Briefing on Finance Supplementary (Second Amendment) Act, 2019

Disclaimer:

This Article is correct to the best of our knowledge and belief at the time of going to post. It is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. The Blogger does not accept any responsibility for any loss arising from any action taken or not taken by anyone using this article.

This Article has been written as a general guide for the benefit for the general public. This is not an exhaustive treatise as it sets out interpretation of only significant amendments enacted through the Finance Supplementary (Second Amendment) Act, 2019 (the Supplementary Act, 2019) in the Income Tax Ordinance, 2001 (the Ordinance), the Sales Tax Act, 1990 (the ST Act), the Customs Act, 1969 (the Customs Act) and the Federal Excise Act, 2005 (the FE Act), which was published in the Gazette of Pakistan on 11 March 2019, in a concise form sufficient enough to amplify the important aspects of the amendments that have been made in the above laws. The Board means the Federal Board of Revenue, Government of Pakistan.

Changes of consequential, administrative, procedural or editorial in nature have either been excluded from these comments or otherwise dealt with briefly.

The amendments enacted via the Supplementary Act, 2019, shall come into force at once, unless otherwise indicated.

It is suggested that the text of the Supplementary Act, 2019 and the relevant laws and notifications, where applicable, be referred to in considering the interpretation of any provision. Since these are only general comments, no decision on any issue should be taken without further consideration and specific professional advice should be sought before any action is  taken.

BRIEFING ON FINANCE SUPPLEMENTARY (SECOND AMENDMENT) ACT, 2019

INCOME TAX

1. Special procedure for small traders and shopkeepers [Section 99B]

The Supplementary Act, 2019 has introduced a new section whereby the Federal Government may, by notification in the official gazette, prescribe the special procedure for scope and payment of tax, filing of returns and assessment in respect of small traders and shopkeepers residing in such cities or territories as may be specified therein. Consequently, such small traders and shopkeepers are now not required to follow the normal procedures for payment of tax, filing of returns and assessment as prescribed under the Ordinance.
In order to make it effective, the Federal Government shall issue respective rules as may be necessary.

2. Tax paid at import stage by commercial importer reverted to “final tax” [Section 148(8)]

Before the Finance Act, 2018, tax required to be collected on import of goods that are sold in the same condition as they were when imported was treated as final tax. The Finance Act, 2018 brought a substantive conceptual shift with respect to taxation of commercial importers whereby such tax collection was deemed to be “minimum tax” in respect of such importers.
Due to the aforesaid change in the taxability of commercial importers, there were grave concerns shown by them, as this change significantly impacted this sector especially on documentation aspect as the change would have required the commercial importers to declare the financial results for comparison of tax on profits to the minimum tax on imports.
The Supplementary Act, 2019, has reverted to the original position i.e. the tax collected at import stage from commercial importers is to be treated as final discharge of tax liability of such importers.
Accordingly, effective from the tax year 2019, such commercial importers, will no longer be required to file a return of income and instead would continue to file a statement in terms of section 115 of the Ordinance.

3. Super tax [Section 4B]

The Finance Act, 2015, introduced a one-time levy of super tax in terms of section 4B of the Ordinance, payable for the tax year 2015 by all persons (including banking companies) on all types of income. This levy was then extended to the subsequent tax years i.e. 2016, 2017 and 2018 by the respective Finance Acts.
The rate of super tax for persons other than banking companies, having income equal to or exceeding Rs.500 million was prescribed at 1% for the tax year 2020. The Supplementary Act, 2019 has abolished super tax for the tax year 2020 by reducing the above rate to 0%.
Furthermore, in order to meet the ever increasing revenue targets of the Federal Government, the Finance Act, 2018 inserted a proviso in Division IIA of Part I of the First Schedule whereby banking companies were required to pay super tax for the tax year 2019 by 30 June 2018 whereas rate of super tax for banking companies for the tax year 2018 was prescribed at 0%. We understand that this arrangement was enacted after consultations and understanding with the banking sector. Further, the rate was reduced by 1% for each successive year starting from the tax year 2020 as under:
(i) Tax year 2018 – 0%
(ii) Tax year 2019 – 4%

