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Tjif Budget Overview 2011


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Tjif Budget Overview 2011

  1. 1. BUDGETOVERVIEW2011-2012Tahir Jawad Imran FectoChartered AccountantsAn Independent Member firm of TheLeading Edge Alliance TJIF Budget Overview 1
  2. 2. CONTENTSEconomic OverviewSignificant AmendmentsIncome TaxSales TaxFederal Excise TJIF Budget Overview 2
  3. 3. Economic OverviewPakistan’s economy faces considerable challenges. Floods in summer 2010 hit agriculturaloutput and damaged transport and communication. Still high inflation, though recently falling,may well accelerate. Fiscal developments are worrisome: a partial increase in electricity tariffs,delays in carrying out revenue-increasing measures, broad tax exemptions for residents floodaffected areas, and continued heavy fiscal support to state-owned enterprises adds to pressureson the fiscal deficit. The current account balance is improving, but capital and financial inflowscontinue to decline. Still, despite devastation and economic distress, growth will likely staypositive. Pakistan’s economic performance in FY2011 reflects largely the same structural weaknesses that contributed to its FY2008 macroeconomic crisis. Energy shortages and security issues held the economic rebound for FY2011 to 2.4%, slowing growth for FY2009–FY2011 to an average of only 2.5%, well below the 8% needed to create jobs for the predominately young population. Little recent progress has therefore been made in raising per capita incomes or reducing poverty. Delays in implementing policy measures and fiscal management practices necessary for macro stability have undermined investment in infrastructure and production capacity. Agriculture Industry Services GDP % 6.8 8.0 5.8 3.8 6.0 3.7 2.4 4.0 1.2 2.0 0.0 -2.0 2006 2007 2008 2009 2010 2011 Services sector grew by 4.1 percent as against 2.9 percent last year. The main contributors to this growth are public admin and defence (13.2 percent), and social services sector (7.1 percent). The former because of 50 percent pay rise for government servants and higher defence spending, the later because of logistics support and flood generated social activities. The contribution to economic growth is spearheaded by the services sector with 90 percent stake while only 10.0 percent contribution came from the Commodity Producing Sector (CPS). The performance of the Large Scale Manufacturing (LSM) sector during July-March remains victim of operational constraint on account of energy/gas shortages and devastating effects of flood 2010. It is evident from the fact that the momentum in growth was upset in the initial months of current fiscal year. The construction, petroleum refining, cotton textile and agro-based industries were strongly affected. TJIF Budget Overview 3
  4. 4. Economic OverviewFY2011 also saw a fourth consecutive year of declines in investment in large-scalemanufacturing. Overall, the steady decline in total gross fixed investment as share of GDP from20.5% in FY2006 to 11.8% in FY2011 will crimp future growth prospects. Private savings havesimilarly declined, owing in part to the failure of key asset rates to keep pace with inflation,leading to either negligible or negative real returns. The agriculture has lost significant growth momentum as its growth slowed down to 2.7 percent in the decade of 2000s as against 4.4 percent in 1990s and 5.4 percent in the 1980s. The structural problems and lack of mechanization remained main impediment of growth. Major crops remained the victim of natural calamities during the last few years and three out of last four years witnessed negative growth in the major crop sector. Fixed Investments % of GDP 25.0 20.0 15.0 10.0 5.0 0.0 2006 2007 2008 2009 2010 2011 Fiscal Indicators Fiscal balance deteriorated in 2009-10, and some adjustment is expected in fiscal deficit but it is far off than target. Key reforms for revenue mobilization have to be delayed owing to peculiar internal and external pressures. It widened fiscal imbalance from 5.3percent of GDP in 2008-09 to 6.3 percent in 2009-0 against the target of 4.9 percent. The additional burden on expenditure was not supported by commensurate increase in revenues, but weaker economic activity constricted revenue generation process. Expenditures Revenues Fiscal deficit % Of GDP 22.2 20.8 19.9 20.5 18.4 18.0 14.1 15.0 14.6 14.5 14.2 14.3 2006 2007 2008 2009 2010 2011 -4.3 -4.4 -7.6 -5.3 -3.7 -6.3 TJIF Budget Overview 4
