for adjustment for delayed
input tax may be made within six succeeding tax periods and there is no requirement to specify reasons
for delayed input tax adjustment.
5. Tax credit not allowed

Section 8
This section deals with restriction on claim of input tax on goods used or to be used for any purpose
other then for taxable supplies or as may be notified / prescribed by the Federal Government. The word
services is proposed to be inserted in order to impose a similar restriction on claim of input tax on
services.
6. Adjustable input tax

Section 8B
This relates to restriction on adjustment of input tax in excess of 90 per cent of the output tax for that
period. Under this section input tax on fixed assets was adjustable in twelve equal monthly installments

Sales Tax 37
after the start of production of a new unit. This created an impression that the requirement to adjust in
twelve equal installments related to new units only. The term “after the start of production of a new
unit” has been deleted to remove the anomaly.
7. Carry forward of input tax

Section 10
The provision relating to carry forward of excess input tax was deleted through Finance Act, 2005. It
was subsequently reinstated through SROs and the current sales tax return also permitted such carry
forward. It is proposed to reinstate the proviso to allow carry forward of excess input tax against
supplies other than zero rated or exports to the next tax period.
8. Change in time limit

Sections 11, 26, 36 and 45B
The time limit for passing an order of assessment of tax after issuance of show cause notice or granting
an extension thereof by the Collector under Section 11(4) is proposed to be enhanced from 90 days to
120 days. Moreover, the time limit for issuance of a show cause notice is proposed to be five years. This
is in line with recovery of tax provisions under Section 36(1).
A corresponding change is also been made in Section 36(3) dealing with recovery of tax whereby an
order is required to be passed within 120 days instead of 90 days of issuance of show cause notice.
A corresponding change is also been made in Section 45B dealing with sales tax appeals before the
Collector Sales Tax Appeals whereby an appellate order is required to be passed within 120 days instead
of 90 days of filing of sales tax appeal. The Collector is empowered to extend the time for passing an
appellate order by a further 90 days. This is also proposed to be enhanced to 120 days.
The time limit for filing a revised return is proposed to be enhanced from 90 days to 120 days.
9. Sales tax audit

Section 25
In the recent past, sales tax audit had also been conducted by the Directorate of Revenue Receipt Audit
(DRRA) which falls under the office of the Auditor General of Pakistan. Since the law stipulates that the
audit may only be conducted once for a year, objections were raised when the Collectorate attempted to
conduct an audit. A proviso has been added whereby it would now be possible to conduct an audit of a
registered person even if the same were earlier audited by the office of the Auditor General of Pakistan.
We may also point out that the Tribunal has held that DRRA was not authorized to conduct audit of
registered persons and the whole exercise conducted by them was “quorum-non-judice”. This
amendment will no doubt cause hardship for registered persons who have also been subjected to audit
by DRRA.
10. Offences and Penalties

Section 33
There is a penalty of Rs.25,000 for failure to submit summary of sale and purchase invoices. As this
summary is now a part of the new sales tax return, the penalty being redundant is proposed to be
deleted.

Sales Tax 38
11. Default surcharge

Section 34
The monthly default surcharge for the first six months is 1 per cent of the tax due and 1.5 per cent from
the seventh month onwards. It is proposed to enhance the monthly default surcharge to 1.5 per cent for
the entire period of default.
12. Appeals to the Appellate Tribunal

Section 46
It is proposed to redraft this section whereby it would now be possible for the Appellate Tribunal to hear
an appeal against any order passed by the Collectorate of Sales Tax including an adjudication order.
Time limit for passing an appellate order for the Tribunal is proposed to be increased to eight months
from the existing six months.
A single bench of the Appellate Tribunal is authorized to hear cases where the tax involved is upto Rs.1.5
million. It is proposed to enhance this limit to Rs.10 million.
13. Alternate Dispute Resolution ( ADR)

Section 47A
Section 47A of the Sales Tax Act, 1990, provides the procedure and manner for resolution of dispute
through ADR. The Bill seeks to add a new Sub-section which requires the Chairman ADR to pass orders
as he deems just and equitable after recording the reasons in writing and upon satisfying that there is an
error in the order or decision which has been brought before the ADR for resolution.
14. Power to make rules

Section 50
The sales tax law and practice is subject to frequent changes by virtue of SROs, issuance of orders,
clarifications, instructions and rules, etc. It is proposed that all rules, general orders, departmental
instructions and rulings, etc. would be arranged and published at appropriate intervals and sold to the
public at a reasonable price. This is a good development as presently it is very difficult to have access to
all the above in a consolidated form.
15. Representatives
Section 58A and 58B
It is proposed to introduce a new Section 58A defining a representative of a registered person. This
definition is similar to the one contained in the Income Tax Ordinance, 2001. Similarly, the liability and
obligation of representative have also been proposed to be introduced through Section 58B. Again this
section is similar to the provisions contained in the Income Tax Ordinance, 2001.
16. Repayment of tax to persons registered in the Azad Jammu and Kashmir (AJ&K)
Section 61A
It is proposed to authorize the repayment of input tax on any goods acquired in or imported into Pakistan
by registered persons in AJ&K who are engaged in making zero rated supplies. Effectively, it would
enable person who are registered in AJ&K to claim input tax paid in Pakistan.

Sales Tax 39
17. Third Schedule
The Third Schedule specifies goods that are subject to sales tax on the basis of retail price. It is proposed
to remove the following from the Third Schedule –
♦ Biscuits
♦ Confectionery
♦ Electric bulbs including energy savings lamps and florescent tube lights
♦ Snacks including potato chips sold in retail packing
Electric bulbs, confectionery and snacks including potato chips sold in retail packing would now fall under
the normal sales tax regime. The special procedures contained in Chapter 12 of Special Procedures
Rules, 2007 have also been deleted.
However, energy saving lamps falling under PCT Heading No. 8539.3910 have been proposed to be
included in the Sixth Schedule thereby becoming exempt from sales tax.
18. Sixth Schedule
The Sixth Schedule lists out goods that are exempt from sales tax. The following changes have been
proposed therein –
♦ Edible vegetables covered by Serial No. 13 and edible foods covered by Serial No. 15 were exempt
except those that were bottled, canned or packaged. It is proposed to delete the word packaged,
hence, effectively packaged edible vegetables and edible foods would now enjoy exemption under
the Sixth Schedule.
♦ The exemption of edible oil and vegetable ghee including cooking oil has been extended to margarine
(excluding liquid margarine) falling under PCT Heading No. 1517.1000.
♦ The exemption under Serial No. 32 covered newspaper, journal, periodical, books, etc. but excluding
directories. It is proposed to remove the word etc. thereby confining the scope of the exemption.
♦ Under Serial No. 35, building block of cement is exempt from sales tax. It is proposed to extend the
exemption to ready mix concrete blocks as well.
♦ New Serial No. 41A proposes to extend exemption to energy savings lamps falling under PCT
Heading No. 8539.3910. This exemption is in line with the energy savings measures being
undertaken by the Government to meet the energy crises faced by the country.
♦ New Serial No. 52A proposes to extend exemption to goods supplied to hospitals run by the Federal
or Provincial Governments or charitable operating hospitals of 50 beds or more.
♦ New Serial No. 71 proposes to grant exemption to goods and services purchased by non-resident
entrepreneurs and traders visiting Pakistan to participate in trade fares and exhibition subject to
reciprocity and special conditions and restrictions as may be specified by the Board.
19. Changes in Sales Tax Special Procedures Rules, 2007
The following amendments have been made in the Sales Tax Special Procedures Rules, 2007 (SP) which
will be effective from 1 July 2008:

Sales Tax 40
19.1 Retailers
Chapter II was confined to persons registered as retailers including jewelers. It would now be applicable
to all registered persons including jewelers who make supplies from retail outlets to final consumers and
such persons shall be deemed to be retailers in respect of such supplies. The implication of this
amendment is that now manufacturers and importers and possibly wholesalers who are also supplying
goods through retail outlets to the final consumers would be taxable as retailers to the extent that the
goods are sold in retail.
However Chapter II is not applicable to the following –
♦ Dealers of motorcycles covered by Chapter VIII

♦ Dealers of specified electric goods covered by Chapter XIII
♦ Traders dealing in retail of mild steel products
♦ Supplies by retail outlet on which tax is deducted at source under the Income tax Ordinance, 2001
♦ Wholesale cum retail outlets covered by Chapter XII
The tax rates for retailers continue to remain the same although they are now based on quarterly
turnover instead of annual turnover. The revised table for sales tax rates is as follows:
S. No. Quarterly turnover Sales tax rate

1. Upto Rs.1.25 million Nil
2. More than Rs.1.25 million and upto 0.5 per cent of turnover which is in excess
Rs.2.50 million of Rs.1.25 million
3. More than Rs.2.5 million Rs. 6,250 plus 0.75 per cent of turnover
which is in excess of Rs.2.5 million
The retailers who have paid tax sales tax under Chapter II for 2007–08 will continue to operate under
this Chapter for the next two years.
19.2 Services provided by Stevedores

Chapter VI Part 3
Stevedores were required to charge sales tax at fixed rates per move or per metric ton. Now stevedores
would be required to pay sales tax under the normal regime and be entitled to claim input tax. The term
stevedore has been defined to mean a person engaged loading and unloading of cargo, including bulk
cargo, from ships in any manner and includes a person providing or rendering any other services related
to or ancillary to the handling of or otherwise dealing with such or other similar cargo at port in any
manner or style.
19.3 Payment of sales tax on natural gas

Chapter IV
Gas distribution companies were required to charge sales tax @ 24 per cent on supplies to CNG stations.
This rate has been enhanced to 25 per cent, keeping in view the overall enhancement of 1 per cent in the
sales tax rates.

