Expenditure Up, Development Down, Budget Flash 2018-19 , Amendment In Income Tax Sections, Part 3

Penalty - Section 182

Penalty for non-filing of statements under various provisions of the Ordinance is proposed to be rationalized.

Service of notices and other documents - Section 218

Presently service of notice or other documents was required in person or by a registered post or courier. It is now proposed that service of notice on an individual, electronically, may also be treated as a valid mode of service.

Restrictions of purchase of certain assets - Section 227C

It is proposed that non-filers shall not be permitted to buy or register immovable property and motor vehicle.

Directorate General of immovable property - Section 230F

A new authority for regularizing and monitoring transactions involving immovable property has been setup for carrying out certain functions in relation to immovable properties including acquisition of immovable property where the value declared by the taxpayer is less than the fair market value.

Tax on transactions in Stock Exchange - Section 233A

Tax is required to be collected by a registered Stock Exchange in Pakistan from its members on purchase and sale of shares. The tax so collected was declared a final tax through the Finance Act, 2017. It is now proposed to treat the tax so collected as an adjustable advance tax.

Advance tax on sale and transfer of immovable property - Section 236K

In relation to collection of advance tax on sale and transfer of immovable property, the Bill proposes that the tax shall also be collected on installment payments for purchase or allotment of any immovable property, where transfer of such property is made subsequently after payment of all the installments.

The First Schedule

Part I

Rates of tax for individuals

The income tax rates for individuals (salaried and non-salaried) harmonized by the Income Tax (Amendment) Ordinance, 2018 for the tax year 2019. As per the amended Ordinance, no tax is required to be paid by individuals deriving annual income up to Rs.1,200,000. The Finance Bill 2018 proposed that individuals deriving income from Rs.400,000 to Rs.1,200,000 do not continue to enjoy zero tax benefit and requires them to contribute towards Government kitty by paying certain nominal amount of tax of Rs.1000, and Rs.2,000 for income brackets Rs.400,000 to Rs.800,000 and from Rs.800.000 to Rs.1,200,000 respectively.

Rates of tax for AOP

The income tax rates for AOPs are proposed to be rationalized. The highest rate of tax is reduced to 30% from 35%. The proposed change is in line with the tax reduction for corporate and individual taxpayers.

Rates of tax for Companies

The corporate tax rate is proposed to be 29% for tax year 2019 which will be reduced by 1% for each tax year onwards up to tax year 2023.

Capital gain on sale of securities

The Bill proposes to keep the tax rates in respect of sale of securities same for the tax year 2019 as were applicable in the tax year 2018.

Part III

Dividend income from rental REIT Scheme

The Bill proposes to specify a reduced rate of 7.5% in respect of dividend income derived by an individual from a Rental REIT Scheme.

Enhancement of withholding tax rate for non-filers

The Bill proposes to enhance the withholding tax rate for non-filers:

For corporate taxpayer for supplying goods from 7% to 8%

For non-corporate taxpayer for supplying goods from 7.75% to 9%

For corporate taxpayer for execution of contracts from 12% to 14%

For non-corporate taxpayer for execution of contracts from 12.5% to 15%

Part IV

Reduction in advance tax rates for non-filers

The Bill proposes to reduce the rate of collection of tax on banking transactions otherwise than through cash from 0.6% to 0.4%.

The Second Schedule

Part I

Income of certain charitable and other institutions - Clause (66)

The Bill proposes to add certain charitable institutions in the list of institutions whose income is exempt from tax.

Income of Modaraba - Clause (100)

Currently, any income of Modaraba other than trading activity is exempt from tax subject to fulfillment of certain conditions. The Bill proposes to exclude income from manufacturing activity as well from the ambit of exempt income.

Profit and gains derived from refinery operations - Clause (126BA)

The Bill proposes to insert a new Clause to provide exemption from tax to profit and gains derived by a refinery setup between 01 July 2018 and 30 June 2023 with a minimum production capacity of 100,000 barrels per day for a period of 20 years. The exemption period starts from the month in which the refinery is setup or commercial production is commenced whichever is later.

This exemption is also available to existing refineries if existing production capacity is enhance by at least 100,000 barrels per day subject to fulfillment of certain other conditions.

Part III

Incentive for film makers - Clauses (7 & 8)

The Bill proposes to insert new clauses to provide reduction in the amount of tax payable by 50% on income derived from film making in Pakistan by foreign film makers / resident companies.

Part IV

Exemption from the levy of minimum tax under section 113 of the ordinance - Clause (11A)

The Bill proposes to exempt public sector university whose income is exempt from tax under Clause (126) of part I of the Second Schedule to the Ordinance from the levy of minimum tax as well.

Non withholding of tax on dividend income - Clause (12)

The Bill proposes to insert a new clause to provide exemption from withholding tax on dividend paid to Transmission Line Project under Transmission Line Policy 2015.

Option to commercial importer - Clause (56B)

Clause (56B) of Part-IV of the Second Schedule to the Ordinance provides an option to a commercial importer to opt out from Final Tax Regime (FTR) subject to fulfillment of certain conditions specified therein. Now, the Bill proposes to delete the said clause. Consequently the option to opt out FTR will no more be available to commercial importers.

Trading Houses - Clause (57)

The Bill proposes to extend the levy of minimum tax under Section 113 of the Ordinance at the reduced rate of 0.5% up to the tax year 2021.

Exemption from collection of advance tax at import stage - Clauses (60A), (60AA), (60B) & (60C)

The Bill proposes that the provisions of Section 148 of the Ordinance shall not apply to certain motorway / CPEC projects on import of plant and machinery / construction material / armored and security vehicle on fulfillment of certain condition.

Minimum tax on services sector companies - Clause (94)

Inspection, certification, testing and training services are proposed to be inserted in the list of services specified in the aforesaid Clause. The period for application of Clause (94) is proposed to be extended to 30 June 2019.

Moreover, the last date for furnishing an irrevocable undertaking for the tax year 2019 is proposed to be extended to November 2018.

Tax on profit on debt - Clause (103)

The Bill proposes that the provisions of section 78 of the Ordinance shall not apply in respect of profit on investment in Bahbood Saving Certificates or Pensioner's Benefit Account provided that the tax on the said profit is paid at the applicable rate provided under Part I of the First Schedule to the Ordinance. However, the tax payable in respect of this income shall not exceed 10% of such profit as provided under Clause (6) of Part III of the Second Schedule to the Ordinance.

This Budget is few Part of Full Budget 2018-19.

Reported, Written and Edited By "Umair Badshah"