Tax Alert on Economic and Tax Reforms Package 2018 - EY Ford Rhodes
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Tax Alert on
Economic and Tax Reforms
Package
2018
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018
This Alert is prepared as a general guide for the Changes of consequential, administrative, procedural
benefit of our clients and is available to other or editorial in nature have either been excluded or
interested persons upon request. This should not be dealt with briefly.
published in any manner without the Firm’s consent.
This is not an exhaustive treatise as it sets out It is suggested that the text of the Ordinances and the
interpretation of only the significant amendments relevant laws and notifications, where applicable, be
proposed by the Foreign Assets (Declaration and referred to in considering the interpretation of any
Repatriation) Ordinance, 2018, the Local Declaration provision. Since these are only general comments, no
of Domestic Assets Ordinance, 2018, the Income Tax decision on any issue be taken without further
(Amendment) Ordinance, 2018 and the Protection of consideration and specific professional advice should
Economic Reforms (Amendment) Ordinance, 2018 in be sought before any action is taken.
a concise form to amplify the important aspects of
the aforementioned Ordinances.
Contents Page
Highlights 1
The Foreign Assets (Declaration and Repatriation) Ordinance, 2018 2
The Local Declaration of Domestic Assets Ordinance, 2018 5
The Income Tax (Amendment) Ordinance, 2018 8
The Protection of Economic Reforms (Amendment) Ordinance, 2018 11
09 April 2018
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 1
Highlights • The tax is required to be paid @ 2% and/or 5%,
depending on the category of asset declared.
The Foreign Assets (Declaration and Repatriation)
• The information provided by the declarant shall
Ordinance, 2018 (FADR Ordinance)
remain confidential, notwithstanding any law for
• Declaration of all foreign assets is to be made by the time being in force.
the citizens of Pakistan, except for holders of
Income Tax (Amendment) Ordinance, 2018
public office and their spouses and dependent
children. • Effective from tax year 2019, the rates of tax for
individual taxpayers (salaried and non-salaried)
• The declaration and repatriation shall be made
have been significantly reduced. The highest rate
on or after 10 April 2018 but on or before 30
will be 15% where taxable income exceeds Rs 4.8
June 2018.
million.
• The declaration of such foreign assets is to be
• For the purposes of taxability of unexplained
made at Fair Market Value, which shall not be
income or assets, as provided in section 111 of
less than the cost of acquisition.
the IT Ordinance, concealed foreign assets and
• The rates of tax applicable are 2%, 3%, and/or concealed foreign income can be taxed in the
5%, depending on the category of assets year of discovery, irrespective of the year of
declared. acquisition.
• Declaration is to be made in Rupees, however the • Immunity from probe in respect of foreign
payment is to be made in United States Dollars. currency remitted to Pakistan has now been
restricted to Rs.10,000,000 in a tax year. This is
• The information provided by the declarant shall
effective from tax year 2018.
remain confidential, notwithstanding any law for
the time being in force. • Every resident individual having foreign income
equal to or in excess of USD 10,000 or foreign
The Local Declaration of Domestic Assets
assets with a value of USD 100,000 or more, are
Ordinance, 2018 (LDDA Ordinance)
now required to file a ‘Foreign Assets and Income
• Declaration of all undisclosed income and Statement’ pursuant to the newly inserted
domestic assets of every Company, Association section 116A of the IT Ordinance.
of Persons, and the citizens of Pakistan,
• Penalty @ 2% is applicable in relation to the non-
wherever they may be, except for holders of
declaration of foreign assets and/or foreign
public office and their spouses and dependent
income.
children.
The Protection of Economic Reforms (Amendment)
• The declaration and repatriation shall be made
Ordinance, 2018
after 10 April 2018 but on or before 30 June
2018. • Only a tax ‘Filer’ is now permitted to deposit cash
in his foreign currency account.
• Declaration of different categories of asset, viz-
a-viz: undisclosed income, immovable property,
vehicles, shares and securities, precious stones
and metals, etc., has been prescribed by the
LDDA Ordinance.