(iii) Tax year 2020 – 3%

(iv) Tax year 2021 – 2%
For banking companies, the Supplementary Act, 2019 has introduced super tax for the tax year 2018 retrospectively at the rate of 4% and further enacted a flat rate of 4% for all successive tax years. The provisions of section 4B have also been amended and instead of stating that it shall be levied for the years 2015 to 2020, now reads that it is applicable for the tax year 2015 and onwards.
Although the legislature is empowered to introduce retrospective enactment for any provision of law, given the fact that the tax returns for the tax year 2018 have already been filed and deemed assessment orders under section 120 have been passed, the same should be considered as past and closed transaction.
It is also pertinent to mention that the rate of super tax in respect of tax year 2021 has been prescribed at 4%, however, in terms of the existing provisions of Rule (7C) of the Seventh Schedule which provides for the levy of super tax in case of a banking company, super tax has been prescribed for the tax years 2015 to 2020 and it does not mention the tax year 2021. As such, in our view, unless a subsequent amendment is brought in, for the tax year 2021, banking companies would not be obliged to pay super tax as per Rule (7C), as it presently exists.

4. Tax on undistributed profits [Section 5A]

It may be recalled that excess reserves of a public company were earlier taxed vide introduction of sub-section (9A) in section 12 of the Repealed Ordinance by the Finance Act, 1999. The said provision remained applicable till 30 June 2002 but was not made part of the Ordinance, effective from 01 July 2002. The Finance Act, 2015 reintroduced this concept by enacting section 5A. This section was then substituted via the Finance Act, 2017 according to which for the tax year 2017 and onwards, tax at the rate of 7.5% was imposed on every public company (other than a scheduled bank, a modaraba, a company qualifying for exemption under clause (132), Part I of the Second Schedule (IPP) and a company in which not less than 50% shares are held by the Federal Government) that derives profits for a tax year but does not distribute at least 40% of its after tax profits within six months of the end of the tax year through cash or bonus shares.
The Finance Act, 2018 reduced the tax rate from 7.5% to 5% and the limit of distribution of 40% of after tax profits to 20%. The Supplementary Act, 2019 now caps the applicability of this section till the tax year 2019. This is a welcome move as it has been the demand of corporate sector to abolish this taxation which was seen as an anti-consolidation measure merely to enhance tax collection.

5. Capital gains on sale of securities [Section 37A]

With the advent of section 37A in the Ordinance via the Finance Act, 2010, capital gains on sale of securities (as defined in section 37A itself) have been charged to tax as a separate block of income. For this purpose, a complete set of rules have also been introduced in the Income Tax Rules, 2002 (the Rules). The taxation of such capital gains is primarily linked with the holding period of a security with tax rates presently ranging from 0% to 20%. However, the current provisions of section 37A do not allow carry over of loss on disposal of securities that are chargeable to tax under the very section to the subsequent year rather provide that such loss shall be setoff only against capital gain on disposal of any other security chargeable to tax under section 37A incurred in the same tax year.
The Supplementary Act, 2019 has now inserted a proviso in section 37A which states that loss sustained in the tax year 2019 and onwards on disposal of securities chargeable to tax under the above section, if not fully setoff during the year, would be allowed to carry forward to the next year and subsequent two tax years, to be offset against capital gain earned in those years chargeable to tax under section 37A of the Ordinance.
We are of the view that the above measure will give confidence to the investors of the stock market who are otherwise suffering due to negative sentiment prevailing in the stock market owing to many factors affecting the economy.

6. Withholding tax statements [Section 165]

Every person collecting or deducting tax from various payments as required under the Ordinance (including salary payments) is obliged to file withholding tax (WHT) statement on a monthly basis (on the prescribed format) giving particulars of each transaction including name, address, National Tax Number, address of the recipient of payment along with the amount paid and tax deducted/ collected therefrom. Such WHT statements are currently required to be e-filed by the fifteenth day of the month next following. In addition, a person deducting tax from payments of salaries has an additional requirement to file an annual statement disclosing particulars of payment of salaries to each employee during the tax year. This annual statement is due to be filed by 31 July preceding the June year end.
The Supplementary Act, 2019 has made the filing of monthly WHT statements on a biannual basis. The due dates for such filing are as under:
(a) in respect of half year ending on 30 June - by 31 July next following
(b) in respect of half year ending on 31 December - by 31 January next following
The amendments in section 165 also give authority to the Commissioner to require any person as he deems fit, by a notice in writing, to furnish a WHT statement for any period, and by the date/ time, as specified in the notice.
It is pertinent to note that while the requirement of furnishing WHT statements is being made biannually, the obligation to file the annual statement regarding payment of salaries and tax deducted therefrom remains unchanged.

