PROPOSALS FOR THE

FEDERAL BUDGET
2020 – 21
APRIL 2020
 THE PAKISTAN BUSINESS COUNCIL

PROPOSALS FOR THE FEDERAL BUDGET 2020 – 21

April 2020
 The Pakistan Business Council (PBC) – A Brief Introduction

➢ Established in 2005 by 14 (now 82) of Pakistan’s largest private sector business groups including multinationals.
➢ PBC members contribute every 9th Rupee to Pakistan’s GDP, 4th Rupee to tax collection & every 4th $ of Pakistan’s exports
➢ PBC is registered as a not for profit under the Company Law and registered with the SECP as such.
➢ PBC is neither a trade body nor an industry association. The PBC’s advocacy aims to improve the general business climate in the country for the
formal sector.
➢ PBC’s Advocacy is evidence-based drawing on international / regional best practices coupled with what is achievable in Pakistan’s unique
environment.
➢ The PBC enjoys an excellent working relationship with the Ministries of Finance / Commerce / Environment / Industries / Planning as well as the
major regulators including the SECP / SBP / NTC / CCP, having worked closely with them through taskforces / committees / working groups and
through submissions of formal position papers and presentations.
➢ In order to stimulated debate on the major socio-economic issues being faced by Pakistan, the PBC, each year sponsors the Pakistan Economic
Forum (PEF). The PEF comprises panels of experts’ who debate and make recommendations for addressing the major issues being faced by
Pakistan. The PEF panels are independent of the PBC and comprise of what can be called “Pakistan’s intellectual elite”. The 5th Edition of the PEF
was held in Islamabad in December 2018.
➢ The major current thrust of the PBC is the revival of manufacturing in Pakistan. Pakistan is deindustrializing at a rapid rate and Pakistanis as a
nation due to faulty policies pursued by successive governments are becoming a nation of traders. The PBC firmly believes that for Pakistan to
be a middle-income country by 2030, a revival of its manufacturing sector is imperative. Pakistan can ill-afford to offshore jobs especially in
industries which require labor with low skill sets. To promote this “Make-in-Pakistan” agenda of the PBC, the PBC is working with various
stakeholders in Pakistan to develop a common agenda for the economy.
➢ The PBC acts in Pakistan as the secretariat for the Pakistan India Joint Business Forum (PIJBF) & the Afghanistan Pakistan Joint Business
Council (APJBC), both are bodies which comprise of prominent businessmen from Pakistan and the partner countries.

More information about the PBC, its members’ and the nature of work being done by the PBC can be found on our website: www.pbc.org.pk

Proposals for the Federal Budget 2020 - 21 Page 2

 PBC Tax Proposals 2020 – 21 - Background

This year’s tax proposals are being submitted in the background of the worldwide outbreak of the COVID-19 pandemic and its impact on the global
economy including Pakistan. As these proposals were being finalized, Pakistan was in a lockdown mode – as was most of the World. These proposals
therefore aim to not only mitigate the sufferings of the people of Pakistan & business which sustains jobs and livelihoods, it looks beyond the pandemic
to propose ways in which Pakistan’s economy will be able to make a quick recovery in the post-COVID-19 world. The pace of recovery will be dependent
on restarting the economy, especially the manufacturing & services sectors to create jobs, value-added exports and import substitution.

Budget 2020 and the measures proposed in it for business therefore need to create an atmosphere which promotes investments in the manufacturing
and services sector leading to the creation of jobs, which increases value-added exports and ultimately benefits the government in the form of greater
revenues, increased documentation of the economy and a broader tax base. As we are seeing during this COVID-19 crisis, manufacturing jobs as
opposed to those in the services sector, are primarily in the formal sector which provide a certain level of job security

The PBC strongly advocates that the Finance Bill 2020 has a bias in favor of the manufacturing sector as a recovery in the manufacturing sector will
have a multiplier effect of the economy.

The PBC continues to advocate that taxation needs to be based on the principle of “all income irrespective of source should be taxed & all
taxpayers must file tax returns”

The PBC and its members also firmly believe that the fiscal space that the government is looking for to implement its ambitious socio-economic agenda
will not, and cannot be provided by continuing to increase taxation on the already taxed sectors of the economy. The taxation base needs to be
widened through better documentation by bringing the under taxed, and the currently exempt sectors in the tax net.

The current tax policies are leading to a reduction in investable surpluses for the corporate sector. The short-term revenue enhancement measures
pursued by FBR in the recent past have acted as a disincentive to not only re-investments by existing units but have also acted as a deterrent to fresh
investments in industry and the formal sector.

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Last year, the PBC welcomed the government’s policy announcement to separate tax policy and tax administration, it is however disappointed with the
pace of implementation of this decision and urges the government to move on this front to create taxpayer confidence in the tax machinery.

The laws on Group Taxation & Group Relief and the Alternate Corporate Tax (ACT) need to be addressed to create an investor friendly environment in
the country.

The arbitrary & non-transparent implementation of tax laws by FBR functionaries in their zeal to achieve unrealistic revenue targets is severely
impacting the viability of the formal sector. The continued failure of the FBR to use data-mining to identify those who are either not paying or
underpaying their dues is also an area of concern for the formal sector.

There is blatant misuse of the Afghan Transit Trade continues, wholesale and retail markets all over Pakistan are flooded with smuggled products,
however despite having the jurisdiction to act against the open sale of smuggled products, the FBR continues to hide behind such flimsy excuses like
“lack of support from local administration.” The revenue leakages in the Customs department need to be plugged, Electronic Data Interchange (EDI)
with China needs to be fully implemented.

The Afghan Transit Trade needs to be better monitored, one measure could be the collection of all dues which are payable by importers in Pakistan and
refunding the same once the shipment has conclusively entered Afghanistan.

The PBC appreciates that the government managing the economy under an IMF program and at the same time managing the expectations of a nation
reeling under the impact of the COVI-19 pandemic does not have the fiscal space to provide major incentives, however, it also believes that it is the
government itself which through its policies can create the space that it requires to implement its social agenda.

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 PBC Tax Proposals 2020 - 21

The PBC’s recommendations for Budget 2020 – 21 which is being prepared while the country and the world are being ravaged
by the COVID-19 pandemic, proposes fiscal policy measures that look beyond the current crisis. The proposals look to
jumpstart the manufacturing sector post the crisis. Budgetary proposals need to support the PBC’s Make-in-Pakistan (MiP)
initiative. The MiP initiative aims to create jobs through investment in plant & machinery, technology & processes leading to
an increase in value added exports. The PBC’s proposals support greater documentation of the economy and a fairer
distribution of the tax burden.

The PBC’s proposals for the Federal Budget 2020– 21 are divided into the following ‘7’ sections:
➢ Measures for mitigating impact of COVID-19 on industry to sustain employment & exports of the country

➢ Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing

➢ Measures for Promoting Industrialization, Growth & Job Creation

➢ Reducing the Cost of Doing Business in Pakistan

➢ Redressing Inequity in the Tax Regime

➢ Consolidation of Businesses for Scale

➢ Helping Pakistan Meet its Commitment to the UN Sustainable Development Goals

A short summary of the PBC’s proposals is included as a section in this document.

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PBC Member Companies:

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PBC Member Companies:

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 SUMMARY OF PBC’s TAX PROPOSALS FOR THE FEDERAL BUDGET 2020 - 21

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 Summary of PBC’s Tax Proposal for the Federal Budget 2020 – 2021
S. No Objective Legislation / FBR Wing Issue Recommendation

Section 61 of the Income Tax

Ordinance, 2001 be amended
Section 61: to allow direct deduction of
As per Section 61 of the donations paid by any person
Income Tax Ordinance, 2001, to the Prime Minister’s COVID-
persons falling under the 19 Pandemic Relief Fund-2020
Minimum Tax Regime / or any other Fund established
Measures for Mitigating Alternative Corporate Tax are by any Provincial Government
Impact of COVID-19 on not able to claim any sort of or to any other approved Non-
1. Industry to Sustain Income Tax tax credit on donations. Profit Organization subject to
Employment & Exports of Considering the situation of the condition that the said
the Country last quarter ending June 2020 donation should be made
due to COVID, many through crossed cheque.
companies would fall under
Moreover, in case of donation
the Minimum tax regime due
in kind, deduction against
to reduced product demand
minimum turnover tax be
and margin issues.
allowed on the basis of
valuation prescribed under
Rule 228(4) of the Income Tax
Rules, 2002.
Measures for Mitigating
Export Refunds:
Impact of COVID-19 on
Revival of Zero Rating for 5
2. Industry to Sustain Sales Tax
The proposal for bringing the Export Oriented Sectors
Employment & Exports of
the Country ‘5’ export sectors under the

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 S. No Objective Legislation / FBR Wing Issue Recommendation
ambit of normal Sales Tax Exporters liquidity as well as
regime has clearly not worked. net operating results / losses
Sales Tax refund claims have taken a strong negative
continue to accumulate with hit from the two-edged sword;
the FBR while export once after withdrawal of zero-
industries have faced massive rating regime resulting in
liquidity in the past nine piling of sales tax refunds and
months on account of this thereafter, due to cancellation
move of existing orders post the
COVID-19 pandemic.

Restoration of Zero rating will

allow some relief on the
liquidity front for the major
export sectors

Continuation of Supportive
Tariffs–
Unless there is very strong
The PBC supports the anomaly, we recommend that
Measures for Mitigating present tariffs be maintained
government’s resolve to
Impact of COVID-19 on in order to preserve scale and
simplify, reduce and introduce
3. Industry to Sustain Customs competitiveness of domestic
cascading tariffs to promote
Employment & Exports of industry.
industry. However, at a time
the Country
of global recession when many We also request a review of
overseas producers will be the Regulatory Duty where
looking to find markets, we domestic industry can expand
urge the government to factor and market its capacity to the
this into its tariff review to export markets.
protect jobs in Pakistan.

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 S. No Objective Legislation / FBR Wing Issue Recommendation
Moreover, the DTRE scheme
should be simplified for SMEs
to avail.

Aligning EOU1 /
Manufacturing Bond Rules
with DTRE In order to remove anomaly
and considering the fact that
material / goods being
At present, local sales to DTRE
purchased by DTRE / EOU /
license holder has been
Measures for Mitigating Manufacturing Bond are used
provided the benefit of sales
Impact of COVID-19 on for the purposes of exports
tax zero rating, however, local
4. Industry to Sustain Sales Tax and are subject to strict
supplies to EOUs /
Employment & Exports of scrutiny, it is proposed to
manufacturing bond is
the Country allow zero rating on local
chargeable to sales tax @
purchase of goods by EOUs
17%, which is an apparent
/ Manufacturing Bond in
anomaly between the DTRE,
line with the benefit given
EOUs and Manufacturing bond
to DTRE.
rules.

