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DISCUSSION ON THE FINANCE ACT, 2009 VS THE FINANCE BILL, 2009 By ASIF S. KASBATI FCA, FCMA & LLB (Director Tax

DISCUSSION ON THE FINANCE ACT, 2009 VS THE FINANCE BILL, 2009 By ASIF S. KASBATI FCA, FCMA & LLB (Director Tax Services) asif.kasbati@pk.pwc.com A.F.Ferguson & Co. ( A member firm of PWC network ) On July 9, 2009 At Income Tax Bar Association, Karachi.

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DISCUSSION ON THE FINANCE ACT, 2009 VS THE FINANCE BILL, 2009 By ASIF S. KASBATI FCA, FCMA & LLB (Director Tax

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  1. DISCUSSION ON THE FINANCE ACT, 2009 VS THE FINANCE BILL, 2009 By ASIF S. KASBATI FCA, FCMA & LLB (Director Tax Services) asif.kasbati@pk.pwc.com A.F.Ferguson & Co. (A member firm ofPWC network) On July 9, 2009 At Income Tax Bar Association, Karachi

  2. BILL VIS-À-VIS ACT OVERALL STATISTICS

  3. BILL VIS-À-VIS ACT STATISTICS - DIRECT TAX

  4. INCOME TAX • INTERNALLY DISPLACED Section 12 & Para 1A - S-I • PERSONS TAX (IDPT) • Bonus paid or payable to corporate employees receiving salary income of Rs 1,000,000 or more (excluding bonus) is subject to IDPT @ 30% of the bonus-- • for the Tax Year 2009 as per the Finance Bill, however, • tax Year 2010 as per the Finance Act. DECISION IN APPEAL BY Section 129(5) to (7) COMMISSIONER (APPEALS) The Bill proposed to abolish the concept of deemed relief for an appeal, in cases where the Commissioner (Appeals) had not made an order on an appeal on expiration of four months from the end of the month in which the appeal was lodged. This proposal has not been enacted in the Finance Act.

  5. [ Income Tax … contd ] STAY ORDER OF APPELLATE TRIBUNAL Section 131 The Finance Act provides to grant stay in two stages. In the first stage, stay for the period of 30 days will be granted on filing of appeal. During the said period notice to respondent will be issued and after hearing both the parties, the Tribunal may pass the order as it deems fit but in no case, the period of stay shall exceed 180 days. In the Bill, there was no concept of granting stay in the first stage for 30 days during which the parties were to be heard and thereafter the decision for further stay was to be taken.

  6. [ Income Tax … contd ] ALTERNATIVE DISPUTE RESOLUTION (ADR) Section 134A Bill :The ADR Committee shall make recommendations within 180 days of its constitution, in respect of the resolution of the dispute. If the Committee failed to make a recommendation within 180 days, the FBR could dissolve the Committee and appoint a new Committee. Act : (1) The Committee is to make recommendations within 90 days of its constitution. (2) If the Committee fails to make recommendations within 90 days, the FBR may dissolve the Committee and appoint a new Committee which shall decide the matter within further period of 90 days. (3) If after the expiry of 90 days, the dispute is not resolved, the matter shall be taken up by the appropriate forum for decision.

  7. [ Income Tax … contd ] RECOVERY OF TAX OUT OF PROPERTY Section 138 Bill proposed to empower the Commissioner to stop removal of any goods manufactured or stored or kept by a tax defaulter. This proposal has not been enacted. ADVANCE TAX - BASIS Section 147 Bill proposed to amend the mode of determining the advance tax liability for Companies and AOPs on the basis of ‘actual turnover’ instead of ‘latest assessed tax’. This change has been enacted for companies only. AOPs will continue to pay advance tax on the latest assessed tax basis. However, where there is no latest assessed tax, AOPs will now pay advance tax on the basis of “own estimate”.

  8. [ Income Tax … contd ] ADVANCE TAX – DUE DATESSection 147 As the actual amount of turnover could not be available on the due dates specified in the existing law for companies, the Finance Act has amended the due dates for companies as follows: * For advance tax instalment due on June 15, the tax will presumably be based on the actual turnover for April and May, and an estimate of turnover for June, unless the FBR clarifies otherwise.

  9. [ Income Tax … contd ]

  10. [ Income Tax … contd ] COMMERCIAL IMPORTERS Section 148(7) & (9A) - PII - SII Commercial importers (other than for edible oil and packing materials) continue to remain under the FTR. The proposal in the Bill to treat the tax collected from such importers as minimum tax has not been enacted. The proposal to increase the rate of tax to be collected on imports to 4% from 2% has been enacted. The tax collected on import of edible oil and packing materials is to be treated as minimum tax. RAW-MATERIAL IMPORTS Cl. 9A - PII - SII A reduced tax rate of 3% is to apply on raw-materials imported by an industrial undertaking for its own use. As per bill, it was 4%.

