SALIENT FEATURES OF PAKISTAN BUDGET 2011-12

SALES TAX & FEDERAL EXCISE BUDGETARY
MEASURES (FY 2011-12)

o The budgetary measures pertaining to Sales Tax & Federal Excise are primarily
aimed at:
Reduction in the rate of Sales Tax from 17% to 16%.
Reducing overall the scope of federal excise duty and completely
eliminating special excise duty to reduce the burden of multiple taxation.
Enhancing the sales tax revenues by rationalizing exemption regime with
the objective to minimize additional burden on the lower segments of the
society.
Distributing the burden of extra taxation measures on exempt sectors of
the economy.
Enhancing tax incidence on cigarettes in line with international practices.
BRIEF POINTS ON MAJOR FISCAL MEASURES:
RELIEF MEASURES
o Withdrawal of special excise duty to reduce the quantum of taxation on all items
including those used by the middle and lower middle class of population.
Enforced through amendment in Federal Excise Act, 2005 and withdrawal of
SRO 655(I)/2007, dated 29.06.2007, effective from the 1
st
July, 2011.
o Review of federal excise duty regime by reducing the number of goods liable to
federal excise
Enforced through amendment in Table-I of First Schedule to the Federal Excise
Act, 2005, effective from the 1st July, 2011.
o Reduction in the quantum of excise duty on cement and withdrawal of excise
duty on white cement is basically aimed at encouraging construction activity
which will result in adequate increase in employment opportunities.
Enforced through amendment in Table-I of First Schedule to the Federal Excise
Act, 2005, effective from the 1st July, 2011.
o Reduction in the rate of federal excise duty leviable on aerated beverages from
12% to 6% to provide a level playing around vis-à-vis its substitute like fruit
juices, etc.
Enforced through amendment in Table-I of First Schedule to the Federal Excise
Act, 2005, effective from the 1st July, 2011.
o Federal excise duty levied on services provided by property developers or
promoters to reduce the level of taxation which will in turn reduce the quantum of
taxation on housing sector already subject to levy of Capital Value Tax
Enforced through amendment in Table-II of First Schedule to the Federal Excise
Act, 2005, effective from the 1st July, 2011.
o Exemption on local supply of reclaimed lead to recognized manufacturers of lead
batteries has been proposed to check misuse of the facility whereby taxes are
charged by the suppliers of reclaimed lead but is not deposited into the
exchequer.
Enforced through amendment in SRO 551(I)/2008, dated 11.06.2008, effective
from the 4th June, 2011.
o Immediate full adjustment of sales tax paid on import or local purchase of capital
goods has been allowed to mitigate the cash flow of industrial sector and to
ensure timely and quick adjustment of input tax paid.
Enforced through amendment in section 8B of the Sales Tax Act, 1990 effective
from the 4th June, 2011.
REVENUE MEASURES
o Withdrawal of exemption of sales tax on defence stores at import and local
supply to bring it in line with international best practices
Enforced through amendment in Sixth Schedule to the Sales Tax Act, 1990,
effective from the 4th June, 2011.
o Revision in the upward limit of duty slabs to enhance the burden of Federal
Excise Duty on locally produced Cigarettes.
Enforced through amendment in Table I, of First Schedule to the Federal Excise
Act, 2005, effective from the 4thJune, 2011.
o The exemption regime is being rationalized with objective to reduce its scope
only to selected sectors.
Enforced through amendments in Sixth Schedule to the Sales Tax Act, 1990 and
SRO 551(I)/2008, dated 11.06.2008, effective from the 4th June, 2011.
o The value addition tax levied on commercial importers is being enhanced from
2% to 3%, which is levied and collected at import stage.
Enforced through amendment in Chapter X of Sales Tax Special Procedure
Rules promulgated through SRO 480(I)/2007, dated 9th June, 2007, effective
from the 4th June, 2011.
