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In the Name of Allah, the Most Beneficent, the Most Merciful

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TAX-3141

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* General

Understanding of Tax:

Literal meanings ----- Burden, Strain, Duty, Due.

* Definition

of Tax:

General compulsory contributions of wealth levied upon persons by the state, to


meet the expenses incurred in providing common benefits upon the residents.

Direct taxes
Direct taxes are the taxes where incidence of taxation is on the person on whom levied. For
example income tax.

Indirect Taxes
Indirect taxes are the taxes where incidence of tax can be shifted by the person on whom
levied to other persons. For example sale tax

Proportional Taxes
These taxes are levied with the same percentage. For example, sales tax is levied at the rate
of 15%.

Progressive Taxes
This is based on the capacity to pay principle of taxation. In this type, the rate of tax
increase as the income increase.

Regressive taxes
A Regressive tax is the opposite of a Progressive Tax. It is based on the benefits received
principle. A type of tax that takes a larger percentage from the income of low-income people
than the income of high-income people is called regressive tax.

*
Is a strategy where by a person manages its business and other transactions/
activities in such a way so as to make maximum use of:

Tax holidays,

Exemption,
Concession,
Rebates,

Tax credits,
Deductible allowances,

Available under law and as a result is able to derive the benefit of minimizing his
tax liability.

*
* Taxation

management covers a decision regarding available choice between :

Employment
self- employment
Sole proprietorship,
Partnership,
Private company
Public company.
* It is professional strategy to plan tax affairs of a person. It is of significant
importance in business management decision.

* Person includes a living person (natural) or artificial person (corporate person).


* Scope of Taxation Management ranges from incorporation of a business to
mergers, amalgamation, winding up, dissolution etc. of business

*
*

Understanding and application of updated laws particularly tax laws, rules and
procedures

Application/use of benefits such as Tax credits, rebates, exemptions, reductions


etc. available under the law.

Maintenance of Records/Books of Accounts as per requirement of law.

Disclosure of true facts (no concealment) that is there should be no concealment


with regard to furnishing of information or preparation of accounts / data.

*
*
Federal taxes are the taxes which can be levied by the federal government and
include among others the followings:

Income tax
Corporate tax
Customs duties/Tariffs
Sales tax

*
Stamps Duty
Registration Tax
Motor vehicle tax

Process of Legislation

When National Assembly is in Session

Money Bill

All Other Bills

When National Assembly is not in Session

President

Ordinance
National
Assembly

National
Assembly

Senate

President
Sent for reconsideration to
Parliament
(Joint
sitting
of
National
Assembly and Senate)
Reject

Assent

Act/Law

*
* A Income

tax is a tax levied on the income of individuals or businesses (corporations


or other legal entities).

* When the tax is levied on the income of companies, it is often called a corporate tax,
corporate income tax, or profit tax.

* Individual

income taxes often tax the total income of the individual (with some
deductions permitted).

* Corporate income taxes often tax net income (the difference between gross receipts,
expenses, and additional write-offs).

*
Background/ History:

*Income Tax Act of 1922:


At the time of independence, this Act prevalent in undivided India was adopted by the Government
of Pakistan as its Income Tax Law.

*Income Tax Ordinance, 1979


First law on Income Tax was promulgated in Pakistan from 1st July, 1979 .

*Income Tax Ordinance, 2001


To updates the tax laws and brings our law in accordance with international standards, this
ordinance was promulgated on 13th September, 2001, which became effective from 1st July, 2002.

*
* In

1985, the government Set up a National Tax reform Commission to suggest the
ways and means to improve the exiting structure of taxation in Pakistan.

* The

commission Consisted of Members of Senate and National Assembly, high


government officials and renowned industrialists.

* Terms
I.
II.
III.
IV.

of reference:
To
To
To
To

review and evaluate the exiting tax structure.


recommend a plan of action for expanding the domestic base of taxation.
propose a new integrated tax system.
suggest ways and means to improve the tax administration.

*
*

Commission constituted by the government submitted its report in May, 2001.

The commission suggested that Income Tax ordinance 1979, should be replaced by
Income tax ordinance,2001.

This ordinance was promulgated on 13th September, 2001, which became effective
from 1st July, 2002.

The assessment of tax year 2003 onwards are based on the new ordinance.

The new Law abolished the role Assessing Officer who used to determine the
income of taxpayer and compute his tax liability. These are now entrusted to
taxpayer himself.

*
Article-77 of the constitution of Pakistan empowers the Federal Government to Levy
tax for the purpose of the federation. The Federal Government Levy a tax through an
Act of the Parliament or a ordinance promulgated by President. The following are the
sources of the Income Tax Law.

1.
2.
3.
4.
5.

Income tax Ordinance, 2001 (The Legislative Law).


Rules Framed By the Board (The Procedural law)
Notifications ,Circulars and orders.
Income Tax Case Law.
Finance Act or Ordinance.

*
* Basis Constituent of Income tax law in Our country.
* Includes Whole Procedure of taxation regarding;
* Payment of Tax.
* Collection of Tax.
* Penalties.
* Assessment.
* Refund.
* Appeals etc.
* It Consists of thirteen chapter, each chapter deals with a particular subject and has
been divided into parts and then subdivided into divisions.

* The change

in Income tax ordinance 2001, are brought about the Finance ordinance
or Finance Act every year.

