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Major amendments made in Finance Bill 2020

ISLAMABAD: The government has restricted the scope of Federal Board of Revenue's (FBR) powers to have real time...

Jun 30 2020

ISLAMABAD: The government has restricted the scope of Federal Board of Revenue's (FBR) powers to have real time access to databases of agencies and withdrawn a major provision of the Finance Bill 2020 of revision of wealth statement after seeking prior approval of the Commissioner through amendments in the Finance Bill 2020.

According to the commentary of leading tax expert Ashfaq Tola on the amendments introduced in the Finance Bill 2020, the government has withdrawn 25 percent federal excise duty (FED) on energy drinks; reduction of the FED on cement from Rs 1.75 to Rs1.50 per kg and duty on imported cigarettes of tobacco or tobacco substitutes would be 65% of retail price. For cigars, cheroots and cigarillos of tobacco and tobacco substitute the rate of duty will be 65% of retail price or Rs 10,000/kg whichever is higher. As per bill a new entry 55d was added whereby locally manufactured double cabin (4x4) pick-up vehicles except the vehicles were subject duty 7.5% ad valorem. Now Finance Act has restricted this to vehicles booked on or before the 30th June 2020 subject to the restriction or conditions specified by the FBR.

The following institutions have been added in Clause (66) of Part I of the Second Schedule (Exemption Schedule) of the Income Tax Ordinance, so that incomes derived by such institutions would be exempt from tax: Sindh Institute of Urology and Transplantation, SIUT Trust and Society for the Welfare of SIUT; Shaukat Khanum Memorial Trust (Parallel to Govt. Institutions) and National Endowment Scholarship for Talent. The following institutions will also avail exemption subject to section 100C of the Income Tax Ordinance 2001: Alamgir Welfare Trust International and Foundation University.

The previous table regarding mobile phone industry proposed vide Finance Bill 2020 has been splitted into two separate Tables without any changes in Sales Tax rates on supply (payable at the time of supply by CMOs) and Cellular mobile phones in CKD/CBU form.

In order to increase tax base and to crack on potential tax evasions, the bill had proposes Federal Board of Revenue (FBR) to make arrangements to have real time access to information and database of following for Sales Tax and FED purposes: National Database and Registration Authority (NADRA); Federal Investigation Agency and Bureau of Emigration and Overseas Employment ; Islamabad Capital Territory and Provincial and Local land record and development authorities; Islamabad Capital Territory and Provincial Excise and taxation Departments, all electricity suppliers and gas transmission and distribution companies and any other agency, authority, institution, or organization notified by FBR. The detail from Federal Investigation Agency and Bureau of Emigration and Overseas Employment was related to details of international entry and exit of all persons, and information pertaining to work permits, employment visas and immigration visas.

Now through Finance Act, the information from both agencies has been restricted to only international travel.

Explaining the amendments in the Finance Bill 2020, Ashfaq Tola explained that the Bill has proposed that the wealth statement shall be revised after approval from Commissioner. It also proposed that in cases of bonafide omission and wrong statements, the Commissioner shall compulsorily approve the revision request. Now, the final document has now withdrawn the requirement for prior approval of Commissioner and has replaced the same with intimation to the Commissioner. However, the Finance Act has also empowered the Commissioner to render the revision void after providing opportunity of being heard in case the revision is not for the purpose of correction of bonafide omission and wrong statements in his opinion.

After the promulgation of Finance Bill 2020 ("The Bill"), an anomaly committee was constituted under the chairmanship of Ashfaq Tola to identify and rectify legal and technical anomalies in Finance Bill. This committee identified and recommended various technical and legal anomalies, many of which were incorporated while passing Finance Act 2020 ("The Act").

Through amendment in the Finance Bill, a resident company engaged in hotel business in Pakistan has been added in the definition of Industrial Undertaking. Moreover, the loss sustained by a hotel business in Pakistan, incurred after July 01, 2020, shall be allowed to be carried forward for 8 years.

The section 7A provides for taxation on shipping of a resident person under the Final Tax Regime on a per tonnage basis. The Bill had proposed to extend the application of Section 7A till 2023 instead of 2020.

The Act has further extended the same till 2030.

Finance Bill had proposed to reduce the limit of 6% expenditure claim to 2% in case of separate block of income. The Finance Act has now relaxed this limit to 4%.

Finance Bill had also proposed to disallow expenditure by an industrial undertaking in proportion of supplies made to sales tax unregistered persons. However, this proportionate disallowance was only proposed to be applicable in cases where supplies equal or exceed Rs. 100 million per person.

Moreover, this proportionate disallowance was proposed to not exceed 20% of total expenditure claimed under this clause. Finance Act has further relaxed the disallowance limit up to 10% only, from the proposed 20%. The Act has also deferred application of this disallowance till 30th September 2020.

