Pakistan's 2024 Finance Bill proposes indirect, individual, corporate tax changes

• This Alert highlights significant amendments proposed in the Finance Bill, 2024 (the Bill).

• The amendments proposed by the Bill could be modified before they are enacted as the Finance Act 2024, and then become effective from 1 July 2024 (Tax Year 2025).

This Tax Alert outlines the numerous changes introduced the Finance Bill, 2024 (the Bill), which was presented at the National Assembly on 12 June 2024. Proposals in the Bill include individual, corporate and indirect tax measures and are summarized in this Alert under the following enumerated sections:

1. Individual tax developments
2. Corporate tax developments
3. International tax developments
4. Indirect tax developments
5. List of abbreviations

A separate Global Tax Alert, tailored specifically for multinational entities and corporations, is available here.

1. Individual tax developments

1.1. Tax rates for non-salaried individuals and Association of Persons (AOPs)

Rates of tax for non-salaried individuals and AOPs, and corresponding income slabs (i.e., income/tax brackets) are revisited with the highest rate being 45% on income exceeding 5.6m Pakistani Rupees (Rs.5.6m) as against the existing income slab of Rs.4m taxable at 35%. The number of slabs is proposed to be reduced from seven to six. For taxpayers deriving income more than Rs.500m, total tax incidence will be 55% including "super tax" at 10%. The impact of proposed changes may be summarized as follows:

Taxable income		Tax Year 2024 (current) Amount in Rs.	Tax Year 2025 (proposed) Amount in Rs.	Increase in tax incidence Amount in Rs.	Percentage increase (%)
Income per month Amount in Rs.	Annual income Amount in Rs.
50,000	600,000	-	-	-
60,000	720,000	9,000	18,000	9,000	100.00
66,667	800,001	15,000	30,000	15,000	100.00
83,333	1,000,000	45,000	60,000	15,000	33.33
100,000	1,200,001	75,000	90,000	15,000	20.00
125,000	1,500,000	135,000	150,000	15,000	11.11
133,333	1,600,001	155,000	170,000	15,000	9.68
166,667	2,000,000	235,000	290,000	55,000	23.40
200,000	2,400,001	315,000	410,000	95,000	30.16
233,333	2,800,000	415,000	530,000	115,000	27.71
250,000	3,000,001	465,000	590,000	125,000	26.88
266,667	3,200,001	525,000	650,000	125,000	23.81
291,667	3,500,000	615,000	770,000	155,000	25.20
333,333	4,000,001	765,000	970,000	205,000	26.80
375,000	4,500,000	940,000	1,170,000	230,000	24.47
466,667	5,600,001	1,325,000	1,610,000	285,000	21.51
583,333	7,000,000	1,815,000	2,240,000	425,000	23.42

1.2. Salaried taxpayers

A salaried taxpayer is an individual whose income chargeable under the heading "salary" exceeds 75% of his taxable income for the year. The Bill proposes to change the income slabs for salaried individuals by reducing the tax base; however, the highest slab rate would remain unchanged at 35% on income exceeding Rs.4.1m as against the existing threshold of Rs.6m taxable at 35%. This will result in an increase in the tax burden on salaried individuals. The impact of proposed changes may be summarized as follows:

Taxable income		Tax incidence		Increase in tax incidence Amount in Rs.	Percentage increase (%)
Monthly salary Amount in Rs.	Annual salary Amount in Rs.	Tax Year 2024 Amount in Rs.	Tax Year 2025 Amount in Rs.
50,000	600,000	-	-	-	-
75,000	900,000	7,500	15,000	7,500	100.00
100,000	1,200,001	15,000	30,000	15,000	100.00
125,000	1,500,000	52,500	75,000	22,500	42.86
150,000	1,800,000	90,000	120,000	30,000	33.33
183,333	2,200,001	140,000	180,000	40,000	28.57
200,000	2,400,001	165,000	230,000	65,000	39.39
250,000	3,000,000	300,000	380,000	80,000	26.67
266,667	3,200,001	345,000	430,000	85,000	24.64
300,000	3,600,001	435,000	550,000	115,000	26.44
341,667	4,100,001	572,500	700,000	127,500	22.27
350,000	4,200,000	600,000	735,000	135,000	22.50
500,000	6,000,001	1,095,000	1,365,000	270,000	24.66
700,000	8,400,000	1,935,000	2,205,000	270,000	13.95
750,000	9,000,000	2,145,000	2,415,000	270,000	12.59
850,000	10,200,000	2,565,000	2,835,000	270,000	10.53
1,000,000	12,000,000	3,195,000	3,465,000	270,000	8.45
1,250,000	15,000,000	4,245,000	4,515,000	270,000	6.36

1.3. Capital gains on disposal of immoveable property

The rates of tax on capital gains arising on disposal of immovable property is proposed to be replaced as under:

S. No.	Holding period	Tax rate (%)			Tax rates on property acquired on or after 1 July 2024
		Open plots	Constructed property	Flats
1.	Where the holding period does not exceed one year	15	15	15	15% for persons appearing on the Active Taxpayers' List (ATL) on the disposal date for property and at the rates specified in Division I for individuals and AOPs and Division II for companies in respect of persons not appearing on ATL on the disposal date of property. The tax rate for individuals who do not appear on ATL on the disposal date, the tax rate shall not be less than 15% of the gain.
2.	Where the holding period exceeds one year but does not exceed two years	12.5	10	7.5
3.	Where the holding period exceeds two years but does not exceed three years	10	7.5	0
4.	Where the holding period exceeds three years but does not exceed four years	7.5	5	-
5.	Where the holding period exceeds four years but does not exceed five years	5	0	-
6.	Where the holding period exceeds five years but does not exceed six years	2.5	-	-
7.	Where the holding period exceeds six years	0	-	-

The Bill does not propose any change in the tax incidence on disposal of immovable property purchased on or before 30 June 2024. However, the Bill does propose to tax the capital gain on the disposal of immovable property purchased on or after 1 July 2024 at 15% for persons appearing in the ATL on the disposal date of the property. For persons not appearing in the ATL, the gain on disposal of immovable property will be taxed at the applicable general tax rate for corporate and non-corporate persons. The tax rate for individuals and AOPs not appearing on the ATL shall not be less than 15%.

1.4. Advance Tax on sale or transfer of immovable property

Currently, a fixed rate of advance tax on sale of immovable property has been prescribed at 3% of the consideration received. The Bill proposes to replace this rate based on the gross amount of consideration received upon such sale as follows:

Description	Tax rate %
Where the gross amount of consideration received does not exceed Rs.50m	3
Where the gross amount of consideration received does not exceed Rs. 50m but does not exceed Rs. 100m	3.5
Where the gross amount of consideration received exceeds Rs.100m	4

1.5. Advance tax on purchase of immovable property

Currently, the Income Tax Ordinance, 2001 has prescribed a fixed rate of advance tax on purchase of immovable property at 3% of the fair market value of the immovable property. The Bill proposes to replace this rate based on the fair market value of immovable property ranging from 3% to 4% as follows:

Description	Tax rate %
Where the fair market value does not exceed Rs.50m	3
Where the fair market value exceeds Rs.50m but does not exceed Rs.100m	3.5
Where the fair market value exceeds Rs.100m	4

1.6. Principles of taxation for Association of Persons

Presently, the share of profit from an AOP is not separately taxable in the hands of its members, provided the tax due on the AOP's income has been duly paid.

The Bill proposes to add a condition requiring that this tax exemption on the share of profit from an AOP will be available to the members upon the AOP's submission of its audited financial statements with its income tax return. This proposed amendment will apply for AOPs with turnover of at least Rs.300m for the current year or for any preceding tax year.

1.7. Power to enforce filing of return of income

The Finance Act, 2022 introduced an amendment to broaden the tax base, whereby the Federal Board of Revenue (the Board) was empowered to impose restriction for use of certain amenities on persons who fail to file the return of income. The restrictions currently in place include:

• Disabling of mobile phones or mobile phone sims

• Discontinuance of electricity connection

• Discontinuance of the gas connection

The Bill seeks to further empower the Board to impose restrictions on foreign travel of such person. These restrictions, however, will not apply to:

• Minors

• Students

• Persons who hold a National Identity Card for Overseas Pakistanis (NICOP)

• Persons or classes of persons whom the Board specifically notifies in this regard

1.8. Wealth statement

At present, the Commissioner is empowered to require an individual to submit his wealth statement duly disclosing details of assets held either in his own name or in the name of his spouse, minor children or other dependents.

The proposed amendment would require the Commissioner to request the disclosure of foreign assets, alongside domestic assets in the wealth statement.

1.9. Rate of withholding tax on telephone/internet users

The standard rate of tax withholding applicable to telephone/internet users would remain unchanged (i.e., 15%). However, Bill proposes to enhance the rate to 75% of the amount of bill or sale price of prepaid internet/ telephone card for persons who fail to file required income tax returns (even after issuance of a notice requiring them to file a return of income) and are listed on the income tax general order issued by the Board in this regard.

