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KIA ASSOCIATES

KAMAL IMRAN ADNAN ASSOCIATES

EXCLUSIVE FOR THE INFORMATION OF CLIENTS AND STAFF

BUDGET

2009

We are pleased to present our comments on the relevant changes made to the Sales Tax Act , Income Tax Ordinance , etc.,. The main objective behind this exercise is to highlight only those changes , which will have significant impact on our Clients . The comments represent our interpretation of the legislation and do not purport to give professional advice . All the changes made through the Finance Act , 2009 are , in our opinion , applicable , effective from the Financial year commencing from July 01 , 2009 (i.e. Tax Year 2010) , except where otherwise indicated . We recommend that while considering its application to any particular case reference should be made to the specific wordings in the Act and Ordinance respectively to ascertain the precise effect of a particular change .

(Kamal Imran Adnan Associates)

Karachi July 14 , 2009

Suite No. 413, 4th Floor, National IT. Park, Ceasars Tower, Main Shahrah-eFaisal, Opp: Aisha Bawani College, Karachi TEL.: 0 2 1 - 2 7 8 5 7 3 6 , 0 2 1 - 2 7 8 5 7 3 8 Fax.: 0 2 1 - 2 7 8 5725

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Sales
DIRE CONSEQUENCES

tax

The taxpayers as fall in the jurisdiction of Large Taxpayers Units for the purpose of sales tax , federal excise or income tax and Recipients of Service of Advertisement , who are registered for sales tax are now included under the term withholding agents . Now , taxpayers as fall in the jurisdiction of Large Taxpayers Units and Recipients of Service of Advertisement , who purchases goods and services from unregistered person , shall deduct sales tax at the applicable rate of the value of taxable supplies/services made to them .

WITH IMMEDIATE EFFECT


Exemption withdrawn

Now , there is no sales tax exemption on the import of ware potato and onions . Sales tax exemption is now , only available on the Local Supply of ware potato and onions .

Exempted

from

sales

tax

The import of Tractors , bulldozers and combined harvesters and components including sub-components , components , sub-assemblies and assemblies excluding consumables have been exempted from sales tax . The following items have now been added in the list of exemption from sales tax : Cinematographic Film exposed , and developed ; and

Sulphate (ingredients of poultry and cattle feed)

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Reduct ion

in

sales

tax

The sales tax on the import and supply of Cellular phone has been reduced from Rs. 500 per Cellular set to Rs. 250 per Cellular set .

Zero

rated

regime

The following items have been excluded from the purview of zero rated tax regime :
MONOFILAMENT ; SUN SHEDING ; NYLON ; FISHING NET ; OTHER FISHING NET ; ROPE OF POLY ETHYLENE ; AND ROPE OF NYLON , TYRE CORD FABRIC

P L A N T AND M A C H I N E R Y
The following items are under zero rated regime with certain restrictions and limitations as mentioned against each of these items : Plant, Machinery and Equipment whether manufactured locally or imported Wheel Chair Raw materials, components, subcomponents and parts Zero Rated EXCEPT those specified under respective PCT headings , as notified Provided conditions as laid down under section 19 of the Customs Act, 1969 are fulfilled

Zero Rated Zero Rated

Income
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Tax
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T A X C R E D I T O F 2.5% F O R M A N U F A C T U R E R REGISTERED UNDER SALES TAX


Every manufacturer registered under sales tax , shall be entitled to a tax credit of Two and a Half Percent of tax payable for a tax year .

Provided
90 % SALES during the tax year are made to the person Registered under sales tax ;and To claim such aforesaid tax credit , the manufacturer shall provide complete details of the persons to whom the sales were made ;

Further
No tax credit (as discussed above) will be allowed to a manufacturer whose income falls under the Final Tax Regime or who pays minimum tax (turnover tax) ; and In case Full credit of aforesaid tax credit is not allowed or not adjusted against tax liability for the tax year , no carry forward of any balance (remaining) amount is permitted .

