Pakistan: Modified Income Tax Rules 2002

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The Federal Board of Revenue (FBR) has published the Income Tax Rules 2002 as amended  up to 10 February 2017.

The main changes are summarised below:

Capital gains:

  • In cases of portfolio transfers where the ownership of securities does not change, the date and cost of acquisition of the securities will remain the same and capital gains tax will not arise. In other cases, including transfers made by an investor from a fund held by an Asset Management Company to another fund maintained by the same or another Asset Management Company, such transfers will be subject to tax.
  • Disposals of securities are taxable at the settlement date. Capital gains will be computed using the first-in-first-out (FIFO) method and computed in accordance with section 37A of the Income Tax Ordinance 2001.
  • With effect from 1 July 2016, investors in open-ended mutual funds and future commodity contracts will be entitled to set off capital losses against capital gains in accordance with Rule 13N(6). The National Clearing Company of Pakistan Limited (NCCPL) will calculate the capital gains tax after adjusting for capital losses in accordance with Rule 13N(10).
  • The NCCPL will compute capital gains tax on future commodity contracts entered into by members of the Pakistan Mercantile Exchange in accordance with Rule 13N effective from 1 July 2016.
  • Capital gains from the disposal of shares in book building and shares obtained in an initial public offering will be computed by applying the FIFO method and in accordance with Section 37A of the Income Tax Ordinance 2001.

Individual tax returns:

  • The person responsible for deducting tax from an employee’s salary under section 149 of the Income Tax Ordinance 2001 will have to submit a prescribed annual statement to the authorities by 31 July of the year following the end of the relevant financial year.
  • An individual earning taxable income of PKR 1 million or more, or with the turnover exceeding PKR 50 million will have to file an income tax return and withholding tax statement electronically from 1 July 2016.

Others:

  • Taxpayers governed by both the final tax regime and the normal tax regime must prorate the allowable deductions and allowances accordingly.
  • Rules 13Q to 13ZH apply to builders and developers under section 7C and 7D of the Income Tax Ordinance 2001. The rules set out, among other things, the advance tax to be imposed, the method of tax collection and the responsibilities of the relevant authorities and taxpayers.
  • A listed company may apply a reduced tax rate of 2% if it meets the Shari’ah-compliant criteria provided in Rule 231H.

Valuation:

  • The value of immovable property under section 111 of the Income Tax Ordinance 2001 will be the higher of the sales price and:
  • The fair market value provided by the FBR or, if such value is not available, the fair market value provided by the District Officer (Revenue), provincial authority or other authority determining the stamp duty; and
  • The average of the recorded sales price for the agricultural land.
  • The value of bonus shares issued by a company not quoted on the stock exchange will be the higher of the face value and break-up value.

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