  5. 5. Economic OverviewThe merchandise trade deficit has improved and declined from $12.3 billion to $12.1billion inJuly-April 010-11. Substantial increase of 27.8 percent in exports outstripped otherwise buoyantgrowth of 14.7 percent in imports, which caused the trade deficit to improve by 2.2 percent.Pakistan’s current account balance shrank by 121.6 percent in the first ten months of 2010-11. Inflation During the current fiscal year 2010-11 an upward trend persisted in all indices used to measure various kind of inflation. CPI inflation averaged at 14.1 percent, WPI 23.3 percent and SPI inflation increased at 18.2 percent for July-Apr 2010-11which is higher than the corresponding period of last year. The underlying factors for this spike are; rising international oil prices, spike in textile products prices and shortages of key consumer items in the market. % 25.0 20.0 15.0 General 10.0 Food 5.0 Core Trimmed 0.0 Current Account Indicators The current account balance turned to surplus $748 million from deficit of $3456 million in the comparable period of last year. Current account absorbed extra ordinary commodity and oil price shocks without impacting exchange rate or reserve accretion. This is mainly because of higher inflow of worker’s remittances and sharp reduction in trade of goods and services deficit. Foreign direct investment flows continued their downward path in response to infrastructure and security concerns, with communications, transport, and power accounting for much of the decline. % of GDP 25.0 20.0 15.0 Exports 10.0 Imports 5.0 Trade balance 0.0 Current account balance -5.0 2007 2008 2009 2010 2011 P -10.0 -15.0 TJIF Budget Overview 5
  6. 6. Economic OverviewGross reserves improved, benefiting from International Monetary Fund (IMF) releases under astand-by arrangement, rising to $17.1 billion by end-April 2011. The nominal exchange ratedepreciated by 6.3%, but inflation—high relative to trading partners’—lifted the real exchangerate by 1.0%. Public Debt and Interest Payments Pakistan’s public debt (excluding guarantees) as a share of GDP continued to climb in FY2011. Government domestic debt amounted to 37.0% of GDP, including commodity debt and liabilities of SOEs. External debt rose to 28.2% of GDP, including 0.6% of GDP in external liabilities of SOEs. Interest payments due on domestic debt represent a heavy burden, accounting for 2.5% of GDP in FY2011, or 43% of FBR revenue. External debt amortization payments, excluding amounts owed to the IMF, are relatively stable for FY2010–Y2013 at about $3.3 billion. Amounts due for FY2012 and beyond will be raised substantially by repayment obligations to the IMF. % of GDP 70.0 5.0 % of GDP 4.5 60.0 4.0 50.0 3.5 3.0 Domestic public debt 40.0 2.5 External debt and liabilities 30.0 2.0 Domestic interest payment 20.0 1.5 1.0 Foreign interest payment 10.0 0.5 0.0 0.0 2008 2009 2010 2011 . TJIF Budget Overview 6
  7. 7. SIGNIFICANT AMENDMENTSIncome Tax Tax deducted on rendering of services is treated as minimum tax for companies also. Withholding on cash withdrawal from banks is reduced from 0.3% to 0.2%. Minimum tax under section 113 can now be carry forward to 5 years instead of 3 years Dividend received by banking company from its own AMC is now taxed at 20% instead of 10%. Minimum threshold for taxation for individual is increased from Rs. 300,000 to Rs. 350,000. Nonresident tax payers having permanent establishment is Pakistan could not avail the facility of advance ruling on any specific transaction. th Instead of quarterly statement monthly statement for goods & services is to be filed on 15 of every month. Instead of quarterly statement for salaries an annual statement is required to be filed by the employer. Limit on tax credit on investment in shares of listed company is increased from 10% to 15% and Rs. 300,000 to Rs. 500,000. Tax credit is allowed for life insurance premium paid to life insurance company. Maximum Limit of Rs. 500,000 for annual contribution to voluntary pension scheme is now removed and the tax credit can be claimed for higher amount. Tax credit on equity investment