Pakistan: Tax measures enacted in Finance Act 2020

Pakistan: Tax measures enacted in Finance Act 2020

The National Assembly approved the Finance Bill 2020 with certain amendments, and then the legislation received the assent of the president and was enacted on 30 June 2020 as Finance Act, 2020.

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There are legislative changes made to various tax laws including the:

  • Income Tax Ordinance, 2001
    • Mandatory installation of electronic fiscal device for companies and non-companies
    • Scope of non-profit organization limited to include establishment for general public
    • Taxation of Pakistan resident ship owning company – introduced
    • Deductions against income from house property
    • Threshold of inadmissible deductions against business income revised
    • Split of depreciation allowance in the year of purchase and in the year of disposal
    • Deduction on account of lease rentals
    • Capital gain on sale of immovable property – rationalization of holding period and tax rates
    • Shares of public company
    • Resident companies engaged in hotel business
    • Limit of tax credit on charitable donations between associates
    • Cap on date of enlistment for claiming tax credit
    • Agreements for avoidance of double taxation and prevention of fiscal evasions
    • Un-explained suppressed amount of production, sales or any amount treated as business income
    • Scope of minimum tax extended to permanent establishment (PE) of non-resident
    • Return of income
    • Taxpayer’s profile
    • Revision of wealth statement
    • Automatic re-communication of taxable income and tax payable parameters
    • Statement of final taxation – best judgement assessment
    • Amendment of assessment
    • Agreed assessment
    • Appeal before the Commissioner Appeals
    • Condition of mandatory payment of 10% of tax upheld for filing of appeal before Appellate Tribunal removed
    • Alternative dispute resolution provisions revamped
    • Mode of recovery of tax
    • Quarterly advance tax
    • Advance tax collection on imports
    • Tax on domestic purchase of cooking oil or vegetable ghee
    • Change of taxation regime of advertisement services to non-resident media person from final to minimum tax regime
    • Change of taxation regime of payment to PE of a non-resident person from final to minimum tax regime
    • Toll manufacturing charges subject to tax withholding as “goods”
    • Expeditious issuance of exemption certificate in instances of sales of goods by listed company
    • Enhancement of threshold for becoming “prescribed person” for tax withholding purposes
    • Filing of withholding tax statements
    • Furnishing of information of profit on debt by banking companies
    • Issuance of centralized income tax refunds
    • Real-time access to information and databases by various agencies
    • Audit proceedings electronically
    • Determination of taxable income on the basis of sectoral benchmark ratios
    • Penalties
    • Assessment of default surcharge without payment of tax
    • Automated case selection system
    • Delegation of authority to revise withholding tax recovery order
    • Exclusion from the term “motor vehicle” for collection of advance tax
    • Exemption certificate to industrial and commercial consumer of electricity
    • Sale by auction includes “renewable of licenses”
    • Relief provided active taxpayers from tax collection by educational institutions
    • Change of tax regime of rental of machinery or equipment from final to minimum tax
    • Omission of withholding / collection of advance tax
    • First schedule
    • Second schedule
    • Tenth schedule
    • Taxation of builders and developers (including eleventh schedule)
  • Sales Tax Act, 1990
    • “Active taxpayer” to exclude blocked person and to include a person who fails to file quarterly statements
    • “Output tax” to include sales tax levied under Islamabad Capital Territory
    • “Value of supply” to include certain supplies of electricity
    • Determination of tax liability – board authority to limit wastage of material
    • Adjustment of input tax in instances of domestically manufactured electric vehicles
    • Authority to Inland Revenue to apply a decision of the High Court or appellate tribunal while finalizing a pending assessment
    • Tax invoice – threshold enhanced from Rs. 50,000 / to Rs. 100,000
    • Electronic access to records and documents for the purpose of audit
    • Penalties
    • Authorized officers afforded real time electronic access to records
    • Commissioner (Appeals) not to admit any documentary evidence not presented at assessment stage
    • Alternative dispute resolution provisions revised
    • Real-time access to information and database
    • Certain transactions not admissible – supply to unregistered person
    • Zero-rating applicable to Gwadar Port and Gwadar free zone under fifth schedule
    • Exemptions applicable to Gwadar free zone under sixth schedule
    • Extension of period of exemptions in sixth schedule
    • New exemptions under sixth schedule
    • Substitutions of exemptions under sixth schedule
    • Amendments in reduced rates under eighth schedule
    • Substitutions of ninth schedule
    • New fixed rate items inserted in tenth schedule
    • Amendments in sales tax withholding provisions under eleventh schedule
    • Relaxation of condition for inapplicability of value addition tax under twelfth schedule
  • Federal Excise Act, 2005
    • Table 1 of first schedule
    • Streamlining provisions of alternative dispute resolution with provisions introduced in Income Tax Ordinance, 2001 and Sales Tax Act, 1990
  • The Customs Act, 1969
    • First schedule
    • Fifth schedule (reduced rates)


Read a July 2020 report [PDF 1.76 MB] prepared by the KPMG member firm in Pakistan

Read also a July 2020 report prepared by KPMG International

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