7. Cash withdrawal from a bank [Section 231A read with Division VI of Part I of the First Schedule]

Section 231A requires collection of advance tax by every banking company at the time of cash withdrawal if the aggregate sum withdrawn by an account holder in a day exceeds Rs. 50,000. There are separate rates of such tax collection prescribed which currently are 0.3% for filers and 0.6% for non-filers. The business community has been demanding from the government to abolish such withholding of tax from filers. This demand has been met as the Supplementary Act, 2019 omits the withholding requirement from filers. This is a welcome move and gives some respite to persons who are regularly filing their income tax returns and their names are appearing on the ATL as filers.

8. Advance tax on transactions in bank [Section 231AA read with Division VIA of Part I of the First Schedule]

Like the above amendment, the Supplementary Act, 2019 also exonerates filers from collection of advance tax by a banking company, non-banking financial institution, exchange company or any authorized dealer of foreign exchange at the time of:
(i) time of sale against cash of any instrument, including Demand Draft, Pay Order, CDR, STDR, SDR, RTC, or any other instrument of bearer nature or on receipt of cash on cancellation of any of these instruments; or
(ii) transfer of any sum against cash through online transfer, telegraphic transfer, mail transfer or any other mode of electronic transfer where the aggregate sum under both the scenarios exceeds Rs. 25,000 in a day.
Such advance tax is being collected at the rate of 0.3% from filers and at the rate of 0.6% from non-filers. This amendment omits the withholding requirement from filers.

9. Cash withdrawal from a bank [Section 231A read with Clause (101A) of Part IV of the Second Schedule]

The Supplementary Act, 2019 has inserted clause (101A) in Part IV of the Second Schedule to make the provisions of section 231A not applicable to a Pak Rupee account if the deposits in the account are made solely from foreign remittances credited directly into such account. This amendment aims to promote foreign exchange remittances to bank accounts where at the time of cash withdrawal withholding of tax would not be made even if the account holder is a non-filer.

10. Restriction on purchase of certain assets [Section 227C]

As expounded at the time of its enactment, section 227C of the Ordinance was introduced through the Finance Act 2018 in order to broaden the tax base, whereby non-filers were restricted to register new locally manufactured or imported motor vehicles.
Subsequently, through the Supplementary Bill, 2018, certain exceptions were provided to the above restriction on purchase of motorcycles and rickshaws. The Government has revisited the above exceptions, and these have now been amended to include all locally manufactured motor vehicles. This would mean that now there is no restriction for non-filers to purchase locally manufactured motor vehicles i.e. they can acquire a locally manufactured motor vehicle without any cap on the engine capacity. This step appears to be for promoting the local motor vehicle manufacturing industry including new units being set-up which would otherwise have a shrunken market for their products.
Further, through the Supplementary Bill, 2018, restrictions under section 227C were made inapplicable for a person holding a Pakistan origin card or a National Identity Card for Overseas Pakistanis, subject to certain conditions. The above relief from applicability of section 227C is now extended to a non-resident Pakistani citizen holding international passport as well.

11. Reduction in tax liability on inter-corporate dividends [Clause (103C) of Part I of the Second Schedule]

Pursuant to the provisions of clause (103A) of Part I of the Second Schedule, any income derived from inter-corporate dividends was exempt for group companies entitled to group taxation under section 59AA or group relief under section 59B. The Finance Act, 2015 then added a condition, that such exemption would only be available if the consolidated return of the group had been filed. Subsequently, the Finance Act, 2016, excluded entities entitled to group relief under section 59B from the exemption entirely.
The above amendments created significant difficulties for corporate and industrial groups by adding multiple layers of taxation on dividends issued by group entities. This resulted in corporate structures becoming inefficient due to multiple taxation of the same income, on mere distribution within the group, even though no value addition was taking place. This also led to substantial litigation from various groups.
The Supplementary Act, 2019 now seeks to address this issue by inserting a new clause in Part I of the Second Schedule which with effect from 01 July 2019 exempts dividend income derived by a company, if the recipient has availed group relief under section 59B, computed according to the following formula:
AxB/C
Where,
A is the amount of dividend;
B is the shareholding of the company receiving the dividend in the company distributing the dividends; and
C is the total ordinary share capital of the company distributing the dividend.
It is imperative to appreciate that while the original provisions of clause (103A) had provided an outright exemption from tax on inter-corporate dividends to entities entitled to group relief, the newly inserted clause provides a relief only in the circumstances where the recipient of the dividend has availed group relief, i.e. loss has actually been surrendered between the two entities and even then, only to the extent of the shareholding that the parent entity has in its subsidiary. In effect, this means that:

• since the provisions of section 59B require listing within a specified period, the relief would not be available to private groups unless they are willing to list;
• the relief would be available only to the entities actually surrendering or receiving the losses, and not all companies within the entire corporate structure; 
• based on a literal interpretation, the holding company (i.e. the entity receiving the dividend) may not be able to claim the exemption if the losses under group relief are transferred from one subsidiary to another (i.e. between sister concerns);
• since a company cannot surrender its losses for more than three years, this is not an indefinite relief; and
• the benefit may practically be availed only in specific cases since a company, both. receiving dividends and availing group relief in the same year, is normally only possible in structures where a holding company has several subsidiaries.