o Exemption of sales tax on cement/concrete blocks and bricks has been
withdrawn to extend similar treatment in line with other inputs used in the
construction industry
Enforced through amendment in Sixth Schedule to the Sales Tax Act, 1990,
effective from the 4th June, 2011.
o The sales tax leviable on sugar at import and local supply stage has been
withdrawn and federal excise duty @ 8% is being levied on aforesaid stages.
Enforced through amendment in First and Second Schedule to the Federal
Excise Act, 2005, effective from the 4th June, 2011.
o The zero-rating regime has been rationalized to limits its application only to
selected sectors.
Enforced through amendment in SRO 549(I)/2008, dated 11.06.2008 and by
rescinding SRO 1161(I)/2007, dated 03.06.2007 effective from the 4th June,
2011.
o The Federal Excise Duty leviable on filter rods for cigarettes has been rationalize
from Rs.1/- per filter rod to 20% ad val.
Enforced through amendment in Table I of First Schedule to the Federal Excise
Act, 2005, effective from the 4th June, 2011
o The Federal Excise Duty on unmanufactured tobacco is being enhanced from
Rs.5/- per kg to Rs.10/- per kg.
Enforced through amendment in Table I of First Schedule to the Federal Excise
Act, 2005, effective from the 4th June, 2011.
LEGAL AMENDMENTS
1. Proposal to provide for revision of special return filed under section 27 by
amending section 26(3) of the sales tax act, 1990
2. Proposal to insert the word “per annum” in section 8 of the federal excise act,
2005 to bring it at par with section 34 of the sales tax act, 1990
3. Proposal to bring uniformity in period of recovery of federal excise duty and sales
tax
4. Proposal to remove the redundant words in heading of section 34a of the federal
excise act, 2005
5. Proposal to amend rule 43a to remove anomaly in the rate of federal excise duty
6. Proposal to substitute cigarettes with cigarettes or beverages in section 26 of the
federal excise act, 2005
7. Proposal to substitute cigarettes with cigarettes or beverages in section 27 of the
federal excise act, 2005
8. Proposal to rescind SRO 364(I)/2007, dated 03.05.2007, now redundant due to
withdrawal of federal excise duty on cable operators
9. Proposal to disallow auto revision of sales tax return available under rule 14-a of
the sales tax rules, 2006
10. Proposal to prescribe time limit to decide the case after issuance of show cause
notice
11. Proposal to harmonize section 38 of the federal excise act, 2005 with section 47
a (4) of the sales tax act, 1990.
12. Proposal to harmonize section 47 a(4a) of the sales tax act, 1990 with section 38
of the federal excise act, 2005 .
13. Proposal to harmonize rule 65(3) of the sales tax rules with section 47 a (3) of
the sales tax act, 1990 .
14. Proposal to amend SRO 880(I)/2007, dated 01.09.2007 to include Eclia in s. No.
59 and to include calibrated in s. No. 50
15. Proposal to amend section 21 of the sales tax act, 1990 to empower
commissioner inland revenue to effectively enforce the blacklisting regime
16. Proposal to amend sub-section (1), (3) and (4) of section 30 of the sales tax act,
1990 to include the designation inspector inland revenue as an authority under
the sales tax act, 1990
17. Proposal to amend section 30a of the sales tax act, 1990 and section 29 of the
federal excise act, 2005 to replace the word “fbr” occurring in the heading and
wherever occurring in the text of by the word “inland revenue”
18. Proposal to empower officers with designation assistant commissioner and
above to carry out investigative audit under 38b of the sales tax act, 1990
19. Proposal to empower officers inland revenue to reject refunds filed under section
66 of the sales tax act, 1990 where incidence has been passed on to the
consumers
20. Proposal to empower federal board of revenue in terms of section 74 of the sales
tax act, 1990 to condone time limit in time bound cases dealt by authorities
specified in section 30 of the sales tax act, 1990.

