Finance Supplementary Bill 2021

1. The Finance (Supplementary) Bill,
2021
By
Secretary, Revenue Division
30.12.2021

2. SCHEME OF PRESENTATION
1. Background/context
2. Salient Features of IMF-FBR Engagement
3. Changes in GST Regime
4. Changes in Income Tax
5. Changes in Federal Excise Act
6. Changes in Customs Act
7. Targeted Subsidy Items
2

3. Background (1/2)
• Tax Reforms were needed for a long time
• IMF 6th Review Mission – October 4-19, 2021
• IMF Demand – Rs.700 Billion
• IMF Demanded 17% GST across-the-board
• FBR Conceded – Rs. 343 Billion
• FBR Defended productive sectors
marginalized segments 3

4. Background (2/2)
• Most significant tax policy reforms in history
• Focus on removal of distortions & not on
imposing new taxes
• Tax System is to collect revenues
• Underlying Principle – Collect & Spend
• No Tax Exemptions – Targeted Subsidy
4

5. Salients of IMF-FBR Engagement (1/2)
1. FBR defended imposition of GST on –
• Food items e.g. wheat, wheat flour, wheat bran, rice,
vegetables, fruits, pulses
• Fresh poultry, fish & meat (consumed by common man)
• Milk & fat-filled milk
• Sugar cane & beet sugar (raw materials)
• Educational books & stationery items
• Imported parts for computers & laptops
• Imported CKD kits for electric vehicles
• Imported plant & machinery for SEZs
5

6. Salients of IMF-FBR Engagement (2/2)
2. FBR defended reduced rate of GST on –
• Agriculture tractors
• Fertilizers
• Inputs of fertilizer sector
• Pesticides
• Used clothing & footwear
• Cinematographic equipment
6

7. Pharma
160 B
Goods 71 B
Machinery
112 B
Breakup of Rs 343 Billion
Exemptions
GST Refundable /
Adjustable
GST Refundable /
Adjustable
Common Man
Goods Rs 2 B

8. 8
Business 31 B
2
2
Luxury 36 B
GST on Goods - Break up
Business Government Common Man Luxury

9. Present Regime
• Exempt input & output – documentation issues
• Rs.700 Billion turnover
• Rs.530 Billion undocumented supply chain –
o Counterfeiting
o Tax evasion
o Transfer pricing
o Misuse of exemption
• Out of 800 manufacturers only 453 are registered
• Rs.35 Billion input tax passed to patients (packing, utilities etc)
Pharmaceutical Sector (1/2)
9

10. New Regime
• Sales tax at import stage, zero-rating of sales of medicines
• Expeditious payment of refunds (within 1 week)
• Reduction in prices of medicines
• Documentation of supply chain down to retail stage
• Discourage transfer pricing – saving of foreign exchange
• Track & Trace System – fight counterfeit drugs
• Substantial increase in income tax collection
• Elimination of uncontrolled wide-going subsidization
Pharmaceutical Sector (2/2)
10

11. Items Group wise
# GROUP 1 - FOOD ITEMS Tax Implication
(Rs. in M)
1. Imported live animals and poultry 680
2.
Imported branded meat of cow, buffalo, sheep and
goat
52
3. Imported branded poultry meat 7
4. Imported branded fish 21
5. Imported branded eggs 140
6.
Imported branded vegetables except onion and potato
(fruits are already taxable)
7,000
Total 7,900

12. Items Group wise
# GROUP 2 - RENEWABLE ENERGY
SALES TAX ADJUSTABLE/ REFUNDABLE
Tax
Implication
(Rs. in M)
1.
Imported items for solar energy
(PV modules, batteries and components etc)
1,750
2.
Imported items for renewable energy
(Solar, wind and geo thermal Power plants )
10,000
3.
Imported items for Energy conservation
(LEDs, Energy saver lamps, Inverters, PV module)
1,800
Total
13,550

