1

Introduction To Federal Board Of Revenue:

The Central Board of Revenue (CBR) was created on April 01, 1924 through enactment of the
Central Board of Revenue Act, 1924. In 1944, a full-fledged Revenue Division was created
under the Ministry of Finance. After independence, this arrangement continued up to 31st
August 1960 when on the recommendations of the Administrative Re-organization Committee,
FBR was made an attached department of the Ministry of Finance. In 1974, further changes were
made to streamline the organization and its functions. In order to remove impediments in the
exercise of administrative powers of a Secretary to the Government and effective formulation
and implementation of fiscal policy measures, the status of FBR as a Revenue Division was
restored under the Ministry of Finance on October 22, 1991. However, the Revenue Division
was abolished in January 1995, and FBR reverted back to the pre-1991 position. The Revenue
Division continues to exist since from December 01, 1998.
Directorate of Customs Intelligence and Investigation was created as an attached department of
Revenue Division on 12th August, 1957 headed by a Director with HQs at Karachi. Three
Regional Offices of the Directorate were established at Chittagong (then East Pakistan), Lahore
and Karachi. Central Excise Work was entrusted to the Directorate on 18th June, 1974. It was in
1984 that the HQs of the Directorate were shifted to Islamabad from Karachi. The department
was up-grated on 21-2-1985 and it was headed by Director General. In 1995, the Directorate
General was assigned the role to carry out detailed audit of cases of Sales Tax fraud. The
Directorate General shifted into its own premises in Sector G-10/4 Islamabad in August 2004. In
2005 the Directorate General was assigned the additional responsibilities of integrity
management. Consequent upon restructuring under reform process, Directorate General of
Intelligence and Investigation (Customs, Sales Tax & Federal Excise) was re-designated as
Directorate General of Intelligence & Investigation FBR, Islamabad with the responsibility of
both Direct and Indirect Taxes.

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Vision:
To be a Modern, Progressive, Effective, Autonomous and Credible organization for optimizing
revenue by providing quality service and promoting compliance with tax and related laws.
Mission:
Enhance the capability of the tax system to collect due taxes through application of modern
techniques, providing taxpayer assistance and by creating a motivated, satisfied, dedicated and
professional workforce.
FBRs Values:

Integrity
Professionalism
Teamwork
Courtesy
Fairness
Transparency
Responsiveness

Taxation System of Pakistan:

The changes in tax design introduced in 1991 (as continued during 1992 and 1993) have
attempted to partially reverse the existing distortions in resource use, inequities and revenue loss
by phasing out some of the tax exemptions, streamlining the tax rate structure, adjusting the
basic exemption for personal taxes to indices, and expanding the withholding taxes to several
economic activities otherwise not contributing to the revenue effort. Major changes in the design
of taxation system have been introduced in the form of presumptive basis of income taxation,
scheduler basis for taxation of dividends, bank profits and interest, prizes, winnings from lottery,
etc; fixed tax on small business enterprises' minimum taxation on companies and registered firms
based on turnover, and one time Corporate Assets Tax. These policy changes underline the onground economic realities in the background of difficult-to-implement conceptual norms.
Economic Objectives Assigned To Taxation:
While resource mobilization remains as the primary objective of taxation system in Pakistan,
through the medium of various exemptions and incentives, the tax system embodies a wide range
of secondary objective as well. These include:
Encouragement of savings and encouragement of fixed investment.
Stimulation of certain industries and promotion of exports.

3
Development of backward areas and support for welfare activities.
Promotion of capital markets and Promotion of house building.

Requirement # 1
Previous and current administrative and appellate system of income tax and sales tax:
Previous Structure of Sales Tax department:
Collector ate of Sales Tax in Pakistan were as follow:
Peshawar
Rawalpindi
Faisalabad
Gujranwala
Lahore
Multan
Karachi [East]
Karachi [West]
Hyderabad
Quetta
Mirpur [A J & K]
Officers in collector ate were as follow:
Collector
Additional collector
Deputy collector
Assistant collector
Superintendent
Deputy Superintendent
Auditor
Lower Staff

4
These officers were appointed for the purpose of managing law & order, revenue, collection,
taxation, the control of planning permission and the handling of natural and man-made
emergencies. A collector was a crucially important colonial officer placed at the district level and
entrusted with the responsibility of revenue collection and other civil duties.
Departments in Collector ate were as follow:
Local Registration office (LRO)
Audit
Adjudication
Refund
Previous structure of income tax
Income tax regions in Pakistan were as follow:
Northern Islamabad
Eastern Lahore
Central Multan
Southern Karachi
Corporate Karachi
Officers of Income Tax were as follow:
Regional commissioner.
Commissioner.
Additional commissioner.
Deputy Commissioner.
Assistant commissioner.
Income Tax
Special Officer.
Special Officer.
Inspector.
Lower Staff.

5
Offices of Income Tax were as follows:

Regional Commissioner Office (R.C)

Zonal Office (Commissioner)
Range (Additional Commissioner)
Circle (DC, AC, ITO & SO)

Previous structure of sales tax appeal

Collector (Appeal).
All cases of Customs, Federal Excise and Sales Tax.
Appellate Tribunal:
It means customs, Excise & Sales Tax Appellate Tribunal constituted u/s 194 0f Custom Act.
Appointing Authority:
The Federal Govt. has the appointing authority of the appellate Tribunal.
Members:
The Appellate Tribunal consists of two types of members.
1. Judicial Members
Shall be a person who has been
a. A judge of High Court.
b. A district judge and is qualified to be a judge of High Court.
c. An advocate of High Court and is qualified to be a judge of High Court.
2. Technical Members
An offer of Customs and excise group equivalent to that a member, CBR.
Chairman:
The Federal Govt. shall appoint one of the members of Appellate Tribunal to be the chairman.
Previous Structure of Income Tax Appeal

6
Commissioner.
All Cases of Income Tax.
Appointment:
It means income tax appellate tribunal constituted under section 130 of the income tax ordinance
200. Appellate tribunal shall consist of chairperson and such other judicial & accountant
members as are appointed by the federal govt. having regard to the needs of the tribunal.

Chairperson:
1. Federal govt. shall appoint chairperson
2. Except in special circumstances, the person appointed should be a judicial member.
Judicial Member:
A person may be appointed as a judicial member of the appellate tribunal if
1. The person has the ability to exercise the power of a District Judge and is qualified to be
a Judge of a High Court or
2. The person should be a advocate of High Court and is qualified to be a Judge of the High
Court.
Accountant Members:
A person may be appointed as a accounted member of the Appellate Tribunal if the person
1. The person should be an income tax group equivalent in rank to that of a regional
commissioner
2. And that person at least having five year experience as Commissioner.

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Current Taxation Structure
Federal Board of Revenue:
The Federal Board of Revenue (alternatively known as CBR) is the supreme federal agency of
Pakistan that is responsible for enforcing and collecting revenue for the government of Pakistan
FBR has the responsibility for Formulation and administration of fiscal policies. FBR is divided
into further categories
Customs
Inland Revenue services
Customs:
Pakistan Customs is the guardian of Pakistan borders against movement of contra band goods. It
provides a major source of revenue to the Government of Pakistan in the form of taxes levied on
the goods traded across the borders. It also helps to protect the domestic industry, discourage
consumptions of luxury goods and stimulate development in the under -developed areas.

