Budget Brief 2011: An Economic and Tax Commentary

KPMG Taseer Hadi & Co.
Chartered Accountants
Budget Brief 2011

An Economic and Tax Commentary
The Budget Brief 2011 contains a review of economic scenario and highlights of Finance Bill 2011 as they relate to direct and indirect taxes and certain other laws. The provisions of the Finance Bill 2011 are generally applicable from 01 July 2011, unless otherwise specified. The Budget Brief contains the comments, which represent our interpretation of the legislation, and we recommend that while considering their application to any particular case, reference be made to the specific wordings of the relevant statutes.
4 June 2011
Budget Brief 2011
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Budget Brief 2011
Contents
Page
Budget at a Glance Economic Analysis Economic Scenario Highlights (Income Tax, Sales Tax, Federal Excise, Customs and Capital Value Tax Significant Amendments Income Tax Sales Tax Federal Excise Duty Customs Federal Consolidated Fund Withholding Tax Rates Table Existing and Proposed
1 3 9
15
19 31 37 41 45 47
This brief is being issued as part of our client service programme exclusively for the information of clients and staff of KPMG Taseer Hadi & Co. and other KPMG member firms.
Budget Brief 2011
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Budget Brief 2011
Budget at a glance
Budget Estimate 2010-11 Tax Revenue Direct Taxes Income tax Others Indirect Taxes Customs Sales tax Federal excise Carbon surcharge on POL and CNG Others Total Tax Revenue Non Tax Revenue Less: Provincial Share Net Capital Receipts External Receipts Change in Provincial cash balance Bank Borrowings Expenditure Current Expenditure General Public Services Debt servicing Grants and transfers Superannuation and pensions Subsidies Others Defence Affairs & Services Economic Affairs Public Order and Safety Affairs Education Affairs and Services Others Development Expenditure PSDP Others Total Expenditure
Revised % Budget Estimate Estimate 2010-11 2011-12 ------------------(Rupees in billions) ----------------
633.0 24.7 657.7 180.8 674.9 153.6 110.0 1.7 1,121.0 1,778.7 632.3 2,411.0 1,033.6 1,377.4 325.4 386.6 166.9 166.5 2,422.8
26.1 1.0 27.1 7.5 27.9 6.3 4.5 0.1 46.3 73.4 26.1 99.5 42.7 56.8 13.4 16.0 6.9 6.9 100.0
602.5 24.4 626.9 173.3 654.6 132.9 90.0 1.7 1,052.5 1,679.4 556.5 2,235.9 997.7 1,238.2 459.4 289.8 119.8 452.2 2,559.4
23.5 1.0 24.5 6.8 25.6 5.2 3.5 0.1 41.2 65.7 21.7 87.4 39.0 48.4 17.9 11.3 4.7 17.7 100.0
718.6 25.0 743.6 206.4 836.7 165.6 120.0 1.9 1,330.6 2,074.2 658.0 2,732.2 1,203.3 1,528.9 395.7 413.9 124.9 303.5 2,766.9
26.0 0.9 26.9 7.5 30.2 6.0 4.3 0.1 48.1 75.0 23.8 98.8 43.5 55.3 14.3 14.9 4.5 11.0 100.0
873.0 227.2 90.7 126.6 70.2 1,387.7 442.2 66.9 51.3 34.5 15.3 1,997.9 321.4 103.5 424.9 2,422.8
36.0 9.4 3.7 5.2 2.9 57.2 18.3 2.8 2.1 1.4 0.6 82.4 13.3 4.3 17.6 100.0
855.5 300.0 92.9 395.8 11.4 1,655.6 444.6 80.0 58.7 40.3 16.8 2,296.0 217.9 45.5 263.4 2,559.4
33.4 11.7 3.6 15.5 0.4 64.6 17.4 3.1 2.3 1.6 0.7 89.7 8.5 1.8 10.3 100.0
1,034.2 295.0 96.1 166.4 68.3 1,660.0 495.2 50.3 59.6 39.5 10.3 2,314.9 355.0 97.0 452.0 2,766.9
37.4 10.7 3.4 6.0 2.5 60.0 17.9 1.8 2.2 1.4 0.4 83.7 12.8 3.5 16.3 100.0
Budget Brief 2011

2011 KPMG Taseer Hadi & Co., a Partnership firm registered in Pakistan and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Budget Brief 2011

Economic Analysis
Sectoral Contribution to GDP Growth (% Points)

16 14 12 10 8 6 4 2 0 -2 -4
Overall GDP (fc) Agriculture Industry Services 06-07 6.8 0.9 2.3 3.6 07-08 3.7 0.2 0.4 3.1 08-09 1.7 0.9 -0.03 0.9 09-10 3.8 0.1 2.1 1.5 10-11 2.4 0.3 -0.02 2.2
Sectoral GDP Growth (% Points)

16
11
-4
Agriculture Manufacturing Services
06-07 4.1 8.3 7.0
07-08 1.0 4.8 6.0
08-09 4.0 -3.6 1.7
09-10 0.6 5.5 2.9
10-11 1.2 3.0 4.1
Budget Brief 2011

Sectoral Share in GDP (% Points)

100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0
06-07 Others Services Manufacturing Agriculture 7.3 51.8 19.0 21.9 07-08 6.6 52.9 19.2 21.3 08-09 7.1 52.9 18.2 21.8 09-10 7.8 52.4 18.6 21.2 10-11 7.1 53.3 18.7 20.9
Public Debt (in billions of Rupees)

6,000 70.0 60.0 50.0 4,000 40.0 3,000 30.0 2,000 20.0 1,000 10.0 06-07 2,610 2,140 54.8 30.1 24.7 07-08 3,267 2,780 59.0 31.9 27.1 08-09 3,852 3,736 59.6 30.3 29.4 09-10 4,651 4,284 60.2 31.3 28.9 10-11 5,461 4,559 55.5 30.2 25.5
5,000
Domestic Foreign currency In percent of GDP Domestic % of GDP Foreign % of GDP
Budget Brief 2011

Social Indicators
06-07 200 180 160 140 120 100 80 60 40 20 0
Population (millions) Unemployment rate (% per annum) Per Capita Income (mp - USD) Total Investment - % of GDP National Savings - % of GDP
07-08
08-09
09-10
10-11
1,400 1,200 1,000 800 600 400 200 -
06-07 162.9 5.2 904 22.5 17.4
07-08 166.4 5.5 1,015 22.1 13.6
08-09 169.9 5.5 990 18.2 12.5
09-10 173.5 5.6 1,073 15.4 13.2
10-11 177.1 5.6 1,254 13.4 13.8
Exchange Reserves (in USD millions)

16,000 14,000 12,000 10,000 8,000 40.00 6,000 4,000 2,000 06-07 Foreign exchange Gold Rupees to USD 11,542 1,268 59.86 07-08 15,070 1,344 60.63 08-09 9,539 1,926 62.55 09-10 10,255 1,935 78.50 10-11 13,953 2,575 83.80
90.00 80.00 70.00 60.00 50.00
30.00 20.00 10.00 -
Total exchange reserves at end of April 2011 reached USD 17.1 billion with Rupee US Dollar parity reaching 85.50
Budget Brief 2011

Trade Deficit / Current Account Deficit

06-07 Exports Imports Trade balance Services net Current Transfer (Net) (Workers remittances) Income Account Balance (Net) Current Account 17,278 26,989 -9,711 -4,170 10,585 5,494 -3,582 -6,878 07-08 20,427 35,397 -14,970 -6,457 11,476 6,449 -3,923 -13,874 08-09 19,121 31,747 -12,626 -3,381 11,154 7,811 -4,407 -9,260 09-10 19,673 31,209 -11,536 -1,690 12,562 8,906 -3,282 -3,946 10-11 (Jul-Mar) 17,945 25,956 -8,011 -1,232 11,511 8,016 -2,169 99
Overall Deficit
18,063
20,000 7.6% 18,000 8.0%
14,836
7.0% 6.3% 6.0% 5.5%
16,000
12,724
14,000
5.3% 12,000 5.0%
10,243
Rs. Billion
4.3%
8,673
10,000
4.0%
8,000
3.0%
6,000 2.0% 4,000 1.0%
2,000
0
06-07 07-08 08-09 09-10 10-11
0.0%
GDP(mp)
Overall Deficit
Budget Brief 2011

Inflation
25 20 15 10 5 0
06-07 CPI SPI WPI 7.77 10.82 6.94 07-08 12 16.81 16.64 08-09 20.77 23.41 18.19 09-10 11.73 12.63 13.32 10-11 (Jul-Apr) 14.08 23.29 18.47
Core Inflation
30
25
20
15
10 06-07 Overall Food Non Food Core 7.77 10.28 6.02 5.9 07-08 12 17.65 7.9 8.4 08-09 20.77 23.7 18.45 17.6 09-10 (Jul-Apr) 11.49 12.03 11.04 11.2 10-11 (Jul-Apr) 14.08 18.41 10.43 9.5
Budget Brief 2011

Average retail prices of essential items

Kerosene (per ltr) Gas (100 cf) Petrol Super (per ltr) Electricity charges (upto 50 units) 06-07 07-08 08-09 09-10 (Jul-Apr) 10-11 (Jul-Apr) % Inc 10-11 39.09 43.44 66.79 71.45 82.12 14.9 99.79* 97.17* 96.91* 105.10* 115.40 9.8 56.00 57.83 67.68 66.49 73.16 10.0 2.49 2.76 3.18 3.58 4.29 19.8 2.31 2.31 2.38 2.42 3.59 48.3 Tele local call charges (per call) Wheat Flour (Avg Quality per Kg) 13.64 18.07 25.64 29.05 29.73 2.3 Basmati Rice (Broken per Kg) 23.11 37.77 47.12 43.75 49.44 13.0 117.87 123.30 143.82 170.93 212.90 24.5 Beef (Cow / Buffalo with bone per Kg)
* The units were changed from 100 cm to 100 cf.
Chicken (Farm per Kg) 06-07 07-08 08-09 09-10 (Jul-Apr) 10-11 (Jul-Apr) % Inc 10-11 74.16 83.39 103.12 126.22 130.89 3.7
Mutton (Goat Avg Quality per Kg) 224.07 236.49 262.03 307.19 405.36 32.0
Eggs (Hen Farm per Dozen) 38.31 49.45 58.80 67.19 74.67 11.1
Sugar (open market - per Kg) 31.85 27.92 38.72 56.25 73.82 31.2
Milk (Fresh per ltr)
Tea (in packet Super Qlty per 250 gm)
Cooking oil (Dalda per 2.5 ltr) 224.48 316.32 371.38 356.43 424.05 19.0
26.72 30.45 36.62 41.70 49.02 17.6
68.39 68.28 97.94 118.87 136.74 15.0
Budget Brief 2011

