AFF's Tax Memorandum on Federal Budget 2020

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A. F. FERGUSON & CO.
FEDERAL BUDGET 2020
This memorandum gives a brief overview of Pakistan economy and significant amendments
proposed by the Finance Bill 2020. All changes proposed through the Finance Bill 2020, subject
to approval by National Assembly and Presidential assent, are effective July 1, 2020.
Certain amendments will be effective on the next day of assent given by the President to these
provisions.
This memorandum can also be accessed on https://www.pwc.com.pk/en/tax-memorandum.html
June 13, 2020
TABLE OF CONTENTS
Page No.
Economic Overview 1
Income Tax 6
Sales Tax 26
Federal Excise Duty 28
Customs Duty 29
Other Laws 34
Chartered Accountants
Federal Budget 2020 a member firm of the PwC network
ECONOMIC OVERVIEW
The Federal Budget 2020-21 has been proposed In these unusual circumstances, some ‘out of the
in extraordinary, unusual and unpredictable box’ solutions are to be explored for reducing the
economic circumstances due to prevalent COVID incidence of financing cost of country on account
19 pandemic. It is the first time in the recent of domestic debts, which represent a major
history that major economic activities throughout component of total expenditure of the
the world are effectively closed since February / Government.
March, 2020. At this stage, there cannot be any
certainty for the resumption of economic Tax collections for the fiscal year 2020-21 will be
activities in the financial year 2020-21. Various directly related with the timing of resumption of
assumptions and projections will require economic activities. In these circumstances, a
reconsideration after the end of the first quarter. positive approach of not levying any new tax
without substantially reducing the development
The pandemic has resulted in serious economic expenditure is correct. This growth oriented
consequences for the world especially the strategy appears to be the only solution in these
developing countries like Pakistan where a circumstances. The effect of this policy will be an
reasonable portion of the industrial output is increase in the budget deficit, which may escalate
exported and there is heavy reliance on inflationary pressure. It is, therefore, proposed
remittances of expatriate Pakistanis. The that targeted subsidies and supports be provided
downturn in the western economies, being the to common man.
importer of Pakistani products and reduction in
earning capacity of expatriate Pakistanis will There has been a positive feature in the budget in
place pressure on Pakistan’s current account relation to non-tax revenue. The projected
balance. This would require re-strategizing the amount is substantially higher as compared with
economic priorities by promoting manufacture previous years. There has to be concerted effort
and consumption of locally produced goods and that the projected amount is actually collected.
employment in other sectors such as
construction, etc. Pakistan requires a critical In these unusual circumstances, the country
review of its import bill to align the ultimate cannot bear the burden of bleeding resources on
objective of import substitution and account of losses in State owned enterprises and
industrialization. This has become all the more deemed subsidy in energy sector which is
necessary on account of saturation of exports and generally termed as financing the circular debt by
home remittances on account of pandemic. The the Government of Pakistan.
policy as described above needs to be clearly It is expected that the consequences and effect of
demonstrated in order to curtail speculative the pandemic will subside in the following
activities in relation to value of Pakistani months and Pakistan will be again on the
currency against USD. trajectory of growth of 3% to 5% of GDP. We are
fortunate that our country is self-sufficient in
On an international level, a cohesive approach by basic food requirements and there is a
all developing countries would have to be adopted substantial reduction in the international oil
to reschedule and restructure foreign debts. At prices in the recent past, which is a major
present, Pakistan’s liability ranges around component of our import bill. Pakistan
USD 90 to 100 Billion. A concerted and cohesive requires speedy industrialization and local
international effort require remodelling of the production in order to balance the current
debts on international level as was undertaken account and increase the employment
after the end of Second World War by way of opportunities. The solution lies in implementing
Bretton Woods System. the project - “Make in Pakistan”.
2
KEY ECONOMIC INDICATORS
FY 19 – 20 FY 18 – 19
GDP growth rate -0.4% 1.9%
Per capita income - US$ 1,355 1,455
FDI (July – April)

US$ million 2,100 900
Inflation
(July – April) 11.2% 6.5%
Public debt
(PKR billion)
- Domestic 22,478 20,732
- Foreign 12,729 11,976
35,207 32,708
Budget deficit -
%age of GDP 7.5% 9.1%
Source: Economic Survey of Pakistan 2019-2020
3
BUDGET AT GLANCE
Budget Financials
The following table sets out the Key Budget Financials:
2019-2020
2020-2021
(Revised)
Rs in Rs in
Billion % Billion %
Tax revenue 5,464 4,208

Non-tax revenue 1,109 1,296
Gross revenue receipts 6,573 5,504
Public account receipt – net 216 421
Total receipts 6,789 100 5,925 100
Less: Provincial share in Federal taxes (2,874) (42) (2,402) (41)
Net revenue receipts 3,915 58 3,523 59
Expenditure
- Current expenditure 7,836 115 7,586 128
- Development expenditure 949 14 759 13
8,785 129 8,345 141
Deficit (4,870) (71) (4,822) (82)
- Domestic debts non-bank 1,326 756

- Domestic debts banks 979 1,724
- Foreign debts / grants 2,223 2,273
- Privatization proceeds 100 150
- Surplus from provinces 242 (81)
4,870 4,822
4
WHERE FROM THE RUPEE COMES IN

AND WHERE IT GOES OUT
IN
5%
8%
5%
17% 28%
Borrowings
Receipts 41% 47%
20%
18%
11%
Domestic debts non-bank (28%)

Income Tax (18%)
Domestic debts banks (20%)
Sales Tax (17%)
Foreign debts / Grants (47%)
Customs Duty (5%) and FED (3%)
Surplus from provinces (5%)
Petroleum levy, Gas Infrastructure Cess & Others (5%)
Borrowings (41%)
Non-tax revenue (11%)
OUT
12%
25%
6%
13%
11% 25%
8%
Provincial share in Federal taxes (25%)

Debt servicing (25%)
Development expenditure (8%)
Defence Affairs and Services (11%)
Federal Government expenses including pensions (13%)
Grants and transfers (6%)
Foreign Loan repayments (12%)
5
BREAK-UP OF TAX REVENUE
FY 20 –21 FY 19 –20
(Revised)
Rs in Rs in
Billion Billion
There is a slight Direct Taxes:

downward change  Income Tax 2,037 1,618
in the ratio of  Workers’ Welfare Fund 3 3
direct and 2,040 1,621
indirect taxes.
Indirect Taxes:
A substantial and 640 546
 Customs Duty
incremental shift
 Sales Tax 1,919 1,427
is required to
 Federal Excise Duty 361 312
decrease
disparity in  Petroleum Levy 450 260
income and  Gas Infrastructure Cess 15 11
reduce the  Natural Gas Development 10 10
burden of Surcharge
indirect taxes on  Others 29 21
common man. 3,424 2,587
5,464 4,208
Others
1%
Petroleum Levy Income Tax
8% 37%
Federal Excise
Duty
7%
Sales Tax
35%
Customs Duties
12%
6
INCOME TAX
AUTOMATED INITIAL SCRUTINY This amendment appears to be a prescription for

PROCESS FOR DEEMED ASSESSMENTS the remedy of errors, omissions and aggressive
positions adopted by the taxpayer in relation to
The Income Tax Ordinance, 2001 by way of self assessment scheme. In certain other
section 120 prescribes Universal Self Assessment jurisdictions, the return includes a statement
Scheme on the basis of disclosures made by the furnished by the taxpayer. The present
taxpayers in their returns. The return filed is amendment does not fulfil the objective which is
deemed to be an assessment order for that year supposed to be achieved from the statement of
for all purposes under the Ordinance. aggressive positions. Moreover, the definition of
‘incorrect claim’ needs to be re-examined for
A specific process has been laid down for the practical purposes.
deemed assessment under section 120 of the
Ordinance. It appears that even after the For making the above adjustments, issuance of an
proposed amendment all returns filed will automated notice and provision of opportunity to
constitute deemed assessments under section the taxpayer to explain his position is mandatory.
120 unless they are amended in the manner In case of failure to respond within 30 days of
prescribed for automated process of initial issuance of notice, adjustments shall be made.
scrutiny within six months of filing.
Where no such adjustments are made within
The initial scrutiny process which shall always be six months of the filing of return, the amounts
automated without any human intervention will specified in the return will be deemed to have
envisage identification and incorporation of the been accepted from the date of filing of return and
following adjustments:- the same shall be electronically intimated.
a) Arithmetical errors in the return, which A taxpayer aggrieved by the adjustments made in
includes any wrong or incorrect calculation the above manner has a right to contest the same
of tax payable including any minimum or by way of an appeal before the Commissioner –
final taxes; Appeals.
b) An incorrect claim as apparent from any REDUCTION IN RATE OF TAX

information in the return; COLLECTION AT IMPORT STAGE
c) Disallowance of any loss, deductible A major change has been introduced with respect
allowances or tax credit; or to rate of tax to be collected at import stage. In the
past, all imports were subject to a standard rate
d) Disallowance of carry forward of loss. of 5.5% except certain industries subjected to
reduced rates. Accordingly, there has always been
The term ‘incorrect claim as apparent from any a need to obtain certificates of exemption in case
information in the return’ is defined as: of import of items such as capital goods, raw
materials, etc.
(i) a claim on the basis of entry in the return of
an item inconsistent with another entry of A major incentive has been provided in the
the same or some other item in the return, Budget by prescribing reduced rates for certain
imports. It appears that such reduced rates will
(ii) any tax payment which is not verified from be applicable for import of capital goods and raw
the collection system, or materials. Nevertheless, this classification is not
apparent from the amendment made in the law
(iii) in respect of a deduction where such whereby reduction in rate to 1% and 2% have
deduction exceeds specified statutory limit. been related to items imported irrespective of
their eventual use.
7
For the purpose of collection of tax at import Category Rate of tax

stage, all imports have been categorised as Part I, withholding
Part II and Part III of the Twelfth Schedule as Import of mobile phones In CBU In
under: of value: condition CKD/SKD
condition
- Upto USD. 30 except Rs. 70 Nil
Reference from Rate of tax smart phone
Twelfth Schedule withholding
- More than USD. 30 Rs. 100 Nil
Part I 1%
Part II 2%
upto USD. 100
Part III 5.5% - More than USD. 100 Rs. 930 Nil
upto USD. 200
- More than USD. 200 Rs. 970 Nil
The advance tax collected under section 148 in upto USD. 350
following cases is now also proposed to be - More than USD. 350 Rs. 3,000 Rs. 5,000
minimum tax on income of the importer in all upto USD. 500
cases: - More than USD. 500 Rs. 5,200 Rs. 11,500
- Motor vehicles in CBU condition by A consequential amendment is proposed in other

manufacturers of motor vehicles; provisions whereby exemption certificate can
now only be issued for import of plant &
machinery.
- Large import houses;
Limiting the exemption certificate for import of
- Foreign produced film imported for the plant & machinery only is not practically possible
purposes of screening and viewing. in all cases if 2% withholding on imports is
mandatorily required on import of items in
The advance tax collected under section 148 for Part II of the Twelfth Schedule.
import of capital goods and raw material by an
industrial undertaking for its own use will not be INTEGRATED ENTERPRISE
treated as minimum tax.
A new concept of ‘integrated enterprise’ is
The classification of capital goods and raw being introduced to mean a person integrated
material relates to the activity to be undertaken with the FBR through approved fiscal
by the taxpayer. As stated above, this incidence electronic device and software and who
may not commensurate with the incidence at the fulfils prescribed obligations and requirements
import stage where goods are classified in a for integration.
different manner under the HS code.
Earlier, the FBR issued draft amendments
Special incentive for following industrial sectors in Income Tax Rules in April 2020
has been retained:- whereby obligations and requirements
for integrated enterprises was proposed for
Category Rate of tax certain businesses.
withholding
Import by manufacturers 1 per cent The proposed definition therefore appears to
covered under rescinded provide an enabling provision for introduction of
SRO 1125
such requirements.
Import of finished 4 per cent
pharmaceutical products TAX ON SHIPPING INCOME OF
that are not RESIDENT PERSONS
manufactured otherwise
in Pakistan, as certified The present presumptive tax regime for resident
by the Drug Regulatory
shipping businesses on tonnage basis is proposed
Authority of Pakistan
to be extended upto June 30, 2023.
8
A new category is proposed for a Pakistani INADMISSIBLE BUSINESS

