REVENUE DIVISION
CENTRAL BOARD OF REVENUE
*****
No.F.4(1)ITP/2004-EC Islamabad, July 17, 2004
(Income Tax)
Subject: FINANCE ACT, 2004 – EXPLANATION OF IMPORTANT PROVISIONS RELATING TO AMENDMENT IN INCOME TAX ORDINANCE, 2001.
The main amendments made in the Income Tax Ordinance, 2001, through the Finance Act, 2004 are explained as under:-
1. EXTENDING FACILITY OF AMALGAMATION TO INSURANCE COMPANIES AND EXTENDING PERIOD FOR EXISTING PROVISIONS OF AMALGAMATION.
Banking companies and NBFCs were allowed the facility of amalgamation by amending law through Finance Ordinance, 2002 and limitation was imposed upto June 30, 2004 through Finance Act, 2003. The cut off date for amalgamation of banking companies or non-banking financial institutions has been extended to June 2006. This facility of amalgamation has also been extended to insurance companies.
2. TAXATION OF PERQUISITES AND ALLOWANCES.
The house rent allowance received in cash upto 45% of minimum of the time scale or where there is no time scale of the basic salary subject to maximum of two hundred and seventy thousand rupees has been made exempt from tax in the case of salaried taxpayers whose salary income is six hundred thousand rupees or more. Rule 9 of Income Tax Rules, 2002 has accordingly been amended. This change in exemption limit would be applicable with effect from July 1, 2004 for tax withholding purposes and for tax year 2005 and onwards for the purposes of assessment.
3. ALLOWING EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF DERIVING INCOME FROM BUSINESS.
Apprehension was expressed through various queries that language of law is ambiguous and its interpretation may restrict admissibility of business expenditure. In order to remove doubt regarding admissibility of expenditure against income under the head “Income from Business”, sub-section (1) of section 20 of the Income Tax Ordinance, 2001 has been amended to clarify that an expenditure wholly and exclusively incurred for the purpose of business would be allowed as business expense.
4. RAISING THE LIMIT OF PAYMENT THROUGH CROSSED CHEQUE UNDER SINGLE ACCOUNT HEAD THROUGH CHEQUE FROM RS.5,000 TO RS.10,000.
Expenditure incurred under single account was inadmissible if it exceeded Rs.5000/- and not paid through crossed cheque. Clause (l) of Section 21 of the Income Tax Ordinance, 2001 has been amended to raise the limit to Rs.10,000 for the purposes of making payment through crossed cheque under a single account head.
5. RAISING THE LIMIT OF SALARY PAYMENT THROUGH CHEQUE FROM RS.5,000 TO RS. 10,000.
Clause (m) of Section 21 of the Income Tax Ordinance, 2001 has been amended to raise the limit to Rs.10,000 for the purposes of making payment through crossed cheque or direct transfer of the funds to the employee’s bank account. The earlier limit was Rs.5000.
6. DEPRECIATION ALLOWANCE.
As per the existing provisions depreciation is allowed on the basis of number of months for which the asset was used in a tax year for deriving income from business. Law has been amended to allow depreciation where the asset is put to business in a tax year dispensing with the concept of allowing depreciation proportionate to the period of use of depreciable assets in a tax year.
7. WRITTEN DOWN VALUE OF MOTOR VEHICLE FOR THE PURPOSES OF CALCULATION OF GAIN/LOSS ON DISPOSAL.
The words “written down value” used in the formula to calculate “sale value” of motor vehicle could not convey the correct intent of legislation. Therefore, sub-section (10) of section 22 has been amended to provide for improved wording to calculate value of a motor vehicle on its disposal for the purposes of ascertaining gain or loss to be subjected to tax under sub-section (8) of the said section.
8. INITIAL ALLOWANCE.
As per the existing law, initial allowance could be allowed only if the asset was used for the whole year exclusively for the purpose of deriving income from business chargeable to tax. Sub-section (1) of Section 23 of the Income Tax Ordinance, 2001 has been amended to allow initial allowance for an eligible depreciable asset in the tax year where it is used for the first time or commencement of commercial production, whichever is later. The provision has, therefore, been relaxed for allowing initial allowance.