Sales Tax 41
19.4 Payment of sales tax by Importers

Chapter X
The special procedure for commercial importers has been revised and now is applicable to all importers
whether commercial or industrial, except for goods imported by a manufacturer for in-house
consumption. Under this procedure, sales tax at the rate of 2 per cent of the value of goods in addition
to the normal sales tax chargeable at import stage would be payable. The 2 per cent value addition tax
paid at import stage would form part of input tax and the importer may deduct the same against the
output tax, any excess input tax may be carried forward to the next tax period.
The excess input tax which is attributable of the 2 per cent value addition tax is not refundable, however,
refund may be claimed of the excess input tax after deducting the amount attributable to value addition
tax.
Importers who do not claim such refund of excess input tax would not be subjected to audit except with
the permission of the Board.
Closing stock of imported goods held by commercial importers on June 30, 2008 on which additional
sales tax at 2 per cent was paid at the import stage would continue to be governed by the special
procedure as prescribed for the year 2007-2008.
Importers paying 2 per cent value addition tax will file normal monthly returns instead of the quarterly
returns as prescribed earlier.
19.5 Steel melters, rerollers and ship breakers

Chapter XI
The various sales tax rates for the above have been revised upward.
19.6 Manufacturers of biscuits, confectionery and snacks

Chapter XII
Special procedures for manufacturers of biscuits, confectionery and snacks have been deleted and these
goods have been brought under the normal tax regime.
19.7 Wholesale-cum-retail outlet

Chapter XII
A revised Chapter XII has been inserted covering chains of wholesale-cum-retail outlets engaged in bulk
import and supply of consumer goods on wholesale basis as well as retail basis and who maintain their
records electronically.
The wholesale-cum-retail outlets would fall under the normal sales tax regime and the special procedures
for retailers and importers would not be applicable to them. Moreover, the extra tax on specified electric
home appliances would also not be attracted and the provision of Section 73 relating to payment
through a banking instrument would not be applicable.

Sales Tax 42
19.8 Payment of extra sales tax on specified home appliances

Chapter XIII
A new procedure has been introduced and the salient features of which are as follows –
♦ It is applicable on supply of electric home appliances namely, television sets, refrigerators, freezers,
air conditioners, electric ovens, microwave ovens, washing machines, spin dryers and DVD / CD
players.
♦ Extra sales tax rate of 0.75 per cent of the value of supply of electric goods is to be charged by
manufacturers and importers.
♦ Extra sales tax will be declared in the column “other supplies” in the monthly return.
♦ The extra sales tax shall be reflected separately on the sales tax invoice.
♦ The extra sales tax is chargeable even if the importer has paid any tax relating to value addition at
the import stage.
♦ The specified electric goods on which extra sales tax has been paid will be exempt from payment of
sales tax on subsequent supplies including those made by a retailer. However, for determining the
threshold of turnover for retailers, the value of supply that is subject to extra tax will be taken into
consideration.
♦ A registered person engaged exclusively in purchases and sales of specified electric goods who
purchases the same on payment of extra tax is required to file a quarterly sales tax return.
20. Amendments in Sales Tax Rules, 2006
♦ New Sales Tax Return - A new sales tax return has been introduced under which summary of
purchases, imports, sales, exports and production data statement will form part of the return. This
return will cater to both sales tax and federal excise declarations.
♦ Electronic Filing of Sales Tax Return - All registered persons are now required to file return or other
statements electronically as prescribed under Section 26 or 27. Registered persons who were
required to file return by the 15th of the following month can now submit the return electronically by
the 18th of the following month. However the tax due is to be deposited by the 15th of the following
month.
♦ Filing of Refund Claims - The time limit for filing of refund claims is increased to 120 days from 60
days. In case where supporting documents were not timely submitted, the Collector of Sales Tax was
empowered to extend the time limit for a further 30 days. This limit is now increased to 60 days.
♦ Sales Tax Registration as a manufacturer is now associated with verification of manufacturing facility
by the local Registration Office.
♦ No further multiple registrations are allowed. In case a person has more than one registration he
would retain only one registration and all other registrations would be surrendered. Further from 1
July 2008 he would file only one return.
♦ A registered person involved in more than one taxable activity for which there are different dates of
filing of returns, would file a single return for all such activities by the due date applicable to his
major taxable activity.
♦ New forms have been introduced for sales tax registration and de-registration.
21. Significant SROs
i) Amnesty from payment of default surcharge and penalties –SRO 511(I)/2008
Through the above notification, an amnesty has been provided to persons whereby they would
be exempted from the payment of whole of the amount of default surcharge and penalties

Sales Tax 43
payable by a person against whom an amount of sales tax or federal excise duty is outstanding
on account of any:
♦ audit observation
♦ audit report
♦ show cause notice
♦ adjudication order
♦ failure to pay any amount of sales tax or federal excise duty
♦ claimed inadmissible input tax adjustment
♦ refund or drawback due to any reason
The amnesty scheme does not apply to cases of fraudulent refunds or drawback and other tax
frauds. This amnesty is subject to the condition that the outstanding principal amount of sales
tax or federal excise duty is paid by 30 June 2008.
ii) Amnesty from payment of default surcharge and penalties -SRO 524(I)/2008
Exemption from sales tax, default surcharge and penalty in respect of taxable supplies made
prior to 11 June 2008 is subject to certain conditions namely-
♦ the supplies were made by an unregistered person who was otherwise liable to be registered.
♦ such person applies for registration during the period 1 June 2008 to 31 July 2008 and files
returns.
The aforesaid exemption shall not apply on registered persons against whom a case of tax fraud
and evasion has already been framed. The objective of this amnesty appears to encourage sales
tax registration since it gives a comfort by way of an exemption from sales tax in respect of past
activities.
iii) Pesticides and fertilizers exempted from sales tax –SRO 535 (I)/2008 and 536(I)/2008
Import and supply of fertilizers as specified, is now exempt from the payment of sales tax.
Import and supply of pesticides falling under HS code 38.08 along with the active ingredients as
specified are now exempt from sales tax.
iv) Certain goods which are imported for the manufacture of dextrose and saline infusion –SRO
539(I)/2008
Certain goods which are imported for the manufacture of dextrose and saline infusion giving sets
have been exempted from sales tax subject to certain conditions.
v) Adjustment of Input Tax - Section 8B - SRO – 529(I)/2007
Section 8B of the Act restricted the adjustment of input tax from output tax to the extent of 90
per cent of the output tax payable during the month. However certain persons were excluded
from the purview of this section. List of such persons has substituted and now the following
registered persons shall be excluded from the purview of Section 8B of the Act-
♦ Persons registered in electrical energy sector.

♦ Oil marketing companies and petroleum refineries.
♦ Fertilizer manufacturers.
♦ Manufacturers consuming raw materials chargeable to sales tax at the rate of 18.5 per cent
or 21 per cent provided the value of such raw materials exceeds 50 per cent of the value of
all taxable purchases in a tax period.

Sales Tax 44
♦ Wholesalers-cum-retailers specified in Chapter XII of the Sales Tax Special Procedures Rules,
2007.
♦ Commercial importers provided the value of imports subjected to 2 per cent value addition
tax under Chapter X of the Sales Tax Special Procedures Rules, 2007, exceeds 50 per cent
of the value of all taxable purchases in a tax period.
♦ Person making zero-rated supplies provided the value of such supplies exceeds 50 per cent
of the value of all taxable supplies in a tax period.
22. Summary of significant SROs of 2008
Rescinded SRO Effect
645(I)/2007 Through this SRO 645, 2 per cent VAT was levied on commercial importers. The
special procedure for commercial importers has been abolished and therefore
this SRO has been rescinded.
488(I)/2006 & Refund rules for exports of certain goods and for registered persons falling
465(I)/2007 within the jurisdiction of LTU would now be governed through the Sales Tax
Rules 2006. Therefore the relevant notifications are rescinded.
543(I)/2006 and As monthly summary of taxable supplies and purchases and monthly statement
559(I)/2006 of manufacturers of specified goods have now become part of the new sales tax
return, therefore these notifications are rescinded.
544(I)/2006 This SRO fixed the value of supply of locally produced coal at Rs.675 per metric
ton which has now been enhanced to Rs.1,000 vide newly inserted SRO
532(I)/2008.
645(I)/2006 As pesticide has now been exempted from sales tax, therefore the relevant
notification has been rescinded.
609 (I)/2004 As phosphatic fertilizers has now been exempted from sales tax, therefore the
relevant notification has been rescinded.
541(I)/2006 Rescinded SRO exempted the import and supply of cellular telephone sets to the
extent that the combined effect of Customs Duty and Sales Tax was five
hundred rupees.
A new SRO 542(I)/2008 has been issued whereby exemption on the import or
supply of cellular telephone sets is to be Rs.500 as the amount of sales tax only.
Several A new SRO 547(I)/2008 has been issued which defines the appointment and
jurisdiction powers of various officers. Therefore, several previous SRO’s issued in this
notification respect have been rescinded.
Rescind following Various goods liable to sales tax at the rate of zero per cent through several
SRO’s. SROs have now been listed out in the new SRO 549(I)/2008. Hence several
343(I)/2002, previous SROs have been rescinded.
515(I)/2005,
527(I)/2005,
530(I)/2005
531(I)/2005,
537(I)/2005
548(I)/2006,
551(I)/2006
1204(I)/2006,
1270(I)/2006
and 462(I)/2007
Rescind Several Various goods exempted from sales tax through several SROs have now been
(41) notifications listed out in the new SRO 551(I)/2008. Hence several previous SROs have
been rescinded.

