Corporate Sector in Pakistan lies somewhere in between a continuum with developed and developing at its either ends. Arguably closer to the former and yet far enough. However, the flavor of optimism keeps the machine moving forward.

Incremental growth within the last decade has created a concrete foundation for pursuance of comparatively bold initiatives by the Government. One such commendable measure was taken with the promulgation of Companies Ordinance 2016 on November 11, 2016. Although it was soon struck down by the upper house of the Parliament of Pakistan, it has now gone through lawful procedural hurdles and is expected to survive as Companies Act 2017.

The Companies Act 2017 introduces several measures which will help lift the morale of various stakeholders in the corporate sector, internal and external both. Among other things, it will ease the procedure for incorporation, will induce electronic means in administrative business activities and will provide more protection to shareholders and other stakeholders. The Bill also inculcates corporate governance principles in line with best practices in developed markets. Whereas most amendments are operational and procedural in nature, there are introduction of certain concepts attracting much debate within the business community. One such measure is reporting of beneficial ownership by companies and individuals.

Prior to the Companies Act, turn of the year also saw the approval of 'Benami Transactions (Prohibition) Act, 2017'. It aims to address the parallel economy of Pakistan which by rough estimates equal more than half the country's Gross Domestic Product (GDP). Benami transactions are generally used to park untaxed money where the beneficial owner hides behind a “legal owner”. Introduction of said legislation will enable the government to identify and confiscate properties and other assets created through these transactions. If implemented efficiently, it has potential of having far reaching consequences in various fields.

In other initiatives, Pakistan has followed suit of developed jurisdictions by developing Limited Liability Partnership Bill, 2017, in collaboration with United States Agency for International Development. While the Bill is subject to further scrutiny in the parliament, LLP is soon expected to be available as a new business form that will enable professional expertise and entrepreneurial initiatives to combine, organize and operate in an innovative and efficient manner. The LLP is expected to fill the gap between business firms such as sole proprietorships/partnerships and the companies governed under the Companies Ordinance 1984 (soon to be replaced by Companies Act, 2017).
 

The Supreme Court (SC) has ruled that Mandatory Contribution to Workers Welfare Fund (WWF) is not a Tax

The SC in its recent judgment in November 2016, has put to rest the long drawn controversies around WWFas to whether it is a Tax or a Fee. SC has decreed that since the WWF contributions are for a specific purpose, for the benefit of employees, therefore, does not qualify as a tax which contrary to WWF department, is collected for the larger and general purpose for the Government.

The pronouncement of this land mark ruling assumes greater significance, as it has settled the doubts and disputes that continued for more than ten years.
 

Background

The Finance Acts of 2006 and 2008 expanded the scope of the WWF Law whereby the term ‘Industrial Establishment’ was broadened to include commercial establishments as well. The amendment, therefore, made all the commercial establishments and the service sector companies to pay for WWF alongside the Manufacturing and Industrial Undertakings.

Another change which was brought resulted in the higher chargeability of WWF as the 2% WWF was made to be paid on the higher of Tax Income or Accounting Income. Further the exporters and importer which qualify for special and concessional tax regime were also made to pay for this 2% WWF.
 

Implication

Now the Apex Court has completely overrules these amendments to the WWF Law after which the levy is no longer payable based on new amendment and has been retracted to its old position. The SC has rules that the amendments made in WWF Law through the Finance Acts 2006 and 2008 were unconstitutional and unlawful as these could never been made with the Annual Budget and had to be separately and distinctly legislated.Hence,the above categories of tax payers will now no longer be required to pay for WWF; nor to Tax Authority and neither to WWF Department. It is very clear now that the Tax Authority does not have any power to collect any WWF.

The manufacturers to whom the law applies as it used to apply before 2006 will continue to apply.
 

Further Implication

It may well be considered as a celebrated judgment that as a matter of principle, any of the above person who fell prey to the new definition of Industrial Establishment after the illegal changes of 2006 and 2008 and were made to pay for the WWF, are now eligible for its refund from the relevant authorities, the determination of relevant authority for the purpose of WWF refund in this particular case seems to a practical quagmire between Tax Authority and the WWF department.