1.10. Enhanced tax rates for late filers

The Bill proposes separate rates for deduction or collection of advance tax on the sale, purchase or transfer of immovable property for a person who fails to file a return of income and, only upon the sale, purchase or transfer of immovable property, files the return to appear on the ATL to avoid higher rates for non-filers. The proposed rates are higher for these filers than for timely filers, but lower than those for non-filers:

S. No.	Sale, purchase or transfer of immovable property	Proposed tax rate %
1	Where the gross amount of consideration received, or fair market value does not exceed Rs.50m	6
2	Where the gross amount of consideration received, or fair market value exceeds Rs.50m but does not exceed Rs.100m	7
3	Where the gross amount of consideration received, or fair market value exceeds Rs.100m	8

This tiered approach aims to maintain the incentive for timely tax compliance while offering a middle ground for those who file late, ensuring they do not benefit from the rates available to compliant taxpayers.

1.11. Enhanced tax rates for non-filers

The Bill proposes to further increase the current rates for tax deduction or collection for individuals who are not on the ATL, as outlined in the Tenth Schedule of the Ordinance, for certain transactions. This initiative aims to heighten the financial impact of noncompliance, thereby encouraging non-filers to file their returns of income and take advantage of reduced tax rates. The increased tax rates for specific transactions, aimed at this category of taxpayers, are specified as:

S. No.	Description	Tax rates
		Proposed %	Existing %
1.	Yield or profit on debt	35	30
2.	Gross amount of consideration received on sale or transfer of immovable property	10	6
3.	Gross amount of sale to distributors, dealers or wholesalers other than sale of fertilizer	2	0.2
4.	Gross amount of sale to retailers	2.5	1
5.	Purchase or transfer of immovable property:
	Where the fair market value does not exceed Rs.50m	12	10.5
	Where the fair market value exceeds Rs.50m but does not exceed Rs.100m	16
	Where the fair market value exceeds Rs.100m	20

2. Corporate tax developments

2.1. Exports

The proposed legislation seeks to introduce an extra advance tax of 1% on the proceeds exporters receive from goods they export. This would be on top of the existing 1% tax that foreign exchange dealers or banking companies already deduct on the proceeds from exported goods. Additionally, it appears from the language of proposed amendment that tax deducted (other than additional advance tax collection of 1%) would be considered a minimum tax liability. As a result, income derived from exports would be subject to Normal Tax Regime (NTR).

2.2. Quarterly advance tax

In the event that a taxpayer fails to disclose its turnover or the turnover is unknown, the Bill proposes to authorize the Commissioner to calculate the quarterly advance tax as 120% of the turnover from the latest tax year for which the taxpayer has filed a return, compared to the current rate of 110%.

Additionally, the Commissioner is proposed to have the authority to reject a taxpayer's estimate of advance tax if the supporting documentary evidence is deemed unsatisfactory or if the estimate does not include necessary details as required by law. In such cases, the taxpayer will be required to pay advance tax based on the tax-to-turnover ratio for the latest assessed tax year applied on the turnover of the quarter. The proposed amendment that would give the Commissioner the power to reject the estimate filed by a taxpayers of his advance tax was initially introduced by the Finance Act, 2018, but later repealed by the Finance Act, 2021.

The Bill mandates that taxpayers provide the following details to the Commissioner when calculating the estimate of the tax payable for the quarter:

• Turnover for the completed quarters of the relevant tax year

• Estimated turnover for the remaining quarters

• Documentary evidence supporting the estimated expenses or deductions used in computing income

• Evidence of tax payments and tax credits, along with the computation of the estimated taxable income

The requirement to submit this information could be duplicative, as it is already covered in section 147(6) of the Income Tax Ordinance.

2.3. Taxation of banking companies

• Provision for advances and off-balance sheet items

Specific rules are provided to allow provisions for advances and off-balance sheet items. Presently, bad debts classified as "sub-standard" or "doubtful" under the Prudential Regulations issued by the State Bank of Pakistan (SBP), are not allowable as an expense.

With the adoption of International Financial Reporting Standard 9 — Financial Instruments (IFRS-9), banks are now required to provide for possible future credit losses against advances, off-balance sheet items or any other financial asset classified in Stage I, II or III as performing, under-performing and nonperforming.

The Bill proposes to disregard any provision made in a bank's annual accounts classified as above while working out its taxable income. This will be allowed when the debt pertaining to nonperforming assets is classified as "loss" under the Prudential Regulations issued by the SBP.

The Bill also proposes to disregard any provision or Expected Credit Loss for advances and off-balance-sheet items or any other financial asset under IFRS-9 that existed before or after 1 January 2024.

• Notional gains and losses

Under the law, any adjustment made in the annual accounts on account of application of International Accounting Standards 39 (Financial Instruments: Recognition and Measurement) and 40 (Investment Property) is to be disregarded when determining a company's taxable income.

Pursuant to adoption of IFRS-9, the Bill now proposes that adjustments made in the annual accounts of a banking company due to any applicable accounting standard, policy, guidelines, or instructions of SBP shall be excluded in computing the taxable income.

• Levy of super tax

The Bill proposes to clarify that super tax shall be leviable on banking companies for the tax year 2023 and for all subsequent tax years.

2.4. Option to obtain exemption certificate withdrawn

The Bill proposes to abolish the concept of issuance of "exemption certificate" for tax withholding from payments to resident persons or nonresident persons having permanent establishment in Pakistan (for sale of goods or execution of contracts). Instead, such persons would be entitled to obtain "reduced rate withholding certificate."

2.5. Deduction of tax on payment against sale of shares of a private company

Under the Finance (Supplementary) Act, 2023, every person acquiring shares of a company, other than a listed company, is required to deduct from the gross amount being paid as consideration for the shares a tax at 10% of the fair market value of the acquired shares.

The Bill seeks to amend this requirement, proposing that withholding of tax is required at the earlier of when consideration is actually paid or upon registration of shares with the Securities and Exchange Commission of Pakistan/SBP. Consequently, it seems that deduction of tax will be required when the shares are registered even if actual payment for the shares has not been made. The Bill also proposes to introduce a penalty equal to 50% of the tax involved, for noncompliance with this withholding tax provisions.

2.6. Advance tax on sales to distributors, dealers and wholesalers

Currently, manufacturers or commercial importers engaged in pharmaceuticals, poultry and animal feed, edible oil and ghee, auto parts, tires, varnishes, chemicals, cosmetics, information technology (IT) equipment, electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textiles, beverages, paint or foam sectors are required to collect advance tax at specified rates at the time of sales to distributors, dealers and wholesalers.

The Bill proposes to expand the scope of this advance tax collection to encompass all items sold by manufacturers or commercial importers to distributors, dealers and wholesalers.

2.7. Advance tax on sales to retailers

Similarly, manufacturers, distributors, dealers, wholesalers or commercial importers operating in pharmaceuticals, poultry and animal feed, edible oil and ghee, auto-parts, tires, varnishes, chemicals, cosmetics, IT equipment electronics, sugar, cement, iron and steel products, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint, or foam sectors are obligated to collect advance tax at specified rates during sales to retailers. Additionally, every distributor or dealer transferring goods to other wholesalers within these sectors is also subject to this requirement.

The Bill proposes to broaden the application of this advance tax collection to include all items sold by manufacturers, distributors, dealers, wholesalers or commercial importers to retailers and distributor or dealer to another dealer, distributor or wholesalers.

2.8. Consequences of not furnishing income tax return for discontinued business

Every person discontinuing a business is required to notify the Commissioner in writing of the discontinuance. Moreover, the business is also required to furnish a return reporting income for the period commencing on the first day of the tax year in which the discontinuance occurred through the date of discontinuance.

If a notice of discontinuance is not filed, and the Commissioner has reasons to believe that the business has been discontinued or is likely to be discontinued, the Commissioner may issue a notice requiring the business to file a return of income for a specified period within the time specified in the notice. Currently, if the business fails to comply with the notice issued as above, no penal action has been prescribed under the law.

The Bill proposes to introduce penalty for nonfiling of return in respect of a discontinued business, pursuant to a notice issued by the Commissioner, which is to be levied at the higher of:

1. 0.1% of the tax payable in respect of that tax year for each day of default
2. Rs. 1,000 per day of default

The minimum penalty is proposed at Rs.10,000 for individuals and Rs.50,000 in all other cases.

Similarly, the Bill proposes to treat the failure to file a return of income in respect of a discontinued operation, after receiving a notice from the Commissioner, as a prosecutable offence, which could entail a fine or imprisonment for a term not exceeding one year, or both. Any subsequent default may further entail a fine up to Rs.50,000 or imprisonment for a term not exceeding two years, or both. Additionally, the Bill proposes that if the person responsible for the discontinued business fails to furnish his last return of income, the Commissioner may proceed with a best judgement assessment.