SOURCE: THIS EXTRACT HAS BEEN TAKEN FROM THE WEBSITE OF FBR

SALIENT FEATURES OF PAKISTAN BUDGET 2011-12

INCOME TAX

1. For the welfare of individuals with low income earnings, the basic exemption
limit is proposed to be enhanced from Rs.300,000/- to Rs.350,000/-. However
individual taxpayers whose normal income is between Rs.300,000/- to
Rs.350,000/- shall be required to file return of income and statement, for the
purposes of documentation.
2. In order to encourage enhanced equity financing, and to provide relief to new
corporate industrial undertakings established on or after 1
st
July 2011, with
100% equity financing, a tax credit equal to 100% of tax payable is proposed.
The existing companies may also take benefit under this arrangement if
investment in BMR is financed through their 100% equity, on or after by 1
st
July
2011.
3. The rate of tax deductible on Cash Withdrawals from Banks is proposed to be
reduced to 0.2% from existing 0.3%, for bringing in improvement in the liquidity
position of eligible taxpayers.
4. In order to harmonize the existing tax credits available to individuals for
investment in shares and for premium paid to Insurance Company, the
maximum cumulative limit for both the investments is fixed @ 15% of the
taxable income, with maximum upper limit for investment upto five hundred
thousand.
5. Tax relief is proposed to be provided to withdrawals exceeding Rs.500,000/-
from a Voluntary Pension Fund.
6. For encouraging companies’ enlistment on stock exchange, the existing tax
credit equal to 5% is proposed to be enhanced to 15%.

7. For the national cause of Broadening of Tax Base and utilization of third party
databases, NTN and CNIC of eligible taxpayers are proposed to be provided
expressly alongwith other particulars, in the withholding tax statements filed by
withholding agents.
8. For the purpose of identification of eligible taxpayers, the requirement of
mandatory filing of return of income by the commercial and Industrial consumers
of electricity with annual billing above one million rupees, is proposed. This
measure will also help in Broadening of Tax Base in the country.
9. In order to discourage the practice of arbitrage by banks for receiving ‘dividends’
from Asset Management Companies, the rate of tax on such return is proposed
to be enhanced from 10% to 20%.
10. For encouraging investments made by non-residents in Government Securities,
the withholding tax on profit on debt deductible @ 10% is proposed to be a final
tax. This measure will relieve the non-residents from the statutory requirement
of filing of return of income, and will boost national economy.
11. The withholding tax on profit on debt deductible @ 10% arising from investment
in Government securities by individual is also proposed to be a final tax. This
measure will relieve such taxpayers from the statutory requirement of filing of
return of income, and will also encourage domestic investments in the
Government Securities.
12. After imposition of capital gain tax on Modarba certificates and instruments of
redeemable capital traded at stock exchange through Finance Act 2010, the
0.01% CVT on such instruments is proposed to be withdrawn in order to
encourage their trade.

SOURCE: THIS EXTRACT HAS BEEN TAKEN FROM THE WEBSITE OF FBR

SALIENT FEATURES OF PAKISTAN BUDGET 2011-12

CUSTOMS BUDGETARY MEASURES 2011-12

Policy Objectives:
Equity in tax system.
Industrial incentives for growth and expansion through reduced cost of raw
materials.
Tariff rationalization to facilitate trade.
Amendments in legal provisions to remove arbitrage and ambiguity.
Export promotion.
1. Relief Measures:
a. Removal of Regulatory duty, particularly on edible items.
b. Reduction of duty to 5% on pharmaceutical raw materials to provide relief
to common man.
2. Incentives to Local Industry:
a. Concession for butyl acetate industry through concession on import of its
raw materials (Sabutol)
b. Incentives for glass industry through concession on its two major raw
materials namely “mirror backing paint” and “waste / scrap of glass”.
c. Incentive for CNG compressors manufacturing industry through
concession on its 15 components.
d. Concession in machinery and equipment to incentivize oil exploration
companies.
e. Concession on raw material of audio cassettes.
f. Incentive for hi-tech car audio manufacturing industry through concession
on import of mechanism for car audio system.
g. Corrections in industrial SRO 565(I)/2006 to ensure expeditious clearance.
3. Tariff rationalization:
a. Tariff rationalization on bars, rods and profiles of refined copper and
copper alloy.
b. Corrections in descriptions of PCT codes 2923.9010 and 2930.9060.
c. Creation of separate PCT codes for brass scrap and armoured cash
carrying vehicle.
d. Tariff correction to remove ambiguity in re-import scheme.