T U R N O V E R - meaning F O R M I N I M U M T A X
a. Gross Receipts
EXCLUDING

F.E.D., Discount) b. Gross Fees for rendering services for giving benefits
INCLUDING

(S.T., Trade

Also EXCLUDING deemed income and assessed under F.T.R. covered under F.T.R.
EXCEPT

commissions

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c.

Gross Receipts from execution of contracts

EXCEPT

covered under

F.T.R.

d.

Companys Share from AOP of which it is a member

MINIMUM

TAX

RE - INTRODUCED

This provision of law is applicable to a company for a tax year if incorporated or formed by or under any law in force in Pakistan ; the control and management of the affairs of the company is situated wholly in Pakistan at the time in the year ; and it is a Provincial Government or local Government .

Where for any reason , it has loss for the year , setting-off of loss of an earlier period , exemption from tax , tax credits or rebates , or allowances or deductions , etc. No tax is payable or paid or is less than 0.5% of turnover (as defined above) , a minimum tax @ 0.5% of turnover shall be levied and paid .

Excess d

amount can

be

carried forwar

If , this aforediscussed tax , paid in excess of the actual tax payable by the company then such excess amount of minimum tax shall be carried forward for adjustment against tax liability for
succeeding tax years . immediately three

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Exception

to

the

RULE

The minimum tax @0.5% of turnover is NOT applicable to -

a) company declares Gross Loss before set off of depreciation and other inadmissible expenses

However , the Commissioner shall have the power to ignore any such losses

b)

non-profit organization (religious, educational, charitable, welfare or development purposes, or for the promotion of an amateur sports) , formed and registered under any law , or approved by the Commissioner

AND none of the assets of such non-profit organization confers, or may confer private benefit to any other person

c) persons having income from exports of computer software or IT services or IT enabled services

Upto the period ending on 30 06 2016

d) 15 more persons are in this list , who are not liable to pay this aforediscussed minimum tax

ADVANCE

TAX

Through Finance Act , 2009 the concept of turnover per quarter is re introduced and now , the company is required to pay advance income tax installment by taking into account its turnover for the specific quarter .

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However , while calculating payment of installment of advance tax liability , the liability under the head minimum tax shall also be taken into account .

The advance tax installments are payable as under :

QUARTER
JULY SEPTEMBER

COMPANY
On or before 15TH OCTOBER

INDV./ AOP
On or before 15TH SEPTEMBER

OCTOBER DECEMBER

On or before 15TH JANUARY

On or before 15TH DECEMBER

JANUARY MARCH

On or before 15TH APRIL

On or before 15TH MARCH

APRIL JUNE

On or before 15TH JUNE.

On or before 15TH JUNE

Albeit , the Company and AOP , in the absence of LAST assessed income or declared turnover shall estimate the amount of advance tax payable on the basis of Quarterly turnover and thereafter pay such advance tax liability .

ADVANCE

T A X - private motor vehicles

Now , the obligation has been transferred on the EXCISE AND TAX DEPTT. To collect advance tax at the time of registration of new locally manufactured motor vehicle , at prescribed rates .

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IMPORT
Now , tax collected from a person at import stage on the import of edible oil and packing material shall be minimum tax for a tax year . Therefore , income arising from the import of edible oil and packing material will be taxed on net income basis . The proposition of such tax liability would be worked out as under :

NET INCOME

TAX LIABILITY RS.


7,920

TAX DEDUCTED AT IMPORT RS.


54,000

REMARKS
RS. 54,000 will be treated as minimum tax RS. 221,000 PAYABLE at the time of filing of income tax return

198,000

1,300,000

325,000

104,000

Large

Import

Houses

Large Import Houses , now , required to file their return of income under the Normal Tax Regime and the tax collected or deducted at import stage is no more a final tax , where having paid up capital exceeding Rs. 250 Million ; having imports exceeding Rs. 500 Million ; and own total assets exceeding Rs. 350 Million

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Tax

Rates ON IMPORTS

To Be Collected By Collector Of Customs a) from every importer of goods on the value of the goods
4%

b) from an industrial undertaking on the import value of raw material , imported for its OWN use
3%.