resident ship owning company registered with DEDUCTIONS
SECP after November 15, 2019 and having its
own sea worthy vessel registered under Pakistan Non-banking transactions
flag will pay tonnage tax of an amount equivalent
to 0.75 US Dollar per ton of gross registered Presently, expenses incurred in excess of
tonnage per annum. Rs. 50,000 under a single account head are not
allowed as business deduction with certain
This amendment is the implementation of exceptions such as expenditure not exceeding
the amendments in shipping policy titled as Rs. 10,000, if the payment for such expense is
‘Pakistan Merchant Marine Policy 2001’ and the not made though prescribed banking channel.
companies formed under the new policy shall be
entitled to a reduced rate of USD 0.75 as against The limit of Rs. 50,000 is proposed to be
USD 1 on tonnage basis for the existing enhanced to Rs. 250,000 whereas the exception
companies. with regard to a single expenditure has been
increased from Rs. 10,000 to Rs. 25,000.
TAXATION OF RENTAL INCOME Similarly, under the present law, salary expense
in excess of Rs. 15,000 is also not allowed if paid
Prior to amendments made through Finance through non-banking channel. The threshold of
Act, 2019, rental income of non-corporate Rs. 15,000 has been increased to Rs. 25,000.
persons was taxed on a presumptive basis not
allowing any deductions and allowances. Expenditure on Utility Bills
The Finance Act, 2019 introduced an option for An enabling provision is proposed to be
non-corporate persons deriving rental income introduced to prescribe limits and conditions to
exceeding Rs 4 Million for taxation on net income restrict admissible expenditure on account of
basis at the applicable rate. utility bills.
The ceiling of Rs. 4 Million for entitling this In the ‘Salient Features’, it has been indicated
regime is now proposed to be done away. that electricity expense will be disallowed subject
to non-disclosure of name of actual user from
As a result, all non-corporate persons with rental January 1, 2021.
income can now opt to be taxed at par with
corporate persons. Expenditure attributable to sales made to
unregistered persons
In case rental income is computed on net income
basis, certain specific deductions are allowed, An industrial undertaking will not be allowed to
such as repair allowance, financial charges, claim any expenditure attributable to sales made
insurance premium, local taxes, etc. In addition to such persons who are required to be registered
to these specific deductions, all other expenditure but not registered under the Sales Tax Act, 1990
wholly and exclusive incurred for the purpose of in the following manner:-
rental income including administration and
collection chares, etc. is allowed subject to a (A/B) x C
threshold of 6% of gross rentals.
A is the total amount of business
The threshold of 6% is now proposed to be deductions;
reduced to 2%. B is the turnover for the tax year; and
C is the total amount of sales exclusive of
sales tax and federal excise duty to
persons required to be registered but
not registered under the Sales Tax Act,
1990 where sales is Rs. 100 million or
above per person.
9
The expenditure to be disallowed under this This appears to be a generic prescription of

provision will not exceed 20% of total deductions restricting depreciation in the first year and
claimed by the industrial undertaking. the year of disposal in relation to use throughout
The limitation in this manner indirectly allows the year or otherwise.
admissibility of expenditure attributable for sales
to unregistered persons beyond the said
threshold. The above provisions will be applicable on such
depreciable assets, which are used for the
first time in a tax year commencing on or after
A provision of a similar nature has also been July 1, 2020.
introduced in Sales Tax Act, 1990, which aims to
disallow claim of input tax attributable to sales
made to the above-referred unregistered persons. This amendment will adversely affect the
A collective reading of sales tax provision and this financial status of capital-intensive projects. For
provision reveals that sales to the above-referred example, in case of E&P Companies, 100%
unregistered persons would result in significantly depreciation is allowed in the first year for below
higher tax incidence for the registered sellers and ground installations being the cost of drilling
hence, creates an indirect pressure on registered wells.
persons to ensure that their relevant customers
are registered under the Sales Tax Act. LEASE RENTALS ON VEHICLES
FBR has been empowered to exempt persons or It is proposed that lease rentals incurred by
classes of persons from the application of this a lessee in respect of cost of passenger transport
provision in hardship cases. vehicles not plying for hire to the extent of
principal amount shall not exceed Rs. 2.5 million.
This section requires reconsideration with Similar limitation applies for claiming tax
respect to: depreciation on such vehicles owned by a
taxpayer.
a) The extent of expenditure that can be
considered attributable to a particular sale for TAX CREDIT FOR ENLISTMENT
example, financial charges, etc.
b) The process of identifying a person who is The tax credit allowed to companies opting
required to be registered but not registered at for enlistment is proposed to be restricted to
the time of sale by the said industrial such companies, which are listed upto June 30,
undertaking. 2022. The rate of such tax credit is 20% of
tax payable for the tax year in which
such company is listed and the following year
NORMAL TAX DEPRECIATION whereas in next two tax years, the rate of
tax credit is 10%.
Normal depreciation is admissible at the rates
prescribed in the Third Schedule at the full rate FOREIGN CONTROLLED RESIDENT
irrespective of date of addition for such assets in COMPANIES’ COST OF FOREIGN DEBTS
the tax year. An amendment is proposed to
restrict depreciation in the first year to 50% of the
Cost of foreign debts of any foreign controlled
rate prescribed in the Third Schedule.
resident company in Pakistan (other than
banking and insurance sector) has been restricted
Furthermore, in the year in which a depreciable to 15% of taxable income (before amortization
asset is disposed, 50% of normal depreciation for and depreciation) of such tax year with a carry
the respective tax year will be allowed to the forward mechanism subject to the same overall
taxpayer. limits each year.
10
The above restriction is in addition to Furthermore, non-resident persons such as E&P

thin capitalisation rules as laid down in companies may consider this amendment to be in
section 106, which is proposed to apply on conflict with their concession agreements signed
accrued interest from July 1, 2020 even by the President of Pakistan.
on foreign debts contracted before such date.
The cumulative effect of this provision and
thin capitalisation rules of section 106 needs to be RETURNS OF PERSONS SUBJECT TO
clarified in view of the ambiguity in sub-section 4 FINAL TAXATION
of proposed provision.
Persons subject to final tax regime are not
This provision effectively prescribes an arbitrary required to file return of income as prescribed
debt equity ratio for foreign controlled under section 114 of the Ordinance. In such cases,
resident companies whilst determining their tax a statement has been prescribed in the law in lieu
incidence. of return of income. Such statements only
required a disclosure of gross receipts and related
withholding tax.
The above provision needs to be evaluated with
reference to the non-discrimination articles of the
respective double tax treaties. The concept of statement in lieu of return is
proposed to be omitted.
CLASSIFICTION OF CERTAIN
CONCEALED INCOMES AS The FBR has been empowered to prescribe
BUSINESS INCOME returns for different classes of income or persons
including those covered by final tax regime.
Section 111 allows the Commissioner to make
certain additions to the income of a person This is procedurally a very significant and
including the concealed income and suppressed important amendment that exhibits the intention
amount of production or sales, etc. under the of the Government to enforce documentation
head ‘income from other sources’. It is now even for final tax regime.
proposed that such amounts will be added to the
person’s income under the head business’. This
amendment seems to be a corrective amendment REVISION OF RETURN FOR BONA FIDE
as the nature of such items is related to business OMISSION OR WRONG STATEMENT
income and also as a consequence of this, the
person will be allowed to claim adjustment of any Currently, filing of a revised return requires prior
brought forward business losses against such approval of the Commissioner, which has certain
items. limitations and conditions.
MINIMUM TAX ON NON-RESIDENT’S The Commissioner is now also empowered to

PERMANENT ESTABLISHMENTS grant approval for revision of return for bona fide
omission or wrong statement without any
Minimum tax provisions on turnover basis have condition or limitations. For example, where an
always been applicable on resident companies assessment is already made for a taxpayer’s
since inception. It is now proposed to include return, the taxpayer will now be allowed to revise
Permanent Establishments of non-residents his return for a bona fide omission or wrong
within its ambit. statement even if the revised return declares
amounts lower than that assessed in an amended
This amendment will have to be tested in view of order.
the applicable double tax treaty provisions
whereby such non-residents are generally subject
to tax on the basis of their profits and not on the
basis of turnover or gross receipts.
11
TAXPAYER’S PROFILE AMENDMENT OF ASSESSMENT ON

AUDIT
When a taxpayer files a registration application,
as part of the application, he is required to share Under section 122(5), a return can inter alia be
certain information which is part of his profile, amended on the basis of definite information
such as bank details, properties, assets, etc. The from ‘audit’ or otherwise.
taxpayers who are registered before introduction
of web portal have insufficient information
available with FBR and there is no mandatory There is a view that amendment under section
provision to update his information. Similarly, 122(5) after an audit can only be made where a
new registered taxpayers also are not definite information is identified in the audit
mandatorily required to update their profile. process and not otherwise.
Certain provisions are being introduced to define An amendment is proposed to provide that an
the concept of ‘tax profile’ and to prescribe assessment can be amended under section 122(5)
penalties and other negative consequences for on any matter identified in the audit whether or
taxpayers who fail to file or update their tax not the same represents a definite information as
profiles within the prescribed timelines. defined in the said provision.
The tax profile will be as prescribed in the Income AGREED ASSESSMENT