4. Legal Changes in Customs Act, 1969:
The following legal changes have been made in the Customs Act, 1969:-
a. Reference to section 32 is deleted from section 15 of the Act to remove arbitrage
and eliminate the possibility of any miscarriage of justice through its misuse.
b. In order to provide incentives to local manufacturers and suppliers of domestic
goods against international tenders, section 21(c) is amended to treat these
supplies as exports. This would entitle supplies against international tenders to
customs duty draw back (rebate).
c. The limitation period under section 32 of the Act is extended upto five years for
taking cognizance of offences relating to short-paid duty and taxes in cases
unearthed during audit.
d. In order to mitigate hardships of persons who have wrongfully deposited duty, the
limitation period for refund under section 33 of the Act will be from the date of
finalization of the case (order / decision / judgment).
e. The grant of transit facility has increased Customs facilitation and allied
operations manifold. In order to provide self-sustaining infrastructure and
services at customs stations and en-route, an enabling provision for collection of
transit fee has been provided under new section 129A in the Customs Act, 1969.

Introduction of Auditing

Introduction of Auditing

The word Audit is derived from the Latin word audire, which means to hear. Originally, it was customary for person responsible for maintenance of accounts go to some impartial and experienced persons, ordinarily judges who used to hear these accounts and express their opinion about their correctness or otherwise such persons were known as “Auditors”. Thus the term auditors mean literally hearer i.e., one who hears and is used ever since the days when public accounts were accepted and approved on the basis of hearing the accounts read.

Auditing is an important professional task carrying heavy responsibility and calling for commensurate skill and judgement. Keeping in view the definitions of various authors we may define the word Auditing as:

Auditing is an examination of the accounting books and the relative documentary evidence so that an auditor may be able to find out the accuracy of figures and may be able to make report on the balance sheet and other financial statements that have been prepared from there.

Definitions of Auditing

Definitions of Audit

It is a bit difficult to give a precise definition of word audit in a word or two, Originally its meaning and use was confined merely to cash audit and the auditor had to ascertain whether the person responsible for the maintenance of accounts had properly accounted for all the cash receipts the payment on behalf of his principle. But the word, audit, had a wide usage and it now means a through scrutiny of the books of accounts and its ultimate aim is to verify the financial position position disclosed by the balance sheet and the profit and loss account of a company. The following are the some of the definitions of audit given by some writers:

Spicier and Pegler
An audit is such an examination of the books, accounts and vouchers of a business as it enable the auditor to satisfy that the Balance Sheets is properly drawn up, so as to give a true and fair view of the state of the affairs of the business and whether the profit and loss accounts gives a true and fair view of the profit or loss for the financial period according to the best of his information and explanations given to him and as shown by the books, and if not, in what respects he is not satisfied.

Montgomery
Auditing is a systematic examination of the books and records of a business or other organization, in order to ascertain or verify and report upon the facts regarding its financial operation and the result thereof.

Lawrence R. Dicksee
An audit is an examination of records undertaken with a view to establishing whether they correctly and completely reflect the transactions to which they relate. In some circumstances it may be necessary to ascertain whether the transactions are supported by authority.

F.R.M De Paula
An audit denotes the examination of Balance sheet and profit and loss accounts prepared by others together with the books, accounts and vouchers relating there to in such a manner that the auditor may be able to satisfy himself and honestly report that in his opinion, such Balance sheet is properly drawn up so as to exhibit a true and correct views of the state of affairs of the particular concern according to the information and explanations given to him and as shown by the books of acconts.

A.W. Hanson
An audit is an examination of such records to establish their reliability and the reliability of statement drawn from them.

R.B. Bose
Audit may be said to the verification of the accuracy and correctness of the books of accounts by independent person qualified for the job and not in any way connected with the preparation of such accounts.

Taylor and Perry
An audit is an investigation by an auditor into the evidence from which the final Revenue Accounts and Balance sheet or other statement of an organization have been prepared, in order to ascertain that they present a true and fair view of the summarized transactions for the period under review and of the financial state of the organization at the ending-date, so enabling the auditor to report thereon

Introduction of Accounting

Introduction of Accounting

Accountancy Begins where Book-keeping ends. It means that an accountant comes into the picture only when the book-keeper has done his job. He has to go behind the work of a book-keeper and satisfy himself that the transaction have been properly agree and then to prepare profit and loss accounts and balance sheet after making the necessary adjustment and the rectification. In short, it can be said that he has to prepare summary in the form of trial balance and make analysis after preparing the balance sheet and profit and loss Accounts. An Accountant is expected to be an expert in the accounting in the accounting procedures, as he has to examine analytically the final accounts. So

Accounting is concerned with the preparation of the final accounts to show the results of the business at the end of the particular period.