Economic Scenario
The fiscal year 2010-11 started with an expectation to build on the modest recovery shown in 2009-10 and by projecting the growth in real GDP to 4.5 percent from 3.8 percent of last year. However, the target set out in the Annual Plan turned out to be unrealistic shortly after the approval of the Federal Budget for 2010-11, mainly due to omission of consideration of cost increases on government employees salaries, etc. The overall objective of restoration of macro-economic stability was put off-track by both exogenous shocks and unprecedented disaster by floods. The impact was further compounded by the continuing structural imbalance in our economy. The economy which over the years has shown resilience against crisis after crisis came to a breaking point where the continuing weaknesses and perennial challenges were further exposed. The structural weaknesses, such as low domestic resource mobilization, lower productivity, lower growth, high inflation, unprecedented fall in total investments, increasing reliance on external and domestic borrowings to finance fiscal deficit and reduction in FDI have been and continue to be the factors indicating volatility and fragility of the Reform process in the medium to long term. Pakistan is unique in this context, even as compared to other economies in Asia, where most of the countries have shown growth of 8-9 percent with inflation of 4-5 percent, as against the growth of 2.4 percent and inflation of 15.5 percent in Pakistan. The salient features of the Economy are as follows:
The fall in the GDP for 2010-11 was mainly caused by

slower growth in Agriculture and Manufacturing sector.
Services sector contributed to 90 percent of GDP

growth, whereas the commodity producing sector (CPC) only contributed to 10 percent of such growth.
The energy shortfall, high interest rates and crowding

out of the private sector credit were the factors responsible for major drag on growth in manufacturing sector.
The Reform measures undertaken by Government

have failed to achieve the desired results and the Government had to announce certain tax policy measures to raise additional revenue of Rs. 53 billion in the last quarter.
The following tax measures were taken through the

amendments (Presidential order and withdrawal of SRO based exemptions): - Withdrawal of sales tax exemption on agriculture inputs like tractors, pesticides, and fertilizer, both at domestic and import stages. - A one-time surcharge of 15 percent was imposed on withholding and advance taxes payable during financial year 2011 (15 March to 30 June 2011); and - Special excise duty rate was increased from 1 percent to 2.5 percent on non-essential items for the remaining period of tax year 2010-11.
The GDP growth, Investment to GDP rate and overall

inflation for Pakistan have remained over the last few years as follows: (Percentages) Investment Inflation 22.1 12.0 18.2 15.4 13.4 20.8 11.7 14.1 (Jul-Apr)
The overall deficit for 2010-11 is expected to be Rs.

961 billion, around 5.3 percent of GDP against target of Rs. 683 billion i.e. 4.0 percent of GDP. The GDP at market price is expected to be Rs. 18,063 billion.
Year 2007-08 2008-09 2009-10 2010-11 (BE)
Growth 3.7 1.7 3.8 2.4
Overall total revenue is expected to be Rs. 2,236 billion

against target of Rs. 2,411 billion.
The tax revenue of FBR is expected to be Rs. 1,679

billion as against the target of Rs. 1,779 billion.
Budget Brief 2011

The overall expenditure is projected to be Rs. 2,559

billion as against target of Rs. 2,423 billion.
2009-10 Jul to Apr Current Account Balance (3,456)
2010-11 Jul to Apr 748
The slippage in expenditure was caused by Flood

Relief activities, security related expenditure and delay in implementation of tax reforms.
The overall brunt of increase in current expenditure and

shortfall in revenue fell on Development expenditure, which was either reallocated or substantially reduced.
- External Account has been a surplus of US$1,210 million during July-April 2010-11 due to improvement in current account balance and the surplus in Capital and Finance Account.
External sector is projected to depict a surplus in

current account of Rs. 748 billion, as against deficit of Rs. 3.456 billion in the corresponding period last year due to the following factors: - Exports up to April 2011 have been US$20.2 billion as against US$15.8 billion last year, showing a growth of 27.8 percent. - Imports up to April 2011 have been US$32.3 billion as against US$28.1 billion last year, showing a growth of 14.7 percent. - The 14.7 percent growth in imports has been neutralized by 27.8 percent growth in exports resulting in decline of trade deficit in 10 months to Rs. 12.1 billion from Rs. 12.3 billion - Workers remittances in ten months amounted to US$9.1 billion and are expected to be over US$11.0 billion by 30 June 2011. - Improvement in current account has been in all sub components as follows: (US Dollars in Millions) 2009-10 2010-11 Jul to Apr Jul to Apr Trade Balance Services Balance Income Account Balance Current Transfers - Workers Remittances - Others (9,292) (1,937) (2,594) 7,307 3,060 10,367 (8,285) (1,392) (2,421) 9,046 3,800 12,846
Exchange rate has generally remained stable as Rupee

depreciated by 2.2 percent in ten months, but Real Effective Exchange Rate (REER) appreciated by 0.8 percent during the period.
FDI up to April 2011 has been US$1.232 billion against

US$1.725 in the corresponding period last year, resulting in a decline of 29 percent.
Per capita income in dollar terms increased from

US$1,073 to US$1,254 in 2010-11, showing an increase of 16.9 percent.
Foreign exchange reserves as at 30 April 2011 were

US$17.1 billion, out of which US$13.7 billion were held by SBP.
The overall inflation based on CPI has been a

cumulative increase of 14.1 percent during July-April 2010-11, against 11.5 percent last year.
Food inflation was 18.4 percent and non food inflation

was 10 .4 percent.
The spike in inflation was caused by:

- Rising international oil prices - Commodity price increases textile products - Supply shock and supply disruption resulting in increase in food prices - Deficit financing
Monetary policy was frequently reviewed by State Bank

of Pakistan during 2010-11. The continued heavy
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Budget Brief 2011

reliance by government on SBP borrowings to finance the fiscal deficit has increased the demand pressure and SBP has resorted to policy rate change to target inflation. This policy rate was raised thrice in August, September and November 2010 to increase the rate to 14 percent from 12.5 percent
Budget Estimates for 2011-12
The total outlay of budget 2011-12 is Rs. 2,767 billion.

This size is 14.2 percent higher than the size of budget estimates of 2010-11.
The resource availability during 2011-12 has been

estimated at Rs. 2,463 billion, against Rs. 2,256 billion in the budget estimates of 2010-11.
The focus of monetary and fiscal policy was changed to

address structural weakness, reduction of inflation, revival of economic growth. However, the desired objectives could not be achieved and even policy rate increases did not have any significant impact on inflation.
Net revenue receipts for 2011-12 have been estimated

at Rs. 1,529 billion, indicating an increase of 11 percent over the budget estimates of 2010-11.
Budget 2011-2012 Challenges

The Finance Minister has recognized, in his speech, the need to move towards a growth framework which could lead to 7 percent plus growth for a continuous period of ten years and more. The following challenges have been identified to put the economy on a stable and desirable long term growth trajectory.
The provincial share in Federal revenue receipts is

estimated at Rs. 1,203 billion during 2011-12 which is 16.4 percent higher than the budget estimates for 2010-11.
The capital receipts (net) for 2011-12 have been

estimated at Rs. 396 billion, against the budget estimates of Rs. 325 billion in 2010-11 i.e. increase of 11 percent.
Chronic fiscal difficulties for the last 25 years leading to

IMF several times.
The external receipts in 2011-12 are estimated at Rs.

414 billion. This shows an increase of 7.1 percent over the budget estimates of 2010-11.
Low growth rates. Lack of long-term focus and consistency in economic

policies to give investors and entrepreneurs a stable enabling environment.
The overall expenditure during 2011-12 has been

estimated at Rs. 2,767 billion, of which the current expenditure is Rs. 2,315 billion and development expenditure is Rs. 452 billion (net).
Ailing public sector enterprises continue to drain the

budget and create black market opportunities.
Current expenditure shows increase of less than 1

percent over the revised estimates of 2010-11, while development expenditure will increase by 64.4 percent in 2011-12, over the revised estimates for 2010-11.
Inadequate regulatory and governance structures that

does not encourage investment and the development of competitive markets.
The expenditure on General Public Services (inclusive

of debt servicing, transfer payments and superannuation allowance) is estimated at Rs. 1,660 billion, which is 71.1 percent of the current expenditure.
The size of Public Sector Development Programme for

2011-12 is Rs. 730 billion, while for Other Development
Budget Brief 2011

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Expenditure an amount of Rs. 97 billion has been allocated. The PSDP shows an increase of 58 percent over the revised estimates for 2010-11.
Macro-Economic Targets for 2011-12

In order to achieve objectives set-out in the budget strategy following macro-economic targets are being set up for 2011-12.
An amount of Rs. 430 billion has been allocated in

budget estimates 2011-12 to provinces for their development expenditure, against Rs. 373 billion for 2010-11.
Real GDP is expected to grow by 4.2 percent against

revised estimates of 2.4 percent for 2010-11.
An amount of Rs. 10 billion has been allocated to

Earthquake Rehabilitation Authority (ERRA) in 201112.
The average inflation target is 12 percent as against

15.5 percent for 2010-11.
Selective intervention in commodity markets to ensure

stable supplies at affordable prices.
The size of current expenditure in total budget outlays

for 2011-12 is 83.7 percent, as compared to 89 percent in revised estimates for 2010-11.
Reduction of borrowing from SBP through strict control

on expenditure.
Budget Strategy for 2011-12

The budget strategy as outlined by the Finance Minister in his budget speech is summarized as follows:
Improvement of regulatory oversight by empowering

