Amendments in Tax Laws in Pakistan

AMENDMENTS IN TAX
LAWS IN PAKISTAN
JUNAIDY SHOAIB ASAD

CHARTERED ACCOUNTANTS
TAXATION FOR INDIVIDUALS AND AOPs
UNDER THE INCOME TAX ORDINANCE, 2001
TAXATION FOR INDIVIDUALS AND AOPs UNDER THE INCOME TAX ORDINANCE, 2001
TAX ON PROFIT ON DEBT

Rate of tax for profit on debt for recipients other than companies for tax year
2018 and onwards shall be charged as follows (Section 7B read with Div IIIA
Part I First Schedule)
Profit on Debt Slab Rate of tax
S.No
Existing Revised Existing Rates Revised

Rates
Where profit on debt Where profit on debt

1 does not exceed does not exceed 10% 10%
Rs.25,000,000 Rs.5,000,000
2,500,000 +
Where profit on debt Where profit on debt
12.5% of the
exceeds Rs.25,000,000 exceeds Rs.5,000,000
2 amount 12.5%
but does not exceed but does not exceed
exceeding Rs
Rs.50,000,000 Rs.25,000,000
25,000,000
5,625,000 + 15%
Where profit on debt
Where profit on debt of the amount
3 exceeds 15%
exceeds Rs.50,000,000 exceeding Rs
Rs.25,000,000
50,000,000
VALUE OF PERQUISITES
Threshold for interest free loan from employer has been increased from
0.5 million to Rs 1 million. Benchmark rate of 10% on interest free loan is
to be included in the salary income of the employee. However, no addition
on account of interest shall be made where the loan does not exceed
above threshold limit. (Section 13)
DEDCUTIBLE ALLOWANCE FOR EDUCATION EXPENSE FOR

INDIVIDUALS
Threshold of taxable income for availing deductible allowance on account
of education expenses has been increased from Rs 1 million to 1.5 million.
(Section 60D formerly 64AB)
TAX CREDIT FOR INVESTMENT IN SHARES AND INSURANCE

Tax credit for investment in Sukuks offered by public listed companies
has been introduced vide Finance Act to original allottee of Sukuk.
Further, in case of tax credit for life insurance premium, policy should be
held for atleast two years from the date of acquisition otherwise tax credit
shall be disallowed for the previous years. (Section 62)
TAX CREDIT FOR INVESTMENT IN HEALTH INSURANCE
Threshold limit for investment in health insurance for availing tax credit
has been increased from Rs. 100,000 to Rs. 150,000 (Section 62A)
QUARTERLY ADVANCE TAX PAYMENT

Threshold of taxable income for payment of quarterly installment of
advance tax by business individual is increased from Rs. 0.5 million to
Rs. 1 million (Section 147)
PERSON NOT REQUIRED TO FURNISH RETURN OF INCOME

A widow, an orphan below the age of 25 year, a disable person and a
non-resident person owning immovable property are not required to file
return where they only: (Section 115)
i. Owns immovable property with a land area of 250 sq. yds or
more or owns any flat located in the area falling within the
municipal limits or areas in a cantonment or the Islamabad
Capital Territory;
ii. Owns immovable property with a land area of 500 sq. yds. or
more located in a rating area;
iii. Owns a flat having covered area of 250 sq. ft. or more located in
a rating area; or
iv. Owns a motor vehicle having engine capacity above 1000 cc
WEALTH STATEMENT
Revision of wealth statement filed under section 116 is now allowed

before receiving notice under section 122(9) of the Ordinance.
Previously the taxpayer could amend the wealth statement before
issuance of assessment order under section 122 of the Ordinance.
(Section 116)
TAXATION FOR COMPANIES
TAXATION FOR COMPANIES UNDER THE INCOME TAX ORDINANCE, 2001
SUPER TAX
Application of section 4B “Super tax for rehabilitation of temporary
displaced persons” has been extended for tax year 2017 (Section 4B)
TAX ON UNDISTRIBUTED RESERVES BY PUBLIC COMPANIES OTHER

THAN BANKS OR MODARABA
The Finance Act has replaced provision of tax on undistributed reserves.
Previously tax at the rate of 10% of reserves in excess of 100% of its paid
up capital was payable where the public company did not distribute 40%
of after tax profit or 50% of paid up capital whichever is less.
According to new provision tax at the rate of 7.5% shall be payable on

accounting profit before tax if atleast 40% of after tax are not distributed
by the public company as dividend within six months of the end of the tax
year. For tax year 2017, such distribution may be made at any time before
the due date of filing of return of income for tax year 2017. (Section 5A)
TAX CREDIT FOR ENLISTMENT

Tax credit at the rate of 20% available to newly listed companies
has been extended to subsequent three years after the year of
enlistment. However, tax credit for last two years i.e. third and
fourth tax years shall be restricted to 10%. (Section 65C)
TAX CREDIT FOR NON PROFIT ORGANIZATIONS
The Finance Act has fixed threshold limit for administrative and management expenses upto 15%
of total receipts in order to avail 100% tax credit by NPOs. However, the Finance Act has provided
that this condition shall not be applicable where charitable and welfare activities have
commenced for the first time within last three years and total receipts of NPO during the year are
less than Rs. 100 million. (Section 100C)
Further, the tax at the rate of 10% has been imposed on surplus fund by NPOs. Here, surplus
fund means funds or money:
(a) Not spent on charitable and welfare activities during the tax year;
(b) Received during the tax year as donations, voluntary contributions, subscriptions and
other incomes;
(c) Which are more than 25% of the total receipts of the non-profit organization received
during the tax year; and
(d) Are not part of restricted fund
Note: restricted fund means any fund received by the organization but could not be spent and
treated as revenue during the year due to any obligation placed by the donor.
COLLECITION OF TAX BY STOCK EXCHANGE FROM ITS MEMEBERS