9. EXTENDING PROVISION REGARDING CONSUMER LOANS TO NBFC AND HBFC.
To encourage consumer banking, section 29A was inserted through Finance Act, 2003 whereby banks were allowed to set-apart 3% of the income from consumer banking for creation of a reserve out of which bad debts under consumer loans could be set-off. Section 29A has now been amended to allow the facility of creating similar reserve for bad debts on account of consumer loans to non-banking finance companies and House Building Finance Corporation like the one allowed to banking companies. It is to provide level playing field to NBFCs, HBFC and Banking Companies.
10. ACCRUAL BASIS OF ACCOUNTING.
The term “economic performance” as used in sub-section (3) of section 34 of the Income Tax Ordinance, 2001 and the situation when economic performance occurs as given in sub-section (4) have been omitted because it was against the spirit of the internationally accepted concept of accrual basis of accounting.
11. PROTECTION OF EXEMPTIONS CONTAINED IN OTHER STATUTES.
The proviso to section 54 of the Income Tax Ordinance, 2001 has been amended to also protect the provisions relating to reduction in the rate of tax, reduction in tax liability of any person or exemption from the operation of any provisions of Income Tax Ordinance, 2001, contained in other statutes. Earlier, only income exempt from income tax under other statutes and prior to enforcement of Income Tax Ordinance, 2001 were protected by inserting proviso to section 54. The overriding provision of section 3 shall, however, continue to be applicable with effect from enforcement of Income Tax Ordinance, 2001 on July 1, 2002.
12. ALLOWING ADJUSTMENT OF LOSS OF A SUBSIDIARY COMPANY AGAINST INCOME OF ITS HOLDING COMPANY (GROUP RELIEF).
A new section 59B has been inserted through Finance Act, 2004, to introduce the concept of “group relief” whereby loss surrendered by a subsidiary company can be claimed and allowed against income of the holding company, holding or acquiring 75% share capital of the subsidiary company. The conditions to avail this benefit are as follows:-
i. the holding company is a public company listed on Stock Exchange in Pakistan;
ii. the subsidiary company owns and manages an industrial undertaking;
iii. the holding company owns or acquires 75% or more of the share capital of the subsidiary company; and
iv. the losses surrendered by the subsidiary company are assessed losses for the tax year (other than brought forward losses).
The losses surrendered by the subsidiary company may be claimed by the holding company for set off against its “Income from Business” in the tax year and the following two tax years subject to the conditions that:
i. the holding company continuously holds 75% or more of share capital of the subsidiary company for a minimum period of five years from the date of acquisition; and
ii. the business of subsidiary company is also continued for the said period of five years.
In case the holding company during the aforesaid five years brings share capital in the subsidiary company below 75%, the holding company shall, in the year of disposal, offer the amount of profit on which taxes have not been paid due to set off of subsidiary company’s surrendered losses.
13. ADMISSIBILITY OF WORKERS’ PARTICIPATION FUND AS DEDUCTIBLE BUSINESS EXPENSE.
Contribution made to Worker’s Participation Fund under Companies Profit (Workers’ Participation) Act, 1968 (Act No. XII of 1968), is a legally admissible expense like WWF but it was not specifically provided in the Income Tax Ordinance, 2001. In order to remove the ambiguity regarding admissibility of Workers’ Participation Fund as deductible expense, a new section 60B has been inserted in the Income Tax Ordinance, 2001.
14. EXTENDING FACILITY OF TAX CREDIT ON HOUSING LOAN TO LOANS FROM EMPLOYERS.
The facility of tax credit in respect of any profit or share in rent and share in appreciation for value of house paid by the person in the year, on a loan obtained for construction of house or acquisition of a house, available under section 64 of the Income Tax Ordinance, 2001 has also been extended to the employees of statutory bodies and public limited companies listed on stock exchange in Pakistan for loans obtained from their employers for the purpose.