CUSTOMS
Section Page
1. Power to deliver certain goods without payment of customs duty 21(ab) 47
and to repay customs duty on certain goods
2. Cancellation of registration of a registered user 155F 47
3. Punishment for offenses 156(1) serial 43 47
4. Power of adjudication 179(3) 47
5. Procedure of Appellate Tribunal 194C(4)(c) 47
6. Alternate Dispute Resolution 195C(4A) 48
7. First Schedule 48
8. Customs Notifications 48

46

Customs 47
1. Power to deliver certain goods without payment

of custom duty and to repay custom duty on certain goods
Section 21, Sub-section (ab)
This Sub-section was introduced vide Finance Act, 2005 whereby additional power was granted to the
FBR to allow an importer or a local buyer to import any item at Zero rate or any lower rate as deemed fit
and necessary in a given situation. The Bill proposes to withdraw this power from the FBR by omitting
this Sub-section (ab) from Section 21.
2. Cancellation of registration of a registered user

Section 155F
In order to modernize the working system of customs department, “Customs Computerized System”
(CCS) was introduced vide Finance Act, 2003 and an altogether new Chapter XVI was inserted in the
Customs Act. Necessary amendments from time to time were also made in the said Chapter. This Section
deals with the cancellation of the registration of a registered user in case the Collector found such user
to be violating certain conditions as enumerated in the said Section. The Bill seeks to give additional
authority to the Collector to suspend the use of Unique User Identifier (UUI) of any person immediately
on receipt of any complaint or information about violation of any provision of the Customs Act.
In our opinion, this proposed amendment could be misused by the Customs Authorities as this proposal
seeks to give the Collector the authority to suspend forthwith the use of UUI by taking unilateral action
against a registered user on receipt of any complaint or information about violation of the provisions of
the Customs Act. This amendment in our view is in violation of the legal maxim “audi alteram partem”.
3. Punishment for offenses

Section 156, Sub-section (1) serial 43
This Section deals with the punishments mentioned against various offenses as enumerated in the said
Section. One of the offense mentioned in serial number 43 being that if any imported goods are removed
from the port without custom clearance, the owner is held to be guilty of such offense. The Bill seeks to
enlarge the scope of the punishment to such other person also having custody of the goods under
question.
4. Power of adjudication
This Section deals with the power of adjudication in case of confiscation of goods or imposition of penalty
vested in certain customs officials. The Customs Act makes it mandatory on the adjudicating authority to
decide the case within a period of 90 days of the receipt of the contravention report. Such period
however is extendable to a further period of 90 days for which reasons have to be recorded in writing by
the said Collector. The Bill seeks to enhance the mandatory period of adjudication from 90 to 120 days.
We understand that this extension of period would lead to enhancement of the litigation period for
deciding the issues.
5. Procedure of Appellate Tribunal

Section 194C, Sub-section (4), Clause (c)
The Bill proposes that the appeals involving the revenue uptil rupees 10 million could now be heard and
decided by a bench comprising of a single member only as against the existing limit of rupees 5 million.

Customs 48
6. Alternate Dispute Resolution

Section 195C, Sub-section (4A)
This section deals with the matter dealt with by Alternate Dispute Resolution (ADR). The Bill seeks to
give power to the Chairman ADR to rectify any error in the order/decision on receipt of an application
from the aggrieved person.
7. First Schedule
A number of changes have been proposed in the First Schedule, effecting a large number of items for
which reference may be made to the substituted schedule of customs tariff.
8. Customs Notifications
Certain amendments have been made in the existing customs tariffs as well as certain notifications
issued in previous years have been rescinded or modified. A summary of certain significant notifications
is as under:
SRO 533(1)/2008
Through this SRO regulatory duty on certain items has been done away with.
SRO 554(1)/2008
This SRO has made certain amendments in the earlier SRO 575/2006 wherein exemption from the levy
of the customs duty was provided to certain plant, machinery and equipments.
SRO 559(1)/2008
Vide this SRO the Government of Pakistan (GOP) has allowed import of specified raw material for the
manufacture of toilet and laundry soap to the industrial units of Azad Jammu & Kashmir Council (AJ&K)
on concessionary rate/duty subject to fulfillment of certain conditions.
SRO 560(1)/2008
Vide SRO 577(1)/2005 dated June 06, 2005 the GOP has granted exemption on import of old and used
automotive vehicles, meant for transport from so much of the customs duty, sales tax, withholding and
capital value tax as are in excess of cumulative amount specified in the said notification. However, vide
this SRO the GOP has enhanced the duty and taxes on those vehicles.
SRO 561(1)/2008, SRO 562(1)/2008 & SRO 563(1)/2008

Vide the above mentioned SROs the duty on certain items has been modified.
SRO 564(1)/2008
Vide earlier SRO 565(1)/2006 exemption from the levy of customs duty on certain raw materials was
provided. The present SRO has substituted the table as mentioned in the SRO 565(1)/2006 by a new
table.
SRO 565(1)/2008
Vide above SRO customs duty on certain items such as pharmaceutical, chemicals and packing materials
used in the manufacturing of drugs has been reduced. However, duty on certain life saving drugs has
been withdrawn.
SRO 568(1)/2008
Vide this SRO a concession has been given to the vehicles imported in violation of import policy or
smuggled vehicles which will be released on the payment of redemption fine at the rate of 30% of the
value of the vehicle alongwith leviable duty/taxes, if the fine and penalty alongwith duty is paid on or
before 30 June 2008.

FEDERAL EXCISE
S. No. Section Page

1 Duty Due 2(9a) 51
2 Franchise 2(12a) 51
3 3(1)(d)& 51
Duties specified in the First Schedule to be levied
3(5)(c)
4 Filing of return and payment of duty etc 4(4) 51
5 Composite return 4(8) 51
6 Application of the provisions of the Sales Tax Act, 1990 7(2) 52
7 Default surcharge 8 52
8 Determination of Value for the purposes of duty 12(1) 52
9 Recovery of unpaid duty or of erroneously refunded duty or arrears of duty 14(1) 53
10 Offences, penalties, fines and allied matters 19(1) 53
11 Power of adjudication 31 53
12 Appeals to Collector (Appeals) 33(2) 53
13 Powers of Board or Collector to pass certain orders 35(3) 53
14 Power to rectify mistakes in orders 36 54
15 Alternate Dispute Resolution (ADR) 38(4a) 54
16 Issuance of duplicate of federal excise documents 43A 54
17 Rates of Federal Excise Duty Schedule 1 54
18 Exemption from Excise Duty Schedule 3 56
19 Federal Excise Notifications 57
20 Amendments in the Federal Excise Rules, 2005 57

50

Federal Excise 51
1. Duty Due
Section 2, Clause (9a)
The Bill seeks to amend the definition of “Duty Due”, in Clause (9a) of Section 2 of the FE Act to mean
duty in respect of clearance made or services provided or rendered during a month and shall be paid at
the time of filing of return. Under the existing provision the duty due is only in respect of clearances
made during a month and is paid on the last day of that month.
2. Franchise
Section 2, Clause (12a)
The definition of the term “Franchise” is currently provided in the Federal Excise Rules, 2005 in Clause
(ma) of Rule 2 which the Bill seeks to omit, whereas now it is proposed to provide the said definition
under the FE Act. The proposed definition seeks to enhance the scope of franchise to mean an
arrangement under which the franchisee is contractually or otherwise granted any right to produce,
manufacture, sell or trade in or do any other business activity in respect of goods or to provide service
or to undertake any process identified with franchiser against a fee or consideration including royalty or
technical fee, whether or not a trade mark, service mark, trade name, logo, brand name or any such
representation or symbol, as the case may be, is involved.
3. Duties specified in the First Schedule to be levied

Section 3, Sub-section (1), Clause (d), Sub-section (5), Clause (c)
Section 3 of the FE Act provides the scope for levy of excise duty on goods and services. Sub-section
(1) specifically mention the goods and services on which duty is to be levied and collected. Under the
existing provision the reference to services has been provided in Clause (d) which covers services
provided or rendered in Pakistan. The Bill now seeks to enhance the scope of services by including
services originating outside but terminating in Pakistan.
The Bill further seeks to give the consequential effect of the above proposed change in Sub-section (5)
which fixes the liability to pay duty in respect of specified goods and services. Under Clause (c) the
liability to pay duty in respect of services provided or rendered in Pakistan is on the person providing or
rendering such services. It is now proposed that where the services are rendered by the person out of
Pakistan, the liability to pay duty is on the recipient of such service in Pakistan.
4. Filing of return and payment of duty etc

Section 4 of the FE Act deals with the filing of return and payment of duty. Sub-section 4 deals with the
filing of revised return which permits a registered person to file a revised return within 90 days of filing
of return under Sub-section (1) to correct any omission or wrong declaration made therein. The
revision of return is however, subject to the approval of the Collector of Federal Excise having
jurisdiction over the case of the registered person. The Bill seeks to change the time limit of 90 days
from the date of filing of the return to 120 days.
5. Composite return
The Bill seeks to add a new Sub-section (8) in Section 4 of the FE Act to provide that a composite
(combined) return prescribed for the purpose of sales tax and duty chargeable under the FE Act shall be

Federal Excise 52
deemed to be return for the purpose of Section 4 of the FE Act, unless otherwise directed by the Board
in this regard.
6. Application of the provisions of the Sales Tax Act, 1990