Scope of Audit

Scope of Audit

1. Legal Requirements
The auditor can determine the scope of an audit of financial statements in accordance with the requirements of legislation, regulations or relevant professional bodies. The state can frame rules for determining the scope of audit work. In the same way professional bodies can make rules to conduct the audit. The auditor can follow all the applicable on the audit work while checking the accounts of a business concern.

2. Entity Aspects
The audit should be organized to cover all aspects of the entity as far as they are relevant to the financial statement being audited. A business entity has many areas of working. A small entity may have few functions while a large concern has many functions. The auditor has duty to go through all the functions of a business. The audit report should cover all function so that the reader may known about all the working of a concern.

3۔ Reliable Information
The auditor should obtain reasonable assurance as to whether the information contained in the underlying accounting record and other source data is reliable and sufficient as the basis for preparation of the financial statements. The auditor can use various techniques to test the validity of data. All auditors while doing the auditor work usually apply the compliance test and substance test. The auditor can show such information in the report.

4. Proper Communication
The auditor should decide whether the relevant information is properly communicated in the financial statements. Accounting is an information system so facts and figures must be so presented that reader can get information about the business entity. The auditor can mention this fact in his report. The principles of accounting can be applied to decide about the disclosure of financial information in the statements.

5. Evaluation
The auditor assesses the reliability and sufficiency of the information contained in the underlying accounting records and other source date by making a study and evaluation of accounting system and internal controls to determine the nature, the nature, extent and timing of other auditing procedures.

6. Test
The auditing assesses the reliability and sufficiency of the information contained in the underlying accounting record and other source data by carrying out other tests, enquiries and other verification procedures of accounting transaction and account balance as he considers appropriate in the particular circumstances. There are compliance test and substantive test in order to examine the date. The vouching, verification and valuation technique are also used.

7. Comparison
The auditor determines whether the relevant information is properly communicated by comparing the financial statement with the underlying accounting records and other source data to see whether they properly summarized the transaction and events recorded therein. The auditor can compare the accounting record with financial statement in order to check that same has been processed for preparing the final accounts of a business concern.

8. Judgements
The auditor determines whether the relevant information is properly communicated by consideration the judgement that management has made in preparing the financial statements, accordingly, the auditor assesses the selection and consistent application of accounting policies, the manner in which the information has been classified and the adequacy of disclosure.

The auditor must have the quality of judgement when accounting books to not provide true data.

9. Work
Judgement permeates the auditor’s work. for example, in determining the extent of audit procedures and in assessing the reasonable of the judgments and estimates made by management in preparing financial statements. The accounting data is based on personal judgment of accountant and managers in preparing final accounts. Such judgment also affect the working of an auditor. He is also bound to make guess work on the basis of available data.

10. Evidence
The audit evidence available to auditor is persuasive rather than conclusive in nature. Due to judgment and persuasive evidence absolute certainty in auditing is really attainable. That is why the auditor can express an opinion as true and fair instead of exact and cent percent correct. The personal judgments affect the value of many items. The value of such items becomes an opinion so cent percent accuracy is not there.

11. Mis-Statement
The auditor carries out procedures designed to obtain reasonable assurance that financial statement are properly stated in all material respects. Because of test nature and other inherent limitations of an audit, together with inherent limitations of any system of internal control, there is an unavoidable risk that even some material misstatement may remain undiscovered. The statements show true and fair view instead of exact view of operations.

12. Errors
The auditor may get an indication that some fraud or error may have occurred which could result in material misstatement would curse the auditor to extend his procedures to confirm or dispel his suspicion. It is the duty of auditor to check cent percent items in order to discover the error in accounting books and other records when he smells any doubt. He should clear the doubt or confirm it while going through the record.

13. Opinion
Constraints on the scope of the audit of financial statement that impair the auditor’s ability to express an unqualified opinion on such financial statements should be seen out in his report and a qualified opinion or disclaimer of opinion should be expressed as a appropriate.