2.9. Default surcharge

The Bill proposes to impose a default surcharge at the Karachi Interbank Offered Rate (KIBOR) plus an additional 3% per annum. At present, the surcharge is set at a flat rate of 12%, which is substantially lower than the prevailing interbank rate.

This modification is intended to bring the surcharge in line with the current economic and market conditions, thus creating a deterrent against late payment of taxes.

2.10. Tax appeals system

On 3 May 2024, the Tax Laws (Amendment) Act, 2024 (TLAA) was enacted, bringing significant changes in the appeal procedures provided in the federal tax laws. According to the changes introduced, pecuniary thresholds were prescribed for appeals to be filed against orders passed by the Revenue Officers. For cases concerning income tax, if the "value of assessment of tax" or "refund of tax" in an order passed by a Revenue Officer exceeds Rs.20m, the appeal would lie directly with the Appellate Tribunal. In cases below the Rs.20m threshold, the appeal would be filed before the Commissioner (Appeals). The next forum in both cases would be the High Court.

Due to varied interpretations of these requirements, the Bill proposes the following definitions:

• "Value of assessment of tax" means the net increase in tax liability as a result of the order sought to be assailed.

• "Value of refund" means net reduction in [tax] refund as a result of the order sought to be assailed.

Although the amendments to the appeals procedure took effect from 3 May 2024, all appeals that met the pecuniary threshold of Rs.20m and were pending before the Commissioner (Appeals) were to be transferred to the Appellate Tribunal by 16 June 2024. The Bill proposes to replace this date with 16 September 2024.

The Bill also proposes to clarify that the time limit for filing of appeals in respect of appellate orders passed by the Commissioner (Appeals) or the Appellate Tribunal and served before 3 May 2024 would follow the law in place before promulgation of TLAA.

2.11. Tax rate on dividend income

The rates of tax on dividends, including dividends received from mutual funds remains unchanged for the tax year 2024. However, the Bill proposes to tax dividend received from a mutual fund deriving 50% or more of its income through profit on debt at 25%.

Corresponding changes have also been made in the withholding tax provisions.

2.12. Capital gain tax rates on disposal of securities

The Bill proposes to replace the tax rates on capital gains arising on sales of securities. For securities purchased on or before 30 June 2024, no change is proposed. However, the Bill proposes to rescind the concessional rate of tax on sales of securities based on the holding period of securities purchased on or after 1 July 2024. This income would be taxed at 15% for persons appearing on the Active Taxpayers' List (ATL) on the date of acquisition and on the date of disposal. For persons not appearing on the ATL, capital gain is proposed to be taxed at the corporate tax rate for companies, and applicable slab rate with a minimum rate of 15% for individuals and Associations of Persons (AoPs). The proposed rates of capital gain tax on securities for the tax year 2024 and onward follow:

S. No.	Holding period	Tax rate on disposal of securities acquired before 1 July 2013	Tax rate on disposal of securities acquired between 2 July 2013 and 30 June 2022 (both dates inclusive)	Tax rate on disposal of securities acquired between 1 July 2022 and 30 June 2024 (both dates inclusive)	Tax rate on disposal of securities acquired on or after 1 July 2024
1.	Less than one year	0%	12.5%	15%	15% for persons appearing on the ATL on the acquisition and disposal date of securities and at the rate specified in Division I for individuals and AOPs and Division II for companies in respect of persons not appearing on ATL on the acquisition and disposal dates. For individuals and AOPs not appearing on the ATL, the tax rate may not be less than 15% of gain.
2.	More than one year but less than two years			12.5%
3.	More than two years but less than three years			10%
4.	More than three years but less than four years			7.5%
5.	More than four years but less than five years			5%
6.	More than five years but less than six years			2.5%
7.	More than six years			0%
8	Future commodity contracts entered into by the members of Pakistan Mercantile Exchange	5%	5%	5%	5%

The tax rate for companies' debt securities remains at 29%.

For mutual funds, collective investment schemes or real estate investment trust (REIT) schemes, capital gain tax on redemption is proposed to increase from 10% and shall be deducted as follows:

Category	Rate
Individual and AOPs	15% for stock funds 15% for other funds
Company	15% for stock funds 25% for other funds

For stock funds with dividend income that is less than capital gains, the withholding tax rate is proposed to increase from 12.5% to 20%.

Further, no capital gain shall be deducted if the holding period of the securities acquired on or before 30 June 2024 is more than six years. This proviso applies only in case of a mutual fund or collective investment scheme or REIT scheme.

2.13. Withholding tax on toll manufacturing

The Bill proposes to increase the withholding tax rate on payments to be made the sale of goods by a toll manufacturer from 5% to 9% in the case of a company and to 11% in other cases.

2.14. Advance tax on purchase, registration and transfer of motor vehicles

The Bill proposes to revise the rates of collection of advance tax on purchases, registrations and transfers of motor vehicles, as follows:

Engine capacity	Existing amount in Rs.	Proposed %
Up to 850cc	10,000	0.5% of the value
851cc to 1000cc	20,000	1% of the value
1001cc to 1300cc	25,000	1.5% of the value
1301cc to 1600cc	50,000	2% of the value
1601cc to 1800cc	150,000	3% of the value
1801cc to 2000cc	200,000	5% of the value
2001cc to 2500cc	6% of the value	7% of the value
2501cc to 3000cc	8% of the value	9% of the value
Above 3000cc	10% of the value	12% of the value

3. International tax developments

3.1. Transactions with associates

In relation to transactions between associates, the Commissioner is empowered to distribute, apportion, or allocate income, expenditures or tax credits between associates.

The Bill proposes to introduce a new condition whereby, notwithstanding the arm's-length principle, a claim of expenditure for sales promotion, advertisement and publicity (SAP) would be allowed to the extent of 75% of the total expenditure if any amount, in addition to SAP, is claimed for a royalty paid or payable (directly or indirectly) to an associate for the tax year or the two preceding tax years. The remaining 25% of SAP expense will be disallowed and allocated to the associate.

In this context, royalty is considered to be attributable to consideration on account of use of, or the right to use brand name, logo, patent, invention, design or model, secret formula or process, copyright, trademark, scientific or technical knowledge, franchise, license, intellectual property or other like property or right or contractual right.

Note that a Pakistan-source royalty earned by a nonresident person is taxable on a gross basis under the Final Tax Regime. Under such circumstances, the SAP expense allocated to the nonresident associate earning the royalty from Pakistan would not be allowed as an expense.

It is important to note that the Bill proposes to give retrospective effect to the application of the above principle by making it applicable for the tax year 2024 and onward.

4. Indirect tax developments

Sales Tax

4.1. Electronic invoice and licensed integrator

At present, the Board is authorized to specify persons or any class of persons to integrate their electronic invoicing system with the Board's computerized system for real-time sales reporting. The Bill proposes that every registered person specified by the Board, would be required to issues an e-invoice through a system implemented through "licensed integrator."

The Bill further proposes to define licensed integrator to mean a person licensed by the Board to provide an electronic invoicing system. Further, a penalty would apply amounting to the greater of Rs.1m or 1% of sales suppressed, for a licensed integrator who fails to integrate a registered person's system as required under the Sales Tax (ST) Act or ST Rules.

4.2. Taxability of Medicament

The Finance Act, 2022, introduced a reduced rate of 1% for substances registered as drugs under the Drug Act 1976. However, there was ambiguity regarding availability of the reduced rate on Medicaments. Through the Finance Act, 2023, Medicaments were allowed a reduced rate of 1% with retrospective effect. It is now proposed to withdraw the reduced rate of 1% on Medicaments, which would make them taxable at standard rate.

4.3. Sales tax on cellular phones

The Ninth Schedule lists the persons who are liable to pay sales tax on imported or locally manufactured cellular mobile phones in completely knocked down (CKD)/completely built units (CBU) form. Presently the tax on import and manufacture of mobile phones are on fixed value or ad valorem rate depending on the value of mobile phones. It is now proposed to have the following uniform ad valorem rates in VAT mode where the manufacturer and can adjust input tax paid at import of CKD/SKD.

S. No.	Description/ specification of goods	Sales tax on CBUs at the time of import or registration (IMEI number by CMOs)	Sales tax on import in CKD1/SKD2 condition	Sales tax on supply of locally manufactured mobile phones in CBU condition in addition to tax under column (4)
(1)	(2)	(3)	(4)	(5)
1	Cellular mobile phones or satellite phones to be charged on the basis of import value per set, or equivalent value in Rupees in case of supply by the manufacturer, at the rate as indicated against each category:
	A.     Not exceeding US$500	18% ad valorem	18% ad valorem	18% ad valorem
	B.     Exceeding US$500	25% ad valorem	18% ad valorem	18% ad valorem

1 CKD refers to completely knocked down

2 SKD refers semi-knocked down

4.4. Goods Chargeable to Sales Tax at Retail Price (Third Schedule)

The Bill seeks to insert the DAP (UREA) (i.e., a type of fertilizer) in the Third Schedule. Currently, DAP is taxable at the reduced rate of 5% on the value of supply subject to the condition that refund of excess input tax, if any, shall not be admissible.