Section 7 of the FE Act provides that goods specified in the Second Schedule or such services as may be
specified by the Board through a notification in the Official Gazette, the duty in respect of the same shall
be payable in the sales tax mode. The Bill seeks to add a new Sub-section (2) in Section 7 of the FE Act,
whereby the Federal Government is empowered to declare that any of the provisions of the Sales Tax
Act, 1990, relating to the levy of and exemption from sales tax, registration, book keeping and invoicing
requirements, returns, offences and penalties, appeals and recovery of arrears shall, with such
modifications and alterations as it may consider necessary or desirable to adapt them to the
circumstances, be applicable in regard to like matters in respect of the duty leviable under the FE Act.
7. Default surcharge
Section 8
Under the existing provisions of the FE Act, a person is liable to pay default surcharge in the event of
failure to pay the duty within the prescribed time. This default surcharge is payable in addition to the
duty payable under Section 3 of the FE Act. The default surcharge is payable at the rate 1 percent per
month for the first 6 months and at the rate of one and a half percent per month thereafter. It is
provided that the period of default is to be calculated from the date following the due date on which the
duty was payable to the preceding day on which the duty is actually paid.
The Bill seeks to substitute the existing provisions broadening the scope of the default surcharge
whereby in addition to failure to pay the duty due or any part thereof within the prescribed time, it is
proposed that the default surcharge would also be payable in the event of a claim of a refund of duty or
drawback or make an adjustment which is not admissible under the FE Act. It is also provided that in case
of inadmissible adjustment or refund of duty or drawback, the period of default is to be calculated from
the date of such adjustment or as the case may be, refund of duty or drawback is received. The period of
default in respect of failure to pay the duty due within the prescribed time is on the same basis that was
provided in the existing provision. The default surcharge is proposed to be one and a half percent per
month of the duty due.
8. Determination of Value for the purposes of duty

Section 12 of the FE Act deals with the mode and manner of valuation of goods and services for the
purposes of levy of duty. Sub-section (1) deals with the goods that are liable to duty based on their
value and in terms thereof where any goods are liable to duty under the FE Act, at a rate dependent on
their value, duty shall be assessed and paid on the basis of wholesale cash price and in the absence of
such price on the basis of identical or similar goods which are capable of being sold to a general body of
retail traders and if such body does not exist, to the general body of consumers on the day of its sale,
without any deduction whatever, except for the amounts of duty and sales tax payable thereon. The Bill
seeks to change the valuation basis in the above case and the existing provisions of Sub-section (1) has
been proposed to be substituted whereby any goods liable to duty under the FE Act at a rate dependent
on their value , duty shall be assessed and paid on the basis of the definition of “value of supply” as
provided under Sub-section (46) of Section 2 of the Sales Tax Act, 1990 excluding the amount of duty
payable thereon.

Federal Excise 53
9. Recovery of unpaid duty or of erroneously refunded duty or arrears of duty

Section 14 of the FE Act, deals with the mechanism of recovery of unpaid duty or erroneously refunded
duty or arrears of duty whereby the Federal Excise Officer is empowered to recover the amount of duty
alongwith the default surcharge and penalty as specified by such officer in this regard. Sub-section (1)
provides that where any person has not levied or paid any duty or has short levied or short paid such
duty or where any amount of duty has been refunded erroneously, such person shall be served with a
notice requiring him to show cause for payment of such duty provided the notice shall be issued within
three years from the relevant date. The Bills seeks to add a new time limit in the aforesaid Sub-section
i.e. five years for issuing notices in cases where the non or short payment of duty or erroneous payment
of refund is attributable to collusion or deliberate.
10. Offences, penalties, fines and allied matters

Section 19 of the FE Act, deals with the penal exposures of the person in respect of committing various
specified offences. Sub-section (1) provides for a penalty of Rs.10,000 where a person fails to file or
files an incorrect return within the period specified under Sub-section (1) of Section 4. Similar amount
of penalty shall be levied where the person fails to make payment or make short payment of duty on any
account. The above penalties are to be imposed in addition to the amount of duty due from the said
person and without prejudice to other liabilities which may be determined against him or action which
may be taken against him under the FE Act, and Federal Excise Rules, 2005. The Bill seeks to change the
amount of penalty in respect of the default mentioned under Sub-section (1) and it is now proposed that
in case non-filing of return the penalty is to be levied at the rate of Rs.5,000 and in case of non or short
payment of duty due the penalty to be levied is Rs.10,000 or five percent of the duty involved whichever
is higher. It is also proposed that where a person file the return within fifteen days after the due date the
penalty in such case would be Rs.100 for each day of default. The penalty is in line with the penalty
imposed under the Sales Tax Act, 1990.
11. Power of adjudication

Section 31
Section 31 of the FE Act, deals with the adjudication powers of different Federal Excise Officers. Sub-
section (3) requires a Federal Excise Officer who is vested with the power to decide the cases brought
before his jurisdiction within 90 days from the issuance of the show cause notice. The Bill seeks to
enhance the period of deciding the case from 90 days to 120 days.
12. Appeals to Collector (Appeals)

Section 33 of the FE Act provides the procedure and manner for filing of appeals before the Collector
(Appeals) against any decision or order passed under the FE Act. Under Sub-section (2) the Collector
Appeals is required to pass in order within period of 90 days from the date of filing the appeal. The Bill
seeks to enhance the period of deciding the appeal by Collectors Appeals from 90 days to 120 days.
13. Powers of Board or Collector to pass certain orders

Section 35 of the FE Act, provides the procedure and manner of calling for and examination of records
by the Board or the Collector in respect of any proceedings under the FE Act. Sub-section (3) provides

Federal Excise 54
that no record of any proceedings relating to any decision in order passed by any Federal Excise Officer
shall be called for or examined after expiry of two years from the date of such decision or order. The Bill
seeks to enhance the period of calling for or examination records by the Board or Collector in respect of
any decision or order passed by any Federal Excise Officer from two years to five years.
14. Power to rectify mistakes in orders

Section 36
Section 36 of the FE Act, provides the procedure and manner for rectification of mistakes apparent from
records in any order passed by the Federal Government, the Board or any Federal Excise Officer.
Application for rectification of the mistake by the aggrieved person is to be filed within three years of
passing of the order sought to be rectified. The Bill seeks to enhance the period of filing of application by
the aggrieved person from three years to five years.
15. Alternate Dispute Resolution (ADR)

Section 38, Sub-section (4a)
Section 38 of the FE Act, provides the procedure and manner for resolution of dispute by the ADR. The
Bill seeks to add a new Sub-section which requires the Chairman ADR to pass orders as he deems just
and equitable after recording the reasons in writing and upon satisfying that there is an error in order or
decision which has been brought before the ADR for resolution.
16. Issuance of duplicate of federal excise documents

Section 43A
The Bill seeks to add a new Section empowering an Officer of Federal Excise not below the rank of
Assistant Collector to issue an attested duplicate of any Federal Excise documents as available with the
department to a relevant registered person asking for the same and upon payment of rupees one
hundred in the Government Treasury.
17. Rates of Federal Excise Duty
17.1. The following goods have been proposed to be brought under the purview of excisable goods by
including the same in the First Schedule to the FE Act.
S. No. Nature of Goods and Services Rate of Duty

1. Motor cars and other motor vehicles principally Five percent ad val.
designed for the transport of persons (other than
those of heading 87.02), including station wagons and
racing cars of cylinder capacity exceeding 850cc.

Federal Excise 55
17.2. The rates of duty in respect of the following goods and services have been proposed to be changed
alongwith the description of goods and services:-
Existing Scenario Proposed Scenario

Relevant
Table
entry in Description Rate of duty Description Rate of duty
No.
Table
1 9 Locally produced Sixty three Locally produced Sixty three
cigarettes if their percent of the cigarettes if their percent of
retail price exceeds retail price. retail price exceeds the retail
fifteen rupees per ten sixteen rupees per ten price.
cigarettes. cigarettes.
1 10 Locally produced Two rupees Locally produced Three rupees
cigarettes if their and eighty cigarettes if their and
retail price exceeds six paisas per ten retail price exceeds seventeen
rupees and fifty seven cigarettes plus seven rupees and paisas per
paisas per ten sixty nine forty three paisas per ten
cigarettes but does percent per ten cigarettes but cigarettes
not exceed fifteen incremental does not exceed plus sixty
rupees per ten rupee or part sixteen rupees per ten nine percent
cigarettes. thereof. cigarettes. per
incremental
rupee or part
thereof.
1 11 Locally produced Two rupees Locally produced Three rupees
cigarettes if their and eighty cigarettes if their and
retail price does not paisas per ten retail price does not seventeen
exceed six rupees and cigarettes. exceed seven rupees paisas per
fifty seven paisas per and forty three paisas ten
ten cigarettes. per ten cigarettes. cigarettes.
II 7 Services provided or Five percent Services provided or Ten percent
rendered in respect of of the gross rendered in respect of of the gross
insurance to a policy premium paid. insurance to a policy premium
holder by an insurer, holder by an insurer, paid.
including re-insurer including re-insurer in
(all type of case where direct
insurance). insurance service has
been provided (all
type of insurance).
17.3. The Bill seeks to include restriction in the interpretation clause as given in Table I of the First Schedule to
the FE Act which provides that for the purpose of levy, collection and payment of duty at the prescribed
rate in respect of locally produced cigarettes as mentioned in serial No.9, 10 and 11 of Table I of the
First Schedule, no cigarette manufacturer shall reduce price from the level adopted on the day of the
announcement of the budget 2008-2009.
17.4. The change relating to levy of duty in respect of insurance policy seeks to remove the anomaly whereby
the duty in respect of insurance services provided to a policy holder by an insurer also require re-insurer
to levy the duty. This result in duplication as the duty is levied at the time of direct insurance business
and thereafter on re-insurance of the same business by the re-insurer. It is clarified that in case of re-
insurance the duty is only leviable by re-insurer where direct insurance services are provided.