on new projects by company is allowed. Tax credit for enlistment of company is increased from 5% to 15% percent.Sales Tax and Federal Excise Reduction in the rate of sales tax from 17% to 16%. Reducing overall the scope of federal excise duty and completely eliminating special excise duty. Review of federal excise duty regime by reducing the number of goods liable to federal excise. Reduction in the quantum of excise duty on cement and withdrawal of excise duty on white cement. Reduction in the rate of federal excise duty leviable on aerated beverages from 12% to 6% to provide a level playing around vis-à-vis its substitute like fruit juices, etc. Abolition of federal excise duty levied on services provided by property developers or promoters. TJIF Budget Overview 7
  8. 8.  Immediate full adjustment of sales tax paid on import or local purchase of capital goods has been allowed. The value addition tax levied on commercial importers is being enhanced from 2% to 3%, which is levied and collected at import stage. Exemption of sales tax on cement/concrete blocks and bricks has been withdrawn The sales tax leviable on sugar at import and local supply stage has been withdrawn and federal excise duty @ 8% is being levied on aforesaid stages. The federal excise duty leviable on filter rods for cigarettes has been rationalize from Rs.1/- per filter rod to 20% ad val. The Federal Excise Duty on unmanufactured tobacco is being enhanced from Rs.5/- per kg to Rs.10/per kg. Proposal to disallow auto revision of sales tax return available under rule 14A of the Sales Tax Rules, 2006. TJIF Budget Overview 8
  9. 9. PROPOSED CHANGES IN INCOME TAX ORDINANCE, 2001Definition- Section 2The concept of provisional assessment was introduced through Finance Amendment Ordinance 2009and the same was inserted by Finance Act 2010 but the provisional assessment was not included indefinition of assessment. The Finance Bill 2011 now seeks to add the “provisional assessment” in thedefinition of “assessment” as defined in clause 5 of Section 2.The bill seeks to introduce concept of “Collective Investment Scheme” through insertion of clause 11C tothe Section 2.Income from Business- Section 18Presently the fair market value of benefit and perquisite derived by a person in relation of business istreated as income from business. Now the Finance Bill seeks to enlarge the definition of “benefit”whereby benefit includes any benefit derived by way of waiver of profit on debt or the debt itself under theState Bank of Pakistan, Banking Policy Department Circular No. 29 of 2002 or in any other schemeissued by the State Bank of Pakistan is also treated as income from business.Tax Credit for investment in shares – Section 62Finance Bill 2011 recommends the following changes in section 62 that relates to tax credit for investmentin shares of new shares of listed companies: The non-resident person is now not entitled to claim tax credit under this section. The minimum holding period for investment is increased from 1 year to 3 years. The maximum contribution is increased from 10% to 15% of taxable income. The maximum limit is increased from Rs.300,000 to Rs.500,000.Tax credit for insurance premium paid to life insurance companies – Section 62The Finance Bill 2011 proposes new tax credit for resident tax payer who is deriving income frombusiness or salary. According to the proposed amendment a resident person is entitled to claim tax crediton life insurance premium paid to life insurance company registered with SECP.Tax credit for contribution to an approved pension fund – Section 63Presently a person is entitled to claim tax credit for contribution to an approved pension fund howeverthere is a maximum limit of Rs.500,000 or 20% of person’s taxable income. The Finance Bill 2011proposes to remove the upper limit of Rs.500,000.Tax credit for enlistment – Section 65CFinance Bill 2011 proposes to increase tax credit for listing of new companies in any registered stockexchange in Pakistan from 5 percent to 15 percent. TJIF Budget Overview 9