The proposed addition will render the item subject to sales tax at the rate of 5% on retail price.

4.5. Goods Chargeable to Sales Tax at Zero Rate (Fifth Schedule)

The Bill seeks to withdraw the following entries:

S. No.	Description	Comments
12	Following goods and the raw materials, packing materials, components and etc. for manufacture of following goods:
xvii	Preparations suitable for infants, put up for retail sale not exceeding rupees six hundred per two hundred grams.	These goods would be taxed on applicable rate.
xx to xxvii	Colors in sets (Poster colors) Writing, drawing, and marking inks, Eraser, Exercise books Pencil sharpeners, Other, drawing, marking or mathematical calculating instruments (geometry box), pens, ball pens, markers, and porous tipped pens, pencils including color pencils	Identical entries are also available in Table 1 of Sixth Schedule (86 to 90, 96 to 98) which are also withdrawn. The finished goods are proposed to be inserted in Eight Schedule at S.No.84(i to vii) to be taxable at the reduced rate of 10%. Whereas raw materials and components would be taxable at applicable rate.
16	Milk	Local supply of milk (excluding sold in retail packing under a brand name) would be exempted through serial 56 of Table II of Sixth Schedule, inserted side by side. Effectively, milk sold in retail packing with brand name would be taxable at the standard rate.
17	Fat filled milk	Would be subject to tax at standard rate.
21	Local supplies of commodities, raw materials, components, parts and plant and machinery to registered exporters authorized under Export Facilitation Scheme, 2021 notified by the Board with such conditions, limitations and restrictions as specified therein.	The goods purchased by the registered exporters would now be subject to applicable rates of sales tax.

4.6. Goods Exempt from Sales Tax (Sixth Schedule)

The Bill seeks to withdraw the following entries from Table I, effectively exemptions on import and local supply of these goods would no longer be available for the following items:

S. No.	Description	Comments
13	Edible vegetables imported from Afghanistan including roots and tubers	The goods would now be subject to tax at standard rate.
15	Fruit imported from Afghanistan excluding apples
32	Newsprint and books but excluding brochures, leaflets, and directories	Identical entry is now inserted as Serial No.91 of Table I of Eight Schedule for taxing at the reduced rate of 10% subject to the condition that refund of excess input tax, if any, shall not be admissible.
112	Specified cardiology/cardiac surgery, neurovascular, electrophysiology, endosurgery, endoscopy, oncology, urology, gynecology, disposables and other equipment	The goods would now be subject to tax at standard rate.
120	Specified diagnostic kits or equipment
151	Supply of goods and import of plant and machinery by industries located in Tribal areas subject to the conditions as specified.	The same entries are inserted as Serial No.85 and 86 of Table I of Eight Schedule. These would now be taxable at reduced rate of 6% till 30 June 2025 and then 12% till 30 June 2026.
152	Supplies of electricity, as made to all residential and Commercial consumers in tribal areas, and to such industries in the tribal areas which were set and started their industrial production before 31 May 2018, but excluding steel and ghee or cooking oil industries
165	Goods imported by or donated to hospitals run by the non-profit making institutions subject to the similar restrictions, limitations, conditions, and procedures as are envisaged for the purpose of applying zero-rate of customs duty on such goods under the Customs Act, 1969, (IV of 1969).	Only the expression “imported by or” has been omitted, effectively such exemption is now only on donations.
166	Goods excluding electricity and natural gas supplied to hospitals run by the charitable hospitals of fifty beds or more.	The goods would now be subject to tax at standard rate.
169	Oil cake and other solid residues	Proposed to be subject to reduced rate of 10%.
170	Tractor	Proposed to be subject to reduced rate of 10%.
174	Machinery and equipment as listed at serial number 32 of the Table of Part-I of Fifth Schedule to the Customs Act, 1969 (IV of 1969), subject to the conditions, limitations and restrictions specified thereunder.	The goods would be subjected to tax at standard rate.

The Bill seeks to add the following entries in Table I for granting exemptions on import and supply of following goods:

S. No.	Description
175	Import of all goods received, in the event of a natural disaster or other catastrophe, as gifts and relief consignments or any goods received as gift or donation from various persons subject to certain conditions.
176	POL products: MS (Petrol) High speed diesel oil Kerosene Light diesel oil

The Bill seeks to withdraw the following entries from Table II, effectively eliminating the exemption on local supply of such goods:

S. No.	Description	Comments
7	Vermicillies, sheer mal, bun and rusk excluding those sold in bakeries, and sweet shops falling in the category of Tier-1 retailers	The entry is inserted under serial No.89 of Table I to Eight Schedule for taxing local supply of the same at reduced rate of 10%.
21	Local Supply of poultry feed, cattle feed, sunflower seed meal, rape seed meal and canola seed meal	The entry is inserted under serial No.90 of Table I to Eight Schedule for taxing local supply of the same at the reduced rate of 10%, subject to the condition that refund of excess input tax, if any, shall not be admissible.

The Bill seeks to insert the following entry in Table II for providing exemption on local supply of following goods:

S. No.	Description
57	Iron and steel scrap

4.7. Goods Subject to Sales Tax at Reduced Rates (Eight Schedule)

The Bill seeks to omit the following entries:

S. No.	Description	Comments
58	Import of liquid propane gas (LPG) and local supply of such imported LPG.	The goods would now be subject to tax at standard rate.
66	Supplies as made from retail outlets as are integrated with Board's computerized system for real-time reporting of sales if supplied goods are finished fabric, and locally manufactured finished articles of textile and textile made-ups and leather and artificial leather subject to the condition that they have maintained 4% value addition during the last six months
73	Locally manufactured hybrid electric vehicle: (a) Up to 1800 cc (b) From 1801 cc to 2500 cc

The Bill seeks to enhance the sales tax rate on the following goods:

S. No.	Description	Comments
77	Personal computers and laptop computers, notebooks whether or not incorporating multimedia kit, if imported in CBU condition.	The rate of sales tax is proposed to be enhanced from 5% to 10%.

4.8. Tax fraud

Scope of "tax fraud" has been clarified and enlarged to prescribe specific instances that would be considered tax fraud. Onus would be on the taxpayer to prove that he is not involved in the tax fraud.

4.9. Deregistration, blacklisting and suspension of registration.

Presently, if the Commissioner is satisfied that a registered person has issued sham invoices or engaged in tax fraud, he may "blacklist" the person. Blacklisting by the Commissioner is appealable before the Appellate Tribunal Inland Revenue.

The Bill proposes to remove the right to appeal a backlisting order before the Appellate Tribunal. Instead, the Chief Commissioner would be empowered, either on his own motion or upon application from the registered person, to examine the matter after providing the registered person an opportunity for a hearing. After examining the record of proceedings of the blacklisting order and making the necessary inquiries, the Commissioner may modify the blacklisting order as he deems fit.

4.10. Returns

Every registered person is required to submit monthly sales tax return. If sales tax returns are not filed, the assessing officer can only impose a penalty. The Bill proposes to give tax authorities the power to require any person to submit a sales tax return within 15 days from the date of serving notice or any other period specified in the notice.

An assessing officer may issue notice within the five-year period that follows the end of financial year in which return was due to be filed. However, this time limit is extended to 15 years in case of tax fraud.

4.11. Certain transactions not admissible

A taxpayer is required to make payment through banking channels if a transaction exceeds Rs.50,000. If the taxpayer fails to do so, corresponding input tax is disallowed to a registered buyer. The Bill proposes to apply the requirement for making payments through bank channels if a transaction exceeds Rs.50,000 in aggregate.

This proposal follows reported instances in which suppliers bifurcated their invoices to avoid being required to comply with the payment requirement. Apparently, the word "in aggregate" is proposed to be added for avoiding invoice splitting.

4.12. Value of supply

Currently, the Board is empowered to fix the value of supply of goods and imports. The Bill proposes to empower the Board to fix the value of imported goods that are taxable on the basis of retail price as well.

4.13. Time of supply

The collection of sales tax on advance payments was removed through the Finance Act, 2021. Now the Bill proposes to reintroduce advance payments to the definition of time of supply.

4.14. Default surcharge

It is proposed to enhance the rate of default surcharge from 12% to Karachi Inter-Bank Offer Rate (KIBOR) plus 3%.

4.15. Audit of sales tax affairs

The Bill proposed to clarify the mechanism for selecting and conducting tax audits.

