Rationalization and Simplification of Withholding Tax Regime

The Finance Act, 2022 has brought about certain amendments in the Income Tax Ordinance, 2001 (the Ordinance, hereafter). Some significant amendments on Rationalization and Simplification of Withholding Tax Regime are explained hereunder: –

Rationalization and Simplification of Withholding Tax Regime 

(al       Omission of certain withholding tax provisions.

Following withholding provisions have been omitted through Finance Act, 2022:

2361 | Collection of advance tax by educational institutions | Educational Institutions

236Q | Payment to residents for use of & machinery and equipment | Industry Construction

(b)        Advance Tax on Motor Vehicles:

(i)      Provision of section 231B was limited to private motor vehicles. The scope of withholding tax has now been enhanced through omission of the word ‘private’ from the heading and elsewhere in the section. Further, an inclusive definition of motor vehicle has been provided in the substituted sub-section

(7) of section 231B with following exclusions:

(i)        a motor vehicle used for public transportation, carriage of goods and agriculture machinery;

(ii)      a rickshaw or a motorcycle rickshaw and

(Hi) any other motor vehicle having engine capacity upto 200cc.

Except motor vehicles mentioned at i, ii and iii above, provision of section 231B will apply on motor vehicles of all makes and models irrespective of its private or commercial use by the end users.

(ii)       The withholding tax amount required to be collected at the time of purchase or registration of motor vehicle has been enhanced with engine capacity of 1601ce and above.

In cases of electric vehicles where engine capacity of a vehicle is not available and value of vehicle is rupees five million or more, the amount of tax collected will be 3% of import value as increased by customs duty, sales tax and federal excise duty in case of imported vehicles or invoice value in case of locally manufactured or assembled vehicles.

(iii) Rates of tax required to be collected at the time of transfer of registration or ownership of a motor vehicles have been

provided in clause (2) in the Table in Division VII of Part IV of First Schedule of the Ordinance. A new proviso has been inserted whereby a vehicle in which engine capacity is not applicable (electric vehicles) and the value of said vehicle is rupees five million or more, then tax amount of rupees twenty thousand will be collected at the time of transfer of registration or ownership of such vehicle.

(iv)      In case of a person not appearing in active taxpayer list, tax collectible under this section will increase by two hundred percent. Necessary change has been incorporated in rule 1 of Tenth Schedule of the Ordinance

(c)       Increase in Advance Tax Rate on Passenger Transport Vehicles.

Currently advance tax on passenger transport vehicles plying for hire is collected on the basis of seating capacity of vehicle by Excise and Taxation authorities. The rates of adjustable advance tax on such vehicles provided in Division III of Part IV of First Schedule of the Ordinance have been enhanced by substituting the Table in the following manner.

Sr. #	Capacity	Rs. per seat per annum Non-Air Conditioned	Rs. per seat per annum Air Conditioned
1	4 or more persons but less than 10 persons	500	1,000
2	10 or more persons but less than 20 persons	1,500	2,000
3	20 persons or more	2,500	4,000

In case of a person not appearing on active taxpayers list, rate of tax will increase by hundred percent under rule 1 of Tenth Schedule to the Ordinance.

(d)       Advance Tax on Sale/Transfer u/s 236C1 or Purchase of  Immovable Property u/s 236K1

(i) The rate of advance tax on sale or transfer and on purchase or transfer of immovable property has been enhanced from 1% to 2%.

Moreover, sub-section (3) of section 236C has been omitted. Now advance tax on sale or transfer of immovable property will be collected under this section irrespective of holding period.

(ii) In case of purchaser of immovable property who is not appearing on the active taxpayers list, rate of tax to be collected under section 236K will increase by two hundred and fifty percent of the rate specified in Division XVIII of Part IV of First Schedule. Necessary change has been incorporated in rule 1 of Tenth Schedule to the Ordinance.

Reduced Rate of Withholding Tax for Certain Services

REIT management services and services rendered by National Clearing Company of Pakistan Limited have been included in list of reduced rate services in Division III of Part III of First Schedule.

(I)                Collection of Tax from Persons Remitting Amounts Abroad

Section 236Y was omitted vide Finance Act, 2021. Now this section is reinserted. Every banking company will collect this adjustable advance tax at the time of remitting money outside Pakistan on behalf of a person who has completed a credit card, debit card or prepaid card transaction with a person outside Pakistan. The rate will increase by 100% in case of persons not on Active taxpayers list.

For more information on FBR’s new regulations / circulars/ SROs/ amendments in taxation laws in Pakistan please visit https://www.fbr.gov.pk/

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