15. TREATMENT OF MARK-UP WRITTEN OFF UNDER THE BPD CIRCULAR NO.29 OF 2002 DATED OCTOBER 15, 2002.
The mark-up or debt written off under State Bank of Pakistan BPD Circular No.29 of 2002 dated October 15, 2002 would be adjusted against assessed losses of the taxpayers concerned. However, any amount not so adjusted shall not be treated as their income under sub-sections (5) or (5A) of section 34 or under section 70 of the Income Tax Ordinance, 2001. For this purpose clause (3A) has been inserted in Part IV of the Second Schedule to the Income Tax Ordinance, 2001.
16. EMPOWERING CBR TO SPECIFY A NORMAL TAX YEAR IN CASE OF A CLASS OF PERSONS HAVING SPECIAL TAX YEAR AND VICE VERSA.
Sub-section (2) of section 74 of the Income Tax Ordinance, 2001 has protected the “special tax year” in case of a class of persons which were assigned by the CBR under the repealed Ordinance. Sub-section (3) and sub-section (4) of the said section empowers the Commissioner to assign a “special tax year” or a “normal tax year” on case to case basis on application, in writing, by the taxpayer. In order to resolve the problem of a class of persons, section 74 has been amended to empower the CBR to assign “normal tax year” or “special tax year” and vice versa in respect of a class of persons.
17. TAXATION OF UNEXPLAINED INVESTMENT OR EXPENDITURE.
Sub-section (2) of section 111 has been amended to tax the unexplained investment or expenditure in the tax year immediately preceding the financial year in which the difference is discovered. Further, sub-section (4) has also been amended to restrict the application of sub-section (1) to preceding five tax years or assessment years from current tax year.
18. ALLOWING ADJUSTMENT OF MINIMUM TAX ON TURNOVER FOR PROCEEDING FIVE TAX YEARS.
Every company is required to pay minimum tax on turnover @ 0.5% even if it incurs loss or tax on income assessed is less than 0.5% of declared turnover. However, profit-yielding companies paying tax more than turnover tax do not get credit for their contribution towards national exchequer during the years of loss or lower income. New companies, especially with more turnover and low margin of profit, face liquidity problem. Section 113 has, therefore, been amended to allow the facility of carry forward of minimum tax on turnover for next five years. Any amount not adjusted against normal tax liability in the aforesaid period would, however, automatically lapse.
19. INCOME TAX (PRESUMPTIVE) INCENTIVE FOR TRADERS.
Section 113A has been inserted in the Ordinance whereby a retailer being an individual or association of persons, having annual turnover upto rupees five millions, has been allowed the option to pay income tax at the rate of 0.75% of the declared turnover as final tax on income instead of tax on normal profits from business. Such retailers instead of filing a return of total income shall be required to file a statement under section 115 of the said Ordinance declaring turnover and tax paid thereon. This facility would be applicable for tax year 2004 and onwards.
20. RELAXING LIMITATION FOR STATUTORY FILING OF WEALTH STATEMENT.
Section 116 of the Income Tax Ordinance, 2001 has been amended to provide for mandatory filing of wealth statement alongwith return of income by all taxpayers whose last declared or assessed income is five hundred thousand rupees or more. The amendment shall be applicable, both to salaried and non-salaried taxpayers, for the tax year 2004 and onwards.
21. REMOVING THE CONDITION OF PAYMENT OF 15% OF DISPUTED TAX DEMAND FOR FILING FIRST APPEAL.
The condition of payment of 15% of disputed tax demand or 20% of tax assessed for the last tax year etc. has been omitted. It would be applicable in respect of appeals filed before Commissioner (Appeals) on or after July 1, 2004 irrespective of the year of assessment.
22. PROVIDING ALTERNATE DISPUTE RESOLUTION.
To provide the taxpayers an easy and efficient dispute resolution mechanism and to liquidate arrears of tax, an alternate dispute resolution forum has been introduced in the Income Tax Ordinance, 2001 by inserting section 134A.
The taxpayers shall have the choice to refer any dispute, relating to levy and payment of tax, arising out of an assessment order passed by a taxation officer or an order pending decision before any authority or Income Tax Appellate Tribunal or Court to Dispute Resolution Committees to be constituted for this purpose.