  10. 10. Tax credit for equity investment – Section 65DA new section is proposed to be introduced wherein a tax credit equal to 100 percent of tax payable shallbe allowed for equity investment by companies. The following are the prerequisites for claiming tax creditunder this section: Tax credit is available to companies only. Credit Is allowed if new industrial undertaking is established for manufacturing in Pakistan or investment is made for purchase and installation of plant and machinery, for the purpose of balancing, modernization and replacement of the plant and machinery, already installed therein, in an industrial undertaking setup in Pakistan and owned by it. Investment is made from 100 percent equity financing.We feel that further clarification is required to clarify whether tax credit is allowed to the total profit of thecompany if investment in BMR is made which is not a significant portion of total plant assets.Unexplained Income or Assets- Section 111Presently, where any unexplained income, assets or expenditure incurred have been discovered and theperson offers no explanation for such income, assets or expenditure or the explanation offered by theperson is not satisfactory in the Commissioner’s opinion such amount is liable to be taxed to the extent itis not adequately explained.The bill propose to insert clause(d) after clause (c) to the sub-section (1) of section 111, whereby thescope of unexplained income is extended to the suppression of any production, sales or any amountchargeable to tax and suppression of any item of receipt liable to tax in whole or in part.Minimum Tax- Section 113Presently, where minimum tax under section 113 exceeds the actual tax payable, the excess amount oftax paid can be carried forward and adjusted against tax liability for three years immediately succeedingthe tax year for which the amount was paid. Now the bill seeks to enhance the time limit for adjustment ofminimum tax against actual tax liability from three year to five years.The bill also seeks to enhance the scope of turnover through insertion of gross sales in the definition ofturnover as defined in clause (a) sub-section (3) of section 113.Return of Income- Section 114In order to expand the tax base the bill proposes mandatory fling of return of income by holders ofcommercial or industrial connection of electricity where the amount of annual bill exceeds rupees onemillion.In order to facilitate documentation, the bill also proposes filing of return in case of an individual havingincome between Rs. 300,000 to Rs. 350,000 although the income of individual is not liable to tax.The bill further proposes to enhance the requirement for attachment of the following documents alongwith return of income: due payment of tax as per return of income; and wealth statement as required under section 116 TJIF Budget Overview 10
  11. 11. Wealth Statement – Section 116Presently, subsection (2) of section 116 requires that every resident taxpayer filing return of income forany tax year whose last declared or assessed income or the declared income for the year, is Rs. 500,000or more shall furnish a wealth statement and wealth reconciliation statement for that year along with suchreturn.The Finance Bill 2011 now proposes to enhance the limit from Rs. 500,000 to Rs. 1,000,000 forindividuals and member of association of person (AOP) whose share of income from AOP is RS. 1.0million or more shall file wealth statement and wealth reconciliation statement along with return of incomefiled by AOP.Appeal To The Commissioner Appeals- Section 127Finance bill 2011 proposes that the provisional assessment passed under section 122C is not appealablebefore Commissioner of Appeal.Appointment of The Appellate Tribunal – Section 130Presently, the single member of Appellate Tribunal can dispose of the appeal where the amount of tax orpenalty does not exceed Rs. 5.0 million. However, the Finance Bill 2011 proposes to reduce this limit toRs. 1.0 million.Disposal of Appeals By The Appellate Tribunal – Section 132Presently, the appellate tribunal has a power to dismiss the appeal in case of default by any of the partyon the date of hearing. However, the Finance Bill 2011 proposes to curtail the power of dismissal by theappellate tribunal.Advance Tax on Capital Gain – Section 147 (5b)Presently, the advance tax on capital gains is payable to Commissioner within 7 days after the close ofeach quarter. Now the Finance Bill proposes to extend the time to 21 days from 7 days.Taxability of Profit on Debt – Section 151Presently, the profit on debt other than profit