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TAX MANAGEMENT

Section: A

Assignment # 1 Wednesday; 30th October 2013

Course coordinator: Muhammad Umar Zaka

Shehryar Masood Agha L1F10BBAM2278 Moeed Rehman L1F10BBAM0041 Naiha Abid L1F10BBAM0009

Taxation Management 1

Assignment #

Tax Management Group Assignment


Taxes are the main source of income for the government of Pakistan.

1 GOVERNMENT LEVELS IN PAKISTAN


1.1 FEDERAL GOVERNMENT
This body is the highest level of government in Pakistan It is controlled by the state and represents unabridged country The Federal Government is regarded as a Company The taxes imposed by the federal government are as follows: 1) Income Tax 4) Federal Excise Duty [FED] 2) Sales tax/Value Added Tax 5) Capital Value Tax [CVT] [VAT] 6) Income Support Levy [ISL] 3) Custom Duty

1.2 PROVINCIAL GOVERNMENT


This body is the second highest level of government in Pakistan Controlled by the Provinces ( Punjab, Sindh, Baluchistan, NWFP) The Provincial Government is also regarded as a Company The taxes imposed by the Provincial government are as follows: 1) Property Tax 3) Professional Tax 2) Provincial Sales Tax 4) Token Tax

1.3 LOCAL GOVERNMENT


This body is the last level of government Controlled by the cities (Lahore, Karachi, etc.) Taxes imposed by the Local government are as follows: 1) Board Tax 2) Parking Charges

Taxation Management 1

Assignment #

2 IMPOSED TAXES
2.1 FEDERAL SALES TAX
The federal sales tax, also known as the Value added tax [VAT] is governed by the Sales Tax Act 1990. The person on whom it is imposed is not having the burden of it, hence it is an indirect tax. The current Sales Tax rate is 17% of value of supplies. The Value Added Tax [VAT] or sales tax is emphasized by the government. 2.1.1 Scope of Tax It is imposed on all sales in Pakistan either produced locally or imported It is levied by the Federal government. Sales tax registration is required for the following sectors before they charge sales tax on their supplies and services: 1) Manufacturing 4) Distribution 2) Import 5) Wholesale and Retail 3) Service As per law each registered person must file a return each month regarding the sales made in the last month. 2.1.2 Exemptions Manufacturers with turnover < 5,000,000 and bills < 7, 00,000 in a tax year are exempted from registration and payment of sales tax. Retailers with turnover < 5,000,000 in a tax year are also exempted from payment of VAT. Products of Cultivation , agricultural goods and medicines are also exempted from VAT Bill of Exemption to Pakistan Engineering Council is proposed recently. Bill of Exemption to export of locally-developed television program also proposed.

Taxation Management 1

Assignment #

2.2 CAPITAL VALUE TAX


The capital value tax [CVT] is governed by the Finance Act, 1989 and Capital Value Tax Rules, 1990 are one of its sources. The burden of paying CVT lies on the person on whom it is imposed, hence it is a direct tax. Tax rate is 4% on propertys recorded value, if no property value is recorded, the tax is levied at Rs.50 per square yard of the property. It is payable once during transfers or acquisition of ownership 2.2.1 Scope of Tax Imposed on all capital taxable goods of an individual, AOPs, firm or a company Examples: Plots, car number registrations etc. Taxable goods include; buying of property or acquisition of rights for using property > 20 years Formerly imposed by the federal government The CVT imposition now falls in the provincial domain as of July, 1 2010 FBR had considered reducing the CVT from 4% to 2% and exemption of tax on land transaction below one kanaal 2.2.2 Exemptions CVT is not levied upon inherited and gifted immovable property Gifted or Inherited from husband, wife, parent, grandparent etc.

Prof. Muhammad Umar Zaka

Taxation Management 1

Assignment #

2.3 INCOME SUPPORT LEVY


This tax is governed by Income Support Levy Act, 2013; introduced through Finance Act, 2013. It is a direct tax as the person liable to pay the Levy has the burden of paying it. The value of movable assets exceeding Rs. 1,000,000 is taxed @ 0.5 % / year Rules have now been formulated by the Federal Board of Revenue [FBR] to provide financial assistance, social protection and safety net measures to economically distressed families 2.3.1 Scope of Tax Imposed by the federal government Levied upon movable assets of an individual Example: car, jewelry, cash etc. Net movable assets are to be valued at cost instead of market value when calculating tax upon it regardless of the changing value of currency and depreciation Claimed as a straight deduction from aggregate value of movable assets. Where the liability relates to both, movable and immovable assets, and cannot be determined for the movable assets. 2.3.2 Exemptions The moveable assets which have been used to collect Zakat are exempted from the liability of Income Support Levy The income generated from agricultural land is exempted from paying of ISL

Prof. Muhammad Umar Zaka

Taxation Management 1

Assignment #

2.4 PROPERTY TAX


This tax is governed by the Punjab urban immovable property tax act, 1958 It is a direct tax as the liability lies on the person it is imposed on The rate of property tax varies depending on province. In Punjab the Property tax is levied around 25% with a progressive nature whiles in Sindh the rate is 20% of buildings and land Property tax is payable annually on possessed property Charged on Municipal area 2.4.1 Scope of Tax It is imposed by provincial government Rate is higher for rented property while lower if the same property is used for personal use Property tax is levied on the value of tangible property. 2.4.2 Exemptions Properties owned by federal government are exempted from paying property taxes Properties owned by provincial and local government are also exempted as theyre used for public purposes Property used by government for providing services; education, hospital, parks etc. Properties used by government organizations for the betterment of the public are also exempted from the liability of paying tax

Prof. Muhammad Umar Zaka

Taxation Management 1

Assignment #

3 RESOURCES
http://www.cbr.gov.pk/ & http://www.cbr.gov.pk/ShowArticle.aspx?Actionid=822 (Governing Laws) http://dawn.com/news/1050198/income-support-levy-discriminatory-step (Comments on Finance Bill 2013)

http://www.hyderbhimji.com/Income%20support%20levy.pdf
(Tax Analysis, Farooq Nadeem, Karachi)

http://www.globalpropertyguide.com/Asia/Pakistan/Taxes-andCosts
(Global Property Guide, 2011)

http://taxingtheproperty.blogspot.com/
(Effect of Property Tax Survey 2013)

http://www.paksearch.com/Government/TAX/Capital/CAP_VALU E.html
(Capital value tax rates)

Prof. Muhammad Umar Zaka