NEPRA to regulate the power sector.
Further reduction of fiscal deficit. Reduction of rate of inflation to single digit level. Development of a broad, equitable and stable revenue
mobilization system to cater to development needs.
Creating additional capacity for power generation. FBR revenue to grow by about Rs. 400 billion i.e. 9.3
percent of GDP.
Revenue as a percentage of GDP is projected at 13.6

percent in 2011-12.
Maintaining and further developing social safety nets

for the vulnerable.
Fiscal deficit to be brought to 4 percent of GDP. GDP at market prices is projected at Rs. 21,041 billion
in 2011-12.
Progressive elimination of untargeted subsidies. Strengthen restructuring of loss making public sector
enterprises including opting for privatization or closure, where required.
Conclusions
The performance of economy in 2010-11 has exposed

its vulnerability and structural weaknesses when confronted with challenges during the year.
Investment as part of PSDP in vital infrastructure and

human resource development.
Reduction of debts to sustainable level well below the

required 60 percent of Fiscal Responsibility and Debt Limitation Act (FRDC).
The interim budgetary measures announced during the

year have facilitated the GDP growth of 2.4 percent.
The growth or decline in Agriculture sector which is our

niche continues to be dependent on weather conditions
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Budget Brief 2011

or natural disasters. The productivity gains in terms of efficiency, improved yields and value addition are still lacking.
The way forward is to ensure economic consolidation

along with macro-economic strategy which would require a prudent fiscal policy with improvement in governance and vigilant implementation and accountability.
In order to achieve the specified objectives outlined in

the budget strategy and to align the economic development with the common mans perception of such development, a much more focused economic management is required.
Inflation has to be addressed by both supply and

demand measures, rather than by demand suppression.
The growth framework and the basic parameters of

economic agenda, need to be agreed across the political parties as the main imperatives, irrespective of political bias and priorities.
Pakistan is a factor driven economy and does require

a different economic strategy.
8 percent of total labour force is unemployed and the

country is suffering from a severe distributional crisis. The overall unemployment rate is 5.6 percent.
The most important component of such strategy has to

be revival of investment and savings to a level aligned with other developing economies in Asia.
Pakistan need an inclusive growth strategy with a

sustained balanced approach between supply led and demand led economic strategy.
The long term structural issues like documentation of

economy and equity in tax incidence are a must to address distributional crisis.
Fiscal deficit has to be addressed due to resource

constraint but not at the cost of growth and higher expenditure on social sectors.
The expenditure on education and health and safety

nets has to be increased from the current level of 3 percent of GDP to around 8-9 percent in 3 years.
The medium to long term framework of sustainable

high growth over a decade with restructured fiscal deficit are the pre-requisites to catch up to the economies around Pakistan.
The basic concept of tax all income beyond a

threshold has to be implemented with a clear plan to plug all leakages, including elimination of all untargeted subsidies.
Desired frame work could reduce inflation, bring debt

burden within sustainable limits, provide opportunity to explore our potential of demographic advantage and above all target poverty on war footings.
The budget estimate for 2011-12 in this context

appears to be ambitious and would require concerted efforts to target non tax-payers, disciplined monitoring of expenditure and ensuring provincial surplus. Any deviation could easily impact overall fiscal deficit and development budget.
The economic well being coupled with good

governance, transparency and unbiased accountability would have its own impact on the security situation. We are a great nation, endowed with all sorts of resources including natural resources and a great capital of young human resources. What we need is dedicated leadership to direct us to the heights which people of this country deserve and would require a strong political will and cohesion to achieve the target.
The provinces would have to focus on revenue

generation as their overall contribution is minimal. The tax on agriculture income, Sales Tax on services and reform of property taxation could increase revenues substantially.
Budget Brief 2011

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Budget Brief 2011

Highlights
Income Tax
Minimum threshold for levy of tax on salaried and non-salaried individuals enhanced from Rs. 300,000 to Rs. 350,000. For banking companies, provisioning in excess of 5 percent of advances for consumers and SMEs allowed to be carried over to succeeding years. Dividend received by a banking company from its asset management company shall be taxed at the rate of 20 percent. The members of AOP also required to furnish wealth statement, wealth reconciliation statement and explanation of source of acquisition of assets alongwith return filed in response to provisional assessment order under section 122C. Appeal to the Commissioner (Appeals) not permissible against provisional assessment order under section 122C. Tax payable as a result of provisional assessment order under section 122C shall be payable immediately after a period of sixty days from the date of service of notice. Waiver of profit on debt or debt itself under specified SBP Circular or in any other scheme issued by SBP to be treated as benefit / income chargeable to tax under the head Income from Business. Tax credit for investment in shares to be allowed to resident persons only. Threshold for allowability of tax credit on investment in shares enhanced. However, the shares must be held for at least thirty six months instead of twelve months.
Tax credit also allowed for life insurance premium paid by resident persons on the same basis as tax credit for investment in shares. Threshold of Rs. 500,000 for contribution to approved pension fund for the purpose of tax credit removed. Rate of tax credit to companies for enlistment on stock exchange enhanced from 5 percent to 15 percent. Tax credit equal to tax payable allowed to companies establishing new industrial undertaking or investment in plant and machinery for BMR. Unexplained income or assets to include concealed income or furnishing inaccurate particulars of income, suppression of any production, sales, amount chargeable to tax and item of receipt. Period for carry forward and adjustment of minimum tax enhanced to five years from three years. Turnover for the purposes of minimum tax will be gross sales or gross receipts. Pension fund established under the Voluntary Pension System Rules 2005 exempted from minimum tax under section 113. Holders of commercial or industrial connection of electricity where the amount of annual bill exceeds rupees one million compulsorily required to file return of income. Individuals having income from business between Rs. 300,000 and Rs. 350,000 to file return of income despite having zero percent tax. Threshold for compulsory filing of wealth statement and its reconciliation increased from Rs. 500,000 to Rs. 1,000,000.
Budget Brief 2011

15
Every member of an AOP required to furnish wealth statement and reconciliation of wealth if share of income from such AOP, before tax, for the year is Rs. 1,000,000 or more. Single member bench of the Tribunal to dispose of cases involving tax or penalty not exceeding Rs. 1,000,000 instead of Rs. 5,000,000. Appellate Tribunal to decide the appeal on the basis of available record and cannot dismiss the appeal in case of default by any party on the date of hearing.
Withholding tax rate on cash withdrawals reduced from 0.3 percent to 0.2 percent. Collection of tax under section 236A also required to be made in the case of auction / sale by tender. Withholding tax on purchase of domestic air tickets shall not be collected in the case of Federal and Provincial Government and from a person who produces a certificate from the Commissioner that income of such person is exempt from tax. Monthly instead of quarterly statements of withholding tax to be filed under section 165. The statements to include CNIC and NTN of the persons form whom tax was deducted. Annual withholding tax statement to be filed by the employers for tax withheld under section 149 and for taxable salaries between Rs 300,000 and Rs. 350,000 despite having zero percent tax. Tax payable defined as tax chargeable on the taxable income for the purposes of levy of penalty. Non-resident person having a permanent establishment in Pakistan not entitled to seek Advance Ruling. Board and Chief Commissioner empowered to transfer jurisdiction in respect of cases or persons from one Commissioner to another. Tax and withholding tax exemptions provided to Islamic Development Bank.
Advance tax on capital gains on sale of securities shall be payable within a period of twenty one days after the close of each quarter. Withholding tax under section 148 in the case of old and used automotive vehicles shall not exceed the amount specified in Notification No. SRO 577(1)/2005 dated 6 June 2005. Profit on debt on securities issued by Federal Government, Provincial Government or Local Government to be taxed under final tax regime for resident individuals and AoPs. Tax deducted on profit on debt from debt instruments, government securities including treasury bills and PIBs shall be final tax in the case of nonresident persons having no PE in Pakistan. Gross amount for sale of goods, services and contracts shall include sales tax for the purposes of withholding tax under section 153. Tax deducted from payments for services to be treated as minimum tax in the case of all resident persons and PE of non-residents. Threshold for withdrawal from pension fund enhanced from 25 percent to 50 percent of accumulated balance in order to attract withholding tax under section 156B.
Sales Tax

Rate of sales tax reduced to 16 percent from 17 percent Several exemptions under Sixth Schedule of Sales Tax Act and through certain specific notifications stand withdrawn, which inter-alia include:
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Budget Brief 2010

Bricks, building blocks, and ready mix concrete; Adult diapers; Computer software; Aircrafts & ships, machinery for pilotage & towage, air navigation equipments; Bull-dozers, harvesters, CNG Euro-2 buses, trucks for high-ways; Agricultural machinery; CNG kits & cylinders; Rock phosphate & phosphoric acid; Mineral oils; White Crystalline Sugar, etc.
Federal Excise
Special excise duty leviable at the rate of 2.5 percent on imported and manufactured goods abolished across the board. Rate of FED introduced on aerated waters and fruit juices, etc. reduced to 6 percent of retail price. Rate of duty on various types of cement slashed from Rs. 700 PMT to Rs. 500 PMT. FED abolished from 15 different type of goods including solvent oils, other fuel oils, greases, MBTE, viscose staple fibre, motor cars, air-conditioners, deep freezers, etc. Rate of duty enhanced on locally produced cigarettes, unmanufactured tobacco and filter rods of cigarettes. FED in sales tax mode imposed at the rate of 8 percent ad val. on white crystalline sugar to substitute sales tax. FED on services rendered or provided by property developers and promoters stands withdrawn. Recovery proceedings can be initiated during the period of 5 years instead of 3 years. Powers to seize and confiscate goods extended for beverages in addition to cigarettes.
Zero rating facility withdrawn on CNG buses in CBU or CKD condition, trucks & dumpers, trailers & semitrailers, road tractors, etc. Restriction of 90 percent claim of input tax adjustment on fixed assets and capital goods is withdrawn. Specific and express legal provision introduced regarding inadmissible claim of input tax credit against invoices issued by suspended / blacklisted registered. Special returns can also be revised after approval from the Commissioner. A Member nominated by the Chairman FBR may also pass an order considered appropriate by him with respect to any decision or recommendation under the mechanism of alternate dispute resolution. No refund of sales tax is admissible under section 66 of the Act, if the incidence of the sales tax has already been directly or indirectly passed on to the consumer.
Customs
Power to prohibit import or export of goods on believing that the importer has submitted false statements withdrawn. Duty drawback facility allowed for supplies against international tenders.
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Enhancement of time limit from three years to five years for issuance of show cause notice on account of audit. One year time period for refund to be reckoned from the date of the decision of the appropriate authorities. FBR empowered to collect transit fee. Tariff rationalization through introduction of sub-PCT codes alongwith their description and the rate of customs duty. Regulatory duty abolished on number of items. Incentives to local industry through reduction of duty in the concessionary notification. Withdrawal of sales tax exemption on plant, machinery, equipment, etc. relating to the specified sectors / industries / capital goods.
Capital Value Tax
CVT on purchase of modaraba certificates, instruments of redeemable capital and shares of listed public companies withdrawn.
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Budget Brief 2010

