ISLAMABAD: President Dr Arif Alvi Monday signed the Tax Laws (Second Amendment) Ordinance 2022 for additional taxation on the tobacco industry of Rs36 billion, sales tax exemption to single cylinder agriculture diesel engines, exemption of Capital Value Tax for the passenger/goods transport vehicles and vehicles of foreign diplomats and foreign diplomatic missions and restoration of old tax scheme for small traders/retailers prevailing prior to Finance Act 2022.
In this connection, the Tax Laws (Second Amendment) Ordinance 2022 has been promulgated.
The government has also restored the exemption on allowance and perquisite paid or allowed outside Pakistan by the Government of Pakistan to its citizen for services rendered outside Pakistan, withdrawn earlier through the Finance Act, 2022 with effect from July 1, 2022.
The total measures taken under the Tax Laws (Second Amendment) Ordinance 2022 stood at around Rs 38 billion. The revenue impact of the tax relief measures through the Tax Laws (Second Amendment) Ordinance 2022 stood at nearly Rs 19 billion. Therefore, the net impact of measures comes to around Rs 19 billion.
The subsidy provided by the federal or a provincial government on natural gas to consumers, including RLNG, has been granted sales tax exemption under the Tax Laws (Second Amendment) Ordinance, 2022.
Through the Ordinance, the advance tax rates on passenger transport vehicles have been rationalized.
According to an announcement of the President House, “President Dr Arif Alvi has signed the Tax Laws (Second Amendment) Ordinance, 2022. The president gave the approval to the Ordinance on the advice of the prime minister under the Article 89(1) of the Constitution.” Under the Ordinance, the amendments have been made in Sales Tax Act 1990, Income Tax Ordinance 2001, Federal Excise Act 2005 and Finance Act 2022, the President House added.
The Ordinance has amended provisions of the Finance Act 2022 to bring necessary changes in the income tax, sales tax and FED laws. The Ordinance has amended Income Tax Ordinance 2001, Sales Tax Act 1990 and Federal Excise Act 2005.
Under the Ordinance, the income tax exemption has also been granted to any allowance or perquisite paid or allowed as such outside Pakistan by the Government to a citizen of Pakistan for rendering service outside Pakistan. The exemption on income derived by Kuwait Foreign Trading Contracting and Investment Company or Kuwait Investment Authority being dividend of the Pak-Kuwait Investment Company in Pakistan has been restored as per sovereign agreement.
Under the Tax Laws (Second Amendment) Ordinance, 2022, the Fixed Tax Scheme introduced for retailers (other than tier-I retailers) on commercial electricity connection has been withdrawn with effect from July 1, 2022 and previous regime (prevailing prior to Finance Act 2022) has been restored. Instead of fixed tax on retailers that will reduce revenue of Rs42 billion, we will now revert to the old system of ad valorem tax. This will mean a reduction in FBR revenue of Rs15 billion. We will compensate this by imposing taxes on tobacco and cigarettes of Rs36 billion.
The federal government has been empowered to make any future scheme and determine its modalities including tax rate or amount and the date when it will be implemented for retailers to collect tax on commercial connections. Till the new scheme is announced by the Federal Government, the previous regime prior to Finance Act, 2022 will remain in force.
As per Ordinance, the sales tax exemption available to local supply of single cylinder agriculture diesel engines of 3 to 36 HP, which was withdrawn vide Finance Supplementary Act, 2022 has been restored.
Under the changes made for the tobacco sector, the Federal Excise Duty on unmanufactured tobacco has been enhanced from Rs10 per kg to Rs390 per kg; Federal Excise Duty on locally manufactured cigarettes has been enhanced from Rs5,900/1,000 sticks to Rs6,500/1,000 sticks for Tier-1 and from Rs1,850/1,000 sticks to Rs2,050/1,000 sticks for Tier-2cigarettes.
As per Ordinance, tax shall be charged from retailers, other than those falling in Tier-1, through their monthly electricity bills, at the rate of five percent where the monthly bill amount does not exceed rupees twenty thousand and at the rate of seven and a half percent where the monthly bill amount exceeds the aforesaid amount and the electricity supplier shall deposit the amount so collected directly without adjusting against his input tax. Provided that tax under this sub-section shall be in addition to the tax payable on supply of electricity.
Provided further that the commissioner of Inland Revenue having jurisdiction shall issue order to the electricity supplier regarding exclusion of a person who is either a Tier-1 retailer or not a retailer, it added.