ISLAMABAD: The Finance Act 2018 contains a wide array of incentives given to business enterprises, as well as reiterating the terms of the voluntary disclosure of assets scheme that has already been announced.
From LNG to coal, livestock to stationery, every sector and every type of business enterprise has been showered with exemptions and tax reductions. Such large and widespread incentives have rarely been seen.
With the increase of Rs500 billion in the Federal Board of Revenue’s target, the PML-N government has introduced new revenue measures of around Rs93.32bn. The populist relief measures worth Rs184.5bn outpace the revenue measures in the last budget of the incumbent government.
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The breakdown of the new tax measures shows an amount of Rs13.95bn worth income tax measures, Rs50.4bn of sales tax and FED and Rs28.97bn customs duty. FBR eyes to collect maximum revenue from depreciation of rupee at the import stage.
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The relief measures announced are unprecedented and cost the government Rs184.5bn. Of them, Rs6.2bn relief was given in customs, Rs28.96bn in sales tax and FED and Rs149.34bn in income tax.
To incentivise big business, the government has come up with a five year plan to reduce corporate tax rate from 30 per cent to 25pc by 2023. This reduction will be carried out 1pc each year starting from 2019 when corporate tax rate will come down to 29pc.
Similarly, the super tax will be phased out by tax year 2021. It is proposed to reduce it 3pc on banking company and 2pc on person other than a banking company, having income equal to or exceeding Rs500m.
The increase in threshold announced earlier was partially reversed. A flat rate of Rs1,000 will be charged on income between Rs400,000 and Rs800,000 while in case the income exceeds Rs800,000 but remain less than Rs1,200,000 the flat rate of tax will be Rs2000.
In order to extend the lower rate of tax, the maximum tax rate for all individuals including salaried class was reduced to 15pc. For salaried class, the highest rate was 30pc while in case of non-salary individual the rate was 35pc.
To extend the benefit to association of persons, the highest tax rate was reduced to 30pc from 35pc. The tax slabs were also reduced to six from seven.
6pc relief for RLNG imports
To facilitate public companies, the condition of distributing 40pc of after tax profits is being reduced to 20pc and the applicable tax rate on accounting profit in case of failure to disburse undistributed profit (dividend) is being reduced from 7.5pc to 5pc.
All the three credits available to companies are proposed to extend to June 30, 2019 — extension, expansion, balancing modernisation and replacement of plants at the rate of 10pc of the amount invested; provision of tax credit on new industrial undertaking; tax credit for the purchase and installation of plant and machinery through at least 70pc new equity.
The tax rate on transfer of banking instruments, which are in excess of Rs50,000 was reduced to 0.4pc from 0.6pc for non-filers. The 5pc tax on bonus share was withdrawn.
To encourage investment in shares/sukuks, the limit of Rs1.5 million has been increased to Rs2m to avail a tax credit.
The limit of recovery amount through attachment of bank account was reduced to 10pc of tax payable from 25c during pendency of first appeal.
The minimum threshold of tax deduction on payment of goods was enhanced from Rs10,000 to Rs30,000 while in the case of services the limit was raised to Rs75,000 from Rs25,000, respectively.
The minimum penalty for failure to file withholding statement was reduced to Rs5,000 from Rs10,000. The minimum penalty will be imposed only if withholding statement is filedwithin three months of due date.
The reduced rate of 0.5pc for large trading houses was extended till 2021. The facility of availing low tax rate was extended to all persons appearing in Azad Jammu and Kashmir and Gilgit-Baltistan Council Board of Revenue as filer under the income tax ordinance 2001.
The advance tax on purchase of property will be collected piecemeal with each installment. The rate of withholding tax on payment of dividend by a rental REIT scheme to a filer has been reduced from 12.5pc to 7.5pc, exempted 5pc withholding tax on issuance of bonus shares to Mutual Funds.
In order to promote microfinance banks, profit of debt derived by non-profit organisations from micro-finance banks will also qualify as income eligible for 100pc credit.
The tax on commission earned by member of stock exchange has now been made adjustable.
104 tariff lines zero rated for custom duty
To encourage and promote film-making in Pakistan, 50pc tax rebate will be allowed to foreign film makers making films in Pakistan and a 50pc tax reduction in income tax liability will be allowed to companies deriving income from film making for a period of five years.
All allowances of armed forces personnel are exempted from tax. Exemption has also been accorded to capital gains tax on the resale of Pakistan Mortgage Refinance Company Limited bonds by the investors to encourage its marketing and increase its effectiveness.
