ISLAMABAD, June 11: The government has introduced a concept of marginal tax relief for the salaried persons to cater for the negative impact of taxation under the present flat tax rate system.

Finance Ordinance 2008 proposed that under the new system the marginal increase in salary income is proposed to be taxed at the rates not exceeding 20 per cent to 50 per cent allowing sufficient relief in tax payable.

The value of accommodation provided to the salaried persons in small cities is proposed to be taken at 30 per cent instead of 45 per cent of the minimum time scale of the employees for the purpose of taxation.

The pensioners, senior citizens and widows, who are exempt from withholding tax in respect of profit from pensioners benefit scheme and Behbood Fund, would now be charged to tax at a rate not exceeding 10 per cent of such profit.

The rates of advance tax, collected at the time of renewal of registration of private motor cars, are proposed to be rationalised by making about 30 per cent to 40 per cent increase in withholding tax rates.

From the next financial year, withholding tax on purchase of locally manufactured motor car or jeep is proposed to be collected by a motor vehicle registration authority at fixed rates depending on the engine capacity.

In the case of a small company, if turnover exceeds Rs250 million, the income attributable to the turnover exceeding the said limit, is proposed to be charged to tax at progressive slab rate of 25 pc, 30pc and 35pc, so that the company is able to progress still retaining its status of a “small company”.

Minimum tax payable on the declared turnover at the rate of 0.5 per cent is being proposed to be withdrawn.

Association of persons and individuals having annual turnover of Rs50 million, respectively, are proposed to be made withholding tax agents for the purpose of tax deduction on payments relating to sale of goods, services rendered and execution of contracts.

Profit transferred by a branch of foreign company out of Pakistan are proposed to be treated as dividend and chargeable to tax at the rate of 10 per cent as final tax, the limit of donations eligible for tax credit in the case of individual/association of persons and companies presently admissible at the rate of 30 pc and 15 pc, respectively, are proposed to be reduced to 10 pc of the taxable income.

It has been proposed that reinsurance premium paid to overseas insurance companies may be subjected to withholding tax at the rate of 5 per cent as final tax, withholding tax on cash withdrawal from banks presently collected enhanced to 0.3 pc from 0.2 pc with no change in limit of withdrawal.

The facility of reduced tax rate to a cooperative society or a finance society is proposed to be withdrawn and would be treated at par with the company for the purpose of taxation.

Exemptions from income tax available under the other statutes are proposed to be withdrawn.

Any payment made through a foreign currency account and exchange companies proposed to be included in the payments requiring deduction of withholding tax unless the commissioner of income tax has allowed otherwise as provided under section 152 of Income Tax Ordinance, 2001.

Thin capitalisation rule is proposed to be made applicable to branches of foreign companies operating in Pakistan. The tax collected from the members of stock exchange on sale as well as purchase of shares in lieu of commission income and trading of share is proposed to be made a minimum tax on income of such members/ brokers.

In future instead of tax holidays, First Year Allowance in the shape of accelerated depreciation at the rate of 90 per cent is proposed to be allowed to the industrial undertakings established in the specified rural and undeveloped areas.

At present inter corporate dividend in respect of companies entitled to group relief under section 59AA is exempt from tax. The facility is proposed to be extended to the companies eligible for group taxation under section 59B. And the exemption on capital gains on share extended to June 30, 2008.

To encourage amalgamation of banking companies, modarabas and insurance companies the facility of carry forward of “accumulated loss” is proposed to be allowed for a period of six years in the case of amalgamated or amalgamating companies.

Rice Exporters Association of Pakistan (Reap) is proposed to be allowed the facility of reduced withholding tax rate of 1 per cent instead of 1.5 per cent in respect of payments payable for supply of rice to Utility Stores Corporation.

Income derived by a project approved by Designated National Authority (DNA) from transfer/sale of CDM emissions credit i.e. Certified Emissions Reduction etc is being proposed to be exempt from income tax.

In the case of banks no CVT is proposed to be charged on General Power of Attorney unless it is used into force the mortgage of property offered as collateral against a loan, income shown as unrealised gains in the case of non-life insurance companies would be excluded from the taxable income and not charged to tax.

Proportionate relief is proposed to be allowed in the amount of penalty imposed in tax evasion cases where the appellate authorities reduce the quantum of concealed income and tax charged thereon and a scheme for waiver of additional tax and penalty etc. is proposed to be introduced where the taxpayer is able to pay the principal amount of tax within a certain period.