Inland Revenue services:

Inland Revenue Services has been created by the Government of Pakistan. This service group is
responsible for carrying out the functions relating to
Income Tax
Sales Tax
Federal Excise
Large Taxpayer Unit (LTU):
Karachi
Lahore
Islamabad
Regional Tax Office (RTO):
Peshawar

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Abbotabad
Rawalpindi
Sialkot
Gujranwala
RTO-I-Lahore
RTO-II-Lahore
Sargodha
Faisalabad
Multan
Bahawalpur
Karachi
Hyderabad
Sukkar
Quetta
Islamabad

Current structure of appellate tribunal:

In the new system there is one Commissioner (Appeals) in all cases of income tax, Sales tax and
Federal Excise. The new system includes three members Chairperson, Judicial members and
Accountant members in all cases of income tax, sales tax and federal excise.

9
Requirement # 3
Explain the suggestions given by the tax authorities and other persons to improve this
system.
SUGGESTIONS GIVEN BY THE TAX AUTHORITIES AND other persons to improve
this system:
Before implementation of new system Federal Board of Revenue should conduct training
for all officers to understand all department works.
The success of an organization like FBR crucially depends on how well it serves the
interests of the wide spectrum of its stakeholders.
Develop a system with key features of universal self-assessment with selective audit,
centralized information system.
Simplify and standardize the process of issuing exemptions certificate. The Federal board
of revenue has to secure the interests of government and its own employees.
Taxpayers Assistance Units must be developed as a point of contact between department
and the taxpayers.
The revenue organization must develop support systems for audit and standardize audit
work.
A tax payer should not be audited for more than once a year. Compulsory registration
process should be made more systematic.
Taxpayers must be more educated about the procedures, practices and methods of record
keeping by publishing Booklets and brochures.
The system of recruitment, training, performance evaluation, separation and
accountability should be improved.
The employees of FBR who perform well, should be promoted.
Tax Amnesty Schemes should not be introduced.
Implement NTN as a common tax number on a priority basis to harmonies documentary
requirements and lower the manpower usage in registration across taxes.
Government of Pakistan should create an enabling environment through legal changes
autonomy and effective supervision so as to improve its efficiency and integrity.
Risk Management Techniques should be applied to identify high risks.
Business processes concerning imports and exports should be improved.
There is need of reorganize the pay scales of the employees of FBR.
The information system should be kept updated continuously which could address the
matters concerning automation of organizations processes and could generate databases.

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Pakistan - Tax Structure

Taxation System
Federal taxes in Pakistan like most of the taxation systems in the world are classified into
two broad categories, viz., direct and indirect taxes. A broad description regarding the
nature of administration of these taxes is explained below:

Direct Taxes
Direct taxes primarily comprise income tax, alongwith supplementary role of wealth tax. For
the purpose of the charge of tax and the computation of total income, all income is
classified under the following heads:
1.
2.
3.
4.
5.
6.

Salaries
Interest on securities;
Income from property;
Income from business or professions
Capital gains; and
Income from other sources.

Personal Tax
All individuals, unregistered firms, associations of persons, etc., are liable to tax, at the
rates randing from 10 to 35 per cent.

Tax on Companies
All public companies (other than banking companies) incorporated in Pakistan are assessed
for tax at corporate rate of 39%. However, the effective rate is likely to differ on account of
allowances and exemptions related to industry, location, exports, etc.

Inter-Corporate Dividend Tax

Tax on the dividends received by a public company from a Pakistan company is payable at
the rate of 5% and at the rate of 15% in case dividends are received by a foreign company.
Inetr-corporate dividends declared or distributed by power generation companies is subject
to reduced rate of tax i.e., 7.5%. Other companies are taxed at the rate of 20%. Dividends
paid to all non-company shareholders by the companies are subject to with holding tax of
10% which is treated as a full and final discharge of tax liability in respect of this source of
income.

Treatment of Dividend Income

Dividend income received as below enjoys tax exemption, provided it does not exceed Rs.
10,000/-.
1. Dividend received by non-resident from the state enterprises Mutual Fund set by the

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Investment Corporation of Pakistan.
2. Dividends received from a domestic company out of income earned abroad provided it is
engaged abroad exclusively in rendering technical services in accordance with an agreement
approved by the Central Board of Revenue.

Unilateral Relief
A person resident in Pakistan is entitled to a relief in tax on any income earned abroad, if
such income has already been subjected to tax outside Pakistan. Proportionate relief is
allowed on such income at an average rate of tax in Pakistan or abroad, whichever is lower.

Agreement for avoidance of double taxation

The Government of Pakistan has so far signed agreements to avoid double taxation with 39
countries including almost all the developed countries of the world. These agreements lay
down the ceilings on tax rates applicable to different types of income arising in Pakistan.
They also lay down some basic principles of taxation which cannot be modified unilaterally.
The list of countries with which Pakistan has concluded tax treaties is given below:
Austria
Belgium
Bangladesh
Canada
China
Denmark
Egypt
France
Finland
Germany
Greece
India
Indonesia
Iran
Ireland
Italy
Japan
South Korea
Lebanon
Libya
Malta
Mauritius
Saudi Arabia
Singapore
Poland
Romania
Switzerland
Thailand
Sri Lanka
Sweden
Turkmenistan

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U.K.
Turkey
Tunisia
Kazakistan
U.A.E.
U.S.A

Customs
Goods imported and exported from Pakistan are liable to rates of Customs duties as
prescribed in Pakistan Customs Tariff. Customs duties in the form of import duties and
export duties constitute about 37% of the total tax receipts. The rate structure of customs
duty is determined by a large number of socio-economic factors. However, the general
scheme envisages higher rates on luxury items as well as on less essential goods. The
import tariff has been given an industrial bias by keeping the duties on industrial plants and
machinery and raw material lower than those on consumer goods.

Central Excise
Central Excise duties are leviable on a limited number of goods produced or manufactured,
and services provided or rendered in Pakistan. On most of the items Central Excise duty is
charged on the basis of value or retail price. Some items are, however, chargeable to duty
on the basis of weight or quantity. Classification of goods is done in accordance with the
Harmonized Commodity Description and Coding system which is being used all over the
world. All exports are exempted from Central Excise Duty.

Sales Tax

Sales Tax is levied at various stages of economic activity at the rate of 15 per cent
on:
All goods imported into Pakistan, payable by the importers;
All supplies made in Pakistan by a registered person in the course of furtherance of
any business carried on by him;
There is an in-built system of input tax adjustment and a registered person can
make adjustment of tax paid at earlier stages against the tax payable by him on his
supplies. Thus the tax paid at any stage does not exceed 15% of the total sales price
of the supplies;

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Problems and Hurdles with tax advisors and authorities
Reduced rate of sales tax not allowed to Manufacturers cum Retailers 03.01.2011
Details:
The Federal Board of Revenue (FBR) has excluded manufacturers-cum-retailers from
special procedure pertaining to the payment of sales tax on reduced rates by retail sector.
Now, all manufactures who were directly retailing their goods or selling their goods to the
end consumers would operate under the normal tax regime. The FBR has amended the Sales
Tax
Special
Procedure
Rules
2007
through
SRO
1(I)/2011.
The Special Procedure for Payment of Sales Tax by Retailers would not be applicable to
manufacturers-cum-retailers who sell their products through retail outlets. There are
manufacturers, who are also engaged in the activity of selling through their retail outlets. In
such cases, they would not be eligible to pay sales tax at reduced rates of the Special
Procedure
for
Payment
of
Sales
Tax
by
Retailers.
So far, the special procedure for retailers was not applicable to dealers of motorcycles and
specified electric goods who shall pay sales tax as prescribed under the rules. The special
procedure for retailers would also not be applicable on the said manufacturers-cum-retailers.