Tax Rules and shall be accompanied by such
annexures statements or documents as may be
prescribed. It appears that such profile would The concept of an ‘agreed assessment’ is
generally include information on bank accounts, proposed to be introduced in the Ordinance.
utility connections, business premises, etc.
Though not defined in the Ordinance, an agreed
All existing registered taxpayers as well as those assessment represents a status agreed upon by
who will obtain registration by September 30, the taxpayer and the department. The effect of
2020 will be required to file and update their tax such an assessment is that either party has
profile by December 31, 2020 whereas other no right to contest the matter in any manner
taxpayers will be required to file and update their and no penal action lies against the taxpayer.
profiles within 90 days of registration. The concept of agreed assessment is
Furthermore, with regard to any changes in such generally applied in situations where both
profile, the updating is required to be made parties do not have definite basis or calculation
within 90 days of such change. of an amount proposed to be added to
the declared income, for example, in transfer
Failure to file and update tax profiles in the above pricing cases.
manner and within the prescribed dates could
result in a taxpayer’s exclusion from active The amendment also prescribes that an
taxpayers list. However, such persons can be agreed assessment can only be made after
included back in active taxpayers list by filing the the receipt of notice under section 122(9) of the
requisite information and paying the prescribed Ordinance. This effectively means that
amount of surcharges. taxpayer may agree upon certain disallowances
or additions proposed in such notice without
REVISION OF WEALTH STATEMENT a right of appeal.
Filing of a revised wealth statement has been In the past, there were instances of agreed
made subject to prior approval of the assessment where the conditions as laid down
Commissioner, which is expected to be granted in above were exchanged by the taxpayer and
case of bona fide omission or a wrong statement. department through respective undertakings.
It has also been clarified that wealth statement Now this procedure is proposed to be
cannot be revised after 5 years from filing of such incorporated in law.
wealth statement.
12
A taxpayer intending to settle a case may file offer This matter needs to be re-examined with
of settlement in the prescribed form before the reference to the right of the Appellate Tribunal to
‘assessment oversight committee’, in addition to entertain an appeal by the taxpayer without such
filing a reply to the notice. This option is, payment of tax.
however, not available in cases involving
concealment of income or where the In order to facilitate the determination of said
interpretation of question of law involved having amount, it is proposed that the
effect on other cases. Commissioner – Appeals shall also specify in the
appellate order the amount of tax upheld in
The said Committee will comprise of the Chief appeal.
Commissioner, Commissioner and the Additional
Commissioner having jurisdiction over the case. ALTERNATIVE DISPUTE RESOLUTION
COMMITTEE
After examination of the aforesaid, the
Committee may call for the record of the case and Prior to Finance Act, 2018, the procedure of
after affording reasonable opportunity of being settlement of dispute through Alternative
heard to the taxpayer may accept, modify or Dispute Resolution mechanism was essentially
decline the offer of the taxpayer through optional in nature. The Federal Board of Revenue
consensus and communicate the decision to the was not mandatorily required to accept the
taxpayer. In case the taxpayer agrees with such recommendation of the ADRC. Consequently, the
decision, he shall deposit the amount determined appellant was not necessarily required to
by the Committee and on such basis, the withdraw the appeal filed before an appellate
assessment will be amended with no right of forum for seeking remedy under the ADRC.
appeal and no further proceedings will be taken
on such issues. However, through the Finance Act, 2018, the
whole mechanism of ADRC was revamped, in the
If the Committee is not able to arrive at a sense that the option of seeking remedy in ARDC
consensus or the taxpayer does not agree with the was to be only available if the applicant
decision of the Committee the case shall be withdraws the appeal pending before any court of
referred back to the Commissioner for decision law or an appellate authority after the
on the basis of taxpayer’s response to notice appointment of the ARDC by FBR. Consequent
under section 122(9). upon such withdrawal of appeal, the
recommendations of ADRC were made binding
The FBR is empowered to make rules regulating on both the parties.
the procedure in relation to the agreed
assessment. These amendments were generally criticized by
businesses as well as professional forums and it
The proposed amendment needs to be examined was emphasized that the alternate mechanism
with reference to the implication of an agreed under ADR before the amendments introduced
status in a particular year for any prior or by Finance Act, 2018 may be restored. The matter
subsequent assessment. was time and again brought to the attention of the
policy makers and it seems that the government
FILING OF APPEAL BEFORE APPELLATE has now agreed and therefore proposed to enact
TRIBUNAL - DETERMINATION OF TAX the following significant amendments through
DEMAND UPHELD IN FIRST APPEAL Finance Bill, 2020:
Under the present regime, an appeal lies before - The requirement for the aggrieved party to
the Appellate Tribunal irrespective of payment of withdraw the appeal pending before any
demand confirmed by the Commissioner- court of law or an Appellate Authority after
Appeals. This inherent right of appeal is proposed the appointment of ADRC by FBR has been
to be subject to a mandatory payment of 10% of proposed to be done away with.
the tax demand upheld by the Commissioner -
Appeals.
13
- It has now been proposed that FBR shall be (ii) A person from the panel notified by FBR
required to communicate the order of the consisting of Chartered Accountants,
appointment of ADRC to the court of law or Cost and Management Accountants and
the appellate authority where the dispute is advocates were previously required to be
pending and the relevant Commissioner. nominated by the taxpayer and reputable
Presently, there is no such condition for FBR businessmen were to be nominated by
to oblige. Chamber of Commerce and Industry.
All such nominations on the ADRC now rests
- Presently, there is an automatic stay against with FBR.
recovery of demand where the matter is
pending before the ADRC up to the date of (iii) The requirement to include a retired Judge
decision. However, instead of an automatic of the High Court on the ADRC has been
stay of recovery of demand, the bill now done away with.
proposes to empower the ADRC to grant stay
against recovery of demand, in case of Parallel amendments are also proposed to be
hardship, for a period of 120 days in made in the Sales Tax Act, 1990 and the Federal
aggregate or the decision of the ADRC or its Excise Act, 2005.
dissolution, whichever is earlier.
ADVANCE TAX ON TURNOVER BASIS
- An ADRC is presently required to decide the
dispute by simple majority. However, the Quarterly advance tax payments are based on the
amendment now proposed provides for the amount of turnover as determined by taxpayer
decision on dispute on the basis of for which there is no prescribed mechanism of
consensus among the ADRC members. intimation or filing with the tax authorities.
- Under the present ADRC mechanism, the FBR is now empowered to prescribe a procedure
decision of ADRC is binding on the for filing and calculation of turnover for the
Commissioner and the aggrieved party quarter through an automated system.
without any further condition. Under the
proposed amendments, the decision shall be WITHHOLING TAX FROM
binding on the Commissioner only when the
NON-RESIDENT MEDIA PERSONS
aggrieved party, after being satisfied with
the decision of ADRC, withdraws the appeal
pending before the court of law or any Withholding tax applicable on payments for
appellate authority, and the order of such advertisement services of non-resident media
withdrawal has been communicated to the persons relaying from outside Pakistan at the rate
Commissioner within 60 days of the service of 10% of such payments has been made
of the decision of ADRC upon the aggrieved ‘minimum tax’.
party.
WITHHOLDING TAX ON PERMANENT
- Presently in case of dissolution of ADRC, the ESTABLISHMENTS OF NON-RESIDENTS
court of law or appellate authority where the
dispute is pending is required to decide Withholding tax applicable on payments to PEs of
appeal within six months of the non-residents for sale of goods and execution of
communication of dissolution order. contract has also been made ‘minimum tax’
The time period to decide case within six except where the sale of goods is made by a
months is proposed to be done away with. manufacturer. Payments for services rendered by
non-residents’ PEs were already subject to
There are certain other procedural changes that minimum tax.
include:
(i) Chief Commissioner Inland Revenue having The purpose of the above amendment seems to
jurisdiction over the case has to be on ADRC. align the taxation of PEs of non-residents with
Previously, any Commissioner was required that of resident persons who are also subject
to be included on ADRC. to minimum tax on similar payments under
section 153.
14
Minimum tax provisions appear to be in conflict COHESIVE BUSINESS ARRANGEMENTS

with double tax treaties whereby such non-
residents are required to be taxed on the basis of Through Finance Act, 2019, the Commissioner
income and on gross turnover basis. was empowered to require payment of
withholding tax at the effective rate of 2.1% (being
Payment to non-residents for services 30% of 7%) on payments from a non-resident on
account of offshore portion of the contract under
Through Finance Act 2019, a reduced rate of 3% cohesive business arrangements subject to
was introduced for certain specified services certain conditions.
rendered by the resident service providers. In
order to provide level playing field for non- It is now proposed to reduce the rate of
resident service providers, the bill proposes withholding tax from 30% to 20% of the
consequential amendments for non-resident applicable rate, which would effectively translate
service providers. The proposed sectors are into 1.4% (being 20% of 7%) on such payments.
identical to those prescribed for resident service
providers, however, there seems to be an anomaly WITHHOLDING TAX RATE REDUCTON
whereby services provided by Pakistan Stock ON FEES FOR TOLL MANUFACTURERS
Exchange Limited and Pakistan Mercantile
Exchange Limited have also been included in the Under the present law, there is no specific rate of
non-resident service providers, which cannot be withholding tax on fees related to toll
the case. Furthermore, the list does not include manufacturers. It is proposed that such fees of
Engineering Services. toll manufacturers will be subject to withholding
tax at 4% / 4.5% being minimum tax.
The proposed sectors are as under:
This amendment effectively resolves the dispute
 transport services, relating to classification of such fees as ‘services’
 freight forwarding services, or ‘contract’.
 air cargo services,
 courier services, VALUATION OF GOODS FOR
 manpower outsourcing services, COLLECTION OF TAX ON IMPORTS
 hotel services,
 security guard services, For the purpose of tax collection on imports,
 software development services, the definition of the term “value of goods” is
 IT services and IT enabled services as proposed to be substituted to mean:
defined in clause (133) of Part I of Second
Schedule, a. Retail price in case of goods chargeable
 tracking services, to sales tax at retail price under the
Sales Tax Act, 1990; and
 advertising services (other than by print or
electronic media),
b. in case of all other goods; the value of the
 share registrar services,
goods as determined under the Custom Act,
 car rental services, 1969, increased by the custom-duty, federal
 building maintenance services, excise duty and sales tax, if any, payable in
 services rendered by Pakistan Stock respect of the import of the goods.
Exchange Limited and Pakistan Mercantile
Exchange Limited, This proposal in respect of retail price items
 inspection, certification, testing and training needs to be re-examined with reference to
services. valuation of other than ‘same state goods’ which
represent imports subject to value addition and
The case of non-resident providing services processing.
under a contract particularly in E&P sector needs
to be reconsidered for inclusion in the above list
as the same were subject to reduced rate basis
prior to Finance Act, 2019.
15
EXEMPTION FROM APPLICABILITY OF EXEMPTION CERTIFICATE FOR LISTED

SECTION 148 TO CERTAIN PERSONS COMPANIES
The Bill proposes to incorporate that the The Commissioner is required to issue an
provisions of section 148 will not apply to the exemption certificate under section 153
following: for supply of goods by a listed company within
15 days if the company pays its advance tax.
 the Federal Government; In case no such certificate is issued within
15 days, the exemption certificate will be deemed
 a Provincial Government; to have been issued automatically on web portal.
The Commissioner may, however, subsequently
 a Local Government; cancel or modify such deemed exemption after
recording reasons and providing an opportunity.
 a foreign company and its associations
whose majority share capital is held by PRESCRIBED PERSONS FOR
a foreign government; WITHHOLDING TAX
 a person who imports plant and machinery The threshold of annual turnover for an
for execution of a contract with the individual and an association of persons to be a
Federal Government or a provincial prescribed person for withholding tax under
government or a local government and section 153 has been enhanced from Rs 50 million
produces a certificate from that government; to Rs 100 Million. Furthermore, a person
registered under Sales Tax Act, 1990 will only
 companies importing high speed diesel oil, qualify as prescribed person if his annual
light diesel oil, high octane blending turnover exceeds Rs 100 million in any of the
component or kerosene oil, crude oil for preceding years.
refining and chemical used in refining
thereof in respect of such imports; and FILING OF STATEMENTS
 Petroleum (E&P) companies covered The Finance Act, 2019 amended the requirement
under the Customs and Sales Tax to file withholding statements from monthly to
bi-annual basis. It is now proposed to replace the
Notification No. S.R.O.678 (I)/2004, dated
the 7th August, 2004, except motor vehicles bi-annual statements with quarterly statement
imported by such companies. filing requirement. Such quarterly statements
will be filed on 20th of month following the end of
each quarter.
The above exemptions were earlier provided in
SRO 947(I)/2008. FBR has also been empowered to prescribe a
quarterly statement for persons engaged in
Through SRO 236(I)/2020 dated March 20, economic transactions. It is expected that such
2020, exemption has been provided from income rules will also define the term ‘economic
tax withholding on import of identified transaction’ for the purpose of this new
medical and testing equipment regarding requirement.
outbreak of COVID-19. Such exemption was
initially provided till June 20, 2020 which has FURNISHING OF INFORMATION BY
now been proposed to be extended till September BANKS
30, 2020.
The requirement for Banks to make
The Bill proposes to exempt the applicability of arrangements to provide to the FBR information
provision of section 148 to persons importing in respect of a list of persons receiving profit on
pulses between April 7, 2020 and September 30, debt exceeding Rs 500,000 and tax deductions
2020. thereon during preceding financial year is
proposed to be amended in a manner that the
limit of Rs 500,000 will be omitted.
16
REAL TIME ELECTRONIC ACCESS BY gas transmission and distribution companies, it is