13. Items Group wise
# GROUP 3 - POWER SECTOR
SALES TAX ADJUSTABLE/ REFUNDABLE
Tax Implication
(Rs. in M)
1.
Imported Machinery for power generation projects with GoP
(oil, gas, coal, wind and wave energy)
13,400
2.
Imported Machinery for power generation projects
(oil, gas, coal, wind and wave energy)
41,600
3.
Imported Machinery for power generation projects
(nuclear and hydel)
5,900
4.
Imported Machinery and equipment for power transmission and grid
stations
4,200
Total 65,000

14. Food Group
(Entry no. 1)
# ITEM COUNTRY OF ORIGIN CUSTOMS
TARIFF
IMPORT
VALUE
(Rs. in M)
1. Cows/Bulls Australia, Belgium 3% 1,660
2. Pedigree Birds Belgium, Turkey, Bahrain 3% 1,350
3. Horses and Ponies
Belgium, Turkey, UK,
Germany, Australia
3% 230
4. Misc including cats
and dogs(huskies)
Ukraine, Turkey, Serbia 3% 760
Total= Tax Expenditure Rs. 680M 4,000
14

15. Food Group
(Entry No. 2)
# ITEM COUNTRY OF ORIGIN CUSTOMS
TARIFF
IMPORT
VALUE
(Rs. in M)
1. Frozen beef UAE, UK, New Zealand 3% 200
2. Fresh beef UAE, UK, New Zealand 3% 55
3. Misc 3% 50
Total= Tax Expenditure Rs. 52M 305
15

16. Food Group
(Entry No. 3)
# ITEM COUNTRY OF
ORIGIN
CUSTOMS
TARIFF
IMPORT
VALUE
(Rs. in M)
1. Frozen branded poultry
meat
Turkey, Jordan 20% 40
Total = Tax Expenditure Rs.7 M 40
16

17. Food Group
(Entry No. 4)
# ITEM COUNTRY OF ORIGIN CUSTOMS
TARIFF
IMPORT
VALUE
(Rs. in M)
1. Atlantic Salmon Norway 11% 85
2. Pacific Salmon Norway 11% 5
3. Misc Vietnam 11% 35
Total = Tax Exp Rs. 21M 125
17

18. Food Group
(Entry No. 5)
# ITEM COUNTRY OF ORIGIN CUSTOMS
TARIFF
IMPORT
VALUE
(Rs. in M)
1. Hatching eggs Netherlands, Germany 11% 800
Total = Tax Exp Rs. 140 M 800
18

19. Food Group
(Entry No. 6)
S# IMPORTED ITEM COUNTRY OF ORIGIN CUSTOMS
TARIFF
IMPORT VALUE
(Rs. in M)
1. Garlic China, Afghanistan 3% 20,000
2. Tomato Afghanistan, Iran 3% 11,000
3. Cucumber Afghanistan 3% 5,000
4. Potato seed Netherlands, Germany, 3% 3,000
5. Misc (Mushrooms,
Avocados, Broccoli etc)
Netherlands, Germany, UAE 3% 2,000
Total = Tax Exp Rs. 7,000 M 41,000
19

20. Renewable Energy Group
(Entry No. 1)
# IMPORTED ITEM COUNTRY OF
ORIGIN
CUSTOMS
TARIFF
IMPORT
VALUE
(Rs. in M)
1. Photovoltaic
generators
China, Germany,
USA, Canada
5% 5,000
2. Electrical
transformers
China, Germany,
USA, Canada
20% 4,500
3. Misc including
batteries
20% 1,000
Total = Tax Exp Rs. 1,750 M 10,500
20

21. Renewable Energy Group
(Entry No. 2)
# IMPORTED ITEM COUNTRY OF ORIGIN CUSTOMS
TARIFF
IMPORT VALUE
(Rs. in M)
1. Photovoltaic
modules
China, Germany, USA, Canada 3% 50,000
2. Solar panels China, Germany, USA, Canada 3% 5,000
3. Solar cells China, Germany, USA, Canada 3% 3,200
4. Inverter China, Germany, USA, Canada 16% 1,000
5. Misc 3% 800
Total = Tax Exp Rs. 10,000 M 60,000
21

