ASSIGNMENT NO : 2

FAHAD MANSOORI 12183 TAXATION SIR AQEEL ZAFAR UL HASSAN.

Advance tax paid by the taxpayer Section 147

The amendment in subsection (1) seeks to broaden the exclusion list of income on which the taxpayer is not liable to pay the advance tax by including the following two items of income in the said list Brokerage or commission income under section 233; and Purchase or sale of shares through a brokerage house under section 233 A. Under subsection (6), a taxpayer is allowed to file an estimate of total advance tax liability for the tax year if he believes that the tax payable for that tax year is likely to be less than the amount he is required to pay as advance tax. Now, a new sub-section is proposed to be inserted whereby the taxpayer, who is required to pay advance tax under this section, is under obligation to estimate the tax payable by him for the tax year at any time before the last installment is due and if the estimated tax payable is likely to be more than the tax actually payable as advance tax, then the tax payer is required to furnish an estimate of the tax payable to the Commissioner and thereafter pay such amount after making adjustment for the amount (if any) already paid as

Imports Section 148

By virtue of the proposed amendments in sub-section (7) the Bill seeks to provide that in the case of importer, income from imports shall be treated as under final tax regime in the case where tax was required to be collected but was not collected. This amendment is of clarificatory nature thereby covering all eligible imports under the final tax regime in respective of tax collected at customs stage

Salary Section 149

Section 149 requires the employer to withhold tax from the payment of salary to the employees, and allows the employer to adjust the tax withheld from employees under other heads including the tax credits admissible under sections 61 to 64 of the Ordinance, after obtaining documentary evidence, against the amount of withholding tax to be deducted from salary. The proposed amendment seeks to substitute the word employer with the word person responsible for, by virtue of which, every person responsible for paying salary to an employee and not just an employer would be required to deduct tax from the payment of salary.

Moreover, the Bill proposes that only excess deduction or deficiency arising out of previous deduction or failure to make deduction should be adjusted against the amount of withholding tax in respect of salary. Thus, the tax credits available under section 61 to 64 shall not be allowed to be adjusted against the amount of withholding tax to be deducted by the employer. This amendment would create hardship for salaried individual, as in the absence of adjustments, the employees eligible to claim such tax credits are likely to be in a tax refund position at the time of filing of return of income. Ironically, considering the present state of affairs at FBR, nobody is sure as to when they would be able to receive the refund arising as a result of claiming such tax credits. However, the amendment shall curb the practice, whereby employees were making bogus claims for tax credits and advance tax payments, and the employers were not strictly following the law especially with regard to the inspection of documentary proof in respect of the claims.

Section 151 Profit on debt

Proposed amendment seeks to substitute the word deducted with the word deductible by virtue of which even the amount of tax that was deductible but was not deducted shall be treated as a final tax on the profit on debt arising to an individual or an association of persons

Payments to non-resident Section 152

In order to consolidate the provision relating to tax withholding on payments to non-residents the Bills seeks to make some amendment in section 152 and 153. The existing section 153A, which provides for tax withholding by every person making a payment for advertisement services to a non-resident media person relaying from outside Pakistan, is proposed to be deleted and moved to section 152 and renumbered as (1AAA). Another amendment is proposed in sub-section (2) by virtue of which payments to non-residents as envisaged under said sub sections (1AAA) or (2A) shall not be subjected to tax withholding at the rate of 20%. A new sub-section (2A) is proposed to be inserted which provides that the provision of sub-section (1AA), requiring a person to withhold tax while making a payment of insurance premium or reinsurance premium to a non-resident person, shall not apply to an amount that is taxable to a permanent establishment in Pakistan of a non-resident person, subject to the written approval of the Commissioner.

Amendments are also proposed to substitute the word deducted with the word deductible by virtue of which even the amount of tax that was deductible but was not deducted shall be treated as a final tax on the payments made to a non-resident person on account of execution of contracts as envisaged in sub-section (1A) and on payments to a non-resident person for insurance premium or re-insurance premium as envisaged in section (1AA).

Payments of goods, services and contracts Section 153

The Bill seeks to delete the words permanent establishment in Pakistan of a non-resident person from section 153 apparently to consolidate under section 152 all the relevant provisions relating to tax withholding on payments to non-resident persons. However, there appears to be some mistakes in the drafting and printing of the Finance Bill as the relevant sub-sections relating to tax withholding on payments to permanent establishment in Pakistan of a non- resident person are missing from the Bill. This understanding is also confirmed while reviewing the amendments as proposed in First Schedule to the Ordinance. The First Schedule to the Ordinance provides references to clauses (a), (b) and (c) of section (2A) but there is no such provisions under the proposed sub-section (2A) inserted in the Bill. Amendments are also proposed to substitute the word deducted with the word deductible by virtue of which even the amount of tax that was deductible but was not deducted shall be treated as a final tax on the payments made on account of sale of goods and execution of contracts

Payment to Traders and Distributors Section 153A

Bill proposes to insert new section 153A, introducing collection of tax by the manufacturer at the time of sale to distributor, dealer and wholesaler at the rate of 1% of the gross amount of sale which shall be adjustable from the tax liability on annual taxable income for the tax year. This amendment is proposed with the intention to ensure registration of the distributors, dealers and wholesalers and to bring them in tax net. However keeping in view the nominal rate of tax collection it is unlikely that the amendment will meet its objective.

Exports Section 154

The proposed amendment provides that tax deducted under this section including on export indenting commission is the full and final discharge of tax liability. The existing provision provides that the tax withheld by every authorized dealer at the time of realization of exchange proceeds on account of indenting commission is adjustable against the final tax liability.

Income from property Section 155

This section provides for deduction of tax @ 5% where the amount of rent during a year exceeds Rs.300,000. The tax withheld is adjustable against the final tax liability. The proposed amendment seeks to bring the withholding of tax under this section into the final tax regime. Accordingly, it is proposed that the tax withheld is final tax liability of the person with respect to such rent. This measure will hit the medium class owners of the houses who fully depend on this source of income. Now they will be required to pay tax on gross amount of rental income. Sub section (3) provides the list of prescribed persons who are required to withhold tax at the time of payment of rent. The proposed amendment widens the scope by including any other person notified by the CBR for the purpose of this section.