Tax collected by stock exchange from its members shall be final tax
instead of adjustable tax from tax year 2018 and onwards (Section 233A)
PENALTY FOR FAILURE TO MAINTAIN AND FURNISH RECORD OF

TRANSACTION BETWEEN ASSOCIATES
Penalty in case of failure to maintain record of transaction between
associates (Transfer pricing) has been imposed at Rs 10,000 or 5%
of amount of tax whichever is higher. Further, non-maintenance of
document and information as required under rule 108 would attract
penalty @ 1% of the value of transaction for which record is not
maintained (Section 182)
Further, non-furnishing of information regarding transaction between
associates will attract penalty of Rs. 25,000 for first default and Rs
50,000 for each subsequent default (Section 182)
Rules have been circulated for comments and not yet finalised
PENALTY FOR FAILURE TO FURNISH INFORMATION TO THE BOARD

BY FINANCIAL INSTITUTION OR REPORTING ENTITY
Under section 165B Financial Institution are required to make

arrangement to provide information to FBR relating to non resident
under bilateral arrangement. Under this arrangement Common
reporting standard has been introduced.
Failure to furnish information by financial institution or reporting entity
to the Board shall attract penalty of Rs 2,000 for each day of default
subject to minimum penalty of Rs. 25,000. (Section 182)
DEDUCTION OF ADVAMCE TAX ON DIVIDENDS

Rate of advance tax on dividend has been increased from 12.5% to
15% whereas rate of tax on dividend from Stock Fund and Money
Market Fund has been increased from 10% to 12.5%. However, the
Finance Act has further provided that rate of tax on dividend received
by person other than a company from a money market mutual fund
shall be 10% where the amount of dividend does not exceed Rs. 2.5
million. (Section 150)
DEDUCTION OF ADVANCE TAX ON RETURN ON INVESTMENT IN

SUKUKS
Every company offering investment in sukuk shall be required to deduct tax

from payments of a return on investment in sukuks at the following rates
provided under Division IB, Part III of the First Schedule to the Ordinance.
(Section 150A)
Sukuk Holder Tax Rate Condition
Company 15%
Individual or AOP 12.5% Where return on investment is

more than 1 million
Individual or AOP 10% Where return on investment is

less than 1 million
Non-filers 17.5%
COLLECTION OF ADVANCE TAX ON PRIVATE MOTOR VEHICLES

Non-banking financial institution are included in the ambit of
withholding agent for collecting advance tax at the rate of 4% of value
of motor vehicle at the time of leasing. Further, leasing include
shariah compliant or conventional mode leasing either through ijara
or otherwise. (Section 231B)
FIXED RATE FOR HAJJ GROUP OPERATORS

Fixed tax of Rs. 5,000 per Haji for Hajj group operator has been
extended for tax year 2017 (Section 72A Part IV 2nd Schedule)
CONDITIONS FOR CLAIMING EXEMPTION ON IMPORT U/S 148 BY

INDUSTRIAL UNDERTAKINGS
Quota eligibility for import for availing exemption under section 148
has been increased from 110% to 125% of raw material imported
and consumed during the previous tax year. The Finance Act further
provides that the exemption shall not be available in respect of raw
material specified in sub-section 8 of section 148 of the Ordinance.
(Clause 72B Part IV 2nd Schedule). Such raw material includes
i. edible oils;
ii. packing materials; and
iii. plastic raw material falling under PCT heading 39.01 to 39.12
(Clause 72B Part IV 2nd Schedule)
REDUCED RATE OF MINIMUM TAX ON CERTAIN SERVICE

PROVIDERS
Reduced rate of 2% on certain service sector has been extended to
tax year 2018 along-with requirement for audit and irrevocable
undertaking for tax year 2018. Further, the Act now include following
service sectors in the list.of companies eligible for exemption. (Clause
94 Part IV 2nd Schedule)
i. Service rendered by Pakistan Stock Exchange
ii. Building maintenance services
iii. Service rendered by Pakistan Mercantile Exchange Limited.
COMMON PROVISIONS
COMMON PROVISIONS UNDER THE INCOME TAX ORDINANCE, 2001
TAX ON DIVIDEND
Rate of tax on dividend other than power sector and mutual funds has
been increased from 12.5% to 15% whereas rate of tax on dividend
from mutual fund has been increased from 10% to 12.5%. However,
Finance Act has provided that rate of tax shall remain 10% where
amount of dividend do not exceed Rs. 2.5 million (Section 5)
TAX ON RETURN ON INVESTMENT IN SUKUKS

Scope of tax on return on investment in sukuks has been broadened
vide Finance Act. Now the person receiving return on investment in
Sukuks from any company shall be liable to tax at the rate provided
in Division IIIB, Part I, First Schedule to the Ordinance Section 5AA)
Sukuk Holder Tax Rate Condition
Company 25%
Individual or AOP 12.5% Where return on
investment is more
than 1 million
Individual or AOP 10% Where return on

investment is less than
1 million
TAX ON BUILDERS AND DEVELOPERS

Application of fixed tax on builders and developers now restricted to
tax year 2017 if projects undertaken for construction and sale of
residential, commercial or other building and plots initiated and
approved during tax year 2017. Thus, projects undertaken after 2017
will be taxable on net income basis. However, such tax is applicable
to residential and commercial buildings and plots vide Finance Act.
Words “any other” buildings and plots has been excluded. (Section
7C & 7D)
DEDUCTION NOT ALLOWED AGAINST BUSINESS INCOME
Threshold for allowable expenditure on account of sale promotion,

advertisement and publicity for pharmaceutical manufacturer has
been increased from 5% to 10%. (Section 21)
DEPRECIABLE ASSETS
Ownership of the depreciable assets is deemed as owned by the

taxpayer where the asset is jointly owned by a taxpayer and an
Islamic Financial Institution in arrangement of Musharika or
Diminishing Musharika Financing (Section 22)
CAPITAL GAIN ON SALE OF SECURITIES

