Pakistan: National Assembly Passes Finance Bill 2017

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The National Assembly on 13 June 2017 passed the Finance Bill 2017 by majority vote to give effect to measures announced in the annual budget proposals for the fiscal year 2017-18.  Therefore, from 1 July 2017 the following major changes in corporate taxation have occurred in Pakistan:

  • The corporate tax rate is reduced from 32% to 31% for the tax year 2017, and will fall to 30% for the tax year 2018 onwards.
  • New withholding tax provisions require a deduction of 20% final tax from payments to non-residents for foreign-produced commercials.
  • Withholding tax from payments to print and electronic media for providing advertisement services is treated as a final tax liability.
  • The rate of withholding tax from non-filers on payment of dividends is increased from 17.5% to 20%.
  • The rate of withholding tax from payments on the execution of construction or allied contracts and for service contracts including advertisements is increased to a fixed rate of 7% from the existing 6% and for non-filers to 12%.
  • Surrender of loss to a holding company by a subsidiary is restricted to the percentage of holding in the subsidiary.
  • Exemption of inter-company dividends for companies availing group relief is withdrawn.
  • Further documents, information, and applications are introduced to examine transactions between associates.
  • Tax authorities are empowered to call for the income tax return of any of the last ten years from non-filers.
  • Depreciation on assets used during the period of exemption is deemed to be allowed. After the exemption period, the value of assets for depreciation is to be based on the cost as reduced by tax depreciation for the period of exemption.
  • To enjoy exemption from tax on capital gains on disposal, retention of shares of a public limited company increased from two years to four years.
  • Additional tax credits are allowed for employment generation; making sales to sales-tax-registered persons; making investments for balancing, modernisation, and replacement; and enlistment on a stock exchange.
  • Corporate service providers are required to pay a minimum tax of 8% of the turnover; however, an exemption is extended from this provision to 12 corporate service sectors.

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