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 2
The Prime Minister of Islamic Republic of Pakistan appropriate legislation may be enacted at a later
announced an Economic Reforms package on 05 April stage in order to bring the above proposals as part of
2018, which provides wide ranging measures to law.
solicit the declaration of undeclared foreign as well as
local assets and income. Our comments on these Ordinances are given below:
To give effect to the Economic Reforms Package, it is 1. THE FOREIGN ASSETS (DECLARATION AND
understood that the President has promulgated the REPATRIATION) ORDINANCE, 2018 – FADR
following Ordinances on 08 April 2018. The Gazetted ORDINANCE
copy of the Ordinances is not available so far,
however, we have access to the unsigned copies of 1.1 Overriding effect
the following:
The provisions of the FADR Ordinance override all
1. The Foreign Assets (Declaration and contrary provisions contained in any other law for the
Repatriation) Ordinance, 2018 time being in force.
2. The Local Declaration of Domestic Assets 1.2 Application
Ordinance, 2018
The FADR Ordinance shall apply to all foreign assets
3. The Income Tax (Amendment) Ordinance, 2018 of the citizens of Pakistan, except:
4. The Protection of Economic Reforms (a) Those owned by holders of public office and their
(Amendment) Ordinance, 2018 spouses and dependent children;
It is pertinent to note that the tax reforms package (b) Foreign assets in respect of which any
announced by the Prime Minister of Pakistan on 05 proceedings are pending in any court of law: and
April 2018, also mentioned matters relating to
declaration/valuation of immovable properties which (c) Foreign assets or proceeds that are involved in or
inter-alia include: derived from the commission of a criminal
offence.
(a) Introduction of unified valuation rates of
properties across Pakistan. It is worthwhile to highlight that the application of the
FADR Ordinance is to the Citizens of Pakistan only,
(b) Right of government to buy local immovable therefore, any such persons who are not citizens of
properties registered in 2018-2019, 2019- Pakistan but are resident for taxation purposes in
2020 and 2020-21 within six months of Pakistan, would not be eligible to take benefit of the
registration at prescribed percentages. FADR Ordinance.
(c) Restriction on non-filers to buy property over 1.3 Important definitions
Rs.4 million
(a) Foreign Assets means any movable or
However, no legislation has been made with regard to immovable assets held outside Pakistan and
the above proposed reforms. We understand that includes real estate, mortgaged assets, stock
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 3
and shares, bank accounts, bullion, cash, General of Pakistan, Political
jewels, paintings, accounts and loan Secretary;
receivables, beneficial ownership or beneficial
interests or contribution in offshore entities iii. the Chief Minister, Speaker Provincial
and trusts. Assembly, Deputy Speaker Provincial
Assembly, Provincial Minister, Adviser
(b) Government Security means a bond, note or or Consultant or Special Assistant to
other debt instrument issued by the Federal the Chief Minister and who holds or
Government with a promise of repayment has held a post or office with the rank
upon maturity. or status of a Provincial Minister,
Provincial Parliamentary Secretary,
Member of the Provincial Assembly,
(c) Liquid assets means cash or an asset that can
Advocate-General for a Province
be readily converted into cash with a minimal
including Additional Advocate-General
impact on the assets’ value and includes bank
and Assistant Advocate-General,
notes, marketable securities, stocks,
Political Secretary;
promissory notes, government bonds, deposit
certificates and other similar instruments.
iv. the Chief Justice or, as the case may
be, a Judge of the Supreme Court,
(d) Holder of Public Office means a person who is Federal Shariat Court, a High Court or
or has been at any time since 1st day of a Judicial Officer whether exercising
January 2000 – judicial or other functions or
Chairman or member of a Law
i. the President of the Islamic Republic Commission, Chairman or Member of
of Pakistan or the Governor of a the Council of Islamic Ideology;
Province;
v. holding an office or post in the service
ii. the Prime Minister, Chairman Senate, of Pakistan or any service in
Speaker of the National Assembly, connection with the affairs of the
Deputy Chairman Senate, Deputy Federation or of a Province or of a
Speaker National Assembly, Federal local council constituted under any
Minister, Minister of State, Attorney- Federal or Provincial law relating to
General for Pakistan and other Law the constitution of local councils, co-
Officers appointed under the Central operative societies or in the
Law Officers Ordinance, 1970 (VII of management of corporations, banks,
1970), Adviser or Consultant or financial institutions, firms, concerns,
Special Assistant to the Prime undertakings or any other institution
Minister and holds or has held a post or organization established,
or office with the rank or status of a controlled or administered by or
Federal Minister or Minister of State, under the Federal Government or a