  11. [ Income Tax … contd ] “When there is an income tax, the just man will pay more and the unjust less on the same income.” PLATO

  12. [ Income Tax … contd ] EXPORT Section 154 Exporters continue to remain under the FTR. The tax collected on exports to be treated as minimum tax, which was proposed in the Bill, has not been enacted. ANNUAL STATEMENT Section 165 Bill proposed that every person collecting or deducting tax from a payment shall furnish an Annual Statement within 2 months after the end of the accounting year of such taxpayer. The proposal has not been enacted. Consequently, the ‘Annual Statement of Withholding Tax’ continues to be filed within 2 months after the end of the financial year (July-June basis), including by the companies having special income years.

  13. [ Income Tax … contd ]

  14. [ Income Tax … contd ] REFUND ORDERSSection 170 Bill proposed an increase in time limit for issuing Refund Order by the Commissioner from 45 days to 90 days. Act has revised the time limit to 60 days. POWERS TO WITHHOLD REFUND IN CERTAIN CASESSection 170A Bill proposed to empower the Commissioner to withhold a refund till such time he deemed fit, if the refund arose out of an order that was the subject matter of an appeal or further proceedings under the Ordinance. The above proposal has not been enacted.

  15. [ Income Tax … contd ] RECORDS Section 174 According to the Bill, the accounts and documents were required to be maintained by an assessee till later of 5 years after the end of the tax year to which these related OR the final decision in any proceedings including proceeding for assessment, appeal, revision, reference, petition and any proceedings before an ADRC. The above amendment has not been enacted. Consequently, such accounts and documents continue to be required to be maintained only for 5 years after the end of the tax year to which these relate.

  16. [ Income Tax … contd ] PROSECUTION FOR NON-COMPLIANCE WITH Section 191 CERTAIN STATUTORY OBLIGATIONS Bill :Any person who without reasonable excuse, fails to furnish a return of income, final tax statement or wealth statement may also be considered to have committed an offence which is punishable on conviction with a fine or imprisonment for a term not exceeding 1 year, or both. Act :The above proposal has not been enacted. OFFENCES AND PROSECUTION Section 195, 196, 198 & 201 Certain amendments were proposed through the Bill in respect of levy of fines specified in the following sections. However, these have not been enacted.

  17. [ Income Tax … contd ] ADDITIONAL TAX Section 205 If a taxpayer fails to pay tax as per the ‘own estimate’ or the tax so paid is less than 90% of the tax chargeable for that tax year, the taxpayer is liable to pay additional tax on the amount of tax so chargeable or the amount which the tax paid by him falls short of 90%. Bill proposed that the additional tax will be calculated from the first day of the last quarter of the relevant tax year (i.e. in the case of a taxpayer having accounting year ending on December 31, the additional tax will be calculated from October 1). This has not been enacted. As such, the additional tax continues to be calculated in all the cases from April 1 in that year to the date on which the assessment is made or June 30 of the financial year next following, whichever is earlier.

  18. [ Income Tax … contd ] EXEMPTION FOR UNIVERSITIES Cl5 – PI – SII OR OTHER EDUCATIONAL INSTITUTIONS Any income of a university or other educational institution established solely for educational purposes and not for purposes of profit, is presently exempt from tax. Bill : a) It was proposed that such exemption will only be available to those universities / institutions which have been approved by the concerned Director General of LTU / RTO for this purpose. b) Existing universities / institutions were also required to have such approval within six months from the date of notification of the Finance Act. Act :The above proposals have not been enacted.

  19. [ Income Tax … contd ]

  20. [ Income Tax … contd ] POWER PROJECTS PRIVATIZED BY WAPDACl 17, PII SII Bill :Withholding tax rate on dividends declared or distributed by purchaser of a power project privatized by WAPDA will be the normal rate of 10% instead of the earlier applicable reduced rate of 7.5%. Act :The amendment has not been enacted. WITHHOLDING TAX ON LOCAL Cl13C – PII – SII PURCHASE OF EDIBLE OIL Withholding tax continues to be charged at the rate of 2% on payments by manufacturers of cooking oil or vegetable ghee or both, on purchase of locally produced edible oil. It was proposed through the Bill that the same rate will apply on the local purchase of imported edible oils. This proposal has not been enacted.