The process for selecting tax audits has remained under litigation due to lack of clarity regarding mechanism for audit selection. The Bill proposes to require the Commissioner to communicate the reasons for audit selection; however, the Commissioner is not required to provide the taxpayer any opportunity to respond upon selection of audit proceedings. Further, the Bill proposes that audits may be selected based only on scrutiny of available records and not mere verification of taxpayer's declaration except any risk factors that are identified.

The proposed new law provides detailed procedures for assessing tax and auditing the affairs of the taxpayer in a comprehensive manner. Once the audit proceedings are completed, the assessing officer will shall make an assessment order and give the taxpayer an opportunity to respond.

The Bill also proposes to insert a new section on investigative audits. If during the course of an audit, tax authorities suspects that taxpayer is involved in tax fraud, they may move to investigative audit with prior approval of the Commissioner.

4.16. Investigative audit

If during an audit the Inland Revenue officer suspects that a registered person is involved in tax fraud, he may, with the prior approval of the Commissioner, initiate investigative audit against such person. For this purpose, the officer may call further information and collect evidence under other provisions of the Act within 90 days. After completing the investigative audit, the officer, provides an opportunity for a hearing and may assess due tax by issuing an assessment order. If the taxpayer fails to provide information and documentation, the officer may pass a best judgment order or blacklist the person and impose penalties or take other actions on account of tax fraud.

4.17. Assessment proceedings

Currently, all assessment-of-tax issues are addressed under a single section. The Bill now proposes to introduce a new section to outline assessment proceedings that apply to different situations. Examples of situations that have been proposed follow:

• Appeal effect orders

The timeline/procedure for issuing appeal effect orders is proposed to be aligned with that available in the Income Tax Ordinance, 2001.

• Best judgment assessment

The concept of best judgment assessment is proposed to be introduced in the law. Under this provision, if a person fails to file the return, the tax authorities are now empowered to pass an order and recover tax as per their best estimate. A corresponding change has also been introduced in the law that empowers the tax authorities to obtain a return from such person.

Various appellate orders have held that because the law currently does not empower tax authorities to pass a best judgment assessment order, noncompliance with tax audit proceedings could not lead to an ex-parte best judgment assessment. The Bill would fill this lacuna in the law, proposing that if a person fails to submit records/documents in compliance of tax audit proceedings, the tax authorities may make best judgment assessment.

Simultaneously, the tax authorities are being empowered to disallow input tax if the taxpayer is unable to provide documentary evidence or circumstances giving rise to the claim.

Further, the Bill proposes that if a best judgment assessment is issued based on failure to file a return, and the taxpayer thereafter files the return and pays the penalty and default surcharge, the best judgment assessment order would no longer be effective.

• Assessment and recovery of tax

A separate section has been proposed that would deal with assessment of tax against a taxpayer in certain scenarios – specifally, where the taxpayer has: 

• Not paid or short-paid sales tax that is due

• Claimed an input tax credit or refund that is not admissible

• Obtained an amount of refund that is not due

Simultaneously, the tax authorities are empowered to disallow input tax in case where the taxpayer is unable to provide documentary evidence or circumstances giving rise to the input tax claim.

It is further proposed that, in case of later two situations mentioned above, the tax amount of tax to be recovered would be proportionate amount based on the value of supply.

• Recovery of short/non-withholding of sales tax

If a person required to withhold tax either fails to withhold tax or, having withheld tax, fails to deposit it in the Government treasury, the tax authorities may recover the tax from the person along with a penalty levy and default surcharge.

• Time limit for passing orders 

A separate section is proposed that provides the timeline for issuance of show cause and the maximum time period by which an assessment order could be passed. It may be noted, however, that timelines remain the same as currently applicable.

4.18. Increase in sales tax withholding

The Bill proposes that persons engaged in supply of following items be required to withhold sales tax at 80%:

• Lead batteries

• Gypsum or limestone flux under chapter 25

• Coal under chapter 27

• Waster paper and paper board

• Plastic waste

• Crushed stone and silica

4.19. Offenses and penalties

Revision of penalties

The following penalties are proposed to be substituted:

S. No.	Offenses	Existing penalty	Proposed penalty
11	Any person who, – (a)    submits a false or forged document to any officer of Inland revenue; or (b)    destroys, alters, mutilates, or falsifies the records including a sales tax invoice; or (c)     Knowingly or fraudulently makes false statement, false declaration, false representation, false personification, gives any false information or issues or uses a document which is forged or false.	Such person shall pay a penalty of Rs.25,000 or one hundred per cent of the amount of tax involved, whichever is higher. He shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to three years, or with fine which may extend to an amount equal to the amount of tax involved, or with both.	A penalty of Rs.25,000 or one hundred percent of the amount of tax evaded or sought to be evaded, whichever is higher. He shall also be liable, upon conviction by a Special Judge to imprisonment for a term up to five years if the tax evaded or sought to be evaded is up to 500 million. Ten years if the tax evaded or sought to be evaded is Rs.1 billion and above.
13	Any person who commits, causes to commit or attempts to commit the tax fraud, or abets or connives in commissioning of tax fraud.	Such person shall pay a penalty of Rs.25,000 or one hundred per cent of the amount of tax involved, whichever is higher. He shall, further be liable, upon conviction by a Special Judge, to imprisonment for a term which may extend to five years, or with fine which may extend to an amount equal to the loss of tax involved, or with both.	A penalty of Rs.25,000 or one hundred percent of the amount of tax evaded or sought to be evaded, whichever is higher. He shall also be liable, upon conviction by a Special Judge to imprisonment for a term up to five years if the tax evaded or sought to be evaded is up to 500 million. Ten years if the tax evaded or sought to be evaded is Rs.1 billion and above

Additions in penalties

Serial No. 25A levied strict penalties on Tier 1 retailers who fail to integrate their business with Federal Board of Revenue (FBR) systems. The Bill proposes to apply the same noncompliance penalties persons who fails to integrate their electronic invoicing system with Board’s Computerized System for real time reporting of sales.

The following new entry 25AA is proposed to be introduced:

Offense	Penalties	Section of the Act to which offense has reference
Any licensed integrator who is authorized to provide electronic invoicing system for integration of registered persons fails to integrate such registered persons in the manner as required under this Act and rules made thereunder	Such person shall be liable to pay penalty of rupees one million or one percent of the total value of the sales suppressed, whichever is higher.	Sub-Section (5) of Section 40C.

Federal Excise Duty

4.20 Default surcharge

Similar to the amendments proposed in the Ordinance and ST Act, the Bill seeks to amend the rate of default surcharge from 12% per annum of the duty due to KIBOR plus 3% per annum.

4.21. Offenses, penalties, fines, and allied matters

The Bill proposes to impose fine up to Rs.50,000 or five times of duty involved, whichever is higher and to punishment with imprisonment extendable to five years or both on the person who, without the prior permission of the Commissioner, installs plant and machinery, commences production or removes plant and machinery, having value of Rs.50m and above.

It is also proposed that the retail outlet of any retailer shall be liable to be sealed, in a manner as may be prescribed, who is engaged in the sale of cigarette packs without affixing, or affixing counterfeited, tax stamps, banderoles, stickers, labels or barcodes.

4.22. Pecuniary jurisdiction in appeal

Section 33A was inserted through Tax Laws (Amendment) Act, 2024 effective from 3 May 2024, whereby all the cases pending before Commissioner (Appeals) that have a value of assessment of tax or refund of tax assessed exceeding Rs.5m will be transferred to Appellate Tribunal Inland Revenue on the 16 June 2024. The Bill now proposes to substitute the date 16 June 2024 with 16 September 2024.

4.23. Savings

The Bill seeks to reduce the time period specified in the relevant sections in respect of filing of appeal before the Appellate Tribunal Inland Revenue or reference to the High Court. Under the proposed amendment, the time period specified in the relevant sections for filing appeal of reference shall continue to apply if the Order of the Commissioner (Appeals) or the Appellate Tribunal Inland Revenue is received prior to the commencement of the Tax Laws (Amendment) Act, 2024.

4.24. Amendments in the First Schedule

The Bill proposes following amendments in Table I of the First Schedule to the FE Act:

S. No.	Description	Heading/ sub-heading number	Duty rate
			Existing	Proposed
8a	E-liquids by whatsoever name called, for electric cigarette kits.	Respective heading	Rupees ten thousand per kg	Rupees ten thousand per kg or sixty five percent of retail price whichever is higher
13	Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not colored or in the form of clinkers	25.23	Two rupees per kg	Three rupees per kg
56	Filter rod for cigarettes	Respective headings	Rupees fifteen hundred per kg	Rupees eighty thousand per kg

Currently, under Sr. No. 9 and 10, duty applies to locally produced cigarettes at (1) Rs.16,500 per 1,000 cigarettes if their on-pack printed retail price exceeds Rs.9,000 per 1,000 cigarettes and (2) Rs.5,050 per 1,000 cigarettes if their on-pack printed retail price does not exceed Rs.9,000 per 1,000 cigarettes. The Bill proposes to amend both Sr. No.9 and 10 by enhancing the threshold of on-pack printed retail price of locally produced cigarettes from Rs.9,000 per 1,000 cigarettes to Rs.12,500 per 1,000 cigarettes.