23. ADVANCE TAX.
The system of payment of advance tax on the basis of latest tax turnover ratio applicable to companies and AOPs has been abolished. From July 1, 2004 and onwards companies have been allowed to pay their advance tax on the basis of tax assessed for the latest tax year. The taxpayers have also been allowed the facility of filing estimates of income for advance tax payment. If the payment of advance tax on the basis of own estimate falls short of 80% of the actual tax liability, additional tax shall be imposed at the rate of 12% as per provisions of the section 205 of the Income Tax Ordinance, 2001.
The AOPs, like individual, shall pay advance tax on quarterly basis if the latest assessed or declared income is two hundred thousand rupees or more.
The schedule of payment of advance tax has also been revised as under:-
For quarter ending on 30th September 15th of September
For quarter ending on 30th December 15th of December
For quarter ending on 30th March 15th of March
For quarter ending on 30th June 15th of June
24. PROVIDING LIMITATION FOR ORDER BY THE COMMISSIONER ON NOTICE TO MAKE PAYMENT TO NON-RESIDENTS WITHOUT DEDUCTION OF TAX.
Sub-section (5A) of section 152 has been amended to make it obligatory for the Commissioner to pass order within 30 days of the receipt of notice under sub-section (5) of the said section.
25. WITHHOLDING TAX ON PAYMENTS MADE TO NON-RESIDENTS ON ACCOUNT OF ADVERTISEMENT EXPENSES
Sub-section (3) of section 153 has been amended to introduce clause (e) whereby the tax deducted on payments made under a contract for advertising services rendered by T.V. Satellite Channels owned and managed by a non-resident person would constitute final discharge of tax liability. Corresponding amendment in Division III of Part III of First Schedule providing a rate of 5% on the gross amount payable has accordingly been made.
26. WITHHOLDING TAX ON INCOME FROM PROPERTY
The threshold of rent for the purpose of withholding tax has been raised from Rs.200,000 to Rs.300,000 which would be applicable from July 1, 2004 and onwards. Corresponding amendment in sub-section (2) of section 155 has accordingly been made.
27. WITHHLDING TAX ON SUPPLIES OF PETROLEUM PRODUCTS
A new section 156A has been inserted through Finance Act, 2004, requiring every person to collect tax @ 10% of the amount of commission or discount allowed at the time of making sale of petroleum products to a petrol pump operator. Income tax so collected has been made full and final discharge of the Petrol Pump Operator’s tax liability. A detailed circular No.11 of 2004 dated July 1, 2004 has separately been issued.
28. RECOVERY OF TAX FROM THE PERSON FROM WHOM TAX WAS NOT COLLECTED OR DEDUCTED.
Section 162 of the Ordinance empowers the Commissioner to recover the amount not collected or deducted from the person from whom tax should have been collected or to whom the payment was made. Such person is not provided a remedy for redressal of his grievances, if any, by way of filing appeal against such order. Section 127 of the Ordinance has been amended to provide for filing of appeal by such person against Commissioner’s order.
29. TAXATION OF DEEMED EXCESS PROFITS UNDER PRESUMPTIVE TAX REGIME.
The provisions relating to taxation of deemed excess profit as contained in sub-section (4) of section 169 has been omitted.
30. REDUCING THE RATE OF ADDITIONAL TAX AND RATE OF COMPENSATION FOR DELAYED REFUND.
The rate of additional tax for delayed-payment of tax demand has been reduced from 18% to 12%. Corresponding amendment in section 205 of the Income Tax Ordinance, 2001 has been made. Similarly, the rate of compensation for delayed payment of refunds under sub-section (1) of section 171 has also been reduced from 15% to 6%. These amendments would be applicable with effect from July 1, 2004 and onwards.
31. RESTRAINING POWER OF DELEGATION FOR AMENDMENT OF ASSESSMENTS.
Section 210 of the Income Tax Ordinance, 2001 has been amended whereby the Commissioner cannot delegate the powers of amendment of assessment under sub-section (5A) of section 122 of the Income Tax Ordinance, 2001 to an officer lower than the rank of Additional Commissioner of Income Tax.