Subject: CNG Stations not allowed input tax adjustment

03.01.2011

Details:
The FBR has issued instructions to Large Taxpayer Units (LTUs) and Regional Tax
Offices (RTOs) that the facility of refund of excess unadjusted input tax related to
supplies, other than zero-rated, would not be applicable to the CNG stations.
The FBR had allowed the gas transmission and distribution companies refund of excess
input tax not related to zero-rated supplies. The decision was announced through
SRO.748(I)/2010. Through this notification, the refund of excess unadjusted input tax
relating to supplies other than zero-rated shall be claimed and sanctioned in the cases of
gas transmission and distribution companies, manufacturers of fertilisers, electric power
producers and electric power distribution companies may claim refund of excess input
tax over output tax in any tax period. If these categories of taxpayers would have input
tax more than output tax, they would be eligible to claim refund. The CNG stations tried
to take the benefit of SRO 748 (I)/2010 for claiming refund of excess input tax not
relating to zero-rated supplies. However, CNG gas stations are not covered under the
definition of the gas distribution companies and subsequently are not qualified for
availing this concession / facility. The CNG stations are already operating under the
fixed Sales Tax regime and are not entitled to refund excess input tax.

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Subject: E-filing of Income Tax Return - final intimation 30.12.2010
Details:
The Federal Board of Revenue has issued notices to almost 12,000 companies,
corporate entities and business units to electronically file their income tax returns
by December 31 for the Tax Year 2010. In this regard, the FBR has communicated
the
electronic
intimations
to
the
registered
companies.
The Board has issued intimations to all those corporate taxpayers, who have yet
not filed their income tax returns for the Tax Year 2010. The FBR has advised the
corporate taxpayers to file their returns electronically on December 30 to avoid
over burden on the system on December 31. The filing of returns on December 30
would facilitate the corporate entities to work in a hassle free environment. The
FBR has also granted facility to the corporate sector to avail extension in time for
filing of return. In such cases the corporate taxpayers should submit electronic
request at E-FBR Portal. The timely request by the corporate entities would help
the department.

Subject: FBR extends DTRE

manufactuers-cum-exporters

facility

to

ghee

29.12.2010

Details:
The Federal Board of Revenue has allowed duties and taxes remission for exports
(DTRE) facility to the manufacturers-cum-exporters of ghee in the war affected
areas of Khyber Pakhtoonkhwa (KP) and Balochistan. In this regard, the FBR has
amended Customs Rules 2001 through a notification SRO ____(I)/2010.
The DTRE facility would now be available to the manufacturers-cum-exporters of
ghee in KPK and Balochistan except Hattar and Hub area. The facility would be
available to the exporters on fulfilment of certain conditions laid down by the
Board. These conditions would specifically be applicable for manufacturer-cum
exporters
of
ghee
in
KPK
and
Balochistan.
The DTRE facility will be subject to provision of average export made by the
manufacturer-cum-exporters during last four years plus enhancement upto 20%
and the facility be provided on the basis of industries track record and
performance. secondly, time limit will be 90 days for utilising the imported palm
oil under DTRE Scheme. This period will be counted from the date of import
general manifest (IGM) to export date of the consignment. export will be allowed
in
foreign
exchange
only.
Under the Customs Rules, the DTRE facility would not be admissible to raw sugar

15
and cooking oil or vegetable ghee or their raw materials and the goods which are
banned or restricted under the prevalent import and export policy orders on
account of national security, public health and cultural, moral or religious
considerations. The FBR has granted fiscal relief to rehabilitate the economic life
in Khyber Pakhtoonkhwa, FATA and PATA by allowing DTRE facility on the
manufacture and export of ghee only.

Subject: PVMA criticises ECC decision on DTRE

29.12.2010
extension
Details:
The Pakistan Vanaspati Manufacturers Association (PVMA) has criticised the
Economic Co-ordination Committee (ECC) of the cabinet for not extending duty
tax remission for exports (DTRE) scheme across pakistan. The ECC, presided over
by finance minister Dr Abdul Hafeez Shaikh, in its meeting on december 7, 2010
approved the DTRE scheme, called 'fiscal relief to rehabilitate economic life in
Khyber Pakhtunkhawa (KP)', Fata and Pata. However, insiders are of the view that
this Scheme is meant only for one family of KP, as Hattar and Hub have been
excluded from the scheme. currently, PVMA comprises of 94 units, which are
manufacturing vegetable ghee and cooking oil in the organised sector. The
member units of PVMA contribute more than Rs 40 billion to the national
exchequer
in
the
form
of
duties
and
taxes.
According to the PVMA, significant disparity has cropped up after issuance of
SRO___ (1) 2010 of December 13, 2010 by the FBR. Under this SRO, the DTRE
facility has been extended to the ghee manufacturers and exporters of KP and
Balochistan, excluding Hattar and Hub. Initially, DTRE provision was applicable
to the entire country, but was withdrawn under SRO No. 176(1) 2004 on March
22, 2004. Since the discontinuation of the DTRE, PVMA has been submitting and
pleading at all the concerned fora for its resumption, but inexplicably the facility
has been resumed only for these two provinces i.e. KP and Balochistan, axing Hub
and Hattar.

Subject: Restoration of DTRE Scheme for KPK and

29.12.2010
Balochistan
Details:
FBR has restored DTRE scheme for ghee manufacturers-cum-exporters in Khyber
Pukhtunkhawa and Balochistan, but excluded Hattar and Hub from the facility,
putting the industrial units in these two areas at a disadvantage against the rest of
the
industry
in
the
country.
DTRE facility shall be available to the exporters on industrial track record and

16
performance basis. The time limit shall be 90 days for utilising the imported palm
oil and this period shall be counted from the date of import general manifest
(IGM) to export date of consignment. It is apprehended that excluding Hattar and
Hub from DTRE scheme is going to turn the facility into a negative factor instead
of making it a useful tool to promote export of ghee to neighbouring countries for
two reasons: one)- by putting major ghee manufacturers-cum-exporters at sheer
disadvantage; and the second- for giving undue favour to those exporters who do
not have the capacity to produce more and export to Afghanistan and other
neighbouring countries.

Subject: Resstoration of DTRE Scheme for KPK and

29.12.2010
Balochistan
Details:
FBR has restored DTRE scheme for ghee manufacturers-cum-exporters in Khyber
Pukhtunkhawa and Balochistan, but excluded Hattar and Hub from the facility,
putting the industrial units in these two areas at a disadvantage against the rest of
the
industry
in
the
country.
DTRE facility shall be available to the exporters on industrial track record and
performance basis. The time limit shall be 90 days for utilising the imported palm
oil and this period shall be counted from the date of import general manifest
(IGM) to export date of consignment. It is apprehended that excluding Hattar and
Hub from DTRE scheme is going to turn the facility into a negative factor instead
of making it a useful tool to promote export of ghee to neighbouring countries for
two reasons: one)- by putting major ghee manufacturers-cum-exporters at sheer
disadvantage; and the second- for giving undue favour to those exporters who do
not have the capacity to produce more and export to Afghanistan and other
neighbouring countries.

Subject: FBR is empowered to withdraw exemption

29.12.2010

Details:
The powers of section 13 of the Sales Tax Act 1990 may be exercised by the
Federal Board of Revenue to silently withdraw sales tax exemptions and zeroratings through issuance of the notifications. The FBR has no legal authority to
increase rate of sales tax and federal excise, but it has ample powers under the
Sales Tax Act 1990 to reduce tax rates through statutory regulatory order (SRO)
without
the
approval
of
the
Parliament.
FBR is legally empowered to withdraw list of major sales tax exemptions as
specified in the Sixth Schedule of the Sales Tax Act, 1990. The Exemption

17
Schedule of the Sales Tax Act is directly linked with section 13 of the Sales Tax
Act. The FBR is compiling lists of sales tax exemptions and zero-ratings, which
were issued through notifications from time to time. The exemptions would be
withdrawn through the notifications, if necessary. The Board has the legal
authority to rescind the notifications and the statutory regulatory orders (SROs)
through which exemptions and zero-rating facility is granted to different sectors. If
the intention of the government is to silently withdrawn the exemptions and zerorating, powers of section 13 of the Sales Tax Act 1990 would be enough to take
away
such
exemptions.
Under section 13 of the Sales Tax Act, 1990, the Federal Government may, by
notification in the official Gazette, exempt any taxable supplies made or import or
supply of any goods or class of goods, from the whole or any part of the tax
chargeable under this Act, subject to the conditions and limitations specified
therein. The Board may, by special order in each case stating the reasons, exempt
any import or supply of goods of such description or class, as may be specified
from the payment of the whole or any part of the tax chargeable under Sales Tax
Act. The exemption from tax chargeable under sub-section (2) may be allowed
from any previous date specified in the notification issued under clause (a) or, as
the case may be, order made.