Rates of tax for capital gain on disposal of securities has been provided as
follows (Section 37A)
Tax Year 2018 and Tax Year 2018 and
onwards for onwards for
S.NO. Period securities acquired
securities acquired
before 1st July 2016 after 1st July 2016
Non -
Filer Filer Non - Filer
Filer
Where holding period of a
1 security is less than twelve 15% 18% 15% 20%
months
security is twelve months or
2 12.5% 16% 15% 20%
more but less than twenty-four
months
security is twenty-four months or
3 more but the security was 7.5% 11% 15% 20%
acquired on or after 1st July,
2013
Where the security was
4 0% 0% 0% 0%
acquired before 1st July, 2013
Future commodity contracts
5 entered into by members of 5% 5% 5% 5%
Pakistan Mercantile Exchange
Finance Act has provided that rate of tax on cash settled derivatives traded
on the stock exchange shall be 5% for the tax years 2018 to 2020.
TAX CREDIT TO A PERSON REGISTERED UNDER THE SALES TAX

ACT 1990
Tax credit available to manufacturer making sales not less than
90% to sales tax registered person has been withdrawn. (Section
65A)
MINIMUM TAX ON TURNOVER

General minimum tax rate on turnover has been increased from 1%
to 1.25% However, Minimum tax for person running an online market
place as defined in clause 2(38B) shall be 0.5% as provided vide the
Finance Act. (Section 113)
TAXABILITY OF IMPORT OF FERTILIZERS

Import of fertilizer by manufacturer of fertilizer previously been taxed
on net income basis shall now be final tax. (Section 148(7))
ADVANCE TAX ON SALE OR TRANSFER OF IMMOVABLE

PROPERTY
Advance tax collected on sale or transfer of immovable property
shall be minimum tax where property is acquired and disposed off
within the same tax year (Section 236C)
EXTENSION IN TIME FOR FURNISHING RETURN

Extension in time for filing return may be granted by the Chief
Commissioner upon application by the taxpayer where the
Commissioner has refused to grant the extension or further extension.
Such extension would be allowed for maximum 15 days unless further
extension is justified on the basis of exceptional circumstances.
(Section 119)
PROVISIONAL ASSESSMENT
Provisional assessment by the Commissioner in the absence of return

filed has been withdrawn. (Section 122C). Now the department may
made assessment on best judgment.
REVISION OF WITHHOLDING TAX STATEMENTS
Revision of withholding statement filed under statement 165 is now

allowed within 60 days of filing (Section 165)
DISCLOSURE OF INFORMATION BY FBR TO EOBI
EOBI can obtain information from FBR regarding salaries (Section

216)
AMENDMENT IN WITHHOLDING TAX RATES ON CERTAIN

PAYMENTS TO NON-RESIDENTS
The withholding tax rate for a non-resident deriving income from contract has
been increased from 12% to 13% where non-resident is a non-filer. Further,
tax deducted shall be adjustable and shall be assessed on net income basis
unless such non-resident opts for final tax regime (Section 152)
Following are withholding rates for payment made to non-filer non-resident.

(Section 152)
Existing Revised
rates rates
Company 6% 7%
Goods
Non-Company 6.5% 7.75%
Company 12% 14%
Services Non-Company 15% 17.5%
Contract 12% 13%

AMENDMENT IN WIHHOLIDNG TAX RATES ON CERTAIN PAYMENTS

TO RESIDENTS
Withholding agent is required to collect tax from agent or any third person on
account of payment for services where such agent / third person retains his
services charges / fees (Section 153). According to recent judgment of Supreme
court no withholding was required on such payment.
Rate of collection of withholding tax on supply of goods and services to resident

person has been amended as follows. (Section 153)
Existing Revised
Non- Non-
Company Company
Company Company
Distribution of FMCG 3% 3.50% 2% 2.5%
Sale of goods (non-
6% 6.50% 7% 7.75%
filers)
Services (non-filers) 12% 15% 14.5% 17.5%
Contract (non-filers) 10% 10% 12% 12.5%
AMENDMENT IN WITHHOLDING TAX ON RENT PAYMENTS TO

COMPANIES
Rate of advance tax on rent for companies being non-filer is
chargeable to tax at the rate of 17.5% of gross amount of rent.
(Section 155)
AMENDMENT IN WITHOLDING TAX RATE ON DISTRIBUTION OF PRIZE

AND WINNINGS
Rate of advance tax on prizes and winnings has been increased from
20% to 25% (Section 156)
BROKERAGE AND COMMISSION

 Computation of amount of commission to advertising agents has been provided
vide Finance Act through insertion of new sub-section. Principal is required to
deduct tax at the rate provided under Division II of Part IV of First Schedule to the
Ordinance i.e. at the rate of 10% being a filer and 15% for non-filer on amount of
commission to be calculated as follows:
A x 15 / 85; where
A = amount paid or to be paid to electronic or print media for advertising services

(excluding commission) on which tax is deductible under section 153(1)(b) of the
Ordinance.
Such tax deducted shall be final tax on income of the advertising agent and shall
be deducted irrespective of tax deductible under section 153(1)(b) of the
Ordinance on payment to electronic and print media.
The purpose of insertion of this new sub-section is to fix the percentage of

commission on which tax is to be deducted irrespective of the fact whether or not
the advertising agent receive any commission. (Section 233(2A))
COLLECTION OF ADVANCE TAX AT THE TIME OF SALE TO RETAILER