The Bill proposes to insert the following entries in Table I of the First Schedule to the FE Act to levy duty on the goods provided therein.

Sr. No.	Description of goods	Heading/ sub-heading Number	Duty rate
7a	Acetate tow	Respective heading	Rupees forty-four thousand per kg
8d	Nicotine pouches	Respective heading	Rupees one thousand and two hundred per kg
63	Allotment or transfer of commercial property and first allotment or transfer of residential property in such mode and manner and subject to such conditions and restriction as may be prescribed by the Board.	Respective headings	5%
64	Sugar supplied by any person to a manufacturer	Respective headings	Rupees fifteen per kg

The duty proposed under serial no.63 may not be in line with the provisions of section 3(1), providing scope for levy of duty read with section 3(5), on persons liable to pay duty, which may give rise to disputes. Further, similar dispute risk may also exist with respect to proposed levy of duty on supply of sugar by trader under Sr. No.64.

Customs

4.25. Amendments in the Third Schedule

The Bill proposes to insert a new serial no.23 to grant exemption on imports made by diplomats, diplomatic missions, privileged persons and privileged organizations that are covered under various Acts, Orders, Rules, Regulations and Agreements passed by the Parliament or issued or agreed by the Government of Pakistan falling under heading/sub-heading numbers 99.01, 99.02 and 99.05.

4.26. Resolution of controversies through Appellate Tribunal, Alternate Dispute Resolution and High Court

The Bill proposes to completely substitute the existing provisions governing the constitution and procedures of the Appellate Tribunal, the Alternate Dispute Resolution Committee (ADRC), and the reference to the High Court. The proposed amendments are consistent with those made in May 2024 to the Income Tax, Sales Tax, and Federal Excise Laws through the Tax Laws (Amendment) Act, 2024 (TLAA, 2024).

Appellate Tribunal

The principal changes relating to Appellate Tribunal include:

• Appointment of the Appellate Tribunal: The proposed provisions stipulate that the composition and appointment of the Appellate Tribunal, as well as rules, regulations, procedures, operations, member appointments, bench formations, case management systems, case distribution, and other related matters, will be governed by rules prescribed by the Federal Government.

• Appeals to Appellate Tribunal: The proposed provisions detail the appeal process for customs matters, requiring appeals to be filed within 30 days of the decision, along with a fee of Rs.20,000 for companies or Rs.5,000 for others. The Appellate Tribunal may accept late appeals with sufficient cause and can stay the recovery of duties and taxes for up to 90 days upon application, despite an ongoing appeal.

• Decision from Appellate Tribunal: The proposed amendment mandates that the Appellate Tribunal must resolve appeals within 90 days of their filing. Should a decision not be made in this period, the Tribunal, with the agreement of both parties and documented justification, may extend the deadline by an additional 60 days. At the initial hearing, the Tribunal will present the appellant with the alternative dispute resolution (ADR) option. If the appellant declines ADR and prefers to continue with the appeal, the Tribunal, in agreement with both parties, will set the hearing and decision dates according to the rules. Furthermore, the Tribunal is obliged to decide on appeals as scheduled, and adjournments are only permissible for compelling reasons, which must be written down and require a payment of at least Rs.50,000. Additionally, the Tribunal's order will be held in abeyance for 30 days, during which the Collector or the other party involved in the appeal may refer the case to the High Court.

Alternate dispute resolution

The key changes proposed in the Bill relating to ADR include:

• The application to opt for ADR must be accompanied by an initial proposal for dispute resolution from the applicant, which should include an offer of payment for duties and taxes.

• The timeframe for the Board to form an ADRC upon receiving an application would be reduced from 30 to 15 days.

• Additionally, a retired officer of the Customs Service of Pakistan at BS-21 would be added to the Committee's composition.

• The Committee would be required to resolve the dispute by a majority within 40 days, a reduction from the previous 90-day timeline, with the possibility of a 15 days’ extension.

• If satisfied, the aggrieved party would be required to withdraw any pending appeals and notify the Collector within 30 days. Following the withdrawal, the Collector would be obligated to withdraw any pending appeals within 30 days of the communication from the aggrieved party.

Reference to High Court

The key changes relevant to reference to High Court are as follows:

• The timeframe for referring a case to the High Court has been shortened to 30 days from the Appellate Tribunal's order, down from 90 days. The reference to the High Court must include a question of law or a mixed question of law and fact arising from the order.

• The filing of a reference, other than by the Customs department, shall be accompanied by a fee of Rs.50,000, an increase from the previous Rs.100.

• The amendment requires the High Court to implement a case management system to ensure that a reference filed under this section is resolved within the prescribed six months.

• Despite a reference to the High Court, duties are to be paid in accordance with the Appellate Tribunal's order. The Collector's recovery is suspended for 15 days following the communication of the Tribunal's order.

• If the High Court's judgment reduces the duties and taxes, resulting in a refund, the High Court may, upon application by an authorized Custom's officer within 30 days of the judgment, allow the officer to delay the refund pending a potential appeal to the Supreme Court.

4.27. Power to determine the customs value

The Bill introduces the concept of a "Publication Valuation Ruling” (PVR) alongside the existing "Valuation Ruling” (VR). The amendment specifies that no provisional determination of value shall be allowed in cases where either a VR or a PVR is in effect, regardless of whether any review or revision against such rulings is pending. This change aims to clarify and expand the scope of rulings that preclude provisional determination of value.

4.28. Punishment for offenses

The Bill proposes to introduce new offenses and impose penalties, as well as to replace certain existing penalties, as detailed below.

New offenses and penalties

Radioactive and nuclear material

New offenses are proposed concerning the smuggling of nuclear and radioactive material and the applicable terms are defined consistent with those in Pakistan Nuclear Regulatory Authority Ordinance, 2001.

These offenses are categorized based on the type and quantity of nuclear material involved. It is noted that if any offense involves a breach of national security, it will be addressed under the National Command Authority Act, 2010.

Additionally, a proposed amendment to section 6 allows the Board to delegate customs functions to officers of the “National Command Authority” and the “Pakistan Nuclear Regulatory Authority.”

The categories of the offenses and proposed penalties are as follows:

Offense (nuclear material)	Proposed penalties
	Such goods shall be liable to confiscation and any person concerned in the offense shall be liable to:
Possession of a small quantity of various types of unirradiated nuclear materials, such as plutonium (except isotopic composition exceeding 80% of Plutonium-238), uranium enriched to various levels of U-235, or U-233, each below a specified threshold	Imprisonment for up to seven years, or a fine of up to Rs.1m, or both
Possession of a moderate quantity of the same types of nuclear materials, with each type exceeding the small quantity thresholds but not surpassing higher specified amounts	Imprisonment for up to 10 years and a fine of up to Rs.5m
Possession of a substantial quantity of the same types of nuclear materials, with each type exceeding the moderate quantity thresholds but not surpassing even higher specified amounts	Life imprisonment or imprisonment for up to 14 years, and a fine of up to Rs.10m
Possession of a large quantity of the same types of nuclear materials, with each type exceeding the substantial quantity thresholds	Life imprisonment or imprisonment for a term not less than 14 years, and a fine of up to Rs.5m

Offense (radioactive material)	Proposed penalties
	Such goods shall be liable to confiscation and any person concerned in the offense shall be liable to:
If the Activity to Dangerous Value (A/D ratio) does not exceed one (1)	Imprisonment for up to 2 years, or a fine, or both.
If the A/D ratio is more than one (1) but does not exceed ten (10)	Imprisonment for up to 7 years or a fine, or both.
If the A/D ratio is more than ten (10) but does not exceed one thousand (1000)	Imprisonment for up to 14 years and a fine of up to Rs.5m
If the A/D ratio exceeds the limit specified in the previous clause (c), which is one thousand (1000), the case will be dealt with under the National Command Authority Act, 2010	life imprisonment or imprisonment for a term not less than 14 years, and a fine of up to Rs.5m

Smuggled Goods

Offense	Proposed Penalties
Confiscated smuggled goods under custody are illegally removed, exchanged, or disposed of:	The responsible person faces a penalty up to 10 times the goods' value and, upon conviction, up to 6 years' imprisonment or a fine up to Rs.1m, or both.

Removal of Seized Goods

Offense	Proposed Penalties
Seized goods, not covered by clause 89, are unlawfully managed while in custody	The goods will be subject to confiscation. The individual involved will face a penalty of up to twice the value of the goods. Upon conviction, the individual may also face imprisonment for up to 6 months, a fine of up to Rs.50,000, or both.