Income Tax
Significant amendments
Exemption threshold enhanced to Rs. 350,000 for individuals and Association of Persons
Clauses (I) & (IA), Div I, Part I, First Schedule
The Finance Bill proposes to enhance the threshold of exempt income from Rs. 300,000 to Rs. 350,000 in case of individuals and association of persons. No change in tax rates has been proposed. The comparison of existing and proposed tax rates tables applicable to individuals, other than salaried individuals, and association of persons is summarised below:
S. No Taxable income (Rs.) Existing Rate % Proposed Rate %
S. No
Taxable income (Rs.)
Existing Rate %
Proposed Rate %
8 9 10 11 12 13 14 15 16 17 18
750,001 to 900,000 900,001 to 1,050,000 1,050,001 to 1,200,000 1,200,001 to 1,450,000 1,450,001 to 1,700,000 1,700,001 to 1,950,000 1,950,001 to 2,250,000 2,250,001 to 2,850,000 2,850,001 to 3,550,000 3,550,001 to 4,550,000 4,550,001 and above.
7.50 9.00 10.00 11.00 12.50 14.00 15.00 16.00 17.50 18.50 20.00
7.50 9.00 10.00 11.00 12.50 14.00 15.00 16.00 17.50 18.50 20.00
1 2 3 4 5 6 7
Upto 300,000 300,001 to 350,000 350,001 to 500,000 500,001 to 750,000 750,001 to 1,000,000 1,000,001 to 1,500,000 1,500,001 and above
0 7.50 7.50 10 15 20 25
0 0 7.50 10 15 20 25
The marginal relief introduced would continue to be applicable in the case of salaried individuals, as follows:
S. No. Total Income Threshold Percentage of incremental income taxable at next applicable tax rate % 20 30 40 50
1 2 3 4
Upto 550,000 550,001 to 1,050,000 1,050,001 to 2,250,000 2,250,001 to 4,550,000
The comparison of existing and proposed tax rates tables applicable to salaried individuals is summarised below:
S. No Taxable income (Rs.) Existing Rate % Proposed Rate %
4,550,001 and above
60
1 2 3 4 5 6 7
Upto 300,000 300,001 to 350,000 350,001 to 400,000 400,001 to 450,000 450,001 to 550,000 550,001 to Rs.650,000 650,001 to 750,000
0 0.75 1.50 2.50 3.50 4.50 6.00
0 0 1.50 2.50 3.50 4.50 6.00
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Taxation of Banking Companies

Carry forward of excess provision of advances for consumers and SMEs clarified; lower of actual provisions or at prescribed limit to be deductible
Rule 1(c), Seventh Schedule Existing Rule 1(c) of Seventh Schedule, substituted vide the Finance Act, 2010 created anomalies regarding deductibility and carry forward of provisions of advances for consumers and Small and Medium Enterprises. The Finance Bill now seeks to amend Rule 1(c) to clarify the position in the following manner:
Provisions relating to Provisional assessment rationalised

The Finance Act, 2010 inserted section 122C to provide mechanism for provisional assessment in case a person fails to furnish return of income. However, certain relevant amendments were not made in other provisions of the Ordinance to align them with objective of section 122C. The Finance Bill now seeks to make such amendments as explained below.
Assessment Section 2(5)

The Finance Bill seeks to include provisional assessment with the expression assessment.
Provisioning upto 1 percent of total advances or actual provisioning whichever is lower, shall be deductible. The provisioning in excess of 1 percent shall be carried forward to succeeding years. Provisioning at 5 percent of total advances for consumers and SMEs or actual, whichever is lower, shall be deductible, whereas, provisioning in excess of 5 percent shall be carried forward to succeeding years.
Wealth statement and reconciliation Section 116

Sub-section (2A) of section 116 provides that where a person files a return of income in response to a provisional assessment under section 122C, such return shall be accompanied by wealth statement along with wealth reconciliation and an explanation of sources of acquisition of assets specified therein. The Finance Bill now seeks to provide that in case of association of persons, such return shall be accompanied by wealth statement of all members along with their wealth reconciliations and explanation of source of acquisition of assets specified therein.
Tax rate on dividends received by banking company from its Asset Management Company enhanced Rule 6, Seventh Schedule
Presently, dividend income received by a banking company is subject to tax at 10 percent. The Finance Bill proposes to provide separate rate of 20 percent on dividend received by a banking company from its Asset Management Company.
No appeal shall lie against provisional assessment Section 127

Section 122C provides that a provisional assessment shall be treated as final after expiry of 60 days from the date of service of order. However, if a person files return of income within sixty days with wealth statement, wealth reconciliation and other documents required under
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Budget Brief 2011

section 116(2A), then the provisional assessment is not considered as final, and proceedings may continue on the basis of return of income and other documents filed. The Finance Bill seeks to provide that an appeal shall not lie against a provisional assessment order. The underlying objective of proposed amendment appears to rationalise the scheme of provisional assessment so as to require the person to file a return of income and other required documents in response to provisional assessment order. In case of failure to file return, no appeal should lie against a provisional assessment order which has attained the finality on expiry of 60 days.
The term Collective Investment Scheme [CIS] has been used in various provisions of the Ordinance. Absence of definition has been causing disputes regarding applicability of such provisions. Such provisions interalia include:
Division VII of Part I of the First Schedule obligating CIS to withhold capital gains tax on redemption Clauses 57(2), 99 and 103 of Part I of Second Schedule providing exemptions from income to CIS Clauses 11A and 47B of Part IV of Second Schedule to the Ordinance providing exemptions to CIS from minimum tax and certain withholding tax provisions
Due date for payment of tax Section 137(2)

Proviso to section 137(2) provides that the tax payable as a result of provisional assessment shall be payable after a period of 60 days from the date of service of the notice. However, there is no time limit prescribed for payment of tax after expiry of 60 days, which created anomalies with regard to recovery and levy of penalties etc. The Finance Bill seeks to clarify that tax would become payable immediately after expiry of 60 days from the date of service of notice i.e. the first day after completion of 60 days. Consequently, all recovery measures including levy of default surcharge / penalties would also be based upon such due date.
After proposed insertion of the definition, such anomalies are expected to be clarified.
Waiver of profit on debt or debt by a bank to be treated as business income of the borrower
Section 18(1)(d)
Section 18(1)(d) provides that fair market value of any benefit or perquisite, whether convertible into money or not, derived by a person in the course of, or by virtue of, a past, present, or prospective business relationship is to be treated as Income from Business. There have been disputes on taxability of amounts written back by a taxpayer on account of profit on debt or debt which were waived by the lender causing litigation. The Finance Bill now seeks to insert an explanation in section 18(1)(d) to provide that the word benefit shall include any benefit derived by way of waiver of profit on debt or debt itself under Circular No. 29 of 2002 issued by the Banking Policy Department, State Bank of Pakistan or any other scheme issued by the SBP.
Collective Investment Scheme defined

Section 2(11C)
The Finance Bill seeks to insert sub-section (11C) in section 2 to provide definition of Collective Investment Scheme to have the same meaning as are assigned under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003. The Rules define the term as a closed-end fund and an open-end scheme.
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Tax credits
Tax credit for investment in shares and insurance scope and limit enhanced Section 62
Section 62 contains provisions relating to tax credit to individuals and association of persons on investment in shares of a public company listed on stock exchange in Pakistan. The Finance Bill seeks to amend the provisions of section 62 to make following changes:
shall continue to be subject to holding period of 12 months.
Tax credit for contribution to an Approved Pension Fund cap of Rs. 500,000 removed Section 63
The Finance Bill seeks to remove the cap of Rs. 500,000 for tax credit on contribution to an approved pension fund. The amount eligible for credit shall now be lower of the following:
Tax credit shall now be available to resident individuals and association of persons only as against current applicability to resident and nonresident individuals. The Bill proposes to allow tax credit on payment of premium for life insurance, besides investment in public companys shares. Threshold of investment has been proposed to be enhanced from 10 percent to 15 percent of taxable income. The threshold of Rs. 300,000 has been proposed to be enhanced to Rs. 500,000. Time limit for holding of shares is proposed to enhance to 36 months from existing 12 months.
Actual amount of contribution or premium paid in an approved pension fund under the Voluntary Pension System Rules, 2005; or 20 percent of the taxable income (subject to specified conditions).
Tax credit for enlistment on stock exchange in Pakistan enhanced to 15 percent Section 65C
The Finance Act 2010 introduced tax credit at 5 percent of tax payable for the tax year in which a company is listed on a stock exchange in Pakistan. The Finance Bill proposes to enhance the rate to 15 percent. The incentive of tax credit for one year is not attractive enough to encourage companies to get listed on stock exchanges.
Consequent to the proposed amendments, the amount eligible for credit shall be lower of the following:
Actual cost of acquiring shares or the total contribution or premium paid; 15 percent of taxable income; or Rs. 500,000
Tax credit at 100 percent of tax payable for equity investment in new industrial set-up and for BMR in existing industrial set-up introduced Section 65D
With the aim of promoting industrialization, the Finance Bill seeks to introduce a tax credit for equity investment at 100 percent of tax payable by a company. The salient features of this scheme are as follows:
The proposed holding period of 36 months shall apply to such investments which will be made on or after 01 July 2011. Any investment made on or before 30 June 2011
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Budget Brief 2011

