Pakistan's tax laws: Finance Act 2013 amendments
This article is relevant to candidates taking Paper F6 (PKN) in either the June or December 2014 sittings, and is based on the tax legislation contained in the Finance Act 2013.
In Pakistan, as in many jurisdictions, a tax can be levied only by, or under, the authority of an Act of Parliament. While taxation of income (other than agricultural income) is governed by the Income Tax Ordinance 2001 as amended from time to time, the Sales Tax Act 1990 deals with sales tax at Federal level. Sales tax on services is a provincial subject and not examinable in Paper F6 (PKN). According to the guidelines issued by ACCA, relevant legislation (including Ordinance) which receives President’s assent on or before 30 September 2013 will be assessed for the first time in the June 2014 sitting of Paper F6 (PKN).
The Finance Act 2013 is effective from 1 July 2013 and is therefore examinable in the June and December 2014 sittings of Paper F6 (PKN). It has been observed that many candidates do not give due attention to the changes brought about in the latest examinable Finance Act. Therefore, candidates are advised to go through these amendments carefully so that they can answer exam questions accurately and earn good marks accordingly.
It should be noted that references to the different sections of the Income Tax Ordinance 2001 and the Sales Tax Act 1990 are for additional information only, as candidates are not required to be able to quote these when answering the F6 (PKN) paper.
The examinable amendments are explained below.
Changes in the Income Tax Ordinance 2001
New withholding taxes
With effect from 1 July 2013, a number of new withholding taxes have been introduced. The examiner does not expect candidates to memorise these rates; however, the examiner does expect candidates to have knowledge of the withholding agents, consequences of non-compliance with the withholding tax provisions and to recognise whether the tax withheld is allowed as a tax credit or is the final tax.
The tax withheld on the transactions discussed below are allowed as a tax credit against the tax liability of a tax payer and are not covered under the final tax regime.
- Advance tax on functions and gatherings at 10% of the amount of the bill from the person arranging a function in a marriage hall, marquee, hotel, restaurant, commercial lawn, club, or any place used for such purpose shall be collected by the owner, operator or manager of such premises. [s236D]
- Advance tax on foreign-produced TV drama plays or serials shall be collected at the rate of Rs. 100,000 per episode of the drama or play by the licensing authority certifying any foreign TV drama serial or a play dubbed in Urdu or any other regional language, for screening and viewing on any landing rights channel. [s236E]
- Advance tax from cable operators and other electronic media shall be collected by the Pakistan Electronic Media Regulatory Authority (PEMRA) at the rates specified in the Division XIII of Part IV of the First Schedule. The rates vary from Rs.10,000 to Rs.900,000 depending upon the category of licence. [s236F]
- Advance tax on sales to distributors, dealers and wholesalers shall be collected by every manufacturer or commercial importer of electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint or foam sector, at the time of sale of these goods to distributors, dealers and wholesalers at a rate of 0.1% of the gross amount of sales. [s236G]
- Advance tax on sales to retailers shall be collected by every manufacturer, distributor, dealer, wholesaler or commercial importer of electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint or foam sector, at the time of sale to retailers at a rate of 0.5% of the gross amount of sales. [s236H]
- Advance tax on fees paid to educational institutions shall be charged by the person preparing the fee voucher or challan at 5% of the amount of the fee where the annual fee paid to an education institution exceeds Rs. 200,000 [s236I]
- Advance tax on dealers, commission agents and arhatis (vernacular for a ‘commission agent’ dealing in agricultural products) shall be collected by every market committee at the time of issuance or renewal of licences. The rate of tax varies from Rs. 5,000 to Rs. 10,000 per annum depending upon category of the dealer, etc [s236J]