Global Tax Alert | 20 June 2013
Pakistan releases 2013 Budget
On 12 June 2013, Pakistan's Finance Minster released the 2013 Budget (Budget). Key issues relevant to corporations include a 1% reduction in the corporate tax rate and special information reporting requirements imposed on banks. This Alert summarizes these issues.
Corporate tax rate cut
The Budget proposes to reduce the current 35% corporate tax rate to 34%, effective for taxable years ending in 2014, and thereafter. This rate reduction however does not apply to the banking industry and accordingly, the current 35% tax rate continues to apply to the banking sector. In addition, the tax rate for small companies1 remains at 25%.
Capital gains tax on the sale of securities and immovable property remain unchanged as follows:
- • Sale of securities: 10% for a holding period of less than 6 months, 8% for a holding period of more than 6 months but less than 12 months, and exempt if more than a 12-month holding period.
- • Immovable property: 10% for the holding period of 1 year or less, 5% if the holding period is more than 1 year, but 2 years or less, and exempt if more than a 2 year holding period.
Disclosure of banking transaction information to tax authorities
In an effort to identify those who evade taxes, the Budget proposes that each bank provide the Federal Board of Revenue (Board) the following information:
- • Online access to its central database containing details of its account holders and all transactions made in their accounts;
- • A list detailing deposits aggregating Rs 1 million (USD10,000) or more made during the preceding calendar month;
- • A list of credit card payments made by any person aggregating Rs 100,000 or more (USD 1,000 or more) during the preceding calendar month; and
- • A consolidated list of loans written off in excess of Rs 1 million (USD 10,000) during a calendar year, a copy of each Currency Transactions Report and Suspicious Transactions Report submitted to the Financial Monitoring Unit.
Further, the bank is required to nominate a senior person to coordinate with the Board for providing any other information documents that may be required by the Board.
While a corporate tax rate cut is welcome, the rate cut does not apply to the banking sector. Further, the banking sector would face substantial information reporting requirements which would be costly to implement and require additional manpower to comply with.
1. Refers to a company with a paid-up capital plus undistributed retained earnings of Rs 25 million (USD 250,000) or less, employee compensation of Rs 250 million (USD 2.5 million) or less, and not resulted from a split-up or restructure.
For additional information with respect to this Alert, please contact the following:
EY Ford Rhodes Sidat Hyder, Karachi
- • Nasim Hyder
+92 21 3565 0007
- • Salman Haq
+92 21 3565 0007
Ernst & Young LLP, Asia Pacific Business Group, New York
- • Chris Finnerty
+1 212 773 7479
- • Jeff Hongo
+1 212 773 6143
- • Kaz Parsch
+1 212 773 7201
- • Bee Khun Yap
+1 212 773 1816
EYG no. CM3553