Tax credit shall be available to a taxpayer being company, with 100 percent equity owned by it, on or after 01 July 2011, which shall either: establish a new industrial undertaking for manufacturing in Pakistan; or invest any amount in the purchase and installation of plant and machinery, for the purpose of balancing, modernization and replacement of the plant and machinery, already installed therein in an industrial undertaking set up in Pakistan and owned by it.
Scope of unexplained income or assets extended

Section 111
Section 111 empowers the Commissioner to include the following amounts under the head Income from Other Sources if the taxpayer offers no explanation or explanation is found un-satisfactory:
Where any amount credited in books of account Where a person has made investment or is owner of any money or valuable article; or Where a person has incurred any expenditure.
Tax credit shall be allowed equal to 100 percent of tax payable by such company. Tax credit shall be allowed for a period of five years or commencement of commercial production, whichever is later. Where a tax credit is allowed and subsequently it is discovered that any of the condition specified was not fulfilled, the credit shall be deemed to have been wrongly allowed, and the tax payable shall be recomputed for the relevant tax year.
The Finance Bill now seeks to extend the scope of section 111. As proposed, if any person has concealed income or furnishes inaccurate particulars of income including the suppression of any production, sales or any amount chargeable to tax; or the suppression of any item of receipt liable to tax in whole or in part, and no explanation is offered or explanation offered is not found satisfactory, the Commissioner shall include such amount under the head Income from Other Sources.
It appears that the incentive has been proposed without linking it to the quantum of investment. Further, the proposed language of section 65D may lead to different interpretations defeating the envisaged objective. For example, dispute may arise on availability of tax credit to an existing company, which is not 100 percent owned through equity, investing in BMR on or after 01 July 2011. It is therefore suggested that the provisions of section 65D be rationalised.
Minimum tax
Period for carry forward extended upto 5 years Section 113
Existing provision allows carry forward of minimum tax paid by a resident taxpayer for adjustment against tax payable on profits of three immediately succeeding tax years. The Finance Bill now seeks to extend the period for carry forward of minimum tax from three years to five years. The Finance Bill also proposes to include gross sales, besides gross receipts within the scope of turnover. The proposed amendment is aimed to clarify that turnover in respect of sales of goods to be taken on accrual basis.
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Exemption from minimum tax to approved pension fund Clause 11A(i), Part IV, Second Schedule
The Finance Bill proposes to extend exemption from minimum tax to a pension fund registered under Voluntary Pension System Rules, 2006.
to use of term resident taxpayer an interpretation can be made that a resident company is also required to file wealth statement. The Finance Bill proposes to clarify the scope by restricting its applicability to a resident individual taxpayer including a resident individual being member of association of persons. Further, the Bill seeks to enhance the threshold for filing of wealth statement from Rs. 500,000 to Rs. 1,000,000. The Bill also proposes filing of wealth statement and reconciliation by all members of association of persons in case of filing of return in response to provisional assessment of the association of persons.
Scope for filing of return of income extended

Section 114
The Finance Bill seeks to further extend the requirements for filing of return, as follows:
Any person holding commercial or industrial connection of electricity where the amount of annual bill exceeds Rupees one million shall now be required to file return of income. The Finance Bill proposes to enhance exemption threshold to Rs. 350,000. However, the Finance Bill also proposes that every individual having income from business between Rs. 300,001 to Rs. 350,000 , though may not be liable to tax, shall be required to file return of income for the tax year.
Appellate Tribunal - Threshold for single member bench reduced; powers to dismiss appeal in default withdrawn
Sections 130(8AA), 132
Presently, a single member bench is empowered to dispose any case where the amount of tax or penalty involved does not exceed Rs. 5 million. The Finance bill proposes to reduce the threshold upto Rs. 1 million. Section 132 empowers the Appellate Tribunal to dismiss the appeal, if it deems fit, in case of default by any party on the date of hearing. This position was against the established principle that in case of an ex-parte decision, appeal ought to be decided on merits of the case based on available records instead of dismissal of appeal. The Finance Bill now seeks to withdraw the powers for dismissal of appeal in case of default.
The Bill also proposes that a return of income shall be accompanied with due payment of tax as per return of income as well as a wealth statement as required under section 116.
Wealth Statement - Threshold enhanced to Rs. 1 million

Section 116
Presently, every resident taxpayer having taxable income of Rs. 500,000 or more for the relevant tax year or immediately preceding tax year is required to file a wealth statement and wealth reconciliation. Though, by implications, the requirement for filing of wealth statement relates to individuals and association of persons, but due
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Budget Brief 2011

Period for payment of advance tax on capital gains enhanced to 21 days

Period for payment extended Section 147(5B)
Section 147(5B) provides that advance tax payable on capital gains subject to tax under section 37A shall be payable within a period of seven days after the close of each quarter. The Finance Bill seeks to extend this period upto 21 days after the close of each quarter.
amendment, in the case of a resident individual and association of persons, tax deducted on any kind of profit on debt shall be final tax.
Tax deducted from profit on debt to be final in the case of non-resident taxpayer having no permanent establishment in Pakistan Section 152(2) and clause 5A, Part II, Second Schedule
Clause 5A provides that payment of profit on debt to a non-resident person not having permanent establishment in Pakistan shall be subject to withholding tax under section 152(2) at 10 percent of gross amount of profit. Such tax deducted is adjustable against final tax liability determined either at tax rates provided in a double tax treaty, if applicable, or at tax rate applicable under the Ordinance, as the case may be. The Finance Bill proposes to insert a proviso in clause 5A providing that the tax deducted on profit on debt from debt instrument, Government securities including treasury bills and Pakistan Investment Bonds shall be final tax on profit on debt payable to a non-resident person having no permanent establishment in Pakistan and the investments are exclusively made through a Special Rupee Convertible Account maintained with a Bank in Pakistan.
Withholding tax
Collection of tax on import of old and used motor vehicles not to exceed the amount of duties and taxes prescribed in SRO 577of 2005 Section 148 and clause 4, Part III, Second Schedule
Clause 4 of Part III of Second Schedule provides collection of tax at import stage on old and used motor vehicles under SRO 932(I)/2004 at prescribed rates. The said SRO was subsequently superseded through SRO 577(I)/2005, but consequential amendment in clause 4 was not made. The Finance Bill now seeks to substitute this clause to provide that tax under section 148 shall not exceed the amount specified in SRO 577(I)/2005.
Deduction of tax from payments for goods, services and contracts Section 153
Section 153 contains provisions relating to deduction of tax from resident persons or permanent establishment of non-resident persons in respect of sale of goods, rendering of services and execution of contracts. The tax deducted on sale of goods and execution of contracts is a final tax in the hands of resident tax payer. However, this tax shall not be final in case of a company being a manufacturer of goods and the listed company. The tax deduction on services is adjustable in case of a company. The position was also clarified by the Board
Profit on debt - tax deducted from profit on debt on government securities to be final Section 151
Under existing provisions, tax deducted on profit on debt from a resident individual and association of persons is final tax except tax deducted by the Federal Government, a Provincial Government or a Local Government paying profit on debt on any security issued by such authorities. The Finance Bill now proposes to extend the final tax regime to profit on debt on government securities by amending provisions of section 151(3). After this
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vide Circular No.6 dated 18 August 2009. Subsequently, the Board vide letter dated 26 April 2011 withdrew its earlier clarification and stated that tax deducted on payments made for rendering of services is to be treated as minimum tax. The withdrawal of clarification by the Board was viewed against the provisions of law. The Finance Bill proposes to substitute section 153 in the following manner:
resident individuals and association of persons, whereas, adjustable in the case of a company. The Bill now proposes that tax deducted from payment for services rendered or provided shall be treated as minimum tax in the case of all resident persons and permanent establishment of nonresident person.
There is no change in the withholding tax rates on sales of goods, services rendered and execution of contract. Under existing provisions, gross amount of sales of goods includes sales tax under specific provision of law, whereas, no specific provision requires inclusion of sales tax in gross amount for the purpose of withholding tax on payments for services or execution of contracts. The proposed section provides that the gross amount for sale of goods, services and execution of contracts shall include sales tax, if any.
Threshold for withholding tax on withdrawal from pension fund enhanced to 50 percent Section 156B
The Finance Bill proposes to enhance the limit of withdrawal from any approved pension fund from 25 percent to 50 percent at or after the retirement age for the purpose of withholding tax.
Rate of tax collection on cash withdrawal reduced to 0.2 percent Section 231A and Div VI, Part IV, First Schedule
The Finance Bill proposes to reduce the rate of collection of tax on withdrawal of cash from 0.3 percent to 0.2 percent. The Bill however does not proposes any reduction in rate of tax collection on transactions in banks covered in section 231AA (e.g. sale against cash any instrument including Demand Draft, Pay Order, CDR, STDR, SDR, RTC or any other instrument of bearer nature etc.) which shall continue to be at 0.3 percent.
Tax deducted from payment for sale of goods is treated as final tax in case of a resident person (other than manufacturer of goods and listed companies). Similarly, tax deducted on execution of contracts is treated as final tax in case of a resident person, other than a listed company. The Bill proposes that tax deducted shall be final tax for resident person as well as permanent establishment of non-resident person in respect of sale of goods except (in the case of a company being a manufacturer of goods or a listed company) and in respect of execution of contract (except in the case of a listed company and contracts specified in section 152(1A), subject to filing of options by non-resident persons).
Tax to be collected on sale under auction by tender Section 236A

The Finance Bill seeks to subject sale under auction by tender to collection of tax under section 236A, besides sale by public auction.
Tax deducted on payment for services rendered or provided is treated as minimum tax in the case of
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Budget Brief 2011