Federal Parliamentary Secretary, Provincial Government or a civilian
Member of Parliament, Auditor- employee of the Armed Forces of
Pakistan;
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 4
vi. the Chairman or Mayor or Vice Rate (as a
Chairman or Deputy Mayor of a zila percentage
S. of the
council, a municipal committee, a Foreign Assets
No. value of
municipal corporation or a foreign
metropolitan corporation constituted assets)
under any Federal or Provincial law 1. Liquid assets not repatriated 5%
relating to local councils; Immovable assets outside
2. 3%
Pakistan
Explanation.– For the purpose of this Liquid assets repatriated and
sub-clause the expressions invested in Government
securities upto 5 years in US
"Chairman" and "Vice Chairman" shall dollars denominated bonds with
3. 2%
include "Mayor" and "Deputy Mayor" six-monthly profit payment in
as the case may be, and the equivalent Rupees (rate of return
3%) and payable on maturity in
respective councilors therein; and equivalent Rupees
4. Liquid assets repatriated 2%
vii. a District Nazim or District Naib
Nazim, Tehsil Nazim or Tehsil Naib
The tax so calculated is to be paid along with the
Nazim or Union Nazim or Union Naib
declaration of the foreign assets, which are to be
Nazim;
declared at Fair Market Value (FMV). The expression
FMV has been defined to mean the price of the
The definition of holder of public office is quite
foreign asset determined and declared by the
extensive, covering a wide range of offices and
declarant himself, which should not be less than the
positions held by persons both at the Federal and
cost of acquisition of the foreign asset. In case of a
Provincial level, and such offices and positions being
mortgaged asset, the cost of acquisition would be the
held since 01 January 2000. Therefore, any person
sum of mortgaged payments and other mortgage
who was a holder of public office before this date, and
related costs incurred. The declaration is to be made
has not assumed any such office or position
in the manner provided in Form-A in the FADR
thereafter, will be eligible to take benefit under the
Ordinance.
FADR Ordinance.
1.5 Payment of tax
1.4 Value for declaration
The FADR Ordinance requires the foreign assets to be
The declaration in respect of the foreign assets can
valued and declared in Pak Rupees, whereas the
be made on or after 10 April 2018 and on or before
payment of tax is to be made in US Dollars, in the
30 June 2018. The declaration is to be filed with the
mode and manner prescribed by the State Bank of
Federal Board of Revenue (FBR). The foreign assets
Pakistan (SBP). It also maintains that the SBP will
held by any citizen of Pakistan are to be declared in
prescribe the mode and manner of repatriation of
the following categories and tax is required to be paid
liquid assets to Pakistan.
as a percentage of the value of foreign assets as
given in the table below: The value in Rupees shall be converted into United
States Dollars at the SBP’s rate applicable between
the United States Dollar and the Pak Rupee, on the
date the declaration is made.
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 5
1.6 Incorporation in Books of Accounts 1.9 Misrepresentation
The foreign assets so declared shall be incorporated Under the FADR Ordinance, the immunity provided
in the declarant’s books of accounts. For the purpose shall not apply to a declaration made by
of the Income Tax Ordinance, 2001 (IT Ordinance), it misrepresentation or suppression of facts. In such a
has been provided that the cost of acquisition, and case the declaration shall be treated as void.
the date of acquisition, of foreign assets, shall be the
value declared by the declarant and the date on which 2. THE LOCAL DECLARATION OF DOMESTIC
the declaration has been made, respectively. ASSETS ORDINANCE, 2018
1.7 Investment in Government Securities 2.1 Overriding effect
In case the declarant decides to invest in Government The provisions of the LDDA Ordinance override all
securities, he shall do so in accordance with a scheme contrary provisions contained in any other law for the
to be introduced by the Government of Pakistan time being in force.
through the SBP.
2.2 Application
1.8 Immunity and Confidentiality
The LDDA Ordinance shall apply to all undisclosed
The FADR Ordinance provides following immunities: income and domestic assets of every Company,
Association of Persons and all citizen of Pakistan
(a) That the declarant would not be required to wherever they may be, except:
pay any further tax under any law for the time
being in force including the I.T. Ordinance (a) Holders of public office and their spouses and
where the declarant has paid tax on the dependent children;
declared assets under this Ordinance.
(b) Undisclosed income and domestic assets in
(b) That the particulars of the declarant and the respect of which any proceedings are pending
information received in the declaration shall in any court of law; and
be confidential notwithstanding the provisions
of section 216 of the I.T. Ordinance, the Right (c) Any proceeds or assets that are involved in or
of Access to Information Act, 2017 and any derived from any criminal offence.
other law for the time being in force.