*
.
* The FBR,

makes rules from time to time which are meant for the guidance
of its officers as well as the taxpayers.

* These rules

are notified in the official gazette.

* Rules

have same force as the sections in the Income tax Ordinance itself
and are implemented in the same manner.

* The

Income Tax Rules 2002: These were promulgated by FBR on 1st July
2002 in exercise of powers granted under section 237 of the Income Tax
Ordinance 2001 .

*
* The

Federal Government Is Authorized under section 53 of income tax


ordinance,2001:

* To exempt any class of income.


* The income of any class of person.
* Reduce the rate of tax.
* FBR also issues circulars and orders for guidance of its officials.
* Binding

on all income tax authorities and other persons employed in the


execution of the ordinance

*
* When

dispute arises, the aggrieved party parents its case to a court of law,
which decides the case and provide correct interpretation of the law.

* Such

decisions of the courts are know as Income tax case law.

* Reference
guidance.

to such decisions is subsequently made in order to get necessary

*
* To meet budgetary, social and economic need of the country an annual law known
as Finance Act or Ordinance is promulgated every year.

* Prescribes the minimum

income which is liable to tax.

* Changes

in Income Tax ordinance, 2001, itself are brought about through this
legislation.

* Rates

of tax applicable for the next year are also specified.

* A sales

tax is a consumption tax charged at the point of purchase for certain


goods and services.

* The

tax amount is usually calculated by applying a percentage rate to the


taxable price of a sale.

* Most sales taxes are collected from the buyer by the seller, who remits the tax
to a government agency.

* Sales

taxes are commonly charged on sales of goods, but many sales taxes are
also charged on sales of services.

* Ideally,

a sales tax would have a high compliance rate, be difficult to avoid,


and be simple to calculate and collect.

*
* Background/ History :
The General Sales Tax Act 1948 :
The sales Tax was imposed as federal tax 1948 through the general Sales tax 1948.
Previously it was provincial tax and the provinces of Punjab and Sindh were charging it.

The Sales Tax Act 1951:


Under the sales tax act, 1951 sales tax was administered by the Central Excises
Department. Till 1981 tax was levied on excisable goods. However, in April 1981 it was
also extended to non-excisable goods.

The Sales Tax Act 1990:


The sales tax Act, 1990 empowers the federal Government to levy the sales tax on the
Sales, importation , exportation , production, manufacturing or consumption of goods.

*
* The standard rate of Sales Tax in Pakistan is 16%.

* Taxable

transactions :Sales Tax is levied on the supply of goods and services,


and the import of goods.

* Sales Tax Registration :Is mandatory for manufacturers if turnover exceeds PKR
5 million; for retailers, if the value of supplies exceeds PKR 5 million; and for
importers and other persons if required by another federal or provincial law

* Filing and sales tax payment :Sales Tax returns and payments must be made on
a monthly basis

The federal excise duty is an indirect tax charged by the

federal government.

It is

Regulated by the federal board of revenue through the federal excise Act,
2005 and the federal excise Rules 2005.

The Federal Excise Act, 2005, was promulgated with effect from 1st July, 2005,
repealing the Central Excises Act, 1944.

*
Goods produced

or manufactured in Pakistan.

Goods imported

into Pakistan.

Such

goods as the Federal Government may, by notification in the official


Gazette, specify,

As

are produced or manufactured in the non-tariff areas and are brought to the
tariff areas for sale or consumption.

Services, provided or rendered in Pakistan.

*
The Excise duty is levied and collected
However , the

at the rate of 15 %.

goods and services specified in the first schedule to the federal


Excise Act shall be charged to duty at such rates as are specified against each
goods and services .

*
As part of budgetary measures

for the year 2007-08, Special FED at 1% has been


levied on goods which are manufactured or are imported in Pakistan.

This duty is in addition to FED as prescribed in First Schedule


Act, 2005

of the Federal Excise

Custom

duty is a kind of indirect tax which is realized on goods of


international trade.

It

is categorized into import duty and export duty levies upon imports and
exports of goods' respectively.

Custom Act 1969:


Assented on 3rd March, 1969.
Promulgated on 8th March, 1969.
Enforced in 1st January. 1970.

*
*
Goods Imported into Pakistan.
Goods which are brought from any

foreign country and are transported , without


payment of duties, from one custom station to another.

*
It

is imposed on all or any of the goods specified in first schedule, at a rate not
exceeding one hundred per cent (100%) at the value of goods.

This duty is imposed on the goods at their

import and exports.

*
*
Additional custom duty shall be levied by the federal government at a rate not
exceeding 35% of value of goods specified in the First schedule.

In order to levy this duty the government shall notify in the official gazette.
This additional duty shall be in addition to any duty imposed under the custom act.

*
It is

imposed on the imports and exports of such goods ,as are the same kind as
goods produced or manufactured in Pakistan.

It

is levied at rate not exceeding FED (15%) levied under the Federal Excise
Act,2005 on goods manufactured or produced

*
*
The government may levy fee and service charges by giving a notification in
the official gazette.

The rate for fee charges will also be specified in the notification.
The government may impose such condition ,limitation , restriction as it may
deem fit to impose.

The charges may b levied for examination , scanning ,inspection ,sealing , desealing , valuation check.