Federal Excise 56
17.5. The rates of duty in respect of following goods and services have been proposed to be changed.
S. No. Nature of Goods and Services Current Rate of Duty Proposed Rate of Duty
1. Edible oils excluding epoxidized
soyabean oils falling under heading Fifteen percent ad val. Sixteen percent ad val.
15.18
2. Vegetable ghee and cooking oil Fifteen percent ad val. Sixteen percent ad val.
3. Portland cement, aluminous cement,
slag cement, super sulphate cement
Seven hundred and fifty Nine hundred rupees
and similar hydraulic cements, whether
rupees per metric ton per metric ton
or not coloured or in the form of
clinkers.
4. Advertisement on closed circuit T.V. Fifteen percent of the Sixteen percent of the
charges charges
5. Advertisement on cable T.V. network Fifteen percent of the Sixteen percent of the
charges charges
6. Services provided or rendered in
Fifteen percent of the Sixteen percent of the
respect of travel by air of passenger
charges plus rupees charges plus rupees
within the territorial jurisdiction of
twenty per ticket. twenty per ticket.
Pakistan.
7. Inland carriage of goods by air Fifteen percent of the Sixteen percent of the
charges charges
8. Shipping agents (in case of other Fifteen percent of the Sixteen percent of the
categories of shipping agents) charges charges
9. Telecommunication services Fifteen percent of the Twenty one percent of
charges (all sub- the charges (all sub-
headings) headings)
10. Non-fund services provided by banking
Five percent of the Ten percent of the
companies or non-banking financial
charges charges
companies
11. Franchise services Five percent of the Ten percent of the
charges charges
The Bill seeks to enhance the general rate of sales tax from fifteen percent to sixteen percent, therefore,
the same rate is also proposed to be enhanced on the goods and services subject to FED in sales tax
mode.
18. Exemption from Excise Duty
18.1. The goods and services specified in the Third Schedule are exempt from FED subject to fulfillment of
specified conditions. The Bill seeks to include the following goods and services in the third schedule.
Goods for further manufacture of goods in (entry 17 in Table I of the Third Schedule)
the Export Processing Zone
Crop Insurance (entry 6 in Table II of the Third Schedule)
18.2. The Finance Act, 2007 provided exemption from FED to the services of life insurance and health
insurance, however, said services were inadvertently mentioned in Table I of the Third Schedule instead
of Table II of the Third Schedule since the exemption for services is provided in Table II of the Third

Federal Excise 57
Schedule. The Bill accordingly rectifies this mistake and seeks to delete the said services from Table I of
the Third Schedule and including the same in Table II of the Third Schedule as under.
Life Insurance (entry 4 in Table II of the Third Schedule)

Health Insurance (entry 5 in Table II of the Third Schedule)
18.3. Entry 11 of Table I of the Third Schedule of FE Act provides conditional exemption to carbon black oil,
(carbon black feed stock) if imported by National Petrocarbon (Pvt) Limited, Pipri, Karachi as raw
material for the manufacture of carbon black. The Bill seeks to substitute the import of carbon oil by
National Petrocarbon (Pvt) Limited, Pipri, Karachi with the import by “a duly registered manufacturer of
carbon black”. Accordingly, the scope of exemption has been extended for Carbon black oil (carbon
black feed stock) if imported by any person who is duly registered as manufacturer of Carbon black.
19. Federal Excise Notifications
In exercise of the power conferred by the FE Act, the Federal Government / the Board have issued
certain notifications which are enumerated below:-
SRO/ Section/
General order Schedule/ Rule
Description
Reference reference
and date
This SRO specifies that the provisions of Sub-section (2A),
(3), (5AA), (6A), (8), (9A), (19), (21) of Section 2,
SRO 543(I)/2008
Section 7 Section 50A and Section 52A of Sales Tax Act, 1990 shall be
11th June 2008
applicable mutatis mutandis, in regard to like matter in
respect of duty leviable under the FE Act.
This SRO specifies that an airline has to file return for
carriage of goods by air by the day specified in sub-rule (9)
SRO 544(I)/2008 Section 7 of rule 41A of the Federal Excise Rules, 2005. (i.e. by the
11th June 2008 Rule (41A)(9) 15th day of the following second month in respect of the
services provided upto the last working day of each calendar
month.
This SRO rescinds the Notification No.410(I)/2008 dated
29 April 2008. The said notification was issued by the
Federal Government whereby rate of duty in respect of
SRO 545(I)/2008 facility for travel was enhanced (Serial No.3 of Table-II of
First Schedule
11th June 2008 the First Schedule to the FE Act). Since the said enhanced
rate is proposed to be included in the First Schedule,
Notification No.410(I)/2008 dated 29 April 2008 has
accordingly been rescinded.
20. Amendments in the Federal Excise Rules, 2005
20.1. The Federal Government through SRO No.546(I)2008 dated 11 June 2008 has made amendments by
inserting new Rules in the Federal Excise Rules, 2005, some of which are summarized as under:-
♦ Sub-Rule (6) of Rule 43A has been inserted whereby the banks are required to ensure that duty due
should be paid on the remittances made on account of franchise fee, technical fee or royalty. It is
also provided that where the banks are satisfied that the franchisee has not paid the duty due as
required under Rule 43A, the bank before making remittance should deduct the amount of duty at

Federal Excise 58
the applicable rate from such remittance. The bank in such case is required to issue a certificate on
its letter head showing the name and registration number of the franchisee and the amount of duty
so deducted by the bank from the amount of remittance. The duty deducted by the bank should be
deposited by the bank against its own monthly return without any adjustment or deduction
whatsoever. The franchisee is also required to declare the amount of duty deducted by the bank in
the relevant column of his return.
♦ Sub-Rule (1) of Rule 43A provides that every person, firm or company, as franchisee using the right
to deal with the goods or services of the franchiser under the franchise agreement against a pre-
determined fee or royalty is required to obtain Federal Excise registration from the Collector of
Federal Excise holding jurisdiction of the franchisee or his head office as the case may be. It is also
provided that where a franchisee is already registered under the Sales Tax Act, 1990, he shall not be
required to obtain separate registration for excise purposes and his Sales Tax registration shall be
deemed to be a registration for the purpose of the FE Act. The Bill seeks to change the status of
franchise agreement in respect of which a franchisee is required to obtain Federal Excise registration
and it is proposed that the franchisee availing any right under a franchise as defined under Clause
12(a) of Section 2 of the FE Act, is required to obtain Federal Excise registration from the Collector
of Federal Excise holding jurisdiction of the franchisee or his head office as the case may be.
♦ Sub-Rule 11(a) of Rule 41A has been inserted whereby the Collector of Federal Excise holding
jurisdiction in case of an aircraft operator may require the said operator to furnish a copy of the
passengers manifest in such form and manner as may be specified by him, in respect of flights
carrying passenger on inland or international journey.
20.2. The following Rules have been omitted from the Federal Excise Rules, 2005 through SRO 546(I)/2008
dated 11 June 2008.
Rules Reference Description

Rule 41-B Manner of collection and payment
Rule 41-C Penalty
Rule 41-D Passengers not to board the aircraft without payment of duty
Rule 41-E Submission of passenger manifest
Rule 41-F Refund
Rule 41-G Monthly return and records
Rule 41-H Input tax adjustment

Capital Value Tax 59
1. Loan obtained from Banks against property offered as collateral

Section 7(1)
In the case of a bank, no CVT is proposed to be charged on a property held on a General Power of
Attorney unless the same is used to force the mortgage of property offered as collateral against a loan.
2. Definition of Urban Area

The Federal Government in the year 2002 introduced “the Pakistan Devolution Plan” (also known as
Local Government Plan) which integrates the rural with the urban local governments on the one hand,
and the bureaucracy with the local governments on the other, into one coherent structure in which the
district administration is answerable to the elected Chief Executive of the district. Financial resources are
distributed to the local governments through formula-based provincial fiscal transfers and
decentralization of specified taxation powers.
In order to achieve the above objects further, the definition of “Urban Area” as given under Section 7 of
the Finance Act, 1989 for the purpose of levy of CVT is being amended to bring it in line with the
changes made as a result of the Pakistan Devolution Plan.

60

COMPANIES ORDINANCE
Section Page
1. Time limit increased for holding annual general meeting (AGM) 158(1) & (4), 233(1) & 63
and laying of annual accounts and balance sheet (4)
2. Ineligibility of certain persons to become directors 187(1) (j) 63
3. Restriction on appointment of managing agents, sole purchase, 206(2)(d) and (e) 64
sales agents, etc not to apply to certain Non-Banking Finance
Companies (NBFCs)
4. Investments in associated companies and undertakings 208(2A)(b) 64
5. Period for payment of dividend 251(1) 64
6. Power to require to furnish information, etc. 282(G)(2), (J)(2), 64
(K)(1) & (M)(1)

62

Companies Ordinance 63
1. Time limit increased for holding annual general meeting (AGM) and laying of annual accounts and
balance sheet
Section 158, Sub-section (1) & (4), Section 233, Sub-section (1) & (4)
The Bill proposes to restate the period of holding of AGM of companies of all classes from three months
to four months following the closure of its financial year, which was previously applicable upto 30 June
2007. Through the Finance Act 2007, the time limit for holding of AGM was reduced from four months
to three months. Since than, corporate managements of listed companies were generally considering the
time limit as inadequate and were demanding restoration of the four months period, in order to be able
to comply with the ever increasing disclosure requirements of International Financial Reporting
Standards (IFRS) and the CO. A consequential amendment has also been proposed in Sub-section (1)
of Section 233 of the CO by increasing the interval between the date of the financial statements and
laying thereof at the AGM, prepared upto a date not earlier than the date of the meeting by more than
four months instead of the existing provision of three months. However, the existing proviso of Sub-
section (1) of Section 158 with regard to period for granting of extension of time for holding of AGM
remain unchained at thirty days.
Yet another amendment is sought to be made in Sub-section (4) of Section 158, whereby penal
provision for default in compliance with the provisions of this Section has been proposed to be made
more rigorous by raising the minimum fine from Rs. 20,000 to Rs. 50,000 and maximum from
Rs.50,000 to Rs.500,000 in case of public listed companies while for other companies from Rs.10,000
to Rs.100,000.
The existing Sub-section (4) of Section 233 of the CO requires a listed company to send a copy of the
audited financial statements together with the auditor’s and directors repot to every member of the
company at the registered address at least 21 days before the meeting. The Bill now proposes to amend
the existing provision of Sub-section 4 of the said Section, whereby, listed companies will now be
required to despatch the audited financial statements to every shareholder in the form and manner as
may be specified by the Commission. The proposed amendment thus empowers the SECP to allow listed
companies in future to place their annual audited financial statements, as the case may by, on their
website instead of sending them by post in the manner and form to be specified by the SECP, in line with
the permission already granted to listed companies vide its Circular No. 9 of 2004 dated 15 April 2004
for placing quarterly accounts on the company’s website instead of sending the same by post.
2. Ineligibility of certain persons to become directors