Subject: CGT Rules pending for approval

21.12.2010

Details:
The Federal Board of Revenue (FBR) has sent the draft of the 'Capital Gains Tax
(CGT) Rules 2010' for vetting purposes to Law and Justice Division to be
applicable on stock exchange investors. The FBR would notify the CGT rules after
clearance from the Law and Justice Division. The FBR will amend the Income
Tax Rules 2002 for issuance of procedure on computation of capital gains tax on
stock market. Once the new amendment is incorporated in the CGT Rules 2010,
the rules would be applicable on the investors of stock exchanges. It is hoped that
the new rules would be immediately issued after clearance from the Law Division.

Subject: Restoration of taxation of zero rated sectors

07.12.2010
opposed
Details:
Representatives of five zero-rated export sectors have opposed government's move
to pass the Reformed General Sales Tax (RGST) Bill 2010 from the parliament.
They said that once the tax law comes into being will give a free-hand to FBR
officials
to
raid
whatever
exporting
units
they
want.

18
The zero-rated exporting sectors include; value-added textile sector, sports goods
manufacturing sector, surgical instruments manufacturing sector, leather and
carpet producing sectors. Zubair Motiwala, the Chairman APTMA, showed
distrust over the proposed tax refund system, which would become functional with
the passage of RGST draft law from the parliament, saying that 90% capital of the
exporting units would backlog with tax Collectors as refund.
He said 75% exports were made by these five units with more than 60%
employment generation. He said value-added textile sector had sought several
times a meeting with the Finance Minister but failed, whereas, he regretted, the
minister
was
reportedly
holding
talks
with
Aptma.
He said the five zero-rated textile sectors were already registered with tax offices
and there was no need of bringing them again into such process. The move will
increase corruption during export stage while exporters would increase overinvoicing and miss-declarations of consignments to render the system ineffective.
Chairman Pakistan Leather Garments Manufacturers and Exporters Association,
Fawad Ijaz Khan expressed doubts the new tax refund system would not be able to
function for more than two months and would return to manual process. He said
his association members' RGST refunds of two months would touch Rs 2 billion
mark which would bring their businesses to a grinding halt.

Subject: 15% ST on power / gas consumption

Details:
Source

Business

Recorder

24.11.2010
dated

24.11.2010

The Federal Board of Revenue would impose 15% sales tax on the electricity and
natural gas consumption by thousands of manufacturing units in five leading
export sectors including textile, leather, surgical, carpets and sports goods after
introduction
of
the
General
Sales
Tax
Bill
2010.
The Board will rescind notifications and Sales Tax General Orders (STGOs) to
withdraw sales tax zero-rating facility on the electricity and natural gas
consumption by five major export sectors following approval of the General Sales
Tax
Bill
by
the
Parliament.
The Board had frequently issued STGOs to allow sales tax zero-rating facility on
the electricity and natural gas consumption by manufacturers-cum-exporters in
five zero-rated sectors. In this regard, the FBR had issued dozens of notifications
and STGOs to facilitate the export units from time to time. These STGOs were
issued in exercise of the powers conferred by clause (d) of section 4 of the Sales

19
Tax

Act,

1990.

Under the reformed general sales tax (RGST), the zero-rating facility of natural
gas and power available to export units would be taken away. For this purpose, all
the relevant STGOs would be abolished to bring the export units of five sectors
within
the
standard
sales
tax
regime.
The prices of the items in the Third Schedule of the Sales Tax Act, 1990 would be
reduced once the government would introduce the RGST. The items like fruit
juices, ice cream, aerated waters or beverages, syrups/squashes, cigarettes, toilet
soap, detergents/shampoo, toothpaste, shaving cream, perfumery/cosmetics, tea,
powder drink/milky drink, tissue paper and spices sold in retail packing would
come
down
in
the
reformed
general
sales
tax
(RGST).
About the inflationary impact of the items on which sales tax exemption would be
withdrawn, officials said that it is misconception about 15 percent increase on such
items. The prices of items, presently exempted under the Sixth Schedule of the
Sales Tax Act, would be increased under the RGST. However, this would not be
15 percent increase in the price due to tax credit and input tax adjustment facility
to be extended to such sectors. Once the exempted items would operate under the
normal sales tax regime, there would be less inflationary impact due to
adjustments to be claimed by such sectors. The burden of 15 percent sales tax
would not be passed on to the consumers on such exempted items, which would
become taxable under the new regime. In case of zero-rated sectors, the prices of
goods of zero-rated sectors would increase under the normal sales tax regime.
The amount of sales tax collection would increase from sectors like iron and steel
which are presently operating under special procedures. These sectors would be
brought under the normal sales tax regime under the GST Bill 2010.

Subject: GST Amendment bill approved by Senate body

Details:
Source

Buisness

Recorder

dated

24.11.2010
24.11.2010

The Senate standing committee on finance and revenue has unanimously approved
the General Sales Tax (GST) Bill 2010 and Finance Amendment Bill 2010 to
introduce new taxation measures along with certain recommendations to expand
the exemption basket including medicines, essential food items in packing,
educational material and packed milk / products to minimise the inflationary
impact of the Reformed General Sales Tax (RGST) on the poor masses.
The government successfully managed approval of GST Bill along with taxation

20
measures including flood surcharge and increase in Special Excise duty from the
committee in the presence of PML (N), PML (Q) and other opposition parties.
However, Chairman of the committee, Senator Ahmed Ali, of MQM, was unable
to
attend
the
proceedings
of
the
meeting.
The committee in the Parliament House with Senator Islamuddin Shaikh in the
chair here on Tuesday. Finance Minister Dr Hafeez Shaikh, Minister of State for
Finance Hina Rabbani Khar, Secretary Finance Salman Siddiqui and Chairman of
FBR
Sohail
Ahmed
were
present
in
the
meeting.
In the absence of the representatives of MQM, the chairman of the committee,
Islam-ud-din, read a letter of the MQM that the Senate committee should reject the
GST Bill 2010. The committee termed it as a political statement of the MQM.
The chairman of the committee announced unanimous approval of the GST Bill
2010 after hearing observations of committee members, particularly Haroon Khan
from PML (Q), Ilyas Bilour from Awami National Party, Ishaq Dar of PML (N),
Kulsoom Parveen and Khurshid Ahmed from Jamaat-i-Islami in the second
session
of
the
meeting.
During the proceedings, Dar said he was surprised to know that the Federal Board
of Revenue (FBR) had not conducted any sectoral analysis and item-wise revenue
impact by bringing maximum items within the scope of the sales tax regime. He
asked the tax managers to explain whether the Board had conducted any sectoral
analysis of the exempted items. FBR Chairman Sohail Ahmed informed the
committee that the list of the exempted items under the GST Bill had been drafted
after thorough discussions keeping in view the best international practices. FBR
Chairman strongly supported imposition of the GST on the expensive medicines
consumed by rich people. However, he admitted that the sectoral analysis had not
been conducted by the Board to give any figure about proposed collection from
each and every sector. "We will move as per systems applicable in the best tax
administrations
for
the
purpose
of
exemptions',
he
added.
"Any item has not been placed in the Exempted List of the GST Bill 2010 until or
unless it is very necessary directly impacting the poor". When some members
asked the FBR to take away the proposal on the enhancement of the SED from one
percent to two percent, the FBR Chairman said that the doubling of the SED
would have revenue impact of Rs 9 billion to10 billion, which would be applicable
for
only
six
months
of
current
fiscal
year.
Khurshid objected that the list of exempted items under the Schedule-I of the GST
Bill 2010 has been limited to a few items. The sales tax exemption should be
available to all kinds of basic food items, medicines, children uniforms,