The term proceeds, in our view, would encompass any
(c) That nothing contained in the declaration receipts in relation to such undisclosed income.
shall be admissible as evidence against the
declarant under any other law including the It may be noted that contrary to the FADR Ordinance,
I.T. Ordinance for the time being in force, for this Ordinance applies to every Company, Association
the purpose of any penalty proceedings or for of Persons (AoP) and all citizens of Pakistan wherever
the purpose of prosecution. they may be. Therefore, the purview of this
Ordinance is more extensive as compared with the
FADR Ordinance, as it covers Companies and AoPs as
well.
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 6
2.3 Important definitions The assets declared are to be valued in accordance
with the valuation guidelines given in section 10,
(a) Domestic assets means assets of every kind which is reproduced below:
other than foreign assets under Foreign
Assets (Declaration and Repatriation) S. Undisclosed income Value for the purpose of
Ordinance, 2018 No. and assets section 5(2)
1. Undisclosed income As declared
(b) Holder of public office has the same
Cost of acquisition or FBR
definition as given in 1.3(d) above. 2. Open plots and land
rates, whichever is higher
2.4 Declaration 3. Super structure Rs.400 per square feet
Cost of acquisition or
Apartments and
The declaration in respect of the undisclosed and 4.
flats
Provincial stamp duty
domestic assets can be made after 10 April 2018 and rates, whichever is higher
on or before 30 June 2018. The declaration is to be A-B
filed with the FBR. The undisclosed income and Where –
domestic assets acquired before the commencement A = CIF value plus the
amount of all charges,
of the LDDA Ordinance held by a Company, AoP and customs-duty, sales tax,
any citizen of Pakistan, are to be declared in the levies, octroi, fees and
following categories and tax is required to be paid as other duties and taxes
Imported motor
5. leviable thereon and the
a percentage of the value of the asset as given in the vehicles
costs incurred till their
table below: registration.
Rate (as a
percentage B = a sum equal to 10% of
S. of the the said value for each
Assets successive year upto a
No. value of
foreign maximum of five years.
assets) A-B
Foreign currency held in a foreign Where –
currency account in Pakistan as
1. 2% A = The price paid by the
on the 31st March, 2018 and
purchaser, including the
encashed in equivalent Rupees.
amount of all charges,
Foreign currency held in a foreign customs duty, sales tax
currency account in Pakistan as Motor vehicles and other taxes, levies,
on the 31st March, 2018 which is purchased from a octroi, fees and all other
invested in Government 6. manufacturer or duties and taxes leviable
securities upto 5 years in US assembler or dealer thereon and the costs
2. 2%
dollars denominated bonds with in Pakistan incurred till their
six-monthly profit payment in registration.
equivalent Rupees (rate of return
3%) and payable on maturity in
B = a sum equal to 10% of
equivalent Rupees.
the said value for each
3. Other assets 5% successive year upto a
maximum of five years.
The tax so calculated is to be paid along with the (table continued)
declaration of the assets.
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 7
Undisclosed Undisclosed
S. Value for the purpose of S. Value for the purpose of
income and income and
No. section 5(2) No. section 5(2)
assets assets
Value determined in the Market rate as on the 09
13. Stock-in-trade
manner specified in S.N. 5 April 2018
or 6, as the case may be,
Used motor Plant and Actual cost of acquisition
as reduced by an amount 14.
7. machinery with no depreciation
vehicles equal to 10% for every
purchased locally year following the year in Accounts
which it was imported or 15. Actual cost of acquisition
receivable
purchased from a
manufacturer 16. Other assets Actual cost of acquisition
Day-end price of the share Prize bonds, cash
or security quoted on and bank
registered stock exchange accounts
11. Face value
as on the 9th April, 2018 including foreign
and where no day-end currency
Securities and accounts
price of such share or
8. shares traded on
security is quoted on stock
stock exchange
exchange on the 09 April,
2018 day-end price of the
The assets so declared shall be incorporated in the
share or security quoted declarant’s books of accounts. For the purpose of the
on a date nearest to the IT Ordinance it has been provided that the cost of
09 April 2018
acquisition and the date of acquisition of domestic
Break-up value or face assets shall be the value declared by the declarant
value, whichever is higher.