Rate of collection of advance tax on sales to retailer by distributor,
dealers or wholesaler in respect of certain products has been amended
as follows (Section 236H)
Existing Revised
Category of
Rate of tax Rate of tax
sale
Non-
Filer Filer
filer
Electronics 0.5% 1% 1%
Others 0.5% 0.5% 1%

ADVANCE TAX ON INSURANCE PREMIUM
Threshold limit for collection of advance tax at 1% from non-filer in

respect of life insurance premium has been increased from Rs. 0.2
million to Rs. 0.3 million (Section 236U)
REDUCTION IN TAX RATE FOR PERSON RUNNING ONLINE MARKET

PLACE
Rate of tax on commission derived by person running online market
place as defined in clause 2(38B) shall be 5% instead of 12% or 15%
being a filer and a non-filer respectively. (Clause 28C Part II, 2nd
Schedule)
EXEMPTIONS FOR STARTUP BUSINESS OF INFORMATION

TECHNOLOGY
Concept of startups has been introduced for information, technology business

offering technology driven products or services provided that business is
registered and is duly certified by the Pakistan Software Export Board (PESB)..
However business has been commenced on or after 1st July 2012. (Section
2(62A))
Following exemptions have been provided under the Ordinance for such
business:
i. Exemption on Profit and gain derived by start-up business of information
technology for the tax year in which the business starts up and the
following two tax years. (Clause 144 Part I 2nd Sch)
ii. Exemption from minimum tax under section 113 of the Ordinance. (Clause
43F Part IV 2nd Sch.)
iii. Exempt from withholding under section 153 of the Ordinance on payments
received. (clause 43F of Part IV of 2nd Sch.)
DEFINITIONS
 Durable goods has been excluded from Fast Moving Consumer Goods
(FMCG). Durable goods have however not being defined (Section 2(22A))
 Definition of “Liaison office” has been provided vide Finance Act, 2017.
However, place of business shall not be treated as liaison office if it
engages in commercial activities, trading or industrial activities, or the
negotiation and conclusion of contracts. (Section 2(30C))
AMENDMENTS IN SALES TAX ACT, 1990
NEW CONCEPT
“Tier- 1 Retailers” is define to mean following persons: (Section 2(43A))
a. A retailer operating as a unit of a national or international chain of stores
b. A retailer operating in an air-conditioned shopping mall, plaza or center,
excluding kiosks
c. A retailer whose cumulative electricity bill during the immediately preceding
twelve consecutive months exceeds rupees six hundred thousand; and
d. A wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods
on wholesale basis to the retailers as well as on retail basis to the general body
of consumers.
Such retailers shall pay sales tax at the rate of 17% and shall be liable for filing monthly
sales tax return. If such retailers are making supplies of finished goods of the five
sectors specified in notification S.R.O 1125(I)/2011 they shall pay sales tax at the rates
prescribed in said notification.
Such retailers shall have an option to pay sales tax at the rate of 2% of their total
turnover, including turnover of exempt supplies without adjustment of any input tax. To
exercise such option, such retailers will have to file an option before the respective
Chief Commissioner having jurisdiction by 15th of July and this option shall remain in
force for the whole financial year.
CHARGABILITY OF SALES TAX ON IMPORTED GOODS
Sales tax is required to be charged on goods imported into Pakistan

irrespective of their final destination in territories of Pakistan. (Section 3).
Purpose of said amendment to tax goods imported for FATA / PATA.
SALES TAX ON SPECIFIED RATES ON GOODS COVERED UNDER

EIGHTTH SCHEDULE
 Goods specified in Eight Schedule shall be charged to sales tax at the specified rate
further, retail price along with amount of sales tax is required to be legibly,
prominently and indelibly printed by the manufacturer on each article as required in
case of Third Schedule item. (Section 3(2))
 Certain goods shall be charged to sales tax at the rates specified in Eight Schedule
to the Act. which includes following (Eighth Schedule)
a. Supply of fertilizers are chargeable to sales tax at the specified rates
b. Some gases and locally manufactured coal are charged at specific rates subject
to certain conditions
c. Imports and supply of specific Poultry machines will be charged at the rate of 7%
d. Multimedia projectors at the rate of 10%
e. Fish feed at the rate of 10%
AMENDMENT IN SALES TAX RATES
1. MOBILE PHONES
Sales tax on low priced cellular mobile phones or satellite phones has been increased from Rs.
300 to Rs. 650 whereas sales tax medium priced cellular or satellite mobile phones has been
reduced from Rs. 1,000 to Rs. 650. (Ninth Schedule)
1. HYBRID ELECTRIC VEHICLES

Sales tax on local supply of Hybrid Electric Vehicles (HEVs) falling under the PCT heading 87.03
at the following rates: (SRO 587(I)/2017 dated 1st July 2017)
Upto 100cc 50% of the standard rate i.e. 8.5%
1801 to 2500cc 75% of the standard rate i.e. 12.75%
1. STEEL SECTOR
Fixed rate of sales tax for steel sector has been increased from Rs.9 per unit of electricity to Rs.
10.5 per unit of electricity. (Rule 58H of the Sales Tax Special Procedure Rules, 2007)
1. TEXTILE GOODS
Sales tax on retail sales to five export oriented sectors has been enhanced from 5% to 6%. (SRO
584(I)/2017 dated 1st July 2017)
EXEMPTION FROM CHARGEABILITY OF FURTHER SALES TAX