21
educational material and books. While reviewing the Schedule-I of the GST Bill
2010, Haroon said that all kinds of dry fruits had been brought into the GST
regime as exemption is restricted to edible oil, edible fruit, red chillies, ginger,
turmeric, fruit juices, etc. He said that the Exemption Schedule of the GST Bill
also reflects that GST would be applicable on bakery products used by the general
public. However, Hina pointed out that leading bakeries are only accessible to the
elite
class.
About the penalty regime under Third Schedule of the GST Bill, Haroon objected
that the Board has proposed harsh punishments like imprisonment for small
violation of the Sales Tax Act. He said he was shocked that imprisonment has
been proposed as punishment for destruction of record or false statements. The
FBR has proposed imprisonment for violation for any embargo placed on removal
of goods in connection with recovery of tax. The FBR assured the committee to
review the penalty regime under the proposals of the committee.
When Ilyas referred to section 52 of the GST Bill 2010, FBR Chairman said that it
is the biggest tool for documentation and structural reforms have been introduced
under this provision of the GST Bill 2010. The manufactures would be bound
under the new provision to give details of the un-registered buyers within the
supply chain. The Section-52 would be used as a major reform measure to
document
the
national
economy,
he
added.
Under section 62 of the Bill, a registered person who makes a taxable supply to an
unregistered person shall issue a sales receipt for the supply. A sales receipt must
contain the information prescribed by the Board, including the date on which it is
issued; name and registration number of the supplier; a description of the goods or
services supplied; total amount payable for the supply; an indication that tax is
included in the amount paid and name and computerised national identity card
number (CNIC) in case of individuals and national tax number (NTN) in case of
other
buyers.
During the first part of the committee meeting, the opposition members told the
government that there were certain flaws in the language of the RGST bills by
identifying loopholes and they told the ruling PPP that they would prefer to read
RGST and other bills clause by clause even if they decided to consider it for
approval.
The committee recommended certain amendments in the original draft but these
amendments are not binding on the government due to recommendatory stature of
the Upper House. The committee recommended to impose 10 percent flood
surcharge on tax liabilities exceeding Rs 5,00,000 per annum instead of Rs
3,00,000.

22
The committee also asked the government to keep the food items, medicines and
stationery out of the tax net by exempting from the levy of 15 per cent GST.
However, the FBR opposed these recommendations on the ground that it would
open 'Pandora's box' for other exemptions. "If we start giving exemptions to every
sectors, the situation would again become complicated, as happened in case of
Sales
Tax
Act,
tax
authorities
commented".
Earlier, in the morning session, Ministry of Law conceded before the committee
that the 'Reformed General Sales Tax (RGST) bill' was not properly vetted owing
to time constraint and requirement of donors to submit this legislation to the
Parliament before the recently held Pakistan Development Forum (PDF). The
Ministry of Law and FBR representatives had divergent views on certain number
of
proposed
clauses
of
the
RGST
bills.
The senators belonging to PML (N), PML (Q) and Jamaat-i-Ismali were of the
view that the government had introduced the RGST bill in haste; so, there were
serious anomalies in it. Ishaq Dar pointed out that RGST bill contains definition of
imports but there was nothing about exports in the GST Bill 2010 which is a major
anomaly.
Safdar Abbasi of the PPP warned during the proceedings of the committee that
there would be serious political ramifications attached to the GST bill and it might
be challenged in the Supreme Court; so, the Upper House must consider all pros
and cons before granting approval to the bill. Ministry of Law representative said
that they had got three to four opportunities to remove distortion in the legislative
bills.

Subject: Zero Rating of ST under RGST to continue

08.11.2010

Details:
The government will continue zero-rating allowed under the Sales Tax Act 1990 till
the time Federal Government withdraws it by issuing notification in the official
gazette. Pakistan's Economic Policy Makers are discussing Reformed General Sales
Tax with the visiting IMF team, but the outcome of these talks is still uncertain and
there are indications that the IMF's next tranche will be in peril. A letter written by
the FBR Chairman to the Finance Minister a couple of days ago, suggests immediate
introduction
of
RGST
Bill
in
the
National
Assembly.
In his budget 2010-11 speech, the Finance Minister had announced mposition /
mplementation of the Reformed GST from October 2010. After detailed
deliberations with the provincial governments organised by the Finance Division
under the NFC framework, a new Sales Tax law for goods has been drafted. The

23
following

are

the

main

features

of

the

proposed

RGST

on

goods:

(i) tax base has been broadened by limiting exemptions to the bare minimum level as
per
international
best
practices;
(ii) no general zero-rating has been extended to local consumption;
(iii) primarily, exports will enjoy zero-rating on actual export turnover basis through
an efficient centralised electronic refund disbursement system (already in place).
However, a provision has been included for the continuity of existing zero-rating;
(iv)
a
standard
tax
rate
of
15%
has
been
proposed;
(v) executive empowerment to grant special exemptions has been done away with;
and
(vi) general annual exemption threshold has been increased from Rs 5 million to Rs
7.5 million.

Subject: Desk-Audit of Withholding Tax Statements

03.11.2010

Details:
The withholding tax statements filed by the withholding agents under section 165
of the Income Tax Ordinance 2001 for first quarter (July-September) of 2010-11
would be subjected to desk audit to check discrepancies in payment of taxes for
improving collection during current fiscal. The deadline for filing of quarterly
statements by the withholding agents has expired. Now the field formations would
submit report on statements already filed under section 165 of the Ordinance 2001.
At the same time, the field offices would start desk audit of the statements filed by
the withholding agents. The income tax department is empowered to conduct desk
audit of the statements as per prescribed pro forma in the Income Tax Rules. The
desk audit are being done with reference to the correct application of rates as well
as reconciliation of statements with the previously year's filed returns/statements.
The desk audit of withholding tax statements would also help in increasing
revenue collection by improving compliance of the withholding agents.
There are two types of actions being taken against the non-filers of withholding
agents. First, the non-filers of withholding agents are being identified for
imposition of penalty. In response to notice, withholding agents usually file the
statements. The penalty is liable to be paid by the non-filer withholding agents
under section 182 (offences and penalties) of the Income Tax Ordinance 2001.
This
would
ensure
filing
of
return
by
the
agents.

24
Second, the desk audit would check whether tax has been accurately applied as
well as deducted by the withholding agents. Through desk audit, the penalty would
be imposed in cases tax has not been properly deducted. Under section 161 of the
Income Tax Ordinance 2001, where at the time of recovery of tax, it is established
that the tax that was to be deducted from the payment made to a person or
collected from a person has meanwhile been paid by that person, no recovery shall
be made from the person who had failed to collect or deduct the tax but the said
person shall be liable to pay default surcharge at the rate of eighteen percent per
annum from the date he failed to collect or deduct the tax to the date the tax was
paid. A person personally liable for an amount of tax as a result of failing to
collect or deduct the tax shall be entitled to recover the tax from the person from
whom
the
tax
should
have
been
collected
or
deducted.
The provision of section 205 of the Income Tax Ordinance 2001 would also be
applicable in such cases where withholding agents failed to accurately deduct the
admissible amount. Under section 205, a person who fails to pay any tax,
excluding the advance tax and default surcharge any penalty or any amount on or
before the due date for payment shall be liable for default surcharge.