Minimum Tax Under

Section 113:

Measures for Mitigating A turnover based minimum Pending a review of the

Impact of COVID-19 on tax is fundamentally flawed in continued justification of
5. Industry to Sustain Income Tax that it fails to take account of minimum tax, under the
Employment & Exports of the industry specific margins current business
the Country and acts as a barrier to entry circumstances, we recommend
of new players. that its collection be

1Export Oriented Units

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 S. No Objective Legislation / FBR Wing Issue Recommendation
A minimum tax at 1.5% of suspended for at least the
sales for manufacturers (and next two financial years.
higher rates for the services
industry), under the present
depressed business conditions
will put an unbearable burden
on businesses.

Section 8B

Under the Sales Tax Act,

Section 8 – B, a company is
not allowed to adjust input tax
Measures for Mitigating in excess of 90% of the output
All manufacturers be allowed
Impact of COVID-19 on tax for that period. Further,
100% adjustment of input tax
6. Industry to Sustain Sales Tax commercial importers paying
instead of the current
Employment & Exports of 3% minimum Value Addition
restriction of 90%
the Country sales tax at import stage are
totally exempt from the
applicability of minimum tax
under section 8B

In order to promote
Rate of WHT on Export
Measures for Mitigating sustainability of industries
Proceeds
Impact of COVID-19 on engaged in exports, rate of tax
7. Industry to Sustain Income Tax At present, rate of tax on export proceeds should be
Employment & Exports of deduction on export proceeds reduced to 0.5% from 1.0%
the Country is 1.0%. for the next two financial
years.

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 S. No Objective Legislation / FBR Wing Issue Recommendation

Taxpayers should be allowed

unconditional exemption from
Advance Tax Under Section
tax deduction on import and
147
Measures for Mitigating supply stage without heavy
Impact of COVID-19 on In order to get exemption upfront payment of advance
8. Industry to Sustain Income Tax certificate against tax tax liability. In order to ensure
Employment & Exports of deduction under sections 153 regular inflows to the
the Country [supply of goods] and 148 Government, taxpayers be
[import on goods], taxpayers made liable to discharge at
are required to pay advance least 70% [as against present
tax 90% condition] of total
estimated annual tax liability
in 4 quarterly instalments,

Massive under-invoicing
especially by Commercial
Values at which import
Importers is destroying
shipments are cleared through
domestic industry
PRAL or CARE need to be
publicly available.
Documenting the Economy Across the board massive
& Providing a Level Playing under invoicing and dumping
9. Customs Law The Government of Pakistan
Field for Domestic of imported products has been
must insist of Electronic Data
Manufacturing increasing. Information
Interchange (EDI), for both
regarding values at which
FTA and non-FTA imports from
various custom check posts
China & other major trading
clear import consignments is
partners
not publicly available. This
encourages unscrupulous In future the requirement of
importers to under-declare the EDI should be made
compulsory for imports from
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 S. No Objective Legislation / FBR Wing Issue Recommendation
value of consignments to FTA / PTA & major trading
evade government revenues. partner countries.

The rate of withholding tax on

imports for commercial
importers should be at least
2% higher than what it
currently is and the
Withholding tax should be
considered as an adjustable
advance tax

Valuation Ruling should be

issued in consultation with
Brand owners, i.e. who have
valid registration of the brands
under relevant intellectual
property laws.

Additional measures are

proposed on pages 39 to 41

Low tax payer base –

increased reliance on Mining of FBR’s Database
Documenting the Economy existing taxpayers to identify new taxpayers &
& Providing a Level Playing those not fully discharging
10. Income Tax
Field for Domestic The number of taxpayers their liabilities:
Manufacturing needs to be significantly
increased - the narrow The FBR has got access to
taxpayer base is leading to financial data in various forms
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 S. No Objective Legislation / FBR Wing Issue Recommendation
greater pressure on the including the monthly
existing taxpayers. statements submitted by
withholding tax / collecting
agents as per various sections.
Information as per Statement
under section 165A and
NADRA records are also
available. This can be a start
to bringing new taxpayers in
the net. In addition, the FBR
has also collected data about
tax paid by non-filers on
property & on gains made in
the Stock Market

Difference in Withholding The withholding tax regime

Tax Rate between Filers & should be simplified by
Non-Filers is Nominal: reducing the number of rates
significantly. The current
withholding tax guide available
Discrimination in tax
on FBR website is a 76 pages
Documenting the Economy treatment of Filers & Non-
document, clearly shows the
& Providing a Level Playing Filers is commendable.
11. Income Tax complexity of the regime from
Field for Domestic However, this has now compliance and ease of doing
Manufacturing become a revenue measure business.
with no effort to use the data There needs to be a significant
collected to increase distinction in the withholding
documentation income tax rates charged from
non-filers vs the rates for
filers.

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 S. No Objective Legislation / FBR Wing Issue Recommendation

A specific list of proposed

withholding taxes for non-
filers is given on pages 42
to 46

Section 73 – sub-section (4)

A new sub-section 4 has been

inserted in section 73 of the
Sales Tax Act, 1990 to restrict
Documenting the Economy This provision should not be
registered manufacturer to
& Providing a Level Playing restricted to just
12. Sales Tax make sales to any
Field for Domestic manufacturers but also be
unregistered person in excess
Manufacturing extended to commercial
of Rs. 10 million in a month
importers.
and Rs. 100 million in a year,
failing which input tax in
proportion of the supply
exceeding this threshold will
be disallowed.

Tax Credit under Section

65B(1) – BMR

Measures for Promoting Prior to Finance Act ’19, tax

credit equal to ten percent of Tax Credit under 65B(1) –
13. Industrialization / Growth Income Tax
the amount invested in BMR BMR should be retored
/ Job Creation
was allowed against the tax
payable. This has been
retrospectively withdrawn and
rate reduced to five percent

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 S. No Objective Legislation / FBR Wing Issue Recommendation
for investments made till June
2019

Tax Credit on Investments

Under Section 65E:
Tax credit under section 65E
Measures for Promoting
Currently Tax Credit under should also extend to
14. Industrialization / Growth Income Tax
65E is not applicable to investment in factory building
/ Job Creation
investments in factory building and manufacturing related
and manufacturing related infrastructure.
infrastructure

Tax Credit under Section

65C on Enlistment

Where a taxpayer being a Tax Credit equal to 20% of the

company opts for enlistment tax payable should be allowed
Measures for Promoting in any registered stock for five years from the year of
15. Industrialization / Growth Income Tax exchange in Pakistan, a tax enlistment
/ Job Creation credit equal to 20% of the tax
payable is allowed in the year
of listing & the subsequent
year reducing to 10% for
years 3 & 4 respectively

Minimum Tax Under

Measures for Promoting The provision under which the
Section 113:
16. Industrialization / Growth Income Tax Minimum Turnover Tax is
/ Job Creation The current rate of Minimum charged, both for
tax is 1.5%, this tax on manufacturing and services
turnover is impacting the sectors should be suspended
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 S. No Objective Legislation / FBR Wing Issue Recommendation
sustainability of industries for at least the next two
especially in the light of financial years.
current crises.

Clause 126E, Entity setup Since income of Zone

in Special Economic Zones enterprise is exempt from
income tax under clause 126E,
As income of SEZ entity (Zone it is proposed that exemption
Enterprise or operator) is be granted to Zone enterprises
exempt from income tax for a and operators from all
period of 10 years, there withholding and tax collection
should not be any withholding provisions as these will lead to
Measures for Promoting
of Income tax at source at any refunds.
17. Industrialization / Growth Income Tax
/ Job Creation stage for Zone Enterprises and Necessary insertion be made
under any provisions of ITO till in clause 11A of Part IV of the
such time exemption is Fourth schedule to the Income
available to the Zone Tax Ordinance to exempt Zone
Enterprise. However currently operator and Entity from
exemption is not granted minimum tax under section
under Section 113, 147, 148, 113.
153, 236K, 236W etc., from
collection of income tax.

Misuse of Afghan Transit Goods moving under ATT from

Trade (ATT) & Rampant Pakistan to Afghanistan should
Measures for Promoting
Smuggling be charged with duties and
18. Industrialization / Growth Customs
/ Job Creation taxes under Pakistani laws and
Misuse of the Afghan Transit the same should be
Trade (ATT) is a major issue transferred to Afghan

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 S. No Objective Legislation / FBR Wing Issue Recommendation
for companies in the formal Government. Secondly, the
sector; whether in duties/taxes so paid should be
manufacturing or imports deposited with State Bank in
USD.

A quantitative restriction
should be applied on goods
moving under ATT on the
basis of consumption.

Customs Duty on import of

Coal & Pet Coke:
Measures for Promoting The custom duty on coal and
19. Industrialization / Growth Presently, coal and pet coke pet coke should be reduced to
Customs
/ Job Creation used by manufacturing “Zero” percent as is the case
concerns attracts custom duty of other imported industrial
on imports at 5% fuels like LNG.

Various Income and Sales

Tax Laws Discourage New entry number 1(viii) be
Investment inserted in column number 2
of the Table specifying rate of
At present, new local/foreign
tax at import stage as given in
investors are reluctant to
Part-II of the 1st Schedule to
Measures for Promoting invest in manufacturing
the Income Tax Ordinance,
20. Industrialization / Growth Income Tax / Sales Tax industry of Pakistan due to
2001 as follows:
/ Job Creation various impediments including
collection of sales tax (10%
upfront plus 3% minimum
(viii) industrial undertakings
value addition plus 7% Post-
importing Plant and Machinery
dated cheques) and income
and spare parts
tax 5.5% at import of plant
and machinery/ spare parts in

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 S. No Objective Legislation / FBR Wing Issue Recommendation
addition to various other taxes
and levies thereafter.

Entry no. 1(iv) in column

number 2 of the Table
Advance Income Tax on specifying rate of tax at import
Import of plant & stage as given in Part-II
machinery by Export of the 1st Schedule to the
Industries Income Tax Ordinance, 2001
Import of raw material by be amended as follows:
Measures for Promoting
Export Oriented sector is “Manufacturers covered under
21. Industrialization / Growth Income Tax
subject to income tax Notification No. S.R.O.
/ Job Creation
withholding of 1% whereas on 1125(I)/2011 dated the 31st
the other hand, import of Plant December, 2011 and
& Machinery by these sectors importing items covered under
is subject to 5.5% income tax S.R.O. 1125(I)/2011 dated the
withholding 31st December, 2011, Plant &
Machinery and Spare parts;

Greenfield Industries –
Delete condition no. “(iv)” of
Through the Tax Laws (Second the definition of Greenfield
Amendment) Ordinance, 2019, industry to make it distinct
Measures for Promoting
the term Greenfield industries from Pioneer industry,
22. Industrialization / Growth Income Tax
has been defined in the otherwise the purpose of
/ Job Creation
Income Tax and Sales Tax growth through investment
laws to make it identical to would not be achieved.
“Pioneer Industry”.