EVERY

PERSON

(re.; Dividend)

Through the Finance Act , 2009 every person are now , under an obligation , when paying a Dividend shall deduct tax from the gross amount of dividend paid , at the prescribed rate .

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INCOME

FROM

PROPERTY

The rate of deduction of tax on income from property has been changed to make it in line with the earlier Notification issued by the FBR in the case of INDV./AOP and Company , the respective tables given below -

I n d i v i d u a l s / A O Ps
PROGRESSIVE SLAB RATES

Gross Amount of Rent a) upto Rs. 150,000 b) Rs. 150,001 - Rs. 400,000 c) Rs. 400,001 - Rs. 1,000,000 d) exceeding Rs. 1,000,000
Nil

Rate

5% of the gross exceeding Rs. 150,000

amount

Rs. 12,500 + 7.5% of the gross amount exceeding Rs. 400,000 Rs. 57,500 + 10% of the gross

amount exceeding Rs. 1,000,000

Company

Gross Amount of Rent a) upto Rs. 400,000 b) Rs. 400,001 - Rs. 1,000,000 d) exceeding Rs. 1,000,000

Rate of tax
5% of the gross amount Rs. 20,000 + 7.5% of the gross amount exceeding Rs. 400,000 Rs. 65,000 + 10% of the gross amount exceeding Rs. 1,000,000

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PAYMENTS

FOR

GOODS

AND

SERVICES

Prescribed

Person

Now , non-profit organization [(religious, educational, charitable, welfare or development purposes, or for the promotion of an amateur sports) , formed and registered under any law , or approved by the Commissioner] placed under the term prescribed person and hence , under an obligation to withhold / deduct / collect tax against making payments in full or part including any advance -

for the sale of goods ; for rendering of or providing of services ; on the execution of contract, other than a contract for the sale of goods or rendering of or providing of services

D e f i n a t i o n - manufacturer
Now , packing and repacking excluded from the ambit of the

definition of manufacturer .

Hence , taxpayer engaged in packing and repacking and taxes withheld from him shall be treated as final tax instead of being considered as an advance tax and therefore , looses the characteristic of adjustment , thus no refund would be available .

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Individuals and AOPs Out Of the AMBIT of FINAL TAX REGIME


Now , indv. / AOPs engaged in rendering of or providing of services are now out of the final tax regime and therefore , tax collected or deducted from them on the rendering of or providing of services shall be minimum tax for a tax year . Therefore , income arising from the transactions above discussed will be taxed on net income basis . The proposition of such tax liability would be worked out as under :

NET INCOME

TAX LIABILITY RS.


7,920

TAX DEDUCTED FROM SERVICES RS.


54,000

REMARKS
RS. 54,000 will be treated as minimum tax RS. 221,000 PAYABLE at the time of filing of income tax return

198,000

1,300,000

325,000

104,000

EXPORT
Now , THE COLLECTOR OF CUSTOMS at the time of clearing of goods Exported shall collect tax from the gross value of such goods at ONE percent of proceeds of export .

EVIDENCE OF COLLECTION DEDUCTION OF TAX


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OR
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Every Person collecting or deducting tax liable to furnish , to the person from whom such tax has been collected or deducted , copies of challan of payment alongwith the prescribed certificate . The person , who receives such aforesaid challans will now required to attach these alongwith the prescribed certificate with the return of income .

