New Ordinance on Overseas Pakistanis, Own Money, Electric Vehicles and Super Tax Explained

The government has promulgated Tax Laws Amendment Ordinance 2021 so as to introduce the following major measures:

  1. To facilitate non-resident Pakistanis to open non-resident Pakistani Rupee Value Accounts (NRVAs);
  2. Extended 4 percent Super Tax on banks indefinitely beyond the tax year 2021;
  3. Imposed withholding tax (Rs. 50,000-Rs. 200,000) on persons who sell locally manufactured vehicles within 90 days of delivery of such vehicles even if they are registered
  4. Offered tax exemptions for the promotion of the sale of electric vehicles.

According to the explanation of the Tax Laws Amendment Ordinance 2021 released by leading chartered accountant Ashfaq Tola on Sunday, the President has promulgated the Ordinance to make amendments in Income Tax Ordinance, 2001(ITO), Sales Tax Act, 1990 (STA) and Federal Excise Act, 2005 (FED) and Customs Act from Feb 12, 2021.

Advance Tax to Prevent Own Money on Cars

The tax expert stated that every motor vehicle registering authority of the Excise and Taxation Department is required to collect advance tax at the time of registration of a new locally manufactured motor vehicle, at the rates prescribed with respect to engine capacity.

This tax is adjustable and is applicable till June 30, 2021, only.

A tax of Rs. 50,000 has been imposed on the vehicles with engine capacity up to 1000cc; tax of Rs. 100,000 on the engine capacity of 1000cc to 2000cc and tax of Rs. 200,000 has been imposed on vehicles having engine capacity of 2000cc and above.

This means the government has imposed a withholding tax (Rs. 50,000-Rs. 200,000) on persons who sell locally manufactured vehicles within 90 days of delivery of such vehicles even if they are registered, the expert said.

Ashfaq Tola stated that the tax has been introduced to discourage the ‘Own Money’ culture in Pakistan which has been a major factor in price hikes in car prices over the years.

Super Tax

Explaining the new Ordinance, the tax expert said that the section 4B was inserted vide Finance Act 2015, for the rehabilitation of temporarily displaced persons to be paid by prescribed persons at the rate prescribed under Division IIA of Part I of the First Schedule. From Tax Year 2020 onwards, the tax was only applicable on Banking companies @ 4% till the Tax year 2021. Now, this tax has been extended for an indefinite period.

Tax Exemptions for Electric Vehicles

According to the Ordinance, a new entry 71 is introduced in Eight Schedule whereby the reduced rate of sales tax at 1% has been prescribed on locally manufactured or assembled electric vehicles (4 wheelers) on local supply till June 30, 2026, including small cars or SUVs with 50 kWh battery or below and light commercial vehicles (LCVs) with 150 kWh battery or below.

Under the Ordinance, the value addition tax @3% at import stage has been exempted on the electric vehicles (4 wheelers) CKD kits for small cars or SUVs, with 50 kWh battery or below and light commercial vehicles (LCVs) with 150 kWh battery or below till June 30, 2026; electric vehicles (4 wheelers) small cars or SUVs with 50 kWh battery or below and Light Commercial Vehicles (LCVs) with 150 kWh battery or below in CBU condition till June 30, 2026, and electric vehicles (2-3 wheelers and heavy commercial vehicles) in CBU condition till June 30, 2026.

Through Ordinance, the rate in case of importers of CKD kits of electric vehicles for small cars or SUVs with 50kwh battery or below and LCVs with 150 kWh battery or below is prescribed at one percent.

Section 152 prescribes rules for withholding of tax when payment is made to non-residents on account of royalty, the fee for technical services, contract of construction services, contract for digital services, contract for advertisements, etc.

Payment to Non-residents

Now through Ordinance, every banking company maintaining a Foreign Currency Value Account (FCVA) or a non-resident Pakistani Rupee Value Account (NRVA) of a non-resident individual holding Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP) or Computerized National ID Card shall deduct tax @10% on capital gain arising on the disposal of debt instruments and government securities and certificates (including Shariah-compliant variant) invested through FCVA and NRVA, and this shall be final tax liability for such non-resident persons.

Advance Tax on Sale or Transfer of Immovable Property

Any person responsible for registering, recording, or attesting transfer of any immovable property, at the time of registering, recording or attesting the transfer, is required to collect, from the seller or transferor, advance tax at the rate of one percent.

The Advance tax collected is adjustable, however, where the immovable property is acquired and disposed of within the same tax year, the tax collected under this section is minimum tax.

Under the new Ordinance, if the seller or transferor is a non-resident individual holding POC or NICOP or Computerized National ID Card, who had acquired the immovable property through a FCVA or an NRVA maintained with authorized banks in Pakistan shall be final tax in lieu of capital gains earned by the seller or transferor from the property disposed of.

Ashfaq Tola explained that any person responsible for registering, recording, or attesting transfer of any immovable property, is required at the time of registering, recording, or attesting the transfer to collect from the purchaser or transferee advance tax at the rate of 1% of fair market value. The advance tax collected is adjustable.

Now through the Ordinance, if the buyer or transferee is a non-resident individual holding POC or NICOP or Computerized National ID Card who acquires the immovable property through a FCVA or NRVA maintained with authorized banks in Pakistan, the tax shall be the final tax for such buyer.

Under the new Ordinance, the incentive is given in the form of a reduced rate to support voluntary registration. The rate of advance tax on sale to distributors, dealers or wholesalers of fertilizer is reduced to 0.25%, if they already are or get themselves registered under the Sales Tax Act, 1990 within 60 days of the promulgation of this Ordinance.