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 S. No Objective Legislation / FBR Wing Issue Recommendation

Corporate manufacturing
Exemption under 148 & sector should be excluded
153 for Brownfield from the purview of income
Investments tax collection / withholding at
import stage under Section
Companies importing machinery 148 as well as from tax
and raw materials have to pay
deduction on local supplies
upfront income tax at the rate of
under Section 153.
5.5% on Plant & Machinery, which
is a big hindrance towards
Reducing the Cost of Doing industrialization and leads to Alternatively, issuance of
23. Income Tax
Business in Pakistan blockage of funds. exemption certificate from
collection / withholding under
Moreover, handsome amount of
Sections 148 and 153 should
tax is also being collected under
automatically trigger IRIS
section 153 (1)(a) at the time of
portal based on payment of
local supplies resulting in
quarterly advance tax under
excessive refunds and cash flow
issues resulting from large refunds. section 147 to avoid
harassment of genuine
taxpayers.

Advance Tax Under Section Taxpayers should be allowed

Reducing the Cost of Doing 147 unconditional exemption from
24. Income Tax
Business in Pakistan tax deduction on import and
In order to get exemption supply stage without heavy
certificate against tax upfront payment of advance
deduction under sections 153 tax liability. In order to ensure
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 S. No Objective Legislation / FBR Wing Issue Recommendation
[supply of goods] and 148 regular inflows to the
[import on goods], taxpayers Government, taxpayers be
are required to pay advance made liable to discharge at
tax least 70% [as against present
90% condition] of total
estimated annual tax liability
in 4 quarterly instalments,

Alternate Corporate Tax

(ACT)
Reducing the Cost of Doing Businesses are subject to
25. Income Tax ACT should be removed
Business in Pakistan three income tax regimes,
normal, minimum turnover tax
and alternate tax.

SRO 250 of 2019 SRO needs to be amended to

ensure that manufacturers do
Reducing the Cost of Doing Requires companies to pay for
26. Income Tax not have to pay the cost of
Business in Pakistan the electronic monitoring and
monitoring and that this will
tracking of their output
not lead to harassment

Rule 43 Income Tax Rule Tax withheld deposit period be

2002 once a month.

Requires taxpayer to deposit

withholding tax deducted IRIS system should be
fortnightly. applicable to all withholding
Reducing the Cost of Doing
27. Income Tax government organizations,
Business in Pakistan Certain government
CPR in respect of WHT
departments do not deposit at
deduction be available from
all and hence CPR is not
IRIS
provided. Further government
organizations do not provide
system (IRIS) generated CPR

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 S. No Objective Legislation / FBR Wing Issue Recommendation
owning to inter-adjustment Access of CPR be available to
systems. facing authority, this would
Moreover, there is a delay in avoid loss of revenue.
deposit by certain WHT agents
and also incidences where
WHT agent even do not
deposit leading to loss of
revenue. There is no access of
CPR to facing authority

Input sales tax on reduced

Section 8(1)(j)
rate services is not available
Introduced through FA 2015 for adjustment. Currently
Reducing the Cost of Doing this Section restricts claiming there are several services
28. Sales Tax
Business in Pakistan input on services which are under respective provincial
not allowed in provincial sales sales tax on services Act(s).
tax on services PBC is pursuing this matter
with provincial authorities as
well
Explanation needs to be added
to this Section to clarify that it
Section 156 – Prizes and is applicable to prizes given to
Winnings end consumers only since the
Section 156 requires a income of the supply chain i.e.
Reducing the Cost of Doing
29. Income Tax Company to collect 20% tax dealers, distributors is
Business in Pakistan
on “prize offered by subjected to withholding tax in
companies for promotion of the shape of withholding taxes
sale” imposed under separate
withholding regimes.

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 S. No Objective Legislation / FBR Wing Issue Recommendation

Section 153 (1) (a)

Section 153 (1) (a) Rate for withholding tax on

Withholding Income Tax on FMCG distributors should be
supplies by distributors of aligned with 0.2% minimum
Reducing the Cost of Doing
30. Income Tax FMCG products is 2% for tax under Section 113 of the
Business in Pakistan
companies and 2.5% for Income Tax Ordinance, 2001
others as against minimum to avoid accumulation of
tax of 0.2% under section unnecessary refunds.
113.

Section 8B

Under the Sales Tax Act,

Section 8 – B, a company is
not allowed to adjust input tax
in excess of 90% of the output All manufacturers be allowed
Reducing the Cost of Doing tax for that period. Further, 100% adjustment of input tax
31. Sales Tax
Business in Pakistan commercial importers paying instead of the current
3% minimum Value Addition restriction of 90%
sales tax at import stage are
totally exempt from the
applicability of minimum tax
under section 8B

Availing Clause 18B of Part “the Board & State Bank of

Reducing the Cost of Doing II of the Second Schedule – Pakistan” in Clause 18B and
32. Income Tax Tax Credit for Shariah
Business in Pakistan Rule 231H should be deleted
Compliant Companies
After the SECP has notified
Regulations for Shariah

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 S. No Objective Legislation / FBR Wing Issue Recommendation
Compliant Companies, the
words “State Bank of Pakistan
& Board” in Clause 18B and
Rule 231H are superfluous

In order to promote
Rate of WHT on Export sustainability of industries
Proceeds engaged in exports, rate of tax
Reducing the Cost of Doing on export proceeds should be
33. Income Tax At present, rate of tax
Business in Pakistan reduced to 0.5% from 1.0%
deduction on export proceeds
for the next two financial
is 1.0%.
years.

Section 148 (1) Advance

New clause 24B be
Tax on Imports & Section
introduced in 2nd Schedule,
153 Advance tax on sale of
P IV of the Income Tax
goods and services
Ordinance, 2001 as
Companies are required to pay follows:
advance quarterly income tax
The rate of tax, under clauses
based on their projected
(a) of sub-section (1) of
incomes under Section 147.
Reducing the Cost of Doing section 153 and sub-section 1
34. Income Tax
Business in Pakistan In addition, companies are of section 148 shall be 1% for
also required to pay advance industrial undertakings falling
tax on imports @ 5.5% and on under the definition of
sale of their goods @ 4% and compliant taxpayers
services @8%.
Definition of Compliant
taxpayer is covered in
This leads to the creation of
greater detail in Page 62
refunds as companies are
paying advance income tax

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 S. No Objective Legislation / FBR Wing Issue Recommendation
based on projected income,
advance income tax on
imports and advance income
tax on sales.

There is a cumbersome
procedure for seeking
exemptions under Section 148
(advance tax on imports)
which also does not take into
account capacity expansions

Transactions under
dealership arrangements
Section 108B:
A new section 108B has been We would suggest to delete
Reducing the Cost of Doing
inserted whereby 75% of the section 108(B) and instead
35. Income Tax Dealers margin will be added back put the items of 3rd schedule
Business in Pakistan
to Sellers Income u/s 108(B). And in section 236G
for the purpose of this section,
10% of selling price will be taken
as Dealers Margin

SECTION 8B – CONCERN
Serial no. 4 be amended in
FOR POTENTIAL EXPORTS
Table I of SRO 1190 dated
Reducing the Cost of Doing As per SRO 1190 dated
36. Sales Tax October 2, 2019 as follows:
Business in Pakistan October 2, 2019, registered
persons whose zero-rated (11) Persons making zero-
supplies [including exports] rated supplies, including

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 S. No Objective Legislation / FBR Wing Issue Recommendation
are more than 50% of the exports, provided that value of
total sales during a month, are such supplies exceeds 30%
excluded from the ambit of 50% of value of all taxable
section 8B for that specific supplies in a tax period
month.

Timing of payment of Sales

Tax: Section 2(44) be amended as
follows
Prior to amendment made in
Sales Tax section 2(44) of the (44) “time of supply”, in
Sales Tax Act 1990, vide relation to,–
Finance Act 2013, Sales Tax (a) a supply of goods, other
Reducing the Cost of Doing was levied at the time of than under hire purchase
37. Sales Tax actual delivery of goods
Business in Pakistan agreement, means the time at
regardless of time of payment. which the goods are delivered
Application of sales tax on or made available to the
advances causes serious recipient of the supply” or the
operational issues and leads to time when any payment is
unnecessary reconciliations received by the supplier in
resulting in hardship to respect of that supply,
taxpayers whichever is earlier]

This provision be deleted as it

has been declared
Section 8 (1) (ca)
unconstitutional by the LHC
Redressing Inequity in the Under Section 8(1)(ca) Input
38. Sales Tax
Tax Regime Sales Tax is not allowed where Also, with implementation of
tax is unpaid by supplier STRIVe this has become
redundant

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 S. No Objective Legislation / FBR Wing Issue Recommendation
Filling of Annexure J to Monthly
Sales Tax Return

Currently only certain persons It is recommended to make it

as defined under Rule 14 to mandatory for all the
Redressing Inequity in the Sales Tax Rules, 2002 are taxpayers to file Annexure J
39. Sales Tax
Tax Regime required to file annexure J. along with their monthly sales
Annexure J requires taxpayers tax return in order to ensure
to file details of stock in hand that sales are not suppressed
in terms of value as well as or made without charging
quantity. proper sales tax.

Clause 103A, PI, 2nd

Clause 103A, Part 1 of the Schedule be amended as
2nd Schedule Withholding follows:
Tax on Intercorporate
Dividend

(103A) Any income derived

Through the Tax Laws(Second from inter-corporate dividend
Amendment) Ordinance , within the group companies
2019, exemption from the levy entitled to group taxation
Consolidation of of tax on intercorporate under sections 59AA & 59B
40. Income Tax
Businesses for Scale dividend under section 59B subject to the condition
[Group Relief], from the subject to the condition that
subsidiary company [wherein return of the group has been
holding is less than 100%] has filed for the tax year.
been allowed in full on the
basis of eligibility i.e. position Suggested amendments for
before the amendments made exemption from withholding
through the Finance Act, 2015 Tax – Clause 11B, PIV, 2nd
has been reinstated. Schedule be amended as
follows:

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 S. No Objective Legislation / FBR Wing Issue Recommendation
However, 100% wholly owned (11B) The provisions of
companies, falling under section 150 shall not apply in
Group Taxation as per section respect of inter-corporate
59AA are required to file dividend within the group
Group’s consolidated income companies entitled to group
tax return in order to claim taxation under sections 59AA
exemption from the levy of and 59B subject to the
income tax on intercorporate condition that the return of the
dividend, which is a group has been filed for the
cumbersome exercise without latest completed tax year
any benefit.