on Provincial and Federal Government Securities is final taxon income of persons other than companies. The Finance Bill 2011 now proposes to include the profit onProvincial and Federal Government Securities under final tax regime as well.Withdrawal of Balance under Pension Fund – Section 156BPresently, the amount received from pension fund balance in excess of 25% of person’s accumulatedbalance at or after the retirement age is taxable. However the bill proposes to increase this limit to 50%.Statements – Section 165At present quarterly statements for tax deduction under section 149 (being deduction of tax from salaries)and 165 (for tax deduction other than salary) is required to be filed. However, the bill proposes to removethe requirement for filing of quarterly statements in case of tax deduction under section 149. Through the TJIF Budget Overview 11
  12. 12. proposed amendment only annual employer statement is now required to be filed by 31 August eachyear.In case of tax deduction for payments other than salaries, the requirement of quarterly filing is proposedto be removed and the requirement of filing monthly statements by the 15 day of the month following thereporting month has now proposed to be re-introduced.The bill also proposes that the annual employer statement would be required to be filed in case ofpayment of salary below threshold limit between Rs. 300,000 to Rs. 350,000.It is also proposed that the CNIC and NTN of the recipient should be mentioned in the monthlywithholding tax statements.Advance Ruling – Section 206APresently, every nonresident person can obtain advance ruling from the federal board of revenueregarding the application of the Income Tax Ordinance, 2001 before entering into any specific transaction.The Finance Bill 2011 now proposes to exclude the permanent establishment of nonresident person fromthe ambit of this facility.Cash Withdrawal From A Bank – Section 231AThe Finance Bill 2011 proposes to reduce the rate of tax deduction Rs.0.3% to Rs. 0.2%.Withholding tax on payment of goods and services – Section 153The Finance Bill 2011 proposes that the tax deducted at the rate of 6 percent on services would betreated as a minimum tax for companies also. Previously, tax deducted on services was treated as aminimum tax for individual and association of persons only.Further this section has been redrafted for clarification purposes since there have been manyamendments made in this section in previous years, which had created ambiguities and lacunas.First ScheduleAfter the proposed increase of the exemption limit from Rs. 300,000 to Rs. 350,000 the proposed taxrates are as under:Business individuals Sr. # Taxable Income Rate of tax 1 Where taxable income does not exceed Rs.350,000 0% 2 Where the taxable income exceeds Rs.350,000 but does not 7.50% exceed Rs.500,000 3 Where the taxable income exceeds Rs.500,000 but does not 10% exceed Rs.750,000 TJIF Budget Overview 12
  13. 13. 4 Where the taxable income exceeds Rs.750,000 but does not 15% exceed Rs.1,000,000 5 Where the taxable income exceeds Rs.1,000,000 but does 20% not exceed Rs.,1,500,000 6 Where the taxable income exceeds Rs.1,500,000 25%Salaried individuals Sr. # Taxable Income Rate of tax 1 Where taxable income does not exceed Rs.350,000 0% 2 Where the taxable income exceeds Rs.350,000 but does not 1.50% exceed Rs.400,000 3 Where the taxable income exceeds Rs.400,000 but does not 2.50% exceed Rs.450,000 4 Where the taxable income exceeds Rs.450,000 but does not 3.50% exceed Rs.550,000 5 Where the taxable income exceeds Rs.550,000 but does not 4.50% exceed Rs.,650,000 6 Where the taxable income exceeds Rs.650,000 but does not 6.00% exceed Rs.750,000 7 Where the taxable income exceeds Rs.750,000 but does not 7.50% exceed Rs.900,000 8 Where the taxable income exceeds Rs.900,000 but does not 9.00% exceed Rs.1,050,000 9 Where the taxable income exceeds Rs.1,050,000 but does 10.00% not exceed Rs.1,200,000 10 Where the taxable income exceeds Rs.1,200,000 but does 11.00% not exceed Rs.1,450,000 11 Where the taxable income exceeds Rs.1,450,000 but does 12.50% not exceed Rs.1,700,000 12 Where the taxable income exceeds Rs.1,700,000 but does 14.00% not exceed Rs.1,950,000 13 Where the taxable income exceeds Rs.1,950,000 but does 15.00% TJIF Budget Overview 13