  21. [ Income Tax … contd ] TAX PAYABLE BY FULL TIME TEACHER OR RESEARCHER Cl2 – PIII – SII Under the existing clause, the tax payable by a full time teacher or a researcher is reduced by an amount equal to 75% of tax payable on his salary income. The Bill proposed to restrict the relief to 50%, however, the same has not been enacted. NEWS PRINT MEDIA SERVICES Cl16A – PIV – SII Bill proposed a reduced withholding tax of 2% from 6% on payments for print media services. Act exempted withholding tax on payments for print media in respect of advertising services.

  22. [ Income Tax … contd ] BANKING COMPANIES – PROVISIONS FOR S-VII ADVANCES AND OFF BALANCE SHEET ITEMS Bill :Provisions for classified advances and off balance sheet items charged in the accounts were to be allowed as a deduction @ maximum 1% of such classified advances and excess amount of provision, if any, was not to be carried forward. Act :Provision is now allowable to the extent of 1% of the total advances. Any provision in excess of the allowable limit is to be carried forward.

  23. BILL VIS-À-VIS ACT STATISTICS - INDIRECT TAXES

  24. INDIRECT TAXES – ST, FED & Customs Act PASSING OF ORDER BY S11(4), 36 & 45B of ST, S31 & 33 of FED; COLLECTOR (APPEALS)& S179 & 193A of CA Bill :The overall limit for assessment, adjudication or for passing order by Collector (Appeals) was reduced 180 days. It was also provided that any period during which the proceedings are: (a) adjourned at the request of the taxpayer; or (b) postponed due to stay order or alternative dispute resolution proceedings shall be excluded from the computation of period specified. Act :Now Limited the time for the adjournments at the request of the taxpayer [i.e. case (a)] to a maximum of 30 days.

  25. [ ST, FED & CA .… contd ] TAX INVOICES S23 of ST & 18 of FED Bill proposed a requirement to indicate NTN or CNIC of the customer on the tax invoice in case of supply of taxable goods to an unregistered person. This proposal has not been enacted. RETENTION OF RECORDS S24 of ST; S17 of FED &S211 of CA Through the Finance Act, the original requirement of maintaining the records upto 5 years after the end of the tax period to which such records relate is restored. As per the amendments proposed through the Bill, the records were required to be maintained for a period of 5 years or till the final decision in any proceedings, whichever is later.

  26. [ ST, FED & CA .… contd ] ALTERNATIVE DISPUTE RESOLUTION S47A of ST; 38 of FED & S195C of CA Bill :Proposed to increase the time period of 60 days to 180 days for the committee to make recommendations to the FBR, failing which the FBR was empowered to dissolve the first committee and constitute a new committee. Act :The time period for the First Committee to make recommendations has been reduced from 180 days to 90 days. The Second Committee, formed in case of failure of first committee, to make recommendations, has now also been bound to make recommendations within a further period of 90 days. If after the expiry of that period the dispute is not resolved, the matter shall be taken up by the appropriate forum for decision.

  27. [ ST, FED & CA .… contd ] ALTERNATIVE DISPUTE RESOLUTION S47A of ST; 38 of FED & S195C of CA Through the Bill, the FBR was also made responsible to pass order within 45 days of the receipt of recommendations from the Committee. The Finance Act has deleted the aforesaid time limit in the FED. The corresponding provisions has been retained in the ST to require the FBR to pass order within 45 days of receipt of recommendations.

  28. SALES TAX - OTHER ISSUES DEFAULT SURCHARGE Section 34 Bill :A separate rate of default surcharge of 2% per month in the case of ‘tax fraud’ was proposed to be omitted thereby making the general rate of default surcharge applicable in all cases including ‘tax fraud’. Act :This proposal has not been enacted. As such, the separate rate of default surcharge of 2% continues to apply in the case of ‘tax fraud’. The explanation that ‘tax due’ does not include the amount of penalty for the purposes of computing default surcharge has been restored by the Finance Act.

  29. [ Sales Tax … contd ] AUTHORISED OFFICERS TO HAVE ACCESS TO Section 38 PREMISES, STOCKS, ACCOUNTS AND RECORDS Under section 38, the FBR or the Collector had powers to appoint any officer to have free access to premises, stocks, accounts, records and other documents of the registered person or to seek any information or explanation from the registered person. Above powers of the Collector have been withdrawn through the Finance Act. Now, the FBR has exclusive powers to appoint officer for the purpose of section 38. The Bill had not proposed such amendment in section 38.

  30. [ Sales Tax … contd ] POWER OF FBR & COLLECTOR TO CALL FOR RECORDSSection 45A Bill :Time limit for issuing order by FBR or Collector, as the case may be, for seeking records of the departmental proceedings was proposed to be reduced from 5 to 3 years. Act :Omitted such proposal thereby restoring the original 5 years’ time limit. EXEMPTION ALLOWED S VI Exemption from sales tax has further been extended to newsprint [PCT Heading 4801.0000] through the Act.