Tax collected on sale of air tickets made adjustable Section 236B

The Finance Act, 2010 introduced collection of tax on sale of air tickets, without specifying that tax collected to be final or adjustable. The Board vide Circular 10 of 2010 clarified that tax collected shall be adjustable. Now, the Finance Bill seeks to insert sub-section (3) to clarify that the tax collected under this section shall be adjustable. The Bill further provides that tax shall not be collected in the case of the Federal Government or a Provincial Government or a person who produces a certificate from the Commissioner that income of such person is exempt.
The Bill also proposes that, in addition to name and address, CNIC Number and NTN would also be required to be incorporated in the statements. The Bill also proposes to insert a new sub-section (6) in section 165 to provide that every employer shall furnish annual statement of withholding tax from salary, including information for such employees, whose salary though exempt but fall in the range of Rs. 300,001 to Rs. 350,000.
Penalty for failure to furnish return or statements - Term tax payable explained
Section 182
Existing provisions provide that where any person fails to furnish a return of income or a statement required under section 115 or wealth statement or wealth reconciliation or withholding tax statement under section 165, such person shall pay penalty equal to 0.1 percent of tax payable for each day of default subject to a minimum penalty of Rs. 500 and a maximum penalty of 25 percent of the tax payable in respect of relevant tax year. The Finance Bill proposes to insert an explanation to the expression tax payable to mean tax chargeable on the taxable income on the basis of assessment made or treated to have been made under sections 120, 121, 122 or 122C.
Editorial amendments
Sections, 115, 168 & 169, clause 3 Division IV Part III First Schedule, clauses 42, 46A & 47D Part IV Second Schedule Consequent to the proposed amendments in withholding tax provisions, editorial changes have also been proposed in provisions dealing with filing of statement of final taxation, inadmissibility of tax deducted / collected which is final, and relevant withholding tax provisions contained in the First and Second Schedules.
Withholding tax statements to be filed on th monthly basis by 15 day of the following month Section 165
The Finance Bill seeks to amend section 165 in a manner to replace requirement of quarterly statements of withholding tax with monthly statements of withholding. For the purpose, the Bill also proposes that monthly th statement shall be required to be filed by 15 day of the month, following the month to which the statement pertains.
Benefit of Advance ruling restricted to non-residents not having permanent establishment in Pakistan
Section 206A
Section 206A provides that a non-resident taxpayer may seek advance ruling from the Board regarding application of the Ordinance to a transaction proposed or entered into.
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The Finance Bill seeks to restrict the availability of advance ruling only to such non-resident taxpayers who do not have permanent establishment in Pakistan by proposing new sub-section (4).
Tax Year
Where holding period is less than 06 months
Where holding period is 06 months or more but less than 12 months
Where holding period is one year or more
Jurisdiction of tax authorities Board or Chief Commissioner empowered to transfer cases

Section 209
Section 209 empowers the Board to assign persons or classes of persons or areas to a Commissioner and the Commissioner (Appeals), whereas, the Board, and the Chief Commissioner with prior approval of the Board, may confer upon or assign to any Officer of Inland Revenue all of any of the powers and functions conferred upon or assigned to the Commissioner in respect of any person or persons or classes of persons or areas, as may be specified in the order. The Finance Bill now seeks to insert a proviso in subsection (1) of section 209 to empower the Board or the Chief Commissioner to transfer jurisdiction in respect of cases or persons from one Commissioner to another. The proposed amendment appears to provide help in tax administration in view of ongoing restructuring of field formations.
2011 2012 2013 2014 2015 2016
10% 10% 12.5% 15% 17.5% *
7.5% 8.0% 8.5% 9.0% 9.5% 10%
0% 0% 0% 0% 0% 0%
*Tax rate not provided currently nor proposed in the Finance Bill
Exemptions and Concessions

Exemptions deleted
Clauses 61(xi) & (xxv), 74A, 93 and 114A, Part I, Second Schedule These clauses provide exemptions to BCCI Foundation for Advancement of Science & Technology, BCCI Foundation, foreign currency loan granted by National Bank of Pakistan to Pakistan State Oil, profit and gains of computer training institutions set-up between 01 July 1997 to 30 June 2005 for five years, and capital gains from sale of ships and floating crafts upto tax year ending 30 June 2011. The Finance Bill seeks to omit all these exemptions.
Taxation of Capital Gains on securities - Holding period clarified

Div VII, Part I, First Schedule
The existing tax rate card for capital gains taxation under section 37A has created an anomaly regarding taxation of capital gains where holding period is exactly 6 months or 12 months, as tax rates have been provided only where holding period is either lesser than or more than such periods. The Finance Bill seeks to clarify this position by substituting the rates table which is summarised as under:
Exemption to Islamic Development Bank Clause 107A, Part , and clause 38C, Part VI, Second Schedule
The Finance Bill proposes to provide exemption to any income derived by the Islamic Development Bank from its operations in Pakistan in connection with its social and economic development activities.
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The Bank is exempt from withholding tax under section 150 payment of dividend. The Finance Bill proposes to insert clause 38C to provide exemption from withholding tax to the Bank under sections 151, 152, 153 and 233 as well.
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Budget Brief 2011

Sales Tax Act, 1990

Scope of Tax Rate reduced to 16 percent
Section 3
The Finance Bill seeks to reduce the standard rate of sales tax from 17 percent (17 percent) to 16 percent (16 percent) w.e.f. 01 July 2011. This is a major relief measure proposed under the Sales Tax Act. It is however to be noted that the standard sales tax rate was increased to 17 percent only last year through the Finance Act 2010 to cater to the revenue shortfalls due to non-implementation of RGST. As a number of exemptions & zero-ratings under the Act and notifications have either been withdrawn or are proposed to be withdrawn, it seems a just and equitable decision to reduce the standard rate of sales tax again at 16 percent.
Restriction on claim of refund or input tax adjustment on invoices issued by blacklisted persons
Section 21(3)
The Bill seeks to insert sub section (3) to section 21 to provide for an explicit provision in the Act for restricting claim of input tax credit or refund on purchases from registered persons that have been blacklisted by FBR; including purchases made prior to the date of blacklisting. Similar provision is already available under sub rule (5) of rule 12 of the Sales Tax Rules, 2006. This proposed amendment seeks to make it a part of the Act itself. The intent appears to enhance the enforcement of the provision; however not allowing input tax credit on purchases made from a person prior to his blacklisting appears to be a harsh measure for the purchaser who would be penalised for no mistake on his part.
Input tax adjustment on fixed assets and capital goods

Section 8B(1)
Presently, adjustment of input sales tax paid on purchase of fixed assets / capital goods is allowed in 12 equal instalments. Furthermore, there is a restriction on claiming more than ninety percent (90 percent) of input tax during the tax period and same restriction also applies to adjustment of input sales tax incurred on purchase of fixed assets/capital goods. The Finance Bill seeks to substitute first proviso to sub section (1) of section 8B to allow full input tax adjustment against sales tax paid on fixed assets / capital goods during the tax period in which these are purchased. This would not only simplify the law, but also improve cash flows of the taxpayer.
Return
Section 26(3)
The Bill proposes to empower the Commissioner to allow revision of special sales tax return(s) filed in pursuance to a direction from the Commissioner or FBR. Presently, only a monthly sales tax return can be revised within 120 days of its filing.
Obligation to produce documents and provide information

Section 38B (1)
Presently, as per section 38B (1), officers equivalent and above the rank of the Deputy Commissioner of Inland Revenue are empowered to call for any information or documents from any registered person.
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The bill now seeks to empower the Assistant Commissioner (in addition to officers equivalent and above the rank of the Deputy Commissioner of Inland Revenue), to call for any information or documents from any registered person.
Sr.No.
Product
PCT Heading
Table-1 29B 30 34 35 Ultra Sound Gel Diapers for Adults (patients) Bricks Building blocks of cement including ready mix concrete blocks Computer software 3006.7000 4818.4010 6901.0000 6810.1100
Alternate dispute resolution

Section 47A (4)
The Finance Bill seeks to make consequential amendments in sub section (4) to bring it at par with section 38 of the Federal Excise Act, 2005 through which a Member nominated by the Chairman FBR may also pass an order considered appropriate by him with respect to any decision or recommendation under the mechanism of alternate dispute resolution.
41
Refund to be claimed within one year

Section 66
The Bill seeks insertion of a new proviso to section 66 whereby no refund of sales tax would be admissible if the incidence of the sales tax has already been directly or indirectly passed on to the consumer. This proposed amendment is to take care of the loss of revenue to Government in a scenario where same amount is not only claimed by refund claimant as refund, but also it (or part of it) is recovered by him from the consumer.
8523.2990, 8523.4010, 8523.4090, 8523.5990 and 8523.8090 87.02, 87.03, 8704.2200, 8704.2300, 8705.3000 and 8705.9000 8802.2000, 8802.3000 and 8802.4000 8901.2000, 8901.3000 and 8901.9000 Respective headings
42
Ambulances, fire fighting vehicles, waste disposal trucks, brake down lorries, special purpose vehicles for the maintenance of streetlights and overhead cables.
43
Aircrafts
Sixth Schedule
Table-1 & 2 - Withdrawal of sales tax exemptions
44
Ships, of gross tonnage exceeding 15 LDTs, excluding those for recreational or pleasure purpose. Defence stores, including trucks, trailers and vehicles, their parts and accessories for supply to Armed Forces Spare parts and equipments for aircrafts and ships mentioned above
62 The Bill proposes to withdraw sales tax exemptions available on import and supply of the following goods effective from 04 June 2011: Sr.No. PCT Heading 30.05 64
Product Surgical Tapes
Respective headings
29A of
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Budget Brief 2011

Sr.No.
Product Equipments and machinery for pilotage, salvage or towage for use in ports or airport. Equipment and Machinery for air navigation. Equipment and machinery used for services provided for handling of ships or aircrafts in customs-port or customsairport. Plant and machinery as is notified by Federal Government, exempt from sales tax on import if not manufactured in Pakistan Bulldozers and combined harvesters and components (which include subcomponents, components, subassemblies and assemblies excluding consumables). CNG Euro-2 buses whether in CBU or CKD condition
PCT Heading Respective headings
65
An amendment has been made in rule 65 whereby time limit for submission of report by Alternate Dispute Resolution Committee has been enhanced to 90 days from 60 days of its appointment. These amendments are effective from 04 June 2011.
66
Respective headings Respective headings
67
Significant amendments in the Special Procedures Rules, 2007

SRO 482(I)/2011 dated 03 June 2011
This SRO amends rule 58B of the Sales Tax Special Procedures Rules, 2007 whereby minimum value addition for payment of sales tax by commercial importers has been enhanced to 3 percent (3 percent) from 2 percent (2 percent). This amendment is effective from 04 June 2011.
68
Respective headings
69
Respective headings
Significant sales tax notifications