Substituted penalties

Smuggling of goods

Offense	Existing penalty	Proposed penalty
Persons involved in smuggling of goods, evasion of duty, taxes and breach of prohibitions or restrictions	The goods will be subject to confiscation. The individual involved will face a penalty of up to twice the value of the goods. The penalty value shall not be less than value of goods.	The goods will be subject to confiscation. The individual involved will face a penalty of twice the value of the goods.

Negligence of police officer

Offense	Existing penalty	Proposed penalty
A police officer who neglects to send a written notice or to transport goods to a customs-house.	Upon conviction before a Special Judge, be liable to penalty up to Rs.20,000.	Upon conviction before a Special Judge, be liable to penalty up to Rs.50,000.

Obstructing a custom officer

Offense	Existing penalty	Proposed penalty
A person who obstructs the custom officer or the work of custom officer	Upon conviction before a Special Judge, be liable to penalty up to Rs.25,000 and imprisonment of up to 2 years.	Upon conviction before a Special Judge, be liable to penalty of at least Rs.100,000 and imprisonment of up to 2 years.

Possession of prohibited goods

Offense	Old penalty	Proposed penalty
A person who is in possession of prohibited goods	The goods will be subject to confiscation. The individual involved will face a penalty of up to 10 times the value of the goods. The penalty value shall not be less than value of goods.	The goods will be subject to confiscation. The individual involved will face a penalty of up to 10 times the value of the goods.

4.29. Delegation of powers

The Bill proposes to expand the Board's ability to delegate its functions and powers. Key changes include allowing the Board to delegate authority directly to the Chairman and extending the delegation hierarchy to enable specified officers to exercise the powers of their superiors, such as Members or Director Generals acting on behalf of the Board or Chairman, and Collectors of Customs assuming the powers of Chief Collectors of Customs.

4.30. Intelligence Bureau to assist the Officers of Customs

The Bill seeks to include the Intelligence Bureau in the list of entities whose officers are empowered to assist customs officers.

4.31. Detention, seizure and confiscation of prohibited goods

The Bill proposes to grant the Additional Collector of Customs or Additional Director the authority to extend the time period for the detention, seizure, and confiscation of prohibited goods. Previously, this power was vested in the Chief Collector or Director General, respectively.

4.32. Formulation of new directorates

The Bill proposes to formulate two new directorates namely Directorate General of National Targeting Centre and Directorate General of Trade-Based Money Laundering.

Each directorate will be led by a Director General and will include Directors, Additional Directors, Deputy Directors, Assistant Directors, and other officers as appointed by the Board.

4.33. Amendments in First Schedule

• Customs duty on following goods is proposed to be changed as per rates below:

PCT CODE	Description	Existing rates	Proposed rates
2710.1931	High speed diesel oil	11%	0%
2711.1100	Natural gas	11%	0%
7311.0040	For Aerosol products	11%	16%

• For the following goods, specific PCT codes are proposed to be created to charge the customs duty:

PCT CODE	Description		Rates
1102.9010	Rice Flour		11%
1102.9090	Other		11%
3907.2910	Polyol blended with HCFC-141b or HCFC-142b		0%
3907.2990	Other		0%
8481.3010	Check (non-           return) valves	For tire tubes	16%
8481.3090		Others	16%
8544.6020	Photovoltaic power cable having single conductor of kind used for solar		20%
9004.9010	Night Vision Goggles		11%*
9004.9090	Other		11%*
9018.3981	Evacuated tubes for the collection and transport of blood	—- Of glass	20%**
9018.3982		—- Of PET	20%**
9018.3989		—- Other	20%**

* Rate is proposed to increase from 3% to 11%

** Rate is proposed to increase from 0% to 20%

• The description of following PCT Codes is proposed to be amended and updated in the following manner:

PCT code	Description
8413.9130	Inclusion of PCT Code "8413.7019" for exemption of customs duty on parts of submersible pumps
9908	The modification shifts recommendation authority from the Federal Government to the Minister Incharge, to ensure donations and gifts are granted exemption without the need to seek approval from Cabinet while introducing a verification process by the concerned Ministry and requires an undertaking to ensure the donated goods are used solely for the intended purpose.
9917	To streamline exemptions and extend the scope of import of ship bunker oil to operating companies of concession holders and their contractors and subcontractors
9919	The delegation of power to the Chief Collector to extend the timeline for an additional six months for the re-export of goods to avoid operational delays and facilitate ease of doing business Further, inclusion of "Carpets for the purpose of repairing by the Sales Tax registered manufacturers having in-house facility" which will be subject to Customs Duty @ 0%.
9921	Insertion of "Duty paid container used for transportation of export cargo (PCT No.86.09) by the exporters, on its reimportation". This will permit the use of duty-paid containers for the transportation of export cargo by exporters without the payment of duty and taxes.

• It is proposed to withdraw the customs duty on the temporary import of asafoetida, cumin, and other medicinal herbs from Afghanistan for subsequent exportation.

4.34. Amendments in Fifth Schedule

• Customs duty on the following goods is proposed to be changed as per rates given below:

PCT CODE	Description	Existing rates	Proposed rates
8534.0000	Bare Metal Clad Printed Circuit Board (MCPCB)	0%	11%
3004.3900	Bovine Lipid Extract Surfactant	11%	0%
Respective Heading	Livestock [If imported for research purpose by registered units under the ST Act certified by Ministry of National Food Security and Research]	Respective rates	0%
0306.3600	Other shrimps and prawns [Breeding and production in commercial farms and hatcheries]	11%	0%

• Exemption of Customs duty on following goods is proposed to be withdrawn and tax as per rates given in the First Schedule:

PCT code	Description			Existing rates	Proposed rates
08.00	Fresh and Dry Fruits except apples from Afghanistan			10%	Multiple rates
10.01	Wheat			0%	11%
1701.1390 1701.1400	Cane Sugar			0%	20%
1701.1200	Beet Sugar			0%	20%
1701.9910	White crystalline cane sugar			0%	20%
1701.9920	White crystalline beet sugar			0%	20%
8534.0000	Printed circuits			0%	20%
8529.9090	Manufacturer of Home Appliances	Glass board for manufacturing TV panels (LCD, LED, OLED, HDI etc.)		0%	10%
8534.0000		Printed circuits		0%	20%
8703.8090	Electric Vehicles of value exceeding US$ 50,000			25%	50%
0301.9200	Breeding and production in commercial farms and hatcheries		Eels (Anguilla spp.)	0%	11%
0301.9400			Atlantic and Pacific bluefin tunas (Thunnus thynnus, Thunnus orientalis)	0%	11%
0301.9500			Southern bluefin tunas (Thunnus maccoyii)	0%	11%

• The Bill seeks to reduce the duty to 0% on following goods, if imported by the local assembler/manufacturer registered under the Sales Tax Act and subject to annual quota determination by IOCO:

Industry	Items
Raw materials for the manufacture of PV Modules	Silicon Adhesive/ Sealant, MC4 Connectors, Back sheet film, packing boxes/ modules, Corner block, polythene compound, Tin ingot, Plates, sheets and strip of cellular rubber (vulcanized) and Glass fibers (including glass wool) and articles thereof
Parts of Solar Inverters	Control board, Power board, Charge controller board A/C, Charge controller board PV, DCDC board, LCD Display, Display board, AC input & Output terminal, Battery input terminals, PV terminals, Casings (Plastic or Steel), Circuit Board (CB) for inverters, Stuffed PCBs for inverters.
Parts of Lithium Batteries	Cells, Copper Bar (Cell to Cell Connection), BMS (level 1) Electronic Card, Casing, Harness Set (Cells Monitoring Wires with tags), Output Terminal with screws, Power Cables (Battery Internal), DC Fan, DC Breaker, Packing Screws, Terminal Covers, Acrelic Sheet (Short Circuit Safety Sheet), Other Accessories (Temp Sensors, connectors, assembly items, Handles)

• The Bill seeks to reduce the duty to 0% on following goods (machinery and equipment), if imported by the local manufacturing units subject to the fulfillment of conditions mentioned below.

• The Engineering Development Board (EDB) shall certify in the prescribed manner that the imported goods are bona fide project requirement. The authorized officer of the EDB shall furnish all relevant information online to Pakistan Customs Computerized System against a specific user ID and password obtained under section 155D of the Customs Act.

• The goods shall not be sold or otherwise disposed of without prior approval of the FBR and payment of customs duties and taxes leviable as prescribed by FBR.

• Condition (iv) of the Part 1 of the Fifth Schedule.

