Promulgation of Three Ordinances Relating To Federal Taxes

Promulgation of
Three Ordinances relating to Federal Taxes.

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Contents
Important Note ................................................................... 3
Income Tax (Amendment) Ordinance, 2011 ................................................................... 4
Sales Tax (Amendment) Ordinance, 2011 ................................................................... 6
Federal Excise (Amendment) Ordinance, 2011 ................................................................... 8
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IMPORTANT NOTE
The president of Pakistan on 15 March 2011 has promulgated three Ordinances relating to
Income Tax, Sales Tax and Federal Excise Duty. We hereby through this journal provide our
comments on the implications of the same. More over some amendments have been made in
the sales tax through withdrawal and amendments of various notifications which are also
discussed herein.
The comments provided herein are general in nature. The application of the same in a specific
case may materially differ. therefore it is advisable to seek professional advice before acting
upon the same.
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1. INCOME TAX (AMENDMENT) ORDINANCE, 2011
Through the promulgation of the said Ordinance a new section 4A has been introduced in
the Income Tax Ordinance, 2001. This new section shall be effective for a period starting
from 15 March 2011 to 30 June 2011 and has been made applicable to every class of
taxpayer.
Consequent to the aforesaid amendment a surcharge at 15% has been imposed on tax
payable during the period from promulgation of the said Ordinance to 30 June 2011.
Surcharge has further been made applicable on tax deducted/collected through various
withholding tax provisions available in chapters X and XII of the Income Tax Ordinance,
2001. For this purpose withholding agents under such provisions have been made
responsible to collect this surcharge along with the withholding tax and deposit the same
with the treasury.
We understand that surcharge has been imposed on tax payable pertaining to tax 2011
with in the prescribed period. This would include advance tax payable pertaining to
quarters falling with in the prescribed period. The surcharge would not be applicable on
any payment of tax which is made during the prescribed period but pertains to any tax
year other than 2011.
Some case specific implications of the above are discussed as under:
A) Implication of above amendment on Salary.
The employer being a withholding agent under section 149 shall be required to deduct
15% surcharge on the tax deducted from salary paid in remaining tax year 2011.
Surcharge for withholding purposes shall be computed on the amount of tax being
deducted on periodical payments of salary during the prescribed period.
B) Implication of above amendment on other Withholding Provisions.
It has been made mandatory for all withholding agents to collect 15% surcharge calculated
on amount of tax being withheld under various withholding tax provisions of the Ordinance.
The surcharge so collected would be deposited with treasury along with the tax collected
under the withholding provisions.
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C) Implication of above amendment on WHT on capital gain earned on mutual funds.
Income Tax Law imposes withholding tax on capital gain earned on maturity of units of
mutual funds. This provision of withholding has been introduced in the First Schedule of
the Ordinance and not through the Ordinance within itself. It may be noted that all the
withholding tax provisions have been specified in Chapter X and XII as has been
mentioned in the amendments. Due to the reason that withholding on redemption of units
is not governed through these chapters the imposition of surcharge shall not be applicable
on redemption of units of mutual funds.
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2. SALES TAX (AMENDMENT) ORDINANCE, 2011
Through the promulgation of the this Ordinance entry No. 69 in the sixth schedule has
been amended. Through the said amendment exemption from sales tax available on
import and supplies of tractors has been withdrawn.
In addition to the above changes brought in Sales Tax Act, 1990 the following
amendments have been made in the Sales Tax Notifications.
A) Withdrawal of SRO 535 & 356 of 2008 (fertilizers)
Withdrawal of these notifications has resulted in the withdrawal of exemption from sales
tax available on supply and import of fertilizers and pesticides mentioned therein.
B) Withdrawal of SRO 706 of 2010 (refund to tractor manufacturers).
Through the withdrawal of this notification, refund facility granted to registered agricultural
tractor manufacturer has been done away with. Under the provisions of this notification
such manufacturers were allowed refund of input tax paid by them.
C) Withdrawal of SRO 564 of 2006 (sugar)
This notification fixed the value of supply of sugar for sales tax purposes at Rs. 28.85/kg.
According to this notification sales tax on supply of sugar was levied on the said value
irrespective of the value it was actually supplied. Through the withdrawal of the said
notification sales tax on sugar shall now be payable on the actual value of supply.
D) Amendment in SRO 549 of 2008 ( Plant and Machinery)
This notification provided zero rate facility under the provisions of section 4 of the Sales
Tax Act, 1990 on the goods mentioned therein. This also included zero rating in respect of
supply and import of plant and machinery including parts. In June 2009 certain plant and
machinery was excluded from he purview of this notification. This notification has now
further been amended so as to exclude import and supply of all plant and machinery from
the facility of zero rating.
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E) Amendment in SRO 509 of 2007 (zero rating export).
This notification provided zero rating status to imports and supplies of goods relating to the
following five major export oriented sector of Pakistan.
• Leather and articles thereof
• Textile and articles thereof
• Carpets
• Sports Goods
• Surgical Goods.
This zero rate facility was allowed on import and supplies of such goods regardless
whether they were used for the purposes of export. Thus the facility was enjoyed by every
registered person involved in the supply chain of such goods which included local supplies
also.
This notification has now been amended so as to restrict the facility to only such goods
mentioned therein that are utilized in goods meant for exports by the persons registered as
exporter-cum-manufacturer or exporter. This would mean that every indirect exporter
importing such goods or supplying such goods to the direct exporters shall continue to
enjoy zero rating. However persons importing or supplying such goods for domestic
purposes/local supplies shall pay sales tax on such goods at the applicable rates.
We understand that consequent to withdrawal of zero rating facility as above, on local

supplies has resulted in imposition of Special Excise Duty on manufacturing and import of
such goods. SED shall be so be applicable at the new amended rates of 2.5%.
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3. FEDERAL EXCISE (AMENDMENT) ORDINANCE, 2011.
Through the promulgation of the said Ordinance the rate of special excise duty prescribed
in section 3A of the Federal Excise Act, 2005 has been enhanced from 1% to 2.5%.
Section 3A of the Federal Excise Act levies special excise duty on the import of goods and
on goods produced and manufactured in Pakistan.
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Promulgation of Three Ordinances Relating To Federal Taxes

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Promulgation of Three Ordinances Relating To Federal Taxes

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Promulgation of

Three Ordinances relating to Federal Taxes.

Important Note ................................................................... 3

Income Tax (Amendment) Ordinance, 2011 ................................................................... 4

Sales Tax (Amendment) Ordinance, 2011 ................................................................... 6

Federal Excise (Amendment) Ordinance, 2011 ................................................................... 8

Some case specific implications of the above are discussed as under:

A) Implication of above amendment on Salary.

B) Implication of above amendment on other Withholding Provisions.

A) Withdrawal of SRO 535 & 356 of 2008 (fertilizers)

B) Withdrawal of SRO 706 of 2010 (refund to tractor manufacturers).

C) Withdrawal of SRO 564 of 2006 (sugar)

D) Amendment in SRO 549 of 2008 ( Plant and Machinery)

• Leather and articles thereof

• Textile and articles thereof

We understand that consequent to withdrawal of zero rating facility as above, on local

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