June 10, 2007	Sunday	Jamadi-ul-Awwal 24, 1428

ISLAMABAD, June 9: The government has rationalised rate of withholding tax on various incomes and introduced separate schedule for banking.

It has also reduced income tax on edible oil and introduced a concept of group taxation measures for local companies.

Through the Finance Bill 2007, exemption of tax on capital gains from stock exchange has been extended for another one year, and withholding tax rate on all exports to be unified at the rate of one per cent.

The government has also withdrawn two per cent withholding tax over and above the prescribed rate on supplies for non-disclosure of NTN or CNIC to withholding agent.

Through the bill, it has been proposed that mergers and acquisitions will be treated as non-tax event; permanent establishment of non-resident exploration and production companies will be exempted from withholding tax on supply of crude oil and gas; and E&P companies will be exempted from withholding tax on imports (other than vehicles).

Under the rationalisation of withholding tax for commercial importers covered under presumptive taxation regime, withholding tax rate has been reduced from six to five per cent; for manufacturers there will be a uniform adjustable withholding tax on imports at one per cent.

It has been proposed that exemption of withholding tax on imports covered by statutory provisions will continue; taxpayers having losses or those having paid advance tax will be eligible to reduced rate exemption certificates on imports; manufacturers, exporters registered with Sales Tax Department will not be liable to withholding tax on imports.

Withholding tax on import of edible oil has been reduced from three to two per cent; import of polyester filament fiber yarn will be subjected to five per cent withholding tax; import of bitumen, pesticides/wedicides and FWT to be subjected to reduced withholding tax at the rate of two per cent.

Employers are authorised to give credit of tax withheld from employees under different withholding provisions during the tax year; also authorised to adjust tax credit allowable to salaried taxpayers having salary income only.

Ginners have been provided option to pay withholding tax at the prescribed rate.

Exclusion of companies (large import houses) importing bulk industrial raw material from presumptive tax regime and professional firms to be taxed at par with other associations of persons (AOPs).

The withholding tax on passenger transport services has been reduced from six to two per cent on the analogy of goods transport services.

For group formation, it has been proposed that transfer of shares between companies and the owners in one direction to be treated as non-tax event.

Group taxation to be restricted to locally registered companies under Companies Ordinance, 1984 domestic companies.

CNIC to be used for identification purpose, as an alternate, where NTN is not obtained; Replacing Venture Capital Funds with Private Equity and Venture Capital Funds - exemption extended to the fund up to June 2014.

It has been proposed that capital gains of private limited companies on sale of their assets to private equity and Venture Capital Funds to be taxed at 10 per cent (reduced tax rate);

Income arising on sale of immoveable property to Real Estate Investment Trust (REIT) will be exempted from tax for three years; Maximum limit of investment in IPOs to avail tax credit has been enhanced from Rs200,000 to 300,000.

The Presumptive Tax Regime introduced for service providers to exporters / export house under the Trade Policy has been withdrawn; Set off of brought forwarded losses in the event of amalgamation / merger of companies will be withdrawn; Withholding tax on sale of goods has been made adjustable for listed public companies.

Tax in respect of income from construction contracts outside Pakistan to be charged at the rate of one per cent of the gross receipts provided that such income is brought into Pakistan in foreign exchange through normal banking channel.

Withdrawal of withholding tax on payments to travel agents on sale of air tickets where withholding tax on commission is already deducted; Payments received by non-resident

news agencies, syndicate services and individual contributors / writers not having permanent establishment in Pakistan will not be subjected to withholding tax on services provided.

Advertising services provided by owners of newspapers / magazines in non-corporate sector to be taken out of Presumptive Tax Regime; withdrawal of CVT on import of cars and power of attorney executed between first relations; There will be a withholding tax at the rate of five per cent on purchase of locally manufactured cars.

Federal excise duty also to be included in the value of goods for withholding tax purposes at the import stage.