Section 187, Sub-section (1)Clause (j)
The Bill proposes to amend Clause (j) of Section 187 so as to enlarge the applicability of scope of the
said Clause.
As a consequence of the proposed amendment in the said Clause, no person shall be eligible to be a
director of a listed company if he is employed in the business of brokerage or is a spouse of such person,
or is a sponsor, director or officer of a corporate brokerage house.
The Bill also seeks to introduce a new proviso to this Section, whereby prohibition contained in the
aforesaid Clause shall not apply, if the company itself is a stock exchange. The background of the
proposed amendment is that a separate law for corporatization, demutualization and integration of the
stock exchanges is reportedly under the consideration of the Government of Pakistan by virtue of which
a stock exchange will be constituted as a company limited by shares.

Companies Ordinance 64
3. Restriction on appointment of managing agents, sole purchase, sales agents, etc not to apply to
certain Non-Banking Finance Companies (NBFCs)
Section 206, Sub-section (2) Clause (d) and (e)
Amendments have been proposed to be made in Sub-section (2) of Section 206 so as to enlarge the
scope of exemption from restrictions stipulated therein. By virtue of the proposed additions of two new
Clauses (d) and (e), the restriction contemplated by this Section shall not be applicable to :
• an agreement or contract executed with an NBFC licensed to undertake asset management

services in relation to an investment company registered with the Commission; and
• an agreement or contract executed with an NBFC licensed as a venture capital company in

relation to a fund registered with the Commission.
4. Investments in associated companies and undertakings

Section 208, Sub-section (2A) Clause (b)
The Bill proposes to delete the words “such class of“ from Clause (b) of Sub-section (2A) of this
Section so as to enlarge the scope of this Section by empowering the SECP to bring within its ambit all
types of companies. The amendment proposed in this Section is based on the fact that Section 208 of
the CO is currently applicable to all types of companies. Previously, Section 208 was not applicable to
certain categories of companies. We are also of the view that private limited companies as “investor”
should be excluded from the purview of Section 208 of the CO.
5. Period for payment of dividend

An amendment has been proposed in Sub-section (1) of this Section seeking to omit the time limit of
forty-five days and thirty days for regulating payment thereof of the declaration in the case of a listed
company and any other company respectively. It is now proposed that the time limit for payment of
dividend shall be such time as may be specified by SECP. This would give to SECP a wide latitude to
exercise its discretion to determine the period of payment taking cognizance of certain hardship cases.
6. Power to require to furnish information, etc. regarding non-baking finance companies

Section 282, Sub-section (G)(2), (J)(2), (K)(1) & (M)(1)
Amendments have been proposed to be made in the above Sections by inserting the word “regulations”,
besides the rules to enable the SECP the facilitates and thus empowering it to formulate appropriate
regulations as may be warranted in relevant circumstances of the Non-Banking Finance Companies.

Insurance Ordinance 65
1. Increase in annual supervision fee payable to the SECP

Section 11(3)(a)
The annual supervision fee payable to the SECP has been increased from the existing limit of Rs.100,000
or Re.1 per Rs.1,000 of gross direct premium written in Pakistan which ever is higher to Rs.500,000 or
Re.1 per Rs.1,000 of gross direct premium written in Pakistan.
2. Power of the SECP to prescribe maximum levels of acquisition

costs and maximum levels of management expenses
Section 66(4)
The above referred powers of the SECP which expired in December 2006 have been extended for an
indefinite period.
3. Application of certain rules and restrictions to reinsurance brokers

Section 94 and 102(1)
Certain provisions of the law which were previously applicable only to direct insurance intermediaries,
such as brokers, have now been made applicable to the reinsurance brokers also. Key requirements
include:
a) Current insurance broker’s license issued by the SECP

b) Prohibition (on insurer and directors of the insurer) of holding any direct or indirect ownership
interest in an insurance broker
c) Obligation on the insurance broker to disclose its relationship with the insurer to the policy holder
d) Certain restrictions on the basis for payment of commission to the insurance broker will also apply
(such as the commission should not be variable based on the number of contracts arranged, total
amount of premiums paid under such contracts and total amount of sum insured)
e) Annual report (including audited accounts) to be filed with the SECP.

66

SECURITIES & EXCHANGE ORDINANCE
Section Page
1. Definition of commodity futures contracts enlarged 2, (1)(cd) 69
2. Provisions to curb insider trading re-enacted 15A 69
3. Inside information defined 15B 69
4. Who shall be considered as Insider 15C 69
5. Listed companies obliged to disclose inside information 15D 70
6. Liability for contravention 15E 70
7. Power to make regulations 15F 70
8. Enlargement of power of enquiries, penalties, orders and appeals 21, (2) 70
9. Enlargement of powers to make rules and regulations 32E, (1A) 70

68

Securities and Exchange Ordinance 69
1. Definition of commodity futures contracts enlarged

Section 2, Sub-section (1)(cd)
The Bill seeks to enlarge the scope of the existing Section of the SE Ordinance by inserting the words “or
settlement” to include transactions of contracts that are cash settled at the outset.
2. Provisions to curb insider trading re-enacted

Section 15A
The Bill seeks to substitute the existing Section 15A which was enacted by the Finance Act 1995 and
since then no amendment whatsoever was made in the said Section. After almost a lapse of over a
decade, the SECP as the apex securities market regulator has attempted to recognize the importance of
oversight functions in respect of dealing in securities which are publicly traded. Appropriate and
effective provisions have become imperative, particularly in recent times in the wake of various
allegations of market abuse and alleged security irregularities. Accordingly, recognizing the potential
growth in capital market activities, a new Section 15A has been proposed, which comprehensively
defines insider trading. In terms of the proposed new Section, a person shall be deemed to be an insider,
if he has knowledge of inside information of listed securities or based on such information induces others
to transact in listed securities, or disclose or passes on such information to other persons to transact in
listed securities or directly or indirectly deals in listed securities based on inside information possessed
by him.
The new Section also stipulates that a transaction, pursuant to an agreement shall be deemed to be out
of the purview of insider trading if it was concluded before having access to inside information.
3. Inside information defined

Section 15B
An important aspect of the insider trading which was not earlier addressed comprehensively is to define
what is “inside information”. Accordingly, this proposed Section seeks to replace the entire existing
Section 15B and seeks to define “inside information” which is wide in scope and implication compared to
the provision it now seeks to replace. As defined, information which has not been made public relating
directly or indirectly with regard to listed securities, price sensitive information which if made public may
impact the prices of relevant listed securities, derivatives on commodities and information conveyed to a
person responsible for the execution of orders of concerning listed securities shall fall within the ambit of
“inside information”.
4. Who shall be considered as Insider

Section 15C
The Bill seeks to introduce a new Section 15C, whereby it stipulates who shall be considered as an
insider. The parameters provided therein are wide enough to ascertain whether a person or persons are
insiders or not within the ambit of the proposed Section. Amongst those who shall be deemed to be an
insider include sponsors, executive officers, directors of an issuer of listed securities and their spouses
or who holds shares or voting rights, directly or indirectly in partnership or unincorporated association of
20% or more or engaged in the placement of the listed securities or public offer of securities and
marketing of such securities. It also includes a person who is a sponsor, executive officers, directors and
partners of a legal person or unincorporated business association, holding 10% or more shares of an
issuer or one who obtains inside information through unlawful means.

Securities and Exchange Ordinance 70
5. Listed companies obliged to disclose inside information

Section 15D
This is again a very vital and an important addition proposed by the Bill. Never before listed companies
were required, obliged or directed to provide to the regulator information pertaining to inside
information. The proposed section requires listed companies to disclose to the public, inside information
related to listed securities in the manner as may be specified by the SECP in terms of this section. Under
the proposed section, listed companies are obliged to maintain and regularly update a list of persons
employed permanently or on contract or otherwise who have access to inside information and provide a
copy thereof to the SECP, if so directed. The proposed section further requires that persons working
closely with managerial personnel shall notify the SECP regarding transactions, if any, conducted on
their own account in securities of such listed companies. Under the proposed section, stock exchanges
are obliged to adopt effective operating procedures and surveillance techniques to detect and prevent
insider trading as well as market abuse practices within such time as may be specified by the SECP
pursuant to the regulations.
6. Liability for contravention

Section 15E
This section specifies the penal consequences entailing monetary compensation for loss, tendering of
gain made by having indulged in prohibited activities as envisaged in sub-section 1 of Section 15A. The
SECP may remove from office a person guilty of insider trading offence if he is an executive officer,
director, auditor, advisor or a consultant of a listed company. The SECP is also empowered to debar an
auditor from auditing any listed company for a period upto three years.
7. Power to make regulations

Section 15F
A new clause 15F has been proposed to be inserted keeping in view the potential growth in capital
market activities in the country by further empowering the SECP to make appropriate regulations to
curb, detect and enforce insider trading as envisaged in Section 1 of Section 15A in respect of persons
engaged in providing or disseminating market research report on listed securities.
8. Enlargement of power of enquiries, penalties, orders and appeals
The Bill proposes to enlarge the scope of sub-section (2) of this Section, whereby in addition to
exchanges, enquiries may also be initiated against any other person who may be found involved in
dealing with such exchange or with the directors, managers or officers thereof against whom
representation has been made before the Federal Government.
9. Enlargement of powers to make rules and regulations
Section 32E, Sub-section (1A)
A new Sub-section (1A) has been proposed to be inserted in this Section 32E to enlarge the scope of
the existing provisions of this Section. The proposed amendments require that the rules made in
pursuance to this Section may inter alia provide for the matters ancillary and connected with the
corporatisation, demutualization and integration of the stock exchanges in Pakistan and as stipulated in
the proposed Sub-section (1A). The back ground of the proposed insertion is that the Government of
Pakistan is reportedly considering to corporatise, demutualize and integrate the stock exchanges in
Pakistan. In view of this impending initiative, relevant regulations applicable in Pakistan may need to be
amended in due course to monitor and regulate the proposed demutualisation and integration of the
stock exchanges.