The Federal Government vide SRO 585(I)/2017 dated 1st July 2017
has exempted the following goods from chargeability of further tax.
i. Fertilizers
ii. Supplies by steel melters, re-rollers and ship breakers
operating under chapter XI of the Sales Tax Special Procedure
Rules, 2007; and
iii. Supplies covered under Fifth Schedule to the Sales Tax Act,
1990 at zero rate
EXEMPTION FROM SALES TAX WITHHOLDING

Sales tax is not required to be withheld anymore where supplies are
made by an active taxpayer to another registered person with the
exception of advertisement services (SRO 586(I)/2017 dated 1st July
2017)
RECOVERY OF TAX
Stay against recovery proceedings has been provided where taxpayer
files an appeal with the Commissioner Appeals under section 45B of the
Act in respect of any order and has paid 25% of the amount of tax.
(Section 48)
AMENDMENTS IN FEDERAL EXCISE ACT, 2005
CHARGABILITY OF SALES TAX ON IMPORTED GOODS

The Finance Act has provided for chargeability of duty on goods
imported into Pakistan irrespective of their final destination in territories
of Pakistan (Section 3). Purpose of said amendment to tax goods
imported for FATA / PATA.
RECOVERY OF TAX
Stay against recovery proceedings has been provided where taxpayer
files an appeal with the Commissioner Appeals under section 33 of the
Act in respect of any order and has paid 25% of the amount of tax.
(Section 37)
AMENDMENTS IN SINDH SALES TAX ON
SERVICES ACT, 2011
AMENDMENTS IN SINDH SALES TAX ON SERVICES ACT, 2011
DEFINITIONS
FRANCHISE
Amendment in the definition of “Franchise” has been made regarding
determination of franchise services irrespective of consideration or fee against
the franchise. Now the franchise service shall be chargeable to sales tax even
in case no payment is made or required to be made in franchise arrangement.
(Clause 2(46))
PLACE OF BUSINESS IN SINDH
Amendment in the definition of “place of business in Sindh” has been made to

include following person who carries on an economic activity through: (Clause
2(64(b))
i. Virtual presence
ii. A website
iii. Web portal; or
iv. Any other form of e-commerce by whatever named called or treated
PERSON LIABLE TO PAY TAX

Amendment has been made to include recipient of taxable service as a
person liable to pay tax. Service provider and service recipient shall be
jointly and severally liable to pay tax where service provider has failed to
make payment of tax within the prescribed due date and the person
receiving taxable supply fails to make payment to the service provider
within 180 days from the date of tax invoice. Further, it is also clarified
that the withholding agent shall also be considered as “registered
person” liable to pay tax and the amount of tax liable to be withheld by
the withholding agent is also proposed to be included in the “amount of
tax”. (Section 9)
CHARGEABILITY OF SALES TAX ON LABOUR AND MANPOWER

SUPPLY SERVICES
Exclusion / exemption from sales tax on reimbursement of salaries

and allowances received on actual basis by the person providing
labour and manpower supply services has been done away with vide
notification no. SRB-3-4/12/2017 dated 5th June 2017. Now the
service provider is required to charge sales tax on gross amount
including reimbursement of salaries and allowances. Such
amendment shall take effective from 1st July 2017. (Rule 42E(3))
TAX CREDIT NOT ALLOWED

Restriction / limitation for claiming input tax adjustment in respect of certain goods and
services has been included in section 15A of the Act which is currently covered under Rule
22A(ii) of the Sindh Sales Tax on Services Rules, 2011. The provision provide for exclusion of
input tax adjustment in respect of following goods or services which are liable to sales tax
whether Federal or Provincial sales tax and are used or consumed in the provision of services
taxable under the Sindh Sales Tax on Services Act, 2011:
i. Goods or services chargeable to sales tax at the specific rate
ii. Goods or services chargeable to sales tax at the fixed rate
iii. Goods or services chargeable to sales tax at such rates not based on value; or
iv. Goods or services chargeable to sales tax at the rate lesser than 13% ad volorem
In addition to the above, the person providing taxable telecommunication services chargeable
to sales tax at the rate of 19.5% ad volorem, can claim adjustment of input tax paid on goods
and services chargeable to sales tax at the rate not exceeding 17% ad volorem (Section
15A(1)(jj))
Further, rate of sales tax on telecommunication services for claiming input tax adjustment has
been increased from 19% to 19.5%. Such increase is in line with the increase in rate for
telecommunication services from 19% to 19.5% in Schedule to the Act. (Section 15A(1)(k))
INPUT TAX ADJUSTMENT FOR CAPITAL GOODS

New provision has been inserted for adjustment of input tax in respect
of capital goods, machinery and fixed assets as are classified under
Chapter 84 and 85 of the First Schedule to the Customs Act, 1969
against output tax in twelve equal monthly installments. Chapter 84
and 85 of the Customs Act include following class of goods: (Section
15B)
i. Chapter 84 “Nuclear reactors, boilers, machinery and