WITHHOLDING TAX ON ELECTRICITY CONSUMPTION


The Finance Act , 2009 has made changes to effect the claiming of tax credits of withhold taxes on electricity bills , which are summarized as under

In Case of a Company
tax collected shall be adjustable against the tax liability

In Case of a Taxpayer
METHODOLOGY

other

than
TO

Company
CLAIM

HOW

Criterion a) tax collected upto BILL amount of RS. 30,000 per month . b) tax collected on monthly BILL over and above RS. 30,000 per month .

Status.
SHALL BE TREATED AS MINIMUM TAX AND NO REFUND SHALL BE ALLOWED

SHALL BE ADJUSTABLE

NO
Salar i ed

TAX

I ndividual
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Non-taxable Threshold a) upto Rs. 200,000 b) upto 260,000


Male Female

Category

RATES OF TAX CHARGEABLE O N S A L A R Y I N C O M E - RE-ARRANGED


These rates (under the table given below) are applicable for the tax year 2010 corresponding to the income year ending at any time between July 01 , 2009 to June 30 , 2010 -

Taxable Income
upto Rs. 200,000 Rs. 200,001 250,000 Rs. 250,001 350,000 Rs. 350,001 400,000 Rs. 400,001 450,000 Rs. 450,001 550,000 Rs. 550,001 650,000 Rs. 650,001 750,000 Rs. 750,001 900,000 Rs. 900,001 1,050,000

Rate of Tax (%)


Nil 0.50 0.75 1.50 2.50 3.50 4.50 6.00 7.50 9.00

Taxable Income

Rate of Tax (%)

Rs. 1,050,001 1,200,000 Rs. 1,200,001 1,450,000 Rs. 1,450,001 1,700,000 Rs. 1,700,001 1,950,000 Rs. 1,950,001 2,250,000 Rs. 2,250,001 2,850,000 Rs. 2,850,001 3,550,000 Rs. 3,550,001 4,550,000 Rs. 4,550,001 8,650,000 Over Rs. 8,650,000

10.00 11.00 12.50 14.00 15.00 16.00 17.50 18.50 19.00 20.00

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Marginal

Relief

The table of marginal relief for salaried taxpayer has been re-arranged as per table given below -

MARGINAL RELIEF Total income does not exceed Rs. 550,000 Rs. 1,050,000 Rs. 2,250,000 Rs. 4,550,000 Over Rs. 4,550,000 Increase in tax not to exceed tax payable on the maximum of the relevant slab plus 20% 30% 40% 50% 60%

TAX

YEAR

2 0 0 9 AND

2010

ONLY

The Finance Act , 2009 has introduced INTERNALLY DISPLACED PERSONS TAX (IDPT) for tax year 2009 Only (one time tax) as under :

INDIVIDUALS and AOPs

( salaried

and

non salaried )

IDPT , treated as income tax at the Rate of 5 % on the tax payable on the taxable income of One Million Rupees or More for tax year 2009 .

ON

BONUS

for

tax

year

2010

However , the tax payable on Bonus as IDPT at the rate of 30 % for tax year 2010 by salaried individual having taxable income of One Million Rupees or More .

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SALARIED

INDIVIDUAL

Where the salary income is Rs. 500,000 or more for the tax year , the taxpayer shall file Return of Income electronically alongwith proof of deduction or payment of tax and Wealth Statement .

FOUR MORE CONDITIONS - REQUIRING FILING OF RETURN OF INCOME


Any Person who OWNS immovable property with a land area of 500 sq. yds. or more located in a rating area ; OWNS a flat having covered area of 2000 sq. ft. or more in a rating area ; OWNS a motor 1000CC ; and HAS obtained N.T.N. vehicle having engine capacity above

WEALTH
Persons Falling

STATEMENT
Under

TO

BE

FILED

F.T.R.

Every Person (other than a Company) covered under the Final Tax Regime and has paid tax amounting to RS. 20,000 or more for the tax year , shall file a wealth statement .

Wealth

Reconciliation

Statement

Now , every taxpayer , who are required to file a Wealth Statement , he must also FILE a wealth reconciliation statement .

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