Subject: Exemptions under Reformed GST

18.10.2010

Details:
The exemptions, to be retained under the 'reformed general sales tax' (RGST),
include newspapers, wheat, pulses, vegetables, peas, salt and water, excluding
those sold under brand names or trademarks. Sales tax exemption would be
applicable on the goods imported under the President's Salary, Allowances and
Privileges Act, 1975; goods imported under the Prime Minister's Salary,
Allowances and Privileges Order, 1975; goods imported under the Governor's
Salary, Allowances and Privileges, Order, 1975 and goods imported under the
Acting
Governor's
(Allowance
and
Privileges)
Order,
1978.
The FBR has proposed a list of Sales Tax exemptions, to be retained under the
RGST, to the Ministry of Finance. According to the exemption list sales tax
exemption would be available on table salt including iodised salt excluding salt
sold in retail packing bearing brand names and trademarks. The sales tax
exemption would also be applicable on books, ambulances, fire-fighting trucks,
diapers for adults (patients) and dextrose and saline infusion-giving sets along with
empty non-toxic bags for infusion solution, and dextrose and saline infusion
giving
sets.
Sales tax exemption would continue on the Holy Quran in whatever form or on

25
whatever media. Under the exemption list of the RGST, the exemption would be
applicable on artificial parts of the body, intra-ocular lenses and glucose testing
equipment and contraceptives and accessories thereof. The sales tax exemption
would also be applicable on personal wearing apparel and bona fide baggage
imported by overseas Pakistanis and tourists exempt from customs duty under the
Customs
Act
1969.
The proposed list further shows that sales tax exemption may not be applicable on
vehicles in CKD condition, imported by recognised local manufacturer for supply
to diplomats, diplomatic missions, privileged persons (as per model rules) and
organisations, etc, eligible to import duty-free vehicles, subject to the procedure
laid
down
by
the
Board.
The sales tax exemption has been retained on the goods imported by various
agencies of the United Nations under the United Nations (Privileges and
Immunities) Act, 1948, as certified by the Ministry of Foreign Affairs; goods
imported by Diplomats/Embassies/Consulates under the Diplomatic and Consular
Privileges Act,1972 as certified by the Ministry of Foreign Affairs and RGST
exemption would be available on the goods imported by privileged
personnel/organisations under grant-in-aid agreements signed by the Economic
Affairs
Division
(EAD).
The sales tax exemption would be applicable on household articles and personal
effects including vehicles and goods for donation to projects established in
Pakistan, imported by the rulers and dignitaries of UAE and Qatar. The RGST
would not be applicable on articles, value of which does not exceed Rs 10,000 per
parcel, if imported through post or courier service as unsolicited gift parcel. Sales
tax exemption would continue on samples of no commercial value imported by
manufacturers-cum-exporters.
The sales tax exemption would continue on relief goods donated by foreign
government/agencies for free distribution among victims of natural disaster or
other catastrophe, as are certified by the authorised officer of federal/provincial
government. The exemption would be available on goods imported by Abdul
Sattar Edhi Foundation and Bilques Edhi Foundation; gifts or donations received
by a charitable non-profit making hospital or institution, solely for the purpose of
advancing the declared objectives of such hospital or institution; equipment,
apparatus, reagents, disposables and spares, imported by charitable non-profit
making institutions operating hospitals of fifty beds or more and hospitals run by
the Federal Government or a Provincial Government; goods imported by or
donated to non profit making educational and research institutions and goods
supplied free of cost as replacement of identical goods previously imported
including goods imported within warranty period not exceeding one year or such

26
extended

period

as

allowed

by

the

Collector

of

Customs.

Sales tax exemption would be applicable on the goods (PCT heading 9919)
heading, imported temporarily for a period not exceeding six months into Pakistan
with a view to subsequent exportation and goods (PCT heading 9920) heading,
imported temporarily into Pakistan with a view to subsequent exportation. The
RGST exemption would also be applicable on the container for transportation of
cargo if imported by the shipping companies for use on board the ships and for
transportation of cargo to and from inland container depots or container freight
stations. Sales tax exemption would also be applicable on the ship spares, stores
and equipment imported for use in ships registered in Pakistan under the Merchant
Shipping Act, subject to the condition that the importer satisfies the respective
Collector of Customs that the items imported would be used by such vessels. The
sales tax exemption would also be applicable on some other PCT headings of
Chapter 99 of the Pakistan Customs Tariff.

Subject: Particulars of Unregistered buyerss / sellers

12.10.2010

Details:
The documentation of business and trade under the 'reformed general sales tax'
('RGST') would be undertaken by obtaining particulars of unregistered buyers and
sellers from registered manufacturers and distributors, etc, to bring the entire chain
of supply into the tax net. The Federal Board of Revenue (FBR) may impose some
penalty on unregistered buyers, who do not disclose their National Tax Number
(NTN)/computerised national identity card number (CNIC) during business
transactions. In case the Board introduces such penalty, it has estimated a
collection of nearly Rs 60-65 billion from un-adjustable extra tax liability of 3%
on taxable supplies made by manufacturers, importers and wholesalers to
unregistered
buyers
without
disclosing
their
NTN/CNIC.
The FBR is expected to propose penalty for those retailers who do not declare
their NTN/CNIC at the time of purchase of saleable commodities, which would
generate around Rs 60-65 billion under RGST. The cost of unregistered buyers
would increase following imposition of the penalty and they would be compelled
to operate under the documented regime. Another proposal under discussion is to
make it mandatory for the manufacturers, distributors and wholesalers to provide
particulars of all registered and unregistered buyers and sellers under the sales and
purchase invoice summaries. The tax department can approach the manufacturers,
wholesalers and dealers to obtain the particulars of registered as well as
unregistered buyers. Once the FBR obtains information about the unregistered
buyers, the turnover of the retailers would automatically be known to the tax
department without directly approaching the retail outlets.

27

Subject: Standard Sales Tax Rate under RGST

12.10.2010

Details:
The standard rate of sales tax under the reformed general sales tax (RGST) has
been proposed as 17% in order to circumvent any major revenue shortfall during
the remaining months of current fiscal (2010-11). The Federal Board of Revenue
has also proposed standard rate of 17% for sales tax under the RGST.
However, the decision about the higher rate of sales tax has yet to be taken by the
government. The higher rate of sales tax goes up to 26%, but it has yet not been
finalised to bring down these rates from 26 to 17%. The FBR will suffer around Rs
30 billion loss following 1% reduction in sales tax from 17 to 16%. In the present
circumstances due to devastating floods, the government is not in a position to
reduce sales tax rate from 17% to 15%. The accumulative impact of sales tax
reduction on revenue collection would be around Rs 60 billion in case rate would
be reduced from 17 to 15%.

Subject: Expeditious Refund System to be extended to

29.09.2010
exporters
Details:
The facility of Expeditious Refund System (ERS) would be extended to
commercial exporters and accountholders of commercial banks, and refund
amount would be directly transferred to the bank account of the taxpayers under
the plan to expedite refunds under the 'reformed general sales tax' (R-GST).
From October 1, 2010, all manufacturers-cum-exporters would be required to
obtain refund through the ERS. This would end the cumbersome paperwork to be
completed by the refund claimants. Later, different categories of taxpayers would
be gradually brought into the ERS. Under the centralised sales tax refund payment
system, the processing of the refund claims would be done in the Regional Tax
Offices (RTOs), but the computerised printing of cheques would be done at the
FBR level. The FBR would dispatch the cheque to the taxpayer through courier,
eliminating intervention of the RTOs during this period. The FBR would be
engaged in electronic reporting of the procedure to the relevant LTU/RTO.