Breakup value shall be the and the date on which the declaration has been made,
sum of paid-up capital, respectively.
Securities and
reserves and balance as
shares not traded
9. per profit and loss account
on stock 2.5 Immunity and Confidentiality
as reduced by the value of
exchange
preference shares and
divided by the amount of The LDDA Ordinance provides the following
the paid up ordinary share
capital immunities –
National saving
schemes, postal (a) That the declarant would not be required to
certificates, pay any further tax under any law for the time
bonds, securities being in force, including the IT Ordinance,
and other similar
10. investments in Face value where the declarant has paid tax on the
capital declared assets under the LDDA Ordinance;
instruments not
traded or quoted
on stock (b) That the particulars of the declarant and the
exchange information received in the declaration shall
11. Gold Rupees 4000 per gram be confidential, notwithstanding the
Market rate as on the 09 provisions of section 216 of the IT Ordinance,
12.
Other precious April 2018 or cost of the Right of Access to Information Act, 2017,
stones and metals acquisition, whichever is and any other law for the time being in force;
higher
and
(table continued)
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 8
to which it related. This has been
(c) That nothing contained in the declaration fundamentally changed with regard to
shall be admissible as evidence against the concealed foreign assets and concealed
declarant under any other law, including the foreign source income.
IT Ordinance, for the time being in force for
the purpose of any penalty proceedings, or for (b) In respect of foreign assets and foreign
the purpose of prosecution. income, the concept of taxability in the
year of acquisition has been replaced with
2.6 Misrepresentation the ‘year of discovery’, while for income
or assets that are not foreign sourced, the
Under the LDDA Ordinance, the immunity provided concept of ‘year of acquisition’ remains
shall not apply to a declaration made by intact.
misrepresentation or suppression of facts. In such a
case the declaration shall be treated as void. (c) This would mean that if the tax authorities
have found a person holding foreign
3. THE INCOME TAX (AMENDMENT) ORDINANCE, income or assets, which have not been
2018 declared, they are now empowered to
require such person to file a return in
In order to give effect to the Ordinances above, respect of such foreign assets and foreign
amendments have also been made in the I.T. income for any prior tax year without any
Ordinance through the Income Tax (Amendment) time limitation. For this purpose, section
Ordinance, 2018 (hereinafter referred to as the “Tax 114 of the Ordinance has suitably been
Amendment Ordinance”) with immediate effect. amended authorizing the Commissioner
to issue such a notice while recording the
The Tax Amendment Ordinance has amended reasons of issuing the notice in writing.
sections 111, 114, 118 and section 182, while a new
section 116A has also been inserted. In addition, the 3.1.2 Limiting the Immunity to Foreign currency
First Schedule to the Ordinance has also been repatriation
amended to provide for the rates of tax applicable to
an individual including a salaried individual, and an (a) In terms of sub-section (4) of section 111,
Association of Persons (“AoP”). any amount of foreign exchange remitted
to Pakistan through normal banking
3.1 Unexplained income or assets – Section 111
channels and encashed in Pak rupees
3.1.1 Removal of statute of limitation for taxing enjoy immunity for income tax purposes
undeclared foreign assets and income: as regards the source. This has now been
restricted to Rs.10,000,000 in a tax year.
(a) Under the provisions of section 111, all
undeclared, concealed or unexplained (b) It is to be noted that since the Tax
assets were chargeable to tax in the tax Amendment Ordinance is effective from
year to which such amount was related the date of its promulgation, the above
i.e. such discovered income or asset was discussed amendments will come into
to be added to the income of the tax year force forthwith. If the Tax Amendment
Ordinance is made effective from this tax
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 9
year, this would result in lifting the (b) any foreign assets transferred by the person
immunity from probe of remittances of to any other person during the tax year and
foreign exchange to Pakistan, exceeding the consideration for the said transfer; and
the threshold of Rs.10,000,000 for which
(c) complete particulars of foreign income, the
earlier an immunity under section 111(4)
expenditure incurred during the tax year and
of the I.T. Ordinance was in place without
the expenditure wholly and necessarily for the
any limitation.
purposes of deriving the said income.
