The national assembly approved major tax relief in financial bill 2020 on Monday, which was suggested by Pakistan tehreek e insaaf government.
The bill was revised by the ruling party on the demand of the lower house of the parliament who proposed some changes in the bill after it was presented in the national assembly on 12 June. There were some other changes made by the government including the withdrawal of the new tax they had proposed for luxury houses and farms of Islamabad.
Reduction in Income Tax for a specific Trading Group
Some other major changes that were not included in the finance bill 2020 before were made. These include an income tax relief for shipping businesses, firms providing engineering services, educational institutes, hajj operators, and real estate investment trusts by reducing the rate of income tax. The National Assembly approved tax concessions for electric vehicles under the Electric Vehicle Policy 2020.’
The concessions will be applicable from July 1, 2020, for five years on the imports of 10 electric vehicles of the same variants to be produced and assembled with a maximum of 200 units.
Tax exemption for some companies
Income tax exemption
The unreserved income tax exemption has been granted to some institutes including the Sindh Institute of Urology and Transplant (SIUT), Shaukat Khanum Memorial Trust, and National Endowment Scholarship for Talent (NEST). Foundation University and donations to Alamgir welfare trust are also exempted from income tax.
Corporation tax exemption
The tax on profit and gains on the sale of immovable property to a development (REIT) scheme who are engaged with the development and construction of residential buildings is exempted for three years up to June 2023. The National Assembly also approved exemption from withholding and advance income tax on cash withdrawal from banks and banking transactions in a Pakistan rupee account in a tax year to the extent of foreign allowance credited to such bank accounts during that tax year. Adding to this exemption of withholding tax on commission charged by retail branchless banking agents on any amount laid out by the “Ehsas Emergency Cash Transfer Programme” which will end on September 30, 2020, has also been approved.
Sales tax exemption
Besides the exemption of income and corporation tax, the government has also reduced sales tax on the import of mobile phones in CKD kits for some specific categories. For the supply of some local produced mobile phones, the sale tax has been fixed up to Rs.10 % adding on to a fixed rate of tax at the import stage. 5% of sales tax has also been removed on oil cakes and other solid residues.
Amendment in section 37A and dropping out the revision of section 73
Furthermore, the capital gains tax rates are reduced for those companies who are not listed at the stock exchange by making a change in section 37A that deals with the tax rates for securities traded at the stock exchange. According to the amendment, only shares of a public company will be considered as security, if the company is a public company at the time of selling its shares.
The government also dropped the revision of section 73 according to which a person was not permitted to engage in trade with unregistered people over Rs.100 million each year. For local companies with hotel business in Pakistan, the government has allowed tax credit claims against the losses lasting for the period of eight years against six years.
The national assembly approved a 3% income tax rate on warehousing services, engineering services, services provided by asset management companies, data service providers that are under the license issued by PTA.
Some other Changes
The budget proposal to impose a 25% regulatory duty on energy drinks has been withdrawn. The duties on imported de-merit products including cigarettes of tobacco, cigars, cheroots, and cigarillos of tobacco have been imposed at a rate of 65% as against the budget proposal of 100%.
The excise duty placed upon on cement has been lowered to 50 paisa for 1.5 per kg, resulting in a low price of Rs.50 for each bag.
The Limited Liability Partnership Act, 2017 companies have been allowed to avail PM’s Construction sector tax amnesty scheme. The national assembly also approved to keep the withholding tax rate for mutual funds at 15% as against the original budget proposal of 25%.
The government included some other changes in the finance act which were opposed by the international monetary fund (IMF), the IMF objected over a specific person or institution tax exemptions but the bill was passed after the approval of the national assembly.
However, these exemptions will have a huge impact on the revenue generated by the government in the form of taxes and will disrupt the tax system.