Overall, in our view, this is a significantly watered-down relief compared to the demands of the corporate sector, the benefit of which may likely be availed in very few cases that may comply with all the conditions.

12. Collection of tax by a registered stock exchange in Pakistan [Section 233A]

It may be noted that section 233A was inserted via the Finance Act, 2004 which originally provided for collection of tax by stock exchange from its members on account of:
(i) purchase of shares in lieu of commission earned by the members;
(ii) sale of shares in lieu of commission earned by members;
(iii) trading of shares; and
(iv) financing of carryover trades in share business.
The Finance Act, 2012 omitted the provisions regarding collection of tax at (iii) and (iv) above. The treatment of tax collected under the above provisions has been the subject matter of controversy between the Members of the stock exchange and the government. Such tax has been treated as adjustable, final and minimum tax as well during different tax years. The Finance Act, 2018 made the collection of tax under (i) and (ii) above as final tax which was earlier made as adjustable tax. Nonetheless, it has been the demand of brokerage houses to abolish the aforesaid provisions. The Supplementary Act, 2019 provides that section 233A shall become inapplicable from 01 March 2019.

13. Rate of tax on import of mobile phone [Part II of the First Schedule]

The Supplementary Act, 2019 has inserted a new proviso in Part II of the First Schedule whereby the rate of tax, to be collected under section 148, on value of import of mobile phone by any person shall be as set out in the following table:

Sr. No	C&F Value of Mobile Phone (USD)	Tax (Rs.)
1.	Up to 30	70
2.	Exceeding 30 and up to 100	730
3.	Exceeding 100 and up to 200	930
4.	Exceeding 200 and up to 350	970
5.	Exceeding 350 and up to 500	3,000
6.	Exceeding 500	5,200

14. Advance tax on private motor vehicles [Section 231B read with Division VII of Part I of the First Schedule]

The rates of advance tax collection only from non-filers by motor vehicle registering authorities at the time of registration of motor vehicles, and by local manufacturer of motor vehicles at the time of sale of motor cars or jeeps, have been enhanced by the Supplementary Act, 2019 as per the following tabulation:

Sr. No.	Engine Capacity	Existing Rate (Rs.)	New Rate (Rs.)
1.	upto 850cc	10,000	15,000
2.	851cc to 1000cc	25,000	37,500
3.	1001cc to 1300cc	40,000	60,000
4.	1301cc to 1600cc	100,000	150,000
5.	1601cc to 1800cc	150,000	225,000
6.	1801cc to 2000cc	200,000	300,000
7.	2001cc to 2500cc	300,000	450,000
8.	2501cc to 3000cc	400,000	600,000
9.	Above 3000cc	450,000	675,000

15. Provisional assessment [Section 123]

This section empowers the Commissioner to tax any concealed asset impounded by any department or agency of the Federal or the Provincial Government, by issuing a provisional assessment order or provisional amended assessment order at any time before any assessment order under section 121 or any amended assessment order under section 122 has been issued.
The Supplementary Act, 2019 introduces sub-section (1A) in section 123 whereby the above powers have been enhanced by also empowering the Commissioner to issue a provisional assessment order or a provisional amended assessment order in case of an offshore asset of a taxpayer that is not declared earlier and is discovered by the Commissioner or any department or agency of the Federal or the Provincial Government.