Further, exemption clause

from WHT on dividend [for
Group Relied under section
59B] as was earlier available
in Clause 11B of Part IV of the
Second Schedule has not been
reintroduced
59B – Group Relief 59B. Group relief. —

Post Finance Act 2016 the law

reads as follows: (1) Subject (1) Subject to sub-section (2),
to sub-section (2) any any company, being a
company being a subsidiary of subsidiary of a holding
a holding company, may company, may surrender its
41. Income Tax assessed loss as computed in
surrender its assessed loss as
computed in subsection (1A) sub-section (1A) (excluding
(excluding capital loss) for the capital loss) for the tax year
tax year (other than brought (other than brought forward
forward losses and capital losses and capital losses), in
losses), in favor of its holding favour of its holding company
company or its subsidiary or or its subsidiary or between

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 S. No Objective Legislation / FBR Wing Issue Recommendation
between another subsidiary of another subsidiary of the
the holding company holding company:
Section 59B(1A) be deleted

Section 59–B, Subsection 2

Period for adjustment of losses Explanation:

of subsidiary by Holding At the end of sub-section 2 of
Company Section 59B, an explanation be
added as below:
This subsection 2 of Section
Consolidation of
42. Income Tax 59B is being misinterpreted by Explanation: For the removal
Businesses for Scale the tax department in various of doubt, it is clarified that the
cases that purchase of loss by holding company can adjust
the holding company is the losses of its subsidiary
allowed in the sixth year i.e. during the aforesaid period of
after the end of continued 5 years
ownership of five years.

Government of Pakistan needs

Fiscal Measures for helping
to support the private sector
Helping Pakistan meet its Pakistan meet its
commitment to the UN to ensure that Pakistan meets
commitment to the UN
43. Income Tax its commitment to the UN
Sustainable Development Sustainable Development
Goals Sustainable Development
Goals
Goals

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 1.0 Measures for Mitigating Impact of COVID-19 on Industry to Sustain Employment
& Exports of the Country

Proposals for the Federal Budget 2020 - 21 Page 31

The Pakistan Business Council (PBC) has consistently been advocating policies to support “Make-in-
Pakistan.” The objectives of Make in Pakistan are to create jobs, promote value-added exports and
encourage import substitution. There is no more appropriate time to introduce such policies than the
present time when jobs are threatened, exports are down and likely to remain so and Pakistan’s domestic
industry would be threatened by predatory pricing by global players keen to find markets. Foreign
remittances are also likely to fall.

Proposals in this Section are aimed at ensuring that employment is sustained by helping exporters compete
in global markets – and domestic businesses are able to withstand the onslaught of cheaper imports

1.0 Measures for Mitigating Impact of COVID-19 on Industry to Sustain Employment & Exports of the Country
Existing Situation Proposed Change Rationale for Change

Section 61:
Section 61 of the Income Tax Ordinance,
2001 be amended to allow direct deduction
As per Section 61 of the Income Tax of donations paid by any person to the
Ordinance, 2001, tax credit at the rate of Prime Minister’s COVID-19 Pandemic Relief Allow greater participation in Covid-19 relief
1. average applicable rate of tax is allowable Fund-2020 or any other Fund established by efforts
to persons falling under the Normal Tax any Provincial Government or to any other
Regime. Consequently, persons falling approved Non-Profit Organization subject to
under the Minimum Tax Regime / the condition that the said donation should
Alternative Corporate Tax are not able to be made through crossed cheque.
claim any sort of tax credit on donations. Moreover, incase of donation in kind,

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 1.0 Measures for Mitigating Impact of COVID-19 on Industry to Sustain Employment & Exports of the Country
Existing Situation Proposed Change Rationale for Change
Being responsible corporate person, many deduction against minimum turnover tax be
companies are actively involved in allowed on the basis of valuation prescribed
donations in various forms, however, under Rule 228(4) of the Income Tax Rules,
benefit of tax credit to those companies will 2002.
not be allowed in case these companies fall
under the Minimum Tax Regime /
Alternative Corporate Tax. Moreover,
considering the situation of last quarter
ending June 2020 due to COVID, many
companies would fall under the Minimum
tax regime due to product demand and
margin issues as well as heavy borrowing
cost to meet expenses without proper cash
inflows.

At the time of withdrawal of the zero-rating

regime, exporters were assured that sales
tax refunds will be paid at the time of
Revival of Zero Rating for 5 Export
clearance of export GDs. However, even
Oriented Sectors
before payment of a single refund could be
Exporters’ liquidity has been severely Sales tax “zero rating” should immediately processed, FASTER, the online system to
impacted by the withdrawal of the zero be restored for 5 export-oriented sectors to fast track processing of sales tax refunds
rating regime resulting in piling up of sales support the already struggling export sector was launched with a commitment to pay
2. and to ensure that their liquidity issues are
tax refunds. Additionally, the cancellation of refund within 72 hours of filing of Annexure
export orders and a general slowdown in resolved. H of the Sales Tax return.
global demand has undermined their
From the launch of the FASTER system in
operating results.
July 2019 till the present, for one reason or
the other, the FBR has itself acknowledged
significant delays in refunds.

Proposals for the Federal Budget 2020 - 21 Page 33

 1.0 Measures for Mitigating Impact of COVID-19 on Industry to Sustain Employment & Exports of the Country
Existing Situation Proposed Change Rationale for Change

Continuation of Supportive Tariffs– Unless there is very strong anomaly, we

The PBC supports the government’s resolve recommend that present tariffs be
to simplify, reduce and introduce cascading maintained in order to preserve scale and
tariffs to promote industry. However, at a competitiveness of domestic industry.
Preserving and enhancing the
time of global recession when many We also request a review of the Regulatory competitiveness of domestic industry will
3.
overseas producers will be looking to find Duty where domestic industry can expand enable retention of jobs and the protection
markets, we urge the government to factor and market its capacity to the export of the country’s foreign exchange reseves.
this into its tariff review to protect jobs in markets.
Pakistan.
Moreover the DTRE scheme should be
simplified for SMEs to avail.

Aligning EOU2 / Manufacturing Bond This anomaly favors foreign suppliers by

Rules with DTRE allowing sales tax zero rating on imports
In order to remove anomaly and into EOU / Manufacturing bond while
considering the fact that material / goods discouraging supply to these EOUs /
At present, local sales to DTRE license Manufacturing bonds by local suppliers by
being purchased by DTRE / EOU /
holder has been provided the benefit of not allowing zero rating on their supplies.
Manufacturing Bond are used for the
sales tax zero rating, however, local The solution does not lie in withdrawing
purposes of exports and are subject to strict
4. supplies to EOUs / manufacturing bond is sales tax zero rating on imports for re-
scrutiny, it is proposed to allow zero
chargeable to sales tax @ 17%, which is an exports as that will hamper exports. In the
rating on local purchase of goods by
apparent anomaly between the DTRE, EOUs current post corona scenario where, local
EOUs / Manufacturing Bond in line with
and Manufacturing bond rules. Moreover, industry needs to be promoted, the solution
the benefit given to DTRE.
local supplier of items being imported by lies in allowing local purchase of raw
EOU / Manufacturing Bond are unable to materials for the purposes of export of
supply their materials owing to the fact that goods under Manufacturing bond / EOU on
persons operating under EOU /

2Export Oriented Units

Proposals for the Federal Budget 2020 - 21 Page 34
 1.0 Measures for Mitigating Impact of COVID-19 on Industry to Sustain Employment & Exports of the Country
Existing Situation Proposed Change Rationale for Change
Manufacturing Bond prefer to import goods zero rating on similar lines as has been
as local purchase would attract 17% sales allowed to DTRE.
tax.

Minimum Tax Under Section 113:

To sustain businesses and livelihoods
A turnover based minimum tax is Pending a review of the continued especially during these tough times.
fundamentally flawed in that it fails to take justification of minimum tax, under the
account of the industry specific margins and Many industries will sustain losses in 2019-
current business circumstances, we
acts as a barrier to entry of new players. A 20 due to lockdown and in 2020-21 due to
recommend that its collection be suspended
5. minimum tax at 1.5% of sales for extremely low operating rates from July to
for at least the next two financial years.
manufacturers (and higher rates for the Dec 2020 as such minimum turnover
services industry), under the present income tax of 1.5% is no longer an income
depressed business conditions will put an tax but a sales tax.
unbearable burden on businesses.

Section 8B

Under the Sales Tax Act, Section 8 – B, a Will improve liquidity and reduce cost of
company is not allowed to adjust input tax doing business, further there is no revenue
in excess of 90% of the output tax for that
impact as input sales tax is adjustable
period. Input tax is now applicable on All manufacturers be allowed 100%
almost all value additions by adjustment of input tax instead of the Considering the fact that Manufacturing
6. manufacturer via services, conversion current restriction of 90% industries would be suffering losses as
cost [gas / electricity], transportation highlighted above, the value addition factor
charges, manpower services, of 90% is outdated in the post corona
contractual execution of work and even environment
on import of Plant & Machinery. These are
in fact “VALUE ADDITIONS” in the process

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 1.0 Measures for Mitigating Impact of COVID-19 on Industry to Sustain Employment & Exports of the Country
Existing Situation Proposed Change Rationale for Change
of manufacturing. As such, since the
“VALUE ADDITIONS” earlier not taxed are
already taxed @ 17% sales tax (or
applicable provincial rate) and form part of
the input tax, it makes logical sense to
change rate of 90% under section 8B to
100%.

Further, commercial importers paying 3%

minimum Value Addition sales tax at import
stage are totally exempt from the
applicability of minimum tax under section
8B, however, manufacturers, who are
paying sales tax on “VALUE ADDITIONS”
are subjected to further minimum value
addition tax of 10% under section 8B, which
discourages industrialization.

To improve export competitiveness of the

export sectors especially considering the
fact that global demand has gone down and
Reduced Rate of WHT on Export In order to promote sustainability of export orders have been cancelled while
Proceeds industries engaged in exports, rate of tax overheads will not reduce proportionately
on export proceeds should be reduced to and exporters will also be bearing extra
7. At present, rate of tax deduction on export wages for the totally inactive months of
0.5% from 1.0% for the next two financial
proceeds is 1.0%. April, May and to some extent June. It is
years.
necessary to support the exporters in this
situation.

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 1.0 Measures for Mitigating Impact of COVID-19 on Industry to Sustain Employment & Exports of the Country
Existing Situation Proposed Change Rationale for Change

Advance Tax Under Section 147

In order to get exemption certificate against Considering the fact that income during the
tax deduction under sections 153 [supply of current and succeeding tax years is
goods] and 148 [import on goods], Taxpayers should be allowed unconditional expected to be far less than the income
taxpayers are required to pay advance tax exemption from tax deduction on import earned by a majority of the industries in
as follows: and supply stage without heavy upfront prior tax years due to a reduction in overall
payment of advance tax liability. In order to demand and margins owing to Corona
• For exemption certificate against
8. ensure regular inflows to the Government, pandemic, supporting hand must be
import of goods, total annual
taxpayers be made liable to discharge at extended towards industries which are
estimated tax liability, which should
least 70% [as against present 90% already facing difficulties even in payment
not be less than determined tax
condition] of total estimated annual tax of salaries / wages let alone heavy outflow
liability of the highest of last two tax
liability in 4 quarterly instalments, on account of advance income tax to be
years; and
paid to get exemption certificate against tax
• For exemption certificate against
deduction at import and supply stage.
import of goods, 50% of the total
estimated tax liability

Proposals for the Federal Budget 2020 - 21 Page 37

 2.0 Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing

Proposals for the Federal Budget 2020 - 21 Page 38

 2.0 Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing
S. No. Existing Situation Proposed Change Rationale for Change
a) Values at which import shipments are
cleared through PRAL or CARE need to
be publicly available.