The tax rate on import of coal by manufacturers as well as commercial importers has been reduced to 4pc for filers and 6pc for non-filers.
The mechanism of alternative dispute resolution is revamped, the selection for audit on the basis of late filing of return is abolished and a taxpayer can only be selected for audit once in three years. The obligation to act as withholding agent to be deferred to the succeeding year.
Income Tax Revenue Measures
The set off brought forward depreciation losses have now been limited to the extent of 50pc of the business income for a tax year except in instances where the taxable income is up to Rs10m. Earlier, unabsorbed depreciation losses can be carried forwarded indefinitely which leads to payment of less or nil tax liability.
Banks will collect 1pc withholding tax from filers and 3pc from non-filers in respect of credit/debit card transactions resulting in outward flow of remittances from Pakistan.
The commercial importers are now entitled to file their income tax returns declaring their taxable income and the tax paid at import stage will now constitute minimum tax instead of final tax.
For sales/supplies, the rate of withholding tax for non-filers has been increased from 7pc to 8pc in the case of companies and from 7.75pc to 9pc in the case of persons not being companies. For contracts, the rate of tax for non-filers was enhanced from 12pc to 14pc in the case of companies and from 12.5pc to 15pc in the case of persons not being companies.
Marriage halls are now required to collect either 5pc of the bill or Rs20,000 per function in major cities and Rs10,000 per function in the remaining cities, whichever is higher. Moreover, the non-recognition of capital gain on gift was restricted to relatives.
To provide a level playing field, the tax deductible on services rendered/provided by permanent establishments of non-resident persons will also be treated as minimum tax.
As the prices of high speed diesel are to be deregulated, tax on dealers margin are now to be collected on ex-depot sale price of HSD (excluding dealers margin) at the rate of 0.5pc from a filer and 1pc from a non-filer.
Sales tax exempted on import of paper weighing 60 g/m2 for the printing of Holy Quran. The finance act has also waived the 3pc value addition tax on import of LNG; rate of sales tax was reduced from 17pc to 12pc on import of LNG by Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL)and on supply of RLNG by these companies to Sui Northern Gas Pipeline Limted.
It introduces a uniform rate of 3pc sales tax on all fertilizers across the board and to provide for reduced rate from 10pc to 5pc on supply of natural gas to fertiliser plants for use as feed stock. Moreover, rate of sales tax on LNG imported by fertiliser manufacturers for use as feed stock is also being exempted.
It was proposed to exempt 17pc sales tax to fans for dairy farms, preparations for making animal feed and bovine semen. Likewise, 10pc sales tax on Fish Feed exempted. Moreover, sales tax on agriculture machinery is also reduced from 7pc to 5pc.
0pc tax on fresh investment in oil refining
Zero rating on import of potato is being granted retrospectively on 200,000 metric tonnes imported during the period May 5, 2014 to July 31, 2014.
Exemption is being granted to Karachi Shipyard Engineering Works Limited on import of machinery, equipment, raw materials, components etc.
Sales tax is also exempted on import of 21 types of computer parts, and promotional, advertising materials for display at exhibitions. Sales tax reduced to 5pc from 17pc on import of 19 items of cinematographic equipment for revival of film industry for five years.
One time exemption granted on import of plant and machinery for setting up of Special Economic Zone and for installation in that zone by zone enterprises, zero-rating restored on stationery items, reduce rate of 6pc allowed on import of ready to use articles of artificial leather, further tax at the rate of 1pc allowed on local supply of finished fabric, the rate of extra tax and 2pc further tax was extended to Pakistani foam manufacturers.
Sales tax exempted on import of hearing aids of all types and kinds, excluded second hand worn clothing and footwear from value addition, the amount of tax to qualify for automatic stay till disposal of appeal by the Commissioner (Appeals) is being reduced from 25pc to 10pc.
The State Bank of Pakistan and its subsidiaries payment of commission to banking companies is exempted from federal excise duty for handling banking services of Federal or Provincial governments. The rate of sales tax on import and supplies of furnace oil was reduced to 17pc from 20pc.
The five exports oriented sectors were allowed input tax adjustment on packing materials, sales tax reduced from 17pc to 12pc on import of lithium iron phosphate batteries, rate of further tax enhanced to 3pc from 2pc.
The rate of sales tax on import and supply of finished articles of leather and textile sector is being increased to 9pc. However, all those branded outlets which will be integrated through electronic fiscal devices with FBR online system will be charged 6pc.