32. WITHHOLDING TAX ON INDENTING COMMSSION AGENTS, ADVERTISING AGENTS, YARN DEALERS, TRAVEL AGENTS AND INSURANCE AGENTS ETC
Under section 233, income from brokerage and commission was liable to deduction of withholding tax at the rate of 5% which was adjustable against final tax liability. The said section has been amended to make the deduction on commission income as final discharge of tax liability as per following rates:-
(a) The rate of collection of tax under sub-section (1) of section 233 in respect of indenting commission agents, advertising agents and yarn dealers shall be 5% of the amount of payment.
(b) The rate of collection of tax under sub-section (1) of section 233 in respect of other commission income other than (a) above, shall be 10% of the amount of payment.
(c) The rate of collection of tax under sub-section (3) of section 233 shall be10% of the amount of payment.
A separate circular No.07 of 2004 dated July 1, 2004, explaining the amendments in the said section has been issued.
33. COLLECTION OF TAX BY STOCK EXCHANGE IN PAKISTAN.
Under newly inserted section 233A, a stock exchange registered in Pakistan has been made responsible to collect advance tax, on following transactions at the rates specified against each, with effect from July 1, 2004:-
(a) Advance Tax on purchase value of shares 0.005%
(b) Advance Tax on sale value of shares 0.005%
(c) Advance Tax on sale trading value of shares 0.005%
(d) Advance Tax on COT mark-up (Badla) 10%
Separate circulars No.03, 04 and 05 of 2004 dated July 1, 2004 have been issued in this regard.
34. INCREASE IN BASIC THRESHOLD FROM RS.80,000 TO RS.100,000.
The limit of basic threshold for individuals and AOPs has been raised from Rs.80,000 to Rs.100,000 with effect from tax year 2005. The following tax slabs shall be applicable from tax year 2005 and for tax withholding purposes in respect of salary paid on or after first day of July 2004:
|
S.No. |
Taxable income |
Rate of tax
|
|
(1) |
(2) |
(3) |
|
1. |
Where taxable income does not exceed Rs.100,000 |
0% |
|
2. |
Where taxable income exceeds Rs.100,000 but does not exceed Rs.150,000 |
7.5% of the amount exceeding Rs.100,000. |
|
3. |
Where taxable income exceeds Rs.150,000 but does not exceed Rs.300,000 |
Rs.3,750 plus 12.5% of the amount exceeding Rs.150,000. |
|
4. |
Where taxable income exceeds Rs.300,000 but does not exceed Rs.400,000 |
Rs.22,500 plus 20% of the amount exceeding Rs.300,000. |
|
5. |
Where taxable income exceeds Rs.400,000 but does not exceed Rs.700,000 |
Rs.42,500 plus 25% of the amount exceeding Rs.400,000. |
|
6. |
Where taxable income exceeds Rs.700,000. |
Rs.117,500 plus 35% of the amount exceeding Rs.700,000. |
35. WITHHOLDING TAX ON LOTTERIES/ WINNINGS ETC
The rate of deduction of tax on winning from a raffle, lottery, prize on winning a quiz, prize offered by companies for promotion of sale and cross-word puzzle has been enhanced from 10% to 20% of the amount of winning or prize with effect from July 1, 2004 and onwards. Corresponding amendment has accordingly been made in Division VI of Part III of the first schedule. The tax so collected shall continue to remain final discharge of the tax liability.
36. RAISING INCOME LIMIT FOR TAX REBATE TO SENIOR CITIZENS.
The existing law provides 50% rebate in tax liability to senior citizens aged 65 years and above if their income does not exceed Rs.200,000. The limit of income for the said rebate has been raised to Rs. 300,000. It would be applicable for tax year 2005 and onwards.
37. CERTIFICATE OF INVESTMENT ISSUED BY INVESTMENT BANKS TO BE COVERED BY FOREIGN CURRENCY ACCOUNTS SCHEME.
Investment banks were allowed to raise foreign currency fund from abroad through issuance of Certificates of Investment (CsOI) vide State Bank of Pakistan’s Circular No.36 dated April 2, 1992. A confusion arose as to whether the CsOI issued by investment banks are covered under Foreign Currency Account Scheme of SBP and profit earned thereon entitled to exemption from tax as was available to foreign currency accounts. As per clarification issued by SBP investment banks were authorized to issue CsOI and, thus, covered by Foreign Currency Account Scheme approved by SBP. Accordingly, clause (78) and clause (80) of Part I of the Second Schedule have been amended to include CsOI for the purposes of exemption. The amendment shall be applicable from the date on which the clauses (78) & (80) were introduced in the said schedule.