Securities and Exchange Commission of Pakistan Act 71
1. Term of office of the Commissioners

Section 7, Sub-section (2) & (3)
The Bill seeks to amend Sub-section (2) of the above Section for the purpose of regulating the term of
office of the Commissioners of the SECP whereby the term of office of a Commissioner appointed to fill
in a casual vacancy shall be reckoned from the date of his appointment and not from the date on which a
casual vacancy filled by him was caused. Additionally, a new Sub-section (3) is proposed to be added, so
as to regulate the matter of appointment and retirement of Commissioner of SECP. The proposed
amendment is of administrative nature.
2. The securities and exchange policy board

Section 12, Sub-section (1),(2) & (7)
These amendment are also of administrative nature the main one being the designation of one of the
members to be Chairman of the Policy Board by the Federal Government and the provision of casting
vote in the event of a tie.
3. Powers and functions of the commission extended

Section 20, Sub-section (4)(h), (i), (jb) & (w)
The Bill seeks to introduce a new Sub-clause (ha) to enlarge the scope of this existing Section. By virtue
of this amendment, the SECP is also proposed to be empowered inter alia to conduct hearing and decide
investor complaints pertaining to person involved in brokerage business for violation of securities laws,
rules, regulations, directives, codes, etc., issued by the SECP from time to time. The Bill also proposes
amendment in Sub-clause (i) of this Section by substituting the word “prosecuting” with the words
“initiating action against the”, offenders so as to empower the SECP to initiate necessary action against
the offenders.
The Bill further seeks to introduce a new Sub-clause (jb), whereby the SECP is proposed to have the
power to maintain a panel of auditors from which companies may appoint auditors and also to approve
audit firms for financial institutions, listed companies and NBFIs (i.e. NBFCs to be correct) . A new Sub-
clause (w) is proposed to be inserted , whereby powers and functions of the Commission are proposed
to be further expanded for promoting and regulating any scheme funds (such a pension, gratuity,
provident) established by various companies and corporation for the retirement benefits of their
employees.
4. Power to call for examination

Section 32, Sub-section (5) Clause (d) & Section 32A
The Bill seeks to enlarge the powers of the SECP, whereby the Commission may take necessary action in
the event a person willfully refuses to obey or disregard any lawful order passed under this Act or any
other law administered by the Commission. The Bill seeks to add a new Section 32A , whereby the
Commission is proposed to be empowered to issue such directions as it may deem necessary or
expedient to implement its orders or to prevent abuse of its process. In this regard, the SECP may seek
assistance of local administration or police to implement its order.
5. Appeal to the appellate bench of the commission

Section 33, Sub-section (1) Clause (c)
The Bill seeks to amend the existing Sub-section (1), Clause (c) by deleting the words “in a court of
law”. By virtue of this amendment, a decision made by a Commissioner or an officer of the Commission
may be appealed against in legal proceedings which may not necessarily be initiated before a court of
law.

72

Take-Overs Ordinance 73
1. Definition of “prescribed” extended to regulations

Section 2, Sub-section (1)Clause (k) and (l)
The Bill seeks to amend the existing Clause (k) and (l) of Sub-section (1) of this Section by inserting
the words “or regulations” beside the word “rules” so as to enable the SECP to formulate appropriate
regulations as may be necessary to be formulated . The Bill further proposes to omit clause (1) of this
Section wherein the word “promoters” was defined for the purpose of the Take-over Ordinance. In the
context of the Take-over Ordinance, the definition of the word “promoters” seems to be inappropriate
and irrelevant and hence sought to be deleted.
2. Enlargement of the scope of certain transactions

The Bill seeks to amend the existing Sub-section 1(b) by inserting the words “except voting shares
allotted and issued under Sub-section (7) of Section 86 of the CO” , so as to restrict the exemption
available under this Section. This is an important amendment whereby if the whole or any part of the
shares offered under Sub-section (1) of Section 86 of CO is declined or not subscribed, the directors
may allot and issue such shares in such manner as they may deem fit. However, the acquisition of such
shares from a right issue shall not be considered to be exempt from the purview of this Section.
The Bill further proposes to omit the existing Clause (f) of Sub-sections (1) of this Section so as to
bring the existing provisions of this Section under the purview of this Ordinance which hitherto was
except under this Section.
It is also proposed to enlarge the scope of this Section by inserting new Clauses (m) to (q) therein so as
to facilitate certain acquirers of voting shares in the target company.
These further proposed to be included in the exempted category are in transfer of voting shares to a
person’s relatives without monitory consideration, acquisition by CFS financiers, a scheme of
rehabilitation of a company approved by the SECP, certain transfer of shares by sponsors of a holding
company, acquisition by a strategic investor of shares of a stock exchange pursuant to demutualization
process. The Bill also seeks to insert a new Sub-section (2) whereby the acquirer even if exempt under
this Section shall, upon acquisition of voting shares be obliged to make a disclosure of such transactions
in the manner to be prescribed.
3. SECP may prescribed percentage of shares to be acquired

By inserting the words “Commission may prescribe” in place of words “acquirer may decide” the power
shall be available to the SECP to determine the extent of a public offer to be made. Accordingly, for the
purpose of take-over transactions, the SECP will regulate and decide the percentage of voting shares to
be acquired by an acquirer. This amendment has been proposed apparently to safeguard the interest of
the minority shareholders of the target company.
4. Enlargement of scope of obligation of the acquirer

Through the proposed insertion of the words “whether incorporated in Pakistan or outside Pakistan”,
the scope of the said Sub-section has been further expanded. The purpose of the aforesaid insertion is to
specifically include in the purview of the said Section the companies incorporated outside Pakistan as
well in its capacity as an acquirer. The amendment further requires that any director who desires not to

Take-Overs Ordinance 74
take responsibilities for the information disclosed in such offering documents, such directors shall issue a
statement to that effect together with reason thereof in the public announcement of offer of voting
shares.
5. Reduction of the obligations of the manager to the offer

Section 15, Sub-section (1) Clause (f), (h), (i) and (j)
The Bill seeks to omit Clauses (f), (h), (i) and (j) of this Section so as to reduce the existing
obligation of the manager to the offer who is required to be appointed to supervise the process of
acquisition of voting shares of a target company by the acquirer. The Bill also proposes to insert a new
Sub-section (2) in this Section whereby the scope of the existing Section has been further enlarged in
respect of certain further obligations of the manager to the offer.
6. Increase in penalties for non compliance

The proposed amendments in this Section seeks to increase the amount of penalties for contravention of
the provisions of the Take-over Ordinance.
7. Empowerment of the Commission to make regulations

Section 29A
The Bill proposes to insert a new Section 29A so as to empower the SECP to make regulations as may be
necessary to carry out the purposes of the Take-over Ordinance and matters incidental to and connected
therewith.
8. Empowerment of the Commission to issue directives, circulars, etc.

Section 29B
The Bill proposes to insert a new Section 29B so as to empower the SECP to issue such directive,
circulars, guidelines, etc., as may be necessary to carry out the purposes of this Take-over Ordinance
and regulations and rules made thereunder.

Modaraba Companies & Modaraba Ordinance 75
1. Registrar of Modarabas empowered to issue directions

Section 18A
A new Section 18A seeks to empower the Registrar of Modaraba to issue such directions, as he may
deem fit, to a modaraba company or generally to modaraba companies. The modaraba company and its
management shall be obliged to comply with such directions. The purpose of introduction of this new
Section is to empower the Registrar to more effectively and promptly regulate modaraba companies, in
the public interest, in the interest of the holder of the Modaraba Certificates or to ensure proper
management of modaraba companies. Accordingly, the Registrar of Modaraba may, of his own accord or
on a representation made to him, modify or cancel any direction and may impose such conditions as he
deem fit.
2. Power to make regulations

Section 41A
The Bill seeks to add a new Section 41A with an intent to empower the SECP for making regulations from
time to time as may be deemed necessary to enforce this Ordinance. The new Section also contains a
punitive clause, whereby contravention of the regulation shall be punishable with a fine which may be
extended to Rs. 100,000/-, and in the event of a continuing default, may be extended to Rs. 1,000/- per
day so long the contravention continues.
3. Power to issue directives, circulars, codes, guidelines, etc.

Section 41B
By virtue of this new Section proposed to be introduced, the SECP has been empowered to issue
directives guidelines, notifications, circulars, codes, etc., for the purpose of the Ordinance, so as to be
able to regulate the affairs of modarabas, modaraba companies and its management.