In all the three tiers, the federal excise duty (FED) enhanced on locally produced cigarettes, FED increased from 1.25 per kg to Rs1.50 per kg cement.
The rate of sales tax for steel sector is being increased to Rs13 per unit of electricity consumed. Moreover, the rate of sales tax for other allied steel industries--ship breakers and re-rollers is also being rationalised.
Non-adjustable/non-refundable sales tax at the rate of 5pc on import of capital goods, whether or not locally manufactured, for transmission line projects is being introduced.
The government announced wide ranging exemptions and reduction in customs duty on import of raw materials for export oriented industry, as well as on imports for dairy, poultry and tourism sectors. The import of paper for printing Holy Quran was exempted from payment of duty. The duty on Multi-ply and Aluminum foil for Liquid Food Packaging Industry was cut by 2pc to 18pc.
In order to boost tourism and dairy sector, it halved customs duty on Pre-fabricated structures for setting up of new hotels/motels to 10pc, and on bovine semen and preparations for making animal feed to 5pc, allowing import of fans for corporate dairy farmers at concessionary rate of 3pc. The customs duty was cut from 10pc to 5pc on growth promoters premix, vitamin premix, Vitamin B12 and Vitamin H2 for poultry sector.
Customs duty was reduced to 5pc across the board on input materials of optical fiber cables besides reduction of regulatory duty to 10pc from 20pc, customs duty reduced to 3pc on specified items used in cinema industry, and withdrew 11pc duty on acrylic tow.
Customs duty of 3pc is exempted on Micro Feeder Equipment used for food fortification; exempted 5pc duty on Tasigna (an anti-cancer medicines); reduces duty from 20pc to 16pc on Acetic Acid; exempted 16pc on charging stations for electric vehicles.
The duty was slashed from 16pc to 11pc on plasters from 20pc to 16pc on film of ethylene Liquid Food Packaging Industry; from 20pc to 16pc on Carbon Black (rubber grade); from 10pc to 5pc on silicon electrical steel sheets for manufacturing transformers.
Specified LED parts and components for manufacturers of LED lights got exempted from 5pc duty. A 2pc regulatory duty imposed on LED bulb & Tubes, Energy Saving Bulbs & Tube to protect local industry. Moreover, 3pc exempted on tanned hides in wet state.
Duty exempted on two catalysts for use by PTA industry--Hydrogen Bromide (11pc) and Palladium-on-carbon (3pc), duty reduced from 16pc to 8pc on Coils of aluminium alloys used in manufacturing of Aluminium beverage cans; from 5pc to 3pc on import of coal, across the Board; duty reduced from 30pc to 10pc on import of fire fighting vehicles, allowed concessionary import of vintage or classic cars and jeeps at fix duty/taxes of US$ 5,000.
The duty reduces from 50pc to 25pc along with exemption of 15pc regulatory duty on electric vehicles. The duty also reduces from 50pc to 25 on kits of electric vehicle. The facility of import of solar panels which were exempted from the condition of ‘local manufacturing’ are extended for another one year until June 30, 2019. Duty reduced from 11pc to 3pc on corrective glasses, from 11pc to 8pc on Lithium iron phosphate battery.
The regulatory duty of 30pc is imposed on export of waste and scrap of copper. The total import of these products is almost Rs100bn per annum.
The regulatory duty increased on 110 items while in the case of 105 items it was slightly reduced. The additional customs duty increased from 1pc from 2pc on all tariff lines. FBR estimates to raise revenue of Rs20bn from this measure.
The regulatory duty has been reduced from 20pc to 10pc on CKD/SKD kits of home appliances. The regulatory on finished home appliances are 20pc. New PCT codes are created for CKD/SKD of home appliances, petrol generating sets, semi-automatic washing machines, kerosene based mineral oils, relays, fuses, gear pumps and turbo chargers for vehicles, electric conductors, light fittings with fixed/fitted LED/SMD.
Regulatory duty imposed at the rate of Rs175 per set on CKD/SKD kits of mobile phone.
Duty has been increased to 11pc from 3pc on double-sided tape; duty increased from 11pc to 20pc on rickshaw tyres, duty increased on Soya bean oil from Rs9050/MT & Rs10200/MT to Rs12000/MT and Rs13,200/MT, respectively.
Duty increased from 30pc to 35pc on aluminum auto parts scrap; from 3pc to 20pc on Di-octyl Terephthalate; levy of 5pc regulatory duty on Medium Density Fiber while normal duty reduced from 16pc to 11pc.
Published in Dawn, April 28th, 2018