Massive under-invoicing especially by b) The Government of Pakistan must insist

Commercial Importers is destroying of Electronic Data Interchange (EDI), for
domestic industry both FTA and non-FTA imports from
China. In future the requirement of EDI
Transparency in collection of taxes will
Across the board massive under invoicing should be made compulsory for imports
discourage mis-declaration, measures to
and dumping of imported products has been from FTA / PTA partner countries.
discourage evasion of taxes and duties will
increasing. Information regarding values at help industry to fairly compete with
which various custom check posts clear c) Depending on industry, the Import Trade unscrupulous imports and also Government
import consignments is not publicly Price (ITP) be fixed e.g. on the basis of stands to benefit from the increased indirect
available. This encourages unscrupulous country of origin, weight, volume etc. taxes revenues. It will also help in
importers to under-declare the value of after discussion with stakeholders. ITP’s accountability of the customs staff and will
1. consignments to evade government may be fixed for most items prone to reduce the incidence of Customs Duty &
revenues. mis-declaration such as consumer goods Sales Tax evasion and increase government
and margins of commercial importers be revenues.
There are massive leakages in the Afghan monitored to assess the value of
Transit Trade (ATT) and smuggled goods subsequent supply of imported goods. A
The proposed change will help in boosting
are being openly sold in all major shopping certificate to this effect should be issued
the manufacturing base of Pakistan.
centers of the country. Customs however is by auditors of commercial importers.
not willing to act against smuggled products
citing “lack of cooperation from local d) For items, prone to under invoicing and
authorities” mis-declaration, FBR should designate
one or two ports (including the dry
ports) for clearing of import
consignments. This will allow better
monitoring of the import consignments

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 2.0 Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing
S. No. Existing Situation Proposed Change Rationale for Change
where chances of mis-declaration are on
a higher side.

e) Additionally, the old Customs General

Order 25 needs to be revived with a
provision that local manufacturers be
given the option to buy at a 15%
premium, any consignment which
appears undervalued.

f) Taxes and duties deposited by local

manufacturers and commercial importers
should be published.

g) The rate of tax collected from

commercial importers be increased by at
least by 2%. Presently, tax collected
from commercial importers is treated as
Final Tax. In order to avoid burdening of
genuine commercial importers, we would
recommend that the income tax
collected at import stage be treated as
an advance tax.

h) In order to allow commercial importers

to claim adjustment of taxes deducted at
import stage, commercial importers
should be asked to present certificate
from auditors that at least 70% of
Proposals for the Federal Budget 2020 - 21 Page 40
 2.0 Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing
S. No. Existing Situation Proposed Change Rationale for Change
imported items have been exported or
sold to registered manufacturers. This
will also help increase the overall tax
base.

i) Monthly sales declared by commercial

importers should be matched with sales
declared in annual income tax return as
well as the credit entries in all business
bank accounts. In case of any
discrepancy, a reconciliation with
justifiable reasons should be submitted
by the commercial importers

j) Online CREST system must be amended

in a way to trace sales along with value
addition thereon of person to whom
supplies were made by Commercial
importers

Mining of FBR’s Database to identify

Low tax payer base – increased
new taxpayers & those not fully
reliance on existing taxpayers
discharging their liabilities:
An increase in the tax base will reduce the
The number of taxpayers needs to be FBR’s ever increasing reliance on existing
2. The FBR has got access to financial data in taxpayers
increased, the narrow taxpayer base is
various forms including the monthly
leading to greater pressure on the existing
statements submitted by withholding tax
taxpayers.
agents of the various withholding

Proposals for the Federal Budget 2020 - 21 Page 41

 2.0 Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing
S. No. Existing Situation Proposed Change Rationale for Change
deductions made by them. This can be a
start to bringing new taxpayers in the net.
In addition, the FBR has also collected data
about tax paid by non-filers on property &
on gains made in the Stock Market

In order to broaden the tax base and to

achieve increase in overall tax collection
without burdening existing tax payers, the
policy to increase tax on non-filers /
Withholding Tax Rate difference unregistered persons should be
between Filers & Non-Filers is Nominal: implemented specifically in the following
cases:

The concept of separate withholding tax

rates for filers & non-filers was introduced a) unregistered industrial / commercial
as a measure for increasing documentation entities (not having STRN) having bill
Will improve tax compliance
3. of the economy. Though large amounts are amount in excess of Rs. 20,000 per
being collected from non-filers, no effort month, extra sales tax should be
has been made to increase the tax base. increased from 5% to 20%
The non-filers for the most part have built
the cost of this government levy into pricing b) After collection of extra tax as referred
and passed it on to their customers. above for a continuous period of 6
months, all these connections should be
provisionally converted into NTN and
STRNs and return filings from these
connections should be enforced.

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 2.0 Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing
S. No. Existing Situation Proposed Change Rationale for Change
c) In case of provisional registration as
above, utility companies be directed
to issue show cause notices where
annual billing amount exceeds
Rs.2.4 million and directing
provisionally registered persons to
obtain permanent registration. In
case of non-compliance, utility
companies be directed to disconnect
utility connections.

d) Moreover, in order to bring all

commercial / industrial users in the tax
net and to verify filer status, Electric
distribution companies should provide
one year to all such consumers to get
their NTN registered with electricity
distribution companies. In case of failure
to provide NTN, electricity connection
should be disconnected. Considering
the fact that all industrial /
commercial connections will be
linked with NTN, the tax department
will then be in a better position to
assess the electricity consumed by
commercial / industrial users and
corroborate the same with amount
of sales / production etc. reported in
sales tax / income tax return

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 2.0 Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing
S. No. Existing Situation Proposed Change Rationale for Change
e) in order to bring all commercial /
industrial users in the tax net and to
verify filer status, Electric distribution
companies should provide one year to all
such consumers to get their NTN
registered with them. Thereafter, such
commercial/industrial consumers without
NTN should be charged advance income
tax @ 30% (from existing 12%) on their
utility bills. Those with NTN but non-filer
status be charged at 20% WHT.

f) Residential consumers be made

liable to provide NTN in case
electricity bill amount exceeds
Rs.1.2 million per year or levy advance
income tax withholding of 20%.

g) All exemptions (like exemption on

agricultural income) under the
Income Tax Law should only be
made available to filers so that
exempt income is also reported and
wealth is reconciled.

h) Withholding tax on International

business class tickets under section
236L is same Rs. 16,000 for filer and

Proposals for the Federal Budget 2020 - 21 Page 44

 2.0 Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing
S. No. Existing Situation Proposed Change Rationale for Change
non-filer, it should be increased to Rs.
50,000 for non-filers.

i) Withholding tax @ 5% or Rs. 20,000,

whichever is higher, is applicable under
section 236D on all functions
organized by filers as well as non-
filers. Rate of withholding be increased
for non-filers to Rs. 100,000 as minimum
and no WHT from filer

j) Function halls withholding tax on electric

bills should be 30% which can be
adjusted against tax liability by providing
proof of tax deducted from their
customers.

k) Withholding income tax on interest

income u/s 151 is 15% for filer and
30% for non-filer. Rate should be
increased to 50% for non-filers in
case interest income is more than
Rs.2,000,000/-

l) Annual private motor vehicle tax u/s

234 for non-filers is Rs. 9,000 for
1600cc-1999cc and Rs. 20,000 for 2000
cc and above. Rate for non-filers
should be increased to Rs. 50,000
Proposals for the Federal Budget 2020 - 21 Page 45
 2.0 Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing
S. No. Existing Situation Proposed Change Rationale for Change
for 1600cc-1999cc and Rs. 200,000
for 2000 cc and above

m) Advance income tax is collected on

sales of immovable property under
section 236C, which is 1% for both filers
and non-filers, should be increased for
non-filers to 10% for properties of
900 square yards or more

n) Holding of land by non-filers should

be made more expensive by asking
those authorities collecting property
tax (cantonment boards / societies
/ registrar) to collect adjustable
advance income tax, from non-
Filers, on behalf of the Federal
Government as follows:
o) Rs. 500,000 per year for 800 yards
or more but less than 1800 yards
p) Rs. 1 million per year for 1800 yards
and above.

Section 73 – sub-section (4) This provision should not be restricted to just To provide a level playing field to
4. manufacturers but also be extended to manufacturers
A new sub-section 4 has been inserted in commercial importers.
section 73 of the Sales Tax Act, 1990 to
Proposals for the Federal Budget 2020 - 21 Page 46
 2.0 Documenting the Economy & Providing a Level Playing Field for Domestic Manufacturing
S. No. Existing Situation Proposed Change Rationale for Change
restrict registered manufacturer to make
sales to any unregistered person in excess of
Rs. 10 million in a month and Rs. 100 million
in a year, failing which input tax in proportion
of the supply exceeding this threshold will be
disallowed.

Proposals for the Federal Budget 2020 - 21 Page 47

 3.0 Measures for Promoting Industrialization, Growth & Job Creation

Proposals for the Federal Budget 2020 - 21 Page 48

 3.0 Measures for Promoting Industrialization, Growth & Job creation
S. No. Existing Situation Proposed Change Rationale for Change

Tax Credit Under Section 65B – Tax

Credit for investment – Sub-section 1

Prior to Finance Act ’19, where a taxpayer

being a company invested any amount in Section 65B – Sub-section 1
the purchase of plant and machinery for 10% credit be restored till June 2021, at the
the purpose of extension, expansion, very least 10% credit be allowed in respect
balancing, modernization and replacement of Plant & Machinery already purchased & To promote investments in brownfield
(BMR) of the plant and machinery already imported or for which financial close has industries for capacity enhancement
1.
installed therein, in an industrial been achieved.
undertaking set up in Pakistan and owned
by it, credit equal to ten percent of the
amount so invested was allowed against the
tax payable. This has been retrospectively
withdrawn and rate reduced to five percent
for investments made till June 2019

Expansion of plant or undertaking a new

Tax Credit Under 65E: - project involves investment in factory
Tax Credit Under 65E: -
Tax credit under section 65E should also building and manufacturing related
Tax Credit under Section 65E is restricted to infrastructure and as such these types of
2. extend to investment in factory building and
investment in plant and machinery investments should also be made eligible
manufacturing related infrastructure.
for tax relief.