Workers Welfare Fund 76
1. Industrial Establishment
Section 2, Clause (f)
It is proposed that the definition of industrial establishment be expanded to include any establishment to
which the West Pakistan Shops and Establishment Ordinance, 1969 (WP Ordinance No.VIII of 1969)
applies. Under the said Ordinance, a commercial establishment has been defined very broadly to include
an establishment which carries on any business, trade or profession or work in connection with or
incidental or ancillary to any business, trade or profession. Expansion of this definition of industrial
establishment would effectively mean that Workers Welfare Fund would be payable by every commercial
establishment, whose total income in any year is not less than Rs.500,000.
2. Charge of Workers Welfare Fund

Section 4
Through the Finance Act, 2006, the definition of total income was amended to mean the profits as per
accounts or the declared income as per the return of income, whichever is higher, where return of
income is required to be filed under the Income Tax Ordinance, 2001. In case the return of income is
not required to be filed, the total income would be taken as the profit before tax or 4% of the receipts as
per the statement filed under Section 115 of the Ordinance (Final Tax Regime), whichever is higher.
Based on the above definition, taxpayers who filed the returns were required to pay Workers Welfare
Fund on the higher of accounting or taxable profits and persons falling under the Final Tax Regime are
required to pay the higher of the profit before tax or 4% of the gross receipts declared. However, the
charging Section 4 of the Workers Welfare Fund Act continued to refer to total income as is assessable
under the Ordinance which meant that the total income as declared in the return (which is deemed to be
assessed under Section 120 of the Income Tax Ordinance, 2001) was still the basis of charge of
Workers Welfare Fund. Accordingly, many taxpayers refused to pay tax on the higher of taxable income
and accounting income and taxpayers who were assessable under the Final Tax Regime refused to pay
Workers Welfare Fund on the basis that they have no total income which could be assessed under the
Ordinance as they are liable to tax under the Final Tax Regime.
The Bills now seeks to address the anomaly and has therefore proposed to omit references to
“assessable under the Ordinance” and “assessed” from sub-Sections (1), (4) and (5).

Foreign Exchange Regulations 77
1. Powers to impose penalty, etc.

Section 23K
The Bill proposes a new Section 23 K, which seeks to empower the SBP to impose penalty for
contravention of any provision of the Foreign Exchange Regulation Act, 1947, or any order, rule,
regulation or direction issued by the SBP. The amount of penalty may be extended to Rs. 1,000,000/- in
respect of each contravention. A further penalty may be imposed upto Rs. 20,000/- per day during
which such contravention continues. In the case of a company or body corporate, every director,
manager, secretary or other officers or agents thereof shall also be deemed guilty of such contravention.
The SBP has the power to recover such penalty from the defaulters bank account or assets, monetary or
otherwise, held with the SBP or any bank or with a financial institution, failing which such bank or
financial institution itself shall be deemed to be in contravention.

Labor Laws 78
Minimum Wages for Unskilled Workers Ordinance, 1969
1. Minimum wages for unskilled workers raised

Schedule, Column 2
The Bill proposes to raise the level of minimum wages for unskilled workers from the present Rs.4,600
per month to Rs.6,000 per month.
West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance, 1968
2. Short title, extent and commencement

The Bill proposes to amend Sub-section (1) of this Section by deleting the inappropriate words “West
Pakistan” from the said Sub-section to make it appropriate.
3. Punishments – suspended workman entitled to full wages during suspension

Schedule, standing order 15, paragraph 5
The Bill proposes to amend paragraph 5 of standing order 15 by deleting the words “subsistence
allowance of not less than fifty percentum of wages. If the workman is found not guilty, he shall be
deemed to have been on duty during the period of suspension and shall be entitled”. As a consequence
of this deletion, a workman during his suspension of employment will continue to be entitled to receive
full wages as he would have received if he had not been suspended, instead of receiving subsistence
allowance as aforesaid.
The Provincial Employees’ Social Security Ordinance, 1965
4. Definitions of eligible employees enlarged by raising wage limit

Section 2, Clause (8) Sub-clause (f)
The Bill proposes to enlarge the scope of the definition of “Employee” so as to expand the eligibility to
benefits of social security if a person employed on the wages does not exceed Rs.10,000 per month
under the existing provisions, a person is covered in the definition of “employee”, if his monthly wages
does not exceed Rs.5,000 per month. The proposed amendment will have the effect of expanding the
number of employees for the benefits who were earlier not so entitled because of the maximum wages
limit fixed at Rs.5,000 per month for purposes of eligibility under this Ordinance.
5. Fixed rate payable under the self-assessment scheme raised
Section 2, Clause (25a), Section 20A, Sub-section (1)
The proposed amendments seek to increase the fixed rate payable under the “Self-assessment scheme”.
Accordingly, instead of Rs.210 per month per secured employee currently payable, the Bill proposes to
raise it to Rs.360. By virtue of this amendment, if an employer wishes to avail the benefit of Self-
assessment scheme, he has to pay an increased amount of contribution of Rs.360 as aforesaid in respect
of his employees secured under this Ordinance.
6. Amount and payment of contribution

The Bill seeks to remove the anomaly persisting in this Section with regard to the rate of payment of
contribution by an employer in respect of each of his employees. With the proposed amendment, an

Labor Laws 79
employer will be required to pay contribution in respect of each employee at the rate not exceeding six
percent of the wages of such employee. Accordingly, consequential amendment is also proposed in the
proviso to this Section, whereby the bench mark for payment of contribution has been increased from
“two hundred rupees per day” or “five thousand rupees per month” to “four hundred rupees per day” or
“ten thousand rupees per month”.
Employees Old-age Benefits (EOB) Act, 1976 (XIV of 1976)
7. Applicability of EOB extended
Section 1, Sub-section (4), Clause (i and ia)
The Bill proposes certain amendments to enlarge the existing scope of this Section by reducing the
minimum number of employees employed by an industry or establishment, as the case may be, liable to
pay EOB. Accordingly, in order to bring within its ambit more industries or establishments, with a view to
providing benefits to the employees, EOB will be liable to be paid if five or more person are employed
instead of the present limit of ten person. Accordingly, proviso to this Section has also been proposed to
be omitted.
Through a proposed amendment in Clause (ia), the minimum limit of employees has been reduced to
five from twenty currently provided, for purposes of voluntary application of the provisions of the said
Act.
8. Rate of employer’s contribution reduced
The Bill seeks to amend this Section by reducing the rate of contribution payable monthly by an
employer from the existing six percent to five percent of wages of an employee. Accordingly, the
proposed amendment may facilitate in reducing the financial burden on the employer, although with the
across the board increase in the prescribed minimum wages, the full benefit of this reduction may not be
realized.
9. Old-age pension
The Bill seeks to introduce a new proviso to this Section, whereby an employee insured under this Act on
or after first day of July 2008 will not be entitled to receive monthly Old-age pension. Accordingly, by
insertion of the new proviso to this Section, the financial burden of the Government on account of
payment of Old-age pension would be reduced.
10. Act to apply to bank employees

Section 47, Clause (e)
The Bill seeks to enlarge the scope of this Section by proposing to omit the existing Clause (e) of this
Section by virtue of which the Act shall now also apply to employees of a bank or a banking company.
Accordingly, employees of a bank or a banking company may also now avail the benefits under this Act.
11. Schedule
Paragraph 2
The Bill seeks to substitute the existing paragraph 2 of the Schedule and also proviso thereto, whereby
the formula for calculation of monthly wages of an insured person has also been revised. Accordingly, in
order avail benefits under this Act, monthly wages shall now be computed on the basis of wages on
which contributions were paid in respect of the last twelve calendar months. The minimum amount of
Old-age pension or invalidity pension to an insured person and survivor’s pension has also been
proposed to be increased from 01 July 2008 from Rs.1,500 per month to Rs.2,000 per month.

Notes 80

Notes 81

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This Memorandum is correct to the best of our knowledge

This Memorandum may be accessed on our website

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KARACHI: 12 June 2008

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♦ The term supply re-defined.

♦ Withdrawal of certain powers of the FBR.

♦ Time of payment of duty due changed.

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♦ Penal exposures in respect of various specified offences changed.

♦ Time limit increased for holding annual general meeting.

♦ Increase in annual supervision fee payable to the SECP.

Securities and Exchange Ordinance

♦ Definition of commodity futures contracts enlarged.

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Securities and Exchange Commission of Pakistan Act

♦ Terms of office of the Commissioner regulated.

♦ Enlargement of the scope of certain transactions.

♦ Registrar of Modarabas empowered to issue directions.

Workers Welfare Fund

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THE FIRST SCHEDULE

50. Clauses proposed to be deleted by the Bill 23

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65. Clauses proposed to be deleted by the Bill 26

72. Clauses proposed to be deleted by the Bill 27

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THE THIRD SCHEDULE

78. First year allowance Part-II, Para (2) 29

THE FOURTH SCHEDULE

82. The Petroleum Policy and the Ordinance need to be harmonized 30

THE SIXTH SCHEDULE

THE SEVENTH SCHEDULE

85. General observation 31

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1. After-tax profit of a branch of a foreign company liable to tax on remittance

3. Accumulated business loss of non-banking finance companies (NBFCs), modarabas or insurance

In an attempt to facilitate corporate consolidation through amalgamation of NBFCs, modarabas or

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4. Thin Capitalization Rule extended to a branch of a foreign company in Pakistan

5. Minimum tax provision withdrawn

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6. Minimum tax payable by builders and developers

7. Investment tax on undisclosed income

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8. Certain clarificatory amendments in respect of payment to a non-resident

9. Withholding tax provision for payment of goods and services rationalized

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10. Payment to non-resident media person to suffer withholding tax

11. Tax arrears settlement incentives scheme

12. Amendments in certain definitions

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13. Electronic Record

14. Eligible Person

15. Local Government

16. Limit for salary payable by crossed cheque

17. Exemptions and tax provisions in other laws

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18. Tax credit on charitable donations