mechanical appliances, parts thereof”
ii. Chapter 85 “Electrical machinery and equipment and parts
thereof; sound recorders and reproducers, television image
and sound recorders and reproducers, and parts and
accessories of such articles”
ASSESSMENT OF TAX
Period for passing assessment order has been increased from 120
days to 180 days from issuance of the show cause notice. (Section
23(3))
Further, period for passing order for recovery of tax not levied or short
levied has been increased from 120 days to 180 days from issuance of
the show cause notice. (Section 47(3))
OFFENCES & PENALTIES
 New provision has been inserted regarding monitoring or tracking by electronic or other means in
respect of registered person or class of registered person or any of the service or class of the service.
As and when prescribed by the Board the person providing taxable services shall compulsorily use
the electronic means for issuance of tax inovices. (Section 54A)
Penalty has been imposed in respect of non-compliance of above provision. Such penalty would be
Rs. 100,000 or an amount equal to tax involved whichever is higher. Further, such person upon
conviction by a special judge shall be liable imprisonment upto one year or fine upto Rs.
100,000 or both. (Section 43(7B))
APPEALS
The Commissioner Appeal is empowered to decide the cases of de-
registration under section 25A of the Act. (Section 57(1))
RECOVERY OF ARREARS
Stay against recovery proceedings has been allowed till the decision in
appeal where appeal has been filed by the taxpayer before the
Commissioner Appeals against the order passed by the officer of the
SRB and the taxpayer has paid 25% of amount of tax due. (Section
66(1))
Further, New section has been inserted regarding recovery of tax from
the taxpayer without giving notice where the taxpayer has paid tax less
than the tax due as indicated in his return. Such tax short paid alongwith
default surcharge shall be recovered by attaching his bank account.
However, penalty shall not be imposed unless show cause notice is
given to such person. (Section 47A)
AMENDMENT IN SINDH SALES TAX ON SERVICES RULES, 2011

Certain amendments has been made vide notification no. SRB-3-4/12/2017 dated 5th June 2017
and such amendment shall take effect from 1st July 2017.
PERIOD FOR CLAIMING INPUT TAX ADJUSTMENTS
Period for claiming input tax adjustment has been increased from four to six months
w.e.f. 1st July 2017. Previously the registered taxpayers can claim adjustment of
unadjusted input tax during four succeeding tax periods. (Rule 22)
ADVERTISING SERVICES
Services of advertising agents in respect of advertisement on walls shall be chargeable
to sales tax. (Rule 33)
Further, scope of taxable advertising services has been widened by including services of
advertisement on buildings and walls in the definition of advertisement services as per
Rule. (Rule 34)
RENTING OF IMMOVABLE PROPERTY SERVICES

Rate of sales tax on services for renting of immovable property has been reduced from 8% to
3%. (Rule 42BBB)
FRANCHISE SERVICES
Option was previously available to elect tax rate of 13% on franchise services (tariff heading
9823.0000) instead of 10% by resident franchise service provider or franchisee receiving franchise
services from service provider resident outside Pakistan. Such option has been withdrawn vide
SRO 3-4/18/2017 dated 6th July 2017. Therefore, franchise services are chargeable at the rate of
10% without any input tax adjustment.
INTELLECTUAL PROPERTY SERVICES
Option was previously available to elect tax rate of 13% on intellectual property services (tariff
heading 9838.0000) instead of 10% by resident service provider or person receiving services from
service provider resident outside Pakistan. Such option has been withdrawn vide SRO 3-4/23/2017
dated 11th July 2017. Therefore, intellectual property services are chargeable at the rate of 10%
without any input tax adjustment.
REDUCTION IN SALES TAX RATES

Amendment has been made in reduced sales tax rates for certain services vide notification no. SRB-3-
4/11/2017 dated 5th June 2017. Such amendment shall take effect from 1st July
Tariff Description of service Current rate New rate
Heading
9805.5000 Travel Agents 10% 8%
9805.5100 Tour Operators 10% 8%
9806.3000 Renting of immovable property services 8% 3%
98.12 Telecommunication Services 19% 19.5%

9819.1200 Services provided or rendered by an indenter 13% 3% subject to the
from a place of business in Sindh for which the condition that the
registered person receives the value of service input tax credit /
from place outside Pakistan in foreign exchange adjustment shall not
through normal banking channels in the business be admissible
bank account of the registered person in the
manner prescribed by the State Bank of Pakistan
9835.0000 Services provided or rendered by a call centre 13% 3% subject to the

from a place of business in Sindh for which the condition that the
registered person receives the value of the input tax credit /
service from a place outside Pakistan in foreign adjustment shall not
exchange through banking channels in the be admissible
business bank account of the registered person in
the manner prescribed by the State Bank of
Pakistan
EXEMPTION
Exemption from sales tax on services of life insurance under tariff heading
9813.1500 (other than its related re-insurance service) has been extended
from 30th June 2017 to 30th June 2018 vide notification no. SRB-3-
4/10/2017 dated 5th June 2017.
AMENDMENTS IN PUNJAB SALES TAX ON
SERVICES ACT, 2012
AMENDMENTS IN PUNJAB SALES TAX ON SERVICES ACT, 2012
DEFINITIONS
DUE DATE OF FILING
The Finance Act has amended the definition of the due date of filing of return to provide for
different dates for furnishing different annexures of the Punjab sales tax return in line with
the Federal Sales Tax Act, 1990 whereby annexure of sales is to be e-filed on 10th of the
month following the month of sales. (Section 2(17)). Notification for submission of Annexure
C by 10th of the month from tax period July 2017 has been issued notification no.
PRA/Orders.06/2017(I) dated 5th July 2017.
PLACE OF BUSINESS
The Finance Act has extended the definition of place of business by amending sub-clause
(b) of sub-section(30) of section 2 of the Punjab Sales Tax on Services Act, 2012
(PSTSA’2012). Through the said amendment, the activities performed through ecommerce
or virtual presence including web portals shall now be treated as place of business for levy
of the Punjab sales tax on the activities carried out through e-commerce, web-portals, etc.
Now any business activity carried via virtual presence in Punjab through any computer
application / software shall be subjected to Punjab sales tax. (Section 2(30))
PERSON LIABLE TO PAY TAX COLLECTED AT SOURCE
A new section 11A has been inserted in the statute book whereby, in case
the recipient of taxable service being withholding agent fails to make the
payment of tax to the service provider within 180 days and the service
provider has also not made payment of tax within the due date, the
recipient and the provider of services shall jointly and severally be liable for
payment of tax. (Section 11A)
Another section has been inserted which empowers the Authority to