65C. Tax Credit for Enlistment Tax Credit equal to 20% of the tax payable
3. should be allowed for five years from the
(1) Where a taxpayer being a company opts
year of enlistment. Section 65C should be
for enlistment in any registered stock To promote listings
amended to read as follows:
exchange in Pakistan, a tax credit equal to
[twenty] per cent of the tax payable shall [65C. Tax credit for enlistment. — (1)
be allowed for the tax year in which the said Where a taxpayer being a company opts for

Proposals for the Federal Budget 2020 - 21 Page 49

 3.0 Measures for Promoting Industrialization, Growth & Job creation
S. No. Existing Situation Proposed Change Rationale for Change
company is enlisted and for the following enlistment in any registered stock exchange
three tax year in Pakistan, a tax credit equal to [twenty]
per cent of the tax payable for five years
Provided that the tax credit for the last two from the year in which the company is
years shall be ten percent of the tax listed.
payable.

To sustain businesses and livelihoods

The provision under which the Minimum especially during these tough times.
Minimum Tax Under Section 113:
Turnover Tax is charged, both for
Many industries will sustain losses in 2019 –
The current rate of Minimum tax is 1.5%, manufacturing and services sectors should
20 due to lockdown and in 2020 – 21 due to
this tax on turnover is impacting the be suspended for at least the next two
4. extremely low operating rates from July to
sustainability of industries especially in the financial years.
Dec 2020 as such minimum turnover
light of current crises.
income tax of 1.5% is no longer an income
tax but a burden tax or an unjustified tax.

Any withholding tax of Zone Enterprises will

Section 126E, Entity setup in Special Since income of Zone enterprise is exempt result in liquidity crunch as well as refund
Economic Zones from income tax under clause 126E, it is situation
As income of SEZ entity (Zone Enterprise) proposed that exemption be granted to
is exempt from income tax for a period of Zone enterprises from all withholding and The nature of the mentioned tax u/s 147,
10 years, there should not be any tax collection provisions. 148, 153, 236K & 236W etc., is that of
withholding of Income tax at source at any advance tax which is adjustable against tax
For exemption from minimum tax u/s 113, a liability. Since income of Zone Enterprise is
5. stage for Zone Enterprises and under any
new sub-clause to be inserted in clause 11A exempt from income tax under clause 126E,
provisions of ITO till such time exemption is
of part IV of the fourth schedule to the levy / collection of such advance and even
available to the Zone Enterprise. However
Income Tax Ordinance, 2001, as under: minimum tax from Zone Enterprise will
currently exemption is not granted under
Section 148 & 153 from collection of result in liquidity crunch as well as refund.
“(xxxi) taxpayers qualifying for Furthermore; minimum tax incurred during
income tax.
exemption under clause (126E) of Part- first five years is not adjustable, if ten
I of this Schedule.”
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 3.0 Measures for Promoting Industrialization, Growth & Job creation
S. No. Existing Situation Proposed Change Rationale for Change
years’ exemption is availed due to
adjustment time limitation of 5 years.

Misuse of Afghan Transit Trade &

6. Rampant Smuggling

Smuggling through Afghan Transit Trade

has always been the biggest threat for
economic growth and hardly any sector has
been left untouched by this menace. Goods moving under ATT from Pakistan to
Smuggled goods through the borders of Afghanistan should be charged with duties
Afghanistan, Iran China, India and the and taxes under the Pakistani laws and the
Afghan Transit Trade form a chunk of the same should be transferred to Afghan Allow industry to fairly compete with
informal economy, volume of which ranges Government. Secondly, the duties/taxes so unscrupulous imports, Government to
between 50 to 60 percent of the formal paid should be deposited with State Bank in benefit from increased revenue.
economy. USD.

It is costing the national exchequer in A quantitative restriction should be applied

billions. Markets across the country are on goods moving under ATT on the basis of
flooded with smuggled goods and local consumption.
industries are struggling for survival as
smuggled goods are not only easily
available everywhere but are also attracting
the buyers who prefer foreign merchandise

7. Customs Duty on import of coal & Pet This would not only support the option of
Coke: The custom duty on coal and pet coke using coal and pet coke as alternative
should be reduced to “Zero” percent as is source of energy for the Industry but will
Presently, coal and pet coke are being used
the case of other imported industrial fuels also support the Government in terms of
as fuel by various manufacturing concerns
like LNG, which is exempt from customs

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 3.0 Measures for Promoting Industrialization, Growth & Job creation
S. No. Existing Situation Proposed Change Rationale for Change
and it attracts custom duty on imports at duty at import stage and is also reduced load on the already burdened
the rate of 5%. subsequently used as a fuel by industry national grid.

Various Income and Sales Tax Laws

8. discourage Investment
New entry number 1(viii) be inserted in
At present, new local/foreign investors are column number 2 of the Table specifying
reluctant to invest in manufacturing rate of tax at import stage as given in Part-
industry of Pakistan due to various II of the 1st Schedule to the Income Tax
To promote new and capacity expansions in
impediments including collection of sales Ordinance, 2001 as follows:
the manufacturing sector
tax (10% upfront plus 3% minimum value
addition plus 7% Post-dated cheques) and
income tax 5.5% at import of plant and (viii) industrial undertakings importing Plant
machinery/ spare parts in addition to and Machinery and spare parts
various other taxes and levies thereafter.

Entry no. 1(iv) in column number 2 of the

9. Table specifying rate of tax at import stage
as given in Part-II
Advance Income Tax on Import of plant
of the 1st Schedule to the Income Tax
& Machinery by Export Industries
Ordinance, 2001 be amended as follows:
Import of raw material by Export Oriented
“Manufacturers covered under Notification To promote development of export
sector is subject to income tax withholding
No. S.R.O. 1125(I)/2011 dated the 31st industries
of 1% whereas on the other hand, import of
December, 2011 and importing items
Plant & Machinery by these sectors is
covered under S.R.O. 1125(I)/2011 dated
subject to 5.5% income tax withholding
the 31st December, 2011, Plant &
Machinery and Spare parts;

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 3.0 Measures for Promoting Industrialization, Growth & Job creation
S. No. Existing Situation Proposed Change Rationale for Change

10.
In the long run, reduction in current account
Greenfield Industries – Shift of Focus deficit, GDP growth and employment
The aim to introduce benefits to Greenfield
from Survival to Growth in the Long generation would only be possible if post
industries was to promote industrialization
Run – Corona pandemic, industries come forward
by providing exemption from minimum
to invest for expansion or new projects.
At present, major focus of the majority of turnover tax due to initial years losses and
industries is to survive the unexpected and Through the Tax Laws (Second heavy depreciation. Incase only pioneer
sudden negative impact of the Corona Amendment) Ordinance, 2019, the term industries are to be treated as Greenfield
pandemic, therefore, in current scenario, Greenfield industries has been defined in industries, then it would not be possible for
expansion is not being considered by the Income Tax and Sales Tax laws to make the Government to attract investment in
majority of the industries owing to a it identical to “Pioneer Industry”. Our existing industries where total local demand
worldwide reduction in consumption and suggestion is to delete condition no. “(iv)” is not being met or where potential to
overall demand. of the definition of Greenfield industry to export surplus production exists
make it distinct from Pioneer industry,
otherwise the purpose of growth through
investment would not be achieved.

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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change

1.
Corporate manufacturing sector should be
excluded from the purview of income tax
withholding at import stage under section
148 as well as from tax deduction on local
supply under section 153. Similar
exemption is already given to the greenfield
industries through the Finance
Exemption from collection of Supplementary Second Amendment Act
Withholding tax under section 148 at 2019 announced in March 2019. The same
import stage & exemption for exemption, however, is not available, for This would increase the investments for
manufacturing concerns under Section the brownfield expansion. brownfield capacity expansion as well and
153 would provide a meaningful relief (similar to
Moreover, all the companies engaged in greenfield expansion) with regard to BMR
manufacturing should be exempt from
Procedures and rules for obtaining and extension / expansion. Further, it will
withholding of tax under section 153.
exemption certificates for import of plant & also attract foreign direct investment in the
Similar exemption is available for Sales Tax form of new expansion ventures as well as
machinery and Raw material by tax payers
in the Sales Tax Special Procedure
have serious restrictions which causes partnerships and hence will also result in
(Withholding) Rules, 2007 via SRO 586
hardship export growth.
dated July 1, 2017.

Alternatively, issuance of exemption

certificate from withholding under sections
148 and 153 should automatically trigger on
the FBR portal based on payment of
quarterly advance tax under section 147 to
avoid harassment of genuine taxpayers.
This will enable taxpayers to avoid creating
huge tax refunds and focus on more
expansion.

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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change

Advance Tax Under Section 147

In order to get exemption certificate against

Considering the fact that income during the
tax deduction under sections 153 [supply of
current and succeeding tax years is
goods] and 148 [import on goods],
Taxpayers should be allowed unconditional expected to be far less than the income
taxpayers are required to pay advance tax
exemption from tax deduction on import earned by a majority of the industries in
as follows:
and supply stage without heavy upfront prior tax years due to a reduction in overall
• For exemption certificate against payment of advance tax liability. In order to demand and margins owing to Corona
2. import of goods, total annual ensure regular inflows to the Government, pandemic, supporting hand must be
estimated tax liability, which should taxpayers be made liable to discharge at extended towards industries which are
not be less than determined tax least 70% [as against present 90% already facing difficulties even in payment
liability of the highest of last two tax condition] of total estimated annual tax of salaries / wages let alone heavy outflow
years; and liability in 4 quarterly instalments, on account of advance income tax to be
paid to get exemption certificate against tax
For exemption certificate against import of deduction at import and supply stage.
goods, 50% of the total estimated tax
liability

Alternate Corporate Tax

ACT is a major hindrance towards capital
It results in triple jeopardy (after NTR and
investment as newly incorporated
Under Section 113, corporates are subject Minimum Tax under section 113) and is
companies or those companies, which make
to one of three income tax regimes – most likely to be not accepted by Court as
huge capital investments for expansion,
Alternate Corporate Tax (ACT), Minimum only one Capacity tax is possible as per the
extension or BMR are not practically able to
Turnover Tax or Normal Tax Regime Constitution read with SCP order in case of
3. get the benefit of initial allowance owing to
Elahi Cotton.
the fact that such allowance is available
only against the taxable income whereas in
case of huge capital investment resulting in
higher initial allowance and consequently

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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change
lower taxable income, taxpayer usually falls Moreover, real benefit of initial allowance /
under the ACT regime against which the first year allowance is not available owing to
benefit of adjustment of initial allowance is the applicability of ACT.
not available.