38. ALLOWING EXEMPTION TO INCOME OF VOCATIONAL, TECHNICAL AND POLY-TECHNICAL INSTITUTES.
A new clause (93A) has been introduced in Part I of Second Schedule whereby the income of vocational or technical/poly-technical institutes set-up between 1st day of July, 2004 to 30th day of June, 2008 has been exempted from tax for a period of five years provided such institutes are recognized by a Board of Education or a University or any other authority appointed by the Federal Government or a Provincial Government for this purpose.
39. EXTENDING PERIOD OF TAX EXEMPTION TO CAPITAL GAINS.
The period of exemption to any income chargeable under the head “capital gains” being income from the sale of modaraba certificate or any instrument of redeemable capital as defined in Companies Ordinance, 1984 (XLVII of 1984), listed on any stock exchange in Pakistan or shares of a public company [as defined in clause (47) of section 2 of the Income Tax Ordinance] and the Pakistan Telecommunication Corporation vouchers issued by the Government of Pakistan has been extended upto tax year 2007 i.e. 30th day of June 2007. Clause (110) of Part I of Second Schedule has accordingly been amended.
40. REDUCTION IN WITHHOLDING TAX RATE ON IMPORT OF DI-AMMONIUM PHOSPHATE FERTILIZER (DAP)
The rate of withholding tax on import of DAP fertilizer has been reduced from 6% to 1%. The reduced rate would constitute final discharge of tax liability. This is applicable with effect from June 12, 2004.
41. REDUCTION IN WITHHOLDING TAX RATE ON IMPORT OF CERTAIN SPECIFIED ITEMS/GOODS.
The rate of withholding tax under section 148 on commercial imports of certain specified items/goods has been reduced from 6% to 2% by inserting clause (13B) in Part II of Second Schedule. A separate circular No.08 of 2004 dated July 1, 2004 explaining the provisions of the said clause has also been issued.
42. WITHHOLDING TAX ON IMPORT OF EDIBLE OIL/VEGETABLE GHEE AND PURCHASE OF LOCALLY PRODUCED EDIBLE OIL
The tax collected on import of edible oil (both industrial and commercial) would be final tax by virtue of amendment in sub-section (8) of section 148. A separate circular No.14 of 2004 dated July 13, 2004 explaining the provisions of amendments relating to import of edible oil and export by cooking oil/vegetable ghee to Afghanistan has also been issued.
43. WITHHOLDING TAX ON IMPORT OF PLANT, MACHINERY & EQUIPMENT
An industrial undertaking could import machinery without payment of withholding advance tax only on production of exemption certificate from Commissioner of Income Tax. The withholding tax provisions on import of machinery both for industrial or commercial purposes have been withdrawn. A separate circular No.13 of 2004 dated July 13, 2004 explaining the provisions of newly introduced clause (31A) of Part IV of Second Schedule has been issued.
44. REDUCTION IN WITHHOLDING TAX RATE ON IMPORT OF AGRICULTURAL TRACTORS IN CBU CONDITION
Import of Agricultural Tractors in Completely Built-Up condition has been exempted from withholding income tax. For this purpose a new clause (31B) has been inserted in Part-IV of second schedule. This facility would be applicable on agricultural tractors imported in CBU condition on or after July 1, 2004.
45. EXEMPTING “PROFIT ON DEBT” ON BEHBOOD SAVINGS CERTIFICATES AND PENSIONER’S BENEFIT ACCOUNTS FROM WITHHOLDING TAX
The “yield” or “profit on debt” arising on investment in the Behbood Savings Certificates or Pensioner’s Benefit Account was liable to withholding tax at the rate of 10% of the amount of yield or profit and the tax so deducted was adjustable against final tax liability of the concerned person. In order to relieve the senior citizens, pensioners & widows from the inconvenience caused in obtaining refunds if the tax so deducted was in excess of actual liability, a new clause (36A) has been inserted in Part-IV of the second schedule to the Income Tax Ordinance, 2001. A separate circular No.12 of 2004 dated July 1,2004 explaining the provisions of said clause has also been issued.