  14. 14. not exceed Rs.2,250,000 14 Where the taxable income exceeds Rs.2,250,000 but does 16.00% not exceed Rs.2,850,000 15 Where the taxable income exceeds Rs.2,850,000 but does 17.50% not exceed Rs.3,550,000 16 Where the taxable income exceeds Rs.3,550,000 but does 18.50% not exceed Rs.4,550,000 17 Where the taxable income exceeds Rs.4,550,000 20.00%Seventh ScheduleDividend income from bank’s own asset management company (AMC)In order to take benefit of reduced taxation on dividend income many banking companies are placing theirassets with AMCs instead of directly investing their funds.The tax on dividend from AMCs is 10% whereas if these funds are directly invested tax @ of 35% ischargeable. In order to curb this practice, the Finance Bill 2011 now proposes to increase the rate to 20%from 10% on dividend income received by banking company from its asset management company.However the dividend income from other AMCs are continue to be taxed at the rate of 10 percent and thisavenue of tax avoidance is still available.Provision on advances to SME and consumersAt present the provision against advances to SME and consumers is allowed at the rate of 5% ofadvances. The carry forward of additional provision was not allowed.The bill now proposes to allow carry forward of additional provision to succeeding years. Further the billproposes that if the actual provision on advances to consumers and SME is less than 5% then actualprovision is allowable instead of 5%. TJIF Budget Overview 14
  15. 15. PROPOSED CHANGES IN SALES TAX ACT, 1990Reduction in Rate of Sales Tax - Section 3The Finance Bill 2011 proposes to reduce the rate of sales tax from 17% to 16% along with withdrawal ofvarious exemptions provided through earlier notifications.It may be noted that the rate of sales tax was enhance from 16% to 17% by Finance Act 2010.Admissibility of Input Sales Tax Paid on Fixed Assets or Capital Goods – Section 8BThrough the Finance Act 2007 Section 8B was introduced whereby, the adjustment of input tax isrestricted upto the 90% of the output tax to the registered person and the input tax paid on capital goodsand fixed assets is allowed in twelve (12) equal monthly installments.The bill now seeks to substitute the first proviso of sub section 1 to allow immediate adjustment of salestax on fixed assets or capital goods paid on import or local stage to mitigate the cash flow issues and toensure timely and quick adjustment of input tax paid.De-Registration, Blacklisting And Suspension of Registration – Section 21Presently the Commissioner after having satisfied that the registered person has committed tax fraud orissued fake invoices can suspend the registration of any such person.The bill now seeks to introduce the new sub-section to section 21, whereby the invoices issued by theregistered person during the period of suspension shall not be acceptable for the purpose of refund or theinput tax credit against the invoices issued by him. The new sub-section further provides that if suchperson would be declared guilty of issuing fake invoices through a self-speaking appealable order passedby the Commissioner, the invoices issued by such person before or after the suspension shall berejected.Revision of Special Returns – Section 26 & 27The bill seeks to amend section 26 whereby the registered person filing special return under section 27will be able to revise the same under section 26 subject to the same conditions as applicable to thenormal returns.Further, amendment has also been made to rule 14-A , whereby the registered person was allowed autorevision by paying additional amount in execs of original return, the board now seeks to withdraw suchfacility vide SRO 487(1) 2011. Through the amendment the registered person can now only revise itsreturn after obtaining approval form the Commissioner Inland revenue.Condonation of Time Limit – Section 74The bill seeks to insert explanation to section 74, whereby Federal Board of Revenue is empowered tocondone the time limit in time bound cases dealt by the authorities of Inland Revenue.Enhancement of Value Addition at Import StageThrough SRO 482(I) 2011, the value addition sales tax levied on commercial importers is being enhancedfrom 2% to 3%, which is levied and collected at import stage. TJIF Budget Overview 15