  31. FEDERAL EXCISE – OTHER ISSUES PAYMENT OF DUTY BY OTHER PERSON Section 3 The power to create an exception to specify any goods or services in respect of which the liability to pay duty shall be of any ‘other person’ specified in a notification as proposed in the Bill has not been adopted in the Finance Act. Under section 3, FED is inter alia payable by the person manufacturing or producing or importing specified goods or rendering the specified services or a recipient of services rendered by the person out of Pakistan. ASSESSMENT OF MINIMUM LIABILITY OF Section 4A DUTY IN CASE OF NON-FILERS The concept of ‘assessment of tax’, proposed in the Bill, to determine minimum liability of duty of a person failing to file a return by the due date, has not been enacted in the Finance Act.

  32. [ Federal Excise … contd ] EXEMPTION ALLOWED S-1, Table II Bill :Duty was proposed to be levied at the rate of 16% on advertisements in newspapers and periodicals, and on hoarding boards, pole signs, sign boards and shop boards. Act :Duty on classified advertisements in newspapers and periodicals and on shop boards has been withdrawn. DUTY ON TELECOMMUNICATION SERVICES S-1, Table II Duty on SMS proposed @ Rs 0.20 per SMS, in addition to 19% of the charges, has not been adopted in the Act. Duty on telecommunication services [PCT heading: 98.12] was proposed to be revised to 19% from 21% through the Bill. Now, through the Act this duty has been revised to 19.5%.

  33. CUSTOMS DUTY – OTHER ISSUES REVIEW OF VALUE DETERMINED Section 25D Bill :A time limit of 30 days was proposed to file review application before the Director General of Valuation where the customs value has been determined by the Collector of Customs or Director of Valuation or any other competent authority. Act :Omitted the said time limit of 30 days, thereby restoring the existing provisions whereby there is no time limit prescribed to file review application.

  34. [ Custom Duty … contd ] EFFECTIVE RATE OF DUTY Section 31A Bill :The following amounts were proposed to be included in the determination of effective rate of duty applicable to any goods:- (a) Special Customs Duty on imported goods (Section 18A); (b) Lower rate of duty applicable under a trade agreement between the Government of Pakistan and a Foreign Government / preferential rate of duty (Section 18C); and (c) Fee and service charges levied by Federal Govt. (Section 18D). Act :The fee and service charges levied by the Federal Govt. (noted in ‘c’ above) have been excluded for this purpose.

  35. [ Custom Duty … contd ] POWER OF ADJUDICTION Section 179 Bill :The Principal Appraiser or Superintendent was proposed to be empowered to adjudicate cases involving duty and taxes not exceeding Rs 50,000 for the purposes of confiscating goods or for imposing penalty. Act :This proposal has not been enacted. ORDER OF APPELLATE TRIBUNAL Section 194B The Finance Act now provides to grant stay in two stages. In the first stage, stay for the period of 30 days will be granted on filing of appeal. During the said period notice to respondent will be issued and after hearing both the parties, the Tribunal may pass the order as it deems fit but in no case, the period of stay shall exceed 180 days. In the Bill, there was no concept of granting stay in the first stage for 30 days during which the parties were to be heard and thereafter the decision for further stay was to be taken.

  36. [ Custom Duty … contd ] REFERENCE TO HIGH COURT Section 196 Bill :The Director of Post Clearance Audit was proposed to be authorised to file a reference application before the High Court with regard to an order of the Appellate Tribunal. Act :The proposed amendment has not been adopted.

  37. PETROLEUM DEVELOPMENT LEVY CARBON SURCHARGE S-V (PETROLEUM DEVELOPMENT LEVY) BILL : A ‘Carbon Surcharge’ in place of Petroleum Development Levy, was proposed to be levied on various petroleum products ranging from Rs 3 to Rs 14 per litre. ACT :Carbon Surcharge on Compressed Natural Gas (CNG) at Rs 6 per litre was not enacted. SC Order : The Supreme Court of Pakistan has suspended the levy of Carbon Surcharge on petroleum products.

  38. “To tax and to please, no more than to love and be wise, is not given to man” Edmund Burke – 1774

  39. STAMP ACT Bill :The Stamp Duty on registration of the Memorandum and Articles of Association in Islamabad Capital Territory was proposed to be abolished. Act :The above proposal has not been enacted.

  40. “Taxes, after all, are dues that we pay for the privileges of Membership in an Organised Society.” Franklin D. Roosevelt – 1936 __________________________________ “In the world, nothing can be said to be certain except Death and Tax.” Benjamin Franklin - 1789

  41. THANK YOU

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