Subject: Sales Tax Rate to remain unchanged in RGST

29.09.2010
Regime

28
Details:
The government is unlikely to reduce the rate of reformed general sale tax (RGST)
to 15%, and is expected to continue with the existing rate of 17%, even after
October 1 2010. The meeting on 'reformed GST' in principle agreed over
implementation of sale tax from October, 1, but the formal announcement in this
regard would be made jointly by Prime Minister Yousaf Raza Gilani and Chief
Ministers of the provinces in a couple of days. The federal government has
accepted the distribution formula of all the provinces and would pick up 36%
additional amount on this account. As per agreement, Sindh would get 50% share,
Punjab 60% and Khyber Pakhtoonkhwa and Balochistan would get their share on
the basis of NFC formula. Provinces would get total 136% share on account of
four services against the total collection of 100%.

Subject: Income Tax Return filing date llikely to be

27.09.2010
extended
Details:
The Federal Board of Revenue (FBR) has decided to extend date for filing of
income tax returns up to October 15, 2010. The FBR has moved a summary to the
Ministry of Finance for extension in the date of filing of returns. The FBR will
notify extension in date after obtaining approval of the FM.

Subject: Use
November

of

existing

packing

material

upto

27.09.2010

Details:
The Federal Board of Revenue (FBR) has allowed manufacturers to utilise existing
packing material for pending stocks of items, as retail price has been already printed
on it along with sales tax @ 16% up to November 30, 2010. In this regard, the FBR
has issued Sales Tax General Order (STGO) 35 of 2010. The FBR has allowed
manufacturers of fruit juices, ice cream, aerated waters or beverages,
syrups/squashes, cigarettes, toilet soap, detergents/shampoo, toothpaste, shaving
cream, perfumery/cosmetics, tea, powder drink/milky drink, tissue paper and spices
sold in retail packing to use the existing packing material on un-cleared stocks
having
already
printed
16%
sales
tax.
Eventually, pending stocks of items which has already printed sales tax @ 16%
calculated on the retail price can utilise the packing material till November 30,
Subject: 10% Flood Surcharge on Electricity

23.09.2010

29
Details:
The federal government may impose 10% income tax surcharge on withholding
tax collected from electricity consumed by commercial and industrial consumers.
This means that the withholding tax on electricity consumed by commercial
consumers would increase from 10% to 11% and industrial consumers from 5% to
5.5% after imposition of flood surcharge. The government is expected to announce
the imposition of 10% income tax surcharge during October 10-15, 2010 after
completion of damage needs assessment in flood affected areas. The 10% income
tax surcharge would be applicable on all categories of taxpayers including salaried
class. It is expected that the Bill to impose flood surcharge may be moved with the
reformed GST Bill in the Parliament.

2010.

Subject: Reformed GST - Zero Rating and Special

23.09.2010
Procedures
Details:
The Federal Board of Revenue (FBR) is expected to retain sales tax special
procedure for different sectors, and zero-rating facility for the five leading export
sectors under the 'reformed general sales tax (RGST) ordinance, to be issued
before October 1, 2010. Under the federal and provincial value-added tax (VAT)
proposal has been made for withdrawal of Sales Tax special procedure and zerorating facility for the five major export sectors including textile, leather, surgical,
carpets
and
sports
goods.
The Sales Tax special procedures have been considered as a major distortion in the
VAT regime due to different rates of sales tax for iron / steel, retailers and other
sectors specified in the Sales Tax Special Procedure Rules. Under the 'ideal' VAT
law, there are no fixed rates, reduced tax, enhanced tax, retail price-based tax or
special tax schemes. During drafting of the 'reformed GST', the FBR has noted
that the Sales Tax collection has been substantially increased following
introduction of sales tax special procedure for different sector. If the special
procedures are abolished, there are apprehensions that the sales tax collection from
these sectors may go down. At the same time, the documentation within these
sectors may not be improved. Therefore, it is being considered to temporarily
retain the sales tax special procedures in the 'reformed GST' (RGST).
The FBR is likely to continue with the sales tax special procedure for collection
and payment of sales tax on electricity, natural gas including compressed natural
gas (CNG) and liquefied petroleum gas (LPG), oil marketing companies (OMCs),

30
retailers, importers, steel melting, steel re-rolling, ship breaking units, wholesalerscum-retail outlets, suppliers of electric home appliances, vehicle dealers and
special procedure for supply of sugar to Trading Corporation of Pakistan (TCP).
The special sales tax rates applicable for these sectors would remain intact under
the
'reformed
GST'.
The reforms in the sales tax are being introduced based on the fact that measures
having serious revenue implications should be avoided under the 'reformed GST'.
If any measure would result in major revenue loss, it would not be taken under the
'reformed GST'. There are strong chances that the FBR would retain sales tax zerorating facility under the 'reformed GST'. The FBR had introduced the zero-rating
facility for five leading export sector to check payment of fraudulent and
inadmissible sales tax refunds. Due to zero-rating facility, the FBR has managed to
control such refunds and the overall volume of sales tax refund filed by the zerorated sector has been substantially reduced during the last few years. In case the
zero-rating facility is abolished for five zero-rated sectors, there are apprehensions
that the refund claims of five zero-rated sectors may suddenly witness a major
jump
in
the
normal
sales
tax
regime.
The standard rate of sales tax of 17% would be reduced to 15% as announced by
the Finance Minister in his budget speech for 2010-11. The 'reformed GST would
retain sales tax exemptions on essential food commodities, health and education
etc. However, Sixth Schedule of the Sales Tax Act would be totally reviewed to
withdraw unnecessary exemptions. It is expected that most of the sales tax
exemptions under the Sixth Schedule of the Sales Tax Act would be abolished
under
the
'reformed
GST'.
The FBR is also reviewing the Third Schedule of the Sales Tax Act to decide
whether the items chargeable to sales tax on the basis of printed retail price would
be brought into the normal sales tax regime. Under the Third Schedule,
manufacturers have to pay sales tax on all the stages of value-addition of consumer
items having printed retail price. Presently, sales tax has been charged on the basis
of printed retail price on supply of fruit juices and vegetable juices, ice cream,
aerated waters or beverages, syrups and squashes, cigarettes, toilet soap,
detergents, shampoo, toothpaste, shaving cream, perfumery and cosmetics, tea,
powder drinks, milky drinks, toilet paper and tissue paper, spices sold in retail
packing bearing brand names and trade marks and shoe polish and shoe cream. In
case the Third Schedule of the Sales Tax Act has been abolished, the said items
would be brought into the normal sales tax regime and dealers, wholesalers and
retailers of these items would be required to be documented within the supply
chain. Secondly, the manufacturers will have to make supply of these items on exfactory price and not on the basis of printed retail price. The wholesalers and
retailers would have to pay tax of each stage under the 'reformed GST'. The FBR

31
may enhance the sales tax registration threshold from Rs 5 million to Rs 7.5
million under the reformed GST. The registration threshold of Rs 7.5 million is
likely to be proposed to ensure that the cost of documentation should not be more
for the small and medium size business entities. The units operating below the
registration threshold should not be required to bear extra cost of documentation.
The FBR is also examining the Table-II of the First Schedule of the Federal Excise
Act to transfer powers of collection of sales tax on services from the Board to
provinces. The Table-II of the First Schedule of the Federal Excise Act contains
list of excisable services on which the FBR is legally empowered to collect excise
duty in VAT mode. The Table-II of the First Schedule of the Federal Excise Act
covering excisable services needs to be revised to transfer powers of collection of
sales tax from the FBR to the provinces in certain cases.