The surplus funds of the NPOs, which are not spent during the year for welfare, are taxed at the rate of 10% with certain exclusions. One such exclusion is funds which could not be spent due to any obligation or restriction placed upon the NPO by the donor. However, where the donor is an associate of the NPO, such a restriction can be a mechanism to shift profit to the NPO. Therefore, an amendment was proposed so that the above exclusion does not apply in case where the donor is an associate of the NPO.

Finance Bill 2020 had also proposed to disallow expenditure by an industrial undertaking in proportion of supplies made to sales tax unregistered persons. However, this proportionate disallowance was only proposed to be applicable in cases where supplies equal or exceed Rs. 100 million per person.

Moreover, this proportionate disallowance was proposed to not exceed 20% of total expenditure claimed under this clause. Finance Act has further relaxed the disallowance limit up to 10% only, from the proposed 20%. The Act has also deferred application of this disallowance till 30th September 2020.

Through another amendment in Finance Bill, the new law now has further empowered the Board to specify goods, imported to be used as raw material for importers' own use, to be treated as classified under Part II of the twelfth Schedule.

Currently, engineering services have been included in specified services on which reduced withholding tax of 3% is applicable. The Bill proposed to exclude such services from the list of specified services.

The Act has now reincluded 'engineering services' in the specified list along with other services of warehousing services, services rendered by asset management companies, data services provided under license issued by the Pakistan Telecommunication Authority, telecommunication infrastructure (tower) services.

In the sales tax exemption schedule, the exemption under entry 103 related to import and supply of ships and all floating craft etc. which expires on 2020 was proposed to be extended to 2023. Now it is extended up to 2030. Through Finance Act the following items are also added in sixth schedule: Oil cake and other solid residues, whether or not ground or in the form of pellets (PCT code 2306.1000 [Entry 155]); import of CKD kits by local manufacturers of following Electric Vehicles: [Entry 156]-(i) Road Tractors for semi-trailers (Electric Prime Movers) (PCT code 8701.2060) (ii) Electric Buses (PCT code 8702.4090)

(iii)Three-Wheeler Electric Rickshaw (PCT code 8703.8030) (IV) Three-Wheeler Electric Loader (PCT code 8704.9030) (v) Electric Trucks (PCT code 8704.9059) and (VI) Electric Motorcycle (PCT code 8711.6090).

Through another amendment in Finance Bill, the plant and machinery for the assembly/ manufacturing of electric vehicles, subject to condition that the exemption shall be admissible on one time basis for setting up the new assembly and/or manufacturing facility of the vehicles and expansion in the existing units to the extent of electric vehicles specific plant and machinery, duly approved/ certified and determined by the Engineering Development Board (EDB).

The taxpayer is allowed input adjustment/refund, only if payment to supplier is made through banking channel. Through FA 2019 a condition for manufacturers was inserted whereby it was made mandatory for manufacturers to make all taxable supplies, exceeding certain monetary threshold, to a person who has obtained registration of sales tax, failing which the supplier shall not be entitled to claim credit adjustment or deduction of input tax as attributable to such excess supplies to unregistered person. The bill had proposed to apply above provisions to all registered suppliers in value chain.

Through Act, this proposed amendment is deleted and the position before bill is restored.

The bill had proposed new entry "6a. Caffeinated energy drinks PCT code 2202.1010 2202.9900 25% of Retail Price". Now Act has deleted this entry.

Before bill, FED was levied on cigars, cheroots, cigarillos and imported cigarettes at 65% of 'retail price'. Through bill the duty was increased to 100%. Now Act, the duty imported cigarettes of tobacco or tobacco substitutes [entry 8] is 65% of retail price. For Cigars, cheroots and cigarillos of tobacco and tobacco substitute the rate of duty will be 65% of retail price or Rs 10,000/kg whichever is higher.

As per bill duty on cement was proposed to be reduced by 12.5% from Rs 2 to Rs 1.75 per kilogram implying a decrease of Rs 12.5 per standard bag of 5o kilogram. Now Act has further reduced duty from Rs 1.75 to 1.50.

As per bill a new entry 55d was added whereby locally manufactured double cabin (4x4) pick-up vehicles except the vehicles were subject duty 7.5% ad valorem. Now Act has restricted this to vehicles booked on or before the 30th June 2020 subject to the restriction or conditions specified by the FBR.

Ashfaq Tola added that the section 58A provides provisions regarding representative of a taxpayer including of a non-resident person to represent it in department and appellate forums. Through bill an explanation was proposed that non-resident for sales tax purposes shall have same meaning as provided in Income Tax.

Now Finance Act also has provided FBR, power to specify persons or class of persons through notification and subject to such conditions and restrictions, to be considered as representatives of non-resident.

Copyright Business Recorder, 2020