ISLAMABAD, June 7: The government has enhanced tax credits for housing and construction industry and rationalized a number of taxes to create a business-friendly environment.
According to the Finance Bill 2003-04 released here on Saturday, the government had also allowed initial depreciation for second-hand imported plant and machinery on first use in Pakistan.
Dividend received from resident companies were taxed at 5 per cent in case of public companies and 10 per cent in case of individual. It was decided to give equal treatment on dividends received from a resident and non-resident company.
The withholding tax rate on property income was reduced to 5 per cent from 7.5 per cent and the limit of rent for withholding tax purposes was enhanced from Rs100,000 to Rs200,000. The rate of withholding tax on indenting commission agents was reduced from current 10 per cent to 5 per cent. The withholding tax should, however, continue to remain adjustable.
According to the Finance Bill, withholding tax rate on commercial and industrial users of electricity was rationalized to reduce the burden of lower income group like small powerlooms owners. The tax would continue to remain adjustable.
The profit on price bonds was subject to withholding tax of 7.5 per cent. This was extended in respect of prizes on winning a quiz or prize by companies for the promotion of sales to provide for uniform treatment.
The Bill announced concessional rate of Rs1,200 per annum for goods transport vehicles of 8,120 kg or more over 10-year-old allowed. Such vehicles of less than 2,030 kg to 8,120 kg remain exempted.
The payment on account of construction contracts received by a resident person is subject to withholding tax rate of 5 per cent to 6 per cent. To facilitate Pakistani construction contractors to actively participate in the reconstruction activities in Afghanistan and Iraq, the tax rate was reduced to one per cent, which was applicable to engineering contracting service performed out of Pakistan.
To encourage housing, the scope of provision of allowing tax credit is being widened to include NBFIs for the purpose of advancing loans for construction of a house or acquisition of a new house. Further the limit of mark-up was also enhanced to Rs500,000 or 40 per cent of the income whichever is less.
To promote savings and provide for old age security, thelimit for contribution or premium paid to annuity schemes of an insurance company for allowing tax credit to individual taxpayer was raised to Rs200,000 or 10 per cent of the income whichever was less.
According to the Finance Bill, to encourage amalgamation of financial institutions to achieve efficiency gain tax incentive for merger of banking and non-banking financial institution was allowed for a period of one year ending on June 30, 2003. The facility was extended for yet another year, which would come to end by June 30, 2004.
To promote consumer and retail banking and provide for provision of bad debts banking, it was proposed to allow three per cent of total income from consumer loans as deduction against the income of the banks arising from such loans. This amount should be kept in a reserve created for the purpose of setting of any future bad debt pertaining to consumer banking loan.
Profit on debt in respect of investment made in National Saving Certificates, including Defence Saving Certificates on or after July 1, 2001, was chargeable to tax at normal tax rates on global income basis. Profit in respect of such certificate was payable on maturity or at the time of encasement of such certificates. It was proposed to allow the recipient an option to be taxed at the rate of tax applicable to the tax year the profit relates/accrued, which meant taxation in the year of receipt but on average effective rate of the year in which the profit accrued.
To align the existing provision of law with judicial pronouncement, facility of adjustment of loss under the head “income from business” sustained by an industrial undertaking during the exemption period was proposed to be adjustable against income of the post-exemption period.
At present advance income tax was payable in four quarterly instalments on turnover basis by all the taxpayers. Individual taxpayers are proposed to pay advance tax on the basis of last assessed income if it was Rs200,000 or more.
To boost up exports, suppliers registered under the DTRE rules and receiving payments from the direct exporters or export houses against a firm contract for supply of goods manufactured by them to be subjected to the same rate of withholding tax as was applicable for the direct exporters.
Profit of non-performing loan was a deductible expense in the case of banking companies and development finance institutions on accrual basis. In order to provide a level-playing field, the facility was extended to non-banking finance companies as well.
The Finance Bill allowed tax credit for contribution up to Rs200,000 or 10 per cent of income, whichever is less against Rs100,000 or 10 per cent previously.To promote foreign direct investment in the country and to resolve all uncertainty regarding tax matters, non-residents would be given the facility of advance ruling, delivered by a committee headed by the CBR chairman.