  16. 16. Sales Tax on Sugar Import And Supply(SRO. 1(3) STM/2004 (Pt-11) dated 23 August 2009)The sales tax leviable on sugar at import and local supply stage has been withdrawn and federal exciseduty @ 8% is being levied on aforesaid stages.Sixth ScheduleThe following sales tax exemptions are proposed to be withdrawn by the Finance Bill 2011. Afterthe proposed amendments sales tax @ 16% shall be chargeable on the following goods: Serial Description Heading Nos. of the First No Schedule to the Customs Act, 1969 (IV of 1969)41. Computer software. 8523.2990, 8523.4010, 8523.4090, 8523.5990 and 8523.809042. Ambulances, fire fighting vehicles, waste 87.02, 87.03, 8704.2200, disposal trucks, brake down lorries, special 8704.2300, 8705.3000 and purposes vehicles for the maintenance of 8705.9000 streetlights and overhead cables.43. Aircrafts 8802.2000, 8802.3000 and 8802.400044. Ships of gross tonnage exceeding 15 LDTs, 8901.2000, 8901.3000 and excluding those for recreational or pleasure 8901.9000 purpose.62. Defence stores, whether manufactured Respective headings locally or imported by the Federal Government against foreign exchange allocation for defence, including trucks, trailers and vehicles falling under PCT heading 87.04 of the First Schedule to the Customs Act, 1969 (IV of 1969), specially modified for mounting defence equipments, their parts and accessories for supply to Armed Forces.64. Spare parts and equipment for aircraft and Respective headings ships covered by serial number 43 and 44 above. TJIF Budget Overview 16
  17. 17. 65. Equipment and Machinery for pilotage, Respective headings salvage or towage for use in ports or airports.66. Equipment and Machinery for air navigation. Respective headings67. Equipment and machinery used for services Respective headings provided for handling of ships or aircrafts in a customs port or Customs airport.68. Such plant and machinery as is notified by Respective headings the Federal Government in the official Gazette but if imported, these shall be entitled to exemption from sales tax on importation if these are not manufactured in Pakistan.69. Tractors, bulldozers and combined Respective headings harvesters; and components (which include sub-components, components, sub- assemblies and assemblies but exclude consumables) imported in any kit form and direct materials or assembly or manufacture thereof, subject to the same conditions as are envisaged for the purposes of exemption under the Customs Act, 1969 (IV of 1969).70. Import and supply of fully dedicated CNG 8702.9010 and 8702.9090 Euro-2 buses whether in CBU or CKD condition.Table 2(Local Supplies only)Serial No Description Heading Nos. of the First Schedule to the Customs Act, 1969 (IV of 1969)5. Supply of other such agricultural Respective headings. implements as may be specified in a notification to be issued by the Federal Government in the official Gazette. TJIF Budget Overview 17
  18. 18. WITHDRAWAL OF EXEMPTION THROUHG SROsFollowing SROs have been withdrawn: ReferenceSRO 1240(I) 2005 dated 16 December 2005: SRO 480(I)2011 Withdrawal of exemption on dumper, Trucks for use on highway. (The SRO was applicable up to 30 June 2011).SRO 542(I) 2006 dated 5 June 2006: Withdrawal of exemption on Agriculture machinery.SRO. 275(I) 2008 dated 12 March 2008: Withdrawal of exemption on CKD kits and Agriculture diesel engine.Withdrawal of Zero Rating facility available to manufacturer cum importer through SRO1161(I)/2007 dated 30 November 2007: Description of SRO 485(I) 2011 Description of Heading or sub- goods to be raw Materials heading Nos. manufactured Diapers of HS Super 3906.9090 Code 5601.1040 Absorbent Polymers 3920.1000 and 3920.9900 Poly Back Sheet 3506.9190 5603.1100 and Hot Melt Adhesive 5603.1200 Non-Woven, whether or not impregnated, coated, covered or 4803.0000 laminated of manmade filaments. Toilet or facial tissue stock, towel or napkin paper of a kind used for household or sanitary purpose TJIF Budget Overview 18