3.2 Foreign income and assets statement – Section
116A Like section 116 of the I.T. Ordinance, section 116A
also empowers the Commissioner to issue a notice to
In terms of section 116 of the Ordinance, a resident a person (being an individual) who was required to
individual is mandatorily required to file a “Wealth furnish the ‘Foreign Income and Assets Statement’
Statement” along with the Return of Income for a tax and has failed to do so, to furnish such a statement
year, declaring therein his total assets and liabilities on the date specified in the notice. However, the
(including assets held in others’ name) as on the 30th Commissioner is required to give reasons in writing
day of June preceding the due date for filing of the on the basis of which he has issued such a notice.
Return of Income. Although the Wealth Statement
was meant to declare all assets and liabilities It is pertinent to highlight that unlike section 116,
including those held outside Pakistan, the declaration which authorizes the revision of a Wealth Statement
of foreign assets had been a debate in the past. (in case where any omission or wrong statement is
made therein), section 116A does not provide for the
The new section 116A now requires resident persons revision of the ‘Foreign Income and Assets
who have foreign income or foreign assets, to furnish Statement’.
a separate statement namely “Foreign Income and
Assets Statement” in addition to filing a Wealth 3.3 Return of income – section 114
Statement under section 116, as discussed above.
The minimum threshold of foreign assets and foreign As discussed above, section 114 of the I.T. Ordinance
income for filing of the ‘Foreign Income and Assets has consequently been amended. The amendments in
Statement’ is as follows: section 114 include:
(a) Foreign income equal to or in excess of USD (a) a requirement of filing a Return of Income for
10,000 a person who holds foreign assets or income
(b) Foreign assets with a value of USD 100,000
or more (b) the return of income is to be accompanied
with the Foreign Income and Assets Statement
The following particulars are to be incorporated in the
‘Foreign Income and Assets Statement’ to be filed by (c) the exclusion of a time limitation for issuance
the person: of a notice to a person holding foreign income
or assets which have not been declared even
(a) total foreign assets and liabilities as on the after promulgation of the Foreign Assets
last day of the tax year; (Declaration and Repatriation) Ordinance,
2018
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 10
3.4 Method of furnishing returns and other aligned and reduced significantly to provide relief to
documents – section 118 all individuals. No amendment has been made in the
rate of tax applicable on AoPs. The newly inserted
Section 118 of the Ordinance has also been amended table is as follows:
to include reference of section 116A prescribing the
Annual Income Rate of Tax
filing of a Foreign Income and Assets Statement.
Less than Rs.1,200,000 0%
Exceeding Rs.1,200,000 5% of the amount exceeding
3.5 Penalties – section 182
but less than 2,400,000 Rs.1,200,000
Rs.60,000 + 10% of the
A penalty for failure to file the Foreign Income and Exceeding Rs.2,400,000
amount exceeding
Assets Statement has also been prescribed. This but less than 4,800,000
Rs.2,400,000
would be 2% of the value of foreign income or foreign Rs.180,000 + 15% of the
assets as the case may be, for each year of default. Exceeding Rs.4,800,000 amount exceeding
Rs.4,800,000
3.6 Division I of the First Schedule
A sample comparison of the tax payable by salaried
Previously, non-salaried individuals were taxed on a and non-salaried individuals, under the existing rates
higher bracket as compared to salaried individuals. and the new rates is provided below:
Effective 01 July 2018, the rates of tax applicable on
salaried and non-salaried individuals have been
Salaried Individuals
Monthly Salary Annual Salary Existing Tax New Tax Benefit Percentage of Relief
100,000 1,200,000 59,500 - 59,500 100%
150,000 1,800,000 137,000 30,000 107,000 78%
200,000 2,400,000 242,000 60,000 182,000 75%
250,000 3,000,000 359,500 120,000 239,500 67%
300,000 3,600,000 497,000 180,000 317,000 64%
350,000 4,200,000 652,000 240,000 412,000 63%
400,000 4,800,000 817,000 300,000 517,000 63%
400,001 4,800,012 817,003 180,002 637,002 78%
450,000 5,400,000 982,000 270,000 712,000 73%
500,000 6,000,000 1,147,000 360,000 787,000 69%
550,000 6,600,000 1,312,000 450,000 862,000 66%
600,000 7,200,000 1,482,000 540,000 942,000 64%
650,000 7,800,000 1,662,000 630,000 1,032,000 62%
700,000 8,400,000 1,842,000 720,000 1,122,000 61%
1,000,000 12,000,000 2,922,000 1,260,000 1,662,000 57%