SRO 250 dated February 26, 2019

It is mentioned in the SRO that the cost of
SRO has been introduced for the electronic activities in relation to this SRO will be
monitoring and tracking of the goods borne by the manufacturers of goods. This
mentioned therein i.e. goods of tobacco, is against the main objective of the current
beverages, sugar, fertilizer and cement This SRO be amended suitably to ensure government to provide ease of doing
industries. Fee for the operation of this SRO that the Administrative cost of operation / business for the manufacturing industries
4. will be recovered by the licensee (Private activities in this SRO should not be borne by since, as per this SRO, the teams operating
firms) from the companies in the above the manufacturers of goods. this electronic monitoring equipment will sit
mentioned industries. at the manufacturing premises of the
companies and the cost of the operating
such equipment along with licensee marking
fee will be recovered from the
manufacturing companies.

Timeline of 7 to 13 days be extended to one Ease of doing business and facilitate

Rule 43, Income Tax Rule 2002 – week after the month withholding tax agents.

Presently the taxpayer has to deposit the Control Revenue leakages as well as
withholding tax deducted fortnightly, i.e. assesse can claim input tax properly Thus
IRIS system should be applicable for all with
5. within seven days from the end of each neither it is loss to authority nor the
holding agent including
week ending on every Sunday. assesse. In the absence of non-availability
agencies/government organizations and
of CPR , this is an extra cost for doing
CPR in respect of WHT Facing authority be
In addition, certain WHT agent do not business.
available from IRIS
deposit on time and some agents do not

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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change
deposit at all. This also includes
agencies/govt. organizations in respect of
WHT, where CPR is not provided hence
revenue leakages to government in the
absence of WHT deposit.

On the other hand, where WHT is deducted

by agencies/govt. Organization, but do not
provide system (IRIS) generated CPR as
they do not enter in the system. Therefore
assesse cannot get input benefit due to
non-availability of CPR from IRIS system
on account of WHT in spite of reminders, .

Since input tax sales tax on reduced rate

services is not available for adjustment, this
Section 8(1)(j) introduced through increases the cost of doing business.
Section 8(1)(j) of the Sales Tax Act, 1990
Finance Act, 2015, wherein a restriction has Currently, there are several services under
been imposed on claiming input on services should be deleted.
6. respective provincial sales tax on services
which are not allowed in provincial sales tax Act(s).
on services Act(s).
PBC is pursuing this matter with the
provincial authorities also

The clear intention of this section is to

capture tax through withholding at source
156. Prize and winnings-(1) Every person
from persons who are recipients of these
Section 156 – Prizes and winnings: paying prize of prize bonds, or winning from
7. prizes or winnings; the intention is not to
a raffle, lottery, prize on winning a quiz,
tax any person who belongs to the supply
prize offered by companies for promotion of
chain of the companies who offer prize for
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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change
sale to end consumers, or cross-word promotion of sales. The income of the
Section 156 of the ITO 2001 requires a puzzle shall deduct tax………………………… supply chain i.e. dealers, distributors is
Company to deduct 20% tax on “prize subjected to withholding tax in the shape of
offered by companies for promotion of sale” withholding taxes imposed under separate
withholding regimes. It is therefore
suggested that to clear any ambiguity in law
regarding application of this section, it may
be amended to add the term “end
Consumers” to oust any person in the
supply chain from the ambit of this section.

Section 153 (1) (a) Current situation is leading to build up huge

refunds / blockage of funds for the
Section 153 (1) (a) Withholding Income Tax distributors since minimum tax charging
on supplies by distributors of FMCG Rate for withholding tax on FMCG rate is 0.2% whereas withholding is up to
products is 2% for companies and 2.5% for distributors should be aligned with Section 2.5%.
8. others. This rate is quite high for industries 113 of the Income Tax Ordinance, 2001 i.e. Due to amendments in the definition of
dealing in bulk commodities / large volume Minimum tax on FMCG distributor is 0.2%. withholding agents the tax withheld on the
but low margin products receipts of the distributors has increased
significantly
.

Section 8B
Will improve liquidity and reduce cost of
Under the Sales Tax Act, Section 8 – B, a doing business, further there is no revenue
All manufacturers be allowed 100%
company is not allowed to adjust input tax impact as input sales tax is adjustable
adjustment of input tax instead of the
9. in excess of 90% of the output tax for that
current restriction of 90% Considering the fact that Manufacturing
period. Input tax is now applicable on
industries would be suffering losses as
almost all value additions by
highlighted above, the value addition factor
manufacturer via services, conversion
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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change
cost [gas / electricity], transportation of 90% is outdated in the post corona
charges, manpower services, environment
contractual execution of work and even
on import of Plant & Machinery. These are
in fact “VALUE ADDITIONS” in the process
of manufacturing. As such, since the
“VALUE ADDITIONS” earlier not taxed are
already taxed @ 17% sales tax (or
applicable provincial rate) and form part of
the input tax, it makes logical sense to
change rate of 90% under section 8B to
100%.

Further, commercial importers paying 3%

minimum Value Addition sales tax at import
stage are totally exempt from the
applicability of minimum tax under section
8B, however, manufacturers, who are
paying sales tax on “VALUE ADDITIONS”
are subjected to further minimum value
addition tax of 10% under section 8B, which
discourages industrialization.

Clause 18B of Part II of the Second

Schedule – Tax credit for Shariah
Complaint Companies Since the SECP has notified Regulations for SECP being the Regulatory Authority for
Shairah Compliant Companies, Rule 231H legislation and promulgation of Companies
Income Tax Ordinance on the one hand should be deleted governance laws in Pakistan, holds the right
10. requires the corporate sector to fulfill the infrastructure including a Shariah
prescribed Shari’ah compliance criteria Further, Clause 18B be amended as below: Compliance Department and the expertise
approved by SECP (as per Clause 18B of
part II of the Second Schedule to the Tax
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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change
Ordinance) whereas, on the other hand, The rate of tax as specified in Division II of to determine & regulate compliance with
Income Tax Rules, as prescribed by FBR Part I of the First Schedule shall be reduced Shari’ah Governance Regulations, 2018.
(via Rule 231H) still remain applicable and by 2% in case of a company whose shares
are in conflict with the SECP Regulations. are traded on stock exchange if:

(a) it fulfils prescribed shari’ah compliant

criteria approved by the State Bank of
Further, Clause 18B of Part II of the Second Pakistan, Securities and Exchange
Schedule is reproduced below: Commission of Pakistan and the Board.

The rate of tax as specified in Division II of (b) derives majority or more than 50%
Part I of the First Schedule shall be reduced income from manufacturing activities only;
by 2% in case of a company whose shares
are traded on stock exchange if:

(c) has declared taxable income for the last

three consecutive tax years; and
(a) it fulfils prescribed shari’ah compliant
criteria approved by State Bank of Pakistan,
Securities and Exchange Commission of
Pakistan and the Board; (d) has issued dividend for the last five
consecutive tax years.

(b) derives income from manufacturing

activities only;

(c) has declared taxable income for the last

three consecutive tax years; and

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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change

(d) has issued dividend for the last five

consecutive tax years.

To improve export competitiveness of the

export sectors especially considering the
Reduced Rate of WHT on Export fact that global demand has gone down and
In order to promote sustainability of
Proceeds export orders have been cancelled while
industries engaged in exports, rate of tax on
overheads will not reduce proportionately
export proceeds should be reduced to 0.5%
11. At present, rate of tax deduction on export and exporters will also be bearing extra
from 1.0% for the next two financial years.
proceeds is 1.0%. wages for the totally inactive months of
April, May and to some extent June. It is
necessary to support the exporters in this
situation.

Section 148 (1) Advance Tax on Imports &

New clause 24B be introduced in 2nd
Section 153 Advance tax on sale of goods and
Schedule, P IV of the Income Tax
Services
Ordinance, 2001 as follows:
Companies are required to pay advance
quarterly income tax based on their The rate of tax, under clauses (a) of sub-
projected incomes under Section 147. section (1) of section 153 and sub-section 1
In addition, companies are also required to of section 148 shall be 1% for industrial To reduce the cost of doing business
12. pay advance tax on imports @ 5.5% and on undertakings falling under the definition of
sale of their goods @ 4% and services compliant taxpayers
@8%.
Compliant taxpayers may be defined in the
Income Tax Ordinance, 2001 to mean
This leads to the creation of refunds as
company which:
companies are paying advance income tax
based on projected income, advance income

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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change
tax on imports and advance income tax on a) is appearing on Active Taxpayers list
sales. for the purposes of the Income Tax
Ordinance, 2001
There is a cumbersome procedure for
seeking exemptions under Section 148 b) Is not suspended / blacklisted for
(advance tax on imports) which also does sales tax purposes
not take into account capacity expansions
c) has at least 100 employees /
workers registered with EOBI

d) discharges quarterly advance tax

liability or adjusts the same from
available refunds discharges
quarterly advance tax liability or
adjusts the same from available
refunds

e) Submits details / documents /

accounts for income tax / sales tax
audit, as and when required by the
tax department subject to the
condition that the said requirement
by the tax department should be
within the legal framework of
legislature

f) Income tax liability for each of the

immediately preceding 2 tax years
should be more than Rs. 50 million.

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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change
g) Files Annexure J alongwith the
monthly Sales Tax return

h) Should not have reported minimum

tax for a consecutive period of
immediately preceding 5 tax years.
Provided that a Company shall be
treated as having complied with this
condition of Minimum tax in the tax
year in which normal income tax,
before adjustment of brought
forward losses / brought forward
minimum taxes, is more than the
minimum tax liability of that specific
year

i) has had a sales tax audit done at least

once in last 3 years OR falls under the
jurisdiction of Large Taxpayers Unit

Provided that the conditions specified under

clauses (h) and (i) above shall not be required for
Listed Companies or companies exporting over
US$ 50 million/year

Transactions under dealership At present, this is only applicable to 3rd

arrangements Section 108B: schedule items. This section was introduced
Reduce the cost of doing business for the
to identify and bring unregistered dealers
A new section 108B has been inserted whereby formal registered sector
13. within the tax net. At present section 236G
75% of the Dealers margin will be added back to
requires certain manufacturers of certain
Sellers Income u/s 108(B). And for the purpose of
sectors to withhold advance income tax @

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 4. Reducing the Cost of Doing Business in Pakistan
S. No. Existing Situation Proposed Change Rationale for Change
this section, 10% of selling price will be taken as 0.1% (for Active taxpayers) and 0.2% (for
Dealers Margin others) from their retailers on value of
supply (excluding sales tax).

We would suggest to delete section

108(B) and instead put the items of 3rd
schedule in section 236G

SECTION 8B – CONCERN FOR

POTENTIAL EXPORTS Serial no. 4 be amended in Table I of SRO
As per SRO 1190 dated October 2, 2019, 1190 dated October 2, 2019 as follows:
registered persons whose zero-rated (11) Persons making zero-rated supplies, To increase exports
14. supplies [including exports] are more than including exports, provided that value of
50% of the total sales during a month, are such supplies exceeds 30% 50% of value of
excluded from the ambit of section 8B for all taxable supplies in a tax period
that specific month.