SRO 480(I)/2011 dated 03 June 2011
This SRO rescinds following notifications:
8702.9010 and 8702.9090 Respective headings
SRO 1240 (I)/2005 dated 16 December 2005 SRO 542(I)/2006 dated 05 June 2006 SRO 275(I)/2008 dated 12 March 2008 1(3) STM / 2004 (Pt-II) dated 23 August 2009
70
05 of Table-2
Supply of other such agricultural implements as specified by government in official Gazette.
By rescinding these notifications, following exemptions stands withdrawn:
Significant amendments in the Sales Tax Rules, 2006

SRO 487(I)/2011 dated 03 June 2011
This SRO amends rule 14A of the Sales Tax Rules, 2006 whereby automatic electronic approval for revision of sales tax returns will not be available anymore.
Import of dump trucks for off-high way use, onhighway dump trucks of 320 HP and above (PCT Code 8704.2290 and 8704.2390) and transit concrete mixer. Import and supply of agricultural machinery, equipment and implements, whether locally manufactured or imported.
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Import and supply of CKD kits of single cylinder agriculture diesel engines of 3 to 36 HP.
SRO 485 (I) /2011 dated 03 June 2011

This SRO rescinds SRO 1161 (I)/2007 dated 30 November 2007. Consequently, zero rating on import of raw material for manufacture of diapers under the PCT Code 5601.1040, is no more available and the standard rate of sales tax will apply on such imports. This notification is effective from 04 June 2011.
Furthermore, sales tax exemption is provided on sugar by rescinding SRO dated 23 August 2009, wherein reduced rate of eight percent (8 percent) of sales tax was applicable on local supplies of sugar. This notification is effective from 04 June 2011.
SRO 481 (I) /2011 dated 03 June 2011

Through this SRO, amendments have been made in SRO 551 (I)/2008 dated 11 June 2008 whereby exemption on following goods has been withdrawn:
SRO 486 (I) /2011 dated 03 June 2011

This SRO amends SRO 549(I)/2008 dated 11 June 2008, whereby, withdrawing the facility of zero rating on import and supply of:
Supply of CNG kits, cylinders and valves for CNG kits, if supplied for automotive vehicles Import and supplies of Commercial catalogues falling under PCT heading 4911.1000. Import and supplies of Rock Phosphate falling under PCT heading 2510.1000 and 2510.2000. Phosphoric Acid falling under PCT heading 2809.2010, if imported by or supplied to phosphate fertilizer industry for the manufacture of phosphate fertilizer. Mineral Oil 97 percent (W/V) 110 percent (W/V) falling under PCT heading 2710.0000.
CNG buses and all other buses meant for transportation of forty (40) or more passengers whether in CBU or CKD condition (PCT Code 87.02) Trucks and dumpers with g.v.w exceeding five (05) tons (PCT Code 87.04) Trailers and semi trailers for transport of goods having specification duly approved by the Engineering Development Board (PCT Code 87.16) Road tractors for semi trailers, prime movers and road tractors for trailers, whether in CBU condition or in kit form (PCT Code 8701.2010, 8701.2020, 8701.2030, 8701.2090, 8701.9030, 8701.9040, 8701.9050 and 8701.9060).
Further, following goods have been exempted from sales tax:
White crystalline sugar Reclaimed lead if supplied to recognized manufacturers of lead batteries.
This notification takes effect from 04 June 2011.
Customs SRO 477(I)/2011 amending SRO 575(I)/2006

Sales tax exemption on plant, machinery, equipment and apparatus has been withdrawn on the following sectors / industries / capital goods under Customs notification SRO 575(I)/2006:
This notification is effective from 04 June 2011.
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Budget Brief 2011

Agriculture. Local assemblers of vehicles and companies having CNG licenses. Highway dumps trucks and cement bulk semi-trailers without prime movers. Goods imported by municipal authorities / local bodies / cantonment boards. Fire fighting vehicles and equipment imported by town and municipal authorities. Aircrafts spares, parts, tyres, navigational equipment, etc. Items imported by Civil Aviation Authority for air traffic service and training.
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Budget Brief 2011

Federal Excise Act, 2005 and Rules

Special Excise Duty
Section 3A and excise notification SRO.489(I)/2011

The levy of SED was first introduced at the rate of 1 percent on goods produced or manufactured in Pakistan and goods imported into Pakistan in addition to levy of FED on all items classified under Pakistan Customs Tariff vide Finance Act, 2007, except the exempt goods listed in the Table of SRO.655(I)/2007, dated 29 June 2007. The rate of SED was recently enhanced to 2.5 percent vide the Federal Excise (Amendment) Ordinance, 2011, dated 15 March 2011. The enhanced rate of SED substantially increased the prices of several items, as such it was considered to be one of the major factors in rising inflation. The Bill now proposes to omit the charging provisions of section 3A regarding levy of Special excise duty [SED], and SED notification SRO.655(I)/2007, dated 29 June 2007 has been rescinded vide SRO.489(I)/2011, dated 3 June 2011, effective from 01 July 2011. The proposed abolition of SED is expected to benefit the trade & industry at large. Thus, it appears a relief measure by the government, which reportedly aimed at simplification of excise regime, reducing burden of multiple taxation and providing incentive to manufacturing sector as well as to the common man.
which can be extended by the Commissioner for another 60 days, if reasons recorded in writing.
Further, the period for which the proceedings remain adjourned due to stay order or any other appellate proceedings, will be excluded when calculating the above time limit.
Power to seize
Section 26(1)
The Bill seeks to insert the words or beverages after the word cigarettes to extend the scope of seizure of goods in addition to cigarettes.
Confiscation of cigarettes
Section 27
The bill seeks to extend the power to confiscate beverages in addition to cigarettes.
Alternative dispute resolution

Section 38(4)
The Bill proposes to insert the words within forty-five days of the receipt thereof after the word appropriate under section 38(4) in order to harmonize provisions of Section 47A(4) of Sales Tax Act. The Board is now required to pass the order within 45 days of the receipt of ADR recommendations, as deemed appropriate.
Recovery of unpaid duty or erroneously refunded duty or arrears of duty, etc.

Section 14(1) & (2)
Provisions of section 14(1) and (2) are proposed to bring at par with corresponding provisions of section 36 of Sales Tax Act as follows::
First Schedule to the Federal Excise Act, 2005

Table-I Excisable goods Aerated waters - Sr.Nos.4, 5 & 6
Uniform rate of FED at 6 percent of retail price is introduced effective from 01 July 2011, reducing the existing rates that range between 10-12 percent of retail price.
Timeframe prescribed for issuance of show cause notice would now be 5 years from the due date instead of existing period of 3 years. Order for assessed of FED is required to be passed within 120 days of the issuance of show cause notice,
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Unmanufactured tobacco Sr. No.7

Rate of FED enhanced from Rs.5 per kg. to Rs.10 per kg. effective from 04 June 2011.
FED withdrawn on 15 items

FED is proposed to be withdrawn on following goods w.e.f. 01 July 2011:
Sr.No. PCT Heading 2710.1150 2710.1190 2710.1949 2710.1992 2710.1997 2710.1999 2710.9100 & 2710.9900 2707.9910, 2713.9010 and 2713.9020 2909.1910
Cigarettes - Sr. No. 9, 10 & 11

Rates of FED on cigarettes and allied products have been enhanced w.e.f. 04 June 2011 as per following table:
Sr.No. PCT Heading 24.02
Product Solvent oil (non-composite) Other Other fuel oils Mineral greases Transformer oil Other mineral oils excluding sewing machine oil Waste oil
17 18
Product Locally produced cigarettes if their retail price exceeds twenty one rupees per ten cigarettes Locally produced cigarettes if their retail price exceeds eleven rupees and fifty paisa per ten cigarettes but does not exceed twentyone rupees per ten cigarettes. Locally produced cigarettes if their retail price does not exceed eleven rupees and fifty paisa per ten cigarettes.
Rate of FED Sixty-five percent of the retail price
21 26
28 29 30
10
24.02
Six rupees and four paisa per ten cigarettes plus seventy percent per incremental rupee or part thereof. Six rupees and four paisa per ten cigarettes
39
Carbon black oil (carbon black feed stock) including residue carbon oil
40
Methyl teritiary butyle ether (MBTE)
11
24.02
46 47
Greases Organic composite solvents and thinners, prepared paint or varnish removers i.e. solvent oil (composite) and other (excluding thinners) Viscose staple fibre Motor cars and other motor vehicles principally designed for the transport of persons, etc. Air Conditioners Deep Freezer
3403.1910 3414.0000
48 49
Respective heading 87.03
The manufacturer is restricted to reduce prices of cigarettes from the level prevailed on the day of the announcement of the Budget 2011-12.
51 52
Respective headings Respective headings
Cement Sr. No.13

Effective from 01 July 2011, the rate of FED on specified brands of cement is being slashed from Rs. 700 PMT to RS.500 PMT to promote the construction business thereby increasing employment opportunities.
Filter rods for cigarettes Sr. No.50

Rate of FED on filter rods enhanced from Re.1 per filter rod to 20 percent ad-val. w.e.f. 01 July 2011.
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Budget Brief 2011

White Crystalline Sugar Sr. No.53

FED introduced on white crystalline sugar at the rate of 8 percent ad-val. w.e.f. 04 June 2011, however sales tax applicable at the reduced rate of 8 percent under Sales Tax Notification No.1(3)STM/2004(Pt-II), dated 23 August 2009 stands withdrawn vide SRO.480(I)/2011, dated 3 June 2011. Sales tax exemption on import and supply of white crystalline sugar is also provided by amendment taking place under SRO.551(I)/2008, dated 11 June 2008.
unmanufactured tobacco by drying, cutting and thrashing of raw tobacco. The proposed insertion is meant to clarify that any process undertaken on agriculture produce of tobacco would also fall under the ambit of manufacturing requiring registration and discharge of liability towards Federal excise duty [FED].
Default Surcharge
Section 8
The rate of default surcharge on any short / non-payment of FED would be applicable at KIBOR plus 3 percent per annum similar to levy of default surcharge under section 34 of Sales Tax Act. Accordingly, the Bill seeks to amend section 8.
Table-II of First Schedule to the Federal Excise Act