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 11
Non-Salaried Individuals
Monthly Income Annual Income Existing Tax New Tax Benefit Percentage of Relief
100,000 1,200,000 99,500 - 99,500 100%
150,000 1,800,000 204,500 30,000 174,500 85%
200,000 2,400,000 324,500 60,000 264,500 82%
250,000 3,000,000 469,500 120,000 349,500 74%
300,000 3,600,000 619,500 180,000 439,500 71%
350,000 4,200,000 779,500 240,000 539,500 69%
400,000 4,800,000 959,500 300,000 659,500 69%
400,001 4,800,012 959,503 180,002 779,502 81%
450,000 5,400,000 1,139,500 270,000 869,500 76%
500,000 6,000,000 1,319,500 360,000 959,500 73%
550,000 6,600,000 1,529,500 450,000 1,079,500 71%
600,000 7,200,000 1,739,500 540,000 1,199,500 69%
650,000 7,800,000 1,949,500 630,000 1,319,500 68%
700,000 8,400,000 2,159,500 720,000 1,439,500 67%
1,000,000 12,000,000 3,419,500 1,260,000 2,159,500 63%
Based on the above sample calculations, there Since the amendments have increased the threshold
appears to be an inadvertent error in the base tax of income subject to tax to Rs. 1.2 million, this clause
amount for annual income exceeding Rs. 4,800,000. now appears to be redundant.
Such base tax has been calculated at Rs. 180,000 in
the new table, whereas the tax on a person earning 4. THE PROTECTION OF ECONOMIC REFORMS
Rs. 4,800,000 actually amounts to Rs. 300,000. (AMENDMENT) ORDINANCE, 2018
In view of the above, based on the new table, a The Ordinance is stated to come into force at once.
change of income from 4,800,000 to 4,800,001
would result in a reduction of tax payable by A significant amendment has been made in sub
approximately Rs. 120,000. This appears to be a section (4) of section 5 of the Protection of Economic
calculation mistake in the newly inserted table and Reforms Act, 1992 having effect notwithstanding
should, in our view, be corrected. anything contained in the Foreign Currency Accounts
(Protection) Ordinance, 2001.
Additionally, the amendments have retained the
provisions of clause 3 which provides a 50% reduction Under the existing provisions, the deposits in and
in the tax liability of taxpayers who hold a withdrawals from foreign currency accounts can be
Computerized National Identity Card for disabled made without any restriction from the State Bank of
persons or those who are of the age of sixty years, or Pakistan or any other bank.
above, on the first day of the tax year, provided that
the annual income of such taxpayers, other than their Through this amendment, a proviso has now been
income on which the deduction of tax is final, does inserted in terms of which a restriction has been
not exceed Rs. 1 million. provided whereby only a “Filer” (as defined under the
EY Ford RhodesTax Alert – Economic and Tax Reforms Package 2018 12
I.T. Ordinance) is allowed to deposit cash in a foreign
currency account.
This would mean that the immunity from probe
available to any person under the Protection of
Economic Reforms Act, 1992 with respect to deposits
in the foreign currency account is now only available
to “Filers”.
The Protection of Economic Reforms Act, 1992 is
enacted in order to provide legal protection to
citizens of Pakistan in respect of transactions carried
out in foreign currency accounts. We understand that
in order to implement the restrictions with regard to
cash deposits, corresponding amendments would also
be made in the relevant banking regulations.
EY Ford RhodesCaveat
This Alert provides a brief on the significant amendments proposed by the Foreign Assets (Declaration and
Repatriation) Ordinance, 2018, the Local Declaration of Domestic Assets Ordinance, 2018, the Income Tax
(Amendment) Ordinance, 2018 and the Protection of Economic Reforms (Amendment) Ordinance, 2018. Our
comments herein provide a general overview and do not in any manner or form constitute an opinion or advice
that may be relied on. Our comments are based on the law as applicable on the date of this Alert. The tax laws
are subject to changes from time to time and, as such, any changes therein may affect the comments contained
in this Alert.
We are not under an obligation to update our comments for events and circumstances occurring after the date of
this Alert. Further, our comments are a matter of interpretation of law and are based on our experience with the
tax authorities. Accordingly, it cannot be said with certainty that the comments expressed above will be accepted
by the tax authorities.
We do not, in giving these comments, accept or assume responsibility for any other purpose or to any other
person to whom these comments are shown or in whose hands it may come, unless expressly agreed by us in
writing.
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