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Pakistan Publishes Finance Supplementary (Second Amendment) Act 2019

Pakistan's Federal Board of Revenue has published the Finance Supplementary (Second Amendment) Act 2019, which was approved by the National Assembly on 6 March 2019 and was assented by the president on 9 March. Measures of the Act include:

  • The super tax for rehabilitation of temporarily displaced persons is extended indefinitely (was to expire 2020), with an amendment in the rates:
    • For banking companies, the 0% rate for the 2018 tax year and the rates of 3% and 2% scheduled for the 2020 and 2021 tax years are all replaced with a 4% rate (the 4% rate for 2019 tax year maintained); and
    • For non-banking companies, the 1% rate scheduled for the 2020 tax year is replaced with a 0% rate (the 3% rate for 2018 tax year, 2% rate for 2019 tax year, and 0% rate for 2021 tax year maintained);
  • The tax on undistributed profits is set to expire after tax year 2019 (was to apply from tax year 2017 onwards);
  • It is provided that from tax year 2019, losses on the disposal of securities that have not been offset against gains from the disposal of securities may be carried forward to offset future gains for up to three years (for previous years, such excess losses may not be carried forward);
  • It is provided that where an offshore asset of any person is discovered, a provisional assessment order or provisional amended assessment order, as the case may be, may be issued for the last completed tax year of the person, taking into account the offshore asset discovered;
  • The treatment of advance tax on import as a minimum tax for the year on goods where goods are sold in the same condition as they were when imported is removed (i.e., considered final tax);
  • The monthly statement requirement for persons required to collect/deduct tax at source is changed to a biannual (6-month) requirement, with the statement for the half-year ending 30 June due the following 31 July and the statement for the half-year ending 31 December due by the following 31 January (the Commissioner may still require statements for other periods by notice);
  • Provisions for the Directorate General of Transfer Pricing are replaced with provisions for the Directorate General of International Tax Operations, including expanded functions regarding the exchange of information, the levy and recovery of tax for undeclared offshore assets/income, the exchange of CbC reports, and conducting transfer pricing audits (previous function limited to transfer pricing audits);
  • Provisions for the collection of advance tax by stock exchanges in Pakistan are ceased from 1 March 2019;
  • A new tax exemption is introduced for inter-corporate dividend income derived by a company availing of group relief, which is based on a formula A x B / C, where:
    • A is the dividend amount;
    • B is the shareholding of the company receiving the dividend in the company distributing the dividend; and
    • C is the total ordinary share capital of the company distributing the dividend;
  • The five-year tax exemption for industrial undertakings engaged in the manufacturer of plant, machinery, and equipment for use in the generation of renewable energy is extended for undertakings established between 1 March 2019 and 30 June 2023, with the five-year period beginning the date the undertaking is established;
  • A new five-year exemption is introduced for greenfield industrial undertakings incorporated on or after 1 July 2019, provided that the undertaking is not formed by the split up or reconstruction of an existing undertaking or by transfer of machinery or plant from an existing undertaking;
  • A 20% reduced tax rate is introduced on certain income derived by banks for tax years 2020 to 2023, including interest income on additional advances to micro, small, and medium enterprises, additional advances for low-cost housing, and additional advances for farm credit.

The Act comes into force with immediate effect, unless otherwise indicated.

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