46. EXEMPTION FROM WITHHOLDING TAX TO VENTURE CAPITAL COMPANIES.
Profits and gains derived by a Venture Capital Companies are exempt from tax upto tax year 2007 under clause (101) of Part-I of second Schedule.
Venture Capital Companies have also been exempted from deduction of withholding tax under section 150, 151 & 233 of the Income Tax Ordinance 2001 under newly introduced clause (38A) of Part-IV of Second Schedule.
47. EXEMPTION FROM WITHHOLDING TAX TO ISLAMIC DEVELOPMENT BANK.
All income of the Islamic Development Bank is exempt from tax by virtue of provisions contained in the Islamic Development Bank Act, 1995. The bank has to obtain exemption certificate from the Commissioner of Income Tax concerned for receipt of its dividend income arising in Pakistan without deduction of withholding income tax.
To facilitate the bank and give effect to the provisions of law contained in the bank’s statute, a new clause (38B) has been inserted in Part IV of the Second Schedule whereby the provisions of section 150 regarding deduction of tax on dividend income shall not apply to Islamic Development Bank.
48. COMPUTATION OF INCOME OF INSURANCE COMPANIES.
Fourth Schedule of the Income Tax Ordinance, 2001 has been amended to make it compatible with the provisions contained in Insurance Ordinance, 2000 which provide for actuarial valuation on yearly basis.
49. WITHDRAWAL OF EXEMPTIONS.
Claus (81) Part I of Second Schedule exempting the income of a person (other than a bank or a financial institution) by way of interest on Foreign Currency Bearer Certificate (FCBC) issued under FCBC Rule, 1997 has been withdrawn. However, the FCBCs, if any, not encashed yet would continue to avail the said facility.
Claus (84) Part I of Second Schedule providing exemption to any profit on debt received from a Pakistani bank by a foreign bank approved by the Federal Government for the purposes of the said clause, has been withdrawn. Any profit on debt received from a Pakistan bank by a foreign bank on or after July 1, 2004 would, therefore, be chargeable to tax in accordance with the provisions of the Income Tax Ordinance, 2001.
Claus (88) Part I of Second Schedule has also been omitted through Finance Act, 2004. Any income derived by a non-resident person (excluding local branches, subsidiaries or offices of foreign banks, companies, association of persons or any other person operating in Pakistan) from Federal Government Securities and redeemable capital as defined in the Companies Ordinance, 1984 (XLVII of 1984) listed on a registered stock exchange, where the investment is made exclusively for foreign exchange remitted into Pakistan through special convertible rupee account maintained with a bank in Pakistan may on or after July 1, 2004 shall not be exempt from tax. However, the facility of exemption would remain available to the existing investment till it is encashed.
50. LEVY OF CAPITAL VALUE TAX ON PURCHASE OF SHARES IN STOCK EXCHANGES.
Capital Value Tax at the rate of 0.01% of the purchase value of modaraba certificate or any instrument of redeemable capital as defined in the Companies Ordinance, 1984 (XLVII of 1984) or shares of a public companies listed on a registered stock exchange in Pakistan has been imposed with effect from July 1, 2004. Section 7 of the Finance Act, 1989 (V of 1989) has accordingly been amended. A separate circular No.06 of 2004 dated July 1, 2004 has also been issued in this regard.
51. OMISSION OF THE PROVISION PROVIDING FOR ADJUSTMENT OF CVT AGAINST WEALTH TAX LIABILITY.
Sub-section (5) of section 7 of Finance Act, 1989 (V of 1989), permitting adjustment of CVT against wealth tax has been omitted. No such adjustment would, therefore, be admissible in respect of CVT paid on or after July 1, 2004.
(ABDUL HAMID)
SECRETARY (IT POLICY)
Ph:9205561