Withdrawal of FED on services rendered or provided by property developers and promoters Sr.No.12
Effective 01 July 2011, FED is proposed to be withdrawn on services of property developers and promoters on development and construction of residential or commercial plots/units.
Second Schedule to Federal Excise Act, 2005

Addition of White Crystalline Sugar
FED introduced on sugar classified under PCT headings of 1701.9910 & 1701.9920 will be collected and paid in sales tax mode. This would facilitate to adjust input tax paid against taxable inputs against the output FED, as made applicable at the rate of 8 percent ad val. w.e.f. 04 June 2011.
Editorial changes in Federal Excise Act

Manufacture Section 2(16)(b)
The Finance Bill seeks to amend the definition of the term manufacture to insert the words snuff or preparation of
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40
Budget Brief 2011

Customs Act, 1969

Prohibitions
Section 15(c)
Section 15(c) specifies prohibition of certain goods for import or export which include goods imported or exported in contravention of the provisions of section 32 of the Act. Section 32 empowers Customs authorities to initiate legal proceedings if they believe that the specified documents or statements are false. Thus, the Customs authorities have been given extensive powers to prohibit goods by invoking section 15(c) of the Act. In order to eliminate possibility of any misuse, the Bill seeks to delete the reference of section 32 from the section 15(c) of the Act.
is provided for unpaid duty or charge on account of some collusion or erroneous refund.
Refund to be claimed within one year

Section 33(3)
In case customs duties or charges have been paid due to inadvertence, error, or misconstruction, the section allows refund to be claimed within one year from the date of such inadvertent payment. However, taxpayers, whose refund cases are pending before appropriate Customs authorities/ FBR/Appellate Tribunal/Court, are facing hardship when refund decision is made in favour of the taxpayers after lapse of one year. In order to facilitate the taxpayers, a new sub-section is proposed allowing refund to be claimed within one year which shall be reckoned from the date of the decision of the appropriate authorities.
Power to deliver certain goods without payment of duty and to repay duty on certain goods
Section 21(c)
Section 21(c) allows repayment of duties paid on the importation of goods which have been used in the production, processing, repairing, etc. of goods meant for export or for supply to organizations entitled to import the same at concessionary rates. The Bill seeks to enhance the repayment facility to local manufacturers and suppliers of domestic goods against international tenders.
Levy of transit fee

Section 129A
Keeping in view of the service cost being incurred by Customs authorities in providing transit facilities, the Bill seeks to empower FBR to prescribe transit fee on any goods or class of goods in transit across Pakistan to a foreign territory through notification in official gazette.
Untrue statement, error, etc.

Section 32(3A)
Customs authorities are empowered to issue show cause notice within three years in case any duty or charge has not been levied as a result of an audit or examination of an importers account. The Bill seeks to enhance the time limit from three years to five years in order to harmonise with the provisions of the section 32(2) of the Act where time limit of five years
Significant Customs notifications, effective 04 June 2011

Relief Measures SRO 479(I)/2011 amending SRO 482(I)/2009
Specified goods under following Chapters of Pakistan Customs Tariff shall now be imported without levy of Regulatory Duty:
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Chapter 4 8 16 17 18 19 20 21 22 23
Description Dairy produce, natural honey, etc. Edible fruit nuts, etc. except betel nuts Preparations of meat Sugars and sugar confectionery Cocoa and cocoa preparations Preparations of cereals, flour, starch, etc. Preparation of vegetables, fruit, nuts, etc. Miscellaneous edible preparations Beverages, spirits and vinegar Residues and waste from the food industries, etc. Essential oils and resinoids; perfumery, cosmetic or toilet preparations Soap, washing preparations, etc. Paper and paperboard; articles of paper pulp, of paper or of paperboard Articles of stone, plaster, cement, asbestos, etc. Glass and glassware Articles of iron or steel Nuclear reactors, boilers, machinery, etc. Electrical machinery and parts, sound recorders, etc. Furniture, bedding, mattresses, etc. Miscellaneous manufactured articles
However, specified goods under following Chapter of Pakistan Customs Tariff are still liable to Regulatory Duty: Chapter 10 24 Description Maize if imported from India Tobacco and manufactured tobacco substitutes Ceramic products Vehicles other than railway or tramway rollingstock, and parts and accessories thereof Arms and ammunition; parts and accessories thereof
69 87
93
SRO 476(I)/2011 amending SRO 567(I)/2006

Prior to issuance of the SRO 476, customs duty was charged on the following pharmaceutical raw materials ranging from 10 percent to 25 percent under Pakistan Customs Tariff. By virtue of this SRO, such raw materials fall under the concessionary notification and shall now be charged to 5 percent customs duty. HS Code 2933.3990 Description Fexofenadine, Ebastine, Isoniazid, Omeprazole Pellets Sparfloxacin, Amiloride HCL, Candesartain Cilextle, Pheneramine Maleate Pioglitazone HCL Glibenclamide, Thiocolchicoside, Hydrochlorothiazide Roxithromycin Ceftriaxone, Cefotaxime, D-Cycloserine Acrinol Pad Benzalkonium Chloride Pad (BKC) Losartan Potassium
33
34 48
68
70 73 84 85
2933.5990
2934.1090 2935.0090
94 96
2941.5000 2941.9090 3005.9010 3005.9090 3824.9099
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Budget Brief 2011

HS Code 3913.9090 3920.9900
Description Chondrotin Sulphate Polyethylene Film
SRO 478(I)/2011 amending SRO 678(I)/2004

Reduction of custom duty from 15 percent to 10 percent on import of X-mass trees, well-head and integral components by Exploration and Production (E&P) Companies, their contractors, sub-contractors and service companies.
SRO.475(I)/2011 amending SRO 565(I)/2006

Duty concessions at various rates are allowed to the following local industries on their imported raw materials:
Butyl acetate industry on import of raw materials (Sabutol). Glass industry on major raw materials namely mirror backing paint and waste / scrap of glass. CNG compressors manufacturing industry on import of 15 components.
Hi-tech car audio manufacturing industry on import of mechanism for car audio system.
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Budget Brief 2011

Federal Consolidated Fund

Collection from regulatory authorities
Article 78 of the Constitution of Pakistan 1973
Article 78 of the Constitution of Pakistan 1973 provides that all revenues received by the Federal Government, all loans raised by that Government and all moneys received by it in repayment of any loan, shall form part of a consolidated fund, to be known as the Federal Consolidated Fund. The Finance Bill now proposes amendments in various laws to collect specified amounts to the credit of Federal Consolidated Fund. The proposed amendments are as under:
All penalties and fines recovered by the relevant authorities under these laws shall be credited to the Federal Consolidated Fund.
Pakistan Telecommunication (Re-organization) Act, 1996 Fines and penalties collected by the Pakistan Telecommunication Authority is to be credited to the Federal Consolidated Fund.
Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997; Securities and Exchange Commission of Pakistan Act, 1997; Pakistan Nuclear Regulatory Authority Ordinance, 2001; Pakistan Electronic Media Regulatory Authority Ordinance, 2002; Oil and Gas Regulatory Authority Ordinance, 2002
The Bill proposes following amendments in these laws as under:
Any surplus of receipts over the actual expenditure in a financial year shall be remitted to the Federal Consolidated Fund and that any deficit from actual expenditure shall be made up by the Federal Government;
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Budget Brief 2011

An Economic & Budget Commentary
Offices in Pakistan
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Budget Brief 2011: An Economic and Tax Commentary

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Budget Brief 2011

Budget Brief 2011

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Budget Brief 2011

Budget Brief 2011

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Budget Brief 2011

Revised % Budget Estimate Estimate 2010-11 2011-12 ------------------(Rupees in billions) ----------------

Budget Brief 2011

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Budget Brief 2011

Sectoral Contribution to GDP Growth (% Points)

Sectoral GDP Growth (% Points)

06-07 4.1 8.3 7.0

07-08 1.0 4.8 6.0

08-09 4.0 -3.6 1.7

09-10 0.6 5.5 2.9

10-11 1.2 3.0 4.1

Budget Brief 2011

Sectoral Share in GDP (% Points)

Public Debt (in billions of Rupees)

Domestic Foreign currency In percent of GDP Domestic % of GDP Foreign % of GDP

Budget Brief 2011

06-07 162.9 5.2 904 22.5 17.4

07-08 166.4 5.5 1,015 22.1 13.6

08-09 169.9 5.5 990 18.2 12.5

09-10 173.5 5.6 1,073 15.4 13.2

10-11 177.1 5.6 1,254 13.4 13.8

Exchange Reserves (in USD millions)

90.00 80.00 70.00 60.00 50.00

30.00 20.00 10.00 -

Budget Brief 2011

Trade Deficit / Current Account Deficit

7.0% 6.3% 6.0% 5.5%

5.3% 12,000 5.0%

6,000 2.0% 4,000 1.0%

Budget Brief 2011

Budget Brief 2011

Average retail prices of essential items

* The units were changed from 100 cm to 100 cf.

Milk (Fresh per ltr)

Tea (in packet Super Qlty per 250 gm)

26.72 30.45 36.62 41.70 49.02 17.6

68.39 68.28 97.94 118.87 136.74 15.0

Budget Brief 2011

The fall in the GDP for 2010-11 was mainly caused by

Services sector contributed to 90 percent of GDP

The energy shortfall, high interest rates and crowding

The Reform measures undertaken by Government

The following tax measures were taken through the

The GDP growth, Investment to GDP rate and overall

The overall deficit for 2010-11 is expected to be Rs.

Year 2007-08 2008-09 2009-10 2010-11 (BE)

Growth 3.7 1.7 3.8 2.4

Overall total revenue is expected to be Rs. 2,236 billion

The tax revenue of FBR is expected to be Rs. 1,679

Budget Brief 2011

The overall expenditure is projected to be Rs. 2,559

2009-10 Jul to Apr Current Account Balance (3,456)

2010-11 Jul to Apr 748

The slippage in expenditure was caused by Flood

The overall brunt of increase in current expenditure and