16. Reduced rate of tax for additional advances to micro, small and medium enterprises by a banking company [Seventh Schedule]

At present, every income of a banking company is subject to tax at a flat rate of 35% in terms of the provisions of section 100A read with Seventh Schedule to the Ordinance.
Keeping in view the Government’s goals to promote economic growth in the country by providing financial support to small businesses involving low and medium capital structure, measures are being taken to provide adequate funding to such businesses.
To encourage banking sector to contribute in accomplishment of the above objective, certain amendments have been made by the Supplementary Act, 2019 providing incentives to the banking sector. The amendments provide a reduced rate of tax for banking companies in respect of interest income earned from funding provided to the following:
(i) Micro, small and medium enterprises – Rule (7D)
(ii) Low cost housing finance – Rule (7E)
(iii) Farm credit – Rule (7F)
The salient features of the Rules are as under:
(i) The relief in tax rate will be available in respect of interest income earned from providing additional advances. The term ‘additional advances’ have been defined as advances in addition to average amount of such advances made in such sector by the bank for tax year 2019.
(ii) The rate of tax would be 20%.
(iii) The reduced rate will be applicable for the tax years 2020 to 2023.
(iv) The reduced rate would be applicable subject to furnishing a certificate from external auditor along with the audited accounts while filing return of income certifying the amount of such advances made in the preceding tax year, additional advances made for the tax year and net mark-up earned from such additional advances.
(v) The taxable income arising from additional advances shall be computed in accordance with the following formula:
Taxable income = A x B/C
Where,
A = taxable income of the banking company
B = net markup earned from such advances
C = total of the net markup, non-markup income

17. Exemption from levy of super tax on income from additional advances of a banking company [Clause (111) of Part IV of the Second Schedule]

A new clause has been inserted providing exemption from levy of super tax under section 4B on the taxable income of a banking company, as defined in the said section, subject to reduced rate of tax under Rules 7D, 7E and 7F of the Seventh Schedule for tax years 2020 to 2023.

18. Withholding tax statements [Section 165 read with Clause (81A) of Part IV of the Second Schedule]

Banking companies have been challenging the submission of customer related information in the WHT statements wherein the requirement of providing name, address and CNIC of each customer is also required to be furnished along with profit on debt paid along with taxes collected from customer. This is on the pretext of secrecy of information under various laws applicable on banking companies. The matter has also been challenged before the Courts.
To address this demand, the Supplementary Act, 2019 has inserted clause (81A) in Part IV of the Second Schedule to provide that such a requirement of furnishing customer specific information in a WHT statement for the purpose of reporting tax collected from profit on debt under section 151 and at the time of cash withdrawal under section 231A of the Ordinance shall not apply to banking companies. In our view, the banking companies shall still be required to report collection of tax under the above sections without furnishing customer related information in the WHT statements.

19. Establishment of Directorate-General of International Tax Operations [Section 230E]

In line with Pakistan’s continuing commitment to enacting the measures recommended by the OECD in respect of Base Erosion and Profit Shifting, the Finance Act, 2016 had introduced the requirement for prescribed taxpayers to maintain transfer pricing documentation and fulfil Country-by-Country Reporting (CbCR) obligations. Subsequently, the Finance Act, 2017 inserted section 230E, thereby creating the office of the Directorate-General of Transfer Pricing, which would deal with all transfer pricing and CbCR matters, including transfer pricing audits.
The Supplementary Act, 2019 has replaced the office of the Directorate-General of Transfer Pricing with Directorate-General of International Tax Operations.
The functions and powers of the Directorate-General of International Tax Operations would include the following:
(i) Receive and send information from/ to other jurisdictions under spontaneous, automatic, and on-demand exchange of information under exchange of information agreements;
(ii) Levy and recover tax by passing an assessment order under section 123(1A) in case of undeclared offshore income and assets;
(iii) Receive, transmit, and exchange CbC Reports to the jurisdictions that are parties to the international agreement with Pakistan; and
(iv) Conduct transfer pricing audit in selected cases.

20. Exemption to manufacturer of plant, machinery & equipment for generation of energy from solar & wind [Clause (126I) of Part I of the Second Schedule]

Currently, an exemption is available to any profits and gains derived by a taxpayer from an industrial undertaking set up by 31st day of December 2016 and engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of renewable energy from sources like solar and wind, for a period of five years beginning from 01 July 2015.
The Supplementary Act, 2019 now extends the date of eligible companies formed for such purpose to those setup between 01 March 2019 to 30 June 2023. Consequently, the period during which exemption would be applicable to such industrial undertakings would also begin from the date of set up and would continue for a period of five years.

21. Exemption from taxation of profits and gains of a green field industrial undertaking [Clause (126O) of Part I and clause (11A) of Part IV of the Second Schedule]

A new clause is inserted in Part I of the Second Schedule via the Supplementary Act, 2019 whereby profits and gains of a company (for a period of five years) from a green field industrial undertaking incorporated on or after the first day of July 2019 shall be exempt from tax subject to certain conditions. Amendments have also been made in clause (11A) of Part IV to provide an exemption from levy of minimum tax to such entities.