22. Renewable Energy Group
(Entry No. 3)
# IMPORTED ITEM COUNTRY OF ORIGIN CUSTOMS
TARIFF
IMPORT VALUE
(Rs. in M)
1. Photovoltaic
modules (hybrid)
China, Germany, USA, Canada 16% 4,800
2. Semi conductor
devices
China, Germany, USA, Canada 3% 3,500
3. Inverters (hybrid) China, Germany, USA, Canada 16% 2,500
4. Misc (tube lights
etc)
China, Germany 200
Total = Tax Exp Rs. 1,800 M 11,000
22

23. Power Group
(Entry No. 1)
# IMPORTED ITEM COUNTRY OF ORIGIN CUSTOMS TARIFF IMPORT VALUE
(Rs. in M)
1. Steam boilers Germany, Korea, China 3% 25,000
2. Turbines Germany, Korea, China 3% 16,000
3. Boilers (others) Germany, Korea, China 3% 12,000
4. Condensers Germany, Korea, China 20% 9,000
5. Rotary converters Germany, Korea, China 3% 7,000
6. Machinery Germany, Korea, China 11% 5,000
7. Misc Germany, Korea, China 3 -20% 5,000
Total = Tax Exp Rs. 13,400 M 79,00023

24. Power Group
(Entry No. 2)
# IMPORTED ITEM COUNTRY OF ORIGIN CUSTOMS
TARIFF
IMPORT VALUE
(Rs. in M)
1. Rotary converters Germany, Korea, China 3% 35,000
2. Steam Turbines Germany, Korea, China 3% 20,000
3. Generating sets Germany, Korea, China 11% 18,000
4. Generating sets
above 20 kva
Germany, Korea, China 20% 15,000
5. Panels and consoles Germany, Korea, China 20% 15,000
6. Misc (570 items ) Germany, Korea, China 3 -20% 103,000
Total = Tax Exp Rs. 41,600 M 245,000
24

25. Power Group
(Entry No. 3)
# IMPORTED ITEM COUNTRY OF ORIGIN CUSTOMS
TARIFF
IMPORT VALUE
(Rs. in M)
1. Wind powered electric
generating sets
Germany, Korea, China 3% 20,000
2. Electric generators Germany, Korea, China 3% 2,500
3. Semiconductor devices Germany, Korea, China 3% 2,000
4. Steam turbines Germany, Korea, China 3% 1,500
5. Misc (200 items) Germany, Korea, China 9,000
Total = Tax Exp Rs. 5,900 M 35,000
25

26. Power Group
(Entry No. 4)
# IMPORTED ITEM COUNTRY OF ORIGIN CUSTOMS
TARIFF
IMPORT VALUE
(Rs. in M)
1. Wires and cables Germany, Korea, China 20% 8,500
2. Towers Germany, Korea, China 20% 8,000
3. Misc including
inductors
Germany, Korea, China 20% 5,000
4. Electrical
transformer
Germany, Korea, China 20% 3,500
Total = Tax Exp Rs. 4,200 M 25,000
26

27. Changes in Income Tax
27

28. Revenue Measures (1/4)
Advance tax on cellular services
• Finance Act, 2021 levied FE on telecom
services
• Telcos challenged it & got a favorable decision
• Marginal increase in adjustable advance tax
from 10% to 15%
• Make up for revenue loss from telcos
Revenue Impact: (+) Rs. 4,500 million
28

29. Revenue Measures (2/4)
Advance tax on vehicle registration to discourage
on-money (premium)
Revenue Impact: (+) Rs. 500 million
29
S.No. Engine Capacity Existing Rates Proposed Rates
1. Up to 1000cc Rs. 50,000 Rs.100,000
2. 1001cc to 2000cc Rs. 100,000 Rs.200,000
3. 2001cc and above Rs.200,000 Rs.400,000