  19. 19. (non-pours) Frontal Tape Pre-Laminated Tape 3919.9090 and Fluff Pulp 3920.9900 3919.1090 and Spandex Bare Yarn 3920.9900 4703.2100 5402.4900Withdrawal of Zero Rating on following items available through SRO 549(1) 2008 dated 11 June2008: SRO 486(I) 2011 Dedicated CNG buses and all other buses meant for transportation of forty or more passengers whether in CBU or CKD condition (PCT Heading 87.02); Trucks and dumpers with G.V.W. exceeding 5 tonnes (PCT Heading (87.04); Trailers and semi-trailers for the transport of goods having specifications duly approved by the Engineering Development Board (PCT Heading 87.16); Road tractors for semi-trailers, prime movers and road tractors for trailers whether in CBU condition or in kit form (PCT Headings 8701.2010, 8701.2020, 8701.2030, 8701.2090, 8710.9030, 8701.9040, 8701.9050 and 8701.9060); TJIF Budget Overview 19
  20. 20. PROPOSED CHANGES IN FEDERAL EXCISE ACT, 2005FED On Cable Operators SRO 484 (I)2011Presently cable operators are required to pay Rs. 8 per subscriberper month being a FED. The bill now seeks to abolish such duty.FED On Franchise Fee Or Technical Fee Or Royalty, Franchise SRO 488 (I) 2011AgreementPresently every person or a company availing any rights through anyfranchise agreement is required to pay 10% FED on the value oftaxable services. However, a rate of 5% was mentioned in rule 43 Awhereas the rate of 10% was mentioned in the first schedule.Through SRO 488(1) 2011 dated 03-06-2011 the anomaly is soughtto be removed. SRO 489(I) 2011Withdrawal Of SED On Import And Local ManufacturerIt may be noted that SED was introduced vide finance Act 2007 @1% and later enhanced to 2.5%. Now it is withdrawn to reduce thequantum of taxation on all items including those used by the middleand lower middle class of population. Enforced through amendmentin Federal Excise Act, 2005 and withdrawal of SRO 655(I)/2007,dated 29.06.2007, effective from the 1st July, 2011.Reduction Of FED On CementThe rate of excise duty on cement has been reduced from Rs.500/MT from Rs. 700/MT. Further, excise duty on white cement hasbeen abolished to encourage construction industry.Enforced through amendment in Table-I of First Schedule to theFederal Excise Act, 2005, effective from the 1st July, 2011.Reduction Of FED On Aerated Water BeveragesThe rate of federal excise duty on aerated beverages has beenreduced from 12% to 6% to provide a level playing around vis-à-visits substitute like fruit juices, etc. which has also been reduced from10% to 6%Enforced through amendment in Table-I of First Schedule to theFederal Excise Act, 2005, effective from the 1st July, 2011 TJIF Budget Overview 20
  21. 21. FED On Property Developers ServicesThe bill seeks to abolish the Federal excise duty levied on servicesprovided by property developers or promoters to reduce the level oftaxation which will in turn reduce the quantum of taxation on housingsector already subject to levy of Capital Value TaxEnforced through amendment in Table-II of First Schedule to theFederal Excise Act, 2005, effective from the 1st July, 2011.Federal Excise Duty On CigarettesRevision in the upward limit of duty slabs to enhance the burden ofFederal Excise Duty on locally produced Cigarettes, according to theto the following schedule: Locally produced, if retail price 65% of the retail price exceeds Rs. 21/10 cigarettes Locally produced, if retail price Rs. 6.04/10 cigarettes exceeds Rs. 11.50/10 cigarettes plus 70% per but does not exceed Rs.21/10 incremental rupee or cigarettes part thereof Locally produced, if retail price Rs. 6.04/10 cigarettes exceeds Rs. 11.50/10 cigarettesEnforced through amendment in Table I, of First Schedule to theFederal Excise Act, 2005, effective from the 4thJune, 2011.The Federal Excise Duty leviable on filter rods for cigarettes hasbeen rationalize from Rs.1/- per filter rod to 20% ad val.Enforced through amendment in Table I of First Schedule to theFederal Excise Act, 2005, effective from the 4th June, 2011.The Federal Excise Duty on unmanufactured tobacco is beingenhanced from Rs. 5/- per kg to Rs.10/- per kg.Enforced through amendment in Table I of First Schedule to theFederal Excise Act, 2005, effective from the 4th June, 2011. TJIF Budget Overview 21
  22. 22. © Tahir Jawad Imran Fecto 2011This work is copyright. Apart from any use as permitted under the Copyright Act, no part may be reproduced by anyprocess without prior written permission from TJIF. Any requests and inquiries should be addressed to:Tahir Jawad Imran FectoChartered AccountantsSuite # 309, 3rd Floor, Progressive Center,30-A, Block 6, P.E.C.H.S., Karachi – 74500, Pakistan.Ph: +9221 343 04082Email: TJIF Budget Overview 22