Timing of payment of Sales Tax:

Section 2(44) be amended as follows
Prior to amendment made in Sales Tax
section 2(44) of the Sales Tax Act 1990, (44) “time of supply”, in relation to, –
vide Finance Act 2013, Sales Tax was levied (a) a supply of goods, other than under hire
at the time of actual delivery of goods To reduce the cost of doing business
purchase agreement, means the time at
15. regardless of time of payment. Application which the goods are delivered or made
of sales tax on advances causes serious available to the recipient of the supply” or
operational issues and leads to unnecessary the time when any payment is received by
reconciliations resulting in hardship to the supplier in respect of that supply,
taxpayers whichever is earlier]

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 5.0 Redressing Inequity in the Tax Regime

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 5. Redressing Inequity in the Tax Regime
S. No. Existing Situation Proposed Change Rationale for Change

Section 8(1)(ca)
The matter was challenged in the Honorable
Input sales tax not allowed where tax
Lahore High Court (LHC), in a petition
unpaid by supplier. –
Section 8(1)(ca): W.P.No.3515/2012 filed by D.G Khan
Cement Company Limited. LHC permitted
This provision needs to be omitted relief and declared the provision as
1. A taxpayer is not entitled to claim input tax especially after the implantation of the
paid on the goods (or services) in respect of unconstitutional.
STRIVe system.
which sales tax has not been deposited in With the implementation of the STRIVe
the Government treasury by the respective system this is redundant.
suppliers.

Filling of Annexure J to Monthly Sales

Tax Return
Currently only certain persons as defined
under Rule 14 to Sales Tax Rules, 2002 are
required to file annexure J. Annexure J It is proposed to make it mandatory for all
requires taxpayers to file details of stock in the taxpayers to file Annexure J along with
hand in terms of value as well as quantity. their monthly sales tax return in order to Removing disparity between formal and
2. Other taxpayers are encouraged to file the ensure that sales are not suppressed or informal sectors
same but there is no mandatory made without charging proper sales tax.
requirement as per applicable laws to file
the same.
It is feared that registered taxpayers are
under reporting or suppressing their actual
sales to escape the sales tax charge as
currently there is no mechanism to report

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 5. Redressing Inequity in the Tax Regime
S. No. Existing Situation Proposed Change Rationale for Change
the details of stock (Raw material, WIP, and
Finished Goods)

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 6.0 Consolidation of Businesses for Scale

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 6.0 Consolidation of Businesses for Scale & Increased Competitiveness
PROPOSED Amendments / Clarifications / Explanations in INCOME TAX ORDINANCE 2001
S. No. Existing Situation Proposed Change Rationale for Change
Clause 103A, Part 1 of the 2nd
Schedule Withholding Tax on
Intercorporate Dividend Clause 103A, PI, 2nd Schedule be
amended as follows:

Through the Tax Laws(Second Amendment)

Ordinance , 2019, exemption from the levy
(103A) Any income derived from inter-
of tax on intercorporate dividend under
corporate dividend within the group
section 59B [Group Relief], from the
companies entitled to group taxation under
subsidiary company [wherein holding is less
sections 59AA & 59B subject to the
than 100%] has been allowed in full on the To promote Groups structure and formation
condition subject to the condition that
basis of eligibility i.e. position before the of companies within the group as was the
return of the group has been filed for the
amendments made through the Finance position before the amendments made
tax year.
Act, 2015 has been reinstated. through the Finance Act, 2015.
1. Suggested amendments for exemption from
However, 100% wholly owned companies,
withholding Tax – Clause 11B, PIV, 2nd
falling under Group Taxation as per section
Schedule be amended as follows:
59AA are required to file Group’s
consolidated income tax return in order to (11B) The provisions of section 150 shall
claim exemption from the levy of income not apply in respect of inter-corporate
tax on intercorporate dividend, which is a dividend within the group companies
cumbersome exercise without any benefit. entitled to group taxation under sections
59AA and 59B subject to the condition that
Further, exemption clause from WHT on
the return of the group has been filed for
dividend [for Group Relied under section
the latest completed tax year
59B] as was earlier available in Clause 11B
of Part IV of the Second Schedule has not
been reintroduced

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 59B – Group Relief 59B. Group relief. —

Post Finance Act 2016 the law reads as

follows: (1) Subject to sub-section (2) any (1) Subject to sub-section (2), any
company being a subsidiary of a holding company, being a subsidiary of a holding
company, may surrender its assessed loss company, may surrender its assessed loss
as computed in subsection (1A) (excluding as computed in sub-section (1A) (excluding To allow for implementation of the Group
capital loss) for the tax year (other than capital loss) for the tax year (other than Company Law in its true spirit
2.
brought forward losses and capital losses), brought forward losses and capital losses),
in favor of its holding company or its in favour of its holding company or its
subsidiary or between another subsidiary of subsidiary or between another subsidiary of
the holding company the holding company:

Section 59B(1A) be deleted

59B – Group Relief:

As per Section 59B of the Income Tax At the end of sub-section 2 of Section
Ordinance, holding company can purchase 59B, an explanation be added as below:
the loss of its subsidiary provided there is
continued ownership of five years as Explanation: For the removal of doubt, it is
mentioned in sub-section 2 of Section 59B. clarified that the holding company can
adjust the losses of its subsidiary during the
This subsection 2 of Section 59B has
aforesaid period of 5 years.
already been misinterpreted by the tax
department in various companies that To promote consolidation of businesses
3. purchase of loss by the holding company is
allowed in the sixth year i.e. after the end
of continued ownership of five years.

Practically speaking, subsidiary companies

mostly incur losses in the initial years of
establishment due to huge amount of
depreciation / initial allowance on new
setup (plant & machinery, etc.) and mostly
no losses incurred after a period of 5 years
Proposals for the Federal Budget 2020 - 21 Page 72
 (i.e. in the sixth year). Taking the approach
used by the tax authorities, practically
speaking, none of the holding company
would be able to claim losses of its
subsidiary.

Proposals for the Federal Budget 2020 - 21 Page 73

 7.0 Helping Pakistan Meet its Commitment to the UN Sustainable Development Goals

Proposals for the Federal Budget 2020 - 21 Page 74

 7.0 Helping Pakistan Meet its Commitment to the UN Sustainable Development Goals
SDG GOAL Fiscal Incentive Rationale Barriers
Goal 3: Ensure • Up to 100% Offset against To work towards Target 3.8 - ‘Achieve Insufficient and poorly managed healthcare
healthy lives and Workers Welfare Fund charge universal health coverage, including facilities for the work force.
promote wellbeing for the investment made in a financial risk protection, access to
for all at all ages year with respect to quality essential health-care services
establishing or operating and access to safe, effective, quality and
hospitals and clinics or affordable essential medicines and
managing existing social vaccines for all’.
security welfare institutions
within 100 km radius of
workplace or business
Goal 5: Achieve • 25% Tax Rebate in effective To demonstrate a commitment to Additional burden of cost of child care for
gender equality rate of tax on salary income for increase the female to male ratio and mothers when entering full time employment
and empower all full time working women with work towards Target 5.5 - ‘Ensure impacting net household income.
women and girls children women’s full and effective participation
and equal opportunities for leadership at
all levels of decision-making in political,
economic and public life.’

Goal 6: Ensure • Up to 100% Offset against To work towards Target 6.1 - ‘By 2030, Access to citizens to safe, clean drinking
availability and Workers Welfare Fund charge achieve universal and equitable access water within 1 km of his home.
sustainable for the investment made in a to safe and affordable drinking water for
management of year with respect to all.’
water and establishing, operating or
sanitation for all contributing to purification
plants for drinking water within
100 km radius of workplace or
business.

Proposals for the Federal Budget 2020 - 21 Page 75

 7.0 Helping Pakistan Meet its Commitment to the UN Sustainable Development Goals
SDG GOAL Fiscal Incentive Rationale Barriers
Goal 8: Promote To work towards Target 8.3 - ‘Promote Creation of work opportunities to keep pace
sustained, development-oriented policies that with the growing need of youth to be placed
inclusive and • Up to 100% Offset against support productive activities, decent job into gainful employment.
sustainable Workers Welfare Fund charge creation, entrepreneurship, creativity
economic growth, for the investment made in a and innovation, and encourage the
full and productive year with respect to formalization and growth of micro-,
employment and establishing, operating or small- and medium-sized enterprises,
decent work for contributing to approved including through access to financial
all vocational training institutes services’.

Goal 8: Continued
• First year Depreciation To demonstrate a commitment to No or limited facilities that allow access in the
Allowance for investment in creating livelihoods for all and work work place or business for the specially
making upgrades to the towards Target 8.5 - ‘By 2030, achieve challenged thereby deterring the disabled
provision of facilities (including full and productive employment and from working.
lifts, ramps) for the specially decent work for all women and men,
challenged in the workplace or including for young people and persons
business. with disabilities, and equal pay for work
• 0.5% Lower Tax Rate for of equal value.’
providing livelihoods to specially
challenged persons equal to 5%
of the work force.
• 1% lower tax rate for existing Pakistan needs to find employment for 2
companies that create 50 or Million youth each year.
more new jobs on their own
payroll in a year

Proposals for the Federal Budget 2020 - 21 Page 76

 7.0 Helping Pakistan Meet its Commitment to the UN Sustainable Development Goals
SDG GOAL Fiscal Incentive Rationale Barriers
SDG 9: • First year Depreciation To work towards Target 9.4 - ‘By 2030, Inefficient and non-environment friendly
Allowance for investment in upgrade infrastructure and retrofit management of waste, water and energy
Build resilient and making upgrades in industries to make them sustainable, impacting the environmental footprint.
infrastructure, renewable energy to power
with increased resource-use efficiency
promote inclusive factories, warehouses and
offices and greater adoption of clean and
and sustainable environmentally sound technologies and
• First year Depreciation
industrialization industrial processes, with all countries
Allowance for investment in
and foster and making upgrades of taking action in accordance with their
innovation effluent treatment plants respective capabilities.’

SDG 12: Ensure • 0.5% Lower Tax Rate for To demonstrate a commitment to Adoption of closed-loop cycle methodology in
sustainable overall reduction in waste and reducing the amount of waste and work production for enabling control over waste.
consumption and achieving and maintaining zero towards Target 12.5 - ‘By 2030,
landfill
production substantially reduce waste generation
• 15 - year Tax Holiday for
patterns investing in a standalone waste through prevention, reduction, recycling
management business and reuse’.

• 0.5 % Lower Tax Rate for To work towards achieving an overall No or poor documentation of the lifecycle of a
achieving and maintaining a reduction in the material footprint of the product limiting the calculation of the
reduction in the material organization and work towards Target material footprint including the environmental
footprint of the supply chain
footprint and little or no support to the supply
that is documented 12.2 - ‘By 2030, achieve the sustainable chain towards facilitating the overall
management and efficient use of natural reduction in the material footprint.
resources’.

Proposals for the Federal Budget 2020 - 21 Page 77

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