22. Exemption on income from renewal of spectrum license [Section 49(4)]

As per the proviso to section 49(4) of the Ordinance, income from the sale of spectrum licenses by Pakistan Telecommunication Authority shall be treated as income of the Federal Government and be exempt as per the provisions of section 49(1) and 49(3) of the Ordinance. The Supplementary Act, 2019, now extends this treatment to income from renewal of spectrum licenses as well.

23. Exemption from section 151 [Clauses (36B), (36C), (36D) and (36E) of Part IV of the Second Schedule]

Certain new clauses have been inserted in Part IV of the Second Schedule via the Supplementary Act, 2019, a summary of which is provided as under:
(i) The provisions of section 151 shall not apply to profit on debt paid on promissory notes and sales tax refund bonds issued under the Sales Tax Act, 1990;
(ii) The provisions of section 151 shall not apply to profit on debt paid on Pakistan Banao Certificates;
(iii) The provisions of sections 150 and 151 shall not apply to Sarmaya-e-Pakistan Limited;
(iv) The provisions of section 151 shall not apply to profit on debt issued under the Federal Government Duty Drawback Bonds Rules, 2019.

24. Exemption from advance tax u/s 148 [Clause (60D) of Part IV of the Second Schedule]

As per the Supplementary Act, 2019, the provisions of section 148 shall not apply on import of firefighting equipment by industrial undertakings set up in the special economic zones established by the Federal Government.

25. Exemption to income of certain charitable and other institutions [Clause (66) of Part I and Clause (11A) of Part IV of the Second Schedule]

The Supplementary Act, 2019 has inserted the following entry in clause (66), which provides exemption from tax to any income of the institutions:

• National Disaster Risk Management Fund
• Deposit Protection Corporation established under sub-section (1) of section 3 of Deposit Protection Corporation Act, 2016
• Sarmaya-e-Pakistan Limited

In line with the above exemption, the Supplementary Act, 2019 also provides exemption to the above institutions from the levy of minimum tax under section 113 of the Ordinance.

26. Exemption from withholding of tax under Sections 151 and 153 [Clause (38D) of Part IV of the Second Schedule]

With the exemption granted to National Disaster Risk Management Fund in respect of its income and from levy of minimum tax, the Supplementary Act, 2019 also exempts it from withholding tax under section 151 (profit on debt) and section 153 (payments for goods, services and contracts) of the Ordinance.

27. Advance tax on functions and gatherings [Section 236D]

Under section 236D collection of advance tax is prescribed on the total amount of the bill from a person arranging or holding a function in a marriage hall, marquee, hotel, restaurant, commercial lawn, club, a community place or any other place used for such purpose. The rate at which the collection of tax is to be made ranges from 5% of the bill ad valorem to 20,000 whichever is higher. The Supplementary Act, 2019 has reduced this rate from 5% of the amount of bill ad valorem or 5,000 whichever is higher for the functions of marriage in a marriage hall, marquee or a community place with total function area of less than 500 square yards or in case of a multi stories premises, with
the largest total function area on one floor less than 500 square yards.

28. Collection of advance tax at the time of sale by auction [Section 236A]

In order to promote sports in the country and events like Pakistan Super League (PSL), the Supplementary Act, 2019 has done away with the collection of tax at the time of sale of auction of franchise rights to participating teams in a national or international league organized by any board or other organization established by the Government in Pakistan for the purposes of controlling, regulating or encouraging major games and sports recognized by the Government. This amendment will take effect from 01 July 2019.

SALES TAX

1. Refund through sales tax refund bonds [Section 2(11A) and Section 67A]

The Supplementary Act, 2019 has introduced a new section 67A whereby sales tax refund may also be paid through promissory notes and bonds in lieu of cheques or bank debit advice to the claimants who have opted for payment in such manner. To facilitate settlement of refunds in this manner the Federal Government will form the Company, “FBR Refund Settlement Company (Private) Limited” which has been defined in the following manner:

“(11A) “FBR Refund Settlement Company (Private) Limited” means the company with this name as
incorporated under the Companies Ordinance, 1984, for the purpose of settlement of sales tax and income tax refund claims including payment by way of issuing refund bonds under section 67A”;

The salient features of the procedure under Section 67A may be summarized as under:

• The Board will issue a promissory note to the FBR Refund Settlement Company (Private) Limited with the details of refund claimants and amount of refund determined as payable to each for the issuance of sales tax refund bonds.
• The Company will issue promissory notes in lieu of sales tax refunds admissible under the ST Act to the claimants.
• The bonds shall be issued with a maturity period of three years, in multiples of one hundred thousand Rupees.
• The bonds shall bear annual simple profit at 10%.
• The bonds shall be redeemable after the period of maturity. However, the Board has option to redeem such notes before maturity along with simple profit payable at the time of redemption.
• The bonds shall be traded freely in the country’s secondary market.
• The bonds shall be approved security for calculating the statutory liquidity reserve.
• The bonds shall be accepted by the banks as collateral.
• No deduction of compulsory Zakat shall be applicable on such bonds.
• The refund under this Section shall be paid in the aforesaid manner to the claimant who opt for payment in such manner.
• The Federal Government may notify the procedure to regulate the issuance, redemption and other matters relating to the bonds as may be required.

2. Sixth Schedule [Section 13]

The Sixth Schedule deals with exemptions of goods from levy of sales tax. The Supplementary Act, 2019 inserted/substituted the following entries in the Sixth Schedule to the ST Act.

Table 1 (on import and local supplies)
Serial number 110 provides exemption on import and supply of various items such as solar panels, wind turbines, inverters etc. if dedicatedly used for renewable source of energy like solar and wind. Currently there is no time limit on such exemption however the Supplementary Act, 2019 now limit this exemption till 30 June 2023.
The Supplementary Act, 2019 has also inserted the following entry in the Sixth Schedule of the ST Act:

Sr. No.	Description	Tariff Heading
150.	Plant and machinery excluding consumer durable goods and office equipment as imported by greenfield industries, intending to manufacture taxable goods, during their construction and installation period subject to conditions noted below and issuance of exemption certificate by the Commissioner Inland Revenue having jurisdiction: Conditions: (a)   the importer is registered under the Act on or after the first day of July, 2019; and (b)   the industry is not established by splitting up or reconstruction or reconstitution of an undertaking already in existence or by transfer of machinery or plant from another industrial undertaking in Pakistan.	Chapters 84 and 85;

The Supplementary Act, 2019 has also substituted the following entry in the Sixth Schedule of the ST Act:

Sr. No.	Existing		New
	Description	Tariff Heading	Description	Tariff Heading
117.	Appliances for colostomy	3006.9100	Appliances and items required for ostomy procedures as specified in the Chapter 99 of the First Schedule to the Customs Act, 1969,  subject to same conditions as specified therein	99.25

The Supplementary Act, 2019 has also to omitted serial number 118 which provides exemption on supply of colostomy and urostomy bags under tariff heading 3926.9050.
Table 3 (on import)
Table 3 of the Sixth Schedule provides conditional exemptions of sales tax on plant, machinery, equipment and apparatus as imported by various industrial segments.
Serial number 7 of the Annexure of Table 3, provides conditional exemptions to machinery, equipment and spares used for power generation through nuclear and renewable energy sources like solar, wind, micro- hydel bio- energy, ocean, waste- to- energy and hydrogen cell. Currently there is no time limit on such exemption however the Supplementary Act, 2019 now limit this exemption till 30 June 2023.
Serial number 14A of the Annexure of Table 3, conditional exemptions are available to systems and items imported for dedicated use with renewable source of energy like solar, wind and geothermal. Currently there is no time limit on such exemption however the Supplementary Act, 2019 now limit this exemption till 30 June 2023.

3. Ninth Schedule [Section 3(3B)]

Ninth schedule of the ST Act deals with the levy of sales tax on import or local supply of mobile phones. The Supplementary Act, 2019 to substitute serial number 2 along with the respective entries relating to the table of the Ninth Schedule. Currently, sales tax on mobile phones is levied on basis of their specifications however, the Supplementary Act, 2019 levy sales tax on the basis of import value. The substitutions are provided as under:

Sr. No.	Description/ Specification of Goods	Sales tax on import or local supply (Rs.)	Sales tax chargeable at the time of registration of IMEI numbers by CMOs (Rs.)	Sales tax on supply payable at the time of supply by CMOs
2	Cellular mobile phones or satellite phones to be charged on the basis of import value per set, or equivalent value in rupees in case of supply by the manufacturer, at the rate as indicated against each category:
	A.    Not exceeding US$ 30	150	150
	B.    Exceeding US$ 30 but not exceeding US$ 100	1,470	1,470
	C.   Exceeding US$ 100 but not exceeding US$ 200	1,870	1,870
	D.   Exceeding US$ 200 but not exceeding US$ 350	1,930	1,930
	E.    Exceeding US$ 350 but not exceeding US$ 500	6,000	6,000
	F.    Exceeding US$ 500	10,300	10,300