30. Revenue Measures (3/4)
Advance Tax on Foreign TV Serials, Dramas, & Adverts
• On foreign-produced TV serials @ Rs.1 million per
episode
• On foreign-produced TV dramas @ Rs.3 million
per production
• On advertisement starring foreign actors @ Rs.0.5
million per second
Revenue Impact: (+) Positive
30

31. Revenue Measures (4/4)
Special Purpose Vehicle (SPV) under REIT Regulations
• Special Purpose Vehicle (SPV) under a REIT introduced
by SECP
• SPV as a pass-through entity granted same tax
treatment as a REIT
• Dividend received by REIT from a pass-through SPV
proposed to be exempted
• Dividend received by Non-REIT investor from SPV to be
taxed @ 35%.
Revenue Impact: (Positive)
31

32. Changes in Federal Excise Act
32

33. Revenue Measures (1/2)
FED on motor vehicles
33
# Description Existing rate Proposed rate
55 CBU condition (Imported)
• up to 1000cc
• 1001cc to 1799cc
• 1800cc to 3000cc
• exceeding 3000cc
2.5% ad val.
5% ad val.
25% ad val.
30% ad val.
No change
10% ad val.
30% ad val.
40% ad val.
55B Locally manufactured/assembled
• up to 1000cc
• 1001cc to 2000cc
• exceeding 2000c
0% ad val.
2.5% ad val.
5% ad val.
No change
5% ad val.
10% ad val.

34. Revenue Measures (2/2)
FED on motor vehicles
34
# Description of Goods Existing rate Proposed rate
55C Imported double cabin (4x4) pick-
up vehicles
25% ad val. 30% ad val.
55D Locally manufactured double cabin
(4x4) pick-up vehicles
7.5% ad val. 10% ad val.
Revenue Impact: (+) 6.5 billion

35. Changes in Customs Act
35

36. Procedural Measures (1/1)
Withdrawal of –
• Collector’s powers to determine value simultaneously
with Director Valuation
• Member Customs (Policy)’s powers to hear appeal
against DG Valuation’s decision
Revenue Impact: (Neutral)
36

37. Targeted Subsidy Items
o Domestic – 19 Billion
o Import – 14 Billion
o Total – 33 Billion
37

38. Targeted Subsidy Items
# Item Tax Expenditure
(Rs. in Billion)
Domestic Import Total
1 Formula Milk 6 4.5 10.5
2 Imported Laptop & Computers @ 5% - 0.4 0.4
3 Sunflower & Canola hybrid seeds - 0.16 0.16
4 CKD kits for single-cylinder agri diesel engines - 0.5 0.5
5 Cotton seed 2.5 2.5

39. Cont’d…
# Item Tax Expenditure
(Rs. in Billion)
Domestic Import Total
6 Seeds, fruit & spores (for sowing) 2 1.5 3.5
7 High Efficiency Irrigation Equipment - 0.15 0.15
8 Fish Feed 0.2 - 0.2
9 Preparations for making animal feed 1.3 2.6 3.9
10 Ingredients of poultry feed, & cattle feed 0.8 1.2 2

40. Cont’d…
# Item Tax Expenditure
(Rs. in Billion)
Domestic Import Total
11 Tillage & seed bed preparation equipment 0.2 0.1 0.3
12 Irrigation, drainage, agrochemical equipment - 0.2 0.2
13 Harvesting, threshing & storage equipment - 0.5 0.5
14 Goods supplied to Govt hospitals 1.3 - 1.3
15 Grains (maize seeds) - 1.7 1.7

41. Cont’d…
# Item Tax Expenditure
(Rs. in Billiobn
Domestic Import Total
16 Oil cake & solid residue 5.1 - 5.1
Total 19 14 33

42. Thanks
42