Salient Features of Finance Bill 2023

By masohail 

June 9, 2023

Salient Features of Finance Bill 2023

             A-Salient Features of Income Tax

            B-Salient features of sales tax

A-Salient Features of Income Tax

According to the Pakistan Budget 2023-24 unveiled on Friday, the main features introduced in the Income Tax Ordinance 2001 through the Finance Act 2023 are given.

REVENUE MEASURE:

1. Rationalization of super tax under section 4C which will apply to all persons with income above Rs. 150 (million): insertion of three more new revenues of Rs. 350 (million) to Rs. 400 (million), Rs. 400 (million) to Rs. 500 (million) and Rs. 500 (million) above will be taxed at 6%, 8% and 10% respectively.

2. Re-imposition of 0.6% pre-set withholding tax to persons without ATL when withdrawing cash.

3. 1% increase in the rates of withholding tax on the supply of goods other than the sale of rice, cotton seeds or edible oils, on the provision of services including the service subject to a preferential tax of 3%, but excluding advertising services in electronic and print media and on the performance of a contract except athletes.

4. 0.5% increase in rate of withholding tax for commercial importer on import of goods falling under Part III of Twelfth Schedule of Income Tax Ordinance, 2001. 5. Re-imposition of final withholding tax of 10% on issue of bonus shares by companies (20% for non-ATL).

6. Increase in withholding tax rate from 1% to 5% when paying to non-residents through debit/credit or prepaid cards. (2% to 10% for those without ATL).

7. Imposition of Adjustable Advance Tax of Rs. 200,000 at the time of issuance of work permit/visa for the employment of a foreign domestic helper.

8. Additional tax at a rate not exceeding fifty percent of the income and profits of a person or group of persons due to extraordinary profits due to external factors.

RELIEF MEASURES:

1. Continuation of preferential flat tax rate of 0.25% for IT and ITeS exports for tax years 2024, 2025 and 2026.

2. Automated issuance of a certificate of exemption for payment to a non-resident within 30 days of application.

3. Revocation of the requirement to submit a sales tax return to use the preferential fixed tax rate of 0.25% for IT and ITeS exports.

4. Increase in manufacturer's business turnover limit from Rs. 250 (million) to Rs. 800 (mil) to qualify for preferential tax treatment for SMEs and inclusion of IT & ITeS in the definition of SMEs.

5. Concessional tax rate of 20% on income of banking company on additional advances to IT & ITeS sector instead of standard rate of 39%.

6. Increasing the monetary limit for foreign remittances sent from outside Pakistan from five million rupees to the rupee equivalent of USD 100,000 for the purposes of section 111(4), which puts a bar to inquiry into the nature and source of unexplained income/assets.

7. Waiver of 2% final withholding tax on the purchase of real estate for a non-resident physical POC/NICOP holder, if the real estate is acquired through foreign transfers remitted from abroad.

8. 10% reduction in tax liability or Rs. 5 (millions), whichever is lower for the builder and 10% reduction or Rs. 1 (million) whichever is lower for an individual for self-construction of a house for three years.

9. 50% reduction in tax liability for three years for youth entrepreneurship (maximum limit of Rs 2 million for individual / AOP and Rs 5 million for company). Youth is defined as a natural person under 30 years of age.

10. Extension for two years for the purpose of concessional tax rate of 20% for banking company income from additional advances for low cost housing, agriculture and small and medium enterprises including IT and ITeS.

11. Promotion of export of commodities (agricultural products, gems, metals etc.) through online platform by providing 1% concessional final tax rate to indirect exporters.

12. Reduction of minimum turnover tax liability from 1.25% to 1.0% for companies listed on the Pakistan Stock Exchange.

13. Extension of exemption for one year granted to a person on gains and profits from the sale of immovable property or interest of a special instrument in any type of REIT scheme, i.e. until June 30, 2024.

14. Extension of Income Tax Exemption by one year i.e. till 30th June 2024 for FATA/PATA Residents.

15. Five-year tax holiday for agricultural industries that are small and medium-sized enterprises established on or after July 1, 2023 from tax year 2024 to tax year 2028.

OTHER MEASURES:

1. Extending the scope of the definition of a permanent establishment in Pakistan to a non-resident.

2. Simplifying the definition of collaborators to make it more concise and refined.

3. Bringing more clarity to the minimum sales tax transfer regime.

4. Removal of a technical error in the super tax regime of the banking sector by replacing the year 2022 with the tax year 2023.

5. Insertion of an enabling provision for the calculation, collection and payment of super tax according to Section 4C.

6. Re-imposition of advance adjustable withholding tax from non-ATL persons.

7. Introduction of enabling provision for the purpose of recovery of non-tax revenue due under any other law or statute by the Commissioner of Internal Revenue.

8. Effectiveness of name change from “2022 Prime Minister's Relief Fund” to “Prime Minister's Fund for Floods, Earthquakes and Other Disasters”.

        B-Salient features of sales tax

According to the Pakistan Budget 2023-24 unveiled on Friday, the major features introduced in the sales tax 1990 through the Finance Act, 2023 are listed.

RELIEF MEASURES:

1. Extension of sales tax exemption on NMD (FATA/PATA) for one more year ending on 30.06.2024.

2. Provision of sales tax exemption for contraceptives and accessories.

3. Provision of tax exemption on sales of plant seedlings, combine harvesters, agricultural product dryers, no-till seeders, suction machines, planters, other planting machines AND bovine semen.

4. Grant of sales tax exemption on import of IT equipment to IT and ITeS exporters registered with Pakistan Software Export Board.

READ MORE: Pakistan Budget 2023-24: Govt allocates Rs 100 billion for water sector

REVENUE MEASURE:

5. Abolition of exemption from sales tax on edible products sold in bulk under trade names or trademarks.

6. Increase in the reduced rate of sales tax from 12% to 15% on supplies from POS sellers dealing in leather and textile products.

7. It is proposed to remove the floor space requirement for Tier 1 retailers.

8. The Directorate-General for Digital Invoicing and Analytics is proposed to be renamed as the Directorate-General for Digital Initiatives.

9. It is proposed to widen the scope of the penal measures by replacing "packages of cigarettes" with "specified goods".

10. S. No. 12(xxv) of the Fifth Schedule is proposed to be amended by substituting the present description "Other drawing, plotting or mathematical calculating apparatus (geometrical box) (PCT No. 9017.2000)".

11. It is proposed to extend the scope of Section No. 21 of the Fifth Schedule providing zero-rating to an exporter registered under the Export Facilitation Scheme, 2021 by inserting the word "commodities".

12. The omission of S. No. 159 and 160 in Table 1 of the Sixth Annex is proposed as redundant, as the time-bound exemption has already expired on 31/12/2021.

13. It is proposed that the production, transmission and distribution of electricity be exempted from sales tax in accordance with the decision of the National Tax Council.

14. For clarification purposes regarding the exemption from sales tax for transfusion sets not wrapped in aluminum foil imported in one shipment with blood bags, an explanation is proposed under S. No. 121 of Table 1 of the Sixth Schedule.