declare any person as tax collecting agent. The said person shall be liable
to pay the tax so collected to the Government as per procedures to be
prescribed by the Authority, including related to registration, record
keeping, invoicing, returns and other related matters. (Section 14A)
INPUT TAX CREDIT / ADJUSTMENT
The amendment has been made to allow a registered person to claim

adjustment, deduction or refund of the tax paid or payable under any other
law with the condition to furnish tax invoice or Goods Declaration (GD)
bearing the name of claimant and its National Tax Number (NTN), in case of
domestic purchases or imports respectively. The Authority will be empowered
to put restrictions on claim/ adjustment of input tax by issuing notification with
the approval of the Government. (Section 16)
INPUT TAX ADJUSTMENT FOR CAPITAL GOODS
New provision has been inserted for adjustment of input tax in respect of
capital goods, machinery and fixed assets as are classified under Chapter
84 and 85 of the First Schedule to the Customs Act, 1969 against output tax
in twelve equal monthly installments. Chapter 84 and 85 of the Customs Act
include following class of goods: (Section 16C)
i. Chapter 84 “Nuclear reactors, boilers, machinery and mechanical

appliances, parts thereof”
ii. Chapter 85 “Electrical machinery and equipment and parts
thereof; sound recorders and reproducers, television image and
sound recorders and reproducers, and parts and accessories of
such articles”
ASSESSMENT OF TAX
The current period of issuance of show cause notice for amendment of
assessment has been increased from five years to eight years. (Section 24)
RECOVERY OF ARREARS
The new clause (bb) to the sub-section (1) has been inserted whereby
the Authority upon issuance of notice in writing would be authorized to
recover the amount of tax payable by a taxpayer from any other person
who owe any amount to the taxpayer under legally enforceable relation
including purchase contracts, contracts with credit or financial institutions
or banking companies, lease contracts, loan agreements, building loan
contracts, life insurance contracts, employment or work contracts etc.
Further, the Act has provided for automatic stay against recovery of the
disputed tax till the decision in appeal where 25% of the demand as a
result of assessment order has been deposited. (Section 70)
GENERAL ADMINISTRATION
RESTRICTION ON AUTHORITY ISSUING OR RENEWING A BUSINESS
LICENSE
New section has been inserted which authorizes the Authority requiring
any competent authority to hold the issue or renew a license or
permission to any person to engage in an economic activity which is
taxable under the Act unless the licensee or grantee furnishes the
evidence that he is a duly registered person under section 25, 26or 27 of
the Act. (Section 76A)
COMMUNICATOIN OF NOTICE, ORDERS ETC
The Authority, while issuing notification, may communicate electronically
in respect of all communications including notifications, order,
assessment or requisition from officers. This facility of electronic
communication has been extended for the service of notices and show
cause notices as well. (Section 78)
TAX CHARGEABLE
The following amendments have been made in the Second Schedule to the Act:
Telecommunication Services (Serial No. 6)
)Serial no. Description Rate of Tax
of the
Table
6 (z) i. internet services whether dialup or broadband Nineteen and
including e mail services, data communication a half percent
network services (DCNS) and value added data
services
ii. such charges payable on the international leased
lines or bandwidth services used by:
(a) software exporting firms registered with Pakistan
Software Export Board; and
(b) data and internet service providers licensed by
the Pakistan Telecommunication Authority; and
i. such charges payable on the international leased
lines used by the software exporting firms
registered with Pakistan Software Export Board for
software exports. And
Note that the exclusion from chargeability of tax under “Telecommunication Services” has
been amended and now only the internet services whether dialup or broadband including
email services, data communication network services (DCNS) and value added data
services when the charges do not exceed Rs. 1500 per month per student.
Construction Services (Serial no. 14)

The Government of Punjab on the recommendations of the Authority had issued a notification No.
SO (TAX) 5-24/2016 dated 05 October 2016 effective from 01 July 2016 whereby a reduced rate
scheme was announced for construction services. The aforesaid notification is valid up to 30 June
2017. The Finance Act has introduced a similar scheme by inserting explanation in the taxable
service category under Sr. No. 14 of the Second Schedule to the PSTSA’2012. Amendment has
been made as follows:
Type of Construction Service Rate of sales tax
All services specified at S.No.14 without input tax credit or adjustment to the One percent
extent of Government civil works including those of cantonment boards
involved in the ongoing development schemes and projects launched during
Financial Year 2016-17 and funded under the Annual Development Plan of the
Punjab Government or funded through foreign loans where the negotiations
were finalized after 1st of July 2016 or funded under Public Sector Development
Program of the Federal Government or funded by the Cantonment Boards
All services specified at S.No.14 without input tax credit/adjustment to the Zero percent
extent of Government civil works including those of cantonment boards
involved in the ongoing development schemes and projects launched prior to
Financial Year 2016-17 and funded under the Annual Development Plan of the
Punjab Government or funded through foreign loans where the negotiations
were finalized as on 1st of July 2016 or funded under Public Sector
Development Program of the Federal Government or funded by Cantonment
Boards
Note all other construction services are taxable at reduced rate of five percent without input tax
credit/adjustment.
Services provided by persons engaged in contractual execution of work or

furnishing supplies (Serial no. 16)
Exemption available in the scenario where the annual turnover of the
contractual works or supplies does not exceed Rs.50 million has been
withdrawn. After the said amendment the services of the persons
engaged in the contractual execution of work or furnishing supplies
shall be taxable irrespective of the value of the work, except for the
contracts involving printing or supplies of books which will remain
exempt irrespective of the value of contracts.
AMENDMENTS IN ISLAMABAD CAPITAL TERRITORY
(TAX ON SERVICES) ORDINANCE, 2001
AMENDMENTS IN ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES) ORDINANCE, 2001
REDUCTION IN SALES TAX RATE

