ISLAMABAD: The PML-N government in its last budget agreed to introduce only 19 amendments to the Finance Act 2018, with most of them relating to income tax measures.
Of all the recommendations, 12 are related to income tax measures, four to sales tax and three to federal excise duty. These amendments will come into effect from July 1. However, revised rates of excise duty on cement and cigarettes will come into effect on the next day of assent given by President Mamnoon Husain.
Through the act, the excise rate on cement was further revised from Rs1.25 to Rs1.5 per kg and on all three tiers of cigarettes by Rs6. However, the health levy on tobacco at Rs10 per kg has been withdrawn through the act.
In the Finance Bill 2018, government introduced 104 amendments in income tax, 33 in sales tax and federal excise duty.
The inclusion of meagre amendments in the bill shows either lesser acceptance of the recommendations of senators and members of national assembly or it may also show the uninterested input given on the budget proposals.
Through the finance act, government introduced five-year plan to reduce rates for small companies in line with reductions for companies. It was decided to bring down rates from 24pc to 20pc by 2023. This decrease will be carried out by 1 percentage point each year, starting from 2019 when tax rate will be 24pc.
Slight changes were made in the tax slabs of individuals — salaried and non-salaried individuals. To remove the anomaly, the act has included a provision that all amounts exceeding Rs800,000 be taxed a minimum at Rs2,000.
Instead of enjoying zero tax, a nominal sum of Rs1,000 for individuals in the income brackets ranging from Rs400,001 to Rs800,000 and Rs2000 for individuals in income brackets from Rs800,001 to Rs1.2 million has been introduced through the Finance Act, 2018.
As per changes in the tax slabs, people earning Rs50,000 per month will have a net benefit of Rs6,000, while those earning Rs100,000 will save Rs59,500. In the case of even higher incomes starting from Rs1m per month, tax liabilities will go down by Rs2m per annum — a tax break that can go as high as Rs18.8m if earnings cross Rs8m per month.
Late filers of income tax returns will not be selected for audit automatically. To discourage late filing, the person would not be added in the active taxpayers’ list even after filing of the return. However, this will apply from tax year 2018 onwards for which the first active taxpayers’ list is to be issued on the first day of March 2019. Any person who has filed return for TY17 but did not file or was late, will remain in active taxpayers list for TY18 until February 28, 2019.
To make slight changes in restrictions on non-filers for registration of motor vehicles, and immovable property, the act clarifies that in case of imported vehicles, the restriction will apply on the first registration only. It may be registered to non-filers subsequently.
It was further clarified in the act that limitation on registration of immovable property will be applied to properties having value over Rs5m.
Through the act, tax collected at the import stage from commercial importers has been made minimum tax. It has provided that minimum tax shall be 5pc of the import value as increased by customs duty, sales tax and federal excise duty.
Moreover, the reduced rate of 1pc for filers and 1.5pc for non-filers for designated buyers of LNG to import the fuel on behalf of government has been made available to every person importing LNG. The anomaly in the super tax over the gradual reduction was clarified.
In the act, the income from donation was exempted from income tax of Sardar Trust Eye hospital, Lahore, Habib University Foundation, Begum Akhtar Rukhsana Memorial Trust Hospital, Al-Khidmat Foundation, Dawat-e-Islami Trust.
The exemption on income from export of computer software, IT services or IT-enabled services has been extended to June 30, 2025 from June 30, 2019. The income deriving from film making was enhanced to 70pc from 50pc. The tax payable on profits and gains derived by a person from low-cost housing projects has been brought down to 50pc.
The changes introduced in all three taxes, the recovery of tax payable by a taxpayer in connection with any dispute for which the alternate dispute resolution committee (ADRC) has been formed will be stayed up to the date of decision by ADRC.
Through the Finance Act, the scope of taxation of resident person was further extended by including income attributable to a controlled foreign company. The act has further clarified that the attributable income of a controlled foreign entity shall be taxed at the rates applicable on dividend income as provided in Division III, Part I of First Schedule.
Moreover, in case tax has been paid by the resident person on the income attributable to controlled foreign company and in a subsequent tax year the resident person receives dividend distributed by the controlled foreign company, after deduction of tax on dividend, the resident person shall be allowed a tax credit.
Through the act, the power to exempt sales tax was withdrawn from federal minister in charge and vested the same to federal government. The import of micro feeder equipment and fish babies/seedlings has been exempted from sales tax. The supply of match boxes was also exempted from the sales tax.
On the import and supply of potassium chlorate, a sales tax rate of 17pc along with Rs40 per kg was imposed. However, the rate of Rs40 per kg will not apply on imports made by and supplies made to organisations under the control of Ministry of Defence.
The rate of sales tax was reduced to 10pc on rock phosphate if imported by fertiliser manufacturers for use in its manufacturing.
Published in Dawn, May 20th, 2018