GOVERNMENT AGENCIES AND UTILITY proposed to allow time until January 2021 to
COMPANIES consumers to update the ratio of sharing of a
connection or the particulars of users.
At present, the information and databases of
various agencies and organisations are not These amendments are proposed
accessible to / integrated with FBR, as the case notwithstanding anything to the contrary
may be. For example, the data of industrial contained in the NADRA Ordinance, 2000 or
electricity consumers held by the utility Emigration Ordinance, 1979.
companies does not commensurate with the
registered taxpayers of FBR. Information received by FBR under this
mechanism is proposed to be kept confidential
The proposed amendment in all three taxing and used only for tax purposes.
statutes empowers FBR to access / integrate their
systems with certain agencies and organisations. REAL TIME ELECTRONIC ACCESS TO
It has been proposed that this right of FBR will RECORDS
override any restrictive provisions in the
respective laws and regulations of such agencies Presently, the Commissioner is authorized full
or organisations. and free access to taxpayers’ premises, place,
accounts, documents or computer, if required, in
In the recent past FBR had been facing pursuance of any audit or survey proceedings
challenges, including legislative impediments, to initiated under the Ordinance.
obtain information from different government
agencies and utility companies. It is now proposed to allow the Commissioner
real time electronic access to such records of the
As per the proposed provisions, following taxpayer. Rules in this regard explaining
government agencies / corporations and utility modalities are to be prescribed by FBR.
sector will be required to grant real time
electronic access to information and databases AUDIT THORUGH VIDEO LINK
maintained by them to FBR;
Enabling provisions are being introduced to allow
(i) NADRA the Commissioner to conduct audit proceedings
(ii) FIA and Bureau of Emigration and electronically through video links or any other
Overseas Employment prescribed facility.
(iii) the Islamabad Capital Territory and
provincial and local land record and
It is desired that similar provisions should be
development authorities
made for all proceedings under the Ordinance
(iv) the Islamabad Capital Territory and
including but not limited to appeals as well as
provincial Excise and Taxation
amendment and withholding tax monitoring
Departments
proceedings, etc.
(v) All electricity suppliers and gas
transmission and distribution
companies; and INCOME DETERMINATION ON THE
(vi) any other agency, authority, institution BASIS OF GENERIC SECTORAL
or organization notified by FBR. BENCHMARKS
It is proposed that above agencies / entities shall A provision has been introduced in section 177
provide required information and data to FBR on (Audit) whereby the taxation officer can apply
periodic basis (frequency and form to be generic ‘sectoral benchmarks’ for determination
prescribed by FBR) until FBR makes of income disregarding the results furnished by a
arrangement for laying down infrastructure for taxpayer.
the access and its alignment with its own
database. Specifically, for electricity supplier and
17
This provision will only apply where a case is WITHDRAWAL OF CERTAIN

selected for tax audit and the taxpayer fails to WITHHOLDING TAX PROVISIONS
provide the information required during such
audit. As part of reforms for ease of doing business,
the government has proposed to withdraw
The prescription of sectoral information following withholding tax provisions, which in
represents a positive approach as the same is government’s view were not generating enough
expected to avoid adhoc and arbitrary basis revenues:
adopted by taxation authorities. This system was
in practice before 2001 Ordinance.
Section
Reference Description
DEFAULT SURCHARGE
DETERMINATION 148A - Tax on local 2 percent tax was chargeable on the
purchase of purchase of locally produced edible
cooking oil or oil by the manufacturers of cooking
Default surcharge provisions require the vegetable ghee by oil or vegetable ghee.
computation of surcharge on the basis of period certain persons
of default for which a terminal date is prescribed
as the date of payment of principal demand. 156B - Withdrawal A pension fund manager making
There is a view that unless the demand is paid / of balance under payment from individual pension
recovered, the default surcharge cannot be Pension Fund accounts, maintained under any
approved Pension Fund, was
determined by the Commissioner and hence, not required to deduct tax at the average
recoverable. rate of tax as calculated in section 12,
from the amount so withdrawn by the
An amendment is therefore proposed to allow the pensioner before or after his
retirement.
Commissioner to compute or determine the
demand for default surcharge amount 235B - Tax on steel Tax under this section was required
irrespective of whether the principal amount has melters and to be collected from every steel
been paid as yet. composite units melter, and composite steel units,
registered for the purpose of Chapter
XI of Sales Tax Special Procedure
EXEMPTION FROM WITHHOLDING Rules, 2007 at the rate of one rupee
TAX ON ELECTRICTY per unit of electricity consumed for
the production of steel billets, ingots
and mild steel (MS products)
Currently, the Commissioner is only empowered excluding stainless steel.
to issue an exemption certificate with regard to
withholding tax from electricity where the 235D - Advance Advance tax under this section was
person’s exempt from income tax. An enabling tax on functions required to be collected by the
provision has been proposed to allow the and gatherings prescribed person on the total
amount of the bill from a person
Commissioners to issue an exemption even in arranging or holding a function in a
those cases where the taxpayer has otherwise marriage hall, marquee, hotel,
discharged his advance tax liability for the tax restaurant, commercial lawn, club, a
year. community place or any other place
used for such purpose including the
food, service or any other facility is
TAX ON PAYMENTS FOR USE OF provided by any other person, from
EQUIPMENTS the person arranging or holding the
function.
Withholding tax on payments to residents for the
use or right to use industrial, commercial or 235F - Advance Under this section, Pakistan
scientific equipment is proposed to be amended tax on cable Electronic Media Regulatory
from ‘final’ to ‘minimum’ tax. operators and Authority was required to collect
other electronic advance tax, at the time of issuance of
media licence for distribution services or
renewal of the licence to a licencee.
18
Section
The abovementioned tax credit on charitable
Reference Description donations, if being availed on donation by
an associate of the donor is proposed to be
236J - Advance tax Advance tax under this section was restricted to the lesser of the total amount of
on dealers, required to be collected by every person’s donations and 15% of the taxable income
commission market committee from dealers,
agents and arhatis commission agents or arhatis, etc. at
of the donor, in case of an individual or AOP and
etc the time of issuance or renewal of 10% in case of a Company.
licences
Furthermore, a straight deduction from income is
236R - Collection Advance tax was required to be allowed to the donors for amounts paid to
of advance tax on collected by Banks, financial
education related institutions, foreign exchange
institutions, foundations, societies, boards, etc
expenses remitted companies or any other person specified in clause 61 of Part I of the Second
abroad responsible for remitting foreign Schedule. Under the said clause 61, a restriction
currency abroad for the purpose of is also proposed to be included whereby, the
education related expenses remitted
abroad from the payer of education
amount so donated by an associate shall not
related expenses. exceed:
236U - Advance Advance tax was required to be (i) 15% of taxable income in case of an
tax on insurance collected under this section, by the individual or AoP; and
premium insurance company at the time of
collection of insurance premium from
(ii) 10% of taxable income in case of a
the person in respect of general Company.
insurance premium and life
insurance premium. In addition to the above, another proviso is
proposed whereby the straight deduction from
236X- Advance tax Pakistan Tobacco Board or its
on tobacco contractors, at the time of collecting income under clause 61 is available only if the
cess on tobacco, directly or indirectly, said donation is paid via a crossed cheque.
shall collect advance tax at the rate of
five percent of the purchase value of Following institutions are proposed to be added
tobacco from every person
purchasing tobacco including to the existing list specified in clause (61):
manufacturers of cigarettes.
(i) The Prime Minister’s COVID-19
Pandemic Relief Fund-2020;
(ii) Ghulam Ishaq Khan Institute of
CHARITABLE DONATIONS Engineering Sciences and Technology ;
(iii) Lahore University of Management
Section 61 entitles a person to a tax credit in Sciences;
respect of donations to any non-profit (iv) Dawat-e-Hadiya, Karachi;
organization and certain specified institutions (v) Baitussalam Welfare Trust;
and finds established by the Federal, Provincial (vi) Patients’ Aid Foundation;
or Local Governments. The amount of such tax (vii) Alkhidmat Foundation;
credit for a tax year is computed at an average
rate of tax on the lesser of:
NON PROFIT ORGANISATIONS (NPOs)
(a) the total amount of the person’s
donations, including the fair market For an institution to qualify as NPO, its existence
value of any property given; or should be for religious, educational, charitable,
welfare or development purposes or for the
(b) where the person is: promotion of amateur sports. The proposed
amendment in the definition seeks to omit
(i) an individual or AOP, 30 per ‘development purposes’ which appeared to have a
cent of the taxable income for the year; or wider connotation and susceptible of being
construed to defeat the underlying objective
(ii) a company, 20 per cent of the behind having a concept of NPOs for tax
taxable income for the year. purposes.
19
Furthermore, an amendment is made to over- This restriction does not appear appropriate for
emphasise that only those organisations fall the reason that in most of the cases, donations to
under the ambit of NPOs, which are for the NPOs are made by persons who represent an
benefit of general public. associate of the NPO. This amendment will
effectively curtail donations for endowments for
To further reinforce compliance by NPOs and specific welfare purposes made to NPOs.
other institutions, following amendments have
been proposed in section 100C and clause 66 of Moreover, the above amendment when made in
Second Schedule: the context of NPO was also criticized as being
inappropriate as under the strict tax principles,
(i) The existing requirement to file a statement Donations and voluntary contributions cannot be
of voluntary contributions and donations considered as ‘income’ if they remain unspent as
received in the immediately preceding tax any money not spent by NPO / trusts / welfare
year. Under Rule 217, same information is institutions during the year will ultimately be
already required to be submitted by NPO spent for the purposes such organisations are
to retain its approval for amounts exceeding established; hence taxing such voluntary
Rs 5,000. contributions and donations is not an
appropriate step.
(ii) income derived by institutions /
organisations listed is clause 66 of Part I of CONSTRUCTION INDUSTRY
the Second Schedule to the Ordinance, is
presently exempt from tax. Through the The President of Pakistan promulgated the
Finance Bill, however, the said clause is Tax Laws (Amendment) Ordinance, 2020
being replaced and the organizations earlier (‘Amendment Ordinance’) on April 17, 2020 for
listed have been bifurcated into two the Construction Industry to give effect to the
categories whereby: incentive package earlier announced by the
Premier on April 3, 2020.
a. Any income of organisations listed in
Table 1 to the said clause is exempt; In order to validate and give legislative effect to
the Amendment Ordinance (being a Presidential
b. Exemption on of the organisations listed Ordinance) which would have otherwise expired
in Table 2 of the said clause has been after 120 days from the date of promulgation, the
made subject to the fulfilment of amendments made through the same have now
conditions mentioned in section 100C of been incorporated through the Finance Bill,
the Ordinance with effect from July 1, 2020.
2021.
Salient Features of the
The Finance Act, 2019 introduced a requirement Amendment Ordinance
of having a status of NPO for trusts and welfare
institutions to qualify for tax credit with effect (a) Constructors of buildings, roads, bridges
from July 1, 2020. Consequently, once the obtain and other such structures or the
NPO approval they are required to pay tax on development of land have been assigned the
unspent funds (termed as ‘Surplus Funds’) at the status of ‘Industrial Undertaking’, to the
rate of 10%. The scope of such tax has now been extent and for the purpose of import of plant
extended to include trusts and welfare and machinery to be utilized for such
institutions into its ambit. purposes.
Moreover, one of the exclusions from the (b) The provisions of section 100D read
abovementioned tax is when the donor has placed with Eleventh Schedule apply to all Builders
certain restrictions / obligations on spending of and Developers opting to be taxed as such
such funds. An amendment has been proposed by registering themselves with the FBR on a
that this exclusion does not apply in cases where Project-by-Project basis (‘eligible projects’).
the donor is an associate of the NPO, trust or
welfare institution.
20
The key features are as under: TAX REGIME FOR DISPOSAL OF