Service provided or rendered by marriage halls and lawns, by whatever
named called, including “pandal” and “shamiana” services and caterers
shall be subjected to sales tax at the rate of 5% without any input tax
adjustment (SRO 589(I)/2017 dated 1st July 2017 read with SRO
495(I)/2016 dated 4th July 2016.
AMENDMENTS IN ISLAMABAD CAPITAL TERRITORY (TAX ON SERVICES) ORDINANCE, 2001
EXEMPTION FROM SALES TAX

Sales tax on export of IT services or IT enabled services has been exempted
vide SRO 590(I)/2017 dated 1st July 2017
AMENDMENTS IN THE KHYBER PAKHTUNKHWA
SALES TAX ON SERVICES ACT, 2013
AMENDMENTS IN THE KHYBER PAKHTUNKHWA SALES TAX ON SERVICES ACT, 2013
SCOPE OF SERVICES
“Ride hailing services” are included in the list of services under First
Schedule to the Act. However, corresponding amendment to levy sales
tax would be notified by the Provincial Government.
AMENDMENTS IN THE KHYBER PAKHTUNKHWA SALES TAX ON SERVICES ACT, 2013
EXEMPTION FROM SALES TAX

Various services including money transfer, construction of bridges, gas
supply and sanitation services are proposed for exemption. However
separate notification in this regard will be issued by KPKRA to give
effect to this announcement.
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Amendments in Tax Laws in Pakistan

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AMENDMENTS IN TAX

JUNAIDY SHOAIB ASAD

TAX ON PROFIT ON DEBT

Existing Revised Existing Rates Revised

Where profit on debt Where profit on debt

DEDCUTIBLE ALLOWANCE FOR EDUCATION EXPENSE FOR

TAX CREDIT FOR INVESTMENT IN SHARES AND INSURANCE

TAX CREDIT FOR INVESTMENT IN HEALTH INSURANCE

QUARTERLY ADVANCE TAX PAYMENT

PERSON NOT REQUIRED TO FURNISH RETURN OF INCOME

Revision of wealth statement filed under section 116 is now allowed

TAX ON UNDISTRIBUTED RESERVES BY PUBLIC COMPANIES OTHER

According to new provision tax at the rate of 7.5% shall be payable on

TAX CREDIT FOR ENLISTMENT

TAX CREDIT FOR NON PROFIT ORGANIZATIONS

COLLECITION OF TAX BY STOCK EXCHANGE FROM ITS MEMEBERS

PENALTY FOR FAILURE TO MAINTAIN AND FURNISH RECORD OF

PENALTY FOR FAILURE TO FURNISH INFORMATION TO THE BOARD

Under section 165B Financial Institution are required to make

DEDUCTION OF ADVAMCE TAX ON DIVIDENDS

DEDUCTION OF ADVANCE TAX ON RETURN ON INVESTMENT IN

Every company offering investment in sukuk shall be required to deduct tax

Sukuk Holder Tax Rate Condition

Individual or AOP 12.5% Where return on investment is

Individual or AOP 10% Where return on investment is

COLLECTION OF ADVANCE TAX ON PRIVATE MOTOR VEHICLES

FIXED RATE FOR HAJJ GROUP OPERATORS

CONDITIONS FOR CLAIMING EXEMPTION ON IMPORT U/S 148 BY

REDUCED RATE OF MINIMUM TAX ON CERTAIN SERVICE

TAX ON RETURN ON INVESTMENT IN SUKUKS

Sukuk Holder Tax Rate Condition

Individual or AOP 10% Where return on

TAX ON BUILDERS AND DEVELOPERS

DEDUCTION NOT ALLOWED AGAINST BUSINESS INCOME

Threshold for allowable expenditure on account of sale promotion,

Ownership of the depreciable assets is deemed as owned by the

CAPITAL GAIN ON SALE OF SECURITIES

TAX CREDIT TO A PERSON REGISTERED UNDER THE SALES TAX

MINIMUM TAX ON TURNOVER

TAXABILITY OF IMPORT OF FERTILIZERS

ADVANCE TAX ON SALE OR TRANSFER OF IMMOVABLE

EXTENSION IN TIME FOR FURNISHING RETURN

Provisional assessment by the Commissioner in the absence of return

REVISION OF WITHHOLDING TAX STATEMENTS

Revision of withholding statement filed under statement 165 is now

DISCLOSURE OF INFORMATION BY FBR TO EOBI

EOBI can obtain information from FBR regarding salaries (Section

AMENDMENT IN WITHHOLDING TAX RATES ON CERTAIN

Following are withholding rates for payment made to non-filer non-resident.

Company 12% 14%

Services Non-Company 15% 17.5%

Contract 12% 13%

AMENDMENT IN WIHHOLIDNG TAX RATES ON CERTAIN PAYMENTS

Rate of collection of withholding tax on supply of goods and services to resident

AMENDMENT IN WITHHOLDING TAX ON RENT PAYMENTS TO

AMENDMENT IN WITHOLDING TAX RATE ON DISTRIBUTION OF PRIZE

BROKERAGE AND COMMISSION

A = amount paid or to be paid to electronic or print media for advertising services

The purpose of insertion of this new sub-section is to fix the percentage of

COLLECTION OF ADVANCE TAX AT THE TIME OF SALE TO RETAILER

Others 0.5% 0.5% 1%

ADVANCE TAX ON INSURANCE PREMIUM

Threshold limit for collection of advance tax at 1% from non-filer in

REDUCTION IN TAX RATE FOR PERSON RUNNING ONLINE MARKET