Subject: No change in Income Tax Return this year

25.08.2010

Details:
The Federal Board of Revenue (FBR) has abolished the proposed income tax
returns forms for tax year 2010 and allowed companies, associations of persons
(AOPs) and individuals to file the returns on the old format. The old income tax
return forms for Tax Year 2009 would be applicable for the Tax Year 2010. There
is no change in the format of the income tax return forms to be filed for Tax Year
2010. Taxpayers have been facilitated by allowing the old return forms to be used
without seeking additional information about the cost of assets purchased / sold
and information relating to the personal expenditure. In this regard, the FBR has
withdrawn the new income tax returns forms which sought detailed information
about the personal expenditure and cost of assets purchased/sold.
The taxpayers have started filing returns electronically from the previous year. In
case additional columns have been introduced, it would make it difficult for the
taxpayers to electronically file returns with new features. Keeping in view the
hardships of the taxpayers, the FBR has allowed the companies, AOPs and
individuals to file returns notified for Tax year 2009. Therefore, the return issued
for the Tax Year 2009 could be used for Tax Year 2010.

32
Subject: Flood Tax in Punjab Province

18.08.2010

Details:
Punjab Chief Minister, Muhammad Shahbaz Sharif has said that flood has affected
about 8.5 million people while a damage of Rs 80 billion has been estimated so
far. The CM has announced imposition of flood tax in the province.
The CM said the worst-ever flood in the history of the country has put a heavy
responsibility on the government and there is a need for collective efforts for relief
and rehabilitation of people at this stage instead of indulging in point scoring.
He said that national unity and solidarity is essential at these testing times. We are
in a state of war and a spirit of Jehad is required to tackle this challenge.
According to him, the country is facing the heaviest flood in its history and no one
could imagine that it could cause devastation at such a large scale. As such, there
is a need for sincere and consolidated efforts for coping with this challenge.
He further said Punjab government is utilising all available resources for the relief
and rehabilitation of the victims of the flood and all-out efforts are being made in
this regard. Around 400 trucks of ration are being sent to the flood-hit areas
whereby 40,000 mineral water bottles on daily basis and medicines, as well as
treatment facilities are being offered to the affectees.

Subject: Repayment cum drawback on export of ingots

18.08.2010
and billets
Details:
The Federal Board of Revenue through a recently issued notification has allowed
the registered persons to avail repayment-cum-drawback of sales tax on the export
of
ingots,
billets
and
mild
steel
re-rolled
products.
According to the notification, repayment-cum-drawback of sales tax of Rs 4,100
per metric ton (PMT) would be available on the export of ingots or billets other
than imported or of Pakistan Steel Mills or Peoples Steel Mills. This amount of
repayment of sales tax would be applicable on exports made against invoices
issued upto June 30, 2008. The repayment-cum-drawback of sales tax of Rs 5,526
PMT would be applicable in cases where exports were made against invoices
issued
from
July
1,
2008.
The repayment of sales tax of Rs 4,717 PMT would be applicable on the export of
Mild steel re-rolled products manufactured from ingots and billets other than
imported or Pakistan Steel Mills or of People Steel Mills. The said amount of
repayment of sales tax would be applicable on exports made against invoices
issued upto June 30, 2008. The repayment-cum-drawback of sales tax of Rs 5,960

33
PMT would be applicable where exports were made against invoices issued from
July
1,
2008.
The repayment-cum-drawback of sales tax of Rs 5,460 PMT would be applicable
on the export of Mild steel re-rolled products manufactured from imported billets
or billets of Pakistan Steel Mills or People Steel Mills on exports made against
invoices issued upto June 28, 2008. The repayment of sales tax of Rs 7,308 PMT
would be applicable where exports were made against invoices issued from July 1,
2008.

Subject: Maintenance of Computerized record of

16.08.2010
Chllans and Payment Receipts
Details:
The Federal Board of Revenue (FBR) is likely to issue a new procedure for Large
Taxpayers Units (LTUs) and Regional Tax Offices (RTOs) for maintenance of
computerised record of challans and computerised payment receipts (CPRs) issued
by the State Bank of Pakistan (SBP) and the National Bank of Pakistan (NBP). In
this regard, the FBR is expected to rescind the Income Tax Circular 6 of 1995,
Circular No 12 of 1996, and subsequent amendments through a new income tax
circular to be issued during 2010. However, the FBR instructions regarding
management of tax collection and its accounting procedure would be applicable
retrospectively
with
effect
from
July1,
2010.
Under the proposed procedure, the FBR has restricted the Regional Tax
Office/Large Taxpayers Unit from taking credit of challans received from District
Treasuries in cases where federal treasuries are not functioning. The FBR will
establish 'Central Statistical Branch' under the administrative control of each
LTU/RTO to maintain record of federal taxes in safe custody. The procedures
have been revised to ensure authentic maintenance of computerised record of
revenue collection and its reconciliation with the relevant federal and provincial
government
departments.
According to the draft of income tax circular, the cash collection of taxes paid
under the provisions (withholding as well as voluntary) of the Income Tax
Ordinance, 2001 shall be kept in the form of computerised printout generated by
the Data Processing Units (DPUs)/Data Processing Centre (DPCs), concerned by
the Regional Tax Offices (RTOs/Large Taxpayer Units (LTUs).
The collection received through book adjustment shall be recorded in a Monthly
Collection Register of RTOs/LTUs, the certificate issued by the withholding
authorities shall be kept in safe custody and got reconciled with the AccountantGeneral of Pakistan (AGPR) or its respective sub-office (as the case may be) and

34
then accounted for by the RTOs/ LTUs. The photocopies of the challans produced
by the taxpayers do constitute an evidence of payment. However, the credit of this
tax, on the basis of such evidence shall only be allowed to the taxpayer/claimant, if
CPR is verifiable by the system (Veritax) or Tax Management System (TMS) or
DPC
or
DPU's
data.
The Enforcement Divisions/Units of RTOs/LTUs are responsible to maintain and
keep the collection records. Hard records shall be kept in safe custody and backup
of soft records shall also be prepared on monthly basis, so that the chances of loss
of
data
are
eliminated.
At the close of each month, the total of monthly collection from all sources shall
be consolidated by the Enforcement Divisions/Units concerned and alongwith
prescribed MPR of collection of Enforcement Division shall be passed on to the
designated officer of RTOs/LTUs in his own hand both in figure and words.
At multiple E&C Divisions/Units, there shall be a Central Statistical Branch under
the administrative control of RTO/LTU and all computer printouts received from
Treasury/DPUs/ DPCs shall be kept by it before distribution to the E&C Division/
Unit having jurisdiction upon cases. The E&C Division/Unit shall maintain their
own records of Collection and would reconcile every month as per standing
instructions of Chief Commissioner Inland Revenue, RTO/LTU with the
AGPR/Sub
Office
AGPR/Treasury
(as
the
case
may
be).
The FBR has issued a separate procedure for stations where federal treasuries are
not functioning. The credit of collection for all challans received at a station,
where Federal Treasury is not functioning, shall be taken by the Regional Tax
Office/Large Taxpayers Unit having jurisdiction of Office receiving these challans
from District Treasuries. After taking the credit, these challans shall be marked
'Credit Taken For' and forwarded to the RTOs/LTUs having proper jurisdiction
over the case for record and giving credit to the taxpayers concerned. The
RTO/LTU receiving such stamped challans shall enter these in a separate portion
of his Collection records and Credit for this shall not be taken by him in his
Performance Statements.