IMMOVABLE PROPERTIES
i. A scheduler based fixed tax regime for
builders and developers, which can be
opted for eligible projects being either Short term capital gains on disposal of
new or existing incomplete projects. immovable properties were not taxable in
the Ordinance in the past. Such gains were made
ii. Immunity from application of section taxable through Finance Act, 2012.
111 with regards to capital investments
in new projects by investors and to the Determination of short term gains depends on
first purchasers of building including holding period of property. The holding period
units therein in new and existing was initially prescribed as two years for
incomplete projects and for plot this purpose, which was subsequently enhanced
purchasers. to 4 and 8 years for constructed and open plots
respectively by the Finance Act, 2019.
iii. Facility for builders and developers to
incorporate their profits and gains in
books of accounts (including wealth The Finance Bill proposes a reduction in holding
statements) up to ten times the amount period to 4 years in all cases. This means that any
of fixed tax paid under the regime on capital gains on sale of immovable property will
eligible projects. be treated as long term capital gain exempt from
tax if the property is held for more than 4 years.
iv. Exemption from tax on Dividend
distributed by Corporate builder or There is a need for examination of tax exemption
developer out of the profits and gains of on cases where properties were held for more
eligible projects, with specific than 4 years and disposed during the intervening
exemption from tax withholding on period when 8 years holding period law was
such distribution. applicable.
v. Builders and developers absolved from We understand that the right of Federal
withholding tax under section 153 of the Government to tax capital gains on immovable
Ordinance on purchase of materials properties is subjudice before the courts in view
(except steel and cement) and services of relevant entry of the Federal legislative list.
(plumbing, electrification, shuttering
and other similar and allied services)
provided by non-corporate service In the incentive package announced on April 3,
providers. 2020, it was proposed that the holding period for
constructed property for capital gains tax
(c) Exemption from tax on capital gains to a purposes under the Ordinance was proposed to
resident individual on sale of constructed be reduced from 4 to 3 years and that no CGT was
residential property (house of 500 square to be levied where such property is sold in the
yards and a flat of 4,000 square feet) used fourth year and onwards. It was also proposed
only for personal accommodation. that the holding period for real estate/open plots
was to remain at 8 years with significant
(d) Reduction of 90% of the tax payable on the reduction in tax rates from fourth year and
income, profits and gains of projects of ‘low onwards. However, these incentives were not
cost housing’ developed or approved by made part of the Amendment Ordinance.
Naya Pakistan Housing and Development
Authority (NAPHDA) or under the Ehsaas Finance Bill, 2020 now proposes the uniform
Programme. basis of taxation of capital gains for all types of
immovable properties without any
A note on Amendment Ordinance was published distinction between open plots and constructed
by our firm, which can be accessed on the link properties similar to the position before the
https://www.pwc.com.pk/en/tax- revamping done through Finance Act, 2019.
memorandum.html for further details.
21
Capital gains on disposal of immovable presently Finance Bill, 2020 proposes to reduce the period
taxable subject to holding periods and that from 5 years to 4 years so as to streamline the
proposed to be taxable vide Finance Bill, 2020 on collection of advance tax on capital gains, which
uniform basis are tabulated hereunder: are proposed to be taxed up to the holding period
of 4 years.
Existing - Taxability of Capital Gains on
Disposal of ‘Open Plot’ FIRST SCHEDULE – PART I
Sr. Holding Period Taxability
No. of Gain
Capital gains on disposal of securities
1 Within 1 year 100%
2 1 year - 8 years 75% The rates of tax for tax year 2020 onwards on
3 Over 8 years 0% capital gains on disposal of shares and
other specified securities are proposed to be kept
Existing - Taxability of Capital Gains on at par with those applicable for tax years 2018,
Disposal of ‘Constructed Property’ 2019 and 2020.
Sr. Holding Period Taxability FIRST SCHEDULE – Part III

No. of Gain
1 Within 1 year 100%
2 1 year - 4 years 75% Withholding tax on dividend of
3 Over 4 years 0% companies with no tax payable
Proposed (Uniform Basis) - Taxability of Through Finance Act, 2019 the rate of tax was
Capital Gains on Disposal of Immovable increased to 25% in the case of a person receiving
Property dividend from a company where no tax is
Sr. Holding Period Taxability of
payable by such company due to exemption of
No. Gain income or carry forward of business losses or
1 Within 1 year 100% claim of tax credits. However, the tax
2 1 year - 2 years 75% withholding was prescribed at 15 % in such cases.
3 2 years - 3 years 50% The Bill proposes to enhance the rate of
4 3 years - 4 years 25%
5 Over 4 years 0%
tax withholding to 25 % in such cases to address
this inconsistency.
Finance Bill, 2020 proposes to reduce by half, the
existing tax rates chargeable on capital gains Whilst providing for withholding tax at 25%, the
arising on disposal of immovable properties as case of distribution by mutual funds should have
under: been expressly excluded as their standard rate of
tax is otherwise 15%.
Sr. Capital Gain Tax Rate
No. Existing Proposed
1 Within Rs. 5 million 5% 2.5%
Requirement to furnish certificate for
2 Rs. 5 million - Rs. 10 10% 5% reduced rate of tax withholding
million
3 Rs. 10 million - Rs. 15 15% 7.5% Presently, a reduced rate of tax withholding at
million 10 per cent is prescribed in case of Profit on debt
4 Over Rs. 15 million 20% 10%
upto Rs. 500,000. The Bill proposes that the
recipient of Profit on Debt should furnish a
Advance Tax on Sale of Immovable certificate to the payer in order to avail the benefit
Property of reduced rate of tax withholding.
Presently, adjustable advance tax applicable at Tax withholding on corporate Sukuk
the time of sale of immovable property holders
is collectable from the seller or the
transferor at the rate of 1% of the gross amount Rate of tax withholding in case of corporate
of the consideration received only Sukuk holders has been proposed to be enhanced
where the holding period of immovable from 15% to 25%.
property disposed of is not more than 5 years.
22
Tax withholding on ‘engineering services’ Exemptions for Gwadar Free Zone
The Bill proposes to omit ‘engineering services’ (a) Exemption for income derived by the
from the list of service sectors subject to reduced following entities and their contractors and
rate of tax withholding at 3 per cent for resident sub-contractors has been extended to
persons. income from operations in Gwadar Free
Zone with effect from June 1, 2020:
FIRST SCHEDULE - Part IV
 China Overseas Ports Holding Company
Tax withholding on Limited,
extraction of minerals  China Overseas Ports Holding Company
Pakistan (Private) Limited,
Rate of tax  Gawadar International Terminal
Category of Persons Limited,
Existing Proposed
Whose names are  Gawadar Marine Services Limited and
Nil 5%
appearing on ATL  Gawadar Free Zone Company Limited.
Whose names are not
5% 10%
appearing on ATL (b) Profit on debt derived by any foreign lender
or any local bank having more than 75 per
SECOND SCHEDULE – Part I cent shareholding of the Government or the
State Bank of Pakistan under a Financing
Withdrawal from Voluntary Pension Agreement with the following entities has
Scheme (VPS) been proposed to be exempted with effect
from June 1, 2020:
Presently, exemption is available for receipt of
accumulated balance up to 50 per cent from VPS  China Overseas Port Holding Company
inter alia at the time of retirement. Any receipt in Pakistan (Private) Limited,
excess of 50 per cent on or after retirement age is  Gwadar International Terminals
taxable at the applicable rate of tax. Limited,
 Gwadar Marine Services Limited, and
The Bill proposes to tax 100 per cent of the receipt  Gwadar Free Zone Company Limited.
from VPS before retirement age and receipt in
excess of 50 per cent of the accumulated balance Exemption to Co-Developer of Special
on or after retirement age at the average rate of Economic Zone
tax for preceding three tax years as prescribed in
sub-section (6) of section 12 of the Ordinance. Currently exemption is available to the following:
Withdrawal in excess of 50 per cent in case of (a) the income derived by a zone enterprise as
death or disability will continue to be taxed at the defined in the SEZ Act, 2012 for a period of ten
applicable rate of tax. years starting from the date the developer
certifies that the zone enterprise has commenced
Whilst the provisions of withholding tax under commercial production; and
section 156B have been omitted, the liability to (b) for a period of ten years to a developer of a
withhold tax on withdrawals from VPS has been zone starting from the date of signing of the
incorporated in Second Schedule. development agreement in the SEZ as announced
by the Federal Government.
Sale of immovable property to
Development REIT Scheme The bill proposes to extend the exemption to the
co-developer as defined in SEZ Rules, 2013
Exemption for profits and gains on sale of subject to the condition that the developer
immovable property to a Developmental REIT certifies and the Special Economic Zone
Scheme with the object of development and Authority validates that the developer has not
construction of residential buildings has been claimed exemption and has relinquished his
proposed to be extended to June 30, 2021. claim in favour of the co-developer.
23
Income of Federal Government Such reduced rate of tax withholding is proposed

Employees Housing Authority to be applicable on payments made between
April 7, 2020 and September 30, 2020.
The bill proposes exemption for the income
derived by the Federal Government Employees The proposed rate of tax withholding is
Housing Authority for Tax year 2020 and not applicable to payment against supply of tea,
following four tax years. spices, salt and dry milk which are sold under a
brand name and is also not applicable if rate of
SECOND SCHEDULE – Part II
tax withholding already prescribed is lower than
Tax withholding on Profit on debt to non- 1.5 per cent.
resident individuals
The bill proposes a withholding tax rate of 10% on SECOND SCHEDULE – Part IV
payment of profit on debt to non-resident
individuals on debt instruments issued by the Withdrawal of various exemptions
Federal Government under the Public Debt Act,
1944. Such debt instruments must be purchased
from bank account maintained abroad, a Non- Tax withholding on purchase of scrap by
Resident Rupee Account Repatriable (NRAR) or steel melters and composite steel units
a foreign currency account maintained with a
banking company in Pakistan. The tax deducted The bill proposes withdrawal of exemption from
is final tax. provisions of section 153(1)(a) available on
payments for purchase of scrap by steel melters,
Furthermore, the Bill also proposes exemption steel re-rollers, composite steel units.
from applicability of section 236P on cash
withdrawal from such NRAR and foreign Exclusion from applicability of minimum
currency account maintained with a banking tax under section 113
company in Pakistan for the purpose of making
investment in debt instruments above. Presently, exemption from applicability of
minimum tax under section 113 is available to all
Exemption has also been proposed from Modarabas registered under the Modaraba
registration and filing of income tax return if the Companies and Modaraba (Floatation and
non-resident is only deriving Profit on Debt on Control) Ordinance, 1980.
the afore-mentioned debt instruments.
The Bill proposes to restrict such exemption to
Also, the provisions of Tenth Schedule are Modarabas qualifying for exemption under
proposed to be inapplicable on withholding tax clause (100) of Part I of the Second Schedule. This
rate applicable to such profit on debt. means that Modarabas not qualifying for said
exemption will remain liable to pay minimum
Reduced rate of withholding tax on tax.
supplies of goods to utility stores
In addition, the Bill proposes exemption from
The bill proposes a reduced withholding tax rate applicability of minimum tax under section 113
of 1.5 per cent on payment against supply of the Federal Government Employees Housing
following goods to Utility Stores Corporation of Authority for the tax year 2020 and the following
Pakistan by persons other than company: four tax years.
 tea  sugar
 spices  pulses
 salt  wheat flour
 dry milk  ghee
24
Exemption on medical and testing Exemption from tax withholding to non-