Industry	Items
Solar Cell Manufacturing Equipment	Crystal (Grower) Puller (if machine), Diffusion furnace, Oven, Wafering machine, Cutting and shaping for silicon ingot, Solar grade polysilicon material, Phosphene Gas and Aluminum and silver paste.
Solar PV Modules Panels manufacturing machinery and equipment	Sun Simulator, Glass Lifter, Tabber Stringer, hi-Speed Layup Station with ROBOT, Motorized Visual Inspection, Buffer before Bussing, Multi-station for Bussing, Centering Conveyor with Visual Inspection, Fully Automatic or Semi-automatic Laminator with Centering, Loading & Unloading, Automatic Inline Framing Machine, Automatic Silicon Dispenser, Direction Changer with 90 Degree Rotator, Centering Conveyor for Sun Simulator, Hi-Pot Test Equipment, Electroluminescence (EL) Tester, Motorized Conveyor, EVA/Black sheet Cutting Machine, Ribbon Cutting & Bending Machine, Lab Test Equipment, Conveyer Belt, Laser cutting machine for cell, Cell sorting machine & testers, Structures & parts of structures, Vacuum pumps, Air or gas compressors, hoods, Non-domestic, non-electric dryers, Threading or tapping machines for removing metal, Machines and mechanical appliances having individual functions., Electric brazing or soldering machines and apparatus, Electric heating resistors, and Electric app for switching/protect electric circuits, not exceeding 1,000 volts,
Solar Inverters manufacturing machinery and equipment.	Solder Paste Screen Machine, SMT pick and place Machine, Wave-soldering Machine, PCB Conveyor Belt, SMT Workstation, Solder Pot, Solder Cleaning Equipment, Wire Cutting & Stripping Machine, and Crimping Machine.
Lithium-ion batteries manufacturing machinery and equipment.	Weighting kettles, Weighting and conveying systems, Storage tanks, Glue port, Transfer tanks, Feeder, High speed spiral mixer, Booster pumps, Magnetic filters, High speed homogenizer, Auxiliary equipment and DCS central control system components, Pole piece cathode machine, Polo piece rolling machine, CNC nibbling machine, CNC bending machine, Sport welding plant, Auxiliary equipment, High temperature circulation thermal tester, UL 2054 fire testing equipment, Pack rotation simulation, Free fall tester, Battery impact tester IEC 62133, UL 1642 flame tester, Electromagnetic vibration tester UN 38.3, Single wing Electromagnetic power drop testing equipment, and Hydraulic crush testing equipment

• The Bill seeks to expand the scope of exemption of customs duties on import of fish or shrimp farming, seafood farming and sea food processing machinery and equipment as set out below:

PCT CODE	Description	Rate of tax	Conditions
Respective heading	Machinery, equipment, capital goods, and materials for setting up, modernization, replacement or expansion for hatcheries, farms, feed mills and seafood processing units of fish and shrimp sector.	0%, 3%, 5%	1.Imports by fish/shrimp hatcheries, farms, feed mills and seafood processing units, registered under the Sales Tax Act and Fisheries Development Board or concerned Ministry; and 2. Ministry of National Food Security and Research shall certify in the prescribed manner and format as per Annex-B to the effect that the imported goods are bona fide requirement. The Authorized Officer of the Ministry shall furnish all relevant information online to Pakistan Customs Computerized System against a specific user ID and password obtained under Section 155D of the Customs Act.

• The Bill seeks to streamline the conditions under the chapter related to "Imports of Aviation Related Goods (i.e., Aircrafts and Parts, etc.) by Airline Companies/Industry under National Aviation Policy 2015" as follows:

• The exemption shall be admissible to the Airline Companies having valid registration and license from the Aviation Division, Government of Pakistan duly shared with the Customs Computerized System or Pakistan Single Window to the effect that the intending importer is operating in the country or intends to operate in the country in the airline sector.

• The Chief Executive, or the person next in hierarchy duly authorized by the Chief Executive or Head of the importing Company shall certify that the imported goods/items are the company's bona fide requirement and shall be used for the purpose as defined/notified by the Aviation Division, Government of Pakistan under the Aviation Policy. The importer shall declare all relevant information to the Customs while claiming exemption regarding genuineness of the claim through Customs computerized system or Pakistan single window.

• In case of deviation from the above stipulations, the Collector of Customs shall initiate proceedings for recovery of duty and taxes under the relevant laws.

4.35. Changes in Additional Customs Duty (ACD) and Regulatory Duty (RD)

The following measures have been outlined in the key features of the Budget 2023-24 concerning ACD and RD:

• Exemption of ACD on raw materials for fluids and powders used in hemodialyzers

• The imposition of ACD on localized auto parts to encourage the local manufacturing sector

• The imposition or increase of RD on flat-rolled products of iron and non-alloy steel, among other items, to encourage local manufacturing

• The rationalization of RD on the import of new and used vehicles

• The withdrawal of the exemption of RD on the import of ground nuts and margarine by the Food Confectionery, silver cans and lollipop sticks

Petroleum Levy

4.36. Amendments in the Petroleum Products (Petroleum Levy) Ordinance, 1961

• The Bill seeks to fix the existing rates as minimum and has proposed to revise maximum rates as follows:

Petroleum product	Unit	Minimum levy rate (Rs./unit)	Maximum levy rate (Rs./unit)
High speed diesel oil	Liter	60	80
Motor gasoline	Liter	60	80
Superior kerosene oil	Liter	50	50
Light diesel oil	Liter	50	75
High octane blending component	Liter	50	75
E-10 gasoline	Liter	50	75
Liquified petroleum gas (produced/extracted in Pakistan)	Metric ton	30,000	30,000

5. List of abbreviations

ADR	Alternative Dispute Resolution
AoP	Association of Persons
ATIR	Appellate Tribunal Inland Revenue
ATL	Active Taxpayers' List
BEPS	Base Erosion and Profit Sharing
CbC	Country by Country
CD	Customs Duty
CFC	Controlled Foreign Company
CIR	Commissioner Inland Revenue
CIR(A)	Commissioner Inland Revenue (Appeals)
CNIC	Computerized National Identity Card
CPEC	China-Pakistan Economic Corridor
CRS	Common Reporting Standards
DTA	Double Tax Agreements
EDB	Engineering Development Board
EPCC	Engineering, Procurement, Construction and Commissioning
FBR	Federal Board of Revenue
FCVA	Foreign Currency Value Account
FED	Federal Excise Duty
FTR	Final Tax Regime
GD	Goods Declaration
ICT	Islamabad Capital Territory
IOCO	Input Output Coefficient Organization
KIBOR	Karachi Inter-Bank Offer Rate
NBP	National Bank of Pakistan
NCCPL	National Clearing Company of Pakistan Limited
NICOP	National Identity Card for Overseas Pakistani
NPO	Non-Profit Organization
NRVA	Non-resident Pakistan Rupee Value Account
NTR	Normal Tax Regime
OECD	Organization for Economic Cooperation and Development
POC	Pakistan Origin Card
PoS	Point of Sale
PTA	Pakistan Telecommunication Authority
RD	Regulatory Duty
SBP	State Bank of Pakistan
SCRA	Special Convertible Rupee Account
SECP	Securities and Exchange Commission of Pakistan
SEZ	Special Economic Zone
SME	Small and Medium Enterprises
The Amendment Ordinance	The Income Tax (Amendment) Ordinance, 2022
The Amnesty Rules	The Assets Declaration (Procedure and Conditions) Rules, 2019
The Amnesty Act	The Assets Declaration Act, 2019
The Benami Act	The Benami Transactions (Prohibition) Act, 2017
The Benami Rules	The Benami Transactions Rules, 2019
The Bill	The Finance Bill, 2022
The Customs Act	The Customs Act, 1969
The FE Act	The Federal Excise Act, 2005
The ICT Ordinance	The Islamabad Capital Territory (Tax on Services) Ordinance, 2001
The Management Act	The Public Finance Management Act, 2019
The Ordinance	The Income Tax Ordinance, 2001
The Punjab WPF Act	The Companies Profits (Workers' Participation) (Amendment) Act, 2021
The Punjab WWF Act	The Punjab Workers’ Welfare Fund Act, 2019
The Rules	The Income Tax Rules, 2002
The Sindh WPPF Act	The Sindh Companies Profits (Workers’ Participation) Act, 2015
The Sindh WWF Act	The Sindh Workers’ Welfare Fund Act, 2014
The ST Act	The Sales Tax Act, 1990
The ST Rules	The Sales Tax Rules, 2006
The Supplementary Act	The Finance (Supplementary) Act, 2022
The WPPF Act	The Companies Profit (Workers' Participation) Act, 1968
The WWF Ordinance	The Workers' Welfare Fund Ordinance, 1971
WPPF	Workers' Profit Participation Fund
WWF	Workers' Welfare Fund

Contact Information

For additional information concerning this Alert, please contact:

EY Ford Rhodes, Karachi

• Haider Ali Patel
• Salman Haq
• Muhammad Saleem

EY Ford Rhodes, Lahore & Islamabad

• Muhammad Awais
• Aamir Younas

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.