FEDERAL EXCISE DUTY

1. Amendments in the rate of duty [First Schedule, Table-I, Serial 55, 55A and 55B]

Currently, the FE Act levies duty at the rate of 20% on imported motor cars, SUVs and other motor vehicles principally designed for the transport of persons having cylinder capacity of 1800cc or above. Now the Supplementary Act, 2019 enhanced the duty on such imported luxury vehicles and provide two separate rates of duty based on cylinder capacity by introducing serial 55A as under:

Sr. No.	Description	Heading / Sub-heading Number	Rate of Duty
55	Imported Motor cars, SUVs and other motor vehicles of cylinder capacity of 1800cc but not exceeding 3000cc,  principally designed for the transport of persons (other than those headings 87.02), including station wagons and racing cars of cylinder capacity of 1800cc but not exceeding 3000cc	87.03	25%
55A	Imported motor cars, SUVS and other motor vehicles of cylinder capacity of 3000cc or above, principally designed for the transport of persons (other than those of headings 87.02), including station wagons and racing cars of cylinder capacity of 3000cc or above	87.03	30%

The Supplementary Act, 2019 also levy duty on locally manufactured motor cars, SUVs and other motor vehicles by introducing new serial 55B as under:

Sr. No.	Description	Heading / Sub-heading Number	Rate of Duty
55B	Locally manufactured or assembled motor cars, SUVS and other motor vehicles of cylinder capacity of 1700cc or above, principally designed for the transport of persons (other than those of headings 87.02), including station wagons and racing cars of cylinder capacity of 1700cc or above	87.03	10%

CUSTOMS

1. Amendments to the First Schedule [Chapter 99 Sub chapter VII]

Presently, the import of various appliances and instruments used for artificial kidneys, colostomy, ostomy, laparoscopy are exempt from customs duty under the PCT heading 9925. Now, the Supplementary Act, 2019 substituted the PCT heading 9925 to extend the benefit of the exemption to appliances and instruments used for colostomy and urological treatments.

2. Amendments to the Fifth Schedule [Part VII Table B]

The Supplementary Act, 2019 further reduction in rate of customs duty from 5% to 3% on import of Polymer of ethylene/ propylene mentioned at Serial No.15 and 16 of the Table B.
The Supplementary Act, 2019 reduced the rate of customs duty from 5% to 0% on import of newsprint in rolls or sheets at Serial No.18 of Table B.
Part VIII Table
The Supplementary Act, 2019 inserted a new Part VIII in the Fifth Schedule for providing benefits of concessionary rate of customs duty on imports of inputs/ raw materials of certain industrial sector subject to certain conditions.
(i) Concessionary rates of duty are to be applicable on imports of specified inputs/ raw materials by
manufacturers registered under the ST Act of the following industrial sectors:

Sr. No.	Industrial Sector	Range of Customs Duty (on Inputs/ Raw Materials)
1	Footwear	0% to 20%
2	Tanners	0% to 20%
3	Leather	0% to 20%
4	Gloves	0% to 20%
5	Furniture	0%
6	Ceramics	3%
7	Chemical Manufacturing	0%
8	PVC/Plastic	3%

(ii) Concessionary rates of duty are to be applicable on imports of specified inputs/ raw materials by
manufacturers registered under the ST Act subject to annual quota determination and verification by the lnput Output Co-efficient Organization (IOCO) of the following industrial sectors:

Sr. No.	Industrial Sector	Range of Customs Duty (on Inputs/ Raw Materials)
1	Diapers/ Sanitary Napkins	5% to 16%
2	Home Appliance	0% or 16%
3	Infant Formula	5%

The insertion of Part VIII to the Fifth Schedule will be effective from 01 March 2019.

3. Mobile Handset Levy [Section 10 of the Finance Act, 2018]

A new mobile handset levy on import of smart phones was introduced through section 10 of the Finance Act, 2018. Now, the Supplementary Act, 2019 amended the rates of the levy by substituting the Table as follows:

Sr. No.	C&F Value of Mobile Phone (USD)	Rate of Levy per Set (Rs.)
1	Up to 30	Nil
2	Exceeding 30 and up to 100	Nil
3	Exceeding 100 and up to 200	500
4	Exceeding 200 and up to 350	1,500
5	Exceeding 350 and up to 500	3,500
6	Exceeding 500	7,000