Profit on Debt

Currently, any profit on debt derived from foreign currency accounts held with authorized banks in Pakistan, or certificate of investment issued by investment banks in accordance with the Foreign Currency Accounts Scheme introduced by the State Bank of Pakistan, by citizens of Pakistan and foreign nationals residing abroad, the foreign association of persons, companies registered and operating abroad and foreign nationals residing in Pakistan is exempt from tax.

Now through Ordinance, such exemption has been restricted to only non-resident individuals, the non-resident association of person and non-resident companies.

Presently, any profit on debt derived from a rupee account held with a scheduled bank in Pakistan by a citizen of Pakistan residing abroad, where the deposits in the said account are made exclusively from foreign exchange remitted into the said account is exempt from tax.

Now through Ordinance, such exemption has been restricted to only non-resident individuals holding a POC or NICOP or CNIC.

The provisions of Section 100BA and rule 1 of the Tenth Schedule i.e. double rate of tax on non-filer, have been made not applicable on the non-resident individual holding POC, or NICOP or CNIC maintaining an FCVA or NRVA.

As per the new Ordinance, exemption of tax is given on any income derived by Islamic Naya Pakistan Certificates Company Limited (INPCCL).

Presently, the rate of tax to be deducted under sub-section (2) of section 152, in respect of payments from profit on a debt payable to a non-resident person, having no permanent establishment in Pakistan, is 10% of the gross amount paid.

The tax deducted on profit on debt from a debt instrument, Government securities including treasury bills and Pakistan Investment Bonds is the final tax on profit on a debt payable to a non-resident person having no permanent establishment in Pakistan and the investments are exclusively made through a special Rupee Convertible Account maintained with a Bank in Pakistan.

Now, through Ordinance, changes have been made whereby this advance tax will not apply if exemption from total income under Clause 78 and 79 of Part 1 is availed.

Under the Tax Laws Amendment Ordinance 2021, the rate of tax to be deducted under section 151 have been reduced to 10% (from 15%) from the profit on debt instruments, whether conventional or Shariah-compliant, issued by the federal government under the Public Debt Act, 1944 or its wholly-owned special purpose company, purchased by a resident citizen of Pakistan who has already declared foreign assets to the FBR through FCVA maintained with authorized banks in Pakistan under the foreign exchange regulation issued by the State Bank of Pakistan. The tax so deducted will be the final tax.

Under the Ordinance, the rate of advance tax to be deducted under Section 152(2) or Section 151 have been reduced to 0% of the gross amount of profit on debt paid which are covered under clause 79 and 78 of part-1.

Wholesalers and Retailers of Fast-moving Consumer Goods

Currently, the rate of tax under clause (a) of sub-section (1) of section 153 in case of dealers and sub-dealers of sugar, cement, and edible oil, as the recipient of the payment, is 0.25% of the gross amount of payments.

Under the newly promulgated Ordinance, wholesalers and retailers of fast-moving consumer goods, fertilizer, sugar, cement, and edible oil, have also been added in the above category as recipients of the payment. However, the benefit of the reduced rate shall be available to those dealers, sub-dealers, wholesalers, and retailers of the above sectors who already are or get themselves registered under the Sales Tax Act, 1990 within 60 days of the promulgation of the Ordinance.

Currently, the rate of minimum tax under sub-section (1) of section 113 in the case of dealers and sub-dealers of sugar, cement, and edible oil is 0.25% subject to the condition that the names of such dealers and sub-dealers are appearing on the active taxpayers’ lists issued under the provisions of the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001.

Now, wholesalers and retailers of fast-moving consumer goods, fertilizer, sugar, cement, and edible oil have also been included in the above category. However, the benefit of a reduced rate shall be available to those dealers, sub-dealers, wholesalers, and retailers of the above sectors who already are or get themselves registered under the Sales Tax Act, 1990 within 60 days of the promulgation of this Ordinance.

Currently, the provisions of section 236P are not applicable to a non-resident rupee account repatriable (NRAR) or a foreign currency account maintained with a banking company in Pakistan of a non-resident individual investing in a debt instrument, whether conventional or shariah-compliant, issued by the Federal Government under the Public Debt Act, 1944. Now changes have been made whereby, the provisions of section 231A and 231AA and 236P are not applicable to the holders of FCVA or NRPRVA in respect of these accounts only, Ashfaq Tola explained.

He explained that section 114 prescribes the list of persons who are required to file a return of income including every person whose income for the year is subject to final taxation under any provision of ITO [Section 114(1)(ae)].

Currently, the provisions of clause (ae) of sub-section (1) of section 114 and section 181 shall not apply to a non-resident individual solely by reason of profit on debt earned from a debt instrument, whether conventional or shariah-compliant, issued by the Federal Government under the Public Debt Act, 1944 and purchased exclusively through a bank account maintained abroad, NRAR or a foreign currency account maintained with a banking company in Pakistan.

According to the new amendment, the provisions of clause (ae) of sub-section (1) of section 114 and section 181 are not applicable to a non-resident individual holding Pakistan Origin Card, or National ID for Overseas Pakistanis(NICOP) or CNIC maintaining a FCVA or NRVA.

Amendment has been introduced whereby the provisions of section 153(1)(a) are not applicable to distributors, dealers, wholesalers, and retailers of locally manufactured Mobile phone devices as withholding agents with effect from July 1, 2020, tax expert added.

Courtesy: Pro Pakistani

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