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Definitions
Total income
The total income of a person for a tax year shall be the sum of the person’s
income under each of the heads of income for the year. Following are the
heads specified in the law for this purpose:
(a) Salary
(b) Income from property
(c) Income from business
(d) Capital gains
(e) Income from other sources
This is a new concept, which has been introduced through the income tax
ordinance, 2001. According to the ordinance, an amount shall be foreign
source income to the extent to which it is not a Pakistan source income.
Tax
Tax means any tax imposed under the income tax law. It also includes any
penalty, fee or other charge or any sum or amount leviable or payable under
the income tax ordinance, 2001.
Taxable income
The taxable income of a person for a tax year shall be the total income of the
person for the year as reduced by any deductible allowances. However, the
taxable income should not be below zero.
Taxpayer
Taxpayer means:
Person
Under the income tax ordinance, 2001, a person includes the following:
i. An individual
ii. A company
iii. An association of persons incorporated, formed, organized or
established in Pakistan or elsewhere
iv. The federal government, a foreign government, a political sub-
division of a foreign government, or public international
organization.
Company
Public company
Private company
Banking Company
Small Company
Under income tax law “Small Company” means a company, which fulfills
the following condition:
1. It is registered on or after 1st July 2005 under the companies
ordinance, 1984
2. Paid up capital plus undistributed reserves should not exceed twenty
five million rupees
3. Annual turnover should not exceed two hundred million rupees; and
4. The company is not formed by reconstituting or splitting up an
already existing business.
Business
Speculation business
Capital Asset
Charitable purpose includes relief of the poor, education, medical relief and
the advancement of any other object of general public utility.
Dividend
Dividend includes:
Minor child
Under the income tax ordinance, 2001, minor child means an individual who
is under the age of eighteen years. The age is to be determined at the end of
a tax year.
Non-profit organization
Non-profit organization means any person the than an individual which is:
Income tax ordinance, 2001, does not make any distinction on nationality or
domicile basis; rather tax liability of person is dete4mined on the basis of the
fact that whether he is a resident or non-resident person.
For the purpose of income tax, all the persons are grouped under two
categories:
i. Residents
ii. Non-residents
Resident individual
Resident company
An association of persons shall be resident for any tax year if the control and
management of the affairs of the association is situated wholly or partly in
Pakistan at any time in the year.
Resident persons
A person shall be a resident person for a tax year if the person is:
Non-resident persons
Non-resident taxpayers
A non-resident taxpayer means a taxpayer who is a non-resident person.
Incidence of taxation
Rates of tax
Salary
Stock in trade
Taxation officer
Tax year
The concept of tax year has been introduced in income tax law through
income tax ordinance, 2001. Tax year is a period of time for which tax is to
be calculated regarding a person.
This period of 12 months is tax year for all companies engaged in cotton
textiles manufacturing. Such a tax year is called special tax year and is
known by the calendar year relevant to normal tax year in which the
ending date falls.
3.Transitional tax year
Associates
This term has been introduced by finance ordinance, 2001. Two persons will
be associates where the relationship between the two is such that one may
reasonably be expected to act in accordance with the instructions of other or
both persons may reasonably be expected to act in accordance with the
instructions of a third person, e.g.
Royalties
(a) The use of any patent, invention, design or model, secret formula or
process, trademark or any other property or right of this type;
(b) The use of or right to use any copyrights of a literary, artistic or
scientific work including films or videotapes for use in connection
with television or tapes in connection with radio broadcasting.
However, consideration for the sale of cinema autograph films will
not be treated as royalty;
(c) The receipt of, or right to receive, any visual images or sounds or both
transmitted by satellite cable, optic fiber or similar technology in
connection with television, radio or internet broadcasting;
(d) The supply of any technical, industrial, commercial or scientific
knowledge, experience or skill;
(e) The use of, or right to use, any industrial, commercial or scientific
equipment;
(f) The supply of any assistance that is subsidiary to any property or right
mentioned above;
Industrial undertaking
This definition has been added through finance Act, 2004. An organization
fulfilling the following conditions will be known as industrial
“undertaking”:
1. Organization is set up in Pakistan;
2. It uses electrical energy or any other form of mechanical energy
and employs ten or more persons; or
It does not use electrical or any other form of energy but:
(a) Employs twenty or more persons;
(b) Is engaged in a manufacturing process;
(c) Engaged in ship building;
(d) Engaged in generation, conversion, transmission or
distribution of electrical energy, or the supply of hydraulic
power,
(e) Engaged in the working of any mine, oil well or any other
source of mineral deposits.
Moreover, the central board of revenue can declare any other
organization which does not fall in the orbit of above two types
as ‘ INDUSTRIAL UNDERTAKING”
Agricultural income
Thus, any income derived as rent, revenue, or from sale of any produce,
which is grown on a Pakistani land, is agricultural income. However, it is
necessary to understand that the land must be used for agricultural
purpo9ses, which means that some human lab our and efforts are
necessary to be employed. If a produce is grown wild or spontaneously
on land without any human efforts or labour, it will not be treated as
agricultural income under this definition.
The last category, i.e., income from agricultural building, will be treated
as agricultural income only, if:
(a) Building is in the immediate vicinity of agricultural land.
(b) Building is occupied by the cultivator or the recipient of
agricultural income.
(c) The cultivator or recipient by reasons of his connection with the
land requires it as a dwelling house, storeroom or the out-
building.
Appellate Tribunal
In case of any dispute between the taxpayers and tax department an appeal
can be made to appellate Tribunal. This is the highest judicial authority in
the matters of tax. It consists of judicial as well as accountant members. The
members are appointed by the Federal Government. The decision of the
tribunal on point of facts is final. However, in case of point of law the matter
may be referred to high court.
The government and private organizations maintain gratuity funds for the
benefit of their employees. The amounts in these funds continue to
accumulate from year to year and normally are paid to employees at the time
of retirement. In case of death of an employee during service, the amount is
paid to his family. The employer gets a lot of benefits if the gratuity fund is
approved by the income tax authorities under the income tax ordinance,
2001, the Commissioner of income tax grants such an approval.
Assessment
Assessment Year
Assessment year means the period of 12 months beginning on the first day
of July next following the income year and includes any such period that is
deemed under the provision of this ordinance, to be the assessment year in
respect of tax year.
Association of Persons