equipment regarding outbreak of resident Hajj group operators
COVID-19
The Bill proposes to provide exemption from tax
Through SRO 236(I)/2020 dated March 20, withholding on payment to non-resident Hajj
2020, exemption has been provided from income group operators in respect of Hajj operations.
tax withholding on import of identified medical
and testing equipment regarding outbreak of Exemption from tax withholding on
COVID-19. Such exemption was initially provided banking transactions
till June 20, 2020 which has now been proposed
to be validated through Finance Bill with an Under the provisions of sections 231A, 231AA and
extension till September 30, 2020. 236P, tax withholding is prescribed on certain
banking transactions executed by the persons not
Exemption from income tax withholding appearing on the Active Taxpayers List.
on import of pulses
The Bill proposes to render such withholding
The Bill proposes to exempt the applicability inapplicable to Pak Rupee Account to the extent
of provision of section 148 to persons importing of foreign remittance credited in such account.
pulses between April 7, 2020 and September 30,
2020. Exemption from tax withholding on
commission
Exemption from applicability of
section 153 to certain persons
Through SRO 315(I)/2020, exemption was
The Bill proposes to incorporate the provisions of provided for tax withholding on commission
SRO 586(I)/91 with regard to exemption of received by a retail branchless banking agent on
section 153 to the following recipients of any amount disbursed by the Ehsaas Emergency
payments: Cash Transfer Programme for the period between
April 16, 2020 and June 30,2020. The Bill
 Provincial Government proposed to extend such exemption till
 a local authority; September 30, 2020.
 residents of Azad Kashmir executing
contracts in Azad Kashmir only and produce Exemptions provided to the Prime
a certificate to this effect from the concerned Minister’s COVID-19 Pandemic Relief
income tax authority; Fund-2020
 persons receiving payments from a company
or an association of persons having turnover The Bill proposes following exemptions for the
of fifty million Prime Minister’s COVID-19 Pandemic Relief
Fund-2020:
 rupees or more or from an individual having
turnover of fifty million rupees or more
a. Exemption from total income under
exclusively for the supply of agriculture
clause (66) of Part I of the Second
produce including fresh milk, fish and
Schedule;
poultry products;
b. Exemption from applicability of
 companies receiving payments for the minimum tax under section 113;
supply of electricity and gas; c. Exemption from applicability of tax
 companies receiving payments for the withholding under section 151 on profit
supply of crude oil; on debt; and
 hotels and restaurants receiving payments in d. Exemption from applicability of tax
cash for providing accommodation or food withholding under sections 231A, 231AA
or both; and and 236P on banking transactions.
 shipping companies and air carriers
receiving payments for the supply of
passenger tickets and for
the cargo charges of goods transported.
25
Seventh Schedule – Banking Companies
The Bill proposes to provide the applicability of

super tax on banking companies for tax year
2021.
Tenth Schedule
Through Finance Act, 2019, Tenth Schedule was

introduced whereby the rate of withholding
tax for certain provisions was enhanced by 100%
for persons not appearing on ATL. The Bill
proposes certain additions and omissions
from the Tenth Schedule which are summarized
below:
Exclusions from the applicability of

Tenth Schedule:
Section Nature of Payment

Reference
5 Dividend to non-residents
152(1) Royalty and Fee for Technical
Services to non-residents
152(1AA) Insurance and re-insurance
premium to non-resident persons
152(2) Certain payments to non-residents
not specifically covered
The above amendments are necessitated due to

the applicable tax treaty provisions whereby the
cap on tax rates for such non-residents result in
inapplicability of enhanced withholding tax
under the Tenth Schedule.
Additions to Tenth Schedule:
Section Nature of Payment

Reference
236B Purchase of air tickets
236V Extraction of minerals
26
SALES TAX
CNIC ON TAX INVOICES VALUE OF SUPPLY
Through Finance Act 2019, input tax attributable Through Finance Act, 2019, Value of Supply in
to sales made to unregistered persons case of supply of electricity by an independent
without having CNIC particulars was made power producer was inserted as the amount
non-adjustable for a transaction exceeding received on account of energy purchase price
Rs 50,000. The said threshold is proposed to be only; and the amount received on account of
enhanced to Rs 100,000. capacity purchase price, energy purchase price
premium, excess bonus, supplemental charges
INPUT TAX RESTRICTION ON SUPPLIES etc. shall not be included in the value of supply, It
TO UNREGISTERERD PERSONS has now been proposed to extend the said value
of supply of electricity to WAPDA with effect from
A manufacturer or producer making supplies to July 1, 2019, bringing it at par with Independent
unregistered persons where value of such Power Producers.
supplies is in excess of Rs 10 million in a month
and Rs 100 million in a financial year are not Further, value of supply in case of registered
allowed to claim input tax proportionate to such persons engaged in purchasing used vehicles
excess amount of supplies. This provision is now from general public on which sales tax had
proposed to be extended to all registered persons. already been paid at the time of import or
manufacturing has been restricted to difference
PRESCRIPTION OF GENERIC WASTAGE between sale and purchase price of the vehicles.
QUANTUM / PERCENTAGE FOR INPUT
TAX
VALUE ADDITION TAX ON IMPORT BY
The input tax is allowable in full if the taxpayer MANUFACTURERS
substantiates that the same has been incurred in
respect of taxable supplies. There is no Under the present regime, a value addition sales
prescription of any quantum for determination of tax at the rate of 3% is collected on certain
wastage in that process. imports. By way of a positive amendment in the
law, it is proposed that such tax will not apply on
A restrictive covenant has been proposed in the import of raw material and intermediary goods
section whereby FBR can prescribe the quantum by a manufacturer for in-house consumption.
of wastage in that particular process for allowing
the input tax. It is expected that the wastage The practical aspect of this provision need to be
percentages will be prescribed for different prescribed for enabling the Customs authorities
industries, such as Electricity transmission and to identify the goods constituting raw material
distribution companies, OMCs, Gas supply and intermediary goods, as the case may be.
companies and any other sector where quantum
of wastage can be reasonably ascertained, etc. WITHHODING SALES TAX ON SERVICES
Similar amendment has also been made in The scope of withholding of sales tax under
Federal Excise Act section 3 has been extended to purchase of
services by withholding agents specified under
ACTIVE TAXPAYER Eleventh Schedule.
Under the present law, any taxpayer whose Editorial changes are proposed to Eleventh
account has been ‘blocked’ by FBR is not Schedule for clarity and restricting lower
considered as Active taxpayer. There was no withholding of sales tax rates to Active taxpayers
prescription of determination of process where instead of registered persons.
a taxpayer’s account can be treated as blocked.
The proposed amendment aims to omit this basis
for determination of active taxpayer status.
27
CNIC REQUIREMENT EXTENDED TO Certain penalties are proposed for not providing
SALES TAX ON SERVICES real time access to information and data bases by
certain agencies and utility companies.
Pro-rata disallowance of input tax credit
attributable to supply made to unregistered
ELECTRONIC SERVICE OF ORDERS,
persons, for which sales invoices do not bear the
DECISIONS ETC.
CNIC number of the buyer is now proposed to be
extended to rendering of services also.
It is proposed to allow electronic service of
orders, decisions etc to all Registered persons.
As the sales tax on services by the Federal
Similar amendment has been proposed in
government is restricted to Islamabad Capital
Federal Excise Act, 2005.
Territory therefore this proposal will only apply
to that extent. However, it is expected that the
Provincial Governments may make similar REDUCTION IN SALES TAX RATE FOR
amendments in their respective laws. INTERGRATED RETAIL OUTLETS
POWER OF TAX AUTHORITIES TO

MODIFY ORDERS Sales tax on supplies made by integrated
retail outlets is proposed to be reduced from
A new section has been proposed to empower the 14% to 12%.
Commissioner in any assessment pending before
them to follow a question of law decided by a SCHEDULES
High Court or the Appellate Tribunal in the case
of a particular registered person on or after The amendments made through Tax Laws
July 1, 1990 regardless of the fact that the (Amendment) Ordinance, 2019 in Fifth and Sixth
Commissioner may have filed an appeal or Schedules and which have lapsed on six months
reference against the order of the High Court or are again proposed to be inserted with effect from
Tribunal as the case may be, he would follow the June 1, 2020.
said decision.
In the event the decision of the High Court or Exemption under Serial 103 of Table 1 of Sixth
Tribunal is reversed or modified, the Schedule to import and supply of certain ships
Commissioner may notwithstanding the expiry of and floating crafts is proposed to be extended
the limitation period prescribed for making any till 2023.
assessment or order, within a period of one year
from receipt of the decision modify the Exemption is proposed to import and supplies
assessment or order. Parallel amendment is also dietetic foods intended for consumption by
proposed in FE Act, 2005. children suffering from inherent metabolic
disorder subject to certain conditions.
The above provisions are already part of the
Income tax law.
Exemption for certain Parts and components for
PENALTIES manufacturing LED lights is proposed to be
harmonized with corresponding Customs laws.
In respect of failure to integrate business for
monitoring, tracking, reporting or recording of Sales tax on import and supply of Potassium
sales, production and similar business Chlorate is proposed to be enhanced from
transactions with FBR or its computerized Rs 70 per Kg to Rs 80 per Kg.
systems, it is proposed to:
Sales tax on certain smart phone categories
- reduce the grace period of six months before is proposed to be enhanced under the
sealing of premises to two months; and Ninth Schedule.
- keep the premises sealed till such time as the
business is integrated.
28
FEDERAL EXCISE DUTY
SIEZURE OF NON-DUTY PAID GOODS INTRODUCTION OF NEW DUTIABLE

GOODS
The scope of seizure of non-duty paid goods is
extended to all products subject to FED besides Through the Finance Bill, the Government has
cigarettes and beverages. introduced new dutiable goods subject to FED as
tabulated below:
SELECTION FOR AUDIT
Proposed
Description HS Code
Section 46(10), introduced through Finance Act, duty
2019, is proposed to be omitted, removing 6a. Caffeinated 2202.1010 25% of
restrictions on one audit in three years of energy drinks 2202.9900 Retail Price
registered persons. 8a. E-liquids by Respective Rs 10 per
whatsoever name heading ML
TOBACCO AND TOBACCO SUBSTITUTES called, for electric
cigarette kits
At present, FED is levied on cigars, cheroots,
cigarillos and imported cigarettes at 65% of ‘retail 55c. Imported 8704.2190 25% ad
price’. double cabin 8704.3190 valorem
(4x4) pick-up
The term “retail price” has been defined in section vehicles
12(4) of the FE Act as a price (inclusive of excise 55d. Locally 8704.2190 7.5% ad
duty, charges and taxes other than sales tax) fixed manufactured 8704.3190 valorem
by the manufacturer of goods subject to excise double cabin
duty on retail price, or by the importer in case of (4x4) pick-up
imported cigarettes, at which any particular vehicles
brand or variety of such goods should be sold to
the general body of consumers. REDUCTION OF DUTY ON CEMENT
The practical application of the above basis is that Duty on cement is proposed to be reduced by
if the retail price is Rs 100 then FED on such 12.5% from Rs 2 to Rs 1.75 per kilogram implying
product will be Rs 65 whereas balance a decrease of Rs 12.5 per standard bag of 5o
Rs 35 will be the consideration of registered kilogram.
person. This effectively translates into 185% of
price (exclusive of FED). INCREASE IN FED FOR FILTER ROD FOR
CIGARATTES
It is proposed to increase the rate of FED from
65% to 100% of retail price. If the retail price has The rate of excise duty is proposed to be increased
to be taken as inclusive of FED as envisaged in from Rs 0.75 per filter rod to Rs 1 per filter rod.
section 12(4) above, it would mean that the entire
amount will have to be paid to the Government as
FED with no consideration for the seller. It,
therefore, appears that the Government intended
to apply such rate on price (exclusive of FED) and
therefore, the desired increase in duty can be
achieved if the rate is fixed at 76% of retail price
as against the current rate of 65%.
This matter, therefore, needs reconsideration by

the federal government before the bill is finalized.
29
CUSTOMS ACT
ADVANCE RULING It has been proposed to limit the period of

detention up to fifteen days extendable to another
The concept of advance ruling presently there in fifteen days when so authorised by Chief Collector
the Customs Act, is proposed to be revamped. or Director General.
Presently, the mechanism is relevant only in
respect of classification for assessment of duties
VALIDATION OF NOTICATIONS
on goods intended to be imported/ exported.
The validity of exemption notifications issued on
It is proposed to enhance the meaning and scope
or after July 1, 2016 are proposed to be extended
of advance ruling to include the determination of
to next fiscal year i.e. upto June 2021.
classification, origin, the applicability of
particular relief/ exemption on goods and any
other matter as FBR may specify. MINIMAL DUTIES
Further, an application is proposed to be The provisions of section 19C provide that in case
prescribed and that ruling shall be binding on the aggregate amount of duties and taxes on goods
applicant and custom collectorates for such declaration does not exceed one hundred rupees,
period as may be prescribed in the Rules unless the same shall not be demanded.
there is a change in law or facts or relevant
circumstances in which the advance ruling was Such threshold is now proposed to be laid out in
pronounced. terms of value of goods (at Rs 5,000) instead of
duties and taxes.
DEFINITION OF SMUGGLE
REPAYMENT OF DUTY
It has been proposed to broaden the definition of
‘smuggle’ to include aiders and abettors i.e. FBR is empowered to repay ‘custom duties’ on
persons who are concerned in carrying, certain goods meant for exportation or for
transporting, removing, depositing, harbouring, supplies against international tenders by a special
keeping and concealing of smuggled goods. order passed under section 21 of the Customs Act.
It has been proposed to include in scope of
The status of person being final consumer for ‘repayment’ all duties leviable under sections 18
such goods needs to be examined as such persons and 18A of the Customs Act.
may be keeping the same as a genuine buyer.
ASSISTANCE TO CUSTOM OFFICERS MUTILATION OR SCRAPPING OF GOODS
In addition to other security forces/ provincial Certain goods as notified by FBR may be
and federal authorities, it has been proposed to mutilated or scrapped in the prescribed manner
empower and bound ‘Border Military Police’, and the same become chargeable to duty at such
a new security agency, to assist the custom rates as is applicable as these had been imported
officers in exercise of their function under the in such mutilated/ scrapped form.
Customs Act.
It is now proposed that the goods imported in
CONFISCATION OF GOODS new condition shall not be allowed to be scrapped
or mutilated and thus will remain chargeable to
The custom officer, not below the rank of an duties and taxes as new goods. The proposed
Assistant Collector, is empowered to confiscate amendment seeks to counter evasion of
goods which are being imported or exported in applicable duties.
violation of section 15 or 16 of the Customs Act.
30
FISCAL FRAUD OFFENCES AND PENALTIES
It has been proposed to broaden the scope of Penalties provided for person who smuggles
provisions relating to ‘fiscal fraud’ by providing goods, currency, gold, silver, platinum or
that a person shall also be guilty of ‘offence’ in precious stones in any form has been proposed to
case he declares value of goods which is be restructured in the following manner:
significantly higher or lower than value actually
paid or payable or any person who aids, abets or Goods (other than currency and precious metals)
connives in such act. smuggled into or out of Pakistan
Penalty not Imprisonment
Value
exceeding upon conviction
Furthermore, it has also been proposed that a PKR 150,001 to Value of goods Upto two years
person who is guilty of offence under this section 3,000,000
shall still be served with notice within stipulated PKR 3,000,001 to Two times the Two to three
time period for penal action even if no Revenue is 5,000,000 value of goods years
involved. Presently, proceedings under this PKR 5,000,001 to Three times the Two and half to
7,500,000 value of goods five years
section can only be initiated in case actions of a USD 7,500,001 to Four times the Three to ten
person have resulted into Revenue loss. 10,000,000 value of goods years
Exceeding Five times the Five to
10,000,000* value of goods fourteen years
INSPECTION OF GOODS DECLARATION
* In addition to prescribed penalty, the whole or any part of
An officer of Customs is empowered to reassess moveable or immovable assets of the person shall also be
liable to forfeiture in accordance with section 187 of the
duty, taxes or other charges leviable on goods on Customs Act.
its own motion in case it is found that goods
declaration contains incorrect statement or Smuggling of currency, gold, silver, platinum or
information. However, it is now proposed that precious stones
notice for reassessment shall be served to the Penalty not
Imprisonment
Value upon
importer through Customs Computerized exceeding
conviction
Systems and, if he desires so, opportunity of Upto USD 10,000 or Value of goods Upto two years
being heard shall be provided to him. equivalent in value
USD 10,001 to Two times the Two to three
FALSE DECLARATION BY PASSENGER 20,000 or value of goods years
OR CREW OF BAGGAGE equivalent in value
USD 20,001 to Three times the Two and half
50,000 or value of goods to five years
Presently, in case a passenger or crew of baggage equivalent in value
makes false declaration with respect to contents USD 50,001 to Four times the Three to ten
of baggage, the items recovered are treated as 100,000 or value of goods years
smuggled goods and penalized accordingly. equivalent in value
Exceeding USD Five times the Five to
100,000 or value of goods fourteen
It is now proposed to narrow down the scope of equivalent in value years
such deemed smuggled goods to the extent of
currency, gold, precious metals or stones, with * In addition to prescribed penalty, the whole or any part of
moveable or immovable assets of the person shall also be liable to
other mis-declared goods liable to penalties for forfeiture in accordance with section 187 of the Customs Act.
misdeclaration.
TIME LIMITATION FOR PROCEEDINGS
RELATING TO SMUGGLING
In general, the law requires all the proceedings to
be concluded within 90 days of issuance of show
cause notice or within such period extended by
the Collector (not exceeding sixty days), the
proceeding relating to smuggling are proposed to
be decided within the period of thirty days.
31
BURDEN OF PROOF IN RESPECT OF It is proposed that where goods declaration has

SOURCE OF FINANCING OF PROPERTY been filed, the share of importer/owner in sale
proceeds shall not exceed the declared value of
Section 187 of the Customs Act prescribes the goods.
burden of proof on a person alleged to have
committed an offence under the Custom Act with GRANT AND BENEFITS TO THE
respect to authority/ permit/license for AUTHORIZED ECONOMIC OPERATORS
possession of goods.
Through Finance Act 2018, the authorized
An apparently unrelated subject has been economic operator program was introduced to
addressed by proposing a proviso in section 187. provide facilitation relating to secure supply
Under this proviso, it is proposed that a person chains of imported and exported goods through
shall also bear the burden of proof that any simplified procedures with regard to applicable
property owned by him (in his name or someone regulatory controls.
else name) was not acquired from the proceeds of
crime. It has been proposed that FBR may grant benefits
to the authorized economic operators in a
The apparent objective of the aforesaid manner to be prescribed in Rules including:
amendment is to bring in the ambit of Customs
law the use of proceeds of smuggling under the (a) laying down any procedure or mode for
Customs Act for acquisition of any property. collection of custom duties, fee, surcharge
penalty or any other levy under this act or any
It will therefore have to be examined as to other law;
whether or not burden of proof in relation to
property owned can be prescribed under the (b) deferring collection of custom duties, fee,
Customs Act which is restricted to levy of duty on surcharge penalty or any other levy either in
import and export of goods. whole or in part; and
(c) condoning or substituting whole or part

APPELLATE PROCEEDINGS RELATING of bank guarantee or pay order of scheduled bank
TO SMUGGLING required under this Act with any other financial
instrument as deemed appropriate.
Presently, Appellate Tribunal (‘Tribunal’) is
required to decide the appeals filed under the FIRST SCHEDULE TO THE CUSTOMS
Customs Act within sixty days of filing of the ACT/CUSTOMS TARRIF
appeal or within such period as determined by the
Tribunal (for reasons to be recorded).
 Customs duty on specified imports made for
construction, development and operation of
It is now proposed that appeals relating to offence
‘Gwadar port and Free Zone Area’ is presently
of smuggling are decided within the period of
leviable @ 0%, subject to certain conditions /
thirty days of filing of the appeal. There is a
limitations. Following amendments are
likelihood that appellate authorities may consider
proposed with respect thereto (with
this time limitation as directory and not
applicability from June 1st 2020):
mandatory.
- Import of equipment/ materials by
SHARE OF OWNER/ IMPORTER IN concession holders, its operator companies
PROCEEDS FROM SALE OF GOODS and their contractors/subcontractors to
now specifically include following
At present, the proceeds from sale of goods (other operating entities & their contractors /
than confiscated goods) under any of the subcontractors within the scope thereof:
provisions of the Customs Act are to be applied
for related expenditures and taxes/ duties in the  M/s Gawadar International
prescribed manner and the balance, if any, is to Terminals Limited; and
be paid to the owner of goods.  M/s Gawadar Marine Services
Limited;
32
- Presently, ship bunker oils imported by Reduction/Concession in Customs Duty

concession holders for supply of
fuel/lubricants to ships used in the Port Customs duty leviable on the import of following
only, enjoy the subject concession. Now the categories of items is proposed to be made subject
same is proposed to cover all visiting ships to 0%, subject to certain conditions:
including all local/ foreign/ fishing vessels;
 Air-craft engines for use in aircraft and
- All the imports made for port related trainer aircrafts;
businesses upto a specified period,
presently enjoy this concession, now it is  Skimmed milk powder, Chickpeas, Soyabean
proposed to be made applicable (w.e.f July oil, Palm Olein, Hydrogenated vegetable fats,
1, 2016) to only certain specified categories Malto Dextrins, Premixes of vitamins and
of businesses. minerals, Emulsifier and Antioxidant, if
imported by manufacturers of Ready to Use
 Customs duty rates for 40 raw materials used Supplementary Foods (RUSF), duly
as industrial inputs have been reduced in authorized by United Nations World Food
order to promote the related sectors. Program and subject to annual quota
Determination by Input Output Co-efficient
 In terms of the National Tariff policy 2019, Organization (IOCO).
customs duty on 90 Tariff lines have been
rationalized with rates reduced from 11% to  Specified machinery, equipment and other
3% & 0%. project related items for setting up of
Submarine Cable Landing stations, if
 Customs duty on import of the following items imported by Internet Service providers
has been exempted: registered under the Sales Tax Act 1990, duly
certified by the Ministry of IT &
- diagnostic kits for HIV, Hepatitis, Cancer Telecommunication and PTA, and subject to
and COVID-19 patients; annual quota determination by the IOCO.
- dietetic foods for children with metabolic  Meglumine antimonite – a life-saving drug
disorders, subject to certain conditions; for treatment of leishmaniasis;
and
Rates of customs duty in case of the following
- goods imported by the foreign airlines have also been reduced:
under Air Services Agreements signed by
Government of Pakistan with other Rate %
countries on the basis of reciprocity and Items Old New
duly concurred by FBR. Coils of Aluminum alloys and Aluminum
lids. 5 0
FIFTH SCHEDULE TO THE Glass board for manufacturing TV panels. 10 0
CUSTOMS ACT
 Following new concessions have been
Capital Goods proposed on import of raw materials by
various manufacturers registered under the
Scope of ‘capital goods’ defined in the Fifth Sales Tax Act, 1990, on the condition of
Schedule is proposed to be enhanced to also approval of related quota by IOCO:
include plant machinery, equipment, spares and
accessories required for use in IT sector, storage, Proposed
Description
Rate
communication and infrastructure development
Organic composite solvents and thinners, not
of Special Economic Zones by Zone Developer. elsewhere specified or included; prepared paint
or varnish removers – imported by
manufacturers of Butyl Acetate. 5%
33
Description
Proposed - Ships and other floating crafts including
Rate tugs, survey vessels and other specialized
Semi-finished products of Iron or non- alloy
steel – imported by manufacturers of Wire
crafts purchased or bare boat chartered
Rods. 5% by Pakistani entity and flying Pakistani
Plasticised (Poly Vinyl Chloride) – imported by flag presently available upto year 2020 –
manufacturers of disposable syringes and up till 2030.
saline infusion sets. 0%
Other unsaturated Polyesters – imported by
manufacturers of buttons. 0%
Other saturated Polyesters – imported by
REGULATORY DUTY
manufacturers of interlining/buckram. 5%
Other Electric Conductors exceeding 32000 Regulatory duty is proposed to be
Volts – if imported by manufacturers of rationalized/exempted on Import of:
transformers. 11%
- Hot Rolled Coils of Iron & Steel

ENHANCEMENT IN SCOPE / (classifiable under PCT Headings 7208,
AVAILABILITY OF CONCESSION / 7225 & 7226);
EXEMPTION - Machinery, equipment and other project
related items for setting up of submarine
The Scope of exemptions/concession available on cable landing stations;
certain items (subject to certain conditions) is - Raw materials by manufacturers of Wire
proposed to be enhanced as follows: Rod;
- Imported items which are locally
 Parts, Components and inputs for manufactured; and
manufacturing of LED lights (subject to - Certain items prone to smuggling.
customs duty @ 0%) to also include:
- Pickling preparations for metal surfaces; ADDITIONAL CUSTOMS DUTY

soldering brazing or welding powders
and pastes consisting of metal and other Additional Customs Duty is proposed to be
materials; and exempted on import of various items e.g.:
- Poly Butylene Terephthalate. - items on those tariff lines which are now
subject to customs duty @ 0%.
 Craft paper (subject to 15% customs duty) –
to also include paper classifiable under PCT - raw materials by food packaging industry.
Heading 4804.36900.
Rate of the subject duty is also proposed to be
reduced on import of Palm Stearin used in Soap
 Rate of 0% customs duty on import of Paper manufacturing industry.
(presently available to Government/
approved Nashiran-e-Quran) also to apply
to those by Nashiran-e-Quran who do not
have any in-house printing facility, subject
fulfilment of various conditions.
 Date of exemption from customs duty on

import, granted in respect of the following,
proposed to be extended:
- Plant machinery and equipment

imported for setting up industries in
erstwhile Federally Administered Tribal
Areas, presently available upto June 30,
2020 – up till June 30, 2023.
34
OTHER LAWS
ANTI-DUMPING DUTIES ACT o a statement of contingent liabilities of the

Federal Government,
Provisional release of goods
o a statement of fiscal risks,
Through the Finance Bill, it has been proposed
that in case the determination of anti-dumping
duty, preliminary or final, is stayed by competent o estimated tax expenditure i.e. the
Court, the goods may provisionally be released revenue which Government foregoes
subject to provision of security by importer in the through the provisions of tax laws that
form of ‘bank guarantee’ or ‘pay order’ along with allows deductions, exclusions or
indemnity bond equivalent to amount of duty exceptions from the taxpayer’s taxable
involved, which may be encashed by the Custom expenditure income or investment,
Authorities in case levy is upheld by Court and the deferral of a tax liability or preferential
duty is not settled by importer. tax rates, and
PUBLIC FINANCE MANAGEMENT ACT, o a medium-term performance-based

2019 budget, including policy and goals, past
and future expenditure, outputs and
The Public Finance Management Act, 2019 (the outcomes and related performance
Act) was enacted through finance Act, 2019. The indicators and targets,
Act was promulgated to strengthen management
of public finances with the view to improving
- In respect of Public Sector Development
definition and implementation of fiscal policy for
Projects (PSDPs), their classification
better macroeconomic management, to clarify
between core projects, to be designated by
institutional responsibilities related to financial
the Planning Commission, and other
management, and to strengthen budgetary
sectoral projects undertaken by specific
management.
sectors, Ministries and Divisions, and
making of related rules,
In addition to consolidating other rules and
practices relating to budgetary processes, the Act
also introduced new requirements in respect of - Separate budgetary provisions in respect of
financial management e.g.: maintenance of public assets and using all
public assets for earning maximum return,
- Approval by the Federal Government of a
strategy paper containing quantified - Provisions for making policies and rules for
macroeconomic and fiscal projections for government’s cash management and single
the medium-term and its publication on the treasury account,
web-site,
- Placing mid-year budget development
- Inclusion, with the annual budget
review report before the National Assembly
statement, of:
(NA),
o comparative analysis of amounts in
respect of each demand for grant for the - Starting from financial year 2020-21,
ensuing year, latest estimate for the placing before the NA (i) budget and
outgoing year and actual expenditure for expenditure by outputs and (ii) planned and
the previous year, delivered key performance targets, and
35
- Classification of public entities between 3- Through overriding provisions, late

payment surcharge, being an amount
(i) Government’s Business Enterprises and equal to monthly weighted financing cost
(ii) other autonomous entities, with Finance of Government’s domestic borrowings, is
Division to notify policy framework and to be levied on unpaid non-tax revenue
guidelines for their financial management. during the period of default, with
Finance Division to prescribe procedure
Through the Finance Bill, following major for levy and collection of such surcharge.
amendments are proposed:
4- In case the amount of non-tax revenue
1- A new definition ‘non-tax revenue’ to be and late payment surcharge levied is not
introduced, which is to mean revenues paid within ninety days of having been
received by the Government in terms of due, Finance Division, in consultation
clause (1) of Article 78 of the Constitution with the concerned Division, to refer the
(i.e. those credited to Federal case to the Commissioner (Inland
Consolidated Fund) and the recurring Revenue) concerned as if it were an
income of the Government from arrear of income tax, for recovery under
investments and provision of services, the Income Tax Ordinance, 2001 and
other than those mentioned in clause (3) deposit into the Federal Consolidated
of Article 160 (i.e. other than taxes raised Fund.
under the authority of Parliament).
5- For overall policy making, setting scope
2- Non-tax revenue is to be levied and and standards, approving internal audit
charged in accordance with the manuals and charter of internal audit
provisions of relevant laws. In case of and monitoring the overall effectiveness
public entities (i.e. an entity being a of internal audit function for the
board, commission, company, Government institutions, an internal
corporation, trust or other fund or audit policy board comprising of the
account established by or under any law following to be made:
which is fully or substantially funded
either from the Federal Consolidated a- Secretary, Finance Division (Chairman)
Fund or by way of taxes, levies, duties or
other public monies, and which has been b- Controller General of Accounts (Member)
declared by the Federal Government as a
‘public entity’ for the purposes of the c- Deputy Auditor General (Member)
Act), non-tax revenue comprising of the
following to be paid as first charge on d- Additional Secretary, Finance Division
(Member and Secretary)
gross revenues or profits:
e- One representative from a professional
i- mark up on loans lent by the organization of Pakistan (Member)
Government, as per the
amortization schedule attached
with the financing agreement,
ii- dividend against Government’s
equity investments as declared
by the respective board of
directors out of accrued profits
of the entity,
iii- surplus profits as per provisions

of relevant laws, and
iv- any other amount owed to the
Government as accrued.
36
PETROLEUM PRODUCTS SURCHARGE LUXURY TAX ON RESIDENTIAL AND

ORDINANCE, 1961 FARM HOUSES FOR ISLAMABAD
In accordance with section 3A of the said A luxury tax has been proposed on residential
Ordinance, petroleum levy is collected on houses and farmhouses within the Islamabad
imported petroleum products and locally Capital Territory as per tables below:
produced petroleum products, in the same
manner as duty / excise is payable under the Self-occupied property of widows is exempt from
Customs Act, 1969 and Federal Excise Act, 2005 levy of this tax.
respectively.
Table 1
Petroleum levy on locally produced petroleum is Sr. Category of residential house Rate of tax
proposed to be collected in the same manner as No. in rupees
the collection of general sales tax payable under (1) (2) (3)
the Sales Tax Act, 1990 in addition to the manner 1. two kanal to four kanal with 100,000 per
of collection of federal excise duty under the covered area of more than 6000 kanal
Square feet.
Federal Excise Act, 2005.
2. Five kanal or above with covered 200,000 per
area of more than eight thousand kanal
It is also proposed that the provisions of Sales Tax square feet.
Act, 1990 in addition to the provisions of Customs
Act, 1969 and Federal Excise Act, 2005 shall, so
far as may be, apply to the levy, collection and Table 2
refund of the petroleum levy.
S. Category of Farm house Rate of tax
No. in rupees
The aforesaid proposed amendment will result in (1) (2) (3)
charge and payment of the levy in line with the 1. Four Kanal including
incidence of Sales Tax. Accordingly, the manner area under farming
of charge and payment of levy as prescribed in the (i) A farm house with 25 per square foot of the
respective regulations have been made covered area between covered area per
inapplicable. 5000 to 7000 square annum
feet
(ii) A farm house with 40 per square foot of
covered area between the covered area per
7001 to 10,000 square annum
feet
(iii) A farm house with 50 per square foot of
covered area of more the covered area per
than 10,000 square annum
feet
2. More than Four Kanal
including area under
farming
(i) A farm house with 60 per square foot of
5000 to 7000 square annum
feet
(ii)A farm house with 70 per square foot of
7001 to 10,000 square annum
feet
(iii) A farm house 80 per square foot of
with covered area of the covered area per
more than 10,000 annum
square feet

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FEDERAL BUDGET 2020

This memorandum can also be accessed on https://www.pwc.com.pk/en/tax-memorandum.html

June 13, 2020

Federal Excise Duty 28

KEY ECONOMIC INDICATORS

GDP growth rate -0.4% 1.9%

Per capita income - US$ 1,355 1,455

FDI (July – April)

Source: Economic Survey of Pakistan 2019-2020

The following table sets out the Key Budget Financials:

Tax revenue 5,464 4,208

Less: Provincial share in Federal taxes (2,874) (42) (2,402) (41)

Net revenue receipts 3,915 58 3,523 59

Deficit (4,870) (71) (4,822) (82)

- Domestic debts non-bank 1,326 756

WHERE FROM THE RUPEE COMES IN

Domestic debts non-bank (28%)

Provincial share in Federal taxes (25%)

BREAK-UP OF TAX REVENUE

There is a slight Direct Taxes:

AUTOMATED INITIAL SCRUTINY This amendment appears to be a prescription for

b) An incorrect claim as apparent from any REDUCTION IN RATE OF TAX

For the purpose of collection of tax at import Category Rate of tax

- Motor vehicles in CBU condition by A consequential amendment is proposed in other

A new category is proposed for a Pakistani INADMISSIBLE BUSINESS

The expenditure to be disallowed under this This appears to be a generic prescription of

The above restriction is in addition to Furthermore, non-resident persons such as E&P

MINIMUM TAX ON NON-RESIDENT’S The Commissioner is now also empowered to

TAXPAYER’S PROFILE AMENDMENT OF ASSESSMENT ON

The tax profile will be as prescribed in the Income AGREED ASSESSMENT

Minimum tax provisions appear to be in conflict COHESIVE BUSINESS ARRANGEMENTS

EXEMPTION FROM APPLICABILITY OF EXEMPTION CERTIFICATE FOR LISTED

REAL TIME ELECTRONIC ACCESS BY gas transmission and distribution companies, it is

This provision will only apply where a case is WITHDRAWAL OF CERTAIN

The key features are as under: TAX REGIME FOR DISPOSAL OF

Sr. Holding Period Taxability FIRST SCHEDULE – Part III

Tax withholding on ‘engineering services’ Exemptions for Gwadar Free Zone

Income of Federal Government Such reduced rate of tax withholding is proposed

Exemption on medical and testing Exemption from tax withholding to non-

Seventh Schedule – Banking Companies

The Bill proposes to provide the applicability of

Through Finance Act, 2019, Tenth Schedule was

Exclusions from the applicability of

Section Nature of Payment

The above amendments are necessitated due to

Additions to Tenth Schedule:

Section Nature of Payment

POWER OF TAX AUTHORITIES TO

FEDERAL EXCISE DUTY

SIEZURE OF NON-DUTY PAID GOODS INTRODUCTION OF NEW DUTIABLE

This matter, therefore, needs reconsideration by

ADVANCE RULING It has been proposed to limit the period of

ASSISTANCE TO CUSTOM OFFICERS MUTILATION OR SCRAPPING OF GOODS

FISCAL FRAUD OFFENCES AND PENALTIES

BURDEN OF PROOF IN RESPECT OF It is proposed that where goods declaration has

(c) condoning or substituting whole or part

- Presently, ship bunker oils imported by Reduction/Concession in Customs Duty

- Hot Rolled Coils of Iron & Steel

- Pickling preparations